Hello. Welcome back to our course on corruption. This is Week 2, Lecture 2. Today, we're going to be talking about decision makers, and how the effect of corruption on decision makers imposes a cost on society, a big cost. We're talking about three things. First, the selection of decision makers not on their merit but for some other reason. Second, decision makers buying their position as decision makers. And thirdly, the fact that honest decision makers might leave. Now remember, as we talk about all of these things, our general definition of corruption. The abuse or misuse of a position of trust or power for personal reasons, rather than the reasons for which that power or authority was conferred. Our decision makers are making decisions about the use of power or trust. Let's first talk about selection of decision makers on something other than the merits. And the words we have for these kinds of selections are nepotism, which we already talked about, but sometimes it's also called cronyism or favoritism. What happens here, is that a decision maker is selected not because her or she, or other gender is qualified, but instead because there are some kind of relationship, there's some affinity. Now, decision makers being chosen on the basis of nepotism, cronyism, and favoritism, we talked about, there sometimes a reason for doing this. Sometimes it actually makes for smoother relationships, but it's important to remember that there are costs imposed by this. In particular, we have found that when decision makers are chosen on this basis, it damages the morale of an organization and it creates a situation in which there is no incentive to be qualified. If I'm sitting in a cubicle and I see that promotion is based on affinity, that promotion is based on cronyism, then if I'm rational, and I use the word rational not to describe real life rationality, but this kind of cold rationality. If I'm rational, I'm not going to worry about being good at my job, what I'm going to worry about is how do I create those relationships. We also find, in general, that when decisions about decision makers, when we select decision makers based on affinity rather than in qualification, no surprise, we end up with decision makers who are not qualified, who don't necessarily make good decisions. We also know that in many parts of the world, bureaucrats buy their positions, they buy office. I'm showing you a map of Indonesia because Indonesia is one of the places in the world where people have done some of the best research on decision making. Iif you're really interested in this subject, I highly recommend putting the words Indonesia and buy office into some kind of search engine and looking for the very, very detailed kind of research that I'll be talking about in general terms. What we find when bureaucrats buy office is that they tend to pay more for that position than that position pays in salary. We see this over and over again. The person who buys office recoups their investment by demanding bribes,. Rather than buying this office to get paid a salary, they buy this office to demand bribes and they do. What we also find is that theses bureaucrats give themselves raises. They give themselves raises by creating more delay and by hiding information. They lower, they decrease the quality of the service that they offer so that they can demand higher bribes, larger bribes, higher quality bribes for offering the service that they're supposed to offer anyway. We've seen this, and there's great research on this in Indonesia, in South Asia, in Southeast Asia, and also in Eastern and Central Europe, you see this phenomenon all over the world. Finally, we find that honest people tend to leave corrupted offices. This again, is a phenomenon that's been studied, but you can think about it generally. Think about yourself. If you've been in a group of people, perhaps at a party, where the general tone is one that doesn't fit the way that you think about the world. That doesn't fit the way that you want to be interacting with this group of people. Doesn't fit the way that you want to be at this party. You've tended to either go to the corner or leave. And we found this to be the case when decision makers in bureaucracies are selected for purposes other than qualification, and in particular, when they're selected in ways that cause those decision makers to be corrupt. Again, think about your own life, think about whatever country it is that your in, and think about the young people. Are young people saying, I want to work for the government, I want to work for these large companies? Or are they saying, this doesn't fit the way that I think about the world and I want to be doing something else? What we end up with, with all three of these things going on, is bureaucracies or business firms or other organizations filled with decision makers whose skills are not in making decisions. Instead, their skills are in forming relationships unrelated to the purposes of that organization or in extracting bribes. We find that there is an incentive to degrade the quality of the office, to degrade the services to which people are entitled. And we also find that over time, there are fewer competent actors. Now, there's a couple of points I feel it very important to make when we talk about this in very general terms. The first is that good bureaucracies are very important to business in particular. Business sometimes thinks of itself as disassociated from the rest of society or interacting with society on its own terms. But anyone who studies business and anyone who in particular studies of relationship between business and bureaucracy will tell you, that high quality bureaucracies are very beneficial to business. The world's competitiveness index devotes a great deal of its attention to the quality of bureaucracies. Good bureaucracies are good for business. And of course, and this is something that probably doesn't need saying, good bureaucracies are important to society in general. I also want to point out, and I cannot overemphasize this, that in any country, in any polity, there are lots of honest bureaucrats and there are lots of decision makers. Far too often we tend to paint an entire bureaucracy, we tend to paint an entire government, we tend to paint an entire body of decision makers, a business firm, a nonprofit organization, with the color of a few bad apples, a few bad actors. I've done field work all over the world. I've never encountered a bureaucracy that was completely filled with dishonest bureaucrats. I've never encountered a business where every single person is dishonest and corrupt. We don't want to dishonor those that continue to be honest and there are honest bureaucrats everywhere. In sum, with respect to decision makers, corruption tilts the pool of decision makers towards incompetence. It tilts the pool of decision makers away from people who good at making those kinds of decisions and towards competency in something else. In creates incentives for even more corruption. These things combined impose costs on society in the form of low quality decisions, low quality service, misallocation, distortion, a poor environment for business, and a poor environment for society in general. On that happy note, thank you very much, and I look forward to seeing you for the next lecture.
