Transcript 10th Lecture, STV4346B: “Political Economic Topics III”

10th Lecture, STV4346B:
“Political Economic Topics III”
Carl Henrik Knutsen, Department of Political Science, UiO
11/12-2008
Today’s lecture
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Topics: Corruption, patrimonialism…
Discussion with African experiences as backdrop
Africa, the poorest of the regions. Some economic success
stories (Botswana, Mauritius), but many economic failures
Largely authoritarian up until early 90s with some exceptions
(Botswana, Mauritius..), then a wave of democratization. Later
reversals and lacking democratic quality in formal democracies
Extensive corruption
Patrimonialism and “Big Man” rule.
Remember that corruption and patrimonialism are in no way
phenomena that are restricted to Africa (obvious points, but
worth mentioning)
Corruption; Shleifer and Vishny
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Def: “The sale by government officials of government
property for personal gain”
Corruption and red tape: pay bribe to avoid red tape
efficiency enhancing? But; endogenous regulation: Why is
the red tape there in the first place?
Political vs administrative corruption
Large-scale vs petty corruption
S&V’s analysis
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Focus on good with zero production cost: license, permit
etc..
Corrupt official with “effective” property rights over a
government good
Differentiate types of corruption analytically: Has
substantial implications for economic
allocations/efficiency
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One or several permits required? 1) Centralized vs 2)
decentralized corruption
Competition among officials for same permit, 1)Yes or 2) No?
Corruption 1) without or 2) with theft (pay legally established
fee to government or not)
S&V cont’d
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Underlying assumption: corrupt official maximizes
marginal revenue
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If monopoly on permit and without theft: official sets bribe as
revenue maximizing tax. Restricts supply of permit and
maximizes revenue
If theft (government does not receive price), then total cost to
private actor might in some instances be lower than if pay
price and no corruption: Both private buyer and corrupt
official better off, but gov’t loses revenue.
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Need for accounting system: corruption with theft and benefits for
buyer. Without theft: stronger incentives to expose corrupt official.
S&V cont’d
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IF several permits required and private buyer needs to bribe
several officials much more problematic
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No coordination among corrupt officials all will maximize own
revenue without taking into account the negative externality on the
other officials..Many large bribes asked for demand for good
towards zero total bribe towards zero.
Bottom line: decentralized and uncoordinated corruption destroys
the market and actually reduces total corruption income as well. No
investments or economic activity Very hurtful to economic
development.
Rather coordinated than uncoordinated corruption (strong
centralized governments that monopolize corruption better than
weak, corrupt governments)
The problem with uncoordinated corruption: property right is never
effectively transferred to buyer. A new official might pop up any
minute and demand more money..
S&V cont’d
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Competition among several officials for same permit is
good..competition drives bribe toward zero.
Democratization and corruption: decentralization of power
might mean decentralized corruption, but political
accountability and free press reduce corruption
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Perceptions of corruption might however go up after democratization
because reports of corruption now is reported in the media..
Why corruption is worse than taxation: Efforts to hide
corruption distortions
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Generates incentives to allocate resources to sectors where
corruption is possible (not necessarily most socially efficient sectors),
military spending and specialized, expensive capital equipment as
examples..
If resources also spent on securing that politician/official is not
detected even worse for the overall economy
The Medard articles: neo-patrimonialism
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Weber’s idealtypes of domination
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Legal-rational
Charismatic
Traditional
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Patriarchal
Feudal
Patrimonial
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Personal authority and loyalty bonds, lacking private-public distinctions. The
logic of patriarchialism applied outside the family/household
The historical mixed type of a neo-patrimonial system:
patrimonialism combined with a formal state apparatus. The
formal rules and agencies as “empty shells”, not where the real
politics and distribution take place (these take place within
personalized networks)
Medard cont’d
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Differences in degree of fit to neo-patrimonial model:
Mobutu’s Zaire vs Botswana..most cases are intermediate.
Some points
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Low degree of differentiation personal - public/office
Low degree of differentiation political – economic: political
power implies ability to allocate economic resources to own
benefit. Access to state important for material gain
Rulers manage own system of personal power
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Patron-client networks (resources and protection traded against
political support)
Personalization of politics, nepotism/tribalism and allegiance to
family/ethnic group rather than state
Development consequences
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Informalization of politics and underdeveloped state apparatus:
The negative of a Weberian bureaucracy..
Personalization of politics, lack of state autonomy and rent
seeking..
The weak state: State building implies building down clientnetworks reduces political survival probability of leader.
Thus no incentive for state building.
The economy used for personal, political goals and political
power used for personal, economic goals Both can have
dramatic negative effects for resource allocation and long term
growth: See some of the empirical examples in Medard
Neo-patrimonialism and corruption
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What is devastating about corruption is not the first order redistribution of
resources, but all the indirect second-order effects: economic misallocation,
weakening of state structures etc
Corruption in many African countries as systemic and generalized selfsustaining corruption
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Expectations of corruption and “everybody else does it” generates lower costs
of being corrupt. Culture with regard to corruption as endogenous (Africa is not
inherently more corrupt!).
Political survival, the need for resources to keep clientilistic networks afloat and
pressures for corruption (revenue generating)
Natural resources, international trade, large companies (para-statals)
Opportunities for corruption
BUT: The fight against corruption has taken center-stage, both nationally in
many African countries, and internationally
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Independent corruption commissions. Democratization power dispersion and
free press Less corruption even though more is reported publically. Popular
movements and anger at corrupt behavior..
Botswana
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An economic success-story! One of the world’s highest economic growth rates
over the last decades. Started from a very low GDP, and with very bad
preconditions (low human capital, arid soil, high inequality, landlocked..)
Acemoglu et al.: Botswana grew because of good institutionsThe selection of
good policies
Decolonialization in 1966, relatively democratic since then, although no political
alternation in office (BDP as dominant)
However, signs of responsiveness to popular demands, especially BDP’s rural base
Education programs, rural development programs (infrastructure, fertilizer provision
etc), industrial policy, HIV-program
Decent macroeconomic policies
And Botswana managed its diamond revenues well: renegotiation of contracts with
De Beers, investment of revenue into other sectors of the economy. Relatively little
corruption. Botswana had institutions and policy for revenue distribution in place
before the diamond revenues started coming
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Avoided the so-called resource-curse: Countries with natural resources on average have
lower growth rates: Corruption and rent seekingunderdevelopment of other sectors of
the economy. Plus, often conflict over resources. See for example Sierra Leone and Congo.
Some points from Acemoglu et al
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Relatively inclusive pre-colonial institutions in Botswana…
Endogenous ethnicity..Botswana relatively homogenous, but this is
partly dependent on institutions and historical processes..General
point: look at the US today.
The pre-colonial institutions were not “destroyed” by British. Other
places: strengthening of chiefs and concentration of power on
demand from the British post-independence autocracy more
likely
Elites had incentives to strenghten private property after
decolonialization; the role of the democratic institutions, the
sufficient income from diamonds and the interest of politicians in
the cattle industry
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(in many instances for dictatorial countries, there are political survival
incentives related to violating property rights..)
The “good” policies and general behavior of the post-independence
leaders..