Corruption and Government: Causes, Consequences, and Reform.

• Author: McChesney, Fred S.
• Position: Review

CORRUPTION AND GOVERNMENT: CAUSES, CONSEQUENCES, AND REFORM. By Susan Rose-Ackerman. New York: Cambridge University Press. 1999. Pp. xiv, 266. Cloth, $49.95; paper, $18.95.

This I tell ya, brother, you can't have one without the other.... Try, try, try to separate them, it's an illusion. Try, try, try and you will only come to this conclusion. -- Frank Sinatra (1)

Instinctively, corruption is deplorable. Nobody likes private citizens paying governmental officials for special favors. Few have deplored corruption longer or in greater detail than economist Susan Rose-Ackerman. (2)

In Corruption and Government, Professor Rose-Ackerman discusses how corruption starts ("causes"), why it is bad ("consequences"), and how to stop it ("reform"), principally from an economic perspective. (3) Professor Rose-Ackerman's interest in corruption derives partly from her outside work with international agencies, especially time spent at the World Bank -- "a transformative experience" (p. xi). Her twenty-two page bibliography ranges across sources in economics and politics, plus many documents from the World Bank and other international groups.

Causes, consequences, and reform constitute a sensible approach to analyzing corruption. One must first know the reasons for and effects of corruption before advancing any convincing prescription for correcting it. The book does not divide itself quite so neatly along those three lines. Causes, consequences, and reforms are intermingled in many chapters, as the book cycles through all three. Ultimately, however, the reader understands well what Professor Rose-Ackerman sees as corruption's causes, costs, and cures.

In Part I, I use Professor Rose-Ackerman's tripartite division to summarize briefly her analysis of corruption. As I hope to show, there is much of interest and value in her analysis. Part II, however, explains that what she means by the single term "corruption" actually encompasses different phenomena with varying economic and legal implications. Some corruption is economically bad and illegal. Some is economically bad, but legal. And some is actually economically desirable, albeit illegal. Corruption turns out to be a more subtle phenomenon than Corruption and Government portrays it.

To foreshadow these points, consider four examples. Jewish freedom fighters in 1943 pay German soldiers to smuggle arms into the Warsaw Ghetto and smuggle Jews out. (4) At a time and place where abortion is illegal, doctors selling abortions pay government officials not to stop them. A politician takes campaign contributions from a constituent seeking a lucrative government contract and orders her staff to help the constituent get the contract. Politicians allow illegal transvestite reviews to take place in exchange for the organizers' paying for causes that the politicians choose. (5)

All of these examples entail corruption, as Professor Rose-Ackerman (and most others, probably) would define it .(6) But as instinctive reactions to these examples indicate -- and, I will argue, as a more formal matter of economics -- some corruption is actually good. In proposing truly useful reforms, one must distinguish good from bad corruption.

The examples also illustrate a point developed in Part III of this Review. When all is said, corruption is fundamentally a function of the size and power of government. (7) This creates ambivalence and tension for international agencies that adopt a policy of limiting corruption. The agencies' principal function -- providing financial support to national governments -- increases the size and power of those governments, and thus facilitates corruption. These last points are largely ignored in Professor Rose-Ackerman's book.

I do not claim that governments and international agencies never do good things, or that reducing truly harmful corruption is undesirable. My claim is only that not all corruption is harmful economically, and even if it were, international agencies' role in corruption cannot be brushed over.

1. CAUSES, COSTS, AND CORRECTION OF CORRUPTION

   The length of Professor Rose-Ackerman's bibliography attests to the fascination that corruption holds for many. (8) Nonetheless, by rushing into this trove of material the book never fully defines what corruption is. It is said to be a type of "rent seeking," in which private producers and politicians "gain an advantage in dividing up the benefits of economic activity" (p. 2; citations omitted). Corruption "describes a relationship between the state and the private sector.... The relative bargaining power of these groups determines both the overall impact of corruption on society and the distribution of the gains between bribers and bribees" (p. 113).

   However, she says, not all payments to government officials are bribes; some are merely gifts. "The definition of bribes and gifts is a cultural matter" (p. 110). "[C]orruption has different meanings in different societies" (p. 5). And because "`culture' is dynamic and constantly changing" (p. 110), what constitutes corruption must be, too.

   In her concluding chapter (pp. 225-29), Professor Rose-Ackerman seems to have settled on dictatorial kleptomania plus outright bribery of lower government officials as the definition of corruption. (9) Part of the definitional haziness stems from the book's almost exclusive focus on corruption in developing countries. For example, the book details the remarkable extent of and sheer brazenness with which autocrats ("kleptocrats") in some countries plunder their treasuries and their citizenry (pp. 116-17). Given Professor Rose-Ackerman's background and interest in the underdeveloped world, her concentration on modes of corruption there is hardly surprising.

   But autocratic theft and crude bribery are not the usual way that private interests and government officials transact in more developed societies. Most frequently, American politicians obtain money from private citizens from campaign donations and the like, in exchange for "access" to the politician. Is this corruption? Professor Rose-Ackerman's book does not say it is, although other developed-world sources certainly believe it is. (10) Similarly, do union endorsements and financial support amount to corruption when given in exchange for a politician's support for raising the minimum wage? Nothing in Corruption and Government helps answer that question. (11)

   1. Causes of Corruption

      Professor Rose-Ackerman divides the causes of corruption into economic, cultural, and political problems (respectively, Parts I -- III of the book). The distinction, however, is not particularly compelling; as noted above, she believes corruption's explanation lies in economics. Even the discussion of corruption as a political problem (Part III) is more about economics than about politics.

      Economically, Professor Rose-Ackerman argues, corruption arises for the same reason payments are made in private markets. Government officials have something to sell for which private citizens are willing to pay (pp. 3-4). Bureaucrats sell import and export licenses (p. 11), access to government-controlled credit (p. 10), installation of telephones by state-controlled monopolies (p. 15), and relief from taxes and customs duties (pp. 19-21).

      Indeed, from the book's recital of transactions, everything that government has or does may lead to corruption. It is all a matter of government property rights. (12) Politicians and bureaucrats have something of salable value to private citizens. (13) Markets happen, be they black markets or (legal) widget markets. So why do or should we care more about payments to politicians than those to widget makers?

   2. Consequences of Corruption

      Corruption is bad, for many reasons. It is "associated with lower levels of investment and growth" (p. 2). It causes politicians and bureaucrats to favor "excessive public infrastructure investment." (14) Often, "corruption breeds more corruption and discourages legitimate business investment" (p. 3).

      Corruption not only is bad, it is always bad. On that, Professor Rose-Ackerman is uncompromising: there is no good corruption. I discuss this point in Part II, where I present more of the reasons Professor Rose-Ackerman gives for the unalloyed malignancy of corruption.

   3. Correction of Corruption

      Professor Rose-Ackerman proposes a variety of reforms for the corruption she details. That they are predictable reforms does not diminish their potential value. We should eliminate programs in which corruption is entrenched (pp. 39-42). Outright elimination, however, is a last resort. "Many regulatory and spending programs have strong justifications and ought to be reformed, and not eliminated" (p. 44). Tax and customs collections could be simplified; regulation and social-benefit programs could be reformed to eliminate potential for corruption (pp. 44-48). Reform of government procurement laws, obviously rife with potential for corruption, is discussed at length (pp. 59-68).

      Front and center is reform of the civil service in underdeveloped nations, a subject occupying all of the book's Chapter Five. "Countries emerging from a period one-party or authoritarian rule face the challenge of creating a professional civil service" (p. 69), "professional" meaning resistant to bribery. But how to reform entrenched bureaucracies? Most frequently, Professor Rose-Ackerman advocates increased pay: "If public sector pay is very low, corruption is a survival strategy" (p. 72).

      Despite the book's frequent calls for better bureaucratic pay, however, Professor Rose-Ackerman seems uncertain how much this will really help. After advocating leveling off the difference between public- and private-sector salaries, she notes: "One should be careful, however, not to exaggerate the public-private disparity. In most cases total remuneration [for bureaucrats] includes not just formal wages but also perks such as housing or health care" (p. 72). She then adds that achieving...