Corruption and restrictive regulation

An interesting finding by the World Bank’s Investment Climate Department – the less procedures required to start a business, the less likely a country is corrupt. Note that New Zealand is way to the left and bottom of this chart:

There is more on the World Bank Private Sector Development blog, (article) but I tend to disagree with the finding;

Preliminary estimates by CIC staff suggest that a 25 day reduction in the number of days to start a business improves the control of corruption ranking by about 1 point. If the number of days to import and export is reduced by 25, the control of corruption ranking increases by 4.4 points.

That implies that reducing the number of days required to start a business reduces corruption – which cannot be true alone. The next paragraph is subtly different:

Further analysis shows that controlling for country specific effects, changes in the level of doing business indicators are positive and significantly correlated with changes in corruption rankings within a country.

That’s better, but regardless my take is somewhat different. I contend that a corrupt society may be better off with multiple bureaucratic steps, as it spreads the corruption out over a number of officials rather than concentrating it all in the hands of a few. That means lots of little payments and a process to follow rather than one huge payment to a single person. To be sure any society should seek to reduce the number of steps to do various things, but ensuring as they do that there is no room for corrupt practices.

About Lance Wiggs

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