Andrea Lorenzo Capussela, an independent researcher who worked on Kosovo and Moldova’s development, and has written on Kosovo and Italy’s political economy, contributes today’s guest post:

There has been some discussion on this blog, prompted by the discussion at last fall’s “Populist Plutocrats” conference, on how corrupt, wealthy politicians can successfully position themselves as populists. One of the leading examples of this seeming paradox is Italy’s Silvio Berlusconi. In a recent post, Matthew Stephenson built on conference remarks from Giovanni Orsina and Beppe Severgnini to suggest that Berlusconi succeeded in part through a “politics of absolution”—the idea that by suggesting to Italian voters that “Italians are fine as they are, with all their vices, and need not change,” Berlusconi secured the support of many ordinary Italians who may themselves have bent or broken the rules, and who as a result of Berlusconi implicitly forgiving them, were willing to support him and to overlook Berlusconi’s own (much larger) infractions.

But as Professor Stephenson points out, there’s still a puzzle here: Voters consistently claim that they dislike corruption, and sometimes they are willing to take to the streets in protest. Indeed, during the two years that preceded Berlusconi’s electoral victory of March 1994, Italy saw frequent and large anticorruption demonstrations. Moreover, the particularism, clientelism, tax evasion, and corruption that Berlusconi both implicitly forgave and further entrenched are likely detrimental to the interests of a vast share of Berlusconi’s own electorate. So why did this message, and this so-called “politics of absolution,” work in the Italian case?

The missing piece of the story, as I argue in my recent book, has to do with the disruptive effect of the Italian anticorruption investigations of the early 1990s, and the fact that despite the success of that campaign in rooting out corruption, it ultimately destabilized Italian politics without offering Italian citizens sufficient reason to believe that the system would change for the better. Berlusconi offered the reassurance of a return to the old ways of doing things—and since most voters expected that such a return was likely, it became a kind of self-fulfilling prophecy.

To understand what happened, it is helpful to apply some concepts from game theory. Imagine that every citizen can choose whether to behave in a public-spirited or opportunistic manner in his or her own affairs. In the present context, opportunistic behavior would mean resorting to corruption and clientelism chiefly to obtain, as private goods, those public goods that the inefficiency of the governance system denies to them.  Each individual’s rational behavior depends on how he or she expects most other people to behave. Most citizens are best-off when everyone behaves ethically, and most citizens would behave ethically themselves if they thought others would do likewise. But when a citizen expects that most others are behaving opportunistically, then the cost-benefit calculus generally favors opportunistic over public-spirited behavior. This creates what game theorists typically refer to as an assurance game, in which reciprocated public-spirited behavior and reciprocated opportunistic behaviour are both stable equilibria. In this setting opportunism is a defensive strategy, which becomes rational when opportunism is expected from one’s peers. Once a society is in that sort of bad equilibrium, it can only be changed if a critical mass of citizens and firms can coordinate their actions—voting, demonstrating, rejecting and reporting corruption—in such a way as to change the equilibrium.

Using that framework, consider what happened in Italy in the 1990s. In the spring of 1992, a vast corruption investigation eventually implicated a large share of Italy’s political and economic elites, leading to the indictment of around 3,000 politicians and businessmen were indicted. Between 1993 and 1994, all five of the major parties that had ruled the country since 1948 dissolved, and a majoritarian electoral law replaced the proportional-representation system that Italy had used since the war. This unprecedented rupture was christened as the birth of a “Second Republic,” which was expected to bring more transparent, accountable, and responsive government.

However, despite the initial optimism caused by this rupture, the electorate was not presented with proposals credible enough to lead citizens to behave as if public-spiritedness was individually rational, and thereby make it individually rational to eschew opportunism. Absent the credible prospect of an equilibrium shift, in 1994 many voters anticipated the effects of the resumption of the pre-1992 equilibrium and voted according to the incentives flowing from it. Voters who a few months earlier had clamored for change chose the coalition headed by Berlusconi, a businessman who had prospered under the old system, precisely because he promised to preserve and stabilize it, while making it more efficient. The same was true in subsequent elections.

Stability is the critical factor that explains these choices. The reason lies in the wide chasm that separated, and still separates, Italy’s formal institutions and written laws from the rules that actually govern political, economic, and social exchange. By enforcing the law upon opportunistic practices that had hitherto relied on permissive norms, in 1992–1994 the judicial investigations disrupted the balance that allowed the two sets of rules to coexist in a fairly harmonious and predictable system. This created uncertainty and instability, as it was no longer clear which set of institutions prevailed: the formal ones, which proscribed corruption, or the actual ones, which largely condoned it. This kind of instability may be desirable if it opens up opportunities for change, but instability is merely disruptive if it is viewed in the perspective of continuity. This is why once the prospect of an equilibrium shift dissolved, much of society opted for a return to stability and predictability, despite the costs in terms of economic efficiency and political legitimacy.

So the paradox is solved. Berlusconi’s message was successful because it was consistent not just with the interests of the Italy’s rent-seeking elites, but also the cost-benefit calculus of many ordinary citizens and firms. It reassured the former about their rents, and signalled to the latter that public-spirited behaviour was unlikely to be reciprocated. This might contribute to explaining also the puzzle of what Professor Stephenson called the politics of absolution. Ordinary citizens and firms do dislike corruption, but the cost-benefit calculus will lead them to support anticorruption policies only within the context of a credible program for an equilibrium shift.