Paste your eFor many years, scholars try to understand how political arrangements are linked to the prosperity of nations. The relationship between the political regime and economic performance is one of the oldest and most controversial issues in social science and today economic and political science literature still lacks a comprehensive analysis on the effect of political regimes on economic growth (Papaioannou and Siourounis, 2008). There are many nations which started their democratisation processes but failed in their development. It is important to understand how politics and influence development and vice versa.
It seems, not without challenges, that democracy is the most suitable political regime. Today most nations accept the legitimacy of democracy or at least pretend to hold competitive elections (Fukuyama, 2016). Democracy is recognised as the best regime to facilitate human progress (Shapiro, 2003). Even if some economists find that autocratic regimes can help economic growth more, there is no single reason to sacrifice democracy on the altar of development (Przeworski, 2004).
Acemoglu (2012) argues that authoritarian regimes can achieve higher growth rate for the certain period, but it can not be sustainable without technological progress. According to Schumpeter (1942), economic growth and technological change are accompanied by creative destruction, when new sectors attract resources away from old ones and create losers and winner in political arenas. Fear of creative destruction in authoritarian regimes prevents them from creating inclusive political and economic institutions and oppose technological change. Inclusive institutions are more open to new technological progress and therefore economic growth.
Drury, Kaieckhaus, Lustig (2006); Przeworski and Limongi (1993); La Porta (1999) find no direct impact of democracy on economic growth or find such impact insignificant. Democracy has rather an indirect effect on economy and development.
Some academics argue about the positive influence of democracies on development. According to Przeworski (2004) democracies allocate available resources better to productive uses, they protect property rights allowing long-term investments and permit free flow of information, which improves the quality of the economic decision. Democracies also facilitate political stability which is good for economic growth. Democratic regimes are likely to spend more on education and healthcare, which support development (Baum and Lake, 2003). According to Bueno de Mesquita (2003) the larger the group of people determine political survival and therefore exercising an influence on politics, the more government inclined to buy support by providing public goods. Overall, democracies, have positive impact on economic growth through its effect on human capital (Tavares and Wacziarg, 2001). Developed human capital is a sufficient for advanced economic development.
There are also studies that find the negative influence of democratic regime on economic performance. Simply, democracies tend to spend more and some economists argue that government consumption may hurt growth as it takes resources from the efficient private sector and places them in a less efficient public sector (Barro, 1997). Tavares and Wacziarg (2001) also finds that democracy hurts economic success. The growth of productive factors may be higher under a dictatorship, but the use of resources may be more efficient under democracy (Przeworski, 2004). However, the claim that democracy undermines investment, whether in general or only in poor countries, finds weak support. Democracies indeed distribute more, but it is wrong to claim that by redistribution rather than by investment governments sacrifice economic growth (Przeworski, 2004). There is a weak correlation between politics and economics, political regime on its own can not answer the question on economic development. What affects economic development are not regimes, but social stability. Change in power in a democracy is expected from time to time, but a change of power in non-democracies always come with a coup (Przeworski, 2004).
Some academics understand that development is not a consequence of democracy, but rather democracy is a consequence of economic development. Przeworski (2004) and Lipset (1959) claim that democracies are not more likely to emerge as a consequence of economic development, but rather they are much more likely to survive if they happen to emerge in more developed countries. Indeed, democracies are unlikely to be established in poor countries, but they also less likely to emerge if a dictatorship exists in a country with high level of income (Przeworski, 2004). However, sustainability and long-term prosperity of such regimes are questioned by many.
So far democracy is a most favourable choice for rich societies. The reason everyone chooses democracy in affluent societies is that too much is at stake in turning against it. In poor countries, incomes of people suffering from dictatorship are not much lower than of those living under a democracy, whether they won or lost an election. But in affluent societies, the gap between incomes of electoral losers and of people oppresses by a dictatorship is large (Przeworski, 2004). It is risk aversion that motivates everyone in affluent societies to obey the results of electoral competition.
As a change of political regimes does not have a strong effect on economic development, academics try to understand development from a different side. Development is very often seen as an attempt for poor countries to catch-up with developed economies. Modern development theories are highly influenced by successful development in Europe and East Asia after Second World War as well as the development of the United States after its independence and the Industrial Revolution. Today Europe and the United States disproportionally concentrate knowledge and information on the development of others. In many cases, such external expertise has limited success in developing countries.
The immediate predecessor of modern development economics was colonial economics (Pieterse, 2010). After a period of decolonisation, the promise of political independence opened the way to economic development and modernisation. This was highly influenced by the path of the United States, which gained political independence and through independent economic development was able to catch up with the rest of the world. Such approach failed in other societies. Failure of decolonised world to catch up with the developed world can be explained in two main theories: dependency theory and neo-patrimonial theory. Dependency theory argues that structure of global economy prevents some countries from development. The neo-patrimonial theory explains the failure of development in political arrangements inside countries which prevent them development. It is important to focus on neo-patrimonial relations and its impact on both democratisation and development.
The literature mainly focuses on the impact of neo-patrimonial relations on development, but it also has a profound impact on democracy and it deserves more focused analysis. Both, strong democracy and a strong economy are seen to decrease corruption. Democracy decrease corruption more in economically advanced societies. And strong economic development decrease corruption in democracies rather than autocracies (Neudorfer, 2015). But neither effective democracy, neither developed economy seems to function within neo-patrimonial relations in modern society.
Patrimonialism is not defined as a corruption but as a system of running politics and distributing resources. Max Weber see patrimonialism as a form of traditional domination. Such form of political authority is based on personal links, rather than impersonal, rule-based ‘bureaucratic-legal’ authority. This type of relationship can be seen as a colonial legacy of absolutist European states.
Such political arrangements and institutions are deeply rooted in colonial history. Daron Acemoglu and James Robinson (2012) explain development failure of countries through the history of extractive political and economic institutions in former colonies. There are no significant links between political regime and economic development, but there is the significant impact of institutions and political relations on development.
Neo-patrimonial relations within political and economic relations very often lead to corruption. Before analysing corruption, it is important to define what if corruption. The most popular definition of corruption is the abuse of public power for private gain (Neudorfer, 2015). Gardiner (2007) summarises Kenneth Gibbons’ definition of abusing power in four ways. Nepotism or favouritism, which occurs when a civil servant gives a position in his office to a relative than to a better-qualified applicant. Another example is patronage – appointment of loyal office-holders, usually occurs after political party wins and election and removes office-holders who supported the opposition party. Power abuse can be seen in a legislative conflict of interest, for example when legislator owns stock in a company and votes for a bill which will give tax concessions to the company. A final example is a bureaucratic conflict of interest when government bureaucrats use their knowledge and contacts for private gain.
All these types of relations have a profoundly negative impact on development as well as on democracy (Boehm, 2015). Economic development and democracy have been the two most frequently analysed variable in the empirical causes of corrupt research (Sandholtz and Koetzle 2000; Chang and Golden 2007; Triesman 2000; Tavits 2007). Both suffers from corruption, but both are commonly found to decrease corruption (Neudorfer, 2015).
Studies show that corruption is generally accepted by scholars as having a direct and negative impact on economic performance. Simply, corruption draws off funds that would otherwise be available for economic growth, it wastes resources that could be used productively and generates sufficiently high transaction costs to limit significantly investment (Drury, Kaieckhaus, Lusztig, 2006). Its indirect impact on development may be much more significant if we take into account political and economic institutions which suffer from corruption.
Drury, Kaieckhaus and Lusztig (2006) find that effect of corruption on economic growth is lower in democracies than in authoritarian regimes. A democracy might experience a high level of corruption, but this corruption will be restricted to those activities and sectors that have relatively little impact on national economic performance because voters will definitely act to remove politicians that engage in significant growth-impairing corruption. Drury, Kaieckhaus and Lusztig (2006) argue that one of democracies indirect benefits is its ability to ease the harmful effect of corruption on economic growth.
A lot of research on the effect of corruption on democratic performance seems problematic. Definition of democratic and non-democratic societies is not that easy and many researchers categorise countries only as democratic and non-democratic, however, there are different levels on democratisation among political systems. Furthermore, countries with transitioning democracies are recognised to be the most exposed to corruption and require deeper research. Fukuyama (2016) suggests to distinguish political systems from one another by the degree to which the ruling elites seek to use their power in the service of a broad public interest or simply to enrich themselves. What distinguishes corrupted countries from non-corrupted is not so much democracy as the quality of government which, in turn, is greatly affected by levels of corruption (Fukuyama, 2016). New democracies have weaker institutions which allow corruption to occur, but democracy itself is not a reason for corruption. Corruption hurts the prospects of democracy when people perceive authoritarian governments to be performing better than corrupt democratic ones undermines the reality of democratic choice (Saha, Gounder, Campbell, Su, 2014).
Corruption, as a usage of public resources for private gain, is a modern phenomenon, which raises together with democratisation. The very term ‘public’ and ‘private’ did not always exist. Throughout history, virtually all regimes were what Max Weber labelled ‘patrimonial’ – that is, political authority was regarded as a species of private property which could be handed down to descendants as part of their patrimonity. The very notion that there was the potential conflict between public and private interest emerged with the rise of modern European states. However, history has examples of civilisations which were able to develop a concept of an impersonal state that was a guardian of a collective public interest (Fukuyama, 2016). Such concept of governance and ‘social contract’ seems to be the most effective. Unfortunately, modern neo-patrimonialism shows that some political leaders pretend to be servants of the common good in political systems with modern symbols like parliaments, ministers and bureaucracies, but in reality, elites enter politics to extract rents and resources to enrich themselves and their families at the expense of everyone else (Fukuyama, 2016). In such political regimes prevail extracting political institutions aimed to extract resources and exploit population.
Daron Acemoglu and James Robinson (2012) explain the modern existence of extracting political institutions through a legacy of a colonial and patrimonial rule. They find a difference in a level of development and corruption between nations exposed to an extraction of local resources and exploitation of local population and nations without much resources and low population density. Second nations had to build inclusive political institutions. Elites in countries where political and economic institutions arranged in resource extraction and population exploitation are seen as corrupt rent-seekers. Bhattacharyya and Hodler (2010) argues that resource rents lead to an increase in corruption if the quality of democratic institutions is relatively poor. Corruption can be seen as one of many forms of rent-seeking and exploitation of natural resources may lower the economic performance because they raise rent-seeking activities (Torvik, 2002). The relationship between resources rents and corruption strongly depends on the quality of the democratic institutions.
The idea that democracy has a negative impact on corruption seems to be indisputable (Boehm, 2015; Kolstad and Wiig (2012). However, the degree of influence of democratic reform on corruption is not straightforward and uniform. Strong and developed democratic system is required to be effective in reducing corruption. In functioning democratic systems, citizens can simply remove corrupted politicians, and therefore the level of corruption would be lower (Drury, Kaickhaus, Lusztig, 2006).
An essential part of developed democracy is free media. As corruption, by its nature is conducted secretly, secrets are harder to keep with free media and in an open society (Saha, Gounder, Campbell, Su, 2014). Press freedom and democracy together have a significant impact on controlling corruption (Chowdhury, 2004; Bhattacharyya and Hodler, 2010). Independent judiciary alone is not effective in ensuring electoral accountability if the public is not informed (Boehm, 2015). Freedom of press and democracy complement each other and are sufficient for each others existence, however, freedom of the press is not sufficient to fight corruption.
Another important point here is that electoral democracy on its own is not sufficient to reduce corruption. Well-functioning and established democratic institutions has far more chances to decrease corruption. Triesman (2000), Serra (2006), Boehm (2015) point out that the long exposure to democracy predicts lower corruption that the recent acquisition of democracy. Longer established democracies tend to be more stable and have more developed institutions, rather than democracies in transition. It is not democracy that, reduces corruption, it is functioning institutions. Democracy and freedom of the press are good in reducing corruption, but they are not enough to reduce causes of corruption actions without effective inclusive institutions.
There are researchers who claim insufficiency of impact political rights on corruption. Warren (2005) shares such scepticism in the literature as to whether institutions that increase citizen’s participation and power reduce corruption. Ades and Di Tella (1999) argue that there is the weak negative relationship between political rights and corruption because societies like Hong Kong and Singapore have relatively moderate political rights and experience very low corruption. However, both Hong Kong and Singapore have well-functioning institutions and first of all are famous by their liberal economic institutions, stability and rule of law.
There are three arguments that explain the relationship between democracy and corruption. First of all, there is political competition in democracies, which creates institutional settings that allow a voter to choose between parties and therefore remove politicians from office (Montinola and Jackman 2002). Secondly, democracy has means to empower voter – political rights, which capacitate voter control politicians and therefore increase the risk for politicians to be punished for corrupt actions (Sandholtz and Koetzle 2000; Triesman 2000; Tavits 2007; Bhattacharyaa and Holder 2010). Finally, democracy means at least some extent of transparency which makes information of corrupt interactions available to the public. Lindsted and Naurin (2010) research claims that the relationship between transparency and corruption is conditional on the educational level of voters, free and diverse media and electoral democracy.
Some scholars try to find the difference between corruption in authoritarian and democratic regimes and its impact on development and growth in both types of regime. There is a notion that corruption has not significant effect on economic growth in democracies, but it significantly reduces growth in non-democracies. Findings of Drury, Krieckhaus and Lusztig (2006) support this notion and argue that democracy mitigates the negative effect of any level of corruption. Authoritarian regime appears to increase level of corruption.
By definition autocratic systems are characterised by the monopolisation of power in the hands of small elite, with few or no constraints to prevent them exercising their power in their own interest, therefore high level of corruption seems to prevail in autocratic regimes, On the other hand, democratic systems are characterised by diffuse authority, where the executive branches of government are balanced by an elected parliament and in an independent judiciary, and where open elections allow political leaders to alternate between being in and out of power (Saha, Gounder, Campbell, Su, 2014).
The idea of having a strong and authoritarian government that is able to reduce corruption does not find wide support among scholars (Boehm, 2015). However, there are scholars who argue that authoritarian government can be effective in reducing corruption. Researchers in the developmental state tradition argue that authoritarian regimes, especially in East Asia are better able to resist special interest group distributive demands and rent-seeking pressures. According to Kang (2002) in 1980s corruption became worse as Korea shifted from authoritarian regime to an electoral democracy. Such notion can support an idea that corruption can be lower in stable and functioning regime, even if that regime is autocratic, than in transitioning and unstable democracies. Saha, Gounder, Campbell and Su (2014) find that corruption can be slightly lower in autocracies than in narrow-democracies, but it is substantially lower in developed democracies. However, Nur-tegins and Czaps (2012) research claims that the level of corruption is lower in unstable democracies than in stable dictatorships. Gabriella Montinola and Robert Jackman (2002) analysis found that corruption was typically lower in a dictatorship than in partial democracies, but once attained a threshold, democratic practices suppress corruption.
As was mentioned electoral democracy is not sufficient to reduce corruption, but the well-functioning and effective regime is important to decrease corruption. The argument that effective institutions are able to decrease corruption and increase development and growth seems to be most valid. Scholars find the strong link between quality of institutions and long-run economic performance (Acemoglu 2001, 2012; Hall and Jones 1999). Papaioannou and Siourounis (2008) find that institutional improvement significantly contributes to economic growth and democracy on its own seems to be irrelevant. Some developmental economists like Collier (2007) argue that solution to underdevelopment and poverty is to change bad institutions and force poorest countries to become more democratic, efficient and fair. Rodrick, Subramanian and Trebbi (2004) support this idea and argue that quality of institutions ‘trumps’ everything else.
The central claim of institutionalism theory is that institutional structure of the political economy is a prime cause of economic growth. Specifically, ‘third world’ countries are poor because the institutions do not encourage productive activity (North 1990). According to North and Thomas (1973), new institutional arrangements in society can not be set if private benefits of their creation do not promise to exceed the costs (Przeworski, 2004). Acemoglu and Robinson (2012) also explain the difference between developed and underdeveloped society by different institutions, which create different incentives in society.
In the new institutional view, according to Przeworski (2004), institutions shape the economy and are shaped by history. Modern institutions arrangements can be explained by historical and especially colonial legacy. In many countries, neo-patrimonial relationship is a legacy of former colonial rule. Acemoglu’s and Robinson’s (2012) research shows that extracting institutions prevail in the former colonies where resources used to extract and population exploited by former colonial power. Today this legacy is the main cause of corruption and obstacle for development in new democracies.
Functioning institutions especially important in democratic regimes. Often democracy is defined by institutions that function within society. Schumpeter (1942) defines democracy as institutional arrangements for arriving at a political decision. Przeworski (2004) argues that in order to establish democracy, different groups must agree to disagree: they must accept a framework of institutions within which they would process their conflicts. Dahl (1971) argues that democracy without participation is an absurdity, but participation without an effective institutional framework would be pointless and chaotic.
Well-functioning institutions on top of democracy are also recognised to be effective in decreasing corruption. With effective institutions, the probability of detection and punishment is sufficiently high to prevent most decision makers from choosing to act corruptly. Weak and non-functioning institutions allow people to act corruptly. Weak institutions are the case in many transitioning regimes. The fragile institutional framework in newly democratised countries increases opportunities for corruption, such countries are mostly characterised as electoral democracies and they typically belong to the low-end of the ‘free’ countries, as they only at the beginning of democratic path (Saha, Gounder, Campbell, Su, 2014).
Many studies show that previously undemocratic countries with extremely low levels of democracy experience an increase in corruption level in the early stages of democratisation. Boehm (2015), Shleifer and Vishny (1993) claim that at the beginning of democratisation, countries may experience a rise of corruption, but when democratic institutions become stronger over time and a culture of democracy develops, democracy begins to control corruption and corruption levels start to fall. The benefits of democratic institutions do not have an immediate impact but requires time to unfold until these institutions stabilise (Boehm, 2015).
During transition stage, new transitioning democracies retain political rights but lack the existence of other components of democracy, such as civil liberties, press freedom, a legal system, democratic institutions. In the context of democratic transition, Herge, Ellingsen, Gates and Gleditsch (2001) claim that intermediate regimes are less stable than autocracies which in turn are less stable than democracies.
Democratisation generally, and eventually, decrease corruption. However, corruption should be expected during the early stages of the process of political liberalisation. Sung (2004) sees more important initial conditions and the final achievement of each society, rather than the democratisation process itself, to determine the impact of democratic reform on political institutions.
Although democracy and market reform are partly meant to clean up public life in developing countries, corruption resistant to intervention efforts. For countries that depart from a long history of authoritarianism or totalitarianism, the enthusiasm and optimism aroused by the early expansion of political rights are often cooled down by an alarming growth in corruption and ‘money politics’ (Moran, 2001). The massive scale of political disputing and state restructuring (including the privatisation of state-owned enterprises) make democratisation open to suspicion (Sung, 2004)
There is no doubt that corruption has a negative impact on development and economic growth, as was stated above. It is also important to understand the relationship between corruption and economic development from opposite perspective – the impact of economic development on corruption. According to Neudorfer (2015), there are two main arguments which dominate the literature on the influence of economic development on corruption. The first is the role of economic developments on the decrease of poverty. The poverty creates financial incentives for corrupt behaviour. Weber argues that economic development is a prerequisite to making government officials abide by the law. This claim is supported by Sandholtz and Koetzle (2000), who say that in poor countries, the ‘marginal value of money’ is substantially higher than in rich countries. The second argument on the impact of economic development on corruption is education. The economic development leads to higher levels of education and literacy, which increase the potential for government officials to be uncovered (Triesman, 2000). In addition, the increase in education and literacy that development brings will increase the likelihood that an act of corruption will be discovered and punished (Elbhanasawy and Revier, 2012). The first argument responds to the causes of corruption, the second responds the consequence of corruption or ability to fight consequences of corruption, however both arguments confirm that economic growth leads to lower level of corruption.
The effect of economic development on the level of corruption is conditioned by the level of democracy (Neudorfer, 2015). Neudorfer (2015) in her studies concludes that democratic institutions limit corruption more strongly in prosperous countries than in poor countries and economic development decrease political corruption more strongly in democracies than in autocracies. Both democratic institutions and developed economy decrease chances of corruption. Reducing effect of economic development and democracy on corruption is supported by findings of La Porta 1999; Triesman 2007; Sandholtz and Koetzle 2000.
Corruption in poor countries makes it especially difficult to transit from authoritarian regime to democratic regime, from extractive institutions to inclusive institutions, from poverty to prosperity. According to Schumpeter (1942), the core of democracy is free competitive and fair elections. However, corruption can undermine electoral process and therefore democratisation at large.
The literature on relationship between corruption, patrimonialism, development and democratisation lacks point of view from the perspective of transitioning societies. There is not enough studies on societies which transit simultaneously from corrupt and patrimonial relationship, from authoritarianism to democracy and from poverty to prosperity. Usually researchers analyse only one aspect of such relations. Further research is required to analyse role of institution in social challenges.