Wednesday, September 19, 2012

Reducing Corruption

Corruption is a significant problem.  It directly reduces the lifestyle people deserve and it greatly impacts economic progress.  Poor countries often are hampered by a large amount of petty corruption and large political corruption.

It seems to me corruption normally reduce as more wealth is created in the society.  As more people have power it is harder to enforce petty corruption against them.  And the effort taken to extract corrupt gains can be productively deployed more effectively to get higher gains doing less corrupt things.  So if you are competent you go earn money by providing value.  Leaving bozos and super lazy people to be corrupt who are not very good at anything they try so they are lame at being corrupt too.

Obviously this doesn't work perfectly but it seems to me that the correlation between wealth (especially with good wealth distribution) and reduced corruption is high.  It is true this is a dynamic process and what leads to what is not as clear - as one gets better normally the other does.

I do believe one good strategy is just to pursue economic growth and good things will happen.  It can be pretty ugly at first - it might not seem to be working.  One thing that happens is there is so much more wealth that at first corruption can seem to be growing because the corrupt are richer than ever.  But I think, even then, the level of corruption is really going down.  It is a lower proportion of the economy even though it grows in absolute terms at first.  Over time 10-20 (or more) years significant declines are made as those with power are not willing to tolerate systems burdened by huge levels of corruption.

A free press is a huge help.  Strong support for entrepreneurs is a huge help (versus big established businesses that can actually use corruption to suppress competition - this happens still in the USA all the time, using the congress to create and allow monopolistic markets for your industry).

Petty corruption is the type that is most easily reduced by wealth. The corruption that is more easily hidden with back-room deals are tougher to reduce. In my view this type of systemic corruption has increased in the USA in the last 30 years. There is more and more very economically damaging practices that are only possible with the cooperation of "leaders" and the situation doesn't even seem to be a serious consideration for most people.

Petty corruption (paying cash to a police officer to get out of a ticket [or to get out of a false ticket], demanding cash to process your passport, demanding cash to approve your building permit) is not very high in the USA I don't think (or Northern Europe, Singapore, Japan...). But corrupt practices at the core of how our financial system is run, how legislation is written... are extremely damaging. So we have largely eliminated corruption from most people, but leaders seem have taken to corrupt practices with a new zeal lately - unfortunately. In the USA we can stop this whenever we want. Just vote out the corruption. But it is so institutionalized in the political parties it doesn't seem likely anytime soon.

The leaders have figured out the way to make corrupt practices palatable is to impose the burden of the corruption on society and pay the benefits to a small group that then pays the politicians for the benefit they were provided at the expense of society. For those interested in corruption in a wealthy society this is the smart model to use. So at least our leaders are smart at figuring out the best way to be corrupt given the system they are operating in. This likely means they would react sensibly if we were to vote against those politicians providing benefits to those giving them cash, at the expense of society. But until then they seem to be interested in how to maximize their gain, not in ethics or helping society.

My comment on Reddit discussion on reduction of corruption throughout history.

Related: Taking What You Don’t Deserve, CEO Style - Why Congress Won’t Investigate Wall Street - Systems Design Can Create Perverse Incentives - Society is being shaped for us while we are busy making other plans

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