Thread: Corruption, Economic Growth

A perspective on corruption
Anjum Altaf

The world would be a better place without corruption and it does impose a cost on the economy. But the contention that it is our biggest problem and we need to eliminate it before meaningful change can occur is not supported by evidence. We need to look beyond the simple answer to figure out what else is holding back economic growth in our country

Just as there are people who believe that overpopulation is our biggest problem, there are others who attribute most of our difficulties to corruption.

There is no doubt that corruption is a pervasive and aggravating phenomenon but even a cursory comparative analysis should make one sceptical of the assertion that it is a major cause of our underdevelopment.

China provides a contrary example. The issue of corruption is very high on the political agenda of the Chinese government. But despite the corruption the economy has expanded continuously over the past fifteen years at historically unprecedented rates of growth. Today China is being spoken of as a major economic power of the future. The concern with corruption stems less from its impact on growth and more from the social discontent it causes and which negatively impacts the credibility of the government.

Indonesia is another country where considerable economic development occurred despite very high levels of corruption that are well documented. The country was very much a part of the East Asian miracle whose momentum was broken by the financial crisis in 1997. While the other regional economies have recovered, Indonesia is lagging not because of corruption but because of the political instability that ensued after the fall of the Suharto government.

The East Asian crisis raises interesting issues related to corruption. Many analysts were quick to attribute the crisis to the high levels of corruption in the regional economies and “crony capitalism” emerged as a popular explanation for what happened.

This may or may not be correct but from our perspective the relevant aspect of the East Asian miracle is the tremendous economic development that took place prior to the crisis. That suggests that significant economic growth is possible despite high levels of corruption. Therefore, we need to continue searching for the causes of the lack of similar development in Pakistan.

Closer to home, the Indian economy has picked up steam and the country has begun to be mentioned in the same league as China. And no one has attributed the acceleration of the rate of growth to a sudden decrease in corruption in India.

It would be hard to argue that the level of corruption in India is significantly different from that in Pakistan. And if someone does argue the case, it would be of considerable interest to go into the reasons for the difference. A discussion of the causes of corruption could yield some valuable pointers regarding the measures that could contribute to reducing its prevalence.

A focused discussion of corruption would benefit from defining it narrowly as the abuse of public office for private gain. This would distinguish it from other criminal acts like fraud, embezzlement, extortion, blackmail, etc., all of which can be committed by private individuals not holding public office.

It would also help to consider separately the phenomena of low and high level corruption, respectively. Low-level corruption (best characterised as chai paani corruption) is what the common citizen encounters every day and what colours his perception of its importance. The social frustrations caused by having to run around and pay extra money for virtually everything can understandably make it seem the cause of all our problems.

In fact, chai paani corruption may not have major negative consequences for economic growth. It constitutes more a transfer of money from one pocket to another in a society where many public officials are not paid a living wage and where bureaucratic procedures remain archaic, cumbersome and slow. Its incidence inevitably diminishes with economic growth and modernisation as both the need to demand small bribes and the opportunities to manipulate procedures decrease.

High-level corruption (the domain of big people and big businesses playing for big stakes), on the other hand, can have much more lasting effects if public resources are diverted from economically useful to economically useless activities. But the fact remains that there are economies that have continued to grow even in the face of such corruption. Prime ministers have gone to jail in Korea and have been indicted in Japan on charges of corruption. Nevertheless Japan is among the richest countries in the world and Korea has vaulted into the ranks of developed countries within the period of a few decades.

This is not a defence of corruption. The world would be a better place without it and it does impose a cost on the economy. But the contention that corruption is our biggest problem and we need to eliminate it before meaningful change can occur is not supported by evidence. We need to look beyond the simple answer to figure out what else is holding back economic growth in our country.

Transparency International’s 2003 Corruption Perceptions Index ranks 133 countries. The countries mentioned above are ranked as follows: China 66, India 83, Pakistan 92, Indonesia 122. See wwwuser.gwdg.de/~uwvw/corruption.cpi_2003_data.html