Corruption is a convenient notion which attracts universal condemnation, and thus creates a consensus in opposing it. However, is it a useful word for describing the sorts of “governance failures” which stymie development in emerging economies? Are these even “failures” in the sense of “unintended”?
This article contains some thoughts precipitated from the solvent of discussions in Africa, the Middle East and Asia, over the past 15 years. From working in and with utilities, private and public. From humanitarian water and sanitation interventions, managing large construction teams. From working with senior government officials, and from conversations with people who live in slums. Drawing on those discussions, I will argue that the common approaches and understandings of state capacity vis-à-vis corruption need to be revisited if outsiders are to understand how to improve state capacity to deliver public services.
Introduction
A broad and simple definition of corruption is “… the abuse of entrusted power for private gain” (Transparency International, 2019). This does not confine corruption to the public sector, but rather simply locates it in the principal-agent problem described by economists. Given the quasi universality of the principal-agent problem across any institution involving large numbers of people, corruption of some sort is likely to be found in any society more sophisticated than the subsistence level.
This abuse of entrusted power, or more simply, “trust” attracts strong moral approbation. And so “corruption” is a normative word, a strong moral condemnation. One cannot, therefore, admit to a corruption problem without implying the moral deficiency of those involved. Indeed, in one World Bank Institute document, the framework for thinking about corruption classifies to individuals as devils, honest but sinful, and saints (Asís, O’Leary, Ljung, & Butterworth, 2009). It’s hard to think of more moralistic language.
This moral view of corruption becomes problematic for two reasons. The first is that it becomes impossible to talk openly about the problem with those engaging in it, because no-one can admit to corruption without seriously compromising their moral standing in the conversation.
The second problem with the moral judgement of “the corrupt” is that the vast majority of people are socially cooperative and want to “do the right thing” [1]. We are social animals, after all. The approval of others matters enormously to us. So how do we reconcile endemic “corruption” in some public institutions (or societies, even), with the widespread human desire to cooperate and broadly “do the right thing”?
We need to
rethink the concept.
Corruption as an economic system
The first time I came into close contact with the curious phenomenon of endemic corruption was the first time I worked in a developing country. I don’t mean to say that corruption doesn’t exist in developed economies, of course, just that I had never personally come into contact with it there. It was something for the evening news[2].
My job was to connect the houses of people living in slums to the water and sewer networks. After eight months of mostly fruitless effort and blind alleys, I had finally made a breakthrough and we were connecting the first house to the network. The streets had been dug up, broken masonry and dirt was everywhere, and large numbers of people had gathered outside to watch the excitement. My colleagues took me over to the first house we connected to meet the fat and beaming owner, who shook my hand warmly and invited me in for tea. Immediately after translating this, my colleague added “But you can’t go in”. I asked why not.
“Because if you do, everyone watching will assume you’re going to collect the bribe. Everyone is asking ‘why was this guy first?’”. And so, a beautiful moment of one human improving the lot of another was brought back down to a sordid, but also very human, reality.
On the same project, the electricity guys (who worked for the same utility) refused to work in the same suburb as us simultaneously, despite the obvious efficiency of dealing with the same customer at the same time. Why? Because it was much more difficult to collect bribes under my nose.
In order to connect a house, a series of permissions were required – a technical assessment from our guys, and an authorization from the local government. Residents would come up to me, and beckon me to their houses, pointing to the fresh cement of a new connection on their neighbour’s house, but then telling me that their house was still not considered “technically viable”. What they were saying was that our technical staff were sitting on the application until someone paid them. The local government officials did the same thing. When I (naively) asked what they delay was due to, I was told “use your head”.
Naturally, I immediately reported this widespread “corruption” to my superiors, who were managing the (formerly public) utility under a brand-new concession agreement. Reactions were varied. My immediate boss was surprised (or feigned it well), concerned, and said he would pursue it. One of the ex-pat technicians simply snorted “best to leave the Arabs to their business”[3].
What rapidly became apparent, however, was the caution with which we’d have to proceed. Because just as my colleagues pointed me in the direction of the corruption, so they told me that it went “very high”.
What was happening, was that each technician who was asking for a payment, was also sharing a “cut” with his boss – one way or another. And so on, and so forth. It was sort of like a pyramid selling scheme, except that everyone in the scheme also received a salary.
This was my first, and possibly most instructive lesson in corruption: isn’t not a few bad apples, it’s (almost) everyone, and it’s not an individual choice, it’s essentially part of the job.
I later read that some jobs are not awarded on merit, or even based on connections. They are simply auctioned[4]. The example given was the job of customs officer, which apparently went for 30,000 euros, in a country where this sum would buy you a house. There is no way the (official) salary of a customs officer could be expected to pay for rent, food and a 30,000 euro loan (i.e. a second mortgage). Clearly, the job came with a hefty price tag because it offered an additional source of income above and beyond the salary.
So this is an important lesson.
The people who are asking for additional, under-the-table payments for services they are already paid to provide are not necessarily doing this because they are greedy and immoral or because they are underpaid and can’t live on their official wage, although both of those factors may come into play. They are often doing it because extracting bribes from customers is part and parcel of the job. It’s a feature, not a bug. These payments aren’t optional, just like tipping in the United States isn’t really optional either. It’s an unwritten rule, an unwritten contract. If you don’t collect the payment, you break the economic model. You don’t tip the American waiter who gets paid $2 per hour, you break the economic model.
Now, if this pyramid scheme structure, and the selling of jobs sounds vaguely familiar, it’s because this was once how the economies in Western Europe were structured. However, at the time no-one referred to this as “corruption”, it was simply an alternative means of financing the State. I call it the “trickle up”, “feudal” or “user pays” method of revenue raising.
The taxation ability of weak states, such as those in pre-industrialised Europe, is exceptionally limited. Principal-agent problems are extraordinarily difficult to overcome in the absence of the ability to closely monitor the agents, and so incentives have to be aligned as much as possible. Taxation revenues were therefore 1. Extracted from as few points in the economy as possible (where monitoring was feasible), 2. Decentralized to align incentives and facilitate monitoring and 3. Relatively small as a fraction of GDP as a result.
A pre-industrial state could never dream of something like an income tax applied to all working citizens, because the administration of this tax in a largely illiterate society would be simply impossible. Instead, consumption could be taxed at certain choke points that government could control (imports or exports passing through ports, or anything produced on a large scale at a single location), and revenue raised at point-sources of economic activity (such as a mine) or by other means (debasing the currency, piracy, expropriation and looting).
For taxation beyond that, the kings of England and France delegated authority to powerful nobles, who in turn delegated it to tax collectors (or “tax farmers”), on a “trickle up” or commission-based scheme. In the absence of close monitoring, incentives had to be aligned. Tax collectors would not be paid a salary, instead they would get a cut. Alternatively, they could pay the government the revenues in advance by purchasing the job (and then recovering their investment through the authority to collect taxes).
A trickle-up scheme becomes “corruption” when officials are not expected to do it, because they receive a salary for their work in lieu of “direct payments” from customers.
However the direct payments (tips, baksheesh, bribes) are so common in some economies, where one needs to pay salaried teachers to show up to school, doctors to heal, policemen to let you pass, customs officials to clear goods, civil servants to process paperwork etc, that one is faced with a dilemma:
Either one must consider that the majority of people working in the public sector are immoral, or one must accept that the economy has not fully transitioned from the feudal structure.
Moreover, if we come back to the definition of corruption, there must be a betrayal of “trust”. If it is expected or widely known that all the agents in an organization collect under-the-table payments, embezzle funds in some way, hire family members, etc. then one cannot argue that trust has been betrayed. A betrayal of trust implies that the agent did something that was not expected of them. When corruption is endemic and expected through some unwritten or implicit arrangement which virtually everyone is aware of, it’s hard to argue that one is betraying trust (which was never bestowed in the first place). Often, when corruption scandals break, those accused of “corruption” seem to be completely unaware that their behaviour was not acceptable or understood to be part of “how things are done”[5].
When this gulf of understanding opens between those in power and those who have entrusted them with that power, we rightfully use the word “corruption”, but it is worth noting that those accused of it often do not consider that they have done anything out of the ordinary. They don’t consider that they have breached trust. They consider the problem to be a divergence of understanding, not a deliberate betrayal.
Corruption, Extortion and legitimacy
The difference between extortion and corruption probably centres on the willingness to undertake the transaction. Extortion is where one party is unwilling and coerced into paying. Perhaps the transaction doesn’t even involve any service or exchange, other than a dubious “protection” from violence. Corruption is where both parties are willing, and the transaction is mutually beneficial (for them, at least, if not for everyone else).
My first conversations about extortion and protection rackets were in Russia in 1992-93, where I was on a student exchange, aged 18. My host brother and I were approached by a smiling, portly man who might have been in his forties. He greeted us congenially and asked how we were. Fine, we answered.
“Well, if you boys ever run into any problems, just let me know. I can sort them out”.
A strange, but kindly offer[6]. As we took the lift up to the small, Khrushchev-era flat where we lived, Sasha explained to me quietly: “He’s a mafia guy”.
I later had a conversation with a girl my age who extolled the virtues of the mafia. She explained to me that now, in the aftermath of the collapse of the Soviet Union, and the early days of unbridled (and ugly) market capitalism that we were living through, Russia needed the mafia.
For a middle-class western kid, this statement was absurd. But this girl was insistent: When you open a business, how do you expect to survive if some bastard opens the same business next door? You won’t. You’ll both complete each other to misery and starvation. What do you do? You get some “protection”, to ensure that no-one else can come onto your turf. She wasn’t referring to an illegal business – just any business. Someone had to regulate who could do business, and where, to provide some sort of order and stability which was in everyone’s interest. The mafia could also offer your business security from crime, which had exploded after the collapse. Essentially, she was saying the mafia should do the government’s job, because the government wasn’t. And there was the lesson: The mafia as an alternative to government. It’s a rival to government. The mafia fills the uninhabited space left by weak states (and, of course, seeks to create that space by pushing back established states) because the mafia is a proto-state. It extorts money (taxes) and provides protection (security). Above all, the mafia makes Weber’s claim to statehood: a monopoly on legitimate violence, which conversely, makes government a form of the mafia[7]. The mafia and liberal, democratic governments are at opposite ends of a single spectrum of entities we might call a “state”.
There are innumerable examples of the blurring (or transition) between mafia and government, even elected government, along that spectrum. One of the starkest occurred in the Philippines in 2009, when one politician hired thugs to massacre 57 people (women, children and journalists) who were coming to depose election candidacy papers for a rival. The family loyalty structure of the mafia is replicated in government: by 2019 in the Philippines 80% of governors and 67% of congressmen had family members also in elected office (Mendoza, Jaminola, & Yap, 2019).
Fast forward 25 years and I was back in a semi-collapsed state, the inappropriately named Democratic Republic of Congo. There was nothing called “the mafia” in the DRC, but there was plenty of extortion going on. In our town, violence broke out down at the fishing port when two rival armed groups had an argument about who got to relieve the fishermen of part of their catch (i.e. “tax them”). I don’t recall who the groups were – army, police, or mai-mai (a sort of militia) – they were indistinguishable. The only service they seemed to provide, when they were sober at least, was protection from themselves. A classic “protection racket”.
I sometimes needed to hike up to the mountains outside of town for my work, and on my way back in the evening, I would join streams of women returning from their fields, carrying big baskets full of cassava and maize. Virtually all farming seemed to be done by women, and just as the path arrived at the town, we would pass two guys with AK-47s, who sat there all day, drinking and smoking, and the women would each drop off a fat cassava root.
Both of these situations struck me as an open and shut case of extortion – a protection racket – completely unjust and immoral. It seemed that one only had to acquire an AK-47 in order to never work again. But this view was incomplete.
It was completed on a trip to a nearby town, when we came to a check point (which meant a kid holding a piece of string across the road in one hand, and an AK-47 in the other). Normally the kids dropped the string and waived us on, but today they told us to stop. We wound down the windows with some trepidation. Talking to drunk or high, armed kids tends to get the pulse going. Anyway, it turns out that shots had been fired in the forest ahead, and some of the guys from the check point had gone off to investigate. They eventually came back and told us that there had been an attempted robbery, but neither the robbers nor their victims had been found.
Eventually we passed the forest, found one of the victims who had escaped (and confirmed the story), and continued on our way.
This event radically changed my perspective on the extortion, because I realized that – contrary to my expectations – the cassava and fish recipients actually did (attempt to) provide a security service. Not everyone goes off into the forest when they hear someone shooting there. But these guys did.
The point that I am trying to make is that protection rackets and extortion are “proto state” activities. Of course, when there is a functioning and capable state, they are purely predatory and parasitic. But in the absence of a functional state, security or justice system, they act to fill that void.
And so what superficially appears to be extortion can gain some form of legitimacy with the extorted[8].
Similar things can occur with corruption. In the most basic case, small payment for administrative services can be seen by those paying as an “express service” charge, or a tip for someone who “works hard” for a derisory wage. It’s referred to in benign terms, like “coffee money”. This completely de-stigmatises the transaction from any moral condemnation and makes it an amicable “payment for service” / “user pays” type arrangement which both sides approve of.
The same thing can occur on a grander scale, of course, where lowly paid civil servants administer large contracts, and the contractors consider some sort of facilitation payment to be “reasonable” given the high status, qualifications and workload of the civil servant in question[9]. So it is that the immorality is quickly rationalized out of corruption, and the participants do not feel as though they are behaving unjustly or immorally. It’s almost the opposite – they are correcting or compensating for an unjustly low income for the recipient civil servant (who may, after all, be someone of high traditional status or authority, from a good family, etc.).
I have related these stories not to judge or exonerate these forms of corruption and extortion, or even to explain how they can become to be seen as legitimate payments, but to make the point that people want to act legitimately. It’s an important part of their identity.
So much for how the “corrupt” perceive themselves. How are they perceived by their victims, the citizens of the country in question?
The answer to this is complicated. Corruption surveys rely on the perceptions and reports for citizens of the countries in which they are held. Clearly, many citizens do consider the behaviour described above to be immoral, they describe it as corrupt, and it angers them. However, it would be misleading to assume this is a black and white issue.
Not everyone can afford these additional payments on top, and they resent the time tax that is extracted from them if they can’t “expedite” things – administrative dossiers getting “stuck” forever, multiple journeys, and the humiliation of being reminded they are poor, and powerless. Contractors bidding on public tenders can (and do) resent the requirement to pay (in one case I was told about, 80% of the contract value), and yet still deliver the service. They resent contracts going to the inept, but well connected. They resent the sub-standard service which is inevitably delivered, if at all. They resent the failing public services. But discussions about how politics and government should work reveal that the symptoms of corruption which irritate and anger so many citizens are inextricable from causes linked to the way a patronage society is structured.
I once discussed the former Nigerian president Olusegun Obasanjo with two very well educated and travelled Nigerian colleagues. They both held him in complete contempt, one even preferring a military dictatorship to democratically elected “thieves”. When I pressed for reasons why they didn’t like him – they said that “If you go to the village he comes from, you will find nothing. He did nothing for his people”. I responded that this could be seen as “a good thing”. It meant he was trying to govern in the interests of the country rather than pork barreling his (ethnic) constituents. This was greeted with snorts of derision.
Obasanjo, like every respectful son, has a duty to look after those who looked after him when he was a boy running around in rags. He owes everything to them, and to rise to the top and then “forget them” is seen as the height of arrogance, selfishness and extraordinarily poor breeding. In a strongly communal society, where family and local bonds run deep, governing “impartially” is a cardinal sin.
Moreover, it’s not just considered a sin by those of the same ethnicity, it’s seen as disrespectful and contemptible behaviour by everyone. In this way – and this was echoed in my discussions with Ethiopian colleagues[10] – government is seen as instrument for distributing largesse, and one’s kin are naturally expected to feature prominently in that distribution. Anything else is bafflingly rude – an affront to traditional authority and one’s origins. This understanding of deference to one’s people helps explains why democratic election results are so very often contested.
In the arrangement where government expected to show some favour to its geographical or ethnic constituents, democracy is only considered legitimate if different groups are able to “take turns” in the diversion of the largesse. Over time, an equitable distribution can be achieved, but only if there is some sort of alternance of power.
Any type of “winner takes all” democracy is thus poorly suited to a set of moral values which emphasises deference to kin and significant levels of patronage (i.e. taking turns at the trough). In fact, in order to accommodate “winner takes all” democracy with patronage requirements in a multi-ethnic state, Nigeria’s ruling party established a gentleman’s agreement[11] to alternate the presidency between northern and southern candidates, so that one party could continue winning all the elections[12] while meeting the unspoken requirement for rotating geographical largesse. Other countries, such as Lebanon, attempt to achieve the same thing on a permanent basis by dividing various arms of government among different groups[13].
Hopefully by now it is clearer why “corruption” is an inadequate word to describe a complete politico-economic structure, alternative to the modern, open and transparent State, but one which nevertheless allows a (sub-optimal) form of government to function and order to be maintained.
At this point, perhaps we can classify “corruption” into three broad types:
- Type 1: Fee-for-service type (non-distortionary)
This type of corruption requires a series of pointless administrative tasks to create a time-consuming hurdle, which people pay to get around. It serves as a form of rationing / prioritizing of “consumer preferences” – richer or more time-pressed people pay, poorer ones wait or jump through the administrative loops. This system is informal by definition, but can be formalized (e.g. express visa processes, which incur a charge). An important aspect of this type of corruption is that it is non-distortionary. That is, a relatively predictable and level playing field exists where consumers understand that they can pay in cash or in time to get the service, as they prefer. The economic harm is principally in time and resources lost through the pointless obstacle process, and perhaps the increase in inequality as resources move from consumers to the public servants (although this could also be a decrease in inequality).
- Type 2: Basic resource diversion (non-distortionary, simple diversion of resources)
This type of corruption involves taking a cut of public resources, either on the way into state coffers, or on the way out of them. Examples include not issuing receipts for payments received, or obtaining artificial (or inflated) receipts for payments not actually made. It includes commissions on contracts, simply stealing public goods, or perhaps collecting one’s salary without actually doing any work for it. It is also non-distortionary to the extent that the effects on the public are equal and there is a level playing field in any payments made (i.e. no influence is purchased). Everyone loses from the reduced public service (or benefits from the lower, informal payments they make to officials rather than to State coffers) to the same extent (although their abilities to cope with this loss may be varied). In the case of contract commissions, everyone knows “the price” and this is simply added to contract values. The economic harm from this type of corruption is the reduction in public services as a result of the resource diversion, and perhaps the wealth concentration (inequality).
- Type 3: Payment for influence (distortionary, influencing public decisions for gain)
This type
of corruption is possibly the most damaging because it is distortionary. Its
purpose is to prevent the state from acting as a neutral arbiter and enforcer
of a common set of predictable rules. Examples include paying police not to
enforce the law (i.e. against genuine crime), paying the judiciary, influencing
government regulations and public decisions which affect economic actors. This
includes influencing contract selection through bribes (i.e. where a
non-standard commission applies), nepotism, paying for good examination results.
Distortionary corruption doesn’t just impose a cost on business (as types 1
& 2 corruption might), but makes business unpredictable (because
outcomes are being sold through a sort of secret auction) and therefore much riskier.
It does the same thing to citizens, who are exposed to expropriation through
legal means, where one party co-opts the state to use the law to disadvantage a
rival. It results in poor public procurement decisions, and inefficient economic
policy designed to secure rents rather than expand opportunity. While
corruption types 1 and 2 are akin for a form of taxation or wealth
redistribution, type 3 involves uncertainty, deters investment and erodes
productivity.
Distortionary Corruption: Cronyism
The deliberate creation of economic rents can channel huge amounts of wealth into very few hands. Such an economy is described as “closed” to contrast it to an “open” economy, where the playing field is level and the barriers to entry are low.
Cronyism makes use of the same tool as basic corruption does – the law. Under corruption type 1, the reason your administrative dossier is taking so long is because there is a horrifically long and pointless process which has been established “by law” that needs to be followed. Unless, of course, it doesn’t (i.e. you pay).
With type 3, not everyone can pay their way around the law, because its purpose is to exclude outsiders. I met a chap who established a small but successful business recycling paper and cardboard in the south of the country where I was living. One day I ran into him outside my office, which was beside the customs building. He was up in the capital to get an “export license” which was a new requirement for all cardboard exporters. Except that he couldn’t work out how to get one. A similar requirement had recently been placed on lead (battery) recyclers too. Another chap in the recycling business with some contacts in the Ministry of Trade and Industry explained the game to me, using the example of lead.
Car batteries were collected not out of any environmental concern, but because the lead in them was quite valuable. Most of the lead was collected through the informal sector and then exported, because the international prices were higher than the local battery manufacturer was willing (or able) to pay. This naturally irritated the local battery manufacturer, so he went and spoke to his friends at the Ministry of Trade and Industry and complained about how the informal sector was “destroying local industry” by exporting the lead, which in effect forced him to compete with international lead buyers and pay the international price (less transport and export costs, presumably).
His mates at the Ministry responded that they did not have the power to ban the export of lead (because this required legislation, and unwelcome scrutiny), but they did have the power to “regulate” exports by requiring a “license”.
“So we’ll pass that regulation, and then we just won’t give anyone a license” they reportedly beamed.
This little story is the essence of cronyism. The same story was subsequently repeated for paper and cardboard, immediately after someone well connected opened a paper recycling factory. The effect of this is to depress the local price for scrap paper and therefore to make the local paper recycling factory much more profitable than it would have been if it needed to pay international prices. Perhaps this depression of prices is required even to make the thing viable, because it is less productive than the large European recycling plants. Perhaps it isn’t required, but produces a fat profit to the owner, which can be shared (at some point, in some way) with his friends in the Ministry who made it possible.
Either way, the depression of local prices – ostensibly to benefit local manufacturing – has the effect of reducing the amount of paper that is recycled, because a lot of paper then becomes unprofitable to collect. And with that, thousands of jobs for low skilled and marginalized scrap paper collectors, disappeared. But we never heard about them – because these people live outside the margins of political economic discourse. They have no lobby, or friends in any Ministry. They are the people struggling to get by, to put food in front of their kids.
I have come across countless stories like this because they exist in every economy[14].
One of the most damaging examples of distortionary corruption is in education. There are two aspects: The first is nepotism, where one obtains a job because of who one is, rather than what one knows. The second is the corruption of the education system, where teachers offer “tutoring” as a side business to their day-job of teaching students.
When parents pay for tutoring, they expect their children to do better in examination results. So if the tutor fails to deliver that, they can soon expect to be fired. The problem arises of course when the tutor is the same person who grades the student, which makes the tutoring process a fig leaf for paying for good examination results.
The
combination of these two phenomena teach children a powerful lesson early on in
life: learning is pointless. Skills do not matter. Effort does not pay. The
effect of these lessons on the productivity of an economy are devastating. But
there is another consequence which is equally bad: family connections are
everything. Whatever I achieve, I will owe to my family. I owe my kin.
The Heart of Darkness
Only those who hold an idealized and utopian view of how humans should behave can find corruption deeply depressing. The only solution utopians repeatedly converge on is to tear up whatever social structures that are in place, and to start again, with some sort of revolution where people can be entirely re-educated and trained to behave differently, in the ideal way. Of course, when the humans in the new society stubbornly fail to change their behaviour, it is they who have to be torn up, in some gulag, camp or killing field.
Those of us who prefer not to club children to death in front of their parents end up working with the humans that we’re given, and thinking through why we behave the way we do, and how we – imperfect creatures that we are – might avoid (too many) abuses of entrusted power.
The heart of corruption lies with the basic conflict of interest that all of us are faced with, particularly if we have children. On one hand, cooperation and sharing resources with a wide group of people brings us diffuse benefits (security, potential trading partners, potential mates). On the other, not sharing resources allows us individual benefits which help our prospects within the hierarchy of that wider group.
How many left-wing parents, who strongly advocate the need for equality of opportunity (for example, through public education for all), find themselves either putting their children through private school, or paying high house prices to live in a suburb with a “good” public school? This is despite the evidence that the one of the best things that can happen to disadvantaged kids is not more pencils, more library books, more or better teachers, but simply to have middle class school mates. Everyone wants a level playing field, except for their own child. For our own children, we want anything but a level playing field.
And this is perfectly normal. In fact, not only is it normal, if anyone did not seem to want far better for their own child than for all children generally, we would consider them morally reprehensible[15].
Think about that for a moment. In the liberal democracies, we expect people to simultaneously value a “level playing field” as some abstract way of structing society, but we also expect people to do their utmost to unlevel that playing field for their own children[16].
In developing countries, my impression is that this cognitive dissonance has yet to take hold in the same way. Their societies are structured in a more traditional human way, where “group sharing” is restricted to kin and clan where (a very few) more genes are shared but more importantly where more behaviour (reciprocity) can be monitored (and enforced). There are very few public goods provided by the state. It’s much more “normal” and rational from an evolutionary perspective. Modern liberal democracies (and their associated welfare states) are extraordinary aberrations from our anthropological origins. We’re simply not made to live in them, and so it’s a genuine miracle that we have managed to create these enormous, continent sized societies where a significant share of our resources are shared with people whom we are unrelated to, will not even meet and who will never pay us back.
Unfortunately, a lot of people working in development are perplexed by the existence of persistent and endemic corruption in developing countries. They don’t understand why countries just can’t get things right, why they don’t have an independent judiciary, a professional public service, etc.
The question that should perplex them is how the developed countries solved these issues[17]. But many people seem to take a liberal, open society as the default way humans organize themselves.
Any discussion of the “corruption problem” should not start with the presumption that society “should” be largely free of principal-agent problems and abuse of entrusted power. It should recognize that this is normal, and deeply human. This does not make it desirable (that would be a “natural fallacy”), but it explains why it is prevalent and often accepted.
Take nepotism, for example. It is perfectly acceptable in all countries (that I have been to) for parents to bring their children into a family business. Not only is it acceptable, people are proud of the fact, and specifically mention their nepotism credentials in the business name: Grace Brothers, or Tata Sons. Up until recently, it was also largely acceptable for political authorities (government) to behave in the same way, through an institution called “monarchy”. Even in “meritocratic” liberal democracies, political dynasties are surprisingly acceptable on both the left and the right. Just off the top of my head I can think of the Kennedys, Bushes, Clintons, Roosevelts, Boris Johnson, Winston Churchill, Neil Kinnock, Tony Benn, Marine le Pen, Justin Trudeau. On a strictly level playing field one might expect the children of politicians to have a merely average chance of getting elected, but apparently we are happy to elect children of politicians. There is something that naturally appeals to us about nepotism.
I think we can go beyond simply saying that it is to some extent natural to favour one’s kin. As I alluded to above with the discussion about children, not only is it natural, it’s easy to imagine situations where we might consider it immoral not to. I managed a couple of humanitarian construction projects which involved large numbers of local workers and had ample scope for Type 2 corruption – the creaming of resources which were intended for the project beneficiaries (the wider public). Corruption plagued these projects. In Chad, we were overcharged for supplies through a deal between the suppliers and our procurement guy, my workers sold the cement I issued to them, our mechanics installed second-hand filters in the cars, fuel was stolen…. In DRC, our administrator added a zero to signed procurement orders (thus allowing the complicit supplier to over-invoice by 900%), fuel, tools, nails, cement and medical supplies were stolen, the books were cooked, and we uncovered a plot to steal vast quantities of cement from our maternity ward under construction (and thus make it structurally unsound… and this was for a maternity ward where the wives of the would-be thieves would almost certainly give birth, at some point).
Ex-patriate staff often had a hard time digesting this theft and attempted theft. It depressed or angered them. Older hands laughed it off with cynical indifference. However, it is worth considering the point of view of the thief: our local staff were typically providing for their entire extended family, within which it was likely that various cash-crises were occurring all the time (deaths, illness, marriage, birth, business failure, etc.). It is expected that family help one another and moreover it is expected that in a conflict of loyalties between family and some foreigners working for some foreign outfit, family should come first. Particularly because, if conflict should start (i.e. the bullets should start flying again), everyone knew that the foreigners would immediately depart. Everyone would be left to their own devices to survive, which meant left to their own, local, support networks. In this sort of context, cash is useful but can be stolen. Kin is what keeps you alive and protects you. It is a no brainer that primary loyalty will be to kin.
Under these circumstances, when management processes allow one to steal with impunity, considerable social pressure arises to do it. The only way to align staff incentives with the organisation’s incentives is to run a sufficiently tight ship that allows staff to explain to their families that there are no opportunities to steal that will not result in getting fired. If one member of staff is successfully stealing, all of the others will know about it, and be under some sort of pressure to do equally well for their own families. The morality is entirely reversed: it becomes wrong not to help your family, to the greatest extent you can. i.e. “corruption” becomes the socially responsible thing to do.
In a very
poor context, there is very little incentive to serving some diffuse “public
interest”[18]. The
matters on the table are not theoretical, abstract ideas about what sort of
society one wants to live in, what is the right thing to do, the common good,
etc. They are often about ensuring personal ability to withstand the sorts of
catastrophe that citizens of developed countries cannot imagine. They are about
protecting one’s children from unimaginable horrors. Not all children. Your own
children. Under these circumstances, the moral choice is clear, and the private
wins over the public.
Policy ideas
Despite the bleak picture painted above, there is plenty of scope to do better in our efforts to implement public-interest infrastructure and services, even in contexts which militate against our ability to do so for the reasons given.
I think the first step to take is a frank discussion of the problems and an acceptance that our principal-agent failings are an inherent, shared, and natural problem that we have a common interest in overcoming.
We take the judgement out of the conversation for systemic corruption. Instead, we accept and recognize that government is in a transitionary, hybrid phase somewhere between feudal and modern structures (for corruption types 1 and 2).
We tried this in a project in Nigeria, in a small town where water was supplied for just a few hours per day, due to “lack of diesel” to run the pump generators. Of course, everyone in the town knew that the pump operators – paid about $2 per day – simply sold most of the diesel they were given[19]. We openly discussed the fact that $2 per day was not enough to feed a family, and agreed to triple this wage in return for expanded pumping hours (i.e. to compensate for the diesel revenue forgone). The eventual plan was to transition to a payment per cubic meter produced (aligned incentives).
The discussion and agreement worked – pumping hours were increased massively and water was sold at a modest fee to bring in revenues to pay for the higher salaries and for more diesel[20].
I have discussed policy ideas like this in other situations and obtained vigorous buy-in as a way to progress beyond the stale façade of “everyone should be honest and it’s only bad apples who are stealing”, to real structural reform of an institution. Whenever I have this conversation, I see faces light up and we suddenly start talking about what is really going on. My interlocuters notice that the judgement is gone and they are talking to someone who understands the “real” economic structure of the institution, and the unwritten contracts that are in place. There is a radical change in enthusiasm.
When the morality is taken out of the conversation and the taxation-like structure of corruption types 1 & 2 are discussed, various proposals can be advanced to make changes (as we did in Nigeria), while allowing everyone to meet financial obligations established under the “trickle up” system. A proposal can be made to put the under-the-table cash flows “onto the table”, with associated increases in transparency, aligned incentives, and checks and balances to ensure that new flows do not emerge under the table. We move from a low-trust, low-efficiency equilibrium, to a higher-trust, higher efficiency one. Keep in mind the lessons from Chad and DRC: if people can steal, they will be under pressure to do so. Forget about morality – create the incentive structures to ensure that resource diversion comes with very high risks, or needs the complicity of so many people that the rewards are subsequently reduced (i.e. you have to pay off too many people). Think about innovative ways for the wider public to hold organisations to account, and more importantly, think about their incentives to do so. Under what circumstances will people care? I have worked in countries where ordinary people disagree with the notion of accountability – or at least my (western) understanding of it. Holding people to account for failing to perform a service runs against the prevailing morality, where people are seen first and foremost as “who they are” in terms of the hierarchy, rather than “what they do”. It’s the same sort of deference that is shown towards Queen Elizabeth II, but replicated on a smaller scale over the whole of society. One doesn’t ask what purpose Elizabeth Mountbatten-Windsor serves. She is the Queen – that is all. One hopes that she does her job well, and one puts up with it if she doesn’t.
The most damaging type of corruption is the distortionary type 3, which produces uncertainty and economic inefficiency in decision making. Low quality infrastructure doesn’t just cost the additional commission costs, it includes the entire economic cost of not delivering the public service or of the whole (failed) asset, which is a 100% wasted investment even if only 20% was stolen. The loss of productivity from low investment in businesses and education is colossal. It dwarfs the wealth that is redistributed via types 1 & 2[21].
For corruption type 3, we probably need to accept that some rents need to be allowed in the economy for political stability. The rents can be agreed, and accepted, even as the wider economic pie is expanded, so that the “rentier” section of the economy shrinks relative to its overall size. We resist the creation of new rents, or the expansion of the rentier part of the economy. One of the most interesting findings of Acemoglu and Robinson in their book “Why Nations Fail” was that a diverse economy seemed to be instrumental in the establishment of an independent judiciary in England. Rather than one gang of powerful vested interests being able to capture the justice system, when each vested interest sector is too small to capture the judiciary or government, the next best option is to attempt to get an impartial judiciary so that none of the other sectors can capture it at your expense.
Development efforts should therefore attempt to favour anything that diversifies economic power because this appears to lead to reductions in type 3 corruption which is so damaging to development.
The educational / nepotism problem described as a subset of type 3 corruption is deeply entrenched and impossible for outsiders to do much about. However, there is some good news: Private sector firms which use exclusively nepotistic methods can be expected to underperform relative to those who manage to recruit meritocratically, so there is some market pressure on this form of corruption. To the extent that the private sector can be expanded, some commercial accountability can substitute for the total lack of accountability that might occur in a nepotistic public sector (then again, economic rents may allow private sector nepotism to face no market discipline). The second bit of good news for outsiders is that one doesn’t have to reform a whole economy to disprove the lesson that children learn about hard work (or learning) serving no purpose.
Outsiders can make a conscious effort to promote meritocratic recruitment – but this is an effort. It means going and finding the kids from the unconnected families, in the out of the way schools, who don’t know where the job ads are posted and have no-one to recommend them. Development workers don’t usually have time for this and end up cutting corners which means – essentially – hiring those well connected enough to end up at your door. The lesson is almost “if you’re aware of a good candidate, then you probably shouldn’t be hiring them”. You have to reach out and find these kids, the kids whose CV would never end up on your desk, find the brighter ones, and hire them.
Obviously, the hires will represent a drop in the ocean, but their symbolic impact is important. For every “nobody” that you hire, word will spread among their friends and classmates that something unbelievable happened: someone from an unconnected family[22], someone ordinary, but bright, managed to get ahead. And this creates hope, indeed an unreasonable sense of hope[23], that the process could happen again. And the hope creates a drive to work, and learn, and drive productivity increases in the economy regardless of what jobs the kids eventually land in. And finally, if something like that could happen, then people start to demand that it should happen.
References
Asís, M. G., O’Leary, D., Ljung, P., & Butterworth, J. (2009). Improving Transparency, Integrity, and Accountability in Water Supply and Sanitation. Washington D.C: The World Bank.
Davis, J. (2003). Corruption in Public Service Delivery:Experience from South Asia’s Water andSanitation Sector. World Development, 53-71.
Mendoza, Jaminola, & Yap. (2019). From Fat to Obese: Political Dynasties after the 2019 Midterm Elections. Manila: Ateneo School of Government.
Transparency International. (2019, October
16). What is corruption. Retrieved from Tranparency international:
https://www.transparency.org/what-is-corruption
[1] Very few people do not want to be seen as virtuous, or good. So most people act to justify the view that they are good, most of the time (because the easiest way to be seen as a good person is to be a good person).
[2] Thinking about it now, I recall the Fitzgerald Inquiry into Police Corruption in Queensland, Australia (1987-88), and how we used to joke that Queensland police were “the best money could buy”.
[3] Laissons les affaires d’arabe entre les arabes
[4] The same practice is described in South Asia where a market for jobs exists (Davis, 2003)
[5] For example, French presidential candidate Francois Fillon’s employment of his wife and children as parliamentary aides, which he clearly saw as “part of the package”, or Australian politician Eddie Obeid’s son’s bewildered reaction to journalists’ questions about insider information on a mining lease that earned the family millions of dollars saying “you people don’t understand business”. He was shocked that people were shocked.
[6] Which later could have come in handy, when we were mugged. But we didn’t take him up on it.
[7] This will not come as news to conservative voters
[8] I am not naïve about these proto-state structures – they may simultaneously offer “protection” and predation. In DRC my colleagues told me how the Congolese army soldiers billeted themselves in villages and raped all of the women, as “payment” for their services. Some states only keep their citizens alive as captive prey, the protection is merely to keep other predators at bay.
[9] I recall a (hard working) government client whom I worked with for long days and months, who was paid around 300 euros a month signing off an invoice for $1m for the company I worked for. He looked up at me, smiling wearily, and said “One million dollars for you! and what, for me?”. I said I’d buy him a kebab for lunch.
[10] And in the title of Michela Wrong’s book on Kenya “It’s our turn to eat”
[11] It really is called that (https://foreignpolicy.com/2017/06/01/the-gentlemans-agreement-that-could-break-apart-nigeria-buhari-health-rumors/)
[12] Which Nigerians – with their remorselessly dry sense of humour – refer to as “selections”
[13] Arguably, the only reason western liberal democracies have been able to minimize patronage is because they were essentially mono-ethnic when they became liberal democracies
[14] The most egregious examples in industrialized nations are in the finance sector, where enormous economic rents are extracted by incumbent banks who employ outgoing politicians and regulators in search of a new job. There is no practical difference between this very Western form of corruption, and the developing country sort I have described. There is only a difference of timing.
[15] For an excellent discussion of this and other ethical dilemmas, see Peter Singer’s “The life you can save”
[16] Within limitations of course. I don’t mean “bribe teachers” or help their kids cheat in exams, which we might consider immoral (and in any case, against the children’s interests), but rather, provide their children with as much attention, security, nutrition, healthcare, resources, guidance, and opportunity as possible. Far more effort is dedicated to this, than to attempting to redress society’s wider injustices.
[17] Of course, the best economists and political scientists are obsessed with this question. Read “The origins of political order” by Francis Fukuyama.
[18] And even less to serve “shareholder interest”. The businesses that work in developing contexts master these principal-agent problems using the following tactics: employing trusted kin liberally, structuring themselves as internal markets where incentives are mostly aligned, or staying very small so they can monitor everything.
[19] Which had already been whittled away at every step in the distribution chain from the state government, as each intermediary took a cut.
[20] The story didn’t end happily – when local politicians discovered water was being sold, despite their (undelivered election promise that water will be free), they sent a gang to smash all of the kiosks the project had built and break up the community lead water committee, which was seen as a “rival” political movement (see the section on mafia-government). The situation returned to its previous equilibrium – low water volumes produced, for “free”, with a high market price due to scarcity or time required to queue. The irony of charging a modest fee for water at kiosks and channeling that to the pump operators is that the increased supply then lowered the market price for water.
[21] Types 1 & 2 do not destroy wealth so much as transfer it (to less productive uses). Type 3 prevents wealth being produced in the first place, or actively destroys it though non-productive asset construction
[22] Although I accept the possibility that where nepotism is deeply rooted, the fact that someone obtained a job will serve as evidence that their family must be connected, somehow, even if this was previously assumed not to be the case. The facts will be bent to fit the theory of how the world works.
[23] Having said that, hope was never known for its “reasonableness”.