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 makes 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.

Stealing Our Hard Earned MoneyWhy do we let them steal our hard earned money? Some economists believe 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 assume 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 to remove the corruption and the rent seeking the whole country would benefit. However, not all the 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 the corruption.

All of 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, prosperity, national pride, and many other things that leads to a nation with low level of corruption.

Asif Khan, CFA

Asif Khan is presently a Research Analyst (Financial Sector) for Exotix which is a frontier market focused investment bank. He has more than 6 years of work experience as equity analyst in both buy and sell side roles across Asian frontier markets. Asif is a CFA Charterholder and has a dual major in Finance & Economics from North South University.

2 thoughts on “How the few steal from the millions

  1. The fallacy of composition. What is true for one person may not be so for the collective. What we lack is a framework for collective action based on incentives. I personally think that this is largely due to the huge amount of human capital flight that our country is suffering from. Sort of unrelated, but a thought.

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