James Surowiecki of The New Yorker asks if corruption can have net economic benefits and if so, whether the conditions for corruption to be beneficial exist in Iraq:
The Payola Game, by James Surowiecki, The New Yorker: In the final years of Saddam Hussein’s dictatorship, he earned more than $1.8 billion in kickbacks as a result of the United Nations’ oil-for-food program. He brought in billions more by smuggling oil out to Jordan and Syria. Across the country, graft was a precondition of doing business. Saddam’s exit and the arrival of free-market reforms were supposed to change all this... Yet corruption remains ubiquitous. In the past couple of years, more than a billion dollars has gone missing from Iraq’s Defense Ministry. Hundreds of millions are being skimmed off the country’s oil sales. Banks, utility companies, and passport offices routinely require baksheesh to get things done. Transparency International ... labelled Iraq the most corrupt country in the Middle East.
This is hardly surprising. Corruption usually flourishes in the wake of an authoritarian regime’s collapse. ... When it’s unclear who’s in charge, rules become open to manipulation, and bureaucrats, uncertain about their jobs, tend to put their own short-term interests first. In Iraq, these problems have been exacerbated by other factors. ... economies that depend heavily on natural resources are generally more corrupt, as are wartime economies.
Corruption may be ethically unsavory, but, according to some economists, it may also be economically beneficial. In a country where elaborate bureaucracies make it hard to start companies, import or export goods, or simply get a passport, bribes can cut through red tape, serving as what’s called “speed money.” Bribes can also motivate bureaucrats who would otherwise shirk their duties... And corruption isn’t necessarily an obstacle to economic growth. In the postwar years, countries like South Korea and Indonesia were bastions of cronyism and graft but saw their economies boom; today, China and India are two of the world’s fastest-growing economies... So perhaps Iraq’s Commission on Public Integrity should simply accept that corruption provides the grease to keep the wheels of commerce turning.
It would be comforting to think so. And there are conditions under which bribes seem to work well. When power is in the hands of an authoritarian government that keeps bureaucrats under firm control, the state is able to act like a ... monopolist: its employees charge prices that are high but not too high, and are able to deliver what they promise. So bribe-takers collect what amounts to an unofficial tax and bribers get what they pay for. In a country like Iraq, though, where the state is weakened, corruption tends to be more anarchic and less effective. Instead of monopolistic corruption—a single bribe-taker representing the government—you get competitive corruption: everyone has his hand out. ... [T]o open a business in Russia in 1991, for instance, ... bribes had to be paid to local and national officials, fire inspectors, the water department, and so on. Apart from the sheer expense, in a situation like this it’s unclear whether a bribe will have any effect. As a result, people either decide against doing business in the first place or are driven underground, into the so-called “shadow economy.”
Furthermore, even if corruption can be a useful means of bypassing inefficiencies in the short term, in the long term it tends to create inefficiencies of its own. Bribing, it turns out, doesn’t always speed things up ... a vast study of twenty-four hundred companies in fifty-eight countries, Daniel Kaufmann, of the World Bank, and Shang-Jin Wei, of the I.M.F., found that the more a company had to bribe, the more time it spent tied up in negotiations with bureaucrats. Graft also encourages government officials to keep complicated procedures in place... So corruption isn’t just a product of bad institutions and policies; it also helps cause them. Almost every study done in the past ten years has found that, on the whole, corrupt countries grow more slowly and have a much harder time attracting foreign investment. And work by Wei suggests that even the exceptions, like China, have probably succeeded more in spite of corruption than because of it.
Fighting corruption, then, is not only an ethical issue but an economic one. The problem is that most anti-corruption campaigns fail. In part, that’s because the task is absurdly hard. But it may also be because anti-corruption campaigns tend to target low-level corruption rather than attacking what economists call “grand corruption.” ... these campaigns have assumed that cleaning up day-to-day graft will make all corruption less acceptable. Yet a study by the economist Eric Uslaner shows that it’s high-level graft that really shapes citizens’ perceptions of how corrupt their society is. Corruption fighters in Iraq, in other words, should ignore the greedy bureaucrats at the electric company and concentrate, instead, on holding high-level officials accountable for the billion dollars missing from the Defense Ministry. Granted, this is probably an unrealistic goal. But in Iraq today what isn’t?