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CORRUPTION SCANDALS were a recurring feature of Tanzania’s political landscape at the start of the twenty-first century, against a backdrop of rapid economic growth and global integration. Grand corruption cases in public finances implicated senior politicians, high-ranking government officials, domestic industrialists, and multinational companies in a series of illegal activities involving bribes, kickbacks, and the theft of public funds. In October 2014, the ruling party Chama Cha Mapinduzi (CCM) found itself embroiled in a corruption scandal that once again caused significant turbulence within the highest echelons of the state. This case involved the alleged illegal payment of US$122 million by senior state officials to businessmen under the guise of energy contracts. In response, twelve donors suspended aid payments to Tanzania pending a report into the affair by the controller auditor general, and subsequently a number of senior figures within the ruling party who were implicated in the scandal resigned from their parliamentary duties.
Such a response by donors and by the ruling party itself is by no means a new departure in Tanzania. While grand corruption has occurred across a number of sectors including land, natural resources, and industrial policy, the scandals in public finance have caused the greatest reverberations within the state and within the donor community. Since the mid-1980s, numerous accusations of grand corruption have been followed by the temporary suspension of aid and by concerted efforts by the ruling party to clamp down on high-level corruption within its midst. These efforts involved short term political reshuffles as well as more searching institutional reforms to the state, but all with little effect, as the scandals recurred with depressing regularity. The intractability of grand corruption in Tanzania contrasts with the gradual improvement in other aspects of public financial management since the turn of the century. At the end of the 1990s, the Report on the Presidential Inquiry into Corruption in Tanzania identified widespread petty pilfering of funds channeled through the government system, and illegal payments in public procurement and to secure government-awarded contracts for public works.2 As a number of major donors prepared to switch their aid modalities towards direct budget support, reducing these forms of corruption became a major goal. Public financial management reforms were part of a broader anti-corruption drive that included two Parliamentary Acts, in 2002 and 2007, on the prevention of corruption, as well as a strengthening of the Prevention and Combating of Corruption Bureau. Within public finances more specifically, the Public Financial Management Reform Programme aimed to reduce corruption through greater transparency and accountability. A cash budget, limiting payments to cash availability on a monthly basis, and a centralized payment system were introduced. The development of a medium-term expenditure framework and a Public Expenditure Review involving different stakeholders increased transparency. An expenditure-tracking system was introduced to reduce leakages at service delivery level. By the mid-2000s, Tanzania had achieved some notable successes in constraining certain forms of bureaucratic corruption within the budgeting system.3 In the first Country Policy and Institutional Assessment in 2005, Tanzania scored considerably above the regional averages in all aspects relating to public finance. The persistence of grand corruption in public finance despite these reforms points to the fact that the technical improvements in the budgeting process did little to address the underlying drivers of the phenomenon in Tanzania.
Recently a number of scholars have linked grand corruption in Tanzania to the nature of elite politics within the ruling CCM party.
For example, Michael Lofchie uses a rent-seeking framework that draws on Anne Kruger’s neo-classical economics approach to argue that grand corruption is a result of the centralization of power, allowing members of a narrow elite to dominate the state and use corruption to consolidate their control over the economy. However, this approach does not account adequately for the internal fissures within the CCM elite that have also been exposed in these cases of grand corruption. In particular, we need to know much more about how order is maintained in the context of these factional conflicts. The literature on grand corruption in Tanzania also fails to specify the mechanisms through which grand corruption influences economic development. The standard rent-seeking framework rests on the assumption that grand corruption ultimately constrains economic development by raising the costs of collective goods and by undermining investor confidence.
However, recent literature has shown that grand corruption is linked to a range of different economic outcomes. We need to know much more about the links between grand corruption and the processes of economic transformation unfolding in Tanzania. In order to explain how intra-elite struggles exposed by grand corruption relate to the path of socio-economic transformation in Tanzania, I draw on the political settlements theory developed by Mushtaq Khan. A political settlements approach places the phenomenon of corruption within the context of capitalist transformation in developing countries. A political settlement is the combination of institutions and the underlying distribution of power in a society. The distribution of power in society affects the ability of historically constituted social groups to acquire, or hold on to, property rights that generate income.
In most developing countries, the distribution of political power between contending social groups is not aligned with the formal structure of institutions. Instead, power often resides in clientelist networks that operate within and outside formal state institutions. Clientelism, as understood within the political settlements framework, results from specific features of late capitalist transformation relating to the challenge of consolidating power within formal institutions that are supported neither by a significant capitalist surplus nor by traditional sources of authority. The ways that power and institutions are combined within different political settlements have important implications for trajectories of economic development in low-income countries. In particular, different institutional configurations and patterns of power within each political settlement will have implications for political stability and the ability of the state to implement policies to promote technological catch-up. Further, the characteristics of a political settlement affect the viability of different strategies of accumulation. A recent but burgeoning literature explores aspects of the political settlements theory and economic transformation in African countries. By extending this line of enquiry to grand corruption cases in Tanzania, this article makes a fresh contribution to the understanding of Tanzania’s political economy and furthers the broader debate about grand corruption, political settlements, and economic development in Africa. Specifically, the article explains how the elite within the ruling CCM party is not centralized; rather, it is composed of internal factions that have equal weight. The article argues that this distribution of power within the elite means that it is difficult for the president, or any group within the ruling party, to stop grand corruption. It then explains how the enduring control of this elite, despite its internal divisions, can be explained by examining who holds power in society beyond the formal institutions of the ruling party or the state itself. This is followed by a clarification of the key factors in Tanzania’s history that shaped the contemporary distribution of power, namely the nature of the independence struggle and the experiences of attempting to construct socialism in the 1960s and 1970s. Following this, the article expands on the causal factors that explain how grand corruption shapes economic transformation. In doing so, it seeks to move beyond the idea advanced by Tim Kelsall and others that centralized and long-horizon management of rents is necessary, to show how the specific and historically constructed relations between business and the state are critical in shaping the implications of grand corruption for accumulation within the domestic economy. In the case of post-socialist countries such as Tanzania, an important further factor is the extent to which economic institutions that facilitate collective action by politicians and business to channel resources into productive activities survived under economic liberalization.
The article starts by setting out the links between public finance, corruption, and the political settlement. It then presents a detailed analysis of four grand corruption cases that occurred in Tanzania over the period of high economic growth, tracing the pattern of struggles within the ruling party and the political and economic connections exposed in these cases. The article explores the implications of this empirical evidence for the dynamics of elite struggles, changing state–business relations, and the interaction of patterns of grand corruption with processes of accumulation within the economy.
Finally, it concludes by explaining why withholding aid by donors is likely to continue to be unsuccessful as a strategy for tackling grand corruption and what a political settlements approach implies for attempts to control grand corruption in Tanzania. Even under the threat of donor withdrawal of aid, the ability of the ruling CCM party to constrain corruption effectively is undermined by the fragmented distribution of power within the ruling party. However, beyond the intra-elite struggles within CCM, other social forces are emerging in Tanzania. These social forces challenge the existing distribution of power and will affect the feasibility of different anti-corruption agendas in the future.
Public finances, corruption, and the political settlement
Public finance plays a critical role in economic performance through a multitude of different avenues, not least by funding the economic policies of the state, providing direct and indirect finance to businesses, and lowering the costs of production through investment in infrastructure and public services. Public finance also plays a vital political role in maintaining political stability in the face of competing demands for state resources from different social groups. Many of these transfers occur explicitly through the official government budget, where patterns of resource flows mainly reflect political pressures that are mediated by ‘negotiations’ through many political institutions.
However, other transfers of public finance that also play a critical role in economic performance and in generating political stability occur in the form of off-budget expenditures outside official budget channels and away from the ‘glare of public scrutiny’. Of course, not all off-budget expenditure is associated with corruption. Off-budget flows can represent legitimate expenditure by the state where the details of expenditures are kept outside of the official budget documents. These flows could be thought of as the ‘known-unknowns’ of public finance.
In Tanzania these flows included funds to the State House and to the army, as well as other expenditure that was undertaken by public agencies and parastatal firms. While not officially part of the public expenditures of the state, the high degree of political influence over these institutions meant that such expenditure can, in effect, be considered a form of state expenditure. Over the past decade, Tanzania was widely seen as a success story in terms of efforts to crack down on these forms of off-budget finance.
Off-budget expenditures also took the form of covert and illegal payments that were officially ignored or denied. These payments included forms of petty corruption that resulted from the inability of the state to constrain theft by some public employees in ministries and local government, as well as the grand corruption that occurred at higher levels of office within the state. While the technical and formal procedural changes that occurred within public financial management across the 2000s were relatively effective at reducing petty corruption, they did little to reduce the grand corruption that only came to light subsequently through the high-profile cases discussed below.
These inscrutable forms of off-budget expenditure by the state appeared to be shaped by complex links between individuals in the ruling party and individuals within the private sector. Different forms of grand corruption, and the opposition they generate within the ruling party and more widely in society, reflect the distribution of power in a country. Hence, a picture of the distribution of power can be gleaned by studying the outcome of contests over resource flows in their particular historical contexts. Underneath Tanzania’s formal negotiated settlement, reflected in the institutional structures of the state and the ruling party, is a continuous process of struggle among groups over resource flows and property rights. It is in the details of these struggles that the implications of grand corruption for Tanzania’s development path and the possibilities for constraining corruption can be found.
To be continued...