The Corruption Animal In Economic Taxonomy

DISCLAIMERS

In Ghana, corruption means different things to different people at different times. Frequently the subject is discussed from cultural and social perspectives that may not always be compatible with each other, and may even clash.

This lack of consensus is especially evident when social and cultural definitions are employed to explain a perceived upsurge in the phenomenon of corruption. Some commentators tend to ascribe such upsurges to an erosion of traditional Ghanaian social and cultural values among either elites or masses, or indeed both classes of citizens. Others prefer to see the increase in the prevalence rate of corruption as resulting from factors within the traditional values themselves. In this latter viewpoint, foreign influences rather than ‘’inducing’’ corruption in the fabric of national life simply ‘’expose’’ it. They do so by allowing comparisons and differentiations, which were not hitherto possible, but also by putting a spotlight on certain taken-for-granted aspects of daily life and routine conduct in public spaces. Examples of these ''foreign influences'' are of course: bilateral and multilateral aid, the globalisation of consumer behaviour, international debt, global trade and investment, and transnational criminal or anti-social processes/practices.

In the following article, we are going to attempt to demonstrate very briefly how a classical economic analysis of corruption is not only useful but perhaps sufficient in arriving at a sound understanding of this complex phenomenon. Indeed, we suspect that this is the prudent course to take when the goal in mind, as in our case, is to influence policy-making debate. Policy makers are after all busy people who can only allot so much time to fascinating but never-ending sociological and anthropological disputes.

For the same reason, we also ignore a very topical discussion amongst commentators about whether corruption is merely a projection of group or mass perceptions or a reality that has its basis in objective facts. We do not dismiss this point as trivial, only overlook it as a detail of interest to social psychologists but less so to the policy advocate or activist. So it is only in passing that we mention the Transparency International Corruption Index which ranks nations using a ‘’perceptional’’ methodology, and note that the latest one appears to indicate that the level of material economic development is not the most decisive factor in predicting whether one country will be more corrupt than the other. That is to say corruption is randomly distributed across rich and poor societies alike. As a matter of fact, as we hope our analysis will show, it is possible to discuss the matter to a high degree of detail without wasting too much time arbitrating between the ‘’perceptional’’ and ‘’objective’’ camps.

DISCUSSIONS

We will like to draw readers' attention to recent reports in the Ghanaian press about a mounting incidence amongst students at the tertiary level of ‘’black marketing’’ or anti-social entrepreneurial practices. ''Bed selling'' is perhaps the most familiar example of these practices. Here, students who are allotted residential places by school authorities go on to ''sell'' this right on to other students at a ''profit''. The profit derives from the difference in absolute values between the ''residential users' fee'' paid to the University and the price at which the students involved in the ‘’transaction’’ agree upon. Recall that paying the residential users' fee (RUF) does not only provide a student with the right to ‘’sleep’’ in student dormitories but also legal access to a range of amenities. Therefore the rent-taker (i.e. bed-seller) does not only recoup their investment in the RUF but also, despite having sold their rights, continue to benefit from the shared amenities linked to official residency on campus. The situation is further worsened when, instead of selling the whole bed, the rent-taker sells only a portion of the bed, floor-space or some other stake to residency that in effect split one RUF amongst several unofficial beneficiaries.

This situation is of course what economists have nicknamed ‘’the abuse of commons’’. The RUF is supposed to grant ‘’exclusive rights’’ to a certain range of amenities to the payer. Unfortunately, these amenities are by their nature hard to police, effectively making them what are usually called ‘’public goods’’. Hence even though the profit aspect of the bed-selling transaction is important, we do not get the full picture of what is going on unless we also appreciate the significance of what else is being bartered alongside the bed. This point is especially crucial when as previously mentioned the bed-seller ‘’shares’’ their privileges with the buyer. In this instance, the other inhabitants of the dormitory unit also then ‘’earn’’ the right to engage in reciprocal bed-selling transactions, therefore multiplying the effect. Ripples are felt in the surrounding markets for non-campus accommodation and the possibility of bringing non-students into the trade becomes feasible.

Full-blown corruption now becomes the only way to describe the phenolmenon.

It is true that we have neglected to fully account for the ‘’power dimension’’ in our sketch above. This will obviously be frowned upon by the leading figures of major traditions dealing with breakdowns in social arrangements due to flawed economic systems. In the traditions of Aristotle Pollibius, Montesquieu, and even the likes of Antonio Gramsci and Hart, as well as –closer to home- those of the Ayi Kwei Armahs, Awoonors and Ayitteys, one cannot diagnose social flaws without tracing to the sources of power within a given society. We concur in this, but we also feel that it is possible to see a power relationship expressed in the elements of the transaction itself. Indeed it is ‘’power’’, rather than ‘’beds’’, that is being traded, and considering that this power nominally belongs to the school authorities, this is best seen as a form of appropriated authority. There is little need to complicate the picture by imagining an abstract flow of command beyond the transaction.

We would therefore proceed to examine the profit motivation driving the transactions in a bit more detail, first by reviewing the monetary values involved and then by putting them in a broader context to lend meaning to the analysis.

CALCULATIONS

The figures we use are only approximate, as their role is only to support the logic of the argument.

Legon Administrators have set the University’s RUF at 1 million cedis; ethnographic data, however, indicates that beds are exchanging hands for up to 4 million cedis (Professor Asenso-Okyere has speculated on record that 5 million cedi transactions are common, while the Daily Graphic authoritatively documents 12 million cedis as the upper limit on sales price per unit). We set a lower limit of 2 million cedis and employ a conservative 2.5 million cedis as the average monetary value of each bed-selling transaction.

The first extraction from the data is that the student rent-takers (i.e. bed sellers) are making a 150% return on their investment. The available statistics puts at 20% of the total population the number of students who are in residence; a percentage that translates to 5000 students, and implies that an amount of 5 billion cedis goes to the University’s RUF Fund during each financial cycle. Given the extensive anecdotal evidence, which is corroborated by ethnographic data from School Authorities and student leaders about congestion and overcrowding, we can estimate –conservatively- that upwards of 70% of residential students are in some material way connected to some bed transaction of one form or the other (recall that floor renting, inner room conversions and bed-sharing are all reported as constituting financial exchanges involving varying sums) and that at least 60% of dormitory units are involved. The often-reported suggestion that at least 20% of the student population is ‘’unofficially resident’’ is hence very likely to be accurate. It is safe to infer from the foregoing that at the very least an additional 12 billion cedis, but most probably considerably more, is circulating within the residential sector of the university economy.

ANALYSES

The fact that the University Authorities appear to control only about 30% of revenue accruing to a sector of an economy over which they are nominally in complete control is at first worrying, but ultimately also fascinating. Especially if we also take in the fact that in the latest financial report issued by the University available in the public domain, the 2002 accounts statement, little over 45 billion cedis is mentioned as the amount of ‘’internally generated’’ funds. The shocking implication is that had those bed-transaction funds gone instead to the university, it will have seen close to a 30% upward readjustment of its internal revenue base.

Why has this state of affairs persisted unchecked?

Obviously, the large numbers of students involved in what is a welfare-enhancing activity for many of them has played a part. The injection of the sums mentioned above into the university economy is part of the reason why there is a considerable discrepancy between student lifestyles (spending habits) and the official per capita income of the average Ghanaian student. It plays its part in resolving the mind-boggling mystery of how parents and guardians are able to maintain wards in an era of ever pricier education. It challenges the perennial accusations that Ghanaian students shun local employment opportunities, in for instance the rather accessible teaching profession, during the vacations and, except for the relatively few who travel overseas, to engage in unwaged pursuits only because their cultural attitudes hinder them. The real cause is more likely economic: viz. the varying returns on investments in the formal and informal sectors. The conduct of both bed-sellers and buyers (who obviously have more in disposable income than one will have suspected) underline the same point.

Nor will a focus on whether the university authorities are guilty of administrative lapses produce much in the way of helpful insights into the situation. For no doubt the existing system has had the consequence of making the economic case for the building of hostels under the wings of the University on a commercial basis. The ethnographic data made available by bed-selling must have provided a very sensitive gauge of the market’s ‘’tolerance’’, and thus contributed to investor-confidence as well as vicariously to operational research into rent pricing.

The reverse scenario will probably have involved the recruitment of additional staff by the University to strictly enforce the residential rules barring bed-trading. It will also have meant additional investments in disciplinary mechanisms to ensure deterrence. This will have implied, in the short-term at least, a net increase in recurrent expenditure rather than an upswing in cyclical revenue.

The incentive structures work thoroughly and consistently against any attempt to dismantle the flourishing trade in bed-trading at Legon, and without a shadow of a doubt, same is true in the case of all other residential campuses in Ghana.

CONCLUSIONS

We do not claim that the analysis above is fully rigorous. But we are certain that the logic is fairly dependent. For us to be able to argue in greater confidence, we will need to acquire empirical data from extensive field studies at Legon, and from other campuses, so as to develop correlations between the key variables. This undoubtedly must be done, probably in a technically-reviewed context; but in the meanwhile we generalize from the above observations to make the following crucial points.

It is clear that corruption can arise purely as a feature of economic exchange; it does not always have to be a wholly alien factor introduced by social agents into socio-cultural arrangements. It is probably more useful to think of it in terms of its degree of prevalence rather than in terms of ‘presence’’ and ‘’absence’’.

Its determinants are risk management, information control and economic incentive. These manifest themselves through ‘’transactions’’. But critically speaking, ‘’transactions’’ are merely ‘’special cases’’ of ‘’transitions’’. In a transition economy, defined as an arrangement in which one stable economic arrangement is transforming into the next, actors are motivated, indeed compelled, by the triune determinants of risk management (RM), Information Control (IC) and Economic Incentive (EI).

We can take transition economies at different scales. In the case just studied, the transformation under observation is the switch from a wholly subsidised university residential economy to a partly-subsidised one. At national scales, we may wish to consider two periods in Ghana’s recent history: the late 1980s when the ERPs and SAPs were in full swing, and the early half of this decade when the PSRPs were paving the way for the HIPC Process to enter critical decision point stages. In all three above instances of economic transitions, high levels of corruption have been perceived, recorded and discussed.

Borrowing from parts of the new institutional economics, we assert an ‘’inevitability’’ of corruption in every instance of transitional reform managed from the centre. Information flow works in such a way that prices tend to find their own levels and bureaucratic public-sector reform only compounds the issue by introducing ‘’hidden’’ subsidies, better known as bribes, conflicts of interest, graft or simply ‘’embezzlement’’. While, as in the Legon case, an argument can be made that it is politically wise to allow such unconventional subsidies to stabilise the ‘’real value’’ of, in particular, public goods, we believe that the end result is certainly political stability but also economic damage of a terminal kind. The reason is that it leads to a transfer of risks to the public. In the Legon case, the analogous outcome is a chronic underinvestment in traditional residential facilities and a continued switch of resources to commercial hostels. Effectively we see the deterioration of the core of the university: the social public space of traditional undergraduate life. This hollowing out of the university is likely to be reflected in a net decrease of welfare irrespective of accumulated resources since such resources will not be allocated in the most efficient economic mode, in this case to carry out the core tasks of educating a well-adjusted workforce. A task much better performed in an arrangement in which fee-setting decisions are fully devolved away from the state political centre to the university level and made according to sound economic principles.

Needless to say, once students are inducted into the informal sector of the economy at university, they are unlikely to switch to the formal sector simply out of principle and ethics but will, even when they superficially enter the latter sector, maintain the acquired entrepreneurial skill of evaluating returns from the formal against the informal in terms solely of profit maximisation by infinite cost transfers, which in our view is the classical economic conception of corruption. We aver that this logic apply to all other economic settings in Ghana.

Barring courageous action, the corruption animal will remain very much on the loose.