What type of corruption is really hampering Nigeria's economy

There at least two important things to consider when examining the developmental trajectory of states when it comes to corruption. The first is that there are different types of corruption. The second is that the international community – at least through its media – looks on some types of corruption less favourably than others. But, this is sometimes misplaced.

When it comes to countries like Nigeria, the media assumes that corruption is the only reason for the country’s failure to break past its lower middle income status. The assumption appears to be that if the billions stolen by corrupt leaders were recovered and invested properly in public services, Nigeria would prosper.

There are several problems with this notion. Economic development is not an event occurring at a single point in time. It is an ongoing and dynamic process. If corruption does in fact affect systemic economic performance, we need nuanced analysis to figure out how that happens.

The cost of corruption

If corruption affects a country’s economy, one possible avenue is through transaction costs. We understand from the work of the American economic historian Douglass North that legal and regulatory stability, or a lack of it, affects a country’s economic performance. It affects the ability of business to efficiently and effectively calculate the cost of transactions.

North argued that the development of rule of law institutions, for example, is what enabled economic development in the UK. Business innovators could work in an environment where the cost of business can be reliably calculated and legally maintained. But this has not meant that countries such as the UK are free of corruption. They are merely corrupt in a way that does not overtly hamper economic productivity.

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The specific type of erratic but institutionalised corruption that affects Nigeria is reflected in the country’s position at 170 on the World Bank’s Ease of Doing Business Rankings. In 2014, the Bank assessed that 78.3% of firms would likely have had to engage in making informal payments to public officials.

Indices such as these are questionable given the possibly dubious measurements involved in producing them. Nevertheless, this type of hard-to calculate corruption practised in countries like Nigeria likely affects economic growth. The fact that both domestic and international businesses cannot accurately calculate the cost of doing business in Nigeria makes them jittery at the best of times. Investors and business people put a premium on stability, credibility and predictability.

But that is not the same as saying that Nigeria is any more corrupt than any other country and that such corruption is the cause of its poor economic development.

To further draw a distinction between different types of corruption, it is worth looking at the case of the Asian tigers. Their remarkable economic growth up until the early 1990s is still being lauded. In countries like Japan, Singapore, South Korea and Taiwan, corruption was rife throughout their political and economic systems, as well as between big business and government.

It is possible that the only difference between the kind of corruption in these Asian economies and that found in Nigeria is that the former was a more organised form of corruption. Investors could credibly predict when, at what stage, and to whom, bribes were to be paid. In other words, corruption could be calculated, thus stabilising the transaction costs of doing business.

The kind of corruption that takes place in countries like Nigeria is perhaps comparable to the patrimonial corrupt practices that were prevalent in feudal Europe and the wars that built its states. Historical examination tells of a people not significantly different in behaviour from their modern day Nigerian counterparts. As Charles Tilly, the American sociologist and political scientist notes, the European experience represents “one of our largest examples of organised crime”.

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While corruption in itself may not be the sole and simplistic cause of poor economic development, there is value in the moral repugnance that it elicits among the masses. It is their livelihoods that are being pocketed by those who neither care for, nor respect, the public from whom they steal.

If the public who suffer the consequences of gross and morally outrageous corruption are outraged enough to be organised, then political change and development may be one possible outcome. The French Revolution provides at least one good example.

As Theda Skocpol and Barrington Moore suggest, at the very least, political – if not structural economic – change and development has been achieved by a working class morally enraged enough to be well organised by the middle classes in revolting against a small rich bourgeoisie.

Nigeria, I would suggest, is no “dirtier” than any other country - it is simply dirty in a different way. The solution is most likely in the institution of regulatory structures that encourage the advancement of the country’s productive and technological capacity.

Another option, at the very least, is the streamlining and control of corrupt practices so that higher and lower level officials are organised and coordinated enough to ensure that whatever corruption occurs does so in a way that does not discourage business and technological investment and innovation.

This article is based on an earlier blog on politicalmatter.org

Eniola Anuoluwapo Soyemi does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.