Tuesday, March 20, 2007

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.