23 August 2017
It is not only developing or emerging economies that are characterised by cronyism, but increasingly also Western developed countries, especially if lobbying to influence policy and legislation, the funding of political parties by business, and the bail-out of firms that are in trouble are included. For the highly respected magazine,
Foreign Affairs, to publish an article under the heading
“Kleptocracy in America”1, as it just did, is a telling statement.
As the author of the article, Sarah Chayes, puts it: “Corruption is not so much a problem for governments as it is an approach to government, one chosen by far too many rulers today. Rather than a weakness or a disorder, it (corruption/cronyism) is the effective functioning of systems designed to enrich the powerful.”
From a South African perspective it is noteworthy that the BRICS member countries feature strongly in the cronyism stakes. According to The Economist’s 2016 Crony-Capitalism Index, Russia takes first position, India 9th, China 11th, South Africa 13th, and Brazil 15th2 .
Minxin Pei3 (Professor of Government at Claremont McKenna College) has done an excellent job in laying bare the pervasiveness of cronyism in China4, while Peter Podkopaev and Natalie Duffy5 straightforwardly state “It’s no secret that Russia is a kleptocracy in which the state is run for profit by a criminal elite while average citizens shoulder the cost.”
Brazil has also been plagued with high-profile corruption cases that reached their zenith in popular past president Luiz Inácio Lula da Silva being found guilty of participating in corrupt dealings involving state oil company Petrobras. India stands out as the only member of BRICS that has managed to roll back cronyism to some extent in recent years.
Sami Karam6 (the founder and editor of
populyst.net) recently went so far as to suggest “cronyism has captured an ever-increasing share of economic activity” and “cronyism is a separate system that falls between capitalism and state-controlled socialism”. The often referred to term of crony capitalism is a contradiction-in-terms in that free-market capitalism assumes unrestricted competition, no collusion between market participants and no barriers to entry. Just as capitalism takes on a variety of forms, cronyism also occurs in different varieties depending on institutional differences between countries.
While some analysts regard cronyism as a transitional phase between capitalism and socialism, Karam sees cronyism and socialism as very similar, “except for the size of the group of cronies at the top”.
Says Karam: “In cronyistic societies, a larger group extracts a growing share of society’s wealth for themselves and their associates. In socialistic systems, a smaller group vies savagely for wealth and power: because putatively egalitarian economies are usually less efficient at generating wealth, there may be less to go around, making the infighting among socialist leaders that much more bitter.”
This perhaps explains why countries that are notorious for cronyism nevertheless tend to favour some variant of a capitalist market economy because of its greater ability to create wealth, China being the prime example. A prosperous, rapidly growing economy is after all necessary for cronyism not to run into a brick wall once the extraction of wealth from society reaches a tipping point. The deceleration of economic growth will very quickly expose the underlying institutional and structural flaws of the economy.
A peculiar South African anomaly is therefore the combination of cronyism and low growth, with the latter not being prioritised for remedy. But as Sarah Chayes, quoting Robert Rotberg, writes, “if their (cronyists’) activity “destroys developmental prospects” and is “antithetical to economic growth and social betterment” in their country, that is of no concern whatsoever. Bettering their country’s prospects is not their objective. Making money is.”
The Economist asks the question whether “cronyism was just a phase that the globalising world economy was going through” that has peaked because of changing economic conditions (e.g. lower commodity prices have decreased the rents to be extracted from the resources sector ̶ one of the prime sources of crony capitalist profits), as well as the “counter-reaction from a growing middle class in the emerging world”. Chayes refers to “an anticorruption Zeitgeist that has swept the world in the past decade”. However, it points out that reform is hard even in countries where the middle class is pushing back (Brazil, India, Mexico and Malaysia, to mention but a few).
Karam misses an important point in placing cronyism between capitalism and socialism in the constellation of economic systems by not addressing state capitalism and its relationship with cronyism as a fourth alternative.
Under state capitalism the government will have a pervasive influence in economic activity, with state-owned enterprises often spearheading its effort. Although state capitalism may have its advantages in achieving specific objectives, e.g. infrastructure development, it lends itself to political meddling, cronyism and corruption. Brazil provides a suitable example of how state capitalism can be used as a cover for corrupt, cronyist activities benefiting select individuals at the expense of the broad public.
The public outcry against cronyism in South Africa, even if it succeeds in stopping the current rot, will therefore not be enough to resolve the issue once and for all. Because of the unique expectations of the South African public for the government to transform the economy into a more equitable arrangement it will require constant vigilance to prevent malfeasance in the system, the potential for which will always be present.
In setting out 14 steps for a country to fight corruption, Robert Rotberg7 starts with the necessity that a country “seeks, elects, or anoints a transformative political leader.” However, although regime change may be a requirement for dealing with corruption it is not enough because of the resilience of corruption networks. The contradiction between kleptocracy and democratic practice urgently needs to be resolved.
Kleptocracy in America. Corruption Is Reshaping Governments Everywhere. Foreign Affairs. September/October 2017.
2The Party Winds Down.
The Economist. 7 May 2016.
China’s Crony Capitalism. The Dynamics of Regime Decay. Harvard University Press. 2016.
4Much of what Pei observes in respect of China is of relevance to South Africa. For example, “Collusive corruption, in theory as well as in practice, is more destructive than individual corruption because such behavior destroys the organizational and normative fabric of the state, increases the difficulty of detection, and produces greater financial gains for its perpetrators.”
5Peter Podkopaev and Natalie Duffy:
Russia's Pothole Predicament Beneath the Pavement, Corruption. Foreign Affairs Snapshot 10 August 2017.
6Sami J. Karam:
Capitalism Did Not Win the Cold War. Why Cronyism Was the Real Victor. Foreign Affairs Snapshot. 19 July 2017.
The Corruption Cure: How Citizens and Leaders Can Combat Graft. Princeton University Press. 2017.