In 2011, someone broke into my sister’s office at the university where she teaches in Nigeria. Thankfully, the person was caught, arrested, and charged. But when she arrived at court, the clerks assigned to my sister’s case informed her that they would not process the paperwork necessary to move the case forward unless she paid a bribe. Unfortunately, that’s just one example of how corruption affects the lives of millions of people.
Years later as COVID-19 wreaks havoc on economies, corruption is continuing to rear its ugly head. Mexico, for instance, may be experiencing its largest corruption scandal in history as investigators look into alleged illegal payments between large corporations and government officials. In Kenya, South Africa, and Uganda, embezzlement of COVID-19 relief funds is widespread. Some Ugandan public officials were even recorded on Zoom discussing ways they plan to embezzle funds. All of these examples are categorized as corruption, but it’s clear that in terms of impact and scale, they’re distinct.
In our book, The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, my co-authors and I dedicate an entire chapter to the issue of corruption. We explain that corruption typically evolves in countries in three phases:
- Overt and unpredictable corruption: Often characteristic of many low-income countries, an example of this is what happened to my sister as well as the embezzlement of funds discussed by Ugandan officials over Zoom.
- Covert and predictable corruption: This type of corruption is akin to what happens in many middle-income countries when new markets are created, with corruption often seen as a predictable cost of doing business. As Yuen Yuen Ang writes in her brilliant book, China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, “As markets emerged [in China] in the 1980s, so did corruption.”
- Transparent corruption: In this phase, corruption is effectively written into the laws and has become a legal tool to influence governments. The United States would fall into this category as lobbyists spend upwards of $3 billion to influence the government’s activities. To be clear, not all lobbying is corruption, but there is often a direct correlation between how much money an organization is willing to spend and the level of influence and access to high-ranking government officials the organization receives.
When we take the time to consider how best to categorize information, new insights are brought to light. For instance, using this categorization, it becomes clear that a single solution likely won’t be appropriate for countries that are in different phases of corruption, and our research supports this. We’ve found that for countries in Phase 1, prioritizing investments in market-creating innovations is often the best course of action. As countries evolve into the second phase, that’s where building stronger institutions begins to make more sense. In the third phase, though corruption still exists, systems and institutions have been developed to root out bad actors.
Unbundling corruption: A deeper look into the phenomenon
In Ang’s most recent aforementioned book, she introduces another categorization scheme that helps readers dig deeper into different types of corruption and how they impact economic growth. She describes four main types of corruption:
The first is petty theft. This is when low-level and often poorly paid government officials demand bribes, sometimes even in exchange for official fines. The second is speed money, where public officials demand bribes to help speed up a process that they are responsible for anyways. Getting business licenses and permits also falls into this category. The third is grand theft. This makes major headlines as this is typically embezzlement on a large scale. Finally, the fourth is access money, which Ang describes as monies paid by businesses to enable them to engage in big projects. For example, getting a contract to build a new power plant, school, or factory.
Ang explains that the first three types of corruption impede growth, however access money can actually stimulate growth, at least in the short term. It turns out that China’s annual 10% growth over the past four decades has been driven largely as a result of access money. In no way does Ang defend corruption, but rather her categorization provides a unique and deeper look into the phenomenon, raising questions about the efficacy of a unilateral approach to fighting corruption.
We may describe people who go to see a doctor as sick, but surely we wouldn’t dare suggest all sickness is the same. And yet, in matters of corruption, indices such as Transparency International’s Corruption Perception Index tend to treat all corruption as identical. This line of thinking causes billions of dollars to be spent annually fighting economic sickness, when those funds might be better spent elsewhere. Alternatively, by helping economic development stakeholders better understand and categorize corruption, government officials and development practitioners can develop tailored strategies to fight this economic scourge. Doctors prescribe different medication depending on a patient’s illness; it’s high time economic development stakeholders do the same with corruption.
For more, see my TED Talk:
Reducing corruption takes a specific kind of investment
