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ERF takes on corruption

Caroline Freund's picture
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World Bank | Arne Hoel | 2011Reducing corruption requires integrity and economic growth. This was the main message I took from the Economic Research Forum's (ERF) annual conference in Cairo this week focused on eradicating corruption.   More traditional calls for transparency and accountability, while still critical, were overshadowed by the recognition that incentives for corruption will persist unless people have a moral aversion to it and evidence that the only foolproof correlation with low corruption is high per capita income.

In the opening panel, Professor Paul Collier of Oxford told a story about education in Nigeria, where a study showed that a large share of ten-year olds could not read. The explanation turned out to be that many teachers, despite having teaching certificates, were themselves illiterate. In addition, teachers spent on average only one hour a day in class, making up for their low salaries with other occupations. When pupils took pictures of their teachers in class, the time teachers actually spent teaching and the pupils’ literacy both increased. But in the end, while creating incentives for teachers to teach – taking pictures or raising salaries – may help, it is changing the value system in schools to protect students from teachers with ill-gotten certificates that will produce major improvements. Thus, ethical standards matter, something neither easily quantified nor typically used in empirical studies of corruption.

Professor Mushtaq Khan, known for his somewhat unorthodox theories, argued that economic growth is the best anti-corruption strategy. The intuition is that standard methods to eliminate corruption often succeed only in shifting graft to alternative channels because in poor countries many special interests rely predominantly on unproductive rents for income.  In contrast, as income grows and productive rents become the norm, business groups demand better rules and regulations to promote profitable production and in the process corruption is reduced.

Sadly, both Dani Kaufmann and Pratap Mehta presented a strong case that democracy does not reduce corruption and may even advance it.  Dr. Kaufman illustrated that measures of the perception of corruption show little change following democratization. Dr. Mehta offered examples from India showing democracy promoting corruption in many circumstances.  For example, when politicians believe that they will not be re-elected, their incentive to steal—and steal larger and faster—is more extreme than if they are in office for life. This is a major concern in the low incumbency rates and high corruption in India.

As I write this, I am on my flight back to Washington.  To take a break after the intensity of the four-day conference, I watch Margin Call, a film about the drama in a major US investment bank on the eve of the 2008 financial crisis.  An appropriate theme following the conference’s corruption focus, the film portrays the greed and lack of ethical standards that ultimately lead to widespread global financial collapse. Corruption has many forms, and in the film much of the illicit behavior is even legal, which makes me reflect again on the need for changing values and attitudes, as advocated by Professor Collier.

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