Corruption Wars - Part 1 (Corruption & Growth)

I have watched with some amazement at the recent flurry of discussions on corruption following the London judgement on our ex President FTJ. The issue has been much debated on every Zambian blog, forum and newspaper. As always these discussions have been led from the frontline by the Post newspaper, whose daily editorials on “Chiluba the plunderer” has now fuelled unpleasant exchanges between two ex-Presidents : the post columnist KK and the accused FTJ. But is the nation now in danger of losing focus on the issue of corruption?

My concern here is not so much whether FTJ really stole more than KK (as the Post have been quick to say - KK is a saint says the post) or whether FTJ should not have been tried in London or whether FTJ is guilty at all or not. Neither is my concern on the “moral” stand on corruption – we all know it is morally wrong to practice any sort of corruption. Rather my concern as always is purely economic. The central issue is whether we have lost the plot in focusing too much on corruption as the cause for our slow progress in developing as a nation.

It may surprise the Post Newspaper editors to learn that the economic question of whether corruption is a major influence on Zambia’s economic growth is an open one. For one thing there’s no single Zambian paper that I am aware of that has addressed this issue at the macro or micro-economic level. Secondly, the cross country evidence is actually mixed. Yes, there’s some micro evidence that corruption can lead to low firm productive and misallocation of entrepreneural skills, but at the cross country level it’s been constantly found to be insignificant for growth. The last person to reach this conclusion was Svenson (2005) in his paper "Eight Questions on Corruption". He notes "most of the theoretical literature as well as case study and micro evidence suggest that corruption severely retards development. However, to the extent we can meausure corruption in a cross country setting, it does not affect growth". Svenson goes on to speculate that a plausable explanation for "the mismatch between micro and macro evidence is that corruption takes many forms and there is no reason to believe that all types of corruption are equally harmful for growth".

In fact some economists have suggested of late that China and India would not have experienced the kind of growth we see today on a strong anti-corruption policy. It seems fighting corruption does carry some costs as well, if it is done at the expense of other targets.

Does this mean that I think we should just ignore corruption? Absolutely not. However, my view is that we should address corruption as part of a wider debate on what we think are the key obstacles for Zambia’s economic growth. And one of them is definitely a "poor institutional framework" – but an institutional framework goes beyond simply tackling corruption, it is about introducing stronger governance and accountability structures. Participatory democracy and general decentralisation is one of those things that have been empirically verified to work in increasing growth. And we know that Zambia has not made strides in this area as recently noted by the OECD report.

Another crucial area is poor infrastructure. We know that our educational infrastructure is need of revamping, especially in conjunction with stronger agricultural policies. We also know that tourism infrastructure requires more investment as also recently cited in the OECD report. Another area we have been discussing on this blog is access to credit in the context of agricultural sector. We need to develop local financial markets to encourage the poor to have access to credit. Encouraging more micro lending would seem to be a good first step in that direction.

So as we debate the issue of corruption, in terms of who stole what, what penalty and so forth, let us not forget that corruption is just part of a broader debate on moving forward as a nation. It is germane to development, but perhaps much more important are broader areas like institutional reform, improvement in local financial markets, and most importantly improved infrastructure that supports agricultural, educational, mining and tourism policies.