Clientelism, corruption and capitalist development : an analysis of state intervention, with special reference to Bangladesh

Abstract

The post-war experience with industrial growth in developing countries shows a sUbstantial range of variation in terms of performance. Conventional economic theories have found it hard to explain why some countries such as South Korea have done as well as they have while others like Bangladesh perform worse than expected. The starting point of this thesis is to point out that industrial development involves processes of structural transformation which in the modern context requires a substantial amount of state intervention. State intervention can be more or less efficient in terms of its ability to direct resources in ways which generate growth. Differences in the efficiency of state intervention are then identified as a critical element in explanations of differences in industrial performance. The rent-seeking literature offers an explanation of the inefficiency of state intervention and this is critically examined. Comparing South Korea with Bangladesh, we find that efficient systems do not necessarily have lower state intervention or the associated rent-seeking type corruption compared to inefficient systems. On the other hand, in Bangladesh we find a lot of evidence of clientelism, which is defined as a system of payoffs to coalitions who have the organizational ability to disrupt income flows of patrons. Clientelist activity is much less in evidence in South Korea. These issues are discussed in Part I of the thesis. Part II develops a theoretical framework for examining some aspects of the efficiency of state intervention. Stability and efficiency are identified as alternative goals of state decision-makers who have the task of maintaining the political and economic viability of the system above a minimum level. The argument then uses developments in the property rights literature to identify the nature of the tradeoff between stability and efficiency under different initial conditions. The rights underlying profits from asset ownership, clientelist payoffs and rents are identified. Since changes in rights affect income flows, changes in rights have implications for the stability of the state depending on the political organization of various constituencies. On the other hand, rights have implications for economic efficiency. The minimum conditions on rights for efficiency under various circumstances are identified. This allows us to develop the nature of the stability-efficiency trade off under various assumptions, and we see that this defines a political frontier for growth. With clientelism, the shape of the political frontier is shown to be particularly unfavourable for efficient state intervention. Part III looks at the history of industrialization in Bangladesh in terms of the pointers provided by our model and finds that a number of phase changes can be identified in terms of the relative organizational power of different constituencies which conceptually changed the position of the political frontier over time. The success of industrial policy coincides fairly well with these changes in the political frontier. For reasons of length, Part IV is presented as a summary and the original text is presented in an appendix which the examiners may consult but need not read in detail. Part IV examines the empirical evidence. Unlike South Korea or Taiwan, productivity performance in industry in Bangladesh follows a cyclical pattern. These cycles coincide with the changes in the political frontier identified in Part Ill. We also look at demand and supply side explanations of poor performance and find them to be insufficient on their own. On the other hand, we find statistical evidence that clientelist payoffs are a feature of the Bangladeshi industrial sector while there is little evidence of such payoffs in South ' Korea. The thesis thus points out the importance of identifying clientelist processes with greater precision and suggests that industrial policy in countries like Bangladesh requires as a precondition of success, institutional, contractual and political responses which can counter clientelist strategies.