Freedom and Corruption

Don’t get your hopes up,” said my friend over lunch. “More democracy in the Arab world will not reduce corruption, it will increase it. Democracy will just produce a new crop of politicians, each competing to win the patronage of international business interests.”

I should note that my friend is a Bangladeshi living in the United States, so his cynicism makes some sense. Bangladesh — chronically plagued by corruption — may have had more adventures with democracy than Elizabeth Taylor had with marriage. And one could be forgiven for believing that U.S. democracy runs only on the high-octane fuel of special interest money.

Yet it is far from clear that more democracy should result in more corruption. There are many who believe exactly the opposite: The greater accountability and pressure for transparency that is unleashed by democracy should reduce corruption, not increase it.

In fact, it is not obvious that there should be any stable relationship between democracy and corruption. From an armchair, one can make either case — democracy will increase corruption, or it will diminish it.

Do the data suggest that there is any stable relationship between democracy and corruption? If they do, is that relationship positive, as advocates of democracy believe, or is it negative, as my friend claims?

As it turns out, the answers to these questions require some elaboration. If we use the numbers provided by Transparency International (TI) to measure corruption, and use Freedom House’s scores for political freedom and civil liberties as our index of “democracy” (sidestepping a more complex discussion of what we mean by democracy), these indexes do indeed show a strong relationship between “freedom” (the sum of the Freedom House’s scores for “political rights” and “civil liberties”) and corruption (TI’s Corruption Perception Index).

For the 163 countries that have data for 2010, there can be no doubt: More freedom is associated with less corruption. (View the data here and here.)

But hold on a minute. The data also show that countries with higher incomes (per capita income at purchasing power parity) have both more freedom and less corruption. Therefore, it is entirely possible that when we observe that countries with more freedom have less corruption, we are really observing simply the pattern of economic development — growing prosperity leads to both more freedom and to less corruption.

This income-freedom-corruption nexus could reflect all sorts of causal patterns. A conventional development economist might say that “the increase in freedom and the decrease in corruption are parts of the big process of transformation as countries become rich. They are no more linked causally than the share of agriculture in the economy, or the extent of urbanization is linked to either freedom or corruption.”

Someone else might argue that “freedom is the sword that cuts the Gordian knot of underdevelopment. Increase freedom and income will surge, while corruption will be stifled.”

Finally, somebody else may suggest that “once you account for the decline in corruption that accompanies income growth, you will find that authoritarian countries have the discipline that enables them to do a better job of stifling corruption when compared to democracies.”

In fact, the data support the pro-democracy view. If we look at the effect of freedom on corruption, after the effect of income is accounted for, we reach exactly the same conclusion as before: A country with more freedom can be expected to have less corruption. This result is highly statistically significant. More political rights and greater civil liberties are associated with lower corruption at any given level of income per capita.

The relationship, which fits the data from these 163 countries well, is illustrated below. (We have added country names to illustrate a few of the many countries that roughly fit the pattern. None of the income, freedom, or corruption numbers for these countries is precisely equal to what the axes show.)

Click on the image for a larger version of this figure.

Data Sources: The Globalist Research Center, Transparency International, and Freedom House

So it looks like my friend was wrong. The consequences of the Arab Spring lie before us — nobody would be wise to predict them with much confidence. But the idea that greater freedom and democracy can be expected to aggravate the corruption that so infuriated the people in the streets is fortunately not supported by the evidence. That ray of sunshine still lights the way ahead.