How “Rational” Is Urban Public Corruption?

Abstract

This article reviews the literature on both (a) the general theory of public corruption and its evolution over time; and (b) the history of urban public corruption during the modern period into the present. In addition, this article conducts a historical narrative form of representation to structure the historical facts, synthesizing chronologically disparate elements into a synchronic unity, with the focus of the narrative on “urban public corruption”, both empirically (i.e., how its manifestation changed over time in particular times and places) and conceptually (i.e., how the ideas about these manifestations altered with the passage of time). The period considered is mainly from the onset of the Industrial Revolution in the mid-18th century, up to the present time, with a major focus on contemporary developments. This review illustrates that the extraction of rents has always been a key feature of urban corruption. Nonetheless, not all extraction is alike institutionally and historically. The analysis presented here indicates that the modern notion of corruptions has been the product of a long evolution which, no doubt, is not over. The present idea is of corruption as a technocratic one of a “coherent, discrete referent” based on rational choice theory, which can be applied to define acts as corrupt regardless of social context. This is found to be not applicable in all times and places. Defining what constitutes a “corrupt” act varies considerably across cultures, across times, between nations and cities, and sometimes even within them. This article closes with a template about possible behavioral spheres of urban corruption, incorporating overlaps and gaps between “rational”, “maximizing”, and “atomistic” motivations. The conclusion is that the current consensual “rational choice” understandings only apply to those acts which incorporate all three aspects, with variants drawn from “behavioral” economics expanding applicability somewhat, but still leaving out a great deal of city corruption on the ground which is much more social and institutional than present understandings allow for.

1. Introduction

George Washington Plunkitt (1842–1924) was a long-serving State Senator from New York’s Fifteenth Assembly District, and for forty years an operative of the infamous Tammany Hall political machine in New York City. He became wealthy through the use of his office as a means for garnering private gain for himself, and indeed even boasted about it publicly in a series of interviews given from his regular seat on a bootblack stand at the New York County Court-House [1].

The journalist William L. Riordon published a series of these interviews in a 1905 book entitled Plunkitt of Tammany Hall in which Plunkitt claimed that “dishonest graft” consisted of things like blackmailing gamblers, extorting small businesses, or trumping up charges against disorderly people to shake out money from them. Plunkitt argued that he instead made much of his money more honorably from insider information about unannounced but upcoming city projects that allowed him to buy up land where he knew development was to take place and then sell it at a tidy profit once the municipal development efforts became publicly known. He summed it up by saying: “There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: “I seen my opportunities and I took ‘em” [2].

Plunkitt offers an especially colorful example of the traits of much corrupt behavior in municipal governments. Many models of the phenomenon posit it as a “rational choice” by individual actors who weigh the potential material benefits of corrupt acts against their material costs which, for the latter, consist mostly of the price of being caught. The Plunkitt case indicates this to be only part of the story. Modern cities are sites of economic, political, and social dynamism, and public corruption there is not a static concept, and not unambiguously negative, but an inherent component of a larger political symbiosis. The overall literature on the concept of corruption indeed shows the term to have a shifting meaning over time and multiple dimensions of relevance.

This article explores the causes and effects of public corruption in urban government and examines some of the history of municipal corruption over the last two centuries, focusing on the most recent decades. The analysis starts with a presentation of the main method of analysis, followed by a brief overview of the extent of government corruption worldwide, a review of the different concepts of the nature of corruption, and an exposition of a typology that incorporates both “rational” and “nonrational” corruption. The main aim of this work is to highlight the importance and nature of urban corruption while broadening the framework for its analysis beyond the “rational actor” approach. The working conclusion is that such a frame covers only a subset of corrupt behavior.

2. Materials and Methods

This article employs a principally historical analysis of urban corruption, reviewing past trends and current developments in a comparative setting. As a basic step, a stand-alone exploratory narrative review format is employed in this article. This type of review evaluates the general agreements and disagreements in the literature on a particular topic and explores how this point was reached. Such a review is typically conducted using search words of standard literature databases, with articles selected using the expert opinion of the author but not employing specific or detailed selection or review protocols, as are used in systematic or meta-analysis reviews. The specific type of review completed here combines aspects of narrative sub-types referred to as conceptual and critical, focusing on determining the current understanding of a topic to consider whether a better understanding is needed; and developing new perspectives on what the current gaps in understanding may be and how these may be bridged. A review such as this offers a great deal of fluidity and flexibility in analysis, though at the cost of being less systematic and less replicable [3].

The literature reviewed here covers (a) the general theory of public corruption and its evolution over time; and (b) the history of urban public corruption during the modern period into the present. A historical narrative form of representation is employed to discuss relevant historical developments. This method structures historical facts, synthesizing chronologically disparate elements into a synchronic unity, as opposed to a chronologically ordered historical representation. A general example of this is a concept like ‘feudalism’, which has been typically described along with its defining characteristics using narrative methods. A historical narrative, unlike a literary one, is restricted by what is factually true [4]. In this case, the focus of the narrative is on “urban public corruption”, both empirically (i.e., how its manifestation changed over time in particular times and places) and conceptually (i.e., how the ideas about these manifestations altered with the passage of time). The period considered is mainly from the onset of the Industrial Revolution in the mid-18th century up to the present time, with a major focus on contemporary events.

In this case, the particular aim is not just to define and chart the evolution of urban corruption practice and understanding, but to use the narrative to draw out causal explanations and a set of causal chains. Such an analysis is not definitive in the sense of proving such relationships. It is instead more exploratory and suggestive, grounded in fact and theory, and making a supportable, plausible case without foreclosing other explanations, while concurrently critiquing them.

3. Differing Concepts of Public Corruption: The “Rational” Consensus

The consensus analysis of public corruption uses some standard working definitions of corruption developed by global policymakers and academic analysts. Below are some prominent examples:

World Bank (1997)—“the abuse of public power for private benefit”.

[5]

Bradhan (1997)—“the use of public office for private gains where an official (the agent) entrusted with carrying out a task by the public (the principal) engages in some sort of malfeasance for private enrichment which is difficult to monitor for the principal”.

[6]

Tanzi (1998)—“intentional non-compliance with arm’s length relationship aimed at deriving some advantage from this behavior for oneself or for related individuals”.

[7]

Nye (1967)—“behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains”.

[8]

These definitions—and there are many others in current use—have a number of important commonalities such as the general tendency to focus on private actors interacting with government power; a focus on transactions between individual actors as the basic unit of analysis; an emphasis (sometimes implicit, sometimes explicit) on actor calculation of gains versus losses (illustratively, Joseph Nye’s very influential 1967 definition comes from an article entitled “Corruption and political development: A cost-benefit analysis”); a distinction between public sector agents, who are entrusted with delegated authority to carry out the wishes of public sector principals, where in a democracy the “principal” is the “public interest” of the people, while the corrupt “agent” is an official who pursues private interests instead. Purely private corruption, such as that contained solely within private firms operating in purely private markets, is not included in this rubric and is not considered further in this article.

All of these definitions are drawn from the rational actor model. The basic analytical unit of this approach is a selfish, atomistic, maximizing agent faced with a set of choices and constraints that contain inherent incentives. In particular, two core assumptions are that (1) agents are maximizing, i.e., given their preferences (desire for money, power, status, etc.) agents will always seek to obtain the most possible of what they want, and more is always better; and (2) agents are “atomistic”, i.e., there are no “social” influences on action. Thus, individual preferences about other agents exist, and individual choices obviously are deeply affected by the decisions of others. Aggregations of agents may collude to maximize the individual gain for group members (e.g., in the form of conspiracies). But in the end, these alliances are temporary and ultimately individuals always seek to maximize their individual gains and see themselves always as individuals in the first instance. Putting this another way, aggregations exist, but “collectives” in the sense of subsumed individual identity contained within a larger social grouping, do not. “Social relations” reduce to transactions between agents, with each agent operating in social isolation, treating other agents as competitors and working with others only if there is clear mutual gain as evidenced in concrete material exchanges, potential and actual.

While individual agent preferences may differ, a basic cognitive template of competitiveness is shared by all agents; competing with one another, with each seeking “optimal” material positions through the conduct of a variety of transactions in their given choice arena. At the extreme, all human choice is assumed to conform to this dynamic, including corruption. A seminal approach to rational corruption is found in Becker’s 1968 paper on the economics of crime, which can rightly be considered foundational. Here, crime of any sort, including corruption, is posited to be like any other economic choice; and for Becker, all choice is economic, so all behavior, even outside of markets, reduces to rational maximizing calculation. Criminal action is thus based on the weighing of the gains from the crime versus the penalties for being caught (probabilistically adjusted for likelihoods of detection and severity of punishment) [9]. Nye’s paper [8], already mentioned, does not fully follow Becker’s approach but has a similar logic of agents weighing probability-weighted costs of an action against its probability-weighted benefits.

Niskanen’s 1968 paper on bureaucracy made the influential argument that bureaucrats, and politicians more generally, are like any other economic actor, i.e., pursuing their own personal self-interest, despite their rhetoric of “public interest” This birthed public choice theory which holds that public officials and private actors make the same calculations of self-interest with respect to engaging in corruption [10]. Related to this is Coase’s “transaction cost theory” of the firm (1938) which established a template by which all organizations exist simply to minimize transactions costs that would otherwise militate against “welfare-increasing” transactions between individuals [11]. “Principals” are those who “own” the organization. In a firm, these would be the shareholders. In government, these would be the voters and their elected representatives. “Agents” are employed by principals to carry out their will. Company managers and public sector bureaucrats would be firm and government examples, respectively. The principal–agent problem arises, according to theory, wherever there is a lack of market discipline, a problem within all organizations but worst in governments according to public choice theorists. Thus, corruption can be seen as a principal–agent coordination problem in which agents betray the roles that principals have hired them to play [12]. In all these dynamics, perverse incentives and lack of transparency are key ingredients in hindering or hampering corrupt behavior.

4. “Consensus” Metrics of Urban Public Corruption and Their Limitations

Taking this conception of public corruption as given—it will be expanded upon and challenged later—the “direct” costs of such corruption, while speculative, are nonetheless substantial in magnitude. Where quantitative estimates have been made, public corruption results in losses ranging from 15% to 50% of the funds involved [13] (p. 75). Global bribery has been estimated to incur USD 1 trillion in costs annually, with embezzlement and misappropriation of public funds adding a further USD 1.5 trillion [14] (p. 3). The International Chamber of Commerce claims that corruption costs amount to 5% of the world economy every year, adding up to 10% of the costs of doing business annually [15] (p. 438). One North American city was able to cut USD 330 million from an annual waste disposal bill of USD 1.5 billion by removing Mafia domination from its garbage collection, while other studies indicate that some Asian national governments paid from 20% to 100% more for goods and services because of corrupt practices by contractors [16]. In the rational choice framework, these resources represent the transfers of funds to corrupt agents that could otherwise be devoted to productive market production activity or desired consumption pursuits.

These cost estimates are drawn from data that are largely indirect because corruption is very hard to measure or even observe since it is typically done in the shadows, so to speak. For this reason, the Corruption Perception Index (CPI) maintained by Transparency International (TI), is the common benchmark often used. TI’s data will be the starting point for the discussion here, even though the data are only reported at the national level and do have some significant limitations. The data are primarily based on a survey of expert opinions and, as the dataset’s title indicates, is about perceptions rather than actual acts. The overall CPI also covers both public and private corruption, broader than the remit of this article [17].

TI information nonetheless does offer some specific analysis of the geographical distribution of public corruption globally. Figure 1 shows TI’s Global Corruption Barometer (GCB) which surveys individuals, and not just experts, in this case asking them to rate their perception on a scale of 1 to 5 of the question “To what extent do you think that corruption is a problem in the public sector in this country?” with “5” denoting high perceived public sector corruption. The data here indicate that the public in a majority of countries across the world see their governments as at least moderately corrupt (around 3), with the greatest levels concentrated more in the global “South” and the former Communist bloc countries [18].

Figure 2 shows the 2017 GCB data in which individuals across countries were asked what specific public institutions they saw as corrupt, in this case showing the global aggregate figures corresponding to the percentage of survey respondents who think that “Most” or “All” of each institution is corrupt in their home country. In that sense, these are the “worst case” data. There is quite a bit of overlap between some categories, especially “government officials” which would seem to also capture some of the others, like “tax officials”. But from an urban government perspective, the presence of “local governmental councillors” as fourth on the list, and “police” as second, indicates that much public corruption is local [18].

Finally, Figure 3 presents the GCB data on one of the most pervasive acts of public corruption, namely bribery. Some major countries, most notably the US and Canada, are absent from this list, suggesting, perhaps falsely, that such activity does not occur there. Be that as it may, a majority of respondents reported having paid a bribe within the past year, with the frequency varying across countries. European country residents reported very low rates of bribery, while some countries, notably India, Pakistan, and Vietnam, showed that 80% to 90% of those surveyed had paid at least one bribe in the same time window [18].

Systematic and comparable data for cities rather than countries are not as readily available. The closest presently are a variety of city “competitiveness” indices (the leading examples being the Global City Competitiveness Index of the Economist Intelligence Unit (EIU), A.T. Kearney’s Global Cities Index, CityLab’s Global Economic Power Index, and the Mori Memorial Foundation’s Global Power City Index). These collate and weight the available data on various social, economic, political, and cultural dimensions of cities to compile an index number for each city which purportedly shows how well placed an urban area is to further its economic development relative to others [19].

Some of the data that go into these indices do have broad relevance to corruption at the municipal government level. The EIU index has, for example, a government effectiveness sub-category that has sub-indicators, including the likely level of corruption among public officials (10 = very low, 0 = very high) drawn from a proprietary database. There is also a measure of ability of prospective governments to effectively formulate policy (0 = strongly no, 5 = strongly yes), mechanisms for the orderly transfer from one government to another, and whether or not a city has clear and transparent performance indicators. A local government fiscal autonomy sub-index contains sub-indicators for local electoral process and pluralism, taxation and rule of law, while other sub-indexes measure the prevalence of petty and violent crimes as well as external factors affecting future crime. These are drawn from a variety of public and proprietary information [20].

The EIU report is interesting, but it has not been updated regularly (the 2025 outlook report was completed in 2013) and rankings by sub-index are not publicly available (though presumably can be generated for a fee). Much of the underlying information is also proprietary making it difficult to independently investigate. The Kearney Global Cities Outlook (GCO) is, by contrast, regularly updated across the four dimensions of personal well-being, economics, innovation, and governance, consisting of 13 indicators. The governance dimension is the most relevant for corruption, but it is, and indeed the other metrics are, much less detailed than the EIU measures. The authors note that the rankings of the GCO are much more volatile than a parallel Global Cities Index (GCI) that the firm maintains, and which is based on more stable metrics such as economic growth and productivity.

Table 1. Kearney CGO City ranks (see text).

2023 CGO Rank	2024 CGO Rank	City
1	1	San Francisco
9	2	Munich
2	3	Copenhagen
4	4	Luxembourg
14	5	Seoul
8	6	Stockholm
5	7	Paris
6	8	Dublin
25	10	Düsseldorf
23	11	Tokyo
19	12	Phoenix
20	13	Oslo
15	14	Minneapolis
12	15	Boston
3	16	London
18	17	Zurich
17	18	New York
13	19	Geneva
10	20	Singapore
26	21	Frankfurt
21	22	Berlin
24	23	Sydney
11	24	Amsterdam
28	25	Osaka
22	26	Barcelona
31	27	Montreal
42	28	Los Angeles
44	29	Chicago
32	30	Perth

shows the 2024 rankings of the top 30 cities comparing these to how they ranked in 2023 [21].

The Kearney ranking, and others like it, provide only a very indirect relative indication of public sector corruption at the municipal level because the measures used focus on broad institutional characteristics rather than corruption directly which are, in any case, only a part of the overall index itself. The biases of such indices are also clearly oriented mostly towards rich, global “North” nations. This is particularly clear in the Kearney rankings, but it also comes out in other city indices like the EIU, though Chinese cities often rank more positively in some cases.

While illustrative in a first-order sense, these metrics of public corruption suffer from a number of serious limitations. For the CPI particularly, the reliance on perceptions introduces a number of significant distortions. Corrupt acts on the ground, which are often in the “developing” world, are perceived, but prior acts that are often the prime instigators of corruption, and often originate in the “developing” world, are much less reported. The legalized tax avoidance strategies of multinational corporations (MNCs) are mostly invisible to the CPI, but not the non-legal transactions of public officials that often arise from such strategies as a result [22] (pp. 300–302). Thus, payments and transfers made by MNCs in “clean” countries, often in coercive and distortionary ways, are not publicized, while many of its consequences, as embodied in bribery and other corrupt acts by recipients in “dirty” countries, are [23] (p. 162).

This points to a more fundamental issue of implicit typologies. Most corruption metrics, being implicitly based on the rational choice literature, assume that economic development processes are inherently “efficient”, with corruption being a deviation from the optimal economic outcomes that such processes purportedly deliver. This leads to a “technocratic” definition of corruption as a well-defined “universal” across societies [24] (p. 9), which is actually a debatable, empirical proposition, to be examined rather than assumed.

Finally, most current corruption measures, especially index numbers and other single-number approaches, eliminate the genuine ambiguity and multidimensionality that occurs in the real-world, evading significant conceptual problems that are essentially hidden from view and further discussion. Numerical reductionism like this is referred to as “commensuration”, i.e., the transforming of qualitative differences across potentially varied understandings of a phenomenon into a quantitative measure embedded into a singular cognitive framework [25] (pp. 116–117). This is a problem not unique to corruption studies, but it is particularly problematic in that area, for various reasons to be explored below.

Metrics like the CPI and city rankings do have some applicability and utility. But especially in cities, their implicit assumptions and omissions can be very misleading, and embedding such priors into data definitions and reporting can amount to an analytical disservice. The purpose of this particular discussion segment is to show that at present national corruption data are mostly perceptual and city corruption data are largely unavailable, which is why a more qualitative, historical, and philosophical approach is required, as taken in the following sections.

5. “Rational” Corruption in Urban Government and the Concept of “Rent”

The rational choice model already described is certainly applicable to many instances of city government corruption, especially the notion of “rent”. Rent in economics refers to any unearned return. In the neoclassical economics model, competitive markets normally force producers to receive only the true value of their product and, as a result, allow consumers to pay only for the value they receive from that product. Such returns are fully earned in the sense that producers receive nothing “extra” beyond the value they create and sell in the market. Any return above that is, in this parlance, “unearned” (i.e., economically undeserved). It is this unearned portion, if it exists, that is referred to as a “rent” [26].

Tullock (1967) thus introduced the idea of “rent-seeking” outside markets, i.e., the chase for unearned returns by rational actors. This is a general idea but especially applicable to corruption since corrupt acts add no economic value and any return received for one is thus unearned. A petty bureaucrat seeking a bribe is rent-seeking. And, arguably, a bureaucracy creating a regulation not for any public purpose but as an opportunity to extract a bribe from private actors for regulatory approval is “rent-creating” to provide opportunities for rent-seekers to exploit [12]. Even when government activity has legitimate purpose, such as in environmental regulation, a nefarious application of it can use the leverage of public power to create and extract rent.

It should be noted that even in the ideal world of well-functioning, non-corrupt markets, rents will exist, be sought out, and obtained. In a sense, every actor in the economics model will aim to be a rent-seeker. In the end, the rational, atomistic, maximizing agents care only about maximum returns for themselves and will use whatever means, legitimate or illegitimate, to attain this, so long as the net benefits outweigh the costs. If there is a lack of competition in a market, such as with unregulated monopoly provision of a service, the price charged by the monopolist will be above the true value added, and that excess charge can be considered as unearned and hence “rent”. Land is the classic example of an asset that potentially generates rents without any effort at all. Simply owning a plot of land, in whatever state it is in, provides its owner with the ability to charge someone for its use, without adding any value—a pure example of economic rent. Technically speaking, the monopolist is earning a “quasi-rent” because at least part of the return is based on value-add [27]. And of course, a landlord who makes improvements to land obviously is adding some value that deserves compensation. But even there, the locational attractiveness of some plots (such as center-city offices) will sometimes allow a rent to be charged that is above the true value of improvements, amounting to a quasi-rent on top of the rent the unimproved land itself generates.

It is no surprise then that cities abound in rent-creating and rent-seeking simply because of the importance and value of scarce urban land and urban development which provide manifold possibilities for the creation of rents, quasi-rents, and profitable corruption to leverage these further. For example, a study of the Indonesian urban planning apparatus found that 50% of Jakarta’s housing stock was built without any compliance with building law, that 85% of new housing stock was built informally, and that much of this “off-plan” development was “greased” with bribes and improper paperwork. Plan development itself was often manipulated through political interference and indirect graft [28]. An analysis of urban infrastructure procurement found it to be regularly subject to distortion of procedures, misappropriation of resources, collusion, fraud, and malfeasance in pursuit of personal private gain [29]. An assessment of the largest 110 Spanish municipalities between 2000 and 2009 uncovered numerous instances of municipal government corruption that resulted in official investigations and penalties at the national and European level, while also finding that cities with better paid mayors had less corruption than those with more poorly paid ones [30]. Another study of Spanish cities between 1997 and 2007 found many illicit funds transfers by city officials, and in this case, a lack of institutional transparency being a major facilitator [31]. A special issue of contemporary urban case studies of Cardiff (UK), Naples (Italy), Istanbul (Turkey), Bogota (Colombia), New York (US), and Chicago (US) reviewed substantial episodes of “rent” seeking and stealing, closely related to deficiencies in urban governance [32].

Indeed, rent-seeking by urban officials involving land development and regulation does fit much of the current experience of city government misappropriation. It makes sense that cities, especially growing ones, would be subject to a lot of graft and other misbehavior, since the presence of a large amount of rent offers a lot of opportunities for greedy individuals to collect it. The presence of corruption in areas of urban land development and regulation is not surprising in this regard, as it evokes the legendary answer to the question posed to famed American bank robber John Dillinger of why he robbed banks “because that’s where the money is”. This is what Plunkitt was referring to as “honest graft”.

6. The Urban Development-Rent-Corruption Nexus

The experience of modern city malfeasance—and, as will be seen, historical experience as well—shows that corruption is indeed very often primarily pecuniary in the main, fitting the central claim of rational actor theory that it is fundamentally about rent and the seeking of it. Cities have always been drivers of national, regional, and global economies, and have become even more so with the industrialization, mass production, mass consumption, and globalization of the past three centuries. Indeed, the world economy has become an increasingly urbanized one. The size of the population living in cities has expanded from 751 million in 1950 to 4 billion in 2018, representing 55% of the world’s people. By 2050, the UN projects this share will have risen to 70% [33]. This represents an additional 2 billion urban dwellers, cementing a transition from the majority rural to majority urban populace marked in 2008. The urban consumption market is a huge one, and, indeed, economists note the rise in “consumption cities” as opposed to earlier roles of cities as primarily sites of production. Nonetheless, much global production value-add is still produced in and around urban areas [34] (pp. 2–4).

All this means that urban land and its development has become incredibly and increasingly valuable. One estimate is that real estate represents 60% of the value of all assets worldwide, with residential real estate having a 75% share of this. Moreover, financialization (i.e., the conversion of real value into its financial equivalent, increasing it further with financial leverage) and commodification (i.e., the reduction of all things to tradable items in a market) is inherent to modern economic growth processes, meaning that urban land in particular has gone from primarily being valued on the basis of its genuine utility to a store of financial value that can be multiplied many times over with real improvement and financial trading [33].

Additionally, all these city dwellers need to housed, creating enormous demand for residential development and construction and other related land improvements. They also need to buy necessities and luxuries, creating demand for new shops, malls, entertainment, sporting complexes, and cultural amenities such as museums and galleries. They require public services, such as transport, sewerage, water, and electricity, generating the need for public works construction and service provision opportunities for private and public sectors alike. Overseeing all this will be some form of city government which requires significant tax and other revenues to fund payments to public servants and other activities.

These facts mean that there are significant economic rents and quasi-rents available to those engaged in urban land improvement, infrastructure, and the provision of services. In the rational choice framework, this can be achieved licitly and illicitly, and often both (though, as will be seen, the line between these two spheres is highly variable). Since all agents are rational maximizers, they are all rent-seeking and hence all potentially corruptible.

This theoretically posited uniformity across agents is why corruption under this schema can be reduced to a universal, measurable concept. Moreover, it follows that a municipal rent seeking of the corrupt type can be inhibited—or exacerbated by their opposite—by strong public institutions, clear and well-enforced penalties for criminal activity, sufficient public salaries and accountability, and transparency in transactions. This is captured in a version of the following well-known identity of:

C = R + D − A

where

C = corruption;

R = the amount of rent and number and power of rent-seekers;

D = discretionary power of the state;

A = accountability [22] (pp. 288–289).

Modern urban economic growth has vastly increased R and by itself the potential occurrence of C. The need for government and administration of economic development potentially increases D as well, further increasing C. Rational choice theory suggests that A is so important in reducing C because it increases the disincentives for rent-seeking by increasing the probability of its discovery and punishment through the use of mechanisms such as high and enforced penalties for malfeasance, openness in government, and clarity in regulation and administration among other things. Public choice theorists would add a related strategy which is to reduce D, which implies a smaller state with less interference in market activity. These policy implications are controversial and will be considered more at the end of this article. Here, the main point is that city development offers many opportunities for licit and illicit profiteering, and this alone can explain much observed corruption.

7. Rational Wrinkles on a Rent-Seeking Theme

Still, even within the rational actor model, there can be significant discrepancies between its predictions and observed corruption in the “real world”. Proponents of the model recognize this and seek to accommodate it in various ways without changing fundamental behavioral assumptions.

One notable fact is that corrupt actors do not always appear to be maximizing, often settling for far less than they could have gotten. Tullock himself pointed out what has become known in the literature as the “Tullock Paradox”. This refers to the fact that many bribes and corrupt transfers are far smaller than the rents actually received by the bribe payer. Tullock refers to New York Congressman Mario Biaggi, who was bribed to save an enormous government dockyard in Brooklyn from bankruptcy. Yet the bribes for this valuable service consisted of three Florida vacations worth only USD 3000 in total. This undercharging is quite a common occurrence [12].

Rational choice theory tries to explain this type of behavior on its own terms in a number of ways. For example, even Becker noted that agents often lack complete or perfect information and may be guessing wrongly about how much their favors are worth. Corruption in the narrow sense discussed thus far often takes place outside the market institutions that neoclassical economists claim provide full knowledge of all relevant facts, and corrupt maximizers typically thus have to make payoff estimates with limited knowledge of all the relevant details. Corruption negotiations are also usually between small numbers of parties, which introduces the possibility of “strategic behavior” in a game-theoretic context in which the bribe-payer (to continue with that particular crime) may be able to leverage the bribe-taker down to what is a suboptimal payment from the former’s perspective, simply through smart negotiating or access to better information than the party on the other side of the table. Uncertainty about being caught and the extent of punishment received might also cause corrupt actors to play it safe and take less than they could in order to reduce the chance of being detected or perhaps receiving a lower penalty if caught. If there are multiple corrupt actors offering the same favor, competition between them may drive down what they think could reasonably extract. And if all that fails, perhaps the corrupt agent’s preferences are more for non-monetary gains such as flattery, access to power, or a sense of importance, and they leave some money on the table in order to obtain more of these in lieu of money [6].

These may be suitable explanations in some contexts, but they do not appear to be applicable to all instances. Biaggi, for example, knew what his “grease” was worth, was a Congressman with political sophistication, and his low compensation remains puzzling. For this reason, the findings of behavioral economics (BE) have been brought in, the basic idea being that agents have cognitive limitations common to all humans which reduce the full rationality of theory down to “bounded rationality”. The field of BE is now burgeoning, and a fuller account of it can be found in many places elsewhere [35] (Chapter 3). However, its concepts do appear to have some relevance to corrupt behavior which often appears to be impulsive and poorly thought-out in many instances. This could be explained by the present of “fast thinking” alongside the rational, calculating “slow thinking” that the “economic man” of economics possesses. Some have described corruption as akin to an act of passion, which would firmly place it outside rationality; but not if, in fact, slow thinking is involved, with its quicker rushes to judgment, exacerbated by the cognitive limits on information processing that all humans are restricted by. Because of this, people rely on simplified heuristics (i.e., rules-of-thumb) and cognitive biases (i.e., mental simplifications of complex reality) to navigate decision-making. These are likely to be more operative in corruption realms because of the secrecy and distorted perceptions these already entail. “Fairness” and “equity” “biases” that involve comparisons of one’s perceived state relative to peers may explain much non-maximizing in which people settle for what they think is “fair” rather than what is truly optimal for themselves. For all these reasons, BE advocates have criticized blanket anti-corruption policies as too mechanistic, arguing that better results would be achieved by “nudges”, e.g., gentle reminders of official obligations containing data comparing the recipients of such reminders with metrics of how their peers behave [36]. Behavioral economics is already influencing the study of corruption by positing its well-known array of heuristics, cognitive biases, and “bounded rationality” (limitations on cognitive processing power) to incorporate non-rational elements into this arena of economic choice [37].

8. Social Dimensions of Urban Corruption and Its Evolving Conceptions

But the adjustments of BE are arguably insufficient. The “fairness” and “equity” concerns indicated by BE shade into a significant dimension of human behavior, namely social relations and connections. Humans are inherently and highly social and the existence and functioning of cities can be seen as an expression of that characteristic, above and beyond mere cognitive processes.

Applicable as BE may sometimes be, it does have its critics. Putting aside the considerable evidence that human psychology does not actually conform to the fast–slow thinking posited by it [38], many have argued that it overemphasizes individual cognitive psychology and its calculative elements even though admitting the list of potential cognitive distortions are useful.

Consider, for example, the almost inevitable phenomenon of initial cost under-estimation for “mega-projects” such as large transport or utility expansions, that result in cost overruns that are the bane of many urban governments with regular needs to build and upgrade infrastructure and other physical systems. Are such overruns “corrupt”? BE theorists often claim that the answer is “no”, that these are often primarily a case of “optimism bias”, i.e., that humans are hard-wired towards optimism rather than pessimism in predicting the future because this encourages reasonable risk taking that is evolutionary superior to being too risk averse.

However, Flyvbjerg (2021) argues that mega-project decisions and negotiations typically occur in the context of a highly politicized institutional environment with large-stakes power dynamics in which project advocates lever money from powerful sources of cash using the tools they have available, including playing fast-and-loose with cost estimates. He says that instead of “optimism bias”, this is a case of “strategic misrepresentation” which is more simply put as “deliberate deception”, and more colloquially known as “lying”. Optimism and other BE biases are non-deliberate; strategic misrepresentation (which Flyvbjerg refers to as an example of “political bias”) is a deliberate tactic of power relations that are better explained by sociological, organizational, and political approaches than psychological or economistic ones [39] (pp. 531–534).

Flyvbjerg’s work points out the obvious role of politics in urban governance and hence, corruption. Indeed, there is a long tradition of social/political theories of the state, the city, and the political relations that give rise to both. The ancient Greek philosophers of Aristotle, Plato, and Socrates believed that the task of political theory and practice was to design a “constitution”—the term denoting a living political “body politic” rather than a written document—that was immune from the natural forces that imbalanced and degraded the state. For the Greeks, this was the city-state containing an elite citizenry collaborating to govern on behalf of the collective good. This was adapted by English and American constitutionalists in the 18th century (who styled themselves as “classicists” in the Greek and Roman traditions) into a notion of “checks and balances”, tied with institutional “reforms”, to keep the political system meeting the needs of the key interest groups without being captured by inordinately strong alliances [40] (pp. 26–28).

In fact, the earliest notions of public corruption directly embodied this notion of a natural “ideal” state that was prone to “decay” and “deteriorate”. The oldest traditions of corruption narratives hearken back to the meaning of the term’s Latin root, “corrumpero”, to break up, to spoil. “Rumpo means “to break, to shatter, to burst open, destroy, violate,” and “co” means “with”; instead of two things breaking apart (dirumpo), or one thing breaking open (erumpo), corruption is when something breaks within itself: the apple rots on the shelf; narcissism corrodes the soul; government internally disintegrates. The integrity of the object of corruption is threatened by internal decay [41] (pp. 346–347). Here, corruption is inherently collective, social, and political. It is also a process that, once begun, takes on a collective, organic tack of its own, often overriding an individual actor’s desires and aims. In other words, the earliest concepts of public corruption in the West were inherently political, moral, and social in nature. The ancients viewed corruption as “endogenous” to human relationships which were inherently virtuous in their “ideal” state, but which degraded as the fiber of civil society was damaged by the abuse of trust, an equally innate human tendency [42] (pp. 14–17).

Industrialization and modernization, however, pushed this endogeneity into the background. This can be clearly seen in the transition to modernity across the world over the past few centuries. The sociologist Karl Polanyi referred to Western modernization as a process of “disembedding” formerly communal and informal relations from their overall social context, and separating them from a formalized, economic sector which comes to dominate and define the entire society [22] (p. 286). The old relative particularities become replaced with a new market-based generality of efficiency, expressed in material terms. Material outcomes based on “productivity” guaranteed by market processes were now paramount. The state was seen as a hindrance to markets if not properly contained. Individualism and the universality of Enlightenment values (such as rationality) over what were seen as backwards “traditions” cemented a view, most clearly initially stated by the 18th century economist Adam Smith, that governments should be small, clearing the way for competitive markets where individual preference—and individual conscience, or “moral sentiments” to use Smith’s phraseology—would ensure both efficiency and morality [22] (pp. 279–281).

The traditions of city government that immediately preceded what has become known as “modernity” thus arose from a social order that was not, as it is today, organized around production and consumption at scale with distribution organized fundamentally through monetized buy-and-sell transactions. There was an economy and there was theft and graft and other extractive behavior, as has always been the case in one way or another. But these actions were manifested and were understood very differently and as a result, corruption entailed something very different as well.

In the transition between pre-industrial to industrial forms, European states and later their “offshoots” like the US, relied on the organized system of power relations that the sociologist Max Weber called patrimonialism, i.e., one in which a ruler’s power was based on concrete reciprocal loyalties between him (they were almost always male) and elites who in turn kept their “inferior” groups in line through the exchange of favors and perquisites made on the basis of interpersonal relationships up and down the hierarchy. The job of elites was to keep the masses politically quiescent and to keep their own internal rivalries in check to ensure stable functioning of the state. “Private” and “public” realms were not clearly separate, and neither were commercial and political exchanges [43] (p. 609).

These arrangements hearken further back to societies that were once small enough that everyone knew each other personally, directly, or through close and indirect ties, with politics reduced to a matter of personal relationship in some way. The ancient Greek city-states, Athens being the exemplar, which birthed modern political theory kept politics personal by restricting citizenship to notables, i.e., property owners and native residential males, with women, slaves, “foreigners”, and many others excluded. Affairs were conducted through assemblies quite large at times though small enough for personal interaction. This model was replicated in the Italian city states during their trading primacy between the 14th and 16th centuries. These too were small enough to entertain the possibility of relatively direct governance and contained within them enough political rivalries that an appeal to purely personalistic rule was not wise. Northern and central Italy was already one of the most urbanized parts of the European continent. Venice, Florence, and Genoa were especially politically sophisticated, forming “communal” governments which instituted quasi-professional offices to administer city functions and finances. Various “incentives” were put in place to attempt to ensure that these offices were not captured by, or played favorites with, the various clans and commercial interests that held real power. These included devices such as security deposits by officeholders to be held as a sort of collateral to ensure good behavior, limited terms, and rotation of office-holding by different factions. How successful these strategies were in combating corruption is debatable. But they do prefigure later formal and universalistic urban management structures that would arise with the onset of the Industrial Revolution. They also indicate that dynamic cities required some complex mechanisms to balance their various interest groups in order to hold them together in a common purpose [44] (pp. 1265–1267).

These small communities were, however, increasingly an anomaly. The “Commercial Revolution” of the 16th through 18th centuries, the rise of large colonial trading empires, and a consolidation of strong European states began to change these Western arrangements and understandings of political relations and exchanges. Prior to the French and American Revolutions, large continental powers were still patrimonial and patronage-based, loyalty to the monarch and the dynasty being the unifying political authority. But the rising power of commercial groups and increasing association of political influence with moneyed interests as opposed to merely traditional ones, combined with the spread of money-based markets for distributing resources both internally and externally, pulled European societies in conflicting directions on a material and political level. On an ideological level, the rationalism, secularism, and universalism of Enlightenment thinking proved corrosive to unifying ideas of divine right monarchies and the traditional basis for the hierarchical rights of one group to lord it over another [45] (p. 924).

Much attention—perhaps too much—has been paid to the Anglosphere countries such as the UK and its transition from a commercial constitutional monarchy to a liberal industrial democracy between the 18th and 19th centuries, and the transition of a newly independent US from a rural agricultural commercial republic to an industrializing mass democracy during the same period. Given the economic importance of these two countries in this era, there is some sense to this, but it obviously excludes a great portion of the world’s people and cultures. This omission will be corrected in later sections. But from an urban government perspective, changes in these two countries were very important in this period since first England, and then America became heavily urbanized over a relatively short period of time in the context of rapid, and at times chaotic, social and commercial change. English industrial cities of concentrated wealth and population, such as Manchester and Birmingham, grew up in areas that were not represented at all within the existing electoral divisions of the Parliament, the so-called “rotten boroughs” providing Members for long-dead villages but not the burgeoning urban areas. Parliament had gained primacy over the monarchy after the “Glorious Revolution” of 1688. However, its authority was not “traditional” but rested on more formal ideas of representation of the electorate [40] (p. 7). Already by the late 18th century, the business-as-usual horse-trading of factionalism between Parliamentarians, whose franchise was clearly vacuous, and the King, became seen as outmoded. The notion that government should be more representative of genuine interests rather than a hereditary factional affair among the elites and the sovereign increasingly prevailed [46] (p. 1151). Parliament was a formal institution with formalized rules, and “reform” became the English watchword to first make Parliament more representative and then to make state administration more efficient and less tied to particular elite groupings or individuals. This was especially important in an increasingly “competitive” domestic and international economy [24] (p. 11).

But how to govern the burgeoning cities themselves? In England, which had a unitary state, the central government largely took top-down charge, merging national and urban administrative trends. It was in the English “offshoot” of the US where the patrimonial and patronage-based transitions to modernity were more pronounced and more city-based. The US had an explicit, if nonetheless elitist, democratic form of government, without a personal sovereign as head-of-state, and with a decentralized federal political structure. It also experienced rapid economic and demographic growth, and with the mass immigration of the latter half of the 19th century, an increasingly ethnically diverse one as well. Most immigrant groups settled in America’s exploding cities. Cities like Chicago did not exist at the beginning of the 1800s, only to become one of America’s largest by its end. Others, like New York, went from being significant provincial capitals to global cities over the course of the mere decades [47].

It was in America that a distinct institution grew up in the form of the urban political machine. Factional politics in both the US and England had qualities of a machine in that they were patronage-based, i.e., trading jobs and positions for political loyalties. But these initially were mostly the trading of favors between elite members in a largely rural setting [46] (p. 1152). The American city version was based on mass electoral politics, generated outside the economic and social elites, and often against them, channeling voting blocs into a coherent political force. Concrete material rewards were delivered in the form of government jobs, political favors, and material handouts to voters in return for regular votes at election time and institutional allegiance to the machine “boss”, who sat on top much like the monarchs of old, except that he dished out spoils to the poor he depended on for office in a sort of “empirical justice” as opposed to the “rational justice” of modern reformers, or the earlier traditional obligations of hereditary rulers [46] (p. 1144).

Indeed, it is in this era that the modern definition of corruption took hold as a breach of rational procedures based on universal principles. Political reformers defined urban mass politics machinations as corrupt because of their informality, concrete reciprocity between patron and patronized, and their core operations largely consisting of deal-making conducted outside formal courts, laws, and institutions. But these latter places were dominated by the rich and already powerful, which is largely where the reform elements came from themselves. The political scientists of the mid-20th century saw urban machine operations as providing a flexible and peaceful accommodation of new groups into a dynamic and rapidly changing political, economic, and social order. They also fostered genuinely representative leaders of a diverse clientele. Applying the sociological concept of functionalism, machines were said to serve as an intermediate phase between the shift from political ties based on traditional relations to more formal universal systems, going by way of deference based on concrete short-run material exchanges delivering degrees of social harmony and cooperation within a functioning electoral democracy. Not all urban corruption took the form of a machine. But corruption, whether by machine or not, had useful social functions and could be interpreted as being a “natural” phase in the shift to modernity [46] (pp. 1145–1146). This had been equally true of English national politics in the 18th century employing a comparable dynamic [46] (p. 1151); [40] (pp. 25–26); [25] (pp. 104–105).

9. Urban Corruption in the Global Value Chain

This is the genealogy of the purely materialist concepts of corruption in place today in which technical “self-regulating” and “self-optimizing” systems are suggested to be allowed to run as freely as possible, with the natural greed and selfishness of individual actors channeled into efficient competition rather than unproductive rent-seeking. (Or, one could say, allowing rent-seeking, but only the productive sort fostered by the markets.) The functionalist perspective sees corruption as a way station on the way to full modernization, a consequence of increasing scale and efficiency in economy and society, and not a sign of underdevelopment per se. Economic growth tends to outpace political system adaptation, as was definitely the case in both England and the US (and, as will be seen, many other countries as well). Machines and other new forms of patronage politics, allowed for the relatively orderly distribution of burgeoning wealth and income from old power centers to new ones via a transitional brokerage of electoral “bosses” and mass political parties. This is one of corruption’s functions, to ease in from premodern to modern forms. In the process, lines between “public” and “private” and “corrupt” and “clean” became more sharply drawn and practices that had once been seen as natural became deviant, often labeled “corrupt” [25] (pp. 106–108).

There are, of course, a number of issues with the functionalist perspective, but its basic thrust is valid, namely that social and political practice always has practical implications that may not accord with the labels analysts put on them. However, modernization theory, of which functionalism is a foundation, is more problematic. The modernization narrative saw economic and social development as moving along a progressive line from more “primitive” to more “advanced” states. This teleology has now been discarded by most analysts—though it lives on implicitly, as will be seen below. Sociological theory now emphasizes “constructionist” perspectives which see social categories like corruption more as negotiated classifications of behavior by power groups, not a pure product of function but of social legitimization and classification [25] (p. 112). Like all conceptual approaches, this one too can be pushed to extremes, in this case to a pure relativism bordering on nihilism. But one need not go that far to see that modernization theory, resting on an Enlightenment notion of universal progress from lower to higher states of social well-being, assumes the conclusion that should be interrogated. Is corruption a human and institutional foible that inevitably falls away, or at least diminishes, as economic and social frontiers advance? Or do its contours merely shift and change along with changes in social, political, and economic power and distribution structures? If the latter is the case, what, how, and why does this happen?

In the case of urban corruption, there is considerable evidence that its form and definition morphs and grows along with the broader national and global value chains of which cities are a critical part. A value chain refers to a complex of production and distribution activities for transforming raw materials into specific products and services of maximum output values given the inputs used. A global value chain (GVC) consists of a value chain in which at least two stages are in different countries [48]. The more international borders crossed, the more global the chain.

Much value-add in production and much valuable consumption takes place in urban areas. As already noted, this means that there is a great deal of wealth and income passing through these places. The neoclassical model suggests that all this is the result of ever-expanding efficiencies in the economy. The fly in the ointment, according to this perspective, is the nature of government and private institutions. Rational choice theory posits that rent-seekers will aim to siphon off wealth and income from the real productive returns that up-to-date capitalist economies generate but will be limited in doing this if the government is small, transparent in its operations, accountable to its voters, and run according to formal and rational principles and procedures. (Recall the earlier formula of C = D + R − A.) There will be some cultural variation, e.g., the “monetization” so prevalent in the West being seen by some outside the West as improperly crude and impersonal while Westerners see the personal gift and favor exchanges prevalent in some non-Western societies as unseemly [6] (pp. 1329–1330). However, fundamentally some acts are clearly always corrupt, others are not, with some acts (such as nepotism) being gray areas, and incentives need to be put in place to keep rent-seeking under control as much as possible.

However, many argue that corruption, from a pure rent-seeking point of view, is part and parcel of the urban portion of GVCs that underpin modern economic growth. A key role that cities play in GVCs is in land development. This has always been the case especially in the early to middle phases of industrialization running from the early 19th to the mid-20th centuries. At that time, urban agglomerations of capital and labor were critical in scale economies in manufacturing and, with time, services as well; this meant that urban locations for production and consumption commanded high prices and thus a high potential for rent-seeking and acquisition. This was the essence of Plunkitt’s “honest graft”, i.e., the use of advance insider knowledge about coming economic development, city contract awards, and infrastructure construction to make quick profits in the buying and selling of land [49] (pp. 1–4).

This kind of chicanery, wasteful though it was, merely leveraged off the genuine market-driven wealth creation, in most cases mainly transferring gains from outside investors (such as regular investors) to inside ones (usually politicians and their friends). The biggest efficiency loss in this case was that corrupt actors would not re-invest their proceeds into new capital like the “non-corrupt” ones. Other kinds of rent-seeking caused more losses to economic efficiency, such as awards of monopoly franchises for service provision, especially for the streetcar lines which were being built almost everywhere in the late 1800s and early 1900s. Here, kick-backs, bribes, and rigged bidding could potentially yield greater “dead-weight” losses (to use the economist’s term) by, for example, keeping the best operator from obtaining a franchise. But even here, most services and facilities provided were effective enough and crucial to urban growth and development (in the case of the streetcars, expanding the stock of valuable land out into new suburbs). True, things like patronage hires for unqualified or “no-show” jobs for friends and associates were also present and offered little productive benefit. Still, the extra costs of corruption in machine cities appears to have been relatively modest, one estimate finding municipal wages about 8% higher, and overall city budgets being 15% higher (adjusting for city size, etc.), in American machine cities than in non-machine ones in 1909. Also, in the US, cities issued debt in relatively competitive bond markets, not one city defaulted during the machine age, and borrowing rates were relatively low at 3%, indicating relatively efficient operations [49] (pp. 6+12–17).

In this “classical” age of (Western) city government, though, patronage politics, once just part of normal practice, was now defined as “corrupt” by the professional and economic elites. But in the context of high economic growth and industrial expansion, the net economic costs were low. And following the functionalist interpretation, the benefits were the integration of diverse masses into the urban polity and economy without getting in the way of the building of the required municipal service systems and public works. “Boodle” (to use a colloquial New York term for graft and bribery) was ubiquitous and caused much comment and alarm from reformers. But domestic peace was kept and even the reformers remarked on how popular bosses were with the voting public, seen as a friend and champion in their individual hours of need and well worth the relatively small extra costs (in the form of slightly higher prices for services, for example) to help them navigate a system that could be opaque and by default did not always have their interests at heart [49] (pp. 19+25–26). Indeed, the extreme extraction practiced in the earliest days of the most notorious American political machine (that of “Boss” Tweed, the effective founder of the “Tammany Hall” machine in New York City in the 1860s, who stole an estimated USD 30 million to USD 200 million directly from the city budget, and nearly bankrupted the city in the process) seems to have been a lesson for both “legitimate” and “illegitimate” interests that there was plenty to go around if the latter moderated their greed (hence “honest” graft), while the former played by some basic political rules [49] (p. 14).

In the current (and somewhat misleadingly named) “post-industrial” era of the globalized economy, many things have changed. The “bright lines” between corrupt and non-corrupt activity are still maintained by many academics, international organizations, and political reformers [50] (p. 116). The tacit and often unrecorded collusion and cooperation between licit and illicit operators also remains.

At the same time, the nature and workings of the urban economy have changed substantially. For one thing, the source of value of urban land is no longer primarily based on its attractiveness for scale economies in manufacturing, in which concentrations of production were essential. Even for services, where there are some economic returns to density to be had, the digitalization and post-pandemic working-from-home patterns have loosened the economic need for city locations. Both production and consumption have been decentralized, and scale economies, though still critical, are exercised over much larger areas across more loosely connected contractors and operators working within shifting networks, leading to the dynamic shifting of the economic center of gravity over relatively short time periods. Cities no longer have the innate locational productive edge that they once had, instead becoming “consumption cities” or “creative economies” where cultural and other “amenities” are paramount to attracting both residents and businesses, with most of those engaged in “knowledge” and “information” activities rather than the manufacture of goods and other tangible objects [51].

Because the economic role of cities has changed, the nature of urban government corruption has changed too. Urban areas now need to “compete” against one another to attract both capital and visitors, changing and updating their global and regional images regularly. Large amounts of money flow throughout the globe on an annual basis, relatively fickle and “footloose”. This has led to the emergence of “urban entrepreneurialism” in city government, emphasizing marketing, messaging, and flexible governance, with close partnerships between local real estate developers and municipal officials [52] (pp. 1351–1352). In keeping with “neoliberal” practice, “New Public Management”, and the other “performance-based” rubrics of public governance that have emerged beginning in the 1980s, cities outsource most of their service and infrastructure building to private contractors using “public-private partnerships” with authority and accountability shared across an often shifting and sometimes nebulous chain of operators, akin to GVCs for private production and distribution [53]. For cities, the main value-add (and government revenue) now come from improved and unimproved land value increases driven by actual development, but also external demand both internally and at a distance, from far-flung wealthy investors. Fostering global demand for a particular municipality’s location constitutes a large part of an urban government’s agenda.

Urban entrepreneurialism has been much studied in Spain, especially because of the relatively unique circumstances of its real estate boom and subsequent bust in the 1990s and 2000s. Of course, much of the developed world was caught up in real estate bubbles, followed by the global financial crisis (GFC), during this same period. But Spain (and to a lesser extent Italy and Portugal, which have also been studied in this regard) saw an especially big run-up in land prices, driven by evolving forms of urban malfeasance. Between 1997 and 2006, more than five million houses were built in Spain, the building totals in certain years exceeding the number of houses being constructed in Germany, France, and the UK put together [54] (p. 368).

Spain had peacefully transitioned to democracy after the death of its long-serving dictator Francisco Franco in 1975, followed by severe deindustrialization in the 1980s, something experienced throughout the Western world, but with a delay in Spain due to the strictures of dictatorship. Franco was always interested in economic growth, however, and the continuity between his patrimonialism from the top that nonetheless used the technocratic tools and institutions to foster national development and the workings of democratic Spain are striking. The end of Francoism brought administrative decentralization, which devolved significant powers to regions and cities, with municipalities using a “strong mayor” form of governance (something common in “Latin” Europe, i.e., France, Spain, Italy, and Portugal) [54] (p. 370). Electoral democracy put an oligopoly of political parties in charge of government based on their ability to marshal blocs of voters. Deindustrialization freed up large tracts of land which, combined with Spain’s good climate and westernized and relatively modernized administrative apparatus, attracted huge amounts of foreign capital into the country. The end result was the enormous real estate bubble of 2007–2013 [52] (pp. 1358–1362).

In Spain’s case, the nexus of corruption came together at the city government level which made a pact with the construction industry and the national political parties. City mayors needed revenues, and so allied, following the imperatives of entrepreneurialism, with the construction industry, to attract some of the cheap money sloshing around the world, especially after the end of the Cold War in 1991. This was exacerbated by a privatized town planning model in which municipalities received a 10% transfer of land value from development, making city and developer partners in speculation [54] (pp. 370–373).

Meanwhile, mass political parties, requiring their own finance, allied with the mayors and the builders to siphon off a cut of their own, to stay in power and to fund their party and electoral activities. All parties to this “iron triangle” (to borrow a term from American theorists) obtained their rents from the power to regulate and plan land development, including the provision of building permits, designating use-patterns for plots, letting building contracts, and so forth. Great profits were made by all, but unlike the earlier machine era, much of this came from pure speculation rather than just being a cut made from a fundamentally productive activities [52] (pp. 1354+1361–1620). Indeed, land development often “leaped” over city centers and other economically logical spatial progressions, moving from one area of speculative development to another area, rezoned and held for speculative purposes. This had the effect or eroding public trust in planning processes. Indeed, the whole system of urban development interests worked against the standard prediction of rational choice theory that governmental decentralization and devolution, combined with outsourcing, will curb rent-creation and opportunities for rent-seeking [54] (pp. 366–370+373). These blanket prescriptions are somewhat suspect anyway because of their omission of urban politics and power relations.

In Italy, modern urban corruption patterns are similar, except for the additional influence of organized crime in some regions. Because of its long history in that country, Italian authorities have sought to formalize and regularize urban planning, among other things, to limit the role of organized crime. In Lombardy, a region penetrated by a mafia-type organization known as the ‘Ndrangheta, a 2009 master plan specified the uses of different land parcels and laid out a process of re-designating such use, focusing on converting farmland to more valuable activities. But in a short period, the value of the land involved before the plan went up from 8 million Euros to 62 million Euros after [55] (pp. 1614+1616–1617).

It turned out that formal planning procedures with built-in oversight was not sufficient to stop rent-seeking and rent-acquisition, nor to limit the activity of the ‘Ndrangheta. An independent investigation later found that the law was most often respected but was nonetheless deemed “corrupt” because decisions were made in favor of specific private interests and hence were illicit [55] (p. 1619).

Part of the problem arose from the regulatory system itself. Although determined along formal technical lines, in fact the land-use designations were inherently political, as most technical criteria fundamentally are, no matter how well intentioned. Further, some phases of regulatory decision-making, especially when trying to interpret and meet technical criteria, were exceedingly complex, the “optimal” solution not being clear. This allowed nefarious activity to be conducted openly and at the same time obscurely from the point of view of the citizenry and even many public officials. Of course, even the best regulations and regulatory enforcement cannot necessarily prevent profit-taking deriving from the use of inside information. And technical obscurantism can increase the ability to manipulate such information and is sometimes intentionally built-in. Finally, the ‘Ndrangheta retained a position of influence and usefulness for all parties because of its long history and knowledge of how things work locally, as well as the stability they offered in taking advantage of things. Criminal it might be, but organized crime nonetheless performed needed services for those seeking to complete deals [55] (pp. 1620–1623). Indeed, any deficiencies between official and licit spheres and unofficial and illicit ones always provide vacuums to be filled by those who meet needs, whether these are deemed corrupt or not [23] (p. 155). This nexus of land developers, politicians, and organized crime has been found to hold in other Italian regions [56,57], Mexico [58], Colombia and other parts of Latin America [59], and Mumbai [60], with analysts often noting the cooperation with criminal or at least “gray” sector organizations in the building, construction, and development industries is part and parcel of economic globalization. Zinnbauer (2017) [61] thus referred to commodifed urban land as the latest “resource curse”, much like minerals and energy have been to other resource-dependent economies.

10. Urban Corruption and Economic Transitions (a): Decolonization

It is now useful to turn back the clock a bit to consider two major periods of global transition that were especially important to the changing face of urban corruption: decolonization across the global South in the 1950s onward, with the collapse of direct European control of places in Asia, Africa, and the Middle East; and the end of the economic bifurcation of the world caused by the end of the Cold War between 1989 and 1991. This section will focus on the former, the next on the latter. A third section will focus on the unique case of India.

Decolonization was a formal reversal of European colonialism in which European countries conquered much of the non-European world, beginning in the 15th century, but with special speed and intensity in the late 18th, and the whole of the 19th, century. European colonizers imposed formalized institutions like the European version of the centralized state and the private and public corporation, on to widely differing societies. This was most stark on the continent of Africa, which Europeans took over almost wholesale over the course of the last half of the 19th century. Some scholars argue that African society was unique is that it developed a model of organizing people into larger aggregates without using an organized State, instead relying on medium and large-scale ethnological and other social groupings that were informally governed through traditional hierarchies such as chiefs and tribes. The key social tasks of reciprocity and authority relations were managed informally across varying cultural norms, using a delicate and flexible set of organic checks and balances. European law, state structures, and markets largely eviscerated all this, replacing it with enforceable and explicit legal rules based on logical and purportedly universal and rational principles [62] (p. 206). Colonial masters, in typical divide-and-rule fashion, co-opted and coerced local chiefs to lend informal legitimacy to colonial exploitation. This process imposed the construct of “corruption” on various practices that used to be conducted in the normal course of social governance through interpersonal transactions, solidifying the concept into a seemingly coherent and settled concept based on explicit legal and ethical distinctions drawn from generalizable ideals [63] (p. 29).

Of course, the Europeans were in the process of altering their own social and political systems and were thus imposing a distorted version of institutions on their colonies that could be said to be literally half-baked in the sense the European models they were based on were in transition. Patrimonial and personalistic systems of reciprocity, parallel to those found in Africa and elsewhere, still were operating in Europe though being diminished by industrialization within a frame of fairly well-developed European state structures. But at “home”, these traditional features were now seen as impediments to social and economic “progress”.

However, this was not so much the case with the administration and extraction of wealth in the colonies, in which a distinctly patronage-based system of governance was initially used by the Dutch, British, English, and French throughout the world. Large colonial trading companies were explicitly established on such a basis, being given economic monopolies to exploit on their own account, with all expenses being raised on the ground and higher-ups building up their own self-financed fiefdoms. For example, the Dutch East India Company (known by its Dutch initials VOC) offered nominal salaries for officials, covered by colonial extraction that would meet the metropolitan government’s policy objectives and company profit requirements while putting minimal strain on the finances of either one. Other European trading companies worked on similar models. European trading companies went out of fashion over the course of the 19th century, their operating models, once seen as normal, now being seen as a corrupt; also, their practices being a bit too crude and obvious, and perhaps also a bit too independent of the central government. In the Netherlands, the end result was the takeover of the VOC in Indonesia by the Dutch Crown [43] (pp. 606–607). The East India Company of England was similarly taken over by the English Crown in 1857; however, in this case, the proximate cause was the Indian “mutiny” (a euphemism for general revolt), which broke the other part of the patrimonial contract which was to keep social peace. What is interesting about the trading companies was their hybrid nature. They took the modern form of a corporation, and they kept detailed accounts to be balanced on a formal profit-and-loss basis. Yet power flowed through personal networks that were more akin to some of the chieftaincies and other local governance that they were taking over. This dissonance was probably the fundamental reason why they lost favor. The only unchanging element was that the colonial subject peoples were to be exploited as thoroughly as possible [64].

Decolonization further fractured moral economies and social power relation systems that had been ongoing for centuries. Focusing here on Africa, this was a place of great diversity across a huge continental space which was largely non-urban before the advent of mass European colonialism in the 18th century was laid on all of these diverse societies. The dissolution of that system shaped understandings of urban corruption in ways already well-trodden thus far, namely the notion of corruption as a deviation from an invariant universal norm of ethically acceptable and economically efficient practices, with some practices, such as the bribery of state officials, defined as “objectively” and invariantly corrupt. Such practices were diagnosed as outcomes of “weak” states, with a porosity between public and private spheres, and incomplete economic and social development [65] (pp. 438–440). Nye’s already quoted definition of corruption as “behavior which deviates from the formal duties of a public role because of a private regarding… pecuniary or status gains” [8] (p. 420) is instructive in that it explicitly distinguishes between formal and informal arrangements as a first-order dividing line between the corrupt and non-corrupt realms and replaces personal reciprocity with obligations to act according to formal roles and codes. More subtly, it implicitly replaces the intuitive forms of morality and ethics that arise from purely social arrangements with pronouncements akin to the immutable tablets of the Ten Commandments, decreed from above and defined as inalterable law.

As an example, prior to colonization, the Igbos, residing in what became British Nigeria, accessed and distributed resources through long-established reciprocal obligations embedded in family, lineage, and community. European colonialism replaced this with formalized state mechanisms that defined most informal arrangements as irregular, and hence prone to being corrupt, and official formal ones as “clean”. Further, the colonial state itself did not really offer genuine formal replacements for the local community’s old mores and workings, except in the enforced, but sometimes ambiguous, obligations of those who are ruled to their rulers. This contrasted with what was happening at the metropoles themselves in which traditional and informal societal cradle-to-grave mutual obligations were later replaced by the “welfare state”, with its old age pensions, public health care, and so forth. The colonies had states with little welfare provided, and the “new” nations were left to sort their own arrangements out on the fly and on their own, with their traditional mechanisms largely gutted [66] (pp. 779–780). Unless native groups had enough power to acquire some recognition from imperial masters, as in India, with its Princely States, or the relatively effective Māori resistance in New Zealand, indigenous institutions and practices were at best hollowed out and manipulated for colonial purpose, or at worst, eliminated. China, and in a different way Japan, were indirectly colonized and thus did not lose all their traditional power structures, though these were highly degraded in the former and largely replaced indigenously in the latter [67] (Chapter 13).

Decolonization in the late 1940s through the mid-1970s saw the creation of numerous new nations, in Africa, the Middle East, Southeast Asia, and the Indian subcontinent, though even here there was often much struggle (e.g., the 30-year long “Indochina” then “Vietnam” war which resulted in Vietnamese independence and reunification in 1975). India is an unusual case, considered in detail below. In general, though, most decolonized societies suffered from a situation referred to as post-colonialism or neo-colonialism, i.e., nominal freedom of public and private internal action, but in a context of arbitrarily drawn political boundaries, under a state apparatus whose origins had been imposed from above, with continued obligations to former colonists that were not the result of local decisions but of a system of capital and trade flows largely directed from abroad [67] (Chapter 3).

Africa is a particularly interesting case in that colonialism transformed it from a largely informally governed space with relatively little organized state power, and with little need of it, into a place of many states and official entities presiding over a wounded but still highly operative private sphere based on patrimonialism of one sort or another. Thus, some scholars have argued that much of post-colonial Africa’s public realm is what Westerners would refer to as private, with moral claims circulating and enforced largely by primordial intimate personal claims. This is overlaid by a Western civil society that claims the moral high ground but is in fact perceived by most people, including government officials, as an amoral space, to be legitimately exploited for private gain. Formal policy, imported from the West, designates this state of affairs as corruption, and indeed there is much destructive rent-seeking. But most of the society sees moral behavior as the province of the personal exchanges, which have reciprocal ties that need to be honored, not the case with what is called “public” by Westerners [24] (pp. 16–17); [63] (p. 27). These are, of course, overly broad generalizations. But the basic point is that the definition of corruption is not so “universal” as it was claimed by colonial powers and decolonized societies made their own accommodations.

Africa has also been, and continues to be, the scene of one of the most rapid urbanizations on the planet, both with mega-city growth, but also the rapid expansion of mid-size cities, resulting in great urban dynamism but also unsettled polities, societies, and economies. It is hard enough to govern corruption under such conditions with common shared ideas. But as already noted, many African states and cities have very different views about public–private sphere relationships, the legitimacy of acts within that sphere, and of the role of the state in this sphere. The city machine of the US is a historical example of this outside Africa, and the evolving processes of urbanization in much of the global “South” provide contemporary examples of the changing social–economic order, especially with respect of the distinctions between “formal” and “informal” orders. City growth is exceptionally strong in the formerly colonized global South, with more than 90% of future urban population growth projected to occur in Asia and Africa. India is likely to add over 400 million urban residents, China over 250 million, and Nigeria 180 million, these three nations alone accounting for 35% of total urban population growth expected over the next 30 years. Many of these countries have big informal economies, especially in the cities. A total of 63% of Mali’s urban workforce is informal, while Nigeria’s stands at 88%. Two billion workers, over 60% of the world’s employed population, are in informal employment, 43% of these working in cities. Most services (especially transport, housing, and food) are provided by unofficial, unregistered operators. Around 75% of the markets in Kampala are estimated to be informal, as are approximately 50% of all public transport trips in Tehran and Cairo, 70% in Mexico City and Manila, and over 90% in Algiers and Dakar. A total of 40% of owner-occupied housing in Mexican urban areas lack full title; meanwhile, across Africa, 60% of the urban population is thought to live in informal housing. Such informality is not unknown in the developed world and may be increasing there; for example, the US is estimated to have more than two million housing units in informal subdivisions. But the preponderance of mass informal arrangements remain in the “developing” world and arguably the legacy of colonialism has much to do with this [34] (p. 2).

11. Urban Corruption and Economic Transitions (b): Post-Cold War

The other major global transition relevant to urban corruption transformation comes at the end of the Cold War. Decolonization dovetails with this, especially in countries like China that became Communist and free of Western domination at the beginning of the Cold War and, later, with the breakup of the Soviet Union which freed what could be seen as internally colonized subjects, particularly the various non-Russian ethnic groups in the so-called “Stans” (such as Uzbekistan) which became their own nations after 1991. Roughly one-third of the world’s populations lived under “Really Existing Socialism” as Communist nations began to refer to themselves, at the peak extent of the bloc in the mid-1970s. Communism was actually quite diverse, practiced in places ranging from rural China to industrialized Czechoslovakia. The common element was a walling off from Western trade, people, and capital flows which were minimal until the 1970s when Eastern markets began to slowly open up. During the 1960s, two-thirds of Socialist economy exports stayed within the Socialist sphere, and travel between capitalist and Communist countries was tightly controlled. But at the end of the 1970s, Socialist countries began to turn more and more to capitalist financial institutions for international loans to raise much needed capital and equity, and East–West bilateral trade deals were also increasing. These connections were driven by need in the Communist bloc, and were met by a newly deregulated Western financial sector all too happy to chase markets and returns, ideology be damned [67] (pp. 759–760).

This flow of money turned out to be the thin edge of a wedge. Most socialist leaders were suspicious of Western money, seeing it as a destabilizing influence on their state-controlled political and economic systems, which ended up being the case. There was obviously plenty of corruption at all levels within the Socialist bloc. But strong central governments and deep surveillance conducted by a ubiquitous state security apparatus kept such activities firmly under state control and channeled into both public policy aims (such as raising hard currency illicitly) and private gains (such as Communist Party members obtaining cars, summer houses, and access to scarce Western goods). Moreover, “illicit” transactions were essential to moving resources effectively within the rigid and over-bureaucratized Soviet central planning apparatus (and to a lesser extent with other Communist economies), with specialized cadres of “fixers” obtaining factories more than their quota of raw materials and stores more than their allotment of retail goods outside official channels [67] (pp. 761–762).

The collapse of the Eastern bloc and the Soviet Union, however, opened up the flood gates of corruption both inside and outside their former realms. On a basic level, multiple new nation-states, located along critical trade and capital flow routes, suddenly emerged with fledging and weak governments struggling for legitimacy and territorial control, in most cases accompanied by a rapid demobilization of their former security and military forces. The number of Caspian sea littoral states went from two before 1991—the USSR and Iran—to five afterwards, the Russian Federation, Iran, Azerbaijan, Turkmenistan, and Kazakhstan [68] (p. 63). The collapse of Yugoslavia at the end of the decade created yet more national entities, some with their own internal separatist tendencies, a problem that the new Russian government grappled with in regions like Dagestan. Even in the formerly Communist Eastern Europe, Czechoslovakia broke up into the Czech and Slovak Republics.

Into these vacuums of a withered state and collapsed central planning model flowed an untrammeled amount of Western money, goods, and influences, with no restraining influences. It was a “unipolar” moment for the US, and the supposed triumph of Western capitalism—whatever that really was—with foreign investors and Western advisers ready to take charge. The overall story of the “transitional economies” as the former Socialist countries were now called is too long a story to recount here. Suffice it to say that the label of “transition” suggested orderly and organic processes that were anything but in most places, especially the former Soviet Union. The Nobel laureate American economist and former World Bank and IMF chief economist Joseph Stiglitz called the decade “the Roaring Nineties” echoing the 1920s, another era during which much money flowed freely and reputedly legally, but not always very ethically [69].

The biggest changes by far came within the former Soviet Union itself. Russia had already gone through enormous upheaval over the course of the 20th century, going from a patrimonial system where formal feudalism had only been abolished in the late 1800s and where jobs were given to feed their holders, to a radical experiment in top-down social and economic transformation that was explicitly non-market, statist, and communal. Yet there was much implicit continuous continuity between 1917 and 1991, such as a personalistic ruler hierarchy with an autocrat on top (whether it be Czar Nicholas II or Stalin); patronage politics (the Soviet Communist Party replacing the nobility); and much informal “grease” and social networks operating to keep formal institutions on track (the Czarist and Communist bureaucracies had much in common functionally). The Soviet experiment, however, added thorough-going formal rules and structures, rapid and often ruthless State-run industrialization, and—most pertinently here—rapid urbanization [67]. (pp. 706–707)

The fall of communism brought chaos, as most major transitions do, even ones into prosperity. From the outside, it appeared that corruption caused the chaos but in fact it was actually reflective of the underlying tectonic shifts behind it [23] (p. 163). The collapse of the state and its internal and external security functions have already been mentioned. To this may be added the nature of foreign private capital and public aid flowing. These were tied to imposed models of “democratization”, economic “liberalization”, and “privatization” [50] (p. 115). However noble these stated aims might be (and both the philosophical coherence and integrity and execution of them can be said to have been highly variable and often ideological), they were top-down and alien to the Russian society upon which they were being pushed, analogous to European colonialism earlier.

Contrary to typical neoclassical assumptions, large flows of money have always at least implicitly had strings attached, and the foreign direct investment (FDI) flowing into Russia had explicit agendas of breaking down external trade and capital flow barriers to obtain maximum returns for investors, with maximum freedom of action for them, along with complete transparency of operations in the host, though not the home, country. Such conditions were demanded of the host country under the rubric of “good governance”. But this meant Western definitions of the term that were generally self-serving to those providing the capital. Transparency and accountability were one-way, imposed on the host country recipients, but not on the home country foreign investors. Failure to meet such conditions by the hosts meant being locked out of further investment entirely, not an option for the collapsing Russian economy [50] (pp. 117+121).

Russia survived after the end of the USSR, but in a highly weakened and fragmented condition. Private actors, often former “fixers” within the old Communist system and thus very well-connected, managed to obtain many former state assets and businesses incredibly cheaply under a series of highly chaotic privatization auctions, themselves imposed by Western economists advising “shock therapy’, a notionally complete turnover of economic production and allocation to “market” forces. This ideology ignored the fact that markets were not forces of nature whose powers became manifest after being drilled out of the ground, so to speak, but are highly variable human institutions that took hold in the West over the course of several centuries. These new “oligarchs” became incredibly wealthy and allied with newly invigorated organized urban criminal elements to keep local order and protect their operations, filling the security vacuum left by the collapse of government police forces. Things became even worse with the 1996 re-election of Boris Yel’stin, initially seen as a hero who faced down an attempt by the old Communist party apparatchiks to regain power. However, Yel’tsin proved to be a completely ineffectual leader, allowing a complete takeover of the state by oligarchic interests [70] (pp. 436–437).

The oligarchs attempted to cement their control by elevating a Yel’stin protege, Vladimir Putin, to the Presidency in 2000. But as is well-known, Putin reasserted the control of the state to prosecute the oligarchs and take over their old businesses either through state take-over, or by putting them under the control of loyal personnel. Putin also reined in the organized criminal elements and the protection racket schemes of the police which had led to many improper jailings of mid-level entrepreneurs. A purge of the mid- to lower-level corrupt actors in the civil service was also conducted. In one sense, Putin adopted the anti-corruption policies recommended by the West, but selectively and adaptively, employing them with the main goal of making sure economic rents primarily went to the state, not to independent private hands [70] (pp. 437–444). This has been characterized as a move from the decentralized corruption and business control of the state to the decentralized corruption and state capture of business [70] (p. 438). The new term “state oligarchs” has arisen to describe the installation of loyal high-ranking officials at corporate helms [71] (p. 205).

Putin’s Russia is formally democratic but operationally authoritarian. There are competing political parties and legislative elections that are procedurally competently administered. But through both coercion and cooperation, the state ensures there is little real contest. Because of this centralized political control, relatively little corruption is seen at the party level since there is little need for it. This contrasts with party corruption in politically competitive democracies, like Spain already discussed; or in authoritarian systems that have nonetheless not politically consolidated centrally, such as Krygzstan [71] (p. 207).

The post-Soviet regional transition can be contrasted with many post-colonial ones elsewhere, especially in Africa. A strong tradition of state control with a highly organized state apparatus that evolved indigenously means that after the chaos of the transitional power struggle, the Russian state, and some others like Belarus, have managed to regulate and control resources for themselves, subordinating both legal (corporate) and illegal (organized crime, etc.) players to state prerogatives. The state has also always delivered some genuine collective goods and services and still does, ensuring the popularity of government rulers and public support for many government interventions. Finally, in Russia particularly, the military has always been subordinated to the government. This contrasts with many post-colonial African states and state entities which often operate as just another “grift” agent and are seen as such by the general public. Many African post-colonial states, and quite a few Central and South American ones (as well as Indonesia, to name a prominent example in Asia), have often been under military dictatorship and/or have militaries that conduct their own business enterprises and para-statal activities [71] (pp. 209–211). But this has never been the case in Russia.

12. Urban Corruption and Economic Transitions (c): India

Finally, any discussion of corruption and decolonization and post-Cold War transition must deal with the very unique case of India. (China is another exceptional case in different ways, to be touched upon in the final section.) India was both the largest of the colonies to gain independence after World War 2 (in 1947) and one that followed neither a capitalist path nor a Communist path, aiming for a “Third Way” of democratic state planning. Jahawarlal Nehru became leader of the newly independent nation, with a political–economic perspective inspired by his exposure to Fabian Socialism which he encountered in Cambridge as an undergraduate student. Indian per capita income had not increased at all between 1757 and 1947, and Nehru wanted to rapidly industrialize, but in a uniquely indigenous way that he hoped would replicate neither the social injustice of capitalist economies, nor the political repression of Communist ones [72]. Nehru made India a democracy with universal suffrage but followed the USSR by instituting an essentially planned economy to fast-track economic modernization. Strategic industries like oil and aircraft were exclusively state-run, with others, like chemicals and road transport, open to both public and private sectors. Remaining markets such as consumer goods were free to pursue purely private activity, but only with strong government direction and regulation. This regime suited the growing Indian big business sector, especially as it was joined with the trade protectionism that Nehru applied to domestic industries. This encouraged, indeed required, the formation of domestic production facilities, but allowed them to make cheap, poor quality products due to the lack of international competition. India’s first 5-year plan was modestly successful, the second less so, and the third was largely stillborn, in the midst of foreign exchange shortages, inflation, and agricultural failures [67] (pp. 709–710).

There was much corruption and inefficiency under the Nehru model, but it was popular in its time and solved some acute national identity and social cohesion problems, while delivering some genuine economic progress. But after Nehru died in 1964, the country was already facing challenges that only grew more acute in the 1970s and 1980s. Much urban corruption at the time was centered in Delhi, the political capital, because that was the center of government regulatory power and influence over economic allocation. The importance of business being near government was especially important, made more so when Indira Gandhi became Prime Minister and put her son Sanjay in charge of running Delhi in the mid-1970s, with autocratic municipal powers, mirroring her own under a National Emergency she had declared to override constitutional limits. Sanjay Gandhi displaced 700,000 people in a slum clearance program, pushing them to the periphery of the city, in order to open central plots to development by well-placed business interests. Many of these same people would later be displaced in the 2000s under the rigors of economic liberalization, to be described below [73] (p. 330). This dislocation touched even some middle class families [73] (pp. 273–274). The Delhi elite grabbed swathes of land in the south by classifying a large land belt as agricultural, and then building new mansions designated as farmhouses, often built by the bureaucrats and politicians making the designations [73] (pp. 2–3). This process sometimes touched other economic sectors as well. For example, Gandhi closed down all the local dairies in Delhi, pushing them to the city outskirts to make way for urban residential development [73] (p. 290).

Indira’s son Rajiv succeeded her as Prime Minister but was assassinated in 1991 in the midst of the Bofors scandal, in which a Swedish arms company gave bribes amounting to USD 40 million to obtain arms contracts. A new set of economic liberalizers, long sidelined under Nehru and then Indira and Rajiv Gandhi in succession, now took power and opened up the Indian capital and goods markets, in phases. This liberalization brought an overall sustained burst of economic growth. But this new system of finance flows created a new set of political/business deal-makers, a new domestic oligarchy, which made the Bofors levels of corruption seem quaint in retrospect. The “commanding heights” of the Indian economy, formerly walled off to foreign capital and governed by a nexus of politically connected Indian businessmen, now witnessed a flood of new foreign capital, and the renewed formation of domestic capital with a subsequent transformation of the elite and their public–private transactions [73] (pp. 344–345).

Liberalization was initially gradual, and some Indian operators made money on knowing which restrictions would be lifted next, buying commodities before their trade was liberalized [73] (p. 382). Funded in this way, and also by foreign investment and business-retained earnings, Indian businesses grew in scale. Their payoffs for access and special government treatment became larger as well, much bigger than the smaller payments for bureaucratic “grease” under the more regulated “cosy” status quo of the past [73] (p. 345). The middle classes benefited from liberalization initially, just as they often had before; but less and less, as a politically well-connected wealthy cabal slowly took charge of both Delhi and other cities which became dominated by real estate wealth and development as never before [73] (p. 399).

To exploit real estate at scale by definition required wide and deep networks of political connections by businesses [73] (p. 365). Foreign money was brought in with the cooperation and coordination of native “tech” boom entrepreneurs, who had arisen out of the local elite institutions that Nehru’s investment in higher education had helped foster. Bangalore-based Infosys was one example of such a home-grown enterprise, successfully listing on the US NASDAQ in 1999 [73] (p. 62). This industrial boom was a genuine value-add, but it created a chase for real estate that was only partly about economic productivity. High tech firm booms did generate a tremendous appetite for both urban and rural land to locate their office parks, factories, and call centers. But as was the case elsewhere, real estate was an ideal speculative device, as well as a place to park licit and illicit funds. A big real estate boom in Indian cities took off in the 2000s and has never really abated.

Although the government was no longer running the economy, somewhat ironically Delhi boomed more than ever. Partly, this was simply because other cities, especially Mumbai, the traditional business center, were already tapped out in terms of viable business and residential locations [73] (p. 83). But the basic driver of the Delhi boom in particular was that liberalization led to privatization which led to tighter partnerships between private and public spheres, blurring their lines and making a location close to government a strategic investment. The more general driver was not unique to Delhi, mainly the commodification of urban real estate as a speculative asset, a store of value and, sometimes, a way to launder wealth and income [61].

Delhi planners removed hundreds of thousands of poor people for the building of new apartment complexes that were not for the displaced, who were left to fend for themselves, but for upwardly mobile professional classes and cashed-up speculators [73] (p. 41). Planners released large amounts of public plots to large development projects, with initial releases leading to a boom in the building of luxury shopping malls [73] (p. 117). Many middle class people cashed in on the boom in land prices that these policy changes, and the huge economic shifts underlying them, brought by tearing down their own houses to sell their plots to developers. In the early 2000s, middle class plots reached USD 2 million, then USD 3 million, then USD 4 million in short order, creating a whole new architecture, social order, and distribution of income within the city [73] (p. 179).

Whole, new private subdivisions emerged. In Delhi, Gurgaon was established by the Indian real estate giant DLF, the largest such township in Asia spawning many imitators domestically and globally. In these subdivisions, everything was privatized. Residents pay corporations to service all needs [73] (pp. 3–4). These developments were not in empty spaces but in areas already filled with workers and the poor living in informal settlements, displaced by “legitimate” developers that, ironically, were sometimes building and planning outside the law themselves, usually granted legitimization by planners after the fact. At the same time, people displaced from rural areas, or just seeking to get their bit of the boom, were adding to the populations of Delhi and other cities. Seven million people were added to Delhi’s numbers between 1991 and 2001, some of them becoming laborers for the construction companies, building the malls and housing complexes that were simultaneously displacing them [73] (pp. 63–64).

Interestingly, the connection between rural and urban development was very pronounced in India, which entered liberalization as still a predominantly peasant economy in many ways. Nehru had ensured that rural land-owners had strong land titles, to correct the many abuses of the British imperial system. These remained fairly secure before 1991. But although there was no formal change to laws afterwards, the quest for endless profit created “land mafias”, gray-area land aggregators using political connections, and sometimes violence, to pry title away from smallholders, in cahoots with official bureaucracy employing colonial era laws that allowed for expropriation with little or no compensation. This process accelerated when the government created “Special Economic Zones” (SEZs) purportedly to bring economic growth to rural areas, but often mainly transferring wealth and title from incumbent residents to business interests [73] (pp. 259–260).

Indian magnates have used their experience in local land grabs to expand into African countries such as Ethiopia, Kenya, Uganda, Sudan, and Libya because rural land claims there are weaker than in India. In South Africa, the historical links between Indian families and the old apartheid regime were exploited to take advantage of “Black Economic Empowerment” privileges, even though many of them were not technically qualified to do so in a sense because they actually had not operated in the country for a very long time, if ever. These Indian entrepreneurs effectively became the new colonialists in Africa [73] (pp. 365–369).

These economic dynamics are quite familiar to their workings across the world. But Indian entrepreneurs have traditionally relied much more on personal trust connections than in the West, their specialization in the jewelry trade being a traditional working example. Indian business enterprise has sought to broaden its commercial relationships with other forms of interdependence like gifts, hospitality, favors, even intermarriage, very much in contrast to most Western companies that view such practices as corrupt or at least improper. Intimacy in Indian business has always involved a strong blending of home and work, and inspiration for this expansion model was found from Japanese companies especially, similarly operated along somewhat familial lines, in contrast to the successful but more impersonal US firms, which also served as success models but in that case, mainly of how to make unbounded profit [73] (pp. 9–10).

Mention must finally be made of the effect of India’s democracy on corruption. Standard anti-corruption tropes suggest that democratic governments are less prone to being corrupt than less democratic ones. But competition between political parties in India has strengthened the “iron triangles” between public and private actors rather than weakened them. Uttar Pradesh, the state neighboring Delhi, created a fast-track development scheme, the ruling party there providing inducements, and provision of a police force, to aid large local business interests gain control of land and development, especially in construction. In return, businesses provided large donations to the ruling party [73] (pp. 348–349). This close partnership between government, political parties, and private developers has been found in other places, such as Mumbai, [74], Bangalore [75], and Punjab [76], in the last case, with parties monitoring and enforcing voter loyalty quite openly, sometimes violently, in old “machine” fashion.

And although India has become increasingly formally open to outside capital, the nexus between businesses and political parties often has the effect of creating an informal protectionism in which Indian enterprises with political connections have access that non-Indian firms cannot hope to easily replicate. The ultimate source of capital flows, domestic and foreign, is obscured by the use of third-party entities and foreign tax havens. Mauritius and Singapore, for example, accounted for 41% of India’s foreign direct investment between 2000 and 2010, even though these small countries are obviously only small entrepots incapable of providing such sums of their own accord [73] (pp. 348–351).

13. Conclusions: Forms and Systems of Urban Public Corruption

This review illustrates that the extraction of rents has always been a key feature of urban corruption. Nonetheless, not all extraction is alike institutionally and historically. O’Hara (2014) [22] provides a template for different types, a modified version of which is detailed in

Table 2. Typologies of contemporary urban extraction (see text).

Mode Type	Archetypal Example–Country–City	Dynamics
Influence buying	USA–Washington DC	Money buys power exercised through strong public and private institutions (often “legally” and openly)
Elite cartel	Italy–Naples	Elites are inoculated from broader social forces and can collude with each other to extract more easily because of weak public and private institutions in the midst of relative social stability
Oligarch/Clan	Transition Russia–Moscow	Elites take advantage of weak public and private institutions in the presence of chaotic social and political conditions
Official mogul	China–Beijing	Elites cooperate with each other, working through strong state power and weak private sector to extract rent

[22] (p. 293).

This template is obviously highly simplified, suggesting bright lines, when, in fact, urban corruption modes are not mutually exclusive within countries or across time. What it makes clear is that urban corruption—and corruption generally—is not subject to one pure technical definition, as modern rational choice theory would have. Nor is it purely a matter of individual agents making choices within a set of implicit and explicit incentives. Groupings, collectives, and organizations are all critical determinants of the shape and extent of corruption within cities, and beyond, and these generally cannot be reduced to mere concatenations of individuals. Power in the social sense, as well as in the sense of individual agency, are both relevant.

To explore this a bit further, consider the differences between two examples not discussed much here yet: the modern US versus modern China. The former is often represented as the pinnacle of modern urban development (though this perception has been deteriorating in recent decades). The US is a political democracy with sophisticated market mechanisms and relatively little of the individual graft that plagues many “South” countries, or the lawlessness and organized crime that enthralled transitional Russia. But rent-seeking and corrupt acts could be said to be rampant there, just using different institutions, channels, and shared social understandings of reciprocity—what Table 2 refers to as “Influence buying”. Money and favors flow freely, and often non-competitively (and hence economically inefficiently). But these are all legalized corporate–government trades, often murky, but not “corrupt” in the standard technical sense. Yet the parallels between oligarchic Russia are striking in that private interests have largely captured the state, just in a different way [77].

China, meanwhile, is designated as an “Official mogul” state in Table 2. The state retains central authority and power over the economy and rent extraction. It is more in the neopatrimonial mode than the United States. Russian and China are similar in having diverse private institutions and markets, with the latter’s being especially dynamic. In both countries, the State is strong. But formally the Chinese Communist Party is the ultimate power, state organs being subsidiary, reflecting its pre-Cold War past. Russia no longer has a hegemonic party, and parties there are formally independent of the government. But the interest alignments and public–private rent-sharing are similar. Once more, there is plenty of rent creation and rent seeking, but under very different institutional and social arrangements

There has also been a progression from one mode to another in city evolution. Corruption in many urban political machines, like Tammany in New York, for example, could be said to have started out in the oligarch/clan mode while ending up in more modern times in the influence buying mode. In New York’s case, there was also a clear distinction between political elites and economic elites, the former being built out of the teeming immigrant slums with the Irish becoming the main power brokers, the latter being drawn from a sort of “permanent” wealthy class that began with the landed estate holders under Dutch colonization in the 17th century.

Underneath all this, there is the worldwide economic system in which cities operate. The discussion here indicates that varying domestic urban government arrangements, although different in manifest ways, now are all competing for large amounts of internal and external capital within a relatively unified global economy, with cities adjusting themselves to attract and retain such capital in which urban real estate serves its archetypal local functions of providing land for residential and business location, but with an even more prominent international mechanism for parking, transferring, and transforming worldwide wealth and income in commodified form. With the end of the Cold War, all major cities have adapted themselves to this environment.

The Western “consensus” definitions of corruption make sharp distinctions between public and private, formal and informal. In the discussion thus far, it is clear that these sharp distinctions are variable and malleable. The workings of land development in Spain, for example, appeared to be formal and modern, but the arrangements actually made were mainly deals between “friends”, a pattern of governance referred to a “neopatrimonialism” or “clientelism” [77] (pp. 1–3). This term is often also applied to East Asian development (South Korea, Taiwan, and Japan, in particular) where “crony capitalism” of closely held conglomerates favored by the state development authorities resulted in economic “miracles” during the 1970s, 1980s, and 1990s, only to end in the Asian financial crisis (AFC) of 1997–1998 [52] (p. 1356).

Is this “corrupt” or not? Urban economic growth relies on these processes and the boundaries between licit and illicit typically fall along what is deemed formal (legal and allowed) by government authorities and cultural mores versus informal (illegal or nonlegal and partially or fully disallowed). Particular acts, such as the quid pro quo transfers of money for favors, special treatment, and the giving of advance information for purposes of private profit, are not by themselves distinguishable as corrupt or clean [78]. What makes the difference is whether they are formalized or not. As has been seen in Spanish, Indian, Italian, Russian, and other cities, planning exemption, “corporate immunity”, and the post-hoc legitimization of projects that were started illegally (true of many urban malls and housing in the global “South”), are par for the course in development. Informal settlements and activities, by contrast, are also standard—and may be operating much more cleanly than their formal counterparts [65] (pp. 438–439+447–449). Some have referred to such situations as a sort of “institutionalized informality” [77] (pp. 4–7).

The analysis presented here indicates that the modern notion of corruption has been the product of a long evolution which, no doubt, is not over. The present technocratic notion of a “coherent, discrete referent” [24] (p. 9) that can be applied to acts regardless of social context is clearly not applicable in all times and places. Urbanization in all places and all times is never just an economic process but a social psychological and cultural shift requiring considerable governance and cultural morphing [79]. Defining what constitutes a “corrupt” act varies considerably across cultures, across times, between nations and cities, and sometimes even within them. Social “norms” are extremely important in the parameters of acceptability of different acts, such as bribery, nepotism, favoritism, etc. Donaldson and Dunfee (1999) thus present a template of the culturally determined “social contract” that governs licit and illicit behavior [80]. One has to be careful not to lapse into relativism or nihilism here, but Enlightenment universalism swept away not just outmoded practice and attitude but also genuinely useful variations of social convention. Rational choice theory treats norms, when they do treat them at all, as variations in agent preferences and/or “rules of the game” of rational maximization. But in corruption, they appear to be considerably more than this.

What, then, are the implications for the rational choice model of corruption as a theoretical frame? This turn of thought it represents is not “wrong”, per se. Corruption has always involved the transfer of material resources between groups and individuals, and much of this can be captured under a rational actor model, especially in the context of the immense wealth and income creation in modern cities. But city administration and civil society in particular have always also consisted of dense networks of social connections deeply intertwined with economic production, distribution, and consumption, typically evolving rapidly over time. On the methodological side, “rational” corruption does fit some—perhaps many—instances of urban corruption, but certainly not all. Private material gain at public expense, with its corrosive economic and social effects at times, is a unifying baseline element underlying most corruption to be sure.

But the dynamics behind this process can be said to vary by context. In understanding the phenomenon, one might consider corruption being encompassed in a number of “spheres”, with current models explaining a subset, particularly those where agent behavior overlaps with being rational, maximizing, and atomistic. Other instances might fit rational agent models but less tightly (e.g., rational and atomistic but not maximizing). Meanwhile, still others might fall outside of these spheres (i.e., be non-rational, non-maximizing, and non-atomistic). Figure 4 lays out the possibilities, and note that the areas are not drawn to scale but are merely indicative.

“Rational” corruption models are best suited to corruption dynamics that are actually predominantly rational, maximizing, and atomistic in nature—the area marked R/M/A: full rational actor. This is the archetypal theoretical case of “Homo Economicus”, which, of course, does not exist in reality. But clearly some corrupt agents and corrupt actions are very closely approximated by this model. Indeed, much low-level agent corruption, such as bribes of local officials, are individual, calculated acts designed to bring in as much rent for the parties as is deemed possible (keeping in mind that with murky information, these calculations may nonetheless be suboptimal). Somewhat provocatively, that area is drawn here as being relatively small. How big that area is, in fact, is a matter of empirical analysis. Modern corruption models implicitly assume a very large area, perhaps almost all-encompassing. But much depends on the situation at hand, i.e., the type of governance, the nature of the city involved, the dominant cultural norms, and, especially, the way in which social reciprocity is handled.

Rational choice theory nonetheless is still likely adequate for many non-maximizing and non-rational cases of atomistic corruption as well. Behavioral economics offers a ready template for the two areas marked “R/M” and “R/A”, both subtitled as “Rational behavioral actor (Bounded rationality)”. Here, the numerous examples can be put of decision-making anomalies, such as the Tullock paradox, that often inhabit the municipal corruption space. One could argue that corruption is calculating which is nonetheless limited because it is often performed in secret and under various sorts of pressure, and certainly not in an open and competitive market environment. Many corrupt agents may have particularly distorted preferences and perceptions at play. (As an aside, the areas which remain that are solely rational, maximizing, or atomistic agents exist theoretically, but likely have little applicability in the real-world since they are so one-dimensional.)

The area “M/A” marked “Behavioral actor (habitual)” might in some cases be covered by behavioral economics where instinctual “fast thinking” biases and cognitions may predominate, and people are acting out of habit rather than rationality. However, here one is shading also into areas where the rational choice model, even in its behavioral form, is most likely inadequate in considering corruption. Not pictured here are the potential circles of “non-rational” and “non-maximising”. The “non-atomistic”, i.e., social, realm is the area where social norms, “informal” relations, and collective action are predominant. And these are likely to be especially operative in cities at various times. The phrase “culture of corruption” points to a social element underlying corruption that is well known and yet brushed over—or ignored—by rational actor models. Defining what constitutes a “corrupt” act varies considerably across cultures, between nations, and sometimes even within them (e.g., nepotism). Indeed, corruption may be an example of the cultural transmission of beliefs, knowledge, and ideas, and, as noted, not always “negative” in its impact. That is, corruption may represent a social nexus that is co-created by agents and the social networks and relations they operate in. Unlike rational agent models, where the nature of the agent remains fixed across transactions, corruption may transform the agent themselves, in other words, “corrupts” them.

Interestingly “morality” and “ethics”, which are at least in part inherently socio-cultural, are re-introduced when considerations of culture are considered—elements that tend to be implicitly dropped in rational actor models, where the only thing that matters for agents is the personal maximization of material gains, whether that is achieved singly or by groups of people, and for societies, the maximization of material efficiency. Norms are not completely absent from modern theory; for example, there are models that incorporate preexisting standards such as favoritism or nepotism, to see what corruption incentives these lead to and how they affect the ultimate outcomes and efficiency gains and losses [81]. But these formulations do not incorporate where these norms came from in the first place and see them as deviations from “homo economicus”, much as behavioral economics sees cognitive biases and heuristics as deviations from the same. In other words, norms are seen as anomalies without any particularly useful purpose or meaning except as they affect the overall material outcomes.

What is interesting in the examples considered thus far is that modern norms, standards, procedures, and institutions defined the boundaries between corrupt and non-corrupt behavior more clearly, yet did not seem to arrest the phenomenon, instead merely changing its operations and methods. Current policy solutions proposed for corruption will not always be applicable depending upon their mode and motivation. Modern influence buying is, for example, arguably, unconstrained by transparency or formal accountability mechanisms. And corruption in many cases not only serves an economic function in some places and at some times but appears to be part and parcel of the modern urban and global economy, although not always named as such. To paraphrase the Gospel saying about the poor, “the corrupt will always be with us”, because social reciprocity will always be part and parcel of human relations. The forms and functions change, which is not to say that corruption does not have costs and cannot be reduced. It is just that there is no “magic bullet” along “rational” lines as current theory and policy suggests.