In their paper, The Rise of the Regulatory State, Harvard University economists Edward Glaeser and Andrei Schleifer wrote, “whatever law enforcement strategy the society chooses, private individuals will seek to subvert its workings to benefit themselves.” In recent years, few African countries have exhibited that theory better than South Africa. Before the ousting of former corrupt president, Jacob Zuma, South Africa was engrossed in a web of corruption characterized as “state capture”: a severe level of corruption where private individuals influence the state so much that they almost assume ownership of the state’s resources.
At the center of the web were the Gupta brothers, who grew to such prominence in South Africa that The New York Times reported, “it became difficult to draw the line between their business empire and the president’s office.” From high-level cabinet appointments to the South African Revenue Services, corruption permeated virtually every element of society, with much of it involving the country’s leading political party, the ANC.
But things appear to be looking up for South Africa, where newly elected leader Cyril Ramaphosa has vowed to tackle corruption. In March he established a new Investigating Directorate within the National Prosecution Authority (NPA). And since his election, various party leaders facing corruption probes by the ANC integrity commission have delayed or declined to be sworn into parliament.
While holding corrupt leaders accountable sends a powerful message, if his long-term strategy does not include investments in innovations that lead to prosperity generation, he’s effectively snipping the buds while the roots remain intact.
For many, engaging in corruption is simply a workaround—a means of making progress when few better options exist. But the corrupt behavior exhibited by those within the highest levels of government is something entirely different: the result of an imbalance of power, in which those who have it use it to exploit those without it. In contrast to the wealth and power of Zuma and the Gupta brothers, more than half of South Africans live below the poverty line. Without financial and political resources, it’s difficult for people living in poverty to advocate for themselves. Thus, Zuma and his cronies succeeded in siphoning funds away from public projects and programs for years because those who bore the cost—the South African people—couldn’t do much about it.
Ramaphosa’s best shot at making a dent in corruption, then, is to not only investigate corrupt individuals—a necessary short-term approach—but to also to double-down on his market-oriented approach to development. If he’s able to help his country become more prosperous, South Africans will not only have more bargaining power, but the government will also be less vulnerable to exploitation and better equipped to fight corruption.
To achieve this goal, his government can support investments in market-creating innovations that solve everyday problems. Unlike other types of innovations, our research has found that these innovations create the foundation for robust, sustainable growth by transforming complex and expensive products into simple and affordable ones, allowing more people to participate in the economy. They create jobs, result in investments in infrastructure, and provide much-needed tax revenue to the government that can then be reinvested in communities and anti-corruption efforts. They also tend to strengthen institutions once stronger legislative systems and more contextual regulations become essential to sustaining and growing the new markets. In short, these powerful innovations spur significant economic development, while creating the conditions for good governance.
As people become more prosperous and drive economic growth, the power dynamic shifts such that government leaders become more responsive to the people’s needs, recognizing a mutual interest in seeing the economic engine of their country succeed. This is just what happened in the United States, where corruption ran rampant in the mid 19th century up until the early 20th century. But as more Americans created more wealth for themselves, their voices of dissatisfaction with corruption became louder. “Politically, the rage of victims counted for very little in 1840, not much in 1860; by 1890, it was a roaring force” is how Stanford Law Professor Lawrence Friedman put it.
Corruption can be found in virtually every country across the globe, but it’s especially difficult to squash wherever people lack the ability to advocate for themselves, and governments lack the ability to adequately respond to their needs. To that end, Ramaphosa must play the short game and the long game—trim the buds, and pull out the roots. By encouraging investments in market-creating innovations he can spearhead a new era of development, while simultaneously creating the conditions for corruption to plummet and a stable, responsive government to take its place.
