Uslaner is Professor of Government and Politics at the University of Maryland-College Park, where he has taught since 1975. In 1981-2 he was a Fulbright Professor of American Studies and Political Science at the Hebrew University, Jerusalem, Israel, and in 2005 he was a Fulbright Senior Specialist Lecturer at Novosibirsk State Technical University, Novosibirsk, Siberia, Russia. In 2006, he was appointed the first senior scholar at the Center for American Law and Political Science at Southwestern University of Political Science and Law, Chongqing, China.
Preface
In 2001: At the conference on "Political Scandals: Past and Present" at the University of Salford (Great Britain), and the conference "Toward a New Paradigm: Social Capital and Poverty Reduction in Latin America and the Caribbean", sponsored by the World Bank, the United Nations and the Social Capital Initiative of Michigan State University, Santiago, Chile. In 2002: At the conference on "Corrupt Transactions Exploring the Analytical Capacity of Institutional Economics," University of G ¨ottingen, G ¨ottingen, Germany; the International Institute for Institutional Analysis at the University of Tubingen (Germany), Sofia, Bulgaria; and Collegium Budapest Project on Honesty and Trust Conference, Workshop on Formal and Informal Cooperation, Budapest, Hungary. I also thank the General Research Board of the University of Maryland-College Park for a Spring 2006 semester Faculty Research Award that provided.
Corruption The Basic Story
A proxy measure of corruption in the 1920s—the state-level presidential vote for a reform (progressive) candidate for president in 1924—has a moderately strong relationship with state legislative reporters' perceptions of corruption in 1999. This definition of corruption effectively "exonerates" the people offering bribes (although I'm sure that's not what Rothstein, Teorell or Kurer meant to do). They also admit that these indices are perceptions rather than "reality". Yet insisting on “the best” can be the enemy of the good, that subjective and objective indicators of corruption “are complementary rather than alternative approaches” and that “perceptions matter in themselves, then.
Corruption and the Inequality Trap
Institutions of justice – the police and the courts – are different from other branches of government. Tyler (1990, chs. 4–5) argues that people respect – and obey – the law because they believe that the legal system is fair and that they have been treated fairly. Even the one institutionalist component of my argument – the fairness of the legal system – is not a simple measure of institutional design.
Corruption, Inequality, and Trust The Linkages Across Nations
First, when the government takes a dominant role in the economy, it creates many access points for entrepreneurs to "capture the state." Business leaders "capture" the state by paying public officials to provide them with private benefits. I estimate a six-equation model of corruption in 62 countries—the number of countries in which I have data for all variables in the model. the level of regulation in a country (from the World Bank's governance dataset for 2004), economic inequality, a country's overall stability and creditworthiness,5 and how effective a country's government is. For completeness, I include the Freedom House measure in the basic model for corruption – and “shift” the other variables into the list of instruments used for the system.
Ethnic diversity can lead to a strong sense of ethnic identity, which, as Lassen (2003, 8) argues, can result in “a political process that allocates exclusive public goods and transfers based on ethnic characteristics (favoritism). ". There are two types of governments in Europe, those that are always re-elected (Western Europe) and those that are never re-elected (Central and Eastern Europe).” The ICRG's measures of ethnic tensions and poverty are indicators of social tensions that make it difficult to effectively the government. This does not mean that governments cannot regulate the economy - Western European countries have the least "regulation".
As we move from low values on the Gini index (Belgium) to the highest (South Africa), trust falls by 21 percent – the difference between Switzerland and South Africa. The highest levels of conflict result in a 42-point shift in risk ratings – the equivalent of a shift from Germany to Israel or the Ukraine. The effect for trust is even stronger at -.608: Moving from the highest to the lowest level of general trust leads to large shifts in perceived corruption – the difference between the United States and Canada, on the one hand, and India, to the other.
There is also evidence in these surveys that perceptions of unfairness – legal fairness and representation across all issues in the Gallup International Millennium Surveys and concern about poverty in the Global Corruption Barometer – lead people to become more concerned about corruption.
Transition and the Road to the Inequality Trap
Part of the inequality trap is an unjust legal system, and former (and current) communist countries score poorly on legal justice, albeit slightly. In most analyses, I consider changes in inequality, rather than (or in addition to) absolute levels of inequality. Many of the old bosses were still around – and seemed to be among the few who really thrived in the new order.
An unfair legal system also leads to an increasing share of the economy in the informal sector since the transition (Figure A4-13; r2 = .580, N =18). As with the larger sample of countries, there is a clear correlation between justice in the legal system and corruption. Much of the reason for the deviation from a perfect linear relationship lies in the extraordinary growth rates of countries with the lowest levels of corruption – Estonia and Slovenia.
In the next chapter, I will show that because of the perceived increase in inequality and corruption in Romania, people demand that the state limit the incomes of the rich. In the United States (and other Western societies) in the 1960s, before the decline of general trust and the rise of a litigious society, business people made "deals with a handshake" (Macauley, 1963, 63). Businessmen in transition countries are not inclined to favor their customers.
There is less uncertainty about the fairness of the legal system - giving credit is therefore less risky.
The Rocky Road to Transition The Case of Romania 1
Romania stood on the edge of the European Union (EU) as a candidate country (together with Bulgaria). Almost a third of the economy is in the informal sector – and the share has increased by 16 percent since the transition. Perceptions of greater inequality should lead to less trust in others, less satisfaction with government performance, and demands to limit the incomes of the wealthy.
And people who object to ethnic rights are much more critical of the government's role in fighting corruption. The final equation in the model is for support for government restrictions on income of the wealthy. Finally and not surprisingly, supporters of the ruling PSD party are more likely to rate the government's handling of corruption positively.
However, I can estimate a model of the reciprocal effects of optimism (a key underlying factor of trust) and evaluations of government corruption control (as in the individual-level model). As the informal economy (according to the Heritage Foundation) grows, people are less likely to approve of government efforts against corruption. I focus on measures related to the inequality trap and especially on indicators of the informal sector - gift payments and connections.
Supporters of the ruling (and former communist) party, PSD, have more trust in the government, while residents of the capital (Bucharest) are less likely to trust the government.
Half Empty or Almost Full?
In Romania, the public is more likely to see corruption as linked to inequality, but there is no clear pattern in Slovakia. I examine research commissioned by the government of Estonia and the World Bank and the United States Information Agency (for Slovakia and Romania).3 The Estonian Population Survey in 2003 used personal interviews with a national probability sample (N=1002 respondents). With a set of measures, the public is more likely to say that a little corruption is acceptable.
The gray area in which entrepreneurs in turn offer officials goods for assistance - the value of the goods is not specified - is widespread, according to both the public and the officials, but even more so (by 76 to 65 percent, p<.0002) for the former. . Ethnic Estonians are less likely to trust strangers, but also less likely to believe that corruption is increasing. Higher-paid government officials are less likely to say corruption is increasing, as are older bureaucrats.
Entrepreneurs are less likely to see corruption as leading to inequality than ordinary citizens. Business people are less likely to say that embezzlement leads to inequality if they believe that corruption slows down the development of the private sector (by 32 percent) or if they say that it causes investors to lose confidence in the country (by 17 percent ). In a society characterized by a lot of corruption and increasing inequality, the emerging economic elite places the main blame for the link between corruption and inequality on civil servants – those who see entrepreneurs getting rich by extorting the private sector (see Chapter 5) . ).
As with the Romanian public (see chapter 5), it is grand corruption – the type of malpractice that leads to more inequality – that makes people trust their government less.
The Easy and Hard Cases
Yet both Singapore and Hong Kong score high on inequality and low on overall trust. They are in many ways the opposite of the transition countries, yet they pose a serious challenge to the inequality trap argument. They have two of the main foundations for a high level of corruption, almost everything except the crime itself.
Some of the key questions in my models were not asked in Zimbabwe, so I exclude Zimbabwean respondents from this analysis. I am grateful to Michael Bratton of Michigan State University and director of the Afrobarometer and Tetsuya Fujiwara, data manager of the Afrobarometer, for giving me advance access to the Round3 data on Nigeria. I then focus on the 2005 data (Round 3) for Nigeria – ranked 153rd along with Côte d'Ivoire and Equatorial Guinea in the 2005 TI rankings, making it one of the most corrupt countries in the world.
The data from the Round3 Afrobarometer indicates that Nigerians see a close relationship between how well the government deals with corruption and whether they see more fair treatment for all people than in the past: I estimate a simultaneous equation model for these two key components of the inequality trap . . Measures of equality are among the most important determinants of whether people approve of the government's handling of corruption. There is little evidence that either has reduced corruption and more than half of respondents to the 2005 Nigeria Afrobarometer disapproved of the performance of the Independent Corrupt Practices Commission.
The confirmation of the commission's operation is not only a reflection of the general attitude towards corruption.