anti-corruption institutions: some history and …dixitak/home/ieaconf_dixit_rev.pdfanti-corruption...

1

July9,2016

Anti-CorruptionInstitutions:SomeHistoryandTheory*

AvinashDixit,PrincetonUniversity

Abstract:

Corruptionisamulti-dimensionalproblemthathasbeenpervasivethrough

history.Attemptstofightcorruptionmustlikewisebemulti-directional.The

institutionsthathavebeendesignedindifferentsocietiesforthispurposeinclude

formallaws,specialagencies,communityorganizations,andcombinations;their

recordofsuccessisvaried.Thispaperexaminessomeprominentexamplesofsuch

effort,withspecialattentiontocampaignsliketheonesledfromthetopthat

transformedHongKongandSingapore,andthebottom-upAddiopizzomovement

thathasforthelastdecadeorganizedresistanceagainsttheSicilianMafia’s

extortion.Thepapersuggestssomerequisitesforsuccessofanti-corruption

institutionsbyanalogywiththeconditionsforsuccessofotherself-governing

institutionsthataddressotherissueslikecontractenforcement,andplacesthese

ideaswithinageneraltheoreticalframeworkofcollectiveaction.

____________________

*ThisisarevisionofapaperdeliveredattheInternationalEconomicAssociation

RoundtableonInstitutions,GovernanceandCorruption,Montevideo,Uruguay,May

26-27,2016.IthankmydiscussantStutiKhemani,otherparticipantsinthe

conference,KarlaHoff,andChiaraSupertiforvaluablecommentsandsuggestions.

ThefirstdraftofthepaperwaswrittenduringaverypleasanttermasSanjayaLall

VisitingSeniorResearchFellowatGreenTempletonCollegeandtheDepartmentof

Economics,Oxford.IthanktheCollegeanddepartmentcolleaguesfortheir

generoushospitalityandusefuldiscussions.

2

1.Introduction

Corruptionisacomplex,multidimensionalproblem.Evenitsdefinitionis

elusiveandamatterofdisagreementamongthosestudyingit.Manyattemptsto

defineityieldsomevariantof“useofpublicofficeforpersonalgain.”Iwillbroadly

followthisusageinthispaper.1

Corruptioncomprisesarangeofsuchmalfeasance.Startwithpettybribery,

whichcantaketwoforms.Thefirstentailsextortingmoneyorotherfavorsasa

priceforsomegoodorservice(suchasrationedfoodormedicalcareundera

nationalhealthservice)oradocumentorpermit(suchasapassportordriving

license),towhichthecitizenisentitledforfreeoratalowprice.Variantsofthis

includedelayingdeliveryofthegoodordocumentunlessthepriceispaid.The

secondformofpettybriberyinvolvesextractingapricetoconveyafavorforwhich

theapplicantdoesnotqualify;forexampleacustomsofficerwaivingimportdutyin

exchangeforapaymentorkickback.Andthereisaspectrumspanningthese

categorieswherethequalificationisamatterofdiscretionorjudgment;forexample

aninspector’sdecisionastowhetherarestaurantmeetssanitarystandardsthatare

notpreciselyquantitativelymeasurable.Corruptionalsoincludeslargerdeals,

whereinexchangeforbribesorkickbacks,politiciansorbureaucratsaward

governmentcontractsforsupplyorconstruction,overpayprovidersofpublic

services,givepublicpropertyincludinglandandtheairwavespectrumforfreeorat

alowprice,andgrantwaiversorexemptionsfromregulations.Finally,thereis

grandcorruption:contributionstantamounttopurchaseofpoliticiansinorderto

securemonopoliesorlawsthatcreateprivateprofit.Somedefinitionsalsoinclude

politicians’andofficials’useofinsideinformationaboutfuturepublicprojectsto

1Therecanbesimilarmisuseofauthorityinprivateenterprise;forexample,afirm’spurchasingmanagermayoverpayinexchangeforakickbackfromthesupplier.Firmsattempttodetersuchbehaviorusingefficiencywagesandsimilarstrategies,andpresumablytheydosotoanoptimalextenttradingoffcostsofdetectionandbenefitsofdeterrence.Thisisbasicallyaprincipal-agentproblemincorporategovernance,thereforeIwillleaveitasideandfocusoncorruptioninexerciseofpublicauthority.

3

makeprivateprofitbyacquiringlandsorbusinessesthatstandtobenefitfromthe

projects,butwhenthisisnotexplicitlyprohibitedbylaw,otherscallit“legal

corruption”or“honestgraft”.Alltheseformsofcorruptionarefacilitatedifthe

judiciaryisalsocorrupt,forexampleifjudgesarecomplicitinviolationofproperty

rightsorletoffanyprosecutedofficialsorpoliticianslightly.

Someoralloftheseformsofcorruptionhaveexistedinmostcountriesand

throughouthistory.2PerhapstheearliestmentionisinKautilya(alsoknownas

Chanakya)inhisArthashastra,whichwaswrittenmorethan2000yearsago.The

followingisnoteworthy:“Justasitisimpossiblenottotastethehoneyorthepoison

onthetipofthetongue,soitisimpossibleforagovernmentservantnottoeatupat

leastpartoftheking’srevenue.Justasafishmovingunderwatercannotpossibly

befoundouteitherasdrinkingornotdrinkingwater,soservantsemployedin

governmentworkcannotbefoundoutwhiletakingmoneyforthemselves.”

(Kautilya,1992[translation],chapterIX).Thisnicelycapturesboththetemptation

ofofficialswhohavethepowertocreateordistributeeconomicrents,andthe

difficultyofdetectingtheircorruptactions.

ActuallymanyofKautilya’sremarkspertaintoembezzlementfromthestate

treasury,whichwemayormaynotregardascorruption.Mungiu-Pippidi(2016,

p.63)observesthesameaboutEuropeinthemiddleagesunderfeudalismand

monarchy.Herexplanationisasfollows.Mostmodernsocietiesprofessethical

universalism–applicationofthesameimpersonalandimpartialrulestoeveryone–

andpracticeittovaryingdegrees.Inpre-modernEurope,“sincenoone…even

aspiredtothenormofethicaluniversalism,onecouldhardlyspeakofcorruptionin

themodernsense.”Whenallallocationisattheruler’swhim,creationand

misappropriationofrentsbyhisofficialsisatworstaprincipal-agentproblem

betweenthethoseparties.

Totheextentthatcorruptionactslikeataxonbusiness,itdetersproduction,

investmentandinnovation.Worse,totheextentthatitisataxleviedatarbitrary

ratesatthewhimofapoliticianorofficial,itcreatesuncertainty,whichhas2TherecentleakofPanamaPapersshowshowmuchcorruptionathighpoliticallevelspersists,eveninadvancedandsupposedlysqueaky-cleancountries.

4

particularlyharmfuleffectsoninvestmentandgrowth.3Theeconomiccostsof

corruptionhavebeenwelldocumentedintheliteratureandneednotberecounted

here.Itissometimesarguedthatbriberyenablesfirmstogetaroundbadrulesand

regulationsandtherebyreducesthedistortionarycostsofthese.4Butthisisatbest

a“second-best”argument;itwouldbebettertogetridofthebadrules.

Corruptionbeingcomplexandmultidimensional,anti-corruptionpolicies

andstrategiesneedtotackleitsmanydifferentaspects.Atitsbroadest,thewhole

cultureofasocietyneedstochange,fromregardingcorruptionasawayoflifeto

thinkingittobeunacceptableandshamefulorevenevil.5Eachsuchcultureis

sustainedbyitsownsetofbeliefs,expectationsandactions.Thereforethedesired

changeentailsshiftingfromoneequilibriumtoanother.Thereisnocleargame-

theoreticprescriptionfordoingso.InthispaperIexamineasmallselectionofsuch

attemptsinhistory.Theyarevaried,withanequallyvariedrecordofsuccessesand

failures.Theysuggestafewnecessaryconditions,butnotaclearsetofsufficient

conditions,forshiftingawayfromacorruption-riddenequilibrium.ThenIbriefly

touchonsomerelatedtheory.IntheconcludingsectionIdrawonthehistoryand

thetheorytooffersometentativesuggestionsandlessonsforcurrentandfuture

anti-corruptionefforts.

3Seee.g.DixitandPindyck(1994).4FindingsofsomerecentresearchonRussia(MironovandZhuravskaya2016)contradictthis“greasingthegearsofbureaucracy”hypothesis.5Theconceptofcultureisevenmorecomplexthancorruption!TheMerriam-Websterdictionarydefinesitinseveralparts:a:theintegratedpatternofhumanknowledge,belief,andbehaviorthatdependsuponthecapacityforlearningandtransmittingknowledgetosucceedinggenerations;b:thecustomarybeliefs,socialforms,andmaterialtraitsofaracial,religious,orsocialgroup;alsothecharacteristicfeaturesofeverydayexistence(asdiversionsorawayoflife)sharedbypeopleinaplaceortime;c:thesetofsharedattitudes,values,goals,andpracticesthatcharacterizesaninstitutionororganization;d:thesetofvalues,conventions,orsocialpracticesassociatedwithaparticularfield,activity,orsocietalcharacteristic.(http://www.merriam-webster.com/dictionary/culture,accessedMay13,2016.)Formypurposehere,thekeyfeatureisthesharingofvalues,practices,etc.Thiscreatesthecommonknowledge–everyoneknows,everyoneknowsthateveryoneknows,andsoon–thathelpssustainequilibriaingames.

5

2.EuropeandtheUnitedStates

Mungiu-Pippidi(2016,chapter3)givesagoodaccountofcorruptioninpre-

modernEuropeandthedifferentroutesbywhichdifferentcountriesreducedit.

EspeciallyinstructiveisthecaseofmanyItaliancity-states,whichtookelaborate

stepstodesigntheirgovernancesystemstopreventcorruption.They“optedfor…a

citymanager,aprofessional…Itwasmandatoryforthismanager,orpodestà,to

comefromadifferentcitysothatnolocalcandidatescouldbefavored.Hebrought

hisownstaffwithhim,includinglawenforcers,clerks,andmagistrates.Hepaida

securitydepositatthebeginningofhistermandafterhisfinalmanagementreport

wasaccepted,hereceivedhismoneybackalongwithhisfees,lessanyfines

incurred.Hewasusuallyappointedforaone-yearterm.”Hewasconfinedtoa

(luxurious)palaceinordertoinsulatehimfrombeinginfluencedbylocalfamilies.

“[N]either[he]nor[his]staffwereallowedtoperformanyactivityotherthan[the

management]service.…Continuouscontrollingandauditingwereregularfeatures

ofgovernment.…Manyservicesprovidedbythestatetoitscitizenswerefundedby

feesthatpasseddirectlyfromtheconsumertotheprovider,withoutactually

circulatinginthetreasury.”Allthispointsto“theItalians’understandingthat

conflictsofinterestareubiquitous.”(Mungiu-Pippidi2016,p.65.)Someofthese

practiceswerecopiedbycitiesandrepublicsofnorthernEurope,especiallyifthey

hadtraderelationswithItaly.However,“[b]yagradualdiminutionofpower,andby

inter-cityconquest,theofficegraduallydisappeared”(Born,1927,p.869).The

underlyingreasonsarenotclear;werethereanybasicdefectsinthesystemordid

bettergovernanceinstitutionsevolve?

Norisitclearhowandwhythesystemwasdevelopedandsustained.6

Mungiu-Pippidi(2016,pp.66-67)arguesthatthreeimportantfeaturesunderlaythe

6AncientChinahadasomewhatsimilarsystemof“guest”officialswithsupervisoryrole(Parker1903,p.234).AndPaulRomer’sideaof“chartercities”(seee.g.FullerandRomer2012)hassomeparallelswiththepodestàsystem.Thereforeabetterunderstandingofthatsystemcanhavebroaderuseandapplication.

6

governancesystemofthesecity-states:participationinpublicaffairsbyahigh

proportionofthecitizenry;theconceptthatpublicofficewasnotaprivilegebuta

civicduty;andequalitybeforethelaw.

Insomecountriestheroadtocombatingcorruptionpassedthroughacrisis.

InDenmark,amajormilitarydefeatin1658wasacrisisthatforcedthenoblesto

transferpowerandprivilegestoaking.Heconsolidatedhispositionbyreplacing

aristocraticadministratorswithbureaucratshiredfromthebourgeoisie.Thesehad

toswearloyaltydirectlytotheking,andhavingnoprivatefortunes,werealso

reliantontheirpositionsfortheirincomes.Graduallythisservicebecamemore

professional,withmeritocraticappointmentsbasedonobjectivecriteriaof

education.OthermilitarydefeatsalsoledDenmark,BritainandFrancetomove

awayfromsellingofficers’commissionsinthearmedforces.(Mungiu-Pippidi2016,

pp.69-72.)Thehistoricalaccountsdonotexplainwhythereactiontothecrisesand

thesubsequentdevelopmentstookthispath,ratherthansomeotherpaththat

mighthaveledtosomeworseauthoritarianrulewithitsown,perhapsworse,form

ofcorruption.Inanycase,onehesitatestorecommenddefeatinwarasawayto

improvegovernance!

InBritainandFrance,manyreformsintheappointmentandfunctioningof

publicadministrationfollowedrevolutions:theGloriousRevolutionof1688inthe

formerandthebloodieroneinFranceacenturylater.However,theprocesslasted

manydecades.Britaininmid-andlate18thcenturywasregardedashighlycorrupt,

bothbyBritishthinkersandbyAmericanfightersforindependenceandframersof

theconstitution(Teachout2014,chapter2).Thepathofrevolutionistooriskyand

tooslowtoserveasananti-corruptionpolicy,hardlytoberecommendedtotoday’s

Asian,AfricanandLatinAmericancountries.

IntheUnitedStates,corruptionwaswidespreadinmid-19thcentury.The

economyandtheroleofgovernmentwerebothexpandingrapidly;thatcreated

opportunitiesandincentivesforallformsofcorruption.Butitdeclinedinsome

quiterapidspurtsfrom1870to1920.Howdidthishappen,anddoesitholdany

lessonsfortoday’santi-corruptionefforts?Wefindusefuldescriptionsandanalyses

7

inabookeditedbyGlaeserandGoldin(2006).7Theyidentify,notonedefinitive

answer,butseveralactionsandmovementsthatcontributedtotheoutcome.

Theyrecognizethreedistincttheoriesofinstitutionalchange.First,asocial

welfaremaximizingpersonorpartyorcoalitioncomeintopowerandenactand

enforcethenecessaryreforms.Second,powerfulspecialinterestsfindittotheir

benefittoreducecorruptionandinfluencepolicymakerstobringthisabout.Third,

politicalentrepreneursmanipulatepublicopinionandtoolsofgovernmenttoward

reform.Theyfindinstanceswhereeachofthethreeplayedapart.

Theriseofanindependentpressandinvestigativejournalismprovedvery

important.Thisinturnwaslinkedtorisingstandardsofliteracyinthepopulation,

andtothedecreaseinthecostsofcommunicationandtransportfollowingthe

spreadofthetelegraphandofrailways.Newspaperscouldbedeliveredpromptlyto

muchlargerreaderships.Theresultingeconomiesofscalemadeitpossibleforthe

presstobefreeoftheneedtoplacatepoliticiansandseekpatronage.Thesechanges

alsointeractedpositivelywiththeriseoftheProgressiveMovementinpolitics.

Producerinterestshaveoftencapturedtheregulatoryprocessandagencies

undervariouspretextsofappealingtoconsumerinterests.Thismayhavehappened

inworkplacesafetyregulations,whichweresupportedbylargemanufacturing

firmstoraisethecostsanddetersmallerfirms.Whenopportunitiestoderegulate

arose,aby-productwastheirroleasanti-corruptionweapons.Forexample,

reductionincharteringrequirementsofNewYorkbanksinthelate1830sincreased

competition.

Corruptionintheprovisionofpublicrelief,welfareandunemployment

compensationtooktheformofclientelismpracticedbylocalpoliticalparty

machines.Movingthesefunctionstothefederallevelandbasingbenefitson

objectivecriteriareducedthisproblem,especiallybecausetheRoosevelt

administrationneededtoacquireandmaintainareputationforefficiencyand

credibilityinthefaceofpoliticaloppositionthatwouldhaveexploitedanyevidence

7Foranarrativeaccountoveralongerspanoftime,togetherwithanargumentforabroaddefinitionofcorruption,namelysystemicuseofpublicpowertoserveprivateendsinsteadofthepublicgood,seeTeachout(2014).

8

ofcorruption.Thisobservationrunscountertothebelieffrequentlyassertedthat

“empowerment,”placingthehandlingofprojectsandbenefitsinthehandsoflocal

governments,willreducecorruption.

Politicalcompetitionhelped,butcorruptpoliticianswereoftenableto

remaininpoweronthebasisofethnicorotherfactionalsupport.Anotoriouscase

inpointwasJamesMichaelCurley,whoremainedmayorofBostonformanyyears

byappealingtoIrish-Catholicjingoism.Hewasdefeatedonlywhenpolitical

challengersemergedwithacleanimagebutthesameHibernianism.

ThusthedeclineofcorruptionintheUnitedStateshadmultiplecauses.Some

weretop-down,othersbottom-up.Somewereexplicitlytargetedtocombat

corruption;otherswereapartoranincidentalaspectofmovementsaimingtoclean

upotherdimensionsofthesocietyandtheeconomy.Therewasundoubtedlysome

synergybetweenthemultipleforcesactingtowardthesamegoal,buttheredoesnot

seemtohavebeenmuchexplicitcoalition-buildingorcoordinationbetweenthem.It

isnotclearthattheinterestsoftheemergingnewspaperindustrywouldbealigned

inexposingcorruption.Investigativejournalistsprobablybenefitedfromdoingso,

butownersmighthavebeenonthesideofthestatusquo.Thusthereductionin

corruptionseemstohavebeenafortuitouscombinationofsynergyofreforming

forcesandgoodluck.

Evenwithalltheforcesofimprovingeducationandtechnology,thepress,

politicalmovementsandcompetitionoperatingintherightdirection,ittookseveral

decadesforcorruptionintheUnitedStatestofalltorelativelylowlevels.Andeven

nowthecountrydoesnotrankveryhighlyforbeingcorruption-freeamongthe

world’sadvancedeconomies;seeTable1.Thisisacautionarylessonfordeveloping

countriesandtransitioneconomiesinthe21stcenturythataretryingtoreduce

corruptionmuchmorerapidly.

3.HongKongandSingapore

AmoreoptimisticperspectivecomesfromSingaporeandHongKong,bothof

whichhadhighlevelsofcorruptionandaculturethataccepteditasafactoflife,and

9

turnedthisaroundrapidlyandthoroughly.Todaybothcountriesrankveryhigh,

betterthanmanywesterncountries.Table1showssomesuchcomparisons.The

secondcolumnshowstheWorldBank’s2014WorldGovernanceIndicatorsfor

“Controlofcorruption”(labeledWB-WGI-CC2014inthetable),andthethird

columnshowsTransparencyInternational’s2015“Corruptionperceptionindex”

(TI-CPI2015).Ineachcase100isbestand0wouldbeworst.Nocountryattains

100,butitisamusingtonotehowthingshavechangedsinceShakespeare’stime–

nowalmostnothingisrotteninthestateofDenmark.

TABLE1:Cross-countrycomparisonsofcorruption

Country WB-WGI-CC2014 TI-CPI2015

Singapore 97.12 85

HongKong 92.31 75

Denmark 99.52 91

Germany 94.71 81

UnitedKingdom 92.79 81

UnitedStates 89.42 76

Italy 55.29 44

Howwasthisturnaroundachieved?Ineachcase,thewake-upcallresulted

fromabigscandal.Thereaftertwotooksomewhatdifferentapproachesbutthe

ultimateandexplicitaimwastochangethewholeequilibrium.

CorruptionwasprevalentinSingapore’sadministrationandpoliceforcefor

almostacenturyofBritishcolonialadministration;attemptstocounteritwere

weakandineffective.8ThesituationbecameevenworseduringtheJapanese

occupationinWorldWarII.Thebigscandalcamein1951,whenthepoliceforce

8MyaccountisbasedonQuah(2007).

10

wasfoundtobeinvolvedinanopiumhijackingoperation.Thisledtothe

establishmentofaCorruptPracticesInvestigationBureau(CPIB),whichwas

independentofthepoliceforce.Itgoteffectivebackingfromthetop.Itspowers

wereincreasedafterself-governmentin1959whenLeeKwan-YewbecamePrime

Minister;infacttheCPIBcametobelocateddirectlyinhisofficeandanswerable

onlytohim(Quah2007,p.23).Thestrategywas“tominimizeorremovethe

conditionsofboththeincentivesandopportunitiesthatmakeindividualcorrupt

behaviorirresistible”(Quah2007,p.17).

Thestrategyontheincentivesideseemstohaveconsistedofimprovingthe

detectionprocessandimposingmuchstricterpenaltiesuponconviction(Quah

2007,pp.20-21).Astheeconomygrew,civilservicesalarieswereimproved

substantially,creatingonemoreweaponontheincentiveside,namelyefficiency

wages(Quah2007,pp.27-29).Asforopportunities,thegovernment’sgeneralpro-

marketeconomicpoliciesmayhavereducedthemagnitudeofrentsavailable.

ExceptforspeechesandstatementsbythePrimeMinisteremphasizingthe

importanceofbeingfreefromcorruption,thisstrategydoesnotseemtohavebeen

backedupbymucheducationalorpublicityefforts;infactsurveyspointtothisas

oneweaknessoftheCPIB(Quah2007,pp.33-34).However,overtimethestrictand

impartialenforcementseemstohavesufficedtochangethepublicperceptionand

culturetothepointwherecorruptionisregardedasunacceptable.

HongKongshowssomesimilaritiesbutalsoimportantdifferences.9The

BritishcolonialandJapaneseoccupationhistoriesweresimilar,andrapideconomic

changesandlowcivilservicesalariesafterWorldWarIIsustainedmuchcorruption

anditsacceptancethroughthe1960s.Therewasananti-corruptionunitinthe

policeforce,butitwasitselfapartnerinthecrimes.Thejolttothisprevailing

cultureagaincamefromabigscandal.ABritishseniorpoliceofficerPeterGodber,

whohadamassedafortuneof4.3millionHongKongdollars,cameunder9TheICACwebsitehttp://www.icac.org.hk/en/about_icac/bh/givesagoodaccount.SeealsotheWikipediaarticle:https://en.wikipedia.org/wiki/Independent_Commission_Against_Corruption_%28Hong_Kong%29Somerecentdevelopmentsarerecountedinanewsarticlehttp://www.cnn.com/2013/10/15/world/asia/china-hong-kong-corruption/

11

investigationin1973andfledtotheUK.(Hewaslaterextraditedback,tried,and

convicted.)ThepublicoutcryledtotheestablishmentoftheIndependent

CommissionAgainstCorruption(ICAC).IthadstrongbackingfromanewGovernor,

MurrayMacLehose,andwasanswerabledirectlytohim.Itsstrategiescombined

whistleblower-protection,amnestiesandforcedretirementsforsmalleroffenses,

andsomeprominenttrialsandsentencesforbiggerones.Itgraduallyachieveda

reputationforbeingcleanandeffective.Todayithasastaffofmorethan1,000

dedicatedprofessionals.Alongtheway,ithadtoovercomestrongresistance

(includingphysicalconfrontationsandpunch-ups!)fromcorruptelementsinthe

policeforce.Italsohadtoensureitsownintegrity,quicklytacklinganyscandals

withinICAC,evenonesunrelatedtocorruption.Itsactivitieswerehelpedbysome

policiessuchaslegalizationofoff-trackbetting,whichreducedthescopefor

corruption.

TheICACcombinestheseenforcementstrategieswithonesfocusingon

publicrelationsandeducation.Itsofficersactivelyreachouttocompaniesand

organizationstohelpthemputintoplacesystemsandprocedurestoprevent

corruptpracticestakinghold.Italsoconductspublicity,andeducationstartingat

thekindergartenlevel:childrenaretoldstoriesandshownfilmswherecharacters

faceethicaldilemmasandthehonestoneswin.ToquotefromtheCNNnewsstory

citedinfootnote5above:“Wedon'tteachthemaboutlawsbutweteachthemabout

values,”saidMonicaYu,executivedirectoroftheHongKongEthicsDevelopment

Centre,anICACdivision.

HongKongenjoysoneotheradvantage:itslargelyfreeandopeneconomy

createsmuchlessrentatthedisposalofofficials,therebyreducingthetemptation

forcorruption.Legalizationofoff-trackbettingwasanimportantstepinthis

direction.However,landsalesandpublichousingareexceptionstothegeneralrule,

andcorruptionscandalsinthesedoeruptfromtimetotimedespitetheICAC’s

strongenforcementefforts.

BothHongKongandSingaporehadtheadvantageofbeingsmallcity-states

wherepowerwaseffectivelycentralized,andgettingstrongbackingfromthetop

12

forthedrivetoeliminatecorruption.InSingaporethisseemstohavesufficed;in

HongKongabroaderefforttochangethesociety’sculturehelpedtheprocess.

Onefurtherremarkofcautionshouldbeaddedtothisaccount.Although

thesestatesgethighratingsforfreedomfrombriberyintheirpublicadministration,

theyarefarfrombeingopenaccesssocieties:insidersgetfavoredtreatmentand

accesstorents,withoutexplicitquidproquobribes.InTheEconomist’sindexof

cronycapitalismSingaporestandsverypoorlyatNo.4(therankinggoesfrom

worsttobest),China(whichincludesHongKonginthisindex)isnotmuchbetter,at

No.11.10UsingthebroaddefinitionadvocatedbyTeachout(2014)ortheconceptof

grandcorruption,perhapstheyshouldranklowerinthecorruptionindexes,and

theirtransformationsregardedasmuchlesssuccessful.

4.Italytoday

SubstantialcorruptionofallkindspersistsinmodernItaly.Itsscoreand

rankinginTable1areverypoorincomparisonwiththeotherEuropeancountries,

HongKongandSingapore.Inanotherunfavorablecomparison,Transparency

InternationalgivesItalythesamescoreasLesotho,Senegal,andSouthAfrica.But

thissectionisaboutasomewhatdifferentformofcorruption,namelyextortionby

theSicilianmafiafromlocalbusinesses.Thisisnotstrictlywithinthedefinitionof

corruptionasthemafiadoesnotholdapublicofficethatitexploitsforprivategain.

Butthedifferenceisonlyofdegree,notkind,betweenextortionunderathreatof

burningdownastoreandextortionunderathreatofdenyingtheownersome

licenseorcertificationcrucialforstayinginbusiness.Also,perhapsthedifference

betweenofficialandprivateextortionisminorinthiscontextbecausethemafiahas

enjoyedclosepoliticalconnections.Thebiggerdifferenceisthatthedrivetocombat

extortioninthisinstanceisalmostentirelyabottomupsocialmovement.

Pizzoisthenameforprotectionmoneythemafiaextortsfromlocal

businesses;thiswasbelievedtoinvolve160,000businessesandtoyieldthemafia

10“Thepartywindsdown”,TheEconomist,May7,2016.

13

morethan10billioneurosperyear(Superti,2009).Battistietal.(2015,p.3)report

thattheextortionpaymentsmayreach40%ofSicilianfirms’grossprofits.

In2004aninitiallyanonymousgroupofyoungpeoplestartedamovement

theycalledAddiopizzotofightthemafia’sextortion.11Theybeganbyplasteringall

overPalermosmallstickersthatread“uninteropopolochepagailpizzoe’un

popolosenzadignitá”(“anentirepopulationthatpaysthepizzoisapopulation

withoutdignity”).Thiswasaclever“counter-hijacking”oftheconceptof“dignity”,

whichtheMafiahadpreviouslyhijackedtoconnoteconformingtotheMafia’srules

andtoitscodeofsilence(VaccaroandPalazzo2015,pp.1079,1083.)

Ayearlaterthegroupsheditsanonymityandlaunchedathree-folddrive.

First,theyrecruitbusinessesthatpromisenottopaypizzo;thesegetcertificatesand

bannerstopostontheirstorefronts.Theyinvestigatememberswhomighthave

secretlypaidpizzo,andhaveexpelledafewsuch“double-game”players.(Battistiet

al2015,p.7.)Second,theyseektoconvinceconsumerstopatronizeonlythose

businessesthatparticipateinthisventure.Theyalsoorganizepubliceventsand

educationprogramsinschoolstodiscusstheMafiaandtheharmitcauses.(Vaccaro

andPalazzo2015,p.1080.)Morerecentlytheyhavestartedventureslikepizzo-free

tourism,organizedtoursthatuseonlyAddiopizzo-certifiedhotels,restaurantsand

travel(Superti2009,p.9).

In2012“Addiopizzocouldcountonthesupportof56activists,10,143

consumers,154schools,29localassociations(e.g.,theSicilianbranchof

Confindustria,thehighlyinfluentialConfederationofItalianIndustry),andmore

than700affiliatedfirms(over10%oftheentrepreneursintheProvinceof

Palermo).”(VaccaroandPalazzo2015,p.1080.)Thisisasmallbutsignificantdent

inthepoweroftheMafia.Itisallthemoreremarkablebecausethemovementhas

nothadmuchsupport,letaloneleadership,fromthepoliticalelite.However,ithas

benefitedfromsomesupportfromthepolice,atleastthechiefandotherhigh-level

officials(Superti2009,p.7).

11ThefirstscholarlystudyofAddiopizzopublishedinEnglishknowntomeisSuperti(2009).MorerecentandmoredetailedquantitativeandsociologicalstudiesincludeBattistietal(2015)andVaccaroandPalazzo(2015).

14

Superti(2009,pp.4-5)identifiesresistingtheMafiaasacollectiveaction

problem.AnindividualfirmorstoreishelplesswhentheMafiademandspizzo;the

businesswouldbeburneddown,ortheproprietorkilled.Butcollectivelythe

victimshavepower.12“Retaliationwould…havethepotentialtocreateunrestinthe

population.…Moreover,byattackingrepresentativesofapopulargrassroots

movementthecriminalorganizationmighttransformthevictimsintonewpopular

heroes,furtherfertilizingtheenvironmentforageneraluprising.Activediscontent

amongPalermitanswoulddamagetheMafia’sinterestsmorethanthecurrent

decreaseinprofitfromAddiopizzo’scampaign.”(Superti2009,p.5.)Toreinforce

this,themovementkeepsthenamesofitsleadersandmemberbusinessespublic

andvisible:“sincemediacoverageofanattackonAddiopizzowouldbeasgreatas

theorganization’scurrentpopularityandwouldbringthesituationtotheforefront

oftheentirepopulation’smind.ThisisnotintheinterestsoftheMafia.”(Superti,

p.8.)Indeed,secretinterceptionsoftelephoneconversationshaveshownMafiosi

rantingagainstAddiopizzo,buttheyhavegenerallyrefrainedfromviolenceagainst

volunteersofthemovementorbusinessesadoptingthecredo.“CosaNostrachiefs

appeartounderstandthatwithpublicopinionsolidlybehindthegroup,targetingits

volunteerscouldbackfiredisastrously.”13

Addiopizzohasthususedgoodstrategiesinmobilizingpublicopinion,

buildingcoalitions,andstartingcollectiveactionamongbusinessesandconsumers.

However,itisfartoosoontodeclarevictory.Themovementmustovercomemany

difficultiesifitistomaintainandexpanditsfoothold.Itssystemofdetectingand

expelling“double-gamers”whopledgenottopaypizzobutdosoinsecretneedsto

beimproved.Ithasyettodemonstratewhetherandhowitcansurvivearetaliatory

lashingoutbytheMafia.Superti(2009,p.9)identifiessomeotherweaknesses.The12AsimilarphilosophymotivatesIndia’s“zero-rupeenote”movementtocombatpettybribery.Whenacoporofficialasksfor100or500rupees,offeringthisnoteinsteadofmerelyrefusing“showsaperson’saffiliationwithalargermovement.”(“Smallchange,”TheEconomist,December7,2013.)13Seehttp://www.newsweek.com/2014/09/26/addiopizzo-grassroots-campaign-making-life-hell-sicilian-mafia-271064.html.

15

movementhassofarreliedonidealism,andaManicheandichotomybetweengood

andevil.ItisnotclearwhetherthiscanscaleupbeyondthelimitedcontextofSicily.

Norisitclearwhetherthemovementcanincludepoliceandpoliticalelitesinits

broadsocialalliance.

Finally,ithastoovercomeunderstandablehesitancetojoinonpartof

businesses.Battistietal(2015)conductastatisticalanalysisoffirms’decisionsin

thismatter.Theyfindseveralcorrelatesthatmakeintuitivesense.Olderfirms,and

firmswithmorephysicalassets,arelesslikelytojoin;theyhavemoretolosefrom

anyMafiaretaliation.Also,theymayhavegreaterneedforcredit,andbanksseemto

restrictcredittoAddiopizzomembers,perceivinghigherrisks(Battistietal2015,

p.7).Firmswithmoreemployeesandoneswithhigherlevelsofhumancapital,and

oneslocatedindistrictswithhigherlevelsofsocio-economicdevelopment

(includinghighereducationlevels),aremorelikelytojoin;theyareprobablymore

influencedbythesocialcoalitionthatthemovementhasbuilt.Thispointstoa

hopefulfuture;aseconomicdevelopmentproceedsinSicily,perhapsitselfassisted

byAddiopizzo’sinitialsuccess,itmaysetinmotionavirtuouscircleofhigher

education,humancapital,socio-economicdevelopment,andentryofnewfirms,

leadingtogreaterparticipationinAddiopizzo,andinturnfurtheraccelerating

growth.

Andifaprivatelyorganizedsocietalcoalitioncannotchupsomesuccess

againsttheSicilianMafia,similarcollectiveactionshouldbeabletofaceuptomere

bureaucratsandpoliticians!

5.Anti-corruptionagenciesacrosscountries

Manycountrieshaveestablishedanti-corruptionagencies(ACAs)invarious

forms,giventhemdifferingmandatesandpowers,andobtainedequallymixed

results.Recanatini(2011)offersagoodsummaryofthiscross-countryevidence,

andsomeinitialpolicyrecommendations.

Shestartsbylisting“thefourtraditionalanti-corruptionfunctions”andthe

proportionsofACAsassignedtocoverthese:“prevention,includingeducationand

16

publicawareness(82percent);investigationofcorruptioncases(78percent);

prosecutionofcorruptioncases(58percent);andpolicy,researchandcoordination

(52percent).”AsmostACAsdonothavesoleorcomprehensiveresponsibilitiesfor

allfour,theymustcoordinatewithotherpublicinstitutions:“[those]responsiblefor

investigationandprosecution…,theauditauthority,theombudsman,thefinancial

intelligenceunit,taxauthorities,regulatoryauthorities,ministriesandagencies

acrossthepublicsector.”PropercoordinationrequiresaclearmandatefortheACA,

andwell-specifiedenablinglegislation.

ManyACAsfaceseriousbudgetaryandstaffingproblems;insomecases

politicianscuttheirbudgetsduringhigh-profileinvestigations.Politicianscanalso

affecttheindependenceandimpartialityoftheworkofACAsthroughtheirpowers

ofappointingandreappointingtheirleadership.

ThebestACAsmaintaingoodcommunicationandinformationlinkswiththe

publicthroughtheirmediaandwebstrategies,andestablishpartnershipswith

publicsectorandcivilsocietyorganizations.Almostallofthemarerequiredtoissue

annualreportslistinginvestigationsconductedandconcluded.

ThusweseesomefactorsthatdetermineanACA’seffectiveness:(1)political

supportfromthecountry’sleadership,especiallyinappointinggoodheadsforthe

agencyandgivingthemsecuretermsoftenure,(2)aclearandcomprehensive

frameworkoflegislationthatdelineatesitspowersandrelationshipswithother

policyagencies,(3)guaranteeofadequateresourcesandindependence,and(4)

accountabilityandrelationshipwiththecitizenryandthemedia.

ApublicpolicyresearchprogramatPrincetonUniversityconducteda

comparativecasestudyofACAsineightcountries,Botswana,Croatia,Ghana,

Indonesia,Latvia,Lithuania,Mauritius,andSlovenia(InnovationsforSuccessful

Societies(ISS),2014).Thedifferentcircumstancesinthesecountries,thedifferent

strategiespursuedbytheagencies,andtheirdifferentdegreesofsuccess,have

yieldedsomeusefulsuggestiveinsights,eventhoughtherearetoomanyvariables

17

andtoofewdatapointsforanydefinitivestatisticallysignificantconclusions.14The

studyemphasizedfour“keylessons”:

“1.Stronginternalcontrolsandaccountabilitymechanisms

playimportantrolesinpreservingintegrityandprotectingACAsfrom

beingsubvertedordiscredited.

2.ACAsoftencanoutflanktheirantagonistsbybuilding

allianceswithcitizens,stateinstitutions,media,civilsociety,and

internationalactors.

3.Preventiveeffortsthatdisruptcorruptionnetworks,

togetherwitheducationaleffortsthatreshapepublicnormsand

expectations,canenableanACAtomakelong-termgainswithout

triggeringoverwhelmingpushback.

4.Undercertainconditions,ACAspursuinghigh-level

corruptioncanovercomeretaliationbycarefullymanagingtiming,

resources,andexternalsupport.”

ObservethatallfourpertaintotheneedforACAstodeter,counter,and

overcomeoppositionfromthebeneficiariesofcorruption.Theopposition’stactics

rangefrommaligningACApersonnel,tobehind-the-sceneslobbying,toopen

legislativebattles.Tocounterthis,ACAshavetodeploymultiplestrategiesand

balancesometradeoffsacrossthesestrategies.

First,ACAsshouldstrivenottoleavethemselvesopentovalidcriticisms.

Theyshouldideallyhavehighlyqualifiedandcompetentstaffswithtopintegrity,

cohesion,andmorale.Whenstartingfromscratch,thisrequirestimetobuild,andin

themeantimetheagencycanbecriticizedfordoingnothing,ashappenedtotheone

inIndonesia.Iftheagencyrushestorecruitandstartwithsomehigh-profilecasesto

showitsactivism,thatcancreateitsowninternalproblemsandscandals,as

14OneproblemwiththestudyisthatalleightACAsinthesample“wereconsideredbyexpertstoperformwellrelativetopeeragencies.”Understandingdeterminantsofsuccessrequiresasamplewithsufficientlymanyandvariedinstancesoffailure!

18

happenedtotheoneinLatvia.Ifandwhensuchcriticismshithome,itisessentialto

improvetheproceduresandrecoverfromthesetbackquickly,asbothdid.

Thehigh-profilestrategygalvanizespublicopinion,butalsoattractsstrong

politicalopposition.Thelow-profilestrategymutessuchopposition,butmayalso

renderthepublicapathetictowardtheanti-corruptionmovement,andlullthe

corruptofficialsintoatruesenseofsecurity!

TocounterthepowerfulelitewhostrategizetoweakenACAs,theagencies

mustbuildcoalitionswithmedia,civilsociety,andtheinternationalcommunity,as

wellassympatheticelementsinpoliticalpartiesandotheradministrativeagencies.

Indonesia’sKPKdidthiswell;whenthegovernmenttriedtoreduceitspowersand

arrestitscommissioners,theiralliesincitizens’movementsheldmassprotestsand

foreigndiplomatslobbiedbehindthescenesontheirbehalf.Suchsupportisbest

wonbyacquiringareputationforboldness,impartialityandcompetence,but

shouldbeenhancedbygoodcommunicationandpublicrelations.TheACAsof

MauritiusandLithuaniafailedtocultivatejournalistsandcivilsocietygroups;they

sufferedfrompublicmisperceptionsanddistrustdespiteobjectivelyreasonable

performanceattheirtasks.Ifthecountrydoesnothaveanti-corruptioncivilsociety

groups,theACAcanitselffostertheirdevelopment,astheoneinGhanadid.

TwolaterISScasestudies(2015a,b)alsoillustratethevalueofmaintaining

goodpublicrelations.InSlovakia,anopendatainitiativewashavingsomesuccess

untilachangeofgovernmentin2012,whenitlostsupportofthenewPrime

Minister’soffice.ByworkingwithNGOactivists,theofficeinchargeoftheinitiative

wasabletocontinueandevenexpanditsscope.InElSalvador,integritypacts

servedtofocuscollaborationbetweenthegovernment,theprivatesector,andcivil

society,andcountersomeinternaloppositionfromthebureaucracy,toreduce

corruptionandimprovethecultureattheMinistryofPublicWorks.

TheACA’sproceduresshouldalsobedesignedtominimizetheriskoffalse

accusationsandpublicdistrust.Transparencyisimportant,asareclearguidelines

andpromptandfullhandlingofcomplaints.AsaformercommissionerofHong

Kong’sICACsaid:“Ifacitizenhasscreweduphiscouragetocomeandtellyou

19

something,ifyoutreathimorhiscomplaintasinsignificant,hewillnevercometo

youagain.You’velosthim,andyou’veprobablylostallhisfriendsaswell.”

Preventiveandeducationalefforts,bytheACAsthemselvesorinalliance

withothersocialorganizations,areveryhelpful,andalsohardforopponentsto

opposeopenly.High-profileinvestigationsandlow-profileeducationhaveproved

complementaryinchangingpublicperceptionsandculture.

Someagenciespubliclyrankedgovernmentoffices;“Nohead…wouldwant

theirministrytobelabeledasthemostcorruptministry,”saidRoseSeretse,headof

Botswana’sDCEC.InthenextsectionIsuggestasimilarrankingschemeonthe

“supplyside”ofcorruption,toratefirmsbytheircleanpracticesinthisregard.

IncontrasttotherelativelyoptimisticconclusionsoftheISSreport,Heeks

andMathisen(2012)flatlydeclare:“Mostanti-corruptioninitiativesindeveloping

countriesfail.”Theyattributethistoalargegapbetweendesignandreality,i.e.abig

mismatchbetweenexpectationsbuiltintothedesignandrealitiesofground-level

contextofimplementation.Theyrecommend“amoveawayfromgranddesigns

developedbytechnocratstoafocusoninterventionsthathavelocalfitandstrategic

fit.”

ThekeydifficultytheyidentifyisthesameasthatemphasizedbytheISS

report:“fewifanyoneinapositionofpowerandbenefitingfromcorruptionwould

liketoseetheopportunitiesforextractionreduced.”Thestrategyandtacticsofthe

oppositiondependontheirlocalpowerandcontext,andleadersofanti-corruption

initiativesmustcounter-strategizeaccordingly.15TheISSreportoffersasomewhat

selectivesampleofACAsthatsuccessfullydidthis;HeeksandMathisenlookat

severalothersthatdidnot.

InherdiscussionofHeeksandMathisen,Mungiu-Pippidi(2015,pp.208-9)

suggestsamorefundamentaldifferenceofphilosophies.Shearguesthatmany

Westernscholarsanddonorstakeapuristline:corruptionisadiseaseorsocial

15Unfortunatelyanti-corruptionmovementsandtheirleadersareoftendrivenpurelybyidealismandenthusiasm;theylackorganizationalandstrategicskills.AnnaHazare’sLokpal(ombudsman)movementandArvindKejriwal’sAamAadmiPartyinIndiaaregoodexamplesofthis.

20

pathology,andtheonlysolutionistocureit.Thereforetheyregardpartialprogress

asessentiallynoprogress.Shebelievesthiszero-toleranceapproachismistaken:“in

developingcountriescorruptionisnotadeviation,butratherthenorm.”Thetaskis

thentochangebeliefsandthenorms,whichentailschangingthewholeequilibrium.

Thisisalwaysaslowprocess,andpartialsuccessshouldnotbedismissed.

6.SomeTheory:Prisoner’sDilemmaorAssurancegame?

PrimeMinisterLeeKuanYewinSingaporeandGovernorMurrayMacLehose

inHongKongprovidedstrongleadershipandbackingforanti-corruptionlaws,

agenciesandactionsinthosecountries.Butwecannotgenerallyexpectpoliticians

andbureaucratstodoso;afterall,theyarethemainbeneficiariesinacorrupt

system.Rather,weshouldexpectthemtopasslawsthatareweakandhave

loopholes,toenforcethemasslowlyandfeeblyaspossible,andtoobstructthe

workingsofanyindependentanti-corruptionagencytheymayhavebeencompelled

tocreate.Coalitionsofthevictimsofcorruption,liketheAddiopizzomovement,

havestrongerincentivestofightit.Theirmainproblemisorganizingcollective

action,andgame-theoreticanalysiscanhelpusunderstandtheissues.

Forthebusinesscommunityasawhole,mostformsofcorruptioncreatea

gameofprisoner’sdilemma.Inbiddingforgovernmentcontractsorlicenses,each

firmstandstogetabetterdealbyofferingahigherbribe.Butwhentheyalldothis,

theyaremerelytransferringmoreoftheirprofitstothebureaucratsorpoliticians

whohavethepowertoawardthesefavors,sointheaggregatetheylose.Worse,to

theextentthatcorruptionactslikeatax,andworsebecauseitisoftenleviedat

uncertainandarbitraryrates,itdampensincentivestoinvestandinnovate,sothe

dynamiclossesexceedthepurestatictransfercosts.Thissituation,wherepursuitof

individualincentivesleadstoacollectivelybadoutcome,istheclassicPrisoner’s

Dilemmagame.

Somearguethatbusinesswillsimplypassonsuchataxtoconsumers

throughhigherprices.Butsuchrecoverywillingeneralbemuchlessthanfull.Ifthe

bribeisforapermittooperatethebusinessperse,thatisafixedcost,anddoesnot

21

alterthepricingdecision.Anymarketpowerwouldalreadyhavebeenexercisedto

thesameextentandreflectedinpricesevenwithouttheexistenceofabribe,sothe

bribeisapuresubtractionfromprofit.Abribethatraisesmarginalcostwillimpact

prices.Butiftheoriginalpricewasoptimallychosentomaximizeprofit,theadded

costofthebribecanonlylowerthenetprofit.Insomeunusualcircumstances,

highercostcanactasacollusion-facilitatingdeviceforoligopolists;seeSeade

(1983)andDixit(1986).Butsuchanindustrycansurelyfindsimplerandmore

legalwaystoraiseitscoststhancorruption!Forexample,itcansupportregulation

thatrequiresallfirmsintheindustrytospendtoachievesomegenerallyagreed

sociallydesirablegoalsuchasreducingpollutionorcarbonemissions.

Thereareformsofgrandcorruptionwherebusinesscancolludewith

politiciansorregulatorstocreatemonopoliesfortheirmutualbenefitatthe

expenseofthepublic,andthefollowinganalysisdoesnotapplytothese.However,if

otherformsofcorruptionaretackled,thatcancontributetochangesinoverall

cultureandattitudes,whichinturnmakethisformofcorruptiondifficulttosustain.

Gametheoryhasyieldedseveralwaysthepartiestoaprisoner’sdilemma

canresolveit.Thetwomostpertinentinourcontextare(1)repeatedinteraction

and(2)multipleinteractionsinvolvingdifferentissues.Ifmembersofthebusiness

communityneedtodealwithoneanotherovertimeonseveralmatterssuchas

supply,subcontracting,tradecredit,finance,andmarketing,thentheycancreatea

systemofrewardsforcooperativebehaviorandpenaltiesforselfishdeviations.To

combatcorruption,thecommunityshouldestablishanormthatnomembershall

obtainanadvantagebybriberyinmattersofgovernmentlicensesorcontracts.In

mattersofdealsamongthemselves,eachmembershouldgivepreferencetothose

whoareknowntoadheretothenorm,andavoiddealingwiththosewhoareknown

tohaveviolatedit.Afirmthatisknowntobeanegregiousbriberwillbeostracized

byothers,andtherebyeffectivelyputoutofbusiness.Sinceitisalmostimpossible

forafirmtooperatewithoutanybusinessdealswithothersinanymoderately

complexeconomy,theprospectofsuchostracismshouldsufficetoensure

adherencetothenorm.

22

Suchself-governinginstitutionsbasedonnormsandsanctionshaveoperated

inseveralbusinesscommunitiestoachieveadherencetocontractsamongmembers.

AvnerGreif’sstudyofagroupofJewishtradersinNorthAfricanearly1000years

ago(Greif1993),andLisaBernstein’sstudiesofcontemporarydiamondmerchants

andcottontraders(Bernstein1992,2001)arewellknown.Dixit(2004)constructs

mathematicalmodelstoexplicatetheirworking.

Kingston(2008)andDixit(2015a,b)developsimilarmodelsofcommunity-

basedanti-corruptioninstitutions.Ofcoursetherigorousanalysisrevealsseveral

conditionsnecessaryforsuccessofthescheme.Thecommunitymusthavean

accuratemechanismfordetectingviolationsofthenorm,andmustbecarefulto

catch,deterandpunishfalseaccusations.Itneedssomesupportfromtheformal

stateapparatusinthatverdictsofitsadjudicationforumshouldbeacceptedandnot

double-guessedbycourtsinthesamewaythatthoseofarbitrationtribunalsare.It

mustnotbecomeaninsiders’cliquethatcartelizestheindustryanddetersnewand

innovativeentry.Itneedstogetsomelargeandhighlyrespectedbusinessesas

launchoranchormemberstoattractattentionandbyexampleinduceotherstojoin.

Itmustmaintaingoodrelationsandbuildallianceswithbroadersocialgroups,

NGOs,andmedia.Dixit(2015a,b)discussessuchissuesindetail.

Dixit(2015b)findsthatabusinesscommunityinstitutionofthiskindis

complementaryorsynergistictoanyanti-corruptioneffortsthegovernmentmay

undertake:thetwotogetheraremoreeffectivethanthesumoftheeffectsofeachon

itsown.

Othertheoretical,empiricalandexperimentalworkhasclarifiedthe

requirementsforsustainingcooperationinaprisoner’sdilemma.Perhapsthemost

importantoneisthatmembersofthegroupshouldbewillingtoparticipateinthe

prescribedpunishmentofacheater.Ifthecheaterisbeingostracized,hemayoffer

anextratemptingrewardtoanyfirmthatbreaksthebananddealswithhim.

However,howwouldthisfirmknowthatthecheaterwouldnotcheatitalso?Infact,

thecheaterisalreadyostracizedandotherfirmsarenotdealingwithhim,sohehas

nothingworsetofear.Afirmthatdealswithhimwouldhavetogivehimagreater

shareoftherenttokeephimhonestinanongoingrelationship.Thereforeitis

23

actuallymorecostlytodealwithanostracizedcheaterthantodealwithafirmthat

hasacleanhistory.Greif(1993,p.535)givesaformalproofofthisinProposition2.

Willingnesstoparticipateinpunishmentofacheatertosustainagoodsocial

outcome,evenataprivatecosttooneself,alsoexists.Evidencehasmountedfor

such“altruisticpunishment”(FehrandGächter2002),andithasbeenfoundtobe

ingrainedinsomebasicneuralcircuitryofthebrain(DeQuervainetal.2004).Of

coursewealsoneedthememberstounderstandthatothershavethiswillingnessto

punish,andthecommonunderstandingcreatedbythesociety’sculturecanhelp.

ArecentworkingpaperbyTransparencyInternational(2016)suggestsan

evenmorepromisingavenueforthebusinesscommunityinstitutiontocombat

corruption.16Itarguesthattoday’syoungpeoplewanttheeconomytohavegood

governanceandtobecorruption-free.They,especiallythesmartestamongthem,

prefertoworkforfirmsthataregoodandcleaninthisrespect.Afirmthatcredibly

pledgesandactsinanethicalmannerwillfinditeasiertoattractandretainsuch

workers,andkeepthemhappyintheirwork.Thereforeitwillenjoyhigher

productivityandlowerlaborturnoverrates.Customerswillfavorit;indeedwe

alreadyseethisinthesuccessofsomefirmslikePatagonia.Thereforebeingmore

ethicalisalsobecomingconducivetobeingmoreprofitable.

Ofcourseifmostfirmsarecorrupt,beingarareethicalstandoutdoesnotdo

muchbecausesuchafirmwillloseoutinmostaspectsoftreatmentbybureaucrats

andpoliticians.Butonceenoughfirmsstarttobeethical,therelativeadvantagewill

tipinfavorofgoodbehavior.

Inotherwords,thegamemaynotbeaprisoner’sdilemma,butonecalled

“assurance,”likedrivingontheleftversusright.Ifothercarsdriveontheleft,itisin

yourownbestinteresttodriveontheleft,butifothercarsdriveontheright,itis

bestforyoutodolikewise.Similarly,ifotherfirmsarecorruptitpaysyoutobe

corrupt,butifothersaregoodandclean,thenitisbestforyoutobelikewise.16DiscussionswithsomeprominentIndianbusinesspeopleatarecentconferenceorganizedbytheWorldBankconfirmTransparencyInternational’sclaimsabouttheprivatebenefitoftocorporationsfrombeingnon-corrupt.ExperimentalresearchofGrant(2008)alsofindsthatintrinsicprosocialmotivationhaspositiveeffectonjobperformanceandproductivity.

24

Thusassurancegameshavetwoequilibria;whichoneprevailsdependson

whatcommonknowledgeandexpectationsofothers’actionstheplayershave.Such

knowledgeandexpectationscanbecreatedandsustainedbytheoverallcultureof

thesocietyinwhichtheplayerslive;seeFootnote3onp.4above.

Inthedrivingexampleitmaynotmattermuchwhichofthetwoequilibria

prevails,butinthecaseofbusinessconducttheequilibriumwithgoodbehavioris

betterforeveryone.Thequestionishowthebusinesscommunitycanmovefroma

prevailingbadequilibriumtothegoodone.

Thisisnoteasy,butitiseasierthanresolvingaprisoner’sdilemma.Toget

theprocessstarted,reliableinformationabouttheidentityofgoodandcleanfirms

shouldbemadeavailable,sothesmartyoungpeoplecanseekworkatthesefirms

andcansupportthemascustomers.Asthisstartstohappen,otherfirmswill

recognizetheadvantagesofbeinggoodandclean,andwillstrivetoimprovetheir

behavior.Oncethisvirtuouscirclegathersmomentum,theeventualoutcomewillbe

thepreferredequilibrium.Inotherwords,thewholesocialculturewillchangefrom

onewherecorruptionisexpectedandacceptedtoonewhereitisagainstthtenorms

ofbehaviorandunacceptable.

Thinkoftheinformation-creatingsystembyanalogywiththeMichelinstar

ratingsforrestaurants.Thereareone,twoandthreestarrestaurants.Ownersand

chefstryveryhardtoearnandkeepstars;losingastarisadisgrace.Theideaisto

createasimilarratingsystemforcompanies,withthedifferencethatintheeventual

equilibriumalmosteveryfirmwillhaveatleastonestar,whereasmostrestaurants

nevergetanyMichelinstars.

Ofcourseitiscrucialfortheratingmachineryitselftobeentirelyabove-

boardandfreefromcorruption.Forthat,itshouldbeundercontinuousscrutinyof

anindependentoversightcommitteeconsistingofrepresentativesfromdifferent

kindsandsizesofcompanies,highlyrespectedeldersinsociety,someacademics,

andsoon.

25

7.Lessonsforthefuture Thehistoricalexamplesaswellasthetheoryreviewedabovesuggestseveral

approachestocombatingcorruption.Sometrytodesigntherulesandoperationof

politicsandadministrationsothatopportunitiesandincentivesforcorruptionare

minimized.Othersfocusonenforcement,todetectandpunishthecorrupt,using

independentanti-corruptionagenciesorsimilarbodies.Somearetop-down;others

arebottom-up.Thisvarietyofmethodsproducesanequalvarietyofdegreesof

success,andthehistoricalaccountsdonotgivemuchguidanceaboutthedeeper

underlyingstructuresthatcanexplainorpredictsuccess.Buttakentogether,the

examplesandthetheorydohavesomecommonthemesandoffersometentative

suggestions–strategiestoadoptandmistakestoavoid.

First,weseetheimportanceofleadership,oratanyratesupport,from

amongthetopmosttiersofgovernment:theeliteinthecity-statesinItalywho

participatedinlaunchingandsustainingthepodestàsystem,thekingofDenmark

whogotridofthecorruptbureaucrats,LeeKuanYewwholedthetransformationof

Singapore,andsoon.Purelycitizen-ledbottom-upcoalitions,liketheAddiopizzo

movementinItaly,canachievesuccess,butitwillbelimited.Lackofsupportfrom

thetopmaybethebiggestobstacleanti-corruptionactivistsinmanyLDCswillface.

Next,inmanyinstancesdifferentgroupsandstrategiesappeartobemutual

complements:togethertheyaccomplishmorethanthesumoftheirindividual

effects.Themostsuccessfulcampaigns,liketheoneinHongKong,combinesupport

fromthetopandgoodcoalitionsatthebottom.Casestudiesofanti-corruption

agenciesinseveralcountriesshowthattheireffortshavetobalanceandcombine

differentstrategies,andchoosetherightlevelofaggressiveness,takingproper

accountofthepoliticalandsocialcontext.

Manyepisodesofanti-corruptionactionstartedwithacrisis.Althoughthe

pathfromthecrisistothechangeinthecultureofcorruptionwasnotalwaysthe

sameandoftennotverycleareveninhindsight,anti-corruptionactivistsshouldbe

alertforsuchopportunities.TheyshouldkeepinmindthefamoussayingofRahm

Emanuel(PresidentObama’sfirstChiefofStaffandlaterMayorofChicago):“Never

26

letaseriouscrisisgotowaste.AndwhatImeanbythatit'sanopportunitytodo

thingsyouthinkyoucouldnotdobefore.”

Themainobstaclefacingagroupthatseekstofightcorruption–whethera

governmentagencyoraprivatemovement–willbeoppositionfromentrenched

intereststhataregainingfromthecorruptsystem.Theywilllookforandexploitall

errorsandweaknessesoftheanti-corruptiongroup.Thereforeitisespecially

importantforthesegroupstoavoidanytaintofcorruptionwithinthemselves,or

indeedanyotherscandalsthatcanbeusedbytheopponentstodiscreditthem.

Inthemodernage,coalitionsforanti-corruptionactionmustincludethe

media,includingsocialmedia,schools,andrelatednetworksofinformationand

communication.Theanti-corruptiongroupsshouldactivelypresentthemselvesto

thepublic,usingmodernpublicitymethods,cleverslogans,etc.Theyshoulddevelop

andmaintaingoodrelationswiththemedia,whichwillthentreatdiscrediting

allegationsfromopponentsofthesegroupswithskepticism,andindoubtfulcases

givethegroupsthebenefitofthedoubt.

Whetherthemovementisledfromthetoporthebottom,ithastoworkto

changesocialnormsandculture.TheexperienceofHongKongdemonstratesthe

valueofeducation,especiallyattheearlyschoollevel,forthis.

ManyoftheexamplesIrevieweddemonstratetheimportanceofcontingency

(asdoessomuchofhistorymoregenerally);thereforeevengoodstrategiesneedto

besupportedbygoodluck.17JustasLouisPasteursaidinmattersofscientific

observation,“chancefavorsthepreparedmind,”infightingcorruptionchanceis

likelytofavorthepreparedalliance.Eventhen,asthehistoricalepisodessketched

aboveshow,progressislikelytobeslow,andsuccessmuchshortof100%.Activists

andcriticsalikeshouldnotdisdainpartialsuccess,orcriticizeattemptsatreform

becausetheydonotyieldaperfectoutcome;waitingforperfectionmerelyensures

thestatusquo,whichamountsto0%success.

17SeeDixit(2008)formoreonthethemethat“strategiccomplementaritiesplusluck”isthebroadlyvalidrecipefordevelopmentsuccess.

27

REFERENCES

Battisti,Michele,AndreaMarioLavezzi,LucioMasseriniandMonicaPratesi.2015.

“ResistingtheExtortionRacket:anEmpiricalAnalysis.”UniversityofPisa,

DepartmentofEconomicsandManagement,DiscussionPaper206.

Bernstein,Lisa.1992.“Optingoutofthelegalsystem:Extralegalcontractual

relationsinthediamondindustry.”JournalofLegalStudies,21(1),115–57.

Bernstein,Lisa.2001.“Privatecommerciallawinthecottonindustry:Creating

cooperationthroughrules,norms,andinstitutions.”MichiganLawReview,

99(7):1724–88.

Born,LesterK.1927.“Whatisapodestà?”AmericanPoliticalScienceReview21(4):

863-871.

deQuervain,DominiqueJ-F,UrsFischbacher,ValerieTreyer,MelanieSchellhammer,

UlrichSchnyder,AlfredBuckandErnstFehr.2004.“Theneuralbasisof

altruisticpunishment.”Science 305.5688: 1254-1258.

Dixit,Avinash.1986.“Comparativestaticsforoligopoly."InternationalEconomic

Review27(1):107-122.

Dixit,Avinash.2004.LawlessnessandEconomics:AlternativeModesofGovernance.

PrincetonUniversityPress.

Dixit,Avinash.2007.“EvaluatingRecipesforDevelopmentSuccess.”WorldBank

ResearchObserver22(2):131-157.

Dixit,Avinash.2015a.“Corruption:Supply-sideanddemand-sidesolutions.”In

DevelopmentinIndia:MicroandMacroPerspectives,eds.S.MahendraDev

andP.G.Babu,Springer,pp.57-68.

Dixit,Avinash.2015b.“HowBusinessCommunityInstitutionsCanHelpFight

Corruption.”WorldBankEconomicReview,29(suppl1):S25-S47.

Dixit,AvinashandRobertPindyck.1994.InvestmentUnderUncertainty.Princeton,

NJ:PrincetonUniversityPress.

Fehr,ErnstandSimonGächter.2004.“Altruisticpunishmentinhumans.”Nature

415:137-140.

28

Fuller,BrandonandPaulRomer.2012.SuccessandtheCity:HowCharterCities

CouldTransformtheDevelopingWorld.Ottawa,Canada:Macdonald-Laurier

Institute.

Glaeser,EdwardandClaudiaGoldin(eds).2006.CorruptionandReform:Lessons

fromAmerica’sEconomicHistory,UniversityofChicagoPress,2006.

Grant,AdamM.2008.“DoesIntrinsicMotivationFueltheProsocialFire?

MotivationalSynergyinPredictingPersistence,Performance,and

Productivity.”JournalofAppliedPsychology93:48–58

Greif,Avner.1993.“Contractenforceabilityandeconomicinstitutionsinearlytrade:

TheMaghribitraders'coalition,”AmericanEconomicReview,83:525-548.

Heeks,RichardandHaraldMathisen.2012.“Understandingsuccessandfailureof

anti-corruptioninitiatives.”Crime,LawandSocialChange58:533-549.

IndependentCommissionAgainstCorruption,HongKong.2016.“BriefHistory.”

Availableathttp://www.icac.org.hk/en/about_icac/bh/index.html

InnovationsforSuccessfulSocieties.2014.“FromUnderdogstoWatchdogs:How

Anti-CorruptionAgenciesCanHoldOffPotentAdversaries,”Princeton

University.Availableathttps://www.princeton.edu/successfulsocieties

InnovationsforSuccessfulSocieties.2015a.“Bringinggovernmentdataintothe

light:Slovakia’sopendatainitiative,2011–2015,”PrincetonUniversity.

Availableathttps://www.princeton.edu/successfulsocieties

InnovationsforSuccessfulSocieties.2015b.“Ablueprintfortransparency:Integrity

pactsforpublicworks,elsalvador,2009–2014,”PrincetonUniversity.

Availableathttps://www.princeton.edu/successfulsocieties

Kautilya.1992.Arthashastra.TranslationbyL.K.Rangarajan.PenguinBooks.

Kingston,Christopher.2008.“SocialStructureandCulturesofCorruption.”Journal

ofEconomicBehaviorandOrganization67(1):90-102.

Mironov,MaximandEkaterinaZhuravskaya.2016.“CorruptioninProcurementand

thePoliticalCycleinTunneling:EvidencefromFinancialTransactionsData.”

AmericanEconomicJournal:EconomicPolicy,8(2),May,287-321.

Mungiu-Pippidi,Alina.2015.TheQuestforGoodGovernance:HowSocietiesDevelop

ControlofCorruption.CambridgeUniversityPress.

29

Parker,EdwardH.1903.China,PastandPresent.London,ChapmanandHall.

Quah,JonS.T.2007.“CombatingcorruptionSingapore-style:LessonsforotherAsian

countries.”MarylandSeriesinContemporaryAsianStudiesNumber2,School

ofLaw,UniversityofMaryland.

Recanatini,Francesca.2011.“Anti-CorruptionAuthorities:AnEffectiveTooltoCurb

Corruption?”InInternationalHandbookontheEconomicsofCorruption,eds.

SusanRose-AkermanandTinaSoreide,Cheltenham,UK:EdwardElgar,

Chapter19,pp.528-570.

Seade,JesúsK.1983.“Prices,profitsandtaxesinoligopoly."UniversityofWarwick,

UK:ResearchPaperinEconomicsNo.260.

Superti,Chiara.2009.“Addiopizzo:CanaLabelDefeattheMafia?”Journalof

InternationalPolicySolutions,11,Spring,3-11.

Teachout,Zephyr.2014.CorruptioninAmerica:FromBenjaminFranklin’sSnuffBox

toCitizensUnited.Cambridge,MA:HarvardUniversityPress.

TransparencyInternational.2016.TheBenefitsofAnti-CorruptionandCorporate

Transparency.WorkingPaper#01/2016.

Vaccaro,AntonioandGuidoPalazzo.2015.“ValuesAgainstViolence:Institutional

ChangeInSocietiesDominatedByOrganizedCrime.”Academyof

ManagementJournal58(4):1075-1101.