What Makes Countries Corrupt?

Nov 10, 2010

The United States and other advanced nations are stepping up their efforts to combat corruption in poorer, less developed nations by publicizing the corruption and by punishing their own companies when they engage in it. The U.S. Congress added a bipartisan amendment to pending financial reform legislation, requiring oil, gas, and mining companies to disclose every payment they make to foreign governments, according to a recent report in The Economist.
But can such efforts stem the tide? My own analysis suggests that before we can deal with systemic corruption we must first come to grips with the fact that it doesn't occur in a vacuum -- it is a symptom of deeply rooted economic and social maladies.

Source: Map from The Economist, data from Transparency International.
The map above shows how the nations of the world stack up on Transparency International's 2010 Corruption Perception Index or CPI, which tracks government bribes, kickbacks, embezzlement, and other forms of public corruption. Topping the list as the world's least corrupt nation is Denmark, followed by New Zealand, Singapore, Finland, Sweden, and Canada. The United States ranks 22nd. The BRIC nations--Brazil, Russia, India, and China--rank in the bottom third of the CPI, even though they are among the fastest-growing nations in the world. Countries like Angola, Somalia, Afghanistan, and Iraq are at the very bottom.

To get a better handle on all of this, my colleague Charlotta Mellander and I compared how a nation's rank on the corruption index compares to its standing on a series of other standard measures--economic development (economic output per capita), the transition to a more highly skilled knowledge economy (human capital levels and the creative class share of the workforce), social tolerance (as measured by Gallup World Poll surveys which track attitudes to gays and ethnic and racial minorities), and the overall level of happiness or life satisfaction (also from Gallup surveys). Note that the CPI ranks countries in reverse order; the higher its score, the less corrupt the country. As always, we caution readers not to make too much of these findings. Our analysis can only identify relationships among variables and in no way implies causation.

The chart above summarizes the key results of our analysis. Generally speaking, the associations we found between corruption and economic and social development are quite striking.

Corruption and Economic Development: Corruption is closely associated with the overall level of economic development: The richer the country, the less corrupt it tends to be (the correlation coefficient between CPI and GDP per capita is .81). The above chart shows this graphically, with wealthier, more advanced nations clustered at the top, and poorer, less developed nations clustered at the bottom.

Corruption and the Creative Class: Corruption is lower in knowledge-based economies. The CPI is highly correlated with human capital (.58) and even more so with the creative class share (.69). The chart above graphs the association between the CPI and the creative class.

Corruption and Social Tolerance: Corrupt nations also tend to be intolerant places. The CPI is correlated with attitudes toward racial and ethnic minorities (.48) and even more so with attitudes toward gays and lesbians (.74), which the political sociologist Ronald Inglehart of the University of Michigan notes is the last frontier of intolerance across the nations of the world. The above chart shows the relationship between CPI rankings and attitudes toward gays and lesbians.

Corruption and Happiness: Corrupt nations tend to have low levels of happiness and life satisfaction. The CPI is highly correlated with overall life satisfaction (.67). The chart above shows the relationship between the two.
It is much easier to condemn international corruption than it is to overcome it. My own analysis suggests that penalizing companies that pay bribes is to treat one symptom while failing to diagnose, let alone attempt to cure, the underlying disease. Corruption is a fact of economic development. It is endemic not just in the poorest and least functional of nations, but even in the fast-growing (but still comparatively less-developed) BRIC. Corrupt nations have more traditional economic structures, based on resource extraction or manufacturing; they have not yet made the transition to highly skilled knowledge economies. Corrupt nations are more likely to be intolerant; their citizens not only must endure lower material living standards but lower levels of happiness and life satisfaction.
If we really want to combat corruption we must deal with the broader and much harder challenges of economic development. When less developed nations begin to leverage their knowledge, skills, and human capital to raise their levels of economic output, then the battle is already won.