How much corruption is good for economic growth?

The Pensions and OPM scandals are still running in the press and only a few people are so far under suspect.

How The recent World Bank economic update for Uganda indicates the country’s economy grew at an average of 7 per cent for two decades until the financial year 2011/12 when the effects of the global financial meltdown, the increasing food and oil prices and excess liquid spending of the state on security and elections worked together to cause high double-digit inflation and slowed economic growth.

As the report mentions, high inflation and a very low economic growth rate last happened concurrently two decades ago, in 1992, at the start of the radical implementation of the structural adjustment policies.

Growth in 2012 was recorded at 3.4 per cent, much lower than all other East African states.
During the two growth decades, Uganda also experienced rising corruption. In this case, I define corruption as selfish use of public office and resources for private gain with limited or no moral and legal restraint. And so, at the tipping point of growth, corruption out competed growth and has been so since 2010, with more news about corruption than growth and development.

The Sunday Monitor of Feb 24, 2013 chronicled some of the most prominent corruption scandals in the last two decades. It is very hard to ascertain all the figures but it is widely acknowledged that these figures are staggering.

In 2012, Transparency International (TI)’s East African Bribery Index, found Uganda topping the list with 40.7 per cent of respondents answering in the affirmative to bribery compared with only 2.5 per cent in Rwanda.

Uganda, in the 2012 Corruption Index scored 29 per cent making it 130 out of 174 countries. In the indicator of control of corruption, Uganda scored -0.89 reflecting how public power was used for private gain and how the government uses legal systems in place to control it.

This score ranges from 2.5 to -2.5 meaning that the more negative the score, the more public power is misused for private gain. Almost all sectors of the economy have witnessed large sums of money lost or misused and very few political or bureaucrats brought to book.

The National Agricultural Advisory Services (Naads) has had many scandals concerning the quality of inputs and actual programme management. The recent scandal about goats will cost the government an estimate of $4.5 million. The health ministry has had recurring scandals with the Global Fund which led to the suspension of about $367 million in grants in August 2005 and more recently, imprisonment of a prominent politician.

The defense ministry has had its share with the ghost soldiers and junk helicopters while the local government ministry has the infamous LC bicycle scandal.

The Pensions and OPM scandals are still running in the press and only a few people are so far held as suspect. These and many other examples, seem to indicate that corruption has a correlation with economic growth.

Whilst some economists argue that corruption can be good for an economy, Uganda’s unprecedented corruption levels might have started slowing down the economy. While drawing the connecting line between such high levels of corruption and economic growth I therefore ask the questions: Is corruption bad for economic growth? How much does corruption stifle economic growth? Or how much corruption is good for economic growth?

In other countries, it has been argued that high levels of corruption can concurrently co-exist with superbly impressive economic growth. Take China, for instance, Andrew Wedeman, in his recent book, The Double Paradox- Rapid Growth and Rising Corruption in China presents what he calls “Developmental Corruption” that spurred China to unprecedented post-Mao economic growth.

India, also known to be one of the most corrupt countries has over the last two decades, risen ahead of some of the biggest economic superpowers.

For the Uganda case, I reckon that since most of the corrupt officials re-invest in the economy, in real estate, education and other sectors, they have hugely contributed to economic growth.
However, the downside of this argument is that for any project in Kampala sustained by corrupt resources, there are many school children without school necessities, many people dying without medicines in hospitals and ultimately many people dying from preventable and already budgeted and resource-allocated causes.

In addition, corruption, has been characterised by few people taking so much resources meant for so many people. This inherently increased inequality and reduces the capacity of the deprived to productively contribute to economic growth which in turn leads to reduced levels of growth.