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May 21, 2007



Can't the corruption be the reason of poor financial markets and low entrepreneurship? I think that one need always to dig from the roots. And corruption might be an impotant factor down below.



You nailed it! If you could only get that through the thick skulls at the WSJ, FOX, et al. Corruption is generally bad. However, many experiences in the world that indicate that it is far from the greatest determinate of a country's success. You are absolutely right about corruption and China. They were able to pursue the policies they did because they traded 'purity' for getting almost everyone on board with their larger vision. China is corrupt, but it was never plundering like Zaire under Mobotu. These differences are not trivial.


Or in India either!


You have very good points, and I think it is always dangerous to focus on only certain failures of developing countries (poor governance, or any one of the million other things that may be wrong).

One thing with China, and this could apply to India as well, is that the sheer volume of money that poured into these countries over the past few decades overwhelmed any possibilities of corrupt governing plundering ALL of it. This allowed some of the money to fall into the hands of those whom it was meant. I know it is probably much more complicated than that, and I hate making generalizations (as it is all-to-often done when it comes to developing countries). It is something to think about, though.

Steve Sailer

Probably the single biggest driving force behind prosperity or poverty for a nation is average national IQ -- See Lynn & Vanhanen's "IQ and the Wealth of Nations," which demonstrates a 0.7 correlation between average IQ and average per capita income.

For three years, the UN has been pushing a program to raise average national IQs in the Third World by fortifying salt with iodine and flour with iron -- programs that were successfully carried out in America in the 1930s, which eliminated "cretinism" due to a lack of micronutrients. This is an extremely cost-effective poverty-fighter.

Unfortunately, because of the taboo on discussing IQ in the politically correct West, the whole topic of how to raise IQ has barely emerged in the American media. See my 2004 articles:



andrew merrifield

Whilst I agree that Wolfowitz's focus on corruption was one-sided and perhaps rhetorical, my own experience working on infrastructure delivery improvement in South Africa is that simple things like awarding tenders to friends and family have put the Government's whole commitment to improving infrastructure (the level, the quality and speed of delivery) at risk. This conclusion comes not only from in-depth research I have done for many years on the problem but also my practical interventions to try change the situation. As long as major incidents of corruption (the billion dollar examples) remain unchallenged, these smaller cases (perhaps a million dollars or less) will be accepted as a 'cost of doing business'. Rhetorical statements by our Government do little to address the problem when some of the main perpetrators play prominent roles in the ruling party and in government.


"Probably the single biggest driving force behind prosperity or poverty for a nation is average national IQ -- See Lynn & Vanhanen's 'IQ and the Wealth of Nations,' which demonstrates a 0.7 correlation between average IQ and average per capita income."


How do you know that this doesn't represent the old chicken-and-the-egg problem? My guess is that economic development has a greater effect upon IQ level than IQ level has upon economic development.


A Turkish columnist Ege Cansen had written stg. like this: (15 November 2006)
Corruption is generally regarded as a constraining factor for economic development. David Osterfeld who is an American political science professor puts forward it is not always the real situation.
Osterfeld, says that bureucrats who have a fear of getting themselves in trouble if they always permit what entrepreneurs want, evolve a reflexively obstructive behaviour. He states this attitude is an obstacle for economic development. Obsterfeld says there are two kind of corruption which can be defined as "restrictive corruption" and "expansionary corruption". The incentive payment (or premium) for encouraging a bureucrat to take the risk is a kind of expansionary corruption.
Last word: Some microbes are harmful.

Translation my include some imperfection. Anyway I think this is a bit philosophical issue. What does wealth serve for? I think we aim happiness by everything we strieve for. And very briefly; injustice is something that cannot be a basis for general happiness and well-being.


The "Last word" of Ege Cansen was: Some microbes are NOT harmful.


Why are we downplaying corruption. It is not THE most important factor pulling down the developing countries, nonetheless, it is a big stumbling block.
One of the Prime Minister's of India, Rajiv Gandhi once admitted that only 10% of the government fund gets to reach the intended other 90% is lost in the way. This is a hugh magnitude and cant be ignored. And this is not happening because of economic ineffeciencies. This is solely due to corruption and non accountability on the part of officials in charge of the funds.
In my view, corrpution at any place is not breeding because the citizens are inherently corrput. Individuals are rational everywhere. What matters is whether they are given right incentives. I guess not. In the light of right incentives every rational economic agent will take decisions appropriatly deemed fit by the market.

Justin Rietz

I have to disagree. I believe corruption / bureaucracy is one of the most important, if not THE most important, factors, and definitely within the top three.

First, the claim that other factors are more important, such as "low savings, poorly functioning financial markets, low entrepreneurship, poor infrastructure" looks at symptoms, not causes.

Instead, we must ask WHY do these things exist? The underlying answer in many (most?) cases is corruption / bureaucracy

While economic theory and research studies of developing countries may not show it, go talk to the entrepreneurs and small business owners in a developing country. Go store to store, business to business, and ask them what are their greatest difficulties.

Having done this myself in Eastern Europe, the first and almost unanimous answer was "government corruption and bureaucracy."

Steve Sailer

Justin writes:

"How do you know that this doesn't represent the old chicken-and-the-egg problem? My guess is that economic development has a greater effect upon IQ level than IQ level has upon economic development."

If I didn't think that spending money could raise national average IQ, I wouldn't be bringing up the UNICEF campaign to fortify salt and flour with crucial micronutrients needed for full cognitive development.

Most of the time, however, causality appears to run in the opposite direction. For example, China was long extremely poor, but had very good average IQ scores. Not it's not so poor anymore as its workers have shown tremendous talent at learning new skills.

For a fuller discussion of this chicken-or-egg question, see my reviews of Lynn & Vanhanen's "IQ & the Wealth of Nations" at



Jason Welker

China has achieved unprecedented growth for almost 30 years now, and while perhaps "400 million" people have benefited from this growth by migrating to cities from the countryside and entered the more productive manufacturing sector, today 900 million peasants live at a level at or below that of the early 1950s. China's new wealth is horded by the eastern cities, while the countryside is kept desperately poor by a multi-layered bureaucracy rife with corrupt cadres from Beijing at the top to the village level at the bottom. While China's rich place their wealth in off-shore tax shelters, the peasants are regularly taxed at 30-40%, leaving villagers in some areas with less than $1 a day to live on.

And you're saying corruption need not be addressed NOW in China if it is to continue to grow? Maybe not, but if any meaningful development is to occur, corruption should be on the top of Beijing's list; 900 million peasants living under an oppressive elite class? That sounds like what triggered the revolution in the first place!


I have not read Dani's paper in detail [I will do once I get near a printer!] but it occurs to me that the problem is the extent to which corruption is a causal driver for all those things especially poor infrastructure and weak governance.

Its very challenging to isolate the causal linkages and do robust econometrics especially given the data on corruption has been questioned of late.

But I "believe" Dani if he says the econometrics supports is assertion :)
Perhaps Dani you can point me to an empirical survey of some sort that examines your point in more detail?


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