This article was first published by the New York Sun on June 29, 2022.
Generations of poor Haitians paid France—its colonizer—roughly $560 million in today’s dollars. According to some estimates, if these funds had stayed in Haiti instead of moving out of the country, the Haitian economy could be eight times larger than its 2020 GDP of roughly $14.5 billion.
Attention is steadily growing on these reparation payments, as are calls for France to pay Haiti. But, as the New York Sun argued recently, payments to a corrupt government should be a non-starter because they are unlikely to lift the people of Haiti out of poverty.
Although that’s true, our research suggests one significant addendum. Waiting for an ethical government and strong institutions to come to Haiti’s rescue is equally unlikely to pull the country out of poverty. That suggests a better path forward for the dollars France owes Haiti: the French should invest them now in local Haitian entrepreneurs creating new markets that will help sow the seeds of a thriving society.
This conclusion stems from our research that has revealed that corruption does not cause poverty. It’s a symptom of it.
Scarcity, fueled by poverty and conflict, is the perfect breeding ground for corruption to flourish.
In many poor countries, corrupt politicians embezzle state funds and civil servants like police officers extort money from everyday hard-working citizens. But in those countries, economic opportunity is scarce and most civil servants don’t earn a living wage. For them, embezzlement, bribery or extortion is an attractive way to gain wealth.
This describes Haiti. It’s the poorest country in the Western Hemisphere.
But poor countries don’t need to eliminate corruption in order to become prosperous. They must become prosperous in order to eliminate corruption.
This is what happened in the United States, South Korea, and countless other countries.
How did they do it? Our research shows that the march toward prosperity begins through investments in “market-creating innovations.”
Market-creating innovations transform complicated and expensive products into simple and affordable ones so that many more people in society can access them. In contrast to other types of innovations, market-creating innovations create the foundation for robust, sustainable growth.
As they create new markets, these innovations alleviate scarcity through a multiplier effect. They create jobs and provide tax revenue that can then be reinvested in communities, anti-corruption efforts, and institutions. In short, these powerful innovations spur significant economic development, while creating the conditions for good governance.
Overt corruption ran rampant in the United States in mid-19th century through the early 20th. As the effects of the Industrial Revolution spread across the country, more Americans created more wealth for themselves. Their ability to fight corruption increased.
“Politically, the rage of victims [of corruption] counted for very little in 1840, not much in 1860; by 1890, it was a roaring force,” according to Stanford Law Professor Lawrence Friedman.
The story unfolded similarly In South Korea. In the 1950s, South Korea was poor. The country was ruled by an authoritarian government. Bribery and embezzlement were prevalent.
But as companies like Samsung, Kia, Hyundai invested in market-creating innovations that made goods and services more affordable for more people, South Korea became prosperous.
As the country grew prosperous, it transitioned from an authoritarian and corrupt government to a more democratic government. Its investments, largely through taxes from market-creating innovations, have helped the country build better institutions capable of tackling system corruption.
In 2018, South Korea’s president was sentenced to 25 years in prison on corruption-related charges. This could never have happened decades ago when the country was poor.
This same story can unfold in Haiti, but the focus must be on creating prosperity first through local entrepreneurs pioneering market-creating innovations.
Deliberate investments in the country looking to solve challenges that the population on the ground are looking to solve—around food, water, education, healthcare, housing, and more—could make an immediate impact. And over time, that can lead to better institutions and a less corrupt government in Haiti.
Crédit Industriel et Commercial, a French bank that received significant fees and interest from Haiti’s payment of reparations to France, plans to hire researchers to investigate its history and work in Haiti. Whatever it finds, there are no easy ways for France or Crédit Industriel et Commercial to fix its past sins.
Simply investing in Haiti’s current government is a mistake. But waiting to invest is as well.
What France should do is commit to investing in market-creating innovations in Haiti. These innovations can create the necessary systems that can ultimately transform Haiti’s economy and society and help Haiti recoup that which it is owed.
