Chapter 14 Corruption and Development
by John Mbaku
Summary: 1.Introduction, 2. Defining Corruption,3. Causes
,4. Public Choice Perspective, 5. One party Systems &
Corruption, 6. Statism & Corruption, 7. The Economic Impact
of Corruption , 8.Traditional means of fighting corruption,
9.New ways of fighting corruption-Institutions & Public Choice
Approach, 10. Self-Enforcing Constitution, 11.Challenges to
Constitutionalism in Africa,
12. Summary and Conclusion
1.Introduction
• Corruption is the use of public resources for private gain.
• Corruption is an opportunist behavior aimed at producing
benefits for individual or group at the expense of society
• Corruption can be measured by corruption Index(CPI),
which ranks countries based on how investors, political
and risk analysts, and the public perceive levels of
corruption.
• The Index ranges from zero (high corruption), to 10 (
highly clean-minimum corruption)
• The CPI is based on 1999 data is shown in table 14.1
1. Introduction
• Based on CPI data, Denmark (CPI=10)and
Finland (9.8) are the least corrupt or top two
cleanest states. Nigeria (CPI=1.6) & Cameroon
(CPI=1.5) are the most corrupt states.
• Of the 10 most corrupt economies 4 are in Africa
(Cameroon, Nigeria, Tanzania, Kenya)
• Others- such as Botswana, Mauritius, Namibia,
and South Africa are have relatively less
corruption & making progress
1.Introduction, contd.
• Corruption Debates- Two Views
• View 1- It may encourage inefficiency and
discourage wealth creation and growth..
• View 2: It may “grease” wheels of
bureaucracy, and make government
more responsive to the needs of investors
and society.
1.Introduction, contd.
• 1.But, studies show corruption has negative
effects on economic development by
contributing to less effective governance and
retarding wealth creation, reversing democratic
gains made since the end of the cold war,
making economies less able to sustain viable
and effective economic systems.
• 2. Cost of public service is high to provide more
income to civil servants- contributes to high
transaction costs
1.Introduction, contd
• 3. Increases the burden of the public sector on
citizens. 4. It demoralizes, and leads to political
opportunism such as ‘rent seeking” that
contribute to inefficiency.
• 5. Leads to inability of a government to sustain
professionals and administrators,
• 6. Encourages the underutilization of skilled and
educated labor cost or the ‘brain drain’..,
• 7. Distorts international trade and investment,
• 8. discourages investment and leads to capital
flight,
• 9. May stunt innovation and introduction of new
technologies.
1.Introduction, contd. How to deal
with Corruption - General Approaches
• Examining the incentives and rules that regulate sociopolitical interaction of society and change those
incentives if they are flawed.
• Promote good governance that is accountable,
transparent, honest, participatory, guarantees economic
freedom, rights of individuals to freely exchange and
contract, based on well secured property rights by law.
• Move forward with constitutional reforms with
constitutional limits on government officials to prevent
abuse of power, guarantee economic freedoms, and to
controls negative incentives. A clear delineation of
political/public activities from private economic activities
is necessary.
2. Defining & Explaining Corruption
• 1. Two elements: Poor Performance of a public
duty and deviations from the rules that regulate
civil servants. A public servant can be corrupt if
the his performance sacrifices the principal
(citizens) for his own benefit.
• Corruption in Africa is understood in practical
terms such as: theft of public resources by
civil servants, embezzlement, illegal
extraction of public resources, nepotism,
favoritism, bribery, etc…
2. Defining & Explaining Corruption
cont.
• Corruption is an extra-legal institution used by individuals
or groups to influence the bureaucracy for self-serving
reasons.
• In Nigeria and Cameroon, minority ethnic groups are
denied for effective participation in governance.
Anglophones are excluded from economic and political
participation in Cameroon.
• In Nigeria, ethnic minorities in the Delta Region are
battling the federal government over natural resources
and oil. Nigeria, state institutions are used by individuals
and groups as tools of plundering local wealth. Rebels
have began to kidnap oil company executives. Nigeria
is the 5th oil exporter to the USA
2 Defining & Explaining Corruption
cont.
• The Second Determinant of Corruption is inefficiency &
incompetence of the civil service.
• Citizens and businesses have no effective way of
monitoring opportunistic way civil servants.
• In Zaire, 1979, the World Bank determined about 92% of
state employees were not able to meet their subsistence
needs with their legal salaries. So, they have to take
bribes.
• Income inequality is another factor. Some teachers and
professors are not paid on time in Nigeria, Cameroon
and few other countries. So, they are compelled to
engage in corruption
3. Causes of Corruption
• 1. Most Corrupt State- Example-Nigeria is
a leader where institutions are used by
individuals as tools of plundering citizens.
• 2. Incompetence and inefficiency of civil
service.
• 3. Poverty and severe inequality in
income.
• 4. Cultural Norms….
2. Defining and Explaining
Corruption cont.- Cultural Factors
• Existence of flawed Cultural Norms is another
factor.
• Corruption may be the cost that countries pay to
modernize?.
• Loyalty to a group or tribe is more important than
individual rights or accountability.
• A successful civil servant is expected to share
the benefits of his office with members of his
group, extended family, or tribe.
3. Causes of Corruption in
Africa
• 1. Corrupt governments- ExampleNigeria- where institutions are used by
individuals as tools of plunder citizens.
• 2. Incompetence and inefficiency of civil
service.
• 3. Poverty and severe inequality in
income.
• 4. Cultural Norms….
4. The Public Choice Perspective in
understanding Corruption
• Corruption is seen as a post-constitutional opportunism
aimed at producing benefits for individual or group at the
expense of society.
• Once the constitution is adapted there is an incentive
by individuals and groups to capture the state’s
redistributive or transfer power.
• The process through which individuals and or groups
expend resources to affect distributional outcome is
called Rent Seeking
• Effective control of corruption must based on
institutional reforms including constitutions to
constrain the ability of the state to intervene in
private transactions.
5. One-Party Political System and
Corruption-Centralization of Power
• The first generation of African leaders took
actions that tried to create a unitary and strong
central governments to contain tribalism, by
centralizing power and create on party
states.
• The effect was to create personalistic rule, and
other effects such as suffocation of civil society,
external debt, economic decay and
dependency, military opportunism such as
coups, etc..
5. One-Party Political System &
Corruption- cont.
• Later political competition failed to have a
significant impact on corruption since there
was no institutional reforms that
adequately checks the exercise of a
government agency to minimize corruption
.
• There is a critical need to establish laws
and institutions that place constraint on
government to avoid opportunistic
behavior of bureaucrats.
6. Statism and Corruption in Africa
• Market Centered Approach inherited from the colonial
era did not work since democratic institutions were
missing.
• Corruption Africa is opportunistic behavior related to the
scope and extent of government regulation of private
economic activity.
• It can only be eliminated through democratic bottom
up inclusive approach of designing institutions that
sustain participation, accountability and
transparency and economic freedom.
7. The Impact of Corruption On
African Economies
• There are two views: The damaging effect
and the “grease” view.
• The grease effect is not supported by the
evidence. Corruption continues to help
ruling elites to maintain monopoly political
power.
• Civil Society is still suffering from years of
abuse by the state.
7.The Impact of Corruption On
African Economies
• In some countries the multilateral
organizations such as the IMF and the
World Bank have become de-facto policy
makers.
• Only few countries such as South Africa,
Botswana, and Mauritius have emerging
viable civil societies that can sustain viable
democratic institutions.
7.Ways of Minimizing Corruption
On African Economies
• An important role of institutional reforms is
to produce well designed laws and
institutions that minimize the number of
individuals and groups that are placed at
competitive disadvantage.
• Also, Building democratic institutions to
constrain the abuse of public authority and
state officials.
8. Traditional Corrupting Cleanup
Strategies
• Traditional ways of controlling corruption
includes: societal, legal, market, and political
• Traditional: civil society norms, vigilance,
education.
• Legal: Control through laws, courts, police,
media..
• Market Strategies: reduce state control of
markets- change incentives against corrupt
behavior..
• Political: Government decentralization, raise
opportunities for citizen participation and
liberalization.
8.Traditional Corruption Control
Strategies
• What are short-comings these strategies?
• 1. lack of effective professionalism of the counteracting
agencies- such as judiciary, press
• 2. Lack of independent press that exposes corruption
• 3. Professionals state public servants and officials are
not independent of government: They are the same
employees…
• 4. What should be done” Design institutions (rules )
that constrains state and officials, and more
effective counteracting institutions such as
independent judiciary and free press
9. Rules, Institutions and Public-choice
Approach to Corruption Control
• Rules determine incentives faced by participants
both in economic and political markets.
• Corruption is a problem of constitutional
maintenance or defect, which needs reform.
• Opportunism is defined as behavior of
individuals and organizations at the expense
of other citizens such as free riding, adverse
selection, moral hazard, and corruption,
9.The Public Choice Approach to
Corruption
• This is a need to guarantee economic
freedom or the rights of individuals to
engage in exchange and contract, for
economic growth to occur.
• Economic freedoms need to be
guaranteed by constitution that prevent
politicians from abrogating them in
legislation, in response to interest groups.
10. Producing Self-Enforcing
Constitution
• This must include devolution of central or
federal government power to local units.
• It should allow free mobility of Resources
among local, state, regional units.
• A highly decentralized federalist structures are
one way of minimizing opportunism, including
corruption, Since government may be more
responsive to the smaller local unitary
governments.
11. Challenges to Constitutionalism
in Africa
• Democratic constitution making provides the
development of democratic institutions that
prevent individuals to engage in corruption, and
other forms of opportunism.
• The fall of dictatorships in several African states
provides hope for grassroots organizations to
overcome opposition from entrenched groups
and engage the people in democratic decision
making.
12. Summary and Conclusion
• If the existing institutions encourage corruption, the only
effective way is to change the rules and the flawed
incentives.
• An attempt to manipulate outcome such as by policing,
and regulating may fail.
• Corruption cleanup requires institutional reform that
changes incentive structure to secure desired social
outcomes.
• For example, problems of agro-ecological degradation
and exploitation of environmental and natural resources
can be minimize by establishing a well defined and
secured property rights and land rights.
Read Chapter 9-Agriculture for Thursday
• Study Guide for Test 3 will be handed out
on Thursday (3/9) for the test on March 16
• Review questions will be over Nnadozie
Chapter PP handouts and over Chapter 9
of Todaro & Smith on Agriculture.
Econ 388 T2-Answers
Part I (35 points)
1A, 2D, 3D, 4A, 5A, 6C, 7A, 8D, 9B,
10B, 11D, 12A, 13B, 14D, 15B, 16C,
17B, 18D, 19D, 20D, 21B, 22A, 23A,
24B, 25C, 26C, 27C, 28A, 29B, 30A,
31D, 32B, 33D, 34D, 35D
Part II: 3 short essay questions (15)
Econ 388 T2 Curve
• 43-50 A
• 40