Following the Money to Determine the Effects of Democracy on Corruption" the Case of Korea

By Schopf, James C. | Journal of East Asian Studies, January-April 2011 | Go to article overview
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Following the Money to Determine the Effects of Democracy on Corruption" the Case of Korea


Schopf, James C., Journal of East Asian Studies


Democratization should reduce incentives to engage in corruption, by expanding the size of the winning coalition, heightening transparency, increasing accountability to the electorate, and multiplying the number of veto points required for a corrupt deal. Yet many young, consolidated democracies, such as South Korea, have recorded higher levels of perceived corruption following democratization.

I argue that the apparently higher level of corruption accompanying democratization results from overdependence on perception surveys to measure corruption. As democratization frees the press, more stories of graft lead the public to higher levels of perceived corruption without any corresponding rise in real corruption. A more effective measurement strategy is to objectively "follow the money," by focusing on outflows of rents and any related personal receipt of favors by relevant officials. Applied to the Korean case, contrary to popular perceptions of increased corruption, objective measurement of elite corruption reveals that democratization produced a sharp reduction in the corrupt exchange of rents through industrial restructuring programs, bank lending, and government procurement contracts. KEYWORDS: corruption, Korea, industrial restructuring, democratization, media, perception, hard data, measurement

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SEVERAL YOUNGER DEMOCRACIES IN ASIA, LATIN AMERICA, AND EASTERN Europe have recorded higher rates of perceived corruption in recent years, leading to claims that certain aspects of democratization encourage corruption. One common contention, based on an article by A. Shleifer and R. Vishney (1993), is that the democratic diffusion of power compounds corruption problems by requiring more officeholders to participate in a successful exchange of bribes for rents. (1) This line of reasoning misconstrues Shleifer and Vishney's argument by ignoring the competitive aspect of democracy and the way in which competition deters bribe taking, which is explained in the "third scenario" of Shleifer and Vishney's analysis of the "Industrial Organization of Corruption. (11) (2) In fact, under competitive conditions, the involvement of more actors per corrupt exchange makes detection more likely and corruption less lucrative and more risky for officeholders and private actors.

Why then are many new democracies apparently struggling with higher rates of corruption? This result is likely due to inaccurate and biased images of corruption that are measured through perception surveys, the most common means of estimating corruption. Since the media largely shape popular perceptions of corruption and other crime, greater liberty to report on controversial topics through democratization can generate biased public perceptions of corruption levels, which are subsequently reflected in the survey data. The South Korean transition to democracy, examined here, presents just such a case of press freedom increasing popular perceptions of corruption levels through a surge in media reports. A more effective means to measure corruption, particularly useful for deducing the effects of democratization on corruption, is to "follow the money"--by tracking the outflow of rents through economic policy and investigating linkages to official receipt of personal favors. Reduction in the most important mechanisms for large-scale, efficient provision of rents can signal an overall decline in high-level corruption, since it suggests that the increasing possibility of exposure and penalty (i.e., higher transaction costs) has pushed corrupt deals into less lucrative areas lacking plentiful rents.

In cases lacking political contribution data to show official receipt of favors, analysts can still effectively infer levels of corruption by comparing large transfers of "suspect rent," which are not bound by transparent criteria, are often inconsistent with official policy objectives, and, most importantly, benefit "undeserving" private firms that have failed to supply public goods or to sacrifice in the public interest.

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