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CORRUPTION, CHARACTER, AND INSTITUTIONS

  • Mario Villarreal-Diaz (a1)

Abstract:

Is corruption merely a flaw of character, or is it more fundamentally related to the institutional environment? Scholars from various disciplines mainly side with the narrative that, ultimately, corruption is a problem of character flaws. Policy prescriptions around the world are designed based on this understanding. In this essay, I challenge this understanding, arguing that it is at best incomplete, and misleading at worst. I argue that we should focus instead on three aspects of how the prevalence of virtuous acts is profoundly tied to people’s institutional environment and the incentive structure that derives from it. First, I observe that there is a difference between virtue and acting virtuously, and that even with the aid of moral education and coercion, virtue itself is hard to come by. Second, I discuss how formal institutions and social norms influence people’s propensity to perform virtuous acts rather than engage in corruption. Finally, I explore how institutions that increase the transaction costs associated with everyday life also increase the prevalence of corruption. Based on these three explorations I derive some public policy guidelines that, if followed, might increase the probability of success of anticorruption programs.

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I thank the other contributors to this volume, as well as the journal’s anonymous reviewer, for their insightful comments.

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1 Precise estimations are hard to obtain and there are discrepancies among sources. Quoted estimates are based on data from the Secretaria de Seguridad Pública de la Ciudad de México, http://www.ssp.cdmx.gob.mx/

2 See Rotberg, Robert I., The Corruption Cure: How Citizens and Leaders Can Combat Graft (Princeton, NJ: Princeton University Press, 2017), 290–94 and 301321; Underkuffler, Laura S., Captured by Evil: The Idea of Corruption in Law (New Haven, CT: Yale University Press, 2013), 242–43. Notably, organizational behavior literature explores the importance of rules in promoting desirable behavior and good character. See Katz, Daniel, “The Motivational Basis of Organizational Behavior,” Systems Research and Behavioral Science 9, no. 2, (1964): 10991743.

3 For a contrasting view, see Ferretti’s paper in this volume. Her analysis suggests that institutional corruption can always be traced to corrupt individuals’ actions, thus her “continuity” theory. On my model, by contrast, people create institutions. In the process, because they have limited foresight, they can inadvertently institute opportunities and incentives that corrupt agents interacting with the institutions they create. Where my model is accurate, it explains rather than merely posits corruption.

4 Jain, A., “Corruption: A Review,” Journal of Economic Surveys 15, no. 1 (2001): 7172.

5 In economics, this is called rent-seeking. See, Tullock, Gordon, “The Welfare Costs of Tariffs, Monopolies and Theft,” Western Economic Journal 5 (1967): 224–32; Krueger, Anne O., “The Political Economy of the Rent-Seeking Society,” American Economic Review 64 (1974): 291303.

6 Nye, J. S., “Corruption and Political Development: A Cost-Benefit Analysis,” The American Political Science Review 61, no. 2 (1967): 417–27.

7 An economic rent is the difference between the minimum payment needed to bring a factor of production —labor, capital, or land—into productive use, and what is actually paid. For example, let’s say that a person will be willing to work for 10 dollars per hour, but gets paid 12 dollars per hour. The 2 dollar difference is an economic rent. Corruption can be used to increase these excess payments by granting special privileges not available to others, such as licenses, quotas, monopoly power, and so on.

8 Rose-Ackerman, Susan, Corruption and Government: Causes, Consequences, and Reform (Cambridge: Cambridge University Press, 1999), 9. For a classic approach to the issue also see Rose-Ackerman, Susan, Corruption: A Study in Political Economy (New York: Academic Press, 1978).

9 Jain, “Corruption,” 73.

10 Underkuffler, Captured by Evil, 223.

11 Ibid., 58.

12 Parker, Wilmer III, “Every Person Has a Price?” in Rider, Barry ed., Corruption: The Enemy Within (The Hague : Kluwer Law International, 1997), 87.

13 Brooks, Robert C., “The Nature of Political Corruption,” in Heidenheimer, Arnold J. ed., Political Corruption: Readings in Comparative Analysis (New Brunswick, NJ: Transaction Books, 1978), 56.

14 Digital Edition of the 1755 Classic Dictionary by Samuel Johnson accessed on July 15th, 2017. http://johnsonsdictionaryonline.com/?p=16540

15 Heywood, P. M. and Rose, Jonathan, “Curbing Corruption or Promoting Integrity? Probing the Hidden Conceptual Challenge,” in Hardi, P., Heywood, M., and Torsello, D., eds., Debates of Corruption and Integrity (London: Palgrave Macmillan, 2015), 109110.

16 Aristotle, , The Nicomachean Ethics, trans. Ross, W. D. and Brown, Lesley (Oxford: Oxford University Press, 2009), 1107a.

17 Aristotle, Nicomachean Ethics, 1103a.

18 Annas, Julia, Intelligent Virtue (Oxford: Oxford University Press, 2011), 1619.

19 Aristotle, Nicomachean Ethics, 11079b.

20 Ibid., 1104b.

21 Ibid., 1179b.

22 For an account of how acting on one’s self-interest is related to morality, see Kapur Badhwar, Neera, "Altruism versus Self-Interest: Sometimes a False Dichotomy," Social Philosophy and Policy 10, no. 1 (1993): 90117.

23 For a comprehensive review of the principal-agent theory see, Laffont, Jean-Jacques and Martimort, David, The Theory of Incentives: The Principal-Agent Model (Princeton, NJ: Princeton University Press, 2009).

24 Akerlof, George, “The Market for ‘Lemons’,” The Quarterly Journal of Economics 84, no. 3 (1970): 488500.

25 Ugur, Mehmet and Dasgupta, Nandini, “Corruption and Economic Growth: A Meta-Analysis of the Evidence on Low-Income Countries and Beyond,” MPRA Paper No. 31226 (2011).

26 Persson, Anna, Rothstein, Bo, and Teorell, Jan, "Why Anticorruption Reforms Fail—Systemic Corruption as a Collective Action Problem," Governance 26, no. 3 (2013): 449–71; Ivanov, Kalin, “The Limits of a Global Campaign against Corruption,” in Bracking, Sarah, ed., Corruption and Development. The Anti-Corruption Campaigns (London: Palgrave Macmillan, 2007), 2845; Lawson, Letitia, “The Politics of Anti-Corruption Reform in Africa,” Journal of Modern African Studies 47, no. 1 (2009): 73100.

27 Becker, Gary S. and Stigler, George J., “Law Enforcement, Malfeasance, and Compensation of Enforcers,” Journal of Legal Studies 3, no. 1 (1974): 118.

28 Persson, Rothstein, and Teorell, “Why Anticorruption Reforms Fail,” 4.

29 Rose-Ackerman, Susan, “Governance and Corruption,” in Lomborg, B. ed., Global Crises, Global Solutions (Cambridge: Cambridge University Press, 2004), 310–11.

30 Klitgaard, , Controling Corruption (Oakland, CA: University of California Press, 1988) 2324.

31 Persson, Rothstein, and Teorell, “Why Anticorruption Reforms Fail,” 3.

32 Ibid., 2–3.

33 Mungiu-Pippidi, Alina, “Controlling Corruption through Collective Action,” Journal of Democracy 24, no. 1 (2013): 101115.

34 Ostrom, Elinor, "A Behavioral Approach to the Rational Choice Theory of Collective Action: Presidential Address, American Political Science Association, 1997," American Political Science Review 92, no. 1 (1998): 122.

35 Rothstein, Bo, “Anti-Corruption: The Indirect ‘Big Bang’ Approach,” Review of International Political Economy 18 (2011): 228–50.

36 Underkuffler, Captured by Evil, 225.

37 For a basic introduction see Dixit, Avinash K. and Skeath, Susan, Games of Strategy: Fourth International Student Edition (W. W. Norton and Company, 2015). For an excellent applied account to collective action problems, see Gaus, Gerald, "A Tale of Two Sets: Public Reason in Equilibrium," Public Affairs Quarterly 25, no. 4 (2011): 305325.

38 Marquette, Heather and Peiffer, Caryn, “Corruption and Collective Action,” UK DLP Research Paper 32 (2015): 16.

39 Adsera, Alicia, Boix, Carles, and Payne, Mark, “Are You Being Served? Political Accountability and Quality of Government,” Journal of Law, Economics, and Organization 19, no. 2 (2003): 445–90.

40 Shleifer, Andrei and Vishny, Robert W., "Corruption," Quarterly Journal of Economics 108, no. 3 (1993): 599617.

41 Barro, Robert J., “The Control of Politicians: An Economic Model,” Public Choice 14, no. 1 (1973): 1942.

42 Teorell, Jan, “Corruption as an Institution: Rethinking the Origins of the Grabbing Hand,” Working Paper Series No. 5, The Quality of Government Institute, Göteborg University (2007).

43 Rotberg, Corruption Cure, 3–7 and 130–75.

44 Underkuffler, Captured by Evil, 223–43.

45 Rotberg, Corruption Cure, 30.

46 Klitgaard, Controling Corruption, 42.

47 Rose-Ackerman, Susan and Palifka, Bonnie J., Corruption and Government: Causes, Consequences, and Reform (Cambridge: Cambridge University Press, 2016), 33.

48 Nye, Corruption and Political Development, 12.

49 Leff, Nathaniel H., "Economic Development through Bureaucratic Corruption," American Behavioral Scientist 8, no. 3 (1964): 814.

50 Scott, James C., Comparative Political Corruption (Englewood Cliffs, NJ: Prentice-Hall, 1972), 37.

51 Rotberg, Corruption Cure, 29. Rotberg further critiques the argument by saying that “there is no added functionality in dysfunctionality.” Additionally, he correctly points out the role of corruption in granting fake licenses, permits, inspections, and so on, that may pose a real danger for a society. This would be a case where corruption increases transaction costs.

52 Coase, Ronald H., "The Nature of the Firm," Economica 4, no. 16 (1937): 386405.

53 See North, Douglass C., Transaction Costs, Institutions, and Economic Performance (San Francisco, CA: ICS Press, 1992); North, Douglass C., "Economic Performance through Time," American Economic Review 84, no. 3 (1994): 359–68; Schmidtz, David, "The Institution of Property," Social Philosophy and Policy 11, no. 2 (1994): 4262.

54 North, Douglass C., “Institutions” Journal of Economic Perspectives 5, no. 1 (1991): 97112.

55 For an account of the economizing approach, see Robertson, Dennis H., "What Does the Economist Economize?" Economic Commentaries (1956): 148.

56 Rotberg, Corruption Cure, 32.

57 Ibid., 41.

58 Ibid., 310.

59 Ibid., 38.

60 Ibid., 312.

61 André Melo, Marcus, Pereira, Carlos, and Mauricio Figueiredo, Carlos, "Political and Institutional Checks on Corruption: Explaining the Performance of Brazilian Audit Institutions," Comparative Political Studies 42, no. 9 (2009): 1217–44.

62 Rose-Ackerman, Susan, Corruption: A Study in Political Economy (New York: Academic Press, 1978), 610.

63 Collier, Paul, "How to Reduce Corruption," African Development Review 12, no. 2 (2000): 191205; Mungiu, Alina, "Corruption: Diagnosis and Treatment," Journal of Democracy 17, no. 3 (2006): 8699.

64 For a regrettable set of examples, see Kulczycki, Andrzej and Windle, Sarah, “Honor Killings in the Middle East and North Africa: A Systematic Review of the Literature,” Violence Against Women 17, no. 11 (2011): 1442–64.

65 Rose-Ackerman and Palifka, Corruption and Government, 436.

66 Tsebelis, George, Veto Players: How Political Institutions Work (Princeton, NJ: Princeton University Press, 2002).

67 North, Douglass C., Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990); Acemoglu, Daron and Robinson, James, The Role of Institutions in Growth and Development (World Bank Publications, 2010); McCloskey, Deirdre N., “It Was Ideas and Ideologies, Not Interests or Institutions, Which Changed in Northwestern Europe, 1600–1848,” Journal of Evolutionary Economics 25, no. 1 (2015): 5768.

* I thank the other contributors to this volume, as well as the journal’s anonymous reviewer, for their insightful comments.

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