Corruption is just a symptom, not the disease

December 5, 2015, 12:24pm

Protesters in 2012 criticize the removal of a fuel subsidy by the Government in Lagos, Nigeria. PHOTO: SUNDAY ALAMBA/ASSOCIATED PRESS

By Daron Acemoglu and James A. Robinson, the Washington Post

If you ask development experts, Western politicians and pundits how to end global poverty, you’ll hear one answer more than any other: Fight corruption. Even the Catholic Church agrees. In Nairobi last week, Pope Francis urged young Kenyans, “Please, don’t develop that taste for that sugar which is called corruption.” In a packed stadium in the same city in July, President Barack Obama was even more emphatic: “Corruption holds back every aspect of economic and civil life,” he said. “It’s an anchor that weighs you down and prevents you from achieving what you could.” In Addis Ababa, Ethiopia, two days later, he told the African Union, “Nothing will unlock Africa’s economic potential more than ending the cancer of corruption.”

But this conventional wisdom has it backward. For all its crippling costs, corruption is a symptom, not the disease. To get rid of corruption (and, for that matter, global poverty), we must build and strengthen institutions that work for the people of the developing world, rather than tolerate existing structures that typically serve the narrow, graft-addicted elites that often suck poor nations dry.

Corruption afflicts every corner of the world. In a 2009 World Bank survey, 70% of Brazil’s companies identified graft as a major problem. Even by Brazilian standards, however, the scale of a recent scandal involving the oil giant Petrobras—which has just widened with the arrest of a top senator and a top investment banker and may yet engulf President Dilma Rousseff—has been shocking.

The Chinese public is perhaps more accustomed by now to such revelations. There was the news in August that a chemical warehouse that exploded in Tianjin, killing 173 people, got its permits through political connections. And just last Monday came reports that J.P. Morgan Chase & Co. systematically curried favor with Chinese leaders by hiring their friends and relatives. Corruption also has greased the wheels of the country’s long construction boom. The drive to erect huge residential complexes, warehouses, bridges and rail tracks has turned hundreds of local and national Communist Party leaders into multimillionaires.

Then there’s Africa. In Nigeria, Lamido Sanusi was ousted last year as governor of the central bank because he revealed that some $20 billion of oil revenues had gone missing. Just this week, another $2 billion meant for Nigeria to buy aircraft and ammunition to fight Boko Haram was reported to have vanished.

The scale of corruption is equally mind-boggling in Argentina, India, Pakistan, Russia and Turkey. The World Bank says that more than $1 trillion of bribes are paid world-wide each year. The World Economic Forum estimates that the cost from global graft is more than 5% of world gross domestic product—but even this may be understated if, as some academic research suggests, corruption retards economic growth.

Corruption doesn’t come from nowhere. It is a result of economic and political institutions that empower unrepresentative elites while shutting out the rest of the country. That empowerment lets politicians, bureaucrats and soldiers grab resources and get wealthy from bribes. What allows them to get away with it is the absence of democratic accountability and effective checks and balances, like the rule of law and press freedom. Without fundamental change in these institutions, anticorruption crusades aren’t likely to improve the economic lives of ordinary people. The greedy elites that dominate most poor countries will just find other ways to enrich themselves at public expense.

If corruption were the real problem, its absence would mean widespread prosperity, but we know that’s not the case. Take pre-1994 South Africa, where white-supremacist rule included a competent, professional bureaucracy and a somewhat independent judiciary. Uncorrupt though it might have been, this apartheid state ruthlessly oppressed its impoverished and disenfranchised black majority.

Or consider Cuba, which Transparency International today considers to be less corrupt than Greece. Cuba is poorer now than at the time of Fidel Castro’s revolution in 1958. The reason isn’t graft or the enrichment of the country’s elites. The problem is communist dictatorship: The economic institutions established by the Castro brothers discourage investment, innovation and entrepreneurship.

Unless economic and political institutions change, even an effective anticorruption drive can’t guarantee success. After Turkey’s financial meltdown in 2001, the country’s economy underwent major economic reforms under the guidance of the International Monetary Fund and the World Bank. A major target was Turkey’s huge—and hugely corrupt—government procurement system. A 2002 law designed to limit corruption made the procurement process more transparent and competitive. It worked, but only for a while. As President Recep Tayyip Erdogan and his ruling party centralized power over the following decade and silenced many critics, the law was greatly weakened. Revelations in December 2013 showed unprecedented levels of corruption at the highest levels of the Turkish government.

Whether we view corruption as a cause or a symptom has major consequences. Chinese President Xi Jinping insists that corruption must be stamped out, but he never addresses the underlying problem: the Communist Party’s monopoly of power, which continues to create economic imbalances, stifle opportunity and enrich party cronies.

Corruption often gets our attention because these deeper causes of malaise and poverty are harder to tackle. But Western politicians, multinationals and international organizations are also drawn to the idea of fighting corruption because the existing rules of international engagement place the political roots of these problems off-limits.

Consider the World Bank’s Articles of Agreement. Bank officials, according to this charter, “shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions.”

Unfortunately for the World Bank and the poor people whom it is supposed to help, disentangling “economic considerations” from a country’s “political character” is impossible. Anyone wanting to understand why development assistance has had such disappointing results over the past 50 years should start with the bank’s founding articles. It is so much more convenient to blame corruption than the political institutions truly holding poor countries back.

President Obama came much closer to the mark elsewhere in his Nairobi speech this past summer, when he urged Kenyans to continue “down the path of a strong, more inclusive, more accountable and transparent democracy” and told African presidents not to stay in power permanently. If only this focus on political institutions could spread to international financial institutions and the aid industry, we might stop scapegoating corruption—and make some headway in ending poverty.

—Profs. Acemoglu and Robinson are the co-authors of “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” (Crown Business)