Economic detectives track down corruption

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Just how far has the international development community come in its attitudes toward corruption? Here are classic lines from Samuel Huntington's 1968 opus Political Order in Changing Societies:

In terms of economic growth, the only thing worse than a society with a rigid, overcentralized, dishonest bureaucracy is one with a rigid, overcentralized, honest bureaucracy. A society which is relatively uncorrupt...may find a certain amount of corruption a welcome lubricant easing the path to modernization.

Nowadays, the work of organizations like Transparency International has made such attitudes seem heretical. Yet even the best efforts of organizations like Transparency International have yet to put a huge dent in corruption around the world, despite achievements such as passage of the OECD's Convention on Combating Bribery. Two economic detectives propose a new strategy for combating corruption in an article in the newest Foreign Policy entitled How Economics Can Defeat Corruption (subscription required).

Raymand Fisman and Edward Miguel synthesize a lot of innovative work done by economists - some of which is their own - to pinpoint where corruption is taking place. To take but their most prominent example, they point to the precipitous decline of an Indonesian company's stock market value after rumors spread that former President Suharto was having serious health problems. This diagram gives a pretty good indication of how much the company's political connections were worth:


Unfortunately, while economists have made a lot of progress measuring corruption beyond the types of perceptions indices that Transparency International and others rely on, Fisman and Miguel admit that we still have a long way to go in figuring out how to fight corruption. As they point out:

...governments tend to make lots of changes simultaneously: Salaries are doubled, enforcement increased, and governments made transparent all at the same time, making it hard to sort out which improvements are really the result of any specific policy...Perhaps the answer is that governments should become more experimental, quite literally, in how they deal with their corruption.

We should be thankful, then, for research like this study by Ritva Reinikka on reducing corruption in Uganda. There's just one wrench in the works, however. The anti-corruption consensus no longer has the unanimity it once did. A paper on corruption in East Asia suggests that not all corruption is equal - in fact, high corruption and high growth went together. Of course, growth might have been higher or more equally distributed in the absence of corruption, but this finding makes understanding corruption all that more complicated of a task.


Ryan Hahn

Operations Officer

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