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← Innovation is the antidote to corruption

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Showing Revision 6 created 10/04/2019 by Oliver Friedman.

  1. So in 2011,
  2. someone broke into my sister's office
  3. at the university
    where she teaches in Nigeria.
  4. Now thankfully, the person was caught,
    arrested and charged to court.
  5. When I get into court,
  6. the clerks who were assigned
    to my sister's case informed her
  7. that they wouldn't be able
    to process the paperwork
  8. unless she paid a bribe.
  9. Now, at first she thought
    it was part of a practical joke.
  10. But then she realized they were serious.
  11. And then she became furious.
  12. I mean, think about it: here she was,
    the recent victim of a crime,
  13. with the very people
    who were supposed to help her,
  14. and they were demanding a bribe from her.
  15. That's just one of the many ways
  16. that corruption impacts
    millions of people in my country.
  17. You know, growing up in Nigeria,

  18. corruption permeated
    virtually every element of the society.
  19. Reports of politicians embezzling
    millions of dollars were common.
  20. Police officers stealing money
  21. or extorting money
    from everyday hardworking citizens
  22. was routine practice.
  23. I felt that development
    could never actually happen,
  24. so long as corruption persisted.
  25. But over the past several years,
  26. in my research on
    innovation and prosperity,
  27. I've learned that corruption is actually
    not the problem hindering our development.
  28. In fact,
  29. conventional thinking on corruption
    and its relationship to development
  30. is not only wrong, but it's holding
    many poor countries backwards.
  31. So, the thinking goes like this:

  32. in a society that's poor and corrupt,
  33. our best shot at reducing corruption
    is to create good laws,
  34. enforce them well,
  35. and this will make way for development
    and innovation to flourish.
  36. Now, it makes sense on paper,
  37. which is why many governments
    and development organizations
  38. invest billions of dollars annually
  39. on institutional reform
    and anti-corruption programs.
  40. But many of these programs
    fail to reduce corruption,
  41. because we have the equation backwards.
  42. You see, societies don't develop
    because they've reduced corruption.
  43. They're able to reduce corruption
    because they've developed.
  44. And societies develop
    through investments in innovation.
  45. Now, at first, I thought
    this was impossible.

  46. Why would anyone in their right mind
  47. invest in a society where,
    at least on the surface,
  48. it seems a terrible place to do business?
  49. You know, a society where
    politicians are corrupt
  50. and consumers are poor?
  51. But then, the more I learned about
  52. the relationship
    between innovation and corruption,
  53. the more I started
    to see things differently.
  54. Here's how this played out
    in sub-Saharan Africa

  55. as the region developed
    its telecommunications industry.
  56. In the late 1990s,
  57. fewer than five percent of people
    in sub-Saharan Africa had phones.
  58. In Nigeria, for example, the country
    had more than 110 million people
  59. but fewer than half a million phones
    in the whole nation.
  60. Now, this scarcity fueled
    widespread corruption in the industry.
  61. I mean, public officials who worked
    for the state-owned phone companies
  62. demanded bribes from people
    who wanted phones.
  63. And because most people
    couldn't afford to pay the bribes,
  64. phones were only available
    to those who were wealthy.
  65. Then an entrepreneur named Mo Ibrahim

  66. decided that he would set up
    a telecommunications company
  67. on the continent.
  68. Now, when he told his colleagues
    about his idea, they just laughed at him.
  69. But Mo Ibrahim was undeterred.
  70. And so in 1998, he set up Celtel.
  71. The company provided affordable
    mobile phones and cell service
  72. to millions of Africans,
  73. in some of the poorest and most corrupt
    countries in the region --
  74. I mean countries such as Congo, Malawi,
  75. Sierra Leone and Uganda.
  76. You see, in our research,
    we call what Mo Ibrahim built
  77. a "market-creating innovation."
  78. Market-creating innovations transform
    complicated and expensive products
  79. into products that
    are simple and affordable,
  80. so that many more people in society
    could access them.
  81. Now in this case, phones were expensive
  82. before Celtel made them
    much more affordable.
  83. As other investors --
    some of his colleagues, actually --

  84. saw that it was possible to create
    a successful mobile phone company
  85. on the continent,
  86. they flooded in with billions
    of dollars of investments.
  87. And this led to significant
    growth in the industry.
  88. From barely nothing in 2000,
  89. today, virtually every
    African country now has
  90. a vibrant mobile
    telecommunications industry.
  91. The sector now supports
    close to one billion phone connections,
  92. it has created nearly four million jobs
  93. and generates billions of dollars
    in taxes every year.
  94. These are taxes that governments
    can now reinvest into the economy
  95. to build their institutions.
  96. And here's the thing:
  97. because most people no longer
    have to bribe public officials
  98. just to get a phone,
  99. corruption -- at least within
    this industry -- has reduced.
  100. Now, if Mo Ibrahim had waited
    for corruption to be fixed
  101. in all of sub-Saharan Africa
    before he invested,
  102. he would still be waiting today.
  103. You know, most people who engage
    in corruption know they shouldn't.

  104. I mean, the public officials
    who were demanding bribes from people
  105. to get phones
  106. and the people
    who were paying the bribes --
  107. they knew they were breaking the law.
  108. But they did it anyways.
  109. The question is: Why?
  110. The answer?
  111. Scarcity.
  112. See, whenever people would benefit
    from gaining access

  113. to something that scarce,
  114. this makes corruption attractive.
  115. You know, in poor countries, we complain
    a lot about corrupt politicians
  116. who embezzle state funds.
  117. But in many of those countries,
    economic opportunity is scarce,
  118. and so corruption becomes
    an attractive way to gain wealth.
  119. We also complain about
    civil servants like police officers,
  120. who extort money from everyday
    hardworking citizens.
  121. But most civil servants
    are grossly underpaid
  122. and are leading desperate lives.
  123. And so for them, extortion or corruption
    is a good way to make a living.
  124. You know, this phenomenon also plays
    itself out in wealthy countries as well.

  125. When rich parents
    bribe university officials --
  126. (Laughter)

  127. When rich parents
    bribe university officials

  128. so their children can gain admission
    into elite colleges,
  129. the circumstance is different,
  130. but the principle is the same.
  131. I mean, admission
    into elite colleges is scarce,
  132. and so bribery becomes attractive.
  133. The thing is,

  134. I'm not trying to say there shouldn't
    be things that are scarce in society
  135. or things that are selective.
  136. What I'm just trying to explain
  137. is this relationship
    between corruption and scarcity.
  138. And in most poor countries,
    way too many basic things are scarce.
  139. I mean things like food,
  140. education,
  141. health care,
  142. economic opportunity,
  143. jobs.
  144. This creates the perfect breeding ground
    for corruption to thrive.
  145. Now, in no way does this
    excuse corrupt behavior.
  146. It just helps us
    understand it a bit better.
  147. Investing in businesses
    that make things affordable
  148. and accessible to so many more people
  149. attacks this scarcity
  150. and creates the revenues for governments
    to reinvest in their economies.
  151. Now, when this happens
    on a countrywide level,

  152. it can revolutionize nations.
  153. Consider the impact in South Korea.
  154. Now, in the 1950s,
  155. South Korea was
    a desperately poor country,
  156. and it was very corrupt.
  157. The country was ruled
    by an authoritarian government
  158. and engaged in bribery and embezzlement.
  159. In fact, economists at the time
    said South Korea was trapped in poverty,
  160. and they referred to it
    as "an economic basket case."
  161. When you looked
    at South Korea's institutions,
  162. even as late as the 1980s,
  163. they were on par with some of the poorest
    and most corrupt African countries
  164. at the time.
  165. But as companies like
    Samsung, Kia, Hyundai
  166. invested in innovations
    that made things much more affordable
  167. for so many more people,
  168. South Korea ultimately became prosperous.
  169. As the country grew prosperous,

  170. it was able to transition
    from an authoritarian government
  171. to a democratic government
  172. and has been able to reinvest
    in building its institutions.
  173. And this has paid off tremendously.
  174. For instance, in 2018,
  175. South Korea's president
    was sentenced to 25 years in prison
  176. on corruption-related charges.
  177. This could never have happened decades ago
    when the country was poor
  178. and ruled by an authoritarian government.
  179. In fact, as we looked at most prosperous
    countries today, what we found was,
  180. they were able to reduce corruption
    as they became prosperous --
  181. not before.
  182. And so where does that leave us?

  183. I know it may sound like I'm saying
    we should just ignore corruption.
  184. That's not what I'm saying at all.
  185. What I'm suggesting, though,
  186. is that corruption, especially
    for most people in poor countries,
  187. is a work-around.
  188. It's a utility
  189. in a place where there are fewer
    better options to solve a problem.
  190. Investing in innovations that make
    products much more affordable
  191. for many people
  192. not only attacks this scarcity
  193. but it creates a sustainable
    source of revenue
  194. for governments to reinvest
    into the economies
  195. to strengthen their institutions.
  196. This is the critical missing piece
    in the economic development puzzle
  197. that will ultimately
    help us reduce corruption.
  198. You know, I lost hope
    in Nigeria when I was 16.

  199. And in some ways, the country
    has actually gotten worse.
  200. In addition to widespread poverty
    and endemic corruption,
  201. Nigeria now actually deals
    with terrorist organizations
  202. like Boko Haram.
  203. But somehow, I am more hopeful
    about Nigeria today
  204. than I have ever been before.
  205. When I see organizations
    investing in innovations
  206. that are creating jobs for people
  207. and making things affordable --
  208. I mean organizations
    like Lifestores Pharmacy,
  209. making drugs and pharmaceuticals
    more affordable for people;
  210. or Metro Africa Xpress,
  211. tackling the scarcity of distribution
    and logistics for many small businesses;
  212. or Andela, creating economic opportunity
    for software developers --
  213. I am optimistic about the future.
  214. I hope you will be, too.
  215. Thank you.

  216. (Applause)