Zaire vs Indonesia
Should we turn our backs on corrupt and undemocratic
countries?
Zaire: In 1961, Zaire (now the Democratic Republic of the Congo) was a desperately
poor country with a per capita annual income of $67. Mobutu Sese Seko
came to power in a military coup in 1965 and ruled until 1997. He is estimated
to have stolen $5 billion during his 32-year rule, or about 4.5 times the country’s
national income in 1961 ($1.1 billion).
Indonesia: In that same year, with a per capita annual income of only $49,
Indonesia was even poorer than Zaire. Mohamed Suharto came to power in a
military coup in 1966 and ruled until 1998. He is estimated to have stolen at
least $15 billion during his 32-year rule. Some suggest the figure may even have
been as high as $35 billion. His children became some of the country’s richest
business people. If we take the mid-point of these two estimates ($25 billion),
Suharto has stolen the equivalent of 5.2 times his country’s national income in
1961 ($4.8 billion).
Zaire’s income per capita in purchasing power terms in 1997, when Mobutu
was deposed, was one third of its level in 1965, when he came to power. In 1997,
the country stood 141st among the 174 countries for which the UN calculated a
‘human development index’ (H D I). The H D I takes into account not only income
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but also ‘quality of life measured by life expectancy and literacy.
Considering the corruption statistics, Indonesia should have performed even
worse than Zaire. Yet where Zaire’s living standards fell by three times during
Mobutu’s rule, Indonesia’s rose by more than three times during Suharto’s rule.
Its H D I ranking in 1997 was 105th—not the score of a ‘miracle’ economy, but
creditable nonetheless, especially considering where it had started.
The Zaire-Indonesia contrast shows the limitations of the increasingly popular
view propagated by the Bad Samaritans that corruption is one of the biggest,
if not necessarily the biggest, obstacle to economic development. The argument
goes that there is no point in helping poor countries with corrupt leaders, because
they will ‘do a Mobutu’ and waste the money. This view is reflected in
the World Bank’s recent anti-corruption drive, under the leadership of former
US deputy defence secretary Paul Wolfowitz, who declared: ‘The fight against
corruption is a part of the fight against poverty, not just because corruption
is wrong and bad but because it really retards economic development’. After
Wolfowitz assumed leadership in January 2005, the World Bank suspended loan
disbursements to several developing countries on grounds of corruption. Wolfowitz
resigned from the Bank in 2007, but its campaign against corruption
continues.
Corruption is a big problem in many developing countries. But the Bad
Samaritans are using it as a convenient justification for the reduction in their aid
commitments, despite the fact that cutting aid will hurt the poor more than it
will a country’s dishonest leaders, especially in the poorst countries (which tend
to be more corrupt, for reasons I shall explain). Moreover, they are increasingly
using corruption as an ‘explanation’ for the failures of the neo-liberal policies
that they have promoted over the past two and a half decades. Those policies
have failed because they were wrong, not because they have been overwhelmed
by local anti-developmental factors, like corruption or ‘wrong’ culture (as I will
discuss in the next chapter).
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8.1. Does corruption hurt economic development?
Corruption is a violation of the trust vested by its ‘stakeholders’ in the holders of
offices in any organization, be it a government, a corporation, a trade union or
even an N G O (non-governmental organization). True, there can be instances
of ‘noble cause corruption’; one such example being Oscar Schindler’s bribing
of Nazi officials that saved the lives of hundreds of Jews, as immortalized in
the Steven Spielberg movie, Schindler’s List. But they are the exceptions, and
corruption is, in general, morally objectionable.
Life would be simpler if morally objectionable things like corruption also had
unambiguously negative economic consequences. But the reality is a lot messier.
Looking at just the last half a century, there are certainly countries, like Zaire
under Mobutu or Haiti under Duvalier, whose economy was ruined by rampant
corruption. At the other extreme, we have countries like Finland, Sweden and
Singapore, which are known for their cleanliness and have also done very well
economically. Then we have countries like Indonesia that were very corrupt but
performed well economically. Some other countries -Italy, Japan, Korea, Taiwan
and China come to mind—have done even better than Indonesia during this
period, despite ingrained corruption on a widespread and often massive scale
(though not as serious as in Indonesia).
And corruption is not just a 20 th-century phenomenon. Most of today’s rich
countries successfully industrialised despite the fact that their public life was
spectacularly corrupt.∗
In Britain and France, the open sale of public offices
(not to speak of honours) was a common practice at least until the 18th century.
∗Their corruption was such that the very definition of corruption was different from what
prevails today. When he was accused of corruption in Parliament in 1730, Robert Walpole freely
admitted that he had great estates and asked: ‘having held some of the most lucrative offices for
nearly 20 years, what could anyone expect, unless it was a crime to get estates by great office’. He
turned the tables on his accusers by asking them, ‘how much greater a crime it must be to get
an estate out of lesser offices.’ See Nield (2002), Public Corruption — The Dark Side of Social
Evolution (Anthem Press, London), p. 62.
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In Britain, until the early 19th century, it was considered perfectly normal for
ministers to ‘borrow’ their departmental funds for personal profit. Until 1870,
appointments of high-ranking civil servants in Britain were made on the basis
of patronage, rather than merit. The government chief whip (equivalent to
the majority leader in the US Congress) was then actually called the patronage
secretary of the Treasury, because distributing patronage was his main job. In the
USA, the ‘spoils’ system, where public offices were allocated to the loyalists of the
ruling party regardless of their professional qualifications, became entrenched
in the early 19th century and was particularly rampant for a few decades after the
Civil War. Not a single US federal bureaucrat was appointed through an open,
competitive process until the 1883 Pendleton Act. But this was a period when
the US was one of the fastest growing economies in the world.
The electoral process was also spectacularly venal. In Britain, bribery, ‘treating’
(typically done by giving free drinks in party-affiliated public houses),
promises of jobs and threats to voters were widespread in elections until the
Corrupt and Illegal Practices Act of 1883. Even after the Act, electoral corruption
persisted well into the 20th century in local elections. In the US, public officials
were often used for party political campaigns (including being forced to donate
to electoral campaign funds). Electoral fraud and vote-buying were widespread.
Elections in the US, where there were a lot of immigrants, involved turning
ineligible aliens into instant citizens who could vote, which was done ‘with no
more solemnity than, and quite as much celerity as, is displayed in converting
swine into pork in a Cincinnati packing house’, according to the New York Tribune
in 1868. With expensive election campaigns, it was no big surprise that
many elected officials actively sought bribes. In the late 19th century, legislative
corruption in the US, especially in state assemblies, got so bad that the future
US president Theodore Roosevelt lamented that the New York assemblymen,
who engaged in the open selling of votes to lobbying groups, ‘had the same idea
about Public Life and Civil Service that a vulture has of a dead sheep’. How is it
possible that corruption has such different economic consequences in different
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economies? Many corrupt countries do disastrously (e.g., Zaire, Haiti), some
others have done decently (e.g., Indonesia), while still others do very well (e.g.,
the US in the late 19th century and post-Second-World-War East Asian countries).
In order to answer the question, we need to open the ‘black box’ called
corruption and understand its inner workings.
A bribe is a transfer of wealth from one person to another. It does not necessarily
have negative effects on economic efficiency and growth. If the minister
(or some other public official) taking a bribe from a capitalist is investing that
money in another project that is at least as productive as that which the capitalist
would have otherwise invested in (had he not had to pay the bribe), the venality
involved may have no effect on the economy in terms of efficiency or growth.
The only difference is that the capitalist is poorer and the minister richer—i.e., it
is a question of income distribution.
Of course, it is always possible that the money is not used by the minister as
productively as by the capitalist. The minister may blow his ill-gotten gains in
conspicuous consumption, while the capitalist might have invested the same
money wisely. This is often the case. But it cannot be assumed to be so a priori.
Historically, many bureaucrats and politicians have proved to be wily investors,
while many capitalists squandered their fortunes. If the minister uses the money
more effectively than the capitalist, corruption may even help economic growth.
A critical issue in this regard is whether the dirty money stays in the country.
I