OP-ED: Fighting crony capitalism | Dhaka Tribune


The search for entry points

In my last column, I distinguished between pro-cronyism, pro-business, and pro-market policies.

I argued that in order to build a truly competitive economy Bangladesh needs to put more emphasis on pro-market policies that impose the discipline of competition on businesses.

Business-friendly policies, which make life easier for businesses but do not necessarily introduce more competition, are not enough.

So, we need to move from pro-business policies to pro-market policies.

I expressed the fear that we were heading in the opposite direction instead, that is, towards policies that were increasingly favorable to cronyism.

Similar views have recently been expressed by prominent economists across the country.

In his opening speech on the last day of the recently concluded BIDS Annual Development Conference, Professor Wahiduddin Mahmud referred to my column and said: “Business-friendly policies can easily escalate into what’s called crony capitalism.”

A few days later, delivering his opening speech at the CPD-Cornell conference on Bangladesh’s 50th anniversary, Prof. Rehman Sobhan expressed his concern about “The emerging political economy where an increasingly powerful, state-sponsored business elite is empowered to influence policy and public action. “

In short, crony capitalism is a problem in Bangladesh, and it could get worse.

How can we tackle this phenomenon which could be the greatest threat to increased competitiveness, derailing us from our path to a high middle income country?

Some people believe the solution lies in a revolutionary change that fundamentally alters the balance of power in society, moving it away from the unequal distribution of power and the authoritarian or oligarchic government regimes that breed crony capitalism.

But revolutions are hard to come and even harder to sustain.

But we don’t need to wait for such revolutionary upheavals to solve this problem.

It may be possible to design concrete and specific policies that might limit the opportunities for policy capture.

In a 2018 book that I co-wrote with Meriem Ait Ali Slimane, Policies of resistance to privilege in the Middle East and North Africa, we recognized this possibility and formulated an operationally feasible approach to tackling cronyism and privilege-seeking capitalism, an approach that could dent this seemingly intractable problem.

This approach, which I will briefly mention in this article and explore in more detail in a follow-up article, is based on the belief that, even in a privilege system, there are potential entry points for introducing changes that can damage the system, and over time further improvements could be made through additional reforms.

The cumulative effect of these may be significant enough to break the system of privilege and cronyism.

Such an approach requires creativity and a deeper understanding of how the system works.

Entry points

Sometimes extraordinary events create such entry points.

These critical moments can result from factors such as national and international conflicts, geopolitical changes, economic booms or crises, the discovery of new natural resources, global changes in economic conditions, major episodes of technological innovation or changes. of political regimes.

Readers will be quick to point out that such critical moments cannot be conceived and therefore we can only wait and hope that such an extraordinary event will materialize in the future.

We took a more optimistic view in the book and said: “In the absence of such catalytic events, and given existing power configurations and the constraints of change, there is always room to improve results at the margins. In addition, a critical mass of interventions that generate such marginal results can facilitate the exploitation of “critical moments” if and when they appear.. “

It is not naive optimism.

A growing body of literature speaks of windows of opportunity that allow for incremental changes with a substantial cumulative effect over time.

In a 2014 Journal of Economic Perspectives article titled When ideas take precedence over interests: preferences, worldviews and political innovations, the famous economist Dani Rodrik writes: “New ideas about what can be done – innovative policies – can unlock what might otherwise appear to be the iron fist of special interests. The history of economics is replete with ways in which ideas can shape politics. “

What Rodrik is essentially saying is this: While the actions of powerful interest groups, families, and individuals can be pernicious, they are not necessarily deterministic.

His arguments give us hope that even if the overall structure of political power does not change, there may be room to maneuver and make changes on specific technical issues at the margin.

Brian Levy, who worked for many years at the World Bank on governance and public sector issues, has a similar point in a book published the same year Rodrik’s article came out.

In “Working with the grain: Integrating governance and growth”, Levy uses case studies of successful change from a diverse set of countries to discuss how virtuous cycles of change might be triggered even in weak global governance contexts.

The trick is to ‘work with the grain’ – that is, to seek out an initial set of interventions that can be done in a given context and can catalyze a process of cumulative change.

The key question is of course the following. These technical solutions must be implemented by government officials.

If the system is riddled with privilege and officials take advantage of it, why would they agree to implement actions that make the system less vulnerable to privilege and crony capitalism? Fair question.

But such a position assumes that the system is irreparable.

This may not always be the case.

Indeed, a more realistic scenario is one where everyone has not been irremediably co-opted into the system.

So while some politicians and bureaucrats are busy doing favors for their buddies, others may be resentful.

While some may extend the reach of privileged treatment through their roles of setting policies and assigning privileges through their administrative approval authority, others may seek an opportunity to address weaknesses in the system. system that allow such blatant actions.

The latter group is motivated by an urge to do good, such as ensuring that government actions, whether large political decisions or small projects, serve the interests of society at large rather than the interests of the community. of the privileged few.

Such motivations can be triggered by patriotism, pride in work, or empathy with ordinary people.

At the same time, honest government officials can also be motivated to lead a quiet life of assent in which they passively agree with the decisions of their superiors and colleagues even if they personally disagree with them. .

Swap

The trade-off between these two patterns is illustrated in the figure.

Here I am using the economist’s favorite tool to explain the choices, i.e. the indifference curves.

Curves I and II represent a set of such curves showing the compromise.

On a particular indifference curve, say curve I, officials are able to do more good (i.e. move to the right along the horizontal axis) only if they are willing to sacrificing a quiet life (i.e. moving down the vertical axis), and vice versa.

The slope of the indifference curve shows the importance of compromise.

It may be noted that there are costs involved in pursuing either of the two grounds.

There can be costs associated with accepting bad decisions now in order to live a quiet life, including feelings of personal guilt as well as the possibility of disciplinary action later.

Doing good can also have costs.

For example, opposing the granting of privileges to the privileged few may mean going against the will of bosses and colleagues, thus disrupting collegiality.

It can even anger powerful people inside and outside government, leading to career stagnation and awkward assignments, even job losses and other more extreme forms of harassment.

These relative costs are captured by the line touching the indifference curve I.

Utility is maximized at point A; it is therefore the initial equilibrium. As can be seen, in the scenario represented by the figure, officials like to play it safe and their propensity to do good is rather limited.

In this model, government officials could be motivated to do more good in two ways.

First, the relative costs of playing it safe versus doing good can be changed.

This will be represented by a change in the slope of the relative cost line. For example, a flattening of the line will generate a new equilibrium (at point B) in which officials are more willing to disrupt the status quo so that they can do more good.

Alternatively, if the indifference curve itself shifts to curve II, officials can do more good without sacrificing a quiet life (moving to point C).

Some may question the usefulness of such conceptual discussions.

But when we are trying to understand a complex world, with many dimensions and intersecting currents, it often helps to start with a simple representation of reality that we can then build on.

The figure above may sound theoretical, but once we take a close look at it we start to see the entry points for action and how they relate to each other.

The above model tells us that when we are looking for concrete ways to solve the problem of privilege or crony capitalism, it is not enough to think only of technical solutions.

Technical solutions are important, but you have to understand the context in which they would be deployed.

An important aspect of this background is the behavioral trends and motivations of people in government, which the figure above seeks to capture.

How to move from such a theory to the real world?

What are the concrete actions that shift the balance of government officials so that they strive to make political systems less vulnerable to crony capitalism?

And, once so motivated, what concrete steps can officials take to make systems privilege resistant?

We will discuss these important questions in the next article.

The author is an economist, previously in an international development agency


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