Corruption, Governance and Economic Development Mushtaq H. Khan
[in Jomo, K.S. and Ben Fine (eds) 2004. The New Development Economics. New Delhi: Tulika Press and London: Zed Press] Corruption and governance have come to the fore in contemporary discussions of reform in developing countries. Many of the problems to which corruption and governance refer are significant and longstanding. Yet, the way in which mainstream economics has analysed them simply provides support for a programme of marketenhancing reforms. These seek to reduce the role of the state to the delivery of a small range of core services that cannot be delivered by the private sector. The mainstream analysis is not only misleading in failing to identify many of the most important determinants of corruption and of apparent governance failures in developing countries. By offering wrong diagnoses and solutions, these mainstream approaches waste time and resources in programmes that are unlikely to provide reductions in corruption and improvements in governance. Even worse, by promoting reforms that lessen the ability of the state to accelerate development, they may paradoxically reduce the prospects of substantial and lasting improvements in corruption and other desirable features of “good governance” such as democracy. The first section outlines the definitions of corruption and governance used in the literature. The second section describes the comparative evidence on corruption and governance that has driven the contemporary interest in these issues as determinants of the prospects of developing countries. The third section outlines the mainstream analysis and its limitations. It argues that the neoclassical analysis of corruption and governance and its policy conclusions are based on a model of marketdriven development that is inappropriate for analysing a number of critical problems that developing countries face in their transitions to more productive societies. The fourth section provides an alternative approach to corruption and governance, drawing on different segments of the heterodox literature on the role of the state during the social transformations that developing countries are going through. It identifies four different types of corruption with very different causes and implications, and with different policy implications. The neoclassical analysis of corruption is at best relevant for understanding and responding to one of these types of corruption, and this is not the most important type of corruption affecting developing countries. The other types of corruption are associated with processes more critical for explaining the success or failure of developing countries, but here neoclassical policy prescriptions actually hinder the construction of more effective developmental policies that are necessary for sustainable reductions in corruption. These conclusions apply to the neoclassical analysis of good governance as well. That analysis is also based on the assumption that the governance tasks of the state should be limited to providing the basic conditions for a market economy to work. It ignores the political and economic transformations that developing countries are going through and the state capacities necessary for success in this transformation. As with neoclassical anti-corruption policy prescriptions, its good governance policy prescriptions are damaging because they can weaken those state capacities that are vital for the social transformations that developing countries are going through. The fifth and final section summarizes the implications of this analysis for policy in developing countries. 2 Defining Corruption and Governance Most economists and social scientists define corruption in a narrow way, and I will follow this definition in addressing the literature and its implications. According to this definition, corruption takes place when public officials (including both bureaucrats and politicians) violate formal rules of conduct in pursuit of their private benefit, whether for wealth in the form of bribes or for political advantage (Nye 1967, World Bank 1997). Corruption is therefore defined as an exchange between a private individual (or group) and a public official (or officials), where the public official breaks formal rules of conduct and provides something to the private individual or group that would not otherwise have been received. The benefit that the public official gains is technically illegal because it violates a formal rule of conduct (for the act to be corrupt). But the benefit the private individual receives in exchange may be either a legal entitlement that they would not otherwise have received or an illegal benefit that confers greater advantage than otherwise. The differences between these cases are important and will be discussed further later. A number of points are noteworthy about this definition. First, corruption is defined in such a way that its analysis does not involve moral judgements about the act. This is an advantage of the definition, since if corruption is defined as acts that are “wrong”, this would result in different acts being identified as corrupt by different people according to their different moral standards. For instance, a public official who gives a job to a nephew in exchange for maintaining his own political influence over his clan may not be considered as corrupt by someone who thought that it was a moral duty to promote one’s family. But it would be corrupt according to the definition here as long as formal rules of conduct for public officials in that country ruled out such acts. Even so, there is still the possibility that there may be differences in legal or formal rules of public conduct across countries but, in general, in virtually every country, rules of public conduct do not allow the acceptance of bribes, nepotistic allocations or diversions of public resources for economic or political benefit. This makes it easier to identify corruption according to this definition without engaging in debates about morality. Nevertheless, the problem is that in everyday usage, people do make moral judgements when discussing corruption, and the difference between the everyday sense of corruption and the definition that is commonly used in economic and social analysis needs to be kept in mind. Secondly, corruption is deliberately defined as a process rather than as an outcome. If corruption were to be defined to include only acts that have damaging outcomes for the public, then this would rule out cases where a process was corrupt but its overall effects were neutral or even positive. Thus, the definition we use is useful in analysing differences in the effects of corruption across countries. But, once again, in common usage, corruption is often used to describe actions by public officials that are against the “public interest”, whether or not any rules of conduct are violated; while actions where rules are violated but the “public” does not suffer (or even benefits) are often not described as corrupt. Once again, the difference between everyday conceptions of corruption and its definition in economics and social analysis needs to be kept in mind. Finally, the definition of corruption that we follow places public officials at the centre of the analysis. According to this definition, corruption does not take place where public officials are not involved and, in this sense, corruption is simply a lens 3 through which to examine the operations of the state. This too is somewhat at odds with common usage where corruption can refer to reprehensible behaviour by anyone, including interactions exclusively between private individuals or agents. According to the social science definition, if a private person steals from another, that is theft, not corruption. However, even in the case of theft, corruption may be implicated because the state is the ultimate protector of property rights, and theft may take place with the connivance or even involvement of public officials. Note that using this definition does not mean accepting that corruption is more important than theft, only that the focus of corruption analysis is on the functioning of the state. Nonetheless, there are important grey areas that we need to keep in mind. If a small shopkeeper gives a job to a relative without following proper procedures, or charges a fee for providing the job, these acts would very likely be described as nepotism or extortion rather than corruption in common usage, and here common usage conforms to the economist’s definition. But, if the chief executive of a large quoted company did the same thing, this would be commonly described as corruption, and would very likely be treated in the literature on corruption as a corrupt act. This is because many authors treat private sector executives in important economic positions as having semi-public roles. But a more consistent position would be to argue that their activities are regulated by the state so that theft, extortion or fraud by executives in important private sector positions often involves either a failure of public governance, or direct corruption and collusion by public officials. It is important to keep in mind that the definition of corruption is not making a statement about the relative importance of the private and public sectors in explaining economic and social problems, but is rather a lens through which to analyse the operation of the state. In this sense, heterodox analysis can contribute to the debate while keeping to a definition of corruption that puts the state at the centre of the analysis. The definition of governance is also deeply connected to the state. Governance is what states do, but identifying the areas of governance on which to focus is problematic because it requires specific assumptions about what the state is supposed to be doing. Here, the conventional analysis of “good governance” is explicitly based
ทุจริต กำกับดูแล และพัฒนาเศรษฐกิจมุชตาก H. คัน [in Jomo, K.S. and Ben Fine (eds) 2004. The New Development Economics. New Delhi: Tulika Press and London: Zed Press] Corruption and governance have come to the fore in contemporary discussions of reform in developing countries. Many of the problems to which corruption and governance refer are significant and longstanding. Yet, the way in which mainstream economics has analysed them simply provides support for a programme of marketenhancing reforms. These seek to reduce the role of the state to the delivery of a small range of core services that cannot be delivered by the private sector. The mainstream analysis is not only misleading in failing to identify many of the most important determinants of corruption and of apparent governance failures in developing countries. By offering wrong diagnoses and solutions, these mainstream approaches waste time and resources in programmes that are unlikely to provide reductions in corruption and improvements in governance. Even worse, by promoting reforms that lessen the ability of the state to accelerate development, they may paradoxically reduce the prospects of substantial and lasting improvements in corruption and other desirable features of “good governance” such as democracy. The first section outlines the definitions of corruption and governance used in the literature. The second section describes the comparative evidence on corruption and governance that has driven the contemporary interest in these issues as determinants of the prospects of developing countries. The third section outlines the mainstream analysis and its limitations. It argues that the neoclassical analysis of corruption and governance and its policy conclusions are based on a model of marketdriven development that is inappropriate for analysing a number of critical problems that developing countries face in their transitions to more productive societies. The fourth section provides an alternative approach to corruption and governance, drawing on different segments of the heterodox literature on the role of the state during the social transformations that developing countries are going through. It identifies four different types of corruption with very different causes and implications, and with different policy implications. The neoclassical analysis of corruption is at best relevant for understanding and responding to one of these types of corruption, and this is not the most important type of corruption affecting developing countries. The other types of corruption are associated with processes more critical for explaining the success or failure of developing countries, but here neoclassical policy prescriptions actually hinder the construction of more effective developmental policies that are necessary for sustainable reductions in corruption. These conclusions apply to the neoclassical analysis of good governance as well. That analysis is also based on the assumption that the governance tasks of the state should be limited to providing the basic conditions for a market economy to work. It ignores the political and economic transformations that developing countries are going through and the state capacities necessary for success in this transformation. As with neoclassical anti-corruption policy prescriptions, its good governance policy prescriptions are damaging because they can weaken those state capacities that are vital for the social transformations that developing countries are going through. The fifth and final section summarizes the implications of this analysis for policy in developing countries. 2 Defining Corruption and Governance Most economists and social scientists define corruption in a narrow way, and I will follow this definition in addressing the literature and its implications. According to this definition, corruption takes place when public officials (including both bureaucrats and politicians) violate formal rules of conduct in pursuit of their private benefit, whether for wealth in the form of bribes or for political advantage (Nye 1967, World Bank 1997). Corruption is therefore defined as an exchange between a private individual (or group) and a public official (or officials), where the public official breaks formal rules of conduct and provides something to the private individual or group that would not otherwise have been received. The benefit that the public official gains is technically illegal because it violates a formal rule of conduct (for the act to be corrupt). But the benefit the private individual receives in exchange may be either a legal entitlement that they would not otherwise have received or an illegal benefit that confers greater advantage than otherwise. The differences between these cases are important and will be discussed further later. A number of points are noteworthy about this definition. First, corruption is defined in such a way that its analysis does not involve moral judgements about the act. This is an advantage of the definition, since if corruption is defined as acts that are “wrong”, this would result in different acts being identified as corrupt by different people according to their different moral standards. For instance, a public official who gives a job to a nephew in exchange for maintaining his own political influence over his clan may not be considered as corrupt by someone who thought that it was a moral duty to promote one’s family. But it would be corrupt according to the definition here as long as formal rules of conduct for public officials in that country ruled out such acts. Even so, there is still the possibility that there may be differences in legal or formal rules of public conduct across countries but, in general, in virtually every country, rules of public conduct do not allow the acceptance of bribes, nepotistic allocations or diversions of public resources for economic or political benefit. This makes it easier to identify corruption according to this definition without engaging in debates about morality. Nevertheless, the problem is that in everyday usage, people do make moral judgements when discussing corruption, and the difference between the everyday sense of corruption and the definition that is commonly used in economic and social analysis needs to be kept in mind. Secondly, corruption is deliberately defined as a process rather than as an outcome. If corruption were to be defined to include only acts that have damaging outcomes for the public, then this would rule out cases where a process was corrupt but its overall effects were neutral or even positive. Thus, the definition we use is useful in analysing differences in the effects of corruption across countries. But, once again, in common usage, corruption is often used to describe actions by public officials that are against the “public interest”, whether or not any rules of conduct are violated; while actions where rules are violated but the “public” does not suffer (or even benefits) are often not described as corrupt. Once again, the difference between everyday conceptions of corruption and its definition in economics and social analysis needs to be kept in mind. Finally, the definition of corruption that we follow places public officials at the centre of the analysis. According to this definition, corruption does not take place where public officials are not involved and, in this sense, corruption is simply a lens 3 through which to examine the operations of the state. This too is somewhat at odds with common usage where corruption can refer to reprehensible behaviour by anyone, including interactions exclusively between private individuals or agents. According to the social science definition, if a private person steals from another, that is theft, not corruption. However, even in the case of theft, corruption may be implicated because the state is the ultimate protector of property rights, and theft may take place with the connivance or even involvement of public officials. Note that using this definition does not mean accepting that corruption is more important than theft, only that the focus of corruption analysis is on the functioning of the state. Nonetheless, there are important grey areas that we need to keep in mind. If a small shopkeeper gives a job to a relative without following proper procedures, or charges a fee for providing the job, these acts would very likely be described as nepotism or extortion rather than corruption in common usage, and here common usage conforms to the economist’s definition. But, if the chief executive of a large quoted company did the same thing, this would be commonly described as corruption, and would very likely be treated in the literature on corruption as a corrupt act. This is because many authors treat private sector executives in important economic positions as having semi-public roles. But a more consistent position would be to argue that their activities are regulated by the state so that theft, extortion or fraud by executives in important private sector positions often involves either a failure of public governance, or direct corruption and collusion by public officials. It is important to keep in mind that the definition of corruption is not making a statement about the relative importance of the private and public sectors in explaining economic and social problems, but is rather a lens through which to analyse the operation of the state. In this sense, heterodox analysis can contribute to the debate while keeping to a definition of corruption that puts the state at the centre of the analysis. The definition of governance is also deeply connected to the state. Governance is what states do, but identifying the areas of governance on which to focus is problematic because it requires specific assumptions about what the state is supposed to be doing. Here, the conventional analysis of “good governance” is explicitly based
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