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Wednesday, December 28, 2011

Corrupt government <> Big government

I’m lifting this post from a comment made by “kiwi dave” on the Marginal Revolution site, just because I found it so interesting.

kiwi dave December 27, 2011 at 10:03 am

According to the recently-released Corruption Perceptions Index study from Transparacy International covering 2010, four of the ten least-corrupt countries were Nordic (Denmark, Finland, Sweden and Norway) and all have comparatively large governments in Government spending/GDP terms (i,e, over 45% – http://en.wikipedia.org/wiki/Government_spending#Government_spending_as_a_percentage_of_GDP) — however, the other five all have much lower government spending — Canada, New Zealand, Australia, Switzerland and Singapore – the latter three of which have significantly lower government spending/GDP than the US (34, 32 and 17 respectively, versus almost 39 for the US). New Zealand and Singapore came first equal, higher than any Nordic country other than Denmark. So there doesn’t appear to be any obvious relationship between size of government and corruption. Three points to note, though:

1. tax/spending as a proportion of GDP is only one way to look at the size of government, and probably not the most accurate (albeit the most convenient); a truer picture would take into regulatory burden, intrusive bureaucracy, market distorting rules etc. This stuff cannot be easily quantified, although, from the anecdotal evidence I’ve heard, the Nordic and Benelux countries have comparatively “small” governments in that sense, despite having large welfare states.

2. even if there is no (or a negative) relationship between size of government and corruption, the same level of corruption in a country with a bigger government will still have a bigger effect, ceteris parabus, than in a country with a smaller government. In a sense, it was irrelevant how dirty the 19th Century US Federal government was because it was so tiny. Whereas even a low level of corruption in a government that exercises massive control over the economy could be very distorting.

3. in a country with a “big” government (in the sense I described above), more corruption may be better than less: it could be that if all regulations were carried out to the letter, it would be impossible to do business; if some of these burdens can be averted with a little baksheesh, though far from ideal, it is probably better than the alternative.

The original post can be found here, a couple feet down in the comments: http://marginalrevolution.com/marginalrevolution/2011/12/the-governance-premium.html#comments