RETAIL CORRUPTION AND SOCIETY: INTERTWINED PHENOMENA

The ethos governing the following piece of research is the belief that combatting retail corruption requires mass effort, and that there is a need for a change in the structure of societies today. The author attempts to thoroughly explore issues inherently present, and arising out of retail corruption in two ways. Firstly, through a presentation of individual theories across fields such as Philosophy, Sociology and Economics as an explanation of retail corruption, the author aims to create a link between abstract social science theories and social phenomenon. Secondly, in the conclusion, these theories are brought together to create a refined explanation of the problem of retail corruption. Presenting the matter through perspectives of Game Theory and Social Disorganization allows the concept to be comprehended as a natural occurrence in society today. The Allegory of the Cave and Path Dependence are utilized to further this view, in addition to presenting the extent and nature of the costs and hardships which need to be tackled while involving the common man, a participant, to eradicate retail corruption. Lastly, the research is an attempt at creating an understanding of why few people report corrupt activity, and theoretical hurdles associated with the same.

1.     Corrupting Society

Forms of corruption, including retail corruption are widely understood to be distorters of development in society. It leads to inefficiency and crime in local bureaucracies. Often, it is looked at as a ‘local’ issue, one that requires several legal, ethical or managerial systems to eradicate. At other times, sociologists perceive it as a failure of individual morality or traditional norms, when people are placed in tempting positions (Clammer 2012).

As a result of the impact that bribe transactions have to society, it is pertinent to understand the concept from the view of society itself. In order to proceed, it is beneficial to define a ‘social system’ at the outset. In simple terms, a social system consists of two or more individuals interacting directly or indirectly in a bounded situation. Talcott Parsons, however, believed that social systems consist of an established social order. Invoking Durkheim and Weber, Parsons states that a social system consists of “a plurality of individual actors interacting with each other in a situation which has at least a physical or environmental aspect.” He continues that these actors are motivated by a tendency to optimize gratification, and whose relationship with each other is defined and mediated in terms of a system of shared symbols and cultural structure (Parsons 1951).

In reality, however, it is difficult to witness societies which are satisfy Parsonian equilibrium of any kind. This leads us to define what is meant by a functional social system, that is, one that can exist and sustain in today’s world. For the purposes of this research, a ‘functional’ social system will be treated as one that allows a reasonably secure normal human social life to flourish and also extends the range of that life beyond the satisfaction of basic needs into areas of cultural creativity, psychic security and leisure (Dube 1984).

A corrupt outcome is more likely in a situation of weak organizational culture, with an inefficient, or corrupt police force, or without a tradition of investigative journalism, assuming that opportunities from bribe transactions exist across all societies. This is to say, that the culture within a particular society – its inherent composition of man has a large role to play with regard to the amount of corruption taking place. This is especially true for retail corruption. Processes which take place historically can get absorbed into the culture of the society and will ultimately continue.

This poses an issue when the system itself is corrupt. Retail corruption at the smaller scale is more likely to take place in a society which has a corrupt government, which is not able to execute its functions appropriately. An explanation for this is found, again, within organizational sociology. A lack of guiding values, cultures, or ethics, common amongst the masses would lead to a systems meltdown. It would mean that there was no organizational integrity (per Larmour and Wolanin 2001). This increases man’s tendency to optimize gratification, which causes an increase in bribes paid.

Further to this, corruption can be understood as a result of chaotic systems. As wholesale corruption is frequently observed in regions with violence and political instability, retail corruption can be viewed as a product of structural violence. From this lens, it is clear that retail corruption is an interesting situation where the behavior condemned by the social system, is one that is created by it and its lack of defined structure, or culture (Clammer 2012).

This would mean that for corruption to be warded off, it would be necessary for the corrupt system itself to disappear, as it would allow for a fresh start – a new socioeconomic order to be established. The costs associated with fighting retail corruption already seem to be higher than what is naturally assumed. 

2. The Path Society Strides

Path dependence rapidly became part of the lexicon of economists once introduced by Brian W. Arthur in 1994. Spilling over from chaos theory in Mathematics and Physics, it essentially proposes that decisions we, as rational people make are dependent on our past decisions made. It posits that as we take decisions, history matters to a great extent. Furthermore, the theory states that in the stronger form, the decision we make is inefficient. 

Over time, types of path dependence have clearly been differentiated (Liebowitz and Margolis 2000). Three major degrees of path dependence have been identified, which is explained below.

Betamax (Beta) v. VHS – the videotape format war is a frequently cited example. If we assumed that both VHS and Beta were the same, and that it was an arbitrary decision to buy VHS, which then became dominant, it would be first degree path dependence. Second degree path dependence would be if it was retrospectively proved that VHS was the inferior product – that Beta offered better picture quality or longer recording time, for example. Third degree path dependence would occur if people had knowledge that Beta was the better product, but purchased VHS anyway.

Retail corruption can be observed as path dependence, in specific to the third degree, which can be better understood following a reading of Liebowitz and Margolis (1996) and the case study it contains. Although certain inefficiencies may be bypassed in the short run as a result of corruption, in the long run, it has been proven that retail corruption leads to inefficiencies of its own (Posner 2005). This difference means that bribe payment and non-participation are not perfect substitutes. Furthermore, most people have knowledge of this fact – ruling out second degree path dependence.

When a party is confronted with the option of choosing to pay a bribe or not paying a bribe, they are likely to pay the bribe, having seen that it expedites procedure and has become commonly accepted as part of culture in society. It is clear that even while the bribe is paid, there is a feasible way of achieving the more efficient outcome – not paying the bribe.

Third degree path dependence is likely to occur in these arenas because there are fewer opportunities for entrepreneurs to set up shot and profit from removing these inefficiencies (Margolic and Liebowitz 2000). For example, it is not possible for private entities and firms to issue pfficial government documents (unless authorized to do so). While they may be able to set up in order to speed up typing of documents, they will be forced to charge a price high enough to account for the bribe that is paid to send the document for verification. These opportunities are created because government entities and officers representing the government pursue objective other than economic efficiency.

 

Figure 1 is taken from Margolis and Liebowitz (2000). The S shaped curve reflects consumer behaviour. In the below explanation, option A/A corresponds to paying the bribe. The curve is upward sloping because as more consumers are A users, option A is more attractive, so the probability that a consumer choose A is larger. Point M is an unstable equilibrium. At small displacements to the left of the intersection, the fraction choosing A is less than the fraction that have chosen A. This leads to a smaller share in the market for option A, which leads to fewer people choosing A, until A's share is 0. To the right of M, the reverse of this is true.

The above diagram is often used to explain that path dependence does take place, and history plays a huge role in decisions. The success of option A depends to a great extent where we start on the S shaped curve. To the left of M, A will fail, while it will succeed to the right of M.

This would mean that tackling retail corruption and reducing the number of bribe transactions taking place would require tackling the costs people create in their minds and their association with paying the bribe. If this is not taken into account, retail corruption will continue to exist as a naturally occurring phenomena owing to the historical market share it possesses. 

3.       Caving Into Corruption

Plato presents the Allegory of the Cave in the Republic. Written as a dialogue between his mentor, Socrates and his brother, Glaucon, the allegory serves to explain the effect of education, and the lack of it on our human nature. As an introduction, a summary of Plato’s work is provided below.

Socrates asks Glaucon to imagine a cave, where people have been imprisoned since their birth by chains, forcing them to gaze at the wall in front of them. Behind the prisoners is a fire, and between the fire and the prisoners is a raised walkway with a low wall, behind which people walk carrying objects or puppets "of men and other living things" (Plato, Grube and Reeve 1992), which form shadows on the cave’s wall. As they stare at the wall, they do not know that there exists a source of the shadows. Owing to their lack of exposure, the shadows are the prisoners’ reality.

Socrates then supposes that one prisoner is freed. Should the freed prisoner be forced to go toward the opening to cave, the prisoner would experience both anger and pain. Exposure to the light of the Sun would render him blind. Slowly, his eyes adjust to the light of the Sun, and he is able to gradually see the objects causing the shadows and the people behind the same.

With his new knowledge, he would attempt to go back to free the other prisoners from their chains and introduce them to the real world. As he re-enters the cave, his eyes, now adjusted to the light of the Sun would be impacted again, leading to blindness. The other prisoners would conclude that this was caused by the journey undertaken by the freed prisoner, and thus would never do the same.

The Cave has been seen as an allegory of human nature, and of government (Francis 2014) and this will enable us to link Plato’s idea to retail corruption.

For the purposes of our analysis, the Cave must be looked at as analogous to a society filled with opportunity for bribe transactions. We would also have to assume a lack of transparency in governance and procedure; thereby creating a scenario where reporting the transactions and fighting corruption are extremely difficult. This assumption might create a dystopian society, however, enables us to clearly understand how the Allegory of the Cave connects to bribe behaviour.

The prisoners are humans living within this society. They are, ultimately bound by the transparency (rather, the lack thereof) of their government – these are their chains, preventing them from reporting corrupt behaviour. In this case, the shadows, or reality, would be paying the bribe and leaving it at that – not pursuing any further course of action.  The World Bank reports a positive correlation between transparency in governance and retail corruption (The World Bank Group n.d.), which allows us to operate our analogy within the society we have modelled.

Creating a situation where a sample of people are given the opportunity to report and fight corruption, thereby mimicking the Departure from the Cave, is the next step.  This could be done with the support of an organization that has been successful in another society. These people initially face a lot of difficulties, and undergo a lot of self-doubt, unsure of how successful their efforts will eventually be. A few may even quit their effort.

The difficulties they face depend on a large number of factors, a study of which is out of the scope of this research, but is well documented in Mungiu-Pippidi (2011). Eventually, let us assume, after a large period of struggle, a large proportion of the sample is successful in prosecuting the corrupt public officer.

For the purposes of this illustration, consider a situation wherein members of the sample work fewer hours and commit themselves to the cause. When they manage to get the corrupt public officer prosecuted, and receive their money back, they are fired by their employers.

When they speak to the rest of society and return to the Cave, the impression given is that they have become unemployed as a result of them prosecuting the public officer. The rest of society, like the imprisoned people in the original Allegory will assume this to be true, and thereby be unwilling to fight retail corruption, even if offered the opportunity.

This link can even extend to a large number of people not wishing to report corrupt transactions which leads us back to the original Cave – a society where retail corruption is a naturally occurring, rampant offence without sufficient opposition.

4. Is It Just A Game?

Game Theory is the study of multi-person decision problems (Gibbons 1992). Its application has been expanded to a large number of fields, ranging from Sociology to Law. In essence, Game Theory can be utilized wherever decisions are at play, creating a model wherein the most likely outcome can be predicted.

To understand Game Theory better, it is imperative to undertake a case study of some kind. In this case, I will be referring to the classical game of the Prisoner’s Dilemma (Tucker 1950). The Prisoner’s Dilemma Paradox deals with two arrested people (hereinafter, Bonnie & Clyde). Each prisoner is in solitary confinement, and have no means of communicating with each other. The prosecutors lack sufficient evidence to convict both of them on the principal charge. Concurrently, they offer Bonnie & Clyde a bargain. Each prisoner is given the opportunity to testify that the other committed the crime, or to remain silent. The offer is as follows:

·         If they both remain silent, they will each be sentenced on the lesser charge to 1 year of prison

·         If Bonnie confesses, while Clyde remains silent (or vice versa), Bonnie will walk free, while Clyde will be sentenced to 20 years of prison on the principal charge

·         If they both confess, they will each be sentenced to 10 years of prison on the principal charge

As each prisoner is in isolation, without the ability of knowing what the other might do, he will be decide on his course of actions preliminarily governed by self-interest. This is under the assumption that the prisoners are rational. Thus, as he assesses the options in front of him, he will choose the action that will lead in the least amount of punishment for himself. This is, the option which results in the greatest payoff – the number of years he can live as a free man. Ultimately, realizing that there is a possibility he may go free (if his partner does not confess), he will confess. This decision to confess will be taken largely to ensure there is no possibility of him being sentenced to 20 years of prison. This is his dominant strategy.

At this juncture, it is crucial to remember that reach prisoner is making the decision under the same amount of information, and the actions are occurring simultaneously in different prison cells. Resulting from both Bonnie and Clude taking the aforementioned course of action, we see that they both get sentenced to 10 year of imprisonment. To each individual, that is, Bonnie or Clyde, the result is not the best possible outcome (where they remained silent and escaped), or the worst possible (where only of them had confessed), but a median, often referred to as the Nash Equilibrium.

Bonnie Clyde	Not Confess	Confess
Not Confess	1,1	20,0
Confess	0,20	10,10

 

Having explained the basics of Game Theory, it is possible to extend the game theory perspective to understand bribery behaviour, and thus retail corruption.

Prior to delving into details, it is necessary to appreciate how this game (hereinafter the Bribe Paradox), differs from the Prisoner’s Dilemma. For one, unlike the Prisoner’s Dilemma, the Bribe Paradox does not consist of players in the same position. In the former, we have two prisoners who are operating with the same amount of information and under the same conditions. The latter, however, has two people opposing each other in the game, possessing differing levels of information. In the Bribe Paradox, we have the briber (who pays the bribe), and the bribee (who receives the bribe).

The second difference follows on from the above. There are differing options open to each player in the game. In the Prisoner’s Dilemma, we have a situation where both Bonnie and Clyde have the options of either confessing, or remaining silent. However, in the Bribe Paradox, as there is a difference in position with respect to the game, the courses of actions are different for each party (Verma and Sengupta 2015).

From the above, it is evident that trying to create a game theoretic model of the transaction is complex. Owing to the fact that bribery takes place from the interaction of human beings, whom, being unique individuals have their own underlying motivations and behavioural patterns, it is difficult to envision an all-encompassing model. The simplest way to present the transaction is by looking at it as if initiated by each party. That is, postulating that bribery can either be briber-initiated, or bribee-initiated, and modelling the same (Bayar 2003). This will enable us to create a model that is thorough.

Firstly, the briber-initiated transaction. The bribe giver wants to get a service valuable for him/her from the public office and therefore, offers a bribe to get rid of red tape which might cause delays and other issues. However, it is possible that she is met by an honest officer who refuses the bribe, reports her, and thus she receives a penalty for the same. Another possibility that may occur is where the amount of bribe offered is lower than the reservation price of the corrupt officer and thus the work is not completed (Bayar 2003).

Secondly, the bribee-initiated transaction. Here, a corrupt transaction occurs between the client and the public officer where the public officer is the one who plays active role in the transaction, i.e. the one who demands a bribe. The value of the bribe, or even a range, is explicitly mentioned by the public official. Here, there is a chance that the public officer is met by an honest person – that is a bribe fighter, who will not pay, and reports him to the officials, thus causing him to receive a penalty/ punishment of some kind, without any positive payoff. In other cases, a person may pay the bribe, but still report it. This means that while in the short run, there is a benefit accruing to the officer, there is a possibility of a long run cost. Lastly, there is a possibility of an overall positive payoff, where the person does not pay the bribe and does not report it.

Removing the aspect of the officer’s honesty, the Bribe Paradox can be broken down to the following strategies and payoffs, assuming a standard scale of measurement such as utility across all numerical values presented (Ghatak 2011):

·         The value of the bribe is 10

·         The punishment for receiving a bribe is 10

·         The cost of the job not being done in time to the briber is 3

·         The benefit of the job getting done in time is 15 

This results in the following Matrix (Ghatak, 2011):

Briber Bribee	Report	Not Report
Do Work	-10, 15	10, 5
Not Do Work	-10, -3	10, -3

If the bribe is paid, the following may occur:

·         The public officer may do the work, thus leading to a benefit of 15 accruing to the briber

o   This may be reported by the briber, leading to a punishment (represented as a cost) of 10 to the bribee.

o   The bribe may not reported, which leads to overall gain of 10 to the bribee, and a net gain of 5 to the briber (as he has paid 10 as bribe)

·         The public officer may not do the work

o   The bribe may be reported by the briber, leading to punishment of 10 to the bribe

o   The briber may not be reported, leading to overall gain of 10 to the bribee

As bribes are paid for work to be completed, the second row of the matrix can be ignored in its entirety.

As highlighted in previous sections, from the analogy of the Allegory of the Cave and the study of Path Dependence, society prefers the Not Report strategy, owing to the amount of follow-up and costs associating with reporting the corrupt activity and officer. This ultimately results in the officer escaping without being caught, and a lesser benefit (5) than the maximum (15) accruing to the briber.

Modelling the Bribe Paradox through Game Theory provides proof of the fact that ensuring that the “Tell” strategy is incentivized to a greater extent, to make it the dominant strategy for the individual, will enable the reduction of the quantum of retail corruption taking place in society. This has been studied in greater detail by Dr. Anirban Ghatak, and a solution, such as making bribe-giving legal (Basu 2011) has been previously floated and discussed at great length.

5. Tying It All Together

Studying the theories above have provided enhanced perspective on the true costs of combating retail corruption. This can best be understood under two main headings: the notions of reporting the problem, and misgivings about the issue itself.

Firstly, the issue of retail corruption and bribe transactions will be dealt with. As pointed out above, the common man participates in bribe transactions owing in part to the social system he is a part of, and to the path it has chosen to stride. We see clearly that there is a strong case of system overhaul. Corruption from the top brass of the government sets precedence for public officers at the lower levels and shapes the guiding values of society to a large extent.

In addition, path dependence proves that there is a requirement to spread greater knowledge amongst the public about the inefficiency of paying the bribe. This, along with other efforts will pave a way to move to the left of the S-shaped consumer behaviour curve, and reach a situation where bribes are never paid.

Game Theory presents to us better analysis of why bribes are paid. It is clear that there is no other utility maximizing outcome, especially with bribes on offer. The solution presented in Basu (2011), essentially prescribes doling out a greater punishment to the bribe-taker, rather than providing punishment to the bribe-giver. Although this would drastically reduce the costs of offering a bribe, the idea of punishment would create resistance amongst public officers in government offices, preventing a large occurrence of bribe payments.

If we were to paint a utopic picture, it would be excellent if system overhaul took place first, which would ultimately wipe out the option of bribery itself and curb retail corruption most potently.

Secondly, the study above throws light upon the stigma attached with reporting and fighting retail corruption. The costs highlighted above show us the hardships an opposition movement has to overcome. Plato’s Allegory of the Cave is testament to the same. While these might detract the benefits of reporting bribe transactions, educating the public about processes in departments would reduce opportunities for bribery, and will empower them to report the same.

There are two key takeaways the author is able to identify, largely from the first section. These are, that corruption and society have a two-way relationship. It is society and its principles that give rise to retail corruption, and retail corruption, which often gives rise to the dominant culture within society. The second learning follows on from the above. A result of this relationship, is that it is not possible to terminate this pressing problem without including society and the common man, whether this is done through protests, education, or even, system overhaul. 

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Tejas Rao

GNLU