Democracy and Corruption

1
Democracy and Corruption

• What is the impact of Democracy on Corruption?
• Growing importance of Democracy as a political
  regime
• Third Wave of democratization 1990s (Huntington
  1991)
• Growing importance of Corruption/QoG as policy
  outcome

2
Relationship between Democracy and Corruption in
the literature

• Increasing research on the relationship
• Recent contribution Michael T. Rock. Corruption
  and Democracy, JoDS, January 2009.
• Authors defending both views
• Ades and Di Tella (1999) If anything, the lack
  of political rights seems to be associated with
  less corruption.
• Goel and Nelson (2005) corruption declines with
  the degree of civil liberties associated with
  democracy
• Most authors defending idea of a contradictory
  relationship (Harris-White and White (1996 3)
  and Sung (2004 179)
• Two approaches qualitative ?? quantitative

3
Lets have a closer look into some particular
casesqualitative studies

• Qualitative studies show that corruption
  frequently increases (and QoG decreases) in newly
  democratizing countries
• Developing countries after decolonization (e.g.
  Lemarchand 1972 on Africa, Scott 1972 on
  Southeast Asia, Wade 1985 on India, or Sayari
  1977 on Turkey, Robinson and Hadiz 2004 on
  Indonesia, Case 2002 on Thailand)
• Post-communist countries after 1990 (e.g. Varese
  1997 on Rusia)
• Latin American countries after different waves of
  democratization (e.g. Weyland 1998)

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Lets have a closer look into some particular
casesqualitative studies

• Mechanisms?
• From centralized networks of corruption in
  authoritarian regimes ? corrosive and
  decentralization corruption free-for-alls
• Historically, relatively young democratic
  countries suffered corruption problems
• Britain and the Great Corruption (mid 18th to
  mid-late 19th century)
• US and the corruption of the Jacksonian Democracy
  (from 1829 to early 20th century
• The extension of suffrage led to increase in the
  levels of corruption

5
Lets have a broader lookquantitative studies

• Democracies are always better than Dictatorships
  
• Olson 1993 (seminal theoretical work)
• Only Older Democracies are better
• Keefer 2007 (cross-sectional analysis)
• Keefer and Vlaicu (theoretical model)
• Only Very Democratic Democracies are better
• Bäck and Hadenius 2008
• Only Wealthy Democracies are better
• Charron, Nicholas and Victor Lapuente (2008)

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Olson 1993

• Do you know Mancur Olson?
• Olson 1993 modern classic in theoretical
  politics
• Echoes of The Logic of Collective Action 1965
• Individuals free ride
• Developed further in Power and Prosperity 2000
• Anarchy (roving bandit) bandit)

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Olson 1993

• Are all polities built by means of force and
  coercion?
• no one has ever found a large society that
  obtained a peaceful order or other public goods
  through an agreement among the individuals in the
  society.
• Tradition in political philosophy bottom-up
  theories of state building (Locke.Nozick or
  Rawls individuals decide to delegate power to
  rulers)
• Olson presents a top-down theory more
  realistic

8
Stationary bandits vs. Roving bandits

• Why should warlords, who were stationary bandits
  continuously stealing from a given group of
  victims, be preferred, by those victims, to
  roving bandits who soon departed?

9
monopoly of theft uncoordinated competitive
theft

• "the first blessing of the invisible hand the
  rational, self-interested leader of a band of
  roving bandits is led, as though by an invisible
  hand, to settle down, wear a crown, and replace
  anarchy with government. The gigantic increase in
  output that normally arises from the provision of
  a peaceful order and other public goods gives the
  stationary bandit a far larger take than he could
  obtain without providing government.
• Any disagreement?

10
Why Democratic rulers are better than Dictators?

• Not because democrat incumbents are more
  benevolent
• Olson assumes democratic rulers dictators
• Self-interested and revenue-maximizers
• Assumption taxes ? distort incentives ? reduces
  income so much that tax collections fall
• Dictators establish a revenue-maximizing tax
• What is it?

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Why Democratic rulers are better than Dictators?

• Democratic rulers tax less the majority always
  has a higher stake at the growth of the national
  economy
• If the majority earns 1/3 of the national economy
  and every extra 1 of tax reduces national income
  by 3
• Dictators revenue-maximizing tax 1/3 (for
  every extra 1 of tax, he loses 1 in future tax)
• Democrats tax, they lose 1 in future tax and 1 in their
  own income)
• Underlying idea the broadest the interests
  represented in government (majority oligarchy
  dictator), the more the government will take into
  account the social costs of redistributions

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But, if you are unlucky, and have a dictator

• Dynastic Monarchies Standard Dictators
• Why? Do you Agree? Counter-examples?
• Shouldnt something similar happen in
  family-owned firms?
• Any other critical comment to Olsons theory?

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Why would democracies ever emerge according to
Olson?

• Paradox If autocrat rulers obtain more revenue
  than democratic ones
• why do not those rebel leaders who overthrow a
  ruler always establish another autocracy instead
  of a democracy?

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Great works, great last sentences

• The moral appeal of democracy is now almost
  universally appreciated, but its economic
  advantages are scarcely understood.

15
Keefer 2007

• Most recent contributions to the debate (AJPS)
• Encompassing empirical analysis of differences
  within democracies
• Several dimensions of Quality of Government
• Corruption
• Provision of Private Goods
• Provision of Public Goods

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Keefer 2007

• Tackles one of the most intriguing puzzles in
  comparative politics
• Offers
• 1) theoretical explanation many democracies fall
  short of many autocracies in many indicators of
  good government
• 2) empirical test showing systematic performance
  differences between Young and Old Democracies

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Theory

• In relation to Old Democracies, the Young ones
• underprovide non-targeted goods (e.g. education,
  PPRR)
• overprovide targeted goods (e.g. patronage)
• and are more corrupt
• Why?
• Young democracies candidates are not credible

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How to win credibility?

• Two options for new incumbents
• Be Good Invest resources to show they can
  provide public goods (costly)
• Be Bad Rely on local patrons and deliver
  targeted goods to them and their clients
  (cheaper)
• Problems with these options? Or with a theory
  based on something vague such as credibility?

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Can you think of alternative factors why young
democracies may perform worse?

• Young democracies also have more political
  violence than Old ones
• Reason more freedoms
• Short-time-horizon incumbents in Young D vs.
  Long-term-horizon incumbents in Old D

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Empirical analysis

• His proxies for good government
• Nontargeted policies benefiting all citizens
  secondary school enrollment, bureaucratic
  quality, the rule of law, and government
  ownership of newspapers
• Targeted policies, benefiting discrete and
  identifiable groups of voters public investment
  (where pork barrel projects reside) and the
  central government wage bill (which finances
  patronage jobs).
• Corruption standard measure of corruption
• Do you agree with the proxies? Do you think the
  analysis supports his predictions?

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Problems with this analysis

• Any omitted variables you would introduce?
• Does his variable (age) remain strong after the
  control variables are included?
• Any other flaw?

22
If you want more on Keefer 2007

• Keefer and Vlaicu 2007
• Elegant theoretical model historical examples
• Clague, Keefer, Knack, and Olson1996
• Simple but powerful Olsons theory World Bank
  economists empirical quantitative methods
• What matters for protection of PPRR is not
  Democracy vs. Dictatorship, but Short vs. Long
  Time Horizons

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Bäck and Hadenius 2008

• Time-Series Cross-Sectional analysis (normally,
  only cross-sectional)
• Dependent variable states administrative
  capacity
• Corruption (lack of)
• Bureaucratic efficiency
• Independent variable continuous measure of
  Democracy
• For some authors (Przeworski), it is a binary
  question (1/0)
• For others, there is a continuum of democracy
  from extreme authoritarian regimes (no elections
  at all) to partially-free elections to
  totally-free elections

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Bäck and Hadenius 2008

• Show a U-, or better, a J-shaped relationship
  between Democracy and QoG
• Mechanisms through which Democracy affects QoG in
  different ways depending on its level?
• Dictatorships have more from above control of
  Government (e.g. repressive capabilities,
  hierarchy)
• Democracies have more from below control of
  Government (e.g. press freedom)
• Any problem with these mechanisms?
• No micro-foundations who exerts control, when
  and why? Interests of rulers/citizens?

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Level of Democracy and Quality of
Government(e.g. Montinola and Jackman 2002, Sung
2004, Bäck and Hadenius 2008)
26
Age of a Democracy and Quality of
Government(e.g. Keefer and Vlaicu 2007, Keefer
2007)
27
The mysterious non-linear relationship

• Cross-country studies show a robust relationship
  between the level/age of democracy and QoG but
  it is non-linear (either U-, J-, or S-shaped)
• partial or young democracies perform worse than
  authoritarian regimes and much worse than full or
  older democracies

28
Charron and Lapuente 2008deal with some open
questions in the literature

• No test if what matters is level or age of
  democracy
• No test time-series and cross-sectional
• No clear mechanisms why Democracy ? QoG in
  different ways depending on its level/age

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In this paper, (they claim that) they offer

• Theoretically, mechanisms that link Democracy ?
  QoG
• Institutionalist arguments focus on the
  Supply-side of QoG
• Culturalist arguments focus on the Demand-side
  of QoG
• Empirically, time-series and cross-sectional
  analyses

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Institutionalists focus on the Supply of QoG

• Key actors are the ones who supply QoG Rulers
• Preferences are fixed / Institutions change
• Rulers face different incentives under different
  institutional settings
• e.g. Olson 1993
• Democratic rulers provide higher QoG because they
  are more accountable than dictators, but it takes
  time until politicians can make credible
  pre-electoral commitments to voters (on public
  goods provision)
• e.g. Keefer and Vlaicu 2007

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Culturalists focus on the Demand of QoG (I)

• Key actors are the ones who demand QoG Citizens
• Preferences change / Institutions are fixed
• QoG result of values prevalent in society
• No agreement on the values though
• Banfield (1958) immoral norms (tribal loyalty)
  vs. moral norms
• Welzel and Inglehart (2008) survival vs.
  self-expression values

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Culturalists focus on the Demand of QoG (II)

• Welzel and Inglehart (2008) modernization
  theory
• Economic Development ? Better Education ?
  Self-expression Values Survival Values ?
  Collective actions and Pressure on elites to
  provide QoG
• Illuminates some outliers of Institutionalist
  Theories young democracies that perform quite
  well
• e.g. East Germany, Czechoslovakia in early 1990s,
  Spain in late 1970s
• Problem scientific tractability of these values
• Self-expression in the late 19th century US?

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Alternative approach to the Demand of QoG

• culturalists theories, peoples values matter
• culturalists theories, we focus on a value
  which can travel across time and space
• Time preferences or subjective future discount
  rates up to which extent actors prefer to
  consume now rather than later.
• Focus not on What people want to consume, but on
  How they want to consume

34
Future Discount Rates

• Future discount rates may help explain different
  phenomena
• Children with lower fdr ? better school
  performance
• Societies with lower fdr ? more investments
  (Clark 2007)
• No fully rational account of why some people have
  higher/lower future discount rates, but strong
  correlations with age, education, income

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Basic Assumptions on the Demand of QoG

• 1) A societys future discount rate function of
  its economic development
• Poor people tend to have a higher propensity to
  consume vis-à-vis invest for future consumption
• Problems with this assumption
• Mechanisms through which income ? future discount
  rates ?
• Maybe it is not income, but education or
  modernization or sophistication of values
  what explains future discount rates
• 2) Building Quality of Government pays off at
  long term
• Costly at short term it takes time and resources
  to build a Weberian impartial administration
• e.g. pass and implement Civil Service Acts, APA

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Prediction from the Demand of QoG

• Lower income societies (high future discount
  rate/more impatient) will
• over-value a State able to deliver goods of
  immediate consumption (e.g. patron-client
  exchanges, patronage jobs, direct cash through
  clientelistic networks)
• under-value State which undertake medium-to-long
  term investments in administrative capacity (e.g.
  develop a meritocratic recruitment system, start
  the legal steps for enacting and implementing
  rule of law)

37
Demand Supply of QoG

• Rulers in both Democracies and Autocracies
  survive in power
• Democratic rulers are responsive to citizens
  demands
• Lower income societies ? immediate consumption
  goods patron-client networks, patronage-based
  jobs and contracts to supporters- QoG
• Higher income societies ? merit-based Weberian
  administrations, Civil Service systems of
  recruitment, detailed administrative procedures
  Acts.QoG

38
Demand Supply of QoG

• Authoritarian rulers follow different strategies
• Sometimes, survival depends on the capacity or
  others to produce economically (Olson 1993, Bates
  2001).
• QoG achieved because of the lack of
  responsiveness (Haggard 1990 state autonomy)
  autocrats are isolated from high distributional
  pressures and able to undertake long-term
  investments
• E.g. South Koreas Park, Spains Franco
  (relatively high QoG)
• Sometimesnot survival entirely depends on the
  distribution of immediate consumption goods among
  core supporters (e.g. Kleptocrats)
• No clear link between countrys income
  autocrats strategy

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Empirical test

• Dependent variable state capacity (Bäck
  Hadenius 2008)
• ICRG data bureaucratic quality lack of
  corruption
• 140 states from 1984-2002
• Independent variables
• (Supply-side) Democracy combination of Freedom
  House Polity Database scores
• (Demand-side) GDP/cap
• (Control for Bäck Hadenius 2008 U-Shaped
  effect) Democracy²
• (Control for Keefers 2007 time effect)
  Democratic Experience
• ( Standard control variables) Lagged dependent
  variable, trade openness, British colony

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Time Series Cross Sectional
qq
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Cross Sectional Analysis

• Dependent variable
• ICRG data bureaucratic quality lack of
  corruption rule of law and order
• Independent variables
• press freedom (Brunetti and Weber 2003 Adsera,
  Boix Payne 2003)
• newspapers circulation (Treisman 2000)
• level of education (Barro Lee 2000)
• ethnic fractionalization (La Porta et al 1999
  Alesina et al 2003, Charron 2007).
• veto players (Andrews and Montinola 2004)

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Summary of the findings

• Democracy or Income do not matter on their own
• The U- or J-shaped relationship disappears (
  institutionalists)
• GDP becomes insignificant ( culturalists)
• Interaction DemocracyIncome matters
• Poor countries have higher QoG under
  authoritarian rule
• Rich countries have higher QoG under democratic
  rule

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Conclusions

• Problems of endogeneity between QoG and Income?
• Yes QoG also ? Income
• We dont offer a solution, but, unlike most
  literature, use one-year lags of all explanatory
  variables (including the lagged dependent
  variable)
• Which are, if any, the normative implications of
  the paper?
• Results similar to Lipset (1960) and the
  modernization theory a democracy needs as a
  prerequisite some level of economic development
• Should we conclude that If you are poor, get a
  dictator?...

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Some issues for discussion

• Political Economists or Institutionalists
  criticize the methodological inconsistency of
  assuming self-interested individuals in the
  market and benevolent dictators (Clague at al.
  1996 244)
• But they are also methodologically inconsistent
  when assuming different time horizons for rulers
  and the same time horizons for citizens
• Rulers are not benevolent Citizens are not either

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Some issues for discussion

• Puzzle in the media dictators could be good at
  the early stages of development, but bad
  afterwards
• Like South Korea, Taiwan, and now China, Vietnam
  has shown it is possible to escape poverty under
  authoritarism. But it is surely no coincidence
  that most of the worlds richest countries by
  income per head are liberal democracies (The
  Economist, April 26th 2008).
• Tentative mechanisms for those no coincidences
• In Lower-income countries Dictatorship ? QoG
  ? Income
• In Higher-income countries Democracy ? QoG ?
  Income

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Some issues for future research on this

• Open the black box of dictatorships understand
  the differences in QoG/Corruption within
  dictatorships
• Typologies of dictatorships
• Autocracies / Hybrid Regimes
• Military/ Single-Party/ Personal (Geddes 1999,
  Wright 2008)
• Military/ Monarchy/ Single-Party/ Multi-Party
  (Teorell 2008)

49
Lets have a closer look into some particular
casesqualitative studies

• Historically, relatively young democratic
  countries suffered corruption problems
• Britain and the Great Corruption (mid 18th to
  mid-late 19th century)
• US and the corruption of the Jacksonian Democracy
  (from 1829 to early 20th century
• The extension of suffrage led to increase in the
  levels of corruption
• Through which mechanisms did Britain and US
  eliminate corruption?
• Administrative reforms that imposed Merit
  recruitment Patronage
• Northcote-Trevelyan Report (1854) in Britain
• Pendleton Act (1883) in the US