The title of chapter 9 of The Prosperity Paradox, Corruption Is Not the Problem; It’s a Solution by Clayton Christensen, Efosa Ojomo and Karen Dillon easily catches our attention.
What is Clayton Christensen trying to say with this title? Does he approve corruption? Not really.
The book The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty is about finding and trying new innovative solutions to solve the problem of poverty and development.
Christensen and his co-authors offer a new framework for economic growth based on entrepreneurship and market-creating innovation instead than on the traditional plan of identifying
“areas that need help, flood them with resources, and hope to see change over time.“
Flooding poor countries with resources, and hope for the best, according to the authors, has not proven to be very effective in creating sustainable economic growth and eliminate poverty.
Corruption Is Not the Problem; It’s a Solution
Traditionally, corruption is considered one of the main barriers to prosperity and stability in poor countries, and many efforts are directed at eradicating it, but what if…
“Instead of asking, How can we eliminate corruption? we ask, Why does corruption persist in the first place? The answer, we believe, lies not solely in some fundamental moral failings, but rather in understanding why many people choose to “hire” corruption.
The authors refer here to Christensen’s theory of Jobs to be Done (JTBD). A JTBD is not a product, service, or a specific solution, but it’s the real purpose for which customers buy products, services, or solutions. In other words, people don’t simply buy products or services, they ‘hire’ them to make progress in specific circumstances.
The classic example used by Clayton Christensen to introduce his theory is that of the fast food chain who hired two consultants to understand how to improve milkshake sales. After conducting in-depth interviews, the consultants discovered that customers were buying milkshakes for breakfast during their morning commute because they were relatively tidy and could stave off hunger until lunch, and not because of their flavor or thickness. They discovered which “job” the customers were “hiring” the milkshakes to do.
So…..Why Do People Hire Corruption?
Christensen and colleagues say that they have uncovered three powerful reasons why people decide to “hire” corruption.
“First, the vast majority of individuals in society want to make progress … most of us want to improve … When society offers us few legitimate options to make progress, corruption becomes more attractive.”
“Second, every individual, just like every company, has a cost structure —how much money they spend to maintain a particular lifestyle … Understanding this simple revenue-cost relationship can help predict circumstances where the likelihood of corruption will be high.
“The third reason people hire corruption is that most individuals—regardless of income level—will seek to subvert the prevailing law enforcement strategies in order to make progress or benefit themselves … When we are confronted with a law that limits our ability to do something we want to do, most of us instinctively make a mental calculation. Do I need to obey this law, or can I get away with disobeying it? … the average rational person will juxtapose the benefits of obeying the law with the consequences of disobedience.
According to the authors, therefore, corruption is more prevalent in those societies where 1) there are few legitimate options to make progress; 2) people have a hard time to maintain a reasonable lifestyle without corruption; and 3) the benefits of disobeying the law are greater than the negative consequences.
But societies evolve. The path, however, from a society steeped in corruption to one where trust and transparency thrive typically follows a predefined and often predictable pattern, with three phases: “overt and unpredictable corruption,” followed by “covert and predictable corruption,” ultimately transitioning to what we will call a “transparent” society.
Phase 1: Overt and Unpredictable
The first phase is what we call Overt and Unpredictable Corruption, and this is where many poor countries find themselves. In these countries, contracts are difficult to enforce, government institutions are hard to trust, and corruption scandals are commonplace.
It is very difficult for capital to be deployed in this kind of environment. Investors understandably shy away from this kind of unpredictability and opacity. For example, imagine doing business in Venezuela.
Phase 2: Covert and Predictable
The second phase in the corruption spectrum is Covert and Predictable Corruption. …People are aware that there is corruption, but it’s baked into the system. Because development is happening in parallel, corruption is seen as a necessary cost of doing business.
The transition from unpredictable to predictable corruption can be very expensive—economically and politically—and primarily requires the creation of new markets, not laws. Most people who engage in corruption know they should not do what they are doing.
Think of China. Development is happening, but is not yet a transparent society. For prosperity to become sustainable in the long term, a nation must transition to the third phase.
Phase 3: Transparency
An example of phase 3 are the United States.
“In 2017, total lobbying in the United States totaled more than $3.3 billion…(but at the same time) … Corruption is largely frowned upon in America, and is routinely rooted out and prosecuted to the fullest extent of the law.
In the US lobbyists openly spend billions of dollars trying to influence the government, but those engaged in corruption are also aggressively pursued and eventually prosecuted. It seems a contradiction, but the truth is that that lobbying is legal and it is also fairly transparent.
Moreover, the American economy is relatively predictable. While there is corruption in America, it is often exposed, prosecuted, and punished.
What, Then, Must We Do?
Christensen and colleagues have two suggestions to help move corrupted societies (those in phase 1 or 2) toward more transparency (phase 3).
First: What if we stopped focusing all our effort on fighting corruption? Without simultaneously providing a substitute for what people can hire, corruption will be incredibly difficult to minimize.
They suggest that poor-country governments should focus on enabling the creation of new markets that help citizens solve their everyday problems, instead than continuing to aggressively fight corruption with the very limited resources they have.
The creation of new market would start a positive “chain reaction”. With the creation of new markets, people would naturally start to have an interest in seeing them succeed. The governments would begin to generate more revenue that would allow to improve their courts, law enforcement, and legislative systems. The markets would also begin to provide jobs for the people who would then be able to accumulate wealth without having to resort to corruption.
“Asking people to fire corruption without giving them anything else to hire is not very realistic, and, as the data show, often doesn’t work.”
Second, business organizations should focus on what they can control, by integrating and internalizing their operations in order to reduce opportunities for corruption to occur.
The more components of an organization’s business model that it brings in house, the more opportunity the organization has to reduce corruption.
For example, Roshan, the leading telecommunications provider in Afghanistan, in order to reduce corruption, did set up a government relations department that handles corruption allegations.
From Pirate to Paying Subscriber
The solution presented by Christensen and his colleagues is simple, perhaps too simple, some would argue, but it’s worth considering.
“Corruption for most people, especially in poor countries, is simply a means to an end. If they had an alternative, most people would not choose to hire corruption to make progress. And short of enforcing morality—often an expensive and difficult strategy with mixed results—we cannot think of a better strategy for curbing corruption than the subsequent creation of new markets.
To make the point once more, the authors close the chapter with one example from the recent history of music.
“Consider what happened in the music industry in America at the turn of this century—where, in relatively rapid succession, a culture of piracy and illegal music sharing gave way to one in which customers opted to pay for streaming music instead.”
“The music industry might have been able to knock down music pirates here and there, but until it truly understood why people were “hiring” those alternative solutions, it was never going to prevail. The same is true throughout society. We might win cases against corrupt politicians and corrupt practices, but until we truly understand why people hire corruption, we will continue to spend our hard-earned resources fighting this problem.”
About Clayton Christensen
Clayton Magleby Christensen (born April 6, 1952) is an American academic, business consultant, and religious leader who currently serves as the Kim B. Clark Professor of Business Administration at the Harvard Business School of Harvard University.
He is best known for his theory of “disruptive innovation“, first introduced in his 1997 book The Innovator’s Dilemma, which has been called the most influential business idea of the early 21st century.