Systemic Corruption II: Corruption and Economic Performance: A Comparative Approach.

By Christopher Warburton, Ph.D Econ

In the last analysis we looked at the conduct of corruption from a juridical perspective with insufficient allusion to the economic implications of corruption and adverse policies. This analysis takes a deeper look at how corruption or bad policy choices which define a regime, can actually lead to mediocre or adverse economic performance. As a comparative approach, it examines the challenges confronting two former colonies of Britain, Sierra Leone and Singapore, at the dawn of independence. It shows how different policy choices have led to different economic outcomes-one country enjoying increasing per capita GDP (Gross Domestic Product) growth, and another, languishing in the throes of economic depression.

This monograph addresses the question of whether economic convergence is possible after a tortuous and unfavorable colonial experience. Some writers have almost religiously extended the colonial hypothesis into a new epoch of contemporary imperialism. I frame this analysis to incorporate the dilemma of whether or not the level of per capita national GDP (national income per head) in poor or formerly colonized countries can eventually catch up with the levels of the wealthy “imperial” or conquistador countries. Per capita national GDP is an indicator of productivity. There is evidently a strong positive correlation between responsible government and sustainable increases in the per capita GDP of a nation. Suffice it to say that correlation rather than causation will be adequate for intelligent conclusions here.

After a lost generation, can Sierra Leone curb corruption to converge?

Convergence simply means that if countries with less initial per capita national income or capital adopt sensible economic policies they should be able to grow faster than wealthier countries because of diminishing returns to capital in wealthier countries. Conditional convergence imposes regularity conditions. Convergence can take place beyond initial income disparities if national saving rates differ, but population growth and technological changes are not fundamentally and significantly different. Absolute convergence provides no such differential considerations. We do not generally expect rich and poor nations to have the same rate of saving; population growth; and technological progress. Data affirm disparities.

The theory of convergence is apparently indicative of a procedural rather than a substantive challenge. If we assume that these economic theories are too cryptic and demanding of our imagination and time, percentage changes or growth rates and standard deviation (for sigma convergence) make for more attractive alternatives to arrive at compelling and sensible inferences. Beta convergence occurs when relatively poor countries grow faster than rich ones (using the functional relationship between per capita national income and initial income as the indicator of convergence), and sigma convergence occurs when the cross-sectional standard deviation of per capita national income across economies diminishes on a dynamic time path. The diminution is indicative of the narrowing of the variation in productivity or per capita income. Detailed empirical cross sectional regression analysis is warranted for beta estimates. I do not wish to undertake that here. I will rather compare growth rates as an alternative to beta convergence.

Benchmark conditions suggest that poor or formerly colonized countries have less initial per capita income or capital relative to the rich countries. Since excessive capital is susceptible to diminishing returns (hence it’s adventure or exodus from areas of low returns to areas of high returns), the prospects of growth in areas of less capital become real rather than imagined. Various economists have devoted more time, energy and sophisticated empirical models to ascertain a correlation between sparse capital and rapid per capita income growth even in post World War 2 economies of Japan and Germany.

Historical Background and Policy Divergences

Sierra Leone and Singapore became Crown Colonies in 1808 and 1867 respectively. The Crown Colony structure of government in Singapore was consistent with that in Africa. In addition, Sierra Leone and Singapore are cosmopolitan countries. Singapore’s religious denominations consist of Buddhists, Muslims, Christians and Hindus. In Sierra Leone, Muslims, Christians, and atheists abound, and both nations traditionally welcome foreigners from all over the world.

Unlike Sierra Leone, Singapore is not well endowed with natural resources (gift of nature) such as gold, diamonds, iron or, and bauxite. Its strategic location on the Indian Ocean makes it a point of disembarkation and a vibrant entrepôt for resources from elsewhere.

Colonialism in Singapore was far from peculiar. Until the end of the World War 2, local inhabitants were granted very little participatory role in government, and it was not until after an abortive rebellion by the Communist Party of Malaya, that the British government appointed a commission under Sir George Rendel to review Singapore’s constitutional position. The sluggish move to wider political participation in government in Sierra Leone had already started at least in the 1920s.

As a striking departure from decolonization policy in Sierra Leone, the Colonial Office constituted Singapore to be an administrative unit. This was a striking contrast to the policy of unification after colonial Balkanization in Sierra Leone. Yet, the post colonial reconstruction was turbulent for both countries as they sought paradigms for political and economic progress.

In Singapore, like Sierra Leone, successful independence became highly contingent on the reconciliation of seemingly irreconcilable differences and the mapping out of sustainable growth strategies. These strategies are often conflictive and cluttered with less transparent individual idiosyncrasies of major political actors. In Sierra Leone there was the Sierra Leone People’s Party (SLPP); the All People’s Congress (APC); and the National Council of the Colony of Sierra Leone (NCCSL); all of which had questionable national appeal. In Singapore there was the People’s Action Party (PAP) and the Communists which formed an uneasy coalition to articulate a national agenda for progress.

The 1960s proved to be troublesome for patching ethnic dissension. In Sierra Leone, a coup took place to maintain a status quo of ethnic hegemony. In Singapore there were ethnic and racial riots in 1964. Disintegrative government was almost portentous of financial collapse in Singapore and there was clearly a storm on the horizon.

Deliberate policy choices linked state to society and a progressive agenda defined the objective of the post-colonial regime in Singapore. In Singapore, the post colonial state urgently pursued forward-looking socio-economic strategies: (i) The creation of a Singaporean identity (facilitated by a Constitutional Commission on Minority Rights in 1965) to avert the polarizing ethnic discomfiture of 1964 in the future; (ii) The creation of educational institutions and housing for the delivery of the government’s policy of integration; (iii) The implementation of anti-corruption campaigns at all levels of bureaucracy to ensure a graft-free government and the provision of a skilled workforce; (iv) The development of efficient infrastructure to attract investment from US, Japan and Europe (to augment national saving); (v) The active promotion of insourcing to foster and develop export oriented industries (vi) The establishment of government owned enterprises to reinforce an export-oriented strategy; (vii) The pursuit of an aggressive retraining agenda to deal with unemployment after Britain pulled out of naval bases in the 1960s; and (viii) The implementation or enforcement of effective laws to ensure unemployment compensation and increased national saving to avoid disastrous recessions. Employers made contributions to a Central Provident Fund which was also used to help the working class obtain affordable housing.

These growth oriented policies which defined the post colonial regime, were in fact the trajectories of contemporary growth and economic convergence. In the Evolution of Crises and Underdevelopment in Africa, I outline indicators for further analysis and comparisons. By contradistinction, for the duration of the twentieth, and part of the twenty first centuries, the post colonial state of Sierra Leone has been pre-occupied with ethnic rivalry; coups d’état; systemic corruption; and a war that is closely linked to the flawed perception of state and society in Africa.

Has Singapore Converged?

The tables below provide critical information on economic performance between 1961 and 2002. They also show the need for urgent economic remediation in Sierra Leone after a generation of economic decline. Table 1 shows that for the period under review, the growth rate of average annual per capita income in Sierra Leone actually declined (-0.93); that of Singapore actually outperformed the UK (its former colonial master) and the United States-a prima facie indication of economic convergence.

I provide evidence of sigma convergence in Table 2. In 1961, per capita national income in Sierra Leone was $264.33 (evaluated at 1995 prices); for Singapore it was $3014.13, which is considerably less than that of the UK and the US. The comparative study of Sierra Leone and the UK shows that the standard deviation of per capita national income in 1961 is $6661.87; for Singapore and the UK, $4717.47. It is apparent that though the deviation declined for the Singapore-UK-US estimation, it actually increased significantly for the Sierra Leone-UK-US estimation. In 2002 per capita national income in Singapore actually exceeded that of Britain. For Sierra Leone, 2002 per capita national income actually declined relative to 1961.

Table 1: Per Capita Average Annual GDP Growth Rate1961-2002 (%)

Sierra Leone (-0.93); Singapore (5.71); UK (2.14); US (2.15)

Table 2: Sigma Convergence [Per Capita National Income1960-1961 & 2002]

1961 Per Capita National Income [Initial/Benchmark Conditions]

Sierra Leone $264.33; Singapore $3014.13; United Kingdom (UK) $9685.64; US $13258

2002 Per Capita National Income

Sierra Leone $164.62; Singapore $27254; United Kingdom (UK) $22974.47; US $31891

1961 Standard Deviation: Sierra Leone-UK, $6661.87; Sierra Leone-UK-US, $6712.66;

2002 Standard Deviation: Sierra Leone-UK, $16129; Sierra Leone-UK-US, $16362.37;

1961 Standard Deviation: Singapore-UK, $4717.47; Singapore-UK-US, $5199.49;

2002 Standard Deviation: Singapore-UK, $3026.22; Singapore-UK-US, $4459.50;

Raw Data Source: World Bank’s WDI CDROM 2004

Are these results confounding?

The answer is no. There is a negative relationship/correlation between systemic corruption and economic performance. Table 3 shows that unlike Sierra Leone, the perception of favorable political and economic conditions is superlatively superior in Singapore-a reinforcing caveat that exemplary economic performance cannot be left to chance and ruinous policies.

Table 3: Corruption Perception

2003: Sierra Leone 2.2 Singapore 9.4 UK 8.7 US 7.5

2004: Sierra Leone 2.3 Singapore 9.3 UK 8.6 US 7.5

2005: Sierra Leone 2.4 Singapore 9.4 UK 8.6 US 7.6

2006: Sierra Leone 2.2 Singapore 9.4 UK 8.6 US 7.3

Source: Transparency International

Can Sierra Leone converge? Until the people and government of Sierra Leone demonstrate a revulsion against systemic corruption and enforce much more stringent laws against corruption and economic crimes, the prospects of convergence or sustainable economic growth in Sierra Leone will remain in unquestionable jeopardy.