By Bo Rothstein, University of Gothenburg
Why have so many anti-corruption programs not delivered? Despite huge efforts from international development organizations, we have seen precious little success combating corruption. Instead, corruption in its various forms has often turned out to be a resilient and well-entrenched enemy. It would appear Francis Fukuyama is on to something when he notes that the international development and aid community “would like to turn Afghanistan, Somalia, Libya and Haiti into idealized places like ‘Denmark’ but it doesn’t have the slightest idea of how to bring this about”.
In my new book Controlling Corruption: The Social Contract Approach, I argue that this huge policy failure can be explained by three main factors. First, and most importantly, the principal-agent theory that has dominated anti-corruption efforts from the World Bank to development organizations represents a serious misspecification of the basic nature of the problem. The principal-agent theory’s origins are economic; it was initially constructed to better understand conflicts between owners and managers of private firms. And indeed, here the theory works reasonably well: both categories (owners and managers) are cut from the same “economic man” type.
However, using this theory for understanding corruption fails because the two main actors are different “types”. The principal-agent theory posits that corruption can be remedied if an honest “principal” (e.g., a mayor) changes the incentives for his/her dishonest “agents” (e.g., a city’s civil servants) so that the latter find it more in line with their rational self-interest to avoid corruption. To put it simply, since the “agents” are thought to be “economic man” types motivated by rational utility maximization, when the incentive system is changed so that the fear of being caught outweighs the greed that drives corrupt behavior, the situation will improve.
The strategy that flows from this theory is pretty direct and head-on: more stringent laws, more surveillance, less administrative discretion, tougher punishment, and smaller government. The most obvious problem with this theory, however, is that if erasing corruption was just a matter of changing incentives, the problem would have been fixed long ago. (There is no lack of knowledge of how to structure an incentive system.) Simply put, if the principal-agent theory was correct, eradicating corruption should have been a “piece of cake”.
But it is the ideal of the honest principal that makes the theory problematic. In most systemically corrupt systems, one should take for granted that it’s the politicians at “the top” (i.e., the presumed principals), who earn most of the “rents” from corruption. Obviously, such principals will then have little appetite to change the incentives for their opportunistic agents who are engaged in corruption. In theory (and in some very rare cases) corruption can be successfully addressed from above by determined political leaders who can credibly address the problem. However, it is also rare that systemically corrupt societies produce such benevolent and public good-oriented leaders. Instead, there’s ample reason to expect that they will produce the opposite.
The main theoretical problem with the principal-agent theory is that it relies on a certain type of actor—the ethical, public good-oriented “principal”—who is not a rational self-interested utility maximizer. This implies that the main “mover” the theory points at is an agent who is not supposed to exist according to the basic axioms of the theory itself. Safe to say, it’s unwise for us to use a theory that’s so internally incoherent.
A second important problem behind this policy failure is that the corruption problem has been poorly conceptualized since what should count as the opposite of corruption has been excluded from the discussion. The problem with the standard definition of corruption, the “abuse of entrusted power for private gain,” is that “abuse” is not defined, rendering the definition an “empty signifier”. Put another way, in this definition, we don’t know what norm is transgressed when a public official is deemed “corrupt.”
Building on the work of philosopher John Rawls, I present a definition of what I call “quality of government,” where the basic norm public officials uphold is impartiality in the exercise of public power. The opposite to justice cannot be equality, or to be treated equally, since we often want those who implement public policy to tailor their actions to citizens’ specific conditions. Instead, the opposite of justice is favoritism, which is a central ingredient in corrupt exchanges and anathema to impartiality.
The third problem is that corruption has been located in the wrong social spaces. It is neither a cultural nor a legal problem. It is not a legal problem because most deeply corrupt countries have very good laws against corruption. Nor should corruption be understood as a cultural problem since both survey and ethnographic studies show that most people in deeply corrupt countries take a moral stand against corruption. In short, there is no such thing as a “culture of corruption” if by culture we mean what people generally think is morally right or wrong. Instead, corruption is primarily located in what organization theory defines as the 'standard operating procedures' in social organizations. These standard operating procedures (AKA social practices) can often be in conflict with one’s moral principles. An example is that people, despite thinking it morally wrong, may pay bribes for receiving health care because doing so is the only way to get the care they need. Locating the corruption problem in the correct social sphere is crucial: if you don’t know where the problem is located, it will be impossible to do anything about it.
My book reconceptualizes corruption and, drawing on the tradition of the social contract, presents a new theory both to explain it and encourage policies of how to better control it. The policy implications of shifting from the failed “principal-agent” theory to the “social contract theory” are huge. The former points to increased supervision and control, more stringent laws and punishment, less discretion for the people working in the public sector and public service cutbacks. The social contract theory, by contrast, emphasizes the importance of a functioning state that actually delivers what citizens expect from it, namely, security, infrastructure, meritocracy, social services and education.
In sum, Controlling Corruption: The Social Contract Approach attempts to provide three necessary elements to manage corruption: 1) a theory that correctly specifies the nature of the problem; 2) a working idea of where in the social space to locate the problem; and 3) a functioning conceptualization of the problem. As such, the book recommends an indirect approach to address corruption. It is not by directly fighting corruption, but by erasing the dissatisfaction with how the state handles its part of the social contract that it will be possible to get corruption under control.
About the Author:
Bo Rothstein holds the August Röhss Chair in Political Science at University of Gothenburg and is the co-founder of the Quality of Government (QoG) Institute at this department. During 2016 and 2017 he served as Professor of Government and Public Policy at University of Oxford. He has been a Visiting Scholar at the Russell Sage Foundation, Collegium Budapest for Advanced Study, Harvard University, University of Washington-Seattle, Cornell University, Stellenbosch Institute for Advanced Study, the Australian National University and Stanford University. He is a member of the Royal Swedish Academy of Sciences, the Finnish Society of Arts and Letters and the Royal Society of Arts and Sciences in Gothenburg. Among his publications are Controlling Corruption - the Social Contract Approach, (Oxford University Press, March 2021), Making Sense of Corruption (together with Aiysha Varraich, Cambridge University Press 2017), The Quality of Government: Corruption, Inequality and Social Trust in International Perspective (University of Chicago Press 2011) and Social Traps and the Problem of Trust (Cambridge University Press 2005).