Corruption - Cynicism or Pragmatism

A couple of years back, post the implementation of certain paramount structural reforms, Nigerian social media platforms were bizarrely flooded with a rather idiosyncratic hashtag ‘BBOC’, or ‘BringBackOurCorruption’. The laws that were partially aimed at enabling transparency, accountability and a greater oversight of government revenue, with penalisation for infringement extended to incarceration, did not sit well with the public. The government had apparently stolen the ‘grease’ to their economic cycle, which eventually showed in the levels of inflation in the Nigerian economy as well as in a plummeting Nigerian Naira in international markets.

Corruption is bad. There is a large consensus that corroborates its corrosive impact on society. Macro level studies, that have used country-level data to explore cross country variations in both governance and economic indicators, have managed to consistently establish a correlation between low-income countries and greater levels of bureaucratic corruption. But if we look beyond conventional wisdom, it doesn’t take a genius to figure out that while the former argument is purely moral in its reasoning, rather than rational, the latter is also weak in its inability to establish a coherent causational relation between the two variables involved. Rose-Ackerman (1996), through their works, further helped carve into stone the idea that corruption is detrimental to the health of an economy, leading to the rise of a school of thought that opposed the idea of corruption as a positive for the economy (something which was extensively worked upon by various scholars in the 1960’s). It was popularly believed that corruption ‘sands’ the wheels of the economy. One might never be able to debunk the moral argument against corruption, but as for the empirical data backing the second argument, one must note that for every poor and corrupt African nation, there is an equally corrupt but rich Asian nation, leading many to believe that corruption has got nothing to do with the level of growth in an economy.

If one had to defend corruption, it would be difficult, nearly impossible, to do so from an ethical perspective. Any possible argument in its defense would be highly situational. But when it comes to the economic perspective, one might become much more tolerant. It is then simply considered a ‘grease’ that ensures smoother functioning of the economy, like a tax you pay to cut through the bureaucratic red tape. Although corruption is popularly believed to be an aspect inherent to socialism, it arises out of a society’s need to come closer to its capitalistic features. In a free-market, demand and supply balance in a manner that ensures that all goods and services eventually reach their intrinsic value in the market, eliminating any arbitrage opportunities for an individual seller, given perfect knowledge. As soon as there is intervention, this cycle breaks down. This is an issue that was highlighted in Ludwig Von Mises’ Socialist Calculation Debate in the 1920’s. Mises argued for the inability of the socialist system to get through one of the fundamental economic problems: what to produce? The state makes that decision and sets the prices, but since there is a lack of market determination of the eventual prices, a seller may not be able to gauge the demand that exists for his product and may end up believing that the prices are not at par with the intrinsic value, that is what he deserves. In order to get closer to that figure, the seller may resort to hoarding a product or charging a little under-the-table fee, and it’s only fair. However the inability to estimate this intrinsic figure is also something that perpetuates corruption. A public servant in India may demand a bribe to get a service done because he feels that his salary is too low to compensate for his efforts. This behavioural aspect may not go away even if his salary is raised, not simply because it becomes habitual but because he tends to measure his reward relatively. Well, also because human wants are never ending (but this has nothing to do with the intrinsic aspect, here he will charge higher for as long as he can). In this example, even if the given behavioural aspect does go away, that is the employee is satisfied with the salary hike, he would be disincentivised from even showing up to work because he is getting a satisfactory remuneration for a job which has no stringent regulatory mechanism and is known to turn people lethargic. This example counter-intuitively explains how a bribe would proves to be much better for the economy than a salary hike for public servants.

While this perspective offers an analysis based on the degree of intervention, many believe that the existence of corruption is inherent to any developing economy, citing how all the major developed economies of the modern world went through phases of deep corruption and social unrest to get where they are. In fact, Leff, N.H. (1964) found empirical evidence that anti-corruption campaigns in developing nations, like the then-China, depress economic growth by slowing down investment levels. Another argument states that developing nations have a poorly drafted constitutional and policy framework. When they don’t, it is considered overambitious due to their inability to constantly keep up with redesigning policies, resulting in them falling victim to various perverse incentives. This paucity of appropriate laws and policies is an aspect that was hypothesised by Samuel Huntington in the 1960’s. He believed that in such cases the only way to drive growth and revive businesses stuck in legislative red tape is corruption. It becomes a mechanism to circumvent thoughtless regulations in developing nations and provides rationality to the rising income inequality in these economies.

The uncanny response of Nigeria, a barely developing nation, to the anti-corruption crackdown was exactly what Huntington attempted to explain. The reforms happening at a stage when a majority of the population is reliant on the informal economy was an evident policy mis-step that exacerbated the economy that was already bearing the wrath of low oil prices. This can perhaps help us generate a sound ethical justification because here, corruption is not an optional add-on to the system, it is the system itself.


Riya Kaul

Studying economics at Delhi University. That's pretty much it.

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