Is corruption the leading cause of poverty?

During my professional experience in 10 countries across 3 continents, I have had the opportunity to listen to many opinions and beliefs on the topic of corruption and its implications on economic development. One being that the corruption is unacceptable in a prosperous and progressive society. A collective and homogeneous thinking that corruption leads to all sorts of bad things including crime, poverty, diseases etc. is pretty much believed by every faction of this world.

There is a common belief that countries are poor because they are corrupt and if the country stop being corrupt, they will become prosperous. Moreover, the politicians and administrators, irrespective of the type of government, are generally the primary sources of corruption, even at the bottom most level of the society. We do see countless times the leaders of democratic or autocratic government accused of bribe, corruption or crimes against humanity. In Africa, some corrupt mafia dictator ruling the country for years exploiting natural resources to fund wars. In Asia, (especially in India, Indonesia, Myanmar, Thailand and Cambodia) cronies gaming the entire institutional framework to fulfill their desire of a fat Swiss bank account.

As a matter of fact, it does make common sense. If the police stops taking bribe, hospitals start working efficiently, the fiscal budget reaches its intended destination, the infrastructure allows efficient flow of goods and services, the revenue from natural resources is distributed to local communities, the common benefit to the people would start improving. With this idea, many civil society organizations such as Transparency International, publish corruption perception index and lobby with western powerhouses to bring about a worldwide coalition to end the “devastating” impact of poverty by taking steps to establish transparent and honest governments in target countries. Their efforts and hardship in bringing a transparent and efficient governance are commendable. When corruption reaches the stage of anarchy and fragility, it does in fact, lead to extreme human suffering and bone-breaking inter-generational poverty. However, in a relatively stable country, many other factors contribute to sustaining extreme form of poverty.

If we study the history of socio-economic development and indicators across different countries, we start to see patterns, which indicate that corruption is not the leading cause of poverty. First of these patterns is geography. The geographic belt between the tropic of Cancer and tropic of Capricorn is far underdeveloped and poor than the semi-tropic and temperate regions. This climate creates significant barrier to the development of human and economic capital. The tropical climate is ideal for the evolution and spread of life threatening, yet preventable, diseases. Malaria mosquito, for instance, becomes active when the temperature is above 18 C. In this region the temperate is almost always above 18 C, creating an ideal condition for the Anopheles mosquito to evolve over time and become resistant to mosquito replants and malaria drugs. The malaria stain in Africa is much stronger than that in Southern Europe. The socio-economic cost of malaria, of which medicine is just a small part, exceed far more than commonly understood. Malaria and other similar diseases present in this region stunt the mental growth of children and are the leading causes of infant mortality rate in this region. Families tend to have more babies to compensate for the higher likelihood of children dying. This leads to further malnutrition and stunted growth, diminishing the lifelong earning capacity of the child. The physical, mental and economic implications of such diseases on children are enormous.

Many other geographical factors lead to poverty and suffering that we normally associate South Asia and Africa with. I will not go through all of them but explain three more, which will play a crucial role in future. The natural agricultural productivity (without fertilizer and irrigation) in these regions is dramatically lower than that in temperate region. Direct exposure to sun for a prolonged period has deteriorated the fertility of the soil in this belt. The extreme dry weather has reduced the moisture content of the soil. Unlike in temperate climate, the precipitation at night in tropical and sub-tropical is not sufficient to replenish the moisture content of the soil. Both these factors are extremely crucial for producing enough food to feed the high density population in the belt. This geographical challenge is is even more relevant for countries in sub-tropical close to the tropic of Cancer and Tropic of Capricorn. Increasing agricultural productivity through artificial measures (chemical fertilizers and irrigation) is a complex topic and requires deep understanding of the fragile ecosystem. The extension services that promote the right use of such artificial measures is missing in areas around this belt, leading to either no use or inappropriate use of chemical fertilizer and pesticides (as we are seeing in Asia), completely destroying the fertility of the soil and complex water ecosystem.

Another important geographical factor is the climate change. All twenty countries most vulnerable countries to climate change are from this belt. Brazil, home to mighty Amazon, has already started rationing water since their water crisis in 2014. In Malawi, one of the poorest countries in the world with GDP per capital of USD 400, many water ponds that have existed for thousands of years have dried out. Country is spending huge amount of money to dispatch drinking water, let along water for irrigation, to remote and inaccessible areas. It is one of the most beautiful countries I have seen. Wild animals still roam around freely in towns and cities. Country’s ecological footprint is close to negligible and is a net carbon sink. It is quite unfortunate that countries such as Malawi are paying the price for the GHG released by rich countries. Under no circumstances can countries such as Malawi mitigate or adapt to the effects of climate change and poor countries are almost certain to become poorer unless drastic measures are taken now.

The location of countries within these regions also play a crucial role in the economic development. Counties such as Bolivia, Tajikistan, Rwanda are landlocked and have an unforgiving terrain, making it painfully expensive to connect to the outside world for trade and maintain the basic infrastructure such as rail, road, power grid and also to provide basic services such as health, education to remote areas. The countries are not particularly rich in high worth natural resources (international selling price/volume or weight) such as diamond or gold to compensate for the high trade cost. Not only its expensive to build the basic infrastructure, tropical rainfall (which is usually much intensive), coupled with landslides and soil erosion, depreciates the cost of infrastructure much faster than that in countries in the temperate zone such as Germany, UK, France etc.

Second of these patterns is colonialism. Countries that were previously ruled by colonial powers, mainly western superpowers, tend to be poorer than countries that were not. For multiple reasons, the fundamental building blocks required for socio-economic development were not built by the colonial powers. Before industrial revolution, the GDP per capita in the Europe was around four times than that of Africa, mainly due to geographical reasons. Now it is around 22 times- much higher that before even when it is much easier and cheaper to transfer technology than it was two centuries ago. Colonial powers built infrastructure to support the extractive industry, which gave them huge capital surplus to enjoy higher standard of living and fund wars back home. Railways and roadways carried precious coal, timber, cotton, tea, metal, diamond from the source to the nearest sea-port. Other parts of the countries, that didn’t fall along the trade route, remained largely inaccessible. Additionally, millions migrated to rural areas, particularly in Africa, for the fear of slave trade, further cutting themselves off from accessing infrastructural and other basic services. Thus, as late as 1950-60s, the infrastructure remained largely undeveloped, while colonial powers by then had built roads, rails, communication, urban cities etc. For nearly two centuries, from the time the industrial revolution was started to the time countries gained independence, very little progress was made in Africa and Asia.

The biggest impact of colonialism was perhaps on the lack of human capital. In colonized countries, schools were non-existent and those that did, the quality was as good as nothing. Thus the native population remained illiterate. Post independence, in India, there were a handful of highly educated politicians but the middle management and administration was clueless. Many Asian countries that were ruled under democratic principles post independence, went into protectionism mode for the fear of foreign invasion. African nations, especially the francophone countries, were in complete shambles. No one knew the abcd of social and economic development. The departure of colonial powers created a power vacuum, which was filled, as usually is the case, not by the one who could wield the most intellect but by the one who dominated the most. This lead to civil wars, some liberation front fighting for some sort of freedom they have no idea about, with the support of western governments, which were influenced by big oil companies and banks. This anarchy is still prevalent in many countries and a peaceful environment required to develop precious human capital, in the form of basic schooling and health services, is still lacking.

Many other endogenous factors, which are as important as corruption if not more, contribute to sustained poverty and suffering. Effective Utilization of natural resources, fiscal policy, pandemics (HIV and recently Ebola), access to big markets such as US, China, Europe, all play a role in giving nations competitive advantage. Therefore, corruption is not the leading cause of poverty. It is a set of endogenous and exogenous factors, most of which are out of our capability to rectify, that has lead to the state of poverty we are in.

Here is an example to support the arguments presented to far. Rwanda, a land locked country in East Africa, has no natural resources and no human capital or infrastructure was built when ruled by Belgium. It is very close to the equator and doesn’t have easy access to big markets. Rwanda ranks higher than many European Union Countries and most East European countries in corruption perception index (CPI) published by Transparency International, meaning that Rwanda is less corrupt than Croatia, Italy, Greece, Romania, Bulgaria, Serbia, Montenegro, Macedonia, Albania and Ukraine. However, Rwanda ranks much lower than all these countries in almost all socio-economic indicators such as GDP per capita, HDI, life expectancy, Infant mortality rate, literacy rate etc. We can found many similar examples. Thus, the idea that countries are poor because they are corrupt doesn’t hold true either in theory or in reality.

Does it mean that the countries in this band are doomed to remain poor? The answer is No. We should first stop considering good governance as the magic bullet and accept the fact that such countries will never reach the high standard of living enjoyed by the European countries. Developed countries should stop making excuses of corruption to wash their hands off and must stick to their commitment to contribute 0.7% of their GDP to ODA. Second, it is possible to achieve reasonably good happiness level and well-being (measured in terms of HDI) even with low income per capita. One such example is Sri Lanka, which has HDI close to that of developed countries and GDP/Capital close that of developing, started implementing right reforms three decades ago. Third, the governments is poor countries should develop a comprehensive development strategy based on the competitiveness of the country. Rwanda, for instance, ranks second in the list (after South Africa) of “Ease to do Business” countries in Sub-Saharan Africa and is also a top destination for tourism in Africa. Rwanda achieved this by leveraging technology to remove unwanted bureaucracy, implementing various structural reforms, and restructuring the financial sector. Rwanda has also invested heavily in education and health. The efforts of Paul Kagame, the President of Rwanda, has transformed the country from a war torn hopeless state in 1995 to one of the examples that other African nations can follow.