The truth about corruption is not what you think?

Thu, 16 Nov 2017 Source: Nico C.M. van Staalduinen

Everybody, at least every civilized person, considers corruption a bad habit or practice, bad for business, bad for development bad for all of us.

But what is the truth, which hardly anybody mentions, based upon todays and historic facts about corruption?

To some people corruption is normal and inherent to business.

To some people corruption is a poverty problem and to others an African problem.

But is corruption really disturbing business and development as much as the “civilized” world wants us the developing world to believe?

Recently I met 2 actual opponents in their vision on development but agreed on corruption, they lay the foundations of the idea to write this article and investigate the real facts.

Because corruption and my opinion on corruption can be explained in many wrong ways, I will mention sources of my information, to show that some views are not, or not only my opinions and views on corruption.

Let me introduce my respectable friends.

Professor Yifu Lin, former Chief Economist of the World Bank

Ha-Joon Chang, Political Economy of Development at the University of Cambridge

Both are world famous and well respected economist specialized in Development

Ha-Joon, has written a book called “Bad Samaritans” describing the development of today’s “civilized” and developed nations, blaming and “instructing” the un-or under developed world to apply compliance rules, standards and non-corrupt practices.

Ha-Joon’s book gives examples in the history of development of the United States, United Kingdom, France, Germany, Japan, Korea and other countries about their protectionism and corruption used during their economic establishment, growth periods and activities which would today be described as corruption and he came to the conclusion is that all these countries were involved in activities they are telling us not to practice today.

Ha-Joon in fact states that a less open or closed economy is a better ground to start the economic development of a country than an open and free trade position.

Professor Lin, concluded the opposite in his New Structural Economics thesis: he stated that an open economy is key to development of any nation and gave many examples (without comparing the past like Ha-Joon) and reasons why an open economy was better for a developing economy. And fighting of corruption should come after development, he stated that China only started to take corruption serious in the last five years.

So one could conclude that both agreed on:

Corruption has nothing to do with blocking development

That is the reason why I started checking the true facts on corruption as a key factor to development and found the following, based upon facts of Transparency International in 176 countries.

The truth is that the largest “complainants” on corruption themselves are creating the image to be incorruptible but it’s a fact that:

1) None of the largest economically developed countries is in the top 10 of the least corrupt countries in the world! (total investigated 176 countries) and have an average score of position 15 on that list. None of these countries scores higher than 8.3 out of 10 on confidence of non-corruption.

2) The fast developing largest economies (Bricks + Turkey) have an average score of position 95 which puts them in the lower 47% of the corruption scale.

3) The fastest growing economies in the world have an average of position 117 which puts them in the lowest 33% of the corruption scale.

4) The fastest growing economies in Africa have an average score of position 115, doing even better than the world’s average fastest growing economies.

5) The bottom 10 most corrupt economies in the world, are also the worst performing economies. Which puts them in the lowest 7% of the corruption scale.

Several developed countries scoring within de top can be found on a list called the “Paradise Papers” involved in embezzling, tax evasion and money laundering but are scoring high on transparency on positions between 10 and 20, but score even higher on the list of Oxfam on countries with the most damaging tax policies by tax heavens: The Netherlands (4), Ireland (6), Luxemburg (7).

The UK as a whole is at position 11 but some of their territories; the Channel I-islands Jersey and Guernsey, and the Isle of Mann are also exposed in the “Paradise Papers” as tax heavens and would independently obviously scored a position in the top 3 .

Is it safe to state based upon a statement of the same Transparency International that a growing economy means growing corruption?” In fact stating that growth comes with corruption.

The statement “absolute power leads to absolute corruption”, is partly true because half of the most corrupt countries are dictatorships and the other half war thorn or post war thorn economies.

Based upon the figures the least corrupt countries have an annual economic growth of between 0 – 2%, the middle positions on the list have an average growth of 4 – 8% and lower part of the list has an average growth of 8 – 12%.

Does that make it safe to state the more corruption the more growth?

I don’t think Transparency International will be pleased to state: corruption is an inevitable factor in the growth and development of an economy, but based upon the facts it looks like it.

Another fact is that: because of constantly improved traceability of corruption, more and more income out of corruption can only be spend on movable or consumable assets. Real-estate and cars are too visible, so expenditure of income out of corruption is moving more and more into art, jewelry, holidays, dinners and parties and the last two are yielding the highest multiplier effect of any investment, thus creating jobs and supplying companies which are contributing to development, so corruption has, in that way, a positive effect on development as well.

Or should we see the correlation between growth and corruption in the line of: It rained four times on my birthday so it rains because of my birthday?

I can give my personal opinion on these things on this article:

First of all: To developed countries: Give developing countries the time to concentrate on development instead of all the pressure to concentrate on fighting of corruption because the statistics proof at least that corruption has (at least) not much to do with development of a country.

Secondly: To developing countries: start scraping regulatory burdens (customs procedures, licensing, certification requirements, foreign government procurement policies, etc.) because they create a larger bureaucracy, bureaucracy creates interactions with officials and the more interactions with officials, the greater the risk of corruption. So start canceling unnecessary rules and simplify the system.

Thirdly: My personal opinion has not changed, although I am highly in favor of point 1: I am still against corruption and think that corruption is undermining and jeopardizing a lot of governments’ efforts to develop a country and should be rooted out, but not at all costs.

Columnist: Nico C.M. van Staalduinen