Today’s guest post is from Joseph Luna, an economist and consultant on international development projects.
Many reformers hope that democratization in poor countries will foster improved economic and social development. But participating in democratic processes can be expensive. Where do candidates for office in developing countries get the money to pay for campaigns and other political activities? Over the course of 2013-14, I was embedded in 11 local governments across Ghana, observing their operations and interviewing nearly 200 public servants, politicians, construction contractors, traditional chiefs, and party officials. Perhaps unsurprisingly, many politicians told me that they faced numerous demands for money, not just for elections, but also to meet their constituents’ personal needs. As one District Chief Executive (essentially the equivalent of a mayor) from the Ashanti Region put it to me: “It is about the MONEY! The people keep coming to you. ‘I am bereaved, I have to pay school fees, my wife is admitted to hospital.’ And so forth. They expect money from you. It is especially bad with party people! They think that because you are District Chief Executive that you can just open up the district budget to them.” This story repeated itself all across Ghana. Where did local politicians get the money to meet these demands? Much of this political money was extracted from kickbacks paid by firms for public procurement contracts. Indeed, in my research, which I discuss at greater length in my new book, Political Financing in Developing Countries: A Case from Ghana, I found a complex system of collusion among politicians, party chairs, contractors, and bureaucrats—what I call the Iron Square of Political Financing.
In theory, public procurement in Ghana, including at the local level, is governed by strict rules meant to prevent such corruption. Every project built with government or donor money must go through a formal procurement process; local governments are legally obligated to advertise upcoming projects, solicit bids from at least three firms, assess “bid packets” prepared by those firms, and select the bidder who best meets quality standards at the lowest price. Furthermore, this process is supposed to be transparent. But in practice these processes are not transparent, and formal rules are manipulated to mask illicit actions. Contractors cannot win projects unless they pay kickbacks to the politicians and bureaucrats who oversee procurement. The contractor who does pay a kickback can then (using different names) buy all the remaining bid packets for a particular project, ensuring that no other contractor could win while allowing the government to show that there were at least three bids for the project. Even if another firm managed to bid, the bureaucrats can use their discretion to throw out those bids on “technical” grounds. Party chairs are often themselves contractors, or affiliated with contractors, and they pressure politicians to ensure that the “right” contractors win—which allows these chairs to extract funds for party political activities. If politicians ignore chairs’ wishes, the chairs can mobilize party loyalists to smear those politicians.
Bureaucrats comprise a critical corner of this Iron Square. Those who know the rules can manipulate the rules, and should auditors examine a given contract, the bureaucrats can use their expertise and discretion to justify the selection of the winning firm. But what’s in it for bureaucrats? Many of these bureaucrats entered the public service for noble reasons to improve conditions in Ghana; they are well educated and their positions garner significant respect. But they also face numerous demands from their extended families and they have little means to save for comfortable retirements. For many bureaucrats, not being able to provide for their families and save for their retirements were the most important reasons for engaging in corruption, despite personally deploring such actions. Politicians, contractors, and chairs can exploit this vulnerability to ensure funds are extracted from procurement. And any bureaucrat who objects to this system can be transferred from their local government or blacklisted from receiving kickbacks, effectively jeopardizing their ability to meet family needs and save for retirement.
Ultimately, kickbacks reduce the quality of projects. Contractors, having promised or paid kickbacks to multiple politicians and bureaucrats, have less money with which to complete the projects, and as a result, contractors do shoddy work, with newly-constructed projects falling apart within a few years. Bureaucrats, who are supposed to inspect projects, lack the incentive to compel contractors to construct quality projects; if these bureaucrats raise a fuss, the contractor can complain to politicians and party chairs, who can then punish the bureaucrat. And ordinary citizens in rural areas benefit from the money and private goods that politicians provide for them—which these politicians fund from the very money extracted from procurement—so from the citizens’ perspective, taking the politicians to task over procurement corruption would risk jeopardizing those private benefits. Those who are involved in this system and those who might protest benefit, whether directly or indirectly, from the extraction of funds from procurement. Over time, Ghana risks losing more dedicated bureaucrats and qualified contractors who do not want to play these games, which will only reinforce cycles of poor local development.
In Ghana, these behaviors are open secrets. But it is crucial for reformers, both inside and outside the country, to understand the day-to-day pressures faced by politicians, bureaucrats, contractors, and party chairs. It is not enough simply for scholars and practitioners to recommend more anticorruption capacity-building or “international best practices.” Rather, reformers must craft locally appropriate solutions that free all four corners of the Iron Square from the corrupt games they must play so that the best among them can act on their more noble intentions, rather than feeling trapped in a corrupt system.
Thank you very much for this interesting post, and particularly for explaining the ways in which politicians and contractors work around facially adequate laws. I’m curious what sorts of measures you have found to be effective in addressing the dilemma politicians face. It is interesting that you emphasize the importance of local solutions, and I am curious to know more about the conditions on the ground that drive different solutions in a more tailored approach.
Thank you so much for your question. Politicians definitely face a difficult dilemma, but I think there are some incremental measures that could help improve the provision of public goods. For instance, many local infrastructure projects, such as schools and (small) bridges, use capital equipment and expensive materials sourced from far outside a locality, opening up opportunities for corruption. Could such projects (both donor- and government-funded) be built with more “appropriate/intermediate technologies”, that is, through locally sourced materials and labor-intensive methods? Appropriate technologies do not necessarily defeat corruption and contractor favoritism, but they could be a second-best solution that is more conducive to local monitoring and providing a quality public good. As the quality of local public goods increases, that may then generate popular/political momentum to tackle systemic corruption challenges.