New Labour wanted desperately to govern. So it stole the policies that worked - Tory ones - and had their progenitors ejected on charges of sleaze. As it turned out there was little need because the Tories were quite capable of their own destruction - they mismanaged the economy, their European policies were a disaster of ambiguity, they were arrogant and out of touch. Nevertheless it was sleaze on which New Labour hung its hat - or shall we say, set its petard?

The spectacle of sleaze redivivus in the Mandelson-Robinson affair prompts all sorts of questions about the real significance of sleaze. Corruption is after all endemic all over the world and more often than not accompanies economic success. Few developing countries are not and have not been corrupt, for example, and yet among them some have grown spectacularly - most spectacularly those where 'crony capitalism' was practised: Japan, Malaysia, Indonesia and so on. Politics on the continent has been full of examples of corruption; and yet Italy and France, prime examples, grew rapidly for a couple of decades after the war. We think of Britain as uncorrupt - well, more of that anon.

Corruption - in the sense that ministers' and officials' palms have to be greased with a 'percentage' - is like a tax attached to activities requiring official approval. Wanna contract to build the metro? Thinking of starting a casino business? Trying to import luxuries? Investing in new manufacturing facilities ('inward investment') to use local cheap labour? From an economic viewpoint we can ask whether the tax base is well chosen, whether the rate is too high, whether the level is unpredictable, and whether having paid it one's rights are justiciable. There are potential problems in all these departments.

Start with the last - justice. Some forms of corruption prevent development because the payer's rights are unprotected. Think of southern Italy. You pay your dues to the local family; and if for some reason your relationship with them goes wrong, your business is up the creek - you find dead horses in your bed and so forth. Not interesting for any sort of foreign - indeed any unrelated - investor. There has to be some strong convention at least that once you have paid up, you get the goods. That immediately shows up a key problem with corruption: there are, by definition, no courts to adjudicate the matter. If things go wrong, you are just - unlucky.

Another problem with corruption is the unpredictability of the going rate. It's like tipping - is it 8%, 10% or 15%? Or, worse, does it depend on the light in the official's eyes? Unpredictability is another real killer. You can be half-way through a complex transaction, with your factory half bought, a series of palms well greased, when suddenly the big cheese announces this week it's 30%. Like Macbeth you had as well go o'er as go back, so thoroughly are you committed and compromised.

Besides these two problems the questions of the rate and the tax base pale into insignificance. All taxes are in the end paid by the immobile productive elements in a country - that means essentially land and labour that has not internationally sellable skill. This is because the other productive elements can all move away from the tax and so avoid it: hence to keep them there the tax has to be paid by someone else - this is achieved by passing it on in higher prices (or lower pay or rents) to others. Viewed in this way it is not too important what the tax base is provided it does not cause serious substitution away from the taxed activity, so distorting the efficient way of doing things. As activity requiring official approval in corrupt countries is pretty much everything in principle - a universal tax base - substitution is not really an option.

When one comes to the tax rate, the usual rules apply. It should be as low as possible to maintain the incentives of those immobile producers. If other taxes are low - often the case in corrupt developing countries - then this particular one will not damage incentives too badly. The burden of extra taxes rises with the size of the pre-existing marginal tax rate.

The late Mancur Olson thought of rulers in terms of optimising tax farmers with a monopoly of power. He concluded that, what with competition between neighbouring farmers for mobile resources and for immobile ones the 'Laffer Curve' implying that tax revenues would fall beyond quite low rates, our rulers would rationally limit their imposts. The corruption tax would be similarly limited - maybe it is easier to collect than some other, 'official', taxes.

Well, you may say, OK we must be adult about all this corruption around the world; economies can work in spite of it. But what does it all have to do with the good old UK? Do we not send anyone packing at the merest hint of sleaze? Well, yes and no. We are addicted in this country to form, often to the detriment of the substance. After the war we set up, on the foundations of our high-quality civil service, a socialist planning machine which was incorrupt in the normal sense; and yet it achieved more economic damage than all the corruption of post-war Italy. We all laugh at 'Yes Minister'; yet the UK civil service blatantly held up the post-1979 reforms and in some ministries such as the Department of Education and Science has continued to sabotage them indefinitely. Our civil service has an ethos all its own - it sees itself as a sort of long stop and sewage disposal agency combined. It will do what is 'helpful' to Queen and country.

When it comes to those hints of sleaze, we are so nervous about it, the results are either comical or tragic. Take the business of Neil Hamilton - a man of (to me at least as a long-time friend) obvious probity as well as high intelligence. He was bundled out of the way, his livelihood in ruins, with no judicial examination of the evidence against him. The civil servant put in charge of the Parliamentary investigation, Sir Gordon Downey, was certainly in practice most helpful to both New Labour and the Tories- the smelly issue was dispatched cleanly into the sewage pipes. Now it has taken an impoverished journalist, Jonathan Hunt, armed only with a stubborn Lancashire sense of injustice, to take up the cudgels in a book 'Trial by Conspiracy' that depicts an all-round betrayal of natural justice. When it finally gets to the courts in 1999, it will arrive where we do have a tradition of independence of which we can be proud.

Now we have just dispatched the young Mr. Mandelson to the scaffold. A pity - as he was one of the few talented ministers around, beginning to get a grasp of government's role in supporting free markets. I have no idea what he did wrong - does anyone? Does anyone care - or are we just bewitched by form and media witch-hunt again?

No- we are far short of having rule by laws and not men in this country - which I suggest as a working definition of incorruption. This failing has badly let us down economically in the past. It could easily do so again.

Comment on this article to comment@patrickminford.com