Symposium introduction: The political economy of corruption

A conference on “The Political Economy of Corruption” was held on May 5th and 6th of 2023. The event drew 15 scholars to the campus of Tulane University in New Orleans. This event was sponsored by the Murphy Institute at Tulane University and was organized by the Murphy Institute Center for Ethics in collaboration with the Institute for Corruption Studies at Illinois State University. The seven articles in this special issue featured scholars, concepts, methods, and findings from a variety of disciplines and several regions of the world. The papers and discussions not only considered the concept of corruption and its sources in a variety of settings, but also closely examined its consequences for equality and justice, the quality and efficiency of governance, economic development, and our assumptions about what laws, institutions, and governments ought to be and do. All of the papers were submitted to the Southern Economic Journal (with no prior guarantee of publication), went through the regular peer review process, and were revised in response to comments by anonymous reviewers. Today's field of corruption studies has evolved in several phases. During the 1960s and 1970s such research, as it appeared in the literature, focused primarily upon corruption as a result of the stresses and uneven changes of economic or—less frequently—political development (Nye, 1967; Wraith & Simpkins, 2010; Myrdal, 1968; Huntington, 1968, pp. 59–71; see also the collection of classic essays in Heidenheimer, 1970), and upon its perceived negative effects in struggling societies. About the same time, however, dissenters began to argue that corruption might be beneficial in important ways (Bayley, 1966; Leff, 1964) or that its diverse implications resisted any single verdict (Leys, 1965). Scholarly analysis often resorted to anecdotal evidence and single cases, with Scott (1972) who broadly used a comparative approach, being the sole major exception. During the late 1970s and most of the 1980s, corruption waned as a scholarly and policy concern. At the time a self-serving kind of “realist” thinking dominated northern and western foreign policy, suggesting that concern about corruption was naïve. Reinforcing those viewpoints was an assumption that corruption was mostly a problem in warmer and poorer societies, one that could eventually be brought under control through development and western-style administration. Corruption reappeared on the international agenda beginning with the end of the Cold War, however, as the optimism accompanying the end of communism gave way to more pessimistic outlooks and pressure mounted in most western societies to reduce international aid budgets while producing better results. A different anti-corruption agenda emerged in the international business sector during the 1990s as corporate leaders began to see corruption as not just an overhead cost of doing business in uncertain circumstances but rather as a deadweight loss, and as a source of greater vulnerability to political pressures. Business backing for reform was also increased by neoliberal policy concepts then gaining influence around the world. Much of the anti-corruption thinking pushed privatization and deregulation on the grounds that such changes deprived officials of their opportunities to exercise self-serving leverage. Those ideas and more were folded into a push for “good governance”—a politically vague term reflecting the principle that international and intergovernmental organizations should not intervene in the politics of sovereign states. In the mid-1990s the first corruption and governance indices appeared, drawing largely upon perception data and ranking whole countries over a single dimension. Those data reinforced the notion that corruption is harmful overall but told us little about contrasts within societies or trends in corruption itself, and even less about what reformers ought to be doing. Debates over the strategies generated have mostly continued along well-worn paths over the past two decades. What could once have been described as a global anti-corruption movement has now solidified into an anti-corruption industry with interests of its own; general critiques of that industry (see, for example, Johnston, 2018) have been relatively uncommon. By contrast, the political economy approach presented in this special issue of Southern Economic Journal (SEJ) allows—indeed, requires—the analysis of corruption to move well beyond whole-country (or whole-economy) generalizations. After all, any phenomenon that bends or breaks rules and expectations regarding the ways wealth and power are pursued, used, and exchanged will raise complex and contingent issues, not only in societies that are highly differentiated in social and technological terms but also in those marked by significant inequalities—which is to say, almost everywhere. The best evidence we have suggests connections between extensive corruption and economic and social dysfunction. But what specific causal connections are involved, how do those relationships vary within a society or across sectors of the economy and government, and how do contextual or historical factors shape those connections? What can we learn if we set aside the simple notion that laws and institutions are good and corruption—which after all can occur in a variety of forms (Johnston, 2005, 2014), is not always illegal (Dincer & Johnston, 2020; Lessig, 2013; Thompson, 2018), and can even be deeply embedded in longstanding institutions and legal frameworks—is universally bad? Moreover, the question of whether corruption is “grease for the wheels”, or more like sand in the gears, has been debated for decades (see, just as examples, Bayley, 1966; Kaufmann & Wei, 2000; Rose-Ackerman & Palifka, 2016, Ch. 2–6), with recent research – including some of the articles in this special issue – showing that such assessments depend upon a range of contextual factors. Although no one argues against how immoral corruption is, there are two very different arguments on how corruption affects economic efficiency. According to Leff (1964), Huntington (1968), and Lui (1985), corruption increases efficiency via two channels. First, it speeds up the governmental process. Second, it introduces competition to scarce government resources. A system built on bribery for allocating these scarce resources leads to an outcome in which the most efficient firms are able to pay the highest bribes. Myrdal (1968), on the other hand, argues that corrupt government officials, instead of speeding up the governmental process, slow the process down to create more opportunities for bribery. According to Shleifer and Vishny (1993), necessary secrecy of corruption shifts a country's investments away from the highest value projects such as health and education into low-value projects such as defense. Secrecy also causes governments to maintain monopolies to prevent entry and innovation (Shleifer & Vishny, 1993, p. 616). As the seven articles in this special issue of the SEJ make clear, none of those questions lead to simple conclusions. There is an intricate relationship between corruption and inequality. The effects of wealth and income inequalities range from life expectancy and access to basic services such as healthcare and education to the ability to exercise human rights and gain access to justice (Dincer & Johnston, 2025). The burden of corruption falls disproportionately on the poor, while its benefits are likely to accrue to better-connected individuals and the rich (Gupta et al., 2002, p. 23). The rich pay a higher proportion of their income as bribes than the poor. In addition, as Gupta et al. (2002) argue, corruption generates a tax system, which disproportionately favors the rich. Corruption leads to tax evasion, which in turn leads to lower tax revenues. Lower tax revenues reduce the government's ability to finance programs to improve the distribution of income. Corruption also leads to a less progressive tax structure worsening the income distribution. Also, corruption diverts government spending away from programs that benefit mostly the poor such as education and health to, for example, programs that create opportunities for corruption (Chetwyn et al., 2003). This creates skills inequality, which increases income inequality. Finally, corruption raises the costs of public goods provision and reduces the quantity of public goods provided by the government. As tax revenues are used in the provision of public goods, higher costs lead to higher taxes. This again disproportionately favors the rich for two reasons. First, the poor are the ones who mostly benefit from public goods provided by the government and second, the rich are the ones who have the resources to evade taxes by bribing government officials (Dincer & Gunalp, 2012). In this special issue it is argued that inequality of opportunity is the main cause of economic inequality. Dincer and Hoover (“Does Corruption Discriminate? Racial Opportunity Gap in the United States”) examine the relationship between corruption and the inequality of economic opportunity between Black and White Americans in the United States and point to new and worrisome findings about the ways corruption worsens already-wide economic opportunity gaps between them. The underlying assumption in this article is that the direction of causality is from corruption to economic inequality. However, it is also likely that it is from economic inequality to corruption. Greater economic inequality leads to greater opportunities for rent-seeking which in turn leads to greater corruption as the rich seek to protect and enhance their wealth using their disproportionate influence on political and economic institutions. Another article in this special issue by Hlasny and Kalinowski (“The Institutional Dimension of the Inequality-Corruption Nexus”) examine the varying ways in which inequalities affect corruption within contrasting political-economic regimes. Corruption not only increases inequalities but also creates inefficiencies. It leads to the inefficient allocation of resources within firms. Resources that should be directed toward productive activities might instead be diverted to paying bribes, reducing overall productivity. The final article in this special issue which is closely related was written by Castro and Guccio (“Exploring the Corruption-Inefficiency Nexus”) showing how corruption affects firms' technical efficiency, taking local institutional quality into account. Reform schemes and efforts to support struggling societies and their governments can be equally complex in their consequences. To that end, Pavlik and Callais (“Good for the Goose, Bad for the Gander?”) are included in this special issue and explore the differential effects of corruption control upon incomes and income shares at various levels, the difficulty of extending the benefits of reduced corruption to the bottom of the income distribution, and the critical influences of the informal sector upon all of those factors. Following that general theme, Bethencourt and Perera-Tallo (“Foreign Aid and Corruption”) are included in this special issue to show how foreign aid, while helping governments improve the provision of public goods in some respects, can also foster more corruption – and how better aid policies might improve that balance of costs and benefits. Celis Galvez, Titl, and Schotanus (“Discretion and Political Favoritism”) argue that a better understanding of how officials and bidders respond to evolving public procurement regulations and changing degrees of official discretion may point to ways of increasing efficiency in procurement, but also highlight the tenacity and consequences of political favoritism. Their work makes a substantial contribution to this special issue. Finally, the last paper included in this special issue by Juarez-Garcia (“What Philosophy Can Teach Political Economy about Corruption”) takes a step back to reconsider some basic assumptions in the anti-corruption debate. The notions that corruption is always a pathology and that, conversely, laws and aggressive enforcement are inherently beneficial and effectively counteract those pathologies, can be seriously misleading. Indeed, they help account for two chronic problems in the long-term debate over corruption and reform. On one hand, reforms employing Principal-Agent frameworks and assuming that Principals will attempt to minimize corruption and its effects have frequently proved ineffective (on problems inherent in such assumptions see Peiffer & Alvarez, 2015; for a Chinese example of how such Weberian outlooks may be seriously incomplete, see Rothstein, 2014). On the other hand, a political economy approach is often expected to recognize the functionality of corruption under certain specific circumstances while generating strategies and tactics for eradicating it. But a more philosophical approach suggests that pursuing ideal outcomes can be unwise as well as likely to fail, and that a more nuanced view of corruption can reveal flaws in legal frameworks as well as in individual and organizational behavior. Looked at in that light, partial compliance with laws, particularly within imperfect institutions and flawed legal regimes, is a decidedly non-ideal outcome but can also highlight the ways in which we must fundamentally reform some of our laws along with trying to improve the behavior of people. The seven articles collectively deploy an impressive range of methodologies and draw upon diverse and innovative sources of data. The articles in this special issue are likely not only to advance our understanding of corruption, reform, and the values and assumptions they simultaneously affirm and place under stress; they also highlight promising directions for future research. They will not reveal any silver-bullet reforms or provide “toolkits” for those seeking better institutions and policy, but they do offer a clearer understanding of the questions that must be asked as both research and reform move forward. We are grateful to each author for participating in this special issue of the Southern Economic Journal. The recommendations, if they may be called so, that have emerged from the studies are important and, if actioned, can work toward improving institutional, economic and social standings of all, and do so in ways that reflect the complexities of economic activity in contrasting settings. A special thanks to all referees who devoted their time to provide useful suggestions that improved each contribution. We are also grateful to Charles Courtemanche, the editor-in-chief of the SEJ for allowing this issue to flourish. We thank the Institutions, authors, editors, reviewers, and guest editors who made this contribution possible.