Corruption and Government: Causes, Consequences, and Reform by Susan Rose-AckermanReview by: Jody W. LipfordPublic Choice, Vol. 104, No. 1/2 (Jul., 2000), pp. 196-199Published by: SpringerStable URL: http://www.jstor.org/stable/30026471 .

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incumbency and, hence, to increase the competitiveness of political markets. Public choice reasoning suggests, however, that rationally self-interested politicians are not likely willingly to take actions that reduce the security of their offices. But in documenting the causes and consequences of the obstacles to competition in the political marketplace, Monopoly politics helps shift the burden of proof onto the shoulders of those who would defend the status quo either from Chicago's ivory towers or from Washington's sewers.

WILLIAM F. SHUGHART II, School of Business Administration, University of Mississippi, University, MS 38677, U.S.A.

Public Choice 104: 196-199, 2000.

Susan Rose-Ackerman, Corruption and Government: Causes, consequences, and reform. Cambridge: Cambridge University Press, 1999. xiv + 266 pages. $49.95 (cloth).

Since government is among the oldest of human social institutions, corruption, defined as "the misuse of public power for private gain" (p. 91), is among the oldest and most universal of human vices. At the close of the twentieth century, when the development of third-world countries and transitional economies, many of which are infested with corruption, is of primary importance and interest, Rose-Ackerman has written an insightful, thorough, and detailed volume on the origins and effects of corruption as well as on the possibilities for reform. Grounded in an understanding of human incentives and filled with accounts of corruption's impact around the world, the book is essential reading for anyone seeking to understand the problems and possible cures for corruption.

Rose-Ackerman begins by noting the vastly different levels of economic performance and development around the world, and argues that corruption has something to contribute to explanations of divergent economic welfare. Corruption, like rent seeking and war, is the result of poorly channeled self- interest.

Yet, Rose-Ackerman's book is not primarily about morals or behavi- oral theories. Indeed, the book is immensely practical. And in this spirit of practicality, she explains in part I the far-reaching and potentially devast- ating economic consequences of "grand corruption" by high-level officials, and low-level corruption by civil servants. The economic problems result- ing from high-level corruption range from robbery of public budgets and over-investment in capital-intensive (often "white elephant") projects to un- certainty for private investors and corrupt privatizations. That distortions in

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resource allocation and reductions in private investment generate poverty and retard economic growth seems evident. But, Rose-Ackerman argues that even lower-level corruption, some of which might seem efficient - for example, bribery to get around below-market prices, reduce bureaucratic delay, or lower the cost of government taxes and regulations - brings seri- ous consequences. Inequality and arbitrariness are introduced, the business climate becomes uncertain, the legitimacy of the state is undermined, and a culture of corruption spreads. Whether corruption occurs with high- or low- level government officials, its consequences are serious and its amelioration desirable.

The complete eradication of corruption is, of course, not feasible. Yet, Rose-Ackerman is optimistic that reforms can make a difference. To tackle large-scale corruption, she recommends a multifaceted attack including the elimination of some government programs, simplified tax codes, market- based regulations, program simplification, competition among bureaucrats, anticorruption laws, and procurement reform. To curb small-scale corruption, she recommends civil service reforms, such as higher and less compressed pay scales for government workers, rewards for good service, and perhaps rotating officials to disrupt the informal links between high- and low-level bureaucrats that facilitate corruption. An alternative to creating a professional civil service is contracting out some government services, an option that can be successful, though the substitution of private corruption for public cor- ruption will hardly improve matters. For maximum effectiveness, large- and small-scale reforms should be combined.

For all of her optimism that reforms can work, Rose-Ackerman displays a healthy sense of realism in part II. Corruption can be quite viable, so expecta- tions from reforms must be held in check. At first thought, corruption may not seem stable or viable for the long term, since corrupt agreements lack legal enforcement. Nevertheless, other means of ensuring compliance with illicit agreements may be quite effective. Trust can grow between corrupt parties, and reputations for performance can be established. Since each corrupt party may fear reprisal if exposed, reputational "hostage taking" also helps to en- sure compliance. And, reciprocal obligations (e.g., vote-trading) may have a role to play. All of these means of assuring compliance are especially at- tractive if formal, legal means are weak and unreliable. In addition, they may thwart reform efforts and undermine the progress of reform governments. On the other hand, if legal means of assuring compliance are functional, some

entrepreneurs may "try it", and if successful, unleash a "virtuous cycle". After examining the economic and cultural problems of corruption, Rose-

Ackerman turns to corruption as a political problem in part III. In the "'industrial organization' of corruption", a kleptocratic system, consisting of

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multiple bribers and top-level recipients, is clearly subject to corruption. A weak kleptocracy, in particular, is subject to high marginal tax rates, onerous regulations, and state-directed allocations of foreign exchange and credit to maximize opportunities for corruption that enrich rulers. This tendency is only exacerbated if the kleptocrat fears a loss of power, since a short-run outlook raises the ruler's discount rate.

Whatever the tendencies towards corruption in authoritarian regimes, democracy does not guarantee a solution. Narrowly focused interest groups will seek government-provided favors through legal or illegal channels, the latter being especially likely for groups lacking political clout. Cam- paign contributions, conflicts of interest, and vote-buying can be powerful influences in democratic government. And, reform may be difficult. For ex- ample, limitations on campaign contributions may merely cause donors to switch from legal contributions to illegal bribes. Nevertheless, these limita- tions, along with electoral competition, publicly financed campaigns, shorter campaign periods, and strict disclosure rules may help to curb corruption.

Some reform proposals would aid the fight against corruption, regardless of the political system. Checks and balances dilute political power, and ac- countability gives citizens information on what they can rightly expect from government and how to redress corrupt treatment. To uphold the rule of law, judges must have limited discretion, and laws must be consistent.

Finally, in part IV, Rose-Ackerman addresses international and domestic conditions that facilitate reform. Rejecting arguments of Western intrusion and the irrelevance of corruption to economics, Rose-Ackerman argues that the World Bank, International Monetary Fund, and multinational corporations should use their influence against corrupt regimes. On the domestic front, support from individual citizens and the business community is essential. Political scandals and economic crises may galvanize this support, but a dys- functional bureaucracy alone may be sufficient. Reform is most likely to be sustained if the bureaucracy represents both a small share of total employ- ment, so that reemployment in the private sector is a viable alternative, and is well compensated, so that incentives to accept bribes are deterred.

As I have attempted to show in reviewing the contents of the book, Rose- Ackerman provides a thorough and authoritative discussion of all aspects of corruption. The book is clearly written, carefully argued, and brimming with revealing examples. Though some readers may find the book excessively detailed, it is, on the whole, quite readable.

Yet, are Rose-Ackerman's conclusions realistic? Ardent libertarians will say "no", arguing that proposed reforms address mainly the symptoms of the problem (corruption) instead of the disease (excessive government size and scope). And, even those with more conventional views of government's

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proper role in society may be left wondering about the feasibility of reforms. For example, as Rose-Ackerman points out, governments that are too secure are likely to engage in corruption, but so too are those that are insecure. Can the right measure of security, one that balances valid electoral competition against a short time horizon, be recognized and achieved? In addition, how capable is the international community of knowing the degree of corruption in a country? Is reform really likely in countries where corruption has become systemic? And finally, will not the complexity of many proposed reforms, such as different criteria for public procurement depending upon the product being purchased, lessen the likelihood of their implementation and long-run success?

Whatever the merit of these questions, many proposed reforms, such as more simplified tax and regulatory codes, are credible. Believers in these and more problematic reforms can point to the successes of institutional structures in many Western democracies that have relatively low levels of corruption, and hold hope that these examples, along with the demands of domestic cit- izens and an international climate increasingly opposed to corruption, will lead to similar successes in countries where corruption remains resilient.

While this book will be of general interest to any student of politics and economics, I submit it is especially relevant to two audiences. First, any scholar seeking a better understanding of the difficulties facing developing and transitional economies will benefit immensely from this work. Second, any economists who (like the author of this review) too often blithely teach the role of market forces in resource allocation, or macroeconomic growth theory, without noting the presuppositions of secure property rights and the rule of law, will be reminded of the importance of these presuppositions, and the need to stress them to their students.

JODY W. LIPFORD, Economics and Business Administration, Presbyterian College, Clinton, SC 29325-0000, U.S.A.

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