Theories of the Causes of Corruption

Theories of the Causes of Corruption

Corruption is a complex phenomenon that takes various forms and methods, involves different actors and affect different parties, and transpires in environments that are conducive to promoting the pursuit of self-serving interests. Scholars have developed and proposed theories aimed at explaining the causes of corruption. Understanding the theoretical foundation of this phenomenon is essential to developing frameworks and implementing specific measures aimed at lessening or eliminating its prevalence.

Decoding Corruption: Leading Theories Explaining the Causes of Corruption and the Specific Factors that Create Environments Conducive to Corrupt Practices

1. Principal-Agent Theory

Several scholars have studied and expanded the merits of the principal-agent problem. This concept describes the conflict in interests and priorities that arises when one person or entity, called the agent, takes actions on behalf of another person or entity, or principal. The problem specifically arises when the interests of the principal and the agent are not perfectly aligned and leads to a potential conflict of interest.

The same concept has been used to explain corruption. The specific principal-agent theory of corruption was first proposed by economist and political scientist Susan Rose-Ackerman in her 1978 book “Corruption: A Study in Political Economy.” The theory was further developed by other scholars including renowned economist Jean-Jacques Laffont, transparency International founder Peter Eigen, and game theorist Avinash Dixit.

Central to the argument of the theory is that corruption occurs when agents, such as government officials or employees, have the opportunity to act in their own self-interest at the expense of their principals, such as the public or shareholders and stakeholders, due to information asymmetry or availability of incentives that promote self-serving pursuits. The agent-principal problem arises in situations that lack transparency and accountability or mechanisms aimed at punishing dishonest practices.

The theory has been criticized for being too simplistic. Critics have argued that it fails to take into account the role of institutions, culture, and other factors in shaping corruption. Economist and Nobel Prize recipient Thomas C. Schelling explained that the principal-agent theory is too focused on the individual level and disregards the role of groups and organizations in shaping corruption. Even Rose-Ackerman has modified her views.

Nevertheless, despite the criticisms, the principal-agent theory provides the most basic model for explaining the causes of corruption or the reason behind its occurrence. It has provided a general model for understanding the motivations behind corrupt practices, contextualizing specific forms and instances of corruption, determining some of the factors that contribute to corruption, and developing and implementing anti-corruption measures.

2. Rent-Seeking Theory

Two influential papers made the concept of rent-seeking the subject of durable interest among economists and political scientists. The 1967 paper “The Welfare Costs of Tariffs, Monopolies, and Licenses” by Gordon Tullock defines rent-seeking as a zero-sum game and wealth redistribution phenomenon that involves obtaining income through the manipulation of the political process rather than pursuing actual productive activities.

Furthermore, in the 1974 paper “The Political Economy of the Rent-Seeking Society,” economist Anne Krueger extended the work of Tullock and argued that rent-seeking flourishes in developing countries due to the significant degree of economic control vested in their governments. Individuals and entities are motivated to leverage their political affiliations in order to secure preferential treatment from the government.

Take note that rent-seeking refers to the pursuit of economic gains through non-productive activities that involve seeking to capture or redistribute existing wealth or resources. The specific rent-seeking theory posits that individuals or entities in the public and private sectors, engage in corrupt practices to control valuable resources or gain privileges and benefits. It suggests that these practices arises when individuals or groups engage in rent-seeking behavior to obtain economic rents or unearned benefits through illicit means.

It also highlights that the cause of corruption can be traced back to the presence of opportunities for rent-seeking behavior. These opportunities can arise due to various factors. For example, when resources are scarce or limited, individuals are motivated to gain control over these resources. Monopolistic markets and even in heavily-regulated markets can also motivate individuals to engage in corrupt practices to obtain unfair advantages.

The rent-seeking theory also argues that individuals and firms will compete when there are rents to be captured through various forms of corruption like bribery, fraud, nepotism and cronyism, and extortion. This can lead to a number of negative consequences like economic inefficiency, inequality, and weak institutions. Addressing corruption from a rent-seeking perspective involves reducing the opportunities for rent-seeking behavior.

3. Systemic Theory

Prevalent corruption is systemic. This is the main argument of the systemic theory of corruption. It is important to note that this theory also has more specific theories that provide a more focused explanation of the causes of corruption. These theories represent an approach that seeks to understand the prevalence of corrupt practices as a result of systemic factors and structural conditions rather than individual moral failings or character flaws.

One of these theories is the institutional theory which explains corrupt practices as something that arise from formal and informal rules, regulations, and practices that govern a society. It highlights the role of institutions in shaping these practices and examines the mechanisms by which structures, schemas, rules, and routines become established as authoritative guidelines for normalizing and promoting corrupt behaviors.

The institutional theory of corruption argues that weak or ineffective institutions can create an environment conducive to corrupt practices and strong institutions with robust checks and balances can help deter corrupt behavior. It fundamentally brings in the social context and provides a taxonomy for understanding how corruption might become entrenched in organizations, institutions, and the greater society despite the existence of anti-corruption measures. Solving corruption entails solving institutional inefficiencies.

Another specific systemic theory sees corruption as a product of cultural factors. The cultural theory argues that the collective cultural identity of a particular community can provide the groundwork for corruption. It emphasizes the role of cultural factors in promoting the normalization of corrupt practices or in creating environments that enable the existence of weak sociopolitical institutions and indifferent or unmoved citizenries.

Take note that a study of corruption in the Philippines framed its origin within a historical and sociocultural context. It explains that corrupt practices in the country differ from other Southeast Asian countries but are similar to Latin American countries. This comparison comes from the fact that the Philippines and Latin American countries were colonized by Spain and have a prevailing cultural identity shaped by the Roman Catholic Church.

4. Collective Action Theory

Economist and political scientist Mancur Olson proposed the collective action theory in 1965 as a framework that seeks to explain how and why individuals come together to pursue common goals or address shared concerns. It explores the factors that influence collective action, emphasizes the importance of collective action in achieving social change, and examines the conditions that promote participation in collective actions.

The theory highlights the complex interplay between individual motivations, group dynamics, social structures, and external factors in shaping collective action. It also has been used as an alternative to the principal-agent theory of corruption with its attempt to explain the persistence of systemic corruption despite the presence of laws that criminalize corrupt practices and why it resists various anti-corruption efforts in some countries.

Scholars A. Persson, B. Rothstein, and J. Teorell have made an interesting argument against the causes of corruption. Their paper “Why Anti-Corruption Reforms Fail” which was published in 2013 frames systemic corruption within the theory of collective action. They argued that people tend to rationalize their behavior based on the perceptions of what others will do in the same situation. Hence, in environments where corruption becomes a social norm, people start seeing it as a mere avenue or vehicle for getting things done.

The collection action theory essentially provides a framework for understanding corruption beyond the principal-agent theory while also producing insights relevant to understanding the specific causes of corruption by examining the social and structural factors that contribute to its occurrence. The theory considers widespread corruption as a systemic problem and provides the broader context that enables and sustains corrupt behavior.

It is important to underscore that this theory also complements several specific systemic theories of corruption like institutional theory and cultural theory. These theories suggest that anti-corruption measures based on the principal-agent model will not be effective in a setting that has normalized corrupt practices. The same theory of collective action proposes the need for collective and coordinated approaches to solving corruption.