Corruption and social resource theory

Social resource theory (and social exchange theory in general) posits that human interaction can be seen as exchanges of tangible and intangible resources. While corruption has been discussed in great detail in academic literature, it is interesting to think about corruption through the lens of social resource theory. In doing so, one need look no further than Herbert Spencer and his work The Man vs. the State: Six Essays on Government, Society and Freedom (available online here). Spencer notes that societies choose how much of their freedom they give over to the state. His argument was (allow me to paraphrase) that people give their freedoms over to the state when a situation arises that seems too big for them to handle on their own. This becomes cyclical as the state gains power that the people have forfeited, so the next time a large problem arises, the people need the state even more and give it more power, and the cycle continues. One might say that Spencer was arguing that people entrust the state with their personal freedoms.

Entrusting individuals with rights or privileges once belonging to others lays the foundation for corruption. Taking a social resources approach, we might say that people give their rights and privileges (intangible resources) in exchange for greater efficiency (here, one might observe the irony of this observation which will be explained later), peace of mind, or more power to “get things done”. This should not be hastily dismissed. After all, would you rather coordinate military defense as a collective of individuals, or put it into the hands of the government? Therefore, although one might not think of the government as highly efficient (and perhaps it is not in many cases) there are things like military protection that would be highly inefficient if left to the people. The efficiency we are talking about here is mainly an extension of the government’s control of what Spencer would call vast resources (available here).

The idea that people give their intangible resources, including rights and privileges, to the government brings to mind a number of opportunities for corruption. 


In Franz Kafka's book The Trial, Josef K. learns that he is to stand trial for crimes he did not know he committed. A guard informs him that his personal possessions will be taken and held until after the trial. The guard then gives him the bad news: trials "these days" are taking so long that the possessions will probably eventually all be sold off. He further comments that Josef will still get the proceeds from the sale, but that they will likely be very meager. The guard then makes the astute observation that "sales aren't based on the size of the offer but on the size of the bribe".

Think of this: if I sell something on eBay, there is a certain price that that thing will sell for based on its value as a commodity plus any socio-emotional value. However, if I somehow become entrusted with your property, value can be lost through bribery. Take for example a bike worth $1000. This is its value as a commodity, plus it has socio-emotional based on its brand, or maybe it is a vintage bike that a lot of people have fond memories about, but all things considered, let us say the value is $1000. That is the amount I expect to make if I sell the bike, let’s say on eBay. Finally, let us suppose in scenario 1 I list the bike on eBay and it sells for the expected amount, $1000.

Now, if I entrust it to you, there can be a different outcome. The buyer can bribe you to sell the bike for less. It is not your bike and any amount of money you make is icing on the cake because you have nothing invested in the bike and are not the owner of it (it has no commodity or socio-emotional value for you because you do not own it). At some point, you will be willing to sell the bike for a lower price based on a certain level of bribe. Let us say that for $100, you will sell the bike for $750. The buyer only had to spend $850 (saving $150 over what they would have otherwise paid), you are up $100; the only person who loses out is me as the bike’s owner. Now, you have to explain to me why you could only sell the bike for $750 and you make up some story about how times are tough and no one was “biting” at the higher price point or whatever.

The point is that when someone is entrusted with something, they can breach that trust to get personal gain. 

Is public trust an intangible resource?

The words of the guard bring to mind countless incidents of corruption throughout the world. At the heart of corruption is the idea that someone has breached public trust (Jain 2001). For example, we hear of public officials taking bribes, hiring friends, funneling money into friends’ companies, embezzling funds and so on. In many of these cases, it appears that the corruption mostly has to do with getting gain in terms of tangible resources. However, there is more to it than that. One must also consider the intangible resources involved. For example, is public trust a resource? Do corrupt officials steal or at least misuse the trust that was given them as an intangible resource? 

In order to answer that question, one might simply ask if the official would have been able to extract the same benefit without having the public’s trust. Often the answer is no. The way public trust is (or is not) an intangible resource is an area that might be further investigated in connection with social resource theory. If it is not a resource, then what is it? For example, is it simply a social situation facilitating the exchange of resources in certain ways?

Economic applications of corruption and social resource theory

Additionally, one might observe other potential areas for future research. For example, how does corruption relate to Pareto optimality? For example, consider a situation that is not Pareto optimal. We do not call all such situations corruption. The Great Recession of 2007/8 brought about some discussion throughout the world about Pareto Optimality. For example, could not the situation of many people be improved a little bit without really making the wealthy worse off? (Or, some would argue it would even be fine if the wealthy were a little worse off…) This does not mean that the wealthy are corrupt. However, corrupt individuals seem to act in a way that is at the heart of a Pareto “inefficient” situation. Like the person entrusted to sell the bike, corrupt officials will take a personal gain that results in a greater loss than that gain for others. In other words, they would take a bribe of $1,000 that would cost others $20,000. This could be done through hiring friends that are not truly qualified to do complicated jobs, or through giving work to friends’ companies and paying them much more than they would otherwise make. A notable example is the Sochi 2014 Olympic Games. The $50 billion spent on the Sochi Olympics is reported to be higher than all other Olympic winter games combined with approximately a third of that sum lost to “rampant corruption, embezzlement and kickbacks” (Berman 2014). In this way, corruption makes everyone worse off than they would have been. In Sochi, the people will now be stuck with a multi-billion dollar bill that was the result of corruption.

Corruption can also be related to game theory (economics) or the theory of social situations (psychology). For example, think of a “prisoner’s dilemma” game in which the decisions of all players on a team are entrusted to a single player who gets to decide what everyone else on the team will choose to do. Now suppose that the decision maker gets an incentive for breaching the trust of the players. It may be that the decision maker earns 5 points for a decision that costs the team 10 points, but if the decision maker doesn’t breach trust, they (the decision maker) get nothing, or a lesser incentive.

Ethical considerations

All things considered, corruption often occurs when a public official acts in a way that will create an increased personal benefit, even if it is at the detriment of others. At what point is getting ahead, or amassing gains inappropriate for a public official?

There are many philosophical opportunities to discuss this question; however, morality is often defined by social consensus. In other words, we do not hear of corruption when no one is opposed to known actions that took place (a separate issue would be corrupt acts that have not been discovered yet). It may be that because corruption involves a breach of public trust, public opinion about the allegedly corrupt acts plays a big role in determining if certain actions are corrupt. In common language: who determines what is corrupt? Those who have a vested interest in a given corrupt act. Who cares if a public park could not be built because a public official took a bribe from a high-rise apartment developer? Those who paid tax dollars and voted to have the park built.

Ergo, while a full treatise on the philosophical considerations is not parsimonious at this time, it can be said that social consensus plays a large role in determining what is and is not corruption.  

Conclusion

In short, there are many potential ways to think about breaches of trust as related to social resource theory. These breaches of trust are often motivated by tangible resources. However, what are the intangible resources that are at work? Should public trust be seen as an intangible resource? Additionally, what are the economic implications of explaining corruption through social resource theory? How might game theory and Pareto optimality be related? How might they be extended given these ideas about corruption? Finally, there are many philosophical and ethical questions that accompany a discussion of corruption and social resource theory. These questions may seem peripheral; however, without addressing these ethical questions, one will not even know where to draw the boundary of corruption. In other words, corruption cannot fully be described without knowing where it starts and stops (which are essential in understanding what corruption is and is not).

OTHER WORKS CITED NOT LINKED IN TEXT

Jain, A. K. (2001). Corruption: A review. Journal of economic surveys, 15(1), 71-121.

Kafka, F. (1998) The Trial. New York: Schocken Books.