Say it’s your life long ambition to manufacture Widgets in Africa. Since you were a small child, you’ve dreamed of your future as Africa’s Widget king. Now it’s time to make your dream a reality.
How could this go?
After cozying up to some people reputed to be well connected to the president – rounds of golf, wining-and-dining, the usual – you manage to secure an appointment for a face-to-face with the Big Man.
You walk in, nervous, and show the president the blueprints to your shiny new Widget factory. He’s excited. He tells you how passionate he is about these kinds of project, pledging his government’s support. He then tells you about another project he’s passionate about, the Presidential Scholarship Fund, to help poor children go to school. He tells you how much he would appreciate a donation – $750,000 would suffice – you know, for the children. You tell him you would be delighted to do that.
“You know,” he says, with a sly glance “the Ministry of Housing has an unused plot just up the road from the port – it would be ideal for your factory. There had been some plan to build apartments there but the project seemed to run into some trouble – I seem to remember the developer was not a supporter of the Presidential Scholarship Fund.”
You know perfectly well the Scholarship Fund “donation” is no such thing. You pay up anyway. You get the land for free.
Word gets around town that the president wants your widget factory built, and nobody messes with the president. The rest of the permits therefore flow easily. Within a year you’re making the finest widgets the country has ever seen.
Five years out you’re expanding, and looking at export markets. Seeing how well you’re doing, second-entrants start popping up near-by to manufacture copy-cat widgets, and more and more suppliers and service firms enter the market to service both your firm and theirs. To stay ahead of these copy-cats, you expand your R&D team to try to make a better widgets and continue to do so for a generation.
And of course, once a year, you make damn sure you remember to make that donation to the Presidential Scholarship Fund.
After cozying up to some people reputed to be well connected to the president – rounds of golf, wining-and-dining, the usual – you ask for help getting an appointment with the Big Man.
“I could do that,” your new friend says, “but you know it’s hard for me to go to State House and ask for an appointment in my beat up old Toyota…” You buy your contact a BMW. A week later, you have your appointment.
You walk in, nervous, and show the president the blueprints to your shiny new Widget factory. He’s excited. He tells you how passionate he is about these kinds of project, pledging his government’s support. He then tells you about another project he’s passionate about, the new yacht he wants to buy his son – $1.5 million would suffice – you know, for the children. You tell him you would be delighted to do that.
Word gets around town that your pockets are yacht deep. Every office you go to expects a cut. The municipal planning office wants a cut, the land registry office wants a cut, the construction workers’ union wants a cut, the environmental protection office wants a cut, the local cops, the labour law inspectors, the local military garrison… everybody wants a cut. The process takes time, and by the time you’re done paying the last bribe, the municipal planning permit has already expired, so they get a second bite at the cherry.
Two years later, your widget factory is built. But the shakedowns are ongoing. Worse, they’re unpredictable. There doesn’t seem to be any coordination. New administrators come in and worry their tenure won’t be long, and so they shake you down hard, trying to get as much as possible out of you as quickly as possible.
You complain to your friend the president and he tells you he’ll have a word with some of his underlings, but he has his own troubles too: now his daughter is jealous, imagine that, because she didn’t get a yacht and of course the widget business being so profitable and all perhaps you could help.
Your financial planning is a mess. You can’t really calculate cashflows because demands for kickbacks come more or less at random, from all sides, with no coordination.
Within a few years the factory is closed. Everybody you hired is unemployed.
Now, a Westerner looking at Scenario 1 sees corruption, just like in Scenario 2. And he’s not wrong! There’s a clear bribe involved. In giving you state land for free, the president in Scenario 1 is diverting public goods to private ends. That’s illegal pretty much everywhere. If you’re from the U.S., Scenario 1 leaves you just as exposed to a prosecution under the Foreign Corrupt Practices Act as Scenario 2.
But the developmental implications are completely different!
Starting from the realist premise that pretty much every developing country there’s ever been has been highly corrupt, Kelsall asks a rather obvious question: how come some of these super-corrupt countries go on to achieve good developmental outcomes while others just seem to sink deeper and deeper into the mire?
From there, it’s just a hop, skip and a jump to asking what kinds of corruption can drive development outcomes, and what kinds retard those outcomes.
[Tiny aside: Kelsall is, of course, too much of a gentleman and a scholar to call it all “corruption” – such brutality is fit only for bloggers. He settles on “rent-management” as his key euphemism. I can see the appeal of that: “corruption” isn’t an analytical category, it’s a moral judgment. It’s a word that tends to close minds and end debates, rather than open them. But we shouldn’t be too precious about it, either: that thing that he aseptically describes “rent-management” is what normal people call corruption.]
For Kelsall, there are a couple of key ingredients to the successful organization of corruption for development: it needs to be centralized, and it needs to be focused on the long-term.
The go-to example here is Indonesia: a country that, from 1967 through 1998 saw stellar rates of investment, growth and poverty reduction alongside a famously, deliriously corrupt state. Suharto managed to steal tens of billions of dollars at the same time poverty rates in Indonesia were falling from 60% to under 15%.
Why? Because corruption was centralized around the president and his family, who were consciously trying to maximize their take over the long term.
Suharto wouldn’t allow petty officials in the ministries or the regions to competitively shake-down investors: he decided who got shaken down and for how much, and then he kicked bribes down the chain in the form of patronage. Centralization – whether in a person, like Suharto, or an organization, like the Chinese Communist Party – prevents the kind of kleptocratic free for all that can sink a country’s developmental prospects.
But centralization is not enough: you need some kind of a longer time horizon so you’re maximizing your take over time. The alternative in Mobutu-style Zairian kleptocracy, which certainly was centralized, but was so rapacious in its demand for more-loot-NOW that it just wasn’t compatible with longer-term investment and growth.
Whether Kelsall is right that centralization and a long-term focus are the key ingredients in the developmental corruption stew I don’t know. Probably there’s much more to say on this subject.
What I do know is that this is a conversation that’s long overdue. Moralistic tirades about corruption won’t help countries develop. A more mature, realistic and clear-eyed views of the kinds of corruption that help and the kinds that hinder in the context of a limited access order just might.