False Economy - Alan Beattie [116]
Chapter 8. Corruption: Why Did Indonesia Prosper Under a Crooked Ruler and Tanzania Stay Poor Under an Honest One?
Here's a joke you hear in India. The chief minister of an impoverished Indian state goes on an exchange visit to an American city where the mayor, a wily old machine politician, shows him around. First the mayor points out a highway on the edge of town. "See that?" he says. He taps his breast pocket and winks. "Ten percent." Then he indicates a new baseball stadium. "See that? Ten percent." And so it goes, on and on. Finally he takes him under the portico of a grandiose City Hall. "See that? Ten percent."
The following year the mayor reciprocates with a visit to India. The chief minister takes him up to his official residence, high on a hill overlooking the state capital. He makes a sweeping gesture over the city, taking in the miserable sprawling slums, the open sewers, the potholed roads, the abandoned factories. "See that?" he says. He taps his pocket and winks. "One hundred percent."
Abuse of public office is as old as public office itself. "And thou shalt take no bribe," God enjoins the Israelites in Exodus (23:8), "for a bribe blindeth them that have sight, and perverteth the words of the righteous." But there has been a marked surge of interest in corruption (a "corruption eruption," as one commentator put it) in policy and aca demic circles over the past fifteen years. Development agencies like the World Bank rarely used to mention the term for fear of being accused of meddling in politics. Today their assessments of countries routinely include warnings about "governance concerns," the currently accepted euphemism for crooked officials on the take. Corruption is regularly cited as one of the reasons that poor countries stay poor.
Well, yes and no. As the Indian joke suggests, some kinds of corruption are worse than others. Some kinds are little more than a nuisance; others are corrosive. Some stop economic growth and investment dead; others are no more than a moderate headwind or, just possibly, a following breeze. Indonesia, which today has an annual income per capita of more than $3,000, adjusting for different price levels, was ruled for decades by Suharto, an autocrat whose administration was notorious for bribery and cronyism. Meanwhile, Tanzania, where the annual average income is less than $1,000, remained desperately poor under a ruler who displayed great personal honesty and humility. Why?
First, let us sort out what we mean by the word "corruption." It can be very broadly defined as any abuse of position, whether public or private, for personal gain. Thus a procurement manager in a company who buys an unnecessarily expensive piece of equipment because he has been bribed by the supplier might be called corrupt. But this might more properly be labeled fraud that rips off the company's shareholders rather than the general public. Drawing the definition like this would widen it out to include all sorts of white-collar crime. For our purposes, because we are interested largely in how the actions of governments and states have determined economic history, we can stick with the pithy description used by the World Bank: the abuse of public office for private gain.
Thus the United Nations' Oil-for-Food scandal, involving the diversion of money from a UN-sponsored scheme that allowed Iraq to sell oil on the world market between 1996 and 2003 to buy food and medicine, was corruption; the accounting and business frauds that brought down the U.S. energy company Enron were not.
Corruption arises because of what economists call "principal-agent" problems, where one person or a group