An economist’s view of corruption

Corruption has become an excuse and justification for Africa’s persistent poverty, underdevelopment and low levels of growth.

This simplistic view of the African tragedy has scholars, researchers, policymakers and international development experts and partners struggling to define and identify corruption as well as formulate strategies for combating the vice.

This article advances a more nuanced, perhaps controversial, understanding of corruption from an economist’s standpoint. Some of these views might be at variance with what many people have come to believe. I make simple economic arguments with anecdotal evidence as needed.

First things first: There is no agreed definition for corruption. Economic literature defines it as “the abuse of public office or the (mis)use of public office for personal gains”. Admittedly, this is a narrow definition that excludes corruption in, say, private marketplace or religious settings.

Bribes offered to individuals holding no official government positions would not be included in that definition. These limitations notwithstanding, the definition has allowed economists to study the impact of public sector corruption.

Inconclusive findings

Despite popular belief, studies on the impact of corruption on economic growth yield mixed and inconclusive findings. Some studies have concluded that corruption leads to low economic growth. Others have found it to have little or no impact.

Other empirical studies have concluded albeit controversially that there are instances when corruption has boosted growth. This is because some awfully corrupt countries have also posted impressive economic growth. We are an example. Despite losing Sh2 billion daily to corruption, Kenya is one of the fastest-growing economies in Africa and the world!

Some economists go beyond correlating corruption with positive economic growth. They argue that there are instances when corruption is beneficial, encouraged or excused. They claim that, no matter how repulsive, corruption may present some good or what they term as its “residual value”. This apparent oxymoron position can be demonstrated by means of Judas Iscariot of the Scriptures.

Despite being a thief, Judas was a principal assistant to Jesus and a member of his first cabinet of 12 disciples. Judas fell from this position, betrayed his Lord and Master, and thereafter committed suicide. While Christians have shunned the names Judas and Iscariot, they concede that the man fulfilled the Scriptures, which required Jesus to be born, betrayed, killed and resurrected to save the world. What if Judas had not betrayed the Christ? There was, admittedly, residual value in that betrayal.

‘Necessary evil’

In the past, some economists have justified corruption perpetuated by Western multinationals in developing countries in search of lucrative contracts as a “necessary evil”. To them, corruption is essential in “greasing the wheels of bureaucracy” and allowing poverty-stricken communities to receive investment, technology and new opportunities.

Donated lifesaving medical supplies and equipment have been detained at the port by the state for an unreasonably long time. Some of the supplies have expired, renewing, perhaps, the need to “grease the wheels of bureaucracy”. To put it differently, there are times when bribing is the only rational way to deal with a dumb regime.

In the face of overwhelming corruption, it is important that we direct our efforts where it would make the greatest impact. In the face of gross mismatch between supply and demand, fighting small-time bribes offered in exchange for services such as healthcare, school placement or even employment is a fool’s errand. It is policies, not arrests, which are needed to fix market failure.

Corruption is but one of the many ways of allocating scarce resources and services where demand exceeds supply. To many, bribing for a job is not a moral issue but a matter of survival.

The economic impact of the fraudulent transfer of resources from public to private accounts is often overstated, especially if the funds are invested in productive and value-adding ventures. Nairobi’s shining skyscrapers, leading hotels, top-notch private schools, for-profit hospitals, factories and companies are nothing but proceeds of corruption.

Corrupt bureaucrats

Ours is a thriving metropolis because corrupt bureaucrats and functionaries have historically opted to invest their loot in our country, thereby creating value, employment and economic growth. If they cannot stop stealing, then let’s encourage corrupt governors to benefit their communities by investing locally, not in Nairobi.

Hiding stolen funds in secretive accounts and investments overseas is the most damaging for it represents a net loss of national wealth.

Every year, foreigners and multinationals steal from Africa about $88.6 billion (Sh886 trillion) — 3.7 per cent of the continent’s gross domestic product — in illicit capital flight.

Sadly, Western economists and governments do not consider many of the illicit financial flow schemes as corruption. Remember that.

Mr Chesoli is a New York-based development economist and global policy expert. [email protected].