Romain Sinclair
June 10th, 2015
Political Science 395

Does Corruption mitigate the growth-inhibiting effects of inefficient bureaucracies?

An evaluation of Leff’s misunderstood thesis

Corruption is bad for growth. It has been shown to be bad on a variety of different indexes of economic development. However, few studies have been able to separate the effects of corruption from the localized effects of other institutions like government structure, government business relations, etc. As such, Leff’s hypothesis from 1964 that bureaucratic corruption can facilitate growth, in environments with growth inhibiting factors, remains largely untested. In this brief survey of existing research, I will take Leff’s position and turn it into a question. Can corruption, in the face of growth limiting and inefficient bureaucracy, be less harmful to development than it would otherwise be, absent these growth limiting features? Specifically, I will look at bureaucratic corruption where the private sector offers up bribes in order to obtain some public good (licenses and permits, or to avoid regulation). In what follows, I will argue that corruption is usually a problematic for growth, but that it may, under certain extremely limiting circumstances, be more beneficial for an economy to facilitate it than to not have it.

Introduction
Corruption is widely believed to be associated with slow economic growth. Many authors point to the strong correlations between high corruption and low GDP. Though the graph below tells us a about where modern economies currently stand in relation to their level of corruption, it does not tell us very much about how they got there. Looking at correlations of how things stand now, doesn’t allow one to consider how things got there.

Source: Li and Wu: “Why some countries thrive despite corruption: The role of trust in the corruption–efficiency relationship”
Looking at the relationship between corruption and levels of growth is more useful. The clear correlation that can be drawn from the GDP to corruption graph no longer applies (see figure 2). Instead, there is high degree of variance. Countries whose growth rates lie between 0-5% (i.e almost all countries) range wildly in their corruption levels, from most uncorrupt to most corrupt. This begs the question: Can it be comparatively beneficial for a nation to be corrupt?

Source: Li and Wu: “Why some countries thrive despite corruption: The role of trust in the corruption–efficiency relationship”
Methodology
In this paper, we will evaluate the claim that corruption is bad for growth, even when it acts as a remedy for growth limiting factors. To do so, we will bring to light the contemporary viewpoints of the scholarly debate. In addition to showcasing leading scholars in the debate, we will analyze the views presented and determine if they make sense. Against those who are opposed to corruption’s benefits in the context we’ve defined, we will bring in conversation scholars who believe bureaucratic corruption to have some redeeming qualities. These views will be contrasted and compared to evaluate their strength. As such, the reader should look to assess the value of this piece in its ability to synthesize the views of other authors and present an accurate snapshot of the discussion today.
Corruption’s Effects
Some scholars have tried to account for bureaucratic bribery’s effect on growth with the use of theories and economic models. Amongst these researchers, many might think corruption has redeeming factors. These scholars conceive of bribery as a means to circumvent restrictive legal regulations1. Paying bureaucrats a given fee in exchange for licenses to engage in the economy, or to avoid some limiting regulations, is portrayed as a means to facilitate economic growth, which is otherwise hampered by regulation. In other words, they view corruption as a way to mitigate the harm that is