A tacit conspiracy of impunity further enables corruption. Although some high-ranking officials have had to resign or been dismissed from their positions, and a few have even been brought to trial, practically no one has been convicted or required to restore funds to the government. Those who engage in corruption form an unspoken agreement that they will not inform on others who do so. This is what makes corruption so difficult to prosecute. In a culture of corruption, it becomes wholly permissible, almost obligatory, to condemn the generic phenomenon and, indeed, to cry out publicly for reforms that will address it. However, there is an understanding that those who do so will not name names or call for the legal prosecution of particular individuals. Because of all these factors, the problem of corruption has continued unabated during the current era of economic liberalization. Despite a vast and continuous outpouring of official studies and public pronouncements, as well as the formation of a series of government anti-corruption bureaus, and despite unremitting efforts to exhort public servants to cease this practice, the problem persists.20
Hoseah’s research shows that corruption in Tanzania has contributed to economic decline by imparting an element of unpredictability to the court system. Since there was no certainty that judges would uphold legal documents, prospective investors had every reason to feel insecure. Tanzanian courts have offered no certainty that business contracts would remain binding, that business partners would make payments as scheduled, or that contractors would deliver goods and services of agreed-upon quality. Judicial corruption has caused numerous investors to seek more secure alternate investment locations. Tanzania’s first economic shock was the failure of direct foreign investment. This is attributable to numerous causes, and even without corruption foreign firms might have found it more profitable to sell or lease their equipment to Tanzanian enterprises rather than invest directly. However, corruption in the court system has been such a significant deterrent to foreign investment that it has had a direct effect on the country’s economic performance.
The cause and effect connection between corruption and low growth is both multidimensional and all-pervasive. Corruption represents a transfer of scarce economic resources away from vitally important expenditures on schools, medical facilities, and infrastructure and toward conspicuous consumption on the part of the elite. Corruption also increased the operating costs of practically all forms of business enterprise. By draining funds that might otherwise have gone to improvement of public services, corruption has lowered government ability to improve the country’s energy, telecommunications, and transportation systems. The businesses that depend on these services operated less well or found opportunities to go elsewhere. Tanzanian businesses have also had to contend with the rent-seeking demands of bureaucratic officials seeking to increase their income. In an environment in which virtually every business activity involved some sort of transaction with a governmental agency, bribes increased the costs and the risks of everyday business activity.21 This has lowered economic performance by shifting investment priorities away from productive enterprises, such as factories and farms, which were proving to be vulnerable to official predation, toward economic activities that exposed less capital to political risk, such as small retail kiosks or other forms of petty trading.
Tanzanians with capital to invest withheld their efforts or devised ways to send their capital to other countries where they could invest more safely. Many emigrated for the same reason. It would be speculative to estimate the amount of additional economic activity that might have taken place if prospective investors had found Tanzania’s business environment more attractive. Nor is it possible to make an estimate of the amount of Tanzanian capital that found its way to North America or Western Europe. The critical point nevertheless stands: the depth of the country’s economic decline was to some degree a product of the sheer reluctance of both Tanzanians and foreign investors to engage in economic activities that might expose them to the extractions of bribe-seeking officials. The long-term costs of diverting investments away from productive activity also included flight of human capital as numerous aspiring entrepreneurs fled Tanzania to create business enterprises elsewhere in the world.
Corruption also created an incentive for families to divert their investible savings away from productive entrepreneurial activities altogether and toward the costs involved in acquiring rent-seeking positions. This could be the cost of a graduate degree or the cost of the bribe for appointment to a public sector post. In her classic article “The Political Economy of the Rent-Seeking Society,” Anne O. Krueger theorized that where rents are available from bureaucratic positions, the economically prudent family would find it more lucrative to use its resources to purchase a civil service position than to rehabilitate its farmland or upgrade its factory.22 Krueger’s analysis describes Tanzania perfectly. It did not take Tanzanians long to discover that funds invested in productive businesses were high risk and low return relative to gains from holding public office. Indeed, Tanzania’s socialist ethos accentuated this problem since it meant that investment in a profit-making enterprise was at a particularly high level of risk. Government positions, by contrast, were both secure and remunerative. The desirability of rent-seeking opportunities changed the explanations for Tanzania’s tendency toward rampant bureaucratic expansion. Tanzania did not expand its bureaucracy in order to manage economic growth, but because there was a clamor for rent-seeking opportunities among members and supporters of the governing party.
In today’s climate of improved freedom of the press, corruption scandals attract the attention of the Tanzanian media. The almost daily reports of corruption scandals are socially demoralizing because they call attention to the unjust enrichment of a few well-connected individuals at the expense of the public. The demoralization corruption creates is obvious everywhere. It fosters an atmosphere of cynicism and mistrust and causes ordinary citizens to become indifferent or even hostile toward government programs, which the public perceives as conduits for the transfer of public resources to private individuals. In Tanzania as in other societies where corruption has contaminated the economic atmosphere, citizens begin to doubt the validity all public sector programs, which, they believe, always have an ulterior purpose.
The demoralization caused by corruption, ironically, has also had some benefit in making it easier to introduce economic reforms. When it came time to move away from the state-centered approach that had caused such deep decline, very few Tanzanians objected. The dog that did not bark in Tanzania was citizen protest against economic liberalization and in favor of retaining the socialist economy. Unlike many countries that undertook sweeping economic reforms demanded by the international lending institutions (ILIs), Tanzania did not experience food riots or other forms of public demonstration against the process. Although some Tanzanian political leaders and intellectuals inveighed against the reforms the World Bank and IMF insisted on, their criticisms were tempered by the fact that they had very little resonance among ordinary Tanzanians. Few Tanzanians regret the passing of the difficult conditions they had to live through during the decades following independence.
Estimates of the budget effects of corruption vary. In 2009, President Kikwete estimated that one-third of Tanzania’s annual budget of nine trillion (Tanzanian) shillings was being lost to corruption.23 Transparency International offers a somewhat lower figure, estimating that about 20 percent of the government budget is lost annually to corruption.24 Whichever is correct, the result is the same. Corruption is an upward transfer of income: the poorer people in the society pay bribes to relatively better off public officials. The schools, hospitals, and public services that are important to the poor and the middle class became starved for resources; corrupt politicians could afford a lavish lifestyle. The sheer magnitude of this loss has given corruption an additional self-reinforcing quality: lowered revenues make it difficult to raise public sector salaries; low salaries are the starting point for corrupt behavior.
The corruption that emerged during the era of decline remains the scourge of the Tanzanian economy. Despite an outpouring of government reports, practically daily