Keith Darden has a pretty interesting article in Politics & Society (Vol. 36, No. 1, March 2008, 35-60), titled The Integrity of Corrupt States: Graft as an Informal State Institution (abstract).
In this article, Darden sets out to refute the common assumption that widespread corruption and graft are indicators of institutional breakdowns which result in ineffective states. While this assumption is not entirely untrue, Darden notes that there exists a fairly large set of states with widespread corruption AND functioning state institutions.
"I argue that graft often serves as a form of unofficial compensation that reinforces rather than undermines the formal institutions of the state and can provide leaders with additional means to control subordinate officials. In sum, despite the deleterious effect that graft may have on democracy and economic development, there are circumstances under which graft may reinforce the state’s administrative hierarchies." (36)
In which case, Darden speaks of institutionalized graft .
In this article, Darden eschews the never-ending debate on the definition of the state by focusing on one specific aspect that the major schools of thought on the subject recognizes:
"The institutional mechanisms used to secure the loyalty and obedience of officials with the state’s administrative hierarchies." (37)
Any state form needs to be able to extract compliance from state officials in order to fulfill such functions as tax collection or the maintenance of law and order in addition to the provision of other services. What is the role of graft in this? As Darden explains, the major support for the theory of graft as state-weakening comes from the agency theories of economics. In this perspective, graft is a violation of the basic contract between state leaders and state officials when the latter substitute personal financial enrichment for the fulfillment of their stately tasks against a salary. And officials do so especially when they know that the systems of surveillance and sanctions are defective. Hence the lack of effectiveness of the state.
For Darden, this is not an entirely false picture but it is not the entire story and it is based on a narrow conception of state institutional form: the Weberian bureaucracy with all its well-known characteristics, a model which works well for the established Western democracies but not beyond those.
"It is not difficult to find cases where (1) graft is allowed as part of an informal agreement or contract between leaders and their subordinates, or, (2) the state is not grounded in the rule of law and functions largely through informal institutions – stable rules that are not written down or codified as law. (…) Corrupt practices and other violations of the law may signal the absence of a Weberian bureaucracy but do not necessarily imply absence or weakness of administrative hierarchy. It is possible to achieve a stable administrative hierarchy without the law-based bureaucracy that Weber saw as typical of modern organization or the web of personal obligations of traditional rule." (38)
For Darden, a fairly large number of countries fall into that category (widespread graft + robust state capacities and hierarchies) based on the 2003 Transparency International Corruption Perceptions Index (CPI 2008).
The CPI is considered one of the most reliable analytical measure of corruption at the global level. Countries are ranked based on a score between 0 and 10 where 0-3 is considered most corrupt and 7-10 least corrupt. Among such states with high corruption and high state capacity, we find Algeria, Kenya, Nicaragua, Romania, Russia, Papua New Guinea, and Ukraine.
When it comes to graft, Darden distinguishes between three types of graft in relation to the state:
State-weakening graft: graft that undermines administrative hierarchies.
"Graft unconditionally weakens the administrative hierarchy when it serves to buy disobedience – when officials take "a remuneration for what you are not supposed to do." (…) In such cases, the role of graft follows precisely the logic identified by agency theorists." (41)
State-benign graft: graft that has no effect on administrative hierarchies.
"Some forms of graft may have little effect on the functioning of the administrative hierarchy – it plays little role in determining whether officials loyally perform their obligations. It is simply a form of theft. This is common in environments where bribery takes the form of a convention, and officials receive additional informal payment for tasks that they are obligated to perform anyway. If everyone knows that bribes must be paid for officials to perform their functions and everyone pays bribes as a result (assuming that all can afford to do so), then a graft-ridden state of this type differs from a functioning graft-free bureaucracy only in the way that private wealth is distributed (it is reallocated from citizens to officials). Graft is "benign" in these cases only in the sense that it neither enhances nor undermines loyalty in the administrative hierarchy of the state." (41)
State-strengthening graft: graft that reinforces administrative hierarchies
"In such cases, administrative compliance is based on an informal contract between state leaders and their subordinates in which graft plays a critical role. In contrast to the benign case, state-reinforcing graft provides the basis, in whole or in part, for official loyalty and obedience. The illegal practices we identify as corruption reflect the fulfillment rather than the violation of an informal "contract."" (41)
And he identifies two mechanisms related to state-strengthening graft as a means to obtain compliance.
Graft can serve as an alternative mode of compensation or as a second salary. The proceeds of theft or embezzlement or bribery are distributed to carry out the duties of the state. It is graft that guarantees the effective functioning of the state.
Graft provides state leaders with means of coercion over their subordinates. If the officials do not fulfill their end of the bargain (discharge their official state duties in an efficient manner), they risk losing not only the money they get from graft but potentially to be among the few prosecuted and incarcerated for corruption.
"State leaders must be able to monitor their subordinates (1) to ensure that they are complying with directives, (2) to guarantee that they take no more than the allotted amounts, and also (3) to maintain a complete record of their illegal activities in the event that sanctions should be required." (43)
For Darden, it is important to note that such a state would still fit the Weberian characteristics of monopoly, hierarchy and impersonal authority. Such a state is able to function relatively effectively in terms of waging war, maintaining law and order, managing infrastructures and institutions, controlling political dissent, etc. Darden illustrates such state-effectiveness with the very enlightening (and entertaining) example of Ukraine under the rule of Leonid Kuchma. Such a study is made possible due to the fact that Kuchma’s interactions were recorded by a member of his security detail. These recordings allow access to the inner mechanisms of state-strengthening graft. Through them, we can see the different aspects of graft and its management in Ukraine.
In the case of Ukraine, the system of state-strengthening graft is accompanied by strict monitoring (to make sure that officials do not take more than their cut and adequately cover their tracks), intensive surveillance (another well-functioning state apparatus), and permits widespread intimidation and enforcement.
In the Ukrainian case, Darden identifies four types of officials:
Criminal: those whose loyalty lies outside of the state structure, such as gang members.
Selfish: those who are in it for personal enrichment and tend to take more than their share.
Disloyal: those who secretly support political rivals.
Compliant: those who conform to the state hierarchy.
The first three categories are those who can expect sanctions from the state as a result of extensive surveillance. The compliants reap the rewards of their loyalty but they are also subject to monitoring (precisely to ensure their compliance). Such extensive state-surveillance apparatus seems to be especially present in the former republics of the USSR, as legacy from that regime.
The massive use of surveillance for political repression and the mobilization of officials to "get the votes" when election time comes explains the stability and resilience of such states and regimes. Their weakness is that everyone knows what is going on and these regimes tend to be highly unpopular (see the Orange Revolution in late 2004 – 2005). Pakistan under Ali Bhutto and Peru under Fujimori are other good examples.
But the main point stands, there is no necessary negative correlation between graft and state capacity. As Darden concludes:
"This alternative view of the relationship between graft and the state may explain both the pervasiveness of graft and the objective stability of states that were hitherto classified as weak. If the pervasiveness of corrupt practices only signaled the breakdown of political authority, then political leaders would have clear incentives to overcome it, but if graft plays an important role in the informal institutions of state administration and political domination, then leaders have every incentive to sustain it." (54)