The real cure for political corruption is private sector development

Political clientelism and corruption are usually regarded as isolated acts intended for personal financial and political gain. Accordingly, an army of competent auditors, a good dose of ethics, democracy, and a vibrant civil society are expected to provide the cure. But what if the orthodoxy is wrong? 

Indeed, new research suggests it may be time to abandon this old, ineffective paradigm. Political clientelism and corruption constitute a vicious cycle, encompassing the totality of political systems.

Counterintuitively, private sector development might be a far better cure for checking political clientelism and corruption, the research shows.

The game – To be fair or to be corrupt

Consider a theoretical game in which each political party chooses between two options in a context of weak rule of law. In the first option, the political party may choose clientelism and corruption as its main modus operandi. Here, individuals will vouch support for the party in exchange for personal gains, guaranteed through contracts with the party. In the second option, a political party may opt to pursue non-clientelism and seek electoral support by proposing decent development programs that impartially benefit all citizens. Which option will prevail if political parties are mainly motivated by electoral success?

An unexpected outcome

The game, once run, has an unexpected outcome. Political parties opting for clientelism end up having a definite electoral advantage, thus forcing all other political parties to shift to clientelism over time. Continued distribution of public goods as private rewards to clientelist voters undermines efficiency in public sector and markets, as well as damaging natural and environmental resources and social welfare.

Emergence of monopolistic powers

In this game, the first clientelist party to come into power also ends up having a clear advantage, enabling the incumbent to stay in power for more than two electoral cycles, even in the context of free and fair elections. In the model, incumbent parties can further consolidate power by combining clientelism and corruption with varying degrees of state oppression.

Impact on fragility

The new paper predicts that political clientelism and corruption are likely to increase the fragility of a country. Ethnic communities that believe they are not getting a “fair deal” may choose to challenge their country’s sovereignty and territorial integrity. These repercussions are further amplified if traditional local authorities are inegalitarian and unjust. Separatist movements are also predicted to be left-leaning or egalitarian in the beginning of their struggle. 

Breaking the vicious cycle 

The paper proposes private sector development as the principal way out of this vicious cycle. As economies grow and shift away from a patronage-based private sector toward a productive one, individuals are likely to be protective of their enterprises and incomes against the erratic decisions of a clientelist government. Therefore, substantially enhanced investment in a productive private sector is a better longer term anti-corruption strategy than the one that focuses exclusively on governance, accountability, and accounting measures.  

A historical perspective

The rise of multi-party electoral systems have historically coincided with the beginnings of capitalism. As economic activities evolved and wealth increased, the levers of political and economic power could not be left with the erratic will of a single royal family. With the introduction of multiparty electoral systems, the will of the monarchs was replaced by the collective will of representatives of powerful interest groups, based on individual rights and rule-based systems. The emerging private sector did not need to plunder its own state. Entrepreneurs needed the state to regulate, protect and facilitate the creation of wealth. Furthermore, they were soon to discover the clientelist and corrupt tendencies generated by multi-party electoral systems, which they worked on for decades to correct.  

In the wake of their independence, most developing countries adopted multi-party electoral systems as their future system of governance. In adopting such systems, most developing countries had none of the required deep-seated social checks and balances that stabilized more advanced economies. Pre-independence processes had often wiped clean their entire social landscapes, redrawn borders and boundaries, fragmented communities, diminished previous institutions, community structures and values. 

As the emerging elite tried to accumulate their own wealth in developing countries in the absence of full-fledged capitalism, they often opted to plunder their own state and their public resources in a clientelist setting. Political clientelism and corruption thus became an unnamed historical epoch, especially for low-income countries, defining the post-colonial era up to today.

What should development practitioners do?

Breaking this vicious cycle requires the emergence of an authentic, dynamic private sector. Its emergence can be assisted through substantial development finance, letting political clientelism and corruption subside into the past. So far, however, comparatively little development finance has been channeled into private sector development.

Most development agencies have also been timid in their private sector development efforts. Enticing foreign firms into a country for productive investment has not been an easy feat. Encouraging the local elite to invest has also proven to be a herculean task, because of their fear that the government will eventually take possession of their cherished savings. Efforts to develop small and medium enterprises (SMEs), while socially just and laudable, have often either been thwarted or carried out without sufficient oomph. In the absence of these, patronage-based private sector firms have triumphed—as appendages of clientelist governments.

Investment in public sector is arduous, but paradoxically it is somehow easier and easily justifiable. As a result, there is much more development finance for public sector than for private sector. It may be high time to reverse this trend, coupled with more imaginative forms of development finance.