Golden Visa/Passport Programs Have High Corruption Risk and No Demonstrated Economic Benefit. So Let’s Abolish Them.

We’ve had a couple of posts recently (from regular contributor Natalie Ritchie and guest poster Anton Moiseienko) about the corruption-related problem associated with so-called “golden visa” and “golden passport” programs (GV/GP programs), which grant either residency (golden visas) or citizenship (golden passports) in exchange for “investments” (or sometimes simply direct payments to the government) that exceed a certain threshold. Both Natalie and Anton reference recent reports by Transparency International-Global Witness and the European Commission, both of which focus in particular on the EU, and which are both very useful in documenting the risks associated with these residence/citizenship programs—including though not limited to corruption and money laundering risks. That said, the solutions proposed, while certainly helpful, feel a bit thin, in part because both the TI-GW and EC reports assume that these programs have at least some legitimate uses, or at the very least that it would be overstepping for outsiders (be they international bodies, other countries, or NGOs) to try to coerce states into abandoning these programs altogether.

My inclinations are somewhat different, and a bit more radical: I’d push for abolishing these programs entirely—certainly the golden passport programs, but probably the golden visa programs too. The risks associated with GV/GP programs are well-documented in Natalie and Anton’s posts, as well as the TI-GW and EC reports (and other sources), so I won’t dwell on them here. In short, as these and other sources convincingly demonstrate, GV/GP programs may provide safe havens for wealthy criminals and their money, often produce corruption in the programs themselves, and may also have more diffuse pernicious effects associated with the commodification and marketization of membership in a political community. I acknowledge that the risks associated with well-run programs may not be huge, but they’re not trivial, either. And I can’t for the life of me figure out what benefits these programs could have (to society, not to the governments that run them) that could possibly justify those risks.

The usual story is that these programs attract necessary foreign investment, stimulate the economy, and create jobs and raise government revenue. I’m no macroeconomist, and so I may be about to reveal my ignorance in embarrassing fashion, but I have yet to hear a convincing argument, let alone see a persuasive study, that establishes that these programs indeed have substantial economic benefits. Let me explain my puzzlement, and if I’m obviously misunderstanding some crucial point, either about how the programs work or about the economics, I hope some readers out there will correct me. Continue reading

Equity Crowdfunding: A (Partial) Corruption Solution for SMEs

One of the most notorious phenomena in international development is the so-called “missing middle” problem: the scarcity and under-productivity of small and medium sized enterprises (SMEs) in developing countries. Around the world, SMEs can be a leading source of employment and an important driver of innovation. There is a strong positive correlation between the existence of a robust SME sector and high per-capita GDP. Yet in far too many countries, the potential of the SME sector is not being realized.

One cause of SME sector underdevelopment in developing countries is the inability of SMEs to access start-up capital and financing, which can be the “single most robust determinant of firm growth.” SMEs in developing communities face substantial challenges accessing capital, and as a result are often unable to scale or form in the first place. And corruption plays a central role in preventing access to finance among SMEs—by discouraging foreign direct investment, distorting the banking sector, and increasing the costs of equity capital. While corruption poses a significant problem for businesses in many developing countries, SMEs bear the brunt of the harm. Indeed, 70% of SMEs in the developing world cite corruption as a major barrier to their operations.

In the spirit of technological solutions to work around the barriers and distortions created by endemic corruption, equity crowdfunding is emerging as at least a partial solution for SMEs that require capital but are unable to get it because of corruption. Continue reading