The culprit behind persisting poverty in the world.
by Christie C. Cheng, student at the University of Hong Kong.
This article offers analyses the failure of economic development in countries where resources availability do not seem to be a problem. Christie argues that the deeply ingrained corruption in many countries is at the very roots of slow economics. Indeed, foreign aid and internal capital are misplaced and misappropriated, which creates a vicious cycle of poverty and undemocratic behaviours.
Widespread international trade and aid provision in recent decades promise positive economic growth and growing prosperity across countries, especially in poorer nations. However, while countries such as China and India hurtle towards affluence; some countries remain at the bottom with a national income that has barely budged in the past few decades. The abundance of trade and aid means these countries in fact do not lack of resources to invest in infrastructure or education, elements believed to be essential drivers of wealth. What is it, then, that constitutes the difference between countries that have risen to join the powers, and those that persist in a state of poverty?
Money, which gives infrastructure, education, and technological resources, is no doubt much needed during a country’s pursuit towards wealth, demonstrated by its abundance in more affluent countries and scarcity among poorer countries. But this picture fails to take into account the backbone of a country that is responsible for allowing investment – the structure and political interest of the governing body of said country. In a country where incompetent political institutions exist, and where skewed political interests and corruption prevail, investments are discouraged to be made and international aid given to no avail. Widespread corruption is thus the culprit behind persisting poverty within poor nations such as Cameroon, Nigeria, Nepal, and many others (Garcia, 2014).
As mentioned above, wealth comes from investment, especially in infrastructure, education, and technology, because these give rise to man-made, human, and technological resources required for growth. According to the model of diminishing marginal returns, this mechanism of growth should mean poor countries attain the highest growth rates, because in less-developed countries, every unit of investment made yields more return. Why then, is this not the existing case? The presence of skewed political interest and corruption trumps the existing model of diminishing returns because it discourages investment by various means. To explain this in detail, one must consider the interactions between corruption and investment in various drivers of wealth such as education and infrastructure. The effects of corruption often extend past governmental bodies to the everyday lives of normal citizens, and I will demonstrate this using the country of Cameroon as an example.
Cameroon is one of the poorest and most corrupted countries in the world. In Cameroon, simple official proceedings become complicated and superfluous procedures – because every extra step required is an opportunity for officials to collect bribes. Regulations are stringent and inflexible, because the more the restrictions, the more people are tempted to bribe their way past such regulations. This results in inefficient and redundant official procedures which poses as strong disincentives to any type of investment. For instance, banks do not offer loans to aspiring students, because inflexible labour regulations mean they will likely never gain the ability to pay back. Investing in new businesses is out-of-bounds for the average Cameroon citizen, because setting up a business requires payment of an amount of money equivalent to approximately two years of earnings (Harford, 2014). Once the interactions between corruption and investment come into play, one can easily see how corruption is the key factor behind Cameroon’s perpetuating poverty, and this goes true for many other poor countries. While education and infrastructure may be direct indicators for a country’s prosperity, the kleptocracy of the country’s top dogs impedes upon the very possibility of investment in these factors that constitute wealth. An effective governmental body is essential in providing opportunities for investment, and corruption foils exactly that, obstructing a country’s path towards prosperity.
Corruption also means foreign aid cannot be put to good use. The effectiveness of foreign aid depends on the two-way relationship between the donor and recipient countries. In other words, even with adequate resources given by the donor country, the recipient country must possess the capacity to effectively utilize them (Wong, 2014). A corrupted government is far from the ideal situation in which resources can be aptly utilized for the people. When international aid arrives at doorstep of a corrupted government, much of it goes into the pockets of officials, and spent for personal indulgences instead of the benefit of the people. To put it simply, the effectiveness of foreign aid depends on the aptitude of institutions responsible for handling it, and in the hands of a corrupt government – the consequence, I think, is clear.
On the topic of corruption, it is also important to include into the discussion the role of dysfunctional rules and institutions. Self-indulgent people are commonly found, but it is a lack of regulations that ultimately allows corruption to result from self-interest. Anti-corruption laws and institutions, such as the Independent Commission Against Corruption (ICAC) in Hong Kong, hold government officials in check and penalizes the abuse of power or actions of corruption. However, in countries such as Cameroon, such institutions exist only in name and yield no actual power; and in certain countries, may not exist at all. The running of these institutions by corrupted persons further renders them ineffective functionally. The consequence is a vicious cycle where dysfunctional institutions encourages more corruption, and more corruption results in dysfunctional institutions, and ultimately results in destitution.
At this point, it is only fitting that we come to question whether continuing foreign aid to poorer countries is the way to go. At least two distinct camps can be identified in regard to this issue: first, there are those who believe that foreign aid does help, but with a low efficacy, owing to officials intercepting aid resources as mentioned above. In their opinion, the provision of aid should continue, but with a focus on channeling resources towards projects proven to be productive by the method of “randomized control trials”, to maximize the effectiveness of the provided aid. Others go even further and claim that foreign aid in fact does harm rather than good as it fosters corruption and creates dependency (Edwards, 2014). The argument goes that because foreign aid goes first to the government, political elites can make use of their authority to influence decisions regarding its use, favoring projects skewed towards their own interests (Martin, 2014). The practice of acquiring aid resources as their own also creates a premise that encourages acts of corruption. On the other hand, dependency on foreign aid stumps local innovation and decreases production efficiencies of businesses which would otherwise propel the nation towards prosperity. In either camp, the provision of foreign aid is rendered ineffective or even detrimental to recipient countries, which is why blindly increasing the amount of aid is definitely not the solution to poverty that results from corruption.
What then, can be done to combat perpetuating poverty in these countries? Since dysfunctional governmental institutions play a key role in causing poverty, a possible way would be to provide aid that bypasses these institutions. For example, non-governmental organizations (NGOs) can provide aid and services directly to the local population, acting as a channel to provide resources while bypassing the hand of the government. But while this may be a viable short-term solution, at the very root of the problem of poverty is corruption, and long-term solutions should aim at tackling dysfunctional institutions that result in corruption. One way would be to improve upon the effectiveness of the anti-corruption organizations, although this may be hard to achieve considering the often widespread of corruption among officials. This is where, again, foreign aid comes in. NGOs set up with the help of foreign countries can act as a check and balance on the government, at the same time being more effective than those locally set-up under the direct jurisdiction of the corrupted government. Penalizing or condemning acts of corruption will further discourage other officials from committing similar acts.
In addition, increasing sheer publicity and media transparency can be another solution. Increasing publicity of government workings with broader media coverage puts pressure on the government to step up their performance as it will have to face international criticism and condemnations for unacceptable behaviors. Multi-national efforts also have an important role to play – for example, following the revelation of unreasonably stringent business regulations in Ethiopia by the World Bank, the regulations were immediately scrapped and the number of new businesses rocketed by almost 50%, demonstrating the positive effect transparency and publicity has on the efficiency of governmental institutions. In combating corruption, the importance of an effective system of check and balance should not be undermined.
In conclusion, corruption plays a key role in causing persisting poverty in poor countries, because it interferes with local investment and the effective usage of foreign aid. But for many of these countries, corruption lies at the very core of the government, and eradication of something so widespread will not be an easy task. This is where foreign aid comes into play, by the appropriate channeling of aid resources into institutions that can help monitor and combat corruption within the government. Even then, the fight against corruption will be a lengthy process – but with increasing recognition of the need to combat corruption, I am optimistic that the promise of a poverty-free world will one day hold true.
References:
Edwards, S. (2014) Economic Development and the Effectiveness of Foreign Aid: A Historical Perspective. In: Development and Foreign Aid: A Historical Perspective, CEPR Policy Portal.
Garcia, C. (2014) These Are the Most and Least Corrupt Countries in the World. In: The Week, Transparency International.
Harford, T. (2014) Why Poor Countries Are Poor. On: Reason.com, The Undercover Economist.
Martin, D. (2014). Confirmed: Our Foreign Aid Fuels Corruption - Official Watchdog's Verdict on Aid Spending That Cameron Has Defiantly Ring-fenced. Mail Online.
Wong, CR, “PowerPoint I-1, The Great Escape”