As Raymond Fisman and Edward Miguel explain at the beginning of their new book, Economic Gangsters: Corruption, Violence, and the Poverty of Nations, there are two main currents of thinking among those who opine on the wisdom of foreign aid: the “poverty trap” view, which holds that aid must be injected to end a vicious cycle in which inability to save leads to disaster in lean years, and the view that more such aid is simply sending good money after bad, straight into the hands of corrupt officials to be funneled away or otherwise wasted. Fisman and Miguel aim to look at corruption and violence in developing countries to determine how prevalent such evils are, how they are caused, and how they can be prevented—and, therefore, what the best way, non-ideologically-speaking, of raising up poor nations might be.
The funny thing about corruption is that it tends to exist out of sight—at least, out of sight of official statistics and public measurements. No one reports the bribes he takes on his income tax returns. So Fisman and Miguel have to come up with creative means of measuring corruption of various types, and this is the most fun part of their book. Economic Gangsters is completely accessible to the general reader, with virtually no economic jargon or concepts more difficult than “incentives matter,” but it perfectly captures the exciting, puzzle-solving nature of this kind of academic research.
My favorite example: how do you measure the value of a corporation’s political ties? Find a dictator running a country with a stock market; find companies with close personal and political ties to the dictator; and see what happens to corporate stock prices when the dictator’s fortunes wax and wane, compared with the prices of non-connected company shares and general stock indices.
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