http://abs.sagepub.com/American Behavioral Scientist

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 DOI: 10.1177/000276426400800303

1964 8: 8American Behavioral ScientistNathaniel H. Leff

Economic Development Through Bureaucratic Corruption  

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- Nov 1, 1964Version of Record >>

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Economic DevelopmentThrough Bureaucratic Corruption

by Nathaniel H. Leff

Among scholars the subject of corruption is nearly taboo. Placing it in a modelof developing economy as a developing factor is even worse in some eyes. No doubt,Nathaniel H. Leff’s analysis will be misunderstood. So be it. It still bids us to under-stand an important area of social behavior, and tells us why public policies will fail.The author is at Harvard University.

THE BUREAUCRATIC CORRUPTION of many un-

derdeveloped countries has been widely condemned bothby domestic and foreign observers. Apart from thecriticism based on moral grounds, and the technocraticimpatience with inef6ciency, corruption is usually as-

sumed to have important prejudicial effects on the eco-nomic growth of these societies.1

Corruption is an extra-legal institution used by indi-viduals or groups to gain influence over the actions ofthe bureaucracy. As such, the existence of corruptionper se indicates only that these groups participate in thedecision-making process to a greater extent than wouldotherwise be the case. This provides information aboutthe effective-as opposed to the formal-political system,but in itself, tells us nothing about the content and de-velopment effects of the policies so determined. These

depend on the specific orientation and interests of thegroups which have gained political access. As we shall

see, in the context of many underdeveloped countries, thispoint can be crucial. For example, if business groupsare otherwise at a disadvantage in articulating their in-terests to the government, and if these groups are morelikely to promote growth than is the government, thentheir enhanced participation in policy formulation canhelp development.

Furthermore, our discussion is limited to corruption ofa particular type: namely, the practice of buying favorsfrom the bureaucrats responsible for formulating andadministering the government’s economic policies. Typi-cal examples are bribery to obtain foreign exchange,import, export, investment or production licenses, or

to avoid paying taxes. Such bribes are in the nature ofa tax levied on economic activity. These paymentshave not been legitimized by the correct political process,they are appropriated by the bureaucrat rather than thestate, and they involve the subversion of the govern-ment’s economic policies-hence the stigma that attachesto them. The question for us to decide is whether thenet effects caused by such payments and policy redirec-tion are likely to favor or hinder economic development.We should also distinguish between bureaucratic cor-

ruption and bureaucratic inefficiency. Corruption refersto extra-legal influence on policy formulation or imple-mentation. Ine$iciency, on the other hand, has to dowith the success or failure, or the economy of means

used by the bureaucracy in attaining given goals,whether those of its political directors, or those of thegrafters. Empirically, inefliciency and corruption mayappear together, and may blend into each other. Bothas a policy problem and for analytical purposes, how-ever, it is important to distinguish between two essen-tially different things.

Who Condemns Corruption?

Before proceeding to our analysis of the economic ef-fects of bureaucratic corruption, it may be useful to

make a brief detour. Any discussion of corruption mustcontend with the fact that the institution is almost uni-versally condemned. Insofar as this criticism is basedon moralizing-explicit or latent-self-interest, or ide-

ology, it can be a formidable obstacle to rational analysis.Consequently, in order to gain a degree of perspectiveon the subject, I would like to consider the sources of thewidespread prejudice against corruption. Identifyingthe specific sources of bias, and breaking down gener-alized censure to its component parts should help usto evaluate each argument on its own merits. For thispurpose, let us consider the origins of the critical atti-tude held by such groups as foreign observers, govern-ment ofhcials, and entrepreneurs, and by intellectuals,politicians, and businessmen in the underdeveloped coun-tries themselves.

Foreigners living in the underdeveloped countries havebeen persistent critics of corruption. First, they have re-sented the payments of graft to which they are oftensubjected in the normal course of their business. Sec-

ondly, they have condemned corruption on moral

grounds, and criticized it as both a cause and a charac-teristic of the backwardness of these countries.A more sophisticated, and recent version of this argu-

ment derives from the new interest in promoting eco-nomic development. As economists and observers ofeconomic development have grown aware of the enor-mous obstacles to spontaneous growth, they have cometo assign an increasingly important role to the govern-ments of the underdeveloped countries.

First, there has been an emphasis on the need forentrepreneurs, coupled with the fear that the under-developed countries may lack indigenous sources of

entrepreneurship. Secondly, recent economic theory

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stressed the importance of indivisibilities, externalities,and other structural features that may prevent an un-derdeveloped economy from breaking out of a low-income equilibrium trap. In addition, there was therealization that the flow of private capital and technicalskills was insufflcient for promoting large-scale growth.With the ensuing flow of inter-governmental transfers,came the need for the governments of the underde-veloped countries to assume responsibility for the re-

sources they were receiving.Because of these reasons and political pressures, the

governments of the underdeveloped countries have cometo occupy a very prominent place in most visions ofeconomic development. In a sense, economists have col-lected their problems, placed them in a box labelled&dquo;public policy&dquo;, and turned them over to the govern-ments of the underdeveloped countries.

In order for the governmental policies to be effective,however, the bureaucracies must actually implementthem. Hence it becomes crucial that officials not be in-fluenced, through graft, to deviate from their appointedtasks. The logic of this argument goes as follows: de-

velopment-bureaucracy-e~ciency-probity. This chainof reasoning is central to the whole critique of corrup-tion, and we shall examine it carefully in the next section.Before going further, however, let us note a few im-portant points about this argument.

First, it confuses bureaucratic inefficiency and bureau-cratic redirection through dishonesty and graft. Sec-

ondly, transferring these problems to the governmentsand bureaucracies is hardly enough to solve them, forthese institutions may not be at all likely to promotegrowth. Rather than leading the development process,the governments and bureaucracies may be lagging sec-tors. Finally, the argument implies that because the

bureaucracy is so strategic an institution, an attack onbureaucratic corruption deserves high policy priority,offering relatively cheap and easy gains.

Foreign aid missions seem to have been particularlyprone to draw such conclusions, for understandable rea-sons. The bureaucracy’s performance will determine thesuccess or failure of many other projects. Moreover, incontrast with some of the other problems facing foreigndevelopment specialists, reform of the civil service mayseem a relatively straightforward matter. Furthermore,whereas in other development efforts foreign specialistsmay feel hampered by the lack of well tested doctrineand procedures, in restructuring the bureaucracy, theycan rely on the expertise of public administration andmanagement science. Therefore, it is not surprising thatso much foreign development attention and activity havebeen directed toward the reform of the bureaucracies ofunderdeveloped countries.

In the underdeveloped countries themselves, much ofthe condemnation of graft has also come from interest ineconomic development, and from the apparent cogencyof the development/bureaucracy/efficiency/probity logic.

Here, moreover, the special ideological perspectives andinterests of powerful and articulate groups have rein-forced the criticism. Let us consider the specific perspec-tives that intellectuals, politicians, and businessmen in

the underdeveloped countries possess.The attitudes of intellectuals and of politicians toward

corruption overlap to a certain degree. As members ofthe same rising elite, they condemn corruption becauseof the idealistic streak which often pervades radicals andreformers. Contemporary intellectuals in underdevel-

oped countries often emulate the Jacobins in their

seeking after virtue. Moreover, as Shils has pointed out,2they frequently attribute sacral value to the govern-mental sphere: hence their hostility to the venality thatwould corrupt it. More generally, they may see graftas an integral part of the political culture and system ofthe ancien regirrte which they want to destroy.

Furthermore, they also have a direct interest in dis-crediting and eliminating corruption because of its func-tional effects. In most underdeveloped countries, interestgroups are weak, and political parties rarely permit theparticipation of elements outside the contending cliques.Consequently, graft may be the only institution allowingother interests to achieve articulation and representationin the political process. Therefore, if the ruling elite isto maintain its exclusive control of the bureaucracy, itmust cut off or control this channel of influence.3 3 Suchconsiderations apply especially when the politically dis-advantaged group consists of an ethnic minority or offoreign entrepreneurs over whom the elite would liketo maintain its dominance.

Entrepreneurs in underdeveloped countries have alsocondemned bureaucratic corruption. This is understand-able, for they must pay the bribes. Moreover, becauseof certain economic characteristics of graft, the discon-tent that it arouses probably goes far beyond the costof the bribe alone.

It is important to realize that most of the objects ofcorruption are available only in fixed and limited supply.For example, at any point in time, there is only a givenamount of foreign exchange or a given number ofinvestment licenses to be allocated. Consequently, whenthe number of favors is small relative to the number ofaspirants, entrepreneurs must bid against each other inwhat amounts to a clandestine and imperfect auction.With competition forcing prices up, the favors will tendto be allocated to those who can pay the highest prices.In the long run, the favors will go to the most efficientproducers, for they will be able to make the highest bidswhich are compatible with remaining in the industry.

Marginal firms, on the other hand, will face severepressures. Either they accept sub-normal profits, or theymust make the effort to increase efficiency, so as to

muster the resources necessary to bid successfully. If

they drop out of the contest, they are placed in a weak-ened position vis-a-vis the other firms, which are now

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even more intra-marginal because of the advantagesgiven by the bureaucratic favor.

This sort of situation, where the efficient are able toout-do the inefficient, is not generally appreciated bybusinessmen. It is likely to be the less popular in under-developed countries where-in deference to the preva-lence of inefficiency, and to local ideas of equity-themore usual practice is to tax efficient producers inorder to subsidize the ine~cient. Moreover, as we haveseen, corruption may introduce an element of competi-tion into what is otherwise a comfortably monopolisticindustry.

Furthermore, in their bidding for bureaucratic favors,businessmen may have to give up a substantial part ofthe profits from the favor. The economic value of thefavor is equal to the return expected from the favoredposition it makes possible. This value constitutes the

upper limit to the bids made by entrepreneurs. Theactual amount paid is indeterminate, and depends onthe relative bargaining skills of the bureaucrats and thebusinessmen. The competitive bidding between busi-nessmen, however, may force the price to approach theupper limit. In such a case, the bureaucrat captures thelion’s share of the profits expected from the favor. Com-petitive selling by different bureaucrats may strengthenthe bargaining position of the businessmen, but in gen-eral they are probably forced to pay out a relatively largeportion of their expected gains. Hence, it is not surpris-ing that they dislike an institution which deprives themof the fruits of their enterprise.4The foregoing discussion suggests that many of the

negative attitudes toward corruption are based uponspecial viewpoints and interests. VVe should also realizethat the background material available on the subjectis both scanty and one-sided. Those who engage in

corruption maintain secrecy about their operations, so

that the little data available comes from declared oppo-nents of the institution. Moreover, those who profit fromcorruption may themselves have no idea of the sociallybeneficial effects of their activities.The widespread condemnation of corruption has come

to constitute a serious obstacle to any reexamination ofthe subject. Indeed, the criticism has become somethingof a ritual and symbol-laden preamble accompanyingpolicy discussion and statements in the underdevelopedcountries. As such, it is cherished for the modicum ofconsensus it provides to otherwise antagonistic groups.

Positive Effects of Corruption

The critique of bureaucratic corruption often seemsto have in mind a picture in which the government andcivil service of underdeveloped countries are workingintelligently and actively to promote economic develop-ment, only to be thwarted by the efforts of grafters.Once the validity of this interpretation is disputed, theeffects of corruption must also be reevaluated. This is

the case if the government consists of a traditional elitewhich is indifferent if not hostile to development, or of

a revolutionary group of intellectuals and politicians, whoare primarily interested in other goals. At the same time,the propensity for investment and economic innovationmay be higher outside the government than within it.

Indifference and hostility of government

In the first instance, the government and bureaucracymay simply be indifferent to the desires of entrepreneurswanting to initiate or carry on economic activities. Sucha situation is quite likely in the absence of effectivepopular pressure for economic development, or in theabsence of effective participation of business interestsin the policy-making process. This is especially the casewhen entrepreneurs are marginal groups or aliens. Moregenerally, when the government does not attribute muchvalue to economic pursuits or innovation, it may well bereluctant to move actively in the support of economicactivity.Even more important, the bureaucracy may be hostile

to entrepreneurs, for it dislikes the emergence of a com-peting center of power. This is especially the case incolonial economies, where a large domestic middle classhas not emerged to challenge traditional power-holders.Governments have other priorities

The foregoing relates to societies where although lip-service may be paid to the importance of economic

development, the government and bureaucracy are

oriented primarily to maintaining the status quo. It isalso relevant in countries where a successful revolutionagainst the ancien regime has occurred. There, the gov-ernment may be proceeding dynamically, but not towardthe promotion of economic development. Other goals,such as an increase in the military power available tothe elite, or expansion of its control over society, maybe justified in terms of economic development, however&dquo;ultimate&dquo;. At the same time, the immediate effect ofsuch policies is to impede growth.

Typically the bureaucracy plays an extensive inter-ventionist role in the economy, and its consent or sup-port is a sine qua non for the conduct of most economicenterprise. In such a situation, graft can have beneficialeffects. First, it can induce the government to take amore favorable view of activities that would furthereconomic growth. The policies or freedom sought bythe entrepreneurs would help development, while thosethey subvert are keyed to other goals. Secondly, graftcan provide the direct incentive necessary to mobilizethe bureaucracy for more energetic action on behalf ofthe entrepreneurs. This is all the more important becauseof the necessity for bureaucratic help in so many areas-e.g., licenses, credit, and foreign exchange allocation-in order to get anything done.

Corruption reduces uncertainty and increases investment

Corruption can also help economic development bymaking possible a higher rate of investment than wouldotherwise be the case.

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The investment decision always takes place in themidst of risk and uncertainty. As Aubrey has pointedout,5 however, these difficulties are very much com-

pounded in the economic and political environment ofunderdeveloped countries. The basic estimates of futuredemand and supply conditions are harder because of thelack of data and of the sharp shifts that can occur duringa period of economic change. The dangers of misjudg-ing the market are all the more serious because of thelower elasticities of substitution at low income levels.

Aside from the problems of making such economicestimates, the potential investor also faces a major polit-ical unknown-the behavior of the government. The

possible dangers arising from the government’s extensiverole in the economy are increased because of the failureof representative government to put an effective checkon arbitrary action. The personalist and irrational styleof decision-making, and the frequent changes in govern-ment personnel and policies add to the risks. Conse-

quently, if entrepreneurs are to make investments, theymust have some assurance that the future will not bringharmful intervention in their affairs. We can see an

illustration of these difficulties in the fact that in periodsof political uncertainty and crisis, investment shrinks,and economic stagnation occurs. By enabling entrepre-neurs to control and render predictable this importantinfluence on their environment, corruption can increasethe rate of investment.

Corruption and innovation

The would-be innovator in an underdeveloped societymust contend with serious opposition from existing eco-nomic interests. Unable to compete economically withthe new processes or products, they will usually turn tothe government for protection of their investments andfuture returns. If the bureaucracy supports innovatioiiand refuses to intervene, the innovation can establishitself in the economy. In the more usual case, however,existing economic interests can depend on their long-standing associations with bureaucratic and politicalcompadres for protection.

In this situation, graft may enable an economic inno-vator to introduce his innovations before he has hadtime to establish himself politically 6 Economic inno-vators in underdeveloped countries have often supportedoppositional political cliques or parties. Corruption is

another, less radical way of adjusting to the same pres-sures and goals.Corruption, competition, and efficiency

As we have seen in the previous section, bureaucraticcorruption also brings an element of competition, withits attendant pressure for efficiency, to an underdevel-

oped economy. Since the licenses and favors availableto the bureaucrats are in limited supply, they are allo-cated by competitive bidding among entrepreneurs.Because payment of the highest bribes is one of the prin-cipal criteria for allocation, the ability to muster revenue,

either from reserves or from current operations, is putat a premium. In the long run, both of these sources areheavily dependent on efliciency in production. Hence,a tendency toward competition and efficiency is intro-duced into the system.Such a pressure is all the more important in under-

developed countries, where competition is usually absentfrom many sectors of the economy. In the product mar-ket, a high degree of monopoly often prevails. Inter-national competition is usually kept out by quotas, tariffs,and overvalued exchange rates. In the factor market,frictions and imperfections are common. Consequently,we can appreciate the value of introducing an elementof competition, if only through the back-door.

Corruption as a hedge against bad policy

Corruption also performs the valuable function of a&dquo;hedge&dquo; and a safeguard against the full losses of badeconomic policy. Even when the government of an

underdeveloped country is proceeding actively and in-telligently to promote growth, there is no assurance thatits policies are well-conceived to attain its goals. In

effect, it may be taking a vigorous step in the wrongdirection. Corruption can reduce the losses from suchmistakes, for while the government is implementingone policy, the entrepreneurs, with their sabotage, areimplementing another. Like all insurance, this involvesa cost-if the government’s policy is correct. On theother hand, like all insurance, it is sometimes very wel-come.

An underdeveloped country often stands in specialneed of such a safeguard. First, even when policygoals are clearly specified, competent counsel may wellbe divided as to the best means of achieving them. Forexample, the experts may differ among themselves onsuch basic issues as export promotion vs. import substi-tution, or other inter-sectoral priorities. Consequently,if the government has erred in its decision, the coursemade possible by corruption may well be the better one,supported by a dissenting segment of expert opinion.Moreover, the pervasive effects of government policy inan etatistic economy compound the effects of poor deci-sions, and increase the advantages of having some kindof safeguard against the potential consequences of a

serious policy mistake. Corruption provides the insurancethat if the government decides to steam full-speed in thewrong direction, all will not be lost.Some illustrations may help clarify this point. For

example, the agricultural producers whose graft sabo-taged Peron’s economic policies were later thanked forhaving maintained Argentina’s capacity to import. An-other example shows in more detail how this process canoperate. An important element in the recent LatinAmerican inflations has been the stagnation of food pro-duction, and the rise in food prices. In both Chile andBrazil, the governments reacted by freezing food prices,and ordering the bureaucracy to enforce these controls.

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In Chile, the bureaucracy acted loyally to maintain pricecontrols, and food supplies were relatively stagnant.lnflation rose faster, supported in part by the failure offood 1)t,,)duction to increase. In Brazil, however, the

bureaucracy s ineffectiveness sabotaged the enforcementof price controls, and prices received by producers wereallowed to rise. Responding to this price rise, food pro-duction also increased somewhat, partially limiting thecourse of the inflation.’ 7

In this case, we see the success of entrepreneurs andcorrupted officials in producing a more effective policythan the government. Moreover, subsequent economicanalysis justified this &dquo;decision&dquo;, by emphasizing the

price elasticity of agricultural supply, and the conse-quent need to allow the terms of trade to turn in favorof rural producers.These points are perhaps strengthened when viewed

with some historical perspective. As John Nef has re-

marked, the honesty and efficiency of the French bu-reaucracy were in great measure responsible for the

stifling of economic innovation and progress during the18th century.s By way of contrast, the laxity of theBritish administration permitted the subversion of Col-bertism, and allowed new economic processes and activi-ties to flourish.

Alleged Negative Effects of Corruption

Most of the arguments concerning the negative effectsof corruption are based on the assumption that develop-ment can best proceed through the policies of an uncor-rupted government and bureaucracy. As noted in the

previous section, this assumes that the government reallywants economic development, and that its policies wouldfavor growth more than the activities of an unregulatedprivate sector. Actually, the economic policies of the

governments of many underdeveloped countries may bepredicated on priorities other than global economic de-velopment. Even in countries where there has been asuccessful revolution against the colonial ancien regime,policy may aim primarily at advancing the economicinterests of the ruling clique or of the political group onwhich it bases its dominance. Although the economicpolicies of some countries may be foolish or catastrophicfrom the viewpoint of development, they may be wellconceived for implementing these other goals.9

Impeding taxation

One version of this argument focuses on taxation.

Specifically, it asserts that bureaucratic corruption mayhamper development by preventing the government fromobtaining the tax revenues necessary for developmentalpolicies.

This argument probably attributes to the governmentan unrealistically high propensity to spend for develop-ment purposes. Economic development usually has a

less compelling priority among the elites of these soci-eties than among the westerners who observe them. Evenif the dominant groups are aware and sensitive to the

situation of the lower classes, they may be reluctant tobear the costs of development. Hence, the actual levelof taxes collected, and their allocation in the budgetmay represent the decision of the ruling group as to howhard they want to press forward with economic develop-ment. In these circumstances, it is misleading to criti-cize the bureaucracy for the effects of its ineffective taxcollection on economic growth. Of the revenues theymight have collected, only a part would have gone fordevelopment rather than for the many forms of non-developmental expenditure. Moreover, when the entre-preneurs’ propensity to invest is higher than the govern-ment’s, the money saved from the tax collector may bea gain rather than a loss for development.Usefulness of government spending

Furthermore, there is no reason to assume that thegovernment has a high marginal propensity to spend fordevelopment purposes, based on a high income elasticityof demand for development. Without changes in thefactors determining the average allocational propensities,increases in governmental revenue may well go for morelavish satisfaction of the same appetites. For example,as budgetary receipts rise, the military may be suppliedwith jet aircraft rather than with less expensive weapons.

Cynicism

Another argument has emphasized the social effectsof corruption as an impediment to development. For

example, it has been claimed that immorality and self-seeking of bureaucratic corruption may cause widespreadcynicism and social disunity, and thus reduce the willing-ness to make sacrifices for the society’s economic develop-ment.

This argument can be criticized on several points.First, insofar as the disillusion is engendered among

the lower social orders, the effects on development maynot be as important as assumed. Because of economicand social conditions, these people are probably beingsqueezed as much as is possible, so that with all goodwill, they could not sacrifice any more.

Secondly, if the cynicism caused by bureaucratic cor-ruption leads to increased self-seeking in the rest of thesociety, this may not be a completely bad thing foreconomic development. Many of the wealth-creatingactivities which make up economic growth depend onsuch atomistic egoism for their stimulus. Consequently,if cynicism acts as a solvent on traditional inhibitions, andincreased self-seeking leads to new ambitions, economicdevelopment may be furthered.

Moreover, this argument also exaggerates the extentto which economic growth depends on a popular rallying-around rather than on many individual selfish activities.The implicit picture seems to be that of an &dquo;all-together&dquo;social effort, perhaps under etatistic direction. Oncestated explicitly, such a model appears more like a fan-tasy of intellectuals rather than an accurate guide to howeconomic development takes place.

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More generally, we should recognize that there arevery good reasons for the incivism and unwillingness tomake sacrifices that are often characteristic of under-developed societies. Mutual distrust and hostility usuallyhave much deeper roots in cultural gaps, inequitable in-come distribution, and long experience of mistreatment.Rapid change, dislocating existing institutions and values,also disrupts social solidarity. In such circumstances,reduced bureaucratic corruption would make only a

marginal contribution to improved public morale.

Corruption as a Policy Problem

The foregoing analysis and perspective may also behelpful in dealing with bureaucratic corruption as a

policy problem.First, we should be clear as to the nature of &dquo;the

problem&dquo; that policy is attempting to solve. As we haveseen, much of the criticism of corruption derives fromthe political, economic, and ideological interests of par-ticular groups. Presumably the elimination of corrup-tion is a problem only insofar as we share their specificconcerns.

Aside from these special interests, however, let us

consider corruption from the point of view of its effectson economic development. As we have seen, under cer-tain conditions, the consequences of corruption for de-velopment are not as serious as is usually assumed. Atthe same time, it may have important positive effectsthat are often overlooked. Consequently, to the extentthat reality approaches the conditions of our model,corruption of the type discussed in this paper may notbe a problem at all. This will depend on specific con-ditions, and will vary between countries and betweensectors.

When the conditions of our model do not obtain,however, corruption will be an important barrier to

development. To the extent that corruption exists as apolicy problem, it is probably wise to accept it as a

particularly intractable part of an underdeveloped coun-try. On a superficial level, we should recognize thatcorruption creates its own political and economic inter-ests that will resist efforts at its eradication. More im-

portant, corruption is deeply rooted in the psychologicaland social structure of the countries where it exists. Onthe psycho-cultural plane, corruption will persist untiluniversalistic norms predominate over particularisticattitudes. Socially, the elimination of corruption prob-ably requires the emergence of new centers of poweroutside the bureaucracy, and the development of com-petitive politics. Such changes will come, if at all, onlyas the result of a long period of economic and socialdevelopment.

Bureaucracy the lagging sector

Two conclusions emerge from this discussion. First,we should realize how illusory is the expectation thatbureaucratic policy can intervene as a deus ex machina

to overcome the other barriers to economic growth. In

many underdeveloped countries, the bureaucracy maybe a lagging rather than a leading sector. Secondly, itshould be clear that direct policy efforts against suchdeeply rooted psychological and social conditions can-not hope for much short-term success. As Braibanti con-cludes,l° powerful investigatory commissions may havea limited success, but one should expect the problem tobe improved &dquo;more by time than by effort&dquo;.

Despite the pessimistic prospects for the usual direct-action policies against corruption, certain possibilitiesdo exist for dealing with it indirectly. The problem is

perhaps best conceptualized in terms of the need toeconomize in the use of a particularly scarce and im-portant resource-honest and capable administrators.Indeed, for several reasons, this shortage may be moreserious than others more often cited, e.g., the lack ofcapital. Because of political reasons, this input into thedevelopment process cannot be imported on a largescale. Furthermore as we have noted, available domesticsupplies cannot be expected to increase for a long timein most underdeveloped countries. Finally, this inputis all the more crucial because of its importance for thesuccessful deployment of other resources. If we view

corruption as a problem in the allocation of scarce

administrative resources, two solutions are immediatelysuggested.

Two techniques

First, the available resources should be concentratedin areas where their productivity in promoting develop-ment would be greatest. Such budgeting of administra-tors would avoid dispersion of honest and able personnel,and make them available only for tasks of the highestpriority.A second way of economizing in the use of this scarce

resource would be the use of alternative productiontechniques to achieve the same development results. Inour context, this would mean employing measures to

achieve the goals of policy without reliance on directadministration and bureaucratic regulation of the econ-omy.

In many cases, the desired effects could be achievedeither by market forces, or by indirect measures creatingthe necessary incentives or disincentives-i.e., with muchless direct government intervention, and the consequentneed to rely on the bureaucracy. For example, a govern-ment which wants to keep down the domestic price levelcan either institute a cumbersome system of price regu-lation, or it can permit a measure of competition fromimports. Similarly, a straightforward currency devalua-tion can have many of the beneficial effects achieved byan administration-intensive regime of differential ex-

change rates. Admittedly, such policies may have someundesired consequences and side-effects that ideallywould be avoided by more sophisticated governmentmanagement of the economy. The point is, however,

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that when policy alternatives are evaluated, it would bebetter to take explicit account of how bureaucratic cor-ruption will affect the direct management policies con-templated. This would lead to a more realistic choicebetween the means which can accomplish similar goals.Perhaps the best procedure would be to select a mixtureof direct and of indirect management policies, takingaccount of the bureaucratic resources available.By way of contrast, the more usual practice is to

choose the policies that would be best if the wholebureaucracy were dependable, and then to deplore its

corruption, and condemn it for the failure of the policieschosen. Following the procedure suggested here, how-ever, governments would accept corruption as an aspectof their societies, and try to optimize policy-makingwithin this framework.

Finally, we should note that preoccupation with cor-ruption can itself become an impediment to development.This occurs if the focus on corruption diverts attentionfrom other political and economic deficiencies in thesociety, and from the measures that can be taken despitecorruption. To avoid the losses from such misdirection,re-thinking of the sort suggested here may be helpful.

REFERENCES

I am grateful to Richard Eckaus, John Plank, Lucien Pye, andMyron Weiner for their comments on an earlier draft of this

paper. They bear no responsibility for the remaining deficiencies.1 But see V. O. Key, The Techniques of Political Graft in the

I7nited States, privately printed, 1936. Robert K. Merton, SocialTheory and Social Structure, I~Tew York, 1959, pp. 19-85. Harold

Lasswell, &dquo;Bribery,&dquo; in The L’ncyclopedia of the Social Sciences,vol. 2, New York, 1930. Cf. especially, F. W. Riggs, &dquo;Bureaucratsand Political Development: A Paradoxical View,&dquo; paper preparedfor the Social Science Research Council Committee on ComparativePolitics, Conference, January 29-February 2, 1962, to be publishedin a forthcoming volume edited by J. LaPalombara.

2 Edward Shils, &dquo;Political Development in the New States,&dquo;Comparative Studies in Society and History, 1960, p. 279.

3 Cf. Riggs, op. cit., pp. 28-30.4 These processes are nicely brought out in Alexandre Kafka,

&dquo;The Brazilian Exchange Auction,&dquo; The Review of Economics andStatistics, October, 1956.

5 If. C. Aubrey, &dquo;Investment Decisions in Underdeveloped Coun-tries&dquo; in Capital Formation and Economic Growth, National Bu-reau of Economic Research. Princeton, 1955, pp. 404-415. Alsocf. the finding of Y. Sayigh (Entrepreneurs of Lebanon, Cam-bridge, Mass. 1962, p. 117) that political conditions constituted thegreatest unknown facing the entrepreneurs surveyed.

6 Cf. Lasswell, op. cit., p. 671.7I am indebted to an eminent expert in Latin American echo-

nomic development for this observation.8 Industry and Governme7at in France and England: 1540-1640.

Cf. also, J. J. Spengler, &dquo;The State and Economic Growth-

Summary and Interpretations,&dquo; p. 368, in H. Aitken, editor, TheState and Economic Growth, N. Y. 1959.

9 Cf. Frank Golay, &dquo;Commercial Policy and Economic National-ism,&dquo; Quarterly Journal of Economics, 1958, and B. Glassburner,&dquo;Economic Policy-Making in Indonesia, 1950-1957,&dquo; Economic De-veloinment and Cultural Change, January 1962.

10 Ralph Braibanti, &dquo;Reflections on Bureaucratic Corruption,&dquo;Public administration, Winter, 1962, p. 370, and p. 372.

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