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ON THE CONTINGENT VICE OF CORRUPTION

Published online by Cambridge University Press:  09 May 2019

Michael C. Munger
Michael C. Munger*
Affiliation:
Political Science, Duke University
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Abstract:

This essay develops a notion of “functional corruption,” adapted from sociology, to note that the harm of corruption appears to be contingent. In a system of dysfunctional institutions, corruption can improve the efficiency and speed of allocative mechanisms of the bureaucracy, possibly quite substantially. The problem is that this “short run” benefit locks in the long run harm of corruption by making institutions much more difficult to reform. In particular, a nation with bad institutions but without bureaucracy may be much more open to reform than a nation with similarly bad institutions but with “efficiently corrupt” bureaucrats. The idea of a “long run” is developed using the North, Wallis, and Weingast conception of open access orders. Corrupt systems are likely to be locked into closed access orders indefinitely, even though everyone knows there are better institutions available.

Keywords

Corruptiondevelopmentmoralitypolitical economyviolence
Type
Research Article
Information
Social Philosophy and Policy , Volume 35 , Issue 2 , Winter 2018 , pp. 158 - 181
Copyright
Copyright © Social Philosophy and Policy Foundation 2019 

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Footnotes

*

The author acknowledges, but in no way blames, Jonathan Anomaly, Geoffrey Brennan, and William Keech, as well as the other contributors to this volume and the editors of Social Philosophy and Policy, for comments and suggestions.

References

1 Tullock, Gordon, “Corruption Theory and Practice,” Contemporary Economic Policy 14, no. 3 (1996): 6.CrossRefGoogle Scholar

2 Gaus, Gerald, “It Can’t Be Rational Choice All the Way Down: Comprehensive Hobbesianism and the Origins of the Moral Order,” in Tensions in the Political Economy Project of James M. Buchanan, ed. Boettke, Peter J., Storr, Virgil Henry, and Stein, Solomon (Arlington, VA: Mercatus Center, 2018).Google Scholar

3 Online Etymology Dictionary, http://www.etymonline.com/index.php?term=corrupt

4 North, Douglass, Wallis, John, and Weingast, Barry, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (New York: Cambridge University Press, 2009).CrossRefGoogle Scholar The conclusions offered here do point in a pessimistic direction: to paraphrase Keynes, then, “In the long run, we are all corrupt.”

5 The difficulties faced by Dalit women, even those who win entrance to universities, are discussed in Samson Ovichegan, “‘Being a Dalit Female’: Exploring the Experiences of students at one elite Indian university,” Centre for Public Policy Research Working Papers Series, Paper No: 7, King’s College London (2017). Alternatively, of course, it is possible to argue that the caste system itself is a corruption of society, because it confers unearned privilege on some groups at the expense of others. Consider—as a simplified example—a system where it is morally permissible for some groups to “jump” a queue (as in the American south under “Jim Crow,” where “white seats” in the front of the bus might be empty, but “black seats” were full, so African-Americans had to stand). This system, like any caste system, is corrupt but not surreptitious, raising questions about the definitions given by the Ceva essay in this volume.

6 DeLeon, Peter, Thinking About Political Corruption (New York: Routledge, 2015), 29.CrossRefGoogle Scholar Interestingly, Elijah Millgram made a suggestion that is speculative, but bears directly on the claim made in this essay. I am arguing that, in the short run at least, paying “speed money” is not only permissible but actually obligatory for functioning in the society. Millgram wondered if perhaps this might be the origin of practices such as “tipping,” which is (probably apocryphally) claimed to have originated as a payment “to ensure promptness.” Waiters in Europe and Australia do not expect “tips,” and may find small tips insulting, since it implies that the only reason the service was provided was for a relatively small amount of money rather than professionalism. I would want to make two observations in this regard: First, professionalism is not a very good inducement, it would appear, in Germany and Central Europe at least, because the service is usually terrible by American standards. Second, I have never seen a waiter pretend to be insulted by a large tip. Perhaps the implication that one can “buy” favoritism for a large payment is not insulting?

7 Romig, Rollo, “How to Steal a River: To Feed an Enormous Building Boom, India’s Relentless Sand Miners Have Devastated the Waterways That Make Life There Possible,” New York Times, March 1, 2017. https://www.nytimes.com/2017/03/01/magazine/sand-mining-india-how-to-steal-a-river.htmlGoogle Scholar

8 The question of whether rent-seeking can be “efficient” is contentious. Tullock raises the question (Tullock, Gordon, “Efficient Rent-Seeking,” in Buchanan, J., Tollison, R., and Tullock, G., eds., Towards a Theory of the Rent-Seeking Society [College Station: Texas A&M University Press, 1980])Google Scholar quite clearly, but things have gotten murkier since. In fact, Tullock later (Gordon Tullock, “Back to the Bog,” Public Choice 46 [1985]: 259) notes that the “the market doesn’t clear, even with free entry and competition.” See also Michael Munger, “Tullock and the Welfare Costs of Corruption: There is a ‘Political Coase Theorem,’” Public Choice 181, nos. 1–2 (2019): 83–100.

9 Though it is common in the economic history literature to call this “lock-in,” a more appropriate reference might be Gordon Tullock’s “transitional gains trap.” Tullock, Gordon, “The Transitional Gains Trap,” Bell Journal of Economics 6, no. 2 (1975): 671–78.CrossRefGoogle Scholar

10 North, Wallis, Weingast, Violence and Social Orders, 71.

11 For a general account, and history, of the notion of “lock-in” see W. Brian Arthur, “Competing Technologies, Increasing Returns, and Lock-In by Historical Events,” Economic Journal 99 (1989): 116–31.

12 As North, Douglass C. (“Economic Performance Through Time,” American Economic Review 84, no. 3 [1994]: 360–62)Google Scholar describes “lock in”:

Why do economies once on a path of growth or stagnation tend to persist? Pioneering work on this subject is beginning to give us insights into the sources of path dependence. But there is much that we still do not know. The rationality assumption of neo-classical theory would suggest that political entrepreneurs of stagnating economies could simply alter the rules and change the direction of failed economies. It is not that rulers have been unaware of poor performance. Rather the difficulty of turning economies around is a function of the nature of political markets and, underlying that, the belief systems of the actors. The long decline of Spain, for example, from the glories of the Habsburg Empire of the sixteenth century to its sorry state under Franco in the twentieth century was characterized by endless self-appraisals and frequently bizarre proposed solutions.

13 Aidt, T. S., “Rent-Seeking and the Economics of Corruption,” Constitutional Political Economy 27 (2016): 142–57;CrossRefGoogle Scholar quoted material is from p. 143. The older source is J. G. Lambsdorf, “Corruption and Rent Seeking,” Public Choice 113 (2002): 97–125.

14 Of course, the “special” part of this choice of means has no positive, and may have a negative, meaning. As Schmidtz, David, “Corruption,” in Rangan, S., ed., Performance and Progress (New York: Oxford University Press, 2015), 490–564,Google Scholar argues, the very commodification of policy and desensitization to improper means that corruption causes is corrosive to moral norms that arose in a setting where these activities were not commodified.

15 For some of the brain science on this reaction and its implications see Haidt, Jonathan, “The New Synthesis in Moral Psychology,” Science 316 (2007): 998–1002.CrossRefGoogle ScholarPubMed

16 Dungan, James, Waytz, Adam, and Young, Liane, “Corruption in the Context of Moral Trade-offs,” Journal of Interdisciplinary Economics 26 (2014): 97–118.CrossRefGoogle Scholar

17 On the human capacity to fabricate contingencies see Ariely, Dan, The Honest Truth about Dishonesty: How We Lie to Everyone—Especially Ourselves (New York: HarperCollins, 2013).Google Scholar

18 Burger Chef’s claim to fame is that they invented the “Happy Meal” now so popular at McDonalds restaurants around the world. At Burger Chef, it was called a “Fun Meal” (introduced in 1972) and it had a Funburger, fries, a drink, a cookie, and a prize. McDonalds didn’t introduce their own version until 1979. Burger Chef sued, but the concept was not specific enough to sustain a copyright infringement action. I would guess that I have assembled more than 10,000 Fun Meal boxes in my life.

19 A number of news accounts claim that Tim Horton’s, the coffee and doughnut shop in Canada and several northeastern U.S. states, had an open policy of giving police free food and coffee. But when police investigated embezzlement charges against a cashier, she claimed that the police were biased by having received the free stuff. It is a corrupt, or at least corrupting, practice. Hayley Mick, “Officers’ Free Coffee Led to Raw Deal, Suit Says,” Globe and Mail, April 18, 2006. https://www.theglobeandmail.com/news/national/officers-free-coffee-led-to-raw-deal-suit-says/article1098092/. This “Reddit” discussion from Guelph, a bedroom community 25 kilometers outside Toronto, describes the practice as being routine, even expected, but not mandatory. https://www.reddit.com/r/Guelph/comments/18w0wb/anyone_work_at_tim_hortons/

20 DeLeon, Thinking about Political Corruption, 31.

21 Merton, Robert K., “Social Structure and Anomie,” American Sociological Review 3 (1938): 676.CrossRefGoogle Scholar

22 Ibid., 678-80; see also, Merton, Robert K., Social Theory and Social Structure, (Glencoe, IL: Free Press, 1949).Google Scholar

23 Johnston, Michael, Syndromes of Corruption (New York: Cambridge University Press, 2005), 23.CrossRefGoogle Scholar

24 Ibid., 135–36.

25 The “will not can” distinction is made by DeLeon, Thinking about Political Corruption, 28.

26 Ibid., 33.

27 Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations [1776] (Indianapolis, IN: Liberty Fund, 1991),Google Scholar Book IV. Section vii, p. 107.

28 Merton, Social Theory and Social Structure, 126.

29 It is possible to debate this claim, of course, and say that the state is not actually a necessary feature of social orders. However, for the sake of a discussion of geographically extensive land areas with political governance, the notion of the state is empirically indispensable at this point in human history.

30 For a review, see Thierer, Adam, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom (Arlington, VA: Mercatus Center, 2016),Google Scholar esp. 7–11.

31 North, Wallis, and Weingast, Violence and Social Orders, 38–39.

32 Ibid., 39; emphasis added.

33 For an extreme version of the efficiency costs of monopoly, see Leibenstein, Harvey, “Allocative Efficiency vs. X-Efficiency," American Economic Review 56 (1966): 392–415.Google Scholar But one can have a much less pessimistic view of monopoly, and still think artificially created monopolies reduce growth and limit dynamic adjustments.

34 Shleifer, Andrei and Vishny, Robert, “Corruption,” Quarterly Journal of Economics 108, no. 3 (1993): 599–617.CrossRefGoogle Scholar

35 Douglass North has always insisted that it is the impersonal coordination of human activity that makes markets and prices valuable. See, for example, North, Douglass and Thomas, Robert, The Rise of the Western World: A New Economic History (Cambridge: Cambridge University Press, 1973),CrossRefGoogle Scholar and North, Douglass, Institutions, Institutional Change, and Economic Performance (New York: Cambridge University Press, 1990).CrossRefGoogle Scholar Of course this claim echoes the long-held view of Ludwig (von) Mises, “Profit and Loss,” in Planning for Freedom (South Holland, IL: Libertarian Press, 1952); also found in Friedrich A. (von) Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (1945): 519–30; Israel M. Kirzner, Market Theory and the Price System [1963], edited and with an Introduction by Peter J. Boettke and Frédéric Sautet (Indianapolis, IN: Liberty Fund, 2011).

36 The necessity that “property” must entail a kind of open competition that fosters “creative destruction” is implicit in North, Wallis, and Weingast, Violence and Social Orders. But see also Schmidtz, David, “Functional Property, Real Justice,” keynote speech given at Property Rights in Central and East European Countries: Developments after the Transformation Process, (Presented November 13, 2009, Berlin, Germany). https://shop.freiheit.org/download/P2@230/8197/E_ELF_Schmidtz_24_4S_Internet.pdf .Google Scholar

37 This was in fact the original argument made about rent-seeking as a kind of destructive competition that distorts price signals and locks in inefficiency. For a review, see Tollison, Robert, “The Economic Theory of Rent Seeking,” Public Choice 152 (2012): 73–82.CrossRefGoogle Scholar Murphy, Kevin M., Shleifer, Andrei, and Vishny, Robert W., “Why is Rent-Seeking So Costly to Growth?” American Economic Review 83 (2009): 409–414,Google Scholar demonstrate the specific barriers that the particular form of rent-seeking we think of as “corruption” plays out, to devastating effect.

38 Brennan, Geoffrey and Buchanan, James, The Reason of Rules: Constitutional Political Economy (New York: Cambridge University Press, 1986), 120.CrossRefGoogle Scholar

39 North, “Economic Performance through Time.”

40 I am not simply invoking a “taste for following rules.” As Gaus, Gerald, The Order of Public Reason (New York: Cambridge University Press, 2011),Google Scholar chap. 3, argues, there are substantial reasons to expect a pattern of behavior (he calls it “rule-following punishers”) to evolve as part of an adaptive brain architecture. It is not (just) that the corrupt system benefits some; understanding a system that is predictable and—in its own way—fair appeals to our moral intuitions. Reformers thus confront openly angry, even sanctimonious, bureaucrats who demand to know why “their” benefits are being taken away.

41 Gwartney, James, Hall, Joshua, and Lawson, Robert, Economic Freedom of the World (Vancouver, BC: Fraser Institute, 2016).Google Scholar

42 It should be noted that absence of data on one or more of the three variables of interest (property rights index, corruption index, growth rate 2010-2015) deleted many nations from data set. These include such appalling places as Cuba, North Korea, and Somalia, among others.

43 One surprise here is Hungary. Hungary has relatively “good” property rights, but appalling corruption. It appears that the corruption is largely perceived as a means of working around other problems with the state, however, and so corruption is an effective means of bypassing bottlenecks.

44 Merton, Social Theory and Social Structure.

45 The Kaldor-Hicks “potential Pareto” may suffice as an abstract ethical standard. But if a society now uses some form of corruption to incentivize and compensate their bureaucracy, “potential” is not enough. The functionaries will want to know, specifically, how they are going to get paid, how much, and whether this promise is credible.

46 Gaus, “It Can’t Be Rational All the Way Down.”

47 In Volume I of Law, Legislation, and Liberty (Chicago: University of Chicago Press, 1973), Hayek said:

Legislation, the deliberate making of law, has justly been described as among all inventions of man the one fraught with the gravest consequences, more far-reaching in its effects even than fire and gun-powder. Unlike law itself, which has never been ‘invented’ in the same sense, the invention of legislation came relatively late in the history of mankind. It gave into the hands of men an instrument of great power which they needed to achieve some good, but which they have not yet learned so to control that it may not produce great evil (72).

48 North, “Economic Performance Through Time.”