Corruption and causation

The notion of corruption is one of the most widely used to call into question the drive for growth in developing countries. It is often argued that measures to promote growth are undesirable, because they could encourage corruption, or unrealistic. Corruption is also used to explain the lack of development of the poorest countries.

A review by Tim Harford, a Financial Times columnist and the author of The Undercover Economist, in the May issue of Reason shows the limitations of the notion of corruption. He discusses a chapter in Raymond Fisman and Edward Miguel’s Economic Gangsters (Princeton University Press) which examines two alternative theories of corruption. Many economists argue that corruption is a response to perverse incentives, the result of poor quality institutions in developing countries, while others see it as culturally inbred. Harford relates Fisman and Miguel’s study of parking tickets among United Nations to examine which of these theories is correct.

To me both hypotheses are limited. For a start the notion of corruption is not a precise one. A practice that might not be considered corrupt in one country – say an ally of the West or a western country itself – might be designated as corrupt in another.

It also seems to me that critics of corruption have the causation the wrong way wrong. What is often labelled corruption is frequently a symptom of underdevelopment rather than its cause. For example, in a poor country it might be easier for someone to make a living by circumventing the rules. In contrast in a rich country it is often easier to earn money by legitimate means.