Tuesday, July 13, 2010


Forbes magazine; there are few other publications that beat the drum harder for the free market economy.
If publisher Stephen Forbes had his way government would be restricted to policy formulation , regulation and law and order enforcment. By reducing government presence to a sliver, the invisible hand would ensure increased production as entrepreneurship thrived and therefore society as a whole.
Forbes and his ilk believe that in this way society will fairly reward entrepreneurs who are the engine of wealth creation.
While this is true, we also know that the free market while being our best system of generating wealth, is most inefficient in distribution of that wealth once created. Governments are supposed to act as an arbiter, which taxes producers in order to provide public goods that, among other things, would allow everybody an equal chance at climbing up the ladder of affluence – the trickledown effect.
However, in many developing countries the trickledown has remained a pipe dream as corruption has subverted it. Transport networks and other infrastructure, health and socials services have suffered ensuring that the rich-poor divide widens rather than recedes.
So it came as a surprise when in its latest issue Forbes published a semi-defence of corruption.
Professor John Hooker writing this week argued that corruption is not a bad thing per se, it is just that it is operating out of its original context. He argued that – giving Asia as an example, nepotism, cronyism and bribery were tools that cemented society’s cohesion, redistributed resources and actually increased the efficiency of firms.
The professor of Business management wrote that in Korea for example the powerful industrial complex the chaebols, grew on these tenets which are now being frowned upon by the purveyors of the new corporate governance.
For instance the founders of companies would ensure their offspring took over control of the company by fast tracking their promotion to the top. Nepotism was a way for the patriarch to enforce the vision and standards though his sons thanks to the authority he wields over them as their father. That cronyism while awarding contracts to associates, would guarantee quality work or supplies because of the strong relationship between the contractor and the client. And the offering of gifts to people of influence is just courteous and not intended to influence contracts.
Without the context that celebrates family honour and the value of social ties, corruption then becomes a cancer to society.
The author argued that whereas western economies operate on an impersonal, rule-based framework, the economies of the developing world are more influenced by relationships and therefore needs, what the west sees as, corruption to lubricate the wheels of progress.
I think the theory was deficient in that it ignores the reason why the systems differ.
A rules based system is necessary in large communities where the influence of the individual can only go so far. Faceless institutions – the parliaments, courts and even governments evolved as societies grew in size and complexity. Europe and the Far East developed these institutions out of necessity – rulers needed to project their influence further and further afield, as a result of their capacity to produce food surpluses that were used to sustain thinkers and professional armies.
Even among our larger kingdoms institutions deriving their power from a central authority as we know them to do today, were starting to form.
So the natural evolution is towards a rules and away from a relationship based society, where corruption is a hindrance rather than an enabler. There are positive to take from both systems however, and western management thinking is increasingly embracing the role of relationships in business.
But the point that systems can only work within a given context and not be grafted wholesale onto other cultures is a valid one.
The western Europe’s institutions did not just appear on the scene but rather evolved over decades of uneven development , with man’s base instincts for crude accumulation and indiscipline always lurking around the next corner, ever ready to hinder, reverse or even terminate progress.
That being said we are more technologically advanced, better informed and need not trace the erratic oftentimes despotic and many times bloody path to development that Europe endured over many decades.

Published January 2010, New Vision

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