Klitgaard’s Misleading “Corruption Formula”

I guess I’m engaging in the “ritual slaying of the elders” in which professors often indulge. Having gone after Paolo Mauro in an earlier post, here I want to take on (a small part) of Robert Klitgaard’s work.

Klitgaard, who is one of the giants of academic anticorruption research over the last half-century, once pithily (and influentially) summed up his perspective on the causes of corruption in a “corruption formula”: C = M + D – A, or (to put this back into words): “Corruption equals monopoly plus discretion minus accountability.”  (The formula originally appeared in Klitgaard’s 1975 1988 book, Controlling Corruption.  You can find a more recent version here.)  Much as I respect Klitgaard’s work, I think this anticorruption “formula” is not merely trite, but affirmatively misleading and therefore dangerous.

I have no quarrel with the claim that some forms of corruption arise when officials are given sole power to make consequential decisions without adequate oversight or control. But that observation doesn’t really get us much further than Lord Acton’s famous (and more elegantly phrased) dictum that power tends to corrupt, and absolute power corrupts absolutely. More significant–and in my view more problematic–are the three causal claims, and associated policy implications, embedded in the “C = M + D – A” formulation:

  1. The claim that monopoly increases corruption, so therefore more competition (via decentralization or privatization) will reduce corruption;
  2. The claim that discretion causes corruption, so therefore tight controls based on formal criteria, which leave little room for individual officials to make discretionary judgment calls, will reduce corruption; and
  3. The claim that accountability reduces corruption, so therefore more accountability (more oversight, or more democratic checks, or what have you) will reduce corruption.

All three of those claims may be true under certain circumstances, but the Klitgaard Formula implies that they are generally true, and I don’t think the best theory or empirical evidence supports that position. Let’s take the three claims one at a time:

  • Monopoly: There’s an extensive literature on how reforms that would deprive individual officials of monopolies over particular decisions might affect corruption. Such reforms would include: greater decentralization within the bureaucracy (so that multiple officials can make similar decisions, such as permitting decisions); various forms of federalism or political decentralization (so individuals or firms can shop for the most attractive jurisdiction); and privatization or outsourcing, so that goods or services that might otherwise be supplied by government monopolies are supplied on the competitive market. Without going into details here (though I may in a future post, especially if readers are interested), this research does not conclude that replacing monopolies with competition always lowers competition. Sometimes it does, but sometimes competition can increase corruption. For example, a firm inclined to pay bribes can shop for corrupt bureaucrats. For another, competition among jurisdictions can lead them to compete to offer the most attractive opportunities for corruption. And the record of privatization of government services in reducing corruption is, to put it charitably, spotty.
  • Discretion: Government officials who have too much discretion can abuse it. But government officials who have too little (formal) discretion may be more inclined to bend or ignore rules that are seem foolish, inefficient, and contrary to prevailing social norms. In other words, while some forms of corruption involve wrongfully exercising lawful discretion, other forms of corruption involve violating formal constraints on discretion. Making those constraints tighter may reduce the former kind of corruption but exacerbate the latter kind. Moreover, overemphasizing rigid constraints on official discretion may lead to worse decisions (because discretion, despite its costs, also has the important benefits of allowing officials to tailor their decisions to the nuances of particular situations, and to adapt over time). Constraining discretion may also have adverse effects on the sorts of people who pursue careers in government service—which may in turn worsen corruption.
  • Accountability: If all we mean by “accountability” is that officials do not abuse their power (so that they are, in a general sense, accountable to the citizenry), then the claim that “more accountability = less corruption” is a banal tautology. But if what we mean by increasing accountability is subjecting officials to more rigorous oversight and control–either by hierarchically superior government officials or by the public (via democratic elections or media scrutiny or whatever other accountability mechanisms we might imagine)–then it is not at all obvious that more accountability necessarily leads to less corruption. Yes, there’s plenty of good evidence that accountability sometimes leads to less corruption—but also plenty of research suggesting that in some circumstances, there can be too much (or the wrong kind of) accountability, and that strengthening accountability mechanisms can sometimes make the corruption problem worse. Again there’s too much to talk about in a brief blog post, but to give a flavor of some of the problems: (1) accountable officials are under pressure to produce visible short-term results, which may create incentives to engage in forms of corruption with long-term costs (like illicit campaign donations) in order to provide such results; (2) when officials are subject to “hyper-accountability”, such that they expect they will be thrown out of office as soon as something goes even slightly wrong (even if it’s not their fault), they might be less constrained by the desire to remain in office (since that’s so unlikely anyway), and more inclined to enrich themselves as much as possible while they can; (3) accountability to bureaucratic superiors can just push the locus of corruption up the hierarchy, and moreover if the superiors (say, the politicians) are actually more corrupt than the subordinates (say, the bureaucrats), then increasing the accountability of the latter to the former might make corruption worse.

In sum, while Klitgaard is indisputably right that some corruption arises because unaccountable officials have the sole power to make discretionary decisions, framing this point as a “formula”—which implies that it is an immutable law—is inaccurate and misleading.

14 thoughts on “Klitgaard’s Misleading “Corruption Formula”

  1. In support of your argument on *Discretion’ may I suggest Gustavo Piga’s chapter on procurement in the volume edited by Susan Rose-Ackerman http://www.gustavopiga.it/wordpress/wp-content/uploads/2012/01/Ch5.pdf
    Towards the end, it argues that taking stock of years of experiences with anti-corruption in procurement, one may open up to the idea that the reduction of discretion of procurement beyond a certain point may be counter-productive in AC terms.

    • James Q. Wilson explains in Bureaucracy why procurement agencies may be condemned to operate with tight controls on their discretion. The outcome of a procurement — a road built on time to spec, photocopying paper purchased at the lowest price — is often readily observable whereas the process by which the outcome is achieved is not. If the procuring entity were a private firm, no one would care how the entity achieved the result so long as it was a good one. Not so with public entities. Not only do we expect a road or photocopy paper bought at a low price that meets specs, we the public expect “fair” procedures to be met. A private company’s purchasing agent could hire her brother to build a road. if it met specs and was priced, the company wouldn’t care. Nor would anyone else. Not so with a public procurement.

  2. Just a couple of quick points. The book was 1988, not 1975. The “formula” was in a text box, in the midst of a much more detailed analysis of the principal-agent-client relationships and an attempt to provide a “checklist for policymakers” that ranged from selecting agents to enhancing the moral climate.
    The value of the formula in my experience is to help policymakers and citizens reframe corruption. In contexts where culture is blamed or immorality is asserted, sometimes feelings of futility follow. Reminding people first with examples and then with some simple models that corrupt systems can be improved by changing the calculations of the officials, businesses, and citizens embedded in them: well, that can on occasion create a big aha. And can be the first step toward creative problem-solving.

    • Thanks very much for your comment.

      While I stand by the substance of my criticisms of the “corruption formula,” I should have made more clear the context in which the formula appears. The discussion of the principal-agent-client model in your book, along with suggestions for policymakers, is rich, nuanced, and deservedly influential (even if I might take issue with some of the particulars).

      That said, the “formula” seems to have taken on a life of its own, and has become widely-invoked in other work (not yours), stripped of the original context in which it appears. I think, in retrospect, I was reacting as much or more to these subsequent invocations of the formula as to the original. (Oh, and speaking of the original source, my apologies for getting the date of the book wrong. That was a careless error on my part, and I will fix it.)

      One more thing, not directly on point but triggered by your comment: I’ve always found the principal-agent (or principal-agent-client) framework very helpful — incomplete, but helpful — in thinking through how certain reforms can alter the incentives (and thus the calculations) of officials, businesspeople, citizens, etc. As you’re probably aware, a recent strain in the literature asserts that the systemic (“collective action”) nature of corruption means that the principal-agent model is not useful. I don’t think that’s quite right (though I agree that understanding the challenges posed by collective problems may be essential for designing appropriate anticorruption interventions), and I fear that insights of the sort you developed in your earlier work are at risk of being lost. I think this may be the subject of a future post.

      • Interesting article. I think you are correct in asserting that this kind of “formulas” don’t really get us much further, and I believe (regardless of professor Klitgaard annotations) that is because they usually relate to a body of anti-corruption actions that can only be adopted and implemented by political authorities, specially those in the executive branch. While this is an obvious issue, the lack of proper consideration for anti-corruption reform mechanisms belong more to the 1990s area of scholarly production, when there was the need to identify policy measures. However, we currently are more than familiar with a large body of good-practices and anti-corruption toolboxes, and still see corruption engrained in the political elite of most developing countries. Therefore, we should understand that the problem is one of implementation, and not of technical knowledge.

        The principal-agent approach, in particularly, heavily relies on the pre-existence of some level of political will already in place at the domestic level; when it comes to the point of reforming national anti-corruption structures and standards, it consistently becomes intuitive as to how exactly those measures are to be adopted, and by whom. At the core of this deficit stands a problem with the way we have been understanding political will for anti-corruption reform, traditionally addressing it by offering political capital in return. This approach, however, is greatly flawed as it forgets that political capital is the main incentive only for relatively honest authorities, while leaders invested in corrupt activities include in their calculations the amount of profits from illegal activities that anti-corruption measures challenge. Therefore, considerations regarding both political capital and corrupt profits should be engrained in discussions of reform, as they will combine into the level of political will present in domestic settings.

        I hope this comment (which draws from my doctoral dissertation) stimulates a deeper discussion on the best way to approach corruption from a policy and political perspective.

    • Matthew takes issue with the implications of Professor Klitgaard’s famous “corruption equals monopoly plus discretion minus accountability” formula, showing that in not every case would a reduction in monopoly or discretion or an increase in accountability reduce corruption. These are empirical flaws. There are conceptual problems with the formula as well.

      Isn’t there an inverse relationship between discretion and accountability? That is, doesn’t an increase in one result in a decrease in the other? Hence, what does the “minus accountability” add to the formula?

      Nor does the relationship between monopoly and discretion appear to be additive. Isn’t monopoly an aspect of discretion? For isn’t an agent’s discretion cabined when her power is shared with another? So what does it mean to add a part to the whole?

      In fact, as Matthew suggested in the initial post, the formula boils down to Acton’s famous aphorism that “power tends to corrupt.” But that is not to say it is not useful. Acton’s formulation doesn’t lead anywhere, but as Professor Klitgaard notes in response to Matthew, his formula does. It focuses policymakers on what can be done to curb corruption: reduce monopoly power and increase accountability. Offering decision-makers a way forward, particularly in high corruption environments where resigned acceptance is always a tempting option, is no mean feat. No wonder the formula continues to attract adherents.

      • I think dicretion is sole decision making; so imposed regardless of whatever was discussed. The principal agent may intuitively impose his / her influences irrespective of what was shared. Discretionary management may not always informed, and of constructive , objective criteria

        I agree with Proffesor Klitgaard’ s formulae


    • Thanks for the comment. Constructive criticism is always welcome! I wonder, though, if you could elaborate a bit on the substance of your criticism, just so I understand why you think my criticisms of the “formula” are misguided.

  3. Quite insightful. I would we rather appreciated that the same way good governance is a function of many factors, corruption too is a factor of many variables in which case there is little chance that we could peg the causes for the same on the sum total of the factors on one divide

  4. Pingback: Corrupción estructural | El Heraldo de Aguascalientes

  5. While it may be said that monopoly reduces corruption, it leaves power in one hand with capacity to easily audit the actions exercised by the person with monopoly. Monopoly also creates an easy understanding on a method in which a system functions.

  6. Pingback: Corruption – how it perpetuates itself – The Economic Link

  7. Pingback: - Assessment of the Measures by Ghana and Kenya to Address Public Procurement Corruption - Free Dissertations - Free Dissertations

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