A very interesting variation on the free market
theme.
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FREE MARKETS HIT GROWTH
Mick Hamer
If developing countries join the global economy too soon, they risk
becoming trapped in a cycle of poverty and corruption, a new analysis
suggests.
A number of empirical studies have shown that poorer countries experience
higher levels of corruption. Badly paid officials are easily tempted by
bribes, the reasoning goes, while the well paid officials in richer
nations risk losing their comfortable salaries if they are caught taking
backhanders. But if corruption so bedevils developing nations, how do
they escape and become rich?
Daniele Paserman, an economist at the Hebrew University of Jerusalem,
Israel, and his colleagues say they have found a simple answer. If a poor
country opens up its economy to the outside world too quickly, the flow
of money across its borders encourages corruption, which in turn hampers
growth. But those countries with closed economies can grow until they can
afford to pay their officials well. This runs counter to the conventional
wisdom that free markets across borders encourage development and cut
corruption. "We are highlighting one of the dangers of being more
open,"says Paserman. "But there are other
benefits."
Paserman's team tested the idea by gathering data on economic output in
the late 1990s from 165 countries. They adopted a recently developed
index of corruption, which pools the views of various organisations on
how corrupt individual countries are. They then classified countries as
open, western-style economies or closed economies. To do this they used
several criteria, including the strength of each country's black market,
which always flourishes in closed economies.
In open countries there was a strong link between poverty and corruption,
with poor countries far more corrupt than rich ones. But in closed
countries they found no correlation.
The most plausible explanation for this disparity, says Paserman, is that
in a closed country, corrupt officials are obliged to spend their
ill-gotten gains at home. Even if this money is spent on the black
market, it still helps boost the nation's economic growth. But in open
nations, corrupt money leaves the country, doing nothing to relieve
poverty, so encouraging more corruption.
Andrew Simms of the New Economics Foundation, a London-based think tank,
says developed countries could take some steps to help developing
countries join the global economy. Forcing imported money to be placed
within banks for a fixed period would help track dirty money and deter
money laundering.
New Scientist -- 11 October 2003
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