Corruption and inequality: how populists mislead people

Analysis by Finn Heinrich, Transparency International

With the launch of Transparency International’s Corruption Perceptions Index 2016 just five days after Donald Trump’s inauguration as US President, it’s timely to look at the links between populism, socio-economic malaise and the anti-corruption agenda. Indeed, Trump and many other populist leaders regularly make a connection between a “corrupt elite” interested only in enriching themselves and their (rich) supporters and the marginalisation of “working people”.

Is there evidence to back this up? Yes. Corruption and social inequality are indeed closely related and provide a source for popular discontent. Yet, the track record of populist leaders in tackling this problem is dismal; they use the corruption-inequality message to drum up support but have no intention of tackling the problem seriously. But, first, let’s look at what corruption has to do with inequality and vice versa.

Corruption and inequality – a vicious cycle, left largely unattended

The two diagrams below show the relationship between the corruption scores in the Corruption Perceptions Index (CPI) and the degree of social exclusion as measured by the Social Inclusion Index for OECD countries (from the Bertelsmann Foundation’s Sustainable Governance Indicators) and by the Welfare Regime indicator for the rest of the world (from the Bertelsmann Foundation’s Transformation Index). The higher scores signify less corruption/exclusion. The first diagram plots the scores for OECD countries.

Sources: Transparency International, Bertelsmann Foundation

The second diagram shows the rest of the world. (I had to split the countries [and diagrams] into two as there isn’t a single robust measure of social exclusion worldwide.)

Sources: Transparency International, Bertelsmann Foundation

The data show a strong correlation between corruption and social exclusion.

For example, Mexico is in the bottom third of the CPI, indicating rampant corruption, and has a score of less than 3.5 on the Social Inclusion Index that indicates that many people are marginalised and excluded. However, Denmark, which tops the CPI also performs well on the social inclusion index.

Still, correlation is not necessarily causation. Could it be that there’s a third characteristic that causes social inequality and corruption to travel in the same direction?

A likely possibility is a country’s level of development, as richer countries might be able to “afford” to spend more money on social services and redistribution of wealth while also addressing corruption.

A multivariate regression (see note) with both GDP per capita (measuring a country’s level of development) and social exclusion as predictors of corruption shows that social inclusion is a much stronger predictor of corruption levels than GDP per capita. In the case of the “remainder of the world” country sub-set, for every step increase in the 10-point social inclusion indicator, the CPI score would improve by as much as 5.5 points on its 1-100 scale.

This finding is actually nothing new. There has long been a scholarly consensus that corruption and inequality are closely interrelated (see here, here, and here). The two phenomena interact in a vicious cycle: corruption leads to an unequal distribution of power in society which, in turn, translates into an unequal distribution of wealth and opportunity.

State capture, grand corruption and the death of democracy

While the anti-corruption community has largely ignored the mutually reinforcing dynamics between corruption and social inequality, there are two quite different movements that made these issues a core element of their campaigning.

First is the emerging global inequality movement – the 99 percenters – spearheaded by progressive NGOs and supported by leftist thinkers, such as Thomas Piketty and Branko Milanovic.

An influential 2014 report by Oxfam, titled Working for the Few summarises the main point: “Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people.” In other words, corruption can flourish when elites control the levers of power without any accountability.

The second movement that links corruption and inequality is also global but it is not progressive. It is reactive, nativist and often right-wing. It is exemplified by politicians like Trump in the US, former Prime Minister Jarosław Kaczyński in Poland and presidential candidate Marine le Pen of the National Front in France.

According to Trump, for example: “Our corrupt political establishment that is the greatest power behind the efforts at radical globalization and the disenfranchisement of working people. Their financial resources are virtually unlimited, their political resources are unlimited, their media resources are unmatched.”

And from Kaczyński: “Corruption is a part of this system that we have to change. Democracy is… endangered by corruption, by the decomposition of the state, by all that constitutes the system of Donald Tusk. We believe that this system is about to collapse, that its end will come, that corruption will be subdued, that our considerable possibilities will be used, that Poland will become a free country of free Polish people.”

Judging by the success of the populists at the ballot box, it is clear that they have been able to exploit the disenchantment of people with “the corrupt system” and present themselves as the only “way out” of the vicious cycle described above.

“Drain the swamp”, Trump’s epithet for reforming Washington D.C., clearly resonated with US voters and there is strong academic evidence that corruption as an issue was indeed salient for many anti-establishment voters in post-Communist countries (see here, here, here, and here).

The question is: are these voters backing a real anti-corruption proponent or supporting con artists?

Source: Transparency International

By and large, anti-establishment parties fail miserably to address – and often significantly increase – the very corruption they set out to get rid of. When an anti-corruption party won elections in New Delhi, for example, hopes were high but schisms and fights stalled progress. There are other examples in Italy (the 5 Star mayor of Rome), Slovakia and Hungary.

In the case of Donald Trump, the first signs of such a betrayal of his promises are already there. The talk is of rolling back key anti-corruption legislation and ignoring potential conflicts of interests that will exacerbate – not control – corruption.

Will this lead to his downfall? Evidence from other populist leaders (Erdogan in Turkey and Orban in Hungary and also Chávez and Maduro in Venezuela) is not encouraging. They appear almost immune to challenges about unethical and corrupt behavior (see also Jan-Werner Mueller’s What is Populism?). While Turkey and Hungary have declined on the Corruption Perceptions Index since the election of populist leaders and Venezuela has been near the bottom of the table for years, the populist leaders seem to be more invincible than ever.

The antidote to corrupt populism

As history shows, turning back the corruption tide is often as hard as preventing a phony corruption fighter from getting into office in the first place. To pre-empt this, mainstream governments need to get much more serious about breaking the vicious cycle between corruption and social inequality.

We would advocate:

• stopping the revolving door between business leaders and high-ranking government positions
• holding the corrupt to account rather than letting corrupt officials hide behind political immunity (the Lava Jato case in Brazil, for example)
• enforcing greater controls on banks, luxury goods sellers, lawyers and real estate agents who help launder corrupt money
• outlawing the use of secret companies that hide the identity of the real owners

These proposals require the investment of substantial political capital by government leaders to confront entrenched interests. It is in the interests of democratic governments to use that capital so they can again deliver on their central promise to provide equal opportunities for all.

Note: Regression results for developing countries

Multivariate Regression of corruption (CPI 2016) with independent variables: Social inclusion (Welfare Regime indicator, BTI 2016; GDP per capita at purchasing-parity levels, logged, World Bank 2015, n =129).

Top image: Creative Commons, Flickr / johnnysilvercloud

Editor's note: On 26 January 2017 this article was amended to reflect that Jarosław Kaczyński is the former Prime Minister of Poland. He is also the current leader of the ruling party.