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VOLUME 45

UMBER 3

SPECIAL ISSUE 199 7

Po itica Stu �les •

POLITICAL CORRUPTION Edited by Paul Heywood Political Corruption: Problems and Perspectives

417

PAUL HEYWOOD

Defining Political Corruption 1VIARK PHILP

Corruption

436

etworks, Transaction Security and Illegal Social Exchange JEAN CARTIER-BRESSON

463

Corruption Cycles CRISTINA BICCHIERI and JOHN DuFFY

477

The New Economics of Corruption: a Survey and some ALBERTO ADES and RAFAEL DI TELLA

ew Results

496

The 'Perverse Effects' of Political Corruption DONATELLA DELLA PORTA and ALBERTO VANNUCCI

516

Regulating the Conduct of MPs. The British Experience of Combating Corruption DAWN OLIVER

539

The European Union: Pooled Sovereignty, Divided Accountability JOHN PETERSON

559

The Transition to the Market and Corruption in Post-socialist Russia FEDERICO VARESE

579

Continued on outside back cover

ISS T 0032-321 7

PSA

Political Srudzes AsS(JfJal/011

Published by the Political Studies Association and Blackwell Publishers

Comimted from outside front cover How Citizens Cope with Postcommunist Officials: Evidence from Focus Group Discussions in Ukraine and the Czech Republic WILLIAM L. MILLER, TATYANA KOSHECHKINA and AsE GRODELk'ID

597

Understanding Political Corruption in Contemporary Indian Politics GURHARPAL SINGH

626

The Politics of Privilege: Assessing the Impact of Rents, Corruption and Clientelism on Third World Development PAUL

D.

HUTCHCROFT

639

12112132-3217 ( 1997) 45: 3; 1- (j

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indexed in Human Resources Abstracts, Sage Urban Studies Abstracts, Sage Public Administration Abstracts and International Political Science Abstracts. Printed and bound by Page Brothers, Norwich. © Political Studies Association 1997 ISSN 0032-3217

Political Studies Volume XLV

Special Issue

1997

Political Corruption

Editor

PAU L HEYWOOD

CONTENTS Acknowledgements

n

Political Corruption: Problems and Perspectives PAUL HEYWOOD

417

Defining Political Corruption MARK PHILP

436

Corruption Networks, Transaction Security and Illegal Social Exchange JEAN CARTIER-BRESSON

463

Corruption Cycles CRISTINA BICCHIERI AND JOHN DUFFY

477

The New Economics of Corruption: a Survey and some New Results ALBERTO ADES AND RAFAEL DI TELLA

496

The 'Perverse Effects' of Political Corruption DONATELLA DELLA PORTA AND ALBERTO VANNUCCI

516

Regulating the Conduct of MPs. The British Experience of Combating Corruption DAWN OLIVER

539

The European Union: Pooled Sovereignty, Divided Accountability JOHN PETERSON

559

The Transition to the Market and Corruption in Post-socialist Russia FEDERICO VARESE

579

How Citizens Cope with Postcommunist Officials: Evidence from Focus Group Discussions in Ukraine and the Czech Republic WILLIAM L. MILLER, TATYANA KosHECHKINA AND AsE GRODELAND

597

Understanding Political Corruption in Contemporary Indian Politics GURHARPAL SINGH

626

The Politics of Privilege: Assessing the Impact of Rents, Corruption, and Clientelism on Third World Development PAUL D. HUTCHCROFT

Contributors

639 659

Political Studies - Volume 45, Issue 3 - Special Issue 1997 - Wiley Online Library

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Special Issue 1997 Volume 45, Issue 3 Pages ii–ii, 417–660 Previous Issue

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Acknowledgements (page ii) Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00088 Abstract PDF(94K)

Original Article


Political Corruption: Problems and Perspectives (pages 417–435) Paul Heywood Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00089 Abstract Full Article (HTML) PDF(306K) Defining Political Corruption (pages 436–462) Mark Philp Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00090 Abstract Full Article (HTML) PDF(354K) Corruption Networks, Transaction Security and Illegal Social Exchange (pages 463–476) Jean Cartier–Bresson Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00091 Abstract PDF(272K) Corruption Cycles (pages 477–495) Cristina Bicchieri and John Duffy Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00092 Abstract Full Article (HTML) PDF(288K) The New Economics of Corruption: a Survey and Some New Results (pages 496– 515) Alberto Ades and Rafael Di Tella Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00093 Abstract Full Article (HTML) PDF(325K) The ‘Perverse Effects’ of Political Corruption (pages 516–538) Donatella Della Porta and Alberto Vannucci Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00094 Abstract Full Article (HTML) PDF(337K) Regulating the Conduct of Mps. the British Experience of Combating Corruption (pages 539–558) Dawn Oliver Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00095 Abstract PDF(342K) The European Union: Pooled Sovereignty, Divided Accountability (pages 559–578) John Peterson Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00096 Abstract Full Article (HTML) PDF(343K) The Transition to the Market and Corruption in Post–socialist Russia (pages 579– 596) Federico Varese Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00097 Abstract Full Article (HTML) PDF(305K) How Citizens Cope with Postcommunist Officials: Evidence from Focus Group Discussions in Ukraine and the Czech Republic (pages 597–625) William L. Miller, Tatyana Koshechkina and Ase Grodeland Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00098 Abstract Full Article (HTML) PDF(384K) Understanding Political Corruption in Contemporary Indian Politics (pages 626– 638) Gurharpal Singh Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00099 Abstract Full Article (HTML) PDF(255K) The Politics of Privilege: Assessing the Impact of Rents, Corruption, and Clientelism on Third World Development (pages 639–658)

http://onlinelibrary.wiley.com/doi/10.1111/post.1997.45.issue-3/issuetoc[2/9/2011 3:56:22 PM]

Political Studies - Volume 45, Issue 3 - Special Issue 1997 - Wiley Online Library

Paul D. Hutchcroft Article first published online: 21 FEB 2002 | DOI: 10.1111/1467-9248.00100 Abstract Full Article (HTML) PDF(310K)

Contributors


Contributors (pages 659–660) Article first published online: 28 JUN 2008 | DOI: 10.1111/1467-9248.00101 Abstract PDF(116K)

http://onlinelibrary.wiley.com/doi/10.1111/post.1997.45.issue-3/issuetoc[2/9/2011 3:56:22 PM]

Political Studies (1997), XLIV, ii

Acknowledgements When Mick Moran invited me in 1994 to edit this special issue, my pleasure in accepting was soon overtaken by apprehension over whether, three years later, the market for such a volume would be saturated. There has certainly been no shortage in recent years of edited collections, special journal issues and conferences on the theme of political corruption. Many of these have taken the form of area-based case studies, which have provided invaluable detail as well as a framework for comparative analysis. Rather than follow that well-trodden path, however, the aim of this volume is to bring together scholars from a range of dierent disciplines within the social sciences in order to see what common themes and concerns emerge, and how they may be mutually informed. All bar two of the papers were ®rst presented at a workshop held at the University of Nottingham on 10±11 June, 1996. The workshop was made possible through an award from the British Academy, with further ®nancial support provided by the Political Studies Association of the UK. Its success was due in no small measure to the outstanding organizational talents of April Pidgeon, who also did an excellent job in coping later on with the technological vicissitudes of data transfer. The other vital factor in making the workshop a success was the willingness of participants to engage with ideas and concepts which cut across several disciplinary boundaries. The papers which follow bear ample testimony to the value of the discussions which took place during the workshop. I received valuable early advice on the structure and content of the volume from Diego Gambetta, Yves MeÂny, and Mark Philp. Colleagues in the Department of Politics at the University of Nottingham have also provided much-appreciated support. In particular, I should mention Anthony Butler, who attended the workshop and helped me wrestle (often in vain) with several conceptual challenges. Ian Forbes and Chris Pierson allowed me the space to carve out some time in the midst of the administrative purgatory which is the lot of today's head of department. Lotta Hedman put me in contact with Paul Hutchcroft, whose paper was commissioned after the original workshop had taken place. Finally, I should thank Mary Vincent, whose support and assistance, as ever, was crucial to the fruition of the entire project.

# Political Studies Association 1997. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

Political Studies (1997), XLV, 417±435

Political Corruption: Problems and Perspectives PAUL HEYWOOD Introduction: On Why We Are All Now Concerned About Corruption As the twentieth century comes to an end, one of the issues which has dominated its ®nal decade ± political corruption ± shows little sign of diminishing in importance. The evidence is abundant. In the United States of America and the United Kingdom, two of the world's most well-established democracies, recent national elections have been punctuated by stories relating to corruption: in the former, President Bill Clinton has been dogged both by the so-called Whitewater scandal, and by questions over how his 1996 re-election campaign was funded; in the latter, John Major's Conservative government found itself caught up during the 1997 election campaign in allegations about `sleaze', centring in particular on the `cash-for-questions' issue.1 In a rather less well-established democracy, Pakistan, the government of Benazir Bhutto was dismissed in early November 1996 by President Farooq Leghari, accused (amongst other things) of undermining judicial independence and engaging in massive corruption. The following day, India's former prime minister, Narasimha Rao, already accused of vote-buying and forgery, was charged with criminal conspiracy to cheat a businessman. In Russia, still struggling to establish democracy on a secure footing, President Boris Yeltsin admitted in March 1997 that `[o]ne of the main faults of the Russian authorities at all levels is corruption'.2 These examples (all of which have occurred since the original deadline for submission of manuscripts to this volume) are merely illustrative of a phenomenon which was seen until quite recently as being virtually the preserve of authoritarian or `developing' nations ± basically, that is, non-democracies (or, at best, proto-democracies). Where political corruption existed in democratic nations, certainly established western democracies, it was usually viewed as an aberrant deviation from the norm.3 Such a view was undermined by the extraordinary revelations of systemic corruption which began to emerge in Italy I am grateful to Richard Aldrich, Anthony Butler, Ian Forbes, Lotta Hedman, Erik Jones, Chris Pierson, Sue Pryce, Lucy Sargisson and Mary Vincent for their valuable comments on this chapter. 1 See R. J. Bartley (ed.), Whitewater (Dow Jones, 1994) and Whitewater Vol. 2 (Dow Jones, 1997); David Leigh and Ed Vulliamy, Sleaze: the Corruption of Parliament (London, Fourth Estate, 1996). 2 Quoted in The Times, 7 March 1997. 3 See Arnold J. Heidenheimer (ed.), Political Corruption. Readings in Comparative Analysis (New Brunswick NJ, Transaction, 1970): although there are sections covering the United States and Western Europe, these cases are predominantly local level or else historical. In contrast, corruption in the developing nations ± principally in South and South East Asia and Africa ± is presented as being more systemic. Japan, where seemingly endemic political corruption has often been explained in culturalist terms, and Latin America receive virtually no attention in the Heidenheimer volume.


418

Political Corruption: Problems and Perspectives

in the early 1990s: the entire Italian post-war body politic was revealed to have rested on a complex web of corrupt networks which encompassed politicians, bureaucrats and businessmen at the highest levels. But, even if the Italian example represented an extreme, endemic high-level political corruption could no longer be presented primarily as a problem of non-democracies. Instead, corruption scandals began to emerge with insistent regularity in several other European democracies ± notably, Italy's southern neighbours Spain and Greece, but also France, Germany, Austria and Belgium. By the mid-1990s, it appeared that no nation was immune to the corrosive impact of political corruption. Academic interest in the phenomenon experienced a parallel upsurge, characterized by a proliferation of conferences devoted to the issue, with related publications.4 This volume obviously forms part of the trend. Its claim to distinctiveness lies in bringing together scholars working within a number of dierent areas of the social sciences, who have approached the issue of political corruption from a variety of analytical perspectives. The chapters which follow draw on insights from political science, philosophy, economics, sociology and law; the methodologies deployed include comparative approaches, game theory, focus group discussions, and case studies. Yet, whatever the distinctive merits or otherwise of this volume, the question arises of why political corruption has generated such interest in recent years. After all, as Alatas has commented, corruption is trans-systemic: it inheres in all social systems ± feudalism, capitalism, communism and socialism. It aects all classes of society; all state organizations, monarchies and republics; all situations, in war and peace; all age groups; both sexes; and all times, ancient, medieval and modern.5

Part of the answer lies in the perception that the phenomenon has spread to new areas: no state any longer seems safe, not even the most mature democracy. The Italian revelations of the early 1990s acted as a form of catalyst to investigative journalists and, increasingly, magistrates in other democracies. Eectively, the Italian example produced a `demonstration eect', sensitizing other western democracies to the issue of political corruption. It is hardly a coincidence that revelations of corruption scandals assumed a new momentum after the `mani 4 It should be acknowledged that some seasoned observers of corruption had been driving this particular wagon long before others amongst us jumped aboard. See in particular, Arnold J. Heidenheimer, Michael Johnston and Victor T. LeVine, Political Corruption. A Handbook (New Brunswick NJ, Transaction, 1989), and the journal Corruption and Reform, which dates from 1986. Amongst recent publications, not all of which have resulted from conferences, see Donatella della Porta and Yves MeÂny (eds), DeÂmocratie et corruption en Europe (Paris, Editions La DeÂcouverte, 1995; English version published by Pinter, 1997); F. F. Ridley and A. Doig (eds), Sleaze: Politicians, Private Interests & Public Reaction (Oxford, Oxford University Press, 1995); Walter Little and Eduardo Posada-CarboÂ (eds), Political Corruption in Europe and Latin America (London, Macmillan, in association with the Institute of Latin American Studies, University of London, 1996); M. Levi and D. Nelken (eds), The Corruption of Politics and the Politics of Corruption (Oxford, Blackwell, 1996); H. E. Bakker and N. G. Schulte Nordholt (eds), Corruption and Legitimacy (Amsterdam, SISWO, 1996); International Social Science Journal, Corruption in Western Democracies 149/3 (1996). In addition, a number of Internet sites which focus on corruption have been established; a useful site from which to begin exploring can be located at `http:// gwdu19.gwdg.de/uwvw/'. 5 Syed Hussein Alatas, Corruption: its Nature, Causes and Consequences (Aldershot, Avebury, 1990), pp. 3±4.

# Political Studies Association, 1997

PAUL HEYWOOD

419

pulite' (clean hands) investigations were initiated in Milan. The rise in exposure of political corruption, rather than the fact of its existence, in turn became selfsustaining, prompting anti-corruption drives in several states. However, the fact that corruption should have generated such public concern cannot be divorced from the wider political context within which it was uncovered. The early 1990s coincided with the collapse of the post-war order: until then, the Cold War had provided political actors with ideological and geostrategic reference points. Its end destroyed the certainties which had characterized post-war Europe. Moreover, it contributed to the unravelling of a political settlement in Italy which had originally been based on an anticommunist coalition built around the Christian Democrats.6 The revelation of widespread political corruption helped undermine one of the support structures ± the claim to operate on the basis of public accountability ± which had underpinned western democracies in the post-war world, and distinguished them from communist regimes. The lack of trust in public organizations associated with what has been termed the postmodern politics of fear and risk was exacerbated by the sheer scale of political corruption: without trust, democracy itself was threatened.7 For some, therefore, political corruption is simply one more manifestation of the contemporary crisis of the nation state or, more particularly, western democratic states. To others, such speculation may seem fanciful ± or at best overblown. Rather more mundane reasons can be adduced for public concern about political corruption. For instance, it is possible that what changed in the early 1990s was the public's readiness to tolerate political corruption, the result in turn of a downturn in economic circumstances. Just as the proposals contained in the Maastricht Treaty began to meet with growing scepticism when they were used in several member states of the European Union to justify stringent controls on public expenditure, so political corruption may have assumed greater importance in the absence of a `feel-good' factor. The readiness to accept shortcomings on the part of politicians may be inversely related to economic performance. It is dicult to track such responses, since political corruption did not ®gure as a central issue in opinion surveys until relatively recently.8 Although this fact in itself may be taken as evidence that it did not elicit any great concern, on the other hand it may simply re¯ect a lack of awareness of its widespread existence. It does appear, though, that some of the major political corruption scandals of the 1980s ± such as the P2 aair in Italy, the Carrefour du DeÂveloppement and URBA cases in France, the Flick aair in Germany, or the Koskotas scandal in 6 On the Italian case, see especially Donatella della Porta, Lo scambio occulto. Casi di corruzione politica in Italia (Bologna, Il Mulino, 1992); Donatella della Porta and Alberto Vannucci, Corruzione politica e amministrazione pubblica. Risorse, meccanismi, attori (Bologna, Il Mulino, 1994). 7 See Nick Rengger, `Beyond Liberal Politics? European Modernity and the Nation-State', in Martin Rhodes, Paul Heywood and Vincent Wright (eds), Developments in West European Politics (London, Macmillan, 1997). Joseph LaPalombara, `Structural and institutional aspects of corruption', Social Research 61/4 (1994), p. 326 sees `the widespread political turmoil associated with corruption . . . [as] a manifestation of a much deeper and more pervasive loss of public con®dence in the institutions and processes of democracy'. 8 Cristina Bicchieri and John Duy refer on p. 479 (fn. 10) to evidence from a small experiment on corruption and electoral support, conducted in 1977 by Rundquist, Strom and Peters, which lends support to the hypothesis that there is a tendency for voters to focus on corruption during periods of economic stagnation.


420


Greece ± did not provoke the sense of alienation, distrust and disillusionment with the political class which had become commonplace throughout Europe by the mid-1990s.9 On the other hand, expectations of standards of behaviour amongst public servants may have changed as a result of greater ± some may argue, more intrusive ± media investigation. Since the early 1970s (and partly as a result of Watergate) politicians have been exposed to a much more intense media spotlight than were their predecessors. Again, this argument should not be overplayed: it may be more accurate ± at least in regard to personal morality ± in Anglo-Saxon nations than in continental European democracies, which appear to display a lower level of public prurience about their politicians' private lives. Nonetheless, one aspect of political corruption which has kept it in the public spotlight in recent years is that it makes for good news stories: there can be little doubt that `scandal' appeals to the investigative instincts of journalists just as much as it does to viewers, listeners and readers of the mass media. Several political corruption scandals have involved such a degree of intrigue and, at times, sheer audacity, that following them can be akin to reading a good thriller.10 For journalists, too, the prospect of uncovering a major scandal oers the promise of career advancement and ®nancial reward. Neither were investigating magistrates likely to be immune to the seductive appeal of the limelight which accompanied their every action.11 In Spain, Baltazar GarzoÂn, who led the investigations into the GAL aair, was dubbed `Super GarzoÂn' in the media ± an image he seemed happy to cultivate as he rose to political in¯uence. Similarly in Italy, several judges ± notably Antonio Di Pietro ± became household names and were able to launch their own political careers on the back of anti-corruption credentials.12 Even in Britain, where the legal system diers markedly from the civil law tradition in most continental countries which allows judges also to act as prosecutors, names like Nolan and Downey came to public prominence as a result of their ocial enquiries into standards in public life and `cash-for-questions' respectively. The examples of corruption mentioned so far have all been drawn from a diverse range of democracies. This re¯ects in part the fact that there is growing concern about the apparent spread of political corruption to democratic states. However, it can also be argued, although not all the contributors to this volume would necessarily subscribe to such a view, that political corruption ± particularly at high level ± is more serious in democracies than in other forms of political system. This is not because political corruption matters `more' in 9 Ridley and Doig (eds), Sleaze, provides information on changing public responses to corruption in a variety of European countries. For details of the various scandals listed, see Longman, Political Scandals and Causes CeÂleÁbres Since 1945: An International Reference Compendium (Harlow, Longman, n.d., but December 1990?). 10 This was particularly true of the Italian case, in which truth more than mirrored the ®ctional world of Rome-based police commissioner, Aurelio Zen, the hero of Michael Dibdin's crime thrillers. 11 VeÂronique Pujas, a research student at the European University Institute, is currently working on how the notion of political scandal emerges as the product of social tensions. She argues that scandals result both from `transversal' tensions between values and revealed behaviour, and also from `sectoral' tensions between the political class, the judiciary and the mass media. 12 See David Nelken, `The Judges and Political Corruption in Italy', in Levi and Nelken, The Corruption of Politics, pp. 95±112. On GarzoÂn, see Paul Heywood, `Spain', in Ridley and Doig, Sleaze, pp. 178±89.


PAUL HEYWOOD

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democracies than in non-democracies. Rather, it is because it does more damage to democracies: it is more undermining of their basic principles in a way which is not true for non-democracies.13 The eects of corruption are especially disruptive in democracies: by attacking some of the basic principles on which democracy rests ± notably, the equality of citizens before institutions (that is, the idea that individuals should be treated with fairness and respect by government ocials) and the openness of decision making (that is, crucially, accountability) ± corruption contributes to the delegitimation of the political and institutional systems in which it takes root. It is for this reason that political corruption is rightly a central focus of concern in contemporary democracies. The De®nitional Dilemma The emphasis in this volume is on political corruption, as opposed to corruption more generally, and attention is therefore devoted primarily to the public sphere in which political actors operate. The critical emphasis here is on the `public sphere': on corrupt activities which take place either wholly within the public sphere or at the interface between the public and private spheres ± such as when politicians or functionaries use their privileged access to resources (in whatever form) illegitimately to bene®t themselves or others. Boundaries are clearly critical: those activities which take place wholly outside the public sphere, such as private sector business and ®nancial corruption (which are rife), lie outside the concerns of the analyses in this volume.14 Naturally, there are substantial areas where public and private overlap: in some countries it is dicult to distinguish clearly, for instance, political corruption from organized crime. The case of Italy, in particular, as well as more recent developments in Russia, demonstrate that the interconnections between organized crime and politics can be extraordinarily close.15 Equally, Donatella della Porta and Alessandro Pizzorno have talked of `business politicians', a new breed of political entrepreneur who `combines mediation in (licit or illicit) business transactions, ®rsthand participation in economic activity, and political mediation in the traditional sense'.16 Further problems are posed by, for instance, police 13 Michael Johnston, `Comparing corruption: con¯icts, standards and development' (paper presented to the XVI Congress of the International Political Science Association, Berlin, 1994), argues that any real notion of corruption depends on the existence of pluralism, without which the power of an autocrat or despot is not subject to any meaningful limitation: why bribe when you can bully? 14 On the importance of boundaries ± between state and society, public and private domains, politics and administration, personal and collective rights and interests, and within market, authoritarian and patrimonial mechanisms of allocation ± see Michael Johnston, `Corruption, markets and reform' (paper prepared for Conference on Anti-Corruption for Social Stability and Development, Beijing, 1995). 15 In regard to Italy, there is a vast literature on the ma®a. On its involvement in political corruption, see A. Vannucci, `Politicians and Godfathers: Ma®a and Political Corruption in Italy', in della Porta and MeÂny (eds), Democracy and Corruption, pp. 50±64; D. della Porta and A. Vannucci, `Politics, the Ma®a and the Market for Corrupt Exchange', in G. Mehrson and G. Pasquino (eds), Italian Politics. Ending of the First Republic (Boulder CO, Westview, 1995), pp. 165±84. On the Russian case, see F. Varese, `The emergence of the Russian ma®a' (unpublished D. Phil thesis, Unversity of Oxford, 1996). 16 D. della Porta and A. Pizzorno, `The Business Politicians: Re¯ections from a Study of Political Corruption', in Levi and Nelken, The Corruption of Politics, p. 75; D. della Porta, Àctors in corruption: business politicians in Italy', in ISSJ, Corruption in Western Democracies, pp. 349±63.


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corruption: insofar as the police operate within the public sector, they may be seen as possessing the potential to engage in political corruption when due legal processes are distorted ± but the crucial issue here revolves around the extent to which such distortions are driven or motivated, or even directed, by political ends as opposed to personal, private or even corporate ones. It would be impossible to develop one generalizable and uncontested de®nition of political corruption.17 In fact, the entire enterprise is probably misplaced: as Mark Philp indicates in this volume (pp. 436±462), any de®nition of political corruption presupposes a notion of ùncorrupt' politics. Such an observation implies normative judgements about the proper nature of politics, and its potential distortion. Philp's chapter highlights the diculties involved in such an enterprise, but also underlines the need to be aware of how our de®nition of politics itself will aect our understanding of what political corruption entails. On that basis, it is possible to argue that the meaning of political corruption might vary with the nature of the political system in question. This is not to make an argument in favour of incommensurable relativism, in which it becomes impossible to make comparative judgements across any two political systems; rather, it is to suggest that political corruption in, say, a democratic polity may (or even must) take a very dierent form (or forms) to that in a non-democracy. The nature, scope and potential of political corruption will vary according to the type of polity in question, and its purposes. Thus, a wide-ranging generic de®nition can at best provide a starting point for identifying and analysing dierent types of political corruption. Nonetheless, much of the literature on political corruption has followed Heidenheimer in distinguishing between public oce-centred, public interestcentred, and market-centred de®nitions of political corruption.18 In fact, only the ®rst two of these really oer de®nitions, which in turn depend on normative ± and, therefore, inevitably contestable ± judgements as to the scope of public oce, or the nature of public interest. In contrast, market-centred approaches, which are usually couched in terminology derived from economic analysis, tend to be more concerned with the mechanics of political corruption (which is viewed as a particular model of agency relationship), and the circumstances under which it becomes possible. To the extent that market-centred approaches oer an explicit de®nition, it tends to be minimalist or else based on a recourse to legal norms: political corruption occurs when an agent breaks the law in sacri®cing the interest of a principal to his or her own bene®t. Indeed, illegality is central to many de®nitions of political corruption, and the argument can be made that it is only by reference to legal norms that a basis for comparative analysis can be provided. Such an approach, however, confronts a two-fold problem: ®rst, laws are not necessarily consistent in interpretation or Alatas has observed that much political corruption is characterized by a dual and contradictory element: when engaging in bribes and backhanders, political ocials and businesses may also be ful®lling their legitimate functions. 17 See Michael Johnston, `The search for de®nitions: the vitality of politics and the issue of corruption', ISSJ, Corruption in Western Democracies, pp. 321±35. 18 Heidenheimer, Political Corruption, pp. 4±6. Johansen cites Lowenstein's caustic observation that the typical social science article or book on corruption begins with a de®nition of corruption and then proceeds to the empirical question without reference to the de®nition. Elaine R. Johansen, Political Corruption: Scope and Resources. An Annotated Bibliography (New York and London, Garland, 1990), p. 35. # Political Studies Association, 1997

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application across dierent countries. What is illegal in one country may not be in another, leading to situations in which similar acts can be de®ned as corrupt or not according only to where they take place. The ®nancing of political parties provides a good example: the rules on party ®nancing in some countries are much stricter than in others, and there is little doubt that some well-established practices in Britain ± such as voluntary private contributions, even from overseas, to party funds ± would prompt investigation in several other democracies, as indeed would the existence of `remunerated directorships' for sitting members of parliament. Secondly, the recourse to legal norms in de®nitions of political corruption forgoes any possibility of capturing a more nebulous aspect of the phenomenon, one that depends on an inescapably normative notion of what de®nes democracy. As was argued above, all democracies must rest on some basic principles, one of which is the public accountability of decision making. The critical importance of this issue is dicult to exaggerate. Democracies depend upon their claim to accountability in a way which fundamentally sets them apart from all non-democracies (many other aspects of a government's activities, such as the elaboration, co-ordination and implementation of public policies, including the distribution of resources, are common to all polities). But accountability can be enforced only if government activity is transparent: citizens cannot hold their elected leaders to account for activities they are unaware of having taken place. This truism highlights one of the central conundrums in constructing a de®nition of political corruption. It could be argued that one of the most sinister forms of political corruption in a democracy is when the `democratic transcript' is betrayed: that is, when members of the political class act in such a way as to prevent or circumvent the exercise of accountability, by actively seeking to ensure that the electorate is not properly informed about a given issue.19 Thus, a case can be made for saying that certain legally-sanctioned uses of the resources of the state in a democracy could be de®ned as corrupt. In commenting on the 1984 privatization of British Telecom, which involved an undervaluation of some £1.2 bn when measured by the rise in share prices at the end of the ®rst trading day, John Vickers and George Yarrow observed: An important feature of the process is that the gainers know that they have gained, but the losers are less aware that they have lost. A windfall pro®t of £200 on BT shares is much more obvious than the eective loss of £20 to each of ten who failed to apply. John Kenneth Galbraith once remarked that few things enhance the overall feeling of wealth better than undiscovered theft. Without wishing to push the analogy too far, we would suggest that there is a common element in the two cases.20

As Alberto Ades and Rafael Di Tella have commented, one possible interpretation of this privatization (and, indeed, others) is that Mrs Thatcher's 19 The parallel here with Lukes' notion of a third dimension of power ± in which its exercise involves the manipulation of perceptions, cognitions and preferences ± should be obvious; see Steven Lukes, Power. A Radical View (London, Macmillan, 1974). Against this, the argument could of course be made that all democratic governments are ultimately accountable in general elections. 20 John Vickers and George Yarrow, Privatization: an Economic Analysis (Cambridge MA, MIT Press, 1988), p. 180. The example is borrowed from Alberto Ades and Rafael Di Tella, who used it in an unpublished appendix to their contribution in this volume.


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government sought to use the state's resources in order to underwrite a massive redistribution of wealth and thereby help its own re-election chances. An alternative interpretation is that underpricing shares ensures wide ownership, which in turn acts as a `bulwark against socialism' by reducing the likelihood that a future government will be able to re-nationalize the company: the primary objective on this analysis is to promote eciency in the interests of the state. On this latter interpretation, the motives may be found objectionable ± but they can hardly be seen as corrupt; the former interpretation, by contrast, raises much more serious questions about the legitimate ends of a policy designed to serve the best interests of a particular political party rather than the state. Another approach to de®ning political corruption which also seeks to avoid recourse to legal de®nitions argues that it is socially de®ned: political corruption is what the public in any given state perceives it to be.21 There are several diculties with such an approach. First, it relies on public opinion being aware that actions which might be deemed corrupt are actually taking place; as has just been shown, one form of political corruption may involve precisely the attempt to keep the public from being properly informed about government activity. Secondly, it presupposes that public opinion can be freely expressed on any given issue ± a questionable supposition even in democracies, but almost impossible (except perhaps at moments of regime crisis) in non-democracies. It might be argued that the inability freely to express opinions means that nondemocracies are inherently corrupt, and therefore the distinction is meaningless. This, though, leads to a third diculty: the reliance on a social de®nition of political corruption makes any comparative analysis pointless, since we cannot transpose conceptual de®nitions which are culture-speci®c. In Sartori's terms, such concepts do not travel.22 A fourth problem concerns how we are to decide whose public opinion counts: for instance, does a simple majority suce? Does the opinion of those closest to the event in question count more than that of those who are more distant? Again, recent experience in Britain provides a good example of the complex issues involved: opinion was clearly divided on whether the acceptance of cash for asking parliamentary questions was corrupt or not. As Dawn Oliver shows (pp. 539±558), the setting up of the Nolan Committee in November 1994 re¯ected a growing public concern, which had developed over some two decades, about standards of conduct in public life ± but the distinction between èthical lassitude', sleaze and corruption was far from clear-cut. Perception is clearly important. Heidenheimer drew a distinction between three types of corruption: one which is accepted and tolerated, its opposite, which is widely rejected and criticized, and intermediate forms which elicit dierent responses from dierent groups.23 In practice, it is dicult to make 21 Thus, à political act is corrupt when the weight of public opinion determines it so', Barry Rundquist and Susan Hansen, Òn controlling ocial corruption: election vs. laws' (unpublished manuscript, 1976), cited in Kate Gillespie and Gwenn Okruhlik, `The political dimensions of corruption cleanups. A framework for analysis', Comparative Politics, 22/1 (1991), p. 93 (n. 3). See also Gurharpal Singh's chapter in this volume and Robert Williams, `Watergate to Whitewater: Corruption in American politics', paper presented at 47th annual conference of the Political Studies Association of the UK, University of Ulster at Jordanstown (April 1997). 22 Giovanni Sartori, `Concept misformation in comparative politics', American Political Science Review, 54 (1970), 1033±53. 23 Heidenheimer, Political Corruption, pp. 26±8. See also A. J. Heidenheimer, `Perspectives on the Perception of Corruption', in Heidenheimer et al., Political Corruption, pp. 149±64.


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such clear-cut distinctions; on close inspection, corruption tends to fall within the intermediate category: The practice of giving gifts, regulated or forbidden in Europe in dealings between civil servants and private individuals, can be perfectly acceptable and integrated within African or Asian customs. Not oering a gift, or not ensuring that one's family, circle of friends or clan bene®t from the advantages given by one's power and connections, can be just as shocking in some societies as accepting favours or bribes in others.24

Transparency International (TI), in association with GoÈttingen University, produces an annual Corruption Ranking, based on perceptions by people `working for multinational ®rms and institutions' of the level to which corruption impacts on social and commercial life.25 In spite of their somewhat disingenuous remark that `[t]heir perceptions may not always be a fair re¯ection on the state of aairs, but they are reality', the authors argue that the ranking tries to assess the degree to which public ocials and politicians in particular countries are involved in corrupt practices. Corruption is de®ned by TI as being `the misuse of public power for private bene®ts, e.g. the bribing of public ocials, taking kickbacks in public procurement or embezzling public funds'. However, the index provides no evidence to indicate that those polled are operating with the same concept of corruption; nor, indeed, does it make a compelling case for privileging the views of those working for multinational ®rms and institutions. Nevertheless, the rankings produced by TI are widely cited and can be highly in¯uential.26 It is clear that there exists a series of dierent forms and kinds of political corruption with a range of characteristics, which need to be mapped. The construction of a comprehensive taxonomy may run the risk of sacri®cing analytical purchase for descriptive detail, but is probably an essential ®rst step in providing a basis for meaningful comparison. Some such attempts have been made. Alatas, for instance, developed a broad-ranging typology on the basis of a minimalist de®nition: `corruption is the abuse of trust in the interest of private gain'. He distinguishes between `transactive' and èxtortive' corruption.27 The former refers to a mutual arrangement between a donor and a recipient, actively pursued by, and to the mutual advantage of, both parties, whereas the latter entails some form of compulsion, usually to avoid some form of harm being 24 Yves MeÂny and Martin Rhodes, Ìllicit Governance: Corruption, Scandal and Fraud', in Rhodes et al., Developments in West European Politics, p. 98. 25 The index is prepared on the basis of ten sources which include surveys prepared by the Institute of Management Development in Lausanne, Political and Economic Risk Consultancy in Hong Kong, Impulse, DRI/McGraw-Hill Global Risk Service, Political Risk Services in New York, and GoÈttingen University's own perception index which is based on anonymous responses to its internet service. In some cases, sample sizes are as small as 3 respondents per country (Impulse), 74 and 95 respondents across 10 and 12 Asian countries respectively (Political and Economic Risk Consultancy), and 190 respondents to GoÈttingen University's own perception index. 26 As TI has commented, Òur Corruption Index gained astonishing coverage worldwide'. A paper by Laurence Busse, Noboru Ishikawa, Morgan Mitra, David Primmer, Kenneth Doe and Tolga Yaveroglu of the Goizueta Business School at Emory University argues that there is a signi®cant relationship between foreign direct investment and perceptions of corruption by potential investors: foreign investment is found to rise and fall according to whether exposure is followed by institutional reform. The paper is available via . 27 Alatas, Corruption, ch. 1.


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in¯icted on the donor or those close to him/her. Other types of corruption revolve around, or are the by-products of, transactive and extortive corruption. Defensive corruption is obviously related inversely to the extortive type, whilst investive corruption involves the oer of goods or services without any direct link to a particular favour, but with a view to future situations in which a favour may be required. Nepotistic corruption refers to the unjusti®ed appointment of friends or relatives to public oce, or according them favoured treatment. Autogenic corruption involves just one person, who pro®ts, for example, from pre-knowledge of a given policy outcome. Finally, supportive corruption describes actions undertaken to protect and strengthen existing corruption, often through the use of intrigue (as in US machine politics) or else through violence. One advantage of Alatas' schema is that it oers a clear de®nition of corruption which is neither rule-bound, nor tied to society's prevailing moral conventions or norms. Extortive and transactive corruption can be identi®ed in both complex and simple societies. It is not dicult to conceive of other categories which could contribute to a typology of political corruption: distinctions could be drawn between high and low level (`grand' corruption versus `petty'); the local and national level (the former being site of widespread corruption in regard, for instance, to municipal public works contracts); between personal and institutional corruption (that is, between corruption aimed at personal enrichment and that which seeks to bene®t an institution such as a political party); between traditional and modern forms of corruption (for instance, nepotism and patronage versus money laundering through electronic means); and so forth.28 Given the diculties involved in stipulating a satisfactory de®nition of political corruption, as well as the inevitably normative nature of any such attempt, it is incumbent upon analysts not just to be aware, but also explicit, about the framework within which they are operating, and to be particularly sensitive to issues of cultural nuance. However, armed with an appropriate and suitably parsimonious generic conception of political corruption, it is possible to turn to the more empirical issues of how and why it occurs. On the Causes of Corruption The complexity of the phenomenon makes it impossible to provide a comprehensive account of the causes of political corruption. However, some central analytical issues can be outlined. A question which inevitably arises is why some countries appear more prone than others to political corruption: are there cultural causes of corruption, or does the emergence of political corruption depend upon more institutional factors? One possible response is to formulate the issue in terms of structure and agency. In such an approach, èmbedded local cultures' might be seen as a structural given: thus, rather than an appeal to some conception of national character, the nature of social practices in a country can be seen as a re¯ection of the long-term development and organization of its social and political system. In Europe, a divide is sometimes drawn between the 28 Anthony Barker has sought to classify nearly 150 scandals in 20 democracies according to whether or not they relate to public duties; are lawful or unlawful; involve lapses in ethical or moral standards; involve politicians, public servants or private individuals; and how they are investigated. See `The upturned stone: political scandals and their investigation processes in twenty democracies', Crime, Law & Social Change, 21 (1994), 337±73.


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more corrupt southern states (Italy, Spain, Greece) and their less corrupt northern neighbours (particularly, Scandinavia, the Netherlands and Britain). As MeÂny and Rhodes have argued, institutional settings breed certain types of relationship and social practice ± for example, the `l'arrangiarsi ' of the Italians or `l'arrangement aÁ la francËaise'.29 Similarly, Paul Hutchcroft (pp. 639±658) explores the development of formal structures of authority and shows how particular practices have become culturally embedded over the course of generations in South East Asia. The `structural' approach to political corruption places particular emphasis on the nature of state development. Administrative organization and eciency are key variables, alongside the manner in which the political order becomes institutionalized. If the processes of social and political exchange are clearly separated from those of political and economic exchange, the penetration of politicians into bureaucratic structures becomes more dicult. In Britain, which has often been seen as free of endemic political corruption, one possible contributory factor may be the early institutionalization of its political parties and party system, separate from the administrative structure. In other European countries, notably those in the south, particularistic and personalized social structures remained in place as ®nancially poor and administratively inecient central states were forced to rely on `regional brokers' at local level. In most of Mediterranean Europe, where the central state was weak, these regional brokers ± ma®osi in Italy, caciques in Spain, comatarhis in Greece ± mediated between centre and periphery on the basis of patronage networks which served as an important mechanism of social order. Strong patron-client networks ensured that the ¯ow of favours and bene®ts was anchored in personal relations between individuals, a system which the de®ciencies of the state administration ensured was largely self-perpetuating. Naturally, there are enormous variations in the nature of state development ± even within Europe, let alone throughout other continents30 ± and it would be foolish to place too much weight on the inter-penetration of administrative and political structures as the principal explanatory factor in the incidence of political corruption. Nevertheless, the existence of strongly entrenched clientelistic networks may contribute to the development of a path dependency, in which it becomes almost impossible to escape from what Donatella della Porta has described as the `vicious circles' of clientelism-corruption-clientelism and poor administration-corruption-poor administration.31 Della Porta has also distinguished in the Italian case between traditional forms of clientelism, involving localized relationships between patrons and clients, and clientelistic networks, which are linked to broad institutional contexts. This distinction highlights how forms of political corruption have changed and developed over time; it also links to an agency-based approach to explaining the causes of political corruption ± one that rests on analysing the 29

MeÂny and Rhodes, Ìllicit Governance', p. 103. See the thoughtful essay on `bossism' and state formation in South East Asia by John T. Sidel, `Siam and its twin? Democratization and bossism in contemporary Thailand and the Philippines', IDS Bulletin, 27/2 (1996), 56±63. 31 For a detailed exposition, see Donatella della Porta, `The vicious circles of corruption in Italy', in Della Porta and MeÂny, Democracy and Corruption, pp. 35±49. Della Porta's analysis draws out the relationship between the internal mechanisms of corruption and other `pathologies' in Italy, such as clientelism, poor administration and organized crime. 30


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motivations of those who become involved in political corruption. There are several variants of such an approach. One view is that the sense of public ethos which used to be highly developed amongst those who entered politics has been dissipated by the rise of a class of more self-interested (and therefore less ideologically motivated) `career politicians'. Venality is hardly a recent phenomenon in politics, but the emergence of so-called `business politicians', as described above, re¯ects a perceived tendency for a growing number to enter politics primarily for personal gain. A similar trend in North American politics was earlier identi®ed by Rogow and Lasswell, who referred to `gain politicians' ± party bosses with little interest in national political issues.32 An alternative perspective suggests that the low levels of ®nancial reward for many in the public sector provides an impetus to engage in corruption: it follows that political corruption should be lower where ®nancial rewards and incentives are highest. In fact, as Ades and Di Tella indicate (pp. 496±515), the evidence on this issue is far from clear-cut: in Singapore, for instance, which is often seen as relatively free of corruption, it is dicult to determine whether this is because of the very high salaries paid to public ocials, or because of tough law enforcement measures. An in¯uential view, which derives mainly from within the discipline of economics, sees political corruption largely as the product of growing state intervention.33 As the public sector has grown, particularly through an expansion of the welfare state, so ever more decisions ± as well as control over ever greater ®nancial resources ± have been transferred into the hands of the political class. Instead of being subject to the discipline of market mechanisms, allocative decisions are bound by a series of rules and regulations which create incentives for both private individuals and public ocials to circumvent them. The focus on personal motivation which is characteristic of such approaches tends to situate them within public choice theory, with an underlying emphasis on agency expressed through the methodologically individualistic belief in rational agents engaging in utility-maximizing behaviour. At one level, the proposition that market competition should reduce incentives to engage in political corruption appears persuasive; indeed, as Ades and Di Tella demonstrate, it ®nds empirical support in certain circumstances. If political corruption involves public ocials acting either partly or wholly within the public sphere, then the more that decision-making capacity over resource allocation is removed from that sphere, the fewer should be the opportunities to engage in political corruption. It follows that privatization and deregulation should serve as powerful antidotes to political corruption. In practice, the evidence is far from clear-cut. MeÂny and Rhodes have emphasized the importance of exploring `political opportunity structures' in analysing variations in political corruption.34 These refer to the institutional 32 A. A. Rogow and H. D. Lasswell, `Game Politicians and Gain Politicians', in J. A. Gardiner and D. J. Olson (eds), Theft of the City (Bloomington IN, Indiana University Press, 1974), pp. 289± 97. 33 Susan Rose-Ackerman, Corruption: a Study in Political Economy (New York, Academic, 1978). 34 The term is borrowed from Herbert Kitschelt, `Political opportunity structures and political protest', British Journal of Political Science, 16: 1 (1986), 57±85, where it was used in a very dierent context; see MeÂny and Rhodes, Ìllicit Governance', p. 100. The argument developed here draws closely on MeÂny and Rhodes.


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arrangements of political and administrative power: the extent to which they are transparent, open, subject to eective pressure, and so forth. Opportunity structures do not remain constant, but evolve over time in response to exogenous pressures. Amongst the most signi®cant recent pressures ± certainly in western democracies ± are those which have derived from transnational developments, often associated with globalization or internationalization. In economic terms, restructuring has aected the nature of production and trade, the operation of ®nancial markets, and the provision of services. The global economy places a premium on information, thereby privileging certain key posts at the interface of public and private sectors: the opportunities for insider trading and market manipulation have been transformed through processes of ®nancial deregulation. It has become possible to organize transactions of extraordinary complexity, creating in turn new possibilities for a black market in corruption to ¯ourish.35 In institutional terms, recent transformations have been equally profound. Alongside changes in regulatory mechanisms, which have become increasingly independent of national governments, the decline in in¯uence of representative organizations such as political parties and trade unions, and the transfer of decision-making authority both upwards through transnational organizations (for instance, the European Union) and downwards through decentralization, the division between the public and private spheres has become increasingly blurred. One factor which has contributed to this development has been privatization. Rather than create a clear distinction between public and private sectors, privatization programmes have often been characterized by the emergence of a series of quasi-governmental regulatory agencies, quangos and `third sector' organizations (voluntary, non-pro®t or charitable organizations which have become `the private agents of public policy'). This process of àgenci®cation', linked to the doctrine of `new public management', has created signi®cant opportunity structures for in¯uence-peddling, as well as removing many regulatory agencies from direct public accountability.36 Similarly, public administrations in many western democracies have been faced with public choice onslaughts which have transformed organizational structures, shifting the emphasis away from due process (ensuring that all citizens bene®t from respect for the rules) towards eciency and output. Again, these changes have increased the scope for discretionary action, and ± as Dawn Oliver underlines (pp. 539±558) ± have further blurred the divide between public and private spheres. Such developments cannot be divorced from the ideological context of the 1980s and early 1990s, in which the prevailing Zeitgeist devalued the state and public provision in favour of the market. This ideologically-driven approach perhaps reached its apogee in western responses to the former communist regimes of the Soviet bloc, in which aid was made conditional upon a transition to free-market mechanisms within an almost impossible time-scale. As Federico Varese demonstrates (pp. 579±596), the imposition of market mechanisms in 35 See Yves MeÂny, ` ``Fin de sieÁcle'' corruption: change, crisis and shifting values', in ISSJ, Corruption in Western Democracies, pp. 309±20. 36 See Alan Doig and John Wilson, `Contracts and UK local government: old problems, new permutations', paper presented at 47th annual conference of the Political Studies Association of the UK, University of Ulster at Jordanstown (April 1997). Doig and Wilson conclude that, Ìn reality, the risks of corruption are greater under contracting out'.


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the absence of adequate legal underpinnings created plentiful opportunities for rampant corruption in post-Soviet Russia.37 Yet, even if Russia represents an extreme case, the exaltation of the market in established democracies has also engendered a certain disdain for regulatory mechanisms and established rules of conduct. In contrast, therefore, to those who see state regimentation and bureaucracy as the principal cause of corruption, it is equally plausible to make the case that deregulation has helped blur the lines between public and private spheres, whilst the emphasis on the market, competitiveness and pro®t has devalued a `sense of state'. The belief in the pre-eminence of the market has spread across much of the globe: neo-liberal values, which ®rst took ®rm hold in the USA under Reagan and the UK under Thatcher, have become dominant in most of Europe, most of Latin America, much of Asia (where the dramatic success of Japan and the `tiger' economies has provided a further boost), and even parts of Africa. The introduction of new models of economic organization, which (as in the case of the former communist countries) has often been dramatic, has created new opportunity structures for engaging in political corruption. As Varese suggests, corrupt entrepreneurs have exploited the uncertainty associated with the transition to the market no less ruthlessly than corrupt ocials exploited their control of the state apparatus under communist regimes.38 Much of the discussion so far has centred on the motivations and opportunity structures for individual actors to become involved in political corruption. Attention should also be devoted, however, to more institutional factors. In particular, the ®nancing of political parties, and the funding of elections (especially in the USA and Japan), have become issues of central concern in relation to political corruption. Many of the major scandals in democracies in recent years have been linked in some way to campaign or party ®nance. The democratic political process costs money ± in ever increasing amounts. Regulations over the funding of political parties and electoral campaigns vary widely, but in all democracies there has been an inexorable upward trend in election expenditure.39 There are several reasons for the increasing cost of politics, the most obvious of which is the ever greater reliance on television advertising as a means of communicating with the electorate. In addition, fees to political consultants and expenditure on fund-raising initiatives have spiralled. Yet, the rise of the age of `mediacracy' has occurred in parallel with a secular decline in membership of political parties: where once parties relied heavily on their activists for both subscriptions and voluntary work, they are now more dependent on expensive professional campaign teams, their approach

37 See also Susan Rose-Ackerman, `Democracy and ``grand'' corruption', in ISSJ, Corruption in Western Democracies, pp. 365±80. 38 Johnston, `Corruption, markets and reform' sees the connection between the rise of markets and the growth of corruption as particularly pressing in transitional periods: `rapid change produces strange new connections between wealth and power, and people are confronted with new values and problems, opportunities and temptations', (p. 3). 39 See C. Malamud and E. Posada-CarboÂ (eds), Financing Party Politics in Europe and Latin America (London, Macmillan, 1997). Susan Rose-Ackerman makes the point in this regard that `Politicians who expect to lose may be corruptible due to their insecure tenure in oce that is the hallmark of a well-functioning democracy', `Democracy and ``grand'' corruption', p. 378.


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largely driven by the Àmericanization' of the political process in most democracies.40 Even in periods between elections, political parties ®nd themselves engaged in ever more costly battles to maintain a high public pro®le. In short, parties are over-extended and under-resourced. It is inevitable that they should seek to exploit all avenues in the search for funds. Which avenues are open will of course depend on prevailing regulations in any given country, but the search for additional revenue exerts an enormous pressure on political parties to ®nd ways of circumventing, or at least bending, the rules. Public ®nancing of parties or campaigns, once seen as a potential solution to the problem of escalating expenditure, appears to have little impact on the drive to seek out extra funds. In Europe, there have been several instances of `parallel ®nancing', such as the URBA case in France or the Filesa scandal in Spain, whereby bogus companies have been established to channel funds to parties by selling ®ctitious consultancy services; in the USA, concern has been expressed that political action committees (PACs) have changed from their original conception of being grassroots groups, to working for special interests. The impact of the escalation in the costs of the democratic political process naturally varies according to the nature of the polity in question. In countries where candidates cannot rely on big party machines to cover most of their campaign costs, such as the USA and Japan, entry costs become much higher and the search for funds by candidates correspondingly more intense. Equally, in newly-established democracies political parties often have to subordinate the drive for membership to the search for votes, further increasing the need to secure funding from all means available. In practice, several of the corruption scandals which have emerged in Europe in recent years have involved political parties engaging in secret ®nancing, rather than individuals seeking personal bene®t. Another potential cause of political corruption which merits attention is longevity in power, or at least the feeling that political power is not threatened by realistic challengers or alternatives. In non-democracies, the lack of formal independent mechanisms whereby power can be meaningfully challenged opens multiple possibilities for corruption by government ocials and bureaucrats. In democracies, on the other hand, the institutional structures of the `state of law' are designed to ensure public accountability. In practice, where governments come to feel that their hold on power is unassailable, the distinction between government and state can become blurred in the eyes of those in power, with the consequent risk of acting as if above the law. The Socialist Party in Spain under Felipe GonzaÂlez, which ruled from 1982 until 1996, was often accused of arrogance in power and disdain for due processes, culminating in the so-called GAL scandal, whereby the government was alleged to have used reserve funds to set up death squads which executed members of the Basque separatist group, ETA. The Conservative government in the UK, in power from 1979 until 1997, was accused of presiding over a decline in ethical standards in public life, ultimately resulting in one former minister being challenged by an independent anti-corruption candidate, supported by both main opposition parties, at the 1997 general election. The Christian Democrats in Italy and the Japanese Liberal Democrats retained national hegemony for more than a generation 40 Kay Lawson and Peter H. Merkl (eds), When Parties Fail (Princeton NJ, Princeton University Press, 1988); see also Sue Pryce, Presidentialising the Premiership (London, Macmillan, 1997).


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before corruption scandals led to their downfall. In Mexico, the bizarrely titled Party of Institutional Revolution (PRI) has monopolized national power for over 60 years, its political dominance held together by `the cement of corruption'.41 This argument needs to be treated with some caution, however: not only can governments in power for short periods equally behave as if above the law (the GAL were set up in 1983, less than a year after the Spanish Socialists came to power), but also not all those which hold power for extended periods succumb to the danger of arrogance. On Processes of Political Corruption The discussion so far has centred on de®nitions and causes of political corruption. However, some of the most interesting recent research has been conducted on what might be termed the processes of political corruption. Several of the chapters in this volume analyse how political corruption operates, and how it is experienced ± both from a theoretical point of view and on the basis of case-studies. Jean Cartier-Bresson (pp. 463±476) discusses the emergence of institutionalized socio-economic networks of corruption. These networks serve as a system of hybrid co-ordination for the exchange of widely diverse goods and services (which can be economic, political, social, symbolic and so forth). They also create standards ± which are largely non-monetary or non-material ± by which to measure these exchanges, and promote a value system which goes beyond the principles of purely market relationships. CartierBresson investigates which organizational forms promote an expansion of corruption and encourage individuals to abandon legal frameworks in favour of corruption networks which, like all markets, are embedded in social structures. In practice, he contends, corruption networks vary in form not only according to how they are organized, but also according to their location (national, regional) and their activities. Cristina Bicchieri and John Duy adopt a game theoretic approach (pp. 477± 495) to explain how corruption can become a cyclical phenomenon. They assume that there are two kinds of agent, politicians and contractors, who interact on a regular basis and can choose to be honest or corrupt. For politicians, they argue, generalized corruption represents a Pareto superior state ± but with high anticipated initial costs. Contractors are assumed always to prefer the corrupt strategy, as the costs are borne by the politicians, even though generalized corruption is Pareto inferior for them. Over time, the politicians' penalty for corrupt behaviour declines and it is in their interest to become corrupt. In doing so, however, they must compensate contractors for placing them in a prisoner's dilemma, but their capacity to do so will depend on the resources they have built up during the period of `honest' administration. When they run out of resources, they will be voted out of oce. There thus develops a cyclical phenomenon of periods of honest rule followed by periods of generalized corruption, with the transition between the two occurring abruptly and rapidly. Bicchieri and Duy's model is elegant, although ± as with all such approaches ± some will inevitably question the initial assumptions upon which it is based. 41 Alan Knight, `Corruption in Twentieth Century Mexico', in Little and Posada-CarboÂ, Political Corruption in Europe and Latin America, p. 231.


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A very dierent methodology is adopted by Bill Miller, Tatyana Koshechkina and AÊse Grodeland (pp. 597±625). They are concerned with low-level corruption, using focus group methods to analyse how citizens in two postcommunist countries, Ukraine and the Czech Republic, view their interactions with ocials. The data are subjected to both qualitative and quantitative analysis, and reveal that there is a discordance between general perceptions of increased bureaucracy and corruption in the Czech Republic and personal experience, which is much more positive; in Ukraine, by contrast, perceptions and personal experience of corruption have both increased, the result of ocials no longer being afraid. These ®ndings provide evidence that, at least from the point of view of citizens in post-communist regimes, the transition to a market economy has done little to reduce low-level corruption ± even if the reality was not so bleak as suggested by the received wisdom. Gurharpal Singh (pp. 626± 638) demonstrates how values and perceptions of corruption in India have been disrupted, and as a result made more transparent, by the political change and uncertainty which followed the decay of the `Congress system'. A case study of a rather dierent kind is John Peterson's analysis of fraud in the European Union (pp. 559±578), perhaps the ®rst serious academic investigation of an issue which has attracted considerable media attention in recent years. Peterson's chapter demonstrates that political corruption, certainly if de®ned in terms of a deviation from formal public duties for personal gain, is relatively absent in the European Union. Fraud and waste, on the other hand, are rife.42 In his explanation of this apparent paradox, Peterson lays stress on the importance of institutional structures: on the one hand, there are high barriers to entry to the EU's highly-trained and ecient bureaucracy, which is ®nancially well rewarded; on the other hand, the institutional architecture of the EU ensures that there are inadequate policy tools with which to ®ght fraud. National practices remain sacrosanct within a communautaire political culture which, as Peterson argues, pools sovereignty but not accountability. On the Consequences of Political Corruption Given the diculties in de®ning and, in consequence, measuring political corruption, it is unsurprising that there have been few empirical studies into its eects. Whilst most analysts are agreed that political corruption is morally reprehensible, there is far less agreement over its practical consequences ± in either political or economic terms. In the 1960s, several analysts working within the framework of `modernization theory' saw corruption as ful®lling a positive function in developing countries. In these countries, it was argued, corruption could provide a stimulus to investment, promote eciency, and help cut through bureaucratic red tape and delays.43 Corruption has often been depicted 42 Fraud is de®ned by Peterson as ìmproper or dishonest behaviour leading to the use of EU resources for unforeseen or unintended purposes', and is distinguished from corrupt activity aimed at personal bene®t. 43 For examples of this literature, best represented by authors such as David Bayley, Samuel Huntington, Nathaniel Le, and J. S. Nye, see Heidenheimer, Political Corruption, part 4: `Corruption and Modernization', pp. 477±578. Such views remain in¯uential: see Jonathan Moran, `From developing country to industrial democracy: the political economy of corruption in South Korea', paper presented to 47th Annual Conference of the Political Studies Association, University of Ulster at Jordanstown, April 1997.


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as a lubricant, helping to foster social integration as well as economic development by providing a `hidden incentive' which substitutes for the inadequacy of ocial procedures. Paul Hutchcroft's discussion of the impact of rents, corruption and clientelism on Third World development provides a nuanced account of the complex issues involved (pp. 639±658): he demonstrates the importance of assessing `particular landscapes of special advantage'. In short, there is no simple or straightforward correlation between corruption and development in Third World countries. In recent years, some economists have conducted empirical research into the relationship between corruption and the components of government expenditure. Paolo Mauro, in particular, has sought to demonstrate systematically that corruption slows economic growth in a number of ways: it lowers investment since it acts as form of tax, leads to the misallocation of talent by distorting incentives, diverts funds away from aid projects in developing countries, reduces tax revenues to central government with consequent adverse budgetary consequences, lowers the quality of infrastructure and public services, and distorts the composition of government expenditure.44 Alberto Ades and Rafael di Tella (pp. 496±515) examine some of Mauro's propositions more closely, notably the claim that there is a negative relationship between corruption and investment regardless of levels of bureaucratic red tape. They ®nd that, although high levels of bureaucracy do have a negative impact on investment, the evidence suggests that corruption acts mainly as sand in the machine rather than as a lubricant: the level of bureaucracy makes little overall dierence. One of their most signi®cant ®ndings is that attempts to control corruption through product market competition are most eective in countries where law enforcement is lax. A political analysis of the impact of political corruption is provided by Donatella Della Porta and Alberto Vannucci (pp. 516±538). They argue against functionalist accounts which stress the eciency of corruption in shortcircuiting irrational administrative structures. The hypothesis that organizational eciency is increased by paying a bribe to ensure that certain services are provided which otherwise would not be (or else would be provided more slowly) can be challenged on a number of grounds. First, if a service is provided more quickly to one corrupt purchaser, then another equally deserving potential recipient will be forced to wait: the advantage to one represents a disadvantage to the other. Second, the decision-making process is distorted: some decisions may be changed as a result of corruption, or else decision makers may devote their energies towards appropriating revenue for personal pro®t, which is likely to hamper organizational eciency. Third, the resulting administrative ineciency creates more opportunities to engage in corruption, so corrupt administrators therefore have an interest in maintaining an inecient system: organizational structures come to re¯ect the interests of those who are corrupt. Thus, even where corruption appears to favour eciency (which must rest on a de®nition of eciency which is tied exclusively to economic ends), it necessarily 44 Paolo Mauro, `Corruption and growth', Quarterly Journal of Economics, 109 (1995), 681±712; Paolo Mauro, `The eects of corruption on growth, investment, and government expenditure', IMF Working Paper, 96/98 (1996); Paolo Mauro, Why Worry about Corruption? (Washington DC, International Monetary Fund, 1997). Mauro draws his data on corruption from Political Risk Services, Inc., which publishes the International Country Risk Guide, and from Business International, part of the Economist Intelligence Unit.


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produces at the same time forms of ineciency which negate its positive in¯uence. Moreover, the assertion that corruption can be functional rests on the premise that existing procedures must be inecient. For Della Porta and Vannucci, therefore, political corruption and maladministration feed upon each other. Political corruption generates social costs, as well as placing an increased burden on public accounts. Much western political science in the 1960s and early 1970s was characterized by a certain con®dence, bordering on condescension, in regard to high-level political corruption: essentially a problem of under-developed and nondemocratic nations, its control and eradication depended upon institutional design, with liberal democracy providing the model towards which `developing' nations would make (inevitable) progress. The contrast with the late 1990s is striking. The western triumphalism which followed the collapse of communism has been replaced by far more apocalyptic scenarios, increasingly pitched in terms of a `clash of civilizations': con®dence in `westernization' being emblematic of `modernization' has (at last) been eroded, but in its place has emerged a vision in which western civilization is facing a challenge from the morally integral alternatives of Islamic and Asian-capitalist states.45 In such a scenario, growing corruption and decadence are symptomatic of western civilization in decline: what we are witnessing may be not so much political corruption in western liberal democracies as the political corruption of western liberal democracies. The danger of this second scenario should not be dismissed out of hand, but the chapters in this volume suggest a somewhat more sober view. Political corruption may be highly corrosive, especially in democracies, but it has always existed and its continued spread is not inevitable. By analysing how opportunity structures are created, as well as how processes of corruption operate in practice, steps can be taken to reshape institutional design in such ways as to render less favourable to corruption the structures of incentives available to actors. This is of course both an enormous and an eternal challenge, but the chapters which follow can hopefully serve as a contribution to establishing its current dimensions.

45 See Samuel P. Huntington, The Clash of Civilizations and the Remaking of World Order (New York, Simon and Schuster, 1996).



De®ning Political Corruption MARK PHILP1 I In New South Wales in 1988, after more than 10 years of Labour Party rule, the Liberal±National Party coalition won a majority in the Legislative Assembly following a campaign which stressed the corrupt character of Labour's conduct of political oce. In the ®rst legislative session the new Premier, Nick Greiner, created the Independent Commission Against Corruption (ICAC), designed to prevent a range of corrupt practices, including the exercise of illicit political patronage. A further election in 1991, intended to increase the Government's majority, resulted in a swing to Labour and the election of four independent MPs. The Liberals remained in power, with 49 seats, facing a Labour opposition with 46 seats. One of the four Independents generally supported the Government, allowing Greiner to remain Premier. In October 1991 the other three independent members reached an understanding with the Government. At the same time, a Liberal MP, Tony Metherall (having resigned as a Minister in July following tax oences), resigned from the Party, remaining in Parliament as an independent. In January 1992, the Government's majority was further reduced after a by-election. The Greiner administration, in consequence, could rely on there being 47 votes for the government, and 47 against, with the balance lying with the ®ve Independents of whom two (including Metherall) usually voted with the government. In April 1992, after behind the scenes negotiation with the Greiner administration, Metherall resigned from Parliament. On the same day he was appointed to a well-paid position in the New South Wales public service. Following a public outcry, the ICAC investigated the matter and found that, pursuant to Section 8 of the ICAC act, Greiner and others had acted in a way which involved the partial exercise of ocial functions, and constituted a breach of trust, where this was sucient to give (under section 9c of the Act) reasonable grounds for dismissing a public servant.2 1 My thanks are owed for comments on earlier drafts of this paper to my editor and fellow contributors, and to Jerry Cohen, Liz Frazer, Barry Hindess, Doug McEachern, Philip Pettit and Vicki Spencer. The ®nal version was written while I was a Visiting Research Fellow, in the Humanities Research Centre of the Australian National University. 2 Section 8(1) identi®es criteria of necessary conditions for conduct being corrupt (such as, adversely aecting the honest or impartial exercise of ocial functions, involving a breach of public trust, or the misuse of information of material acquired in the course of ocial functions). But these conditions do not constitute sucient conditions for conduct being corrupt unless (under Section 9(1)) the conduct would constitute or involve, a criminal oence, a disciplinary oence, or reasonable grounds for dispensing with the services of a public ocial. The Commission, in eect, found that Greiner and the Minister for the Environment, Moore, had met the criterion of partiality under section 8 and that of reasonable grounds for dismissal in section 9.


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Greiner and Moore commenced proceedings in the Supreme Court, but resigned before the hearings began because of Parliamentary censure. In August 1992 the Court of Appeal agreed that conduct fell within Section 8 of the Act, but, by a majority of 2 to 1, found that this conduct did not constitute reasonable grounds for dismissal under section 9. The initial report of the Commission was declared to be `without or in excess of jurisdiction, and is a nullity'.3 In responding to the censure motion in the Legislative Assembly on 28 April 1992, Greiner argued: Ultimately, if what was done was against the law, then all honourable members need to understand that it is, for practical purposes, the death of politics in this State. (. . .) What the Opposition and media have opened up here is the very nature of politics itself ± that is, the con¯ict between the demands of politics and the demands of public oce. Under the English common law very serious obligations to act in the public interest are placed on those elected to public oce, and yet our highest public ocials are at the same time part of a political system which is about what is in many ways a largely private interest in terms of winning or holding a seat. (. . .) I am prepared to accept that community attitudes have changed, and that what is tolerated at one time is not acceptable at another. But every member needs to understand that the standards that are implied in this censure of me today are entirely new standards . . . (and) I am not sure, when honourable members have considered them calmly in the bright light of day, that those standards are going to produce a workable system of democracy in our State . . .4

The ICAC responded with a report which again raised the question of how corruption should be de®ned and whether the existing act had failed to draw a necessary distinction between corrupt and improper conduct ± with the former requiring that conduct either be knowingly corrupt, or involve some direct personal bene®t to the public ocial involved. In its third report, the Commission recommended the implementation of selection criteria for public sector recruitment based solely on merit.5 Recommendations made in the wake of the Metherall case had still not been acted on by the end of 1996. The Metherall case is only one among many throughout the world demonstrating the extent to which the investigation, prevention and prosecution of corruption is profoundly in¯uenced not simply by how corruption is de®ned but, more deeply, by how we are to understand the character of politics. Similar questions have been raised, albeit with fewer results and declining interest, by the Nolan Commission in Britain; while, in America parallel concerns have been 3 See, the three ICAC reports, written by Ian Temby, the Commisioner: Report on Investigation into the Metherall Resignation and Appointment (ICAC, Sydney, June 1992); Second Report on Investigation into the Metherall Resignation and Appointment (ICAC, Sydney, September 1992); Integrity in Public Sector Recruitment (ICAC, Sydney, March, 1993). 4 ICAC, Report on Investigation into . . . Metherall, pp. 92±3. 5 See also the Discussion Paper, Recruitment of Former Members of Parliament to the Public Service and Related Issues (ICAC, Sydney, October 1992) and Ian Temby's `Making government accountable: the New South Wales experience', unpublished paper to Edith Cowan University, W.A., 4.11.1994.


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evident in the investigation of the Keating Five and a number of other cases.6 Few other countries are without similar problems. Nonetheless, the Metherall case has raised publicly the issue of what understanding of the rules for the conduct of public oce, with its related understanding of political corruption, is compatible with the realities of political life. Greiner's motives may be suspect, but there is no doubt that he was right in his claim that an intimate connection exists between how we understand corruption and how we understand politics. My aim in this paper is to show both how deep this connection is, and how our acknowledgement of it must result in substantial revision to the way we de®ne and understand political corruption. II The Metherall case is complex. The ICAC judgement that a case of political corruption existed was contentious, as the Court of Appeal decision demonstrated. In the course of the ®rst and second reports several criteria were appealed to as relevant to the judgement. The statutory provisions of the Independent Commission Against Corruption Act 1988, and sections 8 and 9 in particular, were critical to a ®nding of corrupt behaviour. Nonetheless, the interpretation of such clauses in section 8 as `the honest and impartial exercise of ocial functions' (S.8.1.a.), `dishonest or partial exercise' (S.8.1.b), and `conduct . . . that constitutes or involves a breach of public trust' (S.8.1.c), is extremely dicult. So is the interpretation of Section 9.1.c, where the conduct is judged to constitute `reasonable grounds for dismissing, dispensing with the services of or otherwise terminating the services of a public ocial'.7 Moreover, the Commission found Greiner to have contravened the Act despite the fact that he did not knowingly engage in wrongful conduct, that he made no clear private and personal gain from the transaction, and that he could make a case for his behaviour being a normal part of the political process within the traditions of New South Wales' political culture. Each of these three elements raises serious issues in the de®nition of political corruption. In responding to criticisms about the de®nition of corruption extending beyond knowingly wrong conduct the second ICAC report claimed that: The whole point of the legislation was to combat a corrupt culture, a culture that regards nothing wrong with things like jobs for the boys, or giving a Government contract to a mate, and accepts corruption as part of the way things are done. To let through the net those who are suciently amoral 6 Cf., Standards in Public Life: First report of the Committee on Standards in Public Life, Chairman Lord Nolan (HMSO, Cm 2850 I and II, May 1995), especially I, p. 14; and Dennis F. Thompson, `Mediated corruption: the case of the Keating Five', American Political Science Review, 87(2), 1993, 369±81, and his Ethics in Congress: from Individual to Institutional Corruption (Washington DC, Brookings, 1995). In the Keating Five case, ®ve members of Congress were accused of improperly assisting a major campaign contributor. However, they were not levying an income from Keating, and their lobbying in his favour was in many respects indistinguishable from the kind of lobbying which takes place throughout the American political process. Nonetheless, they were acting corruptly ± a judgement based on a ®nely nuanced conception of what kinds of services a politician can perform for someone without undermining or side-stepping the democratic process as understood in contemporary America. In this, as in the Metherall case, it is not a requirement that the person acting in ways deemed corrupt was aware in advance that he or she was so doing. 7 Cf., ICAC, Second Report . . . Metherall . . . , p. 3.


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that they do not recognize wholly unacceptable behaviour would be to abrogate the central charter the Commission tries to ful®l.8

The suggestion that the appropriate standard to take is the law, rather than knowledge and intention, or existing cultural norms, was also rejected by ICAC on the grounds that they had already had to investigate cases in which public ocials had been able to abuse their position for personal gain in ways on which the law was currently silent but which constituted a clear breach of trust. The fact that Greiner sought no private gain from the transaction was discussed in the second ICAC report in terms of whether a distinction could be sustained between improper and corrupt conduct. Although the Commission did not seek to resolve the issue it commented that `partial, dishonest or wrongful exercise of public oce can be equally dangerous and harmful to the community, irrespective of whether the public ocial concerned gets a kickback'. In Dennis F. Thompson's terminology, Greiner's conduct looks like institutional corruption: Legislative corruption is institutional insofar as the gain a member receives is political rather than personal, the service the member provides is procedurally improper, and the connection between the gain and the service has a tendency to damage the legislature or the democratic process . . . Recognizing institutional corruption is not always easy because it is so closely related to conduct that is a perfectly acceptable part of political life.9

But institutional corruption is a deeply contestable concept which implies a clear set of criteria for identifying the borderline between politically proper and improper conduct. On what resources and criteria are such judgements to draw ± prevailing mores, legal rules, institutional norms, or publicly endorsed standards? In the midst of this uncertainty one thing which did seem clear to the Commission was that to insist that corruption must involve direct and personal gain would be unacceptably restrictive. Yet, their reluctance to do so was precisely what prompted Greiner's complaint about the death of politics. Greiner's speech raises a further problem in de®ning corruption when he points both to the changes that can take place in community attitudes, and to the way that the historical traditions of a political culture shape its current institutional mores and practices. On his understanding of the character of politics in the political culture of New South Wales, what he did was no more than what needed to be done ± given the implicit rules of the game. The public outcry it provoked is dismissed as arising from the machinations of the Opposition and media. But, even though Greiner might be said to have been proved wrong about the character of that culture, he could have been right. And if he had been right, then we seem committed to saying that there was nothing wrong with his conduct. Indeed, the ICAC itself seems committed to that proposition: It must be said that what is `corrupt', i.e. the wrongful exercise of public duty in any community, will depend on what the correct duty is determined to be. That will be in¯uenced by cultural issues and accepted behavioural standards within the community. There may be behaviour that is `right' in 8 9

ICAC, Second Report . . . Metherall . . . , p. 13. Thompson, Ethics in Congress, p. 7.


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De®ning Political Corruption one country, and `wrong' in another. The very ®rst step must always be to determine and clearly signpost the standards of behaviour that are required to be observed by public ocials.10

Can progress be made on the de®nition of corruption, given these diculties? The three most commonly cited de®nitions are public oce-centred, public interest-centred, and market de®nitions. (Public opinion and legal norms have also been cited, but they can be subsumed under the other cases). In the two works which have dominated the study of corruption over the last twenty-®ve years, Heidenheimer's Political Corruption (1970), and its successor volume edited by Heidenheimer, Johnston and LeVine (1989), these three de®nitions are proposed as dierent ways of identifying the scope of the concept of political corruption. The public oce conception of corruption is exempli®ed by Nye: Corruption is behavior which deviates from the formal duties of a public role because of private regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private regarding in¯uence. This includes such behaviour as bribery (use of reward to pervert the judgement of a person in a position of trust); nepotism (bestowal of patronage by reason of ascriptive relationship rather than merit); and misappropriation (illegal appropriation of public resources for private-regarding uses).11

Nye explicitly excludes considerations of the public interest so as to avoid confusing the phenomenon with its eects. Others, however, have sought to de®ne political corruption precisely in terms of a conception of the public interest. Carl Friedrich, for example argues that: . . . corruption can be said to exist whenever a power-holder who is charged with doing certain things, i.e., who is a responsible functionary or oce holder, is by monetary or other rewards not legally provided for, induced to take actions which favour whoever provides the rewards and thereby does damage to the public and its interests.12

Although there is an issue about confusing the phenomenon with its consequences, the view that corruption involves the subversion of the public interest or common good by private interests is one with an impeccable historical pedigree: Machiavelli is hardly alone in understanding corruption as the decay of the capacity of the citizens and ocials of a state to subordinate the pursuit of private interests to the demands of the common good or public interest. Indeed, even Nye's public oce account, in which corruption deviates from the formal duties of the public role, implicitly recognizes the public interest dimension by insisting that the deviation must be for private regarding gains ± thereby covertly introducing a public interest component. 10 ICAC, Defending the Fudamental Political Values of the Commonwealth Against Corruption (report for the Consideration of Commonwealth Law Ministers, Mauritius, November 1993), p. 3. Interestingly, no attempt is made to explain, or resolve, the inverted commas around `right' and `wrong'. 11 J. S. Nye, `Political Corruption: a Cost-Bene®t Analysis', in A. J. Heidenheimer, M. Johnston and V. LeVine (eds), Political Corruption: a Handbook (New Brunswick NJ, Transaction, 1989), p. 966. 12 Heidenheimer et al., Political Corruption, p. 10, emphasis added.


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Both public oce and public interest de®nitions of corruption must show which view of the character and scope of public oce or public interest should be accepted. It is not immediately obvious which norms should ¯esh out these subsidiary concepts. The potential sources are manifold but they share the diculties which can be identi®ed with the three main candidates: public opinion, legal norms, and standards derived from modern western democratic systems. Public opinion is an important element in the identi®cation and understanding of political corruption but, as the Metherall case shows, it raises a number of diculties. To whose opinion do we give most weight? The norms of a local community may dier from those insisted on by a central authority or a political eÂlite and they may dier between sections of the local population (either vertically [e.g., between dierent classes] or horizontally [dierent ethnic groups or segmented communities] or both). More damagingly, we need to recognize that opinion may be disjointed from behaviour ± that is, people may say one thing and do another. Moreover, relying on public opinion means that we risk omitting cases where the casualty of corruption is the capacity of the citizenry to recognize a distinct set of public norms or a conception of the public interest. Something like this worry is conveyed by the ICAC's sense of its mission as being `to combat a corrupt culture'. Appeal to the law is equally fraught with problems. In few states does the law de®ne a category of acts as `political corruption' ± focusing instead on the de®nition of various sub-sets ± such as bribery, fraud, or electoral malpractice. But even here, the law is an inadequate guide ± not only because it may not cover cases which are widely perceived as corrupt (such as receiving cash payments or favours for asking Parliamentary questions), but also because the law can itself originate in corrupt practices: that an act is legal does not always mean that it is not corrupt. Moreover, laws regulating political conduct rest on prior assumptions about the character of political oce. At best, laws express such principles, and it is this normative or principled structure which must be regarded as the baseline from which we should work to ¯esh out de®nitions of public oce or public interest, although these principles are open to very similar objections to those raised against norms. The ®nal objection to using law as the determining standard for conduct is that the actions of those engaged in politics cannot be exhaustively settled by systems of rules. There is inevitable indeterminacy in politics, both for bureaucrats in the conduct of their administrative oces, and for politicians in the conduct of their political ones ± and many public scandals are prompted by cases where, although the law does not prohibit an action, the action violates the public's sense of appropriate conduct for public ocials. Because the identi®cation of the norms and principles which give a determinate content to the concept of the public interest, or which govern the exercise of public oce, is fraught with diculty, many political scientists in the 1960s and 1970s came to the view that there was no alternative but to plump for a de®nition which was clear and could be applied with a degree of objectivity ± even if it meant they had to fall back on assumptions about politics and its corruption which rested heavily on western views of the central values of democratic societies. More recently, many political analysts have sought to avoid imposing the cultural prejudices of western democratic systems by arguing that what counts as a wrongful exercise of public duty must have some reference # Political Studies Association, 1997

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to accepted standards of behaviour within a community. The net result is that the analysis of political corruption is left caught between the equally repugnant options of stipulative de®nition following western norms, or a relativist appeal to local norms or standards. The relativism which we risk is not simply moral relativism; that might seem like a price worth paying to avoid western stipulation. But the danger of this move is that the damage to one's analysis spreads beyond moral relativism to a conceptual relativism. Consider the case of bribery. In most western cultures bribery is de®ned in terms similar to Nye's ± `the use of reward to pervert the judgement of a person in a position of trust'. In dierent western cultures, dierent understandings will exist as to when something meets these criteria: what counts as rewards, what sorts of in¯uence are held to pervert judgement, what de®nes positions of trust, and how far other components of an individual's life are held to be constrained by the responsibilities associated with that trust. But, while such dierences are tolerable, it would be another matter entirely if a culture claimed to have the concept of bribery without believing that there was anything wrong with it. On the modern view, if it is bribery, then there is something wrong with it. To believe otherwise verges on incoherence. It has been claimed that `The (ancient) Greeks did not have a word for bribes because all gifts are bribes. All gifts are given by way of reciprocation for favours past or to come'.13 The Greeks did have terms (d oron, lemma, chresmasi peithein) for bribes although they were terms which also meant gift-giving or receiving, or persuasion. That there are a number of neutral terms for giving, receiving and persuading in ancient Greek literature implies a tolerance for much that we would now regard as bribery. But do these terms recognizably denote bribery? They do not imply that someone's judgement has been perverted, even where they recognize that it has been in¯uenced; and since it is not perverted, but in¯uenced, it is dicult to see them as indicating that a trust has been betrayed. If these were the only terms for bribery in the Ancient Greek world we would have to take the view that there is a basic untranslatability of the terms between us and them ± that they not only failed to distinguish gifts and bribes, but that they also had no real concept of public oce or trust. In fact, although there were a number of terms for bribery which were essentially neutral, there were also powerfully negative terms, such as diaphtheirein, which implied the destruction of a person's independent judgement and action.14 There is also ample evidence that the Greeks could recognize both the concept of a public trust, and the use of gifts to subvert the ends of that trust. There was a general law in Athens concerning bribery which laid down penalties for giving or taking bribes to the detriment of the interests of the people, and `cata-political bribery' was accorded the most powerful condemnatory adjective in Greek, namely aischorn, or shameful.15 Although this means that there are common elements between modern and ancient understandings of bribery, we should recognize the implication of the thought 13 A claim cited and refuted by J. T. Noonan, Bribes (Berkeley CA, University of California Press, 1984), and commented on by Jon Elster, The Cement of Society (Cambridge, Cambridge University Press, 1989), p. 267. 14 David Harvey, `Dona Ferentes: some aspects of bribery in Greek politics', History of Political Thought, VI (1/2), 1985, 76±117, p. 86. 15 Harvey, `Dona Ferentes', pp. 111 and 109.


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that there might not have been. If we rely wholly on local norms we end up risking a fundamental incommensurability between ourselves and the local normative and conceptual vocabulary. The use of local norms and judgements must, then, be handled with care ± they have a role in identifying what types of activity are understood as corrupt, but they cannot be accepted as the only criteria, since this would be to embrace a conceptual relativism which renders any cross-cultural analysis of corruption incoherent. Consider, for example, the entry for 20 August 1664, in Samuel Pepys's Diary in which he reports that he went to his oce `where I took in with me Bagwell's wife; and there I caressed her, and ®nd her every day more and more coming, with good words and promise of getting her husband a place, which I will do'. Mrs Bagwell makes frequent appearances in the Diary in pursuit of a career for her husband, which lies in Pepys's disposal ± an objective she failed to achieve despite Pepys raping her in her own home. Pepys does occasionally show qualms about his treatment of Mrs Bagwell, but it is unclear how far this arises from a sense that he is exploiting her, and how far from residual guilt about his adultery. It is certainly not dicult to ®nd Pepys's behaviour abhorrent (although scholars have been astonishingly tolerant towards him), and although some part of this reaction arises from Pepys's transgression of norms of sexual conduct which it may be anachronistic to apply to the late seventeenth century, there remains a sense that he was exploiting a position of power and in¯uence for personal gain. The same must be said of the way Pepys gleaned a fortune from back-handers and gifts from provisioners of the navy. His use of his oce was not especially remiss compared to that made by others, and there was clearly some partly shared understanding that certain types of public oce were a form of property which could be used to generate ®nancial or other forms of personal gain. As such, Pepys was simply exacting an ìncome' from his oce. But in both cases Pepys was fully aware that his conduct could not withstand public scrutiny. Even if we believe that Pepys did not think there was anything corrupt about his conduct, and even if many of his contemporaries would have agreed, this does not mean we have to endorse that judgement in full. While local norms provide evidence about what people accept and reject, they should not be permitted to impinge upon the deeper sense of corruption, which Pepys and his contemporaries certainly recognized, involving the violation of the norms of public oce for private and personal gain. Indeed, Pepys himself believed that corruption was an evil and was full of praise for the 1618 commission on the provisioning of the Navy which sought to reduce corruption in the earlier Stuart reign.16 Where they dier from us is not on what it is about corruption which makes it corrupt, but on what particular activities are identi®ed as corrupting.17 Market-centred de®nitions have sometimes oered themselves as a morally neutral way of avoiding the kind of complexities involved in this delicate balancing of objective or universalist components with local and relative standards. The term `market-centred' is not entirely felicitous. What such de®nitions broadly share is the application of social or public choice methods to the analysis of corruption ± or, more crudely, the use of economic methods and 16 Cf., Linda Levy Peck, Court Patronage and Corruption in Early Stuart England (Routledge, London, 1993), p. 111. 17 Pepys is a very complex case ± see Noonan, Bribes, pp. 366±91.


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models for the analysis of politics. Not all theorists who use rational choice methods claim a distinctive rational choice de®nition of political corruption,18 but many do. Consider, for example, the de®nition oered by Le: Corruption is an extralegal institution used by individuals or groups to gain in¯uence over the actions of the bureaucracy. As such the existence of corruption per se indicates only that these groups participate in the decision making process to a greater extent than would otherwise be the case.19

Van Klaveren is also cited as advancing a market-centred conception: . . . corruption means that a civil servant abuses his authority in order to obtain an extra income from the public . . . Thus we will conceive of corruption in terms of a civil servant who regards his oce as a business, the income of which he will . . . seek to maximize. The oce then becomes a `maximizing unit'.20

Although such accounts seem dedicated to the task of conceptual clari®cation, the view that they can oer an alternative de®nition of political corruption is itself conceptually muddled. Market-centred de®nitions are certainly one way of understanding corruption; they may also provide a fruitful model for the explanation of the incidence of corruption, but they are not a way of de®ning it. Indeed, Van Klaveren's analysis starts from the view that the occurrence of corruption is contingent on the development of a system in which the people are subject to the control of ocials, where there exists a `regulating principle which gives to the ocials and other intermediary groups a public existence with a purpose of their own'.21 Thus, what de®nes an act as corrupt is not that it is income maximizing, but that it is income maximizing in a context where prior conceptions of public oce and the principles for its conduct de®ne it as such. Which means that Van Klaveren, at least, cannot be identi®ed with a marketcentred de®nition. Le is similarly vulnerable. Despite his impressive commitment to nominalism in the identi®cation of corruption, Le's account is also predicated on a prior conception of public oce and the norms for its exercise. The very identi®cation of the extra-legal character of corruption introduces into the de®nition a conception of public oce and its principles of conduct which acts as the standard from which corruption deviates. Both Le and Van Klaveren are implicitly appealing to public-oce conceptions of corruption in de®ning corruption, even if their subsequent accounts of the conditions for its emergence and persistence might dier substantially from other public-oce centred accounts. 18 See, e.g., Susan Rose-Ackerman, Corruption (New York, Academic, 1978), p. 7, Jens Chr. Andvig, `The economics of corruption', Studi economici, 43, 1 (1991), 57±94 and, with Karl Ove Moene, ` How corruption may corrupt', Journal of Economic Behaviour and Organisation, 13 (1990), 63±76. See also Francis T. Lui, À dynamic model of corruption deterrence', Journal of Public Economics, 31 (1986) 215±36, and Oliver Cadot, `Corruption as a gamble', Journal of Public Economics, 33 (1987) 223±44. 19 Nathaniel Le, Èconomic Development through Corruption', in Heidenheimer et al., Political Corruption, p. 389. 20 Jacob van Klaveren, `The Concept of Corruption', in Heidenheimer et al., Political Corruption, pp. 25±6. 21 Jacob van Klaveren, `Corruption as a historical phenomenon', in Heidenheimer et al., Political Corruption, p. 75.


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This conclusion is of more general applicability to economic de®nitions of corruption, and can be generalized also to accounts which rely upon modelling public oce in principal-agent terms or in terms of rent seeking.22 To ask if a civil servant or politician is acting corruptly when s/he acts in an income or interest-maximizing way, or when s/he sacri®ces her principal's interest to her own,23 we have to show what makes this use of oce a member of a distinct set of cases identi®able as corrupt, as opposed to non-corrupt. Not all cases of income or interest maximizing need be corrupt (witness cases where oce is understood as a certain type of property). To be able to point to those cases of interest/income maximizing which are also politically corrupt, one has to appeal to constructions of public oce and the public-interest which draw on norms and values which are external to the market model ± that is, to the set of normative constraints on income or interest maximizing which picks out the full set of politically corrupt acts. Market-based accounts might well show under what conditions it becomes more or less likely that people will break those constraints, but it has to take those constraints as a given ± and it is these which distinguish corrupt from non-corrupt behaviour. On this account, we are reduced to the alternatives of public-oce and publicinterest de®nitions of political corruption. There is, however, some pressure towards further reduction. There are two major sources of this pressure. The ®rst comes from the recognition of the open-ended character of much public oce. Some civil servants have tightly de®ned and constrained activities, but many do not. Similarly, politicians do not act simply as functionaries to ful®l promises made to an electorate fully cognisant of its interests. Rather, politics is partly about the contestation and projection of conceptions of the public interest. Part of the conception of the role of leaders is to lead, not to act as wholly impartial mechanisms for the adjudication of interests and the production of the social optimum. Public oce and public interest are, then, intimately connected. The open character of much public oce is structured by principles and expectations that demand oce holders be guided by considerations of the public interest. To ask whether a politician acts corruptly we must be aware that the characterization of public oce will inevitably point beyond the compliance with rules to the principles underlying those rules ± principles which come into play to cover cases on which formal rules are silent. The second pressure comes from the recognition that de®nitional disputes have obscured the basic point that the term `corruption' is not in itself problematic: it is rooted in the sense of a thing being changed from its naturally sound condition, into something unsound, impure, debased, infected, tainted, adulterated, depraved, perverted, etcetera. The problem arises in the application of this to politics. De®nitional problems are legion because there is hardly a general consensus on the `naturally sound condition of politics'. The contest between public oce and public interest de®nitions is not over what corruption is, so much as over how to derive the standard for identifying the naturally sound condition from which corrupt politicians deviate. 22 Edward Ban®eld, `Corruption as a feature of governmental organisation', Journal of Law and Economics, 18 (1975), 587±605, and Andrei Shleifer and Robert W. Vishny `Corruption', Quarterly Journal of Economics, August (1993), 599±617 use principal-agent terminology to explore corruption. On `rent-seeking', see Gordon Tullock, Rent-Seeking (Aldershot, The Locke Institute, Edward Elgar, 1993). 23 Ban®eld, `Corruption as a feature of governmental organisation', p. 587±8.


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We should not mistake the nature of this pressure towards reduction. It does not allow us further to re®ne and delimit the de®nition of political corruption so as to pick out a core conception. On the contrary, we are forced to accept that to identify political corruption we must make commitments to conceptions of the nature of the political and the form of the public interest. One line de®nitions of political corruption are inherently misleading because they obscure the extent to which the concept is rooted in ways of thinking about politics ± that is, of there being some `naturally sound condition' (variously described) from which corrupt acts deviate. There should be little surprising in this. Few if any concepts in social and political science or theory can claim a wholly factual content, and given the core meaning of the term `corruption' it should not be surprising to ®nd that identifying its political form will implicate us in a range of commitments about the nature and ends of the political domain. Moreover, this recognition must also be tied to an acknowledgement that the perspective on politics from which we generate our conception of corruption will play a major role in shaping the explanations we oer. The philosophical and practical upshot of all this is that while the original trinity of de®nitions collapses under a little pressure to a single core set of concerns, these concerns in turn generate a wide range of views as to the nature and causes of political corruption. III I have argued that de®nitional disputes about political corruption are linked directly to arguments about the nature of the healthy or normal condition of politics. Greiner's comments about what the Commission's judgement implied for the continuation of politics epitomize this conclusion: their clash is appropriately understood as one between contrasting conceptions of the nature of parliamentary and party politics. Nor is it a clash between a view in which anything goes and one which is more restrictive. After all, Greiner founded the Commission with an apparently genuine wish to clear up some of the more egregious practices of the previous administration. Nor, more generally, is the debate over dierent de®nitions of political corruption best understood as running along a continuum from the less to the more restrictive. On the contrary, debates on the `naturally sound condition of politics' often draw on such dramatically divergent social, economic, anthropological and philosophical theories that their dierences cannot be ranged along a single axis. Faced with these de®nitional diculties it is not surprising to ®nd political scientists willing to forego the niceties of philosophical and methodological disputes by stipulatively de®ning a class of events for study as politically corrupt. This is a prudent move, with considerable utility for studies of phenomena within a single culture or political system. But even studies with such moderate ambitions will ®nd it dicult to avoid moving from identi®cation of cases of rule infraction to more general questions about what such infractions mean within that political culture ± and, thereafter to questions about the character of politics. Small questions have a way of leading to big ones and the broader questions almost inevitably raise deeper normative and ethical issues. I say àlmost inevitably' because there are frameworks for the analysis of politics which can avoid such commitments. They do so by denying any degree of autonomy to politics as a sphere of activity. If politics can be reductively # Political Studies Association, 1997

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analysed in terms of some more basic intentional or causal feature of the context, then it is possible to reject the view that there is some naturally sound condition of politics. In at least two versions of public choice accounts of democratic politics the analysis is unable to give any account of what a naturally sound condition of politics might look like. This is because the models assume that `the preferences of citizens are exogenous and ®xed, and equilibrium is reached instantaneously. Hence there is neither need nor place for any kind of a process: preferences will not be altered and the outcome is known directly from preferences and constraints'.24 As Przeworski shows, in both the Chicago and Virginia public choice schools politics is, at best, `noise' ± serving to distort the processes of equilibrium formation. Politics must always be inferior to the market because of its imperfections. On this view, then, politics is already corrupt ± but it is so because the naturally sound condition is seen as a non-political state of spontaneous market equilibrium. The only acceptable form of politics is one which prevents the corruption of that more natural state of equilibrium.25 A basic diculty with such accounts is that once we allow that politics is in part a process which shapes and guides preference formation, then the concept of a unique social optimum disappears, and arguments about the rankings of alternative stable optima must rely, not on the quantitative account of aggregate preference satisfaction, but on an alternative account of preferableness ± one which appeals to some conception of real interests or the good.26 Of course, public choice accounts can adopt a public oce or legal de®nition of corruption, but doing so without acknowledging the deeper de®nitional questions leads to tension between the de®nition and the methods. Asking how individuals in public oce can best maximize their interests tends to favour an analysis based on incentive structures. The tendency is to discount norms and values, relegating them either to the side of costs, or to the side of preferences. Yet, this model of agency simply rides rough-shod over the way that public oce and its associated culture can shape and direct people's conception of the ends of their activity. Indeed, it assumes a tactical attitude to law-keeping/ breaking which, on republican theories of politics (and others), would itself be seen as an indication of corruption. Given such assumptions, it is not surprising that these accounts ®nd little reason for optimism about the stability of political and legal orders and favour a shift from politics to the market so as to make fewer demands on self-restraint. A new generation of political theorists, attracted to the rigour of rational choice methods, have begun to produce more subtle accounts of the micro-processes of corruption in recent years, but there remains a basic problem in characterizing how politics is to be distinguished from other spheres of action. If it is not distinguished, the political disappears; but if it is distinguished only by reference to formal structures and rules, which agents must negotiate, corrupt intent is seen as ubiquitous and dierences in levels of corruption are largely a function of dierences in opportunities. 24 Adam Przeworski, The State and Economy under Capitalism: Fundamentals of Pure and Applied Economics (New York, Harwood Academic, 1990), p. 23. 25 E.g., William C. Mitchell and Randy T. Simmons, Beyond Politics: Markets, Welfare, and the Failure of Bureaucracy (Boulder CO, Westview, 1994), p. 66. 26 Although see James S. Coleman, Foundations of Social Theory (Cambridge MA, Harvard, 1990), who suggests that maximum aggregate satisfaction can only be identi®ed with a constitutional distribution of control over actions among agents.


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A similar problem occurs with historicist or materialist accounts which see politics as epiphenomenal to economic or social forces. Without some distinction between politics and economics ± indeed, without some recognition of politics as an autonomous sphere ± it is impossible to make any sense of the idea of a naturally sound condition of politics. The more reductionist the account of politics (for example, in Marxism's account of the determining character of economic interests), or the more scienti®c in aspiration the theory is, the more marginal to the theory does the concept of political corruption become. One index of its marginality in modern political science is the extent to which political corruption is most frequently analysed in terms of individual motivation and pathology, and has lost the sense of its systemic character which marked the republican model of politics in the seventeenth and eighteenth centuries.27 IV Once we have seen that problems in de®ning political corruption revolve around competing conceptions of the nature of politics we have to recognize that our earlier concern about falling prey to either Occidental arrogance or cultural relativism militates against agreement on the nature of politics in exactly the same way that it undercuts the ground for agreement on public oce or public interest theories. We are left with the problem of knowing what norms or standards of politics we should accept. In this and the ®nal section of this paper, I sketch a number of features of political rule which seem to be more or less constant, and a range of theories in which these features are seen as resolving certain types of con¯ict or problem. Each theory works with a broadly similar understanding of the character of political rule, but has a dierent view as to what is required to maintain such rule (and as to why this maintenance is desirable) together with a sense of the forces which threaten it. Each understands the natural condition of politics dierently, and each consequently sees political corruption in a distinct light. I make no attempt to argue for one or other of these theories ± nor do I present these theories as competing foundational philosophical anthropologies. Rather, I suggest that they are better understood as partly empirical theories whose explanatory and normative force depends to some extent on the culture under examination. My aim in sketching their features in broad terms is to provide a richer theoretical context for the understanding of what political corruption involves and why, and to what extent, it should be condemned. A necessary ®rst step is to distinguish politics from other spheres and types of allocation, exchange and decision making. One way of doing so is to see politics as involving a distinct type of relation, distinguishable from, for example, communal, market, patron-client or kinship relations. Although boundaries between these dierent relations are not easily drawn, we can contrast them in the following, ideal-typical, terms. Communal relations give rise to spontaneous solidarity rooted in familial and group relationships. These relationships are ascriptive in character ± belonging 27 See J. G. A. Pocock, The Machiavellian Moment (Princeton NJ, Princeton University Press, 1975) and my `Liberalism and republicanism: on leadership and political order', Democratization 3 (4) (1996).


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is not a question of will but of `nature'. Exchange within such relationships is often heavily symbolic in character and freighted with issues of esteem, trust and status. To violate the norms of exchange, or those governing relations between members of the group is to act shamefully, and so invoke penalties or demands for ritual cleansing. Members of such groups seek respect, which is won by conformity and leadership appeals to tradition and status. Market relations involve dispersed competition, between ®rms or individuals, who are formally equal, and who enter relations to maximize pro®t. Relationships within the market are wholly instrumental; individuals' motives are straightforwardly interest-maximizing. Economic exchanges, ideally, produce bene®ts which are calculable and one-o, involving no commitment for future transactions and giving rise to no permanent relationship. In a situation of pure market exchange, familial or other communal relations would be valued only so far as doing so maximized the individual's advantage. Leadership has no place within such a system, since no collective action is sought, and prices achieve all desired coordination. Gellner outlines the features of patron-client relations as follows: Patronage is unsymmetrical, involving inequality of power; it tends to form an extended system; to be long term, or at least not restricted to a single isolated transaction; to possess a distinctive ethos; and whilst not always illegal or immoral, to stand outside the ocially proclaimed formal morality of the society in question . . . What makes a patronage society is not the sheer presence of this syndrome, but its prominent or dominant position, to the detriment of other principles of social organization.28

Patron-client systems are favoured where we ®nd an incompletely centralized state, a defective bureaucracy or a defective market. The patron acts as a means of access to goods and services which the client requires but which cannot be provided by either the state or the market; the client pays for the services his patron delivers usually by a willingness to perform some service for the patron when requested. The exchange is not symmetrical, since the patron has considerable power and in¯uence and the client has little or none; but the patron gains in status and often more tangibly as well by having his clients in a position of dependence and indebtedness. Politics concerns the craft of rule. Political relations are neither communal nor market in character ± although they have similarities to both. Like communal relations, they involve a form of hierarchical ordering and the creation of patterns of authority; unlike them, their legitimacy does not rely solely on tradition and solidaristic norms. The justi®cation for political authority involves a broader claim for legitimacy. Politics is unlike the market in that, although it may invoke consent as a part of the claim for legitimacy, the consent is not individuated to particular acts of the state but is taken as generating a prima facie right to rule which may legitimately exercise coercion. So those who rule expect those whom they rule to comply, not because so doing is interestmaximizing but because they claim a right to rule, and some recognition of this right on the part of citizens. True political authority rests not on the threat of punishment, nor on persuasion through argument, but on the citizen conceding 28 Ernest Gellner and John Waterbury (eds), Patrons and Clients in Mediterranean Societies (London, Duckworth, 1975), p. 4.


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to the commander a right to rule.29 Moreover, strictly political authority is neither solely instinctive nor habitual but grounds its claim to rule on some principled basis ± most commonly, by appeals to consent, public utility or welfare, or the common good. Although claims may also draw on the history of the society or on tradition or founding acts, in each case a distinction is acknowledged between the oce and the individual occupant of the oce. The relation of commander to complier is one mediated by a claim to the authority which derives from his/her oce, and, implicitly, by an appeal to the general and public ends the oce serves. The view that political relations are authority relations which involve a claim of the right to rule, where this claim is grounded in a general, public-regarding justi®cation, is essentially a development of an older distinction, at least as old as Aristotle, between personal and political forms of rule. The rule of a despot or tyrant is personal. He treats his state as his personal property for disposal as he sees ®t. How far tyrants in fact behaved in so unconstrained a way is another question, but the theoretical construction of this type of rule as a limit case was important in developing a contrasting set of norms and claims distinctive of political forms of rule. Inroads into this personal form of rule were made historically at times when the ruler found himself subject to countervailing forces within his state which had to be conciliated to preserve his position; but these constraints took a more permanent and public form when a distinction developed in the public language of rule between the king qua person and the king qua sovereign. In this process of development from rule as a private activity to rule as a public function, we can recognize an expansion of the criteria of legitimacy from the will of the individual ruler through to a collective and public sense of the appropriateness of the action and its end. The force of the requirement that rule be referenced to the public is that it imposes a dierent character of discourse on its participants than does civil society or the household. Justi®cation within the public realm appeals not to the force and strength of personal preferences but to more generalizable principles of right and the common good. A crucial distinction between political authority and other forms of relation or exchange is that it necessarily appeals to public standards of justi®cation and appropriateness. In asking both who rules and in whose interests, or in distinguishing the king from the crown, political argument emerges as a ®eld of legitimation and justi®cation where claims must be couched with reference to the distinctive rights and responsibilities of the political body and of those subject to it or citizens of it. However, political relations do not necessarily determine the basic structure of a society or its institutional form, nor do they necessarily trump other principles of exchange. We can notionally identify a threshold of politics, above which political norms are suciently powerful either to order, or at least to resist being ordered by, the social, ethnic, patrimonial and other exchange relations of a community, but below which political norms operate in relatively circumscribed areas of jurisdiction, in which they may be trumped by other norms. This raises the question of at what point, under what conditions, and to 29 `The authoritarian relation rests neither on common reason nor on the power of the one who commands; what they have in common is the hierarchy itself, whose rightness and legitimacy both recognize and where both have their predetermined place. Hannah Arendt, Between Past and Future: Six Exercises in Political Thought (Harmondsworth, Penguin, 1992), p. 93.


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what extent, political relations and norms become autonomous (as a sphere from other spheres) or dominant (as a sphere over other spheres of activity) as a mode of order and exchange within a community. What distinguishes politics from other forms of relation and systems of exchange is the type of general, public-orientated justi®cation used to legitimate its claims ± something which also gives it, however tentatively, a conception of the state as an entity, and its people as a unity. For us to be able to say that political rule exists, it must be practically sustainable in the face of competition from these other forms. This does not mean that it will be dierentiated from these other forms consistently across all cultures. In some systems it may not be seen as incompatible with the ends of politics for public oces to be ®lled by patronage, favouritism or nepotism, or for those holding oce to make large personal fortunes; in others, anything less than a perfect meritocracy and an absolute scrupulousness about ®nancial matters may be deemed corrupt. But what is required is that the ends which a political system recognizes, and which are acknowledged in its creation of public oce, are able to curtail the scope of other principles of exchange when these encroach on the political domain. How far this is possible raises two types of counter-factual question. The ®rst asks how far, with, for example, a dierent system of appointment to oce or with a dierent type of oce or set of ends, the political system would act more eectively; the second asks, how far things could in fact be other than they are. The ®rst relies on a richer conception of the ends of politics to be discussed in the next section. The second is an empirical question about how far there is, within the social and political culture of a society, the resources to support that richer conception. Indeed, this second question may also take the form, where there is a consistent disjunction between the ocial norms and rules of a political culture and its practices, of asking, counterfactually, how far the norms and rules of the political sphere are viable given the social, economic, and cultural conditions in which they must operate. It does not take a great deal of imagination (nor a particularly extensive knowledge of life in postSoviet Russia), to recognize that political norms for the conduct of oce can become inoperable under certain socio-economic conditions. The kind of bene®ts generated by a political system ± security, the rule of law, citizenship, and so on ± are not easily quanti®ed or weighed against other types of good, and they are invariably long-term in character. As a result, their achievement requires a relatively integrated and stable political culture. When these bene®ts are threatened by political chaos, or social or economic disruption, there comes a point at which it is irrational not to seek other gains or more partial, less general forms of political goods ± for example, by seeking pro®t that can be turned into hard currency, by building a following (or seeking a patron) so as to provide some of the bene®ts of a stable political system, albeit in a less general form, or by falling back on kinship or other types of communal relations for the delivery of goods and services. To think of these activities as corrupt requires that there be some other way people could act ± and where it requires a degree of saintliness or heroism to take the moral high road, we must discount that as a relevant counter-factual. The still more dicult judgement to make in this case is whether we are dealing with a non-political system, or whether we should recognize the state as itself corrupt. That judgement requires a still more complex assessment of the forces which have brought the state to this point. # Political Studies Association, 1997

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On this view, the study of political corruption cannot be wholly straightforward ± as we have seen, we cannot rely uncritically on ocial norms or laws. We have to recognize that òught implies can', and that in some circumstances properly political rule becomes impossible, while in others what can be achieved may fall far short of the objectives formally proclaimed by the political system. We need to ask of states, not whether they have political rule, but to what extent they have it and under what conditions. To answer these questions we need to recognize the causal conditions under which certain types of political authority become capable of consolidation, and thereby able to constrain the operation of other principles of allocation and exchange, as well as the conditions under which politics ceases to be possible because it can deliver too little in terms of its control of other spheres;30 or where, by demanding too much of politics, it becomes incapable of supplying the minimum (as the breakdown of the communist regimes of eastern Europe and the Soviet Union might indicate). Political rule is not a once-and-for-all achievement. A stable political culture can be eciently self-reproducing and yet can be destabilized and destroyed by forces beyond its control ± such as economic crisis or war. Moreover, states in which political relations are systematically subverted by other forms of exchange are not necessarily corrupt. Indeed, we might state categorically that they are not corrupt unless, counterfactually, they could be otherwise than they are ± were it not for the way that political norms and rules are being ignored or bent by a faction, group or individual to maintain their dominance and secure their interests over and against the political and broader cultural norms of the community. It is dicult to establish these counterfactuals, but not impossible. In his defence of his wheeling and dealing with Metherall, Greiner implies that the Commission's view of public oce is one which is apolitical ± where the political system is understood as being about `what is (in Greiner's view) in many ways a largely private interest in terms of winning or holding a seat . . .'. Nothing I have said thus far challenges Greiner's view of politics (although I have placed more emphasis than he does on the consequent obligations of those who achieve public oce). There is a dierence between the rules which structure public oces and those which govern how they are to be ®lled. Thus, political appointments to the House of Lords, or to certain positions in the US Federal Service, are seen as compatible with sustaining a recognition of the responsibilities of public oce. Nonetheless, such appointments, or Greiner's view that achieving political oce is a private interest, clearly could undermine the impartiality with which public oce is exercised, and where it does so, the understanding of politics advanced here would require that the concern to sustain the character of public oce must delimit the range of acceptable practices determining appointment to such oce. V What is so good about political rule? Political theorists range from those who seem willing to deny that politics ever has sucient ethical pull to trump the individual's other commitments, to those who emphasize the morally superior 30 Judith Chubb, Patronage, Power and Poverty in Southern Italy (Cambridge, Cambridge University Press, 1982), for example, suggests the Christian Democrats in the north eectively surrendered control of the party in the south to opportunists with Ma®a connections.


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character of agency under political rule. Moreover, history is discom®tingly generous with cases in which political rule has imposed horri®c costs upon domestic and foreign populations, whereas clean, bene®cial and humanitarian political orders have been rather less in evidence. Clearly, we cannot on every occasion assume the ethical superiority of political rule. Rather, we should recognize that political rule is attractive as a solution in certain circumstances. We can distinguish four views of the necessity for political rule:31 one which sees it as oering a constitutional solution to the civil war that arises from the socially heterogeneous character of the polity; one for which it oers a quasijuridical device which substitutes the sovereignty of the state (with its creation and protection of individual rights and liberties) for a war of all against all; one in which it provides a way of organizing the public powers so as to avoid con¯ict between those entrusted with public power and those subject to it; and one in which its de®ning moment involves the successful assertion of sovereignty against other sovereign units or groups claiming sovereignty. From each perspective, the short answer to the question of what it is that gives moral precedence to political rule over other forms of exchange is `war'. Politics takes normative precedence because it orders otherwise irresolvable forms of social and interpersonal con¯ict, and the form of political rule and the character of its concerns about corruption, is a function of how it understands these con¯icts. This claim about the ethical necessity of political rule, however, presumes that authority is exercised appropriately. It is impossible not to recognize that political authority can be exercised cruelly, violently, or vindictively, or that those who rule may do so incompetently. In each case, these activities will damage the capacity of that authority to secure a stable order of rule capable of resolving con¯ict. But political corruption is distinctive as a form of dereliction: if political authority is desirable because it orders fundamental con¯icts between interests, the suborning of that authority to serve one particular set of interests covertly reinstitutes the domination which that authority is designed to avoid. Other activity does so incidentally, through incompetence, or bad luck; but corruption strikes at the root. Each of these views sees politics as a response to potential disorder, but understands the sources of this disorder in a dierent way. Moreover, since corruption involves the perversion, decay or destruction of the natural condition of politics, and these accounts oer dierent understandings of that condition, each also diers in its identi®cation of those activities which most fundamentally threaten politics and its understanding of the forces which lie behind those activities. The emphasis on the socially heterogenous composition of the body politic, common to republican accounts, sees the predominant risk as one of factional strife, or stasis, and sees the political order as enabling the collective pursuit of the common good. That pursuit is framed by a constitutional structure, in the form of mixed government, which contains the threat of domination of one class and its interests, and is coupled with a variety of mechanisms to promote civic virtue and the pursuit of the common good. On this model the sources of corruption are manifold ± luxury, commercial 31 Drawing on Pasquale Pasquino. `Political theory of war and peace: Foucault and the history of modern political theory', Economy and Society, 22 (1) (1993), pp. 77±88; and Carl Schmitt (G. Schwab, trans.), The Concept of the Political (New Brunswick NJ, Rutgers University Press, 1976). Although these accounts draw on concerns found in European and Anglo-American political thought, they are certainly not exclusive to these traditions.


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activity, foreign subversion, extremes of inequality, failures to recognize the services of leading politicians, and the constant tendency for civic moeurs to be undermined by ambition, pride and the more destructive human passions. In each case it is manifested in the erosion of the collective capacity to pursue the common good. For republicans, political corruption has less to do with individual rule infraction, and more to do with the systematic decay of the political culture. Moreover, there is no conception within republican thought of a social order without politics. As a result, corruption unleashes an internal war which, if not stemmed, results in the complete breakdown of order. Hence the tendency to associate corruption with the decline of the state.32 The Hobbesian repugnance for the war of all against all results in an insistence on the resignation of individual sovereignty to a common power which enforces a common law and set of procedures. Hobbes has little room for political activity, which he sees as for the most part destabilizing; rather, he embodies political rule in the exercise of the sovereign power ± and by implication sees corruption as whatever tends to the weakening of that power. Indeed, Hobbesians so fear the triumph of individualism over the formal order of the state that they embrace a version of nominalism: corruption is simply what people accuse each other of when they see them acting against their interests in some way ± it has no moral content. What distances Hobbes from outright political realists is his belief that the ultimate end of this sovereignty is the public good. If Hobbes's commitment to absolute sovereignty distances him from our third, liberal, model, his commitment to the contractarian principle that the ultimate justi®cation for sovereignty is its ability to allow us peaceably to pursue our interests distances him from the more decisionist realism of our ®nal perspective drawn from Schmitt. The liberal model of politics shifts the emphasis from a concern with the destructive tensions inherent in the social order to a concern with how the powers of the state can be exercised in ways inimical to the liberty and security of its subjects. The emphasis on constitutional order and the separation of powers is not concerned with tensions in the entire social body, but instead focuses on ways of ordering the structures of rule so that those entrusted with political power will act in the interests of those whom the state was founded to protect and will not usurp that power for their own ends ± although liberals are, after 1789, also much concerned with popular encroachments on the orderly exercise of political power. The liberal model sees corruption in terms of the weakening of ethical constraints on individual conduct in public oce and consequent abuse of political power for individual gain. Liberals have more or less demanding views as to the conditions which are necessary to ensure that the occupants of political oce are devoted solely to the public interest. It is possible to insist that all appointments be made on the basis of merit; equally, less rigorous criteria may be tolerated on the grounds that eective government relies on a degree of coordination which can only be brought about by allowing some partisan interest within political institutions. Moreover, where some liberals have been wholly concerned with mechanisms for ensuring that public 32 See Patrick Dobel, `The corruption of a state', American Political Science Review, 72 (1978), 958±73, J. Peter Euben, `Corruption', in Terence Ball, James Farrar and Russell Hanson (eds), Political Innovation and Conceptual Change (Cambridge, Cambridge University Press, 1989); and Hannah Arendt, The Human Condition (Chicago, University of Chicago Press, 1958).


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servants do not act beyond their powers (those, for example, who follow the separation of powers principle) there are others (not least Montesquieu) for whom political rule must be understood in relation to the society and culture of which it is a part and who remain sceptical about simple formulae for ensuring uncorrupt and stable political rule.33 The decisionist conception of the state, as expounded by Schmitt, sees the exercise of state sovereignty in determining the line between friend and foe as essential to avoid the subordination of the state to other states or to other groups willing to make and enforce that distinction. Schmitt owes a good deal to Hobbes, but he diers in the existential character of his thought. The emphasis he gives to the friend/foe distinction is a function of the utterly arbitrary character of such divisions: `The high points of politics are simultaneously the moments in which the enemy is, in concrete clarity, recognized as the enemy'.34 Schmitt's approach takes it as axiomatic that it is the political decision as to whether or not another entity poses a threat to one's own way of life which dominates all other relations in the state. In Slagstad's apt phrase, `the Machstaat overrides the Rechsstaat'.35 Without this moment of absolute and norm-creating sovereignty the state would fall prey to an internalization of the political: Ìf one wants to speak of politics in the context of the primacy of internal politics, then this con¯ict no longer refers to war between organized nations but to civil war'.36 Schmitt's account is deeply pessimistic. It is decisionist because all that matters is that the decisive distinctions can be drawn and sustained by sovereign entities ± there is no right or wrong in any particular state's decision. But the underlying normative project in Schmitt's account is the existential view that it is only through the identi®cation of friend and foe that life becomes endowed with meaning and purpose.37 The Concept of the Political is in large part an attack on de-politicization, particularly in the form of paci®sm and liberalism, both of which threaten to eradicate the political, to evade `political responsibility and visibility' and thereby to eliminate the most serious and central concerns of human life.38 This account rests on two presumptions. The ®rst is that the political is threatened when its realm of action becomes displaced or obscured by systems of exchange or by pretensions to shared ethical principles which deny its decisive content. The resulting state of peace and security rests on a refusal to recognize that there are fundamental disagreements 33 See, for example, the intense debates within French liberal circles in the early nineteenth century, G. A. Kelly, The Humane Comedy: Constant, Tocqueville and French Liberalism (Cambridge, Cambridge University Press, 1992). 34 Schmitt, The Concept of the Political, p. 67. 35 Cited by Rune Slagstad, `Liberal Constitutionalism and its Critics', in Jon Elster and Rune Slagstad (eds), Constitutionalism and Democracy (Cambridge, Cambridge University Press, 1988), p. 116. 36 Schmitt, The Concept of the Political, p. 32. 37 See Leo Strauss `Comments on Carl Schmitt's Der Begri Des Politischen' given as an appendix to Schwab's translation of The Concept of the Political, pp. 98±9. 38 Schmitt's conception of the centrality and inevitability of the political is captured in his discussion of theories which suggest the eventual displacement of politics by economic exchange. À domination of men based on pure economics must appear a terrible deception if, by remaining nonpolitical, it thereby evades political responsibility and visibility. Exchange by no means precludes the possibility that one of the contractors experiences a disadvantage and that a system of mutual contracts ®nally deteriorates into a system of the worst exploitation and repression.' The Concept of the Political, p. 77.


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over the proper ends of life and no such refusal can be stable, since its inevitably partial disposing of dierential costs and bene®ts must eventually generate attempts at resistance. The second is his view that: àll genuine political theories presuppose man to be evil, i.e., by no means an unproblematic but a dangerous and dynamic being'.39 Or, put less objectionably: `Political thinkers such as Machiavelli, Hobbes, and often Fichte presuppose with their pessimism only the reality or possibility of the distinction of friend and enemy'. And included in this presupposition is the view that what it is to make this distinction is to recognize `the ever present possibility of con¯ict'.40 Where Hobbes saw the major threat to sovereignty as arising from the tendency for the nobility and the political eÂlite to usurp sovereignty,41 Schmitt, responding to a more democratic era, sees state unity as supremely expressed in the rejection of forces inimical to its sovereignty both within and outside the state. Consequently, corruption involves the weakening of the state's ability to draw this line, either through the introduction of con¯ict into the institutions of the state, or through its subversion by or subordination to foreign powers, or in the failure to achieve a shared political will behind this distinction: èverywhere in political history, in foreign as well as in domestic politics, the incapacity or the unwillingness to make this distinction (friend/foe) is a symptom of the political end'.42 Indeed, it is not dicult to ®nd in Schmitt the view that liberalism is the ultimate form of corruption ± `liberal concepts typically move between ethics . . . and economics . . . From this polarity they attempt to annihilate the political as a domain of conquering power and repression'.43 These four positions are certainly not exhaustive of possible accounts of the ethical value of political rule. Nonetheless, they help us to recognize a threshold for politics: a theory which sees no lines of con¯ict between social groups, no threat from individual self-government, no distinct conception of the state the powers of which can be subject to abuse, and no sense of the potential subversion of sovereignty, will see no need for political rule and will have no standard by which to assess its corruption. Where we recognize one or more of these fundamental forms of social con¯ict, political rule has normative weight because it oers a way to resolve con¯ict in a way which is not simply a case of one side winning. Even if we want to build more ambitious accounts of the possibilities of politics, this basic solution can be valued independently because by ordering con¯ict it oers a degree of security and freedom from fear and domination, thereby ensuring (within inevitable limits) the avoidance of radical harm or evil. On this account, then, politics exerts ethical pull only under certain conditions, or certain characterizations of the `human condition'. Politics, then, turns con¯ict into order ± albeit perspectives dier on what balance of Recht and Macht are required to achieve this. But even where, as with Schmitt, Macht is predominant, its purpose is to de®ne an arena which is subsequently relatively free of the need for it. Moreover, for all these positions, what makes political corruption an evil is that it undercuts the ability of politics to provide such a solution. Of course, there are many more appealing accounts of this `pull', but 39

Schmitt, The Concept of the Political, p. 61. Schmitt, The Concept of the Political, pp. 65 and 32. 41 Deborah Baumgold, Hobbes's Political Philosophy (Cambridge, Cambridge University Press, 1988). 42 Schmitt, The Concept of the Political, p. 68. 43 Schmitt, The Concept of the Political, p. 71. 40


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their scope of application is usually far more restricted and, prosaic though my suggestion is, it is likely to serve most of our purposes.44 VI I have sketched in very broad terms four possible ways of understanding the ethical appeal of politics. It should be clear that each position (and others) oers only a background set of assumptions against which more detailed debate about the practices of a state must take place. Views as to which institutional structures and political practices, what social and economic preconditions, and what balance between political and other forms of exchange, must be in place for politics eectively to order the identi®ed area of con¯ict, will vary greatly. On Hobbesian and republican grounds it is possible to believe that an absolute sovereign or a dictator is necessary ± but it is also possible for an essentially similar understanding of politics to generate much more moderate models of the state. Moreover, the scope of the political is not ®xed by these four positions, since political theorists will disagree about how far political rule can resolve certain types of con¯ict. Pepys's nasty proclivities with respect to Mrs Bagwell can be seen as being of marginal signi®cance in a view of politics which is concerned with welding together dierent interests and classes within a polity divided between court and country, and which sees the civil service largely as an adjunct to a patronage machine. But, in a view in which the fundamental political problem is securing freedom from domination,45 Pepys's activities could be condemned as a deeply corrupt extension of political power into the private sphere ± corrupt because self-serving and violating the injunction against arbitrary power. More modern concerns that the personal be recognized as political, in many cases, involve the recognition that apparently consensual arrangements are often sustained by the insidious, illicit and exploitative exercise of power by one group over others. In these accounts, activities which might otherwise be thought of as irrelevant to the political process can fundamentally challenge its legitimacy.46 Furthermore, because each account perceives the need for political rule dierently, what one account will see as resolving con¯ict, another will see as corrupt. Thus, where a state takes draconian action against an internal faction in the name of sustaining its sovereignty, it is open to challenge from an interpretation driven by a distrust of those exercising power. While Machiavelli

44 This has to be understood as a ®rst move in the argument. There are accounts of the political, such as the Aristotelian, which ground its ethical value in the particular way of life it oers its participants. But it should be recognized that Aristotle's account assumed that slaves and mechanics were incapable of political life. We thus risk a trade-o between the force of the ethical pull which a theory delivers and its inclusiveness. Taking the view I have adopted here seems closer to one central feature of the western liberal tradition (which Judith Shklar described as `The liberalism of fear', in Nancy Rosenblum, Liberalism and Morality (Cambridge MA, Harvard University Press, 1989), pp. 21±38) than does the Aristotelian account, but it does leave open the question of how stable a political culture can be in which `satis®cing' on the avoidance of radical harm is the predominant motivation of citizens. 45 Philip Pettit, Republicanism: a Theory of Freedom and Government (Oxford, Oxford University Press, 1997). 46 See, for example, Toni Morrison (ed.), Race-ing Justice, En-gendering Power: Essays on Anita Hill, Clarence Thomas, and the Construction of Social Reality (London, Chatto and Windus, 1993).


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can celebrate Borgia's skill in dealing with Romerro de Orca,47 or Schmitt might have recognized that it was necessary for Hitler to èxecute' Ernst Rohm, liberals, concerned with the way that political power quickly becomes arbitrary and self-serving, would see both as threatening to corrupt the character of true political authority. This does not mean that we are dealing with a core set of concepts ± politics, authority, corruption ± which are theory dependent and thereby essentially contestable.48 On the contrary, through the use of counterfactual speculation, detailed historical research, and careful theoretical construction, the student of politics can construct a case by identifying the type of imperatives these states really faced, the extent to which the political authority they sought to exercise was (or could have been) directed to resolving these imperatives, and the degree to which the actions of those in power came to be subverted by a range of aspirations and motives which imposed avoidable costs on those subject to them. It is extremely dicult to construct such arguments ± not least in an academic culture increasingly dedicated more to publishing than to thinking ± but it is in principle possible so to do. To resign oneself to the essential contestibility of politics and its corruption is to deny one's intellectual responsibility to establish the best possible case. In conclusion I want brie¯y to address three problems in the study of political corruption to see how far our understanding of them can be advanced by the arguments developed here. The ®rst concerns how we draw a distinction between corruption and incompetence; the second asks how far we can admit the view that political corruption may be functional; and the third re-opens the debate on how we should analyse the Metherall case. Most commonly, political corruption involves substituting rule in the interests of an individual or group for those publicly endorsed practices which eect an ordered resolution to con¯icting individual or group interests. Understood in this way it is easy to see the normative appeal of the political, and equally easy to see that a distinction can and should be drawn between corruption and, say, incompetence. Incompetence can be directly harmful, it can contribute to delegitimation, and it can undermine the ecacy of political solutions to con¯ict. But it diers from corruption, not because corruption involves intentional wrong-doing (since, as in the Greiner case, that intentionality may be doubtful), but because corrupt action directly subverts the distinction between the interests of the individual or group and the responsibilities of the oce, and thereby erodes the very distinction upon which the domain of politics relies for its capacity to resolve con¯ict. Greiner may not have intended to act corruptly but, in believing that he had the right to appoint public ocials so as to shore up his party's control of parliament he was denying that a distinction should be drawn between political appointees and employees in the public service. The Commission clearly believed that that distinction was central to sustaining the legitimacy of parliamentary and administrative activity.49 47

Machiavelli, The Prince, ch. VII. Cf. William Connolly, The Terms of Political Discourse (Lexington MA, Heath, 1974), ch. 1. The Court of Appeal majority judgement was that the Commissioner went beyond his jurisdiction in ®nding Greiner's behaviour `reasonable grounds for dismissal' because the grounds for such a judgement must be legal and objective. The dissenting opinion was that the conduct could constitute reasonable grounds for dismissal. So the disagreement was not over whether the distinction should be drawn, nor over whether Greiner's conduct violated that distinction, but over whether the appropriate standards for judging reasonable grounds must be objective legal standards or can be more subjective and intuitive in character. 48 49


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Super®cially, because it can have similar results, incompetence may seem like a type of corruption, but it does not put into question this distinction ± it may lead to open con¯ict, but it does not declare it in the heart of the political system. As we have seen, what is taken to be central to sustaining that distinction will vary, and may be vigorously contested, in political systems. Moreover, a great many activities enjoined by law, or not prohibited by it, may lead to the erosion of that distinction and the outbreak of con¯ict, so we need to distinguish a core set of cases of corruption, in which intentionality, illegality, and the substitution of private for public interests are all present, and a set of penumbra cases where more complex judgements have to be made about whether and to what extent these dierent criteria are met. But this broader analysis has to be informed by the recognition that what distinguishes corruption from other forms of destructive political behaviour is that it works by eroding the distinction between private and public concerns and interests. Extreme incompetence may lead to the collapse of political authority, but it does so because of its consequences, not because the actions of public ocials actively suborn that authority so as to pursue interests in a manner which that order is expressly designed to resist. This is why terrorist movements, although they introduce war, are not corrupt ± because, while they deny the validity of the existing political system, they implicitly project a conception of a political solution in which the distinction between the public and their private concerns is sustained. Similarly, authoritarian regimes, such as Hitler's Fascist state, may come to pursue goals which are so grandiose, and so appalling in their consequences, that we may be tempted to describe them as corrupt. But, while many individuals within such states are deeply corrupt, not all are, and for many there remains a clear sense that in accepting oce they were accepting certain public responsibilities. It is, however, another issue as to whether these men and women, by refusing to ask questions about what was happening elsewhere in the state, by putting their self-protection above a broader sense of public responsibility, or, by allowing themselves unre¯ectingly to indulge their prejudices and passions, increasingly sacri®ced the integrity which public oce requires, resulting in the eventual corruption of the entire political order. We need to distinguish carefully between the question as to whether or not a type of political authority (with an associated conception of public oce) is being preserved, and the question of whether there is any ethical standing left attached to that authority. Many things may erode the ethical force of political authority, without that authority being corrupt. The view that corruption can be functional is one which has caused a good deal of contention. In his brief but elegant discussion of the thesis, Jon Elster identi®es two premises upon which the objection to the arguments for the functionality of corruption can be founded: that corruption is only useful when there is not too much of it, and that corruption feeds upon itself.50 If both hold, as seems plausible, then what initially looks like the best solution, moderate levels of corruption, begins to seem unfeasible. The two stable equilibria are limited corruption and heavy corruption ± moderate corruption is not an equilibrium position. Or, as Elster puts it: `Beyond a certain threshold, the whole fabric of society may unravel'. 50

Jon Elster, The Cement of Society, pp. 268±72.


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Elster's argument is, within limits, persuasive. Moderate corruption can only be functional if it does not encourage heavy corruption; but where it is tolerated it inevitably produces widespread corruption, and where it is systematically penalized it tends to limited corruption. Nonetheless, the suggestion that corruption can be functional is not necessarily incompatible with the argument advanced here. The most common claims for functionality are made with respect to economic development. The account I have given has assumed that the political order of a state is roughly appropriate for the conditions of that state. Obviously, this is not always the case. State-socialist societies in eastern Europe were, for the most part, very inecient and deeply riven with corruption ± necessarily so because people were often unable to meet targets and deliver services without systematically breaking the rules.51 Under these circumstances, corruption was clearly functional both to the economy and to continuing political stability ± albeit in the short to medium term. But, in such cases, there is such a divergence between the ocial and the unocial culture that it is clear that the political system of authoritative allocation is for the most part a sham and could only be implemented by the state declaring war on its society. Short of this, something like a take-over occurs of various areas of political allocation by covert marketization or, more commonly, by some form of patrimonial or patron-client type exchange, and this subversion can result in economic progress, and may also force political changes.52 However, this process is not costless: although open con¯ict may not result, covert patterns of domination by some groups or individuals over others do tend to emerge, and there is a danger that the corrupt but functional activity becomes so widespread that it makes it extremely dicult to re-establish the political order on a new footing. Moreover, claims for functional corruption remain troubling wherever the ocial culture continues to command lip-service and where, consequently, discovery of covert activity can result in costs. Under these conditions, even where there seems no alternative but to engage in bribery, black-marketeering etc., the result is rarely pure marketization of exchange. On the contrary, exchanges come with hooks on them ± one's willingness to engage in certain activities means that others have information which you would prefer them not to use, which means it has a price. In that respect it diers markedly from legitimate forms of market exchange. The residue of the transaction is a price which is paid by the transaction remaining open ended ± with the participants remaining exposed to others and to potential future costs. This is less of a problem the more equal the two participants are in their attitude to the political order. Two equally unwilling rule violators pay equivalent prices in their exchange. But where one violator has behind him a syndicate for organized crime, while the other seeks a one-o exchange outside a system of rules to which he remains committed in principle, the real prices paid may be radically dierent. Under the pressures of circumstance, people may engage in activities in which they eectively attach little cost to potential future consequences but, 51 As clearly did happen in certain areas in Russia once the communist system began to fall apart ± see Leslie Holmes, The End of Communist Power: Anti-corruption Campaigns and Legitimation Crisis (Carleton, Melbourne, Melbourne University Press, 1993). 52 This does not mean that the scope of politics is ®xed. What was appropriate in the civil war in the USSR after the revolution was not necessarily appropriate later ± the boundaries between, e.g., politics and economics are not set in stone.


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while such transactions may be functional to economic development or unfreezing a politically strangled economy, they can set in place relations in which some groups are able systematically to shape the behaviour of others in the future. Shedding one's tainted past is not easily done. In eect, moderate to widespread corruption requires that people make a gamble on future immunity ± but that gamble does not always pay o, and they then become prey to those who hold information they want to keep secret. Moreover, it creates incentives for those who have discounted future punishment to block the establishment of any system in which they may be held responsible for their past activities ± and this is true not only for those committed to non-political solutions, but also for those who are not so committed but who have an interest in avoiding any political solution in which they may have to bear costs for past activities. Alliances between Ma®a gangs and politicians with an interest in avoiding certain types of control mechanism and public accountability can produce very weak forms of political control within a state. Greiner's characterization of politics (as I understand it) is that it is a process of struggle for the exercise of sovereignty, by groups who have to use the distribution of oce and patronage as a way of consolidating their grasp on the powers of the state. To take away those powers of patronage would be to destroy the government's capacity to hold together otherwise atomistic and factional tendencies within its political institutions. One way of characterizing the disagreement between Greiner and the Commission is that the latter was working with a more classically liberal set of concerns about politics serving the public interest and not being exercised in an arbitrary manner. But there is a much deeper issue at play here concerning the balance between the legitimacy of outcomes being guaranteed by procedures and the legitimacy being guaranteed by eects. The more discursive conceptions of politics, in which public deliberation and collective understandings play a substantive role in ensuring the legitimacy of the outcomes of the political procedures are in stark contrast to a more Schmittian realism with respect to the political process as a struggle for the assertion of sovereignty over a territory. The disagreement between Greiner and the Commission, if couched in such contrasting terms, reveals deeply con¯icting conceptions of politics. Nothing I have said here denies such con¯ict. It may be that if we understand the political process in a certain light we will see it as essential that what many liberals would see as `rules of the game' should be regarded as themselves open to strategic manipulation by the players. But that argument would not involve denying the distinctive character of political authority. Even the insistence that politics must get dirty depends on a particular understanding of the imperatives which face attempts to establish political authority. Political realism bows to what it recognizes as political necessity. And while there are philosophical anthropologies and a range of foundational commitments behind both realism and its alternatives, there are also more empirical issues in play ± issues which might, for example, lead us to endorse Schmitt's account as capturing the central feature of politics in the Weimar Republic, or in many European states after 1914, without thinking that the account works across all conditions. As such the case for or against realism is one which we have to recognize as to some extent empirical. In the case of Greiner, we have to ask whether the political, economic, and cultural conditions of New South Wales were such as to necessitate the politicization of public appointments to the degree Greiner claimed, or whether # Political Studies Association, 1997

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he was falling back on political re¯exes appropriate to an era in which the grip of the political order over its citizens and the political leadership over its supporters was substantially more fragile. The Commission's judgement clearly challenged the long-standing, partly self-serving, but increasingly contested norms of an eÂlite political culture, and it sought to put an end to the use of public resources by politicians in their struggles for power ± struggles which can so blind the participants that they come to confuse their activity with the pursuit of the common good ± but it did so not to abolish politics, but to preserve it in a more democratic and accountable form. And in a choice between Greiner's version of politics and the Commission's, the latter seems both to meet the requirement of practical feasibility and to have greatest ethical weight.



Corruption Networks, Transaction Security and Illegal Social Exchange JEAN CARTIER-BRESSON Introduction Ever since the publication of Ban®eld's seminal article,1 economists have traditionally observed that corruption becomes possible as soon as three types of economic parties exist: an agent, a principal, and, lastly, a third party whose gains and losses depend upon the agent. In this literature, the agent is corruptible to the extent that he has, a priori, the ability to conceal his corruption from his principal. An agent becomes corrupt when he sacri®ces the interests of his principal to his own bene®t, and in so doing, breaks the law. According to this de®nition, then, corruption is merely a particular model of agency relationship. According to Ban®eld, three types of measures would be likely to reduce corruption, which is hypothetically endemic given human opportunism: . inducing loyalty through salary policies;2 . using the threat of sanctions to make the consequences of exposure more serious;3 . monitoring agents' activities by systematic audit policies in order to increase the likelihood of detection. According to the standard work on the economy of corruption,4 one should also add the following to these anti-corruption policies: . rules which reinforce competition between politicians, provided that political challengers are pushed into denouncing corruption, that pressure groups establish themselves legally and openly, and also that voters stay vigilant and interested in the results of public policies; . measures aimed at improving both the precision of public demands made by decision makers (politicians) and competition between ®rms seeking public contracts; . steps which would maintain competition between the administrative departments implementing political decisions. The hypothesis is that the consolidation of such types of competition will improve the quality of information at the disposal of the principals and the 1 E. C. Ban®eld, `Corruption as a feature of governmental organisation', Journal of Law and Economics, 18/3 (1975). 2 G. S. Becker and G. Stigler, `Law enforcement, malfeasance and compensation of enforcers', Journal of Legal Studies, 3/1 (1974). 3 G. S. Becker, `Crime and punishment: an economic approach', Journal of Political Economy, 76 (1968). 4 S. Rose-Ackerman, Corruption: a Study in Political Economy (New York, Academic, 1978).


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potential victims (the voters in the case of legislative corruption, the politicians and the tax-payers in the case of administrative corruption). In the conclusion of her book, Rose-Ackerman reminds us that these measures, in order to be ecient, require the existence of a democratic ideology and a sense of personal ethics.5 The author's frame of reference is the pluralist model of American political scientists (Dahl, for example). Following this logic, there is constant competition between and within organizations (political parties, the administration, pressure groups) and this assumption reinforces the idea of a political or bureaucratic market which interacts with the economic market. Implicitly, the majority of economists, following the literature on the economics of crime and the `rent-seeking society',6 have built models of a market for corruption in which supply and demand operate within the constraints of juridic or electoral sanctions;7 or else a theory of corruption contracts which reduce illegal transaction costs;8 or, lastly, a game-theory model of corruption which studies the risks involved in failing to honour contracts.9 Nevertheless, in the great majority of cases, exchanges between parties implicated in corruption are practically institutionalized; these exchanges are developed between formal entities who already know each other and who operate according to organizational forms that aim to oer transaction security and a certain price stability. In this context, the risk of detection and sanctions is no longer an increasing function of quantity, and the price demanded by politicians is not determined by the probability of sanctions. The risks of sanctions and unhonoured contracts are very low in the case of systematic corruption. Normalized illegality10 clearly signi®es that speci®c transactions are clandestine, while the global presence of the phenomenon is known to a large 5 `The fundamental lesson to be learned from this degenerate case (second-best model of democracy), however, is not that corruption may be a good way of achieving the majoritation principle, but that the personal moral beliefs of voters, politician and bureaucrats play an essential role in modern democracy', Rose-Ackerman, Corruption, p. 234. 6 A. O. Krueger, `The political economy of rent-seeking society', The American Economic Review, 64 (1974). J. Buchanan, R. D. Tollison and G. Tullock (eds), Towards a Theory of Rent-Seeking Society (Texas, A&M University Press, 1980). R. D. Tollison, `Rent-seeking: a survey', Kyklos, 35/4 (1982). A. L. Hillman and E. R. Katz, `Hierarchical structure and the social costs of bribes and transfers', Journal of Public Economics, 34 (1987). G. Tullock, The Economics of Special Privilege and Rent Seeking (Kluwer Academic, 1989). 7 R. Tilman, Èmergence of black-market bureaucracy: administration, development and corruption in the new states', Public Administration Review, 28/5 (1968). O. Johnson, Àn economic analysis of corrupt government, with special application to less developed countries', Kyklos 28 (1975). Rose-Ackerman, Corruption. M. Beenstock, `Corruption and development', World Development, 7 (1979). B. L. Benson and J. Baden, `The political economy of governmental corruption: the logic of underground government', Journal of Legal Studies, 14 (1985). R. Klitgaard, Controlling Corruption (University of California Press, 1988). M. S. Alam, `Some economic costs of corruption in LCDs', The Journal of Development Studies, 27 (1990). A. Shleifer and R. Vishny, `Corruption', Quarterly Journal of Economics, August (1993). 8 P. Reuter, Disorganised Crime; the Economics of Visible Hand (MIT Press, 1983). M. Turvani, Ìllegal markets and new institutional economics', Mimeo, conference (Economie des couÃte de transaction, Paris, 1994). 9 J. Macrae, Ùnderdevelopment and the economics of corruption: a game theory approach', World Development, 10/8 (1982). F. T. Lui, À dynamic model of corruption deterrence', Journal of Public Economics, 31 (1986). O. Cadot, `Corruption as a gamble', Journal of Public Economics, 33 (1987). S. Zamagni, `Sul processo di generazione della corruzione sistematica', in L. Barca and S. Trento (eds), l'Economia della corruzione (Libro del tempo laterza, 1994). A. Vannucci, Ìl Mercato della Corruzione. I meccanismi dello Scambio Occulto in Italia', Thesis (1995). 10 S. Trento, Ìntroduzione' in Barca and Trento, l'Economia della corruzione.


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number of parties who remain passive, employing a free-rider strategy.11 As Heidenheimer12 and Padioleau13 realized, the political economy of corruption treats only occasional and unorganized exchanges between impersonal agents (market corruption) and forgets parochial corruption. The hypothesis of the economists is therefore to think that in modern economies, archaic corruption (parochial corruption) gives way to modern corruption (market corruption). Rose-Ackerman14 provided a good de®nition of the frame of reference of theories of corruption markets when she wrote, `My major purpose has been to examine the pathology of relatively healthy organisms, however, I have concentrated upon political systems in which legislative-bureaucratic collusion is not a central problem' (emphasis added). From the moment when collusion between political parties, the top echelons of administration and private or public businesses becomes the basis of a large scale corruption in Europe, it is necessary to broaden the economic approach by examining how dierent resources (economic/political, social, symbolic) are exchanged. This type of exchange between political, economic and social systems is not the pluralist model, but rather the model of neo-corporatist democracies in which consultation and co-management form the basis of the politico-economic system.15 Thus, from our point of view, in modern societies parochial corruption is often more evident than market corruption. For French specialists, repression in the ®ght against corruption16 must leave room for preventive policies that necessitate, ®rst of all, an analysis of the 11 J. Cartier-Bresson, `L'eÂconomie de l'information et l'analyse des reÂseaux de corruption', HermeÁs (CNRS, DeÂmocratie et deÂmocratisation, 1996). What the economy of information and of collective mobilization has shown is that if a mere piece of information was enough to engineer a moral reaction from the principals, a more rational and utilitarian reaction on their past would lead them to two conclusions regarding costs and bene®ts. The ®rst calculation that potential victims (the principals) have to make is about the amount of rational eort required in order to obtain the information enabling them to control agents' actions by audit commissions. If, following that, the agreed audit commissions ®nd evidence of betrayal, a second calculation follows. This is to do with the positive consequences it is hoped to secure by the use of information (bene®ts obtained by sanctions and compensations) after choosing to take action (costs). The high cost of securing information and taking action leads to the passivity of the victims from the moment that the losses are spread over numerous actors (the tax-payers) and the pro®ts concentrated in a small number of agents (®rms and public actors). M. Olson, The Logic of Collective Action (Cambridge MA, Harvard University Press, 1965). 12 A. Heidenheimer (ed.), Political Corruption: Readings in Comparative Analysis (New York, Rinehart and Winston, 1970), pp. 18±9. 13 J. G. Padioleau, L'Etat au Concret (Paris, Presse Universitaires de France, 1982), ch. 6. 14 S. Rose-Ackerman, Corruption, p. 212. 15 Schmitter notes that the dominant paradigm of pluralist theory postulates a free competition between interests for access to public resources, which does not account for the relationship speci®c to some European countries between interest groups and public policies. Neo-corporatism `can be de®ned as a system for representing stakes, a system in which the constituent bodies are organised into a limited number of categories which are speci®c, compulsory, non-competitive, acknowledged, or accepted ± if not created ± by the state and which have been guaranteed a deliberate monopoly of representation inside their own category, in exchange for the observance of certain controls over the selection of leaders and the relationship between demands and interests' (emphasis added). P. Schmitter, `Still the Century of Corporatism', in P. Schmitter and G. Lehmbruch (eds), Trends Towards Corporatist Intermediation (Sage, 1979). 16 R. Rapport Bouchery, PreÂvention de la corruption et transparence de la vie eÂconomique. Rapport au premier Ministre, Collection rapports ociels, La documentation francËaise (1993). LOI anti-corruption, du 29 janvier 1993 (Guettier, Dalloz, 1993). Rapport Rozes au premier Ministre, Regard sur l'actualiteÂ 207, jan 1995, La documentation francËaise (1995).


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organizational forms of the phenomenon. As a premise for a method complementary to the political economy of corruption, the aim of this contribution is to explore organizational forms favouring the expansion of corruption. The purpose of this paper, therefore, is not to study the causes, object, and consequences of demand and supply for bribes, nor to present the economic literature on the subject;17 rather it is to understand how individual exits from the legal system are established18 and how such `treason' becomes organized into corruption networks. Similarly to all other markets, the corruption network is embedded in the social structure.19

De®ning a Socio-economic Network of Corruption 20

As Padioleau has remarked, the political economy of corruption deals only with limited and non-organized exchanges of impersonal agents, although the phenomenon starts to pose an economic and political problem when it is institutionalized and organized, thus changing its frame of reference.21 Corrupt exchange can be limited and non-organized (market corruption or economic exchange corruption) or, in contrast, regular and organized (social exchange corruption). In the ®rst case, there are no rules of the game and the exchange is unstable by nature and leads to bargaining directed by impersonal agents who do not know each other. In such conditions, there is strong uncertainty about the price of the corrupt transaction and uncertainty about the result. In the second case, corruption turns into a political, economic and social exchange. The organization of corruption by social networks then prevails and enables a real institutionalization of procedures.

17 J. Cartier-Bresson, ÈleÂments d'analyse pour une eÂconomie de la corruption', Revue TiersMonde, 131 (1992). J. Cartier-Bresson, `Corruption, pouvoir discreÂtionnaire et rentes', Le DeÂbat, 77 (1993). J. Cartier-Bresson, `De la deÂ®nition d'un marcheÂ de la corruption aÁ ses formes organisationnelles: un premier bilan des analyses eÂconomiques de la corruption', in D. della Porta and Y. MeÂny (eds), DeÂmocratie et Corruption en Europe (La deÂcouverte, 1995) (Now in English: `The Economics of Corruption' in Democracy and Corruption in Europe (London, Pinter, 1997). J. Cartier-Bresson, `Corruption, eÂconomie et deÂmocratie', ApreÁs demain, 370, reprinted in ProbleÁmes eÂconomiques, 2.432 (juillet, 1995). 18 A. O. Hirschman, Exit, Voice and Loyalty (Cambridge MA, Harvard University Press, 1970). 19 M. Granovetter, Èconomic action and social structure: the problem of embeddedness', American Journal of Sociology, 91/3 (1985). M. Granovetter, `The Sociological and Economic Approaches to Labor Market Analysis: a Social Structural View', in M. Granovetter and R. Swedberg (eds), The Sociology of Economic Life (Westview, 1992). 20 Padioleau, L'Etat au Concret, ch. 6. 21 Ìn this situation (economic exchange corruption or barter corruption), we are dealing with an exchange in which an agent A only does X if agent B reciprocates by doing Y. Thus in the case of barter corruption, the terms of the ``contract'' are clearly set out between parties; goods are exchanged at the time of the transaction and the contract speci®es precisely the reciprocal obligations of the protagonists (. . .). On the other hand, in a complex political society in which power is a ``widespread medium'', corruption through an exchange of favours is also expressed by what seems to us other types of transactions (. . .) more complex and dierentiated than the ordinary relationship of economic exchange (. . .). In the corruption that we shall call social exchange corruption, the terms of the transaction are not all set out precisely and carrying out the ``contract'' is largely up to one of the corrupted agents who will be a recipient of the favours. As a result, if tacit reciprocity is expected, the exact nature of the compensation and the timing of the exchange is not precisely established.'



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Most economists distinguish only between market and hierarchy coordination.22 But, markets are just one among various alternative and often complementary coordinating mechanisms. Hierarchies, networks, associations, and states have frequently been important mechanisms for coordinating actors in capitalist societies when adequate designs are blended.23 Yet, the logic of hierarchy is permeable to the logic of competition and solidarity; the logic of competition is permeable to that of organization and solidarity.24 Trust, reciprocity and long term relationships are sustained by community-like structures.25 In our approach to socio-economic networks,26 any form of action at the micro-social level is a combination of a whole set of coordination principles. In each act we ®nd the principles of market coordination C (that is, of competition, sel®shness, with prices as the main adjustment variable), of hierarchy H (based on authority and obedience), and of solidarity S (which allows for con®dence through proximity).27 Our assumption, then, is that one form of coordination cannot survive without the other. Each act mobilizes in variable and inseparable proportions C, H, and S. Internal and external markets28 are subject to the same logic, that of mixed regulation, and they experience modalities of hybrid coordination. Economic action is thereby embedded in social structures. Mixed regulation refers to the existence of combinations of explicit and implicit, formal and informal, rules that maintain creative tension in all choices and actions. Whereas the neo-classical paradigm assumes that individuals are sovereign, we argue that individual action is in¯uenced by the hold that institutions have on individual decision making.29 In the case of large scale corruption among eÂlites, often aimed at ®nancing political activities, the generalization of transgressions has been brought about through informal social exchanges (gentlemen's agreements) which are nonetheless illegal. The illegal organization of corruption structures the behaviour of various parties who possess unequal resources, dierent objectives, and who want to develop a certain cooperation and coordination stability, made necessary by the 22

O. E. Williamson, The Economic Institutions of Capitalism (New York, Free, 1985). R. Hollingsworth and L. Lindberg, `The Role of Markets, Clans Hierarchies and Associative Behavior', in W. Streeck and P. Schmitter (eds), Private Interest Government: Beyond Markets and State (Sage, 1988). J. Campbell, R. Hollingsworth and L. Lindberg (eds), The Governance of American Economy (Cambridge, Cambridge University Press, 1991). J. R. Hollingsworth, P. Schmitter and W. Streeck (eds) Governing Capitalist Economies: Performance and Control of Economic Sectors (New York, Oxford University Press, 1994). 24 E. Friedberg, Le Pouvoir et la ReÁgle, Dynamique de l'Action OrganiseÂe (Seuil, 1993). 25 K. Polanyi, The Great Transformation: the Political and Economic Origins of our Time (Beacon, 1957). D. North, Structure and Change in Economic History (Norton, 1981). 26 Granovetter, Èconomic action and social structure'. R. Swedberg, Current Sociology (Sage, 1987). Granovetter and Swedberg, The Sociology of Economic Life. 27 According to Boyer and Hollingsworth, informal networks are loose groups of individuals and organizations between whom transactions are conducted on a basis of mutual trust, itself supported by relationships which are stable, speci®c, mutually compulsory and not legally controllable. They can remain intact thanks as much to consensus values as to dependence on resources ± which means through `culture' and `community' or through dominant units who impose a dependence on others. In most of these cases, they interact in an obviously dierent way to markets, hierarchies and states. R. Boyer and R. Hollingsworth, `From national embeddedness to spatial and institutional nestedness' and `Coordination of economic actors and social systems of production', Mimeo (1995). 28 C. Sabel, `Studies Trust: Building New Forms of Cooperation in a Volatile Economy', in F. Pyke and W. Sengenberger (eds), Industrial Districts and Local Economic Regeneration (Geneva, International Institute for Labor Studies, 1992). 29 A. Etzioni, The Moral Dimension: Towards a New Economy (New York, Free, 1988). 23


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illicit nature of their activities. Among the forms possible for the organization of corruption transactions (based on the market, hierarchy, proximity or solidarity), the network is one possible option allowing us to draw up a reference model well-suited to the reality of institutionalized large scale corruption. A perspective which emerges is that neo-corporatist theories of organized interest intermediation between state and civil society oer the possibility of asserting public authority, but under limited state sovereignty. Corruption networks are in that sense an extension of social legal networks (relational networks).30 The normalization of acts of corruption operates by 30 (a) Relational and legal networks `This system (the French administration), however, which is rigid, compartmentalized, centralized, often proves to be dysfunctional and must be reformed by creating networks which make hierarchies more ¯exible, go beyond frontiers, overcome divisions or structural antagonisms. The combination of these two elements does the rest: there is nothing more ecient in this system than the union of power and the adherence to one or, if possible, several networks. The accumulation of attributes and resources reduces the capacity for action, in¯uence and control (. . .). In France, the dierent networks do not negotiate very much and isolate themselves from each other: each manages its interests through a small group without bothering the others.' Y. MeÂny, La Corruption de la ReÂpublique (Paris, Fayard, 1992). `This phenomenon of social oligopoly rests on the concentration of intrinsically monarchic power in the hands of one person, the whole thing being based on several networks.' J. F. MeÂdard, `France-Afrique: des aaires de famille', in D. della Porta and Y. MeÂny (eds), DeÂmocratie et Corruption en Europe (La DeÂcouverte, 1995). `High civil servants create networks which go beyond the frontiers between administration and politics, left and right wing, private and public sectors. One cannot overlook the fact that such connections favour decision making and the implementation of public policies. It does not however operate without some dangers, the main one being the confusion between competence and loyalty.' E. Suleiman, `Les eÂlites de l'administration et de la politique dans la France de la V ReÂpublique: homogeÂneÂiteÂ, puissance permanence' in E. Suleiman and H. Mendras (eds), Le Recrutement des Elites en Europe (La DeÂcouverte, 1995). (b) Corruption networks `Corruption happens with collective networks created one after the other which tends to eliminate the feeling of guilt and responsibility.' J. Becquart-Leclercq, `Paradoxes de la corruption politique', Pouvoirs, 31 (1984). `The corrupt exchange usually needs a vast network of protection (. . .) I shall oer a few thoughts on the places where this whole exchange network is created, that is to say these seats of occult power which enable the reproduction and spreading of corruption (. . .) the enlarged reproduction of corrupt exchange can take place because of a complex network of relationships and associations which bring together public and private agents as well as mediators and this builds the basis of a reciprocal loyalty enabling the continuity of exchanges.' D. della Porta, `L'eÂchange corrompu' in P. H. Claes and A.-P. Frognier (eds), L'eÂchange Politique (EÂdition libre de Bruxelle, 1995). À third case (of corruption) is when getting a favourable decision is the result of friendly networks. The ability to move from one ®eld to another or a privileged access to politico-administrative decisionmakers smooths away diculties.' Y. MeÂny, `La ®n de l'eÂthique reÂpublicaine?', in D. della Porta and Y. MeÂny (eds), DeÂmocratie et Corruption en Europe (La DeÂcouverte, 1995). Òne constant clearly emerges from the preceding pages and that is the importance of interpersonal relationship networks in the relationships between the French state and African states. This is why the analysis of social exchange throws an original and pertinent light on the patrimonial logic of these relationships.' J. F. MeÂdard, `Theorie de l'eÂchange et eÂchange politiques', in Claes and Frognier, L'eÂchange Politique. `The ®nancial stakes being enormous, the organizers of big frauds are associated and structured in the same way as traditional commercial businesses; to this way of working, one can add a characteristic called ``Network'', which implies a compartmentalized system based on the specialization of tasks (. . .) some types of fraud can only happen through corruption networks involving representatives of the public authorities in one or several countries'; `These practices show the existence of networks the extent of which can be unknown to those very people who belong to them'; `the existence of operational networks and commercial channels created to last; corruption here is not a limited aair, however important it may be, but rather a lasting and continuous phenomenon'; `Networks, channels, contracts ± like Matruschka [Russian dolls], the organization of big commercial frauds is structured, organized into hierarchies; it needs the involvement of an important number of specialized agents' Service Central de PreÂvention de la Corruption, `Commerce international et corruption', in J. Cartier-Bresson (ed.), Practiques et controÃles de la Corruption (Association d'eÂconomie ®nancieÁre, Montchestier, 1997) pp. 188±199.



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letting the gap between the spoken order and the order of concrete hidden practices suited to each environment become common place. Such occult practices are not necessarily illegal. MeÂny,31 thinking more precisely of political practices, speaks of ùniversalistic principles and particularistic behaviours'. This involves a confusion of values: organizing politics on the lines of the civil service, and the civil service on the lines of politics. This confusion, however, is not always reduced to the existence of market values in a non-commercial job, since power and recognition do not merely amount to accumulating money. Thus, when corruption de®nes a political system and not individual behaviour, there is more than a monetary exchange and the tendency to cheat with the supposed values of the systems (political, economic, administrative) is based on the confusion of roles, values and the concentration of functions. The exchanges of corruption are multidimensional in the sense that several types of exchange are accumulated within the same process: material exchange, information exchange, sign exchange, symbolic exchange, etcetera. It is from this perspective that we have privileged the hypothesis of a social exchange over that of an economic exchange. The value systems which underlie each area become hybrid. Thus, a contradiction emerges between the proclaimed ideal, the separation of functions and the values associated with them, and a practice which is based on the complete rejection of this ideal: weakness of incompatibilities, accumulation of mandates, pantou¯age (`revolving door' between public and private sectors). The term hybrid implies that the neutrality attached to the action of the administration is a value with no real foundation. The most important administrative departments train the agents who will take the important decisions in all areas. As a result, corruption is an exchange of dierent goods which belong to the norms of the social reproduction of the eÂlite. In our approach,32 a corruption network is structured in a clandestine manner by mobilizing multiple `resources' such as ®nancial interests, obedience to hierarchy, solidarity, family, friends (ethnic or tribal, religious, political, regional, sectorial, corporative . . .), violence. Its objectives, which are no less multiple, range from covering up illegal activities ± small or large ± to the rerouting of competition practised in a legal market. The objectives also include the funding of political parties. The enlarged reproduction of corrupt exchanges can be explained by a complex network of interpersonal relationships and associations. The diversity of the actual forms of corruption networks regarding the formality, centralization, and ®nalization of their activity, the degree to which decisions are delegated, their divisions of labour, and their stability obviously vary in accordance to their country, regions, activities, and so on. According to della Porta and Vannucci,33 the foreseeable palette ranges from the most formal structure (the tribe; il clan, il comitato d'aari, la frazioni di partido) to the least formal (occasional association).

31

MeÂny, La Corruption de la ReÂpublique. J. Cartier-Bresson, `Les reÂseaux de corruption et la strateÂgie des ``3S, Sleep, Silence, Smile'' ', in M. Borghi et P. Meyer-Birsch (eds), La Corruption, l'envers des droits de l'homme (Editions Universitaires de Fribourg (Suisse), 1995). 33 D. della Porta, Lo Scambio Occulto (Il Mulino, 1992). D. della Porta and A. Vannucci, Corruzione politica e amministrazione pubblica (Il Mulino, 1995). 32


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The Heterogeneity of Values and the Procedural Rationality of Behaviour in Corruption Networks The politician wants to establish power in general and/or achieve personal enrichment, whereas the entrepreneur seeks rents and/or contacts with `wellknown ®gures', the political party employee seeks to raise funds for the party cause and/or improve personal life chances, and the disenfranchized wants to facilitate his access to housing and health care. But, in their search to `maximize' an objective, they mobilize a set of resources (political, economic and social) and coordination principles (competition, hierarchy and solidarity) which function as joint products. This mix of friendship, interest, and obedience gives rise to unwanted and unforeseeable eects. In parallel, mimetism is a determining factor in the expansion of corruption. Thus it is a principle of imitation rather than substantive rationality which is at the origin of exits; and so the utilization of economic rationality often fails adequately to explain the phenomenon. The corruption network is a site which both integrates and upholds multiple systems of values and hybrid motivations. The eciency of a network organization is due in large part to its capacity to oer a minimum common objective to individuals possessing strongly heterogeneous cultures, resource endowments, and motivations. The heterogeneity of the parties is at the base of the corruptive exchange. Lastly, the network is an authority which integrates the economic and the social because, to accumulate ®nancial and political power, the network develops from principles of mutual aid and solidarity. Networks are organized through the institution of systems of rights and obligations imposed upon the individual and given priority over other systems of rights and obligations: family, ®rm, state. Each individual is de®ned by his `priority' network: respecting the rights and obligations of the network comes before defending one's individual utilitarian interests. The corruption network allows for illegal transactions based on mercantile relationships of competition, hierarchy (obedience), and solidarity (con®dence). The force of networks lies in allowing for the development of a procedural rationality based on learning processes in the handling and combination of these three variables. The Corruption Network Scrambles Boundaries The representational crisis means that new connections arise between new parties. The concept of network, in this sense, brings about a deconstruction of categories (e.g. administrations and entrepreneurs) to the bene®t of another form of relationship (e.g. the friendship between a civil servant in the industry ministry and an entrepreneur). The concept of network is a category-smashing machine. Such deconstruction becomes necessary when the analysis no longer seems to function under routine processes of aggregation. The de®cit of old representations and the gap between the observed object and its new reality ± which is only imperfectly grasped by traditional statistical categories ± accelerates reference to the network. In other words, analysis by network becomes necessary when traditional boundaries are rendered irrelevant by the unexplained evidence. The concept is concretized in organizations which rede®ne these boundaries by authorizing alternative forms of socialization. # Political Studies Association, 1997


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The construction of a corruption network aims at including pieces of the environment in the organization owing to a system of alliance between two individuals or collective parties against a third party (the victim). This alliance aims at reducing the parties' dependence on legal organizational boundaries and constructing instead a favourable environment, negotiated in secrecy. The objective is to develop interpenetration (of agents) at the heart of organizations by softening the rigidity of organizational boundaries. Through this, the network creates a web of pertinent interlocutors who are concerned with the de®nition of problems needing to be resolved and by their solutions.34 The network takes shape by assuming from the start that the legal boundaries of organizations are already scrambled and that clear separations between an organization's interior and its exterior do not exist in our economies. For example, in contemporary capitalism, ®rms are weighed down with regulations and the state's function is to improve the dynamism of these same ®rms (through industrial policy, for instance). Under these circumstances the boundaries between the public and the private spheres are scrambled and a corruption network is merely the illegal extension of the legal ambiguity we see through multiple forms of lobbying and pressure being exercised on and in the state. The corruption network is characterized by an entanglement of its activities and by the multiplicity of skills ocially performed by its members. Wade35 describes a corrupt network in India's irrigation sector. It involves parties as diverse as peasants (purchase of water), mayors (purchase of maintenance contracts that give work to members of the community and assure their own re-election), local state engineers (who take in money from the peasants, who then give part of it to their superiors in order either to climb up the hierarchical ladder of the administration or to obtain nominations to be posted to zones oering greater opportunities for corruption), public works contractors (purchase of dam construction and maintenance contracts from high state ocials) and political parties (sale of contracts to public works ®rms via high state ocials, and purchase of votes from peasants and mayors). The illegal exchanges are integrated into a larger legal network which is that of clientelism and the reign of favours. Closer to home, in France a `model' network of political corruption mobilizes three types of parties to French clientelism: nominated or elected politicians (ministers, deputies, aides), administration ocials (political nominees or career civil servants), and entrepreneurs. It is in this framework that pantou¯age is extremely ecient, because the same party represents diverse professions or social worlds. In the same manner that the accumulation of public mandates sets up a circulation of information sharing and decision making between dierent levels of the nation36 the corruption network borrows its logic of interpenetration from the top management of large ®rms: an exchange of seats 34 Schmitter and Lehmbruch, Trends Towards Corporatism Intermediation. S. Berger (ed.), Organising Interests in Western Europe (Cambridge, Cambridge University Press, 1981). J. H. Goldthorpe (ed.), Order and Con¯ict in Contemporary Capitalism (Oxford, Clarendon, 1984). G. Lehmbruch, `Concentration and Structure of Corporatist Networks' in Goldthorpe, Order and Con¯ict in Contemporary Capitalism. 35 R. Wade, `The system of administrative and political corruption: canal irrigation in south India', The Journal of Development Studies, 18/3 (1982). R. Wade, `The market for public oce: why the Indian state is not better at development', World Development, 13/4 (1985). 36 MeÂny, La Corruption de la ReÂpublique.


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on company boards allows for the development of an informal network that serves as a support structure for relationships between cartels. In a country like France, coalitions have always created private-interest groups because the structures of capitalism have been forged by the power of cross-participations and been managed by parties coming from in¯uential state institutions.37 In this context a ®rm is a visible segment of a larger whole, itself opaque and blurred. Neo-corporatism is thus a social system in which the state helps create private mediators by oering them a monopoly of expertise in exchange for comanagement of the problems likely to arise. Pressure groups need access to politicians (a privileged access to decisions and public resources thanks to the monopoly of representation) and the latter need information from pressure groups as well as their ability to stabilize the social environment of a public policy. There is therefore a mutual arrangement and an exchange of dierent resources (economic, social and political power). The legal networks of neocorporatism include in a more or less formal fashion professional people, high civil servants from the main departments of the state who have the ability to look at political problems from a technical angle and at technical problems from a political angle and ®nally, elected politicians. In theory, then, information exchanges, transactions and dealings between mediators and the state take place through legal networks. In areas as important as industrial politics and the politics of energy or telecommunications, the members of the mediator network come from the same eÂlite schools (Polytechnique, l'ENA, etcetera)38 and their work is developed on the fringes of administration, politics and the markets structured by public and private sector businesses. From this point of view, in neo-corporatist systems, mediation networks of administration are made up of the most politicized eÂlite of the public service. French-style large scale corruption could not have been developed without a politicization of the administration (the criterion of allegiance as a key variable in the development of the career) and a bureaucratization of politics (politicians coming from the civil service). The ®nancing of the political parties by private mediators or leaders of pro®t-making ®rms was at the origin of the development of French-style corruption. Legal networks of information and expertise, even if they are not always transparent (to ensure speed and eciency) enable the politico-administrative machine to function.39 Unfortunately, legal and functional networks favour the 37 The French case demonstrates a `relative cohesion of politico-administrative eÂlites, their sociocultural pro®le, training, world view, interests, which go beyond political or `ìdeological'' nuances (. . .). The progressive immersion of the state bureaucracy in the world of partisan politics has had an impact on the ethical traditions which underpin the entire system (. . .). The ENA [EÂcole Nationale d'administration] has established itself at the same time both internally, in the administrative ®eld, where it has monopolized positions of power, and externally ± ®rst, in the world of politics, then in the business world, initially in the public or mixed sectors, then increasingly in the private and multinational arena.' Suleiman, Les eÂlites de l'administration. 38 Suleiman and Mendras, Le Recrutement des Elites en Europe. 39 From this perspective, Dupuy and Thoenig observed that `the conviviality of the accumulator [cumulant] and the civil servant takes on a very speci®c form and function: that of a network which puts disparate groups together. The links between civil servants and accumulators and the exchanges of in¯uence, provided they can be of signi®cance for the sole interests of the partners, are a public fact which ensures that a collective function of rebalancing power between the sphere of representation and that of bureaucracy (. . .) administration does not function in pyramid fashion, it



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emergence of illegal networks of corruption and `third parties standing ®rmly on their ground' (mediators) become either bribe givers (lobbies, ®rms) or else intermediaries of illegal transactions (civil servants). Mediators operate on the margins by refusing to speak freely and openly.40 In this context, the exchanges of resources and favours are very similar to gentlemen's agreements which resemble the system of gift-exchange revealed by anthropologists. Agents cannot seek to maximize their resources for this would run the risk of destroying the social dimension of the exchange. The Corruption Network Organizes Connections Between Legal Meeting Places The network needs an antechamber to ®nd and test the competencies and reliability of its future members. The corruption network of a political party develops and utilizes community structures for constructing and enlarging relationships (informal think tanks, specialist committees, hunting clubs) and creates legal organizations to cover its activities (research and development oces, law oces, consultant ®rms, para-municipal non-pro®t organizations). The network serves above all to establish contacts between parties of diverse sectors by progressively building up con®dence through an increase in reciprocal knowledge. `Social clubs' between industrial sectors and high administration and/or party ocials hypothetically serve to circulate information ± normally, but not always, in a legal manner. These networks are structures of personal contacts. The more the antechambers are open to new members, the more they are ecient through positive externalities, since the satisfaction of the member increases as a function of the number of users. On the other hand, adherence to a corruption network is all the more pro®table when customers are few and suppliers are numerous. The externalities of corruption networks then become negative because the satisfaction of the member is in decreasing function to the number of users. In other words, the corruption network functions in a relatively closed circuit. No empirical evidence exists yet on the eects of this negative externality on the price of transactions. Likewise, it is far from certain that rent suppliers (e.g. politicians) seek to augment the number of potential clients (entrepreneurs) to bene®t from bigger bribes resulting from the highest-bidder eects of competition. The Corruption Network Centralizes Supplies and Demands of Separate Entities The dynamics of corrupt exchange become more complex when the system is developed by several groups of collective parties ± groups not usually involved with one another on a regular basis. A situation in which supply and demand are forged out of several entities that do not entertain personal relations from goes forward, driven by third parties holding their ground.' F. Dupuy and J.-C. Thoenig, L'administration en miette (Paris, Fayard, 1985). 40 As Becquart-Leclercq puts it, `Relational networks echo the fabric of ocial relationships, only more so as the bureaucratic and administrative machinery are more rigid. The relational network shows the weak points of the system, it is a way to seize power again for those who do not have enough or want more. In the end, the relational network is a cumulative capital ensuring advantages for those very people who already have something going for them (such as their income or education) but rarely a compensation for the most impoverished people. The network reinforces the inequalities of power upon which it rests, but it stays within the limits of cultural legitimacy and legality.' Becquart-Leclercq, `Paradoxes de la corruption politique'. # Political Studies Association, 1997

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the start necessitates a higher degree of organization. Take as an example the case of a legislative decision involving diverse companies, which will be handled by dierent ministers. We have, on the one hand, an associative structure of service suppliers (ministers and the National Assembly); on the other hand, we have circles of clients who share the same interests (companies). For example, all cigarette manufacturers (a cartel) collectively want to purchase the rejection of an anti-tobacco law which is to be considered by deputies. To do this they must ®nance several individuals (deputies, ministers of several administrations, experts, high state ocials) who come from (or not) dierent political parties. In this case the transactions necessitate intermediaries or mediators who lobby interested parties, then centralize the supplies and demands of concerned parties, carry on the negotiations and take care of payments, controls and so forth. The intermediaries work at clandestine and illegal lobbying. This type of network is organized on the basis of sporadic convergences and it is the person of the mediator who oers security guarantees and establishes favourable conditions for the execution of the operation. Through repeating actions, developing complicity, searching for relational continuity and stability, and appearing indispensable, the sporadic organization is led to strengthen its structure. The Heterogeneity of Exchanged Goods in Corruptive Transactions and Temporal Delays The network plays the role of a translator of interests, creating an informal standard of measure (a kind of informal equivalent or exchange rate) for widely diverse goods and objectives. Thus, the network is an intermediary of exchanges. It makes room for the addition of things which are not normally associated without necessarily reaching the stage of monetization (bribes); it also authorizes delays in time. In other words, the resources exchanged are diverse (economic, political, social, symbolic and so forth) and in order to avoid waiting and transaction costs linked to barter (problem of double coincidence), measurement and compensation systems become necessary. Over time the exchanges of favours are not always monetized and paid in full. We have here an unequalled futures market of favours and privileged information. The network authorizes systems of delays and compensations which are multiple and multilateral in time and in space. For example, a contribution to an electoral campaign fund oered by a company, or the repurchase of a local newspaper, or the payment of an assistant, may lead much later on to accessing con®dential information (which may or may not be used), a contact (employed or not) or a contract ± the whole structure therefore being hard to budget within the framework of a cost-bene®t analysis. Running debts between the dierent entities are never totally paid o. As these debts circulate they help maintain network links. The heterogeneity of values mentioned above implies that the goods and resources in circulation are diverse (®nancial, narcissistic statue). Corruption networks cannot function in this manner without having ends much larger than merely individual and egotistical enrichment. The value system authorizing the establishment of a network and determining the integration of each member largely surpasses the material and monetary domain. We must therefore describe the set of values mobilized and intervening in the assignment of an individual to a network and in the construction of his dependence upon it. # Political Studies Association, 1997


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Consequently, operative transactions cannot be reduced to a strictly utilitarian framework of purely market relationships. While principles of reciprocity and negotiation exist as foundations of human relationships in all societies (excluding totalitarian societies), their forms are highly diverse ± and this diversity in¯uences the concrete con®guration of corruption. The Corruption Network: a Virtual Tool The corruption network may or may not be activated. It is not on duty at all times, but it retains a (virtual) record of past transactions (norms, amounts, techniques) and prepares future transactions. That the network is virtual does not imply that its relationships are temporary as in the analysis of the corruption market. On the contrary, this form has a good memory for past transactions and gives rise to stable, mandatory percentages, or oers, between the network partners concerned. This rigidity avoids constant bargaining which could otherwise develop owing to the will for a `just' but complex calculation. This would be dangerous for security in view of the risks of visibility arising from tensions and the dangers implied by violent breakdowns in negotiations. The organization of corruptive transactions into networks does not aim at suppressing the divergence of interests between suppliers and demanders, but seeks to avoid the power struggles that would weaken the whole system. Corruption Networks, Knowledge, Security, Con®dence and Protection Given that the corrupt exchange cannot be endorsed by a neutral juridical authority to which participants can refer in case of con¯ict, the network is a space of complex interpersonal relations creating con®dence through a process of learning by doing. The organized form of the transactions guarantees the smooth conduct of operations. Political alliances at the local or national level, inside a party or between parties, are necessary to govern political authorities. Alliances form the basis of a complicit passivity on the part of political players who, while being outside the corruption networks, cannot denounce them because they are bound by multiple allegiances. The notion of network imposes itself once the creation of riches in illegality necessitates forms of protection, of which `clientelist' redistribution is one of the most ecient. In the absence of consensual redistribution, threats and violence are often the only recourse left for `holding together' multiple partners (or passive observers) and for forcing them into correctly carrying out corruptive transactions. Conclusion Our theory of social networks of corruption seems more likely than a traditional political economy approach to explain those periods characterized by the stability of the prices of corrupt transactions and the meagre sums often asked by people who have been corrupted. Indeed, there are many important public decisions which have been `sold' in exchange for a mere family holiday, or the building of a swimming pool; and similarly, overbidding ± except for Italy in the eighties ± has been rather rare in Europe. Security for corrupt and corrupting people comes from their ability to limit themselves in their social exchanges. # Political Studies Association, 1997

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Real networks of corruption combine, in varying proportions, the three variables of coordination and the forms of rationality accompanying them. Let us present three synthetic cases, ranging from one with the highest degree of solidarity to one with the highest degree of competition, via one with the highest degree of hierarchy. . A tribal system of corruption creates strong barriers to entry (ideological, economic, ethnic and so on), which make more certain, but also more complex, its rise to power. This type of network is founded upon relationships of con®dence and a relatively stable `village' hierarchy. The corruption of the ma®a clan is a particular case because it integrates threats, blackmail, and violence into its mobilized resources. Extortion is one of the objects of this type of network, which has a tendency to create transaction price in¯ation. In this framework, the supply of corruption often exceeds the demand. . In cases where the situation is characterized by an integration of entities into a network of activity (e.g. politician, civil servant, managers belonging to the same political party) one must study the principles of intraorganization coordination and its consequences on pro®t-sharing between the party and the individuals. In this context, corruption supply and demand are balanced and no parties to the transaction play a dominant role. The image of a purely market mode of coordination is in this case a deformation of corruptive reality. This image must be replaced by the principles governing constructions of authority and hierarchy in the network. That said, the construction of this authority remains forever con¯ictual and implies that the form of organization can go through phases of stability and instability. Stable phases authorize the general and relatively abstract ®xing of transaction prices, while unstable phases lead to redistribution con¯icts, renegotiations, con¯icts of interest and transaction price ¯uctuations. . In cases where the parties involved in corruption do not entertain direct relationships (same village, same political party, same school) we ®nd two independent structured entities negotiating the transaction. We must in these cases study inter-organization coordination, keeping in mind that, from case to case, it is the supply that exceeds demand, or the opposite (cf. the eect on prices). Taking a lead from the socioeconomics of organizations, we need to analyse what happens in each of the two `black boxes' before and during the transaction. The eects of each organization's collective procedures on the negotiations and on the transaction do not authorize recourse to analyses in terms of balance (theory of competing markets). Each of the two entities is a site of collective procedures that aims at controlling its competition (which obviously exists) and at avoiding overly great price ¯exibility which could turn out to be destructive to this `market'. This third situation seems the most fragile, because it includes the risk of tension and breakdown which can lead to denunciations. As these three cases show, furthering our knowledge of the notion of corruption networks still necessitates numerous empirical studies in order to validate the initial theoretical hypotheses summarily presented in this paper. A new theory of transaction prices and their eects on the evolution of the phenomenon can only be accomplished given this condition. # Political Studies Association, 1997


Corruption Cycles CRISTINA BICCHIERI AND JOHN DUFFY 1. Introduction Political corruption has been a persistent phenomenon throughout history and across societies. It is found today in many dierent forms and degrees in all types of political systems, in developing countries as well as in Western democracies. The phenomenon is not solely or even largely the consequence of a moral fault or cultural backwardness. The root cause of corruption, in Europe as well as in Japan, Latin America and the United States, is found in the mixture of economic and political power. We take corruption to consist in the illegitimate use of public roles and resources for private bene®t, where `private' often refers to large groups such as political parties. This de®nition has the advantage of subsuming many dierent kinds of corrupt behaviour, ranging from public ocers' use of their position to maximize personal gain by dispensing public bene®ts to the implementation of policies that violate the common interest in favour of special interests, such as granting large ®rms the monopoly of their services within a particular sector. Since this de®nition of corruption is based upon legal norms, not public opinion or social norms, it has the advantage of directing our attention to the contrast between ocial and social norms that is present in most societies.1 The literature on corruption is a large corpus of descriptive studies, but a full ¯edged theory of corruption is yet to come. As a result, many dimensions of corruption have been left unexplored.2 One such problem is the life-cycle of corruption. If corruption is endemic, what are the forces that allow it to prevail? What permits it to continue? An answer to this question cannot be separated from an analysis of the political and economic eects of corruption. There has been widespread disagreement among scholars studying the phenomenon regarding the direction of its eects. The so-called Moralists maintained that corruption is harmful, as it impedes development and erodes the legitimacy of institutions.3 Revisionists point instead to the possible bene®ts of corruption: it Earlier versions of this paper were presented at Caltech, Nueld College (Oxford), and at the Conference on Political Corruption, University of Nottingham, June (1996). We wish to thank the participants in the above seminars and Conference for many useful comments and suggestions. 1 The classic statement of this de®nition of corruption has been given by Nye. According to him, a political act is corrupt when it `deviates from the formal duties of a public role (elective or appointive) because of private-regarding (personal, close family, private clique) wealth or status gains: or violates rules against the exercise of certain types of private-regarding in¯uence'. Cf. J. Nye, `Corruption and political development: a cost-bene®t analysis', American Political Science Review, 61 (1967), p. 416. 2 An analysis of how a corrupt political system may suddenly collapse is found in C. Bicchieri and C. Rovelli, Èvolution and revolution: the dynamics of corruption', Rationality and Society, 7 (1995). 3 Cf. G. Myrdal, `Corruption: its Causes and Eects', in Asian Drama: an Enquiry into the Poverty of Nations, vol. 2 (New York, Twentieth Century, 1968), and also R. Wraith and E. Simpkins, Corruption in Developing Nations (London, Allen and Unwin, 1963).


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can speed up cumbersome procedures, bypass inecient regulations, buy political access for the excluded, thus fostering the integration of immigrant or parochial groups, and even produce policies that are more eective than those emerging from legitimate channels.4 Revisionists have typically focused their attention upon non-Western nations undergoing political modernization and development. Their belief that corruption is functional to development has fostered the expectation that corruption will disappear once the process of modernization is completed. However, much research in political science indicates that corruption is endemic even in the fully developed Western countries.5 Though it is dicult to calculate precisely the impact of corruption on social welfare, the recent corruption scandals in Italy and Japan have brought to light the costs and ineciencies that accompany corrupt practices. In both cases, governments had many opportunities to grant privileges and exemptions in return for material or political favours. Since huge pro®ts hinge upon such privileges, companies have gone to any lengths, including bribery, to win them. There is evidence that widespread bribery of public ocials to obtain public works contracts systematically in¯ated business costs, while consumers have been injured by monopoly pricing. Corruption has had an in¯uence on public policies, too. Policies have been selected and implemented with a view of generating income and political support. Firms have been `helped' with price subsidies, regulatory exemptions, protective taris and import quotas.6 If, as we maintain, systemic corruption has extensive social and economic costs, why is it a recurrent phenomenon? In many countries, we have witnessed long periods of systemic corruption followed by `clean-ups' that are in turn followed by other periods of corruption.7 An important task of a theory of corruption is thus to identify what factors are at play in engendering such cycles. The end of a period of corruption is not necessarily driven by the public getting informed about the existence of corrupt activities. We have learned from history and experience that ocials can engage in illegal activities without being reprimanded at the polls. A typical explanation oered for this is that ocials can trade material bene®ts in return for votes. This was certainly true of machine politics in US cities at the turn of the century, as well as of any form of political clientelism, where political parties channel policies and resources towards individuals and groups and, in return, are guaranteed continual electoral support.8 The American urban political machine, for example, dealt 4 Cf. J. Abueva, `The contribution of nepotism, spoils and graft to political development', EastWest Center Review, 3 (1966); N. Le, Èconomic development through bureaucratic corruption', American Behavioural Scientist, 8 (1964); H. D. Bayley, `The eects of corruption in a developing nation', Western Political Quarterly, 19 (1966). 5 Cf. G. Benson, Political Corruption in America, (Lexington, 1978); J. Dobel, `The corruption of a state', American Political Science Review, 72 (1978); S. Mamoru and H. Auerbach, `Political corruption and social structure in Japan', Asian Survey, 17 (1977); S. Rose-Ackerman, Corruption: a Study in Political Economy (New York, Academic, 1978). 6 In Italy, for example, by the 1970s the state sector had become a political instrument at the hands of the Christian Democrats. Its economic functions were subordinated to the policies of enabling the survival of that party. Cf. Donald Sassoon, Contemporary Italty (London, Longman, 1988). 7 Cf. K. Gillespie and G. Okrulik, `The political dimensions of corruption cleanups', Comparative Politics (1991). 8 Cf. H. Gosnell, Machine Politics: Chicago Model (Chicago, University of Chicago Press, 1967).


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almost exclusively in particularistic, material rewards (jobs, licenses, welfare payments, selective non-enforcement, etc.) to maintain and extend political control. Indeed, the costs of maintaing a clientist system or a political machine are usually extremely high. In New York City in the 1930s, the total annual pay for posts exempt from civil service regulations (i.e., political jobs) exceeded seven million dollars, and it is reported that boss Tweed, in four years, raised New York City's debt by a multiple of three while leaving both the tax rate and assessments untouched.9 One would expect, however, that where there are no large organizations that can provide material inducements through the multitude of explicit exchanges that would be necessary to control elections, informed voters would be less likely to support a corrupt candidate. To explain why corrupt incumbents get re-elected, it has been hypothesized that there occurs an implicit exchange between voter and candidate. According to this hypothesis, one would expect that a corrupt candidate strategy would be to take distinct positions on things many voters care about, and therefore arrange as many implicit trades as possible. Indeed, there is some experimental evidence supporting the implicit trade hypothesis.10 In this paper, we demonstrate with a formal model how, under plausible assumptions, corruption can become cyclical. A crucial assumption of our model is that corrupt politicians, in order to be re-elected, have to compensate voters through material incentives. Even in the absence of grassroot clientist organizations handing out individual bene®ts, corrupt politicians can enact policies that bene®t particular industrial and ®nancial groups. If the bene®ted groups control a large number of votes, a corrupt incumbent will be re-elected. We assume that enacting such policies involves the use of resources on the part of the politician. To sustain systemic corruption politicians thus need resources, and we may expect a political turnover when resources are depleted.11 Since we assume that a sizeable portion of a politician's resources has been amassed in a 9 J. Scott, `Corruption, machine politics and political change', The American Political Science Review, 62 (1969). 10 In a small experiment done with students in 1977, Rundquist, Strom and Peters report that certain kinds of information induce more voting for the corrupt candidate; in that particular experiment, it was information on the candidate's Vietnam position. Subjects who received this information had a probability of 0.44 of voting for the corrupt candidate, whereas subjects who received no information had a zero probability of voting for him. Intensity of preference matters, though, since the experiment shows that the more important the policy issue is to a voter, the higher the probability of voting for the corrupt politician that has a similar view on that issue. This analysis suggests that corrupt incumbents may owe re-election to implicit trading with voters, and predicts that corrupt candidates may have extra incentives to take distinct issue positions than do non-corrupt candidates. Corruption would thus accentuate the tendency to move away from the modal position. Also, this hypothesis may account for the tendency of voters to focus on corruption during periods of economic stagnation, as their expectations of policy satisfaction are low. Cf. B. Rundquist, G. Strom and J. Peters, `Corrupt politicians and their electoral support: some experimental observations', The American Political Science Review, 71 (1977). 11 This hypothesis is supported by historical evidence from, among other things, the demise of political machines. It is well acknowledged that support generated by machine rewards is based on the continuing distributive capacity of the regime. Since the machine has to buy its popularity, and to the extent it faces competition, the cost of popularity increases and resources may not be sucient to meet the demands. Machines, both in the US and in new nations such as India, Malaysia, and many West African countries, tend to live beyond their means. When disposable rewards cease or sizably diminish in the absence of economic expansion, support ceases, too.


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period of `honest' administration, an interesting (and testable) consequence of the model presented here is that what drives the cycle's periodicity is not increasing social costs, but the length of the honest administration period. Ceteris paribus, the longer the period of honest government has been, the longer corruption will last. Because politicians' resources are limited, in a democratic system discontented electors will eventually vote corrupt politicians out of oce. The new period of honest administration will not last, however. Whereas the penalty for corruption is very high for a newly elected politician, it decreases over time up to the point at which it becomes zero. When the system reaches that critical time, it switches very rapidly to a generalized corruption state. We thus have a threshold, or critical time, at which there will be a cascade of corrupt behaviour. Whereas the periods of corruption or honesty can be very long, the switch from one regime to another is abrupt. As long as governments will wield extensive control over the economy, ®rms will have an incentive to engage in illegal practices to obtain lucrative public contracts, ensure a monopoly of their services within a particular sector or otherwise obtain some form of preferential treatment. And whenever the penalty for corrupt behaviour is nil, politicians will have an incentive to use their control over public resources to increase their power. 2. The Model There are two types of players, politicians and contractors. Let n > 1 denote the number of politicians, and let m > 1 denote the number of contractors. To simplify exposition, we shall assume that n m. Groups of politicians typically have control over a given area, or a given pool of resources. In particular, politicians control public work contracts, and we assume that each of the n politicians has a single contract to award to one of the m contractors in each period.12 There are two strategies available to each type of player. Politicians and contractors may either play the honest or the corrupt strategy. Corruption here refers to the illegal activity of giving or taking a bribe in connection with public works contracts. We assume that both the politicians and the contractors interact for many periods, and new contracts are awarded each period. Each interaction can be modeled as a stage game in which politicians and contractors have to decide whether to bribe/be bribed or to behave honestly. The game is repeated inde®nitely, with the same or with dierent parties. What matters is that the parties to the interaction know about the incentives of the players with whom they are interacting.

12 This assumption is an extreme simpli®cation. Typically, a political party controls public agencies that extract payments from local companies in exchange for granting public works contracts. In Italy, for example, public agencies such as ANAS (National Roadways Agency), ATM (Milan Transport Agency), AMSA (Municipal Agency for Environmental services) acted as intermediaries between the parties and private ®rms. In Italy alone there are 60,000 enti pubblici (special agencies) that are dominated by parties and function as mechanisms for the distribution of contracts. Cf. David Hine, Ìtaly', in F. F. Ridley (ed.), Government and Administration in Western Europe (Oxford, Martin Robertson, 1979); cf. also J. LaPalombara, Interest Groups in Italian Politics (Princeton NJ, Princeton University Press, 1964).



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Note that the payo for each type of player will depend both on the strategies adopted by the other players of his type and on those adopted by players of the other type. For example, the outcome of a contractor's choice to bribe will depend upon the existence of corrupt politicians, as well as upon the behaviour of other contractors. And the outcome of a politician's willingness to ask for a bribe will depend upon the existence of contractors that are willing to pay, as well as upon the behaviour of other politicians. 2.1 Politicians To understand how the individual politician's payos for a single stage of this repeated game depend on the strategies adopted by the other n ÿ 1 politicians, let us consider the following payo matrix, in which the individual politician is the row player (the game is symmetrical):

All H H

C

b

bbÿ

d ÿ wt 2n

Some or All C bÿ

bbÿ

dN 2n dN ÿ wt 2n

Here H denotes the honest strategy, and C denotes the corrupt strategy. We assume that each politician has one contract to award in each period. The politician gets a payo of b if he adopts the honest strategy H, and all the other politicians also pay the H strategy. We may think of b as the base salary of the honest politician. Note that if all contractors are honest, a politician will always get a payo of b, as in this case there will be no possibility of becoming corrupt. Whenever there is at least one corrupt contractor, however, things change. The above matrix represents the case in which some contractors are willing to pay a bribe, and the politician has to decide whether to be honest or corrupt. Let us say that the total price of a public work x obtained through a corrupt contract is a a b, where a is the market price of x, a is the mark-up extracted by the contractor, and b is the bribe paid to the politician as a percentage of the whole contract. We are assuming that contract prices are much higher in a corrupt system than in a non-corrupt one. This is not a necessary feature of corrupt systems, though, since corruption may not involve an inecient allocation of resources. Contracts could be awarded to the highest bribers, and those who can pay the highest bribe must also have the lowest production costs. In our model, however, the bribe (as a percentage of the contract price) is ®xed; thus, the higher the contract price, the greater the bribe. In this case, the contractor may also be chosen on the basis of his political àccountability', capability of sponsoring given party members, etc. To simplify # Political Studies Association, 1997

482

Corruption Cycles

matters, we assume that contractors, whenever they are corrupt, are all equally accountable.13 We also assume that b is an increasing function of the number of corrupt encounters. That is, the greater the number of corrupt dealings, the harder the politicians will compete for funding, raising the price of contracts (hence the ®xed percentage b). Each corrupt contract thus has a social cost d a b. As we shall discuss presently, once corruption has occurred, the social cost d increases linearly with time, as the costs of corrupt contracts increase. We talk of a `social' cost because, when corruption occurs, prices will be higher, which in turn will result in an overall reduction in consumers' income. The social costs do not end here, though. In a corrupt system, consumers may have to pay monopoly prices, and the quality of many goods will usually be inferior. The politician receives a payo of b ÿ dN=2n if he plays the honest strategy, but N 2 1; n ÿ 1 if the other politicians are playing the corrupt strategy. Here d denotes the social cost per corrupt encounter between a politician and a contractor, and N is the number of corrupt encounters (also, the number of corrupt politicians). Note that when all politicians are corrupt, the number of corrupt encounters N, is equal to the number of politicians, n. The total social costs from corruption (dN) are distributed evenly across all 2n players, regardless of their involvement.14 We may think of d/2n as a tax people pay for each act of corruption. In a corrupt system, everybody is `forced' to ®nance the increasing costs of corruption. If the politician plays the corrupt strategy C, and all other politicians play the honest strategy H, the politician's net payo is b b ÿ d=2n ÿ wt , where b b > b is the gross payo of the corrupt politician, b is the amount of the bribe paid to the politician by a corrupt contractor, and wt is a penalty each politician faces for being corrupt, where wt is a decreasing function of time over the period in which the politician is honest.15 Finally, if the politician plays the C strategy, and N ÿ 1 of the other politicians are also playing C, the politician's net payo is b b ÿ dN=2n ÿ wt . We assume that over some period of time t, the parameters in the above payo matrix satisfy: d 4 b for t 1; 2; . . . ; T ÿ 1; bbÿ ÿ wt > b for t 5 T: 2n Given these conditions, it follows from the politician's payo matrix that all n politicians will initially coordinate on the All H outcome. That is, each of the n politicians will choose to play the H strategy up until time T. At time T, a cascade from All H to All C occurs. It is assumed that time T is the ®rst date at which the corrupt strategy yields a Pareto superior outcome

13 We are assuming here that there is no exclusion, i.e., that no ®rm can be excluded from making tender oers for public contracts. What often happens is that larger ®rms subcontract part of the work to smaller ®rms. 14 Recall that, since we have assumed that n m, the total number of players is 2n. 15 In section 4 we provide an example of a penalty function that depends upon the evolution of the play of the game.



483

relative to the honest strategy. The conditions under which the corrupt strategy (All C) yields a Pareto superior outcome are: i b b ÿ d=2n ÿ wt > b; ii b b ÿ dN=2n ÿ wt > b; iii b b ÿ dN=2n ÿ wt > b ÿ dN=2n: The three conditions above just state that corruption is a dominant strategy for each politician, and that generalized corruption (All C) is Pareto superior to generalized honesty (All H). Since each politician will play his dominant strategy, the resulting All C outcome becomes a Nash equilibrium at time T. Taken together, these three conditions lead to the restriction that b > dN=2n wt . However, since at time T there will be a cascade of corruption and we will have N n, the restriction on b can be rewritten as: b > d=2 wt . Since by de®nition d a b at the critical time T we must have that b > a b=2 wt , or more simply that: b > a 2wt : We shall assume that, beginning with time T, the above condition always holds. What the condition states is that the politician's bribe is always greater than the contractor's extra gain from corruption. The inequality may be understood to represent the fact that politicians have greater power than contractors, in that they control resources and future contracts. After time T, the date of the ®rst corrupt encounters between politicians and contractors, the social costs of corruption are assumed to grow over time. We shall assume for simplicity that these social costs grow linearly over time.16 The social costs of corruption grow because the payo values to both politicians and contractors of corrupt contracts are assumed to increase by a ®xed multiple per unit of time. Over time, both contractors and politicians will demand a greater payo from each corrupt encounter. Since the politician's goal is not just to maximize his wealth, but he also wants to be re-elected, he will need money to consolidate his power.17 Because a politician is competing against other politicians, he will need increasing amounts of money to maintain his power base. This explains the tendency, noted in many countries, to in¯ate progressively the prices of public contracts. We shall thus denote the social cost of each corrupt encounter by dt at bt, where at is the mark-up received by a contractor who plays the corrupt strategy (we shall describe the contractor's payo matrix shortly). We have that for t 5 T, i.e. for t T, T 1, T 2, . . . , dt at 1 ÿ T bt 1 ÿ T: Here a and b denote constants, re¯ecting the amounts that contractors and politicians appropriate from corruption.

16 The assumption that the social costs of corruption grow linearly over time is not necessary for our results. 17 Funds are needed to organize political campaigns, but also to funnel material bene®ts to a politician's constituency.


484

Corruption Cycles

Since the corruption cascade will occur at T, we must have that 0 for t < T; dt at 1 ÿ T bt 1 ÿ T for t 5 T: The timing of the cascade from All H to All C is completely determined by the wt function. The wt penalty aects the payo of any politician who chooses to play C, regardless of the strategy chosen by the other politicians. From the de®nition above, we can ®nd the value of dt at t T, the time of the cascade, i.e. dT a b. We can then use this value for dt to ®nd a critical value for wt at which the individual politician will be just indierent between corrupt and honest behaviour, i.e. when b b b ÿ dt =2n ÿ wt . This critical value is given by: wcrit

1 2n ÿ 1b ÿ a: 2n

The sequence of values for wt is assumed to diminish over time during the period in which the politician is honest. In particular, we shall assume that the sequence, {wt}, satis®es: 1 2n ÿ 1b ÿ a > 0; and 2n wt 0 for all t 5 T:

w1 ; w2 ; . . . ; wT ÿ1 >

This diminishing wt function is a crucial feature of our model. We may assume that this function captures receding memories about past corruption. Another possible interpretation of the diminishing wt function is that, as time passes, politicians consolidate their power. Over time, politicians are able to award more contracts and gain greater in¯uence. The greater the in¯uence the politician has, the less likely it is that the politician will be revealed as corrupt. Greater in¯uence might mean, among other things, that political parties may come to control the media as well as the judiciary system, so that the probability of being denounced and punished for corruption becomes eectively nil.18 In section 4 we provide yet another interpretation of the wt function, where we assume that wt is simply a past average of the contractors' payo performance. Contractors are assumed to have ®nite memories of past payo performance. If they have received good payos over the recent past, then the penalty for corruption is diminishing, while if they have received poor payos in the past, the penalty for corruption is rising. At time T, the individual politician will always choose to be corrupt. Since it is common knowledge that the critical time has been reached, the other politicians (who are identical in all respects) will also choose to become corrupt precisely at the same time, i.e. we will never observe any intermediate state at which only some of the politicians are corrupt. That the corruption cascade will be a sudden phenomenon is a testable implication of our model, provided that certain ceteris paribus conditions are satis®ed. They will include, among other things, rational behaviour on the part of the politicians, and the absence of behavioural norms that may constrain the choice-set of agents. 18 This has been the case in Japan, as reported by W. Holstein, The Japanese Power Game (New York, Macmillan, 1990).



485

2.2 Contractors The individual contractor's payos for a single stage of this repeated game depend on the strategies adopted by the other m ÿ 1 contractors, as well as on the presence of corrupt politicians. The individual contractor is the row player in the following payo matrix (the game is symmetrical): All h

Some or All c

h

a

nÿN dN a ÿ m 2n

c

nÿN dN a Na a ÿ m 2n

nÿN a m

N dN a a ÿ M 2n

Note that, when all politicians are honest, every contractor will behave honestly, regardless of his propensity. While there is no penalty for a contractor who attempts to bribe a politician, such attempts are useless before time T. The above matrix thus depicts a situation in which there is at least one corrupt politician, i.e. N 2 1; n. The number of corrupt contractors in the above matrix is denoted by M 2 1; m. Here, h denotes the honest strategy, and c denotes the corrupt strategy. The individual contractor's expected payo (in terms of contracts awarded) is a if the contractor plays the h strategy and all other contractors also play the h strategy. The contractor receives a payo of an ÿ N=m ÿ dN=2n if he plays the h strategy, but some or all of the other contractors choose the c strategy. Here again, N denotes the number of corrupt encounters (equivalently, the number of corrupt politicians, or corruptly negotiated contracts). If the individual contractor chooses to play the c strategy, he receives a payo of an ÿ N=m Na a ÿ dN=2n if all other contractors play h, and there are N corrupt politicians. However, if the individual contractor plays c and M ÿ 1 of the other contractors play c, the payo to the individual contractor is reduced to an ÿ N=m N=Ma a ÿ dN=2n, where M is the total number of corrupt contractors (including the row player). Note that, since at time T there will be a cascade of corrupt behaviour on the part of the politicians, a state of corruption is always generalized, that is, it is a Nash equilibrium for all politicians and all contractors to play the corrupt strategy so that N n and M m. In this generalized state of corruption, the All c payo to contractors can be rewritten more simply as (a a ÿ dn=2n. Under the assumption that n m, the conditions under which the above game is a prisoner's dilemma for contractors are: i an ÿ N=m Na a ÿ dN=2n > a; ii a > a a ÿ dn=2n; iii a a ÿ dn=2n > an ÿ N=m ÿ dN=2n: As was the case for the politicians, the three conditions above just state that corruption is a dominant strategy for each contractor, but for contractors, unlike politicians, the outcome of overall honesty is better than that resulting # Political Studies Association, 1997

486

Corruption Cycles

from corruption. The dierence between contractors and politicians is that contractors always face a prisoner's dilemma situation, whereas politicians' choice to become corrupt results in a Pareto superior outcome. Using the de®ntion of dt at t T i.e. dT a b, and the fact that n m, we ®nd that the above conditions reduces to the simple restriction that b > a: Thus we ®nd that a restriction for a prisoner's dilemma among contractors is that the additional payo that each contractor receives from a corrupt encounter, a, is less than the additional payo a politician receives from each corrupt encounter, b. Note that the above inequality is implied by the condition b > a 2wt that guarantees that corruption is a Pareto superior Nash equilibrium for the politicians at t 5 T. Although the All c outcome is a prisoner's dilemma for the contractors, they do not immediately coordinate upon the All c outcome ± in fact, they spend the ®rst T periods at the All h outcome. As we already mentioned, while the incentives are such that contractors will always try to bribe politicians (i.e. play the corrupt strategy), the contractors will not be immediately successful in their eorts because of the wt function. Once we reach time T, however, the contractors will bribe, the politicians will take the bribes, and the cascade, from the contractors' perspective, from All h to All c will be immediate. 2.3 Elections We assume throughout that the political system is a democratic one. Elections are held at some date t 1 fT, where f > 0. That is, we assume that elections are held only after politicians have `chosen' to become corrupt. There are n elected positions, and to win, each candidate has to get a majority of the 2n votes. We assume, for simplicity, that for every corrupt incumbent politician, there is an honest politician who will run against him. A state of generalized corruption is a prisoner's dilemma for the contractors who, though always ready to bribe, know that they would be better o in a state in which everyone is honest. Politicians are not long-lived players in the game, whereas contractors endure forever. This is a key assumption. Although politicians are inevitably driven to the All C outcome, they are content to stay at All C, because it is a Pareto superior outcome. As we shall presently explain, politicians may choose to forgo the Pareto superior payo in order to be re-elected. Provided the politician cares enough about power, even a negative payo will be acceptable. The same is not true for contractors. We can think of contractors as being in®nitely lived agents. Alternatively, we may think of family dynasties, where contracting businesses are handed down from one generation to the next. Once the contractors are at All c, they will seek to vote the politicians out of oce at the earliest possible opportunity. Each contractor, being rational, will vote for the incumbent only if at the time of the election the contractor is no worse o in terms of payos than he is in the All h state. If the contractor is worse o, as he is in a prisoner's dilemma, he votes for the alternative honest candidates, who can credibly guarantee him the All h payo for T more periods. The contractors' ®rst opportunity to vote the politicians out of oce will be at the next election, which occurs at date t 1 fT. Thus, the contractor will # Political Studies Association, 1997


487

have to endure the lower payo at All c for some period of time, e.g. for fT periods. The corrupt incumbents, however, can seek to win (buy) votes by compensating contractors for their loss in the All c state. Politicians are always assumed to vote for themselves. So if all contractors are compensated for being in the prisoner's dilemma, each politician receives at least m 1 votes. If we assume that m 5 n, corrupt politicians who compensate contractors always win re-election. Yet compensation, as we shall see, cannot continue inde®nitely. In fact, politicians do more than simply compensate contractors for their losses from corruption. Politicians provide contractors with the dierence between the contractors' All h payos and the contractors' All c payos, plus a little bit more, say e > 0. The politicians begin to compensate contractors at time T (when wt 0) by drawing upon their accumulated payo earnings. Prior to time T, each politician has accumulated a payo of bT ÿ 1. In every period t 5 T, each politician receives: dt n bt b ÿ ; 2n where we have set N n since in the unique Nash equilibrium all politicians are corrupt. Using our de®nition for dt , and the fact that n m, we can rewrite the politician's per-period payo for t 5 T as: 1 bt 1 ÿ T ÿ at 1 ÿ T b: 2 Using the politician's per-period payo beginning at time T, and the accumulated earnings prior to time T of bT ÿ 1, we can now ®nd the politician's accumulated payo at each date t 5 T. Since it is assumed that wt 0; 8 t 5 T, we can ignore the wt term starting at time T.19 Each politician's accumulated payo for t 5 T is simply the sum of the payos the politician has received up through time T k ÿ 1, where k 1; 2; . . . denotes the number of periods of generalized corruption. We can write this accumulated payo as: kk 1 PT kÿ 1 b ÿ a bT k ÿ 1: 4 Election is according to majority rule. Each politician is only assured of receiving his own vote, but needs at least 2n=2 m additional votes to win re-election. Therefore, each of the n politicians has to compensate all of the m contractors for being at the All c outcome rather than at the All h outcome to ensure re-election.20 The compensation amount contributed by all n politicians to each of the m contractors must be such that each contractor is no worse o, and is in fact slightly better o, at the All c outcome of the game, as compared with the All h outcome.21 19 This assumption regarding wt at t 5 T is made for simplicity, and we relax this assumption later on in section 4. 20 Note that, were m > n, politicians would only need to compensate a subset of contractors in order to win re-election. 21 This compensation amount is not guaranteed to contractors. In fact, as we shall see, compensation of contractors by politicians will not continue inde®nitely. For this reason, the compensation amount does not appear in the contractors' payo matrix.


488

Corruption Cycles

Beginning at time t T, the minimum amount that must be paid by each politician to each contractor with whom he is interacting is an increasing function of time and is given by: ndt a ÿ a at ÿ > 0: 2n This amount is simply the dierence between the All h and All c outcomes. However, we assume that politicians provide contractors with e > 0 more than this minimum amount so that contractors are not just indierent between voting for the corrupt incumbent politicians or voting for the honest new politcians. Note that e is paid as part of the corrupt contract, and it must compensate the contractor also for all the social costs incurred in periods when he does not get a contract. So the compensation amount paid to each corrupt contractor in every period of corruption can be written as: ndt ÿ at 1 ÿ T e: 2n Using the de®nition of dt and the fact that n m, we ®nd that this compensation amount at date t 1 ÿ T > 0 is: 1 bt 1 ÿ T ÿ at 1 ÿ T e: 2 The accumulated compensation amount at date T k is found by summing the compensation amounts received at every date T 4 t 4 T k ÿ 1, for k 1; 2; . . . This accumulated compensation can be written as: kk 1 b ÿ a ke; 4 where k again denotes the number of periods in which the economy has been in the generalized state of corruption. There remains the question of how long the politicians can sustain the corrupt state of All C for themselves and All c for contractors by compensating the contractors for being in the prisoner's dilemma. To answer this question, we can set CT k ÿ 1

nPT kÿ1 mC T kÿ1 ; and solve for the date k at which the politicians' resources will be completely depleted by the compensation paid to contractors. Using the de®nitions of PT k ÿ1 and C T kÿ1 , and the fact that n m we have: nkk 1 nkk 1 b ÿ a nbT k ÿ 1 b ÿ a nke: 4 4 We can solve this equation for k, the number of periods of generalized corruption: k

bT ÿ 1 : eÿb

Note that for k > 0, it must be the case that (e ÿ b > 0 (or that e > b). Provided this condition is satis®ed, the All C and All c states can be sustained for k periods # Political Studies Association, 1997


489

beginning with period T. The politicians are voted out of oce in the ®rst election that is held after time T k ÿ 1. Note that @k=@b > 0, and @k=@T > 0, while @k=@e < 0. We have assumed b, the politician's salary, to be ®xed. T depends on how fast the penalty for corruption wt declines. Therefore, the slower is the decline in wt , the longer corruption can last. By making (e ÿ b) very small but positive, the politicians can sustain corruption for a very long period of time as well. We always assume, however, that there is a limit to how close e can be to b. Since agents have a perceptual threshold, and will not perceive a value of e below it, e must always be bounded away from b. It may be interesting to ask what would happen if elections were held before T k ÿ 1 (but after T). In this case, a rational contractor that is able to calculate when compensation will end would vote for the corrupt incumbent only if the total payo he can expect between this election and the next exceeds the All h payo he is sure of getting for T ÿ 1 periods by electing an honest politician. Contractors, however, may lack this crucial piece of information or, alternatively, they may be myopic decision makers that get their clues from the immediate past. If they received compensation in the past, they will expect it to continue in the future and thus re-elect the corrupt incumbent. Re-election of corrupt incumbents might also be due to contractors discounting future payos, thus overlooking the fact that incumbents might run out of money much before the next election and make them lose compensation quite soon. The fact that contractors may be myopic, as opposed to fully rational and informed, will only lengthen the term of corrupt politicians. Eventually, however, they will be voted out of oce. Another possibility is that elections take place before the critical time T, i.e. before politicians have had a chance of becoming corrupt. In this case, it is in the interest of a rational contractor to re-elect the incumbents, as wt keeps declining and he knows that at time T he will get a compensation. A myopic contractor, on the other hand, will be indierent as between candidates. We have assumed thus far that politicians will compensate contractors until they run out of money. Politicians, however, choose to compensate. But in so doing, they may get negative payos, depending on the value they choose for e. To see that the politician's payo after compensating the contractor may be negative, recall that in the corrupt state, the politician receives a per period payo of bt b ÿ dt n=2n prior to compensating the contractor. The compensation amount at time t 5 T is a ÿ a at ÿ ndt =2n e, or simply ndt =2n ÿ at e. Therefore, the net payo to the politician at time T when at a; bt b, and dt d a b is: nd nd ÿ ÿae bbÿ 2n 2n or b a ÿ d ÿ e ÿ b which reduces to simply ÿe ÿ b. If e > b then ÿe ÿ b < 0. In this case, the politicians' net payo after compensation is negative, and since b > 0, the All H payo is now better than the All C payo, hence the politicians are now facing a prisoner's dilemma.22 22 For politicians to face a prisoner's dilemma after choosing to compensate, we also require that b ÿ Ndt =2n < ÿe ÿ b.


490

Corruption Cycles

If we vary the value of e, we may get very dierent results. For example, if e 0, the net payo to the corrupt politician who compensates is b and the net payo to the corrupt contractor is a. Since these payos are identical to those obtained in a state of generalized honesty, one might suppose that the incumbent, in order to be re-elected, will want to oer to the contractor e > 0. If b > e > 0, the politician will always get a positive payo of b ÿ e > 0, the contractor will always get a payo of a e, and corruption will continue inden®nitely. We know, however, that corruption cycles depend on e > b. What justi®es this inequality? Clearly, it is the contractors who will request the amount of extra compensation e. But under which condition would contractors choose a value for e > b? It must be the case that, on average, contractors gain more from an alternation of periods of honesty (where they get a for T ÿ 1 periods) and periods of corruption (where they get a e for the duration of the corrupt period and e > b) than from an inde®nite corrupt payo of a e, where e < b. In case e > b, we may additionally suppose that there exist two dierent types of politicians: those who care about pecuniary bene®ts, and those who care about power, or being in oce. The second type will keep compensating contractors until he runs out of funds, whereas the ®rst type may stop compensating immediately after re-election. Indeed, when this type of politician stops compensating will depend upon the length of the mandate. For example, if elections are held before T, this type of politician will eventually become corrupt and compensate up to the next election. Afterwards, he will stop compensating and `retire' after another election, when he will be voted out of oce. Such a politician may even organize a clean-up as a last resort, in order to regain credibility and having thus a chance of being re-elected one more time.23 If, on the other hand, elections occur after T, but before T k ÿ 1, such politicians will compensate contractors up to the next election (in order not to reveal their type), and then stop. If elections take place after T k ÿ 1, this type of politician will never compensate, as he will be voted out of oce anyway. The politician's type, however, is his private information. The rational contractor will have a probability distribution over politician types, and choose so as to maximize his expected utility with respect to those probabilities. We have not taken up all these dierent cases in the paper since the only eect they may have on corruption cycles is to extend or shorten the duration of the cycle. In what follows, therefore, we shall assume that politicians always compensate contractors. Also note that, in case dierent constituencies vote dierently (one may vote for new, honest politicians, whereas another may re-elect corrupt incumbents), this will not be a problem as long as there is no political interaction among them. In case there is interaction, the honest politicians will be at a disadvantage. We assume throughout the paper that there is political separation among constituencies.

23 A surprising phenomenon noticed by political scientists who have studied corruption clean-ups is that the vast majority of corruption clean-ups are initiated by incumbents. See Gillespie and Okruhlik, `The political dimensions of corruption cleanups'.



491

3. An Example We now illustrate our conclusions in this paper with a numerical example. Let us consider the simplest possible case where n m 2. Suppose further that a b 1=6 and a 1=3 < b 2=3, so that dt a t bt t 1 ÿ T for all t 5 T. Thus, at time t T, d 1 , at time t T 1, d 2; . . . etc. Since there are only two politicians, we have that the number of corrupt politicians N, excluding the row player, is equal to 1, so that in the ®rst period in which there is corruption, at time t T; dN=2n 1=4 and, in the generalized corrupt state at t T where n N 2; dn=2n 1=2. Thereafter, the per capita social costs of corruption, (dt n=2n, grow linearly by the amount: ndt t 1 ÿ 10 for t 5 T 10: 2n 2 Finally, we must specify a sequence for wt . We shall assume that ( wt

T ÿt for t 4 T, 2 0 for t > T.

Recall that we have chosen T 10. It is easily veri®ed that the cascade in the two politicians' strategy choices from All H to All C occurs at time T 10, when the politicians' payo matrix changes over, for the ®rst time, to a situation where generalized corruption is the Pareto superior outcome. With the above parameterization, it is easily veri®ed that the two contractors always face a prisoner's dilemma (since b > a), but these two contractors must nevertheless coordinate on the All h strategy until the cascade at time T occurs. We can think of the two contractors as consistently oering to bribe the two politicians in periods t 1; 2; . . . ; T ÿ 1, and having their oers refused up until time T 10. However, beginning with period T 10, both politicians begin accepting bribes from both contractors, and the economy achieves the generalized state of corruption characterized by All C and All c.24 The minimum amount of compensation that must be paid to each contractor in each period of corruption t 5 T 10, is given by: ndt t 1 ÿ 10 t 1 ÿ 10 t 1 ÿ 10 ÿ at 1 ÿ T ÿ : 2n 2 3 6 Note that this compensation amount grows over time, in response to the growing social costs of corruption. In fact, the politicians collectively pay each contractor slightly more ± e more ± than this minimum amount in each period t 5 T 10, as a way of insuring that each contractor casts his vote for the two corrupt politicians rather than the two honest political challengers. Therefore, the actual compensation amount in period t 5 T 10, is t 1 ÿ 10=6 e. Let us assume that e 5=24. The politician's net payo, after compensation, is given by bt b ÿ ndt =2n ÿ t 1 ÿ 10=6 ÿ e, which is equal to 24 Note that at t T ÿ 1, the period just prior to the cascade, wT ÿ1 1=2 and, given our parameterization, we ®nd that b < a 2wT ÿ 1 , so that honesty remains the Pareto superior outcome for all politicians. However, at t T, wT 0, and we ®nd that the inequality b > a holds at this point, thus triggering the cascade from All H to All C.


492

Corruption Cycles

2t 1 ÿ 10=3 b ÿ t 1 ÿ 10=2 ÿ t 1 ÿ 10=6 ÿ e, and reduces to ÿe ÿ b ÿ1=24. Note that since ÿ1=24 > b ÿ dN=2n ÿ1=12, there is no incentive for the compensating, corrupt politician to attempt to revert to the honest (H) strategy. That is, in this parameterization, the politician who chooses to become corrupt, and who compensates, ®nds himself in a prisoner's dilemma. Since the per period net payo to the corrupt politician who compensates is negative, eventually this politician's resources will be exhausted and the politician will be unable to continue compensating. In order to have a ®nite number of periods of corruption, 1 > k > 0, we must impose the constraint that e > b. Since we have assumed that e 5=24 > b 1=6, we have that (e ÿ b 1=24. We now have all the information to calculate k, the number of corrupt periods. We ®nd that k

bT ÿ 1 3=2 36: eÿb 1=24

In this example, the honest regime lasts for T ÿ 1 9 periods, while the corrupt regime lasts for 36 periods. Here, periods can be measured as weeks, months or even years. The main point is that a sustained period of corruption is possible. If elections are held every 1 f)T periods, and (1 fT < k, then there will be k=1 fT elections in which the corrupt incumbents are reelected in democratic elections, provided contractors are myopic. If contractors are fully rational and informed, however, there will only be k=1 fT ÿ 1 re-elections of corrupt incumbents. That is, there will be one less election in which corrupt incumbents get re-elected because the fully rational and informed contractors know k. Hence they can foresee that compensation will end before the politician's ®nal term in oce is completed. Eventually, however, the corrupt regime will give way to a new, honest regime. This change will occur when the politicians run out of funds needed to compensate the contractors, and the contractors respond to this situation by (rationally) voting for the honest political challengers (and throwing the corrupt politicians out of oce). Following the election of new, `honest' politicians, the wt penalty function returns to its highest value, and then begins diminishing once again. Note also that the social cost of corruption, dt , returns to zero for the duration of the honest regime. The cycle beings anew. 4. The Penalty for Corruption Up to now, we have not said too much about the penalty, wt , that politicians face for choosing to play the corrupt strategy. We simply assumed that this penalty was monotonically decreasing over the period in which all politicians played the honest strategy. Furthermore, at t T, it was assumed that the value of this penalty fell below a critical value, wcrit , and was in fact equal to 0 for the duration of the period in which all politicians played the corrupt strategy. Following an election in which new, honest politicians replaced the corrupt incumbents, we assumed that wt reverted to its high initial value, and then began declining once again for the remainder of the honest regime. This assumption regarding the behaviour of wt was made so as to avoid needlessly complicating our analysis. Nevertheless, it is possible to provide an interpretation of the penalty function that makes it depend on the behaviour of the # Political Studies Association, 1997


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players. Even with this new interpretation of the wt function we still have corruption cycles. Let us suppose that contractors have a ®nite memory. In particular, they can only remember their payo histories over the past t periods. The penalty the n politicians face for corruption is determined by the number of periods over the past t periods in which all m contractors fail to receive a payo greater than or equal to a, their payo in the honest state. In particular, each one of the n politicians faces a corruption penalty equal to: wt

t ÿ1 1 s X I t ÿ s; n s0

where I tÿ s denotes the value of an indicator function at time t ÿ s. We have that I tÿ s 1 if at time t ÿ s the m contractors all received payos below a, i.e. if the n politicians all played the C strategy but failed to compensate the m contractors for their suboptimal payos. We have that I tÿ s 0 if at time t ÿ s the m contractors all received payos greater than or equal to a. This speci®cation of the penalty function re¯ects the notion that the (non-politician) electorate has ®nite memory, and seeks to penalize politicians only when their payo falls below the honest regime payo. Note that, by construction, the value of wt is bounded, and must lie between 0 and t/n. Indeed, let us assume that initially w0 is equal to t/n. This would be the case if, in the previous t periods (prior to the initial time 0), all n politicians played the corrupt strategy and chose not to compensate any of the m contractors. In this case, the m contractors would have been in a prisoner's dilemma for t periods with an expected payo that was less than a, their payo in the honest regime. Let us assume that an election occurs at time 0, and the contractors vote the corrupt incumbents out of oce, replacing them with new, honest politicians. Thus, as in the numerical example of section 3, where t 10 T and n 2, the new honest regime begins with the maximum penalty, w0 5 t=n. In each period of the honest regime, the indicator function takes the value 0, so that over the course of the honest regime the value of the penalty for corruption is falling, as the contractors' memories of the suboptimal payos from the previous corrupt regime gradually fade. Eventually, at time T, we ®nd that wT 0, as we had assumed in the numerical example, and the politicians switch to playing the C strategy. Beginning with period T 1, the corruption penalty does not necessarily start to rise again. Rather, the value of wt in periods t > T depends on the actions of the politicians in the corrupt regime. If the politicians compensate the contractors for their losses from being in the corrupt regime, then wt remains equal to 0 for as long as this compensation continues. It is only following a period of corruption in which the n politicians decide not to compensate contractors that the value of wt , as we have de®ned it, begins to rise again. Our previous analysis did not consider the eect of this rise in the value of wt following a period in which there was no compensation. We simply assumed that the corrupt politicians would be voted out of oce in the ®rst election following the no-compensation period. That outcome, however, turns out to be only one of two possibilities. A second possibility is that as wt starts to rise following a corrupt period without compensation, the value of this penalty may reach a level at which the payo to the individual politician from playing the corrupt strategy, C, is worse than the payo the individual politician receives # Political Studies Association, 1997

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Corruption Cycles

from playing the honest strategy, H. That is, with wt rising there may occur a time at which bÿ

dt N dt > bt b ÿ : 2 2n

How soon this inequality will occur will depend on the parameters of the model. For example, let us suppose that t 6, and that at time 0 new, honest politicians have just been elected following six periods of a corrupt regime without compensation. Thus, w0 3. The new corruption cascade will occur at T t 6. Let us suppose that after time T, the corrupt politicians refuse to compensate contractors. The penalty wt starts rising immediately, and it can be shown (using the same parameters as in our numerical example of section 3) that at time T 6 t 12, where w12 3, the above inequality holds for the ®rst time. Thus, at t 12, we ®nd that corrupt politicians who do not compensate decide at this point to change over from playing the C strategy to playing the H strategy once again. If the date at which the above inequality ®rst holds is prior to the date of the next election, the corrupt politician who is not compensating switches to the honest strategy, and a period of honesty follows. We can interpret this outcome as representing a `clean-up' initiated by corrupt incumbents. If elections occur while the reformed incumbents remain in this new honest phase, then the contractors will be indierent between electing them and electing new, honest politicians. Of course if the date at which the above inequality ®rst holds occurs after the next election, the corrupt incumbents who did not compensate are voted out of oce. The latter possibility is the one that we had assumed in our previous analysis. 5. Conclusions We have analysed corruption as a cyclical phenomenon. The kind of corruption we have modeled is the exchange of bribes for public contracts, but our analysis can easily be extended to other types of corrupt exchanges. One type of agents, the contractors, always face a prisoner's dilemma. Since corrupting public ocers is their dominant strategy, contractors always try to bribe until they succeed. Yet since all of them eventually succeed, contractors ®nd themselves locked for a while in a suboptimal state. To ensure re-election, corrupt, incumbent politicians will compensate contractors for being in a prisoner's dilemma until they run out of funds. Then they are voted out of oce. We have also considered the case in which politicians succeed in paying so low a compensation that corruption can be sustained inde®nitely. We conclude that corruption cycles appear for two dierent reasons: one is a failure on the part of corrupt politicians to compensate contractors for their Pareto inferior outcome. The other reason is that politicians oer too much excess compensation to corrupt contractors, and thus exhaust their cumulated resources. One could enrich the basic model by varying such parameters as the length of the period between elections, as well as by assuming dierent types of agents, (e.g., myopic vs. fully rational; power-seekers vs. money-seekers) or, as we did, by oering dierent interpretations of the penalty function. Given the # Political Studies Association, 1997


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assumptions of the model, the length of the corruption cycle would be aected, not the cyclical nature of corruption. Eventually, corrupt politicians will be replaced. In our model, it is contractors that both create and resolve crises. Elections are the means to escape the prisoner's dilemma, but the dilemma will be confronted again as soon as politicians feel secure enough to accept bribes. Hence a democratic system, far from being a permanent curb to corruption, is rather one of the main drives of corruption cycles.



The New Economics of Corruption: a Survey and some New Results ALBERTO ADES AND RAFAEL DI TELLA Introduction Governments of all political colours in countries of all levels of wealth are aected by corruption scandals with a frequency and intensity that seems to be always on the increase. Corruption has become a `hot issue' and is now a major topic of political competition, even in the industrialized democracies. Yet, to a large extent, economists have remained vague about what can be done to reduce it. A main concern is the lack of evidence in support of the main policy alternatives. This paper reviews the state of economic knowledge on the phenomenon of corruption, with special emphasis on the theory behind the most common policy proposals and the evidence that supports them. During the last thirty years or so economists from dierent ®elds have made scattered contributions to the analysis of corruption, so that by now a certain body of literature has emerged. The ®rst published piece on corruption that received wide attention is Rose-Ackerman,1 though the topic was also in the minds of people doing research in the economics of crime,2 agency theory,3 rent-seeking,4 and development economics.5 While theories abounded, a lack of data on corruption to test the theoretical contributions allowed con¯icting theories on the causes and consequences of corruption to coexist. As a result, the ®eld has been unable to provide coherent policy guidelines to curb corruption and has remained somewhat disconnected from the discussion arena, a place mainly dominated by lawyers, businessmen and judges. More recently, an emerging body of empirical research has begun to appear, employing subjective indices on corruption produced for businessrelated purposes. We organize the literature into two broad themes: theories about the causes of corruption and theories of its eects. With regard to the latter, we show how the new data has shed light on a controversy that originated in the 1960s about the theoretical possibility that corruption may We are grateful to Guillermo Mondino for helpful comments and suggestions. We wish to acknowledge ®nancial support from the FundacioÂn MediterraÂnea. 1 Susan Rose-Ackerman, `The economics of corruption', Journal of Public Economics, 4(2) (1975), 187±203. 2 Particularly Gary Becker and George Stigler, `Law enforcement, malfeasance and the compensation of enforcers', Journal of Legal Studies, 3(1) (1974), 1±19. 3 M. Harris and A. Raviv, `Some results on incentive contracts with applications to education and employment, health insurance, and law enforcement', American Economic Review, 68 (1978), 20±30. 4 Gordon Tullock, `The welfare costs of taris, monopolies and theft', Western Economic Journal (now Economic Enquiry), 5 (1967), 224±32. 5 Gunnar Myrdal, Asian Drama: an Inquiry into the Poverty of Nations, vol. II (New York, Pantheon, 1968).


ALBERTO ADES AND RAFAEL DI TELLA

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be bene®cial to investment and growth in countries with particularly obtrusive bureaucracies. With respect to the theories on the causes of corruption, we present the theoretical background and empirical performance of some of the most voiced policy proposals. Broadly speaking, there are three types of policy proposals aimed at curbing corruption, which we can call the lawyer's approach, the businessman's approach and the economist's approach. These consist, respectively, in producing tougher new laws and tougher enforcement of existing laws,6 in paying higher wages to bureaucrats7 or, ®nally, in increasing the level of competition in the economy, both among ®rms and bureaucrats.8 Two of the least corrupt countries in the world, Singapore and Hong Kong, are usually set forth as examples of successful applications of the lawyer's approach, as they have quite draconian laws on corruption. As it happens, they are also examples of countries that pay their bureaucrats exceptionally well (especially Singapore), so they are also examples of the businessman's approach to corruption control. However, the level of political competition and civil liberties in these countries is quite poor, something that has allowed exceptional levels of pay in the bureaucracy without too much political opposition, and has often bestowed the anti-corruption agencies with sweeping powers that amounted to a `guilty until proven innocent' principle, or even the right to violate the privacy of individual citizens. Since these experiences cannot be easily adapted to other countries, it becomes necessary to distinguish how much of their clean record should be attributed to their policy of high wages in the bureaucracy and how much to their tough approach to law enforcement. The third proposal, the economist's approach of unleashing the forces of competition against corruption, has the least cost in terms of civil liberties. As it happens, it is also supported by the experience of Singapore and Hong Kong, as these countries are models of laissez-faire societies with market forces competing away rents in an extreme way. Thus, what is required is an assessment of the relative impact of each policy option based on a wider empirical basis. The purpose of this paper is, therefore, twofold: ®rst, to describe the main topics in the economics of corruption, including the present directions of research; and second, to place special emphasis on the theory and evidence behind the policy alternatives in restraining corruption. The New Data on Corruption In general, recent empirical studies of corruption have used data from three dierent sources. All three data sets have been created for business related purposes, to be consumed by banks, institutional investors, or multi-national ®rms. The ®rst two data sets are bought at quite high prices. The ®rst data set comes from Business International (BI), a subsidiary of The Economist Intelligence Unit. Data is available for the period 1980±83 and covers 6 One such policy proposal is by Italy's judge Antonio Di Pietro, who argues that a way to curb corruption is to reform the judiciary system to allow for plea bargaining and to give judges the ability to grant immunity from prosecution to those that cooperate with the investigations. 7 See, for example, Becker and Stigler, `Law enforcement, malfeasance and the compensation of enforcers'. 8 See Susan Rose-Ackerman, Corruption: a Study in Political Economy (New York, Academic, 1978) and Alberto Ades and Rafael Di Tella, `Competition and corruption', Applied Economics Discussion Paper Series No. 169, Oxford University (1995) and Christopher Bliss and Rafael Di Tella, `Does competition kill corruption?', Journal of Political Economy (1997), forthcoming.


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The New Economics of Corruption

close to 70 countries. The corruption measure in this data set is quite general and is provided by BI's network of correspondents who must grade on a scale to 10 `the degree to which business transactions involve corrupt payments' in each of the countries covered. All correspondents use the same methodology and their reports are further checked for comparability at the regional level and at BI's headquarters. A second data set comes from the World Competitiveness Report (WCR), a business publication produced by the World Economic Forum in Switzerland, and consists of a survey of top and middle managers in the most dynamic ®rms in each of the countries covered. The surveys have included a question on corruption since 1989, cover a minimum of 32 countries and usually involve over a thousand executives. The question asked is `the degree to which improper practices (like corruption) prevail in the public sphere'. An advantage of the WCR over the BI data is that it covers people with an intimate knowledge of business practices in each of the countries covered. But the apparent lack of a centralized oce to consolidate the answers of those surveyed by the WCR could be a drawback of the WCR data in a cross-section study, as it calls into question the comparability of the answers between countries. The fact that the companies to which the survey respondents belong are successful and internationally oriented is only a partial answer to that concern. The third data set was gathered by Peter Neuman and his collaborators at Impulse, a German business publication. It also consists of a survey, this time of German businessmen who normally conduct business with each of the countries covered (typically exporters). On average, 10 persons where interviewed for each country, and an eort to have a minimum of three respondents per country was made. An important advantage of this data set is that there is less subjectivity involved as respondents must simply provide an estimate of the kickback per deal (as a percentage of the deal's value) that would have to be paid in order to conduct business in each country. The data was published in 1994 and covers 103 countries. Another advantage is that it originated in a very homogeneous group of people (German exporters), with practical business experience in each country covered and who answer a quantitative question. Traditionally, empirical economists expect to use hard data in their research. In the case of corruption, attempts have been made to use data on number of convictions for corruption, but this type of data is of extremely low comparability between countries, and cannot capture undiscovered corruption cases, so eectively it is more a measure of the eectiveness of enforcement policies than of the level of corruption. Thus, the advantage of using subjective data on corruption; in addition, these indices can be defended using an argument of revealed preference: they are the market's choice of a corruption indicator. The degree of correlation between the three corruption measures is quite high, as shown in Table 1. The raw data show that corruption is strongly negatively correlated with the level of development of the country, as measured by the level of income per capita or the average years of schooling in the population over 25. The lack of political competition (as proxied by the Gastil Index of political rights) is positively associated with the level of corruption. The weakest relationship is shown for the WCR data set, and is due to the inclusion of two very `clean' countries, like Hong Kong and Singapore, that have also a very low degree of # Political Studies Association, 1997


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TABLE 1. Simple Correlations BI WCR German GDP Political rights Schooling Openness

0.84 (0.00) 0.81 (0.00) ÿ0.74 (0.00) 0.50 (0.00) ÿ0.70 (0.00) ÿ0.21 (0.11)

WCR

German

0.84 (0.00) ÿ0.74 (0.00) 0.23 (0.20) ÿ0.59 (0.00) ÿ0.41 (0.02)

ÿ0.61 (0.00) 0.35 (0.00) ÿ0.56 (0.00) ÿ0.21 (0.04)

Note: The correlation between BI and WCR is based on 38 observations, the one for WCR and German is based on 39 and that for BI and German is based on 62 observations. The rest of the correlations for BI are based on 55 observations, those for WCR on 32 while those for German are based on 92 observations. The signi®cance probability of the correlation under the null hypothesis that the statistic is zero is shown in parenthesis. TABLE 2. Frequency Histogram for the Business International Corruption Index (BI) BI 0

0 < BI 4 1

1 < BI 4 2

2 < BI 4 4

4 < BI 4 6

6 < BI 4 9

Australia Canada France Iraq Netherlands New Zealand Norway Singapore Switzerland United States

Belgium Chile Denmark Finland Germany Ireland Israel UK Sweden

Angola Austria Hong Kong Japan Jordan Nicaragua South Africa Uruguay Zimbabwe

Argentina Cameroon Dominican Greece Italy Ivory Coast Kuwait Malaysia Peru Portugal Spain Sri Lanka Taiwan T&Tobago Turkey

Algeria Bangladesh Brazil Colombia Ecuador India Jamaica Kenya Korea Morocco Pakistan Panama Philippines Saudi Arabia Venezuela

Egypt Ghana Haiti Indonesia Iran Liberia Mexico Nigeria Thailand Zaire

Note: The BI corruption index covers 68 countries.

political rights in a relatively small data set.9 The raw data also show that the degree of openness is negatively correlated with the three corruption indicators. Table 2 presents a frequency histogram for the BI data. The Costs of Corruption One of the reasons often cited for the relative neglect of corruption as a research topic in economics is that a bribe is simply a transfer and therefore entails no serious welfare losses. Myrdal seriously questioned this view arguing that if corruption is allowed, government ocials will have an interest in generating 9 In some regressions that hold constant the level of development, the lack of political rights can even have a signi®cant and positive eect on corruption. Again, this is due to the inclusion of these two extreme countries and only shows if the sample size is small.


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bureaucratic hurdles to demand bribes.10 Thus, rather than supporting production, the bureaucracy becomes a burden obstructing eciency.11 If, instead, delays are the product of pre-existing rules devised by rather hyperactive social planners, then corruption may serve a useful purpose. This is the approach taken by Le12 and others, who argue that corruption improves social welfare, both because it is a way to avoid cumbersome regulations and because it is a system of building in rewards for badly paid bureaucrats. These two approaches, corruption as `sand' and corruption as òil' in the machine, coexisted with ingenious rationales behind each approach being constantly added to the list. But the lack of data prevented these competing hypothesis from being directly tested against one another. Mauro presents the ®rst systematic empirical analysis of the eects of corruption by focusing on the relationship between investment and corruption.13 He uses the BI index of corruption to estimate the eects of corruption on the average ratio of total and private investment to GDP for the period between 1960 and 1985 for a cross-section of 67 countries. Mauro ®nds that corruption lowers investment, thereby reducing growth. For example, he ®nds that if Bangladesh were to improve the integrity of its bureaucracy to the level of that of Uruguay (this corresponds to a one standard deviation improvement in the index), its investment rate should rise by almost 3 percentage points and its yearly GDP growth rate would rise by over half a percentage point. The potential endogeneity of corruption is dealt with using instrumental variables. The magnitude of the estimated eects is somewhat larger but ®nding a plausible instrument in this context remains a daunting task. Mauro also constructs a `bureaucratic eciency index' as the arithmetic average of the BI indexes of èciency of the legal system and the judiciary', an index for the amount of `bureaucracy and red tape', and the BI `corruption' index. The index is again negatively and signi®cantly associated with investment. Furthermore, the eects are quite strong. A one standard deviation improvement in bureaucratic eciency is associated with an increase in the investment rate by 4.75 per cent of GDP. The estimated magnitude of the eects are higher and remain signi®cant when controlling for possible endogeneity using TSLS techniques. For the `bureaucratic eciency index', similar results obtain in the context of a more general investment regression. In this more general setup, Mauro adds the `bureaucratic eciency' index to the standard set of controls from Barro.14 These include the level of income per capita in 1960, primary and secondary school enrolment in 1960, the average share of government consumption expenditure to GDP from 1960 to 1985, the number of revolutions and coups per year from 1960 to 1985 in each country, the 1960 PPP value of the investment de¯ator (US 1:0) and the absolute value of its deviation from 100, 10

See Myrdal, Asian Drama and also Rose-Ackerman, Corruption, ch. 5. The Santhanam Committee report on corruption in India (cited by Myrdal, Asian Drama) notes that `(w)e have no doubt that quite often delay is deliberately contrived so as to obtain some kind of illicit grati®cation'. 12 Nathaniel Le, Èconomic development through bureaucratic corruption', American Behavioral Scientist, (1964), 8±14. 13 Paolo Mauro, `Corruption, country risk and growth', mimeo, Harvard University (1995). [Forthcoming Quarterly Journal of Economics]. 14 R. Barro, Èconomic growth in a cross-section of countries', Quarterly Journal of Economics, 106 (1991), 407±44. 11



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and average per capita political assassinations. In this regression, the magnitude of the eect of bureaucratic eciency on investment is halved, though it remains signi®cant at the 5 per cent level. The results from Mauro are supportive, therefore, of the claim that corruption has a negative impact on investment, and through that channel it negatively aects growth. It is still worth considering whether the eects of corruption are dierent depending on the level of red tape in the economy, as argued by Le and his followers. Mauro provides some evidence against Le by dividing his sample into high red tape and low red tape sub-samples, and ®nds a negative and signi®cant association between investment and corruption regardless of the level of red tape. However, he ®nds that the negative impact is smaller in the high red tape sample, though he makes no attempt to test whether this dierence is signi®cant. To examine this proposition more closely, we regress the investment rate in country i on the BI corruption index, a dummy variable that takes a value of 1 if the BI index for bureaucracy and red tape exceeds the median, and an interaction term between the two. Essentially, this is just testing whether the negative eect of corruption on investment is signi®cantly lower in countries with high levels of red tape. The regression below shows our results, with standard errors in parenthesis. The sample we use is smaller than Mauro's as we restrict attention to the 55 countries with data for at least three years. Vi 0:270 ÿ 0:019 CORR i ÿ 0:087 BUREAUi 0:014 INTERACTi 0:012 0:008 0:027 0:009 As shown, the negative and signi®cant coecients of the corruption and bureaucracy indices indicates that both have a negative impact on investment. Interestingly, the coecient on the interaction term, while statistically weak, has the sign predicted by Le and his followers, indicating that in countries with high levels of red tape corruption has less damaging eects on investment. Corruption may, however, aect growth through channels other than investment. Mauro estimates the eects of corruption on the composition of government expenditure.15 This approach consists in examining in more detail some of the possible channels through which corruption aects economic performance, the allocation of government spending being one of them. For a cross-section of countries, Mauro ®nds that corruption and political instability are negatively and signi®cantly correlated with the share of government expenditure on education in total spending and in GDP. As a possible explanation, he conjectures that it may be more dicult to collect bribes on education projects than on other components of government expenditure. These are preliminary eorts, however, as one would want to make sure that this is not merely capturing the eect of the level of development in the composition of government expenditure. The results obtained so far on the eects of corruption on investment and the allocation of government spending should be treated with caution given the narrowness of the data sets used. However, there is already some evidence to suggest that corruption acts mainly as `sand in the machine', and the possibility that it has positive eects in countries with high red tape does not receive conclusive support from the data. 15 Paolo Mauro, `The composition of government expenditure: the good guys and the bad guys', mimeo, Harvard University (1994).


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The Causes of Corruption In order to analyse the causes of corruption and compare the three approaches to anti-corruption policies, namely tighter enforcement of laws, higher wages in the bureaucracy and more competition in the product market, we focus on a stylized case of corruption. As a heuristic device, we can think of most cases of corruption as occurring in a structure similar to this: THE PUBLIC Objectives: Maximize social welfare Actions: Chooses rules and regulations Sets market structure of Firms and Bureaucrats Designs formal and informal incentives Carries out monitoring of activities and outcomes Constraints: Resources Participation Information BUREAUCRATS Objective: Maximize utility Actions: Decide to participate Apply regulations to please voters and receive wages Not apply regulations to please Firms and demand bribes Invent regulations to relax later in exchange for bribes In¯uences: Monitoring by The Public Formal and informal incentives speci®ed by The Public (in¯uenced by the market structure in which Firms operate) The market structure in which Bureaucrats operate FIRMS Objective: Maximize pro®ts net of bribes Actions: Decide to participate Obey rules set up by The Public and by Bureaucrats Disobey rules and oer bribes Denounce bribe demands to The Public In¯uences: Regulations imposed by Bureaucrats (in¯uenced by the market structure in which Bureaucrats operate) Monitoring by The Public The market structure in which Firms operate. The Public wishes to maximize social welfare. For this it uses a variety of instruments such as pollution regulation (to keep the air clean), or export subsidies (to promote `national champions' that are technological leaders) to name just two. To pursue its objective, the public can do one of two things: it can either set up a bureaucracy or it can periodically elect politicians. The two alternatives have their advantages as bureaucrats usually have longer horizons # Political Studies Association, 1997


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but politicians are more accountable for their actions. Typically The Public will want to employ both types, and we will stress some of the dierences below, but for now we shall call them Bureaucrats. In our example, Firms are the third and ®nal party to the corrupt relationship. The important point is that the public's choice of policies to maximize social welfare typically entail the transfer of rents in favour of some groups at the expense of others. This is the case when import duties or quotas are imposed. Thus, the bureaucrat's actions have value for the private agents involved. Ideally, bureaucrats should have a high degree of social conscience, so that their objectives would be perfectly matched with those of society, acting only as a `veil' and perfectly translating those objectives into policies. In practice, however, the public's objectives are less clear cut than implied above. Furthermore, bureaucrats have, like most other economic actors, an agenda of their own, and monetary income is certainly one of the arguments of their objective function. Corruption can take place if the bureaucrat decides to cash-in the value of control rights by taking bribes. Therefore, the public must provide the bureaucrat with the appropriate incentives if its goals are to be achieved. Broadly speaking, there are three types of constraints that aect the eliciting of desired behaviour from the bureaucrat. The ®rst limitation is a constraint on the amount of resources and technological possibilities available at any one time. Examples are the limitations in monitoring technology, and the characteristics of the population of potential bureaucrats such as history, risk aversion or moral scruples. A second limitation is the possibility available to bureaucrats and ®rms in free societies of refusing to participate in the contract with the public. Regulated ®rms may decide to close their operations and relocate elsewhere, or simply switch to other activities. Bureaucrats may seek employment in the private sector. The third limitation is the amount of information that the public has. As stressed by Laont and Tirole16 amongst others, informational asymmetries are important in understanding why voters have incomplete control over the agencies they set up. Even in this highly stylized representation we can guess that the design of an optimal programme to achieve the public's objective can be an extremely demanding task. In a more realistic setting, where the bureaucracy is divided into many agencies, the constraints are interdependent as they must take into account both the natural uncertainty in the environment and the eects of other regulatory agencies. Thus, for example, if restrictions on imports are increased, the value of the control rights of the bureaucrats in the pollution regulation department are increased, so the optimal contract of the bureaucrats implementing commercial policy and of the pollution regulators must change. Bureaucratic performance will also depend on the market structure of the bureaucracy itself. As shown by Rose-Ackerman and Shleifer and Vishny,17 the equilibrium amount of corruption will critically depend on whether bureaucrats collude, acting as joint monopolists in the process of maximizing bribes, whether they act independently of each other, or whether overlapping jurisdictions induces some competition between them. 16 Jean Jacques Laont and Jean Tirole, A Theory of Incentives in Procurement and Regulation (The MIT Press, 1993). 17 Rose-Ackerman, Corruption. Andrei Shleifer and Robert Vishny, `Corruption', Quarterly Journal of Economics, (1993), 599±617.


504


The objective of ®rms is to maximize pro®ts. Their behaviour is aected by the amount of rules and regulations the public decides to impose on the private sector. A second in¯uence on the behaviour of ®rms results from direct monitoring by the public to ensure compliance with its regulations. Lastly, there is the market structure in which ®rms operate, something that is the outcome both of natural technological possibilities and of intentional policy choices of the public, such as the level of the tari rates on foreign trade. The market structure in which ®rms operate will aect the value of the control right owned by the bureaucrat. Typically, the ability of bureaucrats to extract bribes in exchange for softer regulations will be higher in environments in which ®rms enjoy monopoly rents. Thus, bribe determination between bureaucrats and ®rms is akin to the rent-sharing models of wage determination, where the exchange of control rights takes the place of labour. To summarize, the public can in¯uence the level of corruption in this very general setting, by acting on two broad fronts: providing the right incentives to bureaucrats, and designing competitive market structures both for bureaucrats and ®rms. The businessmen's and the lawyer's approach to curbing corruption are both part of the former, whilst the economist's approach is an example of the latter. A. Incentives Businessmen usually argue that there is a very simple way to curb corruption: do what a private ®rm would. This typically implies that the public should provide formal incentives, usually in the form of very high wages, according to the importance of the bureaucrat's position. The lawyer's approach is to increase monitoring of inputs and performance and to improve the enforcement of laws. Traditionally there are three ways in which incentives are provided: through formal incentives, such as wages or bonus schemes; informal incentives, such as career concerns and reputations; and ®nally, by directly monitoring inputs through periodic inspections or by employing supervisors.18 Formal incentives Formal incentives, such as wages and bonus schemes, usually play a minor role in controlling corruption, basically because measurable performance indicators are not always easy to construct. In some areas of government where performance is clearly de®ned some attempts have been made to tie pay to performance. For example, employees at the Bolivian customs service were promised in 1985 part of the agency's revenues, which led to a 60 per cent increase in customs revenues.19 In Italy, the inspectors working at the Instituto Nazionale della Providenza Sociale (the national social-security body), have signi®cantly 18 This classi®cation is for simplicity, as monitoring inputs can be seen as a way to provide formal incentives. An accessible survey of the literature on incentives applied to government is Jean Tirole, `The internal organization of government', Oxford Economic Papers, (1994), 1±29, on whom part of this section draws. See also Bengt Holmstrom and Jean Tirole, `The Theory of the Firm', in R. Schmalensee and R. Willig (eds), Handbook of Industrial Organization (Amsterdam, North Holland, 1989). 19 Reported in Business Week, 6 December (1993).



505

improved the collection of social security contributions motivated by performance related bonuses, which in 1993 added $8,000 a head in salaries.20 In general, however, a multiplicity of objectives characterizes government activities. At the defence ministry, for example, procurement ocers are supposed to be discreet when advertising their operations so as not to circulate sensitive information to the country's enemies, while obtaining goods of a certain quality/price ratio.21 A complete formal contract directed at providing incentives for such a multiplicity of objectives can at times be dicult, if not prohibitively costly, to write. As a result of this, defence procurement is one of the areas most prone to corruption. One extreme example of this is the Pentagon's procurement procedures, where pursuance of the secrecy objective led to ordinary screws being bought at 100 times the price at which members of the public can buy them.22 The most usual proposal to control corruption involves using formal incentives by simply paying a very high ®xed wage to bureaucrats with the possibility of committing corrupt acts. The logic of paying a high wage in every state of the world to prevent corruption stems from the fact that if there is probability of malfeasance detection, and an associated penalty, say a ®ne or employment at a lower wage, then honest actions are incentive compatible for the government bureaucrat. This proposal, originally due to Becker and Stigler, 23 has rarely been observed in practice, although one of the most honest countries in the world, Singapore, pays exceptionally high wages to government ocials.24 To provide some empirical content to this hypothesis, we collected data on the relative remunerations of comparable bureaucrats across countries. Table 3 provides some interesting comparisons. Though no de®nite conclusions should be drawn on such a narrow set of countries, we note that the correlation coecient between column (1) and the level of corruption in 1990 (with US 100) is close to zero, though excluding Japan brings it close to ÿ0:5. In a sense, pension privileges to elected ocials perform a similar role as high wages during their time in oce. Pensions are particularly important for elected politicians, who may have a short employment horizon and hence may give too little weight to the transitory wage income and too much weight to corrupt income. The idea of paying very high wages or pensions to prevent corruption is attractive, though not always feasible. For example, some trade unions limit the 20

Reported in The Economist, 28 January (1995). Another even more con¯icting objective in the defence industry is usually the desire to encourage technological innovation. The usual way to achieve this is by allowing ®rms in the defence industry to keep a healthy pro®t. As Rogerson puts it, the set of regulations in the US Department of Defense establish that `contracting ocers negotiating with a sole source are instructed that their job is not to obtain the lowest price' (emphasis in the original). William Rogerson, Èconomic incentives and the defense procurement process', Journal of Economic Perspectives, 8(4) (1994), 65±90, p. 69. 22 J. Stiglitz, The Economics of the Public Sector (Prentice-Hall, 1986). 23 Becker and Stigler, `Law enforcement, malfeasance and the compensation of enforcers'. 24 In 1994, the annual salary of Goh Chok Tong, Singapore's prime minister, was $780,000, almost four times that of Bill Clinton. Starting annual salaries for cabinet ministers were $419,285 (over three times that of the British premier), and were raised by 25% in 1995. Reported in The Economist, 26 November (1994). 21


506

The New Economics of Corruption TABLE 3. Remunerations of Comparable Bureaucrats across Countries Top bureaucrat (1)

Chief Executive Ocer (2)

82 149 78 116 87 160 97 63 155 100

35 56 45 47 20 31 35 27 43 100

Australia Canada France Germany Ireland Japan Netherlands Sweden UK US

Note: (1) Relative to the US, based on OECD ®gures for 1990. Source: Michael Dynes, The Times, 29 December (1994). Figures correspond to the maximum salary and may dier slightly due to rounding. (2) Purchasing power US CEO 100, data for 1989. Source: World Total Remuneration, World Competitiveness Report.

wage that can be paid to the trade union leader to the wage earned by the highest paid member of the union.25 Politicians are seldom paid relative to the importance of their post as they are subject to severe public scrutiny. It is perhaps not unrelated that public opinion polls systematically rank politicians and trade union ocers as more corrupt than other professions, particularly businessmen. It is ironic that those who are supposed to be more socially motivated are perceived to be more corrupt than those who are supposed to be purely pro®t motivated. Another social constraint that may increase the level of corruption is the ability to use the statement of wealth as a corruption controlling device. In many countries politicians are obliged to sign a sworn declaration of their wealth when they start oce. This can be of extreme help in controlling corruption.26 Some countries, such as the UK, do not enforce this type of regulation as it is judged to invade the privacy of the politicians.27 As a policy matter, it is dicult to promote changes in habits that are considered essential to a way of life, like the right to privacy of British politicians; but in countries where these social norms do not have such a strong grip, policies directed at raising the level of pay earned by public sector employees and directed at 25 The United Electric Workers (163,000 members) in the US paid its top ocial $14,618 in 1972. Compare this with the head of the teamsters (2.5 million members) who earned $125,000, or the head of the National Maritime Union (36,000 members) who was paid $92,200. Reported in Business Week, 18 August (1972). 26 A large number of solved cases in corruption are related to audits following signs of unexpected wealth by public servants. An extraordinary case is the former police chief of Mexico City, who had 1,200 servants in his house while on a $1,000 a month salary. As with many examples of Mexican corruption, the numbers sound at least one order of magnitude wrong. Reported in The Economist, 7 April (1984). 27 In the UK, members of Parliament are only required to declare which topics will present them with a con¯ict of interest. This declaration is included in the Register of the Members' Interest, and it has a very weak eect in preventing ethically dubious votes. Members of the House of Lords are not required to state their interests.



507

making extensive the use of the statement of wealth would be a positive in¯uence on that country's general level of honesty. Informal incentives Informal incentives usually take the form of career concerns in agents whose future jobs and income depend on the reputation they develop while they are in oce. Holmstrom,28 formalizing an argument made by Fama,29 showed under which circumstances the labour market for managers provided incentives for incumbent managers to exert eort. By working hard, the manager in Holmstrom's model attempts to fool observers in the labour market about his ability to perform his task. In the ®nal equilibrium, managers end up working hard just to prevent an adverse evaluation. The implications of such arguments for corruption control, especially for elected ocials such as trade union ocers and politicians, have not been explored but one could conjecture that a related mechanism may prevent corruption when political competition is intense.30 Based on this basic model, informal incentives work well only if voters observe the performance of the ocial, if the ocial's performance in the present task is informative about his ability for future tasks and if the government ocial is not too impatient. This last condition can be stated somewhat dierently. Assume there is an agent with some amount of discretion to commit a corrupt act. If the act is observable but unveri®able (in court), or if the only ®ne that can be imposed is dismissal from his job, then the existence of a last period guarantees corruption. Deterrence can only be exercised if the agent has something to look forward to, like a pension or the reputation of having been a (not-dismissed-in-the-last-period) politician. Thus, reputations can act like a bond posted by cash-constrained politicians with their employers (the public) and which can be con®scated in the event of any wrong doing during their time in oce.31 This can be seen as a rationalization for the public's preference for politicians with a prestigious or valuable background.32 If this interpretation of the politician's reputation as a bond is taken seriously, then libel laws when viewed as anti-corruption instruments have at least two con¯icting objectives to achieve: they are supposed to be lax to encourage the cheap production of information and they are supposed to be strict to protect the reputations of politicians from short term electoral attacks. 28 Bengt Holmstrom, `Managerial incentive problems: a dynamic perspective', in Essays in Economics and Management in Honour of Lars Wahlbeck (Helsinki, Swedish School of Economics, 1982). 29 Eugene Fama, Àgency problems and the theory of the ®rm', Journal of Political Economy, 88 (1980), 288±307. 30 Note that when other responsibilities are given to the manager, like an investment decision, career concerns may give rise to ineciencies, Bengt Holmstrom and J. Ricart i Costa, `Managerial incentives and capital management', Quarterly Journal of Economics, 101 (1986), 835±860. 31 The idea of posting a bond to deter malfeasance (which subsequently became known as the bonding critique to eciency wages) was already noted in Becker and Stigler, `Law enforcement, malfeasance and the compensation of enforcers'. Note that ®rms entering contractual relationships with the state could be asked to post bonds that would be con®scated if the ®rm engaged in any wrongdoing. In fact, the relatively light punishment for ®rms found guilty of bribing public ocials is one of the puzzles of corruption deterrence. 32 In a sense artists turned politicians, such as Ronald Reagan or Palito Ortega, are posting a bond (their popularity) when entering politics.


508


Monitoring inputs The third and ®nal way to provide incentives against corruption is to collect information about the activities of the bureaucrats and then prosecute any dishonest behaviour that is detected. The traditional way to do it is by directly monitoring bureaucrats to spot any deviations as they occur or to audit the outcome of their work. However, information obtained in this way is sometimes dicult to use in a court of law. The lawyer's approach to combat corruption is illustrated by the proposals of judge Antonio Di Pietro, in charge of Italy's recent corruption investigations, who favours a reform of the judiciary system to allow for plea bargaining and to allow judges to grant immunity from prosecution to those that cooperate with the investigations. Some of the most successful and celebrated anti-corruption campaigns have complemented monitoring and auditing eorts with quite drastic measures on the use that can be given to the information thus obtained. For example, the Prevention of Bribery ordinance passed by the government of Hong Kong in 1971,33 allowed the burden of the proof to be shifted so that those accused of corruption should demonstrate their innocence. The agents working for the ICAC (Independent Commission Against Corruption) created in Hong Kong in 1973, had the power of search and seizure without need for a legal warrant. This is not always an acceptable alternative in politically more open societies. One of the conditions for an anti-corruption agency of this sort to be eective is its independent nature. The idea behind this requirement of independence is that it is the only way the public will have con®dence in such a body and will contribute with information and support to its success. However, the experience of the Australian state of New South Wales is interesting in this respect. The state governor, who set up one of the ®rst ICACs in the world, was falsely accused by the head of the ICAC of corruption charges (actually quite minor charges). The independence of the ICAC was never questioned and the governor resigned. Again a dilemma arises. For the ICAC to be fully eective it must operate independently from other government agencies. However, the ICAC has to be set up by a branch of government, typically the executive, which will be reluctant to do so if it could also face investigation. Auditing is an important anti-corruption weapon in its own sake. However, the exact form of the auditing procedure may introduce important ineciencies in the operation being audited. Rogerson reports the eects of the key law regulating the government's procedures when auditing defence contractors in the United States (the Truth in Negotiations Act).34 Its precise objective is to prevent a form of cost padding involving ®rms submitting inaccurate cost estimates when they are negotiating a contract. However the eect is that if ®rms achieve an unexpected cost reduction they increase the risk of prosecution. This leads to slack in cost reducing eort whenever there is a favourable cost shock. As Rogerson remarks, this essentially turns a ®xed price contract into a cost reimbursement contract.

33 34

See Robert Klitgaard, Controlling Corruption (University of California Press, 1988), p. 104. Rogerson, Èconomic incentives and the defense procurement process'.



509

B. The Market Structure While bureaucrats may receive incentives to act in line with the public's objectives, they do not operate in a vacuum. Indeed, recent research has emphasized that both the decision to give bribes and the amount of the bribe depends on the market structure in which both bribers and recipients of bribes operate. Bureaucratic market structures The ®rst to emphasize the eect of bureaucratic market structure on corruption was Rose-Ackerman when she introduced what is sometimes called the principle of overlapping jurisdictions (or Gresham's law in reverse).35 Rose-Ackerman analysed the eects of competitive pressures on a corrupt bureaucracy dispensing a scarce bene®t. In this case, competition can be introduced by allowing bene®t applicants to reapply in other departments if they are asked for bribes. If the cost of reapplication is low enough, the existence of some honest ocials could drive bribes to zero.36 In a similar vein, Shleifer and Vishny present a simple model to examine how the structure of government institutions and of the political process determine the level of corruption.37 They consider the case in which the state has the monopoly on the provision of a government produced good, such as a passport, or an import license. The good is sold for the government by an ocial, who has the opportunity to restrict the quantity of the good that is sold. Speci®cally, the ocial can deny a private agent the passport or the import license. For simplicity, it is assumed that the ocial can restrict supply without any risk of detection or punishment. Also, it is assumed that provision of the good costs nothing to the ocial, except for the ocial price for the good p that he must turn in to the government. If the ocial cannot discriminate between buyers, he will simply set the marginal revenue equal to the marginal cost p of providing the good. For a downward sloping demand for the government good, the total price with the bribe always exceed the ocial price. Shleifer and Vishny also examine the case in which the state acts as a joint monopolist agency that sets the cum bribe prices p1 and p2 for two complementary government goods. The extension is interesting because, in many cases, a private agent might need several complementary government permits to conduct business. For example, an importer might need permits to unload, transport and sell a government good, obtainable from dierent agencies. The dierent agencies that supply the complementary good might collude, sell the dierent goods independently, or even compete in the provision of the public goods. It turns out that these dierent bureaucratic market structures have important implications for the extent of corruption. Let x1 and x2 be the quantities of these goods sold. Let the ocial prices, equal to the monopolist's marginal costs, be denoted MC1 and MC2 . The per unit bribes are then p1 ÿ MC 1 and p2 ÿ MC 2 . If agencies collude (acting as a joint monopolist), the joint monopolist will set p1 at which dx2 MC 1 MR1 MR2 dx1 35 36 37

Rose-Ackerman, Corruption. Admittedly, this sort of competition involves some duplication of costs. Shleifer and Vishny, `Corruption'.


510


where MR1 and MR2 denote marginal revenues for the sale of goods 1 and 2, respectively. When the two goods are complements, at the optimum MR1 < MC 1 . In other words, the joint monopolist keeps the bribe on good 1 down to expand the demand for the complementary good 2 and thus raise pro®ts from bribes on good 2. For the same reason, the agency keeps down the price of good 2. This contrasts sharply with the case in which agencies act independently. Each agency then takes the other's output as given, and in particular, dx1/dx2 is set to zero. At the independent agency's optimum, MR1 MC 1 . Hence, the per unit bribe is higher and the output is lower. The ®nal case is one in which each agency is allowed to provide either good. In this case, both agencies will eectively compete for the provision of the good, as when dierent agencies or cities in the US can provide a passport. It is straightforward to see that price competition between the providers will drive the bribes to zero. Thus, the level of bribes is lowest in the case in which agents are induced to compete for the provision of a public good, intermediate in the case where the ocial acts as a joint monopolist agency (collusion), and highest when the briber acts independently. This is formally close to the analysis of the extraction of renewable resources by competing players in the classical ®shing game.38 The briber's market structure Bureaucrats' actions are valuable to ®rms. For example, the decision by a bureaucrat to apply a regulation aimed at providing pollution control can be very costly for the ®rms aected. These actions will aect the ®rm's marginal or average costs, and therefore have an impact on its pro®ts. In general, the value of the bureaucrat's action will depend on the market structure of the industry to be regulated. Consider, for example, a standard Cournot equilibrium with linear demand (with intercept A and unit slope) constant, marginal cost c, and n ®rms. At the margin, the bene®t for each ®rm from having lower marginal costs is given by 2A ÿ c=n 12 , which is decreasing in n. If ®rms could pay regulators a bribe in exchange for a more lenient application of regulations to reduce their MC, the incentive to do so would be decreasing in n. Thus, in general, the lack of product market competition can not only bene®t the ®rms in the industry, but can potentially also bene®t tax inspectors, regulators, suppliers and other agents with some control rights over those ®rms. The reason is that as competition decreases, the value of their control rights increase, so it becomes more pro®table to exchange them for bribes.39

38

D. Fudenberg and J. Tirole, Game Theory (Cambridge MA, MIT Press, 1991). Rose-Ackerman stressed the need for further research on this aspect of corruption when she stated that `the role of competitive pressures in preventing corruption may be an important aspect of a strategy to deter bribery of low-level ocials, but requires a broad-based exploration of the impact of both organizational and market structure on the incentives for corruption facing both bureaucrats and their clients.' Susan Rose-Ackerman, `Bribery', in J. Eatwell, M. Milgate and P. Newman (eds), The New Palgrave: a Dictionary of Economics (1988). 39



511

To ®x ideas, we develop a simple model that focuses on the regulatory power as the type of political control right enjoyed by the bureaucrat. There are three players in this model: the public, the bureaucrat and the ®rm. The public has discretion over a policy instrument k, that controls the degree of product market competition in the economy. The use of k may respond to public concerns over too little employment under free trade, so that k would be the amount of protection imposed through tari or non-tari barriers. Alternatively, k may re¯ect the public's concern over too little investment in R&D when there is too much entry into a certain industry, so that k would re¯ect restrictions on the number of ®rms allowed to operate based on these `Schumpeterian' considerations.40 In general, we do not require these policy choices to lead to ecient outcomes. The bureaucrat, who has no power to aect k directly, has certain control rights over a ®rm that operates within his area of political in¯uence. For example, he might have discretion over the application of certain regulatory controls on the ®rm (such as those that apply to ®re safety or pollution), resulting in a reduction of the ®rm's pro®ts. There is a continuum of ®rms in the unit interval. Before regulation, aggregate and average rents in the economy are given by p(k), with pk : > 0. After the bureaucrat exercises his control right and a tough regulation is enforced, pro®ts are zero. Thus, the value of the politician's discretion is equal to p(k), and this value is increasing in k. We assume that the bureaucrat is not under any sort of optimal contract that prevents him from pursuing his own interests.41 We simply assume that the bureaucrat is paid the ongoing wage in the economy w, regardless of whether he enforces a tough or a soft regulation. Since the politician cares about bribes, regulating the ®rm is not ecient (for the bureaucrat/®rm coalition). In a Coasian spirit, we allow the bureaucrat and the ®rm to bargain over bribes to avoid regulation and, thus, restore eciency. With probability y, corrupt deals become public (as when opposition parties or the press uncover them) and the bureaucrat is ®red under corruption accusations. The corrupt politician's income is given by his wage w plus the bribes b that he takes. When a corrupt politician is ®red, he immediately obtains employment in the private sector at the ongoing wage w, but suers a utility loss with monetary value of m.42 Thus, his utility is given by U b 1 ÿ yw b yw ÿ m

3

40 Notice that k may also lead to inaction, as when a society does not build trading infrastructure or does not contribute to the solution of market imperfections that enable some agents to enjoy market power. 41 The eect of product market competition on managerial slack is theoretically ambiguous. Competition may improve incentives by providing comparative performance information, but may also reduce the value to the principal of inducing desired behaviour from the agent. But see the varying ®ndings of Oliver Hart, `The market as an incentive scheme', Bell Journal of Economics, 14(2) (1983); D. Scharfstein, `Product market competition and managerial slack', Rand Journal of Economics, 19 (1988), 147±155; Benjamin E. Hermalin, `The eects of competition on executive behaviour', Rand Journal of Economics, 23(3) (1992) and specially Klaus M. Schmidt, `Managerial incentives and product market competition', University of Bonn Working Paper (1994). 42 Reputation, retraining or moral costs can be counted in this category. The model would remain essentially the same if we assumed heterogeneity in terms of dierent outside options.


512


If the manager is caught oering bribes, his ®rm leaves the industry to earn normal returns (zero pro®ts with certainty). The manager's utility is given by U m 1 ÿ yp ÿ b

4

The bureaucrat and the ®rm bargain over bribes. The disagreement point for the bureaucrat is simply his wage w and the disagreement point for the ®rm is zero pro®ts. The Nash bargaining solution maximizes Maxb 1 ÿ yw b yw ÿ m ÿ w1 ÿ yp ÿ b which solves for 1 y pm b 2 1ÿy

5

6

Then the condition for observing corruption in the economy is equivalent to the condition that the bureaucrat wishes to exercise his control rights over the ®rm. This amounts to m4

1ÿy p y

7

Call mi the value of m that obtains equation (5) above with equality in country i. Assume that m is distributed according to the cumulative function F(.). Then, the fraction of bureaucrats in country i that are corrupt is given by pm < mi Fm yi ; pki

8

Equation (6) shows the level of corruption in country i as a function of the exogenous probability yi and of p. It is quite straightforward to see that p(.) is decreasing in y and increasing in p (or k). The expression can be interpreted as the fraction of politicians or transactions with public employees in country i that involve corruption or questionable payments. This interpretation closely matches the de®nition of the corruption indices used in this paper. The model thus provides a very direct theoretical framework to examine the eects of monopoly power on the incentives faced by politicians to engage in corrupt activities. In Ades and Di Tella,43 we examine the role of product market competition in determining corruption. Using corruption indexes from Business International and the World Competitiveness Report, we ®nd that, controlling for the level of development and the degree of political competition, corruption is higher in countries with economies dominated by a small number of ®rms or where domestic ®rms are sheltered from foreign competition by high taris.44 The results hold even after controlling for year and country ®xed eects. We also correct for the possible endogeneity of market structure, as it might be that bureaucrats in¯uence market structures or erect barriers to trade in order to later extract bribes, as in the rent-seeking literature. Using a series of 43

Ades and Di Tella, `Competition and corruption'. This negative eect of openness on corruption is quite robust as it has been reproduced in three dierent data sets. 44



513

instruments, we identify strong eects on corruption of exogenous changes in product market competition. Policy conclusions follow directly from the ®nding that protectionist or other policies directed at restricting the competitive pressures faced by domestic ®rms have the eect of fostering corruption. Rather than investing in mechanism design and auditing procedures, governments interested in curbing corruption should perhaps ®rst consider opening up their economy to trade and making domestic markets more competitive. In a similar spirit, Ades and Di Tella ®nd strong positive eects of active industrial policy on corruption.45 This result is especially relevant as many countries have developed a domestic demand for industrial policy, supposedly on the grounds that they can lead to faster capital accumulation and technological growth. But the evidence based on data from the WCR is that industrial policy is a positive and signi®cant determinant of corruption. As corruption reduces investment, we can decompose the total eect of industrial policy on investment and R&D spending into a direct positive eect, and an indirect, negative, corruption induced eect. The data show that the total eect of industrial policy on investment can be as low as 56 per cent of the direct eect, with the remainder being dissipated by the positive eect on corruption. A similar decomposition on the eects of industrial policy on R&D spending yields a total eect that is only 59 per cent of the direct eect. The data suggest that policy initiatives aimed at fostering the competitiveness of domestic industries through active industrial policies are doomed to yield only partial success. The magnitude of the negative eects found suggests that the consideration of corruption should not be absent from cost-bene®t analyses of industrial policies. Controlling Corruption The evidence of the eect of market structure on corruption is suggestive, though ideally we would like to know how it interacts with more traditional corruption controlling activities. In this ®nal section, we attempt to provide an empirical assessment of the relative merits of two approaches to controlling corruption, namely the lawyer's emphasis on law enforcement vis-aÁ-vis the economists's emphasis on control through product market competition. Indeed, most non-economists may claim that more traditional methods of crime prevention should be emphasized, such as increasing the autonomy and resources of judges undertaking corruption investigations or following judge Di Pietro's proposals regarding the possibility of introducing judiciary reforms such as plea bargaining. We explore this possibility by analysing the interaction of openness (OPEN), measured by the share of imports in GDP, and the independence of the judiciary system (JUD), measured by a dummy variable that take the value 1 when the independence of the judiciary system in the country is above the mean of the sample. We use data from BI to measure both the degree of independence of the judiciary system and the level of corruption (CORR). We regress corruption on these two variables and their interaction, and on a standard set of controls for the level of development of the country (income 45 Alberto Ades and Rafael Di Tella, `National champions and corruption: some unpleasant competitiveness arithmetic', The Economic Journal, 107 (1997), 1023±42.


514


per capita (GDP) and schooling (SCHOOL)) and political competition (the Gastil index of political rights (POL)).46 The focus of the test is the coecient on the interaction term (OPENJUD) in the following equation CORRi 8:442 0:317 GDPi ÿ 0:196 SCHOOLi ÿ 0:113 POLi 1:23 0:10 0:15 0:17 ÿ 8:708 OPEN i ÿ 1:87 JUDi 7:104 OPENJUDi 3:73 0:91 3:85 We ®nd that corruption is high in economies that are closed to foreign competition as proxied by a low share of imports in GDP. We also ®nd that corruption is higher in countries where judicial institutions are not well developed, or are not independent of political in¯uence. But, even more importantly, the positive sign on the interaction term indicates that opening up an economy to foreign trade is particularly important in countries where institutions are not yet fully developed. In a country where the judicial system is relatively independent (above the mean) a one standard deviation increase in openness reduces corruption by 0.15 of a standard deviation. In countries with judiciary systems below the mean, a one standard deviation increase in openness reduces corruption by 2.09 points, some 0.81 standard deviations in the corruption index. Thus, competition is much more eective in controlling corruption in countries where the judicial system is not well developed. Conclusion The availability of subjective data on corruption has ®nally provided the ®eld of the economics of corruption with the empirical discipline that is essential to turn its fertile theorizing into policy recommendations. In this survey, we have reviewed the literature organized into two broad themes: theories of corruption and theories of the eects of corruption. We show that the new empirical approach has helped to shed light on a controversy regarding the eects of corruption on investment and growth that have continued since the 1960s. We show that the data suggest that there is a negative eect of corruption on investments, and that this eect is less severe in countries with particularly obtrusive bureaucracies, though this dierence with low redtape countries is only mildly signi®cant. Our main aim is to review theories of the causes of corruption and their policy implications. Broadly speaking, we analyse theories that blame corruption on poorly designed incentive contracts or monitoring devices, and theories that blame corruption on the lack of competition in the bureaucracy and/or the product market. We test the relative merits of two practical policy proposals: controlling corruption through tighter enforcement of laws or through increases in product market competition. The evidence suggests that both have negative and signi®cant eects on a country's level of corruption. But, more signi®cantly, the interaction term is positive, indicating that opening up the economy to foreign trade is particularly important in countries where institutions are not yet 46 All variables are averages of their 1981±1983 observations, except schooling that is the 1980 observation.



515

fully developed. In a country where the judicial system is relatively independent, the eectiveness of competition in reducing corruption is less than a ®fth of the eectiveness it has in countries with judicial systems below the mean. Though the recent empirical contributions represent a major step forward in establishing the ®eld of corruption as a progressive research programme, much work remains to be done. Progress will be constrained by data availability, and our guess is that data improvements will come in two fronts. First, crosscountry data from risk analysis is now available for a reasonably long time series (almost 16 years), though at quite high commercial rates. Secondly, crossindustry studies of corruption based on the work of large accounting ®rms would ®nally allow research into the micro foundations of corruption to begin. With this data at hand, future research could tackle questions such as what are the eects of corruption? What are the causes of corruption? What is its relationship with variables such as growth, inequality, political competition, in¯ation or product market competition? What are the mechanisms involved? Which industries and which professions are more prone to corruption? Does corruption distort specialization in trade? Is corruption pro-cyclical? If corrupt payments are tax deductible, who ends up paying for corruption? What are the true eects of anti-corruption laws, such as the American Foreign Corrupt Practices Act of 1977? Appendix TABLE A1. Summary Statistics Variable CORR BURO GDP, U$000 GOV INV JUD OPEN PPI 1980 POL REV SCHOOL 1980

Obs 55 55 55 55 55 55 55 55 55 55 55

Mean 2.99 0.51 6.21 15.30 22.93 0.53 0.26 102.6 2.88 0.14 5.75

Std. Dev

Minimum

Maximum

2.54 0.50 4.38 5.85 7.05 0.50 0.24 41.76 1.98 0.18 2.87

0 0 0.45 7.71 4.28 0 0.08 24.42 1 0 1.74

9 1 15.00 37.04 42.00 1 1.68 229.9 6 0.73 12.14

Note: All variables are averages of their 1981 to 1983 observations, except PP180 and SCHOOL, which correspond to the 1980 observations. The BURO and JUD dummies take a value of 1 in countries with an average value above the sample mean.



The `Perverse Eects' of Political Corruption DONATELLA DELLA PORTA AND ALBERTO VANNUCCI Introduction The worst political crisis in the Italian republic's history began on 17 February 1992 in Milan, economic (and one-time moral) capital of the country. That day saw the ®rst of what would become a long series of arrests of prominent politicians and functionaries from all the national political parties, accused of extremely serious crimes, including extortion, corruption, criminal conspiracy, association in organized crime and receipt of stolen goods. The investigations of Antonio di Pietro, the Milanese Assistant Prosecutor who would later become a national hero, led to the arrest of Mario Chiesa, a local administrator who belonged to the Socialist Party (PSI) and was president of one of the city's public institutions (an old people's home). The magistrate's investigations subsequently mushroomed, laying bare the true nature of public administration in what would become known as tangentopoli (`Bribesville'). Investigations spread from Milan to other northern and central Italian cities and, from 1993, into the south of the country. Initially concentrated on local politics, they quickly extended to the topmost levels of large private and public enterprises, and major government ®gures as well as the national secretaries of the various political parties were implicated. In a matter of months the magistracy had revealed a scene of corruption and political illegality unprecedented in the history of western democracies, in which the entire political class of the country, as well as broad sectors of the business community, were implicated. To give just a few indicative statistics: on 18 May 1993, only a year after the election of a new parliament, 205 out of a total of 630 deputies and 81 out of 326 senators were under investigation, albeit not only for oences against the public administration.1 By the end of 1994 the number of suspects involved had already reached more than 7000, including 338 ex-deputies, 100 ex-senators, 331 regional, 122 provincial and 1525 communal administrators, and 1373 public functionaries.2 Magistrates had also issued some 4000 preventive custody orders.3 Besides underlining what both media and politicians have come to call the `crisis of the First Republic', these corruption investigations provide a great deal of material on what can be de®ned ± paraphrasing Bachrach and Baratz4 ± as

Translated by John Donaldson. Sapere di non sapere, I parlamentari inquisiti: i deputati, Roma, Sapere 2000 (1993); I parlamentari inquisiti: i senatori, Roma, Sapere 2000 (1993). 2 L'UnitaÁ, 7 December 1994, p. 4. 3 Samarcanda, 15 November 1994. 4 P. Bachrach and M. S. Baratz, Power and Poverty. Theory and Practice (New York, Oxford University Press, 1970). 1


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517

the òther face of power'. By reviewing what has emerged from the `mani pulite' inquiries since 1992, together with what was slowly accumulated in earlier judicial investigations, it is possible to reconstruct certain facets of that ìnvisible' level of Italian politics which has had so heavy an in¯uence on the `visible' one.5 The article which follows uses evidence from the Italian case to re¯ect upon the eects of political corruption. The ®rst section presents a typology of the distortions created in public demand through extensive political corruption, with particular reference to public contracts. In the second section, examples are given of how corruption contributes to elevating costs, reducing quality and delaying the completion of public works. Section 3 demonstrates how the creation of a `fast lane' for those who pay bribes forces those who do not into even `slower' and less ecient lanes, whilst section 4 analyses the wider impact of the transaction costs involved in collecting bribes. The ®fth section examines some `dynamic' aspects of the progressive loss of eciency on the part of ®rms working in the public sector, associated with the ìnverted' selection process produced by corruption. In section 6, the impact of spreading corruption on public perceptions of the eciency and impartiality of public procedures is considered, and it is demonstrated that the above factors feed a vicious circle of rising mistrust which operates as both a precondition, and a predictable outcome, of corruption. In the seventh and ®nal section, attention is focused on how ineciency and corruption in Italy have interacted with other pathologies to erode the political system's resources of legitimation. The research is based on a study of judicial documents relating to 40 episodes of corruption in Italy, the reports of Parliamentary Inquiry Commissions, demands for the indictment of members of Parliament, and the daily and weekly press. Corruption and the Distortion of Public Demand Any phase of the procedure regulating the purchase or production of goods and services for the collective well-being can be in¯uenced by corruption: the decision to purchase this or that, the selection of participants in tendering, the awarding of the contract, control over the execution of work, the ®nal payment. The de®nition of public demand is a pivotal moment in the democratic political process since it is here that the administrative system is confronted with the needs and demands of social groups. Political mediation is the ®lter through which interests are articulated and aggregated, and its task, as Pizzorno has pointed out, is `to identify and interpret the needs and desires of the population; select and generalize those which can be expressed in political terms; propose, justify and criticize policies and measures to achieve these ends or, when necessary, to explain why they cannot be satis®ed'.6 Corruption radically alters this function, privileging the satisfaction of so-called ìnternal demand'.7 Corruption, and complicity between those who are corrupt,8 causes a weakening of 5

A. Pizzorno, Le radici della politica assoluta (Milano, Feltrinelli, 1993). A. Pizzorno, `La corruzione nel sistema politico', introduction to D. della Porta, Lo scambio occulto (Bologna, Il Mulino, 1992), p. 22. 7 G. Chevallier and D. Loshak, Introduzione alla scienza dell'amministrazione (Rimini, Maggioli, 1982), p. 113. 8 J. Elster, Nuts and Bolts for the Social Sciences (Cambridge, Cambridge University Press, 1989), pp. 157±8. 6


518

The `Perverse Eects' of Political Corruption

the institutional restraints designed to protect the general interest in the formulation of public demand, and the latter is decided essentially by the interests of those participating in the transactions which share out the pro®ts made from corruption in public intervention. The overall picture which emerges is of a fragmentation of public demand in order to satisfy particular interests while, at the same time, no wider vision of the problems develops among the various public ocials involved. As the State Audit Court pointed out: Àfter long, involved preliminary planning and a dicult passage through Parliament, wide-ranging measures designed to launch the process of rationalization and coordination of the country's major infrastructures were approved. These have failed to materialize, either remaining largely unimplemented . . . , suering unexpected interruptions . . . or being seriously delayed' (CC, vol. II, I, 1990, 494).9 When political corruption is systemic, the discretional management of public spending often becomes an objective in itself. The aim of administrators is to attract as large a quantity of resources as possible to the areas where they have power in order to pocket a fee for mediation in the form of a bribe and/or gain support as a result of the eects of public investment on employment (treated as an area of clientelistic exchange). Public spending is therefore diverted to those sectors where gains from corruption are greatest and where the discretional nature of the procedures reduces the risks involved. In general, little attention is paid to whether the needs of the collectivity are served by these works or services. It is not even necessary that they are completed or brought into use, as demonstrated by the countless projects never ®nished or never actually used. As in the case of the `Teardo Clan' of Savona, the actions of corrupt administrators can `radically and seriously distort administrative activity, works being contracted exclusively to exact bribes more safely and easily and not on the basis of any actual technical requirement' (TRIS, 155).10 For instance, annual per capita consumption of cement in Italy was 800 kg, double that of the United States and triple that of Germany and Britain, at a cost of 33 thousand billion lire. According to one expert, àt bottom, at least 80 per cent of these works are unnecessary; some of them are undoubtedly a disaster'.11 But, construction is a sector in which bribes proliferate with ease. Predictably, one of the consequences of the priority given to obtaining funding is scarce regard for the quality of the projects which are at the basis of public demand. Antonio Persico, an engineer and secretary of the CRTA, technical organ of the Puglia Region, recalled the changes in evaluating dossiers: `Previously, the CRTA functioned like clockwork . . . Each dossier was examined thoroughly as it came up, as be®ts a body composed of (often highlevel) technical sta. This practice was completely overturned by Councillor Di Giuseppe [later charged with corruption], who was only interested in an opinion on feasibility in order to obtain the funding and did not think it either necessary or expedient slavishly to investigate every aspect of a project' (CD, n. 201-bis, 23/2/93, 6). In some cases, however, public demand aims to produce public works which, either through size or evocative power, have symbolic signi®cance or a cathartic 9

See list of sources (p. 538). G. Somogyi, `L'economia della corruzione', Mondoperaio, n. 11 (1992), 76±80, p. 80. 11 Il Mondo, 2±9 September 1991, p. 25. 10



519

eect in relation to public dissatisfaction with the ineciency of the state. Special funding for events such as the Columbus Celebrations, or the 1990 World Cup, proved the cue for public works which later turned out to be unnecessary, exorbitant or simply impossible to realize,12 but which were lucrative in terms of bribes for the administrators involved in the projects. In this kind of project the politicians who are formulating public demand retain an interest in the ®nal outcome of the work since the short-term symbolic satisfaction which comes from it can later be translated into valuable electoral support. Thus, in the case of Italia '90, it has been observed that èverywhere the decisions concerning the stadiums took on strongly ``personalistic'' connotations . . . The decision-making process became restricted to an exclusive circle, in an attempt to avoid the (public) political confrontation which normally characterizes local government'.13 Public demand may remain unsatis®ed in this context if the politicians involved do not ®nd the amount oered through bribes sucient. The ex-President of the Environmental Commission of the Lombardy Region, Luigi Martinelli, described the case of building authorization for a refuse treatment works at Casal Maggiore in the following terms: Àn agreement by which Paonessa [the entrepreneur] would pay a sum equal to 2 per cent of the construction costs [as a bribe] was proposed. I said to Moroni that the project would never get o the ground because the bribe proposed was too small. Moroni agreed with me that the smallness of the sum proposed by Paonessa would damage the ``market'' ' (CD, n. 66, 27/7/92, 7). The private actors who compete to satisfy public demand can also in¯uence this process, using market resources to create (or augment) public demand for the products or services they produce.14 It is important to stress, however, that when the nature and amount of public spending have been determined, purchasing procedures are generally characterized by the principles of competition and equal treatment for all participants. It can therefore be expected that the cost of corrupting those who formulate public demand will be met by: (a)

an enterprise with a monopoly in the private sector which is therefore certain of being the only possible supplier of a good in the eventuality of public-sector demand; (b) a `cartel' of all the ®rms involved in tendering, who are thus able to coordinate their bids and redistribute the income derived;15 (c) a single ®rm or group of ®rms who are certain, or very likely, to win a tender thanks to the protection of previously corrupted politicians or bureaucrats. 12 According to the State Audit Court, the Commission of the Chamber of Deputies responsible provided `particularly broad guidelines . . . encouraging too `èlastic'' an interpretation at administrative level of the connection between the functionality of the works to be realized and their presentation to the public, thus in¯ating both the number and the cost' (CC, vol. II, I, 1992, 510). 13 M. Morisi, `Gli stadi di `Ìtalia '90'' come esperienza di governo locale', Rivista trimestrale di Scienza dell'Amministrazione, n. 2 (1991), 3±57, p. 18. 14 This is a case of `supply creating demand' and is common to many markets but has certain distinctive features in the market of corruption: it usually involves illegality, and public demand is not de®ned by the end users of the goods or services but by their political representatives. 15 As with any `cartel', the ®rms involved must ensure that all the participants maintain the agreement. If not, anyone can become a free rider, bene®tting from the growth of public demand without having to pay a share of the cost of corruption.


520


In the latter case, protected ®rms will seek to direct public demand towards the particular characteristics of their own products or to ensure that successive stages allow them to make pro®table use of their privileged relationships with politicians. Such a case is described by Vittorio Caporale, a Ministry of Transport consultant who coordinated the preparation of legislation on highspeed transport: The two ®rms [Ansaldo and Fiat Impresit] wanted to introduce a kind of exclusive right for their own products . . . In substance, Ansaldo and Fiat wanted the technology employed to be `tried and tested', thus excluding foreign technology. It was only as the legislature approached its close that the law's passage through Parliament accelerated sharply. It was clear, a posteriori, that parliamentarians would have appreciated an acknowledgment helping towards ®nancing the imminent 1992 election campaign (CD n. 435, 21/6/93, 5).

Depending on their contractual power, the enterprises with links to the centres of power managing public spending either suggest or decide the nature and amount of demand created by the public administration ± demand which, in certain cases, becomes merely an instrument for maximizing pro®ts. The entrepreneur who furnished the Italian state railways (FS, Ferrovie dello Stato) with couchette sheets from 1979 is a case in point. In return for bribes an exorbitant amount of material was ordered, with consequent disposal costs, in a process àimed more at covering the investments made in the meantime by the furnisher than defending the company's interests' (PR, 98). Other changes to demand ± such as the modi®cation of the size of the sheets required ± reinforced the monopoly position enjoyed by the supplier, who became in eect `the sole arbiter of the choices which he himself suggested to the Company, dictating the respective prices' (PR, 101). Since corruption favours the emergence of illegal brokers, these actors also develop an interest in orienting public demand. Particularly where hidden agreements for the division of the pro®ts of corruption exist, problems of coordination can arise between the central authorities who allocate resources and those at local level who manage them. At the same time, lack of ®nancial autonomy has made it essential for local administrators to create more or less òcial' and visible transaction networks, generally characterized by relations of kinship or political protection, with the central authorities.16 In such a situation specialized intermediaries ± usually consultants or planners with party-political connections ± assume the crucial function of developing informal contacts between the bodies who allocate funds and those responsible for framing public demand. De facto, they are delegated the task of identifying the projects to be realized, with the aim of reconciling the interests of the politicians and ®rms involved in corrupt exchange. In practice this means presenting local authorities with the possibility of funding tied to `take it or leave it' projects for public tendering: projects which they will then direct and oversee, while holding out the prospect of gains to the dierent political actors involved in the game. During the construction of stadia for Italia '90, for example, the ®gure of the `consultant' emerged, `developing and promoting 16 G. Amato, S. Cassese, F. Coen and E. Galli della Loggia, `Travola rotonda su `Àarismo e politica: quali risposte alla questione morale'' ', in Mondoperaio, 4 (1983), 2±13, p. 7.



521

policy choices of his own or acting as guarantor and promoter vis-aÁ-vis the other political actors. It was he who identi®ed or delineated the ways and means to mediate politically between the various participants, safeguarding the integrity and success of the ``good cause'', the project with his signature at the bottom'.17 The management of public tendering appears to be characterized by a dense web of subterranean exchanges. This is con®rmed by the ex-Mayor of Baucina, a small commune near Palermo: Ì was supposed to nominate the person favoured by the head of the regional assessorate which would be providing the funds as the director of works. The above would then give part of the money they earned to the councillors and functionaries of the assessorate'.18 This intermediary was àll but indispensable in obtaining funding for public works in Baucina . . . He took care of distributing contracts fairly among the other participating ®rms . . . He would contact them and the bids would be agreed in such a way that the designated ®rm got the contract' (PRP, 20). These brokers also play a decisive role in gathering information on projects which will be most rewarding in terms of bribery and should therefore be given priority. As well as `self-employed' brokers, intermediaries working for state-owned (or partially state-owned) companies also appeared. Ìn practice,' claimed the ex-Mayor of Reggio Calabria, Agatino Licandro, `there are brokers linked to ``companies'' who come to the commune and explain: ``We have the right connections to get you this funding. Without our help you won't see a penny. The ministry responsible for it is one of ours . . .'' If the commune, the province or the mountain community didn't agree, no problem. The ``company'' and the funding moved to greener ®elds'.19 Real or arti®cially created emergencies constitute a further factor which can in¯uence public demand. Corrupt politicians often attempt to have the administrative activity in which they have an interest classi®ed as ùrgent', since the level of public spending and the degree of discretionality in its management will be particularly high. Here the case of public hospitals provides a good example: an error, or deliberate òversight', in ordering equipment or medicines immediately leads to an emergency situation. The magistracy, for example, had the following to say of the Catania local health board (USL 35): certain chief physicians `were in the habit of dishonestly certifying that products were needed urgently or were required for specialist reasons. These products were afterwards bought using simpli®ed procedures which increased the discretional power of the public administrator and on occasions were actually delivered before the purchase order had been considered'. The USL administrators were thus able to pocket bribes from suppliers whom they themselves had chosen (ACA, 35). Even in a real emergency, exceptional spending procedures can create an arti®cial increase in public demand. This was particularly evident in the case of reconstruction after the Irpinia earthquake. A Parliamentary Enquiry Commission revealed `the existence of building work greatly exceeding what was actually required . . . There was much super¯uous construction. This squandering of money was encouraged by the system of awarding contracts' 17

Morisi, `Gli stadi `Ìtalia 90'' ', p. 41. L'Espresso, 23 December 1990, p. 31. 19 A. Licandro and A. Varano, La cittaÁ dolente. Confessioni di un sindaco corrotto (Torino, Einaudi, 1993), p. 21. 18


522


(CPDT, 647±8). As an entrepreneur involved in the reconstruction process noted: Ìn a ®eld where the public administration had ample discretionary powers, paying the politicians was the only way to get the work . . . Since the contracts were spread over time, the good oces of politicians had to be maintained over time also' (CD, n. 365, 18/5/93, 6). The Elevation of Costs Each phase of the public contracting process created numerous occasions for corruption. In particular, the complexity of bureaucratic procedures and the low planning competence of the public administration lengthened completion times for public works, legitimating the use of discretionary practices in the awarding of contracts. This process undermines the conditions of market competition which, through the mechanism of public tendering, guarantees productive eciency in the provision of goods and services to the public administration. Businesses with lower production costs cannot be certain of selection, because the decisions of the corrupt public agent re¯ect concealed transactions in the bribery market. Moreover, the incentive for successful ®rms to ful®l their contractual obligations is undermined by corruption. This aggravates problems such as cost increases or the accumulation of delays which can appear even in the absence of illegal agreements. In fact, the public administration often assumes all contractual risks without being able eectively to control the operations of the ®rm carrying out the work. An ùncontrollable increase in costs' is produced, às a result of unreliable planning methods, systematic alterations of the original project during the course of work and automatic revision of prices'.20 The contractor has no incentive to perform eciently, nor to present credible estimates at the tendering stage. The purchasing administrator (the principal) can know with precision neither the commitment eectively made by the contractor (the agent) to the work, nor the extent of real diculties he may have. If the former oers absolute guarantees against eventual cost increases, then the latter will be encouraged to put in little eort because he can receive the expected return for less exertion, attributing the higher cost to circumstances beyond his control.21 Controls on the carrying out of the work are in any case weakened by political collusion: for the ®rms involved, increasing the cost and prolonging the work inde®nitely oer the best possibility of recovering the outlay in bribes or for widening their pro®t margin. Numerous cases demonstrate that corruption increases the cost of public works. Both corruptor and corrupted share an interest in having the costs of bribery accredited to the public purse in order to widen their pro®t margin. By the end of the process it is impossible, as the Catanese magistrates have observed, to `distinguish between who is leading the dance and who is following: the illegal demands of functionaries may have led suppliers to augment prices further while the former, accustomed to receiving a percentage compensation, not only had no interest in enforcing the ocial price-list but, if anything, quite 20 F. Mastragostino, L'appalto di opere pubbliche. Norme interne e disciplina comunitaria (Bologna, Il Mulino, 1993), p. 9. 21 F. Balassone, Ècienza nelle gare d'appalto per le opere pubbliche', Economia Pubblica, XII (1991), 659±69, p. 662.



523

the opposite interest' (ACA, 60±1). Bids far lower than the market would permit, discretionary awarding of contracts, continual revision of prices and modi®cation of the services contracted, permit legal and procedural obstacles to be avoided and as a result the public administration behaves (using an expression encountered frequently in the course of research) `like the most irresponsible of private concerns'.22 The uncovering of cases of corruption normally coincides with the realization that the public administration is paying too much for goods and services which frequently turn out to be of poor quality. To take the example of prison contracts: that for Pontedecimo was awarded to the CODEMI company (in exchange for bribes to prison service heads) despite the fact that the estimated cost was 374 million lire per inmate compared with an average, at the time, of 150 million. The reinforced concrete for the prison was calculated at 500,000 lire per cubic metre compared to a market price of 300,000. Other materials were estimated from 30 to 400 per cent higher than the current market prices.23 The State Audit Court investigation of the prison-building programme revealed cases where the ®nal cost was twenty times that originally estimated or in which the works had taken twenty years.24 Of 20 projects approved in 1972 only 4 were complete on 31 December 1987. The variation in cost per inmate was extraordinary, ranging from 27 million lire for Bergamo to 320 million for Florence. Years of delay took place simply waiting for the ®nal inspection after the termination of the works (three and a half years in the case of Salerno). Changes to projects after work was already under way led to buildings already completed being demolished, as happened at Ascoli Piceno. Years have passed with works suspended or deferred: 1019 days at Ivrea, for example, or 1135 at Vercelli. In addition, more than 40 per cent of the projects for new penal institutions have since been abandoned because it was later discovered that the land for building was not available (CC, vol. III, 1988, 28). These examples of extremely overpaid and delayed works signi®cantly overlap with the `golden prison' scandal which, in 1988, revealed a vast bribery ring, the entrepreneurs who were awarded contracts having paid functionaries, local politicians and government ministers. The awarding of public tenders to companies without the necessary quali®cations, equipment and expertise (and often with direct links to political parties) is another cause of in¯ated costs. Lombardia Informatica (L.I.), a company with public capital, for example, `was turned into a purchasing department, a brokerage centre, by the regional leadership, absolving the regional administration from the necessity of public tendering and making the activities of administrators increasingly opaque and unfathomable' (PRLIM, 374±5). This company subcontracted, quite lawfully and with maximum discretion, all work entrusted to it `because it did not possess the technical structures to ful®ll the contract. Doing nothing more than this mediation, it simply caused an increase in the costs but in this way public money could be managed ``privately'', without 22 The preliminary ®ndings of the Ministry of Public Works Commission on Uncompleted Works provide an astonishing survey of poor execution of public contracts: e.g. a 450 billion lire industrial estate which has never been used; a hospital in Catania under construction since 1962 and unopened by 1991; a viaduct left un®nished in Val di Sangro because the two ends did not meet (Il Mondo, 2±9 December 1991, p. 19). 23 L'Espresso, 13 March 1988, p. 8. 24 L'Espresso, 13 March 1988, p. 11.


524


the requisite controls'.25 In the case of putting prescription information into the regional computer system, for example, Lombardia Informatica subcontracted ®ve ®rms who, in turn, subcontracted to others. This serial subcontracting could take place as many as ®ve times, in each case representing nothing other than an increase in the cost. These companies `were all related in some way to political parties or business associations' (PRLIM, 165). In a number of cases they had no operational structure whatsoever, being in their turn nothing more than instruments of brokerage. The opacity with which the service was run led to serious ineciencies. For seven years Lombardia Informatica subcontracted directly its services to a ®rm proposed by the regional administration itself. When a normal tender for private bids was ®nally held in 1990, the successful ®rm's prices were 37 per cent below those paid previously (PRLIM, 403). The elevation of costs reaches particular extremes where extraordinary public works are concerned. The State Audit Court had the following to say, for example, concerning Italia '90 and the Columbus Celebrations: The in¯ated costs associated with Ìtalia '90' can be traced to serious lacunae in the planning and control phases. The infrastructure for this event, which swallowed up 27,000 billion lire instead of the 11,000 billion originally foreseen, turned out to be an extended episode in approximation . . . The works for the so-called Colombiane also revealed ineciencies in the execution of the projects. The costs rose from 3000 billion in the original plan to 5600 billion in 1991, when the works should have been completed. On the contrary, only 60 per cent had been ®nished and a further 3500 billion has been set aside for the completion of the programme (CCL, vol. I, 1991, 629±30).

While it is dicult to quantify corruption and ineciency in order to make comparisons with other countries, the partial information available indicates a certain speci®city in the Italian case. Concerning public works in Milan, for which judicial investigation has determined the amount paid in bribes, it has been noted that `The Milanese rail loop is costing 100 billion per kilometre and will take 12 years to complete; for Zurich, 50 billion and 7 years. The Piccolo Teatro has so far cost 75 billion and should be ready in 9 years; in the UK, Leeds' new theatre cost 28 billion and was completed in 2 years and 3 months. The restructuring of San Siro stadium cost 140 billion, Barcelona Olympic stadium 45 billion. The number 3 line of the Milanese metropolitan railway cost 129 billion per kilometer; the Hamburg underground 45 billion'.26 The fact that successful bids in public tenders are 40 to 50 per cent lower today than ®ve years ago (before mani pulite) gives some idea of the amount of money drawn from the public coers for the bene®t of corruptors and corrupted (I-13). Thus, corruption has a redistributive eect in favour of the bene®ciaries of hidden exchange: À corrupt system of government services has the distributional disadvantage of bene®ting unscrupulous people at the expense of law-abiding citizens who would be willing to purchase the services legally'.27 In other words, corruption generates distributive ineciency by assigning property 25 A. Di Pietro, `CriminalitaÁ ma®osa e tessuto economico produttivo', paper presented at the conference of the Sindacato Autonomo di Polizia, Milan (1991), p. 12. 26 G. Barbacetto, Ìl sistema Milano', Micromega, n. 3 (1992), 65±72, p. 70. 27 S. Rose-Ackerman, Corruption. A Study in Political Economy (New York, Academic, 1978), p. 8.



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rights to actors who violate the criterion of public interest represented by respect for the law, increasing the ®scal burden weighing on the collectivity. `Fast' Lanes, and `Slow' Lanes The procedures governing politicians and bureaucrats in Italy often ignore the human, temporal and organizational constraints of public administration. Agents therefore have more work than they are capable of performing. Thus they have the opportunity of deciding which dossiers take preferential paths or how certain resources are administered. A certain decision can be taken or not, taken immediately or left inde®nitely under consideration; a given private concern can be chosen as opposed to another, a larger or smaller amount of public money spent. A price must be paid in return. Three corrupt functionaries in the urban development department of Milan City Council played a decisive role in the allocation of works in the Ronchetto area: `The head of this department had a notable in¯uence in speeding up the said dossier . . . It received a particularly favourable treatment from the assignment oce. The ®rst thing which strikes the eye is the extreme rapidity with which it was dealt by the oce in question' (TRDM, 655). The bribes paid were proportional to the time saved. The power to decide how much time and eort to dedicate to their ocial duties can be used by politicians and bureaucrats in order to raise bribes for working or to work less, depending on their preference. When long delays become the rule, a functionary can ask for a bribe simply to do his job within the regulation time, given that this has become an unexpected `service'. In the Catania public health board (USL 35), for example, `[corrupt] functionaries had no need to threaten problems since the bureaucratic machine itself was the problem. Private suppliers [paid] to elude the delays which were the rule' (ACA 1991, 57). According to Fabrizio Garampelli, an entrepreneur, ìt is dicult to say whether a delay is intentional or not. In any case, certain situations are best avoided' (recording of Ùn giorno in Pretura', RAI 3, 22/2/93). Long procedural delays represent a plausible threat inducing private parties to ®nd an àrrangement' as they become increasingly common. One Sicilian entrepreneur stated: ìt was frequently necessary to pay those politicians having the in¯uence and prestige to eliminate the problems which arise before and after the award of a public contract, to avoid antagonizing them' (CD, n. 450, 24/6/93, 2). Moreover, administrative ineciency justi®es a wide range of actions taken by corrupt politicians before the appropriate organs of control, obstructing investigations of corruption. The judges investigating political corruption in Bari noted, for example, that ìmmunity for [corrupt politicians] is derived from that involution of the bureaucratic process which provides a post hoc explanation for delays' (TRIB, 267). Where mechanisms limiting access to public bene®ts (ocial or otherwise) are absent, the possibility of gain can create òvercrowding' among aspiring bene®ciaries. The resulting bottleneck in claims on the public administration generates further delay and malfunctioning, and increases the incentives to resort to corruption. The State Audit Court, for example, described contracting by the ANAS (Azienda Autonoma Nazionale Strade ± the National Road Authority) in the following terms: A further characteristic is . . . the participation of a large number of ®rms (tenders frequently exceeding 200) . . . These large numbers create problems # Political Studies Association, 1997

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The `Perverse Eects' of Political Corruption . . . The intensity of competition leads to extremely low bids . . . , forcing the ANAS into long and involved exchanges with ®rms in order to identify and exclude anomalous proposals. On the one hand this state of aairs led to signi®cant alterations in tendering procedures, on the other to a notable increase in con¯ict (CC, 1987, II, 290).

Judicial inquiries have shown that this critical situation resulted from a vast and hidden market of corruption. Alberto Zamorani, a public manager, asserted that `with the ANAS both the management of the ®rm and the political parties must be bought o. This system [of bribes] has been in place for at least twenty years' (MPM, 173). Initially entry into the public market was `checked' by the existence of a cartel of ®rms (bene®ting from political protection) which determined the necessary `rotation'. However, ìn more recent times', Zamorani continued, `the ®rms continued to pay but the politicians were unable to help them. A nefarious and unproductive cycle developed in which everybody, big or small, was on an equal footing and one would pay more than the other in order to get ahead. The amount of money available steadily diminished while the number of aspirants for it steadily grew'.28 Such heated competition between `corruptors' in the private sector has a directly negative eect on the public administration, while at the same time it causes a greater ¯ow of illegal income into the public sector, increasing the cost of in¯uencing decisions. Besides, when preferential treatment can be bought through corruption the rest of the public is increasingly subjected to the negative eects of ineciency through bureaucratic holdups and hindrance. For instance, since the time and eort of functionaries represents a limited resource which (beyond a certain level) is subtracted from one task in order to perform another, then a ®rm which receives payment more rapidly through bribery slows down payment to others. As one entrepreneur put it: Making use of personal acquaintances in the public administration is the norm. Particular functionaries have to be approached because the system is de®cient. The lack of competence and technical means in the bureaucratic apparatus have to be compensated by following cases personally . . . The absence of an authentic structure, capable of responding to the needs of businessmen and acting as a ®lter between them and politicians, forced me to approach the politicians directly.29

In these circumstances, the agent may have to neglect equally deserving cases to the advantage of the person using corruption: the speeding up of one dossier slows down another. The functionary in charge of payments for the Catania local health board (USL 35), later found guilty of corruption, `left a great many invoices lying unattended with the excuse that he could not sort out the dossier, while he was quick in approving others disregarding chronological order' (ACA, 58±9).

28

L'Espresso, 23 August 1992, p. 21. A. Scaccioni and A. Marradi, `Sviluppo, criminalitaÁ e corruzione; interviste in profonditaÁ', Qualeimpresa, n. 4 (1994), 37±40, p. 37. 29



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The Social Costs of Corruption Any act of political corruption creates the possibility that in¯uence will be exercised to make gains from public intervention. The in¯uence cost of such activity is two-fold. On the one hand, the distortion of the decisions taken (which would otherwise have been dierent) and, on the other, the investment of time and eort in appropriating revenue without creating any collective advantage.30 In a public structure where information circulates concerning the gains which can be made in certain positions from bribery it is to be expected that given agents will try to in¯uence the internal decision-making process in order to occupy these positions, spending both their own resources and, where possible, those of the organization. In other words, the institutional mechanisms for selecting political and bureaucratic personnel are altered in favour of individuals with fewer scruples who are willing to ìnvest' in creating in¯uence: `Thus many more teams will be formed to capture control of Government, and each team will employ more factors of production in its political activities ± more, that is, than if there were no corruption revenue expected from being the government'.31 When the priority of public agents is the (unproductive) search for gain, a loss in organizational eciency is to be expected. Among the negative eects of corruption, transaction costs need to be considered. Agents must spend their time and energy in keeping these activities secret and in avoiding being `had' by the other side in the deal. Catching and punishing corrupt agents also requires resources: corruption's `very illegality produces ineciencies, since resources are wasted in keeping transactions secret and in enforcing anti-bribery statutes'.32 Recent accounts of corruption in Italy describe a universe in which a great deal of time is spent establishing and maintaining the `right contacts', seeking information or guarantees and transmitting or receiving remuneration: resources which are subtracted from production to be used in in¯uencing the public power. Mario Chiesa recalled, with apparent pride, that `The waiting-room of my oce was always full of 30 `Rent seeking on the part of potential entrants in a setting where entry is either blocked or can at best re¯ect one-to-one substitutions must generate social waste. Resources (. . .) might be used to produce valued goods and services elsewhere in the economy, whereas nothing of net value is produced by rent-seeking' J. M. Buchanan, `Rent Seeking and Pro®t Seeking', in J. M. Buchanan, R. D. Tollison and G. Tullock (eds), Toward a Theory of the Rent Seeking Society (A & M University Press, 1980) pp. 1±15, p. 8. See further Buchanan et al., Toward a Theory of the Rent Seeking Society. G. Tullock, `The Backward Society: Static Ineciency, Rent Seeking, and the Rule of Law', in J. Buchanan and R. D. Tollison (eds), The Theory of Public Choice (Ann Arbor, University of Michigan Press, 1984), pp. 224±37. G. Tullock, The Economics of Special Privilege and Rent Seeking (Dordrecht, Kluwer, 1989). C. K. Rowley, R. D. Tollison and G. Tullock (eds), The Political Economy of Rent Seeking (Dordrecht, Kluwer, 1987). 31 O. E. G. Johnson, àn Economic Analysis of Corrupt Government with Special Application to LCD's', Kyklos, 28 (1975), 47±61, p. 54. The hypothesis that corruption creates social costs by inducing an excessive expenditure of resources on political and electoral competition refers to the visible political arena, in which various political groups seek to gain votes by distinguishing between themselves (Pizzorno, Le radici della politica assoluta). This does not mean that in the secret political arena (including the market for corruption) the main tendency is towards inter-party collusion. The Italian party system can be likened to an oligopoly in which the consumer-citizen paid a rather high `price' for collusion between the parties. Political con¯ict was prevalently about image, as between ®rms who collude in maintaining high prices but at the same time spare nothing in advertising in order to win a larger share of the market (D. della Porta and A. Vannucci, Corruzione politica e amministrazione pubblica. Risorse, meccanismi, attori (Bologna, Il Mulino, 1994) ch. XI). 32 Rose-Ackerman, Corruption, p. 8.


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supplicants, entrepreneurs, cap in hand . . . and willing to wait unsuccessfully for hours'.33 Revealing in this context is the testimony of the ex-head of procurement for the Milanese public transport company (ATM), Claudio Provini: `There was a competition to gain our ± the functionaries ± favour and oust competitors already introduced. In this context it was necessary neither to compel nor to persuade but simply a matter of choosing the best or most recommended oer. Everything would go as it should regardless of who was occupying a particular oce at any given moment'.34 Moreover, corruption is made possible by a discretional use of power not anticipated by the rules. In certain cases (`functional' corruption) this is in the interests of the principal. However, as Franzini has noted: ìf the principal cannot immediately identify the reason for the bribe (and therefore know if it is to speed up the procedure) he will have to incur monetary and psychological costs in order to ®nd out. In the context of interaction repeated over time this may cancel out otherwise advantageous transactions'.35 This must be deducted from any eventual gain in terms of eciency. The Àdverse' Selection of Firms Corruption can also be a source of dynamic ineciency. Preferential deployment of resources for in¯uence-related activities leads to a progressive loss of eciency on the part of ®rms specializing in supplying public demand. The toll paid for this process by the public administration is a heavy one. The legislation on public tendering tends to reward ®rms with lower costs who can therefore bid lower than their rivals for the contract. Moreover, when decisions are discretionary, ìnformal' criteria may underlie the selection of a ®rm. Since they allow for reciprocal trust in the other's intentions and thus reduce the likelihood of being `had' in corrupt exchange, friendship, kin relations or common political background become determining factors. More simply, selection can be on the basis of the private party's willingness to pay, in which case the real competition (between oers of bribes) takes place in the subterranean market of corruption. Whatever the case, it will not only be productive eciency ± the ability to perform the task requested more quickly and with a lower outlay ± which is rewarded, but also an absence of moral scruples or the capacity to build relationships of friendship and trust with, for example, those who take public decisions. In such a context a ®rm can come out on top irrespective of its technical eciency. A director of the National Electricity Board (ENEL), Valerio Bitetto, recalled a tender to furnish turbines for its power stations: Ànsaldo [Nuovo Pignone] began to propose innovative technology, more powerful turbines which produced less pollution . . . In the name and on behalf of FIAT Avio, Engineer Bertini met me and pointed out that they were willing to make a contribution to the party system (DC and PSI) on condition that the Ministries for Industry and the Environment maintained their present technological position'.36 In exchange for 2.5 billion lire the technologically more advanced 33

M. Andreoli, Andavamo in Piazza Duomo (Milano, Sperling and Kupfer, 1993), p. 55. Panorama, 21 April 1991, p. 68, emphasis added. M. Franzini, `La corruzione come problema di Agenzia', in R. Artoni (ed.), Teoria economica e analisi delle istituzioni (Bologna, Il Mulino, 1993), pp. 121±54, p. 127. 36 L'Espresso, 2 May 1993, p. 60. 34 35



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proposal was not considered. Italian judicial proceedings, in fact, make reference to numerous cases of ®rms favoured for political reasons which possessed neither the technical capacity nor the ®nances to ful®ll the contract. The President of the Cassa di Risparmio di Padova (the Padua Savings Bank), for example, informed magistrates that `the commune had decided on the concession system for the construction of the new Court of Justice partly, perhaps primarily, in order to favour GE.CO.FER, the ®rm belonging to the Ferraro brothers (from Padua), which was on the point of going bankrupt. In the event of their not being ``rescued'' they threatened to `àccuse publicly those local politicians for whom they had (up to then and over a long period) done numerous favours''. The witness speci®ed that `àt the time GE.CO.FER was already in such serious ®nancial diculties as to be unable to carry out the work given them'', a fact ``well known in Paduan political circles'' ' (CD, n. 96, 4/9/92, 3). The technical and ®nancial incompetence of the ®rm caused great expense to the public administration in terms of delays and increased cost but provided corrupt politicians with ulterior opportunities for raising income. The ability to oer products of a higher quality or at lower cost is only one, and not necessarily the most important, of the factors which increase the probability of winning a tender in a system where corruption dominates. Indeed, more ecient ®rms may be unsuccessful precisely because their competitors, having no prospects on the private market, are willing to pay bribes and accept reduced pro®ts in order to maintain a share of the public-sector market. As alternative sources of pro®t arise in the private sector (or abroad), the most productive ®rms abandon the public sector to be replaced by the less ecient. As the price paid by the public purchaser remains constant, this process reduces the margins for the payment of bribes. In any case, given that the return on investment in privileged contacts with public agents frequently turns out to be greater than that on investment in the research and development of new technology,37 the incentive to follow the latter course diminishes for the ®rms who stay in the public sector: Àlmost all industrialists only think about making money, so if it's easier to do so in the lobbies of important hotels in Rome and ministry oces than by racking one's brains to better satisfy the requirements of customers and reduce production costs, it's natural that they prefer the hotel lobbies to their factories'.38 Firms who work regularly with the public administration, therefore, come to form a separate, productively inecient clique. Since the key to a country's economic development lies in the destination of resources for productive investment, the exclusion of ecient ®rms from the public sector and the lesser advantage gained from investment in research and development imposes signi®cant long-term social costs. In a system where the best pro®t opportunities are oered by the unproductive activity of in¯uencing political and bureaucratic power, the energy and inventiveness of economic operators will concentrate on 37 Thus the `harm suered by entrepreneurs who refused to accept the rule of bribery and have therefore been excluded from public tendering' (TRIS, 434) must be considered as well as the increased burden on the public coers. The damage caused by the marginalization of entrepreneurs averse to corruption is not only to their own prospects, but also at the level of social costs. In the ®rst place, ®rms are rewarded on the basis of political protection rather than eciency. In addition, behaviour in violation of the law ± which implies an increase in private contention and growing use of resources in social control ± is encouraged. 38 E. Rossi, Capitalismo inquinato (Bari, Laterza, 1993), p. 98.


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that ®eld.39 Unscrupulousness and the ability to form private relationships with those who hold public power will be rewarded, rather than entrepreneurial ability and innovation. The isolation of the public market, surrounded by invisible èntry barriers', tends to increase over time and for various reasons. First, the active intervention of the corrupt must be considered. Secondly, protected ®rms themselves are compelled to maintain illicit relations with the public administration precisely because their greater ineciency would condemn them to a marginal role in the private-sector market, where real competition exists. Those engaged in bribery must of necessity invest speci®cally in the creation of hidden channels of communication and exchange with the most in¯uential public decision makers. This `capital' of information, personal connections and trust is, at least in part, a `patrimony' shared by the corrupt and their corruptors and limits the transaction costs involved in new contacts. An interruption of these relations would thus imply an outright loss for both. `The illicit channels for obtaining and managing public tenders', the Milanese magistracy noted, `constitute a sort of ``commercial introduction'' for the company and its single administrators. If the company fails, that introduction is nulli®ed. But for the individual administrator it represents a residual value which they seek to safeguard at all costs in the hope of recycling themselves in the sector' (PRIM, 45). It can be added that possession of compromising information concerning a politician's earlier illegal activities can be used by entrepreneurs to obtain work through blackmail. Less ecient ®rms ± often already specialized in supplying the public market ± are more likely to acquiesce to the demands of corrupt functionaries. Indeed, for many, recourse to the private-sector market is impossible, as in the case of Fabrizio Garampelli: I took over the business from my father who had always, and almost exclusively, worked with public bodies . . . so that was the world of work I inherited. I would have liked to change, to escape a certain kind of logic. But it wasn't easy, and still isn't today. Having to stay in the ambit of public works, therefore, I couldn't lose my `certi®cate of trustworthiness' by refusing to pay, refusing the request, because without it I wouldn't have worked anymore. Within six months I would have gone out of business (recording of Ùn giorno in Pretura', RAI 3, 22/2/93, emphasis added).

The Progressive Erosion of Con®dence in the State The poor functioning of the public administration generates widespread scepticism among citizens and entrepreneurs about the eciency and impartiality of the procedures which regulate access to the state. As one Sicilian politician observed: Àdministrative paralysis transforms any right into a favour. If you need a certi®cate or a building permit and have to wait about two years to receive it, then you end up asking (and paying) for it as a favour'.40 Corrupt politicians and civil servants have an interest in presenting the functioning of the public administration as inecient and unpredictable because then they can selectively oer protection from such inconveniences. In 39 W. J. Baumol, Èntrepreneurship: productive, unproductive and destructive', Journal of Political Economy, IIC (1990), 893±921, p. 894. 40 La Repubblica, 17 October 1991.



531

exchange for bribes they are willing to guarantee speedier consideration of particular cases, favourable interpretation of the regulations, simpler procedures or a positive outcome in clashes with the public administration.41 As a Milanese businessman complained: `Since it is the best way to rake everyone over the coals a lot of dossiers remain open under consideration'.42 Where corruption reaches those centres of power which in¯uence the rules agents must follow, irrational and contorted procedures multiply as the organizational structure comes to re¯ect the interests of those who are corrupt. In other words, the èxternal eect' even of apparently `bene®cial' corruption is a change in the rules and practices of the public administration which leads to a greater overall ineciency of the system as in the already-noted case of the Puglia CRTA. Thus the successful conclusion of a particular case comes to depend on the personalization of relations with the public bureaucracy. This encourages the creation of privileged channels of communication with the public administration, in order to obtain pro®ts, reduce waiting times or forestall other potential corruptors. A Milanese shopkeeper described the public administration like this: If someone had to comply with all the legislation as well as the local regulations before opening commercial premises they would be in a tight spot because of the speed the bureaucracy moves at . . . Obviously they are directly in the power of the bureaucrats, who can decide whether to follow things closely or not; to make an inspection or not; to apply the regulations to the letter or not apply them at all.43

The `demand' for corruption which is created in these ways produces selective inclusion of private actors on the basis of their willingness to pay bribes. For example, the owner of premises in Florence was clearly told by an intermediary close to the local administration that ìn the event that he did not agree to pay, the value of the premises would be irremediably depreciated because it would be sucked into an inextricable administrative maze'. In short, ìf you pay the bribe you can sell it for a good price; otherwise, an endless torment against which the private citizen has, to all intents and purposes, no defence other than a court case which as is well known will take many years' (QGF, 338 & 342). Growing corruption creates increasing pessimism concerning the arbitrariness of administrative action. Dissatisfaction with the functioning of the public administration and the incentives to obtain protection through bribery thus increase among those initially excluded from the market of corruption. Awareness of widespread corruption (or even the simple expectation of it) is a strong incentive for seeking privileged links with political power. The 41 Between 1977 and 1992 the number of cases brought before the Regional Administrative Courts (TAR) increased by 169 per cent, a clear indication of a greater demand for justice in the administrative ®eld (A. G. Arabbia and V. Giammusso, `Pro®lo statistico della pubblica amministrazione', in S. Cassese and C. Franchini (eds), L'amministrazione pubblica italiana (Bologna, Il Mulino, 1994), pp. 271±87, p. 283). The overburdening of the courts, indicative of more frequent con¯ict between the public and bureaucracy, has led to a larger number of outstanding cases and longer intervals before the courts arrive at a decision. This in its turn has increased mistrust of the ecacy of the judicial system and the recourse to forms of political protection. 42 FIPE-Federazione Italiana Pubblici Esercenti, Malati di tangente, dossier (1992), p. 54. 43 FIPE, Malati di tangente, pp. 64±5.


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ex-President of the ENI justi®ed his predecessor Enrico Mattei's `free-and-easy' attitude: Mattei was not a born corruptor. When he was a small businessman he never bribed anyone; at the most he might have `tipped' a trac warden. But when he was forced to work in a particular environment, well . . . I once saw him so happy that he went down the stairs three at a time. He had ®nally managed to persuade the Socialist Party to accept 50 million. Before that they had been receiving funding only from others.44

On occasion it is the politicians themselves who stimulate competition between those bribing them. One of the ICOMEC company's managers recalled: `Moro [President of the Genoa council housing authority (IACP)] pointed out that two other ®rms were very interested in taking on the tendered work and asked me whether, if ICOMEC got the contract, they would be willing to contribute ®nance as in the past and in the same measure. I said yes, because the work would allow us to cover it' (PRIM, 125). Belief in the dishonesty of public agents is destined to proliferate autonomously, however, precisely through attempts to get round it by bribery. In a kind of chain reaction, someone who engages successfully in bribery receives a con®rmation of their pessimistic expectations. As the often-mentioned broker Zampini said: Às I went on I became more sure of myself because I realized that no-one turned down the oer of a bribe. Indeed, in my long career as a broker the money was refused only once. I sent a box of chocolates containing 2 million [lire] in cash, simply to keep him on friendly terms. He kept the chocolates but sent back the money'.45 At the same time, mistrust spreads among those who do not pay and therefore ®nd, for no other apparent reason, that they are discriminated against. An entrepreneur excluded from tendering for a contract with the Italian Railways (FS) connected this fact to the presence of a notoriously `wellconnected' competitor: `we realized immediately that the cards, as you might say, had already been dealt' (PR, 85). Afterwards he redoubled his eorts to enter the restricted circle of corruptors. The alternative is to abandon the public-sector market. When he realized that it was indispensable to pay bribes in order to work with the provincial administration of Bari, for example, Paolo Giuliesi `ceased to present tenders and since he absolutely refused to grease palms on the sole occasion that work was awarded, he has still not been paid what is due to him' (TRIB, 258). Barriers to poor administration are increasingly weakened by the expulsion or marginalization of those protagonists most hostile to corruption, since the risk of complaints to the authorities diminishes. It also reinforces the belief ± widely held among politicians and entrepreneurs ± that corruption is inevitable. Mario Chiesa has claimed: `There was a feeling of impunity in the air. It might seem incredible, but I've never asked for a penny from anyone in my life. Not because I was particularly decent and honest; it just wasn't necessary. If you came to me proposing to sell me 100 millions worth of equipment and I smiled you would have said: ``This is the sum at your disposal'' '.46 Thus, the attempt to bypass the ineciency and arbitrariness of the state by purchasing individual protection is 44 45 46

L'Espresso, 22 November 1991, p. 41. L'Espresso, 18 November 1984, p. 42. Panorama, 13 December 1992, p. 46.



533

bound to fail. It spreads and consolidates the very distrust underlying it in an ever wider spiral of corruption. Corruption and the Erosion of Political Legitimacy A great deal of evidence exists on the interdependence of maladministration and corruption. Investigations of political corruption have clearly shown that ± sometimes as a result of inertia, sometimes of manoeuvre ± maladministration increases the discretionary and arbitrary power of administrators in every phase of the process which leads to public measures being `purchased' by bribery: the arti®cial creation of demand, the contamination of the tendering system, the weakening of ocial controls.47 Moreover, corruption also creates maladministration through arbitrary increases in the cost and distortion of demand for public works. Maladministration fosters mistrust in the public administration among citizens and entrepreneurs as well as doubts as to the eective enjoyment of legally sanctioned rights. Thus, privileged channels of access to the public decision-making process are sought, either in order to bene®t from a service or compete for public tenders, jobs and the like. Willingness to `purchase' access ± in other words, the demand for corruption ± increases with the requirement for such channels. In fact, corruption creates a selective inclusion of those who pay. Thus, corruption creates greater ineciency and the vicious circle commences once more. Moreover, if the demand for corruption feeds on `maladministration', another endemic Italian phenomenon, clientelism, increases the supply. The Italian politicians implicated in illegal activities appear to have possessed a special ability for networking ± creating contacts, developing relations of trust and ties of mutual obligation and favour ± in addition to a `patrimonial' conception of public assets as private property. Both these traits help in the construction of a personal network of support formed by clients and by `friends' within the local eÂlite.48 The ability displayed by many defendants in corruption cases to distribute favours widely while privileging sectors and groups most productive in terms of electoral support and collusion, is attested to more than once in the evidence.49 The Milan underground (Metropolitana Milanese), for example, was ùsed as a reservoir for the employment of political comrades, who collected their salary without even showing up', while `no hiring for the SEA [Milanese Airport Authority] took place which did not have a political purpose'.50 In short, corrupt politicians reinforce their electoral strongholds and circles of connivance by developing both traditional forms of clientelism based on locally-based patron-client relations and also broader, institutionally-based client networks; to use the de®nition given by Eisenstadt and Roniger, both patron brokerage and organizational clientelistic brokerage.51 Furthermore, corrupt politicians are encouraged to increase the activity and spending of the bodies they administer (and thus opportunities for the 47

della Porta and Vannucci, Corruzione politica e amministrazione pubblica. D. della Porta, Lo scambio occulto. Casi di corruzione politica in Italia (Bolona, Il Mulino, 1992). 49 della Porta and Vannucci, Corruzione politica e amministrazione pubblica. 50 Andreoli, Andavamo in Piazza Duomo, pp. 51, 132. 51 S. N. Eisenstadt and L. Roniger, Patrons, Clients and Friends. Interpersonal Relations and Structure of Trust in Society (Cambridge, Cambridge University Press, 1984), pp. 243±5. 48


534


distribution of favours) precisely by the desire to augment the volume of bribery. They must employ a greater amount of resources and quantity of public money (at least in the sectors where illicit gains are greatest and the risks attached lowest) in order to receive more bribes. By reinvesting the money gathered from bribery in politics, corrupt politicians are in a position to organize sophisticated client networks and acquire political protection. As Piercamillo Davigo, one of the magistrates involved in the mani pulite investigations remarked, À lot of illegal funding was destined for the buying of ``membership cards'' by politicians of the various party factions, which were then used in establishing the hierarchy of power within the party . . . The parties were turned into joint-stock companies in which the shares necessary for re-election were bought with the proceeds of bribery'.52 These same resources were used in order to obtain nominations to public oce from party bosses. A Milanese politician confessed: `With the money from bribery I paid for membership cards and controlled a ``block'' of votes . . . When I needed to be renewed in public oce or needed a new position, I put my cards (my block of votes and members) on the table' (MPM, 160). Finally, through distributing favours corrupt politicians can gain the complicity necessary for their activities within the public administration. As Mario Chiesa put it, `Candidates for even the most modest of public appointments know that they should not spend their own money but ask the local boss to cover the cost of their election campaign. In exchange they oer absolute loyalty'.53 This simultaneous presence of corruption and clientelism, it can be hypothesized, is not casual but due to a complementarity between the two phenomena and the similarity of their causal dynamics. While it is true that various kinds of corruption are to be found in more ìdeological' political systems, the construction of broadly-based client networks is favoured by the `pragmatic', à-political' and òpen-minded' attitudes towards political activity held by corrupt administrators.54 Clientelism and corruption converge to form a spiral, the diusion of one aiding that of the other. The costs involved in political activity are raised by the spread of vote-buying (linked to clientelism), forcing politicians to seek material resources to invest in the quest for power. Mario Chiesa recalled that `the demands from comrades for money became insupportable . . .'.55 Clientelism and vote-buying boost incentives for seeking funding by illegal means, `letting' oneself be corrupted. Moreover, by investing gains from bribery more or less directly in the buying of votes, corrupt politicians are rendered more `competitive'. As one Milanese politician put it: `Certainly, the pursuit of power is the pursuit of money. Therefore, having a representative of your own particular party faction appointed as the Chairman or a board member of this or that public enterprise is an additional source of ®nance and a bigger share of power, not only in terms of votes but also of money'.56 As a result,

52

P. Davigo, `Tempo per un nuovo inizio', Economia & Management, n. 2 (1993), pp. 9±17, p. 11. Andreoli, Andavamo in Piazza Duomo, p. 35. 54 Pizzorno, `La corruzione nel sistema politico', pp. 21±6. A. Pizzorno and D. della Porta, ` ``GeschaÈftspolitiker'' in Italien: UÈberlegungen im Anschluû an eine Studie uÈber politische Korruption', KoÈlner Zeitscshrift fuÈr Soziologie und Sozialpsychologie, XLV (1993), 439±64. 55 Andreoli, Andavamo in Piazza Duomo, p. 126. 56 Panorama, 25 December 1992, p. 57. 53



535

the number of politicians willing to `purchase' votes and backing, particularly through ìndividualistic strategies of mobilization', is increased.57 In the south of Italy in particular, the vicious circles described above are ¯anked by others. The durability of the illegal agreements underpinning political corruption and maladministration is reinforced by the presence of organized crime. In certain areas political corruption and common crime have fed o each other, weakening market, state and society. The existence of resources in violence consolidates corrupt exchange which in its turn favours those conditions of generalized illegality which sustain organized crime. The position of corrupt politicians is strengthened by the blocks of votes controlled by criminal organizations and the violence they exercise. According to Antonino Calderone, an ex-ma®oso, `[they have] an immense and alarming power. If it is borne in mind that every uomo d'onore can count on forty or ®fty people who will blindly follow his bidding then the signi®cance of support from the Ma®a in elections can easily be understood' (DAP, 39). Thus, as a statewitness revealed, ìt is important to know which politicians are backed electorally by Cosa Nostra because the favour owed for votes can be called in' (CPMF, 16). For their part, corrupt politicians can use their power to enhance the power and reputation of the criminal organization from whom they receive support.58 Moreover, by guaranteeing impunity and territorial control (often by the manipulation of public contracting), corrupt politicians have reinforced the power of organized crime. According to Gaspare Mutolo, another ex-ma®oso, `There was a unanimous belief that the courts could easily be in¯uenced through politicians and moreover that Sicilian politicians were vital for matters concerning Sicily, and therefore Cosa Nostra, in ``Rome politics'' ' (DAP, 24). In addition, maladministration fostered relationships between organized crime and corrupt politicians and the latter, in their turn, intensi®ed the former. The dependence of ordinary citizens on criminal activity has also been strengthened by maladministration. The Parliamentary Commission on Organized Crime warned that: a situation favourable to the mingling of organized crime and politics is created almost automatically by inert or inept public administration. Frequently it is not even a question of mingling, but the occupation of public institutions by Ma®a emissaries, who administer power on behalf of their `family', not of the public, and are frequently left undisturbed by either administrative or juridical controls. In such areas, on the whole small communes, the Ma®a has created a micro-system which conditions the day-to-day life of ordinary citizens in a particularly oppressive manner. The level of degeneration is profound and no right of any importance can be exercised without the intercession of the Ma®a (CPMF 1993, 18).

The dynamics of the `the crisis of the First Republic', brought about largely by the mani pulite investigations, can be better understood by taking into account the interaction between the various `pathologies'. The collapse of the 57 A. Pizzorno, Ì ceti medi nei meccanismi del consenso', in A. Pizzorno (ed.), I soggetti del pluralismo (Bologna, Il Mulino, 1980), pp. 67±98. 58 D. della Porta and A. Vannucci, `Politics, the Ma®a, and the Market for Corrupt Exchange', in C. Mehrson and G. Pasquino (eds), Italian Politics. Ending of the First Republic (Boulder CO, Westview 1995), pp. 165±84.


536


system of corruption was not caused by the rebellion of its `victims'. It was not those who had to pay bribes who ®rst attacked the system. The regime was not rocked by con¯ict between corruptors and corrupt, nor even between `honest' and corrupt entrepreneurs. Rather, it collapsed because of a crisis of legitimacy created by that complex interlinking of corruption, clientelism and maladministration represented by political protection of organized crime. In fact, a vicious circle undermining diuse support (consensus on the political regime and its institutions) and heightening the need for speci®c support59 has been created by the corruption, clientelism and maladministration which characterized post-war Italian development. The existence of a polarized political culture, the Cold War and dierences over the direction to be taken in economic development all prevented the growth of diuse support during reconstruction in the 1950s. There has been a tendency, as a result, to substitute `speci®c support', directed towards those holding political power at any given moment. This helps to explain the apparent paradox of high rates of electoral participation and, at the same time, low levels of con®dence in government institutions in Italy.60 Electoral participation can therefore be explained by the clientelistic incentives used to secure speci®c support rather than civic-mindedness. In the long run, however, this further undermined diuse support. In fact, `based as it is on a personalized use of power, clientelistic practices impede that dissociation between a role and its occupier which is the principal characteristic of institutional authority. Being based on the principle of ``considering the person'' it undermines con®dence in the ``rules of the game'' and the institutions which should enforce them'.61 The Constituent Assembly's decision to give no one organ precedence over the other (to create a weak parliament, weak government and weak head of state) produced political fragmentation and a massive use of the practice of lottizzazione62 by the resulting coalition governments. This created more room for the formation of a professional political class who found in the administration of public bodies an ample margin for surviving the vicissitudes of elected oce. It should be added that this progressive occupation of the social and economic system has not led to greater eciency. On the contrary, administrative eciency and the possibilities of creating diuse support have shrunk together. The ®gures for the National Debt provide an indication in this respect, increasing constantly from 450,000 billion in 1983 to 1,670,000 billion in 1992 (71.9% and 111.4% of GNP, respectively).63 Thus, the absence of diuse support has intensi®ed the 59 D. Easton, À reassessment of the concept of political support', British Journal of Political Science, XXVI (1975), 435±57. 60 L. Morlino and J. M. Montero, `LegittimitaÁ, consolidamento e crisi nell'Europa meridionale', Rivista italiana di scienza politica, XXIV (1994), 27±66. In 1992, according to Eurobarometer opinion polls, the percentage of Italian citizens who were `not at all satis®ed' or `not very satis®ed' with the functioning of their democracy (above 60% since 1973, the ®rst year for which Eurobarometer polls exist) had reached 80%, compared with 35% in Germany, 42% in Spain, 41% in Great Britain and 51% in France. Various opinion polls indicated, in 1982, that only 31% of Italian citizens trusted their parliament, compared to 53% in the United States and in Germany, 48% in France and 40% in Great Britain. Only 28% of Italians trusted the public bureaucracy compared to 64% of British, 55% of Americans, 55% of French and 35% of Germans (R. Rose, L'espansione della sfera pubblica (Il Mulino, Bologna, 1988), p. 267). 61 L. Graziano, Clientelismo e sistema politico. Il caso dell'Italia (Milano, Angeli, 1980), p. 53. 62 A neologism referring to ®lling positions on the basis of party allegiances. 63 C. Mehrson and G. Pasquino (eds), Italian Politics. Ending of the First Republic (Boulder CO, Westview, 1995), p. 223.



537

occupation of civil society on the part of the political parties and, in its turn, this colonization has produced state crime and maladministration, further reducing the capacity of the system to engender diuse support. Conclusion As has been shown, in the end the pessimistic expectations of the public concerning administrative eciency and impartiality are `self-ful®lling'. As they become progressively less competitive ®rms are obliged to employ bribery in order to win tenders, depending on discretionary decisions to cover the decline in pro®t margins caused by growing ineciency. The declining eciency of ®rms specializing in supplying public demand is one of the social costs of corruption. Entrepreneurs themselves are clearly aware of this, as a letter addressed to the President of the Builders' Association, con®scated during the mani pulite investigation, con®rms: A number of battles need to be won, the ®rst of which is to enter into one or another grouping [of ®rms]. Today, however, it is not enough to have a healthy ®rm which works well, has an ecient operational structure, possesses commercial ability and notable power of market penetration. Infamously, `political clout' [is also required], allied to a `speci®c' disposable income . . . Associations of ®rms no longer aim to lower costs by arduously seeking the best technical solutions but to increase their gains by the methods of which we are all aware (TM, 47±9).

The eciency of ®rms which work predominantly with the public administration will tend to deteriorate with time, leading to increasingly robust barriers to the entry of outside ®rms. The arbitrariness and opacity of public decision making tends to grow over time because corrupt public agents are interested in maintaining privileged relations with the ®rms which bribe them. The diusion of corruption adds impulse to this process of `reverse selection', the end result of which is the wellknown ineciency of the Italian public administration: delays in completion (connected, among other things, with the diculties less ecient ®rms have in respecting contractual obligations); in¯ated ®nal costs; poor quality work; more frequent non-completion or faulty completion of work which, in order to be remedied, can create further opportunities for corruption. Finally, the political costs of corruption must be added to the economic and social ones. A series of vicious circles leads to the parallel growth of corruption, ineciency, clientelism and (under certain conditions) the political protection of organized crime. Little by little the very bases of political legitimation have been undermined by these phenomena, arriving ®nally at the mani pulite investigations and the `crisis of the First Republic'. In fact, as Pizzorno had rightly foreseen,64 while corruption is in no way limited to democracies, it is in such systems that its eects are most disruptive. By attacking two of the fundamental principles on which democracy is based, the equality of citizens before institutions and the open nature of decision making, corruption contributes to the delegitimation of the political and institutional systems in which it takes root. 64

Pizzorno, `La corruzione nel sistema politico'.


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The `Perverse Eects' of Political Corruption Sources Judicial Sources

ACA Court of Appeal of Catania, SC in JP n. 5463, 10 July 1991. DAP Public Prosecutor at the Court of Palermo, Domanda di autorizzazione a procedere contro il senatore Giulio Andreotti, 27 March 1993, in Panorama, 11 April 1993. MPM E. Nascimbeni, A. Pamparana, Le mani pulite (Milano, Mondadori, 1992) the book publishes reports of evidence of interrogations. PR Public Prosecutor at the Court of Rome, PP C in JP n. 10726/88A and n. 6302/88A R.G.P.M., 20 February 1991. PRIM Public Prosecutor at the Court of Milan, PP C in JP n. 990/83 against Rodi Luciano 29. PRLIM Public Prosecutor at the Court of Milan, PP C in JP n. 6009/90 Mod. 21, 21 April 1992. PRP Public Prosecutor at the Court of Palermo, Request for application of precautionary measures, n. 2789/90N.C. QGF Court of Florence, SC against Falugi 4, 28 February 1986, excerpts in Questione Giustizia, n. 2, 1987, pp. 337±55. TM A. Carlucci, Tangentomani (Milano, Baldini and Castoldi, 1992), the book publishes reports of evidence of interrogations. TN Court of Naples, SC in JP against contro Roberto Pepe 8 (draft), 21 December 1989. TRDM Tribunal of Milan, SC n. 764 769 1207 1486/91R.G., 25 May 1992. TRIB Court of Bari, SC n. 861/85, 29 November 1985. TRIS Court of Savona, SC n. 145/85, 8 August 1985. US UnitaÁ Sanitaria Locale Parliamentary Sources CC State Audit's Court Report to the Parliament for the years 1987±92. CCL State Audit's Court Report to the Parliament about the local authority for the year 1991. CD Chamber of Deputees, `Domanda di autorizzazione a procedere in giudizio', doc. IV. CPDT Parliamentary Committee of Inquiry in the reconstruction after the earthquake in Basilicata and Campania on November 1980, Final report approved on 27 January 1991, Vol. I, Tomo I. CPMF Parliamentary Committee of Inquiry on the Ma®a, Final Report on Ma®a and Politics, approved on 6 April 1993 (supplement to La Repubblica, 10 April 1993). Interviews I-1/60 interviews with experts (politicians, judges, lawyers, entrepreneurs etc.). Key: JP IM BI PP C SC

Judicial Proceeding Investigating Magistrate's Bill of Indictment Public Prosecutor's Charge Sentence of Court



Regulating the Conduct of MPs. The British Experience of Combating Corruption DAWN OLIVER This chapter is concerned with the de®nition and regulation of proper standards of conduct in the British Parliament. Our purposes are to explore the limits and advantages of political self-regulation as a means of combating corruption and lesser evils such as slackness1 and ethical lassitude in public life,2 and the conditions in which self-regulation can be eective. Although our focus is on the British Parliament it is hoped that some points of more general application can be drawn from Britain's recent history of parliamentary self-regulation. Self-regulation can be a more eective device for controlling activity than externally imposed regulation, but only if the body in question is genuinely committed to upholding proper standards of conduct. First, a self-regulating body derives status, respect and self-respect from the fact that it is trusted to regulate itself, and these considerations may provide the motivation for the body to make a system of self-regulation work, improving it where necessary to avoid having control transferred to an outside body. Second, a body in charge of its own standards and their enforcement is well placed to ®nd appropriate and workable methods to maintain standards, whereas externally imposed regulation may turn out to be inappropriate, in¯exible or unworkable. But self-regulation works best where there is (merited) public con®dence in the system, a degree of external involvement and separation or independence from the aected interests. Standards and principles need to be clear, appropriate sanctions must be available, the system should be responsive to changing expectations and circumstances, and there must be eective public accountability.3 In considering the working of the British Parliament's system of selfregulation we shall bear these points in mind. The Background: Concern about Standards of Conduct in Public Life in the United Kingdom In the last two decades or so there has been growing public concern about standards of conduct in public life generally in the United Kingdom. This was not recognized initially as a problem of endemic corruption, but was viewed as ethical lassitude or sleaze coupled with the occasional atypical instance of the oering or taking of bribes. It is only since about 1995 that a problem of real 1

`Slackness', was used in relation to standards in public life in the Nolan Committee's ®rst report. Èthical lassitude', is used by M. Mancuso in Èthical attitudes of British MPs', Parliamentary Aairs 46 (1993), p. 180. 3 List adapted from the National Consumer Council report Self-Regulation, 1986; see also C. Graham `Self-regulation', in G. Richardson and H. Genn (eds), Administrative Law and Government Action (1994). 2


540

Regulating the Conduct of MPs

corruption in British public life has been recognized to exist ± though it is not yet in my view endemic throughout the system, and it has so far not done great damage to the general public interest. It has, however, contributed to the undermining of the legitimacy and authority of certain public bodies, particularly Parliament, government, the civil service and local government (in which last institution there has been a problem of bribery in various forms for many years, which does not appear to be paralleled in other public institutions). Concerns have centred round the conduct of Members of Parliament, ministers, civil servants, those working in the National Health Service, local government and even universities. Often problems have arisen because of con¯icts between the public duties and private interests of public bodies and their members. There has also been controversy surrounding appointments to various public or semi-public organizations ± non-departmental public bodies and quasi autonomous non-governmental organizations ± where there has been suspicion of abuse of patronage by government ministers responsible for making these appointments.4 The climate of concern about standards of conduct in public life in Britain was exacerbated by the Matrix Churchill aair of 1992, a major scandal which intensi®ed public and press pressure for action to be taken to restore proper ethical standards in many areas of public life. In this aair a number of defendants were prosecuted for the unlawful export of defence equipment to Iraq. Government ministers had claimed the right to refuse to disclose public documents in the trial on grounds of public interest immunity. Ultimately the trial judge insisted on inspecting the documents and ordering their disclosure to the defence. A government minister who was a witness at the trial admitted that the government knew about the purposes for which the equipment was being exported to Iraq, namely for possible use as defence equipment. The prosecution was then abandoned. But it was widely felt that the defendants had only narrowly avoided being wrongfully convicted, and that members of the government had acted dishonourably in permitting the prosecution to go ahead and putting the defendants at risk. A senior judge, Sir Richard Scott, was appointed to conduct a lengthy inquiry into this matter, and his report, published in February 1996,5 found a range of faults in conduct, including the misleading of Parliament by ministers and civil servants, excessive secrecy, and a willingness to cover up sensitive matters by withholding documents from the courts.6 But there had also been a series of scandals in the late 1980s and early 1990s involving MPs and ministers who had accepted gifts, fees, hospitality and services from outside interests in circumstances which raised the question whether they had been given in return for favours. After leaving oce civil servants and ministers commonly found remunerative positions in the private sector working in organizations with which they had dealt in oce. This raised 4 This latter set of concerns was expressed by the Nolan Committee, and resulted in a Commissioner for Public Appointments being appointed in 1996: see First Report of the Committee on Standards in Public Life, Cm 2850 (1995), Second Report of the Committee on Standards in Public Life, Local Public Spending Bodies, Cm 3270 (1996) and Second Report of the Public Service Committee 1996±97, The Work of the Commissioner for Public Appointments, HC Paper (1996±97) 141. 5 Sir Richard Scott, Report of the Inquiry into the Export of Defence Equipment and Dual-use Goods to Iraq and Related Prosecutions, HC Paper (1995±96) 115. 6 See I. Leigh [1993] P.L. 630 and [1996] Public Law, 357±527.


DAWN OLIVER

541

suspicions that they might have exercised their functions in oce with a view to ®nding favour with the bodies with whom they dealt. There was also concern that they might make improper use of information and contacts gained in oce for the bene®t of private sector organizations. The Legal Regulation of Standards of Conduct The standards of conduct in British public life are set and regulated in a variety of ways ± through the civil and criminal law, common law and statute, and codes of practice. However, as we shall see, Members of Parliament are exempt from most legal provisions. It is for this reason that the system of parliamentary self-regulation is particularly important. Before turning to that system, let us summarize the law relating to standards of conduct in public life. The common law has long forbidden certain kinds of misbehaviour. For instance, misfeasance in a public oce is a tort.7 However actions for misfeasance are rare, and members of the two Houses of Parliament are not regarded as holders of public oces for these purposes and so they cannot be liable for the tort. Misbehaviour in or misuse of a public oce is a common law (i.e. non-statutory, judge-made) criminal oence in English law8 ± but again prosecutions are very rare, and as persons who are not regarded as holders of public oces MPs are not subject to this form of regulation. It is an oence at common law to bribe a privy councillor,9 and it is a crime for a judicial or ministerial ocer to take a bribe10 or to oer a bribe to the holder of a public oce.11 But it is probably12 not an oence to bribe or oer a bribe to a Member of Parliament or for a Member of Parliament to accept a bribe.13 7 Jones v. Swansea C.C. [1990] 1 WLR 1453; Dunlop v. Woollahra Municipal Council [1982] AC 158, [1981] 1 All ER 1202, P.C.; Three Rivers District Council v. Governor and Company of the Bank of England (No. 3) [1996] 3 All ER 558. See also De Smith, Woolf and Jowell, Judicial Review of Administrative Action (5th edn, 1995) pp. 783±785; Clark and Lindsell on Tort, (17th edn, 1995) p. 134; and C. Hadjiemmanuil `Civil liability of regulatory authorities after the Three Rivers case', [1996] Public Law 32. 8 R. v. Bowden [1995] 4 All ER 505; Henley v. Lyme Corporation (1828) [1824±34] All ER Rep 503, 131 ER 1180, HL; R. v. Bembridge (1783) 3 Doug 327, 99 ER 679; R. v. Dytham [1979] QB 722; R. v. Hall [1891] 1 QB 747; R. v. Llewellyn-Jones [1968] 1 QB 429; R. v. Whitaker [1914] 3 KB 1283. 9 R. v. Vaughan (1769) 4 Burr. 2494. 10 R. v. Vaughan, supra. 11 R. v. Lancaster and Worrall (1890) 16 Cox 737. 12 Although it is commonly asserted that MPs cannot be prosecuted for bribery in R. v. Currie, Jurasek, Brooks, Greenway and Plasser Railway Machinery (GB) Ltd, 1992, unreported, Buckley J said:

That a Member of Parliament against whom there is a prima facie case of corruption should be immune from prosecution in the Courts of law is to my mind an unacceptable proposition at the present time. I do not believe it to be the law. (Quoted in the Note on Payments to Members of Parliament for Parliamentary Services, prepared for the Committee on Standards in Public Life by Sir Cliord Boulton, GCB, August 1994.) The Nolan Committee ± see below ± recommended that this question be clari®ed (Cm 2850-I, p. 43) and the government agreed to consider referral to the Law Commission (Cm 2931, p. 2), which examined the position in its consultation paper 145 Legislating the Criminal Code: Corruption. 13 See Royal Commission on Standards of Conduct in Public Life (the Salmon Commission) Cmnd 6524; HC Deb. vol. 917, col. 1446; Zellick `Bribery of Members of Parliament and the criminal law' [1979] Public Law 31; [1981] Public Law, 287; S. Williams, Con¯ict of Interest, 1985, pp. 85±6. The Home Oce Discussion Paper Clari®cation of the law relating to the Bribery of Members of Parliament, December 1996 summarizes the position. And see Law Commission consultation paper 145, n. 12 supra. # Political Studies Association, 1997

542


Corruption of or by members or servants of public bodies is a statutory oence under the Prevention of Corruption Acts 1889±1916. By section 1(1) of the 1906 Act, which applies not only to private employees but to public bodies: any agent corruptly accepting, obtaining, or attempting to obtain from any person any gift or consideration as inducement or reward for doing or forbearing to do, or for having done or forborne to do, any act, or for showing or forbearing to show favour or disfavour in relation to his principal's aairs or business, is guilty of an indictable oence, and so also is any person who knowingly gives to any agent, or any agent who knowingly uses with intent to deceive his principal, any false, erroneous, or defective receipt, account, or other document.

However, Parliament is not regarded as a `public body' for these purposes, and MPs are not regarded as àgents' under this provision. In any event the section is dicult to enforce: no prosecution can be instituted under the Act of 1906 without the consent of the Attorney-General or the Solicitor-General.14 And `corruptly' is not de®ned, so there is likely to be uncertainty about the chances of conviction in cases other than those involving blatant bribery. Again, prosecutions are very rare. Further, Article Nine of the Bill of Rights of 1689 (to which we return later) prevents the calling in question of the freedom of speech and debates and proceedings in Parliament in the courts, and this provides an additional barrier against criminal or civil liability of MPs for their conduct in that capacity. Parliamentary Self-regulation in the United Kingdom Instead of the courts and prosecuting authorities dealing with the setting and enforcement of the standards of conduct of MPs or peers, the two Houses of Parliament assume the responsibility, and indeed over a wide range of activity the exclusive right, to de®ne and maintain their own standards of conduct. The system is one of self-regulation. The two Houses of the British Parliament have ancient rights to protect their own `privileges' and to punish `contempts' of Parliament.15 This jurisdiction of the two Houses derives from their historical status as courts of record.16 The privileges of Parliament and the regime of self-regulation were developed to protect the Houses from external pressures, principally from the monarch. Members of the two Houses had shared interests in protecting themselves against such pressures. It is signi®cant, however, that nowadays the executive function is exercised not by the monarch, but by members of the government who are, by convention, members of one or other of the two Houses. Party discipline is strong in the two Houses, particularly the Commons. Hence pressure on Parliament from the executive is not nowadays perceived as external pressure that threatens the rights of the Commons, but as part of the accepted political and intra-parliamentary climate. In practice a distinction is not always made between executive in¯uence on MPs that is designed to secure the approval of substantive party policy, legislation and decisions ± and is normally 14

Public Bodies Corrupt Practices Act 1889, ss. 1,2,3,(2),4,7. See Erskine May, Parliamentary Practice (21st edn: London, 1989), chs 5±11. 16 Today the ordinary courts of record still have the right to commit individuals for contempt of court. 15


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acceptable ± and executive or party pressure that is designed to interfere with the self-regulatory and often quasi-judicial functions of the House in upholding standards of conduct. The self-regulation of the two Houses of Parliament extends beyond standards of conduct into matters such as standing orders, membership and terms of reference of committees and the allocation of parliamentary time between government business and opposition interests. The management of business in the two Houses is based strongly on trust, as is much of British political life. The ùsual channels' ± arrangements reached by the whips of the parties in the House of Commons ± facilitate the pairing of MPs who are unable to attend the House to vote and the operation of the parliamentary timetable. Where necessary, leaders of opposition parties are briefed òn privy council terms' on matters of national security. Outside Parliament politicians and other public ®gures take part in discussions under `Chatham House rules' which guarantee that views expressed will not be attributed to named persons outside the occasion of the discussion. As far as standards of conduct in Parliament are concerned, although, as we have seen, MPs probably cannot be prosecuted for bribery, bribery of a Member of either House of Parliament is a breach of the privilege of the House in question.17 In addition there are longstanding understandings in the two Houses that, for instance, it would be a contempt of Parliament and a breach of privilege for an MP to agree to limit his or her own freedom of action as a Member of Parliament by entering into contractual agreements with outside bodies which purport so to limit that freedom.18 The punishment of an MP by an outside body which disapproves of a Member's actions (for instance by breaking contractual sponsoring arrangements),19 or the assertion by outside bodies that they have a right to dictate to or mandate an MP are also contempts of Parliament.20 But it is not contrary to the law of Parliament for an MP to enter into contractual arrangements with outside bodies which do not so limit the MP's freedom of action. (Under recently introduced reforms such contracts must be deposited with the Parliamentary Commissioner for Standards, and disclosure of interests is required.) Under the law of parliamentary privilege the two Houses have exclusive cognizance of their own procedures: the courts have no jurisdiction to inquire into or call into question proceedings in Parliament. This position has been reached partly in the case law as it has been developed by the courts over the centuries,21 and partly as a result of the statutory provision of Article Nine in the Bill of Rights of 1689. In eect a settlement has been reached between the courts and Parliament that the two will not interfere in each other's spheres, a form of limited separation of powers designed to prevent con¯ict between the courts and Parliament that could result in questioning by Parliament of the political neutrality of the courts and their authority. 17

Erskine May, n. 15 supra, pp. 119, 128. See the Committee of Privileges Report HC Paper (1946±47) 118 and House of Commons Resolutions on the W. J. Brown aair, H.C. Deb., Vol. 440, col. 365, July 15, 1947. 19 See the W. J. Brown case, n. 18 supra. 20 See Second Report from the Committee of Privileges: Complaint concerning a Resolution of the Yorkshire Area Council of the National Union of Mineworkers (HC Paper (1974±75) 634). 21 Notably Stockdale v. Hansard (1839) 9 Ad & E 1; The Case of the Sheri of Middlesex (1840) 11 A & E 273; Bradlaugh v. Gossett (1884) 12 QBD 271. 18


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Standards of conduct required of British MPs rest on a number of often unspoken assumptions which re¯ect the underlying theory of representative democracy. They can be summarized as follows: it is the duty of MPs (and ministers) to exercise their functions in the general public interest and not in their own interests or those of any particular individual or section of society ± unless of course to do so would be in the general public interest as, for instance, when rights for the disabled or other disadvantaged groups are in question. This central concept of public interest is a dicult one, and it is often easier to determine what is not in the public interest in this context than what is. But the diculty in de®ning the public interest is partly resolved by the position that it is for the member of the House of Commons, in principle, to exercise his or her own judgment about the public interest and not to be mandated by outside interests. Members of Parliament are accountable to the electorate for their conduct, and this is assumed, perhaps optimistically, to be a sucient guarantee that the representative will exercise his or her functions in the public interest rather than in favour of partisan or private interests. The established basic theory of representation in the UK is that expressed by Edmund Burke in his Letter to the Electors of Bristol in 1774: Parliament is not a congress of ambassadors from dierent and hostile interests; which interests each must maintain, as an agent and advocate, against other agents and advocates; but Parliament is a deliberative assembly of one nation, with one interest, that of the whole; where, not local purposes, not local prejudices ought to guide, but the general good, resulting from the general reason of the whole. You choose a member indeed; but when you have chosen him, he is not member of Bristol, but he is a member of Parliament.

Here, however, a problem is posed by the operation of the party system, especially the whip system, in Parliament. Party discipline is what Bagehot would have regarded as an ècient' part of the British constitution, whereas the `digni®ed' constitution requires independence on the part of MPs.22 In practice MPs are guided, if not intimidated, by party whips in the exercise of their judgment. Our concern here is principally with standards of conduct, and it is suggested that whatever the position where MPs are called upon to make decisions about substantive matters of policy (which is where the whip system is inevitably and generally rightly most relevant), on matters to do with the selfregulation functions of the Houses of Parliament and the upholding of standards in public life and combating corruption, the `digni®ed' principles of the constitution remain of real importance and should not be merely facades behind which the unpleasant realities of political bargaining take place. As we shall see in due course this is not always appreciated by MPs, but it is suggested that without a separation of party and parliamentary interests in such matters the self-regulatory tradition which is central to the relations between Parliament and the courts and the status of Parliament will be threatened. The upholding by the two Houses of standards of conduct which they have developed over the centuries is also designed to preserve the dignity of the Houses and the respect in which they are held, which in turn maintain their legitimacy and authority. 22 See Walter Bagehot The English Constitution (1867, repub. with intro. by R. H. Crossman, 1963).


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A Decline in Parliamentary Standards? It became known in the early and mid-1990s that Members of Parliament were accepting payments in return for asking questions of ministers in Parliament. The going rate for asking a question seemed to be one thousand pounds. The Committee of Privileges of the House of Commons investigated a number of these allegations and found them proved in three cases. They recommended, and the House of Commons resolved, that one member be formally reprimanded and suspended from the service of the House for ten sitting days with suspension of his salary, that another be reprimanded and suspended for twenty sitting days without salary, and in the third case that no action be taken.23 Many MPs were being paid retainers or salaries by individual clients or by multi-client lobbying organizations to look after their interests. This involved, for instance, arranging for delegations to meet ministers, tabling amendments to bills as they passed through the House, making speeches in Parliament and taking other opportunities to put the interests of their clients forward, and generally looking after those interests. It is worth pausing at this point to ask ourselves what was wrong with the various matters about which the press and others were expressing concern ± was this corruption or some lesser form of misconduct? Indeed, was it objectionable at all? It was not the mere fact that Members of Parliament were receiving payment from outside bodies that gave rise to objections. Generally it is accepted as legitimate for MPs to receive some payments from outside sources, for instance if they are authors, barristers or journalists ± or shareholders in companies etc. So what was it that caused public concern about these matters? Let us take the complaints about the conduct of MPs one by one. First, the acceptance of cash in return for asking questions in Parliament. It is a convention of the British constitution that ministers are accountable to Parliament: in principle they should therefore be willing to answer questions asked by MPs and peers in Parliament. As there is no general legal right of access to ocial information in the UK, the duty of ministers to answer parliamentary questions is a valuable and useful way of extracting information from government. Often it is the only way in which information can be obtained. The normal expectation is that MPs will form a view about what information ought to be disclosed by government, and if necessary they will table parliamentary questions to extract that information. The underlying assumption is that the MP will be seeking information, when asking parliamentary questions, in what s/he conceives to be the general public interest or the interest of his or her constituents or constituency. Often the decision to table a parliamentary question will be in response to concerns expressed by constituents, or because an MP has a particular interest in a special area of policy. Answering parliamentary questions inevitably imposes costs on the government. One reason that is sometimes given by a minister for refusing to answer a question is that it would be too expensive to seek out the information to do so ± and commonly this reason is accepted as legitimate. The answers to parliamentary questions are published in the reports of parliamentary proceedings, 23 Complaint concerning an article in the `Sunday Times' of 10 July 1994 relating to the conduct of members, H.C. Paper (1994±95) 351; H.C. Deb., April 20, 1995, col. 382. See also D. Oliver `Standards of conduct in public life: what standards?' [1995] Public Law, p. 497.


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and so a client who has paid an MP to ask a question is not obtaining exclusive or privileged access to the information sought. We can see that in many ways the asking of questions which must be answered by ministers is bene®cial and in the interests of open government. But we can also see that it is inconsistent with principle and unfair for an MP to ask a parliamentary question in return for a fee. The fee undermines the MP's independence so that s/he is not exercising his or her judgment of what information it is in the public interest to have disclosed when deciding to ask a question. And s/he is imposing a cost on the public purse ± the cost of answering the question ± at the behest of a client and not because s/he personally judges the question to be worth the cost. The payment of fees also means that ability to obtain information may be denied to those who cannot aord to pay an MP to seek it, and this would clearly have become the case if MPs had taken to refusing to ask questions unless a fee was paid. In practice this was not the position and many MPs were and still are willing to ask questions that they consider will extract useful information at the invitation of outside interests without even considering accepting a fee (indeed, accepting a fee is now forbidden). Additionally the practice of charging for asking questions undermined the reputation and standing of the House. Where an MP arranges for a delegation to see a minister, he is appropriating a scarce resource ± the time of the minister ± for the bene®t of the client. By convention MPs may have access to ministers in the interests of their constituents. This is regarded as an aspect of representative democracy and the theory that ministers, as part of their responsibility to Parliament, should note and respond to the grievances of the people. So the use of the limited time of ministers to attend to the constituents or constituency interests of an MP is consistent with general constitutional theory. But for an MP to arrange for a delegation to see a minister because he or she is beholden to a client and not as an exercise of independent judgement is not compatible with representative constitutional theory as set out above. And the use of the minister's time and attention for the bene®t of a partisan body which obtains it through payment and not, as charities might do for instance, through persuasion or appealing directly to reason or the sympathies of ministers, is not compatible with our constitutional theory. But it should be noted that it has not been suggested that the judgment of ministers has in practice been compromised by such delegations ± it is MPs, not ministers, who have attracted criticism for these arrangements. There was growing concern in the early 1990s that MPs were tabling amendments to Bills in Standing Committee in the Commons in return for payments received by clients. Only MPs may table amendments to bills, and again I suggest what was improper here was for MPs to table amendments for payment rather than in the exercise of their own judgments. It was not suggested that the judgments of other members of Standing Committees were compromised by such tabled amendments. Their time and attention ± limited resources ± were, however, taken up and the person desiring the amendment has privileged access to opportunities to in¯uence the legislative process. There were also reports that MPs were tabling amendments in the names of other MPs in order to avoid having to disclose their interests.24 24 In one case raised in the House an amendment was tabled in the name of another MP, Sebastian Coe: see H.C. Deb., Vol. 260, Col. 612, May 22, 1995. The MP in question apologized to the House.


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Lastly, there was concern that MPs were advocating the causes of clients in Parliament for payment, and, again, not in exercise of their independent judgment. Here an objectionable element was that advocacy takes up valuable and limited time in the House, thus depriving others of the opportunity to make their own points. In sum the objections to the various activities listed above were that they aected the exercise by MPs of their judgment in various ways that were contrary to the Burkean theory of representation set out above, and that they imposed arbitrary burdens or costs on limited public resources ± a common problem with a range of forms of corruption. These illustrations raise the question whether and in what way such conduct amounts to political or public corruption as opposed to mere slackness. A useful de®nition of corruption in the Shorter English Dictionary is `Perversion of integrity by bribery or favour'. A relevant meaning of integrity is `Soundness of moral principle; the character of uncorrupted virtue; uprightness, honesty, sincerity'. If we take corruption to be any interference with the free judgment in the public interest that should be exercised by a Member of Parliament (or indeed any public body or ocial or private body exercising a public function), then these matters were, indeed, examples of corruption. But in my view they were not as serious as many instances of corruption which result in governmental decisions being taken, resources being allocated or laws being passed which are partisan and subordinate the public interest to other interests. The transgressions of MPs were relatively minor instances of struggles for resources in politics ± the resources being information, and access to the time and attention of ministers rather than concrete or material bene®ts. This is probably because British MPs have, in practice, relatively little power, especially if they are operating individually rather than in party or other groupings. Despite the glamour and prestige attaching to the two Houses of Parliament with their historic and grand buildings and archaic and picturesque procedures, MPs have little in¯uence against a determined government, they do not handle public money ± and so they cannot misapply it ± and they do not have direct control of many resources. In reality they do not have much to oer clients. And the bene®ts available to individual MPs in return for abuse of their powers are minor as compared to the loss of the trust of their colleagues and the loss of status and respect to the whole House of Commons that they stand to suer if misbehaviour becomes public knowledge. This is a major consideration in the exercise of the self-regulatory function ± most MPs condemn abuse of power by individuals because of the damage it does to the reputation of them all. Mancuso, in research in which a cross-section of MPs were interviewed about how they would deal with a set of hypothetical dilemmas, found that there was a high proportion of MPs who took the view that con¯icts of interest did not pose ethical problems and that `what is not legally forbidden is acceptable'. Mancuso found that there was not the ethical consensus that is needed for a system of either individual or institutional self-regulation to work eectively.25 This ethical dissensus no doubt goes a long way to explain the conduct of MPs about which complaints have been made.

25

M. Mancuso, at note 2 supra.


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The Nolan Committee Investigation into `Sleaze' In response to public concern about the standards of conduct and `sleaze' in public life generally, the Committee on Standards in Public Life was appointed in November 1994.26 Its chairman, Lord Nolan, is a Law Lord, and its other members include èlder statesmen' MPs from the major parties, a retired civil servant, the retired Clerk of the House of Commons, a Professor of Politics and others with experience in public service. The Committee was appointed to inquire into standards in public life generally and not to investigate individual cases. Its ®rst report was dedicated to Members of Parliament, ministers, civil servants and non-departmental public bodies and National Health Service bodies. The Committee was concerned to ®nd solutions to problems and not, for instance, with economic analysis or `public choice' explanations for breaches of standards.27 In that respect its remit was strictly limited. An important general ®nding of the Nolan Committee's ®rst report28 was that We cannot say conclusively that standards of behaviour in public life have declined. We can say that conduct in public life is more rigorously scrutinized than it was in the past, that the standards which the public demands remain high, and that the great majority of people in public life meet those high standards. But there are weaknesses in the procedures for maintaining and enforcing those standards. As a result people in public life are not always as clear as they should be about where the boundaries of acceptable conduct lie. This we regard as the principal reason for public disquiet. It calls for urgent remedial action.29

So the Committee's concern was not in that inquiry about deliberate breaches of known standards, which did not seem to be an issue, but about slackness and ignorance of standards. In its First Report the Committee set out `Seven Principles of Public Life', which should apply to all areas of public life. These principles are: Sel¯essness. Holders of public oce should take decisions solely in terms of the public interest. They should not do so in order to gain ®nancial or other material bene®ts for themselves, their family, or their friends. Integrity. Holders of public oce should not place themselves under any ®nancial or other obligation to outside individuals or organizations that might in¯uence them in the performance of their ocial duties. Objectivity. In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and bene®ts, holders of public oce should make choices on merit. Accountability. Holders of public oce are accountable for their decisions and actions to the public and must subject themselves to whatever scrutiny is appropriate to their oce. Openness. Holders of public oce should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands. 26 27 28 29

H.C. Deb. 25 October 1994, Cols. 757±9. See T. C. Daintith `Regulating the market for M.P.s' services' [1996] Public Law, 179. First Report of the Committee on Standards in Public Life, Cm 2850 (1995). First Report of the Committee on Standards in Public Life, Cm 2850 (1995), p. 3.


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Honesty. Holders of public oce have a duty to declare any private interests relating to their public duties and to take steps to resolve any con¯icts arising in a way that protects the public interest. Leadership. Holders of public oce should promote and support these principles by leadership and example.30 We can see how concealing interests and compromising one's judgment by entering into relationships with outside bodies, as many MPs had done, runs counter to the spirit of most of these values. The Committee found that the standards required by Parliament's own law were not generally understood in Parliament. This may have been partly because, since the rules about the registration of the interests of Members had been brought into eect for the Commons in 1975 (the Lords have only recently introduced a similar system)31 some MPs had come to assume that, as long as they registered any interests and declared them where necessary, they were free to enter into contractually binding arrangements with outside bodies. This illustrates Mancuso's point that many MPs felt that whatever was not legally forbidden was acceptable. This, the Nolan Committee found, was clearly wrong. The House of Commons itself in due course accepted that to be the case and in fact introduced even stricter controls than Nolan proposed (see below). If registration of interests in contractual arrangements had legitimated them, this would have been contrary to an important resolution passed by the Commons in 1947 about trade union sponsorship of MPs and comparable contractual arrangements: then the Commons Committee of Privileges ± its principal self-regulatory body at the time ± had found that though contractual arrangements between MPs and outside bodies were not necessarily improper, such arrangements should never seek to limit the freedom of action of MPs, and contractual relationships should not be used to punish MPs who had displeased the other contracting party ± for instance by terminating them. The Nolan Report made a number of important recommendations, all of which have been implemented, in one case more stringently than Nolan had proposed. We consider them shortly. The Committee also indicated which reforms it felt should be implemented immediately, and which should be implemented in due course. It also indicated that it would revisit some of the issues at a later date, thus putting pressure to comply on the House of Commons and others to whom its recommendations were directed. Initially there was hostility, especially among Conservative MPs, to some of the proposals in the Nolan Report. It was directed mainly to concern that the House's right of self-regulation was under attack, as was manifested in the expression of fears that its `sovereignty' might be undermined if independent outsiders were involved in policing the conduct of MPs and that the settlement reached between the courts and Parliament in the nineteenth century might be undermined by any departure from the self-regulation tradition. It is possible to detect here a fear that MPs would lose their ownership of the system, an important consideration in many liberal professions. There was also resentment at the implication some MPs detected that members were, to use the words of 30

See First Nolan Report, n. 4 supra, at page 14. Select Committee on Procedure of the House, Third Report 1994±95 Declaration and Registration of Interests, H.L. Paper 90; H.L.Deb., 1 November 1995, vol. 566, col. 1428; Register of Lords Interests 1996, H.L. Paper 34, 14 February 1996. 31


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one MP, à bunch of crooks' ± although the Committee went out of its way to observe that: Taking the evidence as a whole, we believe that the great majority of men and women in British public life are honest and hard working, and observe high ethical standards.32

Most of the Nolan committee's proposals for MPs were implemented within a few months of publication of the report. The internal arrangements in the House of Commons for regulating standards of conduct, including the requirement for the registration and declaration of interests, have been tightened up in various ways. A new Select Committee on Standards and Privileges has taken over the functions of the old Privileges and Members' Interests Committees.33 A Parliamentary Commissioner for Standards was appointed by the House of Commons in the Autumn of 1995, who reports to this committee. He is an ocer of the House of Commons appointed by it under its inherent powers. His duties include maintaining the Register of Members' Interests, advising Members on matters relating to registration, advising the Committee on Standards and Privileges and individual members on the interpretation of the new code of conduct and on questions of propriety, monitoring the operation of codes and registers, investigating complaints of breach of standards, and making recommendations to the Standards and Privileges Committee.34 The oce of Parliamentary Commissioner for Standards is not truly comparable to others with which there is a super®cial similarity. The Parliamentary Commissioner for Administration, or Òmbudsman', is statutory and monitors government, not the House of Commons. The Comptroller and Auditor General is also statutory and monitors government bodies, not Parliament. The new Commissioner is, therefore, sui generis and forms part of a self-regulatory, not regulatory, system. The ®rst Commissioner is Sir Gordon Downey, former Comptroller and Auditor General. It is now a requirement that any MP who has an existing agreement or who proposes to enter into a new agreement involving the provision of services in his or her capacity as a Member of Parliament must reduce it to writing and deposit it with the Parliamentary Commissioner for Standards. MPs also have to disclose the payments they receive in bands. The rules on sponsorship, consultancies and the registration of interests have been clari®ed and tightened up. The current version of the 1947 resolution of the House of Commons in the W. J. Brown case, amended in the light of the Nolan report, now reads as follows: That this House declares that it is inconsistent with the dignity of the House, with the duty of a Member to his constituents, and with the maintenance of the privilege of freedom of speech, for any Member of this House to enter into any contractual agreement with an outside body, controlling or limiting the Member's complete independence and freedom of action in Parliament or stipulating that he shall act in any way as the representative of such outside body in regard to any matters to be transacted in Parliament; the duty of a 32 33 34

First Nolan Report, supra note 4, at para 1. House of Commons Standing Order no. 121A. House of Commons Standing Order no. 121B.


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Member being to his constituents and to the country as a whole, rather than to any particular section thereof, and that in particular no Member of the House shall, in consideration of any remuneration, fee, payment, reward or bene®t in kind, direct or indirect, which the Member or any member of his or her family has received is receiving or expects to receive± (i) advocate or initiate any cause or matter on behalf of any outside body or individual, or (ii) urge any other Member of either House of Parliament, including ministers, to do so, by means of any speech, Question, Motion, introduction of a Bill or amendment to a Motion or Bill.35

The House further resolved on 6 November 1995 that: . . . a Member with a paid interest should not initiate or participate in, including attendance, a delegation where the problem aects only the body from which he has a paid interest.36

A Code of Conduct, drafted by the Standards and Privileges Committee was adopted by the House in July 1996.37 This incorporates the Seven Principles of Public Life drafted by the Nolan Committee and stresses the duty of MPs to act in the interests of the nation as a whole, with a special duty to their constituents. The adoption of a code is the preferred method of self-regulation across a wide range of public life in Britain (even where criminal sanctions and civil liability are also available). In many cases codes are drawn up by the body concerned, and are therefore òwned' by it. In such cases it is believed to be more likely that the body concerned will be committed to the codi®ed standards than if they are imposed from outside. For instance, the British Cabinet's standards of conduct are set out in a document entitled Questions of Procedure for Ministers, which deals with matters such as divesting of investments, what to do with gifts, and so on. This has been developed by the Cabinet Oce and successive prime ministers over the years, with provisions added in response to scandals and controversies from time to time. Government departments and civil servants appearing before select committees are governed by guidelines produced by government itself, Departmental Evidence and Response to Select Committee.38 The new Civil Service Code,39 drawn up by the government after consultation with the First Division Association (which represents senior civil servants) and in the light of comments from the Committee on Standards in Public Life (the Nolan Committee ± see below), also lays down standards for relationships between ministers and civil servants. In local government, by contrast, new codes of practice have been drawn up by the Department of the Environment (and so are not òwned' by local authorities). These codes are monitored by senior local government ocials. In this ®eld, then, self-regulation does not 35

To be known as the Resolution of 6 November 1995 Relating to the Conduct of Members. H.C. Deb., 6 November 1995, vol. 265, col. 681. See H.C. Ocial Report vol. 282, 24 July 1996, col. 392; Third Report from the Committee on Standards and Privileges, The Code of Conduct and the guide to the Rules Relating to the Conduct of Members, H.C. Paper (1995±96) 604. 38 Cabinet Oce, 1994. 39 The Code is to be found at Annex A, para 4.1 of the Civil Service Management Code (1996) issued under the Civil Service Order in Council 1995, art. 10(b); the text is set out at 566 HL Ocial Report (5th series) 30 October 1995, written answers, cols. 146±8. 36 37


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operate. Codes also regulate appointments to Quangos, and the taking of employment by former ministers. The new rules inevitably reduced the incomes of MPs who had been relying on consultancy arrangements to top up their parliamentary salaries. Thus the reforms put the question of MPs' pay on the agenda.40 In July 1996 the House voted to increase the salaries of MPs substantially. As from 1 July 1996 the annual salary was set at £43,000 (plus secretarial and other allowances). As from 1 April 1997 it is to be linked to senior civil service pay.41 To summarize the present position, the two Houses continue to determine and regulate their own standards of conduct, but these have been clari®ed and codi®ed; procedures for declaration and registration of interests have been improved, procedures for monitoring standards have been made fairer and more eective, a semi-independent element has been introduced in the Commissioner for Standards, and the substantive rules are stricter than they were. Paid advocacy is prohibited in formal matters (though not in informal contacts, for instance) and the purchase of access to ministers and civil servants via an MP is also prohibited. While there is no prohibition on entering into contracts, only on acting as an MP for consideration, contracts must be deposited with the Parliamentary Commissioner for Standards.42 The courts are still not involved. These measures are designed both to prevent corruption in the sense of interference with the exercise of judgment by MPs, and to combat other forms of misconduct such as failure to disclose or register interests and entering into relationships which expose MPs to con¯icts of interest which could in due course compromise their independent judgment. In sum an eclectic approach, still based on self-regulation and ownership by the House of Commons, has been adopted, combining clari®cation of the rules, the prohibition of certain types of activity and relationships, improved monitoring and increased transparency. The new stricter regime for controlling standards in the House of Commons is still settling down. A major problem is the lack of clarity in the revised rules about the duty to register interests (the ®rst register since Nolan was published on 3 April 1996)43 but the position is being clari®ed on a case by case basis as complaints are dealt with by the Commissioner.44 Some MPs claim that outside 40 For an economic analysis see T. C. Daintith `Regulating the market for MPs' services' [1996] Public Law 179, at p. 186. The remuneration of MPs was referred to the Senior Salaries Review Body, which reported in June 1996: Cm 3330 (1996). See H.C. Deb., Vol. 271, written answers, cols. 101±2, February 6, 1996. 41 See 281 HC Ocial Report (6th series), 10 July 1996, col. 533. The previous salary had been £34,500. 42 See T. C. Daintith, note 40 supra, at p. 180. 43 Register of Members' Interests, 1996 edition, HC Paper (1995±96) 345. 44 The Parliamentary Commissioner for Standards and the Committee for Standards and Privileges have investigated and reported on a number of complaints about failures to register interests. For instance, in the Complaint against Marjorie Mowlam (H.C. Paper (1995±96) 636) the Committee accepted the Parliamentary Commissioner for Standards' ®nding that although there had not been a breach of the letter of the rules, the spirit of the rules would have been better served by disclosure of the source of funding. The MP accepted the ®ndings and oered her apologies to the House. In the Complaint against Dr Charles Goodson-Wickes (HC Paper (1995±96) 679) the Committee accepted the Parliamentary Commissioner for Standards' ®nding that the present obligation to declare interests on written notices was not wholly understood by Members, but that the MP should have declared an interest. The MP disagreed with the conclusion, but agreed to abide by it. In the Complaint against Mr Jonathan Aitken (HC Paper (1995±96) 243) the Committee accepted the Commissioner's ®nding that there had been a breach of the 1990 Rules on the Registration of Interests, and recommended that the House accept the MP's apology.


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activities for which they receive payment do not involve the provision of services in their capacity as MPs and so have not deposited them. Sometimes they are challenged on this. The Register of Interests is `to provide information of any pecuniary interest or other material bene®t which a Member receives which might reasonably be thought by others to in¯uence his or her actions, speeches or votes in Parliament, or actions taken in his or her capacity as a Member of Parliament'. This de®nition leaves scope for disagreement about the duty to register. Some MPs object to having to disclose more information than hitherto on grounds of privacy. The Hamilton, Willetts and Mitchell Aairs ± some Lessons about Self-regulation In the Autumn of 1996 the House of Commons Committee for Standards and Privileges and the Parliamentary Commissioner for Standards returned to the investigation of matters which had arisen before the implementation of the Nolan reforms. We can draw some lessons for the conditions in which parliamentary self-regulation can or cannot be eective from these events. The story starts in 1994 when The Guardian newspaper published allegations that Neil Hamilton MP, a trade minister at the time, had accepted unregistered payments. This allegation was one of a number made against various MPs at that time and was part of the background to the appointment of the Nolan Committee. The allegation was referred to the Select Committee on Members' Interests by the House of Commons, as part of the complaint was that Hamilton had not registered the payment as would have been required by the rules on registration of interests. Hamilton resigned as a minister. By convention all select committees in the House of Commons have a majority of members on the government side of the House. No distinction is made in this respect between committees concerned with regulating standards of conduct in the House, and others, although it might be thought that investigations of allegations about standards of conduct ought to be conducted free from party political pressure and in an impartial manner, not only to protect the interests of parties against whom allegations are made, but also to secure that the regulation of standards is not tainted by considerations of political advantage. The fact that the party aliations of members of these self-regulatory select committees are taken into account seems to imply that the members of these committees may legitimately take party advantage into account in their work on the committees. If this is in fact the rationale for the rule, then public con®dence in the self-regulation system is bound to be undermined and there will be an almost complete lack of the separation and independence from aected interests that a good system of self-regulation requires. At about the same time as the matter was referred to the select committee Hamilton (and Ian Greer, who owned a consultancy ®rm through which, it was alleged, Hamilton had received payments) commenced libel proceedings against The Guardian newspaper. The Members' Interests Committee decided to defer investigation of the complaint pending the determination of the libel action. The allegation was embarrassing to the Conservative government at the time, and it was in their interests to minimize the damage done to their reputation by the investigation and its outcome. In the event the libel action was abandoned in the Autumn of 1996 ± another story, to which we shall return shortly ± and the # Political Studies Association, 1997

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Parliamentary Commissioner for Standards then recommenced the investigation of the allegations. In the course of the discovery of documents in preparation for the abortive libel action a handwritten note by Mr David Willetts MP, a Conservative whip at that time, was disclosed. This note revealed that a conversation had taken place on 20 October 1994, at the time when the Select Committee on Members Interests was investigating the allegation against Hamilton, between the chairman of the Committee (a distinguished and senior Conservative backbencher, Sir Georey Johnson Smith) and Mr Willetts which, it was found in due course, represented an attempt by Mr Willetts to in¯uence the investigation by the Committee by advising them to stop the investigation because the matter was sub judice. Another approach that had been considered by Willetts was to advise the Committee to investigate the matter quickly, èxploiting good Tory majority' ± the implication being that the Conservative majority of members of the committee would act in a politically partisan way and see to it that Hamilton was cleared. This clearly raised question-marks over the integrity of the exercise by the House of its self-regulation, its corporate commitment to upholding standards, and the extent to which it was appropriate for this system to be manipulated by the political parties in their own interests. When Willetts' note revealing his conversation with Sir Georey Johnson Smith came to light in 1996, just before the libel action was withdrawn, the matter was referred to the new Committee for Standards and Privileges as a complaint of alleged improper pressure brought to bear by Willetts on the Select Committee on Members' Interests in 1994. The Standards and Privileges Committee found that Willetts, a party whip, ought not to have discussed the work of the Members' Interests Committee with its Chairman nor raised a matter critical to the future deliberations of the Committee with its chair. But they felt there was no clear evidence that Willetts set out to in¯uence the Chairman or that he succeeded in doing so; he did, however, take the opportunity during the conversation to in¯uence the Chairman by reinforcing his inclination to stop the inquiry. They also found that Sir Georey Johnson Smith ought not to have participated in such a discussion, and that the conversation went beyond what should properly have taken place. The Committee were also concerned that Willetts had `dissembled' in giving evidence to them and they indicated that in future they would take evidence on oath ± a truly damning conclusion indicating a breakdown in the trust that usually exists between MPs in these matters.45 On publication of the Committee's report in December 1996 Willetts resigned from his government post as Paymaster General. This story reveals a serious lack of appreciation in the House of Commons of the importance of maintaining independence from the government and party interests when exercising its self-regulatory functions. A system of selfregulation can only be eective if it is clearly understood by the participants that it is supposed to be operated in the public interest and not in the partisan interests of any of the parties. This much was recognized explicitly by Mr Andrew Miller MP, who submitted a memorandum to the committee with the comment: Ì do think there is a signi®cant dierence between the whips 45 First Report of the Committee on Standards and Privileges, Complaint of Alleged Improper Pressure Brought to Bear on the Select Committee on Members' Interests in 1994, HC Paper (1996± 97) 88.


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facilitating the day to day passage of Government business and them interfering in the self-regulatory mechanisms which currently govern our activities'.46 But it is not generally articulated in this way. Self-regulation cannot be eective in an institution which has been captured by interested parties. The `Chinese walls' on which self-regulation must rely are too permeable in the House of Commons. During the course of the Standards and Privileges Committee's investigation of the Willetts aair it was drawn to their attention that another government whip, Andrew Mitchell, had actually been an in¯uential and active member of the Members' Interests Committee at the time of its investigations into the Hamilton aair, had had discussions about registration rules with the Registrar of Members Interests, and had written a note to the chief whip about a newspaper article about Hamilton. He was summoned to appear before the new Committee on Standards and Privileges in January 1997 to explain why he had acted in this way, apparently combining his roles as whip and member of the Committee. His explanation, which was accepted by the Committee, was that he was separating his activities as a whip from those as a member of the Committee by treating what took place in the Committee as con®dential. In the upshot the Committee exonerated him but recommended that the House should never in future appoint a whip of one of the main parties to any `quasi-judicial' Select Committee.47 The appointment of a whip to such a committee is another example of the absence of proper Chinese walls in the Commons at that time. The full truth about the allegations that Hamilton had accepted money in relation to his parliamentary activities, and that he had failed to register the payment (not that registering such a payment would nowadays necessarily make accepting it legitimate) had not emerged at the time of writing (April 1997). The Parliamentary Commissioner for Standards had spent time devising fair procedures for the investigation with the assistance of leading counsel in the Autumn of 1996. He had reportedly48 hoped to write his report to the Committee for Standards and Privileges over the Christmas break, but delays prevented him from interviewing some of the twenty-®ve MPs who were alleged to have accepted cash for asking questions, and in particular from examining Hamilton and Greer as he wished, and so he was unable to complete his report before the dissolution of Parliament prior to the 1 May general election. Completion of his inquiry and authorization of publication of his report were further delayed after the election as the Committee on Standards and Privileges (and other committees) could not be reconstituted until after the Conservatives had elected a new leader who could form a Shadow Cabinet. Membership of Committees depends in part on whether an MP is a backbencher and is largely determined by party whips. In the 1997 general election campaign `sleaze' was a recurring issue. Neil Hamilton stood as the Conservative candidate in his constituency of Tatton, and the Labour and Liberal Democrat candidates agreed to stand down to allow an 46 First Report of the Committee on Standards and Privileges, Complaint of Alleged Improper Pressure Brought to Bear on the Select Committee on Members' Interests in 1994, HC Paper (1996± 97) 88, Appendix 2, p. 58. 47 Third Report of the Committee on Standards and Privileges Complaint of Alleged Improper Pressure Brought to Bear on the Select Committee on Members' Interests in 1994 [Further Report] HC Paper (1996-97) 226. 48 The Times, 30 December 1996.


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independent ànti-sleaze' candidate, Martin Bell, to stand against Hamilton. In the event, Hamilton lost what had been the ®fth safest Conservative seat ± in which he previously enjoyed a majority of 22,365 ± by some 11,077 votes, a remarkable result notwithstanding the overall Labour landslide. A Footnote to the Hamilton Aair ± Amendment of the Bill of Rights of 1689 When Hamilton commenced his libel action against The Guardian newspaper, the defendants successfully applied to the court to have the action struck out on the ground that in order to defend it properly they would need to rely on evidence of Hamilton's conduct in the Commons, which was precluded by the terms of Article Nine of the Bill of Rights of 1689 and the rules of parliamentary privilege that were outlined earlier. There was a sense in the House of Commons ± and in the Lords ± that this was unfair as it meant that Hamilton could not clear his name of these serious allegations in the courts. Lord Homann, a Law Lord, proposed the insertion of a new clause in the Defamation Bill that was then passing through Parliament, which permitted a Member of Parliament to waive Article Nine of the Bill of Rights to enable him to bring a defamation action. Lord Homann was neutral about the desirability of such a change in the law as his amendment proposed. This is now section 13 of the Defamation Act 1996. In the event, as we have seen, Hamilton abandoned his libel action and hence did not need to rely on the new provision. But the measure had been hastily introduced in response to a perceived injustice, it was ill-thought out and leaves unresolved a number of problems, should it ever be used. In fact it has been suggested that the provision was unnecessary as the authority on which the judge relied when striking out Hamilton's libel action was a Privy Council case from New Zealand, Prebble v. Television New Zealand,49 which may have been distinguishable in the Hamilton case. Be that as it may, the section became law largely for the bene®t of Hamilton in his, later abandoned, civil action. The willingness of the two Houses to legislate contrary to the long established Article Nine of the Bill of Rights without proper full consideration of the implications, for the bene®t of a particular member does not, it is suggested, re¯ect well on their sense of responsibility in exercising their legislative powers and their self-regulatory functions. Summary and Conclusions It is fundamental to British constitutional theory relating to the standards of Members of the British Parliament that they should exercise independent judgment for which they are accountable to the electorate in the public interest. They should not compromise that judgment and independence in their relations with others. In eect the core meaning of political corruption, I suggest, is interference with the independence of judgment of those exercising public functions, or failure by public bodies so to exercise their judgment. In this sense there has been a problem of political corruption in the British Parliament for a number of years. 49 [1994] 3 All ER 407, P.C. See G. Marshall Ìmpugning parliamentary impunity' [1994] Public Law 509; A. Sharland and I. Loveland `The Defamation Act 1996 and Political Libels' [1997] Public Law 113.


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The system of parliamentary self-regulation has come under severe pressure in recent years as scandals have erupted involving dubious conduct, sometimes amounting to corruption, sometimes lesser forms of slackness, ethical lassitude and sleaze by Members of Parliament. It was largely because of pressure from the press and the opposition parties, together with the impeccable independence, expertise and integrity of the Nolan Committee and its promise to revisit the position in Parliament in due course, that all of that Committee's recommendations for de®ning and upholding standards of conduct in the House of Commons were implemented. Without such external pressure, it is suggested, the government and vested interests in Parliament would have refused to accept that problems of corruption and slackness existed, and no steps would have been taken to resolve the matter. This highlights the importance to the eectiveness of the system of self-regulation of external involvement, responsiveness to change and eective public accountability. The status, respect and self-respect that derives from the right to regulate themselves remain important to MPs and this consideration added to pressure to reform from within, the desire being to avoid having reform imposed from outside. But if the level of corruption and other forms of misconduct in Parliament had been more serious, established and widespread than they were, those who were implicated might have been able to prevent reforms which were bound to mean that they had to forego the advantages that ¯owed from their relationships with outside bodies. To return to the conditions in which self-regulation is most eective it will be seen that the established mechanisms for self-regulation in the British Parliament, until the recent reforms, fell short of requirements. There was no external involvement and no separation from aected interests; standards and principles were not clear; sanctions were not often imposed; the system had not changed for years ± it had not responded to public concern about standards, the growth in the provision of consultancy and advocacy services by MPs, nor to the fact that part of the threat to the independence of the Commons came from within the House in the whip system and executive dominance; and public accountability was not eective. The post-Nolan reforms have introduced a degree of external involvement through the continued existence of the Committee on Standards in Public Life and semi-independent involvement of the Parliamentary Commissioner for Standards in the system of self-regulation; standards and principles have been clari®ed and a mechanism has been put in place for continued clari®cation as problems arise in future; the system has responded to changed conditions. However, public con®dence in the system cannot be taken for granted ± as the general election of 1997 shows ± and it will have to be earned by the Commons as it deals with current and future complaints about conduct; it is far from clear that the House will be willing to impose severe sanctions to stress the need to maintain high standards; it is doubtful whether the Commons will continue to be responsive to changing expectations and circumstances, unless the Committee on Standards in Public Life is kept in being permanently; and public accountability is weak. The eectiveness of the reformed system now operating in the House of Commons depends on recognition by MPs of the importance of Chinese walls separating the political from the self-regulatory and quasi-judicial activities of the House of Commons. Party whips and front benchers on all sides need to accept this fact. Its importance is by no means appreciated by many members of # Political Studies Association, 1997

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the House. Indeed, there is not a strong sense of its corporate rights and responsibilities in the House when faced with con¯icting loyalties to party or to outside bodies. Unless, however, the House is able to construct and respect appropriate Chinese walls, its ability to de®ne and enforce its own standards will be called in question again and there will be pressure to subject it to control by independent external bodies. It is too early to know whether the Nolan reforms have settled for good the issues both of de®nition of the standards and their enforcement. But the scandals which led to the appointment of the Nolan Committee and that Committee's continued existence should serve to keep in the minds of the public, the press and parliamentary actors the importance of making selfregulation work eectively ± which most parliamentarians would wish ± if external regulation is not to be imposed.



The European Union: Pooled Sovereignty, Divided Accountability JOHN PETERSON Introduction Viewers of the 1992 Olympic games in Albertville and Barcelona may have been impressed at the extent to which the European Union (EU) ± its ¯ag, anthem and symbols ± were featured alongside those of the host nations, France and Spain. Surely, few European taxpayers were aware that the EU had paid for a third of the cost of the opening ceremony at Albertville and nearly half of Barcelona's. Probably even fewer ever knew that the European Commission was later condemned by the Union's ®nancial watchdog, the Court of Auditors, for spending EU funds on the Olympics when `the idea of dual loyalty on the part of athletes and of using the Community ¯ag when medals were being awarded came to nothing'.1 The incident was a microcosm of the problems of blurred accountability for what the EU does and spends. It highlighted the tendency for Union funds to be used for dubious purposes when it saves Member States money, the Commission's inattention to the details of new schemes which appear to further European integration, and the Court of Auditors' (CoA) constant snapping at the heels of other EU institutions. The CoA's annual audits of EU spending usually underline the point that EU funds are not wasted through accidents or corruption very often. Rather, the problem lies in rules which are poorly-drawn, the o-hand attitude of Member States to compliance, and weak central controls over revenue and expenditure. It is not coincidental that estimates of how much of the EU budget is wasted are wildly speculative and unreliable.2 The Union is caught in a vicious circle: it is impossible to know what resources are needed to combat fraud because it is unclear how much fraud exists. Disagreements about the scale of the problem are a convenient obstacle to doing anything about it.3 I am grateful to Clare McManus and Ricardo GoÂmez for research assistance and to Elizabeth Bomberg, Anthony Comfort, Paul Heywood, Heikki Oksanen and (especially) Michael Shackleton for useful comments on earlier drafts. Thanks also are due to the numerous interviewees who gave generously of their time during the preparation of this paper. A wider project into EU decision making from which this paper emerged was supported by ESRC grant ROOO235829. Most of the research for this paper was conducted during my residence as Visiting Research Fellow at the Centre for European Policy Studies, Brussels in autumn 1995. 1 European Court of Auditors, Annual Report concerning the ®nancial year 1992, Ocial Journal C309, p. 276, November (1993). 2 The Court of Auditors generally estimated a global ®gure in the mid-1990s of between two and 10 per cent of the total EU budget. See also D. Ruimschotel `The EC budget: ten per cent fraud? A policy analysis approach', Journal of Common Market Studies, 32 (1994), 319±42. 3 N. Tutt, Europe on a Fiddle (London, Croom Helm, 1989).


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In contrast to the `democratic de®cit' 4 or `transparency',5 fraud and corruption in EU governance have attracted relatively little academic attention. It is dicult to resist the conclusion that a conspiracy of silence between practitioners and analysts has, until recently, allowed the rot to sprout unfettered. Recent eorts to clamp down on EU fraud seem a frantic, emergency response both to new populist doubts about the Èuropean project' and a comprehensive review of the EU's ®nancial arrangements prior to negotiations on a new 5-year `®nancial perspective' for funding the Union after 1999. This paper advances four essential arguments. First, if corruption is de®ned as `behaviour by a public servant, whether elected or appointed, which involves a deviation from his or her formal duties because of reasons of personal gain',6 the EU is a relatively `clean' and corruption-free system of government. Second, waste and fraud are rife and intractable: they are natural eects of the way in which Member States have pooled sovereignty but not accountability, thus keeping the top `tier' in EU governance weak while making national executives less answerable for what they do. Third, fraud will remain endemic to the EU as long as those actors with the strongest interest in eliminating it are not given greater powers. Fourth, the most pernicious eect of the communautaire political culture which characterizes EU decision making is not the excesses of its central institutions, as considerable as they are. Far more damaging is the Union's uncritical acceptance of the sanctity of national customs and practices, which often condone or even promote waste, fraud and ineciency. Sovereignty, Accountability and the EU De®ning ÈU fraud' means navigating very murky waters. The very ®rst annual report of the European Court of Auditors insisted: We should be clear what is meant by fraud. It has been de®ned as criminal deception, the use of false representations to gain an unjust advantage. In the Community context it is the deliberate misappropriation of money or goods, inevitably involving breaking the law or the relevant rules and instructions of the organization concerned . . . But actions which remain within the law cannot be considered to be fraudulent.7

This de®nition was soon found to be wholly inadequate by the CoA itself, which rarely has used the term `fraud', referring instead to ìrregularities'.8 EU fraud and irregularities generally are not subjects of Community law. A 4 S. S. Andersen and K. A. Eliassen (eds), The European Union: How Democratic Is It? (London, Sage, 1996); M. Newman, Democracy, Sovereignty and the European Union (London, Hurst, 1996). 5 J. Peterson, `Playing the transparency game: policy making and consultation in the European Commission', Public Administration, 73 (1995), 473±92; A. McLaughlin and J. Greenwood, `The management of interest representation in the European Union', Journal of Common Market Studies, 33 (1995), 143±56. 6 J. LaPalombara, `Structural and institutional aspects of corruption', Social Research, 61 (1994), p. 328 (italics in original). 7 European Court of Auditors, Annual Report concerning the ®nancial year 1977, Ocial Journal C313/8 (1978). 8 C. Kok, `The Court of Auditors in the European Communities: ``the other European court in Luxembourg'' ', Common Market Law Review, 26 (1989), p. 360.


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minority of Member States treat EU fraud as a criminal oence. Thus, the same `fraudulent' behaviour is often a crime in one Member State but not in another, or not the same kind of crime in each.9 The present analysis thus seeks to shed light on a highly ambiguous `corner' of EU governance. It focuses mainly on fraud, de®ned broadly as improper or dishonest behaviour leading to the use of EU resources for unforeseen or unintended purposes, whether or not the behaviour is `legal'. This focus is justi®ed because fraud is the primary source of the Union's popular image as a bastion of `corruption'. The intractability of EU fraud stems, above all, from the way in which Member States have pooled sovereignty, or the supreme power to make laws, at the level of the Union, without pooling accountability, or eective power to control public activities, at the same level. Thinking comparatively, executive and legislative powers are fused in most national systems of government in Europe. In contrast, executive and legislative powers are not only separated at the EU level (i.e. the Commission proposes and the Council of Ministers legislates), they also are shared by multiple institutions and levels of government. For example, although the European Commission often is described as the Union's èxecutive', most EU policies are implemented or èxecuted' by Member States, which are responsible for spending about 80 per cent of the EU's annual budget of approximately 85 billion ECU. In most national systems, governments are accountable to parliaments and, ultimately, to voters. In EU governance, the Commission is, in important respects, accountable to the European Parliament (EP). National ministers who serve on the Council are responsible to their national parliaments. Thus, accountability is fragmented in EU governance with few clear hierarchies or straight lines of answerability. It might be argued that the EU more closely resembles a federal system, in which powers are divided between a ùnion' and its constituent states, as opposed to a parliamentary system. In federal systems, dierent levels of government often are responsible for spending or regulatory decisions which have implications beyond the immediate area which they govern. Overlapping or divided accountability is the norm. However, in federal systems such as Germany or the United States, central institutions generally possess strong powers of oversight and control. In comparison, the EU has uniquely feeble `federal' institutions.10 The weakness of the Union's central institutions contributes to a `pathology of non-compliance' 11 which plagues EU governance more generally. The Commission has few means to ensure that Member States do not sign up to policies which they have no intention or capability of obeying or implementing. Non-compliance is abetted by the `package deals' which dominate EU decision making, and encourage vague or complex legislation. Compliance often is dicult for the Commission or European Court of Justice (ECJ) to judge in any systematic way. Sometimes, non-compliance may be deliberate: governments 9 A. Sherlock and C. Harding, `Controlling fraud within the European Community', European Law Review, 16 (1991), 21±2. 10 I am grateful to Anthony Comfort for suggesting this point to me. 11 See J. Weiler, `The White Paper and the Application of Community Law' in R. Bieber, R. Dehousse, J. Pinder and J. Weiler (eds), One European Market? (Baden-Baden, Nomos, 1988).


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will `stand up to Brussels' if bene®ts accrue to them in party political, electoral or interest group terms.12 In this context, any discussion of fraud or corruption in EU governance must consider carefully the role of the Commission. The Commission retains important powers, above all the right to initiate Community legislation and thus design measures to ensure compliance with EU rules. Member States place a very high value on their right to appoint a Commissioner, despite the òath of neutrality' that all must take. Several smaller states (such as Denmark13 and Sweden) have made it clear that they are not prepared to give up this privilege as the EU enlarges. Yet, national governments often nominate individuals who are deemed to be expendable or in need of being sent abroad. A good example was Denmark's 1995 appointment of Ritt Bjerregaard to the Commission. Previously, she had survived revelations that she had rented a suite in Paris at the Hotel Ritz (while acting as Minister of Education in the early 1980s) and then ®ddled her housing allowance 10 years later.14 A Danish insider noted that `she had a very good Danish general election in 1994 and wanted to be Foreign Minister. But she is not a team player, although a strong politician, and her own [Social Democratic] party wanted to get rid of her'.15 After being sent to Brussels, Bjerregaard did not break character. She stopped accepting payment for writing a Danish newspaper column only under considerable pressure, and then violated convention by allowing her diaries of life in the Commission to be published in the Danish press. The point is that Brussels often acts as a dustbin for national politicians who cannot be tolerated at home for one reason or another, in¯ated self-importance and lack of scruples being two of them. More generally, although it operates on the basis of collective responsibility, it is often hard to see what binds the Commission together, given its members' lack of common nationality, party loyalty or ideology. Moreover, the Commission is highly fragmented as an institution. The gap is wide between its administrative `services', or policy-concerned Directorates General (DGs), on one hand and the college of (now 20) Commissioners and their personal advisers, or cabinets on the other. Divisions and jealousies are rife even within the services, which often compete with each other for control of the policy agenda. More generally, the Commission is a uniquely multicultural bureaucracy, which must somehow accommodate 15 dierent administrative traditions, and work in 11 languages. It is subject to spoils-sharing between Member States, who operate an informal system of armative action to ensure that all nationalities are èqually' represented. Yet, despite these caveats, the Commission is a remarkably pro®cient bureaucracy. Its entrance examinations are notoriously dicult and procedures for recruitment highly selective. Its members are held to a high professional 12 M. Mendrinou, `Non-compliance and the European Commission's role in integration', Journal of European Public Policy, 3 (1996), p. 6. 13 See The Danish Government's `White Paper' entitled Basis for Negotiation: an Open Europe ± Intergovernmental Conference 1996 (Copenhagen, Ministry of Foreign Aairs, 11 December 1995). 14 J. Grùnnegaard Christensen, `Better than their reputation? Danish politicians and the absence of sleaze', Parliamentary Aairs, 48 (1995), 650±62. 15 Interview, Danish Folketing, Copenhagen, 5 January 1996.


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standard mostly through socialization and informal peer scrutiny.16 Asked what surprised him most about the Commission, a close adviser to Jacques Santer, its post-1995 President, replied: `How well it works! You probably have more intelligent people in this administration than any other administration in Europe: people with imagination and a variety of skills . . . Given that the amount of things that we decide and manage is enormous, it is basically an administration that works'.17 Three factors help explain the relative absence of corruption in the Commission. First, both the Commission's and the Community's budget are quite small. The Commission employs between 5000 and 6000 À' level ocials, who could be considered actual policy makers, or about as many as the Scottish Oce.18 The Commission directly spends only one-®fth of the EU's budget, which itself accounts for only about 2.5 percent of all public spending in the Union. Thus, a relatively small amount of money actually passes through the hands of the Commission, which is too small an administration for corrupt ocials to hide from close scrutiny by their peers very often. Second, the number of hurdles that must be jumped before Community funds can be spent by the Commission is daunting. The Commission often is criticized for being slow and bureaucratic, but often these maladies arise from the dizzying number of checks and signatures which are required before funds can be released. Even funds for a comparatively tiny research grant ± of £3500 or less ± may require a signature from the Commission President himself before they may be discharged.19 Third, all EU spending is subject to the careful scrutiny of the Court of Auditors. The CoA does not hesitate to ¯ag cases where relatively small amounts of money are wasted if the case will attract attention, embarrass those who are guilty, and deter similar future acts. For example, ocials in DG VIII (Development) found themselves singled out in the 1995 CoA report for renting (at Commission expense) two cars for two weeks before and four days after a seminar in Mauritius without justi®cation.20 Certainly, fragmented accountability creates ample opportunities for smallscale corruption, such as the ®ddling of expense accounts. However, serious steps have been taken to clamp down on the `®ddle culture' in recent years. A high pro®le case involving corrupt practices by two ocials in the Commission's tourism unit led to their dismissal and criminal prosecutions in 1995±6. The case was highlighted by Santer and his cabinet as an example of the new President's determination to improve the management of the Commission. All told, very few Commission ocials have ever been charged with corruption, as opposed to oences such as forgery or fraud in recruitment. Before the tourism case, the most recent case of criminal proceedings against a Commission ocial had been in 1990 when a fonctionnnaire was convicted of corruption in placing orders for oce supplies. In 1993, the Commission 16 See I. Bellier, Ùne culture de la Commission EuropeÂenne?', in Y. MeÂny, P. Muller and J.-L. Quermonne (eds), Politiques Publiques en Europe (Paris, L'Harmattan, 1995). 17 Interview, Brussels, 6 November 1995. 18 Figures on funded Commission posts are published annually in the Community budget. See also N. Nugent, The Government and Politics of the European Union (Basingstoke, Macmillan, 3rd ed., 1994), pp. 89±90. 19 See Peterson, `Playing the transparency game', p. 475. 20 European Voice, 12±18 October 1995.


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investigated 18 cases of misconduct, only one of which involved actual corruption.21 The wider point is that corruption is a far less endemic, expensive and serious problem for the EU compared with fraud. EU fraud is fertilized by a cultural bias which favours increased spending without adequate controls. The dearth of the Commission's resources, compared to its considerable policy responsibilities, helps explain this bias. The Commission instinctually seeks more powerful policy tools which can help it accomplish its objectives and which further European integration. The very small size of the EU's budget means that the vast majority of Union activities are regulatory, and not ®scal, in nature. At the same time, however, the overall eect of the EU's development has been deregulatory, and `the combined eect of market integration and power fragmentation is to make government intervention more dicult'.22 The considerable time and eort involved in convincing Member States to pool their eorts or allow the EU to intervene in new areas often means that the Commission pays little attention to policy content, ensuring adequate resources or designing adequate mechanisms for measuring the success of new policies. For example, the CoA described much humanitarian aid to Russia in 1992 ± including shipments of rapeseed for which there was no demand in Russia ± as ùnnecessary and inappropriate'. In this area, as in others, the Commission is not short of justi®cations for EU action. Virtually any aid to Russia may be viewed as establishing the EU as a partner in Russia's economic and political reforms. Yet, aid to Russia highlights several pathologies which lead to waste in EU spending. Member States often appear content to `throw money' at overseas development using EU funds while avoiding, on almost theological grounds, any increase in the Commission's personnel or administrative resources. Thus, the units of the Commission responsible for the TACIS (Technical Assistance for the Commonwealth of Independent States) programme are woefully underresourced and heavily reliant on private consultants for the delivery of large amounts of aid. One ocial working on TACIS suggested that the Commission had been given à lot of autonomy due to the political impetus behind help for Russia . . . But the Commission has a scary amount of responsibility for distributing lots of money [without having] enough resources'.23 The problem was illustrated in 1996 when the Commission's envoy to Moscow, Michael Emerson, resigned amidst allegations that TACIS funds had been used to prepare his own outside business activities. Although an internal investigation found that Emerson's behaviour was `not in conformity with strict ethics', many ocials stressed the Commission's general inability to control the spending of EU money in Russia, particularly given the pervasiveness of 21 A total of 37 internal disciplinary proceedings in 1994±5 led to the dismissal of three ocials and disciplinary measures against nine. In all cases, internal Commission procedures involve an administrative inquiry, a disciplinary board and then action by the Commission itself or the Director-General for personnel. See R. Watson, Òcials face trial over tourism fraud', European Voice, 11±17 January 1996, p. 4; R. Watson, `Report highlights erratic sta disciplinary policy', European Voice, 21±27 March 1996, p. 1. 22 R. Dehousse, Ìntegration v. regulation? On the dynamics of regulation in the European Community', Journal of Common Market Studies, 30 (1992), p. 399. See also G. Majone, `Regulating Europe: problems and prospects', Jahrbuch zur Staats- und Verwaltungswisssenschaft, 3 (1989), 159±77. 23 Interview, DG I, 21 March 1994.


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organized crime in the country. Regardless, the seriousness with which the Emerson case was pursued gave clear evidence of `how much more vigilant than its predecessors is the Santer Commission in tracking down possible abuse of funds'.24 Post-Maastricht: Cleaning up the Act The freeing of the single market considerably expanded opportunities for fraud. For example, fraud cases involving the origin of goods (i.e. `foreign' products being marked as EU products) accounted for about 30 per cent of all reported cases by the early 1990s.25 Obviously, it became harder to police rules of origin as the volume of goods which crossed borders increased. To a considerable extent, liberalization in the EU unleashed market pressures which threatened to overwhelm existing public institutions. One response was the inclusion of a new Article (209a) in the Maastricht Treaty. It obliged Member States `to take the same measures to counter fraud aecting the ®nancial interests of the Community as they take to counter fraud aecting their own ®nancial instruments'. The Commission took new steps such as setting up a free, 24-hour anti-fraud hotline, which handled more than 4000 calls per year by the mid-1990s and led to the uncovering of more than 30 million ECU in fraudulent activities.26 However, Treaty articles and freephone hotlines are token gestures in the absence of increased political and administrative will to tackle fraud. This section examines four factors which have combined to create at least the beginning of a sea change on questions of EU expenditure control: enlargement, an empowered EP, a vitalized Court of Auditors, and the declining budgetary hegemony of the Common Agricultural Policy (CAP). A. Enlargement: Winds of Change in the Commission During the 10-year reign of Jacques Delors, the Commission became an increasingly chaotic bureaucracy, dominated by a President who relied on his own `parallel government' of hand-picked operatives and mostly ignored internal management.27 The ®rst post-Delors Commission, appointed in 1995, was higher in political pro®le than any of its predecessors.28 It also was bigger: the accession of Austria, Finland and Sweden meant that the Commission expanded from 17 to 20 members. With a bigger college, work could be divided amongst Commissioners more ®nely, thus leading to the creation of a new ànti-fraud' portfolio. 24

L. Barber, Èx-EU envoy in misuse of funds inquiry', Financial Times, 15 February 1996, p. 2. M. Mendrinou, Èuropean Community fraud and the politics of institutional development', European Journal of Political Research, 26 (1994), pp. 85±6. 26 European Commission, Protecting the Financial Interests of the Community: the Fight against Fraud (Luxembourg, Oce of the Ocial Publications of the European Communities, 1996). 27 C. Grant, Delors: Inside the House that Jacques Built (London, Nicholas Brealey, 1994); G. Ross, Jacques Delors and European Integration (New York, Polity, 1995); Peterson, `Playing the transparency game'. 28 It included two former Prime Ministers (Santer and Edith Cresson), a near-Prime Minister (Neil Kinnock), and three former Foreign Ministers (Hans van den Broek, JoaÄo de Deus Pinheiro and Marcelino Oreja). 25


566

The European Union

All three new Member States were net contributors to the EU's budget. They adopted the basic agenda of UK and Germany, the largest net contributors, and became part of a strengthened bloc in favour of tighter spending controls. Thus, enlargement not only had the administrative eect of infusing the Commission with Nordics used to working in relatively transparent, open and `clean' bureaucracies, it also strengthened the political impetus behind eorts to eliminate waste and fraud. The Swedish Commissioner, Anita Gradin, was given the new anti-fraud portfolio as part of her wider duties in immigration and judicial aairs. In early 1995, she unveiled a Commission report which indicated that detected fraud had doubled in the previous year. More than half of the total was accounted for by a small number of very large cases, which suggested that the internal market was bene®ting international crime syndicates as much as legitimate traders. Gradin used the opportunity to announce a new anti-fraud Action Plan, which included proposals for spot checks by EU and national inspectors, criminal liability for money-launderers, funding for national anti-fraud units and the screening of new and existing EU laws to ensure that they were fraud-proof. Gradin scored well in the war of resources. The Commission's own internal, anti-fraud squad, UCLAF (UniteÂ de Commission pour la Lutte de Anti-Fraud), was allocated an additional 50 posts. By 1996, it included about 125 members and had incorporated anti-fraud units from across the services into a central oce. UCLAF was run by another Nordic, Per Brix Knudsen, a former Danish customs ocial. After his appointment in 1993, Knudsen built up a team of mostly ex-law enforcement ocials with experience of ®ghting cross-border crime and coping with dierences of language and culture. Gradin's eorts received an important boost from Erkki Liikannen, the Finnish Commissioner responsible for the budget, personnel and administration. A former Finnish Finance Minister, Liikannen tightened the Commission's ®nancial controls and strengthened its internal management, for example by making budgetary checking a more high-status job and strengthening the Commission's internal disciplinary procedures. Perhaps most importantly, Liikannen secured approval from the college for a policy debate to be held each January to determine the Commission's budgetary priorities for the coming year, with speci®c account taken of management and stang needs. The meeting would take place before major, and thus potentially costly, policy decisions were taken. The broader point is that enlargement had the eect of putting fraud and management questions at the top of the Commission's agenda. Santer himself insisted that the post-Delors Commission had to `do less, but do it better'. The Commission's legislative programme for 1996 contained only 19 proposed measures, down from 50 to 70 in the late 1980s. Santer also encouraged Commission ocials to be more conscious of the institution's image as a bastion of perks and huge salaries. Only seasoned observers could fully appreciate how revolutionary was Santer's decision in late 1995 to deny Commission ocials their traditional holiday colis, or hampers of subsidized, cut-price wine, spirits and cigarettes. Yet, the Commission's ability to impose more control over EU expenditure remains strictly limited. Regardless of who presides over the anti-fraud, budget and personnel portfolios, the vast majority of the EU's budget always will be spent at the national and sub-national levels by national and sub-national # Political Studies Association, 1997

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authorities. As a senior ocial in the Commission's Secretariat-General put it, `we have a very small number of people here checking on how funds are spent by an awful lot of people out there'.29 B. The EP's Self-assertiveness The European Parliament's (EP) reputation as the EU's most pro¯igate institution is mostly a product of its peripatetic domestic arrangements. The cost of shuttling MEPs and their stas between Brussels, Strasbourg and Luxembourg costs European taxpayers about 125 million ECU a year, or roughly one-quarter of the EP's total budget. A clear majority of MEPs wish to make Brussels the seat for all of the EP's activities, but Luxembourg and (especially) France have resisted the idea staunchly. Since the early 1980s the EP has used its signi®cant budgetary powers to pester other Union institutions to spend EU funds more eciently and accountably.30 Recently, it has sought to make the reduction of fraud and waste one of its `big issues'. The EP's campaign re¯ects its growing self-assertiveness following the Maastricht Treaty's creation of the new `co-decision' procedure, which gives the EP veto powers and equal status vis-aÁ-vis the Council on measures which fall within its purview.31 The EP's anti-fraud campaign has been three-pronged. First, it has exploited Maastricht's new article 138c, which gives the EP powers to `set up a temporary committee of inquiry to investigate . . . alleged contraventions or maladministration in the implementation of Community law'. The ®rst such inquiry, into transit fraud, was launched in early 1996 largely at the instigation of the British Socialist MEP, John Tomlinson. It focused on the EU's 30 year-old system which allows goods imported from outside its borders to be taxed once (at the ®nal point of destination) but otherwise transported across the borders of the Union without paying taxes or duties. Transit fraud is a mind-numbingly complex, but the scale of the problem has ensured broad support for the EP's work. The EU's transit system involves the issuing of 18 million transit documents and the handling of 432 billion ECU in taxes and duties per year. Fraud is endemic to the system: somewhere between ®ve and 20 per cent of all cigarettes sold in the EU are contraband, with the primary bene®ciary being organized crime. Crucially, transit fraud is a burning issue for national governments and parliaments. As much as 8 billion ECU was lost in the ®ve years after 1990, with three-quarters of the total lost to national exchequers. The EP's initiative was timely: as the Court of Auditors was studying the problem, UCLAF was investigating links between organized crime and the cigarette trade, and panic was spreading at the commitment already made to extend the EU's transit system to Poland, Hungary, the Czech Republic and Slovakia in July 1996. 29

Interview, Brussels, 16 November 1995. For a comprehensible discussion of the arcanum of the EU's budgetary process, see B. Laan and M. Shackleton, `The budget', in H. Wallace and W. Wallace (eds), Policy-Making in the European Union (Oxford, Oxford University Press, 1996). 31 On the co-decision procedure, see R. Corbett, `Representing the people', in A. Du, J. Pinder and R. Pryce (eds) Maastricht and Beyond: Building the European Union (London, Routledge, 1994), pp. 208±12; M. Westlake, The Council of the European Union (London, Cartermills, 1996), pp. 80±2. 30


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The European Union

A second element in the EP's campaign has been the activism of its President (1994±7), Klaus Hansch. At the Essen summit of late 1994, Hansch told European leaders that he would convene a conference of national parliaments to examine ways of cutting down on fraud. Even John Major expressed support for the EP-sponsored conference, although his enthusiasm seemed rather super®cial after the UK vetoed several anti-fraud measures during its period of `noncooperation' in response to an EU ban on exports of British beef in 1996. Third, particularly in wake of l'aaire Emerson, the Parliament pushed the Commission to tighten controls over TACIS and the EU's external delegations more generally. Together with the Court of Auditors, the Parliament criticized TACIS as too centralized in Brussels and too controlled by EU-based consultants. The campaign to get better value from the Commission's foreign delegations was led by the Dutch liberal, Laurens Brinkhorst, who previously had headed the Commission's Tokyo mission. Few could deny that the Commission needed to develop, à more coherent service and an end to the situation where the delegations are empires for Commissioners with regional responsibilities who sit on them like hens on eggs'.32 On one hand, the new austerity imposed on the Commission under Santer was inspired and, in some respects, matched by the EP. The Parliament was instrumental in pushing Commissioners to reveal details of their annual expenses in 1995. MEPs agreed to give up an annual grant of 1000 ECU a year for ìnformation technology' and their travel expenses were frozen at 1994 levels. On the other, the EP's credibility was undermined by several highly damaging gaes in 1995±6. One concerned the EP's new hemicycle in Strasbourg (built in addition to the one completed in 1995 in Brussels). The construction contract negotiated by the EP was declared illegal under Community budget law by the Court of Auditors, while illegal workers reportedly were employed in the hemicycle's construction. Another cause ceÂleÁbre surrounded an anonymous letter sent in 1996 to Diemut Theato, chair of the EP's Budgets committee, by à large number of assistants' to MEPs. The assistants charged that their bosses engaged in a range of shady uses of their research allowances. For example, many apparently paid their assistants with large wads of cash, thus avoiding tax and social security payments.33 A further and particularly embarrassing set-back surrounded the Parliament's attempts to agree codes of conduct to regulate MEPs' outside interests and the activities of lobbyists. The eort to tackle both issues simultaneously was intended to help the EP rid itself of its hapless public image at a time when its powers were increasing. In the words of the vice-president of the EP's Rules Committee, Florus Wijsenbeek (Dutch Liberal), `We said that if we are going to impose rules on outsiders, we should do the same on ourselves'.34 The sponsor of the initiative to regulate lobbying, Glyn Ford (British Socialist), saw his report approved by the Rules Committee (by an 8±2 vote) in September 1995, along with a proposal written by Jean-Thomas Nordmann (French Liberal) on the reporting of members' interests. However, both measures suered from a problem which continued to vex the EP in the 32 33 34

Brinkhorst quoted in European Voice, 18±24 April 1996. R. Watson, Àssistants still critical of controls', European Voice, 3±10 April 1996, p. 8. Quoted in European Voice, 23±29 November 1995.


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post-Maastricht period: a lack of unity within its party groups.35 Both measures languished as Ford and Nordmann (especially the latter) seemed unable to convince their own groups to swing solidly behind the measures. The diculty of agreeing measures on the reporting of interests and gifts is perhaps unsurprising given the diversity of rules governing such issues in national EU parliaments (see Table 1). Liberals of all kinds were sceptical of Nordmann's proposal on ideological grounds, despite his membership of their group, while MEPs from the Basque country and Northern Ireland especially feared that reporting the details of any property they owned could pose threats to their security. After considerable delays, the measures were voted down in early 1996.36 Perhaps the only winner from the episode was John Tomlinson, who launched his own Home Page on the Internet and published his own declaration of interests there.37 However, Tomlinson and several of his colleagues were portrayed in a highly unfavourable light by a British television documentary, entitled The Big Story, which aired in multiple Member States in late 1996. Tomlinson and other MEPs were caught on-camera claiming their (219 ECU) daily allowance for the ®nal day of the EP's plenary session, despite their subsequent failure to turn up for votes. The programme was a severe blow to the Parliament's eort to portray itself as the leader of a crusade to ensure value-for-money in EU spending, as well as an institution which deserved more power in EU governance. C. The `New' Court of Auditors The Court of Auditors (CoA) was created in 1975 not as a `court', but rather as a ®nancial watchdog with a base in Luxembourg. In the early 1990s, as the EU began spending serious money, Member States decided to raise the CoA's pro®le. The Maastricht Treaty made the CoA a `Community institution', which put it on an equal footing with the Commission, EP and Council and guaranteed its independence and resources. Under the Presidency of AndreÂ Middlehoek, an imposing and blunt Dutchman, the CoA sought to maximize the impact of its new legal status. The Court has 15 members (one per Member State) appointed by the Council for a period of six years. Its annual reports audit all Community expenditure. The CoA retains the right to conduct investigations in EU Member States, but it is usually highly reliant on cooperation from national administrations.38 The Court of Auditor's 1994 report39 did much to bring the CoA out of the shadows. The report was scathing of virtually all Member States. For example, it accused Denmark of having no supporting paperwork for more than half of 35 The ®rst failure of a legislative measure under co-decision, on legal protection for biotechnological inventions in March 1996, occurred largely because a large number of Socialist MEPs voted down a compromise text despite a positive recommendation from one of their own members. 36 Eventually, the EP agreed to watered down versions of both measures in July 1996, but without a detailed code of conduct for lobbyists and with rules on declarations of outside interests determined by national legislation in MEPs' Member States. 37 Tomlinson's web site may be accessed on http://www.poptel.org.uk/john.tomlinson/. 38 See Kok, `The Court of Auditors in the European Communities', pp. 345±67. 39 Court of Auditors (1994) Annual Report Concerning the Financial Year 1993, Luxembourg: Ocial Journal of the European Communities, OJ C327, November.


TABLE 1. Reporting Requirements in National Parliaments Member State

Interests to be declared

Existence of public register

Sanctions against violators

Austria

Directorships in banking, commercial, industrial or transport sectors

None

Mandates of members can be withdrawn if misused for ®nancial gain

Belgium

Public and private appointments (paid or unpaid); property

Register may only be consulted with MP's written consent

None

Denmark

Directorships, gifts above 270 ECU, overseas travel, ®nancial interests in companies over 6850 ECU

Declaration of any MP kept private unless they provide written consent to make it public

None

Finland

All shares and property

Full public access to voluntary register

None

France

Paid and unpaid professional activities, property, campaign accounts

Declarations only divulged if member expressly requests it

Failure to ®le a declaration is considered an act of resignation and a member gives up right to ¯at-rate reimbursement of electoral expenses

Germany

Professional activities prior to election, substantial shares in companies, gifts for political purposes, ®nancial interests in areas considered by Bundestag committees

Selected sections of register are published; the rest are con®dential

Public criticism in writing by Bundestag president

Greece

Immovable property, ships and planes, stocks and securities, savings accounts and income in preceding year for member, spouse and children under 18

Register is not public, but contents of members' declarations can be given in reply to a written request

Imprisonment or ®nes and loss of political rights for ®ve years

Ireland

Outside income, shares and directorships, land, political gifts, public contracts, work as paid lobbyist

Details kept in public register

Independent commission and parliamentary select committees may recommend range of sanctions

Italy

Immovable property, shares, directorships, election campaign expenses and copy of most recent tax return

Register may be consulted by any citizen on electoral register

Fines and/or loss of mandate

Luxembourg

None

None

None

Netherlands

Outside public or private work (paid or unpaid) and extra income over 7000 ECU

Full public access to register, but members' entries in it are made voluntarily

None

Portugal

Immovable property, shares, cars, boats, aircraft, high-interest bank accounts, posts in public or private companies, debts

Register can be consulted upon approval by Constitutional Court

Members must resign and are barred from public oce for 1±5 years if they fail to give full account of their interests

Spain

Property, shares, ships, planes, works of art, intellectual rights, professional rights

Information given to written requests, with approval of President of chamber

None

Sweden

Members asked to provide details of shares and outside income in late 1996

Proposal for a voluntary register considered by Parliament

No sanctions envisaged

UK

Paid directorships, ®nancial sponsorships, overseas visits, land, property, shareholdings.

Source: European Parliament

Register is published annually (as from April 1996) and is public

House of Commons disciplines its own members

572

The European Union

its farm expenditure and lambasted Germany for weak farm control procedures. Middlehoek memorably declared `Fraud exists everywhere'.40 The 1994 report was not only the Court's most hard-hitting, but also its most criticized. Fraud, irregularities, mismanagement and maladministration were de®ned loosely in the report with monetary amounts for each lumped together. Many EU insiders charged that a somewhat melodramatic CoA press release contributed to the rejection of Union membership in Norway's referendum of late 1994. Above all, the CoA made a staggering miscalculation in serving Alsatian creÂmant and smoked salmon at a press reception to showcase its 1994 report. Many journalists could not resist the temptation to pillory the Court and thus `Brussels' for such ostentatiousness. Earlier, Middlehoek had campaigned hard to raise the salaries of auditors to bring them into line with those of the (highly-paid) judges of the European Court of Justice. Commenting on the `Middlehoek era', one EP ocial said, Middlehoek was trying to boost his own image and reputation...He took an in¯ated view of the meaning of ÈU institution' when the Court was made one by Maastricht. He annoyed a lot of MEPs because the Treaty says that the discharge of the budget is the responsibility of the EP, not the Court of Auditors. But he wanted a political role for the Court.41

Relations between the CoA and the Commission were no less frosty. In 1993, Delors ®red o a furious letter to Middlehoek accusing him of trying to be a policy maker instead of an auditor. The idea that a ®nancial auditing agency with an ambitious leader could seek a `political role' for itself may seem bizarre, but it was unsurprising to observers of inter-institutional EU politics.42 The CoA's reports in 1995 and 1996 indicated both that meaningful steps had been taken to reduce fraud, and that the CoA had reacted to criticisms of its methods. Its categories were tighter and its language sharper. In 1995, the Court estimated that a higher amount, but lower percentage (7 per cent) of the budget, had been lost through fraud compared to the previous year. The report was greeted with less hostility than had been the case in 1994. The Court's report for 1996 found `many examples' of waste or fraud which were ìdentical or very similar to those reported in previous years', but also conceded that the share of the budget lost to waste or mismanagement continued to fall (to 5.9 per cent).43 The CoA's ®ndings echoed those of a comparative analysis by the Commission of anti-fraud measures taken by Member States in late 1995. The Commission's report revealed serious gaps in the Union's budgetary monitoring system and helped goad EU Finance Ministers into action. The latter adopted the broad outlines of a programme for 1996 that emphasized fraud prevention rather than 40

Quoted in The Economist, 19 November 1994. Interview, EP Socialist Group, 8 December 1995. In 1996, Middlehoek was replaced by Bernhard Friedmann, a perhaps even more overtly political ®gure. Friedmann maintained a close friendship with the German chancellor, Helmut Kohl, close ties to the German Christian Democratic party, and called repeatedly for a reduction in Germany's budgetary contribution. 43 See Europe Information Service, Monthly Report on Europe, November (1996), III.6; European Court of Auditors (1996), Annual Report concerning the ®nancial year 1995, Ocial Journal C340, November. 41 42


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cure.44 By this point, prevention had become the leitmotif of EU anti-fraud eorts generally, in response to the obvious reality that the Union's arsenal of administrative and penal sanctions for fraudsters under various directives and conventions between Member States did not deter fraud very eectively. D. CAP and Fraud Until the late 1980s, agriculture accounted for about two-thirds of Community spending. Even when CAP reform and increased outlays for other policies caused the share to fall, the CAP remained extremely wasteful and riddled with fraud. In 1993 the Court of Auditors reported that the public cost of storing agricultural stocks had reached an astronomical 4.5 billion ECU. It also revealed that 50 million ECU had been spent over ®ve years to subsidize milled rice exports to Reunion, even though the French island supplied more than its own consumption of the product. Under ®erce pressure from its trading partners in 1992, the EU agreed the most sweeping reforms of the CAP since its origins. The measures promised lowered EU subsidies leading to price reductions of nearly 30 per cent for cereals and 15 per cent for beef and poultry products.45 In particular, large reductions were agreed in export subsidies, which are a common source of fraud through `roundabout', or the practice of repeated crossing of frontiers by the same goods. Yet, the reforms of the early 1990s were not intended primarily to reduce fraud or waste. By 1996, the CAP still accounted for about half of total Community spending. Its regimes for fruit and vegetables remained largely untouched, and continued to oer plenty of opportunities for waste. For example, the 1995 CoA report highlighted the case of Greek farmers who grew produce simply to have it taken o the market (and usually then destroyed) in order to receive EU funding. Most cases of Commission maladministration concern the CAP which, in many respects, remains the EU's only truly `common' policy. Yet, the amounts lost in this way are tiny compared to those lost through fraud at the national level. Although most decision making concerning the CAP takes place at the EU level, the CAP is almost entirely implemented by national bodies. The Commission is unlikely ever to have enough monitors to police the CAP and the (nearly 5 million) farmers who bene®t from it. Even so, some of the Commission's new vigilance under the Santer Commission has been applied to the CAP. In 1996, the Commission insisted on a higherthan-usual `clearance of accounts' for detected fraud cases (from 1991 to 1992). A total of nearly 1 billion ECU in ®nes were either levied or made subject to conciliation, with about three-quarters involving four Member States: Italy (a whopping 416 million ECU alone), Spain (206 million ECU), Greece 44 The subsequent evolution of the Sound and Eective Management 2000 programme (SEM 2000) is summarized in European Commission, `SEM 2000: Stage III interim report', Brussels, Secretariat-General Direction C, SEC (96) 1015/2 revised version (1996), 4 July. 45 The MacSharry reforms ± after the Irish Commissioner for Agriculture, Ray MacSharry ± were agreed by EU Agricultural Ministers in 1992. They were a crucial element in the so-called Blair House agreement on agricultural subsidies between the USA and EU, which itself was an essential building block in the ®nal agreement of the Uruguay Round of the General Agreement on Taris and Trade. See J. Peterson, Europe and America: the Prospects for Partnership (London, Routledge, 2nd ed., 1996), pp. 111±15.


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The European Union

(165 million ECU) and Ireland (87 million ECU). Most cases involving large farms appeared to be rooted out by the Commission itself through UCLAF. Liikannen seized upon media coverage of the ®nes by urging that the system of penalties for defrauding the farm budget ± which docks future payments ± could be extended to other areas of EU spending. The CAP remains the single most important source of fraud and waste in EU governance. The problem is mostly one of extreme complexity. Around 400 new sets of provisions are issued every year for the CAP. Until the early 1990s, the beef regime divided the world into 11 dierent zones with dierent rates of export refund for each, and further variances for dierent types of beef (i.e. chilled or frozen).46 The relationship between the CAP and fraud deserves far more extended treatment than is possible here. For the purposes of this analysis, two points are crucial. First, the hegemony of the CAP has waned in recent years, thus reducing the number of opportunities for defrauding the EU. Second, the clash between EU and national competences thus far has made root and branch reform of the CAP unthinkable. However, as a powerful counterpoint, the CAP is unsustainable in the context of eastern enlargement, particularly because Poland is such a large and inecient agricultural producer. In this political context, radical CAP reform is probably more imaginable now than it ever has been. The EU as a `Macrocosm' While the EU is a system of government in its own right, it does not exist in a vacuum. It also is a product ± a `macrocosm' ± of its Member States. Given the recent frequency of serious corruption and fraud at the national level, it is unsurprising that the Union itself has been beset with some of the same problems. At one point in 1994, Volkswagen executives were charged with stealing secrets from General Motors; the chairman of the giant French electrical group, Schneider, was incarcerated in Belgium; the Augusta scandal in Belgium forced the resignation of ®ve senior ®gures in the Flemish Socialist party; the former French Minister and businessman, Bernard Tapie, was indicted for fraud; three Spanish ministers and several senior ocials resigned after a string of corruption scandals; and in Italy, a majority of all members of Parliament were under investigation for corruption or fraud of one kind or another. Italy is responsible for more than half of all the detected fraud in the EU's history.47 In the UK, `sleaze' became shorthand for shady business dealings by politicians, such as selling parliamentary questions. The Nolan committee's guidelines on the reporting of outside interests by members of Parliament (see Table 1) were ¯aunted blatantly by several MPs in May 1996. However, as far as British citizens were concerned, it probably remained true that: few entertain very high expectations of those who occupy major public positions, especially elected ones. A further twist to this scepticism is that the public appears to be less disturbed by unsavoury stories about local government than those involving national political ®gures.48 46

Sherlock and Harding, `Controlling fraud', p. 23. Ruimschotel, `The EC budget', p. 325. 48 T. Smith, `Political sleaze in Britain: causes, concerns and cues', Parliamentary Aairs, 48 (1995), p. 553. 47


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TABLE 2. Business Perceptions of Corruption (1996) 1. New Zealand 2. Denmark 3. Sweden 4. Finland 5. Canada 6. Norway 7. Singapore 8. Switzerland 9. Netherlands 10. Australia 11. Ireland 12. United Kingdom 13. Germany

9.43 9.33 9.08 9.05 8.96 8.87 8.80 8.76 8.71 8.60 8.45 8.44 8.27

16. 19. 20. 21. 22.

Austria France Belgium Chile Portugal

7.59 6.96 6.84 6.80 6.53

28. 30. 31. 32. 33. 34. 35. 36.

Greece Jordan Hungary Spain Turkey Italy Argentina Bolivia

5.01 4.89 4.86 4.31 3.54 3.42 3.41 3.40

Notes: Bold EU Member States. Rankings denote least to most corrupt. Derived from numerous surveys of business people. A score of `10.00' represents a totally corruptionfree country. Source: Transparency International, The Transparency International Corruption Perception Index, Berlin (1996).

The point here, in line with `subsidiarity', is that the more distant the level of government from the citizen, the more citizens are concerned about its capacity to run `cleanly'. The distance of the Union from its citizens, leaving aside its blurred lines of accountability, will probably always make it more suspect as a source of waste compared with national or sub-national governments. However, subsidiarity also acts as a convenient excuse for Member States who do not wish to take meaningful steps at the EU level to eradicate fraud. In this context, two fundamental points arise when the prospects for a future, `cleaner' European Union are considered. First, national cultures, which are generally and jealously guarded in EU politics, dier considerably in the extent to which they condone waste or fraud. The problem is not reducible to a simple clash between Mediterranean laxness and Northern, Protestant rectitude. However, the reported perceptions of international business people (see Table 2) suggest that the EU spans an extraordinarily wide spectrum of national attitudes and practices, at least in terms of corruption. Considerable evidence exists to suggest that the same wide spectrum exists as regards fraud. For example, in the late 1980s, Denmark employed one ®nancial controller per # Political Studies Association, 1997

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The European Union

3 million ECU of Community expenditure, compared with one per 140 million ECU spent in Greece.49 The wider point is that convincing Member States to treat EU expenditure as national expenditure cannot be expected to have much of an impact on EU fraud if cultural norms persist which condone weak or ineective controls over national expenditure. Second, as is the case with most problems of EU governance, little can be solved by the Union's central institutions acting alone. To illustrate the point, even when UCLAF ®nds a clear case of misappropriation of EU funds, it has no powers of arrest. Usually, it can do no more than prepare a case which Member States may (or may not) pursue given their own, distinctive criminal justice system. The Commission (and EP) can harass, cajole and embarrass Member States. But, ultimately, the powerful pressures to reduce public spending, particularly in the run-up to Economic and Monetary Union, and get better value-for-money from what is spent, are more likely to reduce fraud than anything that could be done by the Union's central institutions. EU Fraud and Corruption: Explaining Practice with Theory Eorts to `clean up' EU governance provide interesting raw material for theorybuilding. A plausible theoretical model of EU governance must help answer two questions: Why is corruption generally rare? Why is fraud alarmingly common? The relative absence of corruption may be attributed to high barriers to entry for prospective EU ocials, as well as generous systems of remuneration. Put simply, if the EU is relatively corruption-free, it may be because it has come close to replicating Weber's ideal type of a `clean', high performance bureaucracy. The college of Commissioners may occasionally be a dustbin for national politicians who have passed their sell-by dates, but the Commission's permanent services attract a highly skilled and trained coterie of ocials. Professionalism is the most important form of control and remuneration is ample to the point where members are not tempted to use their public positions for private gain.50 The `politics of fraud' are amenable to explanation by `new institutionalist' accounts of EU governance, which have become increasingly numerous and more sophisticated.51 Their essential insight is that in the EU, as much as any other system of government, institutions matter. Institutional arrangements do not by themselves explain political behaviour, but they mediate political struggles in important ways and help de®ne loyalties, norms and values. Clearly, institutional competition is rife in the battle to cut down on fraud. The highly political activities of the Court of Auditors under Middlehoek are indicative. So is the earnestness of the Parliament's eort to be seen as the EU institution which is doing the most to cut down on waste. More broadly, the problem of fraud is two-fold in institutional terms. First, the EU is beset by a `competence-interest' con¯ict: the Commission does not have the complete competence (of control and sanctions) over an area in which its interests lie, and the Member States 49

Sherlock and Harding, `Controlling fraud', p. 28. See M. Weber, Economy and Society (New York, Bedminster, 1968), especially volume 1, pp. 217±26. 51 See S. Bulmer, `The governance of the European Union: a new institutionalist approach', Journal of Public Policy, 13(4) (1994), 351±80; P. Pierson, `The path to European integration: a historical institutionalist analysis', Comparative Political Studies, 29(2) (1996), 123±63. 50


JOHN PETERSON

577

have a competence (of control and sanctions) but, apart from ful®lling a duty, they have no real interest in exerting this competence.52

In other words, the Commission (and other EU institutions) which have the strongest interest in controlling fraud lack the policy tools to do it. Member States have the tools, but only weak incentives to root out fraud. If they detect fraud, they lack incentives to report it if to do so means risking reductions in future receipts from the EU budget. The `competence-interest con¯ict' also exists between Member States. Take, for example, transit fraud: in the absence of an unimaginable surrender of national ®scal sovereignty, how can a Dutch customs ocial at the port (usually Rotterdam) where foreign goods enter the EU be given incentives to ensure that Italian excise duties are collected properly? The second half of the problem follows from the ®rst: the only way that fraud can really be controlled is by ceding more resources and powers to the Commission (and, perhaps to a lesser extent, the EP and CoA). Fraud is à stimulus in the debates about the future' of the EU; in particular, it provides `the Commission with an argument for the expansion of its administrative capacities'.53 Perhaps it goes without saying that this argument is not universally received with sympathy across the EU. Still, the Santer Commission has not hesitated to make the argument. For example, Gradin made fraud a priority within the EU's intergovernmental `pillar III' (for Justice and Home Aairs), created by the Maastricht Treaty largely for the express purpose of `combating fraud on an international scale'.54 By July 1995, Gradin had convinced Member States to sign a convention on criminal penalties for fraud. However, none had rati®ed it more than a year later. Gradin launched a withering attack on the Member States, drawing attention to evidence which suggested that only 10±17 per cent of the money identi®ed as illegally paid out from the EU budget was ever recovered by Member States. For his part, Santer insisted that unanimous, intergovernmental decision making within `pillar III' was `no longer tenable . . . Everyone knows that you cannot eectively continue to protect the Union's public ®nances through unanimity when decisions on Community expenditure are based on policies decided by majority votes'.55 The obvious solution, he contended, was to strengthen `pillar I', or the `Community pillar', in which the Commission wielded far more power. However, the `competence-interest' con¯ict resists simple institutional solutions. Several recent anti-fraud measures clearly are not antidotes to inter-institutional competition, but rather attempts to in®ltrate highly insular and autonomous policy networks, which link actors in dierent institutions in

52

Ruimschotel, `The EC budget', p. 331. Mendrinou, Èuropean Community fraud', p. 88. 54 See M. den Boer, `Justice and Home Aairs: Cooperation without Integration' in Wallace and Wallace, Policy-Making in the European Union, p. 402. 55 Quoted in European Voice, 25 April±1 May 1996. For her part, Gradin argued that most competence for fraud prevention should be transferred from the EU's intergovernmental pillar III to the European Community's pillar I. See European Voice, 10±16 October 1996; Agence Europe, 2/3 November 1995. 53


578

The European Union

speci®c policy sectors.56 Liikannen's wish to see all entry-level Commission ocials spend time in `boot camp' as anti-fraudsters in the ®nancial units of the DGs before moving onto jobs elsewhere in the services suggests that his intent is to penetrate policy networks which preside over the CAP and regional development programmes with individuals who are imbued with the new, Scandinavian-style rectitude. Another tactic is the creation of a `high level network of Resource managers' within the Commission, chaired by Liikannen himself, to consolidate the Commission's anti-fraud resources and expertise.57 As for UCLAF's higher pro®le, one insider observed that, `networking is very important for UCLAF for the very reason that it doesn't have strong powers. But it does have knowledge and receives information that proves useful to people in national networks'.58 Tomlinson insisted that the EP's transit fraud inquiry should work closely with national EU ambassadors and parliaments, as well as Gradin, by saying, `This is the best way of networking'.59 Viewing EU governance as a battle between competing policy networks helps explain why fraud is so rife and intractable. Policy networks tend to arise and become powerful where authority is weak or fragmented. In the EU, policy networks thrive because a large number of actors must be `brought on board' before policies may be agreed. It is tempting to conclude that no one is accountable for EU policies because everyone is responsible. Conclusion The considerable, certainly intolerable, levels of fraud which plague the EU highlight one point above all others: the worst pathology of European integration is not a general reluctance to criticize or scrutinize the EU's institutions. They are regularly battered and blamed for the Union's ills by its Member States, as well as by one institution (the EP) ¯ogging another (the Commission). A far more serious pathology is the way in which national systems, controls and norms remain beyond reproach, even when they are fundamentally corrupt and wasteful, or make fraud in the use of EU funds inevitable. Any notion of `good governance' is undermined by a communautaire ethos which makes taboo any suggestion by one Member State that another's national practices might need to be reformed. Fraud will remain one of the clearest failings of EU governance until much that is now unspoken becomes openly debated.

56 On policy networks in EU governance, see J. Peterson `Policy networks and European Union policy making', West European Politics, 18 (1995), 389±407; K. Middlemas, Orchestrating Europe: the Informal Politics of the European Union 1973±95 (London, Fontana, 1995); B. Kohler-Koch, `Catching up with change: the transformation of governance in the European Union', Journal of European Public Policy, 3 (1996), pp. 359±80. 57 European Commission, `Sound and Eective Management (SEM 2000) Progress Report', information note to the Commission by Mr Liikanen and Mrs Gradin in agreement with the President (1996), 29 May. 58 Interview, EP Secretariat, 2 May 1996. 59 Quoted in European Voice, 21 December 1995±3 January 1996, p. 8.



The Transition to the Market and Corruption in Post-socialist Russia FEDERICO VARESE1 The end of the State Socialism in Russia was greeted with near universal enthusiasm. The Western public and the people who had endured the economic absurdities of the Soviet system expected economic performance to improve dramatically and the country to turn overnight into a well-functioning and prosperous market economy. Such optimism was loosely based on an ìnvisible hand explanation': as in Adam Smith's classical example of `the butcher, the brewer or the baker', agents pursuing their own individual interest would produce an unintended bene®t for society as a whole.2 In practice, this idyllic picture did not quite materialize: the economic system is under great strains and Russia is far from being a well-functioning market economy. According to an index of èconomic freedom' recently constructed by the Heritage Foundation, Russia ranks 117 in a list of 150 countries. This index measures how well countries score on a list of ten factors, including trade policy, taxation policy, level of privatization, monetary policy, property rights, antitrust regulations, and the extent of the black market. Not only is Russia at the bottom end of the list, but its position has worsened over the years. The authors of the index point to the strong correlation between economic freedom and development, the implication being that Russia is not likely to prosper economically.3 This index measures how much `market economy' (or `capitalism') there is in a country. Other indicators show that standards of living have dropped since the beginning of the transition and economic disparities increased substantially.4 Much of the health-care system has collapsed, mortality rates have risen alarmingly and life expectancy has fallen.5 Russia has not yet reaped the bene®ts of capitalism but it has lost the safety nets of socialism. 1 Gerry Mackie, Cecilia Garcia-Penalosa, Mark Philp and Marc Stears have made extremely valuable suggestions. I am also grateful to Stephanie Chester, who read a version of this paper. The usual disclaimers apply. 2 A. Smith, The Wealth of Nations (London; Penguin [1776] 1986), p. 119. 3 Heritage Foundation, `1997 index of economic freedom', Transition, 7/11±12 (November± December, 1996), 22±24. 4 N. V. Chernina, `Bednost' kak sotsial'nyy fenomen rossiyskogo obshchestva', Sotsiologicheskie issledovaniya, 21/3 (1994), 54±61. 5 A US-Russian study presented in Moscow in June 1995 reported that male life expectancy has declined from 64.9 years to 58.3 since 1987. The study also predicted that the number of suicides and cancer cases would continue to rise and that tuberculosis cases would remain at the level they were in developed countries 30 to 40 years ago. According to the Collegium of the Ministry of Natural Resources, half of Russia's population drinks water that does not meet acceptable hygiene standards, water puri®cation systems are in critical condition, and the danger of dams breaking has increased (OMRI Daily Digest, 5 June 1995 and 6 February 1997).


580

Corruption in Post-socialist Russia

The end of socialism has generated another surprise: an extraordinary amount of ocial corruption and Ma®a-style crime. Westerners, at least, did not expect that lifting the iron curtain would yield such a dismal picture. Rather than a virtuous ìnvisible hand' bringing about a collective optimum, Russia appears to be suering a collective failure, more akin to `the tragedy of the commons'.6 By pursuing individually rational goals, agents bring about a lessthan-optimal collective outcome. This is a puzzling result. The Soviet regime devoted an extraordinary amount of resources to the protection of positive, welfare-type rights, which imposed a signi®cant burden on public ®nance. With the end of the regime, the costs of enforcing the economic plan, supporting inecient enterprises, ®nancing welfare provisions and repressing crimes such as speculation and pro®teering, disappeared. The new Russia should have had at its disposal more resources to de®ne and protect property rights, which are the cornerstone of a market economy and less costly than positive rights. This did not occur. Here I study why this outcome did not materialize. In particular, I focus on enterprise managers and the eects of their lobbying on the de®nition of property rights over shares. I argue that they were able to in¯uence the initial distribution of property rights, had incentives to prevent the clear de®nition of property rights, and lobbied the government in order to obtain protection against imports, government subsidies, nearly free loans and tax exemptions. Once these goals were realized, the remaining section of the private sector was exposed to a predatory tax system and was led to bribe ocials in order to avoid paying taxes. This occurred at a time when there was an immense rise in opportunities to commit crimes and a parallel increase in demand for trust and protection took place. Since the private sector was greatly involved in corrupt practices, it had an incentive to avoid courts and state-supplied forms of protection and seek extra-legal means to settle disputes. Privatisation and the Building-blocks of a Market Economy A preliminary distinction between what the expected point of arrival was supposed to be, the often invoked well-functioning market economy, and the privatization process is required. There can be no denying that massive privatization has taken place in Russia. Data released by the Goskomstat show that a substantial portion of the Russian economy is in private hands. By the end of September 1995, 77.2 per cent of the total number of industrial ®rms were privatized, producing 88.3 per cent of industrial production and employing 79.4 per cent of industrial personnel.7 As of November 1994, privatization was most advanced in personal services, where 78 per cent of ®rms had already been privatized.8 Housing stock has also been privatized at spectacular speed.9 Land is the only sector where the privatization process is lagging behind.10 The data 6

G. Hardin, `The tragedy of the commons', Science, 162 (1968), 1243±48. GRF/RECEP Russian Economic Trends 1995, 4/4 (London, Whurr, 1996), pp. 98±9. 8 GRF/RECEP Russian Economic Trends 1994, 3/4 (London, Whurr, 1995), p. 97. 9 R. J. Struyk and J. Daniell, `Housing privatization in urban Russia', Economics of Transition, 3/2 (1995), 197±214. 10 S. K. Wegren, `Trends in Russian agrarian reform', RFE/RL, 2/13 (26 March 1993), S. K. Wegren, Building market institutions', Communist and Post-Communist Studies, 27/3 (1994), 195±224. 7


FEDERICO VARESE

581

relating to property ownership thus show that the end of the virtual monopoly over property rights by the Socialist state has produced an enormous increase in the number of people owning assets. Privatization per se is not, however, sucient to produce a well-functioning market economy. The cornerstone of a market economy is the presence of property rights. It is worth pausing a moment to consider what having a right over a property entails. A `right' is a claim or entitlement normally enforceable through courts or equivalent agencies. Ownership over an asset encompasses a `bundle of nested rights', which include possession of the physical thing owned, rights to use, derive income, exclude others and exchange the physical thing owned.11 According to standard economic theory, well-de®ned property rights are a determinant of economic success. When property rights are clearly speci®ed, and the person who decides how to employ this asset bears full costs and enjoys full bene®ts of such employment, s/he puts the asset to its most productive use. In all countries where there is tolerable security of property, every man of common understanding will endeavour to employ whatever stock he can command . . . a man must be perfectly crazy who, where there is tolerable security [of property], does not employ all capital stock which he commands.12

If a person owns something, say, an automobile, another private person or government ocial cannot take it without the owner's consent. To make this property right meaningful, it is necessary to have a registration system for automobile titles. In addition, regulations which make the lawful use of the goods impossible, must be absent (e.g., a predatory taxation system which would make it unfeasible for an owner to pay registration and other duties, or the lack of predictable rules on governmental con®scation).13 Finally, a criminal penalty severe enough to deter theft must also exist. If crime is not deterred, people would have no incentive to acquire property: Not just theft, robbery, embezzling, the forging of wills, certain types of frauds, and other familiar acquisitive crimes, but also bribing ocials, including judges, police, and ocials in charge of registering titles to real or personal property, must be prevented, or, more precisely, kept within tolerable bounds.14

The de®nition of property rights, the possibility to derive income (or pleasure) from goods owned, and an apparatus for deterring crime are three buildingblocks of a market society. 11 R. Posner, `The cost of enforcing legal rights', East European Constitutional Review, 4/3 (1995), Summer, 71±83, p. 73; J. Getzler, `Theories of property and economic development', Journal of Interdisciplinary History, XXVI/4 (1996), 639±69, p. 664; A. Ryan, `Property' in J. Eatwell, M. Milgate and P. Newman (eds), New Palgrave Dictionary of Economics, 4 (London, Macmillan, 1987), 1029±31. 12 Smith, The Wealth of Nations, p. 380. A recent con®rmation of this general principle is J. M. Ramseyer's study of Japan, Odd Markets in Japanese History (Cambridge, Cambridge University Press, 1996). 13 Ìf, for instance, nobody could leave land to their children, or sell a freehold in it, or raise a mortgage on it, we should be doubtful whether individuals could be said to `òwn'' it at all' (Ryan, `Property', p. 1029). 14 Posner, `The cost of enforcing legal rights', p. 73.


582


The above example of owning an automobile refers to a negative right. In a very simpli®ed fashion, rights can be distinguished between positive and negative rights. A positive right is à right to demand a service from the government', while a negative right is à right not to be interfered with by the government or, more broadly, by anyone'.15 Positive rights are usually associated with the provisions of the modern welfare state, while negative rights are associated with classic liberal democracies.16 Positive rights are assumed to be more of a burden on public ®nances than negative rights. The costs involved in providing positive rights (®nancial assistance to the poor, public education, publicly subsided health care, unemployment bene®ts) are higher than those involved in running a minimalist state, whose main aim is to de®ne and protect private property, national defence being the main source of spending. The Puzzle At this point, I may re-formulate the central puzzle explored in this paper. Until 1991, Russia was ± arguably ± a socialist democracy. Its system of law was operating at full capacity to enforce existing laws, many of which were devoted to the enforcement of positive rights ± such as the operation of the planned economy, the delivery of goods and services, the avoidance of shortages ± and, more generally, to sustain the country's welfare and military power. The transition from socialism to capitalism can be viewed as a titanic eort to redirect resources towards the protection of negative rights. Such an eort would lead to a retreat of this over-extended state from society.17 In the course of this transitional process, resources should be freed and could be devoted to the protection of negative rights, which are less costly. We should therefore expect a reduction in the cost of enforcement, since the obligation to enforce the plan disappears. Several crimes that were in the Soviet criminal code have also disappeared, enabling the police to concentrate on fewer areas of law enforcement. Since the state is saving resources, the tax burden should also be reasonable. Finally, the de®nition of property rights is rather costless: one can copy legal de®nitions from well-functioning market economies. In fact, Rudiger Dornbusch advised the new post-communist countries to àdopt wholesale and without question the entire civil code, including corporate law, of a wellfunctioning legal system, say the Netherlands or Finland'.18 As will be seen, all of the above did not take place.

15

Posner, `The cost of enforcing legal rights', p. 71. This distinction appears to resemble that between positive and negative liberties. Posner does in fact link the two concepts directly (Posner, `The cost of enforcing legal rights', p. 71). Such a link however is problematic. Negative liberty is usually conceptualized as `the absence of external obstacles to an individual's pursuit of her conception of the good'. The commitment to negative freedom may require some positive rights. Miller for instance advocates positive rights while still rejecting a positive de®nition of freedom. D. Miller, Market, State, and Community: Theoretical Foundations of Market Socialism (Oxford, Clarendon, 1989), ch. 1. (I am grateful to Marc Stears for a discussion on this point.) 17 Posner, `The cost of enforcing legal rights', p. 75. 18 R. Dornbusch, Priorities of Economic Reform in Eastern Europe and the Soviet Union (Centre for Economic Policy Research Occasional Paper no. 5, London, 1991), p. 7. 16


FEDERICO VARESE

583

The Real Picture I: The Definition of Property Rights In post-communist Russia, property rights are poorly de®ned; a predatory tax system prevents owners from legally deriving income from the assets they own; serious doubts surround the ability of the state apparatus eectively to deter acquisitive crime and corruption. Since the Law on Co-operatives was introduced (1986), the legal situation in Russia has developed in a chaotic fashion. A plethora of often overlapping and con¯icting laws and decrees emanates from a variety of jurisdictions. `The same subjects are often covered by many dierent and mutually contradictory normative pronouncements, and it is dicult to ascertain their ultimate validity'.19 Naishul' has shown that the weakening of hierarchical links and the collapse of the party destroyed the former network of administrative co-ordination. State authority has been transformed into à system of autonomous administrative oces with overlapping jurisdictions, each pursuing its own rather than general state interests'.20 Among those rights which are crucial in a market economy, rights over shares of companies feature high. As privatization is supposed to create a more ecient ownership structure, `®rms should begin to make decisions that bene®t wealth-maximizing shareholders, rather than politicians and entrenched managers'.21 In order to raise capital and undertake a restructuring programme, ®rms normally issue new equity to dispersed investors. To part with their capital, `potential investors need to have an enforceable contract with the ®rm that assures them that their investment will not simply be expropriated by managers and workers'.22 Information disclosure, a transparent share register and the absence of restriction on trading stocks are preconditions for investment in shares. In this section, I explore whether property rights over shares are clearly de®ned and protected in Russia. A sizable market for shares is emerging in Russia. A monthly average of US$20.8 billion worth of shares was traded in 1995 by 200 Russian private ®rms.23 The holder of a share is entitled to dividends. First of all, however, s/he needs to secure title of property over the share. In Western countries, shares are registered by a stock-exchange authority and share certi®cates issued. Custody services are provided by institutions holding securities in safekeeping for a client. Collection of dividends is also a customary responsibility of the custodians of shares. In Russia, share certi®cates do not exist, preventing the emergence of a paper traded system. Instead, the evidence of ownership is a name in a registrar's book. For a share transaction to take place, an agent has to go physically to the company's registrar and re-register ownership. Apart from physically inspecting 19 R. Frydman, A. Rapaczynski and J. Earle, The Privatization Process in Russia, Ukraine and the Baltics (Budapest, Central European University Press, 1993). Quoted in F. Varese, Ìs Sicily the future of Russia? Private protection and the rise of the Russian ma®a', Archives EuropeÂennes de Sociologie XXXV (1994), 224-58, p. 242. 20 V. Naishul, `Liberalism, customary rights and economic reforms', Communist Economies and Economic Transformation, 5/1, (1993), quoted in Varese, Ìs Sicily the future of Russia?', p. 242. 21 M. Boycko, A. Shleifer and R. Vishny, Privatizing Russia (Cambridge MA, MIT Press, 1996), p. 128. 22 Boycko et al., Privatizing Russia, p. 133. 23 This ®gure does not include shares traded by banks (see GRF/RFCEP, Russian Economic Trends 1995, p. 104).


584


a share register, the only evidence a purchaser has that s/he is buying shares from their rightful owner is an extract from the ocial share register. An extract may be obtained from the registry oce for a fee (there are about 3,000 registrars spread all over the country).24 The process of registering a transaction may involve waiting and queuing, since a registrar is allowed to take up to three days to alter the books. It may also be expensive: the ocial is allowed to charge a transaction tax which can be as high as 5 per cent of the value of the deal. According to Russian law, any enterprise with more than 500 shareholders is obliged to entrust its register to a separate organization.25 Yet, in practice, many of the registers of Russia's largest factories are controlled directly by the company and are often located in the company headquarters.26 Russian bankers have complained that some businessmen, particularly in the provinces, are involved in a steady trade of fake extracts. A western banker interviewed by the Financial Times said: ìf you are willing to pay for an extract, you can get as many as you like. Unfortunate buyers learn that they have been deceived only when they try to add their names to the ocial register and discover that their vendor does not appear'.27 Careful investors avoid buying fake shares by sending their agents to personally inspect the share register in loco. Yet they experience other diculties. Shares may disappear from the record. A registrar, in¯uenced by the issuer, could in theory claim that an investor had just sold its shares. The registration book could be stolen or destroyed in a ®re. Ìt could be an eort to defraud, to lie, or just a simple error', remarked Yvonne Rogers, head of settlement for the Chase Manhattan Bank in Moscow.28 Transworld, a London-based company which dominates the Russian metal trade, alleges that the share-register at the Krasnoyarsk Aluminium Smelter, one of the world's largest aluminium producers, has been altered in an eort to defraud it. Transworld claims, and the factory con®rms, that a 20 per cent stake in the smelter (worth $300 m) controlled by Transworld proxies, was deleted from the records by factory administrators.29 This danger can be minimized through regular audits by the custodian of the registrar and through con®rmation of share-holding. But that does not prevent over-issue whereby the registrar arbitrarily creates new shares thereby diluting an existing owner's stake. Transworld associates ®led a suit at the Court of Arbitration for restoration. When interviewed on this matter, Mr. Mikhail Yukov, ®rst vice-president of the Supreme Court of Arbitration, declared: `This share business is too complicated for us. We do not understand it. We have no laws to deal with it. Our laws do not answer these new questions. We are paralysed'.30 24

Financial Times, 4 October 1994 and 29 November 1994. GRF/RECEP, Russian Economic Trends 1995, p. 104. 26 Financial Times, 16 November 1994. 27 Financial Times, 29 November 1994. 28 Financial Times, 29 November 1994. 29 Ocials at Krasnoyarsk smelter con®rmed that shares held by Transworld had been deleted from the share register, but they contended that the shares had been improperly purchased in the ®rst place (Financial Times, 29 November 1994). This shows that factory directors can, and unilaterally do, alter shareholder registers. Mr. David Reuben, president of Transworld, concluded that `shareholders are completely at the mercy of factory managers' (Financial Times, 16 November 1994). 30 Financial Times, 1 December 1995. 25


FEDERICO VARESE

585

The hunger of Western institutional investors for Russian shares, together with their concern over custody, has given birth to a demand for private providers of custodian services. CS First Boston, a leading investment bank in Moscow, has built its dominant market position on the assurance it provides for Western investors. Banks such as Chase Manhattan, Citybank and ING Bank are now responding to the demand and exploring the establishment of asset servicing units. But costs will be high. Chase Manhattan expects to hire six sta just to ¯y to distant corners of Russia and register shares.31 This section of the argument indicates that some aspects of property rights are not perfectly speci®ed. It is dicult to establish whether the act of buying a share leads to a secure title over that share. Actors do not know the attributes of goods or services purchased and have to devote costly resources to acquire valuable information and protect rights over the goods purchased. II: The Tax System The right to derive income from the use of an asset is part of the `bundle' of property rights outlined above. The tax system regulates the amount of income an owner may retain. Russia does not have a tax code.32 Taxes are levied by decree. Primary taxes are the following: value added tax (28 per cent) which is collected on sales; corporate pro®t tax, which can be as high as 38 per cent;33 payroll taxes (39 per cent); and import/export taxes. In addition, entrepreneurs are subject to a multiplicity of other small taxes, each with a dierent timetable and basis. The most common include: hard currency tax; road use tax; advertising tax; property tax on all assets including inventories and bank accounts; police tax; and car tax (based on horsepower).34 Payment schedules and procedures vary by type of tax, and entrepreneurs rely heavily on book-keepers and attorneys to maintain compliance.35 Presidential Decree No. 2270 (22 December 1993) freed cities to levy taxes. According to this decree, local government may establish up to eighteen local taxes.36 It is not clear how strictly such a limit is enforced: business-people in Moscow calculated that they were subject to a total of 51 dierent taxes.37 Shortly after the decree was passed, the city of Moscow set the corporate pro®t tax rate for Moscow at the highest level allowed by law, resulting in a 38 per cent tax. It also added two new taxes (a housing support tax of 1.5 per cent of 31

Financial Times, 18 July 1995. See also Financial Times, 16 November 1994. Àn end to the long process of adopting the new tax code is still out of sight', said Deputy Finance Minister Sergei Shatalov in March 1996 (Moscow News, 14 March 1996). 33 Corporate pro®t tax was 32 per cent until 1 January 1994 (see presidential decree No. 2270, issued on 22 December, 1993). The tax is split between the Federal Budget (13 per cent) and local budget (a maximum of 25 per cent). The decree also increased the maximum level of the asset tax to 2 per cent and introduced a special tax for the support of the economy of 3 per cent, to be collected with VAT. 34 According to the latest survey or corporate taxation, there are eighteen Federal taxes in force on the territory of the Federation. S. V. Almakaeva, `Corporate taxation in the Russian Federation', Review of Central and East European Law, 1 (1995), 41±64, p. 41. 35 J. Charap and L. Webster, `Constraints on the development of private manufacturing in St Petersburg', Economics of Transition, 1/3 (September 1993), 299±316, p. 305. 36 Almakaeva, `Corporate taxation in the Russian Federation', p. 41. 37 Moscow Times, 25 March 1994. 32


586


turnover, and a 1 per cent tax on payroll to support education) and increased taxes on corporate assets from 0.5 to 1.5 per cent.38 In a survey of 99 ®rms carried out in St Petersburg by the European Bank for Reconstruction and Development and the World Bank in November 1992, entrepreneurs were asked to identify the three largest problems they faced in their businesses in order of importance. The problem cited most frequently was èxcessive and frequently changing taxes'. The authors of the survey added that the prevailing view was that `the government was robbing private entrepreneurs through excessively high taxation'. In addition, `many (entrepreneurs) had trouble getting accurate information about the numerous tax regulations. Entrepreneurs complained that modi®cations in taxes commonly were enacted retroactively, making planning and compliance dicult. The number of new taxes was, reportedly, increasing monthly'.39 A report prepared for the President of Russian Federation noted that in Russia: The extremely confusing tax system that is currently in eect gives enterprises no incentives to increase pro®ts. For instance, M. Kabakov, director of the Kalinin Machine Building Plant, calculated that the doubling of pro®ts that this plant achieved through very tight economising on resources and sta reductions allowed it to increase net pro®ts by only 2 per cent.40

A St Petersburg entrepreneur calculated that 80 per cent of his gross revenues has been taken away by taxes. If one combines VAT at 28 per cent with the pro®t based excess wage tax at 32 per cent, the marginal tax on value added is 60 per cent, of which less than half is potentially refundable. Even the amount that is refundable would lose most of its value in the face of high in¯ation.41 The tax structure of Russia appears to interfere with ecient resource allocation. A system such as the current one, which taxes income saved as well as income consumed, leads to suboptimal rates of capital accumulation, as argued by Frank.42 A consequence of the present system is powerful incentives to evade taxes. According to the World Bank survey of 99 ®rms in November 1992 in St Petersburg, instances of tax evasion were `numerous'. Èntrepreneurs actively engage in paper transactions to limit tax liabilities. For example, one pro®table company under-priced its products, sold to a loss-making company and repurchased them at a higher price, thereby decreasing reported pro®ts and value-added'.43 The Filippov report also concludes that èntrepreneurs are being forced to conceal income'.44 38

Moscow Times, 19 March 1994. Charap and Webster, `Constraints on the development of private manufacturing', pp. 304±5. 40 P. Filippov, Òrganizovannaya prestupnost' i perspektivy prikhoda k vlasti v Rossii natsionalsotsialistov', Izvestiya, 26 January (1994), 1±2. 41 Charap and Webster, `Constraints on the development of private manufacturing', p. 305. 42 A more ecient taxation system would tax positional consumption (R. F. Frank, À Contractarian View of Tax and Regulatory Policy', in E. F. Paul, F. D. Miller Jr and J. Paul (eds), Liberalism and Economic Order (Cambridge, Cambridge University Press, 1993), pp. 258±81). 43 Charap and Webster, `Constraints on the development of private manufacturing', p. 305; M. Buravoy and K. Hendley, `Between perestroika and privatization: divided strategies and political crisis in a Soviet enterprise', Soviet Studies, 44/3 (1992), 371±402, list other examples. 44 Filippov, Òrganisovannaya prestupnost', pp. 1±2. 39


FEDERICO VARESE

587

TABLE 1. Tax Evasion 1994±96 (Reported Cases) Reported cases of tax evasion (total)

Cases of tax evasion of a criminal nature

1500 4229 12,000

20 1611 3100

1994 1995 1996

Source: Kisunko, Èconomic crime in Russia', p. 13.

Russian tax police in the ®rst half of 1996 uncovered about 12,000 cases of evasion resulting in 3100 criminal cases, raising 13 trillion rubles for state coers. It has been estimated that penalties related to tax evasion will bring in another 9.3 trillion rubles.45 The high number of cases of tax evasion detected by the police in 1996 stands in sharp contrast to the few cases uncovered in the previous years. Rather than a sudden increase in this type of crime, this is an indication of a more severe line taken by law-enforcing organs on the matter.46 Rigid law enforcement takes place in a context of a predatory tax system. The fear that their unlawful tax reports will be exposed may motivate business people, who are victims of crimes such as arson and extortion, not to report to the police. This section of the argument has presented evidence that points to the existence of a predatory tax system, which in eect endangers the right to derive income from assets owned. Such a system creates incentives for tax evasion, which push business people outside the provisions of the law, making them more vulnerable to criminal harassment. The sharp increase in cases of tax evasion prosecuted by the police is an indication that law enforcement has not broken down. On the contrary, it shows signs of eciency in selected areas, such as prosecuting tax evaders. However, the eect of such scrupulous law enforcement is to push legitimate entrepreneurs further to the edges of the legal system. III: Crime and Corruption A variety of sources point to a generalized increase in crime since the transition to the market has taken place. According to ocial statistics, `serious crime' increased by 32 per cent in 1989, while, in the same year, the average Soviet citizen was four to ®ve times more likely than a Briton, Frenchman or Japanese to die a violent death.47 The total number of reported crimes in 1992 rose 70.5 per cent compared to 1989.48 Juvenile crime has increased by about 50 per cent in the period 1990±95, according to ocials from the Ministry of Internal Aairs, while the number of repeat juvenile oenders has increased by 60 per 45 G. Kisunko, Èconomic crime in Russia', Transition. A World Bank Newsletter, 7/7-8, July± August (1996), 13±16, p. 13. 46 Kisunko, Èconomic crime in Russia', p. 13. Increased severity towards tax oenders is in line with the growing concern over tax evasion voiced by President Yeltsin (see OMRI, 11 October 1996). 47 Izvestiya, 26 February 1990 and New Times, no. 35, 1989. 48 These data are taken from `Crime ± The Threat to Russia', documents prepared for a closed Kremlin Conference on Organised Crime in Russia (12±13 February 1993), quoted in Nezavisimaya Gazeta 12 February 1993, and Kommersant-Daily 16 February 1993. I am drawing here upon


588

Corruption in Post-socialist Russia TABLE 2. Annual Rate of Increase for Selected Crimes

Oence

Serious robberies Simple robberies

1987±88

Rate of increase (%) 1988±89

1989±90

42.8 44.4

70.7 23.9

16.6 2.7

A serious robbery is de®ned as constituting a danger to the life or health of the victim. Source: G. V. Dashkov, `Quantitative and qualitative changes in crime in the USSR', British Journal of Criminology, 32/2 (Spring, 1992), 160±66, p. 161.

cent over the past three years (data reported by Radio Rossii on 2 June 1995).49 As revealed by the Moscow Region Police Department and Moscow Region Prosecutor's Oce at a joint meeting on 28 June 1995, one murder was committed in the Moscow Region every ®ve hours and one gang assault took place every six hours. The meeting addressed the crime problem and acknowledged that the crime rate had risen beyond a `socially tolerable level'.50 About 50 per cent of recorded economic crimes are property thefts. Theft from the workplace has decreased, while fraud increased forty-fold between 1992 and 1995. Not surprisingly, most cases of fraud in 1994 were committed in the ®nancial sector (24 per cent of the total registered economic crimes), whilst the lowest number were committed in the agricultural sector (7 per cent).51 Sectors that require a higher degree of trust are more exposed to swindles. The share of crimes related to abusing position or oce for private gain was 47.7 per cent of all recorded economic crimes in 1993.52 Corruption is also rampant. Notoriously, data on corruption are dicult to obtain. An index of the perception of corruption for 54 countries was constructed by Transparency International, a non-pro®t organization, and the University of GoÈttingen. Based on a variety of polls, it aims `to assess the level at which corruption is perceived by people working for multinational ®rms and institutions as impacting on commercial life'.53 Although this measure is based more on reputations than facts, its results are striking. On a scale of 10, running from 0 (most corrupt) to 10 (least corrupt), Russia ranks 47 (score 2.58), just ahead of Venezuela (score 2.50). New Zealand is perceived as the least corrupt country (score 9.43), while Kenya, Pakistan and Nigeria are perceived as the most corrupt (respectively they score 2.21, 1.00, and 0.69). Widespread corruption is acknowledged even by senior ministers. Interior Minister Anatolii Kulikov said that when he was appointed in July 1995, he could not have imagined `the level of corruption in state bodies, particularly the Interior Ministry', that he found.54 Con®rming numerous previous reports of rampant corruption in the capital's police force, 960 ocers were dismissed in 1995 for taking bribes or otherwise abusing their positions. Disciplinary action Varese, Ìs Sicily the future of Russia', p. 244. 49 OMRI Daily Digest, 7 June 1995. 50 Moskovsky komsomolets, 29 June 1995. 51 Kisunko, Èconomic crime in Russia', p. 13. 52 Kisunko, Èconomic crime in Russia', p. 13. Though there was a reduction in 1995 (35.6 of all recorded crimes), the total number of economic crimes increased (from 100 to 140 thousand). 53 Transparency International (1996), `The index of corruption' http://www.GWDG.DE/ *uwvw/icr.htm. 54 ITAR-TASS, 9 November 1995. # Political Studies Association, 1997

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TABLE 3. Total of Convicted Persons for Selected Crimes 1985±1989 Total convicted Speculation Theft of personal property Hooliganism Total acquitals

1985

1989

% change

1,269,493 20,522 178,218 161,093 2909

684,070 10,090 124,490 61,323 5022

ÿ46:2 ÿ50:9 ÿ30:1 ÿ61:9 72:6

This ®gure refers to all crimes. Source: Butler, `Crime in the Soviet Union', p. 157.

was taken against another 6000 of Moscow's more than 100,000 police ocers.55 Any discussion of crime based on ocial data must be informed by the awareness that ocial statistics contain only reported crimes. The known criminal population and reported crimes are only a sub-set of the total.56 The phenomenon of `latent crime' refers to actions that are either not reported to the police or reported but not processed (in eect, concealed) by the police. Researchers at the Interior Ministry of the Russian Federation reported that law enforcement agencies in Moscow returned to their old practice of avoiding registration of crimes, although in this case the practice `was not due to political aims but because of the impossibility of investigating and clearing up all reported crimes'.57 A study carried out in 1991±93 revealed that, in general terms, the latency level in the Russian Federation is 40±70 per cent.58 Registered crimes in 1994 made up only one third of the crimes actually committed. Over ®ve million criminal acts were overlooked and became latent. Among latent crime, the highest level was that of economic crimes and criminally signi®cant acts of a minor character (these estimates are from the Research Institute of the Russian Interior Ministry, reported in Ponomarev.59 Ocial data capture the criminal situation of the country only partially. Despite the increase in the number of registered crimes, the number of people convicted in 1989 was 46.2 per cent lower than the corresponding ®gure in 1985, before the beginning of the transition to the market (which is normally dated from the adoption of the 1986 Law on Co-operatives). In fact, in the period 1980±9, the peak year for the number of convictions was 1984 (N 1;288; 458).60 In this section of the argument, I have presented data that show a signi®cant increase in crime rates as reported in ocial statistics. Moreover, crimes in 55

ITAR-TASS, 13 October 1995. R. Hood and R. Sparks, Key Issues in Criminology (London, Weidenfeld and Nicolson, 1970), pp. 11±12. 57 Crime and Crime Prevention in Moscow, 1994, p. 40. 58 A. Alvazzi del Frate and K. Goryainov, Latent Crime in Russia, UNICRI Issues and Reports, 1 (1994). 59 P. G. Ponomarev, `Legal measures against legalization of criminal assets as means of combating organized crime in Russia', Academy of Criminal Justice Sciences, XIV/4 (January/February, 1996), 1±3, p. 1. Aleksei Kazannik, the current Russian Federation Prosecutor General, said that his oce is in a position to complete no more than 50 per cent of the bills of indictment in the already investigated cases (Nezavisimaya Gazeta, 28 October 1993). 60 W. E. Butler, `Crime in the Soviet Union', British Journal of Criminology, 32/2 (1992), 144±59, p. 156. 56


590


Russia suer from a high degree of latency. We may therefore conclude that reported crimes are only a sub-set of the crimes actually committed. The increase in crime, especially acquisitive crime, fraud and corruption, has not been matched by an increase in convictions. On the contrary, the number of convictions in 1989 was actually lower than the equivalent ®gure for 1985. Solving the Puzzle I: Property Rights The predictions associated with the transition to a market economy did not materialize. Property rights were not clearly de®ned even though it would have been cheap to do so, the ®scal system became predatory even though the cost of enforcing negative rights should have freed resources, and the state found it dicult to repress crime in the new Russia, even though it was supposed to have more resources at its disposal. In the remainder of this chapter, I will oer an explanation of this unexpected outcome. I will start by addressing the ®rst question: why was it so dicult to develop abstract and general rules on who is entitled to own what, when it appeared such a simple and cheap task? One explanation might be that Russians were not capable of reading and copying a foreign code. This would amount to a cultural answer. The cultural explanation in the Parsonsian variant would be that legal scholars were socialized in the `wrong' legal culture and therefore were unable to see the light. An alternative answer invokes rational behaviour, and this is the line I will pursue hereafter. The bene®ts of clear de®nition and eective enforcement of property rights, and more generally the well-functioning of a market economy, are often diuse. Rather than a lobby of private owners, it is much more likely that a lobby of industrial managers, pensioners, soldiers, or factory workers will mobilize to secure the enforcement of positive, welfare-type rights.61 At the time of the transition, there was not a readily available lobby of property owners ± who had a private interest in the functioning of the market and the establishment of a secure system of property rights ± to pressure the government into providing general and simple rules. There was no lobby of shareholders, no lobby of estate developers, and so forth. The reason why such a lobby was not there is twofold: size and time. Size must be taken into account in order to assess the likelihood that a broad-based lobby of private owners emerges ± a lobby that favours an ecient system of property rights. Larger groups are more dicult to organize and therefore, if they emerge at all, it takes more eort.62 Time is also a crucial factor: before privatization, when the relevant rules and regulations were framed, no lobbies of private owners could have exercised any pressure, because no property owners existed. Political pressure on such rules can occur only after privatization. Hay et al. state that `legal reforms [that foster the optimal functioning of the economy] often are not introduced by benevolent dictators or Parliaments, but are rather an outcome of political pressure from property owners'.63 They then argue that a lobby of owners, who have a private 61

Posner, `The cost of enforcing legal rights', p. 75. The size of groups in connection to collective action is a classic question explored ®rst by Olson. M. Olson, The Logic of Collective Action (Cambridge MA, Harvard University Press, 1965). 63 J. R. Hay, A. Shleifer and R. W. Vishny, `Toward a theory of legal reform', European Economic Review, 40 (1996), 559±567, p. 564. 62


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interest in the functioning of the market and the establishment of a secure system of property rights, will emerge. They quote the repeal of the 1720s Bubbles Act in Britain, which came about after vigorous pressure from the British business community.64 Similarly, Rae documents how the legal system developed in Germany in the sevententh and eighteenth centuries, and how it was shaped by participants in an emergent market economy.65 The ®rst instance quoted by Hay et al. refers to a century-long struggle.66 The second refers to a process that took over two centuries. In Russia today, there is some pressure on the Duma from business quarters, and the establishment of associations of business people in Russia. There is, therefore, some scope for optimism. However, it might take a long time before an eective lobby of private owners will emerge. As pointed out by Posner, it was more likely that a lobby devoted to securing positive rights would emerge at the start of the transition to the market. I will focus hereafter on enterprise managers. Enterprise managers had acquired during the Soviet regime the de facto right to use, and to pro®t from, the enterprises they were managing. They had assumed control over the operation and use of enterprises and `could also supplement their individual wealth by hiding pro®ts and skimming extra production'.67 They also had engaged in covert, though highly eective, collective action. There will normally be only a small number of factory managers in a given industry or locality. Because the number involved are small, the managers in a given industry can collude in much less time than would be required for a large group. The restraints on independent organization in a communist society . . . requires inconspicuous, informal, and secret collusion, and the need to proceed covertly makes collective action emerge much more slowly than it otherwise would. But small groups can typically collude secretly.68

Many opportunities to organize informally and covertly existed for small groups of high ranking administrators and enterprise managers in particular industries.69 At the time of the transition to the market, their relative political power was all the greater because newly created ®rms had not had the time to overcome the diculties of collective actions and were therefore disorganized. `This meant that lobbying power in societies in transition is held disproportionately by those enterprises that need to be replaced by new or foreign ®rms'.70 With the collapse of the socialist state and the advent of democracy, enterprise managers lobbied for a favourable initial distribution of property rights. The ®rst privatization project, devised by Gaidar, Lipton and Sachs, was meant to produce a separation of management from ownership. This model ± the so-called Option One of the 1992 Privatization Programme ± was greatly 64 C. Hunt, Development of the Business Corporation in England, 1700±1867 (Cambridge MA, Harvard University Press, 1936). 65 M. Rae, The Well-ordered Police State: Social and Institutional Change through Law in the Germanies and Russia, 1600±1800 (New Haven, Yale University Press, 1983). 66 Hay et al., `Toward a theory of legal reform'. 67 M. McFaul, `The allocation of property rights in Russia: the ®rst round', Communist and PostCommunist Studies, 29/3 (1996), 287±308, p. 291. 68 M. Olson, `Why the transition from communism is so dicult', Eastern Economic Journal, 21/4 (1995), 437±461, p. 452. 69 S. White®eld, Industrial Power and the Soviet State (Oxford, Clarendon Press, 1993). 70 Olson, `Why the transition from communism is so dicult', pp. 458±9.


592


resisted by enterprise directors. Eventually they managed to alter the programme and the so-called Option Two was devised, allowing directors and workers to purchase 51 per cent of all shares. Not surprisingly, most enterprises chose Option Two.71 Some directors were content to have ownership dispersed among workers of the company: in most cases workers' collectives agreed not to interfere with the management of the enterprise in exchange for job security.72 Others acquired a controlling block of shares through a variety of manipulative schemes against their own workers. `The most direct method was simply to buy out workers' shares before they had any market value.' Alternatively they òutbid workers either directly or through proxies, and often in collaboration with director-friendly commercial banks', during the closedsubscription for shares that took place under Option Two.73 A property transfer that was in the best interests of the most powerful lobby of the Soviet Union took place.74 It is not surprising that the rights of ordinary shareholders are uncertain, and that it is also hard for small share holders to disinvest from a company.75 II: The Costs of Negative Rights and the Fiscal System Little attention has been devoted to the costs of enforcing negative rights. The de®nition and protection of negative rights imply the provision of a wide range of services. For tort and criminal law to be meaningful, a public machinery that includes `police, prosecutors, judges, and even publicly employed or subsidized lawyers for criminal defendants who cannot aord to hire their own lawyer' must be provided.76 A further cost ± which is usually underestimated ± is the cost of learning. The Soviet Union had a highly educated population. Lawyers, judges and state ocials had gone through many years of formal training in order to qualify for their positions. The transition to the market led to the introduction of new concepts, such as `shares', and entirely new legal phenomena, such as fraud. Ideally, a massive retraining programme for state employees would have been necessary or, alternatively, a signi®cant in¯ux of young 71 By 1993, 63.7 per cent of enterprises had chosen Option Two, while only 34.5 per cent had chosen Option One. By the end of the voucher privatization in 1994, 73 per cent selected Option Two and 25 per cent Option One. McFaul, `The allocation of property rights', p. 293; Boycko et al., Privatizing Russia, p. 98. 72 McFaul, `The allocation of property rights', p. 294. 73 McFaul, `The allocation of property rights', p. 294. 74 Insider ownership leads to a number of other negative consequences, including the absence of managerial discipline. Since owners and managers to a large extent coincide, it is hard to imagine owners ®ring incompetent managers. 75 Enterprise directors are of course maximizing their personal pro®ts, but do not divide them with other share owners. What they do instead is create parasitic, subsidiary companies attached to the parent enterprise. Directors channel revenues into these small, close joint-stock companies, where pro®ts are divided among a handful of directors, rather than thousands of small shareholders (McFaul, `The allocation of property rights', p. 305). 76 Posner concludes that `the distinction between positive and negative liberties blurs'. For instance, the right to abortion is a negative right for an auent person, but for a poor person, who cannot purchase an abortion, it must be a positive right, a state-supplied service, for that right to be meaningful (Posner, `The cost of enforcing legal rights', p. 72). Although this conclusion may be correct from a normative point of view, it clearly is not true descriptively. States such as the USA and the UK provide individuals with negative rights without dedicating themselves to providing them the resources necessary to exercise those rights.


FEDERICO VARESE

593

ocials into the state apparatus. Although the eects of either policy may dier, they both imply substantial investments in ìntangible' commodities. The new Russian state was in need of resources for a further reason. The pro®ts made by state enterprises were not reaching state coers any more. However, the structure of the economy at the time of the transition was not conducive to the enforcement of a fair system of taxation. A few giant enterprises, which exercised a monopoly power in most sectors of the economy, were able successfully to collude with each other and pay bribes to the political system, in order to obtain tax concessions, protectionist measures against competitors and exemptions from duties. Many studies suggest that corruption prospers if market competition is weak. À few ®rms collude more easily. Then, once ®rms have learned to collude, they are able to more eciently bribe politicians and public ocials to avoid antitrust enforcement, obtain favourable legislation, and rig public contracts.' 77 Not surprisingly, this is what happened. Oil and gas companies, such as Yuganskneftegaz, Nizhnevartovskneftegas and Noyabrsknefegaz, the automobile giant AvtoVAZ, and the gas monopoly GasProm have paid hardly any taxes in the last years.78 Let us now turn to those companies with weaker lobbying power, excluded from tax exemptions. The predatory tax system and current legislation more generally prescribe forms of behaviour that companies have an incentive to avoid. No party in an economic transaction has an incentive to report to authorities a breach of state regulations. Ìf ever caught in violation of the rules those on both sides of the market have the same incentive to persuade or bribe the policeman or government ocial not to enforce the law. Not only is the net incentive of the private sector to evade the law ± essentially all of the private sector incentives are on the side of undermining the rule of law, either by bribing enforcement ocers or lobbying politicians'.79 The collective outcome is a tremendous amount of tax evasion. According to data released by the Federation Council Chairman, Yegor Stroev, just 16 per cent of Russian companies honour their tax obligations. Of 2.6 million ®rms, 436,000 companies pay taxes regularly and in full, whereas at least 882,000 publish no accounts and make no tax payment at all (as of 1 October 1996, tax arrears reached 132 trillion rubles/US$24.4 billion).80 77 D. Gambetta, `Democracy and corruption', mimeo (1996), p. 4. See also e.g. OCTF [Organized Crime Task Force] Corruption and Racketeering in the New York Construction Industry (New York, ILR, 1988). D. Gambetta, The Sicilian Ma®a (London, Harvard University Press, 1993), pp. 214± 20. D. Gambetta and P. Reuter, `Conspiracy Among the Many: The Ma®a in Legitimate Industries', in G. Fiorentini and S. Peltzman (eds), The Economics of Organized Crime (Cambridge, Cambridge University Press, 1995), pp. 116±36. S. Rose-Ackerman, `The political economy of corruption', mimeo (1996). A. Ades and R. DiTella, `The new economics of corruption. A survey and some new results', this volume, pp. 496±515. 78 ITAR-TASS, 22 December 1996; The Economist, 8 April 1995; Business Week, 1 April 1996. 79 Olson, `Why the transition from communism is so dicult', p. 454. 80 ITAR-TASS, 12 November 1996; AFP, 12 November 1996; OMRI Daily Digest, 13 November 1996. Large enterprises are not alone in lobbying for tax breaks. Sporting organizations alone have received import tax breaks worth as much as 1.3 trillion rubles ($300 million) since a presidential decree (signed on 1 March 1992) relieved them from paying import duties, value-added and excise taxes. Entire regions also try and often succeed to reduce the transfer of resources to the central government. D. Treisman, `The politics of inter-regional transfers in post-Soviet Russia', British Journal of Political Science, 26/3 (July, 1996), 299±335.


594


III: Crimes Increase As there was no lobby of faceless individuals with a personal interest in the well-functioning of the economy, so there was no lobby of faceless victims of crime, since the bene®ts of enforcing law and order eectively are also diuse. Since the state is not able to extract revenues from most of the private sector, we cannot expect policemen to be paid a sucient amount to enforce law and order. These two elements combined could explain the diculties the state is ®nding in repressing crime. There is, however, a further element that needs to be mentioned. It is harder to secure property rights in the new market economy because the number of criminal opportunities is immense. In Russia, the end of the virtual monopoly over property rights by the Socialist state has produced an enormous increase in the number of people owning assets; moreover, the number of transactions in which individual agents may engage has grown substantially. People have had novel and numerous opportunities to cooperate and, at the same time, to defect, to cheat and to commit crimes. The increase in property and in economic transactions has led to an increase in the opportunities to engage in criminal activities. In addition, the expected cost of punishment for criminals is reduced. The data on total acquittals may well be an indicator that the rights of defendants have been enhanced in Russia. This is an understandable by-product of the end of the Soviet police state. However, the increase in rights of criminal defendants reduces the expected cost of punishment for criminals.81 Criminal oenders may be more inclined therefore to commit crimes, since they have a lower chance of being convicted. As any society grounded in a liberal system of personal rights and freedoms knows, expanding the rights of defendants makes it more costly to protect property rights. Demand for Trust and Protection The increase in the incentives to bribe ocials and in the opportunities to commit crimes takes place at a time when there is a sharp increase in the demand for trust and protection ± for instance, protection of contracts. The reason for this is that economic competition is a form of cooperative behaviour. Broadly de®ned, co-operation takes place when two or more people èngage in a joint venture for the outcome of which the actions of each are necessary'.82 It is an often-unrecognized phenomenon that the advent of private and competitive markets should require not less but more co-operation. This is because the opportunities for cheating are positively correlated to the opportunities of exchange. The choice of co-operating is susceptible to the risk related to the potential defection of others. Co-operation requires that people 81 G. S. Becker, The Economic Approach to Human Behaviour (Chicago, University of Chicago Press, 1976), pp. 39±86. Posner, `The cost of enforcing legal rights', p. 75. 82 B. Williams, `Formal Structures and Social Realities', in D. Gambetta (ed.), Trust. Making and Breaking Cooperative Relations (Oxford, Basil Blackwell, 1988), pp. 3±13, p. 7. Most human undertakings, therefore, are forms of co-operation, from driving cars to play, from marriage to international relations. Èven [economic] competition, rather than being an alternative to cooperation, rests on co-operative arrangements'. D. Gambetta, `Trust and co-operation', The Blackwell Dictionary of Twentieth-Century Social Thought (Oxford, Blackwell, 1993), 678±80, p. 678.


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595

agree on a set of rules, a `contract', which is then observed during their joint activities. As a result of this, a demand for trust in potential partners emerges.83 However, if trust in others is low, or reputational bonds have not yet emerged to distinguish between trustworthy and non-trustworthy partners, transactors will develop a subsidiary demand for protection, which is met by the state in functioning market economies. In other words, if trust is not spontaneous or is low, the state provides a fall-back position: to the extent that court procedures and coercive enforcement are eective, state institutions function as a recourse of last resort and thereby provide a deterrent against breach of contracts.84 Transactors in Russia have little incentive to use state institutions. `Largely because of the existing tax structure and restricting regulations, but also because of other illegal aspects of a transaction, such as asset-stripping and side payments, transactors have great incentives not to disclose their activities to the state'.85 Even in the event that the courts themselves do not question the nature of a transaction, it is highly possible that cases will come under the scrutiny of other state administrations, such as the procuracy. This is not an inconceivable scenario, because the procuracy still has broad powers to oversee legal procedures, including economic cases between private parties litigated at the Arbitrazh court; thus it is not con®ned to criminal law.86 It has, for instance, the right to initiate a proceeding in the Arbitrazh court, may protest court rulings that in the view of its ocials violate the law (Art. 34, Code of Arbitration Procedure), and may initiate bankruptcy proceedings against companies (Art. 7, Law on Insolvency, 1 March 1993). `Tax authorities are also likely to keep an eye on any documentation revealing the volume of transactions or pro®ts of a company'.87 This eventually may deter litigants from using legal means and encourage the use of extra-legal settlements. Conclusion The transition to the market amounts to the spread of property. In this paper, I have explored what the act of having a right of property entails. I have singled 83

Gambetta, `Trust and cooperation', pp. 678±9. D. Charny, `Nonlegal sanctions in commercial relationships', Harvard Law Review, (1990), 104. In small, homogeneous groups where members usually engage in repeat dealings, reputations rather than formal institutions compel parties to comply with contractual obligations (J. T. Landa, Trust, Ethnicity and Identity (Ann Arbor, The University of Michigan Press, 1994)). Though such mechanisms are important even in large market societies, they are not a perfect substitute for the public legal system: either they operate in specialized markets, such as the diamond industry (L. Bernstein, Òpting out of the legal system: extralegal contractual relations in the diamond industry', Journal of Legal Studies, 21 (1992), 115±157) or, ultimately, rely on the legal system (S. Shavell, Àlternative dispute resolution: an economic analysis', Journal of Legal Studies, XXIV (1995), 1±28). 85 K. Pistor, `Supply and demand for contract enforcement in Russia: courts, arbitration and private enforcement', Review of Central and Eastern European Law, 1 (1996), 55±87, p. 84. 86 The Arbitrazh Court system exists in addition to the system of civil courts. The jurisdiction of the dierent systems depends on the status of the parties involved: claims involving entrepreneurs, private organizations, or state organs are ®led with the Arbitrazh courts. These courts have broad jurisdiction over commercial disputes, including claims arising out of contractual breaches and property claims, and over disputes arising out of government activities. F. Varese, `The emergence of the Russian ma®a', D.Phil. thesis submitted to the Faculty of Social Studies, Oxford University, (1996); see also Pistor, `Supply and demand for contract enforcement'. 84


596


out three main building blocks of an eective system of property rights: the de®nition of property rights, the possibility of deriving income from the goods owned, and the presence of an apparatus that deters crime against property. In post-communist Russia, some aspects of property rights are poorly de®ned, a predatory tax system prevents owners from legally deriving income from the goods owned, and serious doubts surround the ability of the state apparatus to deter eectively acquisitive crime and corruption. I have argued that a signi®cant factor that accounts for the present widespread corruption in Russia is the presence of powerful lobbies able to win tax exemptions. Once a sizeable section of the private sector is able to avoid paying taxes, the remaining part of the private sector is burdened with an unbearable amount of taxation. In turn, they are led to engage in corrupt practices in order to avoid obeying the rules. In eect, the entire private sector, both the section able to win tax exemption and the section which is not, have powerful incentives to undermine existing laws and encourage corruption in government. Moreover, the apparatus to deter crime has had to cope with a massive increase in the opportunities to commit crimes. This fact, coupled with the end of the Soviet police state and the increase in rights of criminal defendants, has led to a reduction in the state's eectiveness in protecting property rights. These shortcomings are all the more critical because, as argued in the ®nal section of this paper, the transition to the market leads to an increase in the demand for inter-personal trust and state protection. If eective protection is not supplied by state agencies, new property owners have incentives to search for alternative, non-state sources of protection.



How Citizens Cope with Postcommunist Ocials: Evidence from Focus Group Discussions in Ukraine and the Czech Republic WILLIAM L. MILLER, TATYANA KOSHECHKINA AND ASE GRODELAND Good governance is not just a matter of high politics.1 Free elections should do more than oer an often misleading choice of programmes and leadership: they should aect the general political culture, set the tone of democratic government, legitimate voters individually as well as collectively, turn ocials and bureaucrats into `civil servants' and encourage government to respect individual citizens as well as the collective decision of the whole electorate.2 In their analysis of democratic culture, Almond and Verba3 drew attention to the importance of what they called `citizen competence' and `subject competence', both of which, they claimed, were required for a healthy functioning democracy.4 In terms of perceptions, Almond and Verba distinguished between citizen competence (per cent who say they can do something about an unjust law on both the national and local level) and subject competence (per cent who expect serious consideration both in a government oce and from the police). Communist regimes were traditionally depicted as bureaucratic, in Laski's sense of that word rather than Weber's: à system of government . . . so completely in the hands of ocials that their power jeopardizes the liberties of ordinary citizens'.5 Citizens could expect neither serious consideration nor fair treatment without some means of ìnteresting' the ocial in their case. Dependence upon the use of bribes and contacts was notorious. Like the Tsarist regime before it, parodied so well by Gogol in The Government Inspector, the Soviet regime could reasonably be described as an àutocracy tempered by corruption'. A majority This research was funded by the Overseas Development Administration under award number R6445 to William L. Miller and Tatyana Koshechkina. Ase Grodeland is Research Assistant on the project. 1 Seweryn Bialer, Stalin's Successors: Leadership, Stability and Change in the Soviet Union (Cambridge, Cambridge University Press, 1980) pp. 166±7 claims that `low politics' constituted `the very substance of the Soviet system of political participation'. 2 See Martin Harrop and William L. Miller, Elections and Voters: a Comparative Introduction (London, Macmillan, 1987), ch. 9. 3 Gabriel A. Almond and Sidney Verba, The Civic Culture: Political Attitudes and Democracy in Five Nations (Princeton NJ, Princeton University Press, 1963; repr. London: Sage, 1989), esp. ch. 7. 4 Wayne DiFranceisco and Zvi Gitelman, `Soviet political culture and `covert participation' in policy implementation', American Political Science Review, 78/3 (1984), 603±21, discuss citizen participation in the old Soviet Union in precisely these terms. 5 Quoted by Ferrel Heady, `Bureaucracies', in Mary Hawkesworth and Maurice Kogan (eds), Encyclopaedia of Government and Politics (London, Routledge, 1992), p. 305.


598

Coping with Postcommunist Ocials

of respondents in DiFranceisco and Gitelman's survey of eÂmigreÂs from the old USSR regime suggested that bribery or connections could be used to change an unwelcome work assignment or to get a dull child into a good university department;6 and surveys of those still living in the USSR tended to corroborate these ®ndings.7 Yet it was never quite clear whether the use of bribes and contacts re¯ected a lack of `subject competence' and the ability of ocials to dominate citizens, or an excess of `subject competence' and the ability of citizens to manipulate ocials. In this connection, DiFranceisco and Gitelman found that university graduates were only a little less likely than others to suggest bribery but far more likely than others to suggest using connections; and, moreover, they found graduates were overwhelmingly in favour of a system of unequal treatment ± which they could manipulate to their advantage.8 Even after the transition to democracy such aspects of the political culture may be resistant to change.9 Or they may have changed for the worse. Since 1989 there have been several changes in the institutional and social context which might be expected to impact upon the behaviour of postcommunist ocials at a local level ± an uneven mix of reform and chaos. Of the countries in our study only the former Czechoslovakia has implemented a far reaching purge of ocials from the old regime,10 and any improvements have been oset by the loss of more competent ocials to better paid jobs in the growing private sector. The issue is essentially one of `new thinking', the location of ocials in a new more democratic structure, and political climate, rather than `new people'. Local government reforms have been characterized as a move `from democratic centralism to local democracy'.11 Before 1989, local government was simply an extended arm of central government but with the collapse of the old regime the fundamental principle of local governance was changed: local government was now to have an independent existence and be based upon a democratic mandate. That should have helped to change the political status of ordinary people from servants into 6

DiFranceisco and Gitelman, `Soviet political culture', p. 613. A. Sogomonov and A. Tolstykh, Ò nashikh zabotakh' Kommunist, no. 9 (1989), p. 75 put `the wide-spread use of pull' in third place on the list of `most pressing problems facing our country today', and in ®rst place if combined with `dependence on ocials in solving housing questions' which probably re¯ected the use of bribes or in¯uence to get better state ¯ats. 8 DiFranceisco and Gitelman, `Soviet political culture', pp. 612±4. 9 See Stephen White, Political Culture and Soviet Politics (London, Macmillan, 1979), chs 2 and 5. 10 A law was passed to purge up to 140,000 alleged communist ìnformers' ± Keith Grime and Vic Duke, À Czech on privatisation', Regional Studies, 27/8 (1993), 751±7 at p. 754; and Jirina Siklora, `Lustration or the Czech way of screening', East European Constitutional Review, 5/1 (1996), 57±62 who notes at p. 58 that President Havel opposed the purge law on the grounds that it presumed guilt rather than innocence. This law was not adopted by the new Slovak Republic when Czechoslovakia split up in 1992: Quentin Reed, `Transition, dysfunctionality and change in the Czech and Slovak Republics', Crime, Law and Social Change, 22/4 (1995), 323±7 at p. 334. 11 See Andrew Coulson (ed.), Local Government in Eastern Europe: Establishing Democracy at the Grassroots (Aldershot, Edward Elgar, 1995), esp. the chapters by Andrew Coulson, Kenneth Davey, and Adrian Campbell. See also Ingemar Erlander and Mattias Gustafsson, `The re-emergence of local self-government in Central Europe', European Journal of Political Research, 23/3 (1993), 295± 322; Robert J. Bennett (ed.), Local Government in the New Europe (London, Belhaven, 1993); Oleksandr Boukhalov and Sergei Ivannikov, Ùkrainian local politics after independence', Annals of the American Academy of Political and Social Science 540 (July 1995), 126±36; Theodore H. Friedgut and Jerey W. Hahn (eds), Local Power and Post-Soviet Politics (Armonk NY, M. E. Sharpe, 1994); and the Council of Europe's reports on the Structure and Operation of Local and Regional Democracy for the Czech Republic (Strasbourg, Council of Europe, 1993). 7


W. L. MILLER, T. KOSHECHKINA AND A. GRODELAND

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masters, thereby encouraging fairer treatment and more attention to their complaints as individuals. On the other hand, the privatization and restitution of state property have encouraged more self-interested action by citizens and ocials alike. It was designed in principle to widen consumer choice and provide fair treatment for the formerly persecuted, but also provided, and continues to provide, enormous opportunities for ocials to enrich themselves.12 Privatization or restitution is usually à lengthy and tedious bureaucratic process, complete with audits and appraisals that generate legal quagmires';13 so that ìt is often only a (substantial) bribe or an oer to share the property that can speed up the procedure'.14 Farmers operate in à climate dominated by clientelism and distrust for public institutions' and `the dependence of the private sector on selected individuals in the collective and state farm system' for access to equipment and supplies.15 Finally, there is the impact of the more general climate of economic and moral chaos. The transition to democracy has been accompanied by a collapse both of the old communist economic system, and of popular belief in the old communist value system.16 Verheijen and Dimitrova point to `the general deterioration of values' and the `moral wasteland' in postcommunist countries as a prime cause of increasing corruption amongst ocials.17 The end of communism brought unemployment (often well disguised),18 poverty, a sharp decline in health and welfare services, a rise in nationalist tensions, and a general climate of aggressive, often desperate, individualism and communalism, all of which are likely to aect the relationship between citizens and ocials adversely. Economic dislocation made many entrepreneurs and senior ocials conspicuously ± and not always legitimately ± rich, while putting the incomes of junior ocials under severe pressure. While local democratization should have encouraged junior ocials to behave better, the moral chaos and economic pressures of the transition may have encouraged them to behave worse.19 How 12 E.g., Jerey Levine Èxcuse me . . . no machinery, no money and no market; how do I farm?' Demokratizatsiya, 3/1 (Winter 1995), p. 99; or Quentin Reed `Transition, dysfunctionality and change in the Czech and Slovak Republics' Crime, Law and Social Change, 22/4 (1995) 323±37 at p. 326. 13 Lubomir Faltan, `Privatising the housing sector: the case of Slovakia', Public Administration and Development, 15/4 (1995) 391±6 at p. 394. 14 Vladimir Vanaceek and Alena Zemplinerova, `Problems and environment of small businesses in the Czech Republic', Small Business Economics, 7/6 (1995), p. 442. 15 Alessandro Bonanno, Andrei Kuznetsov, Simon Geltta and Mary Hendrickson, `To farm or not to farm: rural dilemma in Russia and Ukraine', Rural Sociology, 58/3 (1993), 404±23 at p. 419; see also Levine, Èxcuse me . . . I've no machinery', p. 99. 16 In 1993, 31 per cent in ECE (east central Europe) and 56 per cent in the FSU (former Soviet Union) told us they had `believed in communist ideals' at some time, though only 20 per cent in ECE and 18 per cent in the FSU did so `now', W. L. Miller, S. White and P. Heywood, Values and Political Change in Postcommunist Europe (London, Macmillan, 1997, in press), ch. 4. 17 Tony Verheijen and Antoaneta Dimitrova, `Private interests and public administration: the central and east European experience', International Review of Administrative Sciences, 62/2, (1996) 197±218 at p. 212. 18 Volodymyr Zviglyanich, Ùkraine's labour policy: underemployment', The Jamestown Foundation Prism. A Bi-weekly on the Post-Soviet States, 2/10 (17 May 1996), (pt. 3), 1±6. 19 See e.g., Steve Kettle, Òf money and morality (in the Czech Republic)', Transition (formerly RFE/RL Report) (15 March 1995); James Meek, `Scourge of corruption fends o Ukraine's hostile elite', (15 August 1995) Guardian. Sergei Boskholov, Òrganized crime and corruption in Russia', Demokratizatsiya 3/3 (1995), 271±2 claims that the use of bribery in Russia has grown over the last


600


these contending in¯uences are balanced is an empirical question. Lack of motivation, unclear responsibilities, dicult personal circumstances (low wages), a bad example at the top and poor monitoring of their activities, all provide conditions that encourage corruption amongst junior ocials though they neither guarantee nor excuse it. In her study of the use of `blat' (contacts and in¯uence), Alena Ledeneva suggests that the transition from communism to a market economy had two eects upon the use of contacts and bribery in the former Soviet Union: ®rst, the predominant use of `blat' shifted from the everyday life of ordinary citizens up to the networks of former nomenklatura now turning themselves into quasicriminal businessmen; but second, in the everyday life of citizens ± which is what concerns us here ± crude monetary bribes increasingly supplemented or even replaced the subtle and sometimes civilizing use of contacts.20 Our focus group discussions lend some support to both those conclusions. ECE and the FSU Our previous surveys of public opinion and democracy in ®ve postcommunist countries showed that there were modest dierences between the FSU (former Soviet Union) and ECE (east central Europe) on Almond and Verba's ®rst aspect of democracy: citizens in the FSU were only 10 per cent less likely than in ECE to agree that regular elections had at least some eect in making politicians do what ordinary people want.21 But there were much larger dierences between the FSU and ECE when we attempted to tap perceptions of `subject competence' using a slight variant of Almond and Verba's original questions: `Suppose there were some problems you had to take to a government oce ± for example, a problem about tax or housing. Do you think you would be treated fairly by the ocials in that oce?' We found citizens in the FSU were 39 per cent less likely than those in ECE to expect fair treatment from ocials without recourse to bribes or contacts; and Members of Parliament in the FSU, 59 per cent less than those in ECE.22 Ukraine and the Czech Republic were at the extremes: citizens in Ukraine were 49 per cent less likely to expect fair treatment without recourse to bribes or contacts than those in the Czech Republic; and Ukrainian MPs 58 per cent less than Czech MPs. Expectations of fair treatment correlated very weakly with trust in `most ordinary people that you meet in everyday life' (r 0:07); but much more with trust in `the police' (r 0:21) or with trust in `the government' (r 0:24); so expectations re¯ected perspectives on the political and administrative system rather than purely personal psychological tendencies. Levels of trust in government varied from country to country. But that failed to explain the varying numbers who expected fair treatment from ocials: those few years. In 1993 4500 cases of bribery in government (an increase of 35 per cent compared to 1992) involving some 1500 ocials were revealed; 42 per cent of these cases involved ocials working in ministries, committees and other structures in the provinces. Bribery in the legal administration accounted for 26 per cent of the cases revealed. Russia diers signi®cantly from the Czech Republic, but much less from Ukraine. 20 Alena V. Ledeneva, An Economy of Favours: Informal Exchanges and Networking in Russia (Cambridge, Cambridge University Press, forthcoming), ch. 6. 21 Miller et al., Values and Political Change, ch. 9. 22 Miller et al., Values and Political Change, chs 5, 10. # Political Studies Association, 1997


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TABLE 1. Public: Expect Fair Treatment by Ocials (%) Yes Only with connections or bribes No

Ukraine

Russia

Hungary

Slovakia

Czech Rep.

12 20

16 17

43 7

53 14

61 5

67

67

50

33

34

Note: Based on 5769 (hour long) interviews with representative samples of the public, November±December 1993. TABLE 2. MPs: Expect Fair Treatment by Ocials (%) Yes Only with connections or bribes No

Ukraine

Russia

21 5 74

19 8 73

Hungary Czech Rep. 79 4 17

79 5 16

Note: Based on 504 similar interviews with Members of Parliament, October±December 1994. (There was no survey of MPs in Slovakia.)

who `completely distrusted' the Czech or Slovak governments nonetheless expected fairer treatment from ocials than those who `completely trusted' the governments in Russia or Ukraine; those who described themselves as òpponents' of the government in Slovakia or the Czech Republic were much more likely to expect fair treatment from ocials than those who described themselves as `supporters' of the government in Russia or Ukraine. So expectations of fair treatment by ocials re¯ected more than general political satisfaction or dissatisfaction. Either ocials in the FSU really do treat citizens worse than in ECE, or citizens in the FSU have got more into the habit of complaining than in ECE ± they have certainly had much to complain about in the past, and the old Soviet regime (cynically, perhaps) encouraged a `culture of complaining' as a system of controlling ocials.23 It is just possible that the huge discrepancy between allegations of ill-treatment in ECE and the FSU, as revealed by our surveys, could re¯ect habits of conversation and complaint rather than the actual behaviour of ocials, though our focus group studies will show that is not the explanation. Methodology To investigate the interaction between postcommunist ocials and citizens in more depth we have begun with a series of focus group discussions in the countries that diered most in our previous surveys, Ukraine and the Czech Republic. Our full study will involve four phases ± focus group discussions, 23 See Nicholas Lampert, Whistleblowing in the Soviet Union: Complaints and Abuses under State Socialism (London, Macmillan, 1985); for an account focused somewhat more on policy and less on abuse of power see Stephen White, Graeme Gill and Darrell Slider, The Politics of Transition: Shaping a Post-Soviet Future (Cambridge, Cambridge University Press, 1993), ch. 11.


602


TABLE 3. Public: Expectations of Fair Treatment without Bribes or Contacts ± by Attitudes to Government (%) All respondents Ukraine Amongst those who: completely trust govt mostly trust govt neither mostly distrust govt completely distrust govt `support' govt neither òppose' govt

55 48 42 26 17 48 32 22

na 28 17 9 8 30 12 8

Russia Hungary Slovakia 28 25 18 13 10 22 15 13

na 61 50 42 30 60 45 34

76 64 64 46 34 65 52 45

Czech Rep. 87 74 65 50 32 71 65 42

Note: na less than 20 respondents in this cell.

followed by one-to-one in-depth interviews, then large scale quantitative surveys of public opinion and of junior ocials; and it will extend to Bulgaria and Slovakia as well as Ukraine and the Czech Republic. The focus-group discussions, each lasting up to two hours, were designed to see whether people were willing to discuss such a sensitive topic openly and, if so, how they did so ± in their own words and with a minimum of prompting. The corresponding in-depth interviews were designed to see whether they said dierent things in the context of a semi-public group discussion or a more private and con®dential one-to-one discussion. Since these are small-sample techniques, large scale public opinion surveys will be necessary both to provide representative ®ndings for each country and to permit detailed analysis of patterns within countries. Interviews with ocials will provide a `right of reply'.24 The focus group discussions were video-recorded and transcripts produced in both the original language and English. These computer-readable transcripts provide not just a complete record but also allow a degree of computer-assisted analysis. We have used the QSR:NUD.IST (Revision 3) package for this purpose. Our focus group discussions were completed in the second half of 1996: two in each of the capital cities, Kyiv and Praha ± one of which, in each capital, included more highly educated participants; plus a focus group in a medium town, a small town, and a village in the Czech Republic, in the Russian speaking area of east Ukraine around Donetsk, and in the Ukrainian speaking area of west Ukraine around Lviv; plus a focus group centred on a geographically concentrated ethnic minority in Ukraine (Crimean Tatars). Corresponding to each focus group was a set of 5 one-to-one in-depth interviews (6 with Ukrainian Tatars). Only those who had had some personal contact with ocials (or the police) in the last one or two years were invited to participate. Although we cannot assume that the focus groups were strictly representative of the entire population in each country, it would be equally wrong to assume that they were wildly unrepresentative. Insofar as strict representativeness is critical, our large scale follow up surveys will provide the necessary check. We accept, as we must, 24 For a very early example of such a two-level survey approach in the FSU see R.A. Safarov, Obshchestvennoe mnenie i gosudarstvennoe upravlenie (Moscow, Yuridicheskaya Literatura, 1975).



603

TABLE 4. Design of the Focus Group Phase Ukraine East Capital city (lower educ.) Capital city (higher educ.) Medium town Small town Village Ethnic minority Total participants in focus groups

West

Kyiv-B Kyiv-A Khartsyzsk Striy Horodok Volnovakha Nikolayevka Sholomia Sevastopol (Tatars) 155

Czech Republic Praha-A Praha-B Hradec Kralove Kutna Hora Olesnice ± 38

Notes: 1. Focus groups were organized by USM (Ukrainian Surveys and Market Research) of Kyiv, and OPW (Opinion Window Market Research and Analysis) of Praha. 2. All focus group discussions were video-taped. Computer readable vernacular and English-language transcripts were made from these tapes. 3. In addition, ®rst class professional simultaneous translation was provided by Marichka Padalko in Ukraine and Klara Flemrova in the Czech Republic during the 7 FGs marked with an asterisk, which were all attended by Miller. 4. FGs in East Ukraine were located in the Donetsk region, those in West Ukraine in the Lviv region, all chaired by Alexander Fedorishin, using the language chosen by the participants ± Russian in Kyiv, Sevastopol and East Ukraine, Ukrainian in West Ukraine. Czech FGs were spread across the Czech Republic, all chaired by Ladislav Koppl.

that our focus groups may not be representative ± though we have no reason to believe that they actually are not, and some reason to hope that they are. There is a popular but fundamentally misconceived dictum that `qualitative data should not be subjected to quantitative analysis'. Findings based upon the limited numbers of participants in focus groups may be unrepresentative of the country as a whole. Alas, that is equally true, whether the ®ndings are expressed in words or in numbers. Analysis of focus group material is usually based on the reviewer's impressions supported by selected quotations. Unfortunately that compounds the problem of representativeness rather than solving it, because the selected quotations may not even be representative of the discussions as they occurred. Quantitative analysis is entirely valid and appropriate as a description of the discussions; it is the assertion that the discussions are necessarily representative of the country as a whole that is not ± irrespective of whether the description of the discussions is expressed in words or numbers. To provide an accurate description of what people actually said in the discussions we shall use numbers as well as representative quotations. QSR:NUD.IST provided comprehensive and almost instant access to the full text of relevant quotations from the transcripts, as well as quantifying them. But what are we to quantify? We have chosen the `text-unit' as our unit of analysis, de®ned as the contribution made by one person at one point in the discussion, starting when that person starts speaking and ending when the next person intervenes. Such text-units could be as short as a word or as long as a paragraph, though typically they extend to about two lines of text. Ignoring the # Political Studies Association, 1997

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631 text-units in the Czech Republic and 2634 in Ukraine which were contributed by the `moderators' who chaired the discussion, our analysis is based on the 1459 text-units contributed by focus group participants in the Czech Republic and the 5143 by participants in Ukraine. We read through the transcripts, indexing each text-unit according to various classi®cation schemes re¯ecting, for example, whether the text-unit referred to generalized hearsay and gossip or something more personal, whether it mentioned arguing with an ocial or bribing them, whether the purpose was to obtain fair treatment or favourable treatment, and so on. This allows us to calculate how much of the actual discussion fell into various categories and combinations of categories. It is important to note that all percentages in our focus group analysis are percentages of text-units, not percentages of participants. It is also important to note one essential dierence between text-units in focus group discussions and the answers given in a typical opinion survey: a single text-unit can answer several questions, or give several answers to the same question: for example, Ì have heard that some people give large bribes, but I have never given anything more than a box of chocolates as a token of appreciation' would be classi®ed as both `general hearsay' and a `personal statement', because it talks about both. This need for `double indexing' means that the percentages of text-units in dierent categories usually sum to a little over 100 per cent. We drew up a detailed schedule of suggested questions which was translated into the local languages and used by moderators to guide the focus group discussions. It had ®ve sections, raising, in sequence, increasingly personal and sensitive questions about: (i) attitudes towards the transition ± both to democracy and to a market economy; (ii) general expectations ± how ocials would `typically' treat citizens, and how citizens might respond; (iii) projective situations ± what `people might do' in certain speci®c scenarios which we outlined; (iv) personal experience ± what had actually happened to participants, their close friends or relatives; (v) past and future ± how things had changed since the fall of communism, their expectations for the future, their proposals for reform. Moderators retained the ¯exibility to adjust to the ¯ow of the discussion. Participants might spontaneously raise the `scenario' situations, or respond with tales of personal experiences when they had only been asked about `typical' situations, for example, making later sections of the schedule largely redundant. Variations in the sequence of discussion topics have no eect upon our analysis, since we index all comments according to their content, not the point in the discussion where they occurred, but the omission of a topic altogether prevents analysis. Findings Perspectives on the Transition While there was wide support for the transition from communism, there was also wide criticism of the way it had been handled and, in Ukraine, some doubts # Political Studies Association, 1997


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about whether a transition had really taken place at all. In the Czech Republic the transition was accepted as a matter of course but criticisms of conditions under the new regime were voiced: `the law of the jungle ± he who's got money has got power . . . harsh social policy' (PrahaA 3);25 àdvanced countries were always saying . . . the free market did not solve everything, that certain matters had to be solved by interference of the state' (PrahaB 7). In Ukraine the transition was more open to debate. It had a lot of support especially, but not only, in west Ukraine: `The transition to the market economy is necessary as the whole world lives like that' (Horodok 1); `the whole world lives, and it lives better than we do, in market conditions ± I think that it was necessary to move' (Sholomia 5); `something had to be changed' (Khartsyzsk 6); à market approach . . . a very correct decision' (Sevastopol 4). But there was criticism of the way it had been done, coupled with justi®ed scepticism about whether the transition had been to a market economy or to something else: Ìt is a good thing but I think it should not be the way it has started in this country' (KyivB 1); `the state must regulate this process' (KyivB 4); `they broke everything apart and haven't built anything' (Sevastopol 1); `we still haven't built a market' (Sevastopol 3); `privatization is not being done' (KyivA 4); `they don't let private farms rise' (Sholomia 4). More relevant to our concerns about the interaction between citizens and ocials, there was the perception in Ukraine ± largely absent in the Czech Republic ± that the transition was itself the ®nal criminal act of the communist regime and its ocials. That perception was bound to encourage, or at the least excuse, corrupt behaviour by ordinary citizens in their dealings with the state. Some explicitly held the state responsible for the transition in the most allembracing terms: `The state took responsibility for transition to the market' (Sevastopol 4). Others were more speci®c about the transition from communism being, paradoxically, a conspiracy by communist ocials against ordinary citizens: `what's going on now is a lie of the ®rst order' (KyivB 4); ìt's clear that [the transition] is being eected with the old Soviet methods' (Sevastopol 4) èverything is being cut down [on the collective farm] in order to reduce the price to a minimum so that certain uncles26 can buy everything free' (Sevastopol 5); `cut back on production, cut back on workers . . . so that they could privatize them at low cost' (Sevastopol 6); òld managers remain in new structures . . . they knew that the Soviet Union would be collapsing [and took] a combine harvester or any other machine' (Sholomia 2); `the former managers are now directors of banks, private commercial ones' (Sholomia 4); `those in power are the same, but [our] life has become 100 times worse' (Volnovakha 1). The criticism extended to elected postcommunist politicians. Elected deputies were widely seen as being in politics for personal advantage. Comments about elected politicians in Ukraine sometimes alleged indolence or incompetence: `they're far away from us and they don't know our expectations ± they don't want to listen' (Nikolaevka 4); `many of them were sincere . . . but many are just incompetent . . . we have lots of illiterate people there' (KyivA 1); `they rule more with emotions than with their head' (Striy 3). But frequently they alleged simple self-interest: `power is necessary for money' (KyivB 6); èven if one honest person 25 (PrahaA 3) indicates that this quotation is from a contribution by participant number 3, in the ®rst focus group in Praha, PrahaA. All such quotations in this paper have been reproduced verbatim from the computerized transcripts supplied by OPW Praha or USM Kyiv. 26 Powerholders in the old regime.


606


®nds himself there, he can't change anything because the majority do just so' (KyivB 1); à good half of them . . . look more after their own interests' (Horodok 1); `why did it take so long to adopt the Constitution? Because all boiled down to the personal interests of deputies' (Khartsyzsk 3); `they're stung their wallets' (Nikolaevka 3); `just live well yourself . . . shielding yourself with the help of deputies' immunity is necessary when your pocket is full' (Volnovakha 1). Such comments were absent from the Czech discussions, possibly because the Czech moderator did not raise this issue explicitly, but in neighbouring Slovakia where the moderator did raise the issue, participants also responded negatively though with a little more humour and less venom: `you couldn't trust them ± they themselves do not trust each other . . . I do not have an opinion and if I did it would be negative' (BratislavaA 8); ìt's the worst thing when communists start to build capitalism ± they combine the worst qualities of both' Ì agree' Ì feel oended by being represented by people like this' (BratislavaB 4, 8, 1 successively); èverybody defends their own interest' Ì strongly agree' `me too' (Dolny Kubin 6, 7, 1 successively); `here politicians strive to get into the cabinet in order to gain ®nancially . . . it's like ``®rst of all we will steal everything, as for what happens afterwards, why worry about the future'' ' (Zvolen 7). In Slovakia there were a few more ambiguous comments however, which makes them at least relatively positive: `they only think about themselves . . . ®rst themselves and only then the others' (Presov 5); `they are interested in people but only in the pre-election campaign' (Dolny Kubin 2); `they may strive to do something but I think they are very slow in doing it' (Presov 2).27 The Impact of the Transition on the Behaviour of Ocials Attitudes towards ocials generally were more negative than positive in both Ukraine and the Czech Republic. We systematically indexed all text-units which mentioned ocials according to whether they revealed positive or negative attitudes towards them: many comments were neutral, non-evaluative, or combined praise and criticism, but in the Czech Republic the balance was negative by 38 per cent to 11 per cent, and in Ukraine by 27 per cent to 7 per cent. Even the frequent comment that the behaviour of ocials depended on their `personal quality' and could not be generalized implied a Laskian rather than Weberian bureaucracy, since one of the ambitions of the latter would be to make its service predictable and impersonal. On the other hand, indexing text-units by whether they suggested the behaviour of ocials under the postcommunist regime was now better or worse than under communism indicated an improvement in the Czech Republic, even if only by the narrow margin of 31 to 23 per cent; but a turn for the worse in Ukraine, by the massive margin of 45 to 8 per cent. Signi®cantly also, the Czech discussions were less critical of postcommunist change when talking about ocials than when talking about other aspects of the change; while the Ukrainian discussions were even more critical when discussing the behaviour of ocials than when talking about other aspects of the change. 27 But people do not have a high opinion of British politicians either. Our surveys of the British public show that 90 per cent trusted ordinary people, but only 33 per cent trusted politicians, Miller et al., Values and Political Change, ch. 20.



607

In the Czech Republic the main criticisms concerned ineciency, incompetence, unhelpfulness and bureaucracy rather than the need to resort to contacts and bribery. At the level of the ordinary citizen, bribery was more associated with the lack of consumer goods and services under communism, than with junior government ocials in the postcommunist period. And some participants made excuses for ocials: ùnfortunately there are also people who really know how to bug an ocial' (PrahaA 1). The minority of Czech text-units which suggested a change for the worse, focused more on increasing bureaucracy than increasing corruption: `the paper work has increased substantially' (Kutna Hora 9); `bureaucracy has grown and one comes into contact with ocials more often now than in the past' (PrahaA 3). And almost half the relevant text-units indicated no change: `they haven't changed, have they?' (Kutna Hora 7); `where new ocials have taken over, they are often not experts, so nothing has changed' (Kutna Hora 4); òld structures survive . . . in relation to ocials, those who accepted [bribes] before, accept them today as well, and the newcomers have learned very quickly' (Kutna Hora 5). Complaints about ocials went beyond allegations of bureaucratic ineciency in Ukraine however. Certainly they included ineciency and unhelpfulness: `nobody gives comprehensive information' (KyivA 5); `low level ocials exploit their authority' (KyivA 3)'; `[ocials] choose who they're going to receive . . . a simple problem always turns into a complicated one' (Striy 3); `you come and there's a chairman but no secretary, or there's a secretary but no chairman' (Sholomia 4); òne has to wait for half a day until he'll look into it there' (Sholomia 1); `reluctance to look carefully into the problem with which a person comes' (Khartsyzsk 6). But they also included extortion: `there are decent people [ocials] . . . and it is great to deal with them . . . but the system lets them take bribes . . . encourages bribes' (KyivA 2); ìf it's urgent you should go with a present, and then your problem will be solved more simply, you'll be treated with respect, the problem will be solved quickly, competently' (KyivB 2); `now . . . you may be told at every turn which sum of money, whom to give' (Horodok 1); `like from a good joke ± ``give me a cigarette, give me a match'' ± ``maybe I could give you my lips too?'' ' (Khartsyzsk 5). Moreover the reasons given for why things had got worse under the new regime had a quite dierent ¯avour in Ukraine from the Czech Republic. A few text-units mentioned confusion caused by rapid changes in the law: `there's one TABLE 5. Attitudes to Postcommunist Changes (%) Text-units about changes which do not mention ocials

Better now Neutral Worse now (Total N)

Text-units about changes which mention ocials

Czech Rep.

Ukraine

Czech Rep.

Ukraine

27 44 35 (97)

17 52 31 (378)

31 46 23 (64)

8 48 45 (183)

Note: In this, and in all following tables, percentages are of relevant `text-units' in the focus group discussions, not of participants. The total number of relevant text-units on which percentages are based is shown in brackets at the foot of each column. # Political Studies Association, 1997

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law today, another tomorrow, a third the day after tomorrow' (Volnovakha 2). Some partially excused ocials because their salaries or perks had declined: `they had no bad salaries [in the past]' (KyivB 4); àny junior ocial [under the communist regime] could get lots of social bene®ts for himself' (KyivB 5); `the same militia, they [now] get a pittance' (Striy 5). But the most frequent explanation was that ocials were àfraid' under communism, but àfraid' no longer. Afraid of losing their jobs: `they were afraid of losing their place' (Horodok 3); `they were afraid of losing their position' (Horodok 1). Afraid of the party: `there was a party . . . they were afraid of it' (Horodok 4); `there was a kind of party discipline' (Sholomia 2). Or simply afraid: `they were afraid, they were just afraid' (Sholomia 6); ìt was stricter before' (Volnovakha 5). But no longer: `they aren't afraid [now] and they don't respect the law' (Horodok 3); `[now] they're afraid of nothing, no one ± that's why there is no hope for the better' (Khartsyzsk 3). The one or two references to fear in the Czech discussions were tentative and quali®ed as well as unusual: `depends on the place, but I think they used to be more frightened' (Olesnice 6); `there may be certain institutions where people [citizens] formerly did not dare give a bribe, I mean police or customs authorities' (PrahaB 1). But what was tentative and infrequent in the Czech discussions was assertive and frequent in the Ukrainian. Dealing with Ocials: What and Why What kind of ocials did participants talk about? Obviously, in the `projective situations/hypothetical scenarios' section of the discussion, the types of ocials were at least partially determined by our schedule rather than the participants themselves. Our standard scenarios included problems with getting a relative into a hospital and obtaining proper medical treatment, problems with public housing and privatization (housing in the town groups, land in the village groups). In Ukraine we added special scenarios about obtaining internal and external passports; and in the Czech Republic about being stopped by the trac police for speeding. In discussions with minority groups ± Turks in Bulgaria and Hungarians in Slovakia as well as Crimean Tatars in Ukraine ± we asked about problems of schooling in the minority language. But scenarios accounted for a minority of text-units in which strategies for dealing with ocials were mentioned ± 20 per cent in the Czech Republic and only 12 per cent in Ukraine. The bulk of references to ocials came in reply to neutrally worded questions about `the typical situation' involved in dealing with ocials, or about the participants' own experience. Quite naturally, general discussion of the `typical' behaviour of ocials often omitted to specify a particular type of ocial. So 30 per cent of relevant text-units in the Czech discussions and 47 per cent in Ukraine were not focused on one particular category of ocial. Amongst the rest, ocials in health care, local government, and the police/militia ®gured especially prominently. They were supplemented by a range of other ocials in social security oces, labour exchanges, local authorities and, in some groups, ®nancial, tax and land registry oces. Perhaps more important than the type of ocial was the motivation for the interaction. Indexing text-units on dealing with ocials according to whether the citizen appeared to be seeking an entitlement or a favour showed that the Czech discussions focused more on seeking favourable treatment than fair treatment by a margin of 45 to 34 per cent; but in Ukraine they focused more on # Political Studies Association, 1997


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the minimum objective of obtaining fair rather than favourable treatment by the even larger margin of 50 to 18 per cent. Fair or unfair treatment typically involved routine processing of documents relating to employment, pensions, child allowances, tax, marriage, passports, land registration, moving ¯ats, or getting in to hospital. It was regarded as an unfair infringement of citizens' rights when they were treated unhelpfully, when ocials refused to do business long before the formal closing time of the oce, refused to authorize repairs to state ¯ats, lost documents, took many months to process an application for a pension or for land restitution, or showed little concern for citizens' problems. For example: `[when a man took his wife to hospital as an emergency] the nurse goes to wake the doctor up . . . he fell asleep three times . . . she had to wake him up three times' (Olesnice 1); èverybody brought the documents for the subsidies . . . they [the ocials] lost all the documents' (Horodok 4); à water main has broken in the street, the water/sewer oce doesn't help' (Khartsyzsk 6); `his passport had been lost . . . I went to get him [her brother] from the morgue ± they gave me the body and said ``we're not giving you any kind of copy [including certi®cates needed to claim bene®ts] about the death . . . [unless you] give us the passport'' ' (Nikolaevka 4). TABLE 6. Objectives Czech Rep. (%) Rights Favours Unclear (Total N)

35 45 25 (437)

Ukraine (%) 50 19 33 (1031)

Note: We used our own judgement about whether the citizen's objective was to obtain a right which should have been available to everyone, or a special favour for themselves. See text for some examples.

Favours often consisted of getting something done faster than could reasonably be expected: ìf I pay some extra money they have it ready for me in an instant . . . an example, I need an extract from the land register and I know they have ®xed terms but I need it today' (Hradec Kralove 4); ` some [medical] examinations could be speeded up' (Hradec Kralove 4); `just after closing time there was this other guy and he says, look miss, I will pay you for half an hour's work' (Olesnice 2); ìn the passport department they say, ``do you want to get this document faster?'' ' (Horodok 1). Other favours involved avoiding legal costs in various ways: Ì forgot to hand in my tax return by May 3rd, and they, as friends, wrote April 29th' (Olesnice 4); `for a speed of 165 km/h they ®rst threatened legal proceedings, then it went down to a 2000 crown ®ne on the spot and ®nally it changed to 500 crowns which I gave them very quickly' (Kutna Hora 8); Ì go for a preventative examination twice a year and since at my age I am only allowed to go once, I always bring them coee and the dentist turns a blind eye to it and does not charge me anything' (PrahaA 6); `the customs ocers saw that we had alcohol . . . we say ``didn't someone tell you about us?'' ' (Horodok 4). Others involved something more: `when I tender for a job . . . now I need a friend [in the oce] who can hold jobs for me' (Olesnice 2); èverybody knows # Political Studies Association, 1997

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that to get into university he has to give something' (Horodok 6); ìs your son getting bad [school] grades? . . . well if you bring something' (Khartsyzsk 3); `there is a law . . . until you change your [internal] passport to the [new] Ukrainian one, it is impossible to get your foreign passport without a bottle of cognac and a box of sweets' (KyivB 1). Dealing with Ocials: How How can citizens deal with ocials? What coping strategies can they use when faced with unfair (or unacceptable) treatment? There are many possibilities. Acceptance. They can simply accept the treatment they are given; do what they are told and hope for the best: `pay [the trac ®ne] in any case and be very polite and humble and it [the ®ne] will be less' (Kutna Hora 3); `when you want to aorest a piece of meadow, you spend a year running round oces' (Olesnice 6); `my husband died . . . and I applied for a widow's pension . . . I had to queue for many other things . . . the worst was . . . where I had to queue for four hours . . . it's a real burden for me and it isn't ®nished yet' (PrahaA 6); `you have to stay there for a long while to have your question resolved' (Horodok 1); `they can scream at you if they do not like the way you look, dressed ± they can tell you to come some other time . . . you turn and leave with nothing' (KyivB 4); `this is the police . . . if they say you need such and such a paper, then you have to bring it to them, or else they won't lift a ®nger' (Nikolaevka 1); `without our own land . . . the return of the property is out of the question' (Sevastopol 6); Ì clearly understood from the very beginning that it would not do any good . . . I came there, turned round, and went home' (Striy 4); èight months have passed, and nothing I hear' (Volnovakha 1). Persistence. They can imitate the widow in the Bible, faced with an unjust judge, and be persistent in the hope that the ocial ± like the biblical judge ± will eventually decide it is more trouble to continue refusing the request than to grant it: Ì prefer annoying them by saying a hundred times . . .' (Hradec Kralove 3); Ì stuck to my guns and managed to sort it out, although I had to go there many times' (Hradec Kralove 6); `they throw me out of some places, I have to come another time, but I have to, right' (Olesnice 4); `drop in there every week and when they see me at the door they say to themselves `Òh God, she's here again, let's give it to her and get rid of her'' ' (PrahaB 6); ìt's like by inertia that these elderly people go again and again to the chairman of the executive committee, because there's nowhere else to go' (Khartsyzsk 3); `you have to be there every day . . . it takes visiting bureaucrats to death ± up to when it pesters' (Volnovakha 1); and with, we assume, poetic exaggeration Ì have the experience of going thousands of times to receive a certi®cate' (Sholomia 3). Argue/threaten. They can argue with the ocial or even threaten them ± argument covers everything from quiet reasoning to loud abuse: Ì said I must have given you the [old] passport or you wouldn't have given me a new one . . . she was puzzled, apologized, but if it had happened the other way round, if we made a mistake . . .' (Olesnice 4); Ì stood there like this, grabbed the technician . . . I swear a bit, like the others do' (Olesnice 2); Ì did talk them out of ®ning me several times in the past' (PrahaA 3); Ì'd say the ocials are afraid of them [gypsies] . . . and when a horde of them march in they [the ocials] are completely lost . . . but I try to convince them [ocials] by the force of my argument' (PrahaA 4). # Political Studies Association, 1997


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The Ukrainian approach to argument was more robust than that, to say the least: Ì raise my voice and emphasize to the person that he or she is not at the place where he belongs' (Horodok 3); `make a big fuss . . . I had to throw a hysterical ®t ± then they gave it to me' (Khartsyzsk 2) ± though `my wife would make a big fuss, but I would probably most likely look for money' (Khartsyzsk 5); ìf you do not need a passport urgently, or if you do not have money, you can be rude and shout at them' (Sholomia 4); Ì was really mad . . . when a person enters the oce and opens the door with his leg, then the ocial knows that this is a tough one to deal with, and they will at once give away everything that person wants' (KyivA 1); `people get nervous, blow up, yell at each other . . . here my daughter burst into tears . . . I phoned the KGB and asked ``who are you trying to catch? . . . we're not in Moscow, we're in Ukraine, on our own land!'' ' (Sevastopol 6). In the Czech accounts, àrgument' sometimes had the character of a parlour game, but in the Ukrainian accounts they consistently had the character of a street brawl. Appeal. Appeal to higher authority, to the press, or to elected ocials: Ì would simply go higher' (Hradec Kralove 6); `go up the ladder' (Horodok 2); `to the head doctor . . . to the District Executive Committee . . . to the passport department head' (Horodok 1). Or even higher: Ì wrote to the Region executive oce' (Volnovakha 1); `just today I have written to the Mayor' (PrahaA 7); à Tatar turns to the Medzhlis ®rst of all' (Sevastopol 4). Or right to the top: `she wrote to the Minister' (Olesnice 3); `she started writing to the Presidential Oce, to Parliament and I cannot remember the third institution she turned to, and then the ice broke' (PrahaB 1); `we have appealed to the Supreme Soviet of Ukraine many times' (Sevastopol 5). Some thought it a useful strategy: ùsually, very often, this works, fear of the boss . . . I go up the ladder' (Khartsyzsk 1); `Kirnos, the head of the executive oce spoke on the phone so those guys had to come next day and do everything' (Volnovakha 3). But others did not: `then it was easier, when there was the ®rst secretary of the party city committee . . . now there's no power like that' (Khartsyzsk 3); `we try to appeal for help as little as possible' (Khartsyzsk 4). Bribery. There remains, however, the use of contacts, in¯uence, and bribery which featured so much both in the academic literature and everyday conversations about the FSU/ECE.28 Bribery can vary from a box of chocolates or a packet of coee ± usually described by both donor and recipient as a `present' rather than a `bribe' ± to what is called in the Czech Republic àn envelope' and more plainly in Ukraine `money' or `dollars': Ì pay some extra money . . . another option is a gift' (Hradec Kralove 4); `money as a rule is not ``coupons'' [Ukrainian temporary currency]' (KyivB 4); `people give dollars' (Sholomia 4). In general terms this was seen as widespread, especially in

28 Anecdotal evidence about the use of presents in return for ocial favours is given in Konstantin M. Simis, USSR: Secrets of a Corrupt Society (London, Dent, 1982). For political corruption in the former USSR see Arnold J. Heidenheimer, Michael Johnston and Victor T. Levine (eds), Political Corruption: a Handbook (New Brunswick NJ, Transaction, 1989); Leslie Holmes, The End of Communist Power: Anti-corruption Campaigns and Legitimation Crisis (Cambridge, Polity, 1993); and Aron Katsenelinboigen, `Corruption in the USSR: some Methodological Notes', in Michael Clarke (ed.), Corruption, Cases, Consequences and Control (London, Pinter, 1983). These works focus on `high' level corruption, whereas we are interested in the use of bribes and favours at the `low' level, solid evidence of which is limited.


612


Ukraine: `now, anywhere you go, they can even tell you how much, whom to give, and for what sort of matters' (Horodok 1); `they'd better have a price list' (Sholomia 5); and often involuntary: `maybe you wanted to, maybe you didn't want to, but they took it from you ± they tell you a speci®c sum' (Khartsyzsk 6). Contacts. Ìn order to get to any of our authorities you have to be brought to them `òn a tray'' ' (Striy 3); `we told them the name of the high ocial of that custom point who could help us get through . . . we knew each other before . . . their head told the ocers to leave us alone and let us through' (Horodok 4). The contacts needed for in¯uence or bribery may be chosen because they are close to the citizen ± family, friends, colleagues from work, school or university, perhaps near neighbours: Ì was lucky; I lived with the chief of police' (KyivB 5); or because they are close to the targeted ocial and therefore known to have access and in¯uence ± a secretary or a nurse in a hospital may provide access to a doctor, for example. Some may be old acquaintances of the citizen now pressed into new service; others are `discovered' specially for the occasion. In the Czech Republic, contacts (`znami') were acquaintances of various kinds ± `family, friends, former classmates' (Hradec Kralove 3); `friends or relatives' (Olesnice 4); `rather people I know, who help me, but they are not contacts in the true sense of the word' (PrahaB 7) ± that is specialist `®xers'. In the Czech village of Olesnice the help of friends was important and did not require payment; Ì'll do what he needs next' (Olesnice 4); `she [a nurse who gave treatment on a Sunday] would not take money . . . she even hesitates over the chocolates, you instead give them to her children' (Olesnice 4). In Ukraine such people were also important though there was rather more emphasis on searching for useful contacts, and on paying them for their services: òf course, acquaintances wouldn't do anything for you without money either' (Sevastopol 6); ìf you have to give a rouble, then through a go-between it'll take two roubles because you have to give the go-between something' (Sholomia 5). Other strategies. In the course of our discussions other strategies were mentioned. There were a very few references to the possibility of forming some kind of protest or action group, or going to court. Rather more frequently participants mentioned various `knowledge' based strategies which ranged from checking up on the law before meeting an ocial, or even taking a lawyer along to the meeting, to strategies that came close to the use of `contacts' ± `knowing the ropes', inside knowledge about how a bureaucracy operated or who had the power of decision, not using a `contact' with a speci®c person, not doing any favour for an ocial, but knowing which ocial (by position rather than by name) to approach. Such knowledge is not the same thing as use of contacts but it merges seamlessly into it. Finally there was a miscellaneous set of other strategies, mainly concerned with personal appearance and behaviour, and frequently described by participants as using `psychology' ± a pleasant smile, a word of sympathy for an overworked ocial, an attempt to establish a degree of human rapport, a style of dress that was neither so slovenly as to fuel the ocial's arrogance nor so stylish as to excite the ocial's jealousy: ìf a person is courteous' (Horodok 3); Ì see you have a lot of work here' (KyivA 5); ìt depends on sex appeal or on psychology, yes just that, how to talk the policeman round' (Kutna Hora 7); on appropriate dress ìf you go to the revenue oce to ®le a tax return, overalls would certainly be a better choice [than a smart suit]' (Hradec Kralove 4); àct the idiot' (PrahaA 5); or, try a joke such as, in response to being stopped for speeding, Ì told him [the trac cop] I usually go much # Political Studies Association, 1997


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faster here but I couldn't because I was behind a truck . . . and thanks to that I didn't run you over . . . he started to laugh too' (PrahaB 2). Most of the text-units that mentioned coping strategies referred to what citizens would do, or had actually done, under the postcommunist regime ± 85 per cent in the Czech discussions and 94 per cent in Ukraine. A very few referred to the old regime ± usually (though not always) in response to an explicit question about how things had changed since the fall of communism. Rather more, 13 per cent in the Czech Republic and 6 per cent in Ukraine, were negative statements denying that some strategy was used, would be used, or had been used; nearly all of these denials referred to bribery. Using bribery was the most frequently mentioned strategy in both countries, but it was also the one on which they diered most. It was mentioned in 26 per cent of relevant Czech text-units and 42 per cent in Ukraine. Argument was mentioned more in the Czech Republic (12 versus 5 per cent), as were the use of friends and contacts (17 versus 11 per cent), or `psychology' (8 versus 3 per cent); but appeals to higher authority were mentioned more frequently in Ukraine (11 versus 4 per cent). Passive acceptance was mentioned about equally, at around 17 per cent, in the two countries. TABLE 7. Coping Strategies Czech Rep. (%)

Ukraine (%)

Now Accept Persist Argue Bribe Contact Appeal Knowledge `Psychology' etc.

Now total 85 16 5 12 26 17 4 6 8

Now total 94 17 6 5 42 11 11 3 3

Past only Bribe

Past total 4 3

Past total 2 1

Deny Bribe

Deny total 13 10

Deny total 6 4

(Total N)

(626)

(1053)

Within Ukraine contacts got more mentions in west Ukraine (20 per cent) and appeals in east Ukraine (19 per cent), but the emphasis on bribery was strikingly similar throughout Ukraine: 39 per cent in the three east Ukraine discussions, 45 per cent in the three west Ukraine discussions, and 50 per cent in the two Kyiv discussions. The one discussion with Crimean Tatars ± mainly activists, including members of the Medzhlis (a Tatar representative body) ± was exceptional: they gave unique emphasis to passive acceptance (40 compared to 17 per cent in Ukraine generally); and unusually little attention to bribery (23 per cent). The Tatar discussion group also mentioned the àppeal' strategy quite frequently (15 per cent) both in connection with appeals to the Medzhlis # Political Studies Association, 1997

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Coping with Postcommunist Ocials TABLE 8. Coping Strategies ± by Region in Ukraine East Ukraine (%)

West Ukraine (%)

Kyiv (%)

Crimean Tatars (%)

15 5 7 39 6 19 5 1 3

11 7 3 45 20 6 1 2 3

16 5 6 50 9 4 6 4 0

40 5 6 23 9 15 1 5 0

5

4

3

3

Now: Accept Persist Argue Bribe Contact Appeal Knowledge `Psychology' etc. Court Deny: Bribe (Total N)

(343)

(339)

(245)

(126)

and to the Ukrainian parliament. Correct or not, that was certainly the image of themselves they wished to project. Bribes, Tokens and Presents Many of the participants in all the discussions would refuse to accept that some of the text-units we have classi®ed as being about bribes were about anything more than `presents' (`darky' in Czech), `tokens' (`pozornosti' in Czech; `viddyaka', `podiaka' in Ukrainian), `little brakes' 29 (`tormozok, tormozka, tormozochek' in Russian),: à gift . . . I simply make the atmosphere more pleasant' (Hradec Kralove 4); `more as a token' (Kutna Hora 9); `not a bribe, rather a gift' (Olesnice 4); à token out of politeness' (PrahaA 2). There was some discussion in the focus groups about the semantics of `presents' versus `bribes'. According to some participants the critical distinction was between bribes given before the ocial provided a service, and presents which were given afterwards; or between presents which were given voluntarily and bribes which were extorted by the ocial. Unfortunately, neither of these distinctions is clear in practice. Citizens may need to keep open the possibility of going back to the ocial for another service ± so a present given after one service is actually a prepayment for future access. Similarly while extortion may sometimes involve an open demand for a fee, often it is achieved by subtle moral pressure (lamenting an excessive workload, or emphasizing what special eorts the ocial is making to solve the citizen's problem, for example); or by delaying tactics (repeatedly asking the citizen to come back again next week, for example) so that the frustrated citizen is eventually unsure whether they are oering an extorted bribe to get fair treatment or a present in return for a special favour; or by exploiting the confusion between a legitimate charge and a bribe for example for 29 A literal translation which we prefer to a paraphrase. Participants used this phrase quite frequently to denote a small present or `sweetener'.



615

TABLE 9. Type of Exchange Czech Rep.

Friends and contacts Reciprocal favour Small bribe/present Big bribe/cash (Total N)

Ukraine

Now used (%)

Deny use (%)

Now used (%)

Deny use (%)

40 3 22 39 (218)

13 0 30 70 (46)

23 4 22 57 (433)

11 4 33 67 (27)

medical services. In the Czech Republic there were scarcely any references to extortion, though presents were consciously used to build continuous relationships. Other participants suggested that presents were small and not monetary, while bribes were larger and usually in cash though they could be a valuable commodity: ìn general a small gift is a chocolate, ¯ower or something small, while a Mercedes would be a clear bribe' (Hradec Kralove 4). On the borderline, one participant suggested he would, if necessary `slaughter a pig, ®nish o a pig, bring in its hind leg, and say [to the ocial] ``hey mister'' ' (Nikolaevka 3). Indexing all text-units about coping strategies according to whether they involved the use of friendship with implications of reciprocal favours, explicit statements about reciprocal favours, presents or bribes shows that Czech participants talked most about the use of bribes and friendship, rather less about presents and very little about an exchange of favours that did not involve friends. In Ukraine they talked even more about bribes than presents, and much less about friends. Strategies: Objectives and Success Strategies were clearly related to objectives. Acceptance, persistence, and argument were mentioned much more frequently in connection with attempts to get fair treatment; and conversely, bribes and contacts were mentioned very much more frequently in connection with attempts to get favourable treatment. In the Czech Republic bribes were mentioned in 42 per cent of text-units about attempts to get favourable treatment but in less than half as many, 18 per cent, about attempts to get fair treatment. In Ukraine bribery was just much more frequent in every context: `Do you mean you need to pay only when you are doing something `ìllegal''?' asked the moderator in the Sholomia discussion; Ì think when everything is legal people pay less' came the response (Sholomia 2). But even in Ukraine, where bribes were mentioned in 28 per cent of text-units concerned with obtaining rights, they were mentioned in far more, 73 per cent, of text-units concerned with obtaining favours. This is a point of some importance. Citizens can reasonably complain when they are forced to take extraordinary measures to obtain their rights, but not when they use bribery to obtain special favours. Complain they may still do, but their complaints lack moral force and they know it. There is no need to take such complaints too seriously ± unless, of course, the whole system is so # Political Studies Association, 1997

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Coping with Postcommunist Ocials TABLE 10. Strategies by Objectives Czech Republic

Now: Accept Persist Argue Bribe Contact Appeal Knowledge `Psychology' etc. Court Deny: Bribe (Total N)

Ukraine

For rights (%)

For favours (%)

For rights (%)

For favours (%)

25 13 20 18 11 7 3 5 0

12 2 11 42 15 4 3 8 1

25 7 6 28 8 17 4 2 4

3 2 1 73 21 2 0 1 0

4

10

3

5

(151)

(196)

(512)

(195)

perverse that what are favours within it would be rights elsewhere. For example, if the passport authorities are so slow that they regularly take six months to process a simple passport application, a bribe to speed up the process might be regarded as an attempt to get favourable treatment within an incompetent system, but treatment that might be considered no more than reasonable elsewhere. On balance, personal statements about the use of the various strategies tended to indicate an ultimately successful conclusion. Unsurprisingly, since our focus was on unsatisfactory behaviour by ocials and no strategy of any kind was involved when the citizen received entirely satisfactory treatment, the coping strategy of àcceptance' (of unfair or unsatisfactory treatment) was associated more with failure than success; not always failure, however, because sometimes àcceptance' involved patiently doing what they were told ± putting up with unreasonable demands for more documents, or with visits to many dierent oces, or coming back at a time more convenient to the ocial, or simply queuing for hours on end ± before eventually getting what they wanted. In the Czech Republic, all the other strategies were associated more with success than with failure, the use of contacts most of all: Ì think if you have friends they will take care of everything . . . I've got friends there . . . and there's no problem, but when somebody [else] comes there . . . they don't talk to him at all' (Olesnice 4); ànybody can be managed in this way by using contacts' (PrahaA 5). In Ukraine, persistence and argument were less successful ± on balance as likely to lead to an unsuccessful as a successful conclusion; but bribery, contacts and appeals were associated with success, bribery most of all: Ì put the bag on the table . . . [he] told me to come next day to get the passport' (Horodok 4); à small ``little brake'' and everything was decided' (Khartsyzsk 3); Ì gave her the plastic bag. She says thank you. Wait ®ve minutes; everything will be done' (Nikolaevka 4). # Political Studies Association, 1997


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TABLE 11. Success Rates in Personal Statements Czech Republic (%)

Ukraine (%)

26 78 81 93 96 66

22 47 50 89 79 76

Accept Persist Argue Bribe Contacts Appeal

Gossip or Dishonesty? Earlier we referred to the `culture of complaining' that was cynically encouraged by the Soviet authorities. We need to distinguish insofar as we can ± and it is not easy ± between gossip, even if it is based on newspaper scandals, and wellfounded personal grievances. To what extent do complaints about ocials re¯ect real personal experience? There are many examples of situations in which the public have generalized fears or complaints that are based on media stories, rumour or gossip but which simply do not correspond to the realities of their lives. We indexed all text-units according to whether they were about (i) (ii) (iii) (iv)

general hearsay/gossip; the hypothetical scenarios we put to them; statements about friends and acquaintances; personal statements.

These categories closely parallel the sections of the original schedule of questions we gave to the discussion moderators, but they are not quite the same. Moderators were not required to stick slavishly to the schedule if the discussion ¯owed dierently; gossip and personal statements could occur at any stage in the discussion, often mixed together; and in particular, ®rm personal statements could be about willingness or intention as well as past experience, though most often they were about actual experience. Most of the discussion, in both countries focused either on general hearsay and gossip or on personal statements, with less on our scenarios and very little about friends and acquaintances beyond the immediate circle of the family. TABLE 12. Styles of Talking about Ocials Czech Republic (%) Hearsay Scenarios Others Personal (Total N) # Political Studies Association, 1997

44 20 4 44 (625)

Ukraine (%) 58 12 6 30 (1045)

618


As the discussion moved from general gossip through hypothetical scenarios to personal statements its nature changed sharply. First, the balance between seeking rights and favours changed. In the Czech Republic, 29 per cent of general gossip, but 41 per cent of personal statements focused on rights rather than favours; in Ukraine 37 per cent of gossip, but 58 per cent of personal statements focused on rights. More important, however, references to dierent coping strategies also changed as the discussion moved from general gossip through hypothetical scenarios to personal statements. In the Czech Republic the use of bribery was mentioned in 36 per cent of relevant text-units about general gossip, but in only 22 per cent of those about hypothetical scenarios, and in 16 per cent of personal statements; in addition, the use of bribes was explicitly denied in only 7 per cent of the gossip but 13 per cent of the personal statements. Indeed some text-units combined an assertion that bribery existed with a personal denial: Ì myself have not used it but you can understand it in this way, why not? . . . I would not try it, but I know people who have done it' (Hradec Kralove 2); Ì have never given a bribe, either under socialism or today, but it's true I have never been after anything attractive' (PrahaB 4); `not from our own experience, rather from what I hear' (Olesnice 4). TABLE 13. Objectives by Talk Style Czech Republic Gossip/hearsay Personal (%) statement (%) Rights Favours Unclear (Total N)

29 46 34 (192)

41 38 24 (204)

Ukraine Gossip/hearsay Personal (%) statement (%) 37 19 44 (597)

58 21 23 (309)

Conversely only 5 per cent of the Czech gossip mentioned argument as a strategy but 21 per cent of the scenario responses and 17 per cent of the personal statements. Acceptance and persistence were also much more frequent in the text-units about scenarios and personal experience than those based on hearsay. References to the use of contacts was almost as frequent in personal experience text-units as in gossip. Overall there is a striking contrast between the repertoire of Czech coping strategies discussed in terms of gossip and that discussed in terms of personal behaviour: narrowly focused on contacts and bribery in gossip, but involving more frequent references to acceptance, persistence and argument, and less to contacts and bribery, when the discussion took a more personal turn. There were few `dramatic' stories of ocial misbehaviour in the Czech discussion groups, and those there were seemed to have been culled from the press. Not so in Ukraine, however. There too, the frequency of references to acceptance, persistence and argument increased while references to contacts and bribery decreased as the discussion took a more personal turn ± but not by so much as in the Czech Republic; and denials of bribery did not increase. Thus, in the Czech Republic the excess of positive over negative statements about bribery ran at 29 per cent in gossip but at a mere 3 per cent in personal statements; while # Political Studies Association, 1997


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TABLE 14. Strategies by Talk Style Czech Republic

Now: Accept Persist Argue Bribe Contact Appeal Knowledge Other Past: Bribe Deny: Bribe (Total N)

Ukraine

Hearsay (%)

Scenarios (%)

Personal (%)

Hearsay (%)

Scenarios (%)

Personal (%)

10 3 5 36 20 3 7 11

25 9 21 22 16 4 1 3

18 7 17 16 16 4 7 8

16 4 4 46 12 8 4 2

15 7 4 36 14 15 1 3

18 8 7 33 10 17 5 4

5

0

1

5

3

4

7 (277)

8 (128)

13 (275)

5 (612)

3 (130)

4 (314)

in Ukraine it ran at 41 per cent in gossip and still at 29 per cent in personal statements. Indeed, in the Czech Republic, the few references to bribes in personal statements were seldom clear cut. Some were clearly in the token category: Ì bowed to them, brought them coee and in this way prepared them to work in my favour' (PrahaA 3). Some were merely about willingness, albeit personal: ònly if, say, I had health problems . . . or my children' (Kutna Hora 5). Some were expressed in terms of bargaining with a policeman or a local authority employee. Some were only implicit admissions: òering money straight away to a person I don't know on our ®rst meeting, no, not at all' (Kutna Hora 2). And a few text-units spuriously associated assertions of bribery with personal statements by combining personal denials with more general assertions that bribery was used by others ± nothing but a misleading technicality unavoidable in this sort of qualitative analysis. But personal admissions of monetary bribes were few in the Czech Republic: while some claimed `you can only speed things up if you've got the dough' (Olesnice 4); more typical of personal experience were remarks such as `my husband is strongly against it, so I do it without him knowing about it' (Kutna Hora 3). By contrast, there was nothing misleading, ambiguous or quali®ed about many of the Ukrainian text-units that linked bribery to personal statements. Every group discussion in Ukraine, apart from the Crimean Tatar group, produced speci®c personal statements about the use of bribery. Sometimes it was not clear whether the bribery was to obtain favourable or merely fair treatment: `they do collect [customs] taxes on the goods people carry, but also we carry cash, that is the bribes' (Horodok 4); `he wanted to check me out and take another patient, but if I paid him, he would let me stay' (Sholomia 1). # Political Studies Association, 1997

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Sometimes it clearly was for a favour, at least for an unusually prompt response: Ì had to get the external passport and I needed it urgently . . . he says ``take a bottle of cognac and go to the militia'' . . . as soon as he [the militia man] saw the bag he understood why I came' (Horodok 4); `there was another instructor who had a tari: a bottle of vodka for [an undeserved pass in] the midterm test' (Khartsyzsk 1); Ì bring him something . . . he did it for me, he just drops that [other] work for now, and does my thing for me . . . it's like that everywhere' (Nikolaevka 3); `they told me to pay a sum of money ± about two millions ± and they gave me all the papers I needed [even though it was] not in working hours' (KyivB 4); `they changed my old passport for the new Ukrainian one just in one and a half weeks . . . [for] 1.2 million ± photos, fees and something else' (Volnovakha 3). Sometimes it was at least partly out of gratitude and relief: Ì had an operation last year, a professor did it . . . we all knew, the patients talked about it, that he only took things after the operation' (KyivA 1). But on other occasions it clearly was more a case of extortion by the ocials than of favours sought by citizens: Ì had to give it once to the assistant obstetrician' (Horodok 5); `they put you in a situation that you have to' (Horodok 6); òur mother was going to have surgery and the surgeon said that she was to give so much to the surgeon, so much to the neuropathologist, so much to the anaesthetist, and so much to the assistant. He directly said how much' (Horodok 4); `they told me straight out' (Khartsyzsk 5); `there they say loud and clear, how much for what' (Khartsyzsk 3); `the communal agency protested ± ``what, you couldn't give him [the workman] a bottle?''; but he doesn't want a bottle, he wants 500 thousand ± a bottle is easier for me ± 200 thousand and that's it . . . they settled everything' (KyivA 1); Ì paid the ocial . . . she told me to . . . ``do you need it immediately?'' she had asked earlier . . . when you bring her some money, she'll have time' (KyivA 3); Ì needed an operation . . . it [would, they said] cost ®fty dollars. Okay . . . when I go in, she looked at me, all very pleasantly, then says `ìt'll cost a hundred dollars'' . . . it's already gone up . . . the doctor was absolutely calm `Ì will do this operation . . . I have this tari, that [other] doctor takes this much . . . you do what you want . . . Shalimov charges 300 thousand, if you want you can go there'' ' (KyivA 2); `so my sister paid money [after the ambulance had refused to take her to a hospital with a functioning maternity unit] and I was taken to another hospital [which had such a unit in operation]' (Sholomia 3); ùntil I gave a bribe he did not receive me . . . I gave him 20 dollars and he signed it' (Striy 2); `yes, to have a position at school I have to give up my salary . . . for this whole year, if not longer, I will be earning money for them [those who appointed her]' (Striy 5); `my husband is in Byelorussia now and who's going to ®nd him there? . . . I went to the People's Court . . . and they told me ``let's start looking for him, but you have to pay for it'' ' (Volnovakha 3); `she says ``give me 500 thousand so that I make a labour card for you'' . . . and I never heard that you must pay for a labour card' (Volnovakha 2). And they paid frequently: `for this half-year, two times' (KyivB 1); `family for the last half-year of time, ®ve times probably, not less' (KyivB 3) Ì also had to do it frequently' (KyivB 4). Children were aware of how things had to be `resolved' in Ukraine, not least because school itself taught them the appropriate lessons: `To hide it from the children, is it necessary or not?' asked the moderator ± Ì think not . . . I wouldn't want my kids to form some kind of ideal image of me. I'd rather let # Political Studies Association, 1997


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them know' (KyivB 4) came the reply; `My daughter, you know how it is, she has participated in this . . . how else?' (KyivA 1); `probably . . . from the age of fourteen . . . well how else? Introduce them to real life!' (KyivA 7); Ì also think [so] . . . our children are not as simple as we once used to be' (Striy 1); `They all know about their teacher's birthday. She tells it to everybody a week ahead . . . they all run home and tell their moms to ®nd something to give their teacher for her birthday' (Striy 3); `They can see it themselves . . . the child comes and says ``Mum, that girl got an excellent because her mum . . .'' ' (KyivB 5). What is to be Done? Some of our ®ndings might encourage complacency. From the perspective of the citizen, it appears that the situation is not as bad as it at ®rst appears. While allegations about the need to use bribery or contacts in dealing with ocials are widespread, they need to be treated with some scepticism. Such allegations are at least twice as frequent in terms of general gossip as in terms of personal experience; and bribery is associated more with citizens' attempts to get favourable treatment than with their attempts to get fair treatment. To some extent therefore, they have only themselves to blame: `we've taught them this; we ourselves are guilty; we take them things . . . the ®rst and the second bring something, and the third can't not bring something' (Khartsyzsk 3). However, even if the situation is not as bad as at ®rst appears, it is bad enough. It would be premature, in the early stages of a research project, to articulate our own proposals for reform, but we can report those that were put forward in the group discussions themselves. A better quality of ocial was the most popular suggestion in both countries. That was almost, but not quite, so vacuous as it sounds. Comments about better ocials were mainly tautologous in Ukraine: `change people's [ocials'] psychology' (Horodok 1); `become more responsible' (Horodok 6); with calls for more `conscience' (Horodok 3), `competence' (Khartsyzsk 6), `skilled personnel' (Sevastopol 5), ùnderstanding' (Volnovakha 3), `culture' (KyivB 5), or ± the ultimate in tautologies ± `honesty' (Striy 3 and 4). The only positive suggestions for improving personnel were à book of suggestions' (KyivA 6) or short term contacts; ìf the ocial knew that in a year . . . the issue of his being re-appointed to that post were to be reviewed' (KyivA 3). But in the Czech Republic comments about better quality ocials seemed to imply more quali®ed entrants and more in-service training ± in customer relations as well as in more technical matters: `[ocials] should be aware that those coming to them, or their ``customers'', are not experts in ®lling out forms' (Hradec Kralove 3); `their attitude to us' (Kutna Hora 9); ìt's the quality of the person [ocial]' (PrahaA 2); `more sta with higher quali®cations are needed' (PrahaB 1); `there's little professionalism . . . they are poor souls, typing with just one ®nger ± do not take this literally . . . I sometimes feel they must have studied at a special university for mentally handicapped students' (PrahaA 7). In the Czech Republic, but not in Ukraine, an emphasis on administrative eciency re¯ected the burden of Czechs' complaints ± that they found the bureaucracy tedious rather than perverse, forcing them to waste too much time on ®lling out forms, going to oces, and standing in queues. Their mild complaints produced mild proposals for reform ± a better administrative structure, better located oces, or simply longer oce opening hours: `[individual # Political Studies Association, 1997

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departments] are unable to communicate between themselves' (Kutna Hora 7); `[less] useless paperwork which the ocial cannot in¯uence directly, he's been ordered to do it' (PrahaA 1); ànd above all fewer bureaucrats' (Kutna Hora 4): `simpler paper work' (Olesnice 2); `longer opening hours' (PrahaB 4). Although Ukrainians did make similar suggestions ± `they should tell you everything you need to bring the ®rst time' (KyivA 6); ìt's not everywhere [i.e. in every country] you need such a quantity of certi®cates' (KyivA 2) ± they focused much less on administrative eciency. TABLE 15. What is to be Done?

Improve personal qualities of sta More eciency of ocials Better administrative structure/ oce hours Better legal framework ± enforce obedience to the law ± end discrimination against Tatars ± simpler, more stable, better known laws More pay More control Impossible to change More demanding citizens (Total N)

Czech Republic (%)

Ukraine (%)

29 10 36 21 ± ± 21

31 1 8 29 9 10 10

7 4 0 0 (72)

13 16 6 4 (271)

Conversely, Ukrainian discussion groups put more emphasis on other reforms, re¯ecting the dierent nature of Ukrainian complaints which were more about extortion than mere time-wasting ± more pay for ocials to make extortion less necessary, and stricter control to make extortion more dangerous: `we need to pay that ocial as much as he earns . . . they just don't pay people what they earn, so people stoop to bribes' (Khartsyzsk 3); ìf they receive appropriate payment, they will work professionally in their positions and will not take bribes' (Sholomia 4); Ì think that the majority of those who take bribes are also compelled to do the same because they do not get salary either . . . for example, police ± they also receive micro-salary' (Striy 5). In wonderfully Marxist language, here explaining not the great sweep of human history but the tendency of Ukrainian ocials to take bribes, one participant commented `the economy is primary, but the consciousness is secondary' (KyivB 2). In the Czech Republic there were a very few suggestions of better pay for ocials (mainly put forward by quasi-ocials such as teachers talking about more pay for themselves), but others were quite explicitly opposed to such a solution: ìf they got three times as much they would still behave in the same way' (PrahaA 5). Nor were there many suggestions in the Czech Republic that stricter control would improve the situation, which was not seen as any kind of crisis situation anyway. However Ukrainians' sympathetic attitude towards their ocials' salaries was accompanied and often combined with less sympathetic suggestions. One example of such a combination was to cut the number of ocials while raising # Political Studies Association, 1997


623

the salaries of those that remained, as in the following sequence: `Nothing terrible would happen if the ocial apparatus were cut back by two thirds'. (KyivA 4) Ànd raise the salaries of the ones who are left'. (KyivA 5). Another combination was that more pay would give ocials more to lose: ìf . . . he'll have a big, well-paid job, he'll be afraid for his position' (Khartsyzsk 3); `this position should be considered prestigious . . . they should be afraid to lose their positions' (Sholomia 6). More typically, Ukrainians just suggested the need for more control: ìt is necessary that he simply be afraid that he can lose his place' (KyivB 3); `there was someone to complain to; there was power; now, there's no power' (Khartsyzsk 3); à person has to be afraid' (KyivA 6); `there was discipline ± everybody was afraid of the party' (Striy 3); `we need a well worked out system that would control' (Striy 2); `we are missing discipline . . . there is no fear now' (Striy 1); Ì would vote to discharge half of those who take bribes and the other half heed control of a director' (Striy 5). Against the great preponderance of such sentiments, there were only a couple of atypical remarks expressing reservations: `control can be strengthened, but that's not the way out' (KyivA 4); `the innocent suer' (Nikolaevka 1). At ®rst sight, proposals for a better legal framework appear to provide a point of similarity between the Czech Republic and Ukraine ± but on further inspection these proposals merely underlined the dierence between them. What did they mean by a better legal framework? In the Czech Republic, simpler and more stable laws: à simpler, easily understandable law' (Olesnice 4); ìn the legislation many things were abandoned . . . it will all be solved somehow' (PrahaA 7); ìn the legislation, it seems that no terms or deadlines have been set for handling individual cases' (PrahaA 2); `they pass it and right after they amend it' (Olesnice 7); `with the new legislation now, ocials are unable to explain it' (PrahaA 3); `you start from the top, right, there's a lot of laws, rules. It looks like before: with communism or socialism they had red tape. Then this was reduced, but now it's grown by half' (Olesnice 6). Such suggestions for improved legislation were also voiced in Ukraine: `no developed legislation' (KyivA 4); àlready for a long time people actually paid for many services . . . [but] it is necessary to make [legislate for] social insurance, medical insurance' (KyivB 6); `laws should be formulated on the basis of the nature of human personality . . . the more you climb, the more gold' (KyivA 7); `market economy has to begin with legislation ± and what sort of legislation do we have here?' (KyivA 6); `we've been living in some vacuum . . . they didn't rely on the old Constitution and we did not have a new one' (Sholomia 2); `there [in the west] people know their laws and they can defend themselves, but we don't know how to defend ourselves' (Horodok 2). But two thirds of the references to the law in Ukraine did not focus on this need for clearer, simpler and better publicized laws. One third consisted of complaints from Crimean Tatars that the laws of Ukraine were biased against them: `discrimination against nationality' (Sevastopol 4 and 5); Ì couldn't get a residence permit here for four years though my husband had it.' (Sevastopol 3); Ùkraine treats our people worse than the Soviet power. At least the Soviet power wrote in our passports that we were Tatars . . . today nationality is not given in new Ukrainian passports . . . we automatically become citizens of Ukraine without nationality' (Sevastopol 5). The prominence of Tatar grievances re¯ected the fact that we devoted one out of nine discussion groups # Political Studies Association, 1997

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exclusively to them. More typically and equally at odds with Czech suggestions, however, the remaining third of Ukrainian suggestions for legal reform concerned enforcement. Soviet laws from Stalin's 1936 Constitution downwards had been utopian, they did not refer to the real world of the Soviet citizen and they were ignored by the state and its ocials whenever it suited them. The gap between law and reality in the old Soviet Union was unusually large, and something of this carried over into postcommunist Ukraine: ìf some clerk would oend the visitor [meaning the citizen with a problem, not a tourist!] in America . . . he would pay such ®ne' (KyivB 5); `there should be organs that would make sure this law was followed' (Khartsyzsk 4); `the laws should be observed but no one does it' (Horodok 2). Conclusions We had two main objectives: ®rst, to ®nd out whether people would talk openly about such a sensitive topic as coping strategies; second to see whether the apparent dierence between Ukraine and the Czech Republic, revealed by a single question in an earlier quantitative study, re¯ected dierent kinds of interaction between citizens and ocials, or just dierent conventions of complaining. No doubt our focus group participants held something back. We do not suppose that they revealed all. But it is remarkable how much they were willing to say in front of the video-cameras at the focus groups. Partly that re¯ected the expertise of our focus group moderators, both of whom had extensive experience in leading group discussions. But it also re¯ected the openness of the participants themselves. Most did not seem over-inhibited by the long years of living under a dictatorship. On the contrary they seemed to revel in their new freedom to criticize the state. Of course the other danger is that people will tell extravagant but untruthful stories to please the investigators. We did ®nd a sharp dierence between allegations made in general terms and those based on more personal experience. In the Czech Republic general gossip about widespread corruption simply did not correspond to more personal accounts of experience and behaviour. But by contrast, the discrepancy between general allegations and personal experience was much less in Ukraine. That has important implications for our second main objective: the dierence between Czech and Ukrainian experience of interacting with ocials was actually greater than was implied by more super®cial questions about the general climate of corruption. The dierence was not due to a dierent culture of complaining in Ukraine. On the contrary, a culture of complaining and attention to press reports of high-level corruption in the Czech Republic obscured the extent of the dierence between Czech and Ukrainian citizens' own, immediate and direct personal experience. Does low level corruption matter? To ordinary citizens going about their daily business it does. That is the level of corruption which makes the most immediate and most visible dierence to their lives. In his study of rampant corruption in the British colony of Hong Kong, Wing Lo found wide support for repressive measures against corrupt, usually junior, civil servants though much less for similar action against corrupt millionaire businessmen because: `the public do not always feel as threatened by corrupt businessmen as they do # Political Studies Association, 1997


625

by corrupt public servants . . . public sector corruption is often related to extortion and solicitation of bribes by civil servants . . . [which is] far more annoying and disturbing to the daily lives of the people'.30 We found that same public resentment of èxtortion and solicitation' in our group discussions. Corruption may have helped to lubricate the creaky old machinery of communism. Huntington, amongst others, once argued that `corruption may thus be functional to the maintenance of a political system in the same way that reform is . . . and both corruption and reform may be substitutes for revolution'.31 By improving both the economic eciency and the human rights record of a dictatorship, public sector corruption may well be functional to the maintenance of such a regime. But public sector corruption degrades both the economic eciency and the civil rights record of a free market democracy, and contributes to its instability. Democracy is founded on the principle of political equality, and public sector corruption is founded on the principle that the state will treat its citizens arbitrarily and unequally. In a democracy, political equality osets inequalities of wealth and power; but public sector corruption reinforces those inequalities. That is why Almond and Verba de®ned a well-functioning democracy not only in terms of citizen in¯uence over high policy, but also in terms of fair and equal treatment by junior state ocials. Moreover, low level corruption is not divorced from high level corruption. We argued at the start that a corrupt example at the top is likely to encourage corruption at the bottom. Conversely however, it is unlikely that a junior ocial trained by experience in bribery and extortion will suddenly give it all up when he or she gets promoted. Wider horizons simply present new opportunities. So-called `zero-tolerance policing' is now fashionable in Britain and America. It is based upon the assumption that a permissive attitude to low level crime not only degrades the living environment and life style of ordinary citizens but also encourages low level criminals to graduate to higher level crime. The analogy with corruption is close. Finally, the similarity between east and west Ukraine contradicts another of Huntington's claims, his `clash of cultures' thesis,32 which would divide Catholic west Ukraine from the Orthodox east, or former Hapsburg Lviv from former Romanov Donetsk. Some things do dier between east and west Ukraine, but very important parts of the political culture do not, and our discussions of ocial corruption divide Ukraine from the Czech Republic, rather than Donetsk from Lviv.33 That suggests the interactions between citizens and ocials re¯ect more recent dierences in the way states have treated their citizens ± possibly derived from the post-war Soviet period when west Ukraine came under the USSR directly while the Czech Republic did not ± but no doubt also greatly aected by contemporary postcommunist circumstances. 30 T. Wing Lo, Corruption and Politics in Hong Kong and China (Buckingham, Open University Press, 1993) at pp. 148±9. 31 Samuel P. Huntington, `Modernization and Corruption', in Arnold J. Heidenheimer (ed.), Political Corruption (New Brunswick NJ, Transaction, 1970), pp. 492±500 at p. 495. 32 Sometimes also called the `clash of civilizations' thesis. For Huntington's obsession with the line dividing Ukraine into `Catholic' and Òrthodox' cultural areas, see Samuel P. Huntington, `The clash of civilisations?', Foreign Aairs 72/3 (1993), 22±49 at p. 30. For a crude, popular and concise statement of his general thesis see Samuel P. Huntington, `The West v the rest', (23 November 1996) Guardian, p. 23. 33 A focus group ®nding that is entirely consistent with our previous quantitative surveys in east and west Ukraine. See Miller et al., Values and Political Change, ch. 5.



Understanding Political Corruption in Contemporary Indian Politics GURHARPAL SINGH The ®ftieth anniversary of India's independence in August 1997 is likely to be overshadowed by the realities of a political system in serious turmoil. The demise of the Congress Party which has ruled India for most of the period since 1947 has been accompanied by the rise of unstable national governments and the failure of the Hindu right as represented by the Bharatiya Janata Party (BJP) to make a decisive breakthrough. At the same time the country has appeared to be at war with itself with secessionist insurgencies in Kashmir, Punjab and Assam and the emergence of caste militancy which has transformed political representation in the most populous states. These developments, moreover, have coincided with a structural adjustment programme since 1991 which has sought to move India away from soviet-styled planning to economic liberalization with the aim of replicating the achievements of ASEAN states. Against this complex background the period since mid-1995 has also witnessed the unfolding of major political corruption scandals that have placed the whole political system on trial. In fact political corruption in India today has become a metaphor which symbolizes the crisis of governance. How eectively corruption is dealt with in the short and medium terms will signi®cantly in¯uence the capacity of the political system to reform itself. `Corruption ± the fact itself, but even more important, the talk of it ± occupies a great place in Indian politics'.1 In the 1960s Gunnar Myrdal, one of the earliest students of the subject, highlighted the need to examine the folklore of corruption and the extent to which in India it re¯ected à weak sense of loyalty to organized society'. If there were à general asociality that leads people to believe that anybody in a position of power is likely to exploit it in the interest of himself, his family or other social groups to which he has a feeling of loyalty . . .', Myrdal insisted, `people's beliefs about the corruptibility of politicians and administrators would be in part a re¯ection of what they would like to do, given the means'.2 Myrdal's suggestion ± and the relationship it implies between politics and society ± has, until recently, remained largely ignored, with profound implications for the understanding of political corruption in An earlier version of this paper was presented at a conference on Political Corruption held at the University of Nottingham, 10±11 June 1996 and a workshop on Political Corruption in South Asia held at the Institute of Commonwealth Studies, 29 November 1996. I am grateful to participants at both events for making many helpful comments and suggestions. Any errors that remain are, of course, entirely my own responsibility. I am also grateful to De Montfort University for making available a small grant which enabled this research to be undertaken. 1 W. H. Morris-Jones, The Government and Politics of India (London, Hutchinson, 1971), p. 62. 2 G. Myrdal, `Corruption as a Hindrance to Modernisation in South Asia', in A. J. Heidenheimer (ed.), Political Corruption (New Brunswick NJ, Transaction, 1978), p. 232.


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contemporary Indian politics. But if the 1960s corruption remained at the level of folklore, in the 1980s and 1990s it moved into the heart of national and provincial political institutions. The sequence of events which culminated in the present situation began before the national general elections in April and May 1996. Following the revelations of the Hawala scandal (1995)3 of widespread payments for favours to leading politicians and bureaucrats by a businessman, the incumbent Prime Minister, P. V. Narasimha Rao, dismissed some leading members of his own cabinet who were under investigation. Because the indictment in the scandal included the leader of the BJP, L. K. Advani, the move was widely interpreted as being politically inspired. Indeed, following the general elections which produced a minority centre-left United Front government, a series of investigations were launched against Rao implicating him in four dierent scandals. Ironically one of the accusations against the former Congress Prime Minister arises from the failure to award a contact after accepting a bribe through an intermediary.4 Rao's ritualized humiliation in the courts has spurred a further series of police and judicial inquiries into ®nancial irregularities by his erstwhile colleagues which have included the taking of large scale bribes by the Minister for Communications (Sukh Ram) and systematic nepotism by the Minister for Petroleum (Satish Sharma).5 A large number of former leading Congressmen, non-Congress politicians and senior bureaucrats are either under criminal investigation by the Central Bureau of Investigation (CBI) or involved in protracted court cases. These exposures at the national level have been followed by parallel developments in the states. The former Chief Minister of Karnataka, M. Veerpa Moily, has been implicated in one of the cases faced by Rao. J. Jayalalitha, the ¯amboyant former Chief Minister of Tamil Nadu, who is reported to have amassed property worth 580 million rupees during her tenure in oce. Police investigating charges of alleged corrupt practices against her recovered 30 kg of gold and 500 kg of silver at her residence.6 In sum scams, scandals, charges and counter-charges of corruption have become the daily diet of Indian political life. Public perceptions of corruption have evidently begun to re¯ect folklore dimensions. In a recent poll the majority of respondents were `no longer surprised by reports of corruption in politics' while almost half of those who replied were of the opinion that òne has to be corrupt to survive in politics today'.7 These ®ndings are further reinforced by external assessments of corruption in India. In an index of corruption ranking from 1 to 49 compiled by the World Economic Forum, India came 45th in terms of the honesty of government ocials, 46th in the ability of corporate directors to ensure honesty, and 40th in terms of corporate and individual willingness to pay tax.8 Commenting on these ®ndings India Today observed that there was `little wonder [that] India is viewed as one of the more corrupt nations in the world, with corporate ethics in short supply and the shareholders' interests usually getting sacri®ced'.9 3 4 5 6 7 8 9

For details of the Hawala scandal see India Today (New Delhi) 15 March 1996. India Today, 30 September 1996. See India Today, 15 October 1996. India News Network Digest (Bowling Green University) 10 December 1996. India Today, 15 March 1996. India Today, 30 November 1996. India Today, 30 November 1996.


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Corruption in Contemporary Indian Politics

I Explanations of corruption in India have generally tended to be dominated by economists who either support or oppose economic liberalization. For Neoliberals India has long been the ideal model of a rent-seeking political and economic system in which the `rights to corruption' were entrenched by the elaborate process of bureaucratic regulation (`licence-permit-raj') that underpinned economic planning. These regulations it is argued created powerful networks of rent-seeking politicians, bureaucrats, businessmen and landlords which through the abuse of the allocative role of the state systematically misappropriated resources on a grand scale.10 Economic liberalization has begun to decouple the institutional link between politics and the economy, insist Neo-liberals, but the reforms have not been comprehensive, sustained or continuous enough to provide the foundations for greater transparency in public life. Opponents of Neo-liberal policies in India, on the other hand, have highlighted how economic liberalization seems to have increased the demand and supply of corruption, provided new opportunities for corruption through deregulation and state disinvestment, and marketized politics for the poor.11 While some of those scandals currently under investigation can be attributed to the economic reforms, for example the case of Sukh Ram, at this stage there is insucient evidence to establish a more general causal link between Neo-liberal policies and corruption. It is in the absence of this kind of clear evidence that political scientists have been inclined to evaluate political corruption in relation to the normative ideals of the Nehruvian era.12 High among these ideals is a legal view of political corruption implicitly incorporated in the constitutional settlement at independence. As explained by the famous Santhanam Committee, political corruption includes all forms of ìmproper or sel®sh exercise of power and in¯uence attached to a public oce or to the special position one occupies in public life'.13 What was seen as proper or unsel®sh exercise of power and in¯uence in public life was in¯uenced strongly by the constitutional legacy from the colonial government with its re®ned sense of constitutional propriety about the role of elected ocials and bureaucrats. This legacy was further buttressed by the ocial ideology of public morality popularized by M. K. Gandhi during the nationalist struggle before independence. Together these two elements succeeded in constructing a relatively exclusionary discourse on political corruption that actually had the consequences of insulating political corruption from àbove' while simultaneously emphasizing its corrosive, degenerative and harmful eects from `below'. Thus, though the current scandals have been triggered by the abuse of public oce, the zeal with which 10 For a review of this literature see R. Roy, `The Political Economy of Fiscal Policy', Ph.D., University of Cambridge, 1994; P. Bardhan, The Political Economy of Development in India (Oxford, Basil Blackwell, 1984); and D. Lal, Hindu Equilibrium: Cultural Stability and Economic Stagnation, India C 1500BC±1980 AD Vol. 1 (Oxford, Clarendon, 1988). 11 See B. Harriss-White, `Liberalisation and corruption: resolving the paradox (A discussion based on South Indian Material)', Institute of Development Studies Bulletin, 27 (1996), 31±9. 12 Such a contrast is implicit in the literature on political decay, deinstitutionalization and the problem of governability. See in particular J. Manor, Ànomie in Indian politics', Economic and Political Weekly (Bombay), xviii, nos. 19-21 (May 1983), 725±73 and A. Kohli, Democracy and Discontent: India's Growing Crisis of Ungovernability (Cambridge, Cambridge University Press, 1990). 13 Government of India, Report of the Committee on the Prevention of Corruption (Santhanam Report) (New Delhi, Ministry of Home Aairs, 1964), p. 5.


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the anti-corruption crusade is now being conducted has raised fundamental issues about the validity of a legal de®nition of political corruption. Justi®ably, many leaders of the lower castes who have only recently succeeded in establishing state level political power feel they are being targeted by the establishment for mobilizing underprivileged groups precisely through the use of the same techniques which historically ensured the success of the Congress. There is therefore a paradox in the contemporary situation: while there is considerable legitimacy for the current anti-corruption drive based on the abuse of public oce, such support is unlikely to endure if anti-corruption is used mainly as a political tactic particularly against the popular representatives of the poor.14 In short, if new and acceptable guidelines of public behaviour are to be established, the scope and meaning of how political corruption has traditionally been understood and the place of `corruption from below' in a hierarchical and poverty-stricken society will have to be addressed. In order to understand the contemporary ambivalence towards political corruption this chapter will argue that there is a need to recognize how political corruption was institutionalized under the Nehruvian state. While Nehru's successors, especially Mrs Gandhi, better perfected this process of institutionalization, the erosion of Congress hegemony and public disenchantment has culminated in the present crisis in which both the Congress and its opponents ®nd anti-corruption an expedient tactic. However, unless the forces unleashed by anti-corruption campaigns succeed in rede®ning political corruption in line with traditional popular public opinion, as well as in constructing new and more acceptable structures of accountability, their signi®cance in triggering general reform will be limited. II (i) Political Corruption and the Nehruvian State It is almost a conventional wisdom to argue that the Nehruvian state represented the high watermark of Indian democracy. Nehru was the architect of modern India who transformed the Congress from a nationalist movement to a party of government. Given the diculties encountered by the Indian state at independence ± partition, secessionist movements, communal riots, and sub-continental structures ± this was an outstanding achievement, especially as some of the leading Congressmen seriously doubted Nehru's vision of modern India. At the heart of this transformation was the creation of a `Congress System' ± a dominant one-party system in which the Congress combined the function of political development with political competition. The `Congress System' was held together by four main factors: the towering personality of Nehru himself who nurtured incremental political development; the Congress organization which provided the `steel frame' for linking the whole country; a progressive ideology that could coopt most signi®cant shades of organized political opinion; and, above all, the access to, and distribution of, patronage.15 The latter was a key factor in enabling the Congress to 14 See for example the threat made by the Chief Minister of Bihar, Laloo Parsad Yadev, to take his case to the `people's court' in his state if he were found guilty of corrupt practices by the central government. See India Today, 15 February 1997. 15 For a discussion of the `Congress System' see R. Kothari, `The Congress ``System'' in India', Asian Survey, 4 (1964), 1161±73.


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construct `vote-banks' that helped the party to win successive general elections. Underpinning the `Congress System' was centralized economic planning modelled on the Soviet pattern but adapted to the requirements of India's democracy. Plans to establish a hegemonic state sector that would control industrialization had been formulated by the Congress before independence, but from the early 1950s, with the creation of the Planning Commission and the inauguration of the Five Year Plans, an extensive system of industrial regulation was established that ushered in `licence-permit raj' ± rule through the control, distribution and sale of industrial and commercial licenses disbursed by the bureaucracy and the Congress. Intended as a means of making a more ecient use of resources, centralized planning had precisely the opposite consequences insofar as it created powerful lobbies of rent-seekers who could evade scrutiny from the formal political institutions.16 As Robert Wade has pointed out, the constitutional ®ction of political control of the bureaucracy was subverted by the emergence of a `grace and favour state' in which politicians, bureaucrats and businessmen pursued predatory and clientelistic policies assured in the knowledge that the legal sanctions against the abuse of political power would be dicult to enforce.17 In fact during the Nehruvian era the process of detection and prosecution of abuses of public oce were con®ned mainly to the Congress itself ± rarely reaching trial ± with the result that executive and judicial institutions assigned this role were systematically undermined.18 Nehru himself, public strictures notwithstanding, was occasionally prepared to support corrupt provincial bosses as long as they factionally aligned themselves with him. And when the opposition sought to expose this nexus, the typical response was to draw on Congress's political strength. The conclusion of the D. Gorwala Report (1951) provides an illustrative example: . . . grave allegations of a speci®c nature have been made by responsible parties against persons occupying positions of ministers of government. Such allegations have on occasions been the subject of debates in the legislature. The ministry as a whole and the party which has put it in power having thrown their weight behind the minister complained against, the debates have been either inconclusive or have ended in a vote in his favour . . . the public feel the in¯uential always escape punishment.19

By the early 1960s cracks in the formal facade had begun to appear. Congress ideology was increasingly giving way to graft; and graft was much easier because 16 J. Harriss, Ìndian Industrialisation and the State', in H. Alavi and J. Harriss (eds), South Asia (London, Macmillan, 1989) provides a useful summary of debate about planning, pp. 70±90. See also J. Toye, Public Expenditure and Indian Development Policy 1960±1970 (Cambridge, Cambridge University Press, 1981). 17 This extremely important observation was assigned to a long footnote in a seminal article by R. Wade, `The market for public oce: why the Indian state is not better at development', World Development, 13, no. 4 (1985), 467±95, n. 64. Wade's contention that political scientists have generally failed to see the dynamic character of this relationship is also supported by his argument that too ®ne a distinction has been maintained in the study of politics and administration in India. 18 J. Manor, ` ``Can I Manage?'' Chief Ministers and Corruption', unpublished paper presented at a workshop on Political Corruption in South Asia, held at the Institute of Commonwealth Studies, 29 November 1996. 19 Quoted by Hari Jai Singh in The Sunday Tribune (Chandigarh) 18 October 1996.


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rent-seeking was built into the system of political and economic management.20 In these years political corruption by the ruling party forced Nehru to strip leading Cabinet Ministers of oce and to despatch them to the provinces to `re-build' Congress organization. The Santhanam Committee which was established to placate public concern made serious accusations against the ruling party; it concluded There is widespread impression that a failure of integrity is not uncommon among ministers, and that some ministers who have held oce in the last sixteen years have enriched themselves illegitimately, obtained good jobs for their sons and relations through nepotism. The general belief about the failure of integrity among ministers is as damaging as the actual failure.21

Nehru himself recognized the power of popular folklore about corruption whether or not it was based in fact. `Merely shouting from the house tops that everybody is corrupt', he responded, `creates an atmosphere of corruption. People feel they are in a climate of corruption and they get corrupted themselves'.22 (ii) Mrs Gandhi and Sons Under Nehru political corruption was controlled, managed and institutionalized through the Congress `machine'. When this machine began to disintegrate, political corruption moved from the level of folklore to becoming an integral part of national political culture. Most interpretations tend to blame Mrs Gandhi and her son Rajiv for this achievement;23 in reality, although both made innovations, they simply accelerated the decline that had begun under Nehru. Mrs Gandhi was originally cast as a puppet Prime Minister in the hands of regional Congress bosses. When she refused to play this role, her challenge to Congress regional bosses (collectively know as the Syndicate) necessitated the construction of another party. Fortunately for Mrs Gandhi as the parliamentary leader she was able to take steps that made this task less onerous. In 1969 the ®nancial sector, in particular banks, were nationalized while corporations were banned from making donations to political parties. As controls on big businesses were increased, large sources of `black money' began to be generated by tax evasion, black-marketeering, and illegal currency transactions. These moves are often seen as ushering in the era of `briefcase politics': a phrase used to describe the transfer of vast amounts of black money in the form of cash into the coers of the Congress Party. Prices for licences or other permits were quoted in number of briefcases required. Initially prices were set as a ®xed fee but later they were levied as percentage of the bene®ts.24 20 For an indication of the increase in size of corruption see J. B. Monteiro, `The Dimensions of Corruption in India', in A. J. Heidenheimer, Political Corruption, pp. 220±8. 21 Quoted in Monteiro, p. 228 (emphasis added). 22 Quoted in R. K. Karanjia, The Mind of Mr Nehru (London, George, Allen and Unwin, 1960), p. 61. 23 This is especially so in case of the literature on political decay and deinstitutionalization. See in particular the contributions to A. Kohli (ed.), India's Democracy: An Analysis of Changing StateSociety Relations (Princeton NJ, Princeton University Press, 1988). 24 S. A. Kochanek, `Briefcase politics in India; the Congress Party and business elite', Asian Survey, xxvii (1987), p. 1290.


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`Briefcase politics' provided the ®nancial muscle for Mrs Gandhi's breakaway Congress. Together with her ideological move to the left ± and the fortuitous Indo-Pak war of 1971 ± she launched herself as a new-styled plebiscitary leader committed to the welfare of the poor but unencumbered by the constraints of party politics that had characterized the old Congress bosses. The new Congress Mrs Gandhi constructed was a personalized machine which became an instrument of direct obedience. In her quest for absolute control, Mrs Gandhi not only centralized power in New Delhi but also ensured that opposition ± both within and outside Congress ± was destabilized through the use of `briefcase politics' and legal, constitutional, and unconstitutional methods. In fact within the party weak organizational strength led to an emphasis on fund collection as a source of security and upward mobility. The policy of using controls for fund extraction was sanctioned from the Cabinet Oce. As one contemporary recalls: Often representatives of trade and industry were called . . . to Delhi and asked to produce speci®c amounts. Those who declined were threatened with possible raids by the Revenue Intelligence and Enforcement Directorate, which was now operating under the Cabinet Secretariat. In Bombay ®nancial circles stories started circulating of the amounts secured by the Foreign Trade Minister under such threats. Others who came forward willingly with whatever was asked for, received concessions . . . to expand their businesses and amass further resources.25

Businesses that complied certainly bene®ted. Many in India's relatively small private sector grasped the opportunity to build leading business houses under the protection of Congress patrons and with virtual monopoly access to domestic markets and imported raw materials. Stories of rags to riches abound. It is not coincidental that, alongside the imposition of more controls on industry, the 1970s also witnessed a rapid increase in the size and pro®tability of India's leading private business houses (about 75) who controlled most of the non-governmental and non-banking assets in the country.26 Any doubt that Mrs Gandhi may have been a reluctant partner in encouraging `briefcase politics' disappeared when she decided to impose a State of Emergency (1975±77), suspending the normal democratic process. Formally the reason given was that the civil disobedience movement (against corruption) threatened the stability of the country; in fact Mrs Gandhi faced expulsion from oce having been indicted on a charge of corrupt electoral practices by the High court. During this brief period of national political closure opposition leaders were arrested, civil liberties suspended, and severe restrictions imposed on industrial labour. At the same time Mrs Gandhi's younger son, Sanjay Gandhi, emerged as a source of authority who mobilized `black money', thugs and reluctant institutions of the state to eect his mother's policies. The criminalization of Indian politics ± a phrase that is regularly used nowadays ± dates from the Emergency.27 Despite the election of a ®rst non-Congress national government in 1977, the opportunity for restoring faith in political institutions was lost because of its 25

C. S. Pandit, End of an Era (New Delhi, Allied, 1977), p. 113. Kochanek, `Briefcase politics in India', p. 1281. 27 For a review of the causes see P. B. Mayer, `Congress (I) Emergency (I): Interpreting Indira Gandhi's India', Journal of Commonwealth and Comparative Politics, xxvi (1984) 128±50. 26


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factionalized composition. The attempted prosecution of Mrs Gandhi back®red and led to her comeback as Prime Minister in the 1980 elections. Mrs Gandhi, however, soon resorted to her old ways by further centralizing power in New Delhi where `fawners and ¯atterers' ruled supreme. The stagnation of the economy, demands of the regions and the decay of her own party were ignored in preference to confronting imagined problems. Mrs Gandhi's last Machiavellian act was to stoke the passions of nationalism among the Sikhs only to put them to the sword. In so doing she paid the price with her life.28 By the end of Mrs Gandhi's rule both the political and economic systems were showing signs of institutional decay and stagnation. Rajiv Gandhi, who became Prime Minister in the massive Ìndira wave' of 1984, responded to these challenges by embarking on a programme of political renewal and economic liberalization. Neither of these policies, however, was pursued with much vigour or enthusiasm, with the result that Rajiv was eventually forced to resort to the methods of his mother that he personally so detested. Rajiv's image as `Mr Clean', untainted by the normal corruption of Indian politics, enabled him to project an agenda for taking India into the next century. At the root of this programme was the institutional regeneration of Congress. During the party's centenary celebrations (1985) he chastised his fellow partymen. `We [Congressmen]', he declared, òbey no discipline, no rule, follow no principle of public morality, display no sense of social awareness and show no concern for the public weal. Corruption is not only tolerated but regarded as the hallmark of leadership'.29 Within two years these words were to rebound on Rajiv like a boomerang. He continuously failed to hold intra-party elections and became personally embroiled in one of the most notorious corruption scandals in Indian history. If Rajiv's personal view soon became that Congress was unreformable, his half-hearted economic liberalization created a new polarization between the institutionalized graft lobby of `licence-permit raj' and the emerging anti-corruption moralists among some leading disenchanted Congressmen. Although the selective liberalization of the economy initially created a powerful consumer boom based on imports, in the absence of corresponding structural adjustment it soon resulted in a growing ®scal de®cit. V. P. Singh, the Finance Minister, and leader of the anti-corruption faction within Rajiv's administration, responded to this development by launching high pro®le tax cases against leading business houses. Scandal followed scandal (Reliance Industries, Fairfax and Bofors) until V. P. Singh was ®rst demoted to the Ministry of Defence and, subsequently, compelled to resign over his prosecution of the inquiry into illegal payments in the purchase of submarines from the Howaldt Deutsche Werke of Kiel. It was widely believed that business pressure had led to V. P. Singh's demotion and resignation. The elaborate tax enforcement machinery established during his tenure as Finance Minister was quickly dismantled and his own tax return was subjected to an extraordinary audit.30 The crowning ignominy of `Mr Clean's' administration was the Bofors scandal in which large commissions had been paid by the Swedish arms manufacturer in connection 28

See G. Singh, Ùnderstanding the ``Punjab Problem'' ', Asian Survey, xxvii (1987), 1268±77. Quoted in L. Rudolph and S. Rudolph, In Pursuit of Lakshmi (Chicago, Chicago University Press, 1987), p. 152. 30 Kochanek, `Briefcase politics in India', p. 1297. 29


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with a contract for weapons for the Indian army. It was never established that the money had come Rajiv's way, but he clouded the atmosphere by seeming reluctant to prosecute inquires into the matter. Rajiv was accused of lying in parliament amid suspicion that he was protecting others who had taken bribes. Aptly one of the most memorable posters of the 1989 elections was an image of Rajiv as the innocent Pinocchio whose nose resembled the long cannon of a Bofors gun. (iii) Political Corruption after the Nehru-Gandhi Dynasty Rajiv's defeat in the general elections of 1989 marked the end of Congress's rule and the Nehru-Gandhi dynasty's hold on the oce of Prime Minister. Since 1989 there have been three national coalition governments, a short-lived BJP administration (1996), and a minority Congress government (1991±1996). Simultaneously with the rise of the armative action lobby for lower castes the pattern of political representation in the larger states has undergone a radical transformation with lower caste leaders establishing ®rm power bases in the Hindi belt. These dramatic changes have had three major consequences which are relevant to understanding the contemporary crisis. First, the increase in national and provincial political competition has also increased the demand for corruption. As political parties have become less centralized, less corporate and more provincial, their traditional sources of funding ± business, foreign contracts, `black money' ± have also become less secure.31 National and state elections, even in India, are an expensive aair with a campaign for an average urban constituency in parliament estimated to cost around 12.5 million Rupees (approx. £208,000).32 Although the size of funds mobilized often makes little impact on the election result, the belief of most Indian politicians that it does leads them to pursue this task with relentless zeal. In the last few years the minority and coalition governments ± at the centre and in the states ± have used funds either to build patronage-based support or to bribe opposition MPs at critical junctures.33 These compulsions towards fund raising have been further strengthened by the decreasing period of tenure in oce. As most parties fail to complete a full term, the necessity of preparing for election or several years in opposition reinforces the need to build a sound ®nancial support base. Finally, increased political competition has also multiplied the costs of corruption as bribe givers ®nd they have to spread the risk of making an eective bribe to several political parties. In the Hawala scandal, for example, the payments between the ruling party (Congress) and its potential contenders for power were evenly distributed. Second, the mobilization of the lower castes since 1989 has been accomplished mainly by extending state patronage. Nationally and regionally this process has been marked in widening the scope of armative action programmes for lower castes, but as these lobbies have become politically powerful their demands for other types of patronage have also increased. In some states 31 Again Wade's proposition that political competition in India increases the demand for corruption appears to be supported by contemporary events, but remains to be tested. 32 India Today, 31 March 1996. 33 One of the cases against Rao, popularly known as the investigation into the Jharkhand Mukti Morcha (JMM) scandal, involved the bribery of minority party MPs in order to avoid a defeat on a non-con®dence motion against Congress. See India Today, 30 September 1996.


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the response to these demands has been a form of ®scal and caste populism ± general subsidies, weak ®nancial regulation, oversight or indierence to scams, and ocially sponsored hostility to higher castes who have traditionally controlled the structures of government.34 These developments have focused concern on what is seen as the systematic looting of treasuries and the serious decline of standards in public oce.35 Against these charges ± often levelled by guardians of traditional institutions ± the new political leaders have responded with a simple retort: they have merely been practising what the Congress has indulged in over the last 40 years.36 Whatever the merits of such a defence, these policies have had two positive outcomes: they have helped to unite and mobilize poorer groups whose in¯uence has often been negligible, and they have constructed a new breed of underprivileged political activists who facilitate crucial links between the government and interest groups.37 Consequently the perceptions of political corruption by the poor and lower castes (and their leaders) do not always conform with conventional middle class opinion. Having for so long been the victims in a system where the laws and institutions have been regularly manipulated against them, there is little support among them for the idea of political corruption as a legal or moral concept.38 In a political system where all politicians are generally believed to be corrupt, the corruption of the poor and their leaders is a necessary `strategy of survival'.39 Third, in conditions of rising supply of and demand for corruption, politicians have been tempted to use anti-corruption as a tactic. This began, as we have noted, with the last Congress administration ± not because the party lacked funds, but rather because it hoped to capitalize on the discomforture of the opposition. In the event, the defeat of Congress produced a weak left-of-centre United Front government which comprised a coalition of several national and regional parties. Under this government the requirements of survival moved anti-corruption from a tactic to a strategy. Leading Congressmen and those reluctant to support the administration ± its survival was dependent on Congress good will ± have been especially targeted. While such a policy has 34 These developments aect most of the states in the Hindi belt but Laloo Parsad Yadev's Janata Party rule in Bihar typi®es the point being made. For details of the recent fodder scam see India Today, 15 July 1996. 35 India Today, 15 July 1996. The annual budget in Bihar has not been formally set since 1990. 36 For example, in an interesting inversion of the criticism made of the extension of armative action programmes for the lower castes, the leaders of these caste groups have defended the widening of patronage to their social constituency ± often perceived as corrupt by the media ± on the grounds that they are merely doing what the higher castes had done since 1947. See K. Balagopal, `This anti-Mandal mania', Economic and Political Weekly (Bombay), 6 October 1990, pp. 231±4. 37 J. Manor, `Can I Manage?' 38 Little systematic research has been undertaken into this aspect of political corruption. For an example which con®rms this view see J. Manor, Power, Poverty and Poison: Disaster and Response in an Indian City (New Delhi, Sage, 1992). 39 Such strategies of survival mirror the dilemmas of honest bureaucrats in a corrupt system. Writing generally about the Indian situation, D. H. Bayley, `The Eects of Corruption in Developing Nations', in Heidenheimer, Political Corruption, noted: Èven the honest ocial may be blackmailed by the threat that unless he acts unfairly he may be charged publicly with being corrupt', p. 528. Seen from the point of view of clients in the Indian political system, a corrupt ocial is `not one who takes money, but one who takes no more than the normal rate, who does not haggle, and who having taken your money at least tries to help you in return', R. Wade, `The system of administrative and political corruption: canal irrigation in south India', Journal of Development Studies, 18 (3) (1982), 287±328.


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encouraged citizen activism, a more liberal atmosphere towards grievances and a revival in the role of institutions entrusted with investigating and adjudicating on abuses of public oce, its impact is likely to be limited because the policy is selective, politically motivated and potentially reversible. Indeed in some states where the Congress is in power the lessons of the centre have been applied in reverse.40 Anti-corruption as a strategy is therefore unlikely to endure unless it moves beyond a concern simply with abuse of public oce to addressing the sources of corruption in a programme of comprehensive political reforms that command widespread support. III By accident or design the actions of the United Front administration have made political corruption a leading issue in contemporary Indian politics. Alongside the scandals, however, there has been a growing debate among informed political opinion about the need for reform. Political parties, it has been proposed, should be state funded with the removal of legal restraints on business or private donations.41 Since 1994 the Election Commission has enforced more rigorously the code of conduct and has removed the distinction introduced by Mrs Gandhi between party and candidate's expenditure on campaigns. In some states the institution of an ombudsman has been introduced to check complaints against the bureaucracy and the ruling administration. A recent meeting of all Chief Secretaries (the principal civil servants) in all the states proposed the introduction of a `Citizen's Charter' for those sectors of the administration that provide consumer services and a `right of information act' to encourage greater transparency of government policies, rules and regulations. The meeting went further to demand a revision of, and transparency in, the decisions on `posting, promotions and transfer of ocials' ± a key mechanism by which politicians have traditionally controlled and manipulated the bureaucracy.42 There are also calls to reactivate institutions such as Vigilance Cells (in every government department), State Anti-Corruption Bureaus and Vigilance Commissions that have either become moribund or extremely partisan under the long period of Congress rule. One institution that has shaken o the traditional timidity is the Supreme Court but its example, it is suggested, should be followed by the High Courts in the states where most of the petitioning against the abuse of public oce takes place.43 Finally, as well as strengthening the mechanism of detection and prosecution of corruption it is necessary to ensure that those brought to trial receive the appropriate, if not exemplary, punishment. There is sucient scope for such retribution in the existing legislation but these provisions have never been eectively implemented.44 40 The Ombudsman established to investigate charges of corruption against the ruling administration in Punjab has recently been abolished in the interests of èciency', see Des Pardes (Southall), 20 December 1996. 41 India Today, 31 March 1996. 42 Times of India (New Delhi) 21 November 1996. 43 See India Today, 31 October 1996. 44 The statutory provisions for prosecuting corrupt behaviour in India are among the most rigorous in the world. The Prevention of Corruption Act (1988) provides a broad range of custodial sentences for encouraging or participating in corrupt practices. Section l3 (l) of the Act includes the provision for assessing allegations of corruptions or corrupt practices if an individual's àssets [are] disproportionate to known sources of income'. In addition the Companies Act (1985) and the


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Some of these reforms, if implemented, will certainly be an improvement on the current provisions but it is questionable whether they will be eective in à society which fosters and protects corrupt values'.45 Economic liberalization in India through downsizing the state may or may not limit the scope of politicians to be corrupt but the acute scarcity of resources and the demographic pressures will always ensure that politicians continue to play a powerful role in the allocation of resources. It is a recognition of this fact that more serious observers have called not only for new reforms and regulations ± which in themselves can be counter-productive and easily subverted ± but a cultural revolution for the construction of a new public morality that would `save the democratic order from the brink of a Ma®a-oriented disaster'.46 Such calls, however, represent a nostalgic hankering for an idealized vision of M. K. Gandhi's view of public morality for the Indian nation before independence and its deformed incarnation under Nehru. That both the vision and its articulation represented a partisan view of pubic morality has been demonstrated by social change and the mobilization of politically excluded groups since 1947. In contemporary India therefore an absolute de®nition of political corruption ± implying with it a de®nition of public morality ± may be widely desired but will be dicult to sustain. Public opinion, instead of legal de®nitions or abstract notions of the public interest, provides a more appropriate measure of assessing political corruption. It is precisely this diversity and dierence which has led the vast majority of Indians to use the political system for instrumental reasons. As Wade so perceptively noted over a decade ago: People [in India] vote for whom they think can give them most favours in a particularist way. Most voters do not see an issue of corruption; they see that they themselves have not been successful enough in corrupting.47

This interpretation concurs with Myrdal's observations on the disassociational nature of Indian society and its consequence for politics. What contemporary political corruption and social change since 1947 have done is to provide a more transparent ®t between social values and the political system.48 In so doing this has ensured that the question is not whether today's politicians are more or less corrupt than their predecessors: rather, that changes in the management of Representation of Peoples Act (1975) limit the extent of business donations to political parties and the expenditure of parties and candidates during elections. At the provincial level every state government has an Anti-Corruption Bureau and a Vigilance Commission. The use of this legislation and machinery, however, has regularly broken down at the point of enforcement. In response to this inertia the last few years have seen the growth of Public Interest Litigation (PIL) ± the ®ling of petitions by ordinary citizens in the Supreme and High Courts on issues of `public interest'. Paradoxically, the United Front government which is leading the anti-corruption crusade, is now proposing to limit the scope of PIL by amending the Prevention of Corruption Act so that it does not cover the conduct of MPs or state legislators. For further details see India News Network Digest, 22 February 1997. 45 See A. December, `Political corruption: a review of literature', European Journal of Political Science, 8 (1980), p. 462. 46 Hari Jai Singh writing in The Sunday Tribune, 24 November 1996. 47 Wade, `The market for public oce', p. 487 (emphasis in the original). 48 Myrdal went further and argued that there was a clear link between the type of ìnclusive corruption' which showed loyalty to family, caste or community group and the existence of a `soft state' which ìmplied a low level of social discipline', Myrdal, p. 238. Political scientists, as we have noted, have tended to focus on macro issues of legitimacy and governance without recognizing the relationship between these concepts and contemporary political corruption in India. # Political Studies Association, 1997

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the political system have now made it more likely that their corrupt practices, if they are perceived as such, will be discovered. Conclusion It is tempting to view the current debate on political corruption in Indian politics in terms of a serious decline of standards in public oce and to situate this process within the context of the decay of the Congress over the last few decades. Such an interpretation, however, overlooks the degree of institutionalized corruption under the Nehruvian state, the establishment of a public discourse at independence which was heavily weighted against corruption from `below', and the relative legal immunity of corruption from àbove'. The demise of the Congress has been accompanied by the rise of other national and regional parties which have both challenged Nehruvian normative ideals and sought to construct new political coalitions. It is in these conditions that the minority United Front government has found it expedient to use an anti-corruption campaign as a strategy against its opponents. But the selective application of this strategy has also brought into the national domain the underlying ambiguities about the exercise of public power in India. Overlaying the general concern about the misuse of public oce are the unspoken assumptions about the social values on which political power rests. Opinion polls regularly suggest that regardless of caste, ethnicity, gender or region voters perceive politicians as corrupt.49 Such ratings moreover are often not too dissimilar from public perceptions of corruption in other spheres of Indian life. In the crisis of governance that now faces India, voter con®dence in the political system has plummeted with one opinion poll even indicating a majority preference for à leader who is corrupt but ecient to one who is honest but inecient'.50 These ambiguities are perhaps most apparent in the diculties that the anticorruption campaign is encountering in trying to prosecute the political leaders of backward castes. Absolute and legal de®nitions of corruption are being challenged by `people's power', grassroots mobilization and counter-charges of victimization by forces opposed to `social justice'.51 Thus the concern with political corruption as an evil is very much tempered with quali®cations, even in public perceptions, that it is necessary evil. These opinions may provide a better synchronization between popular social values and political life but they are unlikely to form the basis for constructing a new or shared view of public morality. In India today further regulations and controls may ensure that the degree of abuse of public oce is limited in the future but the eectiveness of such controls will be determined essentially by public opinion (especially at the provincial levels) and social values about corruption.

49

See India Today, 15 March 1996. India Today, 15 March 1996. 51 Facing an inquiry by the Central Bureau of Investigation, Laloo Parsad Yadev, the Chief Minister of Bihar, has threatened to take his defence to the `people's court'. His supporters have warned that if he is charged, arrested or dislodged `rivers of blood will ¯ow'. India Today, 31 January 1997. 50



The Politics of Privilege: Assessing the Impact of Rents, Corruption, and Clientelism on Third World Development PAUL D. HUTCHCROFT Ì am me,' explains Singaporean Senior Minister Lee Kuan Yew in response to criticism that he derived substantial personal advantage from a recent deal involving luxury condominiums. Ìt's not a level playing ®eld.' 1 To be sure, some element of particularistic privilege is found in all political systems ± most clearly in those where corruption and rent havens predominate, but even in meritocracies such as that built up by Lee himself during his three decades as Prime Minister. While no `playing ®eld' is entirely level, however, it is equally obvious that landscapes of special advantage vary enormously in shape from one political economy to another: some varieties of unevenness may actually promote economic growth, while other types of rough terrain seem to pose enormous barriers to sustained development. This paper takes initial steps toward building a framework able to explain why a range of related phenomena ± variously described as rent-seeking, corruption, and clientelism ± may be relatively more compatible or relatively more obstructive to the process of Third World development. In doing so, I will highlight how contrasting political settings spawn very dierent patterns of seeking ± and dispensing ± particularistic advantage. Moreover, I will seek to demonstrate that the process of creating such a broad framework bene®ts from an eclectic approach; speci®cally, it is valuable to draw insights from three literatures, with distinct lineages, that overlap but all too rarely interact: those relating to rents, corruption, and clientelism. The ®rst section of this paper discusses the utility of drawing on the three major paradigms, and the relative advantages and disadvantages of each in building a broad comparative framework. Second, I propose a preliminary framework for assessing the varying impact of major phenomena described by the literature on rents, corruption, and clientelism, focusing attention on seven Thanks to Don Emmerson, Jomo K. S., Mushtaq Khan, Andrew MacIntyre, Amado Mendoza, Jr, T. J. Pempel, Ansil Ramsay, Temario Rivera, and Joel Rocamora ± as well as to participants in both a panel of the Association of Asian Studies annual meetings, 11±14 April 1996, Honolulu, Hawaii and the `Rents and Development in Southeast Asia' workshop, 27±28 August 1996, Kuala Lumpur, Malaysia ± for oering comments that contributed to this article. All errors, of course, are mine alone. 1 New York Times, 5 June 1996. Lee was responding to a report that he and his son, Deputy Prime Minister Lee Hsien Loong, accepted discounts of more than $700,000 in a `soft sale' of condominiums conducted before bids were opened to the public.


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The Politics of Privilege

elements not fully captured in any one of the paradigms. Together, they examine the variability of the `take' among comparable acts of corruption, the processes by which advantages are allocated, the way in which gains obtained are invested, the manner in which corruption aects the operation of markets, the impact of corruption on a state's capacity to execute a range of essential developmental tasks, the role that corruption may play in promoting or impeding the institutionalization of both state agencies and political parties, and the relative presence of factors able to mitigate or counterbalance the prevalence of corruption. The conclusion summarizes key lessons, and proposes paths that may be fruitful in further comparative research. Surveying the Paradigms: Rents, Corruption, and Clientelism The quest for and allocation of particularistic advantage has long been the subject of academic investigation, but the language and concepts employed in this process of inquiry have varied across time and across disciplines. Each of the major paradigms ± rents, corruption, and clientelism ± oers important insights to political economists, yet all would be enhanced by a more concerted eort at cross-fertilization. The following is a preliminary attempt to encourage useful hybrids. The most recent addition to the theoretical repertoire is, of course, the literature on rents that has emerged from economics. The strength of this body of thought is its attention to market processes, and it is not surprising that rent theorists have achieved prominence in an era in which markets are widely praised and governments routinely reviled. Rents are, by de®nition, created when the state restricts the operations of the market. The processes of rationing foreign exchange, curbing free trade, and licensing some aspect of economic activity ± to give just a few examples ± serve to create `rent havens' that can be captured by some combination of well-placed businesspersons and bureaucrats. The ®ght for privilege, known as rent-seeking, encourages `directly unproductive pro®t-seeking' activities ± sometimes legal (e.g. lobbying) and sometimes not (e.g., bribery). Overall, the focus is on `the rent-seeking society'; analysis of the speci®c types of state structures in which this behaviour most thrives is commonly thwarted by distrust of states in general. Because rent-seeking is said to be `directly related to the scope and range of governmental activity in the economy, and to the relative size of the public sector',2 the solution is selfevident: `the state's sphere should be reduced to the minimum, and bureaucratic control should be replaced by market mechanisms wherever possible'.3 Indeed, a major problem with the rent-seeking literature is its often strong ideological bias. The majority of theorists are obsessed with demonstrating the negative impact of government on the economy. They view competitive markets as the most socially ecient means to produce goods and services . . . [and] do not treat the 2 J. M. Buchanan, `Rent Seeking and Pro®t Seeking', in J. M. Buchanan, R. D. Tollison and G. Tullock (eds), Toward A Theory of the Rent-Seeking Society (College Station, Texas A & M Press, 1980), p. 9. 3 P. Evans Embedded Autonomy: States and Industrial Transformation (Princeton NJ, Princeton University Press, 1995), p. 24.


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eects of government intervention as variable, sometimes reducing and sometimes stimulating social waste.4

This bias is best refuted by Peter Evans, who points out that many bureaucracies do indeed possess the capacity to restrain rent-seeking tendencies and promote collective eort among individual oceholders; `strict adherence to a neoutilitarian logic,' he asserts, `makes the existence of a collective actor dicult to explain and the nightwatchman state [favoured by neo-utilitarians] a theoretical impossibility'. His analysis of the role of states in economic transformation, moreover, highlights major problems with the assumption that competitive markets àre sucient to the kind of structural transformation that lies at the heart of development'.5 Ideological bias aside, there are at least four other major de®ciencies with much of the rent-seeking literature. First, even if a bureaucracy is pared down to a minimalist role, it is likely to retain ultimate responsibility for such basic tasks as building infrastructure and providing law and order. As long as bureaucrats continue to be tasked with supplying these goods, there remain `rent havens'. In settings where (to quote Weber) individual bureaucrats can easily `squirm out of the [bureaucratic] apparatus', the provision of public goods may bring signi®cant opportunities for private pro®t.6 Even in a minimalist state, for example, motor vehicle licensing authorities will potentially be able to extract an extra unocial sum for a scarce resource, and police may be able to transform their public power into lucrative kidnap-for-ransom schemes. Privatization by no means resolves the dilemma: the process of bidding and negotiating with private companies seeking to build and maintain a road, for example, can provide enormous rent havens easily tapped by those with the most favourable political connections. Because rent theorists have little to say about such post-marketshrinking problems, the solution necessarily shifts away from market remedies and toward the realm of politics and public administration. Second, the literature on rents generally neglects vitally important political elements of government-business relations. As Jomo and Gomez explain, there are major problems with the presumption that rents will be allocated solely according to market processes ± and a `certain irony' that the very people who assume that markets have been distorted with the creation of rents also seem to assume the existence of perfectly competitive markets for rent capture involving a fully competitive process. Rent-seeking may, in fact, not be very competitive ± due to the clandestine, illegal, closed, exclusive or protected nature of rent capture processes ± thus limiting rent-seeking activity and keeping down rent-seeking costs.7

The allocation is likely to be based not only on the market but also on a range of non-market considerations, including ethnic, regional, party, and old-school ties. Politics, not the market, provides the best clues to these processes. 4 M. Levi, Of Rule and Revenue (Berkeley and Los Angeles, University of California Press, 1988), p. 24. 5 Evans, Embedded Autonomy, p. 25. Fortunately, as Evans demonstrates, use of a rents framework does not require that one adopt the anti-statist perspective of a neo-utilitarian. 6 M. Weber, Economy and Society (Berkeley and Los Angeles, University of California Press, 1978), p. 987. 7 Jomo K. S. and E. T. Gomez, `Rents, Rent Seeking and Rent Deployment in Malaysia'. Unpublished ms., Kuala Lumpur (1995), p. 3.


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Third, and closely related, is the problem of determining the degree to which rents will be captured either by those in the state and those outside the state. This likely brings in even larger structural considerations, based on analysis of the historical development of state-society relations. Within Southeast Asia, I argue elsewhere, the ` ``bureaucratic'' capitalism' associated with the former bureaucratic polity of Thailand, for example, needs to be dierentiated from the `booty capitalism' spawned by the oligarchic patrimonial state found in the Philippines. In the ®rst type of rent capitalism, the major bene®ciaries of largesse are found in the state; in the latter, major bene®ciaries have an independent economic base outside the state.8 Fourth, rent theorists rarely make a clear distinction between whether those who compete for advantage are seeking generalizable policy bene®ts (as when an exporters' association lobbies for reduced taris) or particularistic privileges (as when a family conglomerate bribes customs ocials for lower duties on a speci®c importation, or lobbies congresspersons for the construction of a particular road). Taken together ± whether lobbying or bribery, general or particularistic ± all are seen as examples of unproductive rent-seeking activities.9 For a purely market-based standpoint, it is no problem to aggregate such activities into one category; from the standpoint of political economy, however, there are certain disadvantages. Because such distinctions are largely re¯ective of the degree of institutionalization and dierentiation of business interests, they are indeed important to those investigating larger questions of political power and future possibilities of political economic transformation. Moreover, because the relative incidence of bribery versus lobbying has an impact on the character of bureaucratic agencies, such distinctions are important to those analysing state capacity to promote developmental goals. As useful as rent theory can be to understanding the allocation of particularistic advantage, its limitations suggest the need to search elsewhere for additional insights. Studies of corruption may have had their heyday in the era of modernization theory, but it is a mistake to suggest that corruption is merely a `primitive' way of conceptualizing rent-seeking.10 It is a distinct paradigm that, over the course of many years, has yielded many important lessons for contemporary analysis. Indeed, it is worthwhile inquiring into why the concept of corruption is often given only cursory scholarly attention ± and sometimes eschewed in favour of other conceptual approaches. Because corruption is nearly omnipresent, some analysts seem inclined to treat it as an invariable element of the political economic woodwork; in other words, they are content to note that it exists almost everywhere without inquiring into how it varies in character and impact from one setting to another. Others, quite likely, have shunned the concept because it is more dicult to compile reliable empirical data on the often-shadowy world of corruption (based, quite inconveniently, on the `what is') than it is to construct abstract models of how rent havens are created in the absence of perfect markets (based on the far

8 P. D. Hutchcroft, Booty Capitalism: the Politics of Banking in the Philippines (Ithaca, Cornell University Press, forthcoming 1998). 9 See for example, A. O. Krueger, `The political economy of the rent-seeking society', The American Economic Review, 64 (1974), 291±303. 10 Evans, Embedded Autonomy, p. 24.


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less troublesome investigation of `what is not').11 `Primitive' (i.e., early postwar) language, conceptual complexity, and dilemmas of data-gathering, however, are no excuses for throwing the baby out with the bathwater. Corruption focuses attention on the public sector and on the distinction between ocial and private activity. Nye's oft-cited de®nition is a useful starting point: `Corruption is behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding in¯uence'.12 With this as a starting point, one is able to go beyond the central concern of rent theorists (how states may distort markets) and move into other important terrain as well (e.g., how markets may distort states). Theorists of corruption, as a group, cannot be accused of any strong ideological bias; on the contrary, one ®nds enormous variance in how to approach the issue. In the early days of modernization theory, corruption was commonly condemned on moralistic grounds but rarely accompanied by much careful analysis of its precise consequences (not to mention its causes, mechanics, or remedies). Later `revisionist' approaches of the late 1960s found that corruption could, at least occasionally and sometimes systematically, have a bene®cial impact on a range of important goals: `nation-building,' economic development, administrative capacity, and democratization.13 Subsequent literature continues the on-going evaluation of costs and bene®ts.14 Such attention to larger context is at once both a strength and a weakness of this body of literature. On the one hand, it is essential to view corruption as an element of broader political interactions, and understand that the prevalence of bribery may have both bene®ts as well as costs. On the other hand, in the course 11 As one scholar noted thirty years ago, `[e]stimates of the extent of corruption practices in underdeveloped countries are, expectedly, very imprecise. Rumor abounds, facts are scarce', (D. H. Bayley, `The Eects of Corruption in a Developing Nation', in A. J. Heidenheimer, M. Johnston and V. T. LeVine (eds), Political Corruption: a Handbook (New Brunswick NJ, Transaction, 1989 [1966]), p. 939. 12 J. S. Nye, `Corruption and Political Development: a Cost-Bene®t Analysis', in Heidenheimer et al., Political Corruption, p. 966. Alternative de®nitions are based on notions of the public interest and public opinion, but by far the most widely accepted de®nitions are based on legal norms. See the discussions of J. C. Scott, Comparative Political Corruption (Englewood Clis NJ, Prentice-Hall, 1972), pp. 3±5, and R. Theobald, Corruption, Development and Underdevelopment (Durham, Duke University Press, 1990), pp. 1±18. 13 In 1965, Leys noted that `the question of corruption in the contemporary world has so far been taken up almost solely by moralists . . . Emotionally and intellectually, this seems to be in a direct line of descent from the viewpoint of those missionaries who were dedicated to the suppression of native dancing. The subject seems to deserve a more systematic and openminded approach.' C. Leys, `What is the Problem about Corruption?', in Heidenheimer et al., Political Corruption, pp. 52±3. The term `revisionist' is derived from CarinÄo, who argues the need to combine analysis with moral judgements. `Compare,' she writes, `the outrage of American scholars against Nixon's indiscretions and their near-approval of more blatantly corrupt regimes in countries where they have worked.' L. V. CarinÄo, `Tonic or Toxic: the Eect of Graft and Corruption', in L. CarinÄo (ed.), Bureaucratic Corruption in Asia: Causes, Consequences and Controls (Quezon City: College of Public Administration, University of Philippines, 1986). Among those who perceive at least occasional bene®ts to corruption are Nye and Scott (Nye, `Corruption and Political Development'; Scott, Comparative Political Corruption); more systematic bene®ts are asserted in the work of Huntington and Le: S. P. Huntington, Political Order in Changing Societies (New Haven, Yale University Press, 1968); N. H. Le, Èconomic Development through Bureaucratic Corruption', in Heidenheimer et al., Political Corruption. 14 CarinÄo, `Tonic or Toxic'; Theobold, Corruption.


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of achieving breadth there is sometimes a lack of speci®city as to which goals are being included in the cost-bene®t analysis. Modernization theory's tendency to con¯ate distinct goals and presume that àll good things go together' spills over into the Great Corruption Debate, as rival camps are at times over-eager to declare corrupt behaviour either an overall good or an overall bad. Many scholars who have contributed to this literature, however, are quite explicit as to how costs and bene®ts need to be evaluated in terms of speci®c goals.15 At the risk of simplifying what is indeed a very large body of work spanning a wide time period ± from the earliest distinctions between private and public domains until present ± there are at least four other advantages to building on previous studies of corruption. First, as noted above, the very de®nition of corruption focuses attention on the character of state agencies, speci®cally the degree to which any given system re¯ects a clear distinction between a public and a private sphere. The work of Max Weber not only highlights how polities vary enormously in the degree to which such a distinction is recognized, but also how corruption can have a dierent impact from one setting to another. Unfortunately, the potential for carrying forth Weber's nuanced comparative analysis of the interaction of politics, bureaucratic structures, and economies has been hampered in recent decades by disciplinary overspecialization: economists tend to treat all states as the same, political scientists rarely devote much attention to bureaucratic structures, and public administration specialists all too often ignore the larger political and structural contexts in which their subject agencies are situated.16 Second, the corruption literature almost universally recognizes that corruption can be expressed both according to non-market and market factors. Scott explains that [a]s ideal types, `parochial' (nonmarket) corruption is a situation where only ties of kinship, aection, caste, and so forth determine access to the favors of power-holders, whereas `market' corruption signi®es an impersonal process in which in¯uence is accorded those who can `pay' the most, regardless of who they are. The real world, of course, rarely ever contains such pure cases. The proportion of market to parochial corruption, and hence the pattern of bene®ciaries, varies widely among underdeveloped nations.

Modes of payment, he further explains, can be in cash or in kind; in electoral settings, they may of course include delivery of a bloc of votes.17 Third, the best of the literature on corruption insists that the concept can only be properly analysed `within a broader analysis of a regime's political dynamics'.18 Scott's own analysis leads him to suggest that its impact may at times be expected to have a counter-hegemonic in¯uence by promoting the entry of new forces, but its more `normal eect . . . is to cement together a conservative coalition and hold back or cancel out the eects of growing 15 Nye, `Corruption and Political Development'. J. Waterbury, Èndemic and planned corruption in a monarchial regime', World Politics, 25 (1973) 533±55. Theobald, Corruption. 16 See Fred Riggs' analysis of how `the gulf between the study of politics and administration . . . became institutionalized' both in developed and in developing countries. F. W. Riggs, `The interdependence of politics and administration', Philippine Journal of Public Administration, 31 (1987), 418±38, p. 429. 17 Scott, Comparative Political Corruption, pp. 88±9. 18 Scott, Comparative Political Corruption, p. 6.


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collective demands'.19 Waterbury concludes that èndemic and planned corruption' in Morocco `serves only one ``positive'' function ± that of the survival of the regime. Resources are absorbed in patronage and are drained away from rational productive investment'.20 Whether or not other theorists agree with such conclusions, the very tendency to focus on how issues of politics and political power are played out among major social forces can be seen as welcome relief in an era in which the realm of macropolitics is often no longer the premier consideration of political economy. A ®nal advantage of employing the term `corruption' is that it re-connects academics with real politics and real political discourse. There has probably never been a major political demonstration against rent-seeking, but popular disgust over corruption ± the violation of norms based on a distinction between what is public and what is private ± has in countless cases nurtured reform movements, provoked riots, and contributed to the downfall of regimes. As long as corruption scandals dominate the headlines of many national newspapers, it seems a worthy objective for academics to continue to investigate such phenomena. Further political nuance comes from a third major paradigm, clientelism, which is above all a study of relationships of power. Persons of higher social status (patrons) are linked to those of lower social status (clients) in personal ties of reciprocity that can vary in content and purpose across time.21 Patron-client ties may or may not be corrupt, but `when a patron occupies a public position or extracts favours from those in public positions, patronage and corruption overlap'.22 Conversely, purely market corruption has no element of clientelism: it is a one-time transaction lacking in aective ties. Although concrete empirical evidence may be elusive, it is probable that ± contrary to the expectations of many economists ± purely market corruption is far less common than other variants of corruption. Power and social relationships regularly interact with everyday market relations; in all likelihood, markets of a corrupt nature ± involving the complex interplay of private and public spheres ± are even more heavily infused with such ties. Integration of the clientelist paradigm into an analysis of the search for particularistic advantage encourages analysts to go beyond both the excessive attention to market transactions often found in economics and the legalistic-formalistic approaches commonly found in the ®eld of public administration. Along with the other two paradigms, however, clientelist literature generally gives insucient attention to the role of coercion in the search for particularistic advantage.23 Since coercion plays a major role in certain forms of corrupt behaviour (especially in extortion and in the delivery of a bloc of votes), it is important to supplement all three paradigms with careful consideration of the often prominent role of violence. Scott tends to treat corruption and violence as alternative expressions of political in¯uence (the former à more peaceful route 19

Scott, Comparative Political Corruption, pp. viii±ix. Waterbury, Èndemic and planned corruption', p. 555. 21 J. C. Scott, `Patron-Client Politics and Political Change in Southeast Asia', in S. Schmidt et al. (eds), Friends, Followers, and Factions (Berkeley and Los Angeles, University of California Press, 1977 [1972]). 22 Waterbury, Èndemic and planned corruption', p. 537. 23 See J. T. Sidel, `Coercion, Capital, and the Post-Colonial State: Bossism in the Postwar Philippines', Ph.D thesis, Cornell University (1995), pp. 11±12. 20


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to in¯uence' than the latter),24 but in practice the two often reinforce each other in quite eective ways. A New York ma®oso, for example, may threaten an uncooperative city ocial with the proverbial `swim with concrete overshoes' in the East River, or a Philippine in¯uential may utilize state resources (the local police, or temporarily released and heavily armed prison convicts) to strike out at his or her political enemies. Together, the three paradigms encourage careful analysis of the search for and dispensing of particularistic privilege. Rent literature focuses attention on what happens when state actions distort markets, corruption literature examines how public roles and private in¯uences con¯ict within state agencies, and clientelism literature encourages clearer analysis of the relationships of power that permeate states, societies, and markets. The next task is to draw on these eclectic sources and begin to build a larger framework in which to analyse more eectively the very diverse impacts of the allocation of particularistic advantage. Building an Eclectic Theoretical Framework In varying settings, it was asserted at the outset, the range of related phenomena variously described as rent-seeking, corruption, and clientelism may be relatively more compatible or relatively more obstructive to the process of development. This paper does not aim to provide a generalizable framework able to explain when, where, why, and how the impact may be more or less positive, nor does it seek to provide a comprehensive new typology of the range of phenomena encompassed by these complementary paradigms. Rather, the purpose is to propose a series of initial questions that may build on previous insights ± from eclectic sources ± and contribute toward the longer term goal of building such a framework and such a typology. In other words, it is a preliminary treatment intended to promote discussion and further re®nement of ideas. There are seven sets of questions, I shall propose, that are useful in beginning to assess the dierential impact of rents, corruption, and clientelism. It is important to emphasize that the focus here is the impact of corruption on economic development; separate assessments of the impact of corruption would be necessary if other goals (e.g., harmonious inter-ethnic relations, democracy, or political stability) are to be considered. Distinct analysis would also be required if one is investigating the causes or mechanics of corruption, or optimal strategies to curb the phenomenon. Is Corruption Relatively More Variable or Calculable? A key factor in understanding the diverging impact of corruption and bribery on capitalist growth, Weber suggests, is the variability of the phenomena: they have the `least serious eect' when calculable, and become most onerous when fees are `highly variable' and `settled from case to case with every individual ocial.' Indeed, if bribery is a calculable element of a business ®rm's environment, its impact is no dierent than a tax; to the extent that a ®rm must devote major eort to negotiating each bribe, on the other hand, there is a high degree of unpredictability in the amount of time and resources to be expended. Overall, 24

Scott, Comparative Political Corruption, pp. 34±5.


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Weber expected that advanced forms of capitalism relied upon `the rational, predictable functioning of the legal and administrative agencies'.25 If correct, a major obstacle to the development of more sophisticated forms of capitalist accumulation is not corruption per se, but highly variable corruption. What sort of polities are most likely to spawn highly variable types of corruption? Analysis of this questions begins with Rudolph and Rudolph's important distinction between authority (the formal roles conferred upon individuals in their ocial capacities) and power (when incumbents pursue `values, interests, and goals of their own choosing that con¯ict with those of the administrative structure').26 Few would disagree with Scott's observation, over two decades ago, that `[n]ominally modern institutions such as bureaucracies and political parties in Southeast Asia are often thoroughly penetrated by informal patron-client networks that undermine the formal structure of authority'.27 For present purposes, it is worthwhile building on previous scholarship and examining further two key aspects of the interaction of power and authority within bureaucracies and parties. First, what are the relative strengths of informal and formal power? Clearly, the formal structures of authority are stronger in some national settings than others; within any national administrative apparatus, as well, some agencies exhibit clearer lines of formal authority than others. By de®nition, the stronger the formal authority relative to informal networks the less prevalent will be the incidence of corruption. Second, it is important to examine the process by which the power and authority interact: do patron-client networks tend to coincide with formal lines of authority, or do they constitute a competing source of orders and inducements? Higher degrees of coincidence, I propose, are likely to yield more predictable forms of corruption; conversely, the greater the degree of divergence between power and authority, the more variable is the form of corruption that is likely to emerge.28 In the former (pre-1980s) Thai bureaucratic polity, for example, formal bureaucratic authority was well developed and informal networks of power and formal status overlapped to a large degree;29 in such a system, businesspersons were likely to have a good sense of whom to approach and what to expect from one transaction to another. In the Philippines, by contrast, lines of formal authority are weaker and the disjuncture between authority and power is often quite pronounced. In this loosely structured system, where patrons are as often found outside formal structures of authority as within them, there is likely less 25

Weber, Economy and Society, pp. 240, 1095. L. I. Rudolph and S. H. Rudolph, Àuthority and power in bureaucratic and patrimonial administration: a revisionist interpretation of Weber on bureaucracy', World Politics 31 (1979) 195±227, p. 198. 27 Scott, `Patron-Client Politics'. 28 Scott concurs that more predictable corruption is `less likely to seriously retard economic growth'. Not only is the price more certain, but there is also greater `probability of receiving the paid-for ``decision'' '. This type of corruption is more likely when: (a) `The political and bureaucratic elites are strong and cohesive' and (b) `Corruption has become ``regularized'' ± even institutionalized after a fashion ± by long practice' (Scott, Comparative Political Corruption, pp. 90±1). These insights, I will seek to demonstrate, are strengthened by analysis of the relationship between power and authority. 29 J. L. S. Girling, Thailand: Society and Politics (Ithaca, Cornell University Press, 1981), pp. 37±8, 42. 26


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regularization of corruption from one case to another. As Rose-Ackerman describes her category `disorganized' bureaucracy, the ocial chain of command is unclear and constantly shifting and the decision-making criteria are similarly arbitrary and unknown . . . While corrupt bureaucrats may be willing to accept bribes, applicants cannot be sure that ocials have the power to perform their side of the bargain. Chaotic legal procedures increase the demand for more certain illegal ones, but if the disorganization of government is far advanced, no bureaucrats may be able to supply the requisite certainty even when oered a monetary incentive'.30

To what extent are rents `dissipated' in the course of their allocation? In other words, to what extent (if at all) are resources wasted in processes that determine who obtains particularistic advantage? Analysis of corruption and rents has focused considerable attention on the process by which particularistic privileges are allocated, but has unfortunately achieved little consensus as to the impact of these processes on development. Key elements of inquiry, as we shall see, involve the extent to which allocation is competitive and degree to which it generates eciency. Many economists ± ever faithful to market processes ± begin with the presumption that bureaucrats will allocate scarce resources such as licenses and other favours via `competitive bidding among entrepreneurs'. Le argues that within such a system `favours will go to the most ecient producers, for they will be able to make the highest bids which are compatible with remaining in the industry'.31 A decade later, Krueger developed a model which also tends to presume that that bidding will be competitive ± but came to the opposite conclusion about eciency. Competition for rents diverts resources toward such unproductive activities as lobbying and bribery, and in the end generates welfare costs for society as a whole.32 As discussed above, however, it is quite problematic to suppose that the allocation of privilege will be decided according to market processes. The recognition that rents can be allocated according to either market or nonmarket processes has led some neoclassical economists to propose ± with further irony ± that limits on competition might actually yield higher levels of eciency. As paraphrased by Mendoza, these economists have argued that since less competition over the allocation of rents is considered less wasteful, `the least wasteful situation is one where an absolute dictator who will brook no complaint will dispense rents as he sees ®t'.33 Campos argues that the costs of 30 S. Rose-Ackerman, `Which Bureaucracies are Less Corruptible?', in Heidenheimer et al., Political Corruption, pp. 805, 816. Legal procedures, in fact, may be intentionally obscured in order to heighten the demand for illegal services. In such a system, moreover, those with specialized powers to interpret often opaque rules (i.e., lawyers) will likely play a prominent role. 31 Le, Èconomic Development', pp. 396±7, 393. 32 Krueger, `Political economy', pp. 292, 195. 33 A. M. Mendoza, Jr, `Notes for a Second Look at Rent-Seeking, Pro®t-Making, and Economic Change in the Philippines'. Unpublished ms, Quezon City (1995), p. 13.


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directly unproductive pro®t-seeking (DUP) activities will `likely be smaller in an environment in which only a limited elite can acquire rents'.34 Jomo and Gomez suggest, similarly, that `the existence of rents, in itself, does not necessarily result in rent-seeking behaviour.' Because `certain political groups, individuals, or institutions usually have much more in¯uence on or even hegemony over the state,' some will likely do better than others in the process of securing advantage. Knowing that there is indeed ùneven access to opportunities for rent capture,' many parties will not even bother to enter the market.35 It is thus useful to make an analytical distinction between two broad forms of allocation: `rent-seeking' and `rent deployment.' Rents are sometimes obtained by persons or groups that actively seek out the advantage, and in other cases deployed from above to persons or groups who exert relatively little eort. To the extent that rents are deployed rather than sought after, there may in fact be far fewer wasted resources in the process of rent allocation than is commonly presumed.36 Just as Scott suggests that there are likely few cases of pure `market' or pure `non-market' corruption, so also are there likely few cases of pure `competitive rent-seeking' or pure `rent deployment'. A given claimant, for example, might have close aective ties to those who allocate privileges, and still have to expend considerable eort and resources to ensure that (a) the allocator does not forget to take care of what that claimant thinks is his/her due; and (b) this claimant's needs are taken care of before other claimants whose aective ties with the allocator are equally close. In short, both market versus non-market corruption as well as rent-seeking versus rent deployment are best conceived of as continua, across which one ®nds varying combinations of the two `pure' types. Overall, we can expect that the centralization of authority and/or power within a political economy will encourage a greater degree of rent deployment and a lesser degree of rent seeking. Rent deployment, in turn, seems likely to promote relatively less dissipation than rent-seeking and thus have the potential for more positive (or less detrimental) outcomes from the standpoint of development. Despite the considerable attention that these issues have received in the rents literature, however, it is quite likely that other elements of analysis may prove far more important in assessing developmental outcomes. Once Gains from Corruption and Rents are Obtained, How are they Invested? Whereas the previous question focuses attention of the processes by which rents are allocated, this question focuses attention on the purpose to which rents ± 34 J. E. L. Campos, `The ``Political Economy of the Rent-Seeking Society'' Revisited: Cronyism, Political Instability, and Development', unpublished ms, Washington DC (1992), p. 15; see also Krueger, `Political economy', p. 301 and E. S. De Dios, `Parcellised capital and underdevelopment: a reinterpretation of the speci®c-factors model', Philippine Review of Economics and Business, 30 (1993), 141±55, p. 154. Other neo-classical economists, notes Mendoza in his review of the literature, acknowledge that rent-seeking is not always competitive yet nonetheless àssert that a more competitive situation will reduce waste associated with rent-seeking' (Mendoza, `Notes for a Second Look', p. 13). 35 Jomo and Gomez, `Rents, Rent Seeking and Rent Deployment', pp. 3±4. 36 Jomo and Gomez do not provide a de®nition for their passing reference to the term `rent deployment' (in their title as well as on pp. 21 and 22). I may be employing the term in a somewhat dierent sense than they originally intended, but I have taken the liberty to retain the term because it best suggests a systematic, purposive allocation of rents. The basic distinction between two types of rent allocation, however, derives from their discussion.


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once obtained ± are employed.37 It has long been recognized not only that one of the `bene®ts' of corruption may be to promote rapid capital accumulation, but also that one must inquire as to whether the capital itself is invested in productive ways.38 At one end of the continuum, an entrepreneur invests his or her gains in a high-value-added industry that creates a great many positive externalities to the rest of the economy; at the other end of the continuum, advantages are hustled out of the country and into Swiss banks and Manhattan real estate. There is no reason to expect that rents sought after in competitive environments will necessarily result in more productive investment than those that have been deployed. On the other hand, in the event that rents are deployed there is no reason to expect that either deployers ± or those who obtain rents via deployment ± are necessarily going to be interested in promoting productive investment. As asserted above, one must look at the larger context in which rents are allocated. I propose that there are at least three key variables to examine in assessing the productivity of privileges obtained: (1) what are the motivations of those who allocate and obtain privileges?; (2) presuming that rents are allocated in order to promote developmental goals, what is the capacity of the state to enforce or promote productivity criteria?; and (3) how secure is the environment in which a given entrepreneur is operating? The motivations of those who obtain privileges through competitive rentseeking are likely impossible to evaluate with any precision: some will be inclined to productive investment and some will not. In the case of deployment, however, one is by de®nition evaluating a systematic eort toward a clear objective. The nature of the objective, however, may have little to do with the promotion of explicit developmental outcomes ± and may just as likely be oriented toward clearly political objectives. Such goals may in fact be relatively harmless ± or actually promote ± developmental objectives, as when privilege is extended to a particular region or ethnic group. In other cases, political goals may have a very harmful impact on the process of economic development, as when a highly unproductive businessperson is given a trading monopoly and extraordinary access to state credit in exchange for building political support for the regime in an important bailiwick. If the deployer is highly dependent on such local powerbrokers for political survival, it is particularly unlikely that developmental goals will ®gure prominently in the bargain. Second, when rents are in fact allocated with clear developmental goals, what is the capacity of the state to enforce or promote such goals? In an optimal `rentseeking' scenario, those who obtain privilege through competitive bidding must invest them in productive enterprise. In an optimal `deployment' scenario, those who give out the rents are not only very skilled in choosing the right entrepreneurs but also quite capable of enforcing strict performance guidelines from those they have provided a particular bene®t. Entrepreneurs favoured by South Korea's Park Chung Hee, for example, were granted enormous privilege but at the same time forced to meet performance criteria (commonly in the form of export targets). In many cases, however, those who obtain advantages will be

37 I am indebted to Jomo and Gomez for highlighting the important distinction between these two processes (Jomo and Gomez, `Rents, Rent-Seeking and Rent Deployment', p. 5). 38 Nye, `Corruption and Political Development', p. 967.


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able to pursue their own goals ± which may or may not be oriented toward productive investment. The clearest analysis, here again, requires careful examination of the broader con®guration of authority and power within which rent allocation takes place. Privilege may be extended to collective interests (a particular region, ethnic group, political party, or military faction) or to far more particular interests (family members, fraternity brothers, gol®ng partners, etc.). It is necessary to examine the relationship of rent allocators to each of these types of interests. Moreover, one must note that while in some settings major bene®ciaries will be found within the state (likely top bureaucrats and military ocers), elsewhere major bene®ciaries have an independent economic base outside the state. Overall, analysis of the ability of allocators to enforce and promote performance criteria requires that one examine such basic issues as the distribution of political power, the character of bureaucratic agencies, and the institutionalization and dierentiation of business interests. Questions of enforcement cannot be understood without careful attention to the larger realms of power and authority. Third, rent recipients operating in a very insecure environment may have little incentive to adopt a long-run strategy in the country where their advantage was obtained: capital ¯ight, rather than productive investment of capital, will likely predominate.39 To the extent that corruption and cronyism undercut the legitimacy of a regime, of course, they may at the same time undermine the overall stability in which rents are invested. What is the Impact of Corruption and Clientelism on Levels of Competition and the Overall Functioning of the Market? This question moves analysis from issues of investor productivity to those of market performance: does rent allocation, corruption, and clientelism tend to promote or discourage competition among ®rms? Doner and Ramsay contrast `competitive clientelism' (in which competition among political eÂlites keeps barriers to entry low and thus fosters business competition) with `monopoly cronyism' or `monopoly clientelism' (in which entrepreneurs can use their access to the state machinery to enforce higher entry barriers and reduce competition).40 Quite clearly the former can be expected to promote more favourable conditions for capitalist development, particularly where the state lacks the regulatory capacity to ensure ecient performance from cartelized and monopolized sectors. Second, and closely related, is the need to examine whether corrupt acts provide an end-run around policies that obstruct markets, or whether the acts themselves obstruct the ecient functioning of competitive markets. The ®rst case is perhaps best illustrated by West African cocoa farmers evading laws that require them to sell their produce to state marketing boards, and smuggling 39 Indeed, one could argue that an entrepreneur who bene®ts from a deployed rent (and is thus probably close to the regime in power) is likely more secure than an entrepreneur who has won out in a process of competitive rent-seeking. If the regime as a whole is in danger of collapsing, however, neither category of entrepreneur is likely to have much sense of security. 40 R. F. Doner and A. Ramsay, Àn Institutional Explanation of Thai Economic Success', a paper prepared for the annual meetings of the Association for Asian Studies, Washington D.C., April 6±9 (1995), pp. 3±4. Scott Comparative Political Corruption, p. 91.


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their produce to markets in neighbouring countries.41 The second occurs when an anti-trust lawsuit is squelched through bribery of key ocials. What is the Impact of Corruption on the Capacity of State Agencies to Undertake Important Developmental Roles? States have important tasks to achieve in promoting development. Even advocates of a relatively minimalist role for the state, such as the World Bank, assert that: governments need to do more in those areas where markets alone cannot be relied upon. Above all, this means investing in education, health, nutrition, family planning, and poverty alleviation; building social, physical, administrative, regulatory, and legal infrastructure of better quality; mobilizing resources to ®nance public expenditures; and providing a stable macroeconomic foundation, without which little can be achieved.42

To the extent that corruption inhibits the achievement of these vital foundations of laissez-faire capitalism, opportunities for sustained growth will be impaired. If one expects that promotion of late, late industrialization requires an even more extensive role for the state, quite clearly, it will be necessary to build up an even greater degree of capacity throughout the bureaucratic apparatus. For present purposes, however, it is possible to con®ne our attention to the impact of corruption on the basic political foundations of capitalist growth. Some argue that corruption promotes development by promoting administrative responsiveness. `Many economic activities would be paralysed,' wrote Myron Weiner of Indian politics in 1962, `were it not for the ¯exibility which bakshish contributes to the complex, rigid, administrative system'. Huntington concurs: Ìn terms of economic growth, the only thing worse than a society with a rigid, overcentralized, dishonest bureaucracy is one with a rigid, overcentralized, honest bureaucracy'.43 Others introduce the distinction between `speed payments' (involving `bribes that expedite a decision without changing it') and `distortive payments' (which `change the decision and contravene formal government policy').44 From the standpoint of an individual businessperson or citizen, corruption does indeed grease the wheels of a bureaucracy; to be sure, `honest bureaucracies' can be infuriatingly in¯exible to those with a justi®able need to bend the rules, and `dishonest bureaucracies' highly responsive to those who have the means and/or connections to do so. From a macro perspective, however, it is important to consider the impact of even seemingly innocuous `speed' payments 41 R. H. Bates, Market and States in Tropical Africa: the Political Basis of Agricultural Policies (Berkeley and Los Angeles, University of California Press, 1981). 42 World Bank, World Development Report 1991 (Oxford, Oxford University Press, 1991), p. 9. 43 Huntington, Political Order, p. 69. 44 Scott, `Patron-Client Politics', p. 67. Fegan oers a broadly similar distinction between `facilitative corruption' (in which the law is bent to the mutual bene®t of both a bribing businessperson and a bribed bureaucrat, and neither has reason to complain to a third party) and òbstructive corruption' (in which legitimate applications are blocked until a bribe is paid, and the businessperson is likely to complain to a third party). The former is `probably a necessary lubricant to capitalist development', while the latter is an impediment (B. Fegan, `Contributions from Sir Arthur Conan Doyle and Mick Inder to a Theory of Bureacratisation and Corruption in Southeast Asia'. Unpublished ms, Sydney (1994), pp. 4±5).


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on the likelihood of a bureaucratic agency to deliver the services it was set up to deliver. Such payments can encourage systematic delays, precisely because slowing things down brings such handsome ®nancial rewards to those in a strategic position within the bureaucracy. Corruption may in some cases be a valuable `lubricant' to individual claimants, but one must not neglect the degree to which such incentives build more bureaucratic `toll posts,' and in the end exacerbate delays in the system as a whole.45 Moreover, one must assess the longer term impact of corruption on administrative capacity to perform essential developmental tasks. Theobald asserts that: widespread venality, far from drawing together the dierent departments and areas of the public service, provokes fragmentation, dissension, interand intra-departmental rivalry . . . the low levels of morale and paranoia which are typically associated with an acutely unstable work situation . . . will have very marked consequences for job performance . . . [A prevalence of] nepotism, political patronage and bribery . . . [means] there is little incentive for functionaries to work eciently or honestly.46

While not denying that corruption may have some `positive consequences,' Theobald asserts that ìt is virtually impossible to con®ne corruption to those areas where its eects are deemed to be bene®cial'.47 Even Huntington, who sees many positive bene®ts to corruption, acknowledges that it `naturally tends to weaken or to perpetuate the weakness of the government bureaucracy'.48 Aside from questions of ¯exibility and capacity one must consider the impact of corruption on government budgets. How much of an expenditure intended to promote certain developmental goals actually ends up being utilized for such purpose, and how much gets leaked to promote private gain? On the revenue side, as well, corruption may reduce the proportion of a given tax that actually ends up in public coers; taxpayers can bribe the right ocials to informally bargain down their tax burden or obtain a formal exemption. Either way, funds are diverted from public to private ends. Le argues that `there is no reason to assume that the government has a high marginal propensity to spend for developmental purposes'; moreover, `when the entrepreneurs' propensity to invest is higher than the government's, the money saved from the tax collector may be a gain rather than a loss for development'.49 This begs the question, however, of whether the private hands that dip in the till will be investing their resources in the provision of public goods essential to the promotion of development. In many cases, even the most basic political foundations of economic development are severely disrupted by corruption: such tasks, for example, as law enforcement, ®re protection, and the construction and maintenance of infrastructure. While entrepreneurs may invest some resources in provisioning themselves with these goods (private security guards, ®re brigades, and roads), it will be rare for private investors to charitably provide 45 S. H. Alatas, The Sociology of Corruption: the Nature, Function, Causes, and Prevention of Corruption (Singapore, Times Books, 1980), pp. 31±5. 46 Theobald, Corruption, p. 46. 47 Theobald, Corruption, p. 131. 48 Huntington, Political Order, p. 69. 49 Le, Èconomic Development', p. 399.


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public goods when governments fail to do so. As the World Bank explains, governments must do what markets alone fail to do. A key question, then, is how much corruption actually reduces public expenditure on developmental goals (whether it be an irrigation project, a road, or a rural health clinic). Wade has provided an exceptionally detailed empirical portrait of how corruption in a South Indian system of canal irrigation impedes developmental goals. Irrigation engineers are able to raise `vast amounts of illicit revenue' in the construction of irrigation works and in deciding how water is allocated; in the process, the èconomic well-being of local communities' is often poorly served.50 Overall, one can expect that ®ve per cent diversion of resources from public purpose to private hands is relatively harmless compared to ten per cent, and ten per cent far less damaging than 25 per cent and above. Within any given country, some elements of the political machinery are likely to divert more resources than others: the actual incidence of corruption may vary, for example, depending on whether one is examining the upper level or the lower levels of a bureaucracy, Agency A or Agency B.51 Huntington asserts that `most political systems' exhibit a high incidence of corruption àt the lower levels of bureaucratic and political authority,' and that as one moves to higher levels the frequency of corruption may ± depending on the country ± remain constant, increase, or decrease. In all cases, however, `the scale of corruption (i.e. the average value of the private goods and services involved in a corrupt exchange) increases as one goes up the bureaucratic hierarchy or political ladder'.52 Broad judgements as to whether upper- or lower-level corruption are likely to be more damaging to developmental prospects are dicult to make: bribes at the lower level involve less money per transaction, but may well prove more disruptive to the functioning of the overall legal and administrative order. One can presume, however, that corruption will have the most debilitating impact when it is pervasive throughout a system, not only obstructing the provision of basic services through petty corruption at the lower levels but also resulting in large-scale graft at the top. From one agency to another, as well, there are commonly great variations in the prevalence of corruption and rent-seeking. Ùnable to transform the bureaucracy as a whole,' Evans explains of Brazil, `political leaders try to create ``pockets of eciency'' ' in which universalistic norms governed recruitment and an èthic of public service' nurtured a `clear esprit de corps'.53 Doner and Ramsay similarly call Thailand a `bifurcated state . . . divided between politically well insulated macroeconomic agencies [including the Ministry of Finance and the Bank of Thailand] and highly politicized line agencies'.54 50 R. Wade, `The system of administrative and political corruption: canal irrigation in south India', The Journal of Development Studies, 18 (1982), 287±328, pp. 287±8. 51 Insights can also be drawn from comparisons of the incidence (and impact) of corruption at the national level versus the regional level, or Region A versus Region B. The more decentralized a polity, the more important such analysis would be. 52 Huntington, Political Order, p. 67, emphasis in original. 53 Evans, Embedded Autonomy, p. 61. 54 Doner and Ramsay, Àn Institutional Explanation', pp. 2±3. The relatively more ecient agencies may be more insulated from clientelistic pressures, but one should not presume that formal authority completely displaces informal networks of power. As Rudolph and Rudolph argue in their `revisionist interpretation' of Weber's work on bureaucracy, eective administration depends not only on rational-legal authority but also on the persistence of patrimonial features able to `[mitigate] con¯ict and [promote] organizational loyalty, discipline, and eciency' (Rudolph and


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Moreover, the character ± and hence impact ± of corruption can vary according to whether or not democratic institutions are present. While some systems exhibit a clearer demarcation of administrative agencies and parliamentary bodies than others, in general one can say that the presence of representative institutions and electoral competition opens up the system to the in¯uence of a wider array of actors: party leaders, politicians, and at least some element of a broader public. Moreover, electoral systems oer: noncorrupt channels for in¯uence that simply do not exist in autocratic systems. For a businessman to give money to a civil servant is generally illegal, whereas the same amount given to a politician's campaign fund may `buy' just as much in¯uence over government decisions but is quite proper . . . The over-all level of corruption (legally de®ned) is not necessarily lower in party systems, but the party system generally does legitimize certain patterns of in¯uence that could only occur corruptly in a military/bureaucratic system.55

Finally, democratic institutions can in some cases provide new incentives for corruption. In his study of India, Wade concludes that ìt is likely that elective institutions have ampli®ed the pressures towards corruption and made it more systematic . . . because of the spiralling cost of ®ghting elections and nursing a constituency between elections'.56 The relationship between democratic institutions and corruption, however, depends on a broad range of political dynamics: at the same time it enables more persons to seek a place at the trough, it can also provide greater in¯uence to those trying to topple the trough. Despite the analytical utility of locating where resources may be diverted from developmental goals, it is important to recognize how the various parts generally ®t together as one single system of corruption. Wade criticizes those who `treat `àdministrative'' and ``political,'' ``high'' and ``low'' level corruption as distinct and unconnected forms,' demonstrating that they are often `systematically interconnected'.57 Theobald, similarly, treats àdministrative and political corruption as dimensions of the same phenomenon, as dierent sides of the same coin'.58 Does Corruption Tend to Promote or Inhibit the Institutionalization of State Agencies? What is the Impact of Corruption on the Institutionalization of Political Parties? In addition to examining the impact of corruption on the capacity of states to perform important developmental tasks, it is also valuable to consider whether certain types of corruption may promote the institutionalization of Rudolph, Àuthority and power', p. 196). Evans argues that informal networks within developmentalist states `reinforce the binding character of participation in the formal organizational structure rather than undercutting it in the way that informal networks based on kinship or parochial geographic loyalties would' (Evans, Embedded Autonomy, p. 59). 55 Scott, Comparative Political Corruption, p. 94. I prefer the term èlectoral system' to `party system', since (as discussed below) well-institutionalized parties may or may not play an important role within a system centred around competitive elections. 56 Wade, `The system of administrative corruption', pp. 318±9. 57 Wade, `The system of administrative corruption', p. 288. 58 Theobald, Corruption, p. 18; see also Riggs, `The interdependence of politics and administration'. # Political Studies Association, 1997

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bureaucracies and militaries. Returning to the discussion above of the relationship between formal lines of authority and informal networks of power, I propose that a higher degree of convergence between power and authority may occasionally promote state institutionalization. In the late 1950s, for example, then-Colonel Suharto was transferred from his post as regional commander for Central Java because of involvement in a `smuggling scheme ostensibly to raise funds for the ``welfare'' of his troops'. While personal gain was clearly a major factor, Indonesian generals engaging in such economic activities were also motivated to `maintain the functioning of their units and the loyalty of their troops'.59 State appropriations were insucient to provision adequately the rank-and-®le soldiers, and it was wise for patron-generals to share part of the gains from corrupt activities with a clientele located within the state apparatus.60 The second consideration is the impact of corruption on the institutionalization of political parties. This question draws on Huntington, who connects the achievement of more institutionalized parties with the demise of corruption itself: For an ocial to award a public oce in return for payment to the ocial is clearly to place private interest over public interest. For an ocial to award a public oce in return for a contribution of work or money to a party organization is to subordinate one public interest to another, more needy, public interest . . . Corruption thrives on disorganization, the absence of stable relationships among groups and of recognized patterns of authority . . . [It] varies inversely with political organization, and to the extent that corruption builds parties, it undermines the conditions of its own existence . . . the incidence of corruption in those countries where governmental resources have been diverted or `corrupted' for party-building is on the whole less than it is where parties have remained weak.

Historically, he continues, political parties of the West which were initially `leeches on the bureaucracy in the end become the bark protecting it from more destructive locusts of clique and family'.61 As Huntington suggests, however, one should not presume that the mere contribution of money to a political party will necessarily strengthen the party itself. Just like bureaucracies, political parties combine formal lines of authority with informal networks of power. In some cases, grants of money obtained via corruption will promote the institutionalization of the party, but in other cases parties themselves are so riven along the lines of cliques, factions, and personalities that new resources are unlikely to have that result. Corruption can indeed contribute to the important goal of party-building, but weak parties may endure even when they are major bene®ciaries of corruption. It is important to 59

H. Crouch, The Army and Politics in Indonesia (Ithaca, Cornell University Press, 1988), pp. 40, 38. Overall, this period is of course known as one in which corruption in Indonesia lacked any real limits (Scott, Comparative Political Corruption, pp. 80±4). To the extent that institutionalization was taking place, it was seemingly almost entirely within a military that ± after 1965 ± came to `backbone' the rest of the bureaucracy (D. K. Emmerson, `The Bureaucracy in Political Context: Weakness in Strength', in Karl D. Jackson and Lucian W. Pye (eds), Political Power and Communications in Indonesia (Berkeley and Los Angeles, University of California Press, 1978); see also Crouch, The Army and Politics and B. Anderson, Òld state, new society: Indonesia's new order in comparative historical perspective', Journal of Asian Studies, 42 (1983), 477±96. 61 Huntington, Political Order, pp. 70±1, emphasis added. 60


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take Huntington's observations a step further, and ask why `corruption builds parties' in some settings but not others. To What Extent is Corruption's Impact on Economic Development Counterbalanced by Other `Growth-promoting Economic and Political Factors'? Does a Political System Generate an Internal `Sense of Limits' Able to Mitigate the Extent of Corruption? In assessing the impact of corruption on economic performance, it is commonly argued that other factors may insulate economies ± at least temporarily ± from its possibly detrimental eects. In some settings, as MacIntyre summarizes the argument, it seems that `clientelism . . . has been suciently counterbalanced by other growth-promoting economic and political factors that have enabled strong economic growth to continue in the face of rampant rent-seeking, or served to rectify the situation when the cumulative eect of rent-seeking activities threatened to endanger the economy.' Among these factors may be large endowments of natural resources, sizeable quantities of foreign aid, strong investor con®dence, and the presence of nascent `market-oriented reform coalitions'.62 The basic notion of considering countervailing factors is valid, but as MacIntyre demonstrates this line of inquiry tends to raise as many questions as it answers. Indeed, a simple comparison of how Indonesia and Nigeria have utilized their oil resources and developed investor con®dence returns analysis quite quickly to the question of how some political economies are better equipped than others in insulating themselves from the impact of `rampant rentseeking'. A far more fundamental `mitigating factor' is the extent to which a political system may be compelled to provide its own internal limits, however modest, to the prevalence of corruption. The presence of external threat is often a key factor in encouraging à sense of limits', explains Scott, and àn elite which enjoys a measure of cohesion and security can develop a sense of its collective, long-run interest'. In many cases, however, `limits are virtually absent'.63 To the extent that corrupt practices become culturally embedded over the course of decades or even generations, it will likely be all the more dicult to promote a stronger sense that ènough is enough'. Conclusion For many decades, scholars have inquired into the impact of corruption, clientelism, and rents on the process of economic growth in the developing world. This chapter has attempted to draw very broadly on some of the lessons developed in the course of past inquiry, and contribute toward a framework that can help us to understand better why a range of related phenomena may be relatively more compatible or obstructive to developmental goals. The content of the framework presented here is tentative, but in the process of construction I hope to have demonstrated the utility of an eclectic approach, able to extract 62 A. MacIntyre, `Clientelism and Economic Growth: The Politics of Economic Policymaking in Indonesia', a paper prepared for the annual meeting of the Association for Asian Studies Washington, D.C., 6±9 April (1995), pp. 10±6. 63 Scott, Comparative Political Corruption, pp. 79±80.


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valuable insights not only from recent contributions to the topic but also from those made in decades past. Moreover, I hope to have highlighted how `the politics of privilege' may vary in both character and impact from one Third World setting to another. Applying the framework above to a range of polities ± each with its own particular landscape of special advantage ± will likely yield very dierent conclusions about the impact of rents, corruption, and clientelism on developmental outcomes.64 Admittedly, the model proposed above lacks parsimony; but so, for that matter, have many previous attempts at explaining these issues.65 Perhaps a narrower or more abstract approach could produce greater simplicity ± not to mention more scienti®c precision; but in all likelihood, some important aspects of (not surprisingly, complex and diverse) reality would be discarded in the process. For all the eorts that have gone into this line of inquiry in the past, it remains the case that corruption, à phenomenon which aects administration, politics, business, education, health and a host of other crucial areas of social life . . . has been so little studied'.66 Future comparative research is necessary to prioritize the elements of analysis more clearly, and pursue major issues in greater detail. To the extent possible, it would be useful to develop measures of the variability of corruption, the dissipation of resources in the process of allocating particularistic advantage, and the diversion of budgetary resources from developmental purposes. It is also worthwhile to review the presence or absence of performance criteria across various sectors, and seek to understand more clearly the political processes by which barriers to competition are imposed and maintained. Finally, more research is needed to understand the interconnections of various forms of corruption as found throughout the entire political system, and the structural conditions that may promote (but by no means guarantee) a stronger `sense of limits'. As inquiry continues, it is sure to be hobbled by many of the same obstacles that have long plagued the study of corruption. Research can only bene®t, however, by drawing freely from the various literatures that have sought to answer, in the past, many of the same questions we are seeking to answer today.

64 In P. D. Hutchcroft, `Corruption's Obstructions: Assessing the Impact of Rents, Corruption, and Clientelism on Capitalist Development in the Philippines'. Paper prepared for presentation at the annual meeting of the Association for Asian Studies, 11±14 April 1996, Honolulu, Hawaii, I apply the various elements of this framework to the Philippines, a notoriously skewed, irregular political economic landscape long the play®eld of both established oligarchs and favoured cronies. The country's particular con®guration of political power, I conclude, has nurtured types of rentseeking, corruption, and clientelistic ties that have proven generally obstructive to sustained economic development. 65 See for example Nye, `Corruption and Political Development'. Scott, Comparative Political Corruption, pp. 90±1. Theobald, Corruption, pp. 107±32. 66 Wade, `The system of administrative corruption', p. 288.



Contributors ALBERTO ADES completed his PhD in Economics at Harvard University in 1993, and is currently Foreign Exchange Economist at Goldman, Sachs & Co., New York. He has published extensively on competition and corruption, including articles in Quarterly Journal of Economics, Economic Journal and Economics and Politics. CRISTINA BICCHIERI is Professor of Philosophy and Social and Decision Sciences at Carnegie Mellon University. Her research focuses on game theoretic analyses that take account of agents' resource limits. She is the author of numerous articles and books, including Rationality and Coordination (Cambridge University Press, 1997). JEAN CARTIER-BRESSON is Senior Lecturer in Economics at the University of Paris XIII and a member of GREITD-CEDI. He has also been an adviser to the French Service Central de PreÂvention de la Corruption. He has published extensively on political corruption and has recently edited a collection entitled Pratiques et controÃle de la corruption (Paris, Association d'Economie FinancieÁre, Collection `Finance et SocieÂteÂ', 1997). DONATELLA DELLA PORTA is Professor of Local Government at the University of Florence. Among her recent publications on political corruption are Lo scambio occulto (Il Mulino, 1992), Corruzione politica e amministrazione pubblica (with Alberto Vannucci, Il Mulino, 1994) and DeÂmocratie et corruption en Europe (edited with Yves MeÂny, Editions La DeÂcouverte, 1995). RAFAEL DI TELLA teaches at the Harvard Business School. He completed his D.Phil. in Economics at the University of Oxford in 1995, and has published widely on political corruption, including articles in Economic Journal and Journal of Political Economy. JOHN DUFFY is Assistant Professor of Economics at the University of Pittsburgh. He completed his PhD at the University of California, Los Angeles in 1992, and his current research involves dynamic models of interacting agents in a decentralized environment. ASE GRODELAND is a Research Assistant at the University of Glasgow. Her doctorate on the emergence and development of the Green Movement in Ukraine was based on extensive ®eld research. Earlier, her work as consultant to the Ecological Studies Institute involved her in discussions with ocials, politicians and Green activists throughout the Soviet Union. PAUL HEYWOOD is Professor of Politics and Head of Department at the University of Nottingham. His research focuses on comparative European politics, with a particular emphasis on Spain, and recent books include The Government and Politics of Spain (1995) and Developments in West European Politics (jointly edited, 1997). He has also published various articles and papers on political corruption in Spain. PAUL D. HUTCHCROFT is Assistant Professor of Political Science at the University of Wisconsin-Madison, and has recently been based in the Philippines on a FulbrightHays Research Fellowship. He has published extensively on Philippine politics and political economy, and is the author of a forthcoming book entitled Booty Capitalism: The Politics of Banking in the Philippines (Cornell University Press). TATYANA KOSHECHKINA is Managing Director of USM (Ukrainian Surveys and Market Research) and an Honorary Research Fellow at the University of Glasgow. # Political Studies Association 1997. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

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Contributors

Formerly she worked at the Institute of Sociology, National Academy of Sciences, Kiev and later founded and became the ®rst Managing Director of SOCIS-GALLUP. WILLIAM MILLER is Edward Caird Professor of Politics at the University of Glasgow, and a Fellow of the British Academy. His recent books include Political Culture in Contemporary Britain: People and Politicians, Principles and Practice (Oxford University Press, 1996) and Values and Political Change in Postcommunist Europe (Macmillan, 1997). DAWN OLIVER is Professor of Constitutional Law at University College, London, Dean of the Faculty of Laws and Head of the Department of Law since 1993. She is editor of Public Law and co-editor with Lord Lester of Herne Hill QC of the fourth edition reissue of Halsbury's Laws of England Constitutional Law and Human Rights (1996). JOHN PETERSON is Jean Monnet Senior Lecturer in European Politics at the University of Glasgow. His books include Europe and America: The Prospects for Partnership (Routledge, 1996, 2nd edn), and Decision-Making in the European Union (with Elizabeth Bomberg, forthcoming ± 1998). He is co-editor of The Journal of Common Market Studies. MARK PHILP is Fellow and Tutor in Politics at Oriel College, Oxford, and Chair of the Social Studies Board, University of Oxford. He has published books on and editions of William Godwin and Tom Paine, and papers on political theory and the history of political thought. He is currently working on a book on politics and its corruption. GURHARPAL SINGH is Principal Lecturer in Politics at De Montfort University. He is convenor of the Political Studies Association's South Asia Specialist Group. His publications include Communism in Punjab (jointly edited, 1994), Punjabi Identity (jointly edited, 1996) and The Partition of Bengal and Punjab (forthcoming, 1997). ALBERTO VANNUCCI is a post-doctoral researcher in the Dipartimento di Scienze della Politica of the University of Pisa. In 1996 he worked with the Parliamentary Committee for the Prevention of Corruption. He has published Corruzione politica e amministrazione pubblica (with Donatella della Porta, 1994) and Il mercato della corruzione (1997). FEDERICO VARESE is Temporary Lecturer in Sociology at the University of Oxford and a Fellow of Nueld College, Oxford. He completed his doctoral thesis at the University of Oxford on `The emergence of the Russian Ma®a' (1996).


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