Corruption may or may not be illegal

Sunday, November 3rd, 2019

Michael Munger explains Gordon Tullock’s joyfully contrarianism thoughts on corruption:

Corruption may or may not be illegal, but it’s always a bad thing. Isn’t it?

Some think of corruption — the misuse of public trust in the powers of political office for private gain — as comparing (a) the honest services and choices of a public official with (b) actions “corrupted” by considerations that are not legitimate. Harvard law professor Lawrence Lessig has claimed that a decision is corrupt if the official is improperly, even if only subtly, influenced by the anticipation of some sort of economic gain or loss. Fordham University law professor Zephyr Teachout has claimed that if a public official acts in consideration of a private benefit outside of the standard compensation for his or her office, the action is automatically corrupt.

Suppose, though, you are an entrepreneur in a developing nation and you have a good idea for a new company. It normally takes six months to have a telephone or internet line set up, because the state monopoly utility company is notoriously inefficient. But if you pay lagay (“speed money” in Tagalog), or if you khilana para (“feed him” in Hindi), a happily willing, competent work crew will be there tomorrow. Who will actually cough up the cash? Whoever values the service most. Which means that the most economically productive firms and the best new ideas will get to jump the queue.

In a system with bad rules or limited state capacity, tacit endorsement of corruption improves the working of the system. The more inefficient the system, the greater the efficiency increase in the near term, as scarce resources are directed first to higher-value uses.

But as Tullock asks, “And then what?” In this case, two things happen. First, because the scarcity of the resources is artificial and discretionary, the state actors who formally and informally control those resources will adjust access strategically so as to increase the quantity of “rents” (i.e., undeserved benefits) they receive. In my example, the phone company might announce a mandatory two-year waiting period, increasing the value of access to the “informal” workaround of bribes. Second, those with control over the resources and thus access to the rents will start competing — very likely by offering bribes of their own — to maintain their lucrative positions.

Tullock noticed this phenomenon for himself at several points during his career. When he was briefly in private practice as an attorney in Chicago, his job as a junior associate involved paying bribes to minor officials in the Kelly-Nash political machine to ensure that his firm had fast access to records that might otherwise take weeks to secure through normal channels. Later, while working for the U.S. Foreign Service in Tientsin, China, he had the experience of being there on the ground during the Communist takeover of 1948–49.

Tullock was struck by a presentation from an academic who decried the corrupt practices of the Chiang Kai-shek regime in Taiwan but lauded the new Communist regime on the mainland. In particular, the academic pooh-poohed the supposedly “restrictive” travel policies of the Communists, noting that it was easy to bribe officials to obtain passes.

To Tullock, both regimes seemed corrupt. But he also realized that corruption, far from being an immediate problem, was the only thing that made the cumbersome Rube Goldberg governing mechanisms work at all. “While corruption usually meets with disapproval,” he wrote in Contemporary Economic Policy in 1996, “it may have some redeeming features. It may make possible smaller or no salary payments to officials who, if carefully supervised, will still carry out their functions on a fee-for-service basis. The purchase of government jobs usually is thought to be corrupt, but in some cases, it has worked out quite well.”

He filed this lesson away in the late 1940s and often came back to puzzle over it for the next 65 years. If corruption is actually a benefit — at least in countries with bad institutions or sharply limited state capacity — then what is the problem? All we need to do is suggest that developing nations cultivate corrupt systems and voilà! Problem solved.

Of course, that’s not right, and this realization is what led Tullock to his signature contribution to the study of public policy: the problem of “rent-seeking.” In China, he said, officials write laws with the explicit expectation of selling “permits” that would exempt the “customers” from having to obey the regulation. In addition, officials may purposely limit the total number of exemptions so they can auction them off to the highest bidder. In the short term, corruption is a workaround for bad government, but in the long run corruption locks in bad government and encourages abuses of state power.

Tullock used the example of an official in Fukien (now Fujian), a province from which many citizens illegally traveled to Indonesia to work, returning with substantial sums of cash and goods. Local officials set up elaborate programs under which going abroad to work was technically not allowed but in fact actively encouraged for those who could expect to earn good wages. Officials charged licensing fees that were high enough to substantially enrich the “sellers,” but they made sure the cost was not so high that it would deter workers from traveling abroad in the first place.

The problem is that the system became firmly entrenched, and the bribes came to be capitalized in the “prices” for getting a job as a local official in Fukien. In fact, the “salaries” of government officials could be rendered as negative numbers. The opportunity to collect bribes was so lucrative that the positions were essentially sold as franchises, with officials paying their superiors, who paid their superiors, and so on.

This system, once in place, is nearly impossible to root out. In open, noncorrupt systems, parents might save or borrow to pay for law school or some other training for their children. But in a corrupt system, people save or borrow to pay the bribes necessary to get the kinds of jobs where bribes from citizens provide a good living. If a new, reform-oriented government comes into office, the reaction from government officials is likely to be fierce, possibly violent. After all, they paid for their corrupt jobs fair and square, and they expect to be able to collect.

“Evidence suggests that officials tended to draw a large part of their personal income from bribes,” Tullock wrote in his 1996 paper. “Indeed, it is almost certain that once a government structure has been set up so various people make profits, changing the structure in such a way to shrink the profits will be extremely hard, regardless of whether the profits are legal or not. Firing civil servants may be even harder than firing college professors.”

A passage from a recent New York Times article on illegal “sand-mining” in India puts the situation in stark relief: “Construction is the business where criminals have the best opportunities to launder the most money, [one real estate agent] explained, and a cascade of bribes go ‘to the topmost levels in the government.’…You pay 6 percent in bribes up front. Then, after the first payment, you pay another 7 percent, half of which goes to the state’s top politicians. The development authority’s junior engineer gets 3 percent. The associate engineer gets 1.5 percent. The senior manager gets 3 percent, and so on — until the total reached an astonishing 30 percent.”

For Tullock, the really interesting question is not why so many governments are corrupt. Instead, the puzzle is how any government manages to solve this problem and avoid corruption. The benefits, to those in power, of creating arbitrary restrictions and then selling indulgences to exempt the wealthy and powerful seem irresistible. The U.S. Internal Revenue Code is replete with relatively high income tax rates, at least on paper. But as each industry or investment group pays its “bribe” to Congress by organizing voting support, making campaign contributions, and the like, the actual rates to which it is subject are reduced, often sharply, via esoteric subsidies, tax credits, or deductions.

In the early 16th century, Martin Luther recognized this kind of corruption in the Catholic Church. In his “Thesis 27,” Luther complained of priests “who say that as soon as the coin jingles into the money box, the soul flies out of purgatory.” He was referring to an actual jingle, dating to long before Mad Men — perhaps the first ever used in advertising. A little rhyme, attributed to a German monk named Johann Tetzel (1465–1519), translates to: “As soon as the money in the chest rings, a soul from purgatory to heaven springs.” The very idea of judgment had been hijacked by some members of the Church as a way to increase their revenue, selling “Get out of purgatory” cards.

A lot of work has been done since Tullock first wrote about this problem. Our understanding of the temptations of corruption, especially in developing nations — he called it “the transitional gains trap” in a famous article in 1975 — is now standard economics. But Tullock saw the problem clearly in the 1950s.


  1. Paul from Canada says:

    There seems to be a kind of Laffer curve of corruption. A certain amount of corruption does little harm, and as expressed in the article, sometimes does a little good.

    For example, some years ago up here in Canada, there was a minor scandal over the tendering and awarding of a contract to build a new terminal at an airport. It turned out that the contractor that won had ties to and had made extensive campaign contributions to the governing party. They were also not supposed to have won, given the bidding rules.

    So yes, there was corruption, but the negative impact was very small. The project ended up costing the tax payers, perhaps ten percent more than it should have, but on the other hand, the new terminal was built, on schedule, and on budget. The economic benefit of having another terminal was realized, the x-thousand man-years of employment went into the local economy. Most importantly, the terminal was built to spec and safely, and has not fallen down.

    Contrast that with a similar situation in the third world, where the terminal either never gets built at all, or starts falling apart as soon as it is finished.

    The difference is that in the first case, the corruption is at a high level, The building inspector cannot be bribed to look the other way as half the cement powder for the concrete is diverted and sold off on the black market.

    A certain amount of corruption at the top is relatively harmless because it does not significantly impact day to day life and business. When the building inspector or the driving test examiner is corrupt, and buildings fall down and incompetent drivers become a menace on the streets, you have a direct and significant impact to the man on the street.

    The other aspect is what I would call “value for (bribe) money”. In the example of paying for expedited phone installation (for example), you know the cost up front and can factor it into your business plan, and if you pay, the phone does in fact, get installed. On the other hand, cops or soldiers at a “checkpoint” shaking you down randomly does not provide ANY economic value, and just makes civil life difficult.

    The annual corruption index usually has the Scandinavian countries and CAN/AUS/NZ at the top (least corrupt), and North Korea or Somalia at the bottom. That is not to say that there is no corruption in Finland, just that there is less of it at a less harmful level. After all, the top spot often changes hands, since it is a relative index of corruption, and I suspect Canada will drop a few places this year because of the SNC/Lavalin scandal.

  2. Kirk says:

    The issue isn’t so much the corruption, but the lack of transparency and the dishonesty behind so much of it.

    If we were to say, tomorrow, that instead of having Google, Microsoft, and Boeing bribe and “donate” their way into legislature favorable to them, we’d just put the whole f**king thing out to open tender, well… Yeah.

    “Y’all want law X? Fine; it’s gonna cost you Y, and then if your competitors want law Z and can pay more, guess who wins?”.

    Get it out in the open, let the dollars speak, and then instead of enriching politicians, let them put the money into the Treasury. Corruption will always be with us, but just like drug use, you can’t stop it. What you can do is control it, and reduce the harms from it. Put it on public tender, and get that money out of the hands of kleptocrats and into the treasury, instead.

    I’d pay the politicians a percentage for sponsoring legislation that brought in money, but I’d also back-end it such that if the legislation turned out to be a bad deal and/or hurt the public, they got charged for it.

    Frankly, the real problem with our system is that it’s meant for angels, not men. Men are corrupt; the system ought to be honest enough to acknowledge that fact, and then regulate it all. Put the bribery into the open, and then let things fall where they want them to. If an ATT wants favorable legislation, let them pay for it up front, and into the treasury. There should also be time limits on it, such that we put up for bid favorable telecommunications legislation such that you get your rules you like for the next 25 years, or such-like. You pays your money, you gets your laws.

    Think of legislation as being similar to the FCC’s idea about radio spectrum. You want it, you buy it. Openly. Want a politician to do something? Pay him; thing is, other people can pay him, too.

    Hell, to be honest, I’d make the whole thing open to the masses–Say you’re in Wyoming. Operate your Congressional delegation on a for-profit basis; you want favorable legislation, Mr. Gates? Here’s our price list…

    Isn’t really any different than the way things actually are, already–It would just put it out in the open and reduce the hypocrisy.

    Frankly, I’d do the same thing with organized crime. Organize it. Tax the f**k out of it, while you’re at it. You want to reduce crime? Tax it. Tell the gangs “Hey, look… You want to run Chicago? Fine; run it. It’s all yours. All you have to do is answer to the locals, and pay your taxes. We’re gonna withdraw the cops, and y’all are on your own…”.

    Cue about a 25-year disaster that will eventually shake out with the current lot of sociopaths being ousted, and the gangs having to take over government themselves, ‘cos they can’t parasitize on the current lot of civic incompetents. I can about guarantee you that they’ll either kill each other off like Kilkenny Cats, or the whole thing will recapitulate the rise of civil government from its roots in the need to organize things.

    I keep telling people this sh*t, but they won’t listen: We don’t have to keep doing things this way. If it’s not working, try something else. And, to my mind, if corruption is a problem, turn it around and base your system on corruption itself. Once those crooked politicians have to put it all out in the open, pay taxes on it, and all the rest…? They’re gonna start doing things differently.

    Root problem is that we really don’t run things in accordance with human nature. You can’t do away with corruption, really–Not so long as there are people involved. So, embrace it, make it a part of the system.

  3. Gaikokumaniakku says:

    Loyalty is a two-way street in almost all cases I can think of. Loyalty and trust and altruism are built into humans fundamentally. Some psychopathic humans do exist, but they only get big results because nearly all humans are more or less altruistic.

    Honest cops have something that is worth more than money under the right circumstances. If an honest cop was pinned under a burning car and I could take a risk to save him, I would probably take that risk, because an honest cop is worth a lot in the many emergencies that inevitably arise. Beyond that, even if the honest cop were too old to fight for me, I would probably be sentimental enough to save him out of some weird notion of “loyalty” or “honor” or something like that.

    If a bribe-taking cop is pinned under a burning car … I don’t imagine anyone running forward to save him … except maybe an honest cop.

    So to bring this back to the article, bribe-taking cops are likely to create social structures in which psychopaths can rise to the top. Psychopaths are hostes humanis generis – threats to the entire human species. Thus bribe-taking cops are like the preliminary infection that starts a deadly disease. Despite their short-term advantages for some rich people, bribe-taking cops must be regarded as the enemies of society and humanity.

  4. Harry Jones says:

    A parasite can do just fine so long as it has just enough self regulation not to kill its host.

    Every society will have exactly the maximum amount of corruption it will endure. Unless a concerted effort is made to keep the parasites down, they will stabilize their level of extraction at the maximum sustainable. And if no such effort is made, it really pays to be the extractor.

    Suckers enable con artists. Cowards enable bullies and thieves. Nonresistance invites abuse.

    Society is a continuous conflict. A stable society is a stalemate and a cease-fire (an armistice is a delusion.) Whoever is strongest in both ability and will shall dominate, until another comes along strong enough to depose him.

    And when that happens, none will dare call it treason.

  5. Graham says:


    Per your suggestion,

    From Star Trek episode “A Piece of the Action”, in which the long ago visit of an Earth ship has corrupted the lifestyles of a very “imitative” culture.

    I recommend 6:30 to 8:30 for the full effect. But the key line is at 8:25 or so. “What government? Like I told ya, I got the territory and I run it.”

  6. Graham says:

    Tullock seems to have summed up the deeper wisdom-

    Some corruption greases the wheels of insanely messed up societies, then it gets institutionalized and makes things worse.

    I’ve been torn for years. On one hand, an old boss pointed out to me just how much and how comprehensive social, economic and political damage real, epic level corruption has done in Africa, how many frankly have died because of the way resources are actually managed. China too, once upon a time. One can understand how corruption eventually gets people the old neck bullet treatment.

    On the other hand, we’ve reached a point in our search for paradise in which the definition of corruption has in some places grown very broad, and has been mirrored by the definition of the sphere of judicial and legal control, such that many practices that did not trouble our forebears are now nonetheless forbidden. In matters of politics, it has been mirrored by the expansion of the sphere of judicial control and autonomy, or of “policy”, and the shrinkage of the spheres of executive action, legislation, and competitive “politics”. The same principles are at work in how international relations operate.

    It has before now struck me as conceptual sleight of hand.

    For example, much though I am inclined to not want to support Trudeau on anything, I am not convinced that a prime minister suggesting to the justice minister that it is not in the state interest to prosecute a company for actions done abroad, is outside the legitimate sphere of state action, or that the justice minister doing so is outside the realm of prosecutorial discretion.

    I don’t see it as being as bad as a senator using public funds to do partisan travels, for example, though in the Canadian system for historical reasons I wasn’t too discomfited by that either.

    Our society, all the Anglo societies, were once like that. I don;t think it harmed our ascent to wealth and power much, if at all. Not even in 18c England or 19c America.

  7. Graham says:

    Both Paul and Gaikokumaniakku make good points.

    In Canada, I also resent having to pay extra for services and am glad it doesn’t seem to come up the way it did a couple generations ago, OTOH I don’t find it the least bit alarming to give significant tips to movers and so forth. Maybe not even telecom guys.

    I think we now have a telecoms sector so regulated that this is less common, but then so is customer service.

    As far as cops, I would say that’s the key example. There need to be elements that don’t operate within the fee system, or as little as possible. Once they do, the problems start. And since they will sooner or later, or feel obliged to adopt the aggressive outside mentality against the rest of society, you have to consider the whole system.

  8. Sam J. says:

    “…Get it out in the open, let the dollars speak, and then instead of enriching politicians, let them put the money into the Treasury…”


    The big problem that Tullock ignores is what if the corruption entails killing someone and stealing their organs instead of just getting a phone line? Where does it stop? Since there is no rules if you’re not following the rules things can get out of hand very fast. I believe this sort of corruption goes on in the US today where people are killed that work to stop corruption.

  9. Graham says:

    In the commemorative 1989 miniseries la revolution francaise/The French Revolution, highly recommended if you can find it, Robespierre is played by a Polish actor who infused the part with truly epic hauteur and a nice sinister tone. Danton, his collaborator, rival, and eventual victim [not that he had no blood on his hands], is played by the Austrian Klaus Maria Brandauer.

    Danton is a man of power, he had his moments with slaughtering enemies, but he also took money, property, women, etc. for himself. Robespierre is the embodiment of the two principles he holds most dear, terror and virtue.

    In one scene, Danton, in an amazed tone, looks at Robespierre and says, “Do you mean to say that in all this… you’ve taken nothing for yourself?”

    I suppose I recognize the sheer damage that corruption can do under out of control circumstances, the degree to which its early existence can generate the circumstances for it to slip out of control, and so on. But I was programmed early to think of it as not quite the worst thing or the worst temperament to have.

    A little bit of help for family and friends, a little bit of like for like sympathy, can bite us all in the ass if we’re on the outs, but at least it’s human and understandable.

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