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

1. 10th Lecture, STV4346B: “Political Economic Topics III” Carl Henrik Knutsen, Department of Political Science, UiO 11/12-2008

2. Today’s lecture • 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)

3. Corruption; Shleifer and Vishny • 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

4. S&V’s analysis • 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 • 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)

5. S&V cont’d • Underlying assumption: corrupt official maximizes marginal revenue • 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. • Need for accounting system: corruption with theft and benefits for buyer. Without theft: stronger incentives to expose corrupt official.

6. S&V cont’d • IF several permits required and private buyer needs to bribe several officials much more problematic • 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..

7. S&V cont’d • 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 • 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 • 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

8. The Medard articles: neo-patrimonialism • Weber’s idealtypes of domination • Legal-rational • Charismatic • Traditional • Patriarchal • Feudal • Patrimonial • 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)

9. Medard cont’d • Differences in degree of fit to neo-patrimonial model: Mobutu’s Zaire vs Botswana..most cases are intermediate. • Some points • 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 • Patron-client networks (resources and protection traded against political support) • Personalization of politics, nepotism/tribalism and allegiance to family/ethnic group rather than state

10. Development consequences • 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 client-networks 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

11. Neo-patrimonialism and corruption • 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 self-sustaining corruption • 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 • Independent corruption commissions. Democratization power dispersion and free press Less corruption even though more is reported publically. Popular movements and anger at corrupt behavior..

12. Botswana • 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 • 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.

13. Some points from Acemoglu et al • 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 • (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..