Tuesday, 22 March 2011

Corruption and 'Transformation Potential.

There's a fascinating discussion between Daniel Kaufman and Mushtaq Khan here.http://developmentdrums.org/284

Mushtaq Khan's notion that corruption can unleash the 'transformation potential' of a developing country has an intuitive appeal.
One way of looking at rent-seeking is that it arises out of the Development paradigm as valorizing an abrupt shift to a system of resource allocation that is, by definition, non-indigenous and thus has no legitimacy within  sittlichkeit and customary codes regulating social cohesion. In other words, the very notion that Development is a something the Govt. should be doing- facilitates rent-seeking.
Where the ruling elite is supported by a foreign power- i.e. is merely a comprador by another name- Kaufmann's kleptocratic theory works- i.e. corruption is what confiscates what Development would otherwise yield.
However, if rent-seeking both motivates and reduces contestation w.r.t re-allocating resources in productivity boosting or demographic transition facilitating ways, then the 'Tansformation potential' is unleashed as Mushtaq Khan suggests.
Another way to put it, is that such corruption has a trickle down demonstration effect changing consumption preferences and lifestyle choices. Moreover, it makes commitments to change resource allocation more credible. Think of it this way. The Govt. takes away the subsidy on yarn for the handloom sector. Why should the handloom weavers and the Leftist rent-a-mob not contest this decision? After all the decision maker is using Govt. money. What's his incentive to come off looking like a bad guy? Ah! But what if everybody believes he's a degenerate playboy who is putting the money saved directly into his pocket? People may still cry foul. But what if they also believe this degenerate playboy is the nephew of the top Mafia Grandfather? Still worth it? Or not so much?

There's a story Arthur Miller tells in his auto-biography which makes a point quite different to the one he might have intended. It's about a labor organizer who'd made the lives of factory owners (like Miller's dad, an illiterate tailor who rose to millionaire status before going bankrupt in the Great Stock Market Crash) utterly miserable. This gentleman hit upon the idea of organizing the Dock workers. But the Mafia boss, Lucky Luciano, had been co-opted by the Govt. to take control of the Docks so as to ensure that the War effort was not hindered by Commie agitators. So our hero was hounded out of the Union organizing business- he was given an offer he couldn't refuse. How was he to make a living? It so happened that one of the factory owners he'd previously harassed was on the point of bankruptcy because his entire stock had suddenly gone out of style. The former agitator shows up at the business man's office. The guy just laughs and says- 'do your worst, I'm already insolvent. I've had to tell my workers they won't get paid this week.' The agitator says- 'look, I know about your problem. Make me your partner and I'll shift your stock.' The agitator was as good as his word. He was an excellent salesman. Soon he and his partners were millionaires. Instead of destroying jobs, the agitator was creating them. His business savvy was being used to raise productivity- and hence wages- rather than wreck businesses. But the man was unhappy. He felt he'd betrayed the cause of Labor and, to make up for it, made liberal donations to various Liberal fuckwits.

I'm not saying that corruption and criminality, by themselves, produce Development. It would suffice if there were the mere appearance of corruption, with (of course) Mafia muscle to back it up, to positively impact the Govt'. ability to boost productivity, Development, and even good Governance further down the line.

To summarize, on this analysis, not only is Development productive of corruption, contested definitions of Development ensure that only mega-corruption backed up by the criminalization of the Public Space can unleash that Transformation Potential whereby the rents of office turn into returns on good Governance.

Read in this light, the questions raised here- re. corruption in Tamil Nadu- appears less puzzling.


Rajiv said...

Contested definitions of development?- okay, if that is where you think the problem lies, then stipulate how and where the definition is contested by those with power- what is the Social Choice mechanism in question?
Presumably, it is Parliament, such and such select committee, or the Cabinet, or the interaction between the Legislature, the Judiciary and 'Civil Society' pressure groups etc. etc.
Now you may say, look because of Arrow's theorem, or Gibbard Satterthwaite or what have you, blah, blah, blah, you're going to get a Nakamura number more than 3 so you're going to have hysteresis effects and end up with silly availability cascades and so on and so forth unless there is some single valued incentive- like the Stock index, or Real Estate prices- which tracks 'Development' to motivate the executive to sacrifice potential bribe income for fucking up resource allocation in favor of a larger personal dividend from Capital Gains on existing wealth or shares that will be vested after their 'descent from heaven'- i.e. retirement from the Public Sector.

The problem here is that Stock prices and Real Estate prices and so on might just be the biggest availability cascade of them all!

I just don't feel in my bones that anything but 'zero tolerance' to corruption advances anything.

windwheel said...

@Rajiv- '...you're going to get a Nakamura number more than 3 so you're going to have hysteresis effects and end up with silly availability cascades and so on'

Sorry. Don't understand what ur getting at. Are you talking about non-empty core iff some alternatives aren't strictly ranked? If so, I'd be very interested if there's any results in core theory re. balanced games in the above context.

I don't have JSTOR access at the moment so I'd be very grateful if you could copy to me by email rather than just send links.

windwheel said...

Sorry- forgot to add- polypubs@gmail.com- thanks.

Sanjay said...

'contested definitions' merely cash out as distinct alternative states of the world- whether or not some are not strictly rankable doesn't come into it. I think you're conflating 2 different concepts here- viz. perceived effectivity function (Abdou) and the core at the second order level- i.e. meta-preferences- where perhaps fuzzy ranking is an advantage in coalition building by endowing it with the internal strutcture of a 'balanced game' (Bondareva-Shapley)

A simpler way to look at institutionalized corruption is that it arises where there is a substantial gap between Society's meta-preference- the Ethos it holds as highest- and its customary morality, the accepted way things actually get done.
Essentially, there's going to be a big gap here if certain contractual forms, Civil Society norms, are absent or deficient. If you don't have agent-principal norms and contractual forms to cover hiring a door-keeper, this does not mean you have no door-keeper but that your door-keeper charges for access to you and goes away if there isn't sufficient demand for you to justify having a door-keeper. Once Civil Society develops the necessary contractual forms and norms, what appears a corrupt practice- viz. paying the door-keeper for access to you- disappears and is replaced by your paying a wage and providing health and retirement benefits and so on.

A non-indigenous Government form- with salaried civil servants and ministers and so forth- may then, from the point of view of customary morality, appear offices of profit to be purchased or captured by means fair or foul. Duty then becomes to maximize that office's irregular perquisites permitting its re-sale at higher price. In practice, bureaucratic empire-building or, indeed, institution building of any kind is often characterized by precisely this sort of sociopathic entrepreneurship.

obviously, your post was about India and the legitimacy crisis caused by the recent scandals. I don't see how your take on things is at all useful. I agree with Rajiv- zero tolerance is the way to go.

windwheel said...
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