Why worry about corruption?

Kenya for instance, was last week put under pressure at the end of the two-day donor consultative group meeting, to further empower its anti-corruption institutions in order to foster economic growth.

But Dr Mushtaq Khan, an economist and a lecturer in the Department of Economics, University of London, argues that there is no track record that developed countries got where they are by first fighting corruption and winning the war. While insisting that he is not extolling corruption as his detractors would want to believe, Dr Khan— a Bangladeshi national and specialist in institutional economics, the economics of rent-seeking and corruption, among others—argues that developing countries with high corruption indices can still realise economic growth with a focused leadership that can force those engaged in primitive accumulation to channel their ill-acquired wealth towards wealth creation. "The idea that any country can stop official theft and suddenly become clean is a dream. The challenge is to ensure that those capturing assets can create wealth," said Dr Khan, who argues that fighting corruption, though necessary, is not the only prerequisite for growth.

He, however, concurs with the IMF and the World Bank on the damaging economic effects of corruption such as low investments, sluggish economic growth and increased poverty since the poor are likely to suffer as service delivery like health, education and infrastructure, fails.

Similarly, he concedes that prevalent official corruption often leads to loss of political legitimacy and growing conflicts. This controversial stance could be more relevant to Kenya, where president Mwai Kibaki has been under intense pressure from both locals and development partners to prove his seriousness against alleged official corruption. It comes amidst the recently released Global Corruption Report by Transparency International (TI) that has sent mixed signals on whether the famed corruption in Kenya is on the decline or on the increase.

Though the report of the world's most influential anti-corruption watchdog indicated that the Kenya government made a remarkable gain in the war against graft with the country moving from the 11th most corrupt country to 17th, the TI at the same time claimed that unnamed minister has stashed away Ksh 750 million in foreign account. While the besieged Kenyan authorities would find some relief in Dr Khan's argument that what matters is the type of corruption and not the prevalence of corruption, his major argument is that those engaged in primitive accumulation must be forced to adopt entrepreneurial and technological capacity, giving the example of China, where the emerging capitalists that benefited from the privatisation programme were forced to adopt high level of discipline.

In his opposition to the much-touted growth model where developing countries are encouraged to first eliminate corruption, decentralise and then grow, Dr Khan argues that there is no historical evidence to show that high growth economies such China and the Asian Tigers followed this path and significantly reduced corruption as prerequisite for growth. Dividing countries into three categories— advanced, high-growth developers or "catch-up" countries, and developing countries—Dr Khan argues that TI surveys on growth vis-a-vis corruption index reveal that while the medium growth rates of the East Asian developers were far higher than the two groups, their corruption scores are not significantly lower than other developing countries. "Most of the high-growth Asian economies began growing sometime in the sixties, seventies and early eighties , but governance indicators are only available from the mid eighties onwards and fuller data are only available from the nineties or later," he argued.

But this "discipline", according to Dr Khan, can only succeed with firm state intervention, though he concurs with Bretton Woods Institutions that state intervention quite often distort the market and create rents that in turn create incentives for corruption. "No developing country has developed without state intervention. Indeed, the political stability in advanced countries are maintained by redistribution either through unemployment benefits, subsidies and pharmaceutical companies lobbying for government protection," he said.
While giving the example of the US where the armament, agriculture and pharmaceutical sectors are heavily protected, Dr Khan contends that 40 percent of the British GDP, 35 of US and 50 percent of French GDP, are redistributed. He contends that the capitalist class in the developing countries is new and undisciplined, and in most cases, governments find it hard to control them because the majority of them arise out of patron-client politics where political leaders allow their cronies to make money under the table to buy their stay in power or run elections. "Unlike the catch-up countries where the inefficient capitalists could not protect themselves, in the developing countries, the inefficient are politically protected because you can cause more political chaos by taking away the favour from them".

Still, his comparison with the Asian Tigers, fails to take into account that in Africa, "benevolent dictators" are quite scarce, as most of them would rather use the unfettered power for self-enrichment and preservation. But he is not comfortable with the TI rating system, where indices in relation to prevalence of corruption, are mainly seen from eyes of international visitors. Dr Khan argues that indices based on perceptions are somehow distorted because even "competent" observers can have pre-conceptions of what they want to see. "Corruption, instability and distortions can appear to be less serious in high-growth countries even to competent observers, simply because things are working. Politicians in the non-performing countries have given up. What they do is to repeat what IMF and World Bank is saying so as to appear as good boys," he argued.