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The View From the Ivory Tower: Corruption

Simon Rimmele is finishing his last semester studying economics at Columbia University and hoping to pursue a career in public policy. You can find more of his abbreviated thoughts on Twitter. He is currently looking for someone to pay for his grad school degree.

As a still young and (a little bit) idealistic student, I spend my time looking down from the parapets of academia, unbothered by the gritty nuances of the real world.  Nevertheless, I read about the real world sometimes, and I hear it’s pretty bad. Case in point: Afghanistan. Petty corruption tends to be a hindrance to business in most developing economies, including the ones PDT works in, but in Transparency International’s newest ranking of corruption perceptions, Afghanistan came in just ahead of a country whose civil service is run by pirates. In the past month the country’s chief corruption watchdog quit in disgust, and I blame him for making me read this awful story on graft in Afghan orphanages that just ruined my morning.

So corruption is bad right? If you think it would take a highly trained team of clueless academics to turn something so simple into a debatable topic, well then good for you, smart person. There’s been a lively debate on this over the past 40 years between the ‘sanders’ and the ‘greasers’ (tip: you can identify greasers by their leather jackets).

"We further show that corrupt officials use complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs”...chump!

The names are pretty self-explanatory, one side believes corruption lubricates the wheels of entrepreneurship, allowing innovative people to pay their way into a market when the government is too lazy or dumb or greedy. The other side thinks corruption gives unfair business advantage to well-connected people, makes citizens lose faith in their government, and generally just plain sucks.

Before we throw the greasers under the bus, we should recognize that they make some good points. How do we explain why a country like China has an incredible development track record while being hopelessly corrupt? The answer may be that Chinese corruption is so well entrenched that businessman know what to expect and can treat a bribe just like another business expense. Evidence from Indonesia, another development success story, shows that well developed bribery networks function like markets. Simply put, there may be “good”—or maybe “less bad”— versions of corruption.

So what does it all mean for a guy at the Kabul DMV, who just wants a license without having to grease any palms? Instead of laying this thing to rest in a badass greaser vs. sander drag race, a Cambridge professor used a statistical analysis of the available data across countries. Boriing! The slightly technical paper is worth a read if you have a minute and gives a more-serious-than-mine overview of the two camps. The paper concludes that while corruption doesn’t seem to affect per-capita GDP (+1 greasers), it has a strongly negative correlation with per-capita wealth. Since the development community ultimately cares about money in the pocket of your average person – not what is produced in country and then ferried away to a money market fund in Luxembourg never to be seen again – wealth—not GDP— is the statistic we should care about. So it looks like the sanders get to take the cute girl to the big dance after all.

There you go. Corruption is not a good thing. Did I really pay for four years of schooling to learn this? Then again maybe a little petty bribery is not always as bad as we thought (but still pretty bad). I’m absolutely certain the guy at the Kabul DMV would disagree with this, but I can’t ask him because I’m still locked up in this tower.

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