Poverty and Corruption

I've delayed about a month getting this post up, so I apologize, if only to myself.

An interesting article on Why Poor Countries are Poor appears in Reason Magazine. First, realize that while this is coming from a libertarian or at least free market perspective, one of the pernicious behaviors that is rampant in many countries, particularly less developed countries, is institutional corruption. Ultimately and succinctly, the brilliance of a nation of laws, cannot be understated.

Traditionally: Economists used to think wealth came from a combination of man-made resources (roads, factories, telephone systems), human resources (hard work and education), and technological resources (technical know-how, or simply high-tech machinery). Obviously, poor countries grew into rich countries by investing money in physical resources and by improving human and technological resources with education and technology transfer programs.

This is borne out by the examples of China, India, South Korea, Botswana, Mauritius, among others, which have become the fastest growing economies in the World. The return to investors has been tremendous, and thus, there is no shortage of money seeking opportunity in developing countries.

However, this breaks down when we consider acutely and chronically poor countries.

The premise is that in terms of economic growth a stable corrupt dictatorship while worse than a democracy is preferable than sheer instability. While this may be patently obvious, observing the different characteristics of governments in real terms proves illustrative.

A dictator with long term plans, cannot completely rape and pillage his country because then there will be nothing to steal subsequently. In terms of self-interest, a dictator must balance his parasitic greed with the health of his host (his people).

Cameroon is the poster child of the dysfunctional, totally corrupt, condemned country. One would think, following our premise, that the dictator Biya would have to keep the Cameroonian economy functioning in order to keep stealing from it. Yet the country is so totally crippled that apparently Biya is not the all powerful, self-interested dictator, but rather, Cameroon is filled with petty bandits, thieves and despots. As the article argues:

Government banditry, widespread waste, and oppressive regulations are all elements in that missing piece of the puzzle.

The lesson of the story might appear to be that self-interested and ambitious people in power are often the cause of wastefulness in developing countries. But self-interested and ambitious people are in positions of power, great and small, all over the world. In many places, they are restrained by the law, the press, and democratic opposition. Cameroon's tragedy is that there is nothing to hold self-interest in check.

The rot starts with government, but it afflicts the entire society. There's no point investing in a business because the government will not protect you against thieves. (So you might as well become a thief yourself.) There's no point in paying your phone bill because no court can make you pay. (So there's no point being a phone company.) There's no point setting up an import business because the customs officers will be the ones to benefit. (So the customs office is underfunded and looks even harder for bribes.) There's no point getting an education because jobs are not handed out on merit. (And in any case, you can't borrow money for school fees because the bank can't collect on the loan.)

While this article focuses on a clear and egregious example, we see elements of these problems all over the world where we try to bring "democracy" or "freedom" or believe we can "help" these countries into modern enlightenment without the benefit of almost 900 years contemplating the Magna Carta. Without honest institutions, without the "rule of law" and a societal desire of fairness, I am not sure what we can or should do other than carefully avoid.