Corruption and Afghanistan: Do we really understand what is going on and why?

Corruption and Afghanistan: Do we really understand what is going on and why?

I’ve been reading a book by an economic historian that made me think of the anti-corruption campaign in Afghanistan in a different way.

The book is Douglas Allen’s The Institutional Revolution. I picked it up because I was so taken by his discussion in an academic article about the organization of command and control in the Royal Navy during the age of fighting sail.

In this book, Allen, looking at the roots of the industrial revolution, argues that the more a society is subject to the whims of nature (drought, flood, wind, and such), the more likely it will appear to modern man to be corrupt. The last sentence in the book is, "What on the surface seem to be archaic, inefficient institutions created by people who just did not know any better, turn out to be ingenious solutions to the measurement problems of the day."

What we call "corruption" is basically the way the world worked before 1860, and much of the world still does today. Indeed, he argues that the British empire was built on a complex web of bribes, kickbacks, and what economists call "hostage capital."

"Institutions are chosen and designed to maximize the wealth of those involved, taking into account the subsequent transaction costs," Allen writes. "The institutions that survive are the ones that maximize net wealth over the long haul."

I think Allen focuses a bit too much on standardization and measurement as driving forces in the changes in 19th century institutions, such as public policing. For example, my experience of theft in small towns is that people often know who does it, and handle it quietly and privately, while in big cities, they have no idea who the criminals are. Hence the need for public police forces in 19th century England as there was a massive movement of people from the countryside to the cities.

Allen also changed the way I understand aristocracy. He argues, persuasively, that the role of aristocracy was to provide loyal, competent, honest service to the crown. Thus their wealth had to be in land that could be confiscated. An aristo who invested in industry was no longer hostage to the crown, and so could no longer be trusted entirely. Hence the creation of strong disincentives to pursuing other forms of wealth, one reason that the ruling class in England tended to sit out the Industrial Revolution.

Overall, a really interesting book, full of thought-provoking facts and assertions.