High-Level Rent-Seeking and Corruption in African Regimes: Theory and Cases
62 Pages Posted: 20 Apr 2016
Date Written: 1995
For international aid and lending institutions: Encourage liberalization, deregulation, and civil service reform where rulers are autocratic but credibly committed to growth and efficiency. Be cautious about financing half-hearted reform in systems ruled by kleptocrats. In particular, do not expect tax, customs, and procurement reform to be implemented as designed in systems where top rulers and their allies routinely pocket state resources.
One explanation for Africa's failure to develop is the weakness of its public institutions. Coolidge and Rose-Ackerman consider one aspect of that weakness: rent-seeking and corruption at the top of government.
Under the conditions of their model, an autocrat who seeks to maximize personal financial return favors an inefficiently large public sector and distorts other public sector priorities more than does an autocrat who seeks to maximize national income. However, if civil servants and public officials are also venal, the ruler will not favor so large a government.
To show how African regimes operate, Coolidge and Rose-Ackerman present four cases illustrating issues raised by their theoretical model. Among their observations about the relationship between the motivations of top officials and policies to control corruption and other types of rent-seeking are these:
A kleptocrat whose decision variable is the level of government intervention in the economy will select an excessive level of intervention, in which national income is less than optimal.
Like all monopolists, the kleptocrat seeks productive efficiency except where inefficiency creates extra rents.
Facing a kleptocrat, citizens prefer a smaller than optimal-sized government but get one that is too big.
A kleptocrat may need to permit lower-level officials to share in corrupt gains thus introducing additional costs. He or she will then favor a smaller government than if subordinates could be perfectly controlled.
Dropping the assumption of a single dimension of government intervention, the kleptocrat will favor a different mixture of tax, spending, and regulatory programs than will a benevolent autocrat.
Dropping the assumption that rulers are writing on a clean slate, decisions to privatize or nationalize firms can differ across autocratic regimes. In particular, although kleptocrats will often be reluctant to privatize, they may in some cases support privatizations that a benevolent ruler would oppose.
Investment in countries with kleptocratic rules may have an overly short-run orientation.
When rent-seeking at top levels is pervasive, both natural resources and foreign aid under state control may hamper, not encourage, growth.
This paper - a product of the Private Sector Development Department, the Visiting Research Fellows Program, and the Foreign Investment Advisory Service - is part of a larger effort in the Bank to promote institutional reforms necessary for combating corruption and promoting investment and private sector led growth.
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