Can corruption be good for growth? — Branko Milanovic

Yuen Yuen Ang, political science professor at University of Michigan, has written an ambitious book. “China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption” is much more than an observer might infer from its title. Its goal is to redefine corruption, reexamine the relationship between corruption and economic growth, and analyze (often empirically) the role of corruption in China’s development during the past 40 years.

Ang begins with two important points: to better understand it, corruption needs to be unbundled into different types because they are likely to have different effects on economic growth. Second, it needs to be weened away from a Western-centric view that, in part because of inability to distinguish between different types of corruption, tends to overlook typical Western corruptions (say, in lobbying or revolving doors between private and public sectors) and present a biased view whereby corruption exists only in less developed economies. That view, Ang argues, leads to a mistaken view that corruption is bad for growth (despite dearth of confirming empirical evidence) and to an idealized view of development characterized by “inclusive institutions” (Acemoglu-Robinson) or “open-access societies” (Douglass North). They are both criticized by Ang.

She proposes a four-type breakdown of corruption. First, petty theft (pay bribe rather than fine); second, speed money: street-level corruption (get a shop license faster); third, grand theft (embezzlement on a large scale—Nigeria’s Abacha); fourth, access money (giving permissions to capitalists to engage in big projects). Only the latter, in Ang’s view, is desirable....

The concluding sentence is most interesting.

Eventually, one hopes, economists will move from their faux-moralizing attitude toward corruption and begin to treat some forms of it as rental income.

Global Inequality

Can corruption be good for growth?
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Stone Center on Socio-economic Inequality, senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace