How the few steal from the millions

LightCastle Analytics Wing
July 25, 2013
How the few steal from the millions

Let me start by saying that the concept behind this article is not my original. It is borrowed from established economists like Charles Wheelan and Tim Harford. My objective is to educate people with the same knowledge that I acquired from reading the books that these masterful economists wrote.
It is no big secret that the politicians or people close to the politicians frequently engage in activities that make them rich at our expense. These activities take many forms and in economics are known as ‘rent-seeking behavior’. Sometimes it is giving a big contract to an unsuitable bidder. Sometimes, it means giving licenses to those who provide kickbacks. Sometimes, it takes the form of severe bureaucratic tangles created so that ordinary citizens are bound to pay bribes to get their way (e.g. trying to get a driver’s license). There are many other ways of getting rich at the expense of the general mass population.

Why do we let them steal our hard-earned money? Economists found out that the two concepts of ‘rationality’ and the ‘free rider problem’ are at the core of the issue. Let me take the example of Bangladesh. There are around 160 mn people. Out of that let us say a hundred thousand are stealing from us in various nefarious ways. The amount being stolen when divided by 160 mn people is not that significant. Each of us is paying a small price. However, for the hundred thousand stealing for us, it is a kingly fortune. So the ‘rent seekers’ as they are known in economics, have all the incentive to lobby and push for continuing these bureaucratic tangles and opaqueness (lack of transparency) so that they continue to make money. We on the other hand don’t have any real incentive to protest because it makes more sense to use our time doing other things rather than trying to save the few hundred bucks that is being stolen from us. That is how rationality works.

There is also the ‘free rider problem’ as I have mentioned before. If I, Asif Khan, spend all my personal time removing the corruption and the rent-seeking, the whole country would benefit. However, not all people will be willing to help me in my endeavor. They would take free benefits from my efforts which I would definitely not like. That prevents me from taking the first step in fighting against corruption.
All this does portray a gloomy picture of the world where the few corrupt people in the government and outside the government would continue to steal from us. However, many countries do have low levels of corruption. So there must be ways to improve the situation. I don’t have a magic solution to the problem but I would guess it’s a mixture of multiple things including improved literacy, national pride, prosperity, and many other things that leads to a nation with a low level of corruption.

See more such posts at The Asif Khan Blog.

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

For further clarifications, contact here: [email protected]

Want to collaborate with us?

Our experts can help you solve your unique challenges

Join Our Newsletter

Stay up-to-date with our Thought Leadership and Insights