Corruption vs Poverty – the misunderstood connection!

Complaining about corruption is just the thing everybody does. But is it the root cause of poverty or a symptom of it or something else altogether? No doubt a nation that is poor with great inequality is likely to have high level of corruption. But often it is assumed that corruption is the root cause of poverty and therefore attacking corruption would somehow remove the poverty. Is that really true?

Transparency international has a Corruption perception Index and as per that, the world’s no.1 economy, the US, is on a rank 19 and the no. 2 economy, China, at rank 80. India is ranked 94 and the lowest rank I think is Afghanistan.  Small prosperous and homogeneous countries like Denmark and New Zealand are ranked 1. Even a very poor country like Rwanda is ranked 53, perhaps because it has a committed and clean leadership of Paul Kagame.  Singapore, known for its great law and order and very high per capita income is ranked 5. So there are factors at play beyond poverty and inequality. Large heterogeneous nations might be more corrupt. The leadership plays a role too and could it also be a cultural issue? All corruption indices measure corruption in the political class, police system, bureaucracy etc. but in my experience the common man is also corrupt in countries with high corruption perception index. So purging corruption need not just be a top clean up act. If societies are to rid themselves of corruption, a general awakening among people is just as necessary, but is a factor often overlooked.

But the key point here is that the connection between poverty removal and corruption removal is tenuous at best. Poverty removal seems to have greater dependence on market reforms, industry friendly environment and infrastructure development. Of course if corruption is way too high, it would hamper the business environment but within tolerable levels, it may not be such an impediment. So many times armies take over countries or new parties launch themselves claiming they’ll remove corruption and hence poverty. That may not happen as corruption is just one of the symptoms of poverty, not the main causal factor.

In India too there were huge protests by Anna Hazare, Kejriwal and team against corruption but in reality India’s corruption index has not gone up, rather is down slightly. There is a lot of residual corruption (among the common man as well) but like it or not, it is not on the rise. Making noise about it is generally a good thing but India’s GDP growth is hampered more by active opposition to industries outside the metros as well as poor infrastructure which the voter does not give any weight to while voting. Now, don’t mistake me, it would be a good thing to attack corruption but the point I’m making is that it is neither the root cause of poverty nor going up as is generally presumed.

In contrast, China has scored high on GDP growth by investing in infrastructure over 2 – 3 decades as well as setting up industries in SEZs. People were opposed to it there also but then CPC doesn’t give a damn as it doesn’t have to win elections every 4-5 years. So it could simply go ahead with the development agenda and hence poverty was reduced greatly despite corruption remaining same as ever. As a different example, Russia, owing to its petro resources and small population base has a high per capita GDP but is ranked 133 on corruption, just slightly ahead of Nigeria and Pakistan at rank 139.

So corruption purges will not alleviate poverty as development depends upon other aforesaid factors. We may not like to hear this but countries can grow rich without attacking it also and countries can remain poor despite attacking it (if they don’t do other things).  

Now, now, don’t mistake me, corruption is a bad thing, a very bad thing. It would be good to bring it down as that would help the progress of a nation socially and economically! So yes down with corruption but I thought I’d just put it in perspective.