Arnold Kling  

Iraq and the Corruption Trap

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Rushing in where angels fear to tread, I thought I would apply the theory of the Corruption Trap to Iraq.

Bribing an official to get something done is like paying ransom to a kidnapper -- what looks like a good short-term fix is a disastrous long-term policy.

To have a durable government that is capable of dealing with terrorists on its own, Iraq will have to escape the corruption trap. That may be a very difficult objective to achieve on a timetable.

If we are lucky, the first elected government in Iraq will include leaders who fire corrupt officials and reward public servants who do their job.

UPDATE: See one American's take on Iraqi corruption.

What you see as corruption we see as part of the normal process of doing business. Because most jobs underpay, we always take a cut. This is built into the price of the job. Iraq follows the trend of many other Arab countries -- there aren’t enough jobs for the expanding population so the government hires everyone. The government can’t afford high salaries for so many people, so the pay is low. Because the pay is low, it’s expected that you accept bribes and cheat to get by. Everyone knows the rules, even the government.

Typically, we’ll take a slice of 10% to 15% off the top of a contract or a work order. Nobody will really get too upset if we keep things in this “normal” range. If we go too far, and take 30% or higher, then we know we are stepping over the line. However, unless you catch on we’ll take what we can get. If you’re too stupid to figure out what we’re doing, it’s your fault, not ours. There is no real shame in corruption; after all, we’re looking out for our families as expected.

The American knows what he is up against. The question is whether or not it will change.

Comments and Sharing

CATEGORIES: Public Choice Theory

COMMENTS (11 to date)
Dan Landau writes:

Corruption, like so many things, is a matter of degree. There is corruption everywhere in the world, but the failure governments have much more than the moderately successful ones

daveg writes:

I live near Mexico, and I have to say corruption is on of the greatest scourges known to mankind. Due to corruption this resource rich nation next to the one of the wealthiest trading partners imaginable can't perform simple tasks like building roads and policing itself, much less build up a competitive economy.

The police stink to high heaven. The "mordita" (bribes) is still a regular practice today. My brother had to pay a Mexican police officer under threat of going to jail less than a year ago. Every few years you hear about a tourist being raped by the police.

An acquaintance of ours who lives down there had her house robbed the day after she had some inspection work done. They were mad at themselves for not expecting this and preparing for it before hand! This is the way of Mexico.

Mexico city has a thriving kidnapping industry. I won't even mention the drug trade.

The result is that, despite the huge expense of real estate and living costs in my area American companies are hesitant to build or do any meaningful amount of business there. There is no rule of law, no ability to enforce contracts, etc.

And the people suffer, hard. You literally can see neighborhoods of little more than cardboard shacks even today, although bsome more modern real estate development is finally taking place is some areas. We all know about the massive influx of the suffering people into the US.

While we all argue about capitalism, communism and dictatorships, corruption does not get the blame it deserves for the misery it causes.

I honestly think we should consider merging baja California with the rest of California. The population of Baja is relatively small and the land area rather large, and the amount of coastal area is huge!

If we can justify “democratizing” Iraq because the people were oppressed by Saddam I don’t see why we can’t justify “democratizing” Baja. Heck, we could offer a buy out to the population and have a vote. I have no doubt the people would vote to “join the union.”

Robert writes:

But here's the rub: let's say the police are corrupt, and you are an executive official recently elected on an anti-corruption platform. You tell the chief of police that certain practices will not be tolerated anymore. (Let us be generous and say you have the ability to enforce this lack of toleration.) He laughs.

You can enforce a zero-tolerance policy against corruption, but if you do, part of the police force quits because policing isn't as lucrative as it used to be. If the population isn't law-abiding, the police force is now under-staffed, and your successor will run for office on a "tough on crime" platform.

You can enforce a zero-tolerance policy against corruption, at the same time increasing police compensation to make up for lost "income." But only if your administration has spare cash floating around in the fiscal policy, or if the populace will tolerate more taxation.

Or, you can face reality and let the status quo continue.

daveg writes:

You can enforce a zero-tolerance policy against corruption, at the same time increasing police compensation to make up for lost "income." But only if your administration has spare cash floating around in the fiscal policy, or if the populace will tolerate more taxation.

No doubt. The salaries for mexican police are such that you have to take bribes in order to make a living.

But, Mexico has sufficient oil money that it should be able to pay its police enough money to demand that the graft must end.

And if it can't be done all the more reason for the US to assist them with a buyout plan.

Daublin writes:

It seems to largely be a spiritual issue. No one person is in a position to force the issue, not even the president. Continuing Robert's scenario, suppose that the chief of police says "okay", but then simply doesn't do it?

In the best of times, a power hierarchy is largely a shared fantasy. People down below do what they are told just because they think they are supposed to. In a corrupt hierarchy, people by assumption do not necessarily feel that urge. An honorable leader at the top can stop overt transgressions but no more.

The only way out seems to be for a group of people to try and build something better together. That requires a shared leap of faith--a movement, if you will.

How interesting. A spiritual issue being discussed on an economics blog...

daveg writes:


Does lack of corruption fall into one of those economically unexplainable activities such as voluntary tipping at a restaurant?

Roger M writes:

Corruption is definately the most serius problem in Iraq, after terrorism. Free markets will mean nothing but disaster and looting, as happened in Russia, if property isn't secure and corruption reduced to Western levels. Check out this description of corruption in the Arab world by another Arab:

Ann writes:

"The only way out seems to be for a group of people to try and build something better together."

I lived in Hong Kong for several years. One of my main conclusions on the differences between Asia and the US was that the US, in many settings, had managed to reach a cooperative equilibrium (yes, such as one where people leave tips even if they don't expect to come back; it's the 'don't fink' outcome to the prisoner's dilemma).

On aspects such as not littering, or waiting in line for the bus rather than shoving to get on first, or not making a mess in a public bathroom, the best joint outcome may not be individually rational. But it's nicer overall to live in a society where most people make this extra effort, so everyone actually benefits.

On corruption, Hong Kong went a long way towards eliminating corruption. A key element in achieving this (besides penalties for those caught and reasonable pay for police) was public relations campaigns. There were ads and TV commercials, and every year the Independent Commission Against Corruption (ICAC) would work together with a local TV station (TVB) to make a made-for-TV movie about someone who got caught and how awful it was.

After all, if everyone else is taking bribes and kickbacks, then it's probably optimal for you to do it also. But if you can help everyone understand the value of the cooperative equilibrium with low corruption, and if you can convince everyone that everyone else is moving towards that also, you may be able to escape the corruption trap.

If I had a fortune and wanted to donate to a good cause, I would hire an Iraqi PR firm to do a public relations campaign explaining to people why society as a whole is better off if everyone avoids corruption. It's possible to reach the cooperative equilibrium, but it's not always easy, and it requires coordinating expectations.

Roger M writes:

Good points, Ann. On the other hand, the ethnic Chinese in Asia seem to have used corrupt officials to their advantage. In virtually lawless Thailand, Indonesia, Philippines and China, ethnic Chinese businessmen have used family connections and bribes to protect their investments from criminals and from government confiscation. With a corrupt judiciary and government, they have thrived by knowing whom to corrupt, when and how much.

Ann writes:

There were a lot of papers by Chinese academics a few years ago claiming that corruption could be good. Their models began with a setting where nothing was getting done because of the bureacracy, and then assumed that bribes would be used only to allow projects to occur that were good but had been blocked in the past. It was a very limited (rigged?) analysis.

In some limited cases, corruption may be a second-best solution, but it's never first-best and frequently causes problems. Isn't there a saying about second-best solutions - that they're usually designed by third-best politicians and enforced by fourth-best bureaucrats?

The ethnic Chinese in Malaysia, Indonesia, etc. may have helped themselves through corruption, but that didn't help the system or the country as a whole. The rich may benefit from corruption, and the poor are struggling to survive and can't take time to worry about it. But it's hard, if not impossible, to develop a thriving middle class with too much corruption.

The rule of law, freedom of speech, certain rights in general including the right to have the law enforced even against the rich, all are important to the middle class and help the entire economy to thrive. But perhaps part of why it's hard to escape the corruption trap is because countries caught in it don't have much of a middle class.

Roger M writes:

Ann, Exactly right! Rather than change corrupt governments, which they couldn't do because they were ethnic minorities, the ethnic Chinese cooperated with the corruption in order to protect their property. But as you wrote, it's a short-term solution. China must reduce corruption and establish the rule of law or it will hit a brick wall on its way to becoming a modern nation.

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