Corruption. A Study in Political Economy

259 Pages·1978·4.706 MB·English

by  Susan Rose-Ackerman (Auth.)

Corruption
A Study in Political Economy
SUSAN ROSE-ACKERMAN
Department of Economics and
Institution for Social and Policy Studies
Yale University
New Haven, Connecticut
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Library of Congress Cataloging in Publication Data
Rose-Ackerman, Susan.
Corruption : a study in political economy.
Bibliography : p.
1. Corruption (in politics) — Economic aspects.
I. Title.
JF1081.R67 320.4 78-6170
ISBN 0-12-596350-5
PRINTED IN THE UNITED STATES OF AMERICA
To Sybil and John
ACKNOWLEDGMENTS
Since I have drawn from a variety of intellectual traditions in both
political science and economics, many different people have been
helpful at various points in my work, and I cannot acknowledge all of
their contributions individually. I would, however, particularly like to
thank Charles E. Lindblom, J. Michael Montias, Sharon Oster, Merton
J. Peck, and Burton Weisbrod for reading portions of the manuscript. I
owe special debts to both Richard Nelson, and my husband, Bruce A.
Ackerman. Richard Nelson read and commented on the entire manu-
script, and Bruce Ackerman was a persistent and invaluable critic and a
constant source of encouragement at all stages in the preparation of this
book.
Three students: Arthur Slepian, Bruce Chapman, and Henry Chap-
pell, helped to check sources. Henry Chappell also prepared the index
and made many useful suggestions after reading the draft manuscript.
Over the years, several secretaries have patiently borne with my
numerous revisions, but Amy Yu Chen-Kung deserves special thanks
for her excellent work in preparing the final round of drafts before
publication. I am also extremely grateful to Susan Siemionko for taking
care of my children over the past 3 years. She made it possible for me to
combine career and family with the assurance that my children were
loved and well cared for when I was not at home.
XI
XÜ ACKNOWLEDGMENTS
My research was partially supported by the Institution for Social and
Policy Studies at Yale University. In addition to financial support, ISPS
and its director Charles E. Lindblom provided me with a hospitable
environment in which to pursue interdisciplinary studies and made it
easy for me to talk with both political scientists and economists about
my work. After the book was begun, the National Institute for Law
Enforcement and Criminal Justice, Law Enforcement Assistance Ad-
ministration, U.S. Department of Justice, also supplied research support
under Grant No. 75N1-99-0127. Of course, the points of view or
opinions presented in this book are those of the author and do not
represent the official position or policies of the U.S. Department of
Justice.
1
CORRUPTION AS A PROBLEM
IN POLITICAL ECONOMY
1. CORRUPTION AND THE MIXED ECONOMY
Although the corruption of public and private officials is constantly
exposed by the popular press, the interest of the public seldom goes
beyond the details of particular scandals. Yet as the episodes accumu-
late, it becomes clear that there is more at stake than the set of
disjointed stories implies. For the study of corruption requires a con-
frontation with the most fundamental questions of political economy in a
modern society. Whatever else is problematic, societies obviously do
not use a single, consistent method to make allocative decisions. A good
or service may be allocated through a market system in which wide
inequalities of income are taken for granted; dispensed through a
democratic political system that grants a formal equality to each
citizen's vote, assigned by administrative rule, by random selection, or
on the basis of some standard of "worthiness/' Mixed systems are
common, and many allocative mechanisms do not easily fit under one or
another simple rubric. While there is, of course, much dispute about the
precise normative line where the price system should leave off and other
methods take over, both market and nonmarket mechanisms clearly
have important allocative roles to play. Assuming that society has drawn
a line somewhere in the vast middle range of mixed alternatives, this
1
2 1 CORRUPTION AS A PROBLEM IN POLITICAL ECONOMY
book explores the way in which wealth and market forces can under-
mine whatever dividing line has been fixed. Thus, political decisions that
are made on the basis of majority preferences may be undermined by
wide use of an illegal market as the method of allocation. Legislative
decisions may themselves be "for sale" to the highest bidder. The more
persistent are market forces, the less likely is the survival of a mixed
system. A central question is whether democratic government can
withstand the pressures of market forces: To what extent does the stable
operation of a mixed system require political participants to dedicate
themselves to democratic ideals, even when this is not otherwise in their
self-interest?
Corruption not only reveals a basic tension between market mecha-
nisms and voting processes but also forces the political economist to
deal with allocative problems raised by the presence of large organiza-
tions in both the public and private sectors.1 In both complex modern
societies and underdeveloped states, the delegation of decision-making
authority is a fundamental organizational technique. Whenever an agent
is given discretionary authority, corruption provides a way for the
objectives of the higher authority to be undermined. The central
question here is whether organizational incentives can substitute for
personal honesty in maintaining hierarchical control: Does a realistic
model of a stable modern economy require agents who value honesty
even when high personal scruples are not rewarded by superiors?
By raising these questions, I plan to do more than explore substantive
issues central to modern economic and political life.2 I also hope to
suggest the possibility of building on different theoretical traditions in
economics and political science to develop a more comprehensive form
of political economy. Unless we draw from both disciplines, we will fail
to develop a framework adequate for our subject. While the economist's
concern with profit-maximizing behavior is of obvious relevance to the
study of corruption, it is equally plain that the standard techniques used
to analyze private markets are not adequate to the problem. Neither the
1 In taking large organizations as given I do not mean to imply that they are necessarily
desirable. See Lindblom (1977) for a critical assessment of the role of the modern
corporation.
2 The analysis is not, however, limited to a consideration of modern, industrialized
democracies. Corruption is pervasive in undemocratic planned economies (see Berliner,
1959; Smith, 1976), in underdeveloped countries (for examples, see Heidenheimer, 1970,
Chapters 4, 7, 10, and 11; V. T. Le Vine, 1975; Scott, 1972), and has been endemic in
previous historical epochs (for examples, see Heidenheimer, 1970, Chapters 2 and 8; and
Wraith and Simkins, 1963). Much of the discussion of corruption applies to certain
features of these politicoeconomic systems as well.
1 CORRUPTION AND THE MIXED ECONOMY 3
decision by a politician to trade votes for bribes nor the corrupt
bureaucrat's dealings with politicians and interest groups can be treated
as simple extensions of the profit-maximizing calculus of the private
entrepreneur. Since both politician and bureaucrat operate in distinctive
institutional frameworks different from those of competitive theory, a
simplistic application of market analysis is not sufficient.
Standard political science approaches are equally unsatisfactory. On
the one hand, formal efforts to model political behavior typically assume
that politicians singlemindedly seek to maximize their likelihood of
reelection;3 this simple view is not very helpful, however, for an analysis
of the politician's tradeoff between dollars and votes. On the other hand,
while less formal theories recognize that politicians have a multitude of
objectives, they fail to develop a general theory describing the way
tradeoffs between competing goals are made.4
There is, in short, no body of theory ready made for application to the
problem at hand. To make progress, one must develop a set of analytic
techniques that combine an economist's concern with modeling self-
interested behavior with a political scientist's recognition that political
3 Schumpeter (1950) hypothesizes that the dominant motive of political candidates is
winning elections. Ben-Zion and Eytan (1974), Brock and Magee (1975), and Welch
(1974) also assume that the probability of reelection is the politician's maximand. While
agreeing that winning elections is the primary motive, Shepsle (1972) asserts that vote
maximization is a convenient secondary motivation to consider. Bartlett (1973), Downs
(1957), Kramer (1975), Niskanen (1975), Nordhaus (1975), Page (1976), and Riker and
Ordeshook (1973, Chapters 11, 12) all employ the simplifying vote maximization
hypothesis. A slightly different approach is used by Frey (1974) who assumes that
politicians manipulate macroeconomic policy with the objective of maximizing their
length of stay in office. In his model, short-run vote maximization may be sacrificed for
long-run security. Barro (1973) has developed an alternative model in which politicians
are only interested in public and private consumption goods and seek election as a means
of increasing their consumption possibilities. Many of the issues raised by other authors
are irrelevant to his analysis, however, since he assumes that voters have equal incomes
and tastes.
4 Excellent studies in this tradition are Fenno (1973, 1977), and Mayhew (1974). The same
dichotomy between very simple formal theorizing and comprehensive, informal, and
largely descriptive work is also found in work on bureaucracy. Compare Niskanen
(1971), on the one hand, with most of the work surveyed in Nadel and Rourke (1975) and
Warwick (1975, Chapter 10) on the other. Both Niskanen (1971) and Breton (1974) set up
formal models that include both politicians and bureaucrats. Breton's politicians maxi-
mize a utility function that includes the probability of reelection, income, power, ideals,
and other variables. Bureaucracies maximize the number of employees in the agency.
Breton recognizes the interaction among clients, bureaus, and politicians, and discusses
the fact that low-level officials may have different objectives than superiors. Neither he
nor Niskanen considers the possibility of bribery, however.
4 1 CORRUPTION AS A PROBLEM IN POLITICAL ECONOMY
and bureaucratic institutions provide incentive structures far different
from those presupposed by the competitive market paradigm.5 While
this unification of disparate scholarly concerns is the book's central
methodological task, it represents only a part of the larger work of
theoretical construction necessary to provide a full, positive theory of
political economy. For the offer of a bribe represents only one way in
which individuals try to influence government behavior. There are at
least six other types of interactions. First, the relationship may be
wholly "legalistic." Individuals follow the rules as spelled out by the
law without trying to obtain preference or change the rules, that is, they
wait their turns, fill out forms, obey traffic signals, pay entrance fees,
and supply goods at prices set by the government. Second, friendship,
family ties, or personal loyalty can determine an agent's actions. Third,
individuals might try to persuade or inform government officials. Fourth,
citizens may work through the legal system by bringing lawsuits or
seeking injunctions. Fifth, if the government is democratic, individuals
could try to influence the outcome of the next election or sponsor
referenda on important issues. Finally, citizens may use threats to make
officials do what they wish.
These seven types of relationships between government agents and
citizens all coexist in a single political system, and any individual
whether within or outside government is likely to use or be the subject
of several. Moreover, many actual situations involve more than one of
the seven categories. A threat of forceful arrest by the police may be
countered by attempts to persuade or bribe them. Alternatively, if
citizens attempt to obtain favors through appeals to family ties or by
bribes, officials may present arguments demonstrating why the favor is
not justified.
Nonetheless, in considering this complicated reality, I shall always
keep bribery in the analytic foreground. It is true, of course, that gifts of
time, personal favors, family ties, lobbying, and threats are all forms of
influence similar to bribery. The analysis, however, does not attempt to
do justice to the distinctive character of these alternatives. It leaves to
one side the interesting social-psychological question of why norms
differ across professions, government agencies and political jurisdic-
tions. While I do not wish to minimize the importance of variations in
5 The analysis draws from past work on corruption in political science and economics. In
political science the basic sources are Banfield (1975), Gardiner (1970), Key (1936), Scott
(1972), and the articles in Gardiner and Olson (1974) and Heidenheimer (1970). Work in
economics is especially scanty, but see Becker and Stigler (1974), Johnson (1975),
Krueger (1974), Pashigian (1975), and Schmidt (1969) for treatments of particular aspects
of the problem.
1 CORRUPTION AND THE MIXED ECONOMY 5
individual scruples and accepted practices, the analysis will concentrate
on structural incentives. Similarly, while the argument emphasizes the
politician's desire for reelection, it slights the role of ideology, logrolling,
and "rational" argument in explaining government behavior. I shall,
however, consider one form of monetary payment which is not always
illegal—campaign contributions from special interest groups. Given the
relative ineffectiveness of legal sanctions as a deterrent to legislators and
the strength of the reelection motive, it seems useful to expand the
analysis to include these contributions.6 In short, the book focuses on
the dimensions of political life where the professional economist's
training can provide useful insights if tempered by a concern for the
structure of government institutions. In a study of corruption, one can
make substantial progress with models that take tastes and values as
given and perceive individuals as rational beings attempting to further
their own self-interest in a world of scarce resources. Information may
be imperfect; risks may abound; but individuals are assumed to do the
best they can within the constraints imposed by a finite world.
Although a political economic approach has a special relevance to the
study of corruption, I do not claim that it completely illuminates the
subject. Indeed, the analysis leads one to emphasize the importance of
personal morality in explaining the viability of democratic government in
a market economy; similarly, the widespread delegation of authority to
agents in large organizations presupposes that most economic actors are
unwilling to milk their positions to the limits of possibility. Some
political and organizational structures, however, are less corruption-
prone than others; in fact, it will be one of my major objectives to isolate
the critical structural variables. Nevertheless, the continuing operation
of familiar institutions would be inexplicable in the absence of wide-
spread personal commitments to honesty and democratic ideals. Thus,
the professional economist looking at political phenomena must steer a
middle way between the extreme claim that 4kno other approach of
remotely comparable generality and power is available [Stigler and
Becker, 1977:77]" and the narrow view that economics is concerned
mainly with the determination of such macroeconomic variables as the
level of income, employment, and prices.7 Although an economic
6 Another justification for considering campaign financing is the availability of data.
Chapter 3 raises some issues that can be tested empirically using information from the
Federal Elections Commission.
7 See, for example, the view of Scott (1972) that an economist who finds tlthat the ruling
party of a new nation through its minister of public work exacts 5 to 10 percent in graft
on each contract it awards, might want to know how this affects the society's rate of
savings, its investment decisions, its pattern of income distribution, or its ability to carry
out a five-year development plan [p. 2]."