C K Prahalad on corruption

Management guru inveighed against corruption at the CII:

On the civic side, he said the prerequisites for growth were an emphasis on individual rights as against group rights and the urgent need to treat corruption as treason. "A nation becomes less corrupt before it gets rich."

Rousing stuff - and no doubt the money-bags at CII cheered lustily- but not something that withstands critical scrutiny. If Prahalad's statement is correct, China should have become poorer by now, not richer. When you look at the rankings of, say, Transparency International, you find that there is no precise correlation between these rankings and growth performance. Some corrupt economies flounder- as in Africa. Others prosper.

As a nation gets richer, petty corruption diminishes- the traffic constable is not going to wave you on if you pay him Rs 25 because this is small change in relation to his salary. But big ticket corruption is not eradicated as easily- and is indeed embedded in the very fabric of most economies, modern or antiquated.

More broadly, the evidence on the relationship between institutions and growth is suspect. Historian Gregory Clark points out in his monumental work, Farewell to Alms, that the quality of institutions in pre-industrial England was as good as it is in modern societies today. Yet, the existence of sound institutions did not cause growth to accelerate. America's own rapid growth at the turn of the last century happened against a background of some pretty weak institutions- banking and capital market scandals were rife at the time.

It may be well that a society that is not corrupt, that sets store by all sorts of norms, is a nicer place to live in. But it is not necessarily more prosperous.