The Ends and the Means of Development

In an earlier blog post, we commented on the sources of corruption, the factors that have turned it into a powerful obstacle to sustainable economic development . We noted that the presence of dysfunctional and onerous regulations and poorly formulated policies, often created incentives for individuals and businesses to short-circuit them through the paying of bribes. We now turn to the consequences of corruption, to better understand why it is a destroyer of human prosperity. First, corruption undermines government revenue and, therefore, limits the ability of the government to invest in productivity-enhancing areas. Where corruption is endemic, individuals will view paying taxes as a questionable business proposition. There is a delicate tension between the government in its role as tax collector and the business community and individuals as tax payers. The system works reasonably well when those who pay taxes feel that there is a good chance that they will see...

In a previous blog we discussed the factors that have pushed issues of corruption to the centre of policy debates about sound economic management. A related question deals with the sources of corruption: where does it come from, what are the factors that have nourished it and turned it into such a powerful impediment to sustainable economic development ? Economists seem to agree that an important source of corruption stems from the distributional attributes of the state. For better or for worse, the role of the state in the economy has expanded in a major way over the past century. In 1913 the 13 largest economies in the world, accounting for the bulk of global economic output, had an average expenditure ratio in relation to GDP of around 12%. This ratio had risen to 43% by 1990, with many countries’ ratios well in excess of 50%.  This rise was associated with the proliferation of benefits under state control and also in the various ways in which the state im...

For those of us who have had an interest in corruption for much of our careers, there is little doubt that sometime in the late 1980s and early 1990s there was a shift in thinking within the development community about the role of corruption in the development process. The shift was tentative at first; continued reluctance to touch upon a subject that was seen to have a large political dimension coexisted for a while with increasing references to the importance of “good governance” in encouraging successful development. What were the factors that contributed to this shift? One that quickly comes to mind is linked to the falling of the Berlin Wall and the associated collapse of central planning as a supposedly viable alternative to the free market. It was obvious that it was not inappropriate monetary policies that led to the collapse of central planning but rather widespread institutional failings, including a lethal mix of authoritarianism (i.e., lack of accounta...

Suppose that one were to divide the countries included in the latest Doing Business report into two groups. Call the first group (made up of some 44 countries) the “worst quartile”—that is, the countries with the costliest and most complex procedures and the weakest institutions. Call the other group the “best three quartiles.” Then let’s ask ourselves: how many days did it take to establish a business in both groups in 2005? The answer is 113 days in the worst quartile and 29 days in the best three quartile countries, meaning that in 2005 there was a gap of 84 days between the two sets. Now, let’s repeat the exercise for 2013. The worst quartile is down to 49 days and the best three quartiles is down to 16; the gap between the two has narrowed to 33 days, which is still sizable but a lot less than 84. Repeat the same exercise for time to register property and time to export a container. For property registration, the gap in 2005 was 192 days and by 2013 it has narrowe...

There are many ways to think about income inequality. One can, for instance, look at it within the boundaries of a particular country and ask how is income distributed today among Brazil’s 198 million citizens? It is also possible to look at the average income per capita of all the countries in the world (or a region of the world) and ask: how unequal are income differences across countries at a particular moment in time? We can think of this as international inequality . One can also abstract from national boundaries and concepts of citizenship, view the world as one human family, and ask: how is income distributed among its 7 billion people? Call this global income inequality . Inequality: 1950-2011  Source: Branko Milanovic, 2013 One of the more interesting—and surprising—results that fall out of the data on international income inequality is that although Gini coefficients have risen steadily since 1950 (see the chart above, for a group of 130 countries accountin...