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Monday, 10 August 2015

Corruption, Poverty and the Capable State

Editor's note : Ricardo Hausmann argues that preoccupation with fighting corruption does not end poverty, and in many cases does not produce growth. What produces growth is having a capable state, which necessarily reduces corruption and does much more. The article does not examine the important issue of different forms of corruption and the relationship with inequality. However, it's basic premise seems sound. The unexplored question of course is, what produces a capable state?
Countries are poor because governments are corrupt. And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right?

It certainly is tempting to believe so. Here, after all, is a narrative that neatly aligns the promise of prosperity with the struggle against injustice. As Pope Francis said on his recent trip to Latin America: "corruption is the moth, the gangrene of a people." The corrupt deserve to be "tied to a rock and cast into the sea."  Perhaps they do. But that won't necessarily make their countries more prosperous. 

Consider the data. Probably the best measure of corruption is the World Bank's Control of Corruption Indicator, which has been published since 1996 for over 180 countries. The CCI shows that while rich countries tend to be less corrupt than poor ones, countries that are relatively less corrupt, for their level of development, such as Ghana, Costa Rica, or Denmark, do not grow any faster than others.

Nor do countries that improve in their CCI score, such as Zambia, Macedonia, Uruguay, or New Zealand, grow faster. By contrast, the World Bank's Government Effectiveness Indicator suggests that countries that, given their income level, have relatively effective governments or improve their performance, do tend to grow faster.

For some reason – probably related to the nature of what NYU's Jonathan Haidt calls our "righteous minds" – our moral sentiments are strongly related to feelings of empathy in the face of harm and unfairness. It is easier to mobilize against injustice than for justice. We are more enthusiastic to fight the bad – say, hunger and poverty – than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful.

Sometimes switching from the "bad" to the corresponding "good" is simply a matter of semantics: to fight against racism is to fight for nondiscrimination. But, in the case of corruption, which is a bad that is caused by the absence of a good, attacking the bad is very different from creating the good.

The good is a capable state: a bureaucracy that can protect the country and its people, keep the peace, enforce rules and contracts, provide infrastructure and social services, regulate economic activity, credibly enter into inter-temporal obligations, and tax society to pay for it all. It is the absence of a capable state that causes corruption (the inability to prevent public officials, often in collusion with other members of society, from subverting decision-making for private gain), as well as poverty and backwardness.

Some might argue that reducing corruption entails the creation of a capable state; the good is created out of the fight against the bad. But is it? Teachers and nurses often do not show up for work, but that does not mean that performance would improve much if they did. Policemen may stop asking for bribes, but that will not make them any better at catching criminals and preventing crime. Curtailing side-payments does not imply the ability to manage concession contracts or collect taxes.

Aside from prosecuting some bad apples, measures to fight corruption typically involve reforming procurement rules, public financial-management systems, and anti-corruption legislation. The underlying assumption is that the new rules, unlike the previous rules, will be enforced. 

That has not been Uganda's experience. In 2009, under pressure from the aid community, the government enacted what was billed at the time as the best anti-corruption legislation in the world; and yet all corruption indicators have continued to worsen.

Uganda is not an exception. My colleague at Harvard, Matt Andrews, has documented the failure of public financial management reforms designed to prevent graft. And the reasons for these failures are not specific to financial management.

All organizations need to be perceived as legitimate. They can create this perception by actually performing the function for which they were created, which is difficult. Alternatively, they can borrow from the natural world a strategy called isomorphic mimicry: just as non-poisonous snakes evolve to resemble a poisonous species, organizations can make themselves look like institutions in other places that are perceived as legitimate.

And this is what the anti-corruption agenda often ends up stimulating: the creation of organizations that are more obsessed with abiding by the new and burdensome processes than they are with achieving their stated goals. As Harvard's Lant Pritchett, Michael Woolcock, and Andrews argue, when inept organizations adopt "best practices" such as financial management systems and procurement rules, they become too distracted by decision-distorting protocols to do what they were established to do.

As Francis Fukuyama has pointed out, the development of a capable state that is accountable and ruled by law is one of the crowning achievements of human civilization. It involves the creation of a shared sense of "us," an imagined community on whose behalf the state acts.

This is not an easy task when societies are deeply divided by ethnicity, religion, or social status. After all, who is the state for? All Iraqis or just the Shia among them? All Kenyans or just the Kikuyu?What is to prevent the ethnic group currently in power from diverting resources to itself on the argument that "it's our turn to eat?" Why shouldn't those currently in control of the state transform it into their patrimony, as in Venezuela, where, more than two years after former President Hugo Chávez's death, his daughters still occupy the presidential residence

The fight against corruption mobilizes all of us because we want to do away with evil and injustice. But we should remember that casting the bad into the sea does not imply the sudden appearance on our shores of the good that we need.

(Source : Project Syndicate)


  1. Cho about time someone went against the grain. This is the argument I have been making for a while. I even include it in the book as well. People fight corruption in reverse. We have ways of fighting corruption by being capable or creating abilities to that effect.

    Fighting corruption is corrupt in itself. Tools exist already that in some cases cost zero money to reduce corruption. Corruption is also just like prostitution that those who feel the need to engage will still do. But usually has minimal impact on economies except those imaginary inflated.

  2. Dear Editor
    I'm not sure that I agree that corruption is less of a problem than thought, especially at a time when the budget is tight and hard to manage, and the needs of society are great but ignored for want of funds. There is something about changing the mindset of politicians, their backing groups, officials and businessmen that its OK to get very rich at the expense of your fellow citizen. Equally, as Musaba notes, there is something about putting in place processes and systems which support good governance. There is also a need for improving education standards (sadly in decline according to your earlier article) so that people understand that you can work and thrive on the back of ability.
    However, one of the key institutions involved in keeping corruption in the public eye, and keeping politicians honest is a free press, and so its with grave disappointment that I see that Watchdog and the Lusaka Times seem to have been closed down. However random and biased their reporting, there more often seemed to be a kernel of truth in it. Its sad to look at the press compendium on NewsnowZambia, where the only indigenous paper which seems to be publishing is the Times of Zambia.
    If these news providers have truly gone, and I can see how they would have irritated PF, then an important element of necessary transparency and independent reporting has also gone and with it, one of the key preventers of corruption. Now that the lights have been turned off, and curtains drawn, who knows what is happening.

  3. It is the absence of a capable state that causes corruption (the inability to prevent public officials, often in collusion with other members of society, from subverting decision-making for private gain), as well as poverty and backwardness.
    From the post.
    So what is a capable state. A non-extractive political and economic institution. The state is nothing in itself. It is only people doing things. It can be as nice in theory as anything you can think of but it is the people who will determine its continuance. So think not of poor countries becoming rich but rich countries that became poor. Or even one presidential term followed by a new presidential term. It is the same state. Then say if it was the state or the people that caused the problems.
    Keep under the good work, Sir. You are as sharp as ever.


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