Crony Capitalism : a conceptual analysis of its academic use, leading to a new definition and a roadmap for further research

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Crony Capitalism

A conceptual analysis of its academic use, leading to a new definition

and a roadmap for further research

Master thesis Political Science Track: Political Economy

Emma van Veenen 10645993 29 June 2018

Supervisor: Dr. Farid Boussaid Second reader: Dr. Paul Raekstad

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Abstract

Crony capitalism is used in the academic literature to explain two major events of the last three decades: the Asian financial crisis of 1997 and the Arab uprising of 2011. This while there is almost no theoretical foundation of the concept. Hence, it is not clear what the research on crony capitalism actually is investigating. This thesis offers a start for solving this problem by answering the question: What is crony capitalism and how can it be properly researched? The method that is employed to answer this question is conceptual analysis. First, the academic use of crony capitalism is analyzed. Second, the theory of Aligica and Tarko (2012, 2014), the first who offer a theory of crony capitalism, is tested and found to be inadequate to describe the academic use of crony capitalism. Lastly, a new definition of crony capitalism and a roadmap for further research are proposed.

Keywords: Crony capitalism, Corruption, Rent-seeking, Conceptual Analysis, the

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Introduction

Two events that took place in the last thirty years are nowadays explained as being caused by the same phenomenon: crony capitalism. The first event is the Asian financial crisis of 1997. Crony capitalism was probably coined during this financial crisis. The second event is the Arab uprising of 2011. An influential explanation for the uprising is that the social unrest that led to the protests was caused by crony capitalism. Furthermore, the concept is not only applied to developing regions such as Asia, the Middle East and North Africa (MENA), but also to the developed world. So, it is a phenomenon that is observed globally.

In the academic literature, crony capitalism is often incorporated in a way that cannot really be indistinguishable from other concepts such as corruption, rent-seeking and favoritism. So, on the one hand the concept of crony capitalism seems to describe a quite new phenomenon like the Arab uprising. On the other hand, academics like Mushtaq Khan (1996, 2006, 2017) seem to research almost the same process while adopting a different concept. Consequently, what crony capitalism is, and which concepts are closely related to crony capitalism, or even if crony capitalism is the same as one of these related concepts, it not clear.

Paul Aligica and Vlad Tarko (2012, 2014) are the first to offer a more comprehensive theoretical account of crony capitalism (others are: Rubin 2016 and Enderwick 2005). Their theory states that crony capitalism is a type of rent-seeking society with as distinguishing feature that crony capitalism is legitimized by populist politics. This theory is incorporated as a starting point for further theorizing on crony capitalism.

Problematic for the research on crony capitalism is that most academics do not define crony capitalism in a clear and comprehensively formulated way. Some do not define it at all, while they do mention crony capitalism in their title or as keyword (Marks 2009, Oubenal 2016, Chong et al. 2006, Ha and Lee 2007 and more). Academics who do offer a definition do that in two ways. Firstly, there is a group which uses extremely broad formulation such as: ‘the granting of economic favors to friends and privileged associates’ (Khatri et al. 2003: 1). While the other group defines it specifically for one country, such as Joya (2011): ‘In the case of Egypt, crony capitalism refers to a coalition of new ruling elite that was constituted of former state bureaucrats and rent-seeking urban and rural elites who benefited from a process of free market reforms due to their privileged access to political networks of power within the state.' (Joya 2011: 382: n1).

Hence, the problem that is addressed in this thesis is that the concept of crony capitalism is used to explain two significant events, the Asian financial crisis of 1997 and the

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6 Arab uprising in 2011. The academic literature, however, does not offer a comprehensive theory or definition of the concept of crony capitalism. To develop a theory of crony capitalism is important because the academic community, governments and organizations dealing with a crony capitalistic environment need to know what it is, what the consequences are, and what makes it different in various places around the world. This can only be answered if the theoretical foundations of crony capitalism are clear. In other words, trying to define the concept of crony capitalism and develop a roadmap for research is worthwhile because crony capitalism can offer an explanation of such life changing events.

The research question that is answered in this thesis is: What is crony capitalism and how can crony capitalism properly be researched? The sub-questions that are included are: Firstly, what is the history of the term crony capitalism? Secondly, what are the concepts that are strongly related to crony capitalism? Thirdly, how is crony capitalism used in academic research? Fourthly, is the definition deduced from the theory of Aligica and Tarko (2012, 2014) adequate enough to describe the academic use of crony capitalism? And lastly, what considerations should one keep in mind when researching crony capitalism? Hence, the goal of this thesis is to offer a small contribution and a start of the development of a comprehensive theory of crony capitalism.

As case literature regarding crony capitalism in Asia and the MENA region is chosen because the two events and thus the two major possible contributions of the label crony capitalism are located here. Literature on crony capitalism in other parts of the world is also included because the available theory on, definitions of, and research on crony capitalism is seriously limited. In other words, it is necessary to include more literature because it is otherwise impossible to offer a comprehensive view of the academic use of crony capitalism.

The method that will be employed to answer the research question is a conceptual analysis and content analysis. In other words, a content analysis of concepts in academic text. In this analysis both the concept crony capitalism and cronyism will be investigated because both concepts are used interchangeably by many academics.

Before the content analysis is conducted in chapter 3, chapter 1 elaborates on the used theory and methods. Chapter 2 provides some theoretical and historical background of crony capitalism and two important related concepts: rent-seeking and corruption. In chapter 4 a definition of crony capitalism is derived from the work of Aligica and Tarko (2012, 2014) and this is subsequently used to test the adequacy of their theory. Chapter 5 introduces a new definition of crony capitalism and reviews patrimonial capitals as an alternative label. In the

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7 last chapter, a roadmap for further research is proposed. The first step is directly set by developing two region-specific conceptualizations of crony capitalism.

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1. Theory and Method

In order to answer the main question of this thesis, it is necessary to clearly define the theoretical framework and the methods used to come to a tuned definition of crony capitalism and a roadmap for further research. To achieve that, paragraph 1.1 introduces the theoretical foundation of this thesis. Subsequently paragraph 1.2 presents the methodology and source selections. The methodology is defined as the justification of the kind of methods that are employed in this thesis. Paragraph 1.3 elaborates on the application of the methods and source selection in the analyses performed in chapters 3 and 4.

1.1 Theoretical framework

Firstly, the foundational theory for this thesis is introduced. Secondly the manner in which the theory of Aligica and Tarko (2012, 2014) is used, is discussed. Thirdly a definition of ‘Definition’ and the definition of Asia and the MENA region are given. It is important to note from the start that the theoretical framework of this thesis is brief because this is a research project in search of theory. The ideas of the philosophical theory of constructivism are therefore the base of all the research executed in this thesis.

So, the theoretical foundation of this thesis is the theory of constructivism. According to constructivism, what something is, is determined through their usage (Fierke 2016). In other words, the meaning of a term is the use of a term. Hence, a definition of crony capitalism can be constructed through researching the different uses of crony capitalism and the relation with associated concepts, such as corruption. The different uses – conceptions – of crony capitalism can be abstracted until there is/are common characteristic(s) found that describe the constructed term of crony capitalism.12

Secondly, the theory of Aligica and Tarko (2014) is used as a theoretical framework in a part of this thesis. Aligica and Tarko are the first academics that offer a comprehensive theory on crony capitalism. Therefore, the theory of Aligica and Tarko is the starting point for

1_{For conception-concept distinction see Olsthoorn 2017. The interpretation of conceptual analysis in this thesis}

is not precisely how Olsthoorn uses it. This thesis employs mainly an analysis of conceptions, when explained in the words of Olsthoorn. Dow (2014: 68) explains that there are more than one conceptions of a concept. This is not necessarily harmful for the analytical clarity of those concepts. Academics just need to specify with conception they adhere to. This is exactly the problem with the research on crony capitalism.

2_{Douglas Dow states why language is an important research object in the social sciences: ‘Politics takes place}

within the medium of language. Language is both a necessary condition for political life and a key subject of politics itself. Through language, we set the terms by which political action is understood and judged. The ability to both describe and evaluate political behaviors, institutions and practices is dependent upon our store of conceptual terms, most of which we inherit form others rather than create anew.’ (Dow 2014: 65) This thesis incorporates his ideas and applies them to the academic use of language.

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9 the further theorization of crony capitalism. In this thesis the theory of Aligica and Tarko is not only incorporated as guideline for the research on crony capitalism, also the adequacy of their theory to describe the academic use of crony capitalism, is tested (chapter 4). In other words, the theory is used as a guideline for the investigation of crony capitalism in chapters 2 and 3.3 After the second and third chapter the theory of Aligica and Tarko (2012, 2014) will itself become the object of research in chapter 4.

Thirdly, since one of the aims of this thesis is to define a concept it needs to be determined what a definition is. This thesis employs the work of Davidson (1885) as its framework for the idea of Definition:

It is the object of Definition to determine the nature or meaning or significance of a thing (taking “thing” in its widest application, i.e., as including not only outward material objects, but also names, notions, &c.): in other words, definition is the formal attempt to answer the question, “What is it?”’ (Davidson 1885: 32)

This corresponds to the first object of conceptual analysis as proposed by Olsthoorn. This thesis asks the question: ‘What is it?’ for the concept of crony capitalism and offers two definitions of the concept. The first definition is deduced from the theory of Aligica and Tarko (2012, 2014) in chapter 4. The second definition is the new definition of crony capitalism, developed in chapter 5.1. Both definitions are formulated in the form of necessary conditions. Necessary conditions are defined here as: one or more provisions that have to be met before a ‘thing’ is considered ‘true’. For example, 𝐴 = 𝐵 + 𝐶 , both B and C are necessary to make A ‘true’. The definition of Aligica and Tarko (2012, 2014) is also formulated in the form of sufficient conditions. That are requirements for a ‘thing’ that need to be fulfilled to make the ‘thing’ ‘true’, but by themselves they are not enough to make the ‘thing’ ‘true’. For example, 𝐴 = 𝐵 + 𝐶(= 𝐷 𝑎𝑛𝑑/𝑜𝑟 𝐸) , then the existence of 𝐷 is not necessary for the existence of 𝐴. It is, however, sufficient for the existence of 𝐴.4

However, it is important, as both Johan Olsthoorn and Douglas Dow note (Olsthoorn 2017: 158, Dow 2014: 68) to understand that a definition is not something that can be forced upon academics. The new definition of crony capitalism (chapter 5) is determined by

3_{The ideas of Aligica and Tarko (2014) on the role of crony capitalism in developed and developing countries}

are adopted in this thesis.

4_{These definitions of necessary and sufficient conditions are both a simplification and a not ‘classic’}

interpretation of the philosophical concepts of necessary and sufficient conditions. More information on the philosophical concepts of the necessary and sufficient conditions can be found in Brennan (2017).

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10 analyzing the academic use of crony capitalism and philosophical reasoning.5 The criteria of Dow and Olsthoorn are met by the inclusion of the academic use of crony capitalism (chapter 3) into the new definition.

Lastly, the MENA region will be defined as the Middle East and North Africa, including Iran, Turkey and Sudan, excluding Pakistan and Israel. For Asia the broadest definition will be used, so Asia will include (among others) Pakistan, Afghanistan and China but exclude Iran, Iraq and Israel.6

1.2 Methodology and source selection

As stated in the introduction, this thesis is conducted through a combination of methods employing conceptual analysis, (thematic) content analysis, and text interpretation to analyze the use, meaning, and change of the concept of crony capitalism. This paragraph will offer an overview of the methodology used and the source selection.

1.2.1 Methodology

The first methodological approach introduced is conceptual analysis. Conceptual analysis is an analytical, politically theoretical method.7 Johan Olsthoorn distinguishes four kinds of conceptual analysis. These different forms are: ‘(1) finding a proper definition for a given concept [..]; (2) hunting for theoretically relevant conceptual distinctions [..]; (3) exploring conceptual connection between different concepts [..]; and (4) studying conceptual change’ (Olsthoorn 2017: 154). The first form corresponds to the main question of this thesis. To answer that question, the other three forms proposed by Olsthoorn are also used in this thesis. It is does offer research questions and considerations, but it does not specify what kinds of text analysis can be employed to answer these questions.

The second methodological approach, content analysis, solves this problem by offering a more concrete method of text analysis. It is employed in both qualitative and quantitative research. 8 Moreover, content analysis is an umbrella-term for different

5_{With philosophical reasoning is meant that if a term says ‘crony capitalism’ that than not only the ‘crony’-part}

has to be defined but also the ‘capitalism’-part. Because only if it is clear what capitalism is, it can become clear why crony capitalism is different than ‘normal’ capitalism.

6_{And the countries that are logically included in the other category, the MENA region, are excluded.}

7_{Conceptual analysis investigates concepts, according to Bulmer (1984:43) in Bryman (2012: 163) concepts are}

‘categories for the organization of ideas and observations’. Hence, it is not only a method used in Political Science but also in philosophy.

8_{More information on qualitative and quantitative research in relation with crony capitalism is found in chapter}

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11 approaches to analyze documents and texts (Bryman 2012: 289). There exist such a wide variety of approaches because there is not a strongly determined technique or method (Hsieh and Shannon 2005: 1277). This thesis combines two approaches to qualitative content analysis proposed by Hsieh and Shannon (2005): directed content analysis and summative content analysis (in chapters 3 and 4). The first approach, directed content analysis, adopts categories already found in earlier research. For this thesis, the categories found in the research of Aligica and Tarko (2012 and 2014). This is a deductive approach (Hsieh and Shannon 2005: 1281).

The second type of content analysis, summative content analysis, specifically focuses on the analysis of keywords. This is done through exploring the usage of certain selected terms (Hsieh and Shannon 2005: 1283-1284). The successive interpretation of the selected terms is called latent content analysis (Holsti 1969 in Hsieh and Shannon 2005: 1284).9_In other words, the methodology is a content analysis of concepts.1011

1.2.2 Sources

The sampling media for the content analysis are academic articles written in English. A database is set up containing 71 articles and books, and book chapters that research crony capitalism. The database includes a combination of theoretical and empirical work, of case studies and data-driven (more quantitative) research. Because of the case selection of this thesis most articles focus on the MENA region or Asia (21 on the MENA region, 20 on Asia). As mentioned earlier, there are also articles included that perform research on other regions than Asia or the MENA region. The requirements for the inclusion of these articles in the research are that their research methods and/or their application of crony capitalism offers interesting insights (29 articles).

9_{This approach is similar or, according to some the same as, thematic content analysis, such as employed by}

Kurth and Glasbergen (2017) and Semetko and Valkenburg (2000). Although the latter uses a more numerical interpretation method. Kurth and Glasbergen also investigate with a combination of inductive and deductive (thematic) content analysis. According to them this means that: ‘The former (inductive) requires an open mind set to discover patterns in the data, while the latter (deductive) involves a pre-set analytical framework and predefined themes that are sought in the data.’ (Kurth and Glasbergen 2017: 217)

10_{According to Bryman (2012) discourse analysis can be conducted in the same way (Bryman 2012: 528).}

However, the analysis conducted in this thesis is not a discourse analysis because all types of discourse analysis (Dow 2014) are focused on the role of power (relations). Although not used her, discourse analysis is an important and useful method for further research on crony capitalism. There are also similarities with the methodology of grounded theory. The main difference is that grounded theory applies a throughout inductive approach, while this thesis also used a deductive methodology.

11_{For background information and guidance in the interpretation of textual documents the chapter Interpreting}

Text by Andria Blau (2017) is adopted. To not forget to: ‘Read widely and carefully. Think contextually and philosophically. Embrace uncertainty. See both sides. Think against yourself. Question evidence and interpretations. Test. Retest. Be open. And be openminded.’ (Blau 2017: 264)

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12 The sampling date is determined by the publication date. Different databases were searched for articles regarding crony capitalism in the MENA region from before 2011 (the Arab uprising) and after 2011. The availability of literature regarding crony capitalism in the MENA region before 2011 was low. As a result almost all existing literature is included in this thesis. The literature from after 2011 was selected on the relevance because there is much more available.12 For Asia, the Arab uprising is not a relevant parameter, so literature was selected (starting from 1999) with the relevance, country (variable) and publication date (variable) as considerations. These parameters were chosen because there is no academic literature available of specific research on crony capitalism regarding the MENA region and Asia from before 1999. Fortunately, an article written by Khan and Formosa (2002) offers an archaeology of the term ‘crony’ (not the concept or the phenomenon). This presents a comprehensive picture of the development of the term ‘crony’ over time.13

The articles that form the database are acquired by searching in the following three databases: Google Scholar, the online library of the University of Amsterdam and Web of Science.14_{The search terms that were used are ‘crony capitalism’, ‘cronyism’ (also in} combination with each other and excluding each other) and for the regions ‘Asia’, the ‘Middle East’ and ‘MENA’ and the individual countries.

The limited number of articles available on crony capitalism in the MENA region from before 2011 could be interpreted as a problem for the reliability of this thesis. It is however the academic use of crony capitalism that is the object of research, not the phenomenon itself. It could be that the limited amount of available research conveys something about the academic use of crony capitalism, but it does not say anything about the presence of the phenomenon of crony capitalism.

1.3 Method

This method section will cover the precise way in which the content analysis is executed in this thesis. The results of the content analysis are found in chapters 3 and 4; the analysis of the academic use of crony capitalism and the evaluation of the definition deduced from the work of Aligica and Tarko.

12_{To what extent the articles researched crony capitalism.} 13_{For the grouping of articles and definitions, Excel is used.}

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1.3.1 Analysis of academic use of crony capitalism

The academic use of the concept of crony capitalism is investigated in chapter 3. The analysis is conducted through investigating the number of times ‘crony capitalism’ is mentioned in the titles, subtitles and keywords in selected articles. Subsequently, an analysis of both the definitions that academics give of crony capitalism and of the operationalization15 of crony capitalism, is given. The chapter ends with a word count analysis.

Firstly, thirty-two articles that investigate crony capitalism in Asia and the MENA region are analyzed (in chapter 3.1). The number of times that ‘crony capitalism’, ‘cronyism’, or ‘crony-‘ is used in the title, as keyword or in a subheading is counted. The goal of this analysis is to observe the difference in adaptation and application of crony capitalism in academic research. It also sheds light on the differences in the adaptation of the term in Asia and the MENA region.

Secondly, the definitions that academics give of crony capitalism are analyzed (in chapter 3.2). This is, among other things, done by evaluating which related concepts are used in the definitions of crony capitalism. This will give insight in what academics think crony capitalism is and determine which concepts are closely related to crony capitalism in academic research. The same articles are used as in the first analysis.1617 This means that not only the articles relating to Asia or the MENA region are included but also those relating to other regions, or those that do not research a specific region or county. This is because the amount of available literature for Asia and the MENA region is low, so including definitions from other regions can give interesting insights in the use of crony capitalism by academics.

Thirdly, the conceptualizations and operationalizations of crony capitalism are analyzed to offer an idea of the adaptation of crony capitalism in more quantitative research. As in section 3.2, in this section (3.3) literature regarding Asia, the MENA region and other regions is analyzed.

15_{A definition of operationalization is offered in chapter 6.4.}

16_{The related concepts are: ‘state-business’/’patron-client’, ‘corruption’/’bribes’, ‘elite/class’, ‘rent-seeking’,}

‘clientelism’/favoritism’ and ‘family’.

17_{Nepotism is not adopted in the analyses because, firstly, it shows in meaning a lot of similarities with}

favoritism and clientelism. Secondly, a first inquiry showed that nepotism is never mentioned in literature regarding crony capitalism in the MENA region. Khatri et al. (2006: 63) conclude that nepotism is a specific type of cronyism. This can be interesting for further research, but because of the scope of this thesis, other more mentioned related concepts were included.

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14 Finally, to analyze conceptual change before and after the Arab uprising a word count is conducted (in chapter 3.4).18 Two groups of articles are investigated. The first group contains four articles that research crony capitalism in the MENA region before 2011. The second group contains four articles that research crony capitalism in the MENA region after 2011. The availability of articles from before 2011 is extremely low, therefore only four articles are included in this word count analysis. Moreover, only for articles from after 2011 are included, this to create an equal word count.19 Furthermore, in selecting these articles different publication years are taken into account, as some variation in empirical, data-driven and theoretical research.20 The word count application of Atlas.ti 8 creates Excel-files as output, and these are analyzed.21 For compound words, such as crony capitalism, rent-seeking, patrimonial capitalism, patron-client and government-business, an extra search in all pdf-files is conducted to check if all compound words are included in the word count.22

1.3.2 Evaluation of the theory of Aligica and Tarko

The definition deduced from the work of Aligica and Tarko (2012, 2014) in chapter 4.1 is analyzed in chapter 4.2. This analysis is conducted by investigating the key concepts23 that can be identified in the articles about the MENA region and Asia and in the work of Aligica and Tarko. The analysis is broader than only the ‘definition’-part of the articles. So, the whole article is searched to determine the frequency of the key concepts. This will determine if academics relate the same concepts to crony capitalism as Aligica and Tarko. With the inclusion of whole articles, the ‘general’ relations that academics observe are determined, since most academics are not consistent in their explicit definitions of crony capitalism.

18_{Here conceptual change is interpreted as a change in the use of crony capitalism and related concepts. If the}

meaning (the phenomenon that it describes) of crony capitalism differs before and after the Arab uprising this cannot be concluded from this analysis.

19_{The dataset contains in total: 46237 words for the MENA region before 2011 and 51467 words for the MENA}

region after 2011

20_{The final selection in appendix table A1.}

21_{The terms that are taken into account are: class, clientelism, crony capitalism, corruption, elite, family,}

favoritism, patronage, patrimonial and rent-seeking. Also, terms that have a form of ‘crony’- are included. This led to the ‘varieties of crony’ in figure 1.

22_{For more information on word count as a scientific method see Bryman (2012:295-296).}

23_{Key concepts, concepts that are derived from the work of Aligica and Tarko (2012 and 2014) as being part of}

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1.4 Conclusion

Chapter 1 has introduced constructivism as foundational theory and has subsequently defined Asia and the MENA region. The definition of the idea Definition is also determined. Conceptual analysis and content analysis were introduced as the methodology, together with the justification of the source selection. Subsequently, the method section elaborated on the precise employments of these methods in the analyses conducted in chapters 3 and 4 of this thesis.

In short, first the academic use of crony capitalism will be analyzed through ‘themes’ found during the literature review, during the research itself and those from Aligica and Tarko (2012, 2014). Next, the academic use of crony capitalism will be examined using these keywords. The definition derived from Aligica and Tarko will be subsequently tested by analyzing their ‘themes’ separately. Lastly, the result for the earlier analyses will be used to develop a refined definition of crony capitalism

Now the theoretical and methodological framework is determined, the next chapter elaborates on the history of the term ‘crony’ and introduces a part of the theory of Aligica and Tarko (2012, 2014).

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2. First definitions of crony capitalism

As mentioned earlier in the introduction, the exact meaning of crony capitalism is unclear. Hence, before starting with the analysis of the academic use of crony capitalism some background information on the term (and concept) is offered. To do this, the first paragraph elaborates about the historical use and definition of the term crony capitalism and answers the question: What is the history of crony capitalism? Paragraph 2.2 discusses the difference and similarities between crony capitalism and cronyism. The last paragraph offers a short literature review on the two concepts that are strongest related to crony capitalism; rent-seeking and corruption and their observed relation with crony capitalism.

2.1 Original definition Crony Capitalism

Crony capitalism is a relatively new term, so new that it is not yet included in the Oxford Dictionary. This dictionary does, however, offer a definition of cronyism, according to which cronyism is a) ‘friendship; the ability or desire to make friends’ or b) ‘the appointment of friends to government posts without proper regard to their qualifications’.24_{The first} definition originated from 1840 (Oxford Dictionary) and the second definition was coined in 1950. The definition of the separate word ‘crony’ confirms the first definition of cronyism. It is defined as an intimate friend or associate, or a ‘chum’ (Oxford Dictionary).25_{These are} older definitions, originating from 1665 and 1864.

This absence of a definition of crony capitalism in the Oxford Dictionary strengthens the idea that the term crony capitalism is relatively new. Moreover, it also shows that the systematic, political and economic meaning of cronyism originates from the 1950’s-1960’s. That ‘crony’ also means ‘friend’ indicates a probable characteristic of crony capitalism; relations between people, being it family, friends, business men, colleagues or another human type of interaction.

The Cambridge Dictionary that does offer a definition of crony capitalism emphasizes this social feature of crony capitalism. Defining crony capitalism as: ‘an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc.’ (Cambridge Dictionary).26_{This definition}

24_{Definition cronyism Oxford Dictionary:}

http://www.oed.com/view/Entry/48886?redirectedFrom=definition#eid entry on 18 June 2018.

25_{Definition Crony Oxford Dictionary: http://www.oed.com/view/Entry/48886?redirectedFrom=definition#eid}

entry on 18 June 2018.

26_{Definition crony capitalism Cambridge Dictionary:}

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17 highlights another important feature of crony capitalism, namely that it is a (political and) economic system.

As its inclusion in the Oxford Dictionary indicates, the word ‘crony’ has a long history dating back to the 17th century. From the 1670’s it was used as ‘slang’ on Cambridge University, where it meant ‘a long time and intimate friend or companion’. In the 20th century it acquired an opposite connotation, probably from being associated with negative consequences from inappropriate personal relations between political actors, political figures and business men (Khan and Formosa 2002: 51-52). Arthur Krock, a journalist, first publicly used ‘crony’ with this modern negative association whilst criticizing the Truman administration in the 1940s. According to Khan and Formosa (2002) the real adaptation of the word in the developing world also dates back to the 1940s. The government of the Philippines was the first that was associated with a form of ‘crony’ capitalism in 1946. After that the term ‘crony’ is used in multiple forms, such as cronyism and crony capitalism. It was used to voice criticism on government, politicians, businessmen and the relationships between these different actors. From the 1980’s onwards the term was even more frequently used in popular media and academic work (Khan and Formosa 2002: 52). The frequency of crony capitalism sky-rocketed after the Asian financial crisis of 1997 and the subsequent adaption of the term in research on both the developed and the developing world.27

2.2 Crony capitalism and Cronyism

Paragraph 2.1 discussed that the term cronyism is older than the term crony capitalism. This would imply a difference between the two terms. However, a possible historical difference of meaning is currently irrelevant since academics use the two terms interchangeable. According to Aligica and Tarko (2014) there has been a ‘conceptual transition from an approach to cronyism as an interpersonal and cultural social phenomenon to cronyism as a structural and systemic feature: crony capitalism’ (Aligica and Tarko 2014: 159). So, it started as cronyism and described a relation between people restricted and formed through cultural and social rules. This, over time, changed into a more organized economic system: crony capitalism. Although both terms are used interchangeable in most academic research, this thesis is mainly interested in crony capitalism. Meaning, the systemic and structural economic system that emerged out of cronyism (see 2.1).

27_{A search in Google Scholar gives 35.700 hits for ‘crony capitalism’, 36.900 for ‘cronyism’ and 37.000 for}

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18 Aligica and Tarko (2014) distinguish three types of cronyism in the relevant literature:28 cronyism as a social relation, as a system and as a systemic trend. The first relates to benefits that can be attained with certain type of relations, like family ties or personal connections (Aligica and Tarko 2014: 158). According to Aligica and Tarko ‘the connection between this concept and the economic system is only indirect, via culture, as crony hiring and promotion decisions may be more prevalent in some countries and cultures than others’ (ibid.). However, this type of cronyism is a mechanism that relates to rent-seeking.

The second type is cronyism as a system. According to some academics, crony capitalism describes a political-economic system in (some) developing countries (Aligica and Tarko 2014: 159). Interestingly Aligica and Tarko do not mention the MENA region as being one of those regions. This is one of the reasons that it is interesting to apply the theory of Aligica and Tarko (2012, 2014) to the MENA region. They do mention South-East Asia as one of the regions that have crony capitalism as their political economic system. For this ‘system’ type of crony capitalism they introduce Haber (2002) as their main source. He wrote a book about crony capitalism in Latin-America. Both agree that the system type of crony capitalism is a political economic system that is fundamentally based on rent-seeking.

The last type is cronyism as systematic trend. Aligica and Tarko try to describe a change they observe in western nations towards a political economic system in which companies are looking for political connections to influence regulations. The idea is that because the markets in western countries have become more and more regulated by the state, this has created (as a side effect) a closer relation between the state and the affected market actors. This seems to be a reciprocal relation (Aligica and Tarko 2014: 160).

2.3 Related concepts: Rent-seeking and Corruption

In the existing literature, the concepts of rent-seeking and corruption are perceived as being strongly related to crony capitalism. Moreover, crony capitalism is a type of rent-seeking or corruption, according to some academics. Hence, it is important to understand what these concepts are and how the relationship between these concepts and crony capitalism is observed. The short literature review conducted in this paragraph will analyze if rent-seeking and corruption should be included in the examination of the academic use of crony capitalism in chapter 3.

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2.3.1 Rent-seeking

Aligica and Tarko (2014) argue that crony capitalism is actually nothing more than a type of rent-seeking society (Aligica and Tarko 2014: 157). Rent-seeking is a process in which ‘the general idea is that, although policy may be inefficient from the point of view of general welfare [..] it may also provide increased and preferential profits to certain interest groups’ (idem: 161). So, rent-seeking creates a gain for some and a loss for others. The most defining characteristics of rent-seeking are:

The inefficient policy limits the competition for the privileged group and creates a “rent” defined as “that part of the payment to an owner of resources over and above that which those resources could command in any alternative use [..] an allocatively unnecessary payment not required to attract resources to the particular employment” (Buchanan 1980:3 in Aligica and Tarko 2014: 161).

A problem with rent-seeking activities is that they also have costs if the rent-seeking actor is not successful because firms will spend money trying to acquire rents (Aligica and Tarko 2014: 162).

Crony capitalism is different from other types of rent-seeking societies because it is legitimized by a populist ideology, according to Aligica and Tarko (2014). Other types of rent-seeking societies are, classical mercantilism, real life socialism and state capitalism.29 Chekir and Diwan (2012) also observe a relation between crony capitalism and rent-seeking: ‘Tight state-business relations can [emphasis mine] also become sources of undue influence, corruption and other forms of rent-seeking that distort economic and political incentives.’ (Chekir and Diwan 2012: 4) According to Chekir and Diwan rent-seeking is therefore not a necessary effect of tight relations between state officials and business actors. However, they do investigate state-business relations as a proxy of forms of rent-seeking. Although Chekir and Diwan do not define crony capitalism it can be assumed that they agree with Aligica and Tarko that rent-seeking is the most important characteristic of crony capitalism.

Joya (2011) also relates crony capitalism to rent-seeking: ‘In the case of Egypt, crony capitalism refers to a coalition of a new ruling elite that was constituted of former state bureaucrats and rent-seeking urban and rural elites who benefited from a process of free market reforms due to their privileged access to political networks within the state.’ (Joya

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20 2011: 381-382: n1) In comparison with Chekir and Diwan, Joya puts less emphasis on the rent-seeking concept as constitutional for the concept of crony capitalism. However the way in which he incorporates the concept suggests that he perceives a relation between the two concepts.

2.3.2 Corruption

The distinction between developed and developing nations can be formulated through different types of corruption. In developing countries corruption is venal, which means that actors are open and willing to sell their influence and are thus open for (illegal) bribery (Aligica and Tarko 2014). In developed countries there is systemic corruption which means ‘the deliberate creation of regulatory policies by political elites pursuing rent-seeking revenues’ (Aligica and Tarko 2014: 165). This citation discloses two things: first, systemic corruption is mostly in legal boundaries; and second, that according Aligica and Tarko corruption is a type of rent-seeking activity. It is unclear how they perceive the relation between corruption and crony capitalism. Because if corruption is a type of rent-seeking activity, does this mean that corruption is a type of crony capitalism? This observation shows that it is hard do make clear distinctions and formulations even for academics who are specifically theorizing crony capitalism.

In contrast, according to Khatri et al. (2006: 63) cronyism differs from corruption.30 They define cronyism as ‘a subset of corruption found in social networks characterized by complex, indirect, and mutually reinforcing social exchanges’ (ibid.). This suggests that their statement that cronyism and corruption are something different, is weaker than first formulated. In Khatri et al. (2016) they do identify a bigger difference between cronyism and corruption: ‘cronyistic exchanges, more often than not, are based on trust, loyalty, and longstanding friendship’ (Khatri et al. 2006: 4). However, this can still be regarded as a type of corruption.31

Ip (2008) observes that crony capitalism hinders corporate social responsibility (CSR) because when actors use their personal relations for their own gain this leads to corruption and rent-seeking. Consequently, both processes compromise the fairness and honesty of the political economic system (Ip 2008: 173). Hence, for Ip corruption is an important feature of a crony capitalistic system. According to Sharafutdinova (2007): ‘When corruption is so

30_{Khatri et al. (2006) further argue that nepotism and guanxi also are different from crony capitalism.} 31_{This again shows the ambiguity in the use of terms and concepts in academic research.}

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21 widespread as to become systemic – as in crony capitalist systems – it is even more likely to become an often-used political tool because of the availability of an ample material.’ (Sharafutdinova 2007: 366) As visible here, Sharafutdinova analyzes corruption both as a symptom of crony capitalism and as an independent concept.

Similarly, to the concept of rent-seeking, corruption is also differently adopted, applied, and connected to other concepts. It is concluded that corruption is an important related concept for crony capitalism.32 Both rent-seeking and corruption are concepts that are hard to define. In contrast with crony capitalism, these concepts are widely discussed and researched. The main difference between the two concepts is that rent-seeking always has a profit objective that is expressed in monetary value, whereas corruption has the connotation of being on a smaller scale and also more related to power relations. Furthermore, corruption is more dependent on personal relations than rent-seeking. It is concluded that both concepts are important for the analysis of crony capitalism. Therefore, both are included in the further investigation in the academic use of crony capitalism in chapter 3 and 4.

2.4 Conclusion

This chapter shows that the meaning of the term ‘crony’ changed around 1950’s-1960’s. At this time the definition of crony changed from being ‘friend’ to being more associates with a systematic political economic process. Paragraph 2.2 elaborated on the differences and similarities of crony capitalism and cronyism and concludes that most academics do not apply it differently. For analytical clarity, mainly the term crony capitalism is used in this thesis.3334 The last paragraph offered a literature review of the concept of rent-seeking and corruption. It is concluded that both concepts are important for the definition of crony capitalism, so they are included in the analyses conducted in chapter 3 and 4.

32_{For an analysis of the concept of corruption see Euben (1989).}

33_{Except if an academic specifically uses cronyism in her or his definition.}

34_{An other reason for mainly using crony capitalism as term is because the term ‘capitalism’ implies a different}

kind of process than cronyism. It is also the definition of crony capitalism that is determined in this thesis, not the definition of cronyism. For analytical and empirical clarity, further research into the exact differences and similarities of crony capitalism and cronyism should be conducted. Unfortunately, this is not in the scope of this thesis.

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22

3. The academic use of crony capitalism

Chapter 3 tries to answer the question: How is the concept of crony capitalism used in academic research? This analysis specially focuses on the academic use of crony capitalism in research regarding Asia and the MENA region because, as mentioned earlier, the two major events for which crony capitalism is used as explanation are located here. It is, furthermore, important to analyze the use of crony capitalism in those regions because this analysis is incorporated in the development of a regionally specific conceptualization of crony capitalism in chapter 6. Research on other regions is also included in this chapter because the availability of research on Asia and the MENA region is limited.

The analysis of the use of crony capitalism consists of four sub-analyses. The first, in paragraph 3.1, investigates the incorporation of crony capitalism in titles, as keyword, and in subheadings. Paragraph 3.2 examines the definitions of crony capitalism that academics offer in their research. The third sub-analysis (3.3) investigates the conceptualizations and operationalizations35 of crony capitalism given in existing research. The last paragraph (3.4) analyzes crony capitalism and closely related concepts through a word count of those concepts in research on crony capitalism in the MENA region. The combination of these different inquiries will offer a reliable idea of the use of crony capitalism in academic research, specifically research regarding Asia and the MENA region.

3.1 Use of crony capitalism in titles, subheadings and keywords

Table 1 shows the results of the analysis of titles, subheadings and keywords, of the frequency of ‘crony capitalism’. Of the seventeen articles analyzed for the use of crony capitalism in Asia, fifteen included crony capitalism in the title. This is 88% of the examined articles. This is exceptionally high when compared with the articles with crony capitalism in the title for the MENA region, here the results show that only five out of fifteen (33.3%) articles have crony capitalism in the title, as subheading, or as keyword. The difference between the number of times that crony capitalism is a keyword does differentiate a little bit. In both regions crony capitalism is much used as keyword compared with the other categories (six out of seventeen and three out of fifteen). It can be concluded that not all academics who incorporate crony capitalism in their title also adopt it as keyword.

The last category is that of the subheadings. In the Asian focused literature, in eleven out of seventeen articles, crony capitalism is included in one or more of the subheadings. This

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23 result could be expected since fifteen article titles included crony capitalism. For the MENA-focused literature six out of fifteen articles had one or more subheadings including crony capitalism (or another variant of ‘crony-‘).

Table 1: Number of titles, keywords and subheadings including 'crony', 'crony capitalism' and/or

'cronyism'

Note: For Asia seventeen and for the MENA region fifteen articles where examined. For selected articles see appendix table A1. Articles that had multiple subheading including ‘crony’- were counted as one. Title also includes the subtitle.

Noteworthy, is that there were only five titles including crony capitalism. This means that there is a considerable difference between the number of times that crony capitalism is mentioned in the titles and subheadings of the literature that is focused on crony capitalism in Asia and that what is focused on the MENA region. This observation cannot directly be translated into a conclusion. It does point to differences in the usage of crony capitalism in Asia and the MENA region. An explanation for this could be the following. The Asian financial crisis took place ten years earlier than the Arab uprising. A result from this time difference is probably that the term crony capitalism is better integrated in the research vocabulary in Asia. This is hence a possible explanation for the differences in outcomes between Asia and the MENA region.36

3.2 Definitions of crony capitalism in academic work

One of the major issues in the academic research on crony capitalism is that academics do not define crony capitalism comprehensively. Some do not define crony capitalism at all, while others do use, name, and research it, but do not offer a separate definition. A last group of academics does offer a more extensive definition. Hence, the questions arises: What kind of definition? How is it formulated and employed? In this paragraph the definitions that

36_{However, when searching in Google Scholar to ‘crony capitalism Asia’ and ‘crony capitalism Middle East’ the}

number of hits has a difference of thousand. (23.500 for Middle East and 24.300 for Asia – 25 May 2018).

Asia (17) MENA (15)

Title 15 5

Keyword 6 3

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24 academics have employed in both theoretical and empirical articles are examined, to answer this question.37 First, the definitions of research done of Asia will be analyzed. Second, the definitions from MENA are analyzed. The last part of this paragraph discusses interesting definitions not directly related to the MENA region or Asia.

Table 2: Count of key concepts in definitions crony capitalism and cronyism

Asia (17) MENA (15) Other (22)

Clientelism/favoritism 4 0 7 Corruptions/bribes 3 0 2 Elite/class 0 5 1 Family 4 0 4 Rent-Seeking 1 1 1 State-business relations/patron-client relations 10 9 14 Not 0 2 0

Note: Multiple key concepts can apply to one definition. For Asia seventeen and for the MENA region fifteen articles where examined. The category ‘other’ includes 22 articles. Furthermore, ‘not’ means that none of the concepts were applied to the definition. For selected articles appendix table A1.

3.2.1 Definitions of crony capitalism in Asia & the MENA region

In analyzing the different definitions that academics give of crony capitalism and cronyism, one of the distinguishing features is if the article offers a clear separate definition of the concept.38 For the papers that focus on Asia, five out of the seventeen articles do not include a definition at all. They, however, do offer some description of what crony capitalism could entail. In these descriptions the most frequently used words are: ‘politicians’, ‘governance’, ‘firms’.39

Almost two-thirds of the articles includes in their definition of crony capitalism the concept of a ‘state-business relation’ and/or ‘patron-client relation’, as shown in table 2. Other less frequently returning concepts are ‘family’, ‘clientelism/favoritism’ and

37_{Also, articles who mention crony capitalism without using it separately in their research are included in the}

analysis.

38_{In some articles you can guess that what is described could be called crony capitalism but do the academics}

themselves do not make that connection. This kind of definitions are not included in this research.

39_{Chong et al. (2006), Ha and Lee (2007), Johnson and Mitton (2001), Mazumdar (2008) and Wong (2010) fall}

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25 ‘corruption/bribes’. From the four articles that in their definition speak of ‘family’, three are from before 2011. All three articles that mention ‘corruption/bribes’ in their definition are from before 2011. For ‘clientelism/favoritism’ there are two articles from after 2011 and two from before. It is possible that this points to the idea that before 2011 more and more diverse concepts were used to define the concept of crony capitalism then after the Arab uprising. However, because of the low number of articles on Asia, incorporated in this analysis, this specific research is not strong enough to draw conclusions. However, the observation is interesting enough to conclude that it can be an approach for future research in which more literature on crony capitalism in Asia is included.

When comparing the definitions of articles focusing on Asia and articles focusing on the MENA region several differences come to light. Firstly, from the fifteen articles that focus on the MENA region, seven have clear and separate definitions. That is less than 50% of the articles, which is a significantly low score. More specifically two articles do not include a definition or a description at all. This leads to the conclusion that in this dataset there are more definitions of crony capitalism in Asia than in the MENA region.

Furthermore, the most used concepts in the definitions of crony capitalism in the MENA region are ‘state-business/patron-client’ (9) and ‘elite/class’ (5). The latter is never included in the definitions of crony capitalism in Asia. This points to a more class-based understanding of crony capitalism in the MENA region.

Another interesting observation is that while the number of articles for both regions are almost the same the number of concepts that are incorporated in the definition varies. For Asia there are twenty-two concepts included in the definitions on seventeen articles and for the MENA region sixteen concepts. Again, this suggests that there are not only less definitions in literature relating the MENA region, but also that the definitions that are applied in research on the MENA region are less extensive. In contrast, there are more concepts incorporated in the definitions of crony capitalism in the academic literature on Asia. Furthermore, these definitions are also more diverse.

3.2.2 Other definitions

The articles that were used for the ‘other’ definitions include articles that analyze crony capitalism in an individual country that is not part of the MENA region or Asia. Including, for example, a articles about South-Africa, Mozambique, Bulgaria and Mexico. But also, articles with a wider scope, such as an article by Coco and Lagravinese (2014) who focus on OECD-countries. Seven theoretical articles are also included. The most incorporated concept in these

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26 theoretical articles is ‘clientelism/favoritism’ (5), while in the category ‘individual country case’-studies ‘state-business/patron-client’ is the most frequently included concept (10). In studies with a global focus ‘family’ is included more than other concepts.

When analyzing the total amount of incorporated concepts ‘state-business/patron-client’ is, by far, the most included, with a total of 34 appearances. Interestingly, ‘rent-seeking’, the concept proposed by Aligica and Tarko (2014) as a ‘definition’ of crony capitalism, is only incorporated three times.40 A last observation is that only two out of the forty-five investigated definitions include a phrase as ‘a capitalist economy’ (Khan and Formosa 2002: 51) or ‘a capitalist political economic system’ (Ip 2008:173). The idea that crony capitalism entails a capitalist system, or even a political, or a political economic system, is probably considered as so fundamental by academics that they deem it unnecessary to include it in their definitions. A more pessimistic interpretation might be that academics simply do not consider the background, meaning, and history of a concept.

3.3 Different operationalizations of crony capitalism

The operationalizations of crony capitalism in data-driven research show the diverse use of the concept. All articles from the database with a data-driven or model approach are included in this analysis.41 Although the dataset is not big enough to offer substantial evidence, it can offer useful insights in the academic use of crony capitalism.

3.3.1 Operationalization of crony capitalism in Asia

Bai et al. (2014) analyze China’s economic system through a formal model. They see China as having a crony capitalist system. In their model, cronyism is operationalized as paying a fraction of a firm’s surplus to a government official. In other words, it is operationalized as paying bribes to (ruling) politicians (Bai et al. 2014: 8). A more recent research on China’s economy is that of Li et al. (2018), they conceptualize crony capitalism as corruption (Li et al. 2018: 2-4) and operationalize that as paying bribes to government officials (idem: 6-7). So, both groups of academics focus on the relation between firms and government officials in their conceptualizations. They also both focus on a fiscal measurement of corruption in their operationalization, namely paying bribes.

40_{In chapter 4 a more extensive analysis of the definition of the concept of crony capitalism proposed by Aligica}

and Tarko, is carried out.

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27 In contrast with the research on China, the research on Malaysia is focused more on the personal relationships between businessmen and government employees. Johnson and Mitton (2003) conceptualize crony capitalism as politically connected firms (PCFs), in their research on crony capitalism in Malaysia. Their operationalization of this concept is ‘any firms which are identified as having officers or controlling shareholders with close relationships with key government officials’ (Johnson and Mitton 2003: 8). In the research of Johnson and Mitton these relationships are primarily with three highly placed politicians.42 Chong et al. (2006) also analyze crony capitalism in Malaysia, where they conceptualize cronyism as political patronage. They subsequently operationalize this as business people who have connections with the prime minister. Furthermore, they analyze the return of banks with, and without political connections. Hence, both papers focus on individual actors in their operationalization of crony capitalism. The difference is that Chong et al. (2006) focus on the financial sector, while Johnson and Mitton (2003) have a broader analysis of the market.

Shaheen et al. (2017) approach it in a wholly different way. Their concept of cronyism is especially focused on organizations. Since their research question is; does organizational cronyism affects workplace happiness? They operationalize their conceptualization of crony capitalism with the following survey questions: ‘Our manager treats employees with whom he has a closer personal connection with more tolerance.’ or ‘In our institution, individuals’ performance rather than their personal relations with the manager are taken into account when employees are rewarded.’ (Shaheen et al. 2017: 314) Consequently, they put more emphasis on personal relations, than on economic factors in their research. Strongly contrasted with the approach of Shaheen et al. (2017), is the approach of Wong (2010) who investigated crony capitalism in Hong Kong.43 He uses the conceptualization of politically connected firms (PCFs) in his research. This is operationalized as ‘firms that have stakeholders or directors concurrently holding seating on the Election Committee’ (Wong 2010: 275). This is fairly similar to the operationalizations of Johnson and Mitton (2003) and Chong et al. (2006).

Regional data on Asia is only used by Singh et al. (2006) and Claessens et al. (2000). The former incorporates it in their research on the difference between the Asian and the American (USA) model of corporations. The latter conceptualizes crony capitalism as the

42_{Namely Mahathir Mohamad, Daim Zainuddin and Anwar Ibrahim (Johnson and Mitton 2003: appendix).} 43_{Although the only mention of crony capitalism in his article is as a keyword, from this it is hard to conclude}

what the precise relation is between the conceptualization of politically connected firms (PCFs) and crony capitalism.

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28 concentration of ownership by top families in Asian nations. The research of Claessens et al. (2000) is the only one who uses the concept of family in an operationalization.

3.3.2 Operationalizations of crony capitalism in the MENA region

The availably of articles on the MENA region for the discussion of the operationalization of crony capitalism, is lower than for Asia. Furthermore, three out of six articles are written by the same author, Ishac Diwan. The articles that he published in 2012 (one by himself and one with Hamouda Chekir) employ the same data. Therefore, they can be observed as one analysis. Moreover, Diwan also published an article with Schiffbauer in 2018 which uses data from Diwan et al. (2014) so these can also be observed as one analysis. Moreover, in an attempt to be less biased towards the ideas of Diwan, only Chekir and Diwan (2012) and Diwan and Schiffbauer (2018) are considered in this analysis. The fact that Diwan is in some way overrepresented also shows that the quantity and variety in data-driven research on crony capitalism in the MENA region is low. In other words, it is in itself an interesting finding that there only exists such a small number of articles with data-driven research on crony capitalism in the MENA region.44

In Chekir and Diwan (2012) and Diwan (2012) crony capitalism is conceptualized as political connections. In other words, as politically connected firms (PCFs). They conduct an event study of the Egypt stock market. This is possibly because the Egyptian stock market closed between January and February 2011 due to the uprising that removed Mubarak from power. The value of the political connections is determined by evaluating the value of firms before and after the opening of the stock market. This data is subsequently used, in combination with assessing whether a firm is politically connected, to determine the value of the politically connected firms. Diwan and Schiffbauer (2018) use data from Diwan et al. (2014) to answer the question whether crony capitalistic firms – connected firms – have better access to credit. In Diwan et al. (2014) a dataset of 32 politically connected businessmen is created45_{‘by interviewing managers of banks and private equality funds, lawyers and NGOs’} (Diwan and Schiffbauer 2018: 6). The connected businessmen were only included in the list when they themselves, or one (or more) of their close family members had high political positions in the ruling party or government (ibid.). Hence, in their research they emphasize the idea that being a member of a certain family can be important for political connections.

44_{Also, Saadi (2016) uses a data-driven approach. He also conceptualizes crony capitalism as politically}

connected firms.

Crony Capitalism : a conceptual analysis of its academic use, leading to a new definition and a roadmap for further research