Volume 7 Number 3

Summer 1998

Is government complicity in corruption a form of economic protectionism?

Dancing with Anticorruption
Ivan Krastev

Seven centuries ago Dante placed those guilty of treachery in the deepest and darkest circles of Hell. Historians point to political reasons for his dislike of corruption. Bribery was deemed responsible for the failures of the Italian republics and for the success of Dante’s political enemies.

Nowadays, reports of bribery and other abuses of public office can be found not only in new editions of Dante’s Inferno but also on the front pages of newspapers and magazines. Stories of the pervasiveness of corruption in Russia, Mexico, and Nigeria—just to name a few—make for exciting reading. Italian “clean hands” and postcommunist “dirty linen” have become two of the most redolent catchphrases of the post–Cold War world.

But why has corruption become such an important topic for public debate? Behind this question lies another: How sincere are today’s postcommunist governments in their declared war on corruption?

In a paper written for the IMF, “Corruption Around the World: Causes, Consequences, Scope, and Cures,” Vito Tanzi argues that it is difficult to measure whether corruption is more widespread today than earlier, and if so, to what extent; but it is also obvious to everyone, Tanzi adds, that corruption has become a key issue for both understanding and reforming the current state of affairs (IMF Working Paper, May 1998). Corruption is widely held responsible for the failure of market reforms in countries like Russia and Bulgaria as well as for the collapse of the Asian miracle. The credibility of governments and political leaders has begun to hinge on the intensity of their commitments to fighting corruption.

The end of the Cold War, the spread of democracy, the new power of the free media, the increasing globalization of trade, and the rise of free-market economies are commonly listed among the factors that explain the emergence of a new consensus on anticorruption. In Washington, the consensus of the development community could be summarized as: “more reform means less corruption.” Not only has anticorruption become fashionable, but the terms of the debate have radically changed. At the beginning of the century, corruption was analyzed mainly in cultural and political terms; in communist circles, it was viewed as a “bourgeois legacy.” Today, corruption is debated mainly in economic terms. Some fifty years ago, corruption was considered a reflection of the moral fallibility of human nature, while today the focus is on opportunities and incentives: anticorruption policies aim to restrict the demand and supply of acts of corruption. Some thirty years ago, economists and political scientists—Samuel Huntington among them—argued that corruption could play a positive role in the process of modernization. Today, no one assigns corruption a constructive role.

Two important sides of the issue are neglected in the present-day obsession with corruption, especially in the transition economies. First, postcommunist governments are necessarily of two minds about corruption. And, second, an anticorruption campaign is a very useful platform for attacking reformist policies and reform-minded governments. The protectionist character of present-day corruption is one of the principal reasons for the selective approach of the reformist governments in grappling with it. At the same time, reform-minded governments view anticorruption rhetoric as a dangerous instrument that may abet the rise of populist and antireformist alternatives.

Corruption as a hidden form of protectionism
Multinational companies—foreign investors in general—and international financial institutions are the driving forces in today’s global anticorruption campaign. Transparency International’s Corruption Index registers the evaluations of “cleanness” given to specific countries by the officers of multinational corporations. In the traditional perception of bribery, the “conversion” of multinational companies from sources of corruption into fighters against corruption is a dramatic change. To illustrate the extent to which foreign capital was once seen as a source of corruption, I have only to point out that in the Bulgarian language, all French, German, and English words for doing business—Geschäft, for example—have the connotation of performing a corrupt act.

In the 1960s and 70s, foreign investors considered corruption to be a useful vehicle for opening up and modernizing the economies of developing countries. Corruption was an instrument for breaking the official protectionist barriers that were tolerated and in some cases encouraged by the governments of developing countries.

In the new world of global finance and free trade, protectionism is an unaffordable luxury for most governments. In the transition economies of Central and Eastern Europe, protectionism is simply unthinkable. Their need for market reforms and their dependence on foreign investment and on World Bank and IMF financing has forced the postcommunist states to open their economies and to adopt nonprotectionist legislation. But in this new openness, postcommunist industries have had to face the harsh reality that they are in fact uncompetitive.

A look at the Transparency International Corruption Index reveals that the least competitive countries are the most corrupt. The correlation could suggest that corruption is a major factor contributing to uncompetitiveness. But a different conclusion may be closer to the truth: corruption is a response to uncompetitiveness. Postcommunist governments are torn between their commitment to free trade and openness and their desire to create a favorable environment for noncompetitive local businesses.

Compared with the normal markets of goods and services, corrupted markets are characterized by the very high value to be placed on local knowledge. In order to corrupt public officials, one cannot rely simply on offering the biggest bribe in the biggest brown-paper bag. The market in corruption services is a clandestine, closed market. In order to be competitive in this market, one has to know whether to give a bribe, to whom to give the bribe, how to give the bribe, and when to give the bribe. Local businesses are much better positioned in the corruption market because they are plugged into existing networks and because they possess local knowledge. In other words, a corrupted business environment is much more favorable to local businesses than a transparent market. This “patriotic” side of corruption is one of the major reasons for the much-lamented ineffectiveness of anticorruption campaigns and the (tacit) unwillingness of postcommunist governments to crack down seriously on corrupt practices.

The protectionist nature of present-day corruption complicates the attitude of postcommunist governments toward their own official anticorruption policies. In general, we can expect governments to be more resolute in fighting those forms of corruption that reduce the competitiveness of local industries rather than those that increase the competitiveness of foreign investors. For instance, we can expect the Bulgarian government to focus its efforts on fighting the illegal import of foreign goods into the Bulgarian market rather than on fighting the illegal export of untaxed Bulgarian goods.

This symbiosis between corruption and protectionism is crucial in understanding the ambiguous, half-hearted, and selective policies of the postcommunist governments.

Anticorruption rhetoric and reform
One of the major assumptions of the present campaign against corruption is that anticorruption rhetoric and anticorruption “sensitivity” are part of the reform effort. But a review of the history of anticorruption rhetoric demonstrates that such an assumption is misleading. In Bulgaria, at the turn of the century, anticorruption rhetoric was associated with virulent hostility toward modernity and modernization. Corruption was conceptualized as the essence of modernization, as the all-corrosive force bent on destroying traditional morality and traditional community.

In the 1920s and 30s, Bulgaria witnessed a heated anticorruption debate provoked by the rise in the incidents of bribery and by growth in the black market. In its essence, this debate was a part of the deep anticapitalist sentiments that had captured people’s imagination in the prewar period. In the communist period, the accusations of corruption were successfully used to attack communist reformers. In the late 1980s, anticorruption rhetoric was heavily used by communist hard-liners to attack Gorbachev’s perestroika. This brief backward glance at the anticorruption rhetoric of this century in Bulgaria serves to remind us that the new war on corruption declared by the IMF and World Bank can be counterproductive if it does not take into account the cultural and political hinterland within which this war takes place.

The success of anticorruption rhetoric is endangered, in the context of postcommunist politics, because the majority of the public sees corruption as a direct result of market reforms. Public-opinion polls testify that, for the losers in the transition, privatization of state assets is the quintessential example of corruption. The success of politicians, like Alexander Lukashenka in Belarus and Alexander Lebed in Russia, illustrates that the anticorruption platform can be misused by antireform populists. In an ideological environment where there are no plausible alternatives to democracy and a free market, anticorruption rhetoric can, in a distorted way, occupy the place of a policy alternative.

Current campaigns and debates neglect this dangerous side of anticorruption rhetoric. We now hear plenty of anticorruption rhetoric and even see some modest successes in combating corruption. But the dance with anticorruption could be a dangerous one if, at the end, someone like Lukashenka takes the floor.

 

Ivan Krastev is the director of the Centre for Liberal Strategies, Sofia, and a fellow at the Collegium Budapest, Institute for Advanced Studies

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