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Corruption in the Philippines: Framework and context*
By: Alajas
This paper proceeds from the more recent literature on corruption as a principal-agent problem whose significance for development depends on its dimensions related to the nature of the corrupt transaction itself, such as distinctions based on the agents involved, scale, type of deal, predictability, industrial organisation, etc., all of which affect for better or worse the nature of the relationship between principal (as represented by the public interest) and the agent (politicians and bureaucrats). From this viewpoint, corruption may be regarded as an incentive-design problem. The paper also argues, however, that there is a larger dimension to corruption that is determined by the historical and social context. Here, the ultimate factors are those affecting social cohesion (e.g., income and wealth, education, ethnic and other differences), the economic strategies pursued by the government (e.g., minimalist versus interventionist), the political system (the autonomy of the bureaucracy, the degree of centralisation), the extent of market transactions (local, global), and the rate and sources of economic growth. It is these factors that determine the credibility of the formal institutional constraints (however designed) on the behaviour of public officials and private agents alike.

This framework is then used to examine how and why the dominant types of corruption in the Philippines have evolved, from nepotism, to smuggling, to public-works contracts, to debtfinanced schemes, asset-privatisations, until the recent descent into underworld-related activities. The unprecedented governance breakdown under the Estrada administration is then explained as the result of a confluence of a growing sense of public interest (the result of education, urbanisation, political experience, and expanding market transactions) on the one hand, and the drying up of innovative sources of rents that continued economic growth would have provided. *Fellows, Philippine Center for Policy Studies and respectively Professor and Professorial Lecturer, U.P. School of Economics. Prepared for the Transparent and Accountable Governance (TAG) Project, August 2000.The political economy of corruption: Studies in transparent and accountable governance 2

1. Introduction
The most common definition of corruption, that used by the World Bank [1997a:102: 1997b:8] and other organisations, is “the abuse of public power for private gain”. This definition can be disingenuously general, depending on how broadly one construes “public power” and “private gain”. By comparison, Shleifer and Vishny’s [1993] reference to the “sale of public assets for private gain” is somewhat more restrictive, since it unduly limits the transactions to those mediated by money-exchange. ROSE-Ackerman [1998] gives a definition that is suited mostly to bribes: “an illegal payment to a public agent to obtain a benefit that may or may not be deserved in the absence of payoffs”. Nepotism, for example, would not unambiguously fall under the category of “sale” or “illegal payment”. The idea of “private gain” itself in such a case must also be defined subtly, since, the appointment of a relative need not result in a directly measurable private gain to the perpetrator, except in a nonpecuniary or even evolutionary sense. Hutchcroft [1999:227] endorses a definition by Nye [1997] that is more explicit, although less succinct: “behaviour which deviates from the formal duties of a public role because of privateregarding (personal, close, family, private clique), pecuniary, or status gains; or violates rules against the exercise of certain types of private-regarding influence”. As is evident from the above examples, the typical definition of corruption involves the notion of the “public” in a fundamental sense. For this reason it is customary to regard the main locus of corruption as government and as invariably involving public...
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