Twofish's Blog

October 14, 2007

Notes on corruption

Filed under: china, finance, politics — twofish @ 7:29 am

Corruption is a lot more complex than it appears. The tendency is to think that if you have moral upstanding officials that you can save the $86 billion, but corruption usually happens because someone is seriously underpaid. It isn’t even clear that corruption is even economically harmful in all cases. The classic example of “good corruption” is a black market in a centrally planned economy.

Focusing on the “money that you can save” by eliminating corruption is not a good idea, because you’ll usually find that fighting corruption will cost you more money (in the short term) than letting it stay. The negative aspects to corruption are less the direct costs, but rather the bad effect it has on institutions and public trust.

What does happen as an economy develops is things that used to take place under the table start taking place on the table. Instead of showing up with suitcases of cash, you hire lobbyists and make campaign contributions. It isn’t any cheaper, but it does allow one to keep track of which flows are socially productive and which one’s aren’t and to make sure things don’t get out of hand.

In the case of your ATM salesman, I doubt that ending the corruption would save anything in direct costs. For bribes to end, you’d have to have the bank dramatically increase the salary of the manager (and this is one reason Western banks pay a huge amount to managers), and you’d still have to spend a huge amount of time doing sales and marketing. The benefits wouldn’t be in the direct costs, but rather in the indirect costs. The manager is going to make decisions of which is the best ATM based on what is best for the bank rather than who gives him the most money. There is also the social benefit. If it is commonly believed that rich people got their money through honest means, it makes it less likely that people will wait to string them along the wall and shoot them.


1 Comment »

  1. “If it is commonly believed that rich people got their money through honest means, it makes it less likely that people will wait to string them along the wall and shoot them.”

    It is, mostly, a cultural thing. If people have a prejudice against rich people (a common thing in my country), they will believe that the rich are corrupt even if they, most of them, aren’t. The idea that you can prove “hey, I’m not corrupt” is basically the idea of proving someone’s innocence — it goes against the principles of modern civilization (you prove the guilt, not the innocence) and is logically impossible: how can I prove that I never took any bribes?

    In the USA, they solved the problem by creating a cult of the rich: everybody admires Mr Gates. In Europe, we took a different approach: the rich pay high taxes, mitigating the common populace’s jealousy of their success. Both things seem to work.

    W/r to corruption, you won’t eliminate it by shooting people (like they try to do in China), but by eliminating the roots of corruption. The country needs to have transparent procedures in administration, should limit the state interference in the economy to those cases where it is necessary, should have independent courts and free press. Then you’ll have lower corruption. It is not an accident that the countries with least corruption are those where the public opinion is strong and people control their governments.

    Comment by katastrofa — October 14, 2007 @ 10:38 am

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