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Vertically integrated corruption

  • Published at 06:23 pm March 14th, 2015

I was fascinated last week by the generational implications of a meeting held in the Wilson Centre on “Countering Extremism in Pakistan.” The meeting itself featured a small part of the youth bulge of Pakistan. Young Pakistanis who like the “millennials” in the US, generally see things differently and more positively, at least as to the possibilities of making a difference in improving the world.

The discussion caused me not only to envy the young for their optimistic belief that they can make things better, but to remember when Pakistan was a model developing country, when the South Koreans sent a team to Pakistan to find out how to build a system that produces sustainable growth, when development experts looked up to it.

What happened? Why did the Pakistan end up at the bottom of the developing country social index while Korea is well above it?

In my view, it is that the institutions that should form the bedrock platform for effective and impartial governance of a state and delivery of services, from law and order and justice to a sustainably thriving economy have been hollowed out and, in reality, have now almost rotted away.

Institutions are constraints that define the limits of political, economic, and social behaviour, according to North. They may be formal constraints (sets of rules) like a constitution or informal ones like custom, tradition, codes of conduct, etc.

Whether these constraints are effective depends in part on the strength of a state and its organisation. I have written in previous pieces that Pakistan is a weak state, and this is part of the explanation of why its institutions are weak.

Neither is it a model of organisation, in part because of the witch’s brew of nationalities, languages, and ethnic groups that make up the state. In addition, the rise in militancy and extremist violence has, to some extent, disoriented the state and its people.

This raises the question, however, of the causal relationship between a weak state and weak institutions. Did the weak state cause the institutions to be weak, or vice versa? The theory does not have a complete answer on this. I think the answer is probably that, in the long-run, defective institutions lead to weak states.

The work of Deron Acemoglu and James Robinson, which culminated in their 2012 book “Why Nations Fail,” which I have also mentioned in previous articles, is helpful on this, but not definitive. In their lexicon, defective institutions are “extractive” institutions -- in other words institutions which a state’s rulers and elite use to extract resources that accrue to governance -- what economists call economic rents -- for themselves or to distribute to other vested interests that might pose a threat to these leaders and elites.

Many states with extractive institutions remain strong for a long time, eg the Roman Empire, modern day China, but sooner or later the hollowing out of the institutions weakens the state, even helps destroy it. The Roman Empire became too weak to fend off the marauders coming from the east and hungry for more resources.

Most countries which threw off the yoke of colonialism inherited institutions built by their colonial rulers. Pakistan inherited institutions built by the British, though many of these would have been British makeovers of what would have been originally Mughal institutions.

Institutions built by colonial rulers are almost by definition extractive institutions. Colonial rulers were there for a reason, and it was not to ensure that the resources of the colonized land were shared out fully with its inhabitants.

But in the context of a new state, these British built institutions, though extractive, were strong and resilient. The Pakistani civil service of those days was efficient and competent.

But whether by commission, or by omission, Pakistan’s institutions remained extractive. And slowly, but surely, these extractive institutions were weakened and hollowed out.

There are probably many parts to the explanation of how and why this happened. But I think the explanation lies in the one kind of institution that will poison all the others, that is what I would term institutionalised corruption.

This is the one institution you hope not to see in a state’s system, because like a cancer, it grows fastest and ultimately kills the system. Like a cancer, if it is not eliminated early, in other words if it is tolerated either because it is seen as a minor problem (easier than raising taxes to pay better salaries for example), it soon takes over the system.

Corruption takes over the system because all involved accept it, and since all are involved, everyone is protected by those above, and those above are protected by those below.

A friend and I, discussing corruption in another South Asian country recently, decided that it should be termed vertically integrated corruption, as from top to bottom of an institution everybody protects everybody else.

Rebuilding the institutional structure of a state requires extirpating corruption. That does not mean just eliminating it when the other party is in power, but when any party is in power. It is a Herculean task that few parties are up to.

The tragedy is that the state has existed for almost 68 years without much effort to eradicate this cancer. Had it had the vision to begin the process 68 years ago, Pakistan’s institutions would now still be healthy, and perhaps working their way toward the inclusive (non-extractive) institutions that I believe to be the foundation of democracy, and well as the guarantor of sustainable prosperity.