“The Rise of ‘The Rest’”: Understanding Institutional Corruption in the Context of Emerging Market Economies

by Jacob Park

The phrase “the rise of ‘the rest,’” is borrowed from the title of a 2001 book1 by the late Alice Amsden, Professor of Political Economics at Massachusetts Institute of Technology, and is also used by Fareed Zakaria in the 2009 paperback edition2 of his 2008 book of a similar title. Building off the “rise of the West” scholarly discourse,3 the rise of the “rest” provides a simple but elegant conceptual frame to understand institutional corruption in diverse cultural and institutional settings, which are often lumped together as “emerging markets” or “frontier economies.” The only common thing these emerging or frontier economies often share is that they are countries located outside of North America and the European Union. They can be as small in terms of population as Singapore (5.6 million) or as large as China (1.4 billion).   

As a business school academic and Edmond J. Safra Network Fellow (2014-2015) who specializes in corporate environmental and social responsibility issues in emerging economies (most notably in Sub-Saharan African and Asia-Pacific regions), the focus of my Network fellowship has been on the comparative institutional and economic dimensions of corruption. I would like to highlight four issues and questions that might lead to a more diverse understanding of institutional corruption as a research topic in this rise of “the rest” era.

How do the structure and elements of institutional corruption differ in terms of market economy types and varieties of capitalism?

The so-called “end of capitalism” debate is getting so commonplace that even the World Economic Forum, the major business conference held annually in Davos, Switzerland, got into the act when it devoted part of its 2012 conference to the subject of “The End of Capitalism–So What’s Next?”4 What this question overlooks, of course, is that there is no one monolithic model of a capitalist system or a market economy.

As Peter A. Hall and David Soskice suggested in their 2001 book,5 there are critical differences among the political economies of the developed world, while important national institutional differences shape economic performance and social well-being.

Aguilera, Judge, and Musacchio further refined Hall and Soskice’s model and developed four typologies6 of political economies in developed and developing countries: liberal market economies; coordinated market economies; family-led market economies; and state-led market economies. 

Each type has its own set of business-society norms, economic stakeholders, institutional power dynamics, as well as social norms. Consequently, these differing institutional and social norms are likely to have an important impact on, and to be shaped by institutional corruption issues. The key questions are how, to what degree, and under what institutional contexts.

What is the relationship between institutional corruption and the market and political governance of oil and gas/extractive industry-dependent developing countries?

There is an extensive development economics literature on the resource curse and corruption problems in institutionally weak developing countries, so I am not going to get too deeply into the weeds in this blog post. However, if I could recommend one scholarly book on this important topic, it would be the 2007 book, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It,7 by Paul Collier, Professor of Economics at Oxford University.

Although the central focus of the Bottom Billion is not on the resource curse or on the institutional corruption issue per se, Prof. Collier deftly explains how one billion people in 60 different countries (most of which are concentrated in Sub-Saharan Africa) are caught in what he describes as “development traps,” most visibly (and ironically) in countries with extensive oil & gas, mining, and other resources, and links the resource curse and institutional corruption dilemmas to these traps. As McKinsey Global Institute observed in its 2013 report8—“resource-driven countries have tended to underperform those without significant resources: almost 80 percent of the former have a per-capita income below the global average. Since 1995, more than half of these countries have failed to match the average growth rate of all countries.”

If you are looking for a good journalistic account of the important links between institutional corruption and the resources sector in sub-Saharan Africa, there would be no better place to start than the 2015 book The Looting Machine: Warlords, Oligarchs, Corporations, and the Theft of Africa’s Wealth,9 by Tom Burgis, an investigations correspondent at the Financial Times. He spent six years tracking down and reporting on a number of corruption stories in Africa and here is a quick flavor of Burgis’ writing for those who might be interested:

“The empires of colonial Europe and the Cold War superpowers have given away to a new form of dominion over the continent that serves as the mine of the world—new empires controlled not by nations but by alliances of unaccountable African rulers governing through shadow states, middlemen who connect them in the global resource economy, and multinational companies from the West and the East that cloak their corruption in corporate secrecy. We prefer not to think of the mothers of eastern Congo, the slum dwellers of Luanda, and the minders of Marange as we talk on our phones, fill up our cars, and propose to our lovers. As long as we go on choosing to avert our gaze, the looting machine will endure.”10

How is institutional corruption situated in a rapidly growing emerging country like China? 

Before examining China, it might be worth noting how much economic and political turbulence Brazil has suffered in the past year as the result of its continuing corruption scandal involving the Brazilian state-owned petroleum company, Petrobas. CNBC business news channel reported in April 201511 that the corruption-related losses totaled $2 billion in the most recent quarterly earnings report, while Brazilian prosecutors charged the treasurer of the country’s ruling Workers' Party and 26 others with corruption linked to Petrobras in March 2015.12

The speed with which institutional corruption (rather than its scope and depth) has become a national priority in the seventh largest economy in the world has surprised many people in and outside of Brazil. The only corruption story that is more intriguing than the Brazilian scandal is the top-down corruption crackdown imposed by President Xi Jinping of China starting in 2012. For the past two and half years, the Chinese government has punished some 270,000 Communist Party officials, “reaching into almost every part of the government and every level of China’s vast bureaucracy.”13

While the scope and intensity of Xi Jinping’s anti-corruption initiative may have caught some China analysts by surprise, as the New Yorker writer Evan Osnos points out in his 2014 book, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China, every generation of Chinese leaders had their own strategy to deal with the corruption problem. “The fourteenth-century emperor Zhu Yuan-zhang ordered thieving officials to be executed, skinned, and stuffed with straw so that their carcasses might be propped up like mannequins for visitors to behold. The effects did not last. High office remained such a reliable path to riches that when a courtier named Heshen was finally brought low in 1799, he was found to have amassed a fortune worth ten times the entire government’s annual budget.”14

What is so intriguing about Xi Jinping’s anticorruption initiative is the assumption (mistaken?) that institutional corruption can be addressed through internal mechanisms guided centrally by the Chinese Communist Party without the usual channels like courts, media, and civil society that one might expect in Western-style democracies in North America and Western Europe. Only time will tell if Xi Jinping’s vision of combating institutional corruption will “change the psychology of bureaucrats, from viewing corruption as routine, as many now do, to viewing it as risky—and, finally, to not even daring to consider it.”15

Is institutional corruption research a bit too WEIRD?

In a 2010 article published in the Behavioral and Brain Sciences Journal,16 three psychologists offered the following provocative thesis: “Behavioral scientists routinely publish broad claims about human psychology and behavior in the world’s top journals based on samples drawn entirely from Western, Educated, Industrialized, Rich, and Democratic (WEIRD) societies. Researchers—often implicitly—assume that either there is little variation across human populations, or that these ‘standard subjects’ are as representative of the species as any other population. . . . The findings suggest that members of WEIRD societies, including young children, are among the least representative populations one could find for generalizing about humans.”

For instance, a 2008 survey of the top psychology journals found that 96 percent of the subjects were from Western industrialized countries, which only account for only 12 percent of the world’s population.17 This is, of course, not a problem unique to institutional corruption (IC) research. It is a critical scientific methodological problem that exists in many management, legal, and social & behavioral sciences disciplines. The key takeaway here is not to negate some methodological approaches used in IC research. But rather, to ask, critically, what kind of global, interdisciplinary (and yes, less WEIRD) networks the IC research community needs to work on in the next phase of our collective work/research, which the Edmond J. Safra Center for Ethics has so ably served as an institutional steward over the past five years.

References

1. Alice Amsden, The Rise of "The Rest": Challenges to the West from Late-Industrializing Economies (Oxford University Press, 2001).

2. Fareed Zakaria, The Post American World: the Rise of the Rest (Penguin Books, 2009).

3. William H. McNeil, The Rise of the West: A History of the Human Community (University of Chicago Press, 1963).

4. Klaus Schwab, “The End of Capitalism–So What’s Next?” April 18, 2012, https://agenda.weforum.org/2012/04/the-end-of-capitalism-so-whats-next.

5. Peter A. Hall and David Soskice, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford University Press, 2001).

6. Ruth Aguilera, William Q. Judge, and Aldo Musacchio, “Note on International Corporate Governance,” Harvard Business SchoolN9-713-079, 2013.

7. Paul Collier, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (Oxford University Press, 2007).

8. Richard Dobbs, Jeremy Oppenheim, Adam Kendall, Fraser Thompson, Martin Bratt, and Fransje van der Marel, “Reverse the Curse: Maximizing the Potential of Resource-Driven Economies,” McKinsey Global Institute, 2013, http://www.mckinsey.com/insights/energy_resources_materials/reverse_the_curse_maximizing_the_potential_of_resource_driven_economies.

9. Tom Burgis, Looting Machine: Warlords, Oligarchs, Corporations, and the Theft of Africa’s Wealth (Public Affairs, 2015).

10. Id., 244.

11. Jacob Pramuk, “Petrobras Loses $9B in Q4 in Wake of Scandal,” CNBC News, April 22, 2015, http://www.cnbc.com/id/102610938.

12. Anthony Boadle, “Brazil Ruling Party's Treasurer Charged in Petrobras Scandal,” Reuters, March 16, 2015. http://www.reuters.com/article/2015/03/16/us-brazil-petrobras-idUSKBN0MC1Z020150316.

13. James Leung, “Xi’s Corruption Crackdown: How Bribery and Graft Threaten the Chinese Dream,” Foreign Affairs, May/June 2015, 32, https://www.foreignaffairs.com/articles/china/2015-04-20/xis-corruption-crackdown.

14. Evan Osnos, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China (Farrar, Straus and Giroux, 2014), 249.

15. Leung, “Xi’s Corruption Crackdown,” 33.

16. Joseph Henrich, Steven J. Heine, and Ara Norenzayan, “The Weirdest People in the World?” Behavioral and Brain Sciences 33.2-3 (2010): 61-83.

17. Joseph Henrich, Steven J. Heine, and Ara Norenzayan, “Most People Are Not WEIRD,” Nature 466.7302 (2010): 29.