Rent-Seeking, Institutions and Reforms In Africa: Theory and Empirical Evidence for Tanzania

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Rent-seeking

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  • Theory and Empirical Evidence for Tanzania.
  • Table of Contents: Rent-Seeking, Institutions and Reforms In Africa.
  • Can the Employer of Last Resort (ELR) Approach Dissipate Rent-seeking?.

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Public finances, corruption, and the political settlement

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Lal, Deepak. In praise of empires: Globalization and order. New York: Palgrave Macmillan. Typically, a doubling of per capita income would increase the degree of democracy in a moderately authoritarian country by 30 percent compared to the status quo before the doubling. The effects of rising wealth on extremely authoritarian countries are small? The law of diminishing returns also applies here? The two studies cited here may differ in their conclusions about the exact effects of economic development on democracy i.

The difference may be important to scholars, but should not obscure the central fact that development is beneficial to democracy. The relationship between democracy and development is far more contentious. The question whether political regimes affect economic growth was raised many years and remains unanswered.

The idea that autocratic regimes have an advantage in economic development, although no longer taken seriously, was once quite fashionable. The advantages of autocratic regimes, to be sure, were not intrinsically derived. Rather, these regimes were supposed to have an edge in development mainly because they were said to lack the same disadvantages often associated with democracy. More specifically, these disadvantages include 1 insecure property rights of the wealthy as a result of the enfranchisement of the poor, who are expected to use their voting power to redistribute wealth , 2 high propensity to consume as a result of electoral politics and meeting voters?

As a theory, autocracy-good-for-development was thus extremely weak. While open political processes under democracy may lead to the above-described problems, there is nothing intrinsic to autocracy that would convince us that the same problems would not exist under autocratic rule.

Property rights are by no means secure in an autocracy whose rulers are immune from institutional constraints such as an independent judiciary or parliamentary competition and have the capacity to impose confiscatory rates of taxation and refuse to honor their financial obligations. Similarly, autocrats have, historically, been known to plunder their societies for personal gains such predatory behavior is partly motivated by the very insecurity of the autocrats themselves; such insecurity greatly reduces the time-horizon of autocrats. The vice of rent-seeking exists in autocracies, as well.

Even the most absolutist rulers must rely on supporters to keep themselves in power. These rulers must constantly reward their constituents with favors to maintain their support. Such favors take the form of monopolies, subsidies, tax privileges, and licenses that greatly reduce economic efficiency. The case that democracy promotes development rests on the central idea that the political institutions critical to economic development are more likely to exist and function effectively under democratic rule.

These institutions include the rule of law which protects property rights, individual liberties which foster creativity and entrepreneurship, the freedom of expression which ensures the production and unimpeded flow of information, and institutional checks and balances that prevent massive theft of public wealth often observed in autocracies. One statistical study, of growth data for countries from to claims that countries with high degrees of political openness achieved an average annual real per capita growth rate of 2.

This implies that more democratic countries may grow 80 percent faster than less democratic countries. Other well-known statistical studies, however, yield more ambiguous conclusions. One study examining GNP growth data from 94 countries for excluding centrally planned economies, colonies, and capital surplus oil-exporting countries reported that democracy has a weak negative overall effect on economic growth. Another statistical analysis of growth data for countries from to reached a similar conclusion.

But Barro? According to his analysis, economic growth is likely to be slowest in the most politically repressed societies. But improvement in political rights and civil liberties in such societies tend to produce much higher growth. His data show that growth rates tend to peak when the level of democracy is in the middle-range and gradually taper off as the level of democracy rises. These theoretical and empirical explorations may have advanced our understanding of the relationship between democracy and development, but they have left several important puzzles unresolved.

The most important is the relationship between the rule of law and political regimes. This issue is central to answering the puzzle because economic historians have persuasively demonstrated that secure property rights constitute the institutional foundations of sustained economic development. The rule of law? The relationship between the rule of law and property rights is now so uncontroversial that the two concepts have almost become interchangeable when used in the context of economic development.

But the relationship between the rule of law and political regimes is far more complex. Intuitively, democracy in general, and democratic institutions such as multi-party systems, competitive elections, and a free press in particular, should be viewed as part of the political foundations of the rule of law because the functioning of these institutions ensure that the rule of law will have its defenders parties, candidates, and the media. More importantly, the competitive nature of democracy ensures that no single individual or political force will acquire so much political power as to overwhelm all other forces, which means that no individual or entity will be above the law or threaten the rule of law.

Conversely, the rule of law has been thought as such an inseparable part of democracy that it is difficult to imagine a democracy without the rule of law. In reality, the political foundations of the rule of law may be more complex and not well-understood.

Can the Employer of Last Resort (ELR) Approach Dissipate Rent-seeking?

Democratic institutions may strengthen or defend the rule of law; but the same institutions also have the capacity to undermine the rule of law. Electoral politics may be a double-edged sword that can also undermine the rule of law in several ways. It may produce a majority that make new laws that deprive the minorities or unrepresented groups their rights just witness the draconian laws passed recently in the U. Democratically elected leaders can also rigger the judicial process through appointments; ultimately, institutions defending the autonomy of the judiciary are but the products of political decisions.

Recent American history is filled with episodes of attempts to revise the Constitution to pass laws that were declared unconstitutional by the Supreme Court such as the law banning the burning of the American flag. That most such attempts have failed is an indication of the resilience of the American democracy, but also of the potential of democracy to weaken the rule of law. The existence of this potential?

Admittedly, a complete redistribution of wealth under democracy has not taken place; this does not prove that such a possibility is zero. Rather, this fact may say something about the type of democracy we have institutions that are embedded to protect property rights, not to promote mass sovereignty. Secondly, it is unclear whether democracy is a pre-condition to the rule of law while it seems indisputable that the rule of law must be a pre-condition to democracy. As historical evidence shows, a quite large number of non-democratic regimes such as Kaiser?

The claim that only popular sovereignty can guarantee the rule of law is thus questionable on empirical ground as well as on theoretical ground. Of course, the political factors that help defend the rule of law may be different in democracies than in autocracies. But one central similarity is that the rule of law can maintain its effectiveness only when the rulers, whether democratically elected or not, are placed under certain political constraints which need not be formal or constitutional.

Of the autocracies most of them in Western Europe that were able to maintain the rule of law, nearly all of them were subject to powerful political constraints that defended property rights. Such constraints included the power of an independent aristocracy, the church, the rising urban capitalist class, and the ever-present external threat.

These constraints compelled desirable political moderation by the rulers. In fact, it may be more accurate to say that it is political and institutional pluralism, rather than formal democracy, that has proved to be the ultimate defender of property rights. This observation may lead to a conclusion that is not wholly politically correct according to the post-Cold War doctrine of democratic enlargement.

The first priority of the international community is not to promote formal democracy, but to promote political and institutional pluralism as an intermediate step. Democracy, Development, Economic Freedom and Corruption: Some Recent Evidence To understand why, although democracies as a whole may have many embedded institutional advantages in economic development, such advantages are not apparent or real for poor countries, we perform a simple analysis of recent data on per capita income, political rights and civil liberties, economic freedom, and perceived corruption in countries.

See Appendix 1 for detailed regression results In this exercise, we assume a direct relationship between good governance and sustained economic development. Since it is difficult to establish measures of governance, we use a substitute, the corruption perceptions index compiled by an NGO, on the assumption that less corrupt countries have better governance.

We report the following findings:. Regression analysis equation No. Regression results also indicate that wealth has a small but positive effect on economic freedom. Political regimes, in comparison, have a bigger impact on economic freedom. Regression results show that an increase of 1 in the index of autocracy for example, from 10 to 11 in the Freedom House index would result in a reduction of economic freedom by 0.

This implies that, everything else being equal, the effect of increasing political rights and civil liberties by 1 on a scale of 2 to 14 would produce almost twice as large an effect on increasing economic freedom. To understand the complex relationship between per capita income, political regimes, economic freedom, and corruption perceptions a proxy for governance , we perform a multivariate regression on data from 83 countries Equation No. The statistically significant results show that wealth, democracy, and economic freedom, as expected, all contribute to good governance as reflected in the perceived corruption index.

But of the three independent variables, economic freedom has the most powerful effect on corruption. After adjustment because the range in the economic freedom index is 1. By comparison, increase in wealth has the smallest impact. These statistical findings reconfirm our intuitive understanding of the relationship of wealth, economic freedom, political regimes, and governance. In countries with greater economic freedom, fewer opportunities for rent-seeking exist; there should be less corruption in these countries. Of course, the relationship can also work in reverse: more corrupt countries have less economic freedom because groups or individuals benefiting from corruption would use their influence to limit economic freedom.

The finding that political regimes have a positive although modest effect on governance is not surprising, either, since in our earlier discussion on regimes and economic development, there is a stronger case to be made for sustained economic development under democracy than under autocracy. But one should also be cautious in reading too much into this finding. In fact, many democratic countries are known to have relatively poor governance. In fact, a vast body of literature on Africa has illustrated extensively particular features characterising African political regimes Bayart, ; Bratton and Van de Walle, ; Chabal and Daloz, as well as particular social norms and practices among citizens that in one way or the other are associated with the prevalence of high levels of corruption Hyden, ; Olivier de Sardan, ; Blundo and Olivier de Sardan, It would therefore be useful to work towards developing better systematic approaches linking the evidence on local drivers of corruption to the wider debate on anti-corruption.

Such approaches should avoid a purely relativistic perspective while ensuring that generalizable dimensions are well specified and allow for contextual variation. What are the practices that individuals find useful in addressing their problems and needs? What are the networks linking up different actors, and how are they articulated?

How do these networks and their practices underpin corruption? Thus, social networks emerged inductively as heuristic entry points for a better understanding of prevalent practices and norms as well as lines of inclusion and exclusion of actors. Section 3 outlines the conceptual approach used for uncovering locally determined drivers of corruption and the general traits characterising social networks in the three countries.

Next, we describe how networks utilise the practices of co-optation Section 4 , control Section 5 and camouflage Section 6. Finally, in Section 7 we reflect on the implications of our findings. Regional trends point to sharp differences in performance that are reflected in the three cases included in our research.

Instances of bribery, favouritism, absenteeism and gift-giving are widespread, with significant negative impacts on the provision of basic public services. The situation is confirmed by research findings in which Ugandan participants corroborate the perception that corruption is rampant and has become a normalised feature of daily life. However, since the election, the government led by President John Magufuli has vowed to renew anti-corruption efforts, and has taken significantly bold actions to punish and prevent illicit behaviours.

A majority of Rwandan respondents—61 per cent—describe corruption in their country as low. Furthermore, the EABI also indicates that Ugandans share a grim assessment of past and future performance, as 59 per cent of respondents believe that corruption has increased in comparison to the previous year and will continue to increase during the following 12 months. In contrast, a positive outlook was shared among a majority of Tanzanian and Rwandan respondents 70 per cent and 61 per cent, respectively , who believe that corruption has decreased in comparison to the previous year and will continue to decrease in the subsequent 12 months 70 per cent of respondents in each country Transparency International, The findings concerning social networks deserve to be further emphasised in the context of the present chapter because they provide valuable insights about local social practices that are linked to the prevalence of corruption but are nevertheless not normally taken into consideration in conventional anti-corruption programming.

They are the core networks, or reference groups Koni-Hoffmann and Navanit-Patel, , in which strict social norms are enforced and the individuals feel obliged to satisfy the expectations of the group. Individuals are thus expected to share with their next of kin, who in turn feel strongly entitled to a share of the wealth. Thus, social networks rely on a transactional logic characterised by the exchange of a gift and then a counter-gift, sequentially. These imperatives translate, in practice, in that an individual who has a position in the public sector has the duty to utilise that position for the benefit of his or her network and that the economy of favours penetrates the public arena at the point of service provision in the form of practices of bribing, gift-giving and favouritism.

This means that networks are sometimes expanded in a deliberate manner to link up individuals increasingly far removed from each other on the basis of pragmatic considerations.

Thus, we find that the size of the core networks varies considerably across the three cases and this variation appears to be related to state effectiveness in terms of accessibility to essential public services and enforcement of the rule of law. Contrarily, core networks appear to be much smaller in Rwanda, where the perception is that services are provided according to the formal legal stipulations and that detection of corrupt actions is effective and followed by sanction enforcement.

In this chapter we discuss these informal practices—which we have termed co-optation, control and camouflage—and argue that they are associated with high levels of corruption because they ultimately enact an informal redistribution of power and resources. A key feature of co-optation is that it is transactional; it involves establishing a relationship that is based on strong bonds of trust, reciprocity and loyalty, which enable and sustain a system of mutually beneficial exchanges.

Economic Institutions, Democracy, and Development

Thus, a gift, an appointment, a bribe or a favour are used to establish a relationship, which generates indebtedness on the part of the accepting party and a gift economy arises. The balance of indebtedness never gets settled; otherwise there would be no relationship. Practices of co-optation happen in a top-down, horizontal, or bottom-up fashion. Top-down, actors engage in co-optation in order to promote and consolidate their own positions.

They do so by rewarding supporters and by neutralising opposition through a discretionary allocation of opportunities and resources, thus nurturing and expanding the networks that ensure support. In turn, the beneficiaries can typically extract rents in return for their unconditional support. Top-down co-optation can extend to the grassroots level incorporating important social groups into the ruling coalition, and is observed in the prevalence of patronage and clientelistic networks.

According to our research findings, vertical networks can be found in the Tanzanian and Ugandan health sectors as the result of corruption in the recruiting process. Research participants from both countries indicated that employment is often obtained through network connections where a relative, friend or other social acquaintance of the appointing official recommends a particular individual for a position. Corruption in recruitment also happens when substantial sums are paid to secure a position.

In such cases the debt is both a moral one for being considered for the position, for which the bribe is just the precondition as well as a real one as invariably one will have to raise money with family and friends to generate enough funds to pay for such a position. The research data further suggests that vertical networks are conducive to collusive behaviours in which corrupt service providers enjoy, if not the full support and complicity, at least passive concealment on the part of their colleagues.

Thus, political elites frequently not only obtain the support of key non-state actors but also become recruited into exercising public authority to inordinately favour particular interests. For example, powerful business interests may be co-opted into supporting the interests of the political elites e. Horizontal co-optation also happens when public officials use their decision-making authority over the provision of services, access to opportunities or distribution of resources instrumentally to grow their own networks.

In Uganda, head teachers or principals at prestigious schools have been known to informally earmark some slots in the enrolment process in order to please higher ranking public figures or wealthy families whose children would not otherwise be accepted on the basis of their grades alone. Co-optation practices at this level are associated with corruption because when a member gets a position in public office then the network expects this person to extract rents for the benefit of the group.

In Uganda and Tanzania, like in many other African countries, a fair amount of social pressure is exerted on individuals who are formally employed or somehow perceived to be relatively affluent, pushing them to acquire resources for the benefit of their group—thereby legitimising certain corrupt acts and practices for the sake of the community, family and kin. This was vividly narrated in an interview with a medical doctor in Tanzania, who explained that the prevalent socially constructed preconception is that holding a medical degree is associated with a high salary, which is drastically contradicted by the reality of prevailing wages in the public health sector.

In this regard, exchanging favours is a key practice conducive to expanding social connections, which works to both initiate and corroborate co-optation into the network. Thus, building a network involves evolving relationships on the basis of a reciprocal exchange of favours, goods and resources. These hinge on the mutually reinforcing conditions of indebtedness on the part of the recipient of the favour and entitlement on the part of the giving party. These practices are observed in the case of the delivery of public health services in that patients actively seek to co-opt health workers into their networks based on the belief that otherwise it will not be possible to obtain the medical treatment required.

This is one reason why patients often bring unsolicited gifts of different kinds to their appointments at the health facility with the expectation that by doing so they can create a privileged relationship with the provider. Tanzanian service providers mentioned that they are used to receiving gifts from people in the form of material goods, such as maize, rice, goats, beans or through a credit transfer via mobile phone.

According to evidence from our research, in Rwanda favouritism is the modality of petty corruption that is still most prevalent in the health sector, where preferential faster treatment is given to family and friends of service providers. However, the instrumental use of gift-giving or bribing to build useful networks appears to be less utilised in Rwanda. Whereas this certainly has to do with the potential risk of detection and punishment that accompany such activities discussed in the following section , an important element to underscore is that the Rwandan regime, by significantly improving the quality and accessibility of public services, has made the functionality of network building for the most part redundant, in the sense that no informal strategy such as gift-giving or appealing to social connections is needed in order to receive adequate treatment.


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In other words, one of the drivers for the growth and and nourishment of social networks identified in Tanzania and Uganda—that is, overcoming the challenges associated with the poor quality and accessibility of essential services—is mitigated in Rwanda with improved public services. This can happen by means of the selective enforcement of formal rules e.

Interestingly, informal control also occurs bottom-up, whereby powerful actors are locked into the system and expected to tend to the demands and expectations of their networks, otherwise risking negative consequences ranging from social shaming to even violence.

Land tenure and perceived tenure security in the era of social and economic transformation in Africa

Practices of control among hierarchical networks in the workplace were illustrated by two Ugandan rural health workers, according to whom people not only become corrupt to get better positions, but also because those not participating in the prescribed corruption schemes or those who denounce incidences of corruption may face serious repercussions. Based on these values, certain behaviours are expected. Consequently, one of the worst transgressions occurs when an individual is seen to turn his or her back on a family member.

Service providers recounted the difficulties they face rejecting unsolicited gifts from users; because the act of presenting and receiving a gift is socioculturally anchored, rejecting a gift can be interpreted as disrespectful. In the FGDs participants were asked about the actions that gain individuals respect and good social standing in their communities versus those that cause a person shame and to fall into disgrace.

Some of the FGD responses to this question are summarised below Table 4. The infringement of socially embedded norms is therefore seen as affecting the moral economy of the community, because it threatens the socially constituted values and practices of economic redistribution that are critical to meeting essential needs. The effect of this is that the worker is put aside and is looked upon as a bad person, even losing friends or the appreciation of their extended family.