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The cost of State capture

Thursday January 09 2020
By LUIS FRANCESCHI

The crippling state capture scandals we have discussed in the previous weeks do not happen only in Kenya.

Goldenberg and Anglo Leasing were locally assembled, but external interests are also at play as we learnt from our study of the Standard Gauge Railway.

State capture is an international phenomenon. International capture is the overflow of national moral decay in governance. It never stays indoors and sooner than later spills over to neighbours ….to the whole world. The more powerful the country, the bigger and deeper the capture.

At the heart of all our discussions, is our institutions’ weakness. We have seen the law’s porosity when confronted by private interests and the resulting corrosion of the rule of law in the generalised rent-seeking environment prevalent in today’s environment.

How much have we lost? To be clear, what we will see below is the cost of weakened institutions; of decades of contempt for the rule of law; and of poor governance.

The cost of theft

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Despite the fact that we are unable to fully quantify the loss occasioned from decades of unbridled institutional capture, we use “corruption” as a metric to attempt an evaluation of its cost.

Between August 2018 and November 2019, reported unaccounted-for funds hit the astronomic figure of 972 billion shillings.

In 2019 alone, it was reported that the government (both national and county) could not account for approximately Sh731 billion.

This figure is a consolidated amount from various accounts including the auditor-general’s reports. This loss was caused by numerous scandals such unaccounted-for funds reported by the auditor-general in NSSF’s, KRA’s, KPC’s, and NYS’s finances among others. (See the corruption tracker)

The figure below illustrates how much was reported as unaccounted-for, every month in 2019. In June of 2019, the reported amount totalled 293 billion shillings; four billion shillings shy of what was reportedly siphoned off between August and December 2018.

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Data sourced from the corruption tracker referenced above.

Scalar Variability and the Kenyan Corruption Question

It is fascinating that the greatest aide to corruption politics is rooted in the evolutionary theory. The human brain is unfortunately not evolved to process big numbers. Our natural tendency, when confronted by big numbers, is to see whatever is in question in relative terms. 

Our ability to keep track of numbers decreases as the numbers increase. It is known as scalar variability; the bigger a number gets, the noisier and fuzzier your estimate gets. Consequently, our minds are obfuscated by the types of numbers synonymous with corruption scandals because we are naturally not predisposed to make sense of them.

The result is that we are collectively shocked at the audacity of those involved in the graft. We are angry at all this theft, but we are incapable of wrapping our minds around the loss because we naturally balk at the sheer magnitude of the numbers reported.

For the purposes of understanding the loss, we have contextualised it. The sum of Sh731 billion lost in 2019 means almost nothing until we understand what the country could have done with that money.

For those struggling to meet the increasing cost of cancer treatment, Sh731 billion would have bought 1,827 of the newest radiation therapy machines known as the Varian Halcyon Analysis Treatment Machines.

These machines are designed to deliver an entire adaptive treatment in a typical 15-minute timeslot, from patient setup through treatment delivery and each county would have had 38 of them.

In terms of schools, if we set Hon. Ken Okoth’s Mbagathi Girls' High School as an example (it was constructed on a Sh48.2 million budget). Sh731 billion would have constructed 15,165 other such schools; 322 well-built and resourced schools in every county in the country.

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In a country that is importing doctors, Sh731 billion could have funded the education of 1,268,993 medical students in one year. Such sustained funding over six years would mean the deployment of 27,000 doctors in every single county after the completion of their studies.

Funding the infrastructure deficit has plunged us into unsustainable debt. As we struggle to meet our financial obligations in 2020, we should keep in mind that the unaccounted-for sum in 2019 would have funded our infrastructure deficit for 3.4 years.

While we tend to think of corruption in purely monetary terms, the truth is that it costs us the quality of our lives. It directly costs us our health. It costs us the quality of education we receive. It costs us much needed human capital and incurs a hefty opportunity cost on true economic development.

If we guesstimate the value of money lost to corruption each year as even just a half of that lost in 2019, what we realise is that each year we are sacrificing so much human potential at the altar of greed. 

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Public spaces and the marshmallow test

In ‘Poisoned Wells: The Dirty Politics of African Oil’, Nicholas Shaxson makes a simple but interesting observation on the nature of corruption in Nigeria.

He observed that Nigerian people were incapable of waiting. They haggled, pushed, and shoved one another in public spaces. Just a little patience in waiting in line is often characterised by passive or sometimes, active violence in Nigeria.

Shaxson’s observation evokes memory of the well-known Stanford marshmallow experiment. This was a study done on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. It was followed up by researchers at the University of Rochester in 2013 that conducted the same experiment but with a twist.

In the first experiment, the researcher told a child that he or she was going to leave the room and that if the child did not eat a marshmallow placed in front of them while they were away, they would thereafter be rewarded with a second marshmallow.

However, if the child decided to eat the first one before the researcher came back, then they would not get a second marshmallow. The researcher then proceeded to leave the room for fifteen minutes.

The results of the study came years later as researchers followed up on and tracked the children’s progress. They found that the children that had displayed delayed gratification were more successful than those that had eaten the marshmallows before the researcher came back.

Success, it was said, depended more on the ability of the subject to choose the pain of discipline over the ease of distraction. Hence began our crazed fascination with self-discipline and in-born character traits.

In 2013, the results of the study were re-analysed at the University of Rochester. Before the children were offered the marshmallows, the researchers split them into two groups. One group was exposed to a series of unreliable experiences while the second was exposed to very reliable experiences.

The group exposed to unreliable experiences would have the researchers give them something and then promise to bring them something else. The researchers would however renege on their promises. The group exposed to very reliable experiences consistently received what they were promised.

By the time the researchers were bringing in the marshmallows, the ‘unreliable experiences’ group were primed to distrust the researchers’ promises to bring in a second marshmallow and they quickly ate the first marshmallow. The second group waited on average four times longer than the first group. They had been trained to see the value of delayed gratification.

The ability to delay gratification that was so crucial to future success was not an in-born or predetermined trait. It was shaped by the environment and in particular, the subject’s previous experiences. Whether the child could trust the environment determined their ability to wait for the fulfilment of a promise.

Shaxson correctly concluded that the problem was not Nigerians. The issue was the system and the environment they found themselves in. They were primed to distrust that the system could bring something to them if they waited and so they pushed and shoved and sometimes fought in public spaces.

It was the same reason he found, that they pilfered the state coffers when given a chance to. Indeed, one could also say that they were primed to distrust, because the state coffers were notoriously pilfered.

Social capital and State capture

Economists have a word for this Shaxsonian ‘trust’ people in society have among each other and towards their society as a whole: social capital.

This refers to the connections among individuals—social networks and the norms of reciprocity and trustworthiness that arise from them. It is understood as a fundamental factor enabling human and economic development. What then is its relation to state capture?

According to the Legatum Prosperity Index of 2019, Kenya ranked 44th on social capital. It ranked 4th in Africa after Mauritius, Seychelles, and The Gambia.

In five of the countries profiled below, the social capital and corruption rankings seem to correlate while the rest exhibit little to no correlation. In fact, to the exclusion of all other rationalisations, the illustration below would in itself offer little to no support for Shaxson’s conclusions.

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Data sourced from the Legatum prosperity index 2019 and Transparency International Corruption Rankings 2019

The answer to this confounding situation reveals an interesting component of social capital. There are two types of social capital: Bonding and bridging social capital. The two types affect institutional capture and corruption risk very differently.

Bonding social capital refers to the phenomenon in which people form dense, homogeneous communities. Such communities are often based on ethnicity, class, or religion. The members share high levels of trust, demand conformity, and the community excludes outsiders.

Bridging social capital on the other hand refers to connections between people from different social groupings. These ties are valuable for they allow the conveying of novel information and exposure to diverse perspectives. They are necessary for building effective public spaces and markets in plural societies.

A seminal paper by Donna Harris at Oxford’s Blavatnik School of Government and other studies found excess bonding social capital among societies with high corruption and state capture risk in their governments. A high level of bridging social capital on the other hand was found in societies with low corruption and state capture risk in their governments.

This is because bonding social capital which focuses on benefiting and rewarding homogeneity in groups prevents the formation of effective public spaces. It also explains why such corruption or state capture is difficult to eliminate because it is embedded in the social network of a society.

If the Legatum Prosperity Index fails to make the distinction between bonding and bridging social capital in its methodology, and cumulates the two types of social capital, one could explain the phenomenon in Nigeria, Kenya, and The Gambia as this:

There is enough and perhaps too much trust among members of a group to enable institutional capture and corruption and not enough trust among members of different groupings to create effective public institutions that would fight institutional capture and corruption.

Unfortunately, it creates a chicken and egg scenario. The groups propagate corruption, weaken, and capture institutions for their own benefit. In return, high levels of corruption, weak, and captured institutions catalyse the formation of groups or cliques to ensure survival of their members in resource scarce environments such as Nigeria’s or Kenya’s public space. 

Social capital and the rule of law in the face of State capture

A strong rule of law system would run counter to the environment described above. Rule of law builds strong, durable institutions, ensures the equality of people, and the certainty and predictability of rules among other things.

The environment described above thrives on homogeneity, personal bonds, secrecy and exclusivity. Rule of law systems would in contrast, cultivate organic solidarity and encourage stronger bridging social capital which would in essence, curtail corruption and institutional capture.

Consequently, a resource-scarce environment with closed social groups focussed solely on their own self-aggrandizement propagates weak or non-existent rule of law systems.

This is why the true cost of corruption is not only the distrust it sows among people without similar ties in society, the weakening of public spaces and markets, but also the resulting corrosion of rule of law systems.

In a society such as ours, the rule of law is a banal affair. In fact, some people think they can only ‘succeed’ and get a chance at the coffers for themselves and their progeny by weakening these systems. Sadly, we lose sight of what those coffers mean. They mean life, health and education of millions. It is their only chance at progress. Unfortunately, the opportunity cost is nationhood, fraternity, true substantive equality and development, and the greedy never see it that way.

This article is part of a long series of articles on the rule of law in the context of politics and ethics. The series is researched and co-authored by:

•Karim Anjarwalla, Managing Partner of ALN Anjarwalla & Khanna, Advocates.

•Kasyoka Mutunga, Research Associate at ALN Anjarwalla & Khanna, Advocates

•Wandia Musyimi, Research Associate at ALN Anjarwalla & Khanna, Advocates

•Prof Luis Franceschi, founding dean of Strathmore Law School and Visiting Scholar, University of California - Berkeley Law School.

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