Corruption as a Last Resort

Adapting to the Market in Central Asia

Kelly M. McMann

• Publisher: Cornell University Press
• Year: 2015
• Print ISBN: 9780801453274
• eBook ISBN: 9780801454905
• Topic: Politics & International Relations
• Subtopic: Central Asian History
• Index: Politics & International Relations

Why do ordinary people engage in corruption? Kelly M. McMann contends that bureaucrats, poverty, and culture do not force individuals in Central Asia to pay bribes, use connections, or sell political support. Rather, corruption is a last resort when relatives, groups in society, the market, and formal government programs cannot provide essential goods and services. Using evidence from her long-term research in Kazakhstan and Kyrgyzstan, McMann shows that Islamic institutions, secular charities, entrepreneurs, and banks cannot provide the jobs and credit people need. This drives individuals to illicitly seek employment and loans from government officials.A leading cause of this resource scarcity is market reform, as demonstrated by McMann's analysis of these countries as well as of Uzbekistan and global data. Market reform without supporting institutions, such as credit registries and antimonopoly measures, limits the resources available from the market and societal groups. McMann finds that in these circumstances only those individuals who have affluent relatives have an alternative to corruption.By focusing on ordinary people, McMann offers a new understanding of corruption. Previously, our knowledge was largely restricted to government officials' role in illicit exchanges. From her novel approach comes a useful policy insight: supplying ordinary people with alternatives to corruption is a fundamental and important anticorruption strategy.

1

AN ABSENCE OF ALTERNATIVES

A New Framework for Understanding Corruption

“I do not like to give bribes,” Marzhan, a villager in Kazakhstan, said to me. She was explaining why she avoids seeking assistance from government officials. Instead, when she needs money, credit, or employment, she relies on her uncle Kanat, a successful private farmer.1 Her experience illustrates a fundamental point about corruption: individuals contemplate alternatives before deciding to engage in corrupt behaviors. Government officials’ demands, ineffective laws, cultural norms, or economic needs do not automatically propel ordinary citizens into illicit exchanges with officials, as studies of corruption have implied. Rather, citizens consider whether relatives, groups in society, the market, or formal government programs can provide them with the resources they need.

From this insight about alternatives to corruption, this book makes two arguments about its causes. First, when essential goods and services are not available from alternative sources, individuals engage in corrupt behaviors to try to acquire what they need from government officials. Second, market reform—policies to decrease state economic intervention—can limit these alternatives and thus encourage corruption. The first argument reveals the absence of alternative goods and services as a cause of corruption, and the second argument offers an explanation for why the absence exists. Together, the arguments constitute an “absence-of-alternatives framework” for studying corruption.

The corruption this book examines is petty corruption—ordinary citizens’ use of bribes, personal connections, and promises of political support to try to secure small quantities of goods or services from low-level government officials. My focus on petty corruption is a departure from existing studies, most of which examine grand corruption, or illicit exchanges of large quantities of goods and services between high-ranking officials and businesspeople. Although the book examines petty corruption, its arguments are also relevant to grand corruption. Through the absence-of-alternatives framework, this book provides a new way to understand, and ultimately reduce, both types of corruption.

The Absence-of-Alternatives Framework

The absence-of-alternatives framework emphasizes that citizens’ decisions about whether or not to offer bribes and favors to government officials are as important as officials’ calculations about whether to demand them. Existing theories of corruption have focused on government officials’ incentives and capacity, overlooking citizens—the other half of corrupt exchanges. The absence-of-alternatives approach also highlights the importance of family, societal, and market resources—not simply state resources—in citizens’ decisions. Earlier theories have examined the availability of state resources for corruption but ignored the fact that, from a citizen’s perspective, the value of goods and services from the state depends, in part, on the possibility of obtaining them from other sources.

An additional advantage of the absence-of-alternatives framework is its ability to solve two puzzles concerning corruption. The book’s first argument provides an answer to a puzzle neglected by prior studies of corruption: why do some individuals in countries where corruption is rampant rarely or never engage in illicit exchanges? It demonstrates that some individuals within a country have greater access than others to alternative resources, and this enables them to avoid corruption. The first argument also accounts for variation in corruption across countries—the puzzle that corruption studies typically tackle. Specifically, in countries where alternative sources of essential goods and services are more limited, corruption is more common.

Under what conditions are alternative resources scarce? While numerous factors may contribute to this scarcity, a leading cause in many countries is market reform; this is the book’s second argument. Market reform can undermine the ability of markets, societal groups, and families to provide essential goods and services when two conditions are present: (1) states have previously exerted significant economic control, and (2) reforms have failed to create institutions to strengthen markets, such as credit registries, judicial systems, and antimonopoly policies. When market reforms are introduced under these two conditions, market actors and societal groups start from scratch with few resources and limited opportunities to increase them. At the same time, market reform reduces many families’ resources: price liberalization results in higher prices that drain families’ savings, and economic restructuring closes or downsizes inefficient enterprises that once employed family members. Under this set of circumstances, essential goods and services are not readily available from markets, societal actors, and extended family. Simultaneously, market reform, regardless of the two conditions, eliminates formal government programs, so the state provides fewer needed goods and services. Unable to readily obtain essential goods and services from markets, societal actors, extended family, or formal government programs, most citizens try to acquire them illicitly from government officials. Yet some individuals have relatives who have benefited from market reform, so they can rely on assistance from kin and avoid corruption. Market reform under the two conditions accounts for both resource scarcity in a country and some individuals’ greater access to those resources that do exist.

These circumstances have existed in many countries of the world. The two conditions, a legacy of significant state economic intervention and weak or absent market-enhancing institutions, were very common as market reform spread around the world in the late twentieth century. The socialist, and to a lesser extent the state-led capitalist development, programs of the mid-twentieth century resulted in states with substantial control of their economies. And the version of market reform championed in the 1980s and 1990s emphasized the reduction of states’ economic roles rather than the creation of support institutions to ensure market competition. Individuals in such settings are often unable to obtain the goods and services they need either through the state or from private actors. In these circumstances, they turn to corruption—it is their last resort.

By trading bribes or favors for essential resources, individuals can survive trying economic circumstances, but these illicit exchanges can also be harmful to society. These behaviors can reduce government legitimacy and effectiveness and increase economic inequality and inefficiency. Although these exchanges constitute “petty” corruption because they involve small amounts of goods and services, they are not inconsequential.

From the absence-of-alternatives approach it follows that a reduction in petty corruption requires attention to citizens, rather than just to government officials. Anticorruption strategies commonly call for a reduction in the resources available to government officials, a decrease in their discretion, and an increase in their accountability, but these approaches do not address citizens’ incentives to engage in corruption. Ordinary citizens must be able to acquire essential resources through means other than illicit exchanges with government officials. Substitute resources have to be available from the market, groups in society, and extended family in order to stem corruption.

Existing Approach: The State as the Cause of Corruption

To underscore the novelty of this book’s arguments, consider how corruption and its relationship to market reform have been understood to date. A large portion of corruption studies has concentrated on how characteristics of the state can enable government officials to engage in corruption.2 This body of work is valuable because it has illuminated the government side of corrupt exchanges, even though it has neglected the citizen side.3 Studies have found that an overbearing state, one with myriad responsibilities, provides officials with many opportunities to dole out government resources for personal gain.4 Works have also documented that a state with weak capacity cannot constrain officials from distributing resources in return for bribes and favors.5

Policymakers and scholars saw market reform first as an antidote to an overbearing state and then as a cause of weak state capacity. As the economies of overbearing states failed to meet growth expectations, market reform became the standard solution. Overbearing states had developed in the twentieth century in many regions, including Africa, Asia, the Middle East, the Eastern bloc, and Latin America. Some overbearing states had their roots in colonial policies of granting governments broad powers and developing expansive civil services. Later in the twentieth century many countries adopted socialist and state-led capitalist development programs that further increased state responsibilities. In the 1980s, market reform began to spread to most regions of the world, largely through training of these countries’ economists in Western universities and through programs of international lending institutions such as the World Bank and the International Monetary Fund. The market reforms that countries adopted were not identical, but they share enough similarities to make them a useful concept for my purposes. Market reforms were consistently characterized by withdrawals of states from their economies and the implementation of some or all of the following policies: privatization of state property, deregulation of industries, liberalization of trade, reduction of welfare expenditures, and increases in labor market flexibility. The reforms were meant to generate economic growth, in part, by reducing political corruption.6 The thinking was that a cutback in states’ responsibilities and resources would reduce opportunities for government officials to exchange state goods and services, such as contracts and licenses, for bribes, favors, and political support. States would simply not be involved in these activities, and economies would instead be driven by market competition.

In practice, however, because implementing market reforms was itself an additional responsibility for government officials, it could promote corruption. Research has shown that market reform initiatives generated new opportunities for government officials to exchange state goods and services for personal benefits.7 Privatization enabled government officials to receive bribes in exchange for access to property sales and price reductions. Officials also provided this access to members of their ethnic groups and particular individuals in society in order to maintain their political support.8 Government efforts to liberalize foreign trade and to permit private credit-lending enabled officials to illicitly sell licenses.9 Government officials also could profit from business people’s attempts to shape the new legislation that market reform required.10

Studies have demonstrated that market reform can also weaken state capacity to prevent and combat corruption.11 Market reform focused on downsizing the state and overlooked the importance of developing regulatory institutions, such as legal frameworks and independent judiciaries, for emerging markets. Research has shown that government officials had new responsibilities to promote market reform, but not the regulatory institutions to constrain themselves. By scaling back the state, market reform could also weaken state capacity overall,12 contributing to, among other problems, contradictory laws, ineffective law enforcement, powerless judiciaries, poor tax collection, and inadequate welfare provision, each of which further encouraged corruption.13 Scholars now argue that creating regulatory institutions prior to market reform can prevent the growth of corruption.14 In practice, however, these regulatory institutions were not established in advance of reform. Moreover, some people still advocate fighting corruption primarily by downsizing states.15

Scholarship that focuses on state strength has provided a useful yet partial explanation for corruption. In describing government officials’ incentives and resources, it overlooks citizens’ incentives and resources. Yet, corruption involves two parties: a state actor and a private actor. This book examines why individual citizens decide to engage in corruption.

Lessons from Central Asia, Implications for the World

To illustrate how individuals consider alternatives to corruption and how market reform affects those alternatives, I begin with an analysis of Central Asia and then extend the investigation to other regions of the world. Central Asia presents a critical case for the argument because it includes countries where, according to some observers, alternative sources of support might be expected to exist despite the implementation of market reform. The proliferation of Islamic organizations and secular cha...

Table of contents

• List of Tables
• Acknowledgments
• List of Acronyms
• Glossary
• 1. An Absence of Alternatives: A New Framework for Understanding Corruption
• 2. Alternatives to Corruption and the Effect of Market Reform: The Arguments and Their Theoretical Implications
• 3. Bribery, Favoritism, and Clientelism: Evidence from Kazakhstan and Kyrgyzstan
• 4. Market Actors as an Unrealized Alternative: The Effect of Market Reforms
• 5. Islamic Institutions and Secular Charities: Obstacles to Providing Substitute Resources
• 6. Families: The Uneven Effect of Market Reforms
• 7. Reducing Corruption: Policy Recommendations
• Appendix: Statistical Analysis