Umesh:
A
brief reply to your question.
Corruption is a complex social phenomenon and its effects
are many. Not all of them go in the same direction - they can positive as
well as negative - and that depends on the economic context.
On the
one hand, corruption leads to bad allocation of resources in the economy.
For example, production licenses may go to a very inefficient producer
because he pays the biggest bribe; or public roads may be constructed
in a way as to benefit a few rich people rather than in a way that creates
greatest economic opportunities for transport of goods and services; or it may
lead to siphoning of a firm's profit towards payment of bribes rather than
it being used for re-investment in productivity improvement and so on
and so forth. It is clear that these effects on the economy are
unambiguously negative.
On the
other hand, it may make it possible for people to overcome bureaucratic
hurdles and red tape in a simple manner and thus allow firms
to operate and expand. This effect is positive.
Now,
if you think about it, the positive effects of corruption arise only
because the background is one of an economy or society which faces a
lot of "distortions" (such as state regulation and red
tape).
If you
look at yourself in a crooked mirror, then your face may look
deformed. However, as Chekov wrote in one of his famous stories, if your face is
actually deformed, then the crooked mirror might just adjust the
image so that the person with the deformed face looks rather good. This is one
of the most celebrated insight in economics - if an economy is already
distorted, further distortions might sometimes have beneficial effects though
such beneficial effects cannot arise when the economy is not distorted.
So,
the beneficial effects of corruption can only arise if the background
economy is distorted in certain ways (and these beneficial effects co-exist
with the negative effects).
Now we
can answer the question posed by you and your friend. The US economy does not
have the kind of distortions that corruption can mend. Therefore,
corruption can only have negative effects here. And yes, if practiced on a
wide scale, it can seriously bring down the economy.
Santanu.
-----Original Message-----
From: umesh sharma [mailto:[EMAIL PROTECTED]
Sent: Monday, August 29, 2005 9:03 PM
To: Roy, Santanu; [EMAIL PROTECTED]; [email protected]
Subject: Re: [Assam] BWeek- 500% growth in India - if corruption gone; private limite...Santanu-da,Though I get your point about corruption's bad effects I'd like to put in a word which my room mate - Abhijeet Kikkkeri- a high school graduate put up about corruption. He said that if USA were to become as corrupt as India -- definitely, in the long run -- the country will go to the dogs and the income level will go down (GDP etc) . He gave the example of Saudi Arabia - he said that due to a corrupt and self serving govt - the country has gone down from being the richest to a mediocre nation.My hypothesis was that if the corruption - in development related funds were to stop -- then the GDP may or may not go up -- but the economy will definitel;y grow -- becos as per Amartya Sen -- income level is the only indicator of growth -- but also other factors -- such as rural eductaion, roads , health etc -- which would improve if entire development funds were to be available to the poor.If tomorrow in USA the development funds for community's benefit were to fall prey to corruption - for how long can you have this rosy economy?Umesh
"Roy, Santanu" <[EMAIL PROTECTED]> wrote:There are distinct economic benefits of corruption in an economy where the state exercises rigid control on economic activities. Corruption allows free enterprise to bypass senseless state controls and carry out productive activities that contribute to employment and growth. Most of the east Asian miracle economies have sustained high levels of corruption. Even the Japanese bureaucracy is highly corrupt. If bureaucrats in these states turned honest and actually implementing the myriads of control and regulation on industry and trade that the rules and laws in the books actually require them to, there would be a marked decline in individual incentive to set up and expand enterprises in industry and trade.This is not to suggest that corruption is desirable or to deny other negative effects of corruption. The reason why corruption confers benefits is because of rigid state control and regulation on the books. If the state formally disengages from the economy, the benefits of corruption disappear and in fact, so does the scope for corruption. A bureaucrat who has no discretion is, by definition, honest.As for the presumed negative effect of corruption on distribution of wealth and income, that is likely to be true though there are instances where the rich and powerful have had resources diverted for their use by influencing politicians at the upper level and the poor have actually been able to siphon some of that by bribing petty officials at the local level. If the petty officials where honest, the rural poor might have been worse off in such cases.Santanu.
-----Original Message-----
From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]On Behalf Of [EMAIL PROTECTED]
Sent: Monday, August 29, 2005 3:14 PM
To: [EMAIL PROTECTED]
Cc: [email protected]
Subject: Re: [Assam] BWeek- 500% growth in India - if corruption gone;private limite..._______________________________________________
As I said I am no economist and was mouthing what other economist had said about corruption and its overall affect on the national economy. Amartya Sen is a brilliant thinker and his finer point has possibly been overlooked by other economists. What I understand is that the corrupt person grabs the money from the underdog directly or indirectly but as the person spends the money, it circulates and is accounted for. The overall economy of the country is not affected. I plead those who know about these things to rescue me; perhaps they could even throw their gauntlets to the noble-laureate!
Bhuban
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