A country can do all the things that are supposed to produce growth and still not grow. It can raise investment, sign contracts, fund programmes, and reward its ablest people handsomely, and the line on the chart stays flat. When that happens for long enough, the natural conclusion is that some input is missing: more capital, better skills, a cleverer policy. But there is another possibility, harder to see because it hides inside activity that looks productive. The effort may be real while the value is not. The deals get done, the money moves, the careers advance, and almost none of it is connected to anything a customer actually needs.
Economists have a less moralising word for this than corruption: rent-seeking. The distinction it names is between creating value and capturing it. A person of ability can build something that did not exist before, or can position themselves to take a larger share of what already exists. Both pay. In The Allocation of Talent, Murphy, Shleifer and Vishny showed that where capture pays better than creation, the most capable people predictably choose capture, and growth suffers. Their proxy is almost too neat: across countries, more engineering graduates predict faster growth and more law graduates predict slower growth. The talent is not wasted in the sense of sitting idle. It is busy, well paid, and pointed at the wrong thing.
This matters because it reframes the broad, everyday sense of corruption that most people carry. Most of it is not theft and not illegal. It is the slow accumulation of arrangements, contracts, appointments, grants, that exist because they serve someone inside the arrangement, rather than because they produce anything of worth. The line between an unwise commercial relationship, an institutional habit, and outright capture is not clean, and the cleanness of the line is not what matters. What matters is that the activity has come loose from real need. It no longer touches the ground.
Mancur Olson gave the historical version of this. Stable societies, he argued, gradually accumulate coalitions, professional bodies, cartels, established interests, that organise to protect their share rather than to grow the whole. Over time these produce institutional sclerosis. His explanation for why West Germany and Japan outgrew Britain after 1945 was uncomfortable: defeat had destroyed their accumulated coalitions, and the wreckage cleared the ground for genuine competition. Britain, never having had that clearing, kept its arrangements intact. The same logic appears at the institutional scale in Acemoglu and Robinson, who distinguish institutions that reward broad productive participation from those that let a narrow group extract. Growth under extraction is real, but it does not compound, because it never builds the incentives that sustain it.
Britain may be in a particular bind, though this part is a hypothesis rather than a settled finding. The kind of institutional life that builds generalised trust has visibly thinned. Church of England weekly attendance has roughly halved since 2000, trade union membership has fallen from 13.2 million in 1979 to around 6.7 million, and the share of people who trust governments to put the country first has dropped from 40 percent in 1986 to 12 percent in 2024. The civic side has eroded. The collusive side, the entrenched arrangements Olson described, was never cleared the way the defeated economies’ were. That is the worst combination: the trust-building institutions weakened, the capture-protecting ones intact. Robert Putnam, studying Italian regions, found these two conditions tend to arrive together as a single syndrome of low social capital and persistent clientelism. The British case looks less like one syndrome than like two separate losses landing at once.
The mechanism is visible in how the state has bought capability. When the Army handed soldier recruitment to a single outsourced contractor in 2012, the contract missed its targets every year, and a Public Accounts Committee inquiry doubted the promised savings would ever appear. The 2018 collapse of Carillion prompted a parliamentary finding that government could produce no solid evidence outsourcing had delivered better services for less money, only thinner accountability and hollowed-out in-house knowledge. Contracting a function does not only change who is paid. It tends to remove the tacit, relational part of the work that no specification captures, and as what gets removed does not come back argues, that capability dissolves rather than waiting to be recalled. The unified culture that carried the work is not a line item, so it is not protected, and its loss does not show up until something needs it.
None of this is an accusation against the people inside these arrangements. They are, as the adapted organisation puts it, responding accurately to what their environment rewards. That is precisely the problem. When the rewards point at capture, capable and decent people will spend their talent capturing, and the economy will stay busy, and it will not grow, because almost nothing it is doing is touching the ground.
Further reading:
↳ why-a-country-feels-ungovernable — the governance counterpart: how the same loosening from real need shows up as a country that cannot be steered.
Garden notes
- Proxy capture — rent-seeking is proxy capture at the level of a whole economy: reward the position, and the value it was meant to stand for quietly degrades.
- What gets removed does not come back — why outsourcing a function can permanently destroy the tacit capability it appeared only to relocate.
- The adapted organisation — people pursuing capture are responding accurately to what the system rewards, which is why the problem is structural, not moral.
- The knowledge that was replaced — the same displacement of place-specific, relational knowledge by a legible substitute, seen in farming.