The variability of corruption

February 2, 2020

A worsening corruption perception rating at a time when anti-corruption drives are a top priority call for a deeper look at the narrative that has gripped public discourse for nearly three decades now

As the recent furore over Pakistan’s slight drop in Transparency International’s Corruption Perception Index ranking demonstrates, no other narrative has gripped the imagination of mainstream public discourse in the past 30 years than that of corruption: talk show hosts, politicians and even a number of international development agencies all pinpoint corruption as the most formidable hurdle in the country’s path to economic development. However, as a recent Gallup opinion poll revealed, there seems to be a deep chasm between the eagerness with which the chattering classes have embraced the anti-corruption mantra and the extent to which it figures in the imagination of ordinary people: when asked to identify the single biggest problem facing the country, only 4 percent of Pakistanis identified corruption to be the principal ill – 4 percentage points less than Kashmir and 2 percentage points above the dengue virus – while 76 percent of them thought inflation and unemployment were the main concerns.

Of course, anti-corruption crusaders will continue to insist that people need to be made aware of the clear relationship that exists between low levels of economic well-being and the endemic corruption that bedevils the country. But it is precisely this supposed link between corruption and economic development (usually restricted to growth) that is more complex and ambiguous than the activists allege. While years of research on the issue have identified several reasons for the ambiguity, I will focus on two key ones: first, the mainstream definition of corruption does not automatically assume negative economic outcomes; secondly, what is usually bracketed under the heading of corruption are a set of discreet practices, not all of whom are tied to negative growth; finally, more important than the existence and even level of corruption, is its predictability and whether states are able to facilitate and direct businesses towards productive ends in exchange for ‘under the table’ payments.

Although something akin to corruption may exist in any organization – for example a cricket club’s treasurer stealing from the common pool or an office employee embezzling funds – the common definition refers to the abuse of public office for private gain, or more specifically, the violation of formal rules of conduct in pursuit of private benefits, whether for wealth in the form of bribes or political advantage. While I leave aside the questionable assumption of the existence – or even the desirability – of a strong public-private dichotomy in all settings, regardless of historical and cultural context, for another article, what is striking about this definition is that despite the underlying moral judgment that rules are broken in order to benefit public officials (politicians, bureaucrats or military officials) there is no assumption that such an action automatically leads to negative economic outcomes.

Even by definition therefore, such rule breaking can and has, co-existed with outright plunder, very low levels of development as well as with sustained rates of high economic growth. This is because not all corruption is created equal; nepotistic fire sales of productive assets for unproductive ends to family and friends is different from facilitating productive entrepreneurs in exchange for ‘access money’; likewise, graft is different from outright extortion (though difficult to distinguish in many contexts) and the impact on growth would be distinct as well; finally, several forms of ‘corruption’ like patronage and clientelism may have an even more ambiguous relationship to growth but can be extremely important in establishing democratic practices in the long-run and require a separate analysis.

Several forms of ‘corruption’ like patronage and clientelism may have an even more ambiguous relationship to growth but can be extremely important in establishing democratic practices in the long-run.

While extraction of a certain amount of economic surplus is common to all states, what distinguishes developmental outcomes is not the act, nor even the amount of such payments, but their predictability and the services that states are able to provide in return. The American development sociologist Peter B Evans, in his seminal comparative work on industrialization in the developing world, showed how in ‘predatory states’ like Zaire public property was essentially controlled by a small clique of bureaucrats and relatives of President Mobutu, who saw plunder of the public exchequer as a right. But even more importantly, it was not the magnitude, but the unpredictability with which the state plundered and levied random extractions, untied to any productive ends, which led to the abysmal economic performance.

By contrast, ‘developmental states‘ like South Korea also extracted surpluses (or ‘rents’) from businesses to shower upon incumbents and their friends at the expense of the citizenry as a whole – sometimes in extravagant amounts – but in exchange they facilitated capitalists by providing long-term investment credit, a stable business environment, favourable terms of trade and strategic protection, to create a highly productive and export-oriented model of economic development. Of course, the Korean case was aided by the existence of a tightly-knit and highly meritocratic (but by no means uncorrupt, though these two things are often conflated) bureaucracy, a version of this can and has existed in other states as well. Bangladesh is a key example of a country with very high levels of corruption and a far from meritocratic/competent bureaucracy, but it is the predictability of corruption (rather than its level) in an overall environment seeking to facilitate growth inducing sectors like garments, that are key to explaining success.

Since the prime minister is fond of reminiscing about the ‘development decade’ of Ayub Khan, it would be useful to remind readers that it was a tightly-knit nexus between state, bureaucracy and favoured capitalists (the infamous ‘22 families’) that was partially responsible for the high growth. The state selected a group of entrepreneurs – mostly Karachi-based refugee traders from the Indian state of Gujarat – who did not have local roots in the landlord-dominated polity of the country at the time and would not have been able to operate without such links; it gave them lucrative incentives to shift from trade to industry by guaranteeing extremely high profits, credit on favourable terms, as well as cheap imports through a dual exchange rate system. In response, these capitalists remained tied to the Ayub dispensation through various legal and illegal ties and were the main force behind financing his foray into electoral politics through the Convention Muslim League.

Moreover, even the squeaky clean image of the bureaucracy as entirely rule-bound is a misnomer as the case of the founder chairman of the Pakistan Industrial Development Corporation (PIDC), Ghulam Faruque Khan, clearly demonstrates. Described as a strong-willed, powerful individual who made rapid decisions, saw them carried out and worried about government rules, procedures, or approval afterwards, if at all, he leveraged his position in the state to establish one of the most successful business houses of the time, and was by no means the only bureaucrat to do so.

Finally, as the shift from the ‘Shahbaz Sharif system’ to the Buzdar dispensation in Punjab amply demonstrates, rapid decision-making and implementation along with weak adherence to rules may be able to deliver certain developmental outcomes – particularly in infrastructure – while an emphasis on punishing people for rule bending may actually disincentive actors from taking risks altogether and bring the entire developmental machinery to a halt. It is therefore important to think more deeply about the context in which ‘corruption’ takes place and its manifold links to growth, rather than a blanket condemnation which seems to be doing more harm than good.

The writer is Assistant Professor in Economics and Development studies at ITU and Research Associate at the Contemporary South Asian Studies at Oxford

How corruption varies according to how people perceive it in Pakistan