Corruption in Greece and Ireland and the US? Responding to Drum and McArdle

A few days ago I posted on Chris Caldwell’s fine cover story in this week’s Weekly Standard on the eurozone crisis.  In part the article and my post dealt with differences between Greece, on the one hand, and Ireland and Spain, on the other, when it came to corruption and some related issues.  The original post is here.  I see that Kevin Drum has raised a question, and Megan McArdle has responded (h/t Instapundit):

But I’m curious about this sentence, from a review of the piece by Kenneth Anderson:

“Toward the end, the essay points out that although Greece is every bit as corrupt and profligate as the newspapers suggest, that was not the case with [] Ireland, certainly not in the sense of Greece.”

This is a common attitude, but I’m not sure any of us should buy it. Granted, Greek corruption is depressingly crude, conspicuous, and grasping, sort of like being mugged in a dark alley or shaken down by a wise guy. By contrast, Irish corruption, much like its U.S. counterpart, is rather more genteel, discreet, and white collar than the Greek variety. For this reason, it’s usually treated as mere “cronyism” — regrettable, perhaps, but not truly corrupt “in the sense of Greece.”

On the other hand, the U.S./Irish version is actually far more efficient at separating the yokels from their money. In any meaningful sense, then, shouldn’t it be considered more corrupt?

McArdle responds:

I think this comparison fails for several reasons … Were the politicians in Ireland who turned a blind eye to the problems in the banking sector really just as bad as the Greek politicians who simply lied about how much money their government was raising and spending? Or, for that matter, bureaucrats shaking down businessmen for bribes?

Moreover, it’s not like there’s some binary tradeoff: Greece has cronyism as well as a massive gray economy, rampant nepotism, and officials who solicit bribes. While such figures are always hard to determine, some very smart people put the percentage of Greek economic activity that is underground at 40-50%–more than 4-5x what it is in the US.

These sorts of figures have all sorts of implications: for taxation and civic engagement, but also for developing the sorts of legal institutions that support well-functioning markets. Yes, you can argue that clearly these went awry in American and European banking sectors, but in Greece they’re awry everywhere.

My response?  It’s pretty simple-minded and practical, as you’d guess from someone who has spent a couple of decades dealing with development finance in messy places in the world.  Heaven knows I’m not excusing the failures of Ireland, Spain, or the US.  But the differences between those and the closest approximations I know to Greece are differences in kind, not degree.  I’m quoting one of my current Greek grad students; I usually have a couple each year.

Greece is closer to a Third World state in its adherence to the rule of law and institutions of public trust and fiduciary public stewardship.  It is in a different world from “mere” cronyism, in the way that is so in Paraguay, or Bangladesh, or many other places.  Everyone knew this about Greece when it joined up with Western European institutions; the idea was that being bound inside them would promote the rule of law and public trust.  It hasn’t quite taken, although one hesitates to contemplate what Greece would be like outside of the European institutions.

I don’t excuse cronyism in Ireland or elsewhere.  But the idea either that it’s a matter of degree merely rather than of kind or, worse, as Drum says, that this kind of cronyism is more efficient at separating the yokels from their money and hence in some sense worse – I’m sorry, but that simply defies my experience as someone who has had to deal with these issues in places ranging from Macedonia to Guatemala.  In practical ways – having to tell officials that, alas, we don’t pay bribes, even if it means that we will be outbid for the judge’s loyalty by someone who embezzled a sizable sum.

The countries in which my organizations (which I don’t want to name because I’m not speaking for them, of course) simply could not invest and do business (even as a nonprofit willing to lose a fair amount of money in the interests of economic development, because the basic institutions were so corrupt) reside in a different universe from ‘more efficiently’ sweeping up the rent-seeking through cronyism.   There’s also not much question on what side of that line Greece lies.

(Update: Took out some unnecessary moralizing.)

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