10th Lecture, STV4346B: Political Economic Topics III

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10th Lecture, STV4346B Political Economic
Topics III

• Carl Henrik Knutsen, Department of Political
  Science, UiO
• 11/12-2008

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Todays 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)

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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

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SVs 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)

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SV contd

• 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 govt loses revenue.
• Need for accounting system corruption with theft
  and benefits for buyer. Without theft stronger
  incentives to expose corrupt official.

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SV contd

• 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..

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SV contd

• 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

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The Medard articles neo-patrimonialism

• Webers 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)

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Medard contd

• Differences in degree of fit to neo-patrimonial
  model Mobutus 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

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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

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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..

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Botswana

• An economic success-story! One of the worlds
  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 BDPs 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.

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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..