Global Connect

If they are so good at it, why blame poor countries for it?

There is a fairly famous story in the political economy of development regarding corruption:

There are two high level government officials from two different developing countries.  Country B’s official visits Country A to see the progress they have made in implementing many of the Washington Consensus economic reforms. Upon arrival she goes to visit Country A’s official who has recently received a grant from the World Bank to develop a modern highway to the countries port, linking its resource development industries from inside the country (infrastructure improvements).  The loft outside the capital city is stylish, modern, European- NOT cheap.

B’s official asks A’s: “How can you live so lavishly in such a poor country?”

A responds: “Look out the window and tell me what you see.”

B: “I see a highway being constructed through a forest.”

A responds: “I see 20%.”

A few months later, Country A’s official visits Country B under similar circumstances.  Walking into Country B’s place, it looks even grander than his.

A exclaims: “Your country is even poorer than mine!  How can you afford such nice things?”

B: “Look out the window and tell me what you see.”

A: “All I see is a forest.”

B: “I see 100%”

This is the sort of corruption that hinders development, and it is one that we are indirectly responsible for- given that we as citizens of industrialized countries give efficacy to our governments which give efficacy to places like the World Bank and IMF. Foreign aid given to develop government and private capacity is the wrong kind of capital we can spend in our development strategies towards LDCs (least-developed countries). What really needs to happen is industries which can be competitive on the world market need to be given the chance to do so.  Please read my blog about agricultural subsidies and you will see why (it has a pretty good discussion on Facebook’s Farmville as well). No one will be able to convince most economists or political scientists that trade reform isn’t a good place to start if we are to develop a coherent strategy towards the global South.

Corruption can’t be blamed for the woes of LDCs, but let me just say I’M NOT ADVOCATING CORRUPTION AS A MORAL ALTERNATIVE TO DEVELOPMENT.

Let’s take 2 examples: imitation of products and the so-called “greasing the wheel” argument

1. Imitation of products is a natural result of product-process innovation.  Ever wonder what happened to VCRs? In short, the US invented them, they showed up on the Japanese market, they improved it through their own technological innovation and started selling it for cheaper on ours. Then- DVD players came about. I’m glossing over a lot of important details, but the notion is still there. Imitation can be good for development. It can create industries in countries to export. Exports = good for development and it can lead to diversification in the economy.  Look at Japan now. Looks like they are sitting next to us at the G7 (or 8 or 9 or 20 now?)

2. Greasing the wheel is a phrase you might use for such things as…ummm… bribes. We don’t like it here in the US for moral reasons, but if you have ever been traveling abroad- especially in an LDC- it is likely you encountered it at some point. In the larger, more grander scheme of things, bribes can be used to give preference to certain companies and industries. This is probably what happened in the development of keiretsu, or Japanese conglomerates who had much contact with government. To this day, keiretsu is still hotly debated. Infant industry protection is important in development, so greasing the wheel can’t hurt. It’s just not a good idea to keep up with those practices.

Corruption is bad, but it isn’t to blame. What you need to remember about corruption is that it is just as much a political question as it is an economic one. Blaming the woes of LDCs on corruption, when the industrialized world doesn’t give LDCs a strong chance at dipping their feet in the big golden capitalist pool is hypocritical. After all, we didn’t develop because of a free market. So, blame yourselves for supporting the Farm Bill, tariffs, NTBs, and not protecting your citizens from the social ills of not having a safety net when we finally get that free market we are looking for.