Why poor countries stay poor

Many economists think corruption is a rational response to irrational incentives. The World Bank’s “Doing Business” database lists 40 countries, from Iraq to Ethiopia, in which legally acquiring the necessary permissions to export a single standard cargo container takes more than one month. The more difficult it is to do something legally, the larger the temptation to do it illegally. Small wonder that in developing countries, few people make more money than customs officials.

If perverse incentives create corruption, that suggests a simple solution to an age-old problem. Hence for the last decade or so the mantra of aid agencies has been “institutions matter”—even if it is not clear what humanitarians are supposed to do with this insight.

There is a popular alternative view that says corrupt countries are corrupt not because the incentives are perverse but because they’re stuffed full of crooks, born and bred. In this view, corruption is cultural, and poor countries are poor because their citizens are dishonest (or lazy, or fools).

Into this controversy strode two economists, Raymond Fisman of Columbia and Edward Miguel of Berkeley, with a 2006 research paper that was brilliant and trivial in roughly equal measure. Fisman and Miguel realized that to test the two theories about corruption, you would ideally need to pluck people from all over the world, place them into a community whose laws they could ignore with impunity, then see who cheated and who was honest.

Impossible? Not at all. The United Nations in Manhattan kindly provided guinea pigs for just such an experiment. Diplomatic immunity meant that parking tickets issued to diplomats could not be enforced. The decision to park legally or not, therefore, was a matter of each person’s conscience.

Fisman and Miguel found that countries with endemic corruption at home, as measured by the anti-corruption organization Transparency International, were represented by habitual illegal parkers. Chad and Bangladesh, so often near the top of “perceptions of corruption” rankings, produced more than 2,500 violations between them from 1997 to 2005. Squeaky clean Scandinavians, on the other hand, committed only 12 unpaid parking violations, and most of those involved a single criminal mastermind from Finland. On the face of it, this evidence supports the view that poor countries are corrupt because they’re full of corrupt people.

Yet incentives clearly matter, too. In 2002, after decades of playing cat and mouse with the United Nations, New York City won much greater power to punish deadbeat diplomats. (The former New York senator and new secretary of state, Hillary Clinton, gets some of the credit for this change. Let’s hope the world’s diplomats don’t hold it against the State Department moving forward.) The city began to tow cars and the State Department deducted fines from the relevant foreign aid budgets. Almost overnight, unpaid violations fell dramatically.

More HERE

*****************************

How Each Nation Sinks or Swims

Alan Beattie's "False Economy" finds that countries' choices, not the luck of the draw, largely determine their fates. He is undoubtedly right about that but it sounds like he gives a poor account of what the important decisions are. The key drag on prosperity is socialism and socialistic instincts are overwhelmingly influential among many populations -- such as in Latin America -- with Argentina's Peron regime being a prime example of socialism's destructiveness

BOOK REVIEW of "False Economy: A Surprising Economic History of the World" By Alan Beattie:

The U.S. is the world's largest economy while Argentina is a serial debt defaulter with a history of dictatorship. Things could have gone the other way. Both countries had ample land, natural resources, and a flood of immigrants, Alan Beattie argues in False Economy: A Surprising Economic History of the World. But Argentina was cursed with huge landholdings bestowed on Spanish colonizers. Instead of entrepreneurial farmers, Argentina's estates bred an indolent ruling class with little interest in taking the sorts of risks that modernize an economy.

Beattie, world trade editor for the Financial Times, aims to confront the idea that "our economic future is predestined and that we are helplessly borne along by huge, uncontrollable, impersonal forces." The way countries develop is as much a function of the choices made by ruling elites as it is of markets or natural resources, he says.

Beattie, who studied history at Oxford University and economics at Cambridge, draws on both disciplines to overturn assumptions about the evolution of the global economy. For example, the data do not support the belief that Islamic societies inherently perform worse than other nations, or for that matter that there is any correlation between religion and growth. Malaysia has both a strong Islamic identity and a modern economy [And a large non-Muslim Chinese minority who do all the work]. Religion is an obstacle only when development is blocked in God's name, often in self-defense by those who hold power, Beattie argues.

And corruption isn't necessarily a barrier to growth, in Beattie's eyes. The late Indonesian strongman Suharto oversaw rapid development even as he and his cronies grew rich on bribes and preferential deals. China's growth has taken place amid pervasive corruption. As long as the officials taking bribes can deliver what they promise, "it simply becomes a tax."

False Economy is full of insightful nuggets, such as Beattie's account of how the profligate ways of the Portuguese in India opened the door for the British. But it's not always clear how these digressions fit into his central argument; sometimes they even punch holes in it. We can be masters of our own fate, he seems to say, except when we're prisoners of history. Beattie sees Russia stuck in a tradition of authoritarianism and state property ownership that dates to the Mongolian conquest in the 13th century—and he has little faith that it can ever break free.

More HERE

*************************

ELSEWHERE

Obama’s Revenue Plans Hit Resistance in Congress: "President Obama is running into stiff Congressional resistance to his plans to raise money for his ambitious agenda, and the resulting hole in the budget is threatening a major health care overhaul and other policy initiatives. The administration’s central revenue proposal — limiting the value of affluent Americans’ itemized deductions, including the one for charitable giving — fell flat in Congress, leaving the White House, at least for now, without $318 billion that it wants to set aside to help cover uninsured Americans. At the same time, lawmakers of both parties have warned against moving too quickly on a plan to auction carbon emission permits to produce more than $600 billion. The unwillingness to embrace some of the major White House tax and revenue proposals has frustrated administration officials. They note that lawmakers, many of them supporters of the president’s ambitious agenda, clamor to hold down the deficit while balking at the proposals to finance his program. Clint Stretch, a top tax policy analyst for the consulting firm Deloitte Tax, said, “The president and the budget committees have set very ambitious targets for revenue raising, and they did it against a set of proposals that are going to be very hard to enact.”

Homeland Security leaders still defending memo on veterans: “Top Department of Homeland Security officials on Sunday defended an agency intelligence assessment warning that veterans returning from Iraq and Afghanistan could be susceptible to recruitment by right-wing extremists, though one said it should have been ‘more tightly written and presented.’ Homeland Security chief Janet Napolitano said on CNN’s State of the Union that she regrets that some people took offense over the report, but added that ‘a number of groups far too numerous to mention’ were targeting returning veterans to carry out domestic terrorism attacks.” [How about mentioning just one? The Obama regime are scared shitless by the military. They know that only the military stands between them and a complete Fascist takeover]

Turkey: Thousands march to protest Muslim government actions: “Thousands of people marched to the mausoleum of secular Turkey’s founder on Saturday to protest the arrests of university professors and others accused of involvement in an alleged plot to topple the Islamic-rooted government. More than 5,000 people waved Turkish flags, carried posters of Turkey’s late leader Mustafa Kemal Ataturk and chanted: ‘Turkey is secular and will remain secular!’”

UK: Market forces must make way for interventionism, says British minister: “New Labour will today abandon 12 years of support for market forces by unveiling an interventionist strategy under which the Government will subsidise the growth industries of the future. In an interview with The Independent, Lord Mandelson said the drive could create hundreds of thousands of jobs in hi-tech and low-carbon industries over the next 10 years, to compensate for the smaller financial services sector that will emerge from the current recession. The new strategy marks a reversal of the Government’s free-market approach since Labour won power in 1997, as ministers follow the bailout of Britain’s ailing banks by intervening in other key areas of industry.” [So Britain is about to head back to pre-Thatcher poverty]

The Waco butchers are back : “Sixteen years ago we were reminded of the deadly danger of having the left-liberals in charge of the police state. The largest massacre of American civilians by the US government since Wounded Knee climaxed on April 19, 1993. The siege that had begun on February 28 with a botched ATF publicity stunt ended when the Branch Davidian church and home went up in flames, after an FBI-operated tank on lease from the military was driven through the building, pumping flammable CS gas for six hours into the place where women and children were cowering in fear. Chemistry professor George Uhlig later testified that the high concentration of the gas combined with poor ventilation subjected the women and children to conditions ’similar to … the gas chambers used by the Nazis in Auschwitz.’”

If you want war, work for justice: “I think it is a more plausible slogan than the usual version. If you and I disagree because I want an outcome more favorable to me and you want an outcome more favorable to you, there is room for compromise — as we see whenever people bargain over the price of a house. But if we disagree because I see what I want as just and the alternative as unjust and you see it the other way around, compromise looks to both of us like moral treason.”

Who would be hurt by ending the drug war: “Momentum is growing to legalize some drugs, which is good. So what will it mean if drugs are legalized? In terms of abuse, it is unlikely that matters will change significantly in terms of general usage. The ending of prohibition provides an object lesson in that as consumption of alcohol changed very little once prohibition was repealed. If anything the damage will be lessened the way the damage of alcohol was lessened due to the introduction of quality and price competition. But the real area of focus is in how the economy will be impacted by the ending of drug prohibition.”

FDR and compulsory unionism destroyed jobs: “For decades, labor unions struggled for power, but until the 1930s they had made little headway. Unions were based on force and violence, which repelled a substantial number of employees as well as employers. The aim had been to raise the wages of members above market levels, but this was only possible if they went on strike, forcibly prevented employers from hiring other employees, shut down businesses, and ultimately forced employers to accept union demands.”

For more postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, SOCIALIZED MEDICINE, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena

List of backup or "mirror" sites here or here -- for readers in China or for everyone when blogspot is "down" or failing to update. Email me here (Hotmail address). My Home Pages are here or here or here

****************************

The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

****************************