Copyrighted Material · Economic Development I n the summer of 2004, world-renowned Kenyan novelist Ngugi Wa Thiong’o returned to his homeland after twenty- two years in exile

Copyrighted Material

ChapterOne

frac12

FightingforEconomicDevelopment

In the summer of 2004 world-renowned Kenyan novelistNgugiWaThiongrsquooreturnedtohishomelandaftertwenty-two years in exile He flew to Nairobi to launch his newnovelWizard of the CrowhisfirstinoveradecadeNgugirsquosearlier worksmdashadozenor sonovelsandcollectionsof sto-rieswhichhebeganpublishingjustafterKenyanindepen-dence in 1963mdashhad been wildly successful not only inKenya but throughout the world Through his carefullywrought characters and achingly familiar plots of loss andsufferingNgugicapturedthebewilderingcontradictionsleftbehindinthewakeofEuropeancolonialism

Ngugihadlivedthosecontradictionsanddrewinspira-tionfromhisexperienceswhichweresharedbysomanyofhis fellowKenyansNgugihadgrownupduringthe1950swhen Kenya had been rocked by the Mau Mau rebellionagainstitsBritishcolonizersHehadwitnessedthemurder


CHAPTERONE

ofhisbrotherwhohaddiedalongwiththousandsofotherKenyans in opposing the British And he had celebratedwithhis countrymenas theywatched theBritish imperialmachineryretreatin1963atthebirthoftheKenyannationHehadalsosufferedatthehandsofthesecondfreeKenyangovernmentmdashfordespitethecountryrsquosturntoself-ruleandhopesforabrightfutureNgugihadbeenforcedtofleeKenyain the1980s followingyearsofpersecutionand impris-onment for his sharp criticism of the post-independenceregime

Novels like A Grain of Wheat published in 1967 justfouryearsafterJomoKenyattabecameindependentKenyarsquosfirst presidentprovidedawindowintothehopesandfrus-trations that came with the dismantling of the Westernempiresmdashdreamsof economicprosperitymeasuredagainsttalesofcorruptionseededthroughoutthenewgovernmentA Grain of Wheat isafableabouttheearlytumultuousyearsof a free Kenya and captures the unwavering hope for abrightfuturecoupledwiththefearofwhattheBritishlegacyof corruption and violence might bring ldquoWould indepen-dencebringthelandintoAfricanhandsAndwouldthatmake a difference to the small man in the villagerdquo asksNgugithroughthenovelrsquosmaincharacterGikonyo1

In the1950sand1960s that samequestionechoed in the minds of the citizens of newly independent countriesfrom Kenya and Sierra Leone to Indonesia and PakistanWhat would the future hold Would freedom bring jobspeaceandwealthThesentimentthatdrovetheseconcernswould help make Ngugirsquos novels international sensationstheyrsquovebeentranslatedintomorethanthirtylanguagesandareconsideredclassicsofAfricanliteratureForNgugihim-selfthepost-independenceyearsspentinexilehadbrought

2

frac12frac12frac12


FIGHTINGFORECONOMICDEVELOPMENT

professionalacclaimandprosperityHehadtaughtatNewYorkUniversityastheErichMariaRemarqueProfessorofLan-guagesandisnowaprofessorattheUniversityofCaliforniaatIrvinewherehedirectstheCenterforWritingandTransla-tionAndhereturnedtoKenyain2004notwithbitternessaboutthepastbutwithoptimismforthefutureldquoIcomebackwithanopenmindanopenheartandopenarmsIhavecometo touchbase Ihavecome to learnrdquohe told the crowdsofwell-wishersuponlandinginNairobi2

Buteven in the faceof theenthusiasmhopeand joythatgreetedhisreturnmdashavisitthatcamenotlongafterKen-yarsquoslongtimedictatorDanielarapMoihislongtimeperse-cutorhadsteppeddowntomakeway for ademocraticallyelected governmentmdashNgugi was brutally assaulted in hisrentedNairobiapartmentbeatenhisfaceburnedwithciga-retteshiswifeNjeeriwasrapedManyinterpretedtheat-tackaspaybackfromtheearlierregimeforNgugirsquosoutspokencriticismofKenyanpoliticiansandpoliticsandservedasyetanotherreminderofthedespairandunfulfilledaspirationsofKenyarsquospeopleTheparallels weremadeevenmorepoi-gnantbythewidespreadpoliticalviolenceinKenyainearly20083

Thisisnrsquotthewayitwassupposedtobe

Overthepastfourdecades wersquovewitnessedsomeofthegreatest economic miracles in human history In 1963 anaveragepersoninSouthKoreaorKenyaearnedonlyafewhundred dollars a year Most eked out a living as peasantfarmersBack then it wasnrsquot so clear whereyoursquod layyourbetsifyouhadtoguesswhichcountrywouldberichatthe

3


CHAPTERONE

endofthemillenniumBothcountrieswererecoveringfromthedevastatingarmedconflicts thathadaccompaniedde-colonization South Korea had already boosted its literacyratesbytheearly1960sbutKenyahadmuchgreaternaturalresource wealth to exploit including some of the worldrsquosrichestsoilforgrowingcoffeecottonandtea

Afterdecadesoffirstmanufacturingtextilesthenrefin-ing steel and finally producing high-end consumer goodsand advanced electronics South Korea pulled off an eco-nomicleapfrogthattodayputsitamongtheworldrsquoswealthynationsSouthKoreancitizensnowenjoyastandardofliv-ingrivalingtheJapanesetheirformercolonizersandthatofmanyEuropeannationsButtheaverageKenyanisnobetterofftodaythanhewasin1963

WhatwentwrongInlookingbackoverfourdecadesofhistorywhatcanwelearnofwhySouthKoreamdashandMalay-sia andThailandandnow Chinamdashbegan to close the in-comegapwithEuropeandNorthAmericawhileBangladeshPakistanCentralAmericaandmostofsub-SaharanAfricaremainmiredinextremepoverty

ThisisthepuzzlethatgetsthetwoofusoutofbedandintotheofficeeachmorningandsolvingitistheultimatepurposeoftheresearchthatwersquollsharewithyouThisbookisnrsquot about finding the singular explanation for why poorcountries are poor You should probably be suspicious ofanyone selling you a grand unified theory of poverty (oranythingelse)Humansocietiesarefartoocomplicatedforthat

ButneitherdowesubscribetotheviewthatnoonecanmakeprogressonsuchavexingproblemManyhardlessonshavebeenlearnedsince1963Theexperiencesofnewlyin-dependent Kenyansmdashthe fruits of their hard labor lost to

4



corruptionordestroyedbyviolencemdashforeshadow the twinevilsofcorruptionandviolencethathavebeensocentraltoKenyarsquos modern economic experience as to be inseparablefromitAswersquollseeKenyarsquosstoryisfarfromuniquefromthepost-colonialplunderinginIndonesiatothebloodycivilwarsofCentralAmericaandAfricathedestructivepowerofcorruptionandviolenceisclearforalltosee

The Lives and Times of Economic Gangsters

AlCaponeisrememberedasagangsterandabrutalcold-bloodedkillerItisperhapslesswidelyknownthatCaponewas also an accountant for a Baltimore construction firmbeforejoiningandeventuallyleadingChicagorsquosNorthSideGang4 We donrsquot normally associate the relatively humbleandperhapshumdrumvocationofbookkeepingwithmobiconslikeCaponeTherearenoscenesofAlPacinostrug-gling to balance the books or poring over financial state-mentsinthefilmsScarface orThe GodfatherButCaponersquostrainingasanaccountantwasinstrumentalinhelpinghimorganizeavastcriminalbusinessempireTheemphasiswasonbusinessmdashitrsquosjustthatCaponersquosbusinesshappenedtobein prostitution gambling racketeering and selling boozeduringProhibitionillicittradeswheredisputesweresettledwithmachinegunsratherthanlawyers

AccordingtobiographerRobertSchoenbergCaponewasldquoabusinessmanofcrime[with] lucidrationalanddiscover-able reasons for his actionsrdquo5 He is the quintessential eco-nomicgangsteraviolentandlawlesscriminalwhowroughthavocon1920sChicagobutdidsoinarationalcalculatingway6Acold-bloodedkilleryesbutviolencewassimplyatoolCaponeusedtokeepthemoneyrollingin

5


CHAPTERONE

ThepathologicalcrueltyofgangsterslikeCaponemakesthemparticularlyrepellantmdashtheyrsquoreguiltyofcrimesofcal-culationneverpassionmdashbutalsothesourceofendlessfasci-nationYettheirnarrowself-interestdrivenbymoneyandpowermakesthemmoreunderstandabletoeconomistsnotless Itrsquosnot thatweeconomistsdonotrealizehowimpor-tantemotionscanbeingoverningbehavior(weareinfactpeopletoo)ButthesidetohumanbehaviorthateconomistschoosetostudyisembodiedinthespeciesHomo economicusorEconomicmanmdasharationalself-servingbeingwhoseac-tionsandchoicesarebasedonlogicaldecisionsnotrashim-pulses If the criminal mind like Caponersquos really is veryclosetotheself-servingidealinourmodelstheneconomicanalysiscanbeausefultoolinfiguringouthowtocombatcorruptionandotherformsoflawbreaking

Therersquosgoodreasontobelievethatthecharactersthatpopulate this bookmdashfrom the despotic warlords of sub-SaharanAfricatothesmugglersoftheSouthChinaSeamdashdoindeedobeythelogicallawsofeconomicsTounderstandwhyitrsquosusefultothinkaboutwhatkeepsyoufromcheatingalittleonyourtaxesorslippingoutofarestaurantwithoutpayingthebillItrsquosinpartafearofthelegalconsequencesifyougetcaughtButthepunishmentoftaxcheatsisrareandusually light and you could stiff a waiter his tip withoutriskingany legalpenalties (althoughyoumaynotbewel-come back at thatparticular restaurant) Yet most peoplestill do the right thing most of the time Probably morethanfinesorjailtimewhatconstrainsusfrombreakingthelawisthefactthatitjustisnrsquotrightWersquoreconstrainedbyconscience

But antisocial personalities like Capone were blessedwithrelativelyfewsuchencumbrancesSoifanyoneisgoing

6



to behave in their narrowest self-interestmdashby cheating ontaxesorrestaurantbillsorevenkillingoffbusinessrivalstoearnafewdollarsmoremdashwewouldexpectittobeacriminalcharacterunconstrainedbyscrupleswhatwecalltheldquoeco-nomicgangsterrdquoAndaswersquollseetherersquosabitofeconomicgangster in each of us When placed in desperate circum-stances all people are reduced to the rational calculus ofsurvivalwithconscienceaforgoneluxury

Thegoalofthisbookandtheresearchitrsquosbasedonistounderstandthehavocwroughtbythecorruptionandviolenceoftheworldrsquoseconomicgangstersandtoplacetheirimpactsoneconomicdevelopmentinsharperrelief(ToappreciatetheproblemimaginewhatlifewouldbelikeunderMayorCaponeof Chicago or even President Capone Unfortunately manypeopleinthedevelopingworlddonrsquotneedtousetheirimagina-tionstograspwhatitmeanstoberuledbythuggishbandits)

While we certainly donrsquot have all the answers in ourresearchodysseytomakesenseofcorruptionandviolenceover the past decade we have uncovered some amazingfactsmdashandsurprisingsolutions

Weareresearchersandprofessors indevelopmenteco-nomicsatUSacademicinstitutions(RayattheColumbiaBusiness School and Ted at the University of CaliforniaBerkeley)ButourresearchforcesusoutoftheivorytowertogetacloserlookattherealworldOureconomicdetectiveworkhastakenusfromremoteKenyanvillagestothefloorof the Indonesian stock exchange for new angles on thesourcesofglobalpovertyUnexpectedanswersaboutcorrup-tionandviolencearefoundinthemostunlikelyofplacesintalesofsmuggledChinesechickensdiplomaticparkingtick-etsinManhattanandevenTanzanianwitch-hunts

Thisbookbringstogetherthelessonswersquovelearnedby

7


CHAPTERONE

marryingeconomicanalysiswiththeinsightsgainedinourexpeditions through the rural back roads and glitterynewskyscrapersofthedevelopingworldWehopetheselessonscan in some small way help Kenyans and the rest of thedeveloping world finally realize the economic aspirationstheyholdforthemselvesandtheirchildren

Itrsquosnotanoverstatement to say that thequestion thatweconfrontmdashhowbesttofightglobalpovertymdashisofepochalimportance The well-being of most human beings is atstakeRecentWorldBankcalculationsestimatethatabil-lionpeopleliveonlessthanonedollaradaywhilehalftheworldrsquospopulationmdashaboutthreebillionmdashgetsbyonadailyincomeoflessthantwodollars7

HowdopeoplesurviveonsolittleTheanswerisbru-tallysimplenotwellHungerplaguesdailylifeforhundredsof millions and health care is scarce or nonexistent In war-tornChadNigerandSierraLeoneadultliteracyratesstill hover under 30 percent and children have a betterchanceofdyingbeforeageonethantheyhaveofgraduatingfromhighschool

Globalpovertymattersa loteven to thoseAmericans(and other privileged citizens of the Western world) whogenerally have little regard for what goes on beyond theirownbordersmdasheveniftheyarenrsquotconsciousofitAswersquollseerepeatedly throughout this book wersquore all stuck with oneanotheronthisplanetPovertybreedsdesperationanddis-contentwewakeupdailytoheadlinesofterroristthreatsenvironmentaldegradationandotherglobalillsthatfindtheirorigins inMiddleEasternslumsandtherainforestclear-cutsscarring the Congo River basin Tackling the problem ofglobalpovertyisanimperativefortheentireworldbothrichandpoor

8



Hope For a New Generation

International economicdevelopment returns to the publiceyeintheUnitedStateseveryfewyearsLatelyrenewedin-terestinAfricarsquosplightinparticularhasbeenfueledbythestarpowerofAngelinaJolieandU2rsquosBonocombinedwithdevastatingimagesoftheHIVAIDSepidemicandgenocidein Darfur Sudan We hear pleas for debt relief and moregenerousinternationalaidfromAmericaandEuropeEntre-preneurs like Bill Gates and Warren Buffett are spendingtens of billions of their own dollars to fight malaria treatAIDS and educate Africans to ultimately ldquomake povertyhistoryrdquo8

But wersquove been here before Our generation had itsLiveAidconcertsandldquoWeAretheWorldrdquoalbumsfollowingthehorrific1984famineduringtheEthiopiancivilwarmdashstarpower(therersquosBonoagain)mixedwiththeiconicimageofastarvingchildlefttodieonthedustyearthPrivatecharitiesandcountriesrsquoforeignaidagencieshavespentbillionsannu-allyfordecadesnowhopingtowipeoutpovertyWersquoveseenroundafterroundofdebtreliefsincethe1970sButdespiteallthistheaverageKenyanisstillnorichertodaythanin1963Willthingsreallybeanydifferentthistimearound

Well-informed people hold widely divergent and pas-sionateviewsonthisfundamentalquestionYoumightthinkeconomistsmainlyspendtheirtimeengagedinemotionallyinert conversations on the niceties of monetary policy orcrunching numbers on next monthrsquos inflation (and this doesdescribewhatmanyeconomistsdo)Yettheseotherwisemild-mannered monotone academics have almost come to blowsoverthequestionofwhyforeignaidtodevelopingcountriesseemstohavefailedsospectacularly

9


CHAPTERONE

FundamentallyitboilsdowntowhetherrichcountrieshavealreadyprovidedtoomuchmoneytohelpKenyaandothersoutofpovertymdashornotnearlyenoughLeadingaca-demicresearchershavelineduponbothsidesTheanswerturnsouttohingecriticallyononersquosviewsoftherolethatcorruptionandviolenceplayintheimpoverishmentofna-tions Maybe corruption and violence are mainly just thesymptomsofpovertyIfthisis thecaseoncerich-countrydonors finally send enough money to Kenya to jump-starteconomicgrowthitscitizenswillnolongerhavetofightoneanothertosurviveOntheotherhandifmostforeignaidislosttothegrabbinghandsofcorruptofficialsordestroyedincivilstrifethenhowcouldaiddollarseverliftcountrieslikeKenyaoutofpovertyMoreaidwouldjustenrichanalreadycorrupteliteandcouldevenmakethetwinproblemsofcor-ruptionandviolenceworsebygivingpeopleevenmoremoneytofightover

These questions are central to understanding the cur-rentforeignaiddebateandtheinflamedpassionsofdevelop-menteconomists(includingourselves)andareanunderlyingmotivationbehindeverythingelsethatfollowsinthisbookBeforewediveintoourownnewfindingsthoughwersquollin-troduce you to the broader debate that lurks in the back-groundHundreds of scholars are engaged in the full-timestudyofglobaleconomicdevelopmentbutmanyfitintotwomaincampswhoseviewsarecapturedbytwoleadingdevel-opmentthinkers

Jeffrey Sachs director of Columbia Universityrsquos EarthInstitute is a tireless public campaigner for more interna-tionaldevelopmentassistanceSachswasaprofessoratHar-vardwhenweweregettingoureconomicsPhDsthereandwewerebothfortunatetoexperiencehisacademicbrilliance

10



andrhetoricaltalentsfirsthandHeisthatrarethinkerwhoseobservationscanleaveyoufeelinglikeyouunderstandtheworld a little better after every conversation And in theworldofsociallyawkwardprofessorsthatweinhabitSachsrsquoscharismaislegendaryTedwasactuallyinspiredtododevel-opmentwork inAfricaduringgraduateschool inpartbyone of Sachsrsquos mesmerizing speeches on the moral dimen-sionsoffightingglobalpoverty

Sachs is the leading proponent of the ldquopoverty traprdquoviewofeconomicgrowthTheideabehindapovertytrapissimpleApoorKenyanfarmercannoteasilyriseoutofpov-erty on his own He canrsquot afford to buy adequate food to nourishhisfamilyortosendhischildrentoproperschoolsand any savings he may salt away from a good year willquicklybewipedoutbyabadharvestordiseasethenextThefarmerrsquosdestitutionalmostguarantees thatheandhischildrenwillremaindestituteAndsoonovertheyears

InSachsrsquosview foreignaid is thesudden jolt thatcanliftafarmermdashorvillageorentireeconomymdashoutofthiscycleof poverty-inducedpovertyTherersquosacatchbuildinghealthclinics improving schools and adding infrastructure likeroadsandpowergeneratorsforawholecountryorcontinentisexpensiveandbySachsrsquosreckoningtheforeignaidbud-get of the United States would need to increase at leastfive-foldtopullthedevelopingworldoutofitspovertytrap

AslaidoutinSachsrsquosrecent best-sellingbookThe End of PovertyKenya ispoorbecausewe in the richworldarenrsquotspending nearly enough to help them out but if these re-sourceswereavailablepovertycouldbeeliminatedfromourplanetinshortorderSachsarguesthatldquothewealthoftherichworldmake[s]theendofpovertyarealisticproba-bilitybytheyear2025rdquo9

11


CHAPTERONE

Sachsrsquos ideas forendingpovertymakesense in theoryBut many other economists hold the opposite view thatwersquorespendingtoo much onforeignaidalreadymdashoratleastspendingitinallthewrongwaysandplacesBillEasterlyisthepublicfacefortheseargumentsSincebeingforcedoutof the World Bank for publicly slamming its foreign aidpoliciesEasterlynowaprofessoratNewYorkUniversityhas become the primary spokesperson for the view thataidhasdoneverylittlegoodoverall fortheworldrsquospoorHeclaimsthat trillionsofUSdollarshavealreadybeenwasted by the World Bank and other donors and thatSachsrsquosplanofexpandingaid five-foldwould likely fritteraway trillions more Easterly argues that these enormoussumsofaidmoneyhaveoftenbeenspentongrandiosecen-trallyplannedprojectsmdashhydroelectricdamsfour-lanehigh-waysdesalinationplantsmdashincountriesill-preparedtooverseetheirconstructionoperationandupkeep

Easterlycomparestheapproachofmostforeignaiddo-norstothattakeninthe1950sbySovieteconomicplannerswhodreamedofaneweconomicorderwherewiseMoscowbureaucratswouldperfectlyanticipateandmeettheneedsofallworkersandpeasantsButheaskshowcanforeignaidcentralplannersparachutedinfromWashingtonDCre-allyknowhowtomakedistanteconomiesdevelopHowdidtheyknowthatKenyansneededhydroelectricdamsratherthannewuniversitiesWhymorehighwaysthanirrigationditches (or vice versa) And even for programs that weredesignedtobuilddesperatelyneededschoolsorhealthclin-icshowcouldthedonorsbesurethatKenyarsquosleadersactu-allyusedthemoneyasintendedmdashanddidnrsquotstealitorspenditonsomethingelseentirely

Whatwedoknowtodayisthatmuchofthedeveloping

12



world doesnrsquothavea lot to show for thesepast foreignaideffortsbarelyanythingbeyondacollectionofrustingmon-umentstogoodintentionsTrillionsofdollarswerewastedonroadstonowhereorpowerplantsthatneverlitupasin-glehomeBillionsmorewerestolenToaddinsulttoinjurythe worldrsquos greatest economic miracles have occurred incountriesmdashincludingbothChinaandIndiabothofwhichhad African-level poverty as recently as the 1980smdashthatlargelyspurnedtheadvancesofthebig foreignaid institu-tions If these twoeconomieshavemanaged to expandatrecord speed for decades without meaningful foreign aidwhyisabigpushfromforeignaidreallytherightremedyforKenyasayWhynot followinChinaandIndiarsquos footstepsinstead

Easterly and his fellow ldquoinstitutionalistsrdquo contend thatbeforewemultiplyourforeignaidbudgetsfive-foldweneedtomakesuretherecipientcountriescanreallyusetheseex-tradollarsCountriesreceivingaidmoneyneedtobewell-governed and someone needs to keep watch to make surethe money is spent to serve the interests of the ldquocommonmanrdquoratherthanTheManinthepresidentrsquosmansionAidrecipientsshouldhavewell-functioninggovernmentinstitu-tionsandcivilsocietyorganizationslikemediaandcommu-nityassociationsthatwillholdthegovernmentaccountableandpreventeconomicgangstersfromcomingtopower

ManydevelopingcountriesarefarfromthisidealUntiltheyfixuptheseso-calledinstitutionsEasterlyarguesthebestwecandoisfundsmall-scalesocialentrepreneursmdashwhatEasterlycallsldquoSearchersrdquoinhisrecentbookThe White Manrsquos Burdenmdashwhofindinnovativesolutionstolocaldevelopmentproblems10Such small-scaleinterventionscanbemonitoredandheldaccountablebydonorsandthecommunityevenin

13


CHAPTERONE

themidstof generalizedcentral governmentcorruption Ifsuccessfultheycouldbescaleduptobenefitevenmorepeo-pleAssocietiesfindwaystodealwithcorruptionanddisor-derpeople inpoorcommunitieswill feelmorecomfortableinvesting in their own futures and economic developmentshouldfollowButuntilthenweshouldnrsquotthrowgoodmoneyafterbad

Everyonelikesagoodfight(especiallySachsrsquosandEast-erlyrsquosbookpublisher)ButthesetwopointsofviewarenotcompletelyatoddsSachsandEasterlyare twovery smartpeopleSachsisnrsquotadvocatingthatdonorsdirect-depositbil-lionsofdollarsintotheSwissbankaccountsofcorruptdic-tators or bring them briefcases full of unmarked hundred dollarbillsandhopeforthebestAndEasterlyisnrsquotsuggest-ingthatweintherichworldcompletelyabandonpoorcoun-triestotheircollectivefatewaitingstubbornlyforthemtoget their houses inperfectorderbeforewritinganychecksatall

Yet critical distinctions separate them Sachsrsquos povertytrapviewholdsthatweneedtopullpeopleoutofpovertyfirstandthenprettymucheverythingelsemdashgoodgovernmentanactivemediaandcommunityparticipationinpoliticsmdashwillfollowButthefirststepismakingsurethepoornolon-ger have to worry about where their next meal is comingfrom

Easterlyrsquosopposingperspectivecountersthatthiswouldbeputting the cart before the horseWersquove tried the eco-nomic ldquobig pushrdquo before to the tune of trillions of dollarsoverdecadesandAfricaisjustaspoorasitwasinthe1960sAn even bigger push by foreign aid planners could simplyresult in even more money lost to misuse and abuse (andgreaterdisillusionmentamongpotentialfuturedonors)

14



Bothprescriptions forhowbest tohelppoorcountriesareplausibleButtoevaluatetheirrespectivemeritsweneedtobetterunderstandcorruptionviolenceandthemotiva-tionsof theeconomicgangsterswhoareresponsible for somanypastdevelopmentfailures

A Walk on the Dark Side of Economic Development

Neitherofusstartedourcareersaseconomistswiththein-tentionofspendingourlivesresearchinghumandepravityInthebeginningweonlywantedtobetterunderstandwhypoorcountriesweresopoorandwhatcouldbedoneaboutitYettheconcurrenceofviolencecorruptionandpersis-tentpoverty is sopervasive that it is almost impossible to separatethestudyofpovertyfromtheseothersocialillsSowersquoveeachspentoveradecadenowthinkingandwritingmdashandsometimesevendreamingmdashaboutcorruptionviolenceandpovertyandwersquovemadeitourlifersquosworktounderstandexactlyhowtheyrsquorerelated

Because all threeoften appearhand inhand figuringoutwherewe should focusour efforts is a classic chicken-and-egg problem and one that is intimately connected tothe Sachs-EasterlydebateIfcountriesfirstdealwithcorrup-tion will economic growth follow Or should donors pullcountriesoutofpovertyfirstbefore theycaneverhope todealwithviolenceandcorruptionBothviewsarereason-ablebutfornowtheyrsquorejusttheoriesWhatwereallyneedarebetter real-worldanswers

Thatrsquos where our research and this book come inOur main objective is to understand the intricacies of thecorruptionndashviolencendashpovertychicken-and-eggquestionusingcoldhardfactsratherthanrhetoricThefoundationofwhat

15


CHAPTERONE

followsisourownresearchfromacademiceconomicsjour-nals(sometimesbasedonworkwithothercoauthorswhomyoursquollmeetaswell)Tobringnewevidencetothedebateweapplythetoolsandinsightsofeconomicanalysistodatathat wersquove carefully collected over years working in AsiaandAfricaWebelievethatthedevelopingworldrsquosbesthopeistobasepolicydecisionsonrationalanalysisratherthanideology

Inthechaptersthatfollowwersquolltellsixstoriesmdashthreeon corruption three on violencemdashthat have started tobreach the barriers to understanding violence and cor-ruptioninthedevelopingworldThesestoriestakeusonjourneys to the hidden and often chaotic worlds of eco-nomicgangsters Frommassacres inVietnam to thecon-tainerportsofHongKong in remoteAfricanvillages tothe streets of midtown Manhattan the answers come infar-flungandratherunusualplacesandalsoinunexpectedways

ForbetterorworsewehumansseemtohaveaninnateinterestincorruptionviolenceandothermortalsinsThequestions wersquore asking and the back doors we discover inour search foranswersholda fascination inandof them-selvesandwersquollshowyouthelatesttoolsandtricksoftheeconomicstradealongthewayBeyondourMafiatalesandwarstoriesyoursquollseethatthebrandofeconomicsleuthingweuseisclosertoSherlockHolmesthanC-SPAN

Aswersquollseetheanswertothechicken-and-eggproblemofpovertyandviolencecanquiteliterallyfallfromtheskyintheformofrainTomeasurethevalueofpoliticaltiesweuseamassivebettingpoolwhereinvestorswagerbillionsonthevalueofconnectionsIscorruptionamatterofconsciencecultureorfearofpunishmentAnswerscanbefoundinthe

16



expiredparkingmetersaroundNewYorkCityrsquosUnitedNa-tionsPlaza

ThroughoutthebookwetakeourresearchlessonsanddrawouttheirpracticalimplicationsforforeignaidandotherdebatesonhowbesttofightglobalpovertyIntheprocessand particularly in our concluding chapter wersquoll introducesome new ideas for helping the worldrsquos poorest citizensachievetheireconomicaspirationsBytheendofthebookwehopeyoursquollseethepotentialthateconomicresearchhasinhelpingtoreallymakepovertyhistory

Counting Invisible Chickens and Eggs

If somanypeoplecare somuchaboutglobalpoverty and violenceandcorruptionareimportantpiecestosolvingthepuzzleyoumightwonderwhywedonrsquotalreadyhavealltheanswersWhyhavenrsquotwealreadyresolvedwhethercorruptgovernmentsandviolenceundermineeconomicgrowthorifpovertycreatestheconditionsforcivilconflictsandthiev-ingbureaucrats

Theproblemisthatchicken-and-eggproblemsarehardtoresolvemdashthatrsquoswhywehavethephraseldquochickenoreggrdquosowecanwaveourhandsataproblemandmoveonButwecanrsquotjustwaveourhandsatglobalpovertyLaterinthebookwersquolldescribethetragichistoryofChadoneofAfricarsquospoor-est countries Recent decades have seen a near-continuoussequenceofpoliticalupheavalviolentcivilwarsgovernmenttheftandeconomicdeclineButwhichcamefirstthewarsor the economic collapse Theyrsquore both happening at thesametimesoitrsquoshardtoknowforsureOrperhapsthefight-ingiscausedbysomethingelseentirelylikepoliticalrivalrybetweenChristianandMuslimChadiansInthatcasethe

17


CHAPTERONE

rootcauseweneedtoaddressisethnicconflictButsomuchis happening at oncemdashpolitical battles rising ethnic ten-sionsenvironmentaldegradationdiversionofthecountryrsquosoilwealthworsening povertymdashthatwe start to feel likeadogchasinghistailintryingtofigureoutwhatrsquosreallygoingon

Besides this is all assumingwehave enough informa-tiontoargueourselvesincirclestobeginwithBeforetryingtounderstandwhetherviolenceandcorruptioncausepovertyorviceversawefirstneedtoknowhowmuchviolenceandcorruptionisactuallyoutthereCorruptionmdashTransparencyInternationaldefinesitasldquotheillegaluseofpublicofficeforprivate gainrdquomdashis something which by its very definitiontakesplaceoutofsight11IfbribegiversandtakersaredoingahalfwaydecentjobofittherersquosnoobviouspapertrailofwhattookplaceBribesdonrsquotappear incompaniesrsquo taxre-turns nor are they reported to shareholders in annual re-portsorcash-flowstatements12 Sowersquorenowtryingtosolvea chicken-and-egg problem where we canrsquot even see thechickens(ortheeggs)

ButifwecanrsquotseebribepaymentstakingplacewecouldtryaskingpeopleaboutthemdirectlyWecouldtalktocom-panyofficialsabouttheirback-alleydealsoraskthebribe-takersingovernmentabouthowmuchtheyarebringinginonthesideYetgiventhelegalconsequencestherearegoodreasons to believe that responses to the question ldquoHowmuchdidyoupay lastyear inbribesrdquoareofquestionableaccuracy

IngeneralweeconomistsareskepticalofwhatpeoplesayonanytopicWecallitldquocheaptalkrdquosincewordsdonrsquotneedtobebackedupbymoneyoractionsAndwersquoreparticu-larly suspiciousof cheap talkon sensitive topics likebribe

18



paymentsandembezzlementThisisobviouslytrueforthosedirectlyinvolvedinillegalpaymentsmdashthegiversandtakersofbribesmdashbutwealsodonrsquotputtoomuchstockintheopin-ionsofthesupposedlydisinterestedexpertswhomightesti-matethebribepaymentsmadebyothers

Suppose for example wersquore trying to figure out howmuchTariqueRahmansonoftheformerBangladeshiprimeministercollectedinbribesfromforeigncompaniesin2005(wersquolltakeupthecloselyrelatedquestionofwhatitrsquosworthtobethepresidentofIndonesiarsquossoninmoredetailinchap-ter2)IfyousurveyinformedBangladeshisonthismatteryoursquoll endupwithanumber that couldbemuchhigherormuchlowerthantheactualamounttheFirstSonpocketeddependingonwhomyouaskItrsquosobviousreallyPeoplersquosstatedopinions reflect their unstated agendas and biases WhenaskedsupportersoftheformerBangladeshigovernmentwillnaturally downplay the extent of corruption in the FirstFamily while opponents might inflate the scope of theproblemSimilarly themainobjectiveofbusinessownersinansweringacorruption survey is to stayoutofprison andhence theyare likely tounderreport theirownbribepayments

Andthatrsquostheheartoftheproblemwehumansoftensaywhatwewish wastrueratherthandescribingthingsastheyactuallyareLetrsquostakealittletestWhatkindofcoffeedoyoulikeAsnotedbyauthorMalcolmGladwelltheoddsare that rightnowyoursquore thinkingyou loveadarkheartyroast13YetwhenmostpeopleputintheirmorningorderatStarbuckstheychooseathinmilkycappuccinoSomehowthedark roastfitswith the self-imagemanyofushaveasrobustadventurousdrinkers(andpeople)TheproblemisheartyroastsjustdonrsquottasteverygoodSowemayclaimour

19


CHAPTERONE

preferences are one thing but reveal very different prefer-enceswhencalledtoaction

FinallyopinionsdisproportionatelyreflectpeoplersquosownpersonalexperiencesDuringvisitstotheallegedlycorruptcountryofBangladeshRayneverobservedpolicemenshak-ing down passersby for cash At worst he witnessed themmilling about looking bored and smoking cigarettes whentheyprobablyshouldhavebeenoutdirectingtrafficSimi-larly there werenooverturesbyairportcustomsofficialstohavetheirpalmsgreasedinexchangeforallowingRayto leavethecountrySoifyouaskRaymdashorothersimilarlyprivilegedforeignvisitorsmdashBangladeshdoesnrsquotseemcorruptat all Ifweextrapolated fromRayrsquosownpositivepersonal experiencesthewholecorruptionproblemwouldseemto-tallyoverblown

RatherthanonlylisteningtowhatpeoplesayweneedtoseewhattheydoIfNescafeacutewantstoknowhowyoureallylikeyourcoffeetheyrsquoremuchbetteroffrunningblindtaste-teststhanaskingyoutofilloutaformAndifwewanttoknowhowmuchpeoplearetakinginbribesinBangladeshwehavetofindawaytoovercomethecheaptalkproblemandfollowthemoney

Say ldquoCheeserdquo

Onewayofgettingaldquorealrdquomeasureofcorruptionistoarmyourselfwithahiddencameraposeasashadyarmsdealerandseeifyoucancatchpoliticiansred-handedontapeTheFBIactuallydidthisinthelate1970screatingaphonycom-pany called Abdul Enterprises to solicit favorsmdashincludingassistance in laundering moneymdashfor a fictitious wealthyMiddleEasternoilsheikUndercoverFBIagentsofferedcash

20



tosenatorscongressmenandotherUSpoliticiansallwiththe tape recorder runningThis so-calledldquoAbscamOpera-tionrdquoresultedinconvictionsoffivecongressmenasenatorandnumerouslocalofficialsandcausedapublicuproaroverapparentlyrampantcorruptionintheUSgovernment

ThemediacansubstitutefortheFBIincountrieswheregovernmentsarelessinclinedtowardsself-examinationTheIndianmagazineTehelkapulledoffanAbscam-likeexposeacutein2001Inanelaboratelystageddeceptionapairofjournal-istsposedasrepresentativesforanonexistent London-basedcompanyWestEndhopingtosellnight-visioncamerastotheIndianArmyThejournalistscaughtseniorgovernmentofficialsandarmyofficersontapetakingbribesordiscussingthemechanicsofmakingbribepaymentsTheserevelationsbroadcasttotheworldviatheWebrockedIndiaforweeksInthewakeofthescandalandperhapsinpartasretribu-tionTehelkarsquosofficeswereraidedonmultipleoccasionsandseveralofitsjournalistswoundupinprison

Astemptingasitmightbeinthisbookweleavethesesensationalistmethodsmdashandtheopportunitytogetanin-siderrsquosperspectiveonIndianprisonsmdashtoothersandinsteademploythetoolsoftheeconomicsresearchtradetouncovercorruptionAchallengetobesurebutaswersquollseestartinginchapter2somebriefcasesofcashleavefootprintswecanfollow

21


CHAPTERONE

ofhisbrotherwhohaddiedalongwiththousandsofotherKenyans in opposing the British And he had celebratedwithhis countrymenas theywatched theBritish imperialmachineryretreatin1963atthebirthoftheKenyannationHehadalsosufferedatthehandsofthesecondfreeKenyangovernmentmdashfordespitethecountryrsquosturntoself-ruleandhopesforabrightfutureNgugihadbeenforcedtofleeKenyain the1980s followingyearsofpersecutionand impris-onment for his sharp criticism of the post-independenceregime

Novels like A Grain of Wheat published in 1967 justfouryearsafterJomoKenyattabecameindependentKenyarsquosfirst presidentprovidedawindowintothehopesandfrus-trations that came with the dismantling of the Westernempiresmdashdreamsof economicprosperitymeasuredagainsttalesofcorruptionseededthroughoutthenewgovernmentA Grain of Wheat isafableabouttheearlytumultuousyearsof a free Kenya and captures the unwavering hope for abrightfuturecoupledwiththefearofwhattheBritishlegacyof corruption and violence might bring ldquoWould indepen-dencebringthelandintoAfricanhandsAndwouldthatmake a difference to the small man in the villagerdquo asksNgugithroughthenovelrsquosmaincharacterGikonyo1

In the1950sand1960s that samequestionechoed in the minds of the citizens of newly independent countriesfrom Kenya and Sierra Leone to Indonesia and PakistanWhat would the future hold Would freedom bring jobspeaceandwealthThesentimentthatdrovetheseconcernswould help make Ngugirsquos novels international sensationstheyrsquovebeentranslatedintomorethanthirtylanguagesandareconsideredclassicsofAfricanliteratureForNgugihim-selfthepost-independenceyearsspentinexilehadbrought

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Documents

Copyrighted Material · Economic Development I n the summer of 2004, world-renowned Kenyan novelist Ngugi Wa Thiong’o returned to his homeland after twenty- two years in exile