A Fistful of Dollars

This weeks Ramble is aware that A Fistful of Dollars came before For a Few Dollars More, but forgot when it published last week’s Ramble…

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Last week’s Ramble ended mid-argument, and stimulated four post-length comments from opposing viewpoints. To recap, the basic thrust was that corruption itself is not necessarily a bad thing for development, defined in primarily material terms. It can, in fact, have a positive effect, if it acts to stimulate the socio-economic transition to capitalism. This all depends on the form of corruption seen.

Now, at this juncture, it’s probably helpful to clarify what I mean by the form of corruption. A lot of argument last week centred around kinds of different levels of corruption from the petty (policemen asking for a thousand Kwacha to let you pass a roadblock) to the grand (millions being siphoned off from the Government coffers). That’s not really what I mean. For one, the former kind of corruption is pretty much inevitable during development. It’s a by-product of high poverty and high inequality. I’m really talking about the second type of corruption. Within that, there are many different forms it can take, and some forms serve to power transition, while others keep a country mired in unproductiveness. Which type obtains in a given country depends on the social and political makeup of the country, and is the focus of this week’s Ramble.

Consider one of the examples last week, South Korea. As mentioned earlier, post-war economic development was powered by the Government’s policy of focusing subsidies (often with illicit incentives) on a select group of large conglomerates, who correspondingly grew extremely rapidly. A couple of aspects of this relationship are crucial for understanding why this contributed to rapid growth. Firstly, there was a small group of conglomerates upon whom Government could focus its rewards, allowing for fairly detailed intervention in the economy in the initial stages.

Secondly, and crucially, the power in this relationship was asymmetric. Government was in a position of unchallenged power vis-à-vis the Chaebol, a legacy of the war. Put simply, the Chaebol were seen as collaborators during the war. As a result, they had very, very little popular support. If they tried to lead an economic or political backlash against the Government they were never likely to get the kind of mass support they would need to win any significant victories. As a result, Government was in a position to offer subsidies (and accept bribes), but more importantly, it was in a position to remove these subsidies without political repercussions. This meant that if a conglomerate was unable to meet the targets that Government set, it could easily be disciplined through the removal of subsidies. So, to sum up: a small number of groups were able to access Government patronage, but on the Government’s terms; most grew rapidly, and those that failed to were removed from the Government’s patronage, and the resources available were focused on those who could deliver. The corruption that accompanied this facilitated the process of resource transfer to the productive and rapidly growing economic sector, but was not the root cause of growth – indeed, one can see it as almost incidental. (In the British example, it was far more central, but the basic structure of relationships involved was similar, though not the same).

Compare this with the situation that obtains in many African countries. The political structure is relatively young, as is the post-colonial socio-economic structure. In most cases, they are characterised by complex patron-client networks, in which a number of groups (often defined by ethnic and regional differences) vie for the patronage of a Government with a weak power base vis-à-vis these groups. As a result, the Government cannot cut the two-way, corrupt relationships that exist between them and any of these groups, as the spurned group frequently has the political power base to successfully challenge the Government (or more likely the individual MP concerned). As a result, the Government distributes its favours widely and accepts monetary returns from a number of groups. The element of the relationship that powered transition in South Korea is absent, namely the ability of Government to focus returns on a few groups and to effectively discipline these groups if they did not provide the returns required. The complex web of corruption and reward is an unproductive one on two levels: firstly, there is a static economic loss (one which, as MC pointed out last week, cumulatively adds up to a significant loss to the economy). Secondly, it not only fails to contribute to any economic transformation, but plays a part in the prevention of it.

So, there you have my take on corruption. The impact of corruption depends on much deeper factors, which are more important determinants of the path development takes, if it takes one at all.

I also mentioned that you can still argue for the eradication of corruption despite it’s potential ability to contribute to corruption. Quite simply, make the equity argument: I’m all for free and fairer societies. Just don’t pretend you’re improving the prospects of development by doing this. It’s dishonest. The direction of the impact of eradicating corruption is incidental to the act of eradicating it. I feel the same way about arguments on democracy – it’s a good thing in and of itself. But there’s no evidence to suggest it speeds up the process of development in material terms.

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And a word on the cricket. Sri Lanka are still in with a chance. We’ve got a tough team, with a varied attack and a potentially explosive batting order. For us to win the whole thing, we’d need everyone to click at crucial moments, as opposed to a couple of bowlers and a couple of batsmen, as happened against South Africa. Malinga’s four in four was stunning, but he was still bashed around the pitch too much with the new ball. Murali was a class act as usual, but the batsmen were terrible. We need at least one big score from our top three in every game if we want to advance, and we’ll need everyone to fire if we’re to stand a chance against Australia. No chance of Punter’s men collapsing like Smith’s.

For a Few Dollars More...

Finally, the Ramble has come back … to Blogspot.

If anyone is still visiting this page, the first thing to do is apologise for my long absence. The major reason for this was the death of my laptop, which has risen, Lazarus-like, thanks to the good (if over-priced) men of Tottenham Court Road.

In any case, I’m back, and hoping there will be no more absences. If anyone’s still reading, there’s a lot more Rambling to be done in the coming months.

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I promised in my previous post a controversial topic, and here it is: corruption. This topic can’t be handled in a single Ramble, so I’ll be splitting it in two (that’s right, a cliff-hanger!)

This post isn’t a piece of investigative journalism; it doesn’t seek to expose any corruption or voice any suspicions I have. Rather, I want to take a dispassionate look at what corruption is, and what impact is has on the early process of development, which I define in primarily (but not entirely) in the achievement of material outcomes: food security, shelter, good health and a good education. This definition is important to my argument, and I’ll come back to it later in the post.

The standard position in development, and more widely, is that corruption is bad for development. These arguments are either based on an economic efficiency point of view (corruption increases the cost of doing business) or from an equity point of view (corruption denies talent and instead focuses rewards on those already blessed with resources).

My basic position is that corruption is not bad for development.

This position has been the source of hundreds of arguments, so let me rephrase that: corruption itself is not bad for development.

I am primarily addressing the economic argument here, but will come on to the equity argument next week. Virtually every currently developed country in the world has, during its early and middle years of development, been characterised by large scale corruption. I’m not just talking about recent success stories, such as South Korea and Taiwan, where corruption was widespread for many years. I’m also talking about countries such as England and the US, in fact most of the currently developed world. The economists among you might already have shouted ‘aha! Even though the development process of these countries was characterised by corruption, they would have developed faster and more efficiently in its absence!’ This isn’t necessarily true, and to see why, one needs to study a little history, and at the same time take a more dynamic view of the economy, recognising that the transition to a true capitalism is the turning point in the development process.

In England, agrarian capitalism, one of the pre-conditions for the industrial revolution, was based on the enclosures movement, in which landowners essentially annexed public land for their personal use, with the tacit approval of those in power. There is no doubt that this was the manifestation of corruption, in it’s broad sense, as the rule of law was circumvented for the benefit of a select group, which, in turn, provided material benefits to those in power. There can be equally little doubt that the enclosures movement made a significant contribution to English economic development, creating as it did an entire class of landless labour that was so critical to the industrial revolution. In this instance, the corrupt practices of a small group of powerful people consolidation of landholdings, allowing for the efficiency gains required to feed a nation, and also created a class of landless labour, which played a key role in the industrial revolution.

In post-war South Korea, a few large conglomerates used means foul and fair to win the contracts and subsidies from the Government that allowed them to grow rapidly and invest in technology, until their technological and scale advantages made their efficiency in-built and no longer dependent on subsidization. It was these conglomerates (known as Chaebol) which powered the rapid growth evident up till the 1990s. Corrupt practices allowed economic power to consolidate in the hands of a few businesses, allowing them to expand at a rate that soon led them to realise efficiencies of scale that made them internationally competitive, and the bedrock of a booming economy. This was a critical stage in the transformation of South Korea’s economy. This could have occurred without corruption, but it happened faster due to these corrupt practices, which also allowed those awarding subsidies to sniff out the most efficient of the Chaebol. They were after the largest kickbacks, and naturally, the companies that could provide the largest kickbacks were the ones who could make the largest profits.

Now, I’m fully aware that many African countries are very corrupt indeed and are not undergoing any kind of economic transformation. But the argument is that it is not corruption itself, but the form of the corruption, dependent on the actual political, social and economic milieu in takes place in that determines its impact on development. In some cases corruption has a neutral effect, in some cases a very negative effect, and in some cases a positive effect on material development. It’s not corruption that we should be focusing on but the underlying socio-political structure that determines the structure of the corruption that arises from it. This is a difficult thing to say, because it is inherently unfair, but most processes of development around the world have been ugly, painful, unequal journeys; to deny this is dishonest and does more damage than good to those countries still to develop.

But this Ramble is far too long already, so next week, I’ll go on to explain why I believe the socio-political structures in South Korea and in other countries meant that corruption was either neutral or actually a boon to economic transformation, and why the different structures in other countries have had different effects. I’ll also explain why despite this, one can still argue that corruption should be targeted for elimination, but just on different grounds.