Varieties of corruption
India in the 1950’s had a civil service, and a political class, that were the envy of the world. If that seems shocking today, the loss of virtue must be traced to the all-pervasive “permit raj,” with its licensing requirements to import, produce, and invest, which grew to gargantuan proportions. High-level bureaucrats quickly discovered that licenses could be bartered for favors, while politicians saw in the system the means to help important financial backers.
Once the system had taken root, corruption percolated downward, from senior bureaucrats and politicians, who could be bribed do what they were not supposed to do, to lower-level bureaucrats, who would not do what there were supposed to do unless bribed. Clerks would not bring out files, or get you your birth certificate or land title, unless you greased their palms.
But if policies can create corruption, it is equally true that the cost of corruption will vary with the specific policies. The cost of corruption has been particularly high in India and Indonesia, where policies created monopolies that earned scarcity rents, which were then allocated to officials’ family members.
Such “rent-creating” corruption is quite expensive and corrosive of growth. By contrast, in China, the corruption has largely been of the “profit-sharing” variety, whereby family members are given a stake in the enterprise so that their earnings increase as profits increase – a type of corruption that promotes growth.
In the long run, of course, both types of corruption are corrosive of the respect and trust that good governance requires, which can undermine economic performance in its own right. But that does not absolve us of the responsibility to define corruption properly – and to acknowledge obvious and important cultural differences in how it is understood.
That's how we might understand the difference between, say, Boss Tweed, and Obama (definitely subject to correction by actual historians).
In Boss Tweed's day -- see caveat above -- New York was fabulously corrupt, but the city also got built, and grew fantasticallly. In Obama's day, Versailles is fabulously corrupt, but the country is being destroyed. Tweed's corruption was profit-sharing, Obama's is rent-seeking. Let's have a return to "honest graft", say I!
NOTE Via Economist's View.