Sunday, May 19, 2013

Syndromes of Corruption: Wealth, Power, and Democracy - Michael Johnston

Every now and then, the international development community focuses on a given topic and devotes millions of dollars to present it as the solution to poverty, inequality, and all the problems in the World. Over the last 3 years, the hot topic has been fiscal transparency and "open budgets". The argument is that, combined with citizen engagement, transparent public finances will result in a more effective and democratic public spending. The development community is wrong on this, as it has been many times before. Public finances are extremely complex and require a high degree of technical expertise, both of which guarantee that government officials will always find a way to do funny things with the money. Also, some developing countries are unable to produce fiscal statistics of acceptable quality, or with the level of detail required to have meaningful discussions. In 2 or 3 years, the international developing community will devote millions of dollars to figuring out why the transparency and open budgets agenda failed miserably and how something new will finally bring prosperity to the developing World and increase the standard of living of the peoples.

Ten years ago, the hot topic was corruption. The argument was that corruption represented a cost on society, foreign investors, and donors, and therefore should be curtailed. Millions of dollars were spent on studying corruption; thousands of workshops were organized; hundreds of anti-corruption agencies across the World were modified or created, and Transparency International (TI) had its fifteen minutes of fame thanks to its index of perceived corruption. What was the result of all that? Well, the result is that the development community now talks about open budgets. At the very least, some development people make the obvious link between corruption and open finance, but that’s the exception rather than the rule.

As part of the anti-corruption crusade, MichaelJohnston published a book called Syndromes of Corruption: Wealth, Power, and Democracy in 2004. Despite working with TI himself, the book is an argument about why TI’s index is wrong (“has room for improvement”, in jargon). Overall, Johnston makes a compelling argument. He believes that corruption is not unidimensional. As a result, any metric of corruption will be incomplete and so will be the policy recommendations derived from it. Instead, Johnston argues, there are four “syndromes” of corruption, each of them with different characteristics and ways to combat it. The table below, taken from the book, summarizes the four syndromes.

Political opportunities
Economic opportunities
State/society capacity
Economic institutions
Influence Markets
Mature democracies
Liberalized, steady competition and participation
Mature markets
Liberalized, open; steady competition; affluent
Elite Cartels
Consolidating/reforming democracies
Liberalized; growing competition and participation
Reforming markets
Largely liberalized and open; growing competition; moderately affluent
Oligarchs and Clans
Transitional regimes
Recent major liberalization; significant but poorly structured competition
New markets
Recent major liberalization; extensive inequality and poverty
Official Moguls
Little liberalization or openness
New markets
Recent major liberalization; extensive inequality and poverty

The great innovation of Johnston approach is that it copes with institutionalized corruption in advanced countries; the traditional approach assumes that corruption is pervasive of developing countries, which “only” need to design and implement laws based on best practices to eliminate corruption. That idea is obviously wrong: designing laws is extremely easy (you just need to pay a consultant to do it), but implementing them is extremely expensive, which is why only developed countries can do it. Johnston argues that there is corruption in advanced economies (influence markets), but takes the form of privileged access to lawmaking instead of bribery.

After setting up his conceptual framework, Johnston goes on to study three case studies per syndrome. The concluding chapter shows policy shows policy conclusions and recommendations to address the different types of corruption.

One of the main messages of the book is that political and economic liberalization create opportunities for corruption, either institutionalized or in an anarchic manner. Johnston’s recommendation is to strengthen the state’s institutions gradually before liberalizing. While this sounds like a good idea in theory, the reality is that “institutional capacity reinforcement” has become an excuse among developing countries to not implement reforms. Also, countries (and people) can only learn as they face different situations. The only way to learn how to regulate, say, an open telecommunications industry is by actually having an open telecommunications industry. The entire “best practices” scam came up because people think that countries can learn from each other. They can’t. Every country faces unique obstacles, shaped by its history and context. Obviously, mistakes are made and things happen as new reforms are implemented, but that’s a fact of life. I know that development practitioners and academics want to have results in 2 or 3 years to be either promoted or tenured, but countries mature in longer period of times. It took the English a long time to go from the Carta Magna to universal suffrage…

The book barely touches the fact that corruption is a form of social capital that emerges when the State is absent. Corruption is unfair and is a regressive tax, but in many contexts is the only way things get done. At a lower level, corruption is also the only way some public officials in developing countries can make ends meet, so any strategy to combat it must be accompanied by an overarching reform of the public sector. If you take corruption away from a country without dealing with “other” issues (poverty, public sector reform, private sector development), people may kill each other in the streets immediately afterwards. The need to insert the fight against corruption in a multi-sector approach is barely touched in the book.

Syndromes of Corruption was a required reading in public policy and international affairs schools eight or six years ago (the book was published in 2005). Today, it is merely an amenity for academics and a reference for some Ph. D. students. One of the reasons behind that is the fact that the development community does not care too much about corruption anymore. But the fact that Africa has been growing despite corruption has hindered the argument that corruption is bad for growth. I know that the recent Africa boom is driven by China’s appetite for commodities and will end up in a bust (like all African booms) in 5 to 10 years, but at least the consensus right now is that corruption is not that much of a big deal as long as money “goes down” to the people…

I still recommend the conceptual framework of this book (the case studies are dated): it will give you an idea about why all the governance indicators, particularly this one, are wrong.

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