A flat cartoon image of two hands shaking, with money being transferred. (It is not clear in which direction).

Does corruption cause poverty, or is it the other way round?

Daniel Kaufmann and Mushtaq Khan talk about corruption in the latest edition of Development Drums.

Though they come from quite different points of view, there is quite a lot of convergence between them. They agree that there is much more corruption in poor countries than in rich countries; that nobody should put too much faith in econometrics to decide whether corruption is a reason that poor countries remain poor; and that you do not fight corruption by fighting corruption.  But whereas Daniel Kaufmann believes that you have to tackle corruption to create the conditions for markets to work and to to create economic growth and prosperity, Mushtaq Khan believes that you should focus on policies to promote growth and that a certain amount of corruption is an inevitable (albeit undesirable) corolloray of the transition to a capitalist economy. I hope you find the discussion between them as interesting as I did.

danny_mushtaq

What strikes me about all this is that this is a topic on which there is a serious gap between mainstream public opinion and the opinion of many (but by no means all) development “experts”.  Most people believe that corruption is a one of the most important reasons why poor countries remain poor; and yet a lot of people working in development seem to be willing to tolerate some corruption as an inevitable fact of life in poor countries.   My view is that this is a topic on which we need to see much more convergence of thinking, based on sound evidence and analysis, and that this is an important step if the development business is to regain and retain the trust of the people paying for development assistance.

Where do I come down?  I guess somewhere in between. Corruption is clearly a very serious problem which robs the poor most of all, and deprives millions of people of access to service and of the opportunity to earn a living.  In some countries, it is a major obstacle to economic growth (I think Nigeria is such a country). But there are many different causes of poverty, and there are some poor countries that have very little corruption (Ethiopia, where I live, is such a country).  And there are striking examples across history of countries that have experienced rapid industrialisation despite having quite high levels of corruption at the time (including Indonesia, Thailand, Korea, Japan) – in many cases, corruption is something that is tackled after the establishment of an industrialised capitalist economy with a strong middle class, not before.

I do think that many people working in development are too complacent about corruption.  The poor, like all of us, have dreams of a better life, and they are not helped by a poverty of aspiration on our part.

There are some countries – such as Nigeria – in which corruption is clearly a major obstacle to investment and growth.  There are other countries – such as Ethiopia – in which there is very little corruption which are nonetheless very poor, so it cannot be the case that eliminating corruption is the main driver of development.  And a lot of industrialized countries had long periods of rapid economic growth despite widespread corruption – which in many cases they sorted out after they became rich, not as a pre-requisite to growth.

13 comments on “Does corruption cause poverty, or is it the other way round?”

  1. Hi Owen, kudos for getting this discussion up there. Is there any chance of transcripts being uploaded? I’ve a hearing problem, so radios/podcasts aren’t exactly my favourite media.

    I studied under Mushtaq Khan when I did my MSc. His course on Political Economy of Development was widely held (by myself and most other students in it) to be the best development module any of us had studied. I would have gone further: across all my education, I don’t think I’ve ever come across anyone with such radical, but ultimately reasonable and interesting views. They can be a bit bleak, and he doesn’t have as many solutions as one might wish, but when the problems are difficult it’s far more valuable to acknowledge that than change to the conception of the problem until it’s something you can solve to limited ultimate effect.

    Owen replies: Hi Ranil – thanks for your email. Yes, I have a huge backlog of transcripts that I need to edit for the past episodes of Development Drums. They will come (including, eventually, for this episode). Development Drums is purely a hobby for me: nobody pays for my time, and I don’t have a producer or assistant to organise the speakers, edit the episodes or to arrange transcripts. So I will publish the transcripts eventually, but I’m afraid this often falls behind more urgent work (especially the sort that pays the bills). I’m glad that you found Mushtaq’s course interesting; I certainly thought this was an interesting debate.

  2. Hi Owen,

    Like Ranil, I’ll have to wait for the transcript and for when you have more free time!

    I can’t agree with you more about getting convergence between the two view on corruption.

    I’m willing to tolerate a certain level of corruption if it delivers the goods . It’s what I call ‘functional’ corruption. When I moved to Indoneisa from India , I decided I liked Indonesian corruption comapred to India’s ‘dysfunctional corruption’! For e.g. In Indonesia, infrastructure contracts may be overestimated, but the road is built and to decent quality. In India, contracts are overestiametd, the road or bridge is not built, or built to terrible quality. At least the Indonesian has a road to get to the maternity centre or school!

    I’ve recently moved to Nigeria where, as you note, corruption is a major barrier to growth and poverty reduction. A Ghanian driver once told me that what sets his country apart from Nigeria is the level of acceptability that corruption enjoys in Nija. He told me about the ‘mother reaction test’. In Nigeria if he brought home a flash new car, his mom would be super thrilled and ask how soon they could go for a ride. In Ghana, his mother would first want to know where he got the money from to buy the car.

    I’ve no views on this myself as yet. Have only moved to Africa three weeks back, but the story stuck in my head!

    Regards,

    Shalini

  3. A very interesting pair to debate this topic, Owen! After four years in the developing world, just about everything Mushtaq says in terms of the structural nature of especially political corruption makes sense to me.

    I also agree there are significant areas of corruption that we need to target (access to justice for the poorest, the direct fiduciary risk to donor funds and so on), but we should be very careful we’re not simultaneously and radically undermining processes that might lead to more growth and income, including for the poorest, over the long run.

    It does also seem to me that strong and visionary leadership is important, but how you get this when the incentives and structures point towards political success for those good at exploiting the kind of informal and messy patron-client links Mushtaq describes and which in the 3rd world one sees everywhere, I do not know.

  4. I also think that Danny loses it slightly when he looks at the markets-growth distinction. It’s true that ideology among elites may be more similar low, but the structural distinctions Mushtaq describes are very much alive (and his anecdote about Bangladesh is brilliant).

  5. Adam, for us without the means, can you tell me, was it the anecdote about elections? the Mr. Clean guy who didn’t get his deposit back when running against a local gang boss? I remember it from his lecture series, but can never remember exactly where it happened.

  6. Ranil – It was one about a taxi driver in Dhaka from the airport being able to tell you exactly who is corrupt and in what sectors / amounts (i.e. transparency is already there, but it’s not transparency that’s stopping things from improving, but that to get means in such a dysfunctional system you need to join in)…

  7. For me this issue needs to be nested in Growth Diagnostics (which are increasingly growing on me), which I don’t think Mushtaq explicitly does, but he does allude to. Corruption, like any number of other issues, can be a constraint, or not, depending on the context. Simple. Talking in general terms about corruption and growth is a bit like the daft folk regressions of aid on growth.

    I also can’t wait to get internet quick enough to download this! Perhaps Owen could recruit a Development Drums intern to transcribe the podcasts?

  8. I think that poverty causes corruption, not that they want to but they had to. If a country is rich and resourceful financially, it benefited the citizens and they wouldn’t resort to corruption. My point of view. Thanks

  9. Dear sur, I find the way you look at the connection between poverty and corruption fascinating. I am sorry, I cannot access the discussion between the two scholars. Is the its transcript available at this time? Kind regards, Zina Sabau

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Owen Barder

Owen is Senior Fellow and Director for Europe at the Center for Global Development and a Visiting Professor in Practice at the London School of Economics. Owen was a civil servant for a quarter of a century, working in Number 10, the Treasury and the Department for International Development. Owen hosts the Development Drums podcast, and is the author Running for Fitness, the book and website. Owen is on Twitter and