Bribery Does Not Reduce Bureaucracy

Summary of working paper 7093
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Far from greasing the wheels of commerce, more corruption means even more red tape.

There is a well-established school of thought that holds that a little corruption isn't such a terrible thing. "In terms of economic growth, the only thing worse than a society with a rigid, over-centralized, dishonest bureaucracy is one with a rigid, over-centralized and honest bureaucracy," wrote noted political scientist Samuel P. Huntington in 1968. The thinking is that bribery "greases the wheels" of commerce, allowing entrepreneurs and corporations to go about their business without being entirely stifled by bureaucratic meddling.

In Does "Grease Money" Speed up the Wheels of Commerce? (NBER Working Paper No. 7093), Daniel Kaufmann and NBER Faculty Research Fellow Shang-Jin Wei challenge this hypothesis. They use firm-level survey data from the World Economic Forum's Global Competitiveness Report and the World Bank's World Development Report; for these, corporate managers in different countries were asked about the level of corruption they had to contend with, the amount of time they spent dealing with government bureaucracy, and the overall regulatory burden. The authors find that far from greasing the wheels of commerce, more corruption means even more red tape.

The grease-the-wheels theory comes down to the assumption that a corrupt government official will use harassment or bureaucratic delay to force a bigger bribe. Kaufmann and Wei find that if corruption is rampant, time spent with bureaucrats and regulatory burden are high. They also ask if the East Asian countries, known for both corruption and economic dynamism, are an exception. They find that in fact the correlation between corruption and bureaucratic burden is even stronger in those countries.

None of this means that an individual firm can't profit from making a bribe, Kaufmann and Wei caution. But the business community as whole is better off with less bribery, and with international laws that strengthen firms' ability to commit to not paying bribes.

-- Justin Fox