Blurring the Boundaries of the State-Private Divide
Implications for Corruption

Janine R. Wedel

Associate Professor, School of Public Policy, George Mason University
Paper presented at the European Association of Social Anthropologists (EASA) Conference in Copenhagen, 14-17 August 2002

Contents

Post-Socialism and the Situational State
Flex Organizations
Public and Private State Spheres
The Widespread Unaccountable State?
The Mapping and Meaning of Corruption
Policy Implications for Anti-Corruption Efforts

Notes

Combating corruption has become a priority in the international development community. Corruption was put on the agenda at the World Bank, a recognized leader in the development field, in 1996. Then, Bank President James Wolfenson gave a landmark talk on ”fighting the cancer of corruption” at the joint World Bank-International Monetary Fund annual meeting. Since then, the Bank and other international organizations have launched anti-corruption missions worldwide.^[1] People like me have received contracts to help assess corruption in a particular region or elaborate an anti-corruption program.^[2] The anti-corruption agenda has become part of the mainstream: Every Country Assistance Strategy at the Bank must now include a plan for how it will account for issues of corruption  and governance. 

There are many questions that we might ask about these anti-corruption efforts, including the following: What purposes do they serve? What ideologies and assumptions underlie them? What view of social organization does the approach to corruption imply, and how does that shape the implementation of anti-corruption programs and their outcomes? As an anthropologist who has focused on the organization of state and society, including the organization of aid efforts, I am primarily interested in the social organizational questions. 

Corruption, as defined by the World Bank, is “the abuse of public office for private gain”^[3] and its anti-corruption programs appear to be grounded in this classic definition. For example, the Bank’s “institutional reform” initiatives, one of two major areas of its anti-corruption work,^[4] focus on reducing opportunities for corruption. Institutional analysis is taken to mean examination of the institutions that affect the “performance” of the public sector, such as the recruitment, training, and promotion of public employees.

This approach to corruption depends on a state (or public) - private dichotomy and assumes that the dichotomy is universal.^[5] It also assumes that the dichotomy takes a similar form across diverse societies. But how does one define corruption “in settings where no public-private distinction exists institutionally,” as political scientist Ken Jowitt has asked?^[6] And what are the implications thereof for anti-corruption programs?  

Post-Socialism and the Situational State

Flex Organizations

The defining feature of flex organizations is that they switch their status situationally—from state to private—back and forth, strategically maneuvering their statuses so as to best access state, business, and sometimes international resources. Flex organizations are empowered by informal groups or networks (such as clans) whose success derives in significant part from their ability to access the resources and advantages in one sphere for use in another. 

The influence of flex organizations and the actors who empower them turns on their ability to go back and forth between state and private and on the ambiguity between state and private. It is precisely such ability to equivocate that may afford these entities their strength and may in part explain their influence and resilience. Actors play the boundaries, skillfully blending, equivocating, mediating, and otherwise working the spheres of state and private, bureaucracy and market, and legal and illegal—all the while using ambiguity to their advantage. Flex organizations are shrouded in ambiguity. 

Flex organizations, understandably, call to mind the notion of conflict of interest. But they serve to obfuscate conflict of interest. Unlike a lawyer who represents a client who has embezzled funds from a bank on the one hand, and represents the bank on the other, in flex organizations, the roles are ambiguous. In conflict of interest, an actor  can deny the facts, but not the conflict if the facts are true. But with flex organizations, it is not clear what the conflicts are because structures are themselves ambiguous. An actor can plausibly deny responsibility and get away with it. The difference lies in the ability of a flex organization to exploit the ambiguity.

Three traits of flex organizations make them especially useful to the groups and individuals that control them: (1) the ability to shift their agency—the flexibility after which they are named; (2) the propensity to bypass otherwise relevant institutions, such as those of government (executive, judiciary, or legislative); and (3) deniability, which is part and parcel of shifting agency.  Flex organizations lend to individuals and groups the ability to deny responsibility.  They afford maximum flexibility and influence to those who use them, while burdening them with only minimal accountability.  The ability of actors to evade or challenge, at any given moment, the state-ness or private-ness of a flex organization is crucial to effectiveness.   

Movement between public and private calls to mind some feminist research showing that the “line between public and private is constantly being renegotiated,” as anthropologist Susan Gal writes.^[11]  Using references from linguistics, Gal argues that public and private are “indexical signs that are always relative: dependent for part of their referential meaning on the interactional context in which they are used....Thus spaces that are undoubtedly public (in one context) can be turned into private ones by indexical gestures.”^[12]  In the feminist literature, the lines change over time and are shaped by historical processes.  But in flex organizations, the lines can move back and forth in an instant as the goals of an actor changes. 

Further, flex organizations are neither QUANGOs (quasi-nongovernmental organizations) or GONGOs (government-organized NGOs).  QUANGOs and GONGOs, unlike flex organizations, do not imply simultaneous overlap between government officials and NGO operatives.  Unlike flex organizations, which switch their status back and forth between state and private, QUANGOs and GONGOs imply static relationships and thus cannot enable total deniability, as do flex organizations by definition.  Whereas QUANGOs and GONGOs could come into conflict of interest with state organizations, flex organizations cannot because they obfuscate conflict of interest. 

Polish flex organizations:  In Poland, I first noted the existence of flex organizations in the mid-1990s.  A prime example of flex organizations are agencje (agencies) that have been created in all ministries with control over property.  These include the ministries of transportation, economy, agriculture, treasury, and defense, according to Piotr Kownacki, deputy director of NIK (Supreme Chamber of Control), Poland’s chief auditing body.^[13]  Agencje are set up by state officials, attached to their ministries or state organizations, and funded by the state budget.  The minister typically appoints an agencja’s supervisory board; his selections are often based on political connections, according to legal analyst Jan Stefanowicz.^[14]  Some 10 to 15 percent of an agencja’s profits can be allocated to “social” purposes: If the agencja accrues profits, those profits go to the board, sometimes being funneled into political campaigns.  On the other hand, any losses are covered by the state budget.^[15] 

Agencje have several distinguishing features.^[16]   The agencje’s unclear functions and responsibilities are a defining characteristic.  Although their status is unclear (they do not have the same legal status as state bodies), they use state resources and rely on the coercive powers of the state administration.  From the government’s point of view, the entities are legally private; from the point of view of the entities, they are public institutions.  They have broad prerogatives that are supported by administrative sanctions and are subject to limited public accountability.  They are part and parcel of the “privatization of the functions of the state,” as Kownacki puts it, and they represent “areas of the state in which the state is responsible but has no control.”^[17]

Agricultural agencje offer a case in point.  With so much property under their control, including cooperative farms inherited from the communist past, agencje have begun “to represent [their] own interests, not those of the state,” according to NIK Deputy Director Kownacki.  He observes that “most of the money is taken by intermediaries” and the state has very little control over this process.^[18]  Coal mining and arms also are dominated by agencje and present myriad opportunities for corruption, reports Kownacki.^[19]  Former NIK Director Lech Kaczynski notes that, under the system of agencje, “much tax-payer money flows to private hands on a large scale.”^[20]  The number of agencje is growing.^[21]

Flex organizations are not holdovers from communism, although they may be rooted in the political-economic structure and culture of communism.  They have been created and encouraged by legislation enacted since the fall of communism­ that has enabled the creation of ­profit-making bodies variously called agencies or targeted funds.  These bodies make it legally possible for private groups and institutions to appropriate public resources to themselves “through the spread of political corruption,” as sociologist Kaminski has called it.^[22]  He maintains that “the real aim of these institutions is to transfer public means to private individuals or organisations or to create funds within the public sector which can then be intercepted by the initiating parties.”^[23]

A large portion of Poland’s budget—up to an estimated 30 percent—lies somewhere between the state and the private sector, in ambiguous entities like flex organizations, according to Stefanowicz.^[24]  Far from being phased out, flex organizations appear to have become an institutionalized part of the state.  This is in a country that has earned a reputation as one of the “success stories” of transition—with its entry into NATO, pending accession to the European Union, and, until recently, the fastest growth rate in Europe. 

Russian flex organizations:  I also have documented flex organizations in Russia.  Flex organizations were a key recipient of foreign aid funds in the 1990s and vehicles through which economic reforms were to take place.^[25]  

The Russian Privatization Center, for example, the donors’ flagship organization,  received hundreds of millions of dollars in aid from bilateral donors and loans from the international financial institutions.  An archetypal flex organization, the Center switched its status situationally. Although legally it was nonprofit and nongovernmental, it was established by Russian presidential decree and received aid because it was run by members of the so-called Chubais Clan, who also played key roles in the Russian government.

As an NGO, the Center received tens of millions of dollars from Western foundations, which like to support NGOs.  As a state organization, it received hundreds of millions of dollars from the international financial institutions, which typically lend to governments.  It helped carry out government policy on inflation and other macroeconomic issues and also negotiated with and received loans from the international financial institutions on behalf of the Russian government.

With respect to the second trait of flex organizations—the bypassing of otherwise relevant institutions—the Center was set up precisely to circumvent the democratically elected parliament and the Russian government agency responsible for privatization.  Indeed, according to documents from Russia’s Chamber of Accounts, the Center wielded more control over certain privatization documents and directives than did the Russian government agency formally responsible for privatization.^[26]  Two Center officials^[27] were in fact authorized to sign privatization decisions on Russia’s behalf. Thus did a Russian and an American, both of them officially working for a private entity, come to act as representatives of the Russian state. 

With regard to the third trait of flex organizations, deniability, if the Center came under fire for its activities as a state organization, it could legitimately claim to be a private one.  The reverse, of course, was also the case.

All three traits of flex organizations—the ability to shift agency,  the propensity to bypass otherwise relevant institutions, and deniability—pose problems for parties that would seek to monitor the activities of the organizations. 

Public and Private State Spheres

Anthropologist Alexei Yurchak observes two separate spheres within the Russian state: the “officialized-public” and the “personalized-public.”  These spheres represent different types of practices that coexist and can overlap in the same context.^[28]  Russian entrepreneurs, he notes, seek protection from state organizations whose officials, at one and the same time, call upon anticrime measures available to them through law and the assistance of criminal affiliates and groups.  The same official can seek help both through legal means and criminal affiliates.  Because officials switch the context in which they are operating from officialized-public to personalized-public to best accomplish tasks, entrepreneurs “relate to the state in this discriminating manner all the time,” Yurchak observes^[29] 

Yurchak points out that operating in the personalized-public sphere need not be self-serving or illegal. Transactions that rely on that sphere can benefit all actors and can do so legally in terms of the law of the officialized-public sphere.  He emphasizes that the actors involved distinguish between those state laws that they perceive as meaningless and counterproductive and those that they perceive as meaningful and important. The former type of laws (e.g., unreasonably high taxes, constraints on the withdrawal of cash from accounts, privileges given to random groups of citizens) they treat as a formality that has to be followed in officialized-public terms only... The latter type of laws they follow in earnest.  Perceiving the state and its laws in accordance with this hybrid model means always expecting that some steps and regulations of the state will be positive and meaningful and some will be negative and unreasonable.^[30]  

I noted similar cases in Poland, in which officials elected to operate in a kind of personalized-public sphere—for other than self-serving reasons.  In one case, a man selling an apartment that he had inherited was to pay a huge sum in taxes.   He visited the state tax office, and after a bureaucrat told him the amount he was being assessed, the same bureaucrat gave him explicit instructions on how to avoid paying.  He followed her advice and saved a lot of money.  The man did not know the bureaucrat personally, she did not expect anything in return, and he did not offer it.  She told him that she routinely offers such help. 

The tax bureaucrat appears to be operating under the communist adage that state property – tax dollars in this case – belongs to everyone – and to no one.  What was legal was often not considered moral; what was illegal was often considered moral.  Let’s say you and I work in the same state-owned construction enterprise.  If you set aside cement, bricks, other materials belonging to the enterprise—that is, to everyone and no one—to take home with you to use in your own side job, this is merely lifting.  It is morally acceptable, no one will fault you for it, everyone does it.  However, if I come along and take materials that you are planning to take home with you, that is stealing, and that is morally wrong.^[31]

In a similar vein, Gal rethinks public and private, and notes “redefinitions that create a public inside a private, or a private inside a public.”  These “can be momentary or ephemeral, dependent on the perspectives of the participants.  Or they can be made lasting and coercive, fixing and forcing such distinctions, binding social actors through arrangements such as legal regulation and others forms of ritualization and institutionalization.” ^[32]

The Widespread Unaccountable State?  

So far I have discussed only data from Central and Eastern Europe.  But, although flex organizations may be most visible in societies undergoing dramatic and fundamental transformation, such forms may well be widespread.  The concept of flex organizations, for example, appears to be applicable in a variety of circumstances. 

Flex organizations are found in developing country contexts, as well as in developed countries, not only in centrally planned economies in the process of unplanning themselves.  In the past several months I have given talks at the Ford Foundation and the World Bank in which my discussion of flex organizations has sparked interest.  During the subsequent question-and-answer period, program officers and officials from a variety of countries—including Egypt, Ghana, and Nigeria—have identified flex organizations in their own countries. 

Flex organizations may even be found in the United States. The energy company Enron may be one example of a corporate flex organization.  Enron’s chief financial officer, Andrew S. Fastow, played the dual roles of CFO of Enron and of LJM partnerships that he created and managed.  Using Enron stock as collateral, Fastow signed off on deals for both and hid Enron losses by putting them under the partnerships.  According to a report issued by Enron’s board after the misdeeds were brought to light, the transactions were illusory since Enron was essentially on both sides of each deal.^[33]   William C. Powers Jr., an Enron director who chaired the committee that wrote the report, said that Fastow was plagued by dual loyalties.  “Fastow couldn’t mind the store,” Powers said, “because he was involved in the transactions.”^[34]   Jordan Mintz, a lawyer with Fastow’s finance division, was troubled by this state of affairs, according to the New York Times:  “Mr. Fastow was negotiating deals on behalf of the partnerships across the table from his own subordinates, who were representing Enron.  Approval sheets for those deals had not been signed off by Mr. Skilling, the chief operating officer, even though they all had a line for his signature.”^[35]

Fastow’s influence over the partnerships—and his ability to hide them—was facilitated by his dual roles and the ambiguity as to which role he was playing during crucial instances.  Fastow clearly engaged in shifting agency; he was able to obfuscate on whose behalf he was acting.  However, whether the arrangement enabled deniability—a necessary feature of flex organizations—is unclear.   Enron executives skirted conflict-of-interest regulations through waivers, which were not always signed off on.  If the activities of the executives were criminal in terms of Enron but not the partnerships, that would create deniability. 

We might hypothesize that flex organizations arise when deniability is a highly important factor—that is, when actors who play roles in different spheres want to be able to deny responsibility and so they distance themselves from one or the other sphere.  When actors can shift whom they represent, this enables them to claim greater deniability for the outcomes that have been produced.

We might also speculate that the post-Cold-War period of rapid change and  breakdown of state and legal structures has given rise to forms such as flex organizations. An important question here concerns the implications for states where flex organizations are proliferating.  The net effect of flex organizations may be the enlargement of the state sphere. Writing about Poland, Kaminski argues that post-communist legislative initiatives have facilitated “an indirect enlargement of the dominion of the ‘state’ through founding of institutions that in appearance are private, but in fact are part of the [appropriated] public domain.”^[36]

The Mapping and Meaning of Corruption

As we have seen, societies can be organized in different ways.  The state-private divide may be fluid, subdivided, overlapping, or otherwise obscure.  The conventional boundaries of state and private, bureaucracy and market, and legal and illegal appear ill-equipped to map mixes of organizational forms, the changing and overlapping roles that actors within them may play, and the ambiguities that those employing the existing models themselves observe.  Not only do skillful actors cover all the bases between state and private, market and bureaucracy, and legal and illegal, but they blend, equivocate, mediate, and otherwise shape them for maximum impact.  Yet the boundaries continue to be widely accepted in the practice and rhetoric of public administration and employed by policymakers and scholars (e.g., in the fields of comparative politics, public administration, and sociology).  It follows that approaches to corruption based on conventional models --  such as those of the World Bank, which (as noted earlier) defines corruption as “the abuse of public office for private gain”—inadequately conceptualize corruption.  Jowitt has argued that such approaches to corruption are weak because they rely on “the difference between public and private aspects of social organization” which “makes it impossible to specify the existence and meaning of corruption in settings where no public-private distinction exists institutionally.”^[37]

What does the overlapping and situational nature of the social organization of the state mean for the analysis of corruption?

In any society, how people define corruption and the propriety of certain behaviors in the state-private interface is not objectively determined. There is no objective way to draw a line in one place as opposed to another.

So, in analyzing corruption and designing anti-corruption programs, we must take into consideration different practices, patterns, and concepts of corruption.

Even people who engage in “corrupt” practices may do so in terms of their own ethics which may defy our views of what corruption is.  Sociologist Marina Kurkchiyan has studied bribe-taking among judges in courts in Russia, Ukraine, and Armenia.  In examining civil cases, she found that citizens routinely do not expect what they consider justice without paying a bribe.  What Kurkchiyan learned, though, is that judges hear a case and make up their minds about which side they want to support.  Only after they have made up their minds do they accept a bribe from that side and from that side only.  (Unlike American politicians who accept contributions from lobbyists of all persuasions, eastern European judges are not equal opportunity bribery recipients!)  Judges, Kurkchiyan observed, take care to appear to make fair decisions and not to expose themselves.  They want to avoid being seen as having been influenced by a payment.^[38] 

Perhaps, then, we should concentrate on  the root of the harm with which corruption is identified—a diversion of resources from the citizenry—rather than the particular practice. Every activity that crosses the state-private divide is not inherently corruption.

Perhaps we should focus not on the particular act, but on the meaning of the act. We assume that taking money from the plaintiff or defendant influences the judge’s decision. But in Kurchiyan’s example, we see that it may not.

We assume that government officials are acting in the interest of the state, or, if they are not, they are “corrupt.”  But in Yurchak’s government officials, as well as in Wedel’s  example of the tax bureaucrat, we see that officials may subordinate or even undermine state laws and guidelines to their own public ethics. After all, if state resources belong to everyone and no one, why shouldn’t the tax bureaucrat help the man save money?

What about flex organizations? In the cases I have studied, the structure of flex organizations provides opportunities for them to serve the purposes of a group of players who are at the state-private nexus, rather than state or private purposes.  Many Poles might find  flex organizations unacceptably outside the interest of the spoleczenstwo, or society.  Anti-corruption approaches that rest on the state-private divide cannot counter flex organization because, by definition, they shift agency, or whom they represent.  Because organizations and the actors that empower them themselves have incentives to engage in representational gymnastics and can shift their allegiances to achieve their own objectives, flex organizations provide deniability.

One view of flex organizations is that the only way to increase their accountability to citizens is to decrease their ambiguity. With regard to the flex organizations I have charted in Poland and Russia, there are many examples in which actors use them to pursue their own group and private goals. However, it is conceivable that flex organizations could be used to pursue official goals.

The bottom line here is that relying on the state-private divide as if it were universal and unchanging means that we may mischaracterize or focus on the wrong problem.

Policy Implications for Anti-Corruption Efforts 

What are the implications of structures like flex organizations for anti-corruption efforts? When ambiguity is built into social structures and the very structure of relationships, we are entering unfamiliar terrain. Transparency—shedding light on the existence and operations of flex organizations—is achievable. Accountability is not. Flex organizations are inherently unaccountable because they enable deniability.

Can a development agency take advantage of the positive benefits of flex organizations while mitigating the potentially harmful ones?

Observers from both Egypt and Nigeria had positive tales regarding flex organizations in their countries. The organizations effectively used parts of official structures, while at the same time circumventing other parts. Government officials relied on their positions to accomplish specific tasks that they (and others) saw as in the public interest but that could not be accomplished in the officialized-public sphere.

Flex organizations, I would caution, are not equipped to encourage broad-based citizen participation. I mention this because some flex organizations (as in the Russian case) are formally NGOs, which the development community often sees as effective vehicles for public outreach and looks to solve a plethora of problems. In addition, NGOs are also to be exemplars of and vehicles for creating democracy and civil society and mediating between citizens and the state, especially in transitional societies. Yet flex organizations clearly should not be charged by development agencies with public outreach. The structure of flex organizations mitigates against the  sharing of information and resources with a wider public. 

Further, flex organizations are empowered by people who often come together out of longstanding association, friendship, and family connections. Such organizations lack incentives to encourage expansion beyond their originating circles. These organizations are much better equipped to continue as isolated groups, contributing to fragmented governance, rather than to attract new members on the basis of common interests.

Notes