We cannot end poverty without ending corruption

How do corruption and poverty impact each other? I remember reading "Why Nations Fail: The Origins of Power, Prosperity, and Poverty", a book gifted by a German friend of mine on my birthday. A comparative study of Germany and Bangladesh can offer important insights. The difference in the levels of poverty and prosperity between the two countries is staggering. In Germany, the current rate of per capita Gross Domestic Product is USD 45,466; the country is placed sixth in the global Human Development Index ranking (a measure combining health, wealth and education), and it ranks 22nd in the world in terms of ease-of-doing-business. Whereas in Bangladesh, per capita GDP stands at around USD 2,122—and it comes in at 133rd and 168th positions, respectively, in the aforementioned rankings. In the Transparency International's Corruption Perceptions Index (2020), while Germany is ranked ninth, Bangladesh ranks at 146th as one of the most corrupt countries in the world.

In "Why Nations Fail", authors Daron Acemoglu and James Robinson conclude that "underdevelopment is the result of political elites in developing countries who deliberately plunder their people and keep them impoverished." Citing examples from the city of Nogales—which is located half in Mexico and half in the United States—they show that people living on the US side are well-educated, prosperous, and enjoy far higher life expectancies than those residing on the Mexican side of the border. 

Although some scholars view corruption as an enabler of development rather than an obstacle, particularly at an early stage of modernisation and development, numerous studies on corruption concluded that communities incur substantial economic and social costs as a result of it. The use of public office for private gains always benefits a powerful few, while imposing huge costs on large sections of society.

Jeffrey Sachs, one of the most talented development scholars of our time, sees corruption as a poverty trap: poverty causes corruption, and corruption causes poverty. Likewise, the World Bank—while determining corruption as a major challenge in achieving its twin goals (ending extreme poverty and boosting shared prosperity) for the poorest 40 percent of people in developing countries—pointed out that, "every stolen or misdirected dollar robs the poor of an equal opportunity in life and prevents governments from investing in their human capital."

Empirical studies have also shown that the poor pay the highest percentage of their income in bribes when accessing services such as health, education and justice. Moreover, corruption diverts precious government resources away from schools, hospitals and other essential services, and locks people into poverty.

The International Monetary Fund (IMF) estimates that the annual cost of bribery alone is about USD 1.5-2 trillion (roughly 2 percent of global GDP) which is siphoned out of developing countries each year through money laundering and dodgy deals. This cash could generate tax revenues which could be used to invest in fighting poverty, stimulating growth and creating jobs, according to the IMF.

It is true that the lack of natural resources, geography, political instability, culture, weather and knowledge base, among other influences, play a pivotal role in answering one of the most heavily discussed economic questions of our time: why are some countries rich and the others poor? In his pioneering work "The Bottom Billion", Oxford University professor Paul Collier identifies four distinct poverty traps—civil war, natural resource endowment, being landlocked with bad neighbours, and having bad governance—in 58 of the world's poorest countries. However, he highlights that corruption can make even resource-rich societies poor. Collier shows how leaders of many of the poorest countries, pocketing from large surpluses of natural resources and embezzling funds from mega development projects, are themselves among the global super-rich. 

The Begum Para in Toronto, Canada—an opulent neighbourhood where Bangladeshi millionaires are known for buying and settling in luxurious houses—is a prime example of how the powerful plunder public money while keeping their own countrymen impoverished.

Banerjee and Duflo, two Nobel Prize winning economists, in their seminal book, "Poor Economics", further explore the connection between corruption and poverty. Although they dispute the widely-held belief that the single greatest cause of entrenched poverty is poor governance and corruption, they also observed that it would be a waste of time for North Koreans to read their book if they cannot somehow get rid of their dictator. It is not possible to implement good policies if politics is not right. For example, spending billions of dollars in building schools, hospitals and roads could be a waste of money if the political system is unable to ensure that teachers and nurses regularly go to work and that truck drivers cannot drive massively overloaded trucks by paying a small bribe to the police.

It is not just the city of Nogales—the differences between South and North Korea, the former countries of East and West Germany, and the massive economic leaps made by Botswana, Malaysia, and Singapore prove that good governance matters very much when it comes to economic development. Myanmar could be Asia's next failed state due to its ongoing political chaos, as The Economist predicts. So to move from poverty to prosperity, it is not enough for a country to figure out good economic policies, it must root out corruption from its political and governance processes.

Ismail Ali is a London-based freelance journalist.