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Master Thesis for MSc IB&M
RATIONALITY THROUGH INFORMAL PRACTICES
University of Groningen Faculty of Economics and Business
Supervisor Dr. Bartjam W. Pennik
Second Assessor Dr. Olof Lindhal
Submitted by Iñaki Urricelqui Laparte
17th of June 2019
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Abstract: This research studies the state’s apparatus in five emerging economies (Brazil, Russia, India, China and Indonesia) and compared with the ideal Weberian organisational features they should exhibit. Also, the origin and the current situation of the informal practices developed in each market is studied. The religious background of the informal practices is argued to help increasing the rationality of the social system and therefore, reduce the need of engage in corrupt practices.
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TABLE OF CONTENT
Chapter 1 : Introduction ... 4
Chapter 2 : Methodology ... 5
Chapter 3 : Literature Review ... 7
Max Weber ... 7
Chapter 4 : Informal Practices as a Way of Rationalising ... 11
Brazilian jeitinho ... 13
Russian blat/svyazi ... 14
Indian jaan-pehchaan ... 16
Chinese guanxi ... 17
Indonesian gotong royong ... 19
Chapter 5 : Ways of Rationalising ... 21
Brazil ... 21
Russia ... 24
India ... 25
China ... 27
Indonesia ... 29
Chapter 6 : Comparing Approaches ... 31
Chapter 7 : Discussion ... 36
Conclusion ... 36
Limitations ... 39
Future Research ... 40
Chapter 8 : References ... 41
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Chapter 1 : Introduction
Corruption has been deeply studied in different fields but their essential characteristics keep this topic as an inaccessible area for conclusive results. Its illegal nature avoids any possible accurate measuring of it and discourages anyone involved on it to talk about it since it will be self-incriminating in an activity considered illegal in any country in the world. Also, there are not clear limits about what constitutes a regular activity and what is a corrupt practice. There is no universal perception of black and white. In the middle of the two zones there is a very extended ‘grey area’. Is in this ‘grey area’ where the answer about the ethicality of the actions depends on the subject who is looking at it. Huge differences in the perception can arise here depending on the ethical and mental background of each person.
Almost everyone will agree on calling corruption when a company wins a public contract after offering huge quantities of money to the jury of that tender. But when a bureaucrat steals paper and pens from his/her office so his/her child has school material, is it corruption? When a manager considers a friend for a working position before other candidates, is it corruption?
When a person obtains a prescription for a medicine from his friend who is a doctor without waiting his turn, it is corruption? Boundaries are very diffuse in this area. It is also in this grey area where the informal practices operate. Informal practices are extensively used around the world. According to ‘Linked In’, nowadays 80% of the people keep finding his job from a relative or someone they know. In several countries, generally developing or underdeveloped economies, this informal practices play a higher role in society. Personal relations and informal connections remain very important there, not only as a cultural component but also as a safety net since not all the services are guaranteed in these countries (sometimes not even the most basic ones).
These institutional voids can be explained by Max Weber’s ideas. Max Weber is considered one of the founding fathers of the study of public administration and economic sociology. His research was mostly based on his deep knowledge about history and religion. In fact, one of his most important work is titled “The protestant ethic and the spirit of capitalism”. According to him, was the rational and ascetic characteristics of the protestant ethics what allowed to capitalism to develop in these concrete societies. Weber also developed a theory about how
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the ideal organization should work based in the principles of rationality and efficiency. He called it ‘bureaucratic organization’ and originally was designed for the state’s apparatus but it could also be applied to any organisation. The more rational features an organisation exhibits, the more effective use of resources it will do. When resources are not applied efficiently, the public system is perceived as a waste of time and money, what encourages the usage of contacts, favours etc. in order to surpass the bureaucratic processes and ‘get things done’. This leads us to our research questions:
How informal practices differ to the ideal Weberian organisation? Do they differ totally or do they have something in common? How these informal practices affect the Weberian features of the State’s bureaucracy? Are all of these practices equally related with corruption?
In order to answer these questions this research will focus on analysis and comparison between the state’s bureaucracy in the different markets, the informal practices and the Weberian indicators of rationality.
Chapter 2 : Methodology
Since informal practices are related with corruption and it is an illegal activity punished by law in any country, the collection of interviews was rejected as a possible research path to follow. It is reasonable to consider that very few MNE’s managers would be willing to recognise their implication in this practices. Negative reputation spill overs are a serious risk for MNEs since their shareholders are usually in developed countries and they have a western view about dealing with the public organisations. Also, MNEs usually have codes of conduct forbidding to engage in this type of relations. That’s why this research is based on the review and analysis of scientific literature.
In the first place, Max Weber-related publications are reviewed in order to obtain a global picture of the main concepts and ideas stated by the author, like the concept of rationality.
Ideal bureaucracy’s features are extracted from those texts. Those publications are scientific
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articles and books (printed and electronic). All Weber-related literature has been extracted from the database of the University of Groningen. In the second place, the informal practices of the selected countries are presented and analysed. Its origin, evolution, codification, ethical background (if any) is stated. This analysis is also based on previous publications about the topic. Again, the source of these publications are the database of the University of Groningen.
In order to compare the ideal bureaucratic organisation proposed by Weber with real life examples of the chosen markets, reports from the World Bank and other government organisations were consulted along with scientific publications and newspapers articles about the topic. This reports allowed to access technical information like salaries or number of employees, the scientific articles on the other hand, were useful to understand the practices, situation and attitudes of the employees. Finally, the newspaper’s articles allowed to extract some real life example of situations to better understand the day-to-day of dealing with the selected markets’ bureaucracies enriching the story. This research compares the ideal bureaucracy with the actual state apparatus of several countries with growing economic importance in the international business arena. This comparison allows to understand the main problems and lack of rationality in these state’s organisations. Also, the analysis of the informal practices in those markets offers a vision of the social perception of the practices and its relation with corruption. Considering the Weberian features of rationality, the markets are divided in three groups based on the informal practices interaction with the state’s bureaucracy. In this research, more rational-featured informal practices are expected to show a lower relation with corruption and thus, a higher position in the Corruption Perception Index published by International Transparency. Results hold for the predictions once the index is reviewed.
First, a literature review about Max Weber’s job is presented in order to understand the concept of rationality and how to identify it in an organisation. Second, the informal practices are described and analysed in each market. As a third point, the state’s bureaucracies are described and the relation between them and the informal practices are analysed. In this third part, it is possible to observe how informal practices can add or reduce rationality into the state’s apparatus. Fourth, the different national approaches are compared between them in order to see the final result. Finally, the final conclusions are presented.
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Chapter 3 : Literature Review
Since the intention of this study is to compare the use of informal practices in several emerging economies with the Weberian idea of organizational features, we will start by review the previous Weberian literature and then the literature about informal practices in the selected markets and will find out the gap for this study.
Max Weber
Weber, as a great expert in history, understood that a structural change had happened in the world’s comprehension. This change was closely linked to the ‘disenchantment’ of the modern man. The historical-religious process concludes when society reaches the rational form of the modern capitalism (Alcocer, 2013). In this godless world, knowledge appears unreachable what makes the truth based on interests and temporary. That’s what makes so important the analysis and study of social interaction (Alcocer, 2013). ‘Reason’ is a human faculty that allows people to develop and justify each one’s beliefs. Even rationality can be applied to any sphere, Weber is interested in the systematization of ideas related with religious values and their influence in the social behaviour. In particular, he was interested in how human rationality appears and the role played by religious ethics on it (Alcocer, 2013).
Rationality is a core concept in Weber. The term refers to a special relation between action and the ideas. It is the meaning the actor associates to his action and not objective aspects what distinguish one action from another (Swidler, 1973). ‘Actions’, in the Weberian sense need to be pointed to a meaning. When conscious ideas appear to guide actions, those actions get closer to a rational action. The degree of control in life that conscious ideas have, is a characteristic of rationality. A society, a culture or an organisation will be more rational when conscious ideas have higher influence (Swidler, 1973). For Weber, the Ascetic Protestantism is the reason why the rationalization started and developed in the Western countries. The methodical control executed over any daily life activity is one of the main characteristics of Protestantism. What unites the spirit of capitalism with Protestant ethics is this emphasis on life control and not any particular element of ethical directions (Swidler, 1973). For Weber, modern capitalism is defined by a systematic and deliberated rational search of gains through a rational coordination of work and the rational exchange in the market. This market is guided by rational processes which are guarantied by rational legal systems. These bureaucratic legal systems delete uncertainties due to rational calculation (Alcocer, 2013). Within the modern
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capitalist economy, the firm plays a very important role as it is powered by the gains from exchange. It manages the efforts in order to increase efficiency and it is supported by the rational accountability (Swidler, 1973). A priori, Max Weber idea could be considered very similar to Adam Smith’s one. However, Adam Smith defended the idea of maintaining the state away from the task of regulating the market and let the ‘invisible hands’ work. This idea is very different from Max Weber’s. Although firms play an important role, people do not always behave in a rational way what creates imperfections. That’s why the market needs to be governed by a rational entity, the state’s bureaucracy (Lash & Whimster, 1987). Only when ideas are oriented in relation to a unite postulate and the influence of those ideas in life increases it is possible to develop full rationality (Swidler, 1973).
Figure 1: Classification of religions (Source: Lash & Whimster, 1987)
As it has already been stated, Max Weber’s work has been deeply studied by the literature due to its importance for the economic sociology field and its contribution to organisational and institutional theory (Rivett, 1948; Scott, 1975; DiMaggio & Powell, 1991a; Townley, 2002;
Weber & Dreijmanis, 2008; Lepsius, 2017). Serpa & Ferreira (2019) reviewed Weber’s job in order to offer an overall view of one of the main concepts stated by the author, the bureaucracy. The article tries to reduce the negative aspects the majority of the public has about this concept by explaining Max Weber’s arguments. By rational calculation, the individual was able to control any uncertainty, making the world something predictable and therefor, controllable. Following Weber’s ideas, bureaucratic organizations are superior to the
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rest of organizations since “Bureaucratic administration fundamentally means the exercise of domination based on knowledge. This is the trait that makes it specifically rational. It consists, on the one hand, of technical knowledge, which is, per se, sufficient to ensure a position of extraordinary power for bureaucracy. On the other hand, it should be considered that bureaucratic organisations, or those in power who use it, tend to become even more powerful by the knowledge that comes from the practice that they attain in the function” (Weber, 1966 IN Serpa & Ferreira, 2019, p.13). In Weber’s mind, bureaucratic rationalisation leads to formality and the absence of personality what ensure that organisational goals are not mix up with personal interests (Godoi, Silva & Cardoso, 2017). Weber’s theory is based on the argument that formal organisations are able to reach social or collective objectives by aligning skills and efforts of different but interconnected members (Heugens, 2005).
Scholars had pointed out the potential of bureaucratic organisations to reduce oligarchic tendencies (Courpasson & Clegg, 2006) and their capability to reach and maintain economies of scale (Schreyögg & Sydow, 2010). The benefits of implementing bureaucratic features like the establishment of authority and organizational rules to spread responsibility within an organisation was studied by Florian (2018) how studied the use of bureaucratic rules in a usually considered counter-bureaucratic organisation, a refugee shelter. Thanks to the early adoption of those techniques, the organisation was able to optimize the use of resources, but also the internal discontent raised. In line with this research, Rost & Graetzer (2014) studied catholic orders and their survival through time. According to the authors, those bureaucratic features were core to manage complex activities what allowed to increase efficiency to maintain an independent organisation like monasteries. By adopting bureaucratic rule governance systems, those organisations where able to collect a rich amount of knowledge, useful for a heterogeneous set of circumstances and, according to the author’s argumentation, helped to operate in uncertain contexts. The excellence of Weberian organisation has been defended by Evans (1995) and Rauch (1995b) when applying these characteristics to the State. Implementation of a meritocracy by making the entry in the organisation dependent on a university degree or an exam, adjust promotion to individual performance, pay similar salaries to the private sector to attract talent, and impersonality to deal with situations instead of dealing with people are some of the main arguments of the authors. In fact, Weberian characteristics remain considered as a key element of State’s capacity (Centeno, Kohli, Yashar, 2016).
However, bureaucratic features like formal rules, standardization of processes and tasks have
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been linked with inflexibility and a decrease in the organisation’s capacity to innovate and acquire new knowledge (Beck & Kieser, 2003). Even Weber recognizes in his work the negative side of the bureaucratic control. According to him, this type of organizations locks individuals in ‘iron cages’ that keep them from living a life following their own ideas. In order to increase efficiency, organisation’s designers increase the number of rules what reduce tremendously the scope of action of the organisation’s members (Beck & Kieser, 2003). This lack of flexibility can be harmful for a company operating in uncertain environments like the emerging markets, since flexibility has been related with higher relationship satisfaction when these situations occur in turbulent contexts (Yu, Cadeaux & Song, 2017). Also, as some studies had shown, the implantation of best practices in emerging economies usually rebounds leading to discordances between the effective practices and formal rules (Riggs, 1964; Rodrik 2007 IN Andrews, 2013). Merton (1940) defended that an excess of bureaucratic formalism can lead to rigidities what reduces the organisation’s ability to adjust to new situations. This inclination to rigidity can trigger important dysfunctions (i.e. members lose any perception of alternative solutions that can better serve for the organizational goals). Additionally, the depersonalisation of relations due to process standardisation, can lead to ignore the peculiarities of individual cases (Merton, 1940).
After reviewing previous work based on Max Weber, it is possible to extract the main features an organisation should show. For Weber the firm played a central role in modern capitalism but it was the state’s organisation the biggest construction to regulate social life. In order to be perfectly rational and therefore efficient, state’s bureaucracy requires a big pool of rules in order to be capable to deal with any considerable situation. Those rules need legal legitimacy.
Since people perceive the organisation follows logic and rational rules, they consider the state’s bureaucracy as something made to help and will not put obstacles for civil obedience.
Bureaucracy members need to be picked based on objective criteria, like a national exam accessible to everyone with the required skills. Promotions have to be based on personal merits and the position must be paid. This salary has to be equal or at least comparable with those from the private sector to retain talent. Impersonality when considering different cases is required in order to offer the same treatment to everyone and avoid arbitrary actions. In the next sections, some of the emerging economies’ bureaucracies will be analysed to test if they present any of the Weberian requirements for efficiency.
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Chapter 4 : Informal Practices as a Way of Rationalising
Informal practices are present in numerous countries, mostly (or at least more predominantly) in emerging economies, and each of them present very different features. Analysing all would be an impossible task what makes simplification necessary. Due to their importance in global population’s share what creates a strong potential number of consumers and their economic growth what is attracting higher and higher amounts of FDI the selected countries are Brazil, Russia, India, China and Indonesia. They are also countries with the higher number of believers in the religions analysed by Max Weber and where religion still plays a relative important role. Avoiding Africa since the continent has an enormous richness in natural resources what creates a huge potential for economic development and according to the United Nations it also possesses a population of 1.2 billion inhabitants, is a limitation for this research. However, the remaining instability in the region makes any economic forecast very weak. Even though the number of conflicts and the ‘coup d’états’ has been reduced, it is still difficult to find an election period without violence and instability. Also, there is an important lack of research around the continent.
One of the main problems when dealing with this kind of off-the-record practices is the difficulty on drawing boundaries. In many cases, it is not clear what can constitute a bribe and what not. It is very difficult to keep it apart from what would be considered in those countries as an acceptable behaviour like social accepted favours, recognition gifts etc. Inviting some government officials to a celebration or a dinner could be seen as a regular way of conducting business or as an attempt of bribing (Cuerzo-Cazurra, 2016). In fact, when scholars study informal practices in different countries, they highlight this abovementioned duality of viewpoint around them. These practices are perceived as positive from a building trust-based relations and networking point of view but also have a negative connotation of corruption (Lee Park, Fracarolli Nunes, Muratbekova-Touron & Moatti, 2018). The essence of the problem is that is a social exchange. An interaction in this kind of exchange does not (or does not have to) ensue in an instant ‘quid pro quo’ since it involves undefined obligations and
“involves favours that create diffuse future obligations… and the nature of the return cannot be bargained.” (Blau, 1964 IN Pufer, McCarthy, Jaeger & Dunlap, 2013, p. 328).
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Informal practices can be defined as “people’s regular strategies to manipulate or exploit formal rules by enforcing informal norms and personal obligations in formal contexts. Such strategies involve bending both formal and informal norms, or navigating between these constrains by following some and breaking others” (Ledenava, 2008, p.119). These practices should not be perceived as basic reactions to just economic and political limitations, since cultural and historical factor also shaped them. Each country followed a unique path in order to develop its own set of practices (Ledeneva, 2008). Even though they can look a priori similar, they present important differences in the way of proceeding, their origin, requirements, social acceptance…Also, these practices, can be considered as useful or positive by managers from countries with high regulation levels, since they can reduce transaction costs. They can even represent a cause of competitive advantage (Cuervo-Cazurra, 2016) since those practices are difficult to learn and can allow for process simplification (Cuervo-Cazurra, 2006).
The Chinese practice of ‘Guanxi’ is, by far, the most studied informal practice, due to the increasing importance of this country in almost every sector of the global economy (Alston, 1989; Chen & Chen, 2004; Hitt, Lee & Yucel, 2002; Luo, 2002; Ledeneva, 2008; Karhunen, Kosonen, McCarthy, Puffer, 2018). Doing business in China is very appealing for MNEs since the per capita income is growing fast, the state has pursued interesting reforms in the last decades to attract FDI and it possess a huge workforce and consumer base of 1.5 billion inhabitants. According to Xin & Pearce (1996), this practice is a form of links used as a substitution for formal institutional underpinning in weak institutional contexts. ‘Guanxi’ is the most studied but not the only example. Informal practices had also been recognised in very different countries with very different cultural and historical backgrounds. They have special predominance in emerging economies: ‘jeitinho’ in Brazil (Rodrigues, Milfont, Ferreira, Porto & Fischer, 2011), ‘blat/svyazi’ in Russia (Ledeneva, 2008), ‘palanca’ in Colombia (Duarte, 2006), ‘ubuntu’ in South Africa (McDonald, 2010), ‘wasta’ in the Arab World (Hutchings & Weir, 2006), ‘mordida’ in Mexico (Duarte, 2006), ‘jaan-pehchaan’ in India (Batjargal, 2007), ‘gotong royong’ in Indonesia (Bowen, 1986), ‘clannism’ in Kazakhstan (Minbaeva & Muratbekova-Touron, 2013), ‘compadrazo’ in Chile are some examples. In the next section these features of each of the selected market will be analysed in order to better understand each set of practices, and see them in their proper context
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Brazilian jeitinho
We define jeitinho as “a social mechanism that entails bending or breaking the rules in order to deal with difficult or forbidding situations” (Duarte, 2006, p. 509). This particular way of
‘get things done’ has been defined in numerous occasions like Jarrad (1995, IN Duarte, 2006, p. 510) “the jeitinho is the Brazilian ‘under-the-table, off-the-record, between-you-and-me’
personal favour or deal.” But we will state with the first definition. The mechanism’s development is closely linked to Brazilian history. With the Portuguese colonisation, Brazil became a highly bureaucratic country. As we have already stated, this feature remains nowadays and it is increasing in an attempt to fight corruption. Brazilian bureaucracy presents many of the features Merton (1940) criticised from the Weber: rigidity leads to the official’s routine of “sorry, it’s not my job” what makes the public structure very slow and inefficient.
Excessive formalism clashes with the Brazilian culture which is very flexible and jeitinho is perceived as a way of dealing with this chronic Brazilian bureaucracy. It is a local response that allows to navigate and deal with impersonal rules (Rodrigues et al., 2011). It provides a short-term solution to a problem. Brazilians are characterised for being very creative. It has its roots in the high diverse immigration that reached Brazil through the centuries. This creativity helped to find solutions to the problems that raised from intercultural conflicts (Fernandes, Perallis & Pezzato, 2015). Also, due to their low economic level, they are short-time oriented.
That’s why two important characteristics of jeitinho are being a short-term solution (just solves the actual problem) which requires a creative mind to circumvallate the bureaucratic barriers.
According to Barbosa (1992) jeitinho uses emotional categories and, in fact, the way a jeitinho is requested is essential. It requires ‘simpatia’ what means that the person who does the request needs to be cordial, friendly or even humble. Since it is based in personal relations, having personal skills to deal with people and make use of contacts is important.
This feature is called ‘malandragem’ and refers to the personal ability to move in social networks, and maintain and make use of personal relations (Rodrigues et al., 2011). In the Brazilian culture, the figure of the ‘malandro’ would be the archetypical person (some kind of Brazilian hero) who is characterised for having a bohemian lifestyle and makes use of jeitinho in order to achieve his goals. In contrast with other practices, jeitinho does not presuppose close or blood links. Of course, it will work better when people know each other (Barbosa, 1992), but this is not a necessary prerequisite. In fact, in Brazil exists the figure of the
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‘despachante’ a person with contacts and social skills who can pursue the jeitinho in representation of other person (accelerating bureaucratic procedures) or will make the presentations in order to start a relationship when the task cannot be delegated.
Jeitinho is perceived both in a positive and a negative way. Negative because it is related with corruption. As an example, the figure of the despachante, in order to accomplish his task, will require a payment. In some cases, even between known people, the jeitinho also requires of an exchange of money. Other example is the ‘pedagio’, which is the amount required to pay in order to join a project or being assisted by tax dodgers (Noppert, 2008). On the other hand, it is considered as positive since it allows people to deal with the pervasive and time-consuming bureaucracy (McCarthy et al., 2012) and helps facilitating buyer-supplier relationships (Lee Park et al., 2018). Brazilians, like other Latin societies, are very relationship-oriented what makes a personal link essential for business deals. It is impossible to talk about business before building a relationship and in order to build it, gift exchange (usually expensive ones) is required (Noppert, 2008). In fact, when doing business, the importance resides in the person more than in the company (McCathry et al., 2012).
Russian blat/svyazi
The informal practice of ‘blat’ has its origins in the Communist era and the shortage conditions which characterised that period of planned economy (Hsu, 2005). During this period, blat allowed people inside the network to get access to state’s resources like basic consumption goods, healthcare, vacations… Also, if the blat contact was a ‘patron’ it could offer security against denunciation, what was an important threat in that period. In fact, that threat of denunciation lead to a lack of trust of outsiders and rely in close network contacts (Karhunen et al., 2018). In the soviet epoch, the person with talent for blat was called
‘tolkachi’. They were official supply agents entrusted to find the resources for a set of state factories. By using their talent, they were able to ensure the resource supply in shortage conditions. Usually, this usage contradicted frontally the communist principles and subverted the socialist distributional principles but also helped to maintain the system. That’s why the practice was officially banished and condemned but tolerated in practice (Ledeneva, 2008).
Even if the practice was somehow tolerated, the bigger the network, the more dangerous it was. That’s why blat members where expected not to bridge the network to other networks
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(Karhunen et al., 2018). The ethical or moral background of these practice is the same as in friendship: i) Help always your friends so they will help you in the future, ii) Segregate those who respect the law, iii) Only look for help within the network, iv) Know when and where the informal code is over formal rules, v) Long-term reciprocity vi) Be grateful, but do not expect gratitude. That’s why there is a lot of ambiguity. The reciprocity in the exchanges is characterised by long-time delays and third party mediation. In the central planned economy, the exchange was based in gifts and favours since money played a small role.
With the disintegration of the Soviet Union and the introduction of market economy and reforms the shortage conditions disappeared and so did the regular use of blat by the regular people (Ledeneva, 2008). The use of this technique was reduced to the business world as it wasn’t related with any shared value or cultural notion but with shortage conditions and the criminal jargon (‘blatnoi’). The absence of a true moral/ethical background is one of the reasons why this informal practice evolved into a vision of secure one’s circle benefits at the expense of outsiders and the state. The close essence of blat networks leads to a defensive and predatory attitude against outsiders (Hsu, 2005). Nowadays the informal practice of blat is also known as ‘svyazi’, what means ‘connections’. The soviet tolkachi had been replaced by
‘blatmeisters’. In essence they represent the same concept but in a private context. Blatmeister refers to the people with a special talent with blat. Blatmeisters are also called ‘useful people’
since they arrange things for others and even solve other people’s problems (Levedena, 2008).
Nowadays the shortage conditions do not affect basic goods or services but privilege information, access to import/export licenses, tax protection and access to financial sources (McCarthy et al., 2012). For these reasons, blat/svyazi does not enjoy the social acceptance like other practices and it is related with corruption and extortion more than any other informal practice. In fact, they are considered as opportunistic, manipulative and money based. Nowadays the official favours are exchanged by commissions, percentages etc. rather than loyalties or obligations (Karhunen et al., 2018). In Russia, the practice of use intermediaries in order to deal with corrupt officials is institutionalised what, in one hand, produces a barrier for outsiders and in the other, reduces the number of people in contact with the official. Also, a new business of specialised enterprises that helps outsiders and newcomers with paperwork in order to deal with the almost impossible Russian bureaucracy is flourishing (Olimpieva & Pachenkov, 2013).
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Indian jaan-pehchaan
There is not many literature about this informal practice and its historical evolution, but it is possible to analyse the actual practices. The history of India is closely related to colonialism, since it was dominated by Great Britain for two hundred years. Even though, it keeps its own culture and traditions almost intact what makes face-to-face, unwritten and relation based business very important (McCarthy, 2012). After its independence in 1947, India managed its economy under the principles of socialism, what lead to a period in which a very few politician and business man dominated the whole economy. During this period, managers invested an important share of their time in building and maintaining contacts (Zhu, Bhat &
Nel, 2005). In 1991 a period of reforms and economic liberalisation started what encouraged the entrance of technological advanced competitors making Indian managers to restructure their businesses (Zhu et al., 2005). The country is home of 1.3 billion inhabitants, 6 major religions, 179 languages (22 recognised by law), more than 500 dialects and climatological, cultural and religious differences between the different states that compose the republic. It makes India a very heterogeneous country what makes connections even more valuable (Budhwar, 2001).
The term ‘jaan pehchaan’ can be translated as “you obtain something done by someone known” and it was popularised through a song by an Indian singer, Mohammed Rafi in 1965 (McCarthy, 2012). It reinforces the idea of ‘right connections’ to foster one’s business (Zhu et al., 2005). India, posses a collectivistic culture where individual gains are under group benefits. This feature fosters social linkages based on informal relations. Even it is a collectivist culture, the society is not seen as one group. It is divided by castes (even the caste system was abolished it is still important), language, gender… Within each group, members develop connections in order to support its own business. It creates a barrier for outsiders, allowing to protect their own markets (McCarthy et al., 2012). These relations are long-term based, like in guanxi. Indian society is very relationship-oriented, what makes trust building essential as business remains done with those who are known (Gupta & Bhaskar, 2016).
Hoftede’s dimension of power distance is remarkable high in this country. Indian managers require a respect for hierarchy when approaching to them and an indirect approach is also preferred to develop good jaan pehchaan relations (Zhu et al., 2005). In this market, doing business by your own is quite difficult, what makes partnerships with local companies inevitable (Gupta & Bhaskar, 2005). To build such relations, gift giving is required
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(danadharma). Hinduism (religion professed by more than 80% of the Indian population), with some exceptions based on hierarchical differences (i.e. a gift from a father to his son), imposes the reciprocity in gift giving. This reciprocity can be postponed in time, but sooner or later the generosity has to be repaid (Michaels, 1997). It allows to stablish political connections, but it can easily end up within the corruption boundaries. Indians, accept with resignation the corruption within the institutions and see it as something normal. It does not mean it is considered as something good, but something that cannot be changed. Hinduism has been related with this tolerant attitude from the Indian society (Tummala, 2002). Terms like ‘palm greasing’ or ‘speed money are widely used (Davis, Chatterjee & Heuer, 2006). In a survey conducted by ‘Times of India’ in 1995, politicians ranked first in public perception as corrupt with a 98 percent. The business world was fifth with a 76 percent of respondents considering business as corrupt. Even teachers ranked ninth with a 43 percent and the regular public was considered corrupt by 38 percent of respondents (Times of India, January 14, 19995 IN Davis et al, 2006).
Chinese guanxi
It is difficult to offer a narrow definition for ‘guanxi’, so we will define it as a system based on personal links that are characterised by social obligations with a long-term perspective (Park & Lou, 2001). It involves feasts, gifts, favour exchanges and the creation of networks based on personal interdependent relations and obligations (Ledeneva, 2008). This informal practice has its roots in Confucianism and the Chinese political and social system. Family structure was amplified to the central institutions, so the state presents a strong patriarchal features since the imperial age (Karhunen et al., 2018). It was after the 1949 revolution that imposed a communist regime, when the use of guanxi networks spread to the whole public due to the shortage conditions. In fact, according to Ledeneva (2008) these practices helps to compensate for the shortage conditions and the defects on distribution systems. Just like blat, the guanxi networks allowed people to get basic goods, vacations or jobs and it worked as a
‘safety net’ for those who formed part of the network. In contrast with blat, the people of the network were allowed to bridge and open it to outsiders (Ledeneva, 2008). By being able to get a favour from ‘a friend of a friend of a friend’ those networks were able to reach a significant number of contacts (Hsu, 2005). In fact, those ‘bridge people’ played a central role by allowing trust of strangers/outsiders based on familiar members or shouren what permit connections between networks (Lou, 2005). Like in the other explained practices, Chinese
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guanxi requires a set of social skills. The adjective ‘you’ means ‘oily’ and can be referred to people who are tricky and sneaky and masters in the art of guanxi or ‘guanxixue’ (Ledeneva, 2008). With the economic and political reforms pursued by China after the Mao’s era, the shortage conditions were drastically reduced what affected the use of guanxi. Nowadays, the use of guanxi is strongly kept in the business world, but its use has been reduced by the common people in the cities. However, this practice remains as a strong part of China due to its profound roots in the Chinese culture. As it has been stated, guanxi’s code comes from the Confucian ethics which promotes harmony, respect and imposes a moral duty of reciprocity.
Do not return a gift is unimaginable, and failing to repay this kind of debt would be perceived as an absence of human feelings (Ledeneva, 2008). The cultural basis of Chinese society is core to comprehend guanxi: i) People are pushed to payback favours, ii) People should keep long-term relations over short-term gains since these relations are a precious asset, iii) The individual is perceived as a component of a big system, iv) Ruling is better through ethical standards which are more flexible than through rigid laws, v) People should help the less favoured of the community and try to keep a good prestige, vi) The main penalty for behaviours against the code is shame and social isolation (Ledeneva, 2008).
As it has been stated, guanxi has lost importance in the recent times within the middle class of the cities. It has kept its prominence in the villages and the business world. However, it is still used by regular people for job opportunities and avoid denunciation to the government.
Considering other Chinese societies like Taiwan or Hong Kong, guanxi is not as extensive used as in China (McCarthy et al., 2012). People who have guanxi consider it as an asset which is personal, intangible and transferable. Due to its ethical roots, the guanxi offers few uncertainties about the expected behaviour. Gift donors presume the gift will be paid back in a future moment. For the person who gives the gift, it is the proper behaviour expected in order to show affection and feelings. For the counterpart, the gift is one piece of a two-part- exchange, with the other part being satisfied later in the future (Ledeneva, 2008). In contrast with blat network members, Chinese people are not afraid of working, trusting and creating guanxi relations with strangers when there is a common concern (Chen & Chen, 2004). There are different categories with different rules: family, relatives and strangers (McCarthy, 2012).
This practice is considered as socially accepted in the majority of the cases as it promotes networking (Hsu, 2005). It is important to point out here that also, thanks to the material
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nature of the gift exchanged for a future favour, many situations considered as bribery can be cover under the guanxi umbrella (Lovett et al., 1999 IN Karhunen et al., 2018).
Indonesian gotong royong
Indonesia, the biggest economy in South-East Asia, is more than just Java. In fact, the country has more than 300 ethnic groups spread across 265 million people living in around 13,000 islands (World Bank). However, Java is the main island (but not the biggest) and is home of half of the country’s population (135 million) and dominates economic, cultural and politically (Pompe, 2000). That’s why the focus will be in the Javanese culture within the Indonesian context. Even though it is the country with more Muslims in the world, very few of them follow strictly the religious commandments and religion is maintained out of government or business if compared with Middle-East countries.
‘Gotong royong’ or mutual assistance, is one of many terms that refers to cooperative, collective social exchange. It is considered as an element of the national culture in Indonesia (Bowen, 1986). For Indonesian people, a main social concept is ‘ketuhanan’ which means
‘God’ or ‘the Divine’. Individuals are just a small part of a whole cosmos where everything is interconnected and each one has a role to play. The way of achieving peace in one’s existence is to know your place in that cosmos and live in concordance with this great design (Pompe, 2000). Community is more important than the individual in this culture, communal interest are more important than the individual ones. The term used to refer to the mutual assistance practiced in the Indonesian villages, where the community worked together for help a member to, for example, build his house or sow his fields (Bowen, 1986). Hierarchy is very important and highly respected. Superiors are considered to be closer to the truth what makes their decisions unquestionable (Pompe, 2000). Once again, outsiders are kept out of the social circles unless they know the “right person”. This person is called ‘panantara’ or bridge. Like in other societies, people is very relation-based in Indonesia what makes contacts very important.
Nowadays, the informal practice has been highly monetised. The country is considered as the biggest economy and used to be the most corrupt country in South-East Asia (World Bank).
Bureaucratic positions are not well paid, even the higher ones. Also, the government made
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each agency responsible for its own financing what increases the financial incentives for asking for bribes (Blunt, Turner and Lindroth, 2012). Some positions in the State structure are literally for sale and the payment is required in order to enter in the network. A good example is exposed in the Blunt et al. (2012, p.72) study:
“Say a mother has a link to a worker in health services. That worker is approached and asked whether he can help find a suitable opening for the daughter who has just graduated from a nursing/midwife academy. The health worker then approaches someone in the regional civil service agency, who quotes a price (for the ‘assistance’). The health worker tells the mother how much it will cost, adding a premium as a cut for himself. That’s how the game is played.”
Just like in Russia, agencies specialised in ‘getting things done’ are flourishing. In some cases, they depend on people with a big number of contacts who will be in charge of doing the necessary payments to obtain the licenses, permissions etc. In other cases, the arrangements are made by a ‘patron’, a person who used to be a high command (ex-military, ex ministry etc.) and uses fear and/or respect to deal with the officers.
Some scholars had focused in studying these concepts as ‘indigenous practices’ result from national culture (Rodrigues et al., 2016). Ledeneva (2008) studied and compared the Chinese guanxi and the Russian blat which came from very different origins but both appeared as a way of mutual help in shortage times that has evolved once these shortages disappeared.
Hutchings & Weir (2006) compared again the Chines guanxi with the Arab wasta and their implications in society and business. Other scholars had adopted an ethical approach in order to decide if the use of these practices by managers from those countries is ethical or not (McCarthy, Puffer, Dunlap & Jaeger, 2012; Lee Park et al., 2018). McCarthy et al. (2012) for example, considered the use of favours as ethic based on the Integrative Social Contracts Theory (ISCT) which takes into account the cultural rules of the country in order to judge the ethicality of different practices. Another stream of research has studied the relation between these practices and corruption (Karhunen et al., 2018). Traditional MNEs remain as highly bureaucratic organisations and there is some consensus about their superiority. However, we have seen emerging markets’ firms successfully compete with traditional MNEs in their markets using these practices (Alibaba, Lenovo, Tata, Embraer, Qatar Airways, Gazprom…)
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and literature had pay little attention to it. Cuervo-Cazurra (2006) attributed this situation to the mastery of emerging markets managers in corruption.
Chapter 5 : Ways of Rationalising
From Max Weber’s point of view, rationalisation allows to increase efficiency in the organisations. This rationalization is based in a huge pool of rules that guides the officials’
behaviour (Serpa & Ferreira, 2019). This pool of rules and routines are produced by a rational organism which is the legislator. When officials internalise those rules, they can standardise processes what will lead to an increase in organisational efficiency (Rost & Graetzer, 2014).
Thanks to this internalisation of rules, the employees focus more in the routines than in the personal circumstances of each case, what allows them to use the rules in an infinite number of situations, like a mathematical formula. It increases the speed with which any case is approached and solved (Beck & Kieser, 2003). Through a comprehensive system of promotions, the employees are kept motivated to increase performance and the salaries will allow to maintain the talent within the boundaries of the organisation (Serpa & Ferrera, 2019).
Thanks to these main features the Weberian bureaucracy will offer a high speed and high efficiency when pursuing its tasks. This, as it has been said, would be the ideal Weberian organisation. However, when theory is applied to reality, it rarely holds as expected. Also, in the cases we are going to analyse, the Weberian features are incomplete, showing very few Weberian features in many cases. If the institutions of the selected markets are analysed, we will see a totally different bureaucratic organisation.
Brazil
As the literature review has shown, the Brazilian bureaucratic structure has its roots in history.
It legitimacy comes from this historical roots, making the “it has always been like this” the main argument for the population to tolerate the state’s apparatus. Brazilian officials do not have a very high salary in comparison with the private sector. With the constitution of 1988, the state was decentralised and local governments instead of the federal government were commanded to offer the majority of public services but with a very reduced share of the public funds. This situation made some federal states unable to pay their public employees (Puppim de Oliveira, 2017). Also, the country is very short-time minded what increases the
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inflationary problems what directly affects public employees with a frozen salary (Puppim de Oliveira, 2017). It reduces the costs associated of engaging in bribery as officials would be more willing to accept extra income to solve their financial problems. The decentralisation of the state also increased the number of rule-sources. On the one hand it allows the big ‘pool of rules’ Max Weber required in order to be able to deal with an unlimited number of situations.
On the other hand, those rules come from different organisations without a proper coordination between them and a lack of rationality behind them. It makes the set of rules a complex amalgam without a unifying principle. Also, these rules changes continuously. This lead to a lack of specialisation and routine adoption of the personnel and problems with the distributions of roles in the hierarchy.
Top positions in Brazilian bureaucracy are usually chosen by politicians what creates a nepotistic practice for promotions (Brazil Corrupt Report). This situation, together with job stability (once the public position is accessed it is very difficult to be removed) discourages any kind of motivation to increase job performance (Berch, Praça & Taylor, 2017). As a result, the public employees present a “sorry, it’s not my job” attitude in their regular relations with the public. The possibility of delegating the task of dealing with bureaucrats in the hands of the ‘despachante’ also incentives a company to engage in informal practices like jeitinho.
The despachante is a separate and independent entity outside the organisation what will reduce the probability of negative reputation spill overs in case of publicity of the case (Noppert, 2008). As a final outcome for the combination of all these features is a huge organisational structure with severe inflexibility, time consuming unnecessary processes and employee underperformance. That’s one of the main reasons why the public structure has increased dramatically in costs, even though the number of employees haven’t changed significantly nor the quality/quantity of services have improved (Puppim de Oliveira, 2017).
Brazilians, in order to cope with the inefficiencies of the bureaucratic organisations have created a set of practices. As it has been explained, the Brazilian jeitinho is based in the Brazilian culture. That’s why short-term, imaginative and relationship-based are the three main features of these practice (Fernandes et al., 2015). Since the bureaucratic structure is perceived as a slow and costly organisation, society do not have a very negative perception of the practice what allows to engage in it without social reprobation. Jeitinho encourages the
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use of imagination and social skills in order to navigate the legal system and get things done by bending the rules but not braking them, what confers it some kind of social legitimacy (Fernandes et al., 2015). However, the practice of jeitinho is very closed to corruption and in some cases it involves corruption (Lee Park, 2018).
Using personal relations, favours or payments to obtain the necessary permissions increases the flexibility of the bureaucracy and the velocity of the state apparatus but at the expenses of other people who did not have access to the practices. Next person in line will become heir of the problems faced by the person who successfully used jeitinho. Not everyone is able to use successfully his networks as it requires some social skills and the correct use of the simpatía (Duarte, 2006). Like in the Weberian organisation, it is the specialisation in the usage of routines and processes (in this case use of social capital) what increases efficiency and the speed of the organisation (Rodriguess et al., 2011). However, it is the personality in the relations what makes the system succeed and not the impersonality. It is, in fact, this personality the key of obtaining the expected result. It is because of the circumstances of the person who request the jeitinho (friendship, family etc.) that the public official will accept to solve the problem presented. It is possible to infer some outcomes of the Brazilian jeitinho.
Since it is a culture-based practice, the majority of the population can benefit from the jeitinho what confers some kind of legitimacy and acceptance. Also, the figure of the despachante allows outsiders to benefit too, opening the networks to newcomers. It can increase the speed of the state’s apparatus offering a short-term solution to a problem. However, it is important to remember that this practice is related with corruption and can induce to engage in these kind of practices (Lee Park et al., 2018). Even though the jeitinho has its roots based in the country’s culture, there is not a code of behaviour or some ethical obligation behind it, what reduces the predictability of behaviours. This lack of codification translates in a lack of unifying principle to guide people’s life, reducing its rationality. Altogether, it means that jeitinho can allow to solve some present situations but does not reduce uncertainty in the market. It neither encourages respect for the system nor hierarchy what can reduce the respect for formal rules allowing to enter in a spiral of corrupt practices.
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Russia
Russian bureaucracy is small if the Communist past of the country is taken into account (World Bank). This Communist past also allows to explain part of the legitimacy of this state’s structure. It is the fear to the state apparatus what makes public servant difficult to confront when injustices occur. Contrary to the other selected markets, in Russia the state’s officials have quite high salaries. In fact, it is the fourth best paid profession in the country (Kostina, Zaytseva & Banny, 2018). It makes costlier to engage in bribery since the public employees do not have that income need that could be present in the other markets. That’s one of the reasons why the general public had stopped using the blat and it has been reduced to the business world. It is in the top of the pyramid where most of the corruption resides.
Middle-high and high positions are politically chosen based on personal and/or economic reasons (Velychenko, 2006). As part of the Communist heritage, Russian workers are low motivated to take initiatives and to increase performance. It is possible to conclude that employees working in the state’s bureaucracy where high positions are elected through a nepotistic system and the public will not complain about underperformance, will not have big incentives to maintain an efficient organisation. In this case big salaries will make more difficult to bribe the officials, reducing low-level corruption, but also neglects the flexibility introduced in the system via favours like in the jeitinho.
As it has been explained, the practice of blat or svyazi has its origins in the shortages conditions of the Communist era (Ledeneva, 2008). During that period, money was not extensively used so the practice was based in exchange of favours, loyalties… Nowadays, the shortage conditions have disappeared from the general public and they only affect strategic resources (instead of basic goods) like information (i.e. privileged information) or money (i.e.
access to funds) in the business world (Ledeneva, 2008). It is also important to mention that the origin of the blat is in the criminal jargon and the illegal activities and not in the culture or religion, what erases any possible legitimacy. Also, the general public do not benefit of the practice since the high cost of involving on it excludes the majority of the population. It is only the rich and powerful elite who gains from this practice. Other reason why the general public is excluded of the benefits of the blat is the nature of the network. As it has been explained, as part of the communist heritage, Russian people distrust estrangers and members of the blat network are not supposed to bring outsiders or bridge the network to others.
