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

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 Middle East and North Africa, Asia

Table of Contents List of figures ...... 4 List of tables ...... 4 List of textboxes ...... 4 List of abbreviations ...... 4 Introduction ...... 5 1. Theory and Method ...... 8 1.1 Theoretical framework ...... 8 1.2 Methodology and source selection ...... 10 1.2.1 Methodology ...... 10 1.2.2 Sources ...... 11 1.3 Method ...... 12 1.3.1 Analysis of academic use of crony capitalism ...... 13 1.3.2 Evaluation of the theory of Aligica and Tarko ...... 14 1.4 Conclusion ...... 15 2. First definitions of crony capitalism ...... 16 2.1 Original definition Crony Capitalism ...... 16 2.2 Crony capitalism and Cronyism ...... 17 2.3 Related concepts: Rent-seeking and Corruption ...... 18 2.3.1 Rent-seeking ...... 19 2.3.2 Corruption ...... 20 2.4 Conclusion ...... 21 3. The academic use of crony capitalism ...... 22 3.1 Use of crony capitalism in titles, subheadings and keywords ...... 22 3.2 Definitions of crony capitalism in academic work ...... 23 3.2.1 Definitions of crony capitalism in Asia & the MENA region ...... 24 3.2.2 Other definitions ...... 25 3.3 Different operationalizations of crony capitalism ...... 26 3.3.1 Operationalization of crony capitalism in Asia ...... 26 3.3.2 Operationalizations of crony capitalism in the MENA region ...... 28 3.3.3 Other interesting operationalizations of crony capitalism...... 29 3.4 Word count ...... 30 3.5 Conclusion ...... 32 4. Testing the theory of Aligica & Tarko ...... 33 4.1 Definition of crony capitalism by Aligica and Tarko ...... 33 4.2 Testing the theory by testing the definition ...... 37 4.2.1 Populist politics ...... 37

4.2.2 Rent-seeking ...... 38 4.2.3 Barriers to entry ...... 39 4.2.4 Corruption ...... 40 4.3 Conclusion ...... 41 5. A refined definition of crony capitalism ...... 42 5.1 Crony capitalism, a definition ...... 42 5.1.1 A political economic system ...... 42 5.1.2 The necessary conditions ...... 43 5.1.3 Expressions of crony capitalism ...... 44 5.1.4 A new definition of crony capitalism ...... 45 5.2 Alternative labels ...... 46 5.2.1 Against crony capitalism as a label ...... 46 5.2.2 Patrimonial capitalism ...... 47 5.3 Conclusion ...... 49 6. Further research on crony capitalism ...... 51 6.1 Critique on the conceptualization of crony capitalism as PCFs ...... 51 6.2 Considerations in researching crony capitalism ...... 53 6.3 Region-specific conceptualizations of crony capitalism ...... 55 6.3.1 Family ...... 55 6.3.2 Elite/Class ...... 56 6.3.3 Conceptualizations of crony capitalism for Asia and the MENA region ...... 57 6.4 Operationalizing crony capitalism ...... 59 6.5 Conclusion ...... 60 Conclusion ...... 61 Literature ...... 63 Appendix ...... 69

List of figures 1. Word count concepts before 2011 and after 2011 for the MENA region p31

List of tables 1. Number of titles, keywords and subheadings including ‘crony’, p23 ‘crony capitalism’ and/or ‘cronyism’ 2. Count of key concepts in definitions of crony capitalism and cronyism p24 3. Test of the definition of crony capitalism from Aligica and Tarko (2012, 2014) p38

List of textboxes 1. Definition of crony capitalism – Aligica and Tarko p34 2. Research plan crony capitalism p54

List of abbreviations

FIFA - Fédération Internationale de Football Association IMF - International Monetary Fund MENA - Middle East and North-Africa NIE - New Institutional Economics OECD - Organization for Economic Cooperation and Development PCFs - Politically Connected Firms SAP - Structural Adjustment Programs

Acknowledgements I would like to thank my supervisor Farid Boussaid for his helpful advice and guidance. I would further like to thank my teachers, family and friends who allowed me to successfully write this thesis. Lastly, I would especially like to thank Mendel, for everything.

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

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

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

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.

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, 퐴 = 퐵 + 퐶 , 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, 퐴 = 퐵 + 퐶(= 퐷 푎푛푑/표푟 퐸) , then the existence of 퐷 is not necessary for the existence of 퐴. It is, however, sufficient for the existence of 퐴.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).

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 6.

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.10 11

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)

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. 14 Bryman (2012 :113-118) advice of how to properly search databases is adopted for background information.

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.

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 the definition of crony capitalism.

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).

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: https://dictionary.cambridge.org/us/dictionary/english/crony-capitalism entry on 18 June 2018.

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 ‘crony’ (25 May 2018).

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.

28 They themselves also use the terms interchangeably.

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

29 More on the theory of Aligica and Tarko and their idea of rent-seeking societies and populism in chapter 4.

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.

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.

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

35 A definition of operationalization is offered in chapter 6.4.

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

Asia (17) MENA (15) Title 15 5 Keyword 6 3 Subheading 11 6 '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).

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- 10 9 14 client relations 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 in this category.

‘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

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. 41 There are four articles for the MENA region, seven for Asia and four for other individual countries.

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.

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. 45 They were all men (Diwan and Schiffbauer 20162018: 6).

Oubenal (2016) analyzes the connection on the Moroccan stock exchange. His conceptualization of crony capitalism is that of interlocking directorates. Oubenal defines that crony interlockers as ‘members of royal foundations and represent an institutional investor or a holding family that owns a bank and/or an insurance company’ (Oubenal 2016: 2). This is operationalized as an ‘interlock’: a board member sits in the board of two companies (idem: 7). A similarity between Oubenal (2016) and Diwan (2014) is that both emphasize the role of ‘family’ in a crony capitalistic system. Furthermore, a difference between the two is that Oubenal focuses on the banking sector, while Diwan (2014) studies a broader section of the market.

3.3.3 Other interesting operationalizations of crony capitalism. Similar to Shaheen et al. (2017), Coco and Lagravinese (2014) operationalize cronyism with survey questions, that is, question E = 040 from the World value survey, ‘Does hard work bring success?’ (Coco and Lagravinese 2014: 447). They have adopted this to study the effect of cronyism on school performance. Another similarity with the research of Shaheen et al. (2017), is that both papers are more interested in the social, organizational type of cronyism, corresponding to the first type of crony capitalism that Aligica and Tarko (2014) describe. Wei (2001) investigates crony capitalism on a global level. He conceptualizes crony capitalism as corruption and operationalizes it with data from two different databases (the GCR Index and the WDR index) that base their data on survey questions. An advantage of the adaptation of these two databases is that the n=103, which is important for the reliability. A paper that also investigates crony capitalism on a more global level is that of Morck et al. (2010). They research the relation between economic performance of banks and whether these banks are controlled by a family. To do so they apply the concepts of ‘efficiency’ and ‘equality’, because they associate crony capitalism with inequality and high barriers to entry. The operationalization of inequality, with the Gini coefficient, equality of opportunity (measured by personal computer per thousand people) and the time, number of procedures and costs that are needed to set up a new business are included for the statistical analysis (Morck et al. 2010: 278-279). Why Morck et al. (2010) uses indicators this diverse and far-off the original definition of crony capitalism is unclear. It does show that some academics apply such far-off indicators of conceptualizations that the results cannot possibly give a clear and clean observation of the concept. Academics in both Asia and the MENA region use proxies to analyze crony capitalism. The method that seems to be applied the most is to look at personal relations

between businessmen and politicians, but the operationalizations of this conceptualization differ to a high extent. The main observation that can be made from the analysis of the operationalization of crony capitalism is that academics do not conceptualize and operationalize the concept in the same way. Furthermore, most academics refer for their justification of their conceptualization and operationalization to articles that do not (necessarily) research crony capitalism but incorporate the same conceptualizations. This has resulted in the lack of an academic debate about the concept of crony capitalism.

3.4 Word count Figure 1 shows the results of a word count containing frequently used concepts in research on crony capitalism before and after the Arab uprising. Logically, this figure includes only research on the MENA region. This analysis examines whether the frequency of crony capitalism and related concepts change after the Arab uprising. After 2011 crony capitalism was coined as explanation for the uprising. It could therefore be hypnotized that this should be visible in the number of mentions of crony capitalism and related concepts. The first examined concept is crony capitalism. Something interesting to note is that the category ‘varieties of crony’ has a higher frequency in 2011 than the category ‘crony capitalism’. Pointing to the idea that academics use ‘crony’ in more combinations than only in crony capitalism. Another observation is that there is a small drop of the use of crony capitalism after the Arab uprising. in both categories the frequency is higher in the articles from before 2011. From the other twelve ‘concept’-categories46 six are more frequently mentioned before 2011 and six are more frequently mentioned after 2011. This is quite equal. However, the frequency count of the concepts does show differences. The high number of ‘family’ mentions after 2011 is striking. Moreover, because the above analysis shows that ‘family’ is regarded as an important concept in the definition of crony capitalism in Asia. However, 69 of the 82 mentions is from one article (Oubenal 2016). This disrupts the analysis to a certain extent. Also, the scores of ‘politically connected’ change after 2011, from rarely before 2011, to often after 2011. It is however important to note that all the mentions of ‘politically connected after 2011 are found in Chekir and Diwan (2012). They conceptualize crony capitalism as politically connected firms (PCFs). This shows, again, that this

46 All except crony capitalism and varieties of crony.

conceptualization/operational definition of crony capitalism is frequently used in research on crony capitalism in the MENA region.

Figure 1: Word count concepts before 2011 and after 2011 for the MENA region

Word Count 100 80 60 40 20 0

Before 2011 After 2011

Note: the articles used for this analysis can be found in appendix table A1.

From the other twelve ‘concept’-categories47 six are more frequently mentioned before 2011 and six are more frequently mentioned after 2011. This is quite equal. However, the frequency count of the concepts does show differences. The high number of ‘family’ mentions after 2011 is striking. Moreover, because the above analysis shows that ‘family’ is regarded as an important concept in the definition of crony capitalism in Asia. However, 69 of the 82 mentions is from one article (Oubenal 2016). This disrupts the analysis to a certain extent. Also, the scores of ‘politically connected’ change after 2011, from rarely before 2011, to often after 2011. It is however important to note that all the mentions of ‘politically connected after 2011 are found in Chekir and Diwan (2012). They conceptualize crony capitalism as politically connected firms (PCFs). This shows, again, that this conceptualization/operational definition of crony capitalism is frequently used in research on crony capitalism in the MENA region. ‘Class’, ‘clientelism’, ‘elite’ and ‘rent-seeking’ show a substantial decrease in usage after the Arab uprising. Pointing to a change in the use of concepts that are in the academic world, seen as relating to crony capitalism. After the Arab uprising the use of ‘government-

47 All except crony capitalism and varieties of crony.

business/state-business’, ‘family’, ‘corruption’ and ‘politically connected’ becomes more frequent. Before 2011 there are four concepts that were related the most with crony capitalism, while after 2011 those ‘places’ are taken by three concepts. ‘Politically connected’ is not included here because only one article is responsible for the substantial rise of that concept. This, in combination with the decrease of the use of crony capitalism after 2011 can cautiously be interpreted as a lessening emphasis of academics on crony capitalism, and less diversity of related concepts after the Arab uprising. It could be argued that there is a change in the use of crony capitalism and related concept. Namely, a shift from more comprehensive research to more ‘simple’ research. A reason for this might be that after such a sudden and influential event, academics work fast to offer a possible explanation.

3.5 Conclusion The first analysis conducted in paragraph 3.1 showed that the term crony capitalism is more often included in titles, as keyword and in subheadings in Asia than in the MENA region. A possible explanation for the more frequent use in Asia is that crony capitalism is has been adopted for a longer time in Asia than in the MENA region. The second paragraph analyzed the definitions of crony capitalism introduced by academics. The analysis showed that there are a lot of different definitions of crony capitalism, that certainly not all articles offer a definition and that the related concepts that are used to define crony capitalism in research regarding Asia and the MENA region differ. Paragraph 3.3 also showed the range of ways in which academics apply crony capitalism. The analysis of the word count conducted in the last paragraph led to interesting and unexpected results. Crony capitalism itself is less used in the literature on the MENA region after the Arab uprising in 2011. The related concepts that were used the most before 2011 also are mentioned less after the Arab uprising. These findings are incorporated in the development of a definition of crony capitalism in chapter 5 and in the creation of region-specific conceptualizations in chapter 6. However, first the adequacy of the definition of crony capitalism deduced from the theory Aligica and Tarko (2012, 2014) is tested in the next chapter.

4. Testing the theory of Aligica & Tarko This chapter analyzes whether the theory of Aligica and Tarko (2012, 2014) is sufficient to describe the academic use of crony capitalism. In paragraph 4.1 a definition of crony capitalism is deduced from the work of Aligica and Tarko. This definition of crony capitalism is subsequently tested in paragraph 4.2. This is accomplished through the analysis of the necessary conditions Aligica and Tarko state for crony capitalism: populist politics and rent- seeking. Two other related concepts, barriers to entry and corruption, are also included in this analysis. Paragraph 4.3 concludes on the testing of the theory of Aligica and Tarko.

4.1 Definition of crony capitalism by Aligica and Tarko In ‘State Capitalism and the Rent-Seeking Conjecture’ Aligica and Tarko (2012) adopt the varieties of capitalism approach. Through the adaptation of this approach it is possible to observe that, what seem to be different economic systems, are possibly not that different at all. They employ the standard comparative economic systems framework introduced by Holesovsky (1977) with some minor adjustments. A list of classification criteria that make it is possible to developed definition of different types of capitalism, is offered by this framework. The definition they offer for crony capitalism is: ‘A1 & (B1 or B2) & (C1 or C2) & D1 & (E1 or E2) & (F1 & F2 & F3)’ (Aligica and Tarko 2012: 366). Decoded it states: ‘Crony capitalism = Function of the property right system: Rent-seeking by domestic interest groups & (Property of the means of production (capital) are (a) individual property or (b) self- selected associated groups (family, corporations etc.)) & (the method of control of property is (a) direct control by owners or (b) by delegation (management) & the mobility of labor is free & (the relationship between labor and capital owners is (a) labor owns the means of production or (b) free contractual relationships (wage labor)) & (the modes of capitalist allocation, types of governments intervention are (a) free market and (b) redistributive interventionism and (c) monopoly grants.’ (idem: 365-366) However, this way of defining crony capitalism leads to a protracted, not really operationalizable definition. 48 Furthermore, this type of definition-making is not useful because it leads to definitions that do not differ much and to definitions that do not demarcate the ‘thing’ they want to describe, as demonstrated in the idea of Definition (in chapter 1.1). Holesovsky, one of the pioneers of the varieties of capitalism approach, argues these kinds of definitions have the unfortunate feature that they are far away from common language.

48 Aligica and Tarko also observe this (Aligica and Tarko 2012: 336).

However, they are necessary for analytical clarity. Aligica and Tarko (2012) are aware of the complications of this approach, certainly because almost all systems are comprised of all the features to some extent (Aligica and Tarko 2012: 367). The standard comparative economic system framework can give interesting suggestions about the conditions, characteristics of different economic systems. Subsequently it can offer clues about the relation with other systems. Unfortunately, it is difficult to come to new insights with this approach (Aligica and Tarko 2012: 367). Aligica and Tarko (2012 and 2014) describe, and to some extent define, crony capitalism in their articles. A combination of the theory, definition and key characteristics they argue for is summarized in the textbox 1. This ‘summary’ is used to determine the key concepts that are incorporated in the analysis in the next paragraph.49

Textbox 1: Crony capitalism for Aligica and Tarko (2012, 2014)

NECESSARY CONDITIONS: • Populist politics • Rent-seeking by domestic interest groups, as function of property rights system • Free mobility of labor Modes of capitalist allocation, types of government interventions: • Free market • Redistributive interventionism • Monopoly grants

SUFFICIENT CONDITIONS: Property of the means of production (capital): • Individual property • and/or self-selected associated groups (family, corporations, voluntary cooperatives) property. Method of control of property: • Direct by owners • And/or by delegation (management)

Relationship between labor and capital owners: 49 This ‘summary’• Labor can owns be seen the as means a definition of production in the form of: Crony capitalism 퐴 = 퐵 + 퐶 + 퐷 + 퐸 + 퐹 + 퐺(= 퐽 푎푛푑/표푟 퐾) + 퐻(= 퐿 푎푛푑/표푟푀) + 퐼(= 푁푎푛푑/표푟푂). • And/or free contractual relationships (wage labor) 34

According to Aligica and Tarko ‘crony capitalism is yet another type of rent-seeking society, and [..] it’s key distinguishing feature is that the prevailing rent-seeking structure is legitimized by means of a populist ideology’ (Aligica and Tarko 2014: 157). Precisely because populism lacks ideological depth and offers flexibility it can justify all different kinds of state interventions (idem:170). According to Aligica and Tarko all types of rent-seeking societies are legitimized by a particular ideology. In contrast with the other types of rent- seeking societies, crony capitalism is the only one that depends on a noncoherent and not directly articulated ideology (idem: 169-170). Although the idea of a legitimizing ideology fits in the political economic framework, the idea of a populist ideology as a defining feature of crony capitalism seems curious. Mostly because, crony capitalism is perceived as a political economic system that can be located worldwide (idem: 157) and at the same time, populism is perceived as a necessary condition for crony capitalism. It however can be expected that there is a difference in ideology between developed and developing countries. However, in order to be able to say something about the relationship Aligica and Tarko suggest, the analysis will include ‘populism’. According to Aligica and Tarko (2014) crony capitalism is a type of rent-seeking society. As a result, the existence of rent-seeking groups in society is a necessary condition for crony capitalism. Rent-seeking is therefore included as a key concept. It is not in the scope of this thesis to analyze in detail the specific group(s) that participate in rent-seeking, instead the possible relation between the concept of rent-seeking and crony capitalism in analyzed. The term ‘barriers to entry’ is added to the analysis in the next paragraph because this phenomenon is more concrete, more straightforward to operationalize, and is often associated with crony capitalism in the academic literature. Corruption is the last concept that is examined in the next paragraph. An important difference between academics is whether they identify crony capitalism as a ‘phenomenon’ or as a political economic ‘system’. The main difference is that a phenomenon is not necessarily long-term and can be a part of a bigger system. A political economic system is, when investigating on country-level, a long-term (but variable) structure that arranges other processes that take place in a society. The difference in perception is if they identify crony capitalism as a type of corruption, or identify corruption as a phenomenon that originates from a crony capitalistic system.50 This results in differences in the ways academics investigate the

50 In this respect, it is important to note that corruption is a phenomenon itself and that it is absolutely not always corelated with crony capitalism. It consequences can take severe forms that cripple a societies economic and

concept, because if academics perceive crony capitalism as a phenomenon they probably miss things that are related with crony capitalism when it is observed as a structural process.51 Furthermore, the frequency of all related terms and concepts in research on crony capitalism is determined and subsequently incorporated in the analysis of the academic use of crony capitalism. Aligica and Tarko also distinguish crony capitalism from other types of rent-seeking societies by differences in the workings of the property right systems, means of production, and the relationship between labor and capital owners. So firstly, in other types of rent-seeking societies the property rights system can function differently, such as in promoting economic efficiency, social justice and/or international goals. According to Aligica and Tarko, crony capitalism does not adhere to the latter functions of the property right system. Secondly, the means of production in the crony capitalist system are not communal property (tribes, villages) and not property of the state but private property. Thirdly, the primary relationship between labor and capital owners is specifically not based on serfdom or slavery. Lastly, they define crony capitalism as featuring no (not necessary completely zero) state enterprises and as without central planning (controlling production and distribution) (365). As a result, some possible features of economic systems are excluded. For the clarity of the analyses, not all of the defining features of crony capitalism that relate to ‘classic’ capitalism are tested in this thesis. These characteristics, such as individual property and a ‘free’ market, are after all common knowledge, meaning that they are assumptions so common that (most) academics never mention them. So, including them will not give insights in the academic appliance of crony capitalism.

social workings. Therefore, separate research on corruption should also be conducted. The idea that corruption is observed by academics of corruption as a process or as a phenomenon is comparable with the idea that crony capitalism is observed by some academics to be a process and by other to be a phenomenon. This, however, does not mean that these two ideas are the same, or that the one (necessarily) says something about the other. 51 This perception has probably led to the conceptualization of crony capitalism as ‘work place relations’ or another more micro-level conceptualization. This is not in itself a problem for the research on crony capitalism. It is however important to be aware that crony capitalism is a worldwide system. In other words, that it is the cause of a lot of different smaller phenomena. Hence that in researching this proxies it is important to be aware of the ‘bigger picture’.

4.2 Testing the theory by testing the definition This paragraph analyzes the necessary conditions derived from the definition of the concept of crony capitalism, deduced from the work of Aligica and Tarko (2012, 2014). This analysis will show if the theory proposed by Aligica and Tarko is adequate enough to cover the academic use of crony capitalism.

4.2.1 Populist politics Table 3 shows the results of the analysis of the concepts that Aligica and Tarko (2012, 2014) use to define crony capitalism and of two other related concepts. The defining characteristic of crony capitalism according to Aligica and Tarko – populistic politics – is only present in nine out of forty-four examined articles. The way in which populism is mentioned in these nine articles also differs. For example, Catusse (2009) mentions populist politics twice. First to state that socio-economic data does not necessarily correlate with support of populism (Catusse 2009: 19), and second, to conclude that different funds that were erected by different rulers (such as the Hassan II Fund) had a populistic function. Moreover, the idea of this rulers was to give the people the idea that the ruler, in this case the royal family, did have an agenda that included promoting social welfare. Although, in practice the government reduced the financial resources available at the same time (idem: 21). Catusse observes, in line with Aligica and Tarko, that populism exists and that it helps to have a ‘for-the-people’ political story while implementing certain economic policies. However, Catusse does not observe a relation between the effects of populism and the social- economic status of a country. Therefore, Catusse does not confirm or falsify the theory of Aligica & Tarko. Firstly, Khatri and Ohja (2016) cite Aligica and Tarko (2014) to discuss that societies such as the Indian are in danger of becoming populist. Secondly, they also note that populist politics are destructive since they are inherently macroeconomically unstable (Khatri and Ohja 2016: 77). Moreover, Khatri and Ohja mention populism (five times in 243 pages) in research on crony capitalism in Asia. Notably, they are the only ones who incorporate populism (both as a term and as a concept) in research on crony capitalism in Asia. For Zubaida (2012) populist governments are a precursor of a political vacuum that was subsequently filled (especially in Iraq) with clan- or tribal-based groups (Zubaida 2012: 576-

577). However, he does not describe a causal relationship between crony capitalism and populism.52

Table 3: Test of the definition of crony capitalism from Aligica and Tarko (2012, 2014)

Necessary Necessary Barriers to condition: condition: Corruption entry populism Rent-seeking Asia (14) 1 10 6 9 MENA (11) 4 7 5 6 Other (19) 4 13 6 14 Total (44) 9 30 17 29

Note: For Asia fourteen articles were investigated, for the MENA region eleven and nineteen others. For articles see appendix table A1.

The total number of academics that use the term populism in their research on crony capitalism is low. Between the three ‘regions’ the frequency of populism is highest in the MENA region, namely four out of eleven. In comparison with the other concepts populism is by far the least mentioned concept, and if mentioned, it is often not in a causal relation with crony capitalism. Contrary to Aligica and Tarko (2014), Rubin (2016) argues that populism can be a possible solution for crony capitalism (Rubin 2016: 119). Although a definite relationship between crony capitalism and populism cannot be formulated, it can be concluded that a strong legitimizing relationship seems unlikely. Furthermore, because both concepts are analytically unclear and broad, it is difficult to formulate a theory with enough analytical strength that includes both concepts. Populism will therefore not be included in the development of a sharpened definition of crony capitalism.53

4.2.2 Rent-seeking The second concept that is analyzed is ‘rent-seeking’. Rent-seeking is the most frequently used concept: in thirty out of forty-four articles. The results for the MENA region and Asia

52 ‘With their decadence into dynastic rule and crony capitalism their ideological pretences and populist appeals became hollow and they depended increasingly on repression and personalistic networks of patronage, kinship and religion.’ (Zubaida 2012: 576) 53 Future research could analyze the effects of populist politics and the correlation with crony capitalistic practices. This can offer more insights in a possible relationship between these two concepts.

are reasonably comparable: – ten out of fourteen and seven out of eleven. However, how academics perceive the relationship between rent-seeking and crony capitalism differs. This can be observed in the way Holcombe (2013) states that ‘one manifestation of crony capitalism falls under the rubric of rent-seeking’ (idem: 544), which implies that not all manifestations of the concept crony capitalism do. In other words, crony capitalism and rent- seeking are not the same concepts but strongly related ones, according to Holcombe. For Ip (2008) crony capitalism is self-serving personal relationships, which can lead to rent-seeking and corruption (Ip 2008: 173). So for Ip, crony capitalism functions as an overarching concept. Others, such as King (2007), only incorporate rent-seeking in a descriptive manner, such as: ‘a rent-seeking urban bourgeoisie’ (King 2007: 434). While, other academics agree with Aligica and Tarko (2012, 2014) that ‘crony capitalism is another name for rent-seeking’ (Rubin 2016:106). It is clear that there is an overlap between the two concepts, although the precise relationship between crony capitalism and rent-seeking is (both empirically and theoretically) not clear. Rent-seeking is therefore considered when developing a refined definition of crony capitalism.

4.2.3 Barriers to entry The third term that is analyzed is ‘barriers to entry’. This is a broad term which includes many different limitations of economic and/or political access. Barriers to entry is mentioned in almost fifty percent of the articles relating to Asia and the MENA region. Interestedly, in the ‘other’ category, ‘barriers to entry’ is only mentioned six out of nineteen times. This is considerably less than in the Asia and the MENA region. Barriers to entry is for a number of academics, the most fundamental empirical result of crony capitalism and/or rent-seeking (Diwan 2012: 17, Ip 2008: 173, Kang 2003: 443). Although this is not necessarily apparent from the number of times that barriers to entry is mentioned, a little below fifty percent.54 An important differences with the other investigated terms is that barriers to entry is a more empirical term than a theoretical concept. As such, there is less discussion about the nature of barriers to entry. Barriers to entry is not included in the new definition of crony capitalism. However, the results in this analysis give a reason to include barriers to entry as a background concept (imperfect competition) and possibly as part of an operationalization of crony capitalism.

54 Hence, in less than 50% of the articles the concept ‘barriers to entry’ is mentioned.

4.2.4 Corruption The fourth and last term that is examined is ‘corruption’. Together with rent-seeking, corruption is the most frequent adopted concept: twenty-nine out of forty-four. Also the distribution across Asia, the MENA region and the ‘other region’- category is even. The views on the relation between crony capitalism differ, and three main perspectives can be discerned. Firstly, some academics specifically state that crony capitalism is not the same as corruption. One of them is Beresford (2015), concludes that corruption is a symptom of gatekeeper politics (Beresford 2015: 229). Furthermore, Khatri et al. (2006) argue that there is a difference between corruption and crony capitalism. That difference is that corruption includes negotiated and reciprocal transactions, while crony capitalism only consists of reciprocal exchanges (Khatri et al. 2006: 63). Secondly, other academics see corruption as one of the empirical results of crony capitalism (Chivangue 2012:8, Enderwick 2005, Khan and Formosa 2002:48, Singh et al. 2006:9). Moreover, others perceive the relationship between crony capitalism and corruption as mediated by rent-seeking (Chekir and Diwan 2012:4, Diwan 2012:14, King 2007: 446). Furthermore, crony capitalism can also be perceived as a type of corruption (Martins 2010:2, Salter 2013:7-8). Mushtaq Khan introduces another perspective. He specifically and deliberately does not adopt crony capitalism in his research because he does not observe a difference between crony capitalism and corruption (1998, 2005, 2006, 2017). As a result, he researches the same phenomenon as some of the author academics discussed in this thesis, only without incorporating crony capitalism as term or concept.55 It can be concluded that corruption is an important concept that is strongly related to crony capitalism. How these concepts precisely relate to each other is unfortunately not clear. As a result, some academics apply like it is the same concept. This close relation is also visible in the operationalization discussed in chapter 3. Corruption should therefore consciously be either integrated or discarded in the newly developed definition of crony capitalism.

55 He is right in not adopting terms and concepts because others (incorrectly) do. It would therefore be interesting to see if Khan is indeed researching crony capitalism as defined later in this thesis, or if he is researching something else.

4.3 Conclusion In paragraph 4.1 a definition of crony capitalism was deduced from the work of Aligica and Tarko (2012, 2014). This definition was subsequently tested in paragraph 4.2. From this analysis it is concluded that the theory of Aligica and Tarko is not adequate enough to offer a theoretical foundation of crony capitalism. This is concluded because there is not enough evidence that populist politics is a necessary condition for crony capitalism. Populist politics, however, can have a legitimizing function for crony capitalism in some parts of the world. So, this relationship deserves more research after the theoretical foundation of crony capitalism is determined. Furthermore, the above analysis of populist politics, rent-seeking, barriers to entry and corruption shows (again) that academics do not use the same concepts and terms to discuss and research crony capitalism. Even if academics use the same term, as is the case with rent- seeking, the employment of the term differs to a high extent. It is concluded that rent-seeking and corruption should be taken into account when developing a tuned definition of crony capitalism. ‘Barriers to entry’ can be an important feature of an operationalization of crony capitalism. The next chapter will offer a new definition of crony capitalism based on the results of analyses conducted earlier in this thesis.

5. A refined definition of crony capitalism This thesis started with the observation that the concept of crony capitalism is incorporated into research without a proper understanding of what this concept actually entails. In other words: crony capitalism lacks a theoretical foundation. Aligica and Tarko (2012, 2014) are the first who purposively tried to develop such a foundation. They grounded the concept of crony capitalism in the idea of rent-seeking societies. As shown in chapter 4 the necessary condition of populist politics is not found in the research on crony capitalism. In this respect the theory of Aligica and Tarko needs to be further developed. Hence, the theory introduced by Aligica and Tarko can be perceived as a starting point for an academic debate on the theoretical foundations of crony capitalism. In this chapter a step is set to further develop theory on crony capitalism. This step is the introduction of a refined definition of crony capitalism, utilizing the results of the analyses of chapter 3 and 4. Paragraph 5.1 introduces an improved definition of crony capitalism. The second paragraph discusses views of opponents of the use of crony capitalism as a label and discusses an alternative label: patrimonial capitalism. This last paragraph will answer the question: Is patrimonial capitalism a more adequate label than crony capitalism?56

5.1 Crony capitalism, a definition In developing a ‘new’ definition of crony capitalism all parts of the definition are examined to offer a thorough and analytically clear definition of crony capitalism. So, firstly the idea of a capitalistic political economic system is explained. Secondly the necessary conditions for crony capitalism are formulated and section 5.1.3 elaborates on the expressions of crony capitalism. These expressions should be interpreted as signs of crony capitalism. Section 5.1.4 offers the complete proposed new definition of crony capitalism.

5.1.1 A political economic system The definition developed in this paragraph is based on one major assumption: crony capitalism is a political economic system. This assumption is made because the term crony capitalism necessarily entails capitalism. Capitalism is not only a phenomenon but also more importantly, a long-term theoretical and empirical, project. In other words, it is an economic system. This system can be observed, for both capitalism and crony capitalism, on country-,

56 This discussion is placed after the definition of crony capitalism because they cannot be compared if it is not clear how crony capitalism is defined. In other words, if it is unclear what crony capitalism is.

global- and micro-levels. This ‘normal’ capitalism can be defined as: ‘An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.’ (Oxford Dictionary)57 This close relation between capitalism and crony capitalism warrants the existence of a capitalistic economic system as a necessary condition for crony capitalism. However, this capitalistic political economic system does not have to be ‘textbook’ perfect: state interventions in the market, some state-owned business etc. are not necessarily excluding states from the possibility of being crony capitalistic.58

5.1.2 The necessary conditions In the last section it was determined what capitalism is, subsequently the question arises what is it that makes a capitalist system crony? Following from the earlier analyses in this thesis and philosophical reasoning five other necessary conditions of crony capitalism can be formulated. Firstly, crony capitalism always feigns that there is free entry to the market. Meaning that it is unclear and not confirmed by the government or other market authorities that it is not possible for all individuals to satisfy the (known and unknown) requirements for the entry of the market, and even if they satisfy the requirements it is not possible for all individuals to enter the market at all. An example of this is the ‘American Dream’. The idea is that every citizen has the same, equal chance of becoming rich, influential, or have a career, while in practice the chances of citizens are not equal at all. If this requirement is not met, than it would not be crony capitalism but just an oligarchy or communistic state. The second necessary condition for crony capitalism is that there is imperfect economic competition. This imperfect competition is necessarily caused by changeable (groups of) private individuals this is the third necessary condition. The fourth necessary condition is that these private individuals are looking for rents. Lastly, the fifth necessary condition is that these rent-seeking private individuals are not restricted in their activities by regulatory authorities. These, in combination with the earlier mentioned necessary conditions, are the main elements of a crony capitalistic system. As concluded in chapters 2.3 and 4.1 rent-seeking and corruption need to be included in the definition of crony capitalism. Rent-seeking is already included in the emphasis of

57 Definition of capitalism from the Oxford Dictionary: http://www.oed.com/view/Entry/27454?rskey=ZTadxL&result=2&isAdvanced=false#eid entry on 12 June 2018. 58 The author is aware that the incorporated definition of capitalism is a serious simplification of the discussion on the nature and definition of capitalism.

private individuals who are looking for rents. Corruption is included as cause of the erection of barriers to entry, which is one of the most common causes of imperfect competition. This process consisting of rent-seeking activities is not stopped by a regulative authority (the government, guild or for example the FIFA), which would be the case in a perfectly functioning capitalistic system. In some way this process is even made possible by regulative authorities because they create the limits to entry that subsequently create the rents. An example of this is the introduction of permits.

5.1.3 Expressions of crony capitalism Besides necessary conditions there are also expressions of crony capitalism. An expressions is not a (necessary) condition and therefore by itself not enough to categorize a political economic system as ‘crony’. The expressions are ways in which the necessary condition can manifest itself, in that way they are often indicative of crony capitalism.59 They can, therefore, be used in specific conceptualizations of crony capitalism. The first set of expressions relate to the third necessary condition, the private individuals. They are different manifestations of a necessary condition. In other words, they are the ‘sub’-categories of, in this case, private individuals. For private individuals, the expression can consist of political actors, economic actors and firms and families. Moreover, also strong political and/or economic elites are an expression of private individuals. The second set of expressions is related to the fourth necessary condition, the presence of different types of rent-seeking activities. The expressions can be all types of rent-seeking activities, such as fierce lobbying or trying to bribe (political) officers. Moreover, they include both legal and illegal rent-seeking activities. Also the form of the rents can differ, they can consist of money, power and/or regulatory benefits. The third set of expressions relates to the fifth necessary condition: regulatory institutions. An example of this is already discussed in section 5.1.2, namely the introduction of permits. Since it is possible to imagine a very small state in which the state does not regulate the market at all, it is possible to imagine that institutions with regulatory power, such as guilds or profession associations (for example, for lawyers and doctors) limit entry to the market in order to benefit from succeeding rent-creation. They are also expressions of

59 An expression can be not included in this thesis and change over time. A new of other expression of crony capitalism can therefore not falsify this definition of crony capitalism.

regulatory authorities. Lastly, corruption in all its different forms is an expression of rent- seeking activities, and consequently, a sign of crony capitalism.

5.1.4 A new definition of crony capitalism The necessary conditions can be summarized and leading to the new definition of crony capitalism, as it is proposed in this thesis.

Crony capitalism is: a capitalistic political economic system with imperfect competition due to the rent-seeking activities of private individuals who are not restricted by regulatory institutions.60

From the definition it can be concluded that crony capitalism is a type of rent-seeking society (as theorized by Aligica and Tarko 2014) and a form of imperfect capitalism. The reason to define crony capitalism as a system is because it is important that in researching crony capitalism academics do not only focus on the proxies. Academics also should explain how these proxies fit in the broader system of crony capitalism.61 Moreover, this definition of crony capitalism includes both the illegal and legal forms of rent-seeking activities that characterize crony capitalism. As a result, crony capitalism can be observed in both the developing and the developed world.62 Imperfect competition can be caused by barriers to entry but also other mechanisms that hinder perfect competition can lead to a form of crony capitalism. Furthermore, it can be concluded that crony capitalism is not the same as corruption. Instead corruption should be seen as one of the empirical results of a crony capitalistic system, as a type of rent-seeking activity. This does however not mean that corruption only exists inside a crony capitalistic system.

60 퐶푟표푛푦 푐푎푝푖푡푎푙푖푠푚 = 퐴 + 퐵 푐푎푢푠푒푑 푏푦 퐶(= 퐷 + 퐸 + 퐹). 퐴 = ‘a capitalistic political economic system’. 퐵 = ‘imperfect competition’. Which can express itself in a lot of different ways, the most common one is barriers to entry. 퐶 =‘rent-seeking activities (D) of private individuals (E) who are not restricted by regulatory institutions (F)’. Here what kinds of rent-seeking activities, private individuals or regulatory institutions can be specified in conceptualizations. This specification of D, E, and F leads to ‘sub’-categories, which are here the expression conditions. However, it is important to note that all categories (A, B, C, D, E, F) have to be there, in the form of 퐴 + 퐵 caused by 퐶(= 퐷 + 퐸 + 퐹) to make a political economic system crony capitalistic. The difference with the definition of Aligica and Tarko is (among others) that this definition of crony capitalism entails a causal relationship. 61 Otherwise a whole subfield of research can develop that at some point does not know anymore what the relation is with the concept they are researching. An example of that is the subfield of research on crony capitalism through the conceptualization of the politically connected firm. A critique on this conceptualization is formulated in chapter 6.1. 62 Crony capitalism is observed by academics in the developed world. For example, by Martins (2010) for Portugal, Calabresi and Leibowitz (2013) and Macey (2014) for the United States of America. More can be found in the appendix table A1.

5.2 Alternative labels Some argue that crony capitalism is analytically too unclear to properly describe the investigated process, and that it is better to adopt another label, like patrimonialism. First some general arguments against the use of crony capitalism as a label are introduced. In section 5.2.2 the idea of patrimonial capitalism, as introduced by Schlumberger (2008) is discussed to analyze if it is a more adequate label than crony capitalism.

5.2.1 Against crony capitalism as a label Not all academics agree on the use of the label crony capitalism. Most unwillingness to use the label stems from the unclarity of the concept. For example, Khan (1996, 1998, 2005, 2017) researches the process as Chekir and Diwan (2012), he however does not apply the term crony capitalism. In seven of this his articles that are considered in this thesis, he never adopts ‘crony’ or ‘cronyism’ or ‘crony capitalism’. He states:

The use of political power [..] to sustain accumulation in developing countries has attracted much attention from conventional economists who see this as evidence of rent-seeking and political corruption. However, these activities are so systematic and widespread that we should look for structural reasons that may explain these features of developing countries. (Khan 2005: 712).

Hence, Khan is not interested in a discussion on the labels but in a discussion of the phenomenon itself. He applies most frequent the ‘corruption’-label (as mentioned above), although he also uses rent-seeking for similar processes. For Khan crony capitalism is probably neither describing a ‘new’ process, nor is it a good equivalent of the label ‘corruption’. Hence, according to Khan, crony capitalism cannot be used instead of corruption. Another author who doubts the strength of crony capitalism as a concept is Oliver Schlumberger (2008). He focuses specifically on developing countries, observing that ‘politically motivated informal interactions shape economic orders’ and that the quantity of these orders is growing (Schlumberger 2008: 639). However, according to him the name for this phenomenon should not be crony capitalism. He sees it as lacking analytical depth, being not properly defined, and hence not applicable to scientific research (Schlumberger 2008:

643: n20). The next paragraph will examine in some depth the counter proposal of Schlumberger: patrimonial capitalism.

5.2.2 Patrimonial capitalism Oliver Schlumberger introduces the concept patrimonial capitalism in his 2008 paper ‘Structural reform, economic order and development: Patrimonial capitalism’. His interest in developing this concept stems from his research on the Middle East, although he sees the concept as also useful in other parts of the world (Schlumberger 2008: 622). One of the features that distinguishes patrimonial capitalism from other approaches is that its starting point is interdisciplinary. Furthermore, it wants to offer an alternative for the New Institutional Economics (NIE) approach (idem: 627). Patrimonial capitalism is, according to Schlumberger (2008), a type of non-market capitalism (idem: 622).63 This means that it is an economic system that is not based on economic competition, like crony capitalism in the proposed definition (idem: 633). As a result, capitalism does not promote social welfare (ibid.). 64 This is why the distinction between market-based capitalism (such as in western countries, according to Schlumberger) and nonmarket-based capitalism matters. Schlumberger notes that, of course, no capitalistic system is perfect: market failures are common in all countries. The difference between market economies and non-competition-based economies such as patrimonial capitalism is that there is ‘perfection’ of the shadow side of the economy.65 The shadow side is inherently inefficient in creating social welfare. Furthermore, it lets the dominant political and economic actors keep their power while they do not promote social welfare (idem: 643-644: n23). One of the key characteristics of patrimonial capitalism is that it emerges out of structural adjustments, or more broadly speaking, out of liberal economic reforms (idem: 623). 66 Schlumberger offers a more comprehensive argument for the emergence of patrimonial capitalism in the Middle East. According to him, the economic reforms were

63 According to Robinson (2013) Schlumberger is the first to attempt to conceptualize economic hybridity together with political hybridity. 64 Because a necessary condition for this kind of welfare enhancing accumulation is open and fair competitions and institutions that protect this system. 65 For example, that most economic transactions take place on the (illegal and corrupt) black market. 66 The liberal reforms known as the ‘Washington consensus’ are one of the major causes of crony capitalism in developing countries according to an enormous amount of academics. Also, the SAPs (Structural Adjustment Programs) mostly implemented by the IMF (International Monetary Fund). Some academics that focus on this relation are: Joya (2011), Catusse (2009), Ha and Lee (2007), Hinnebusch (2015), Klair et al. (2015), King (2007), Martin (2012), Muzumdar (2008), Peev (2002) and Saadi (2016). The relation between crony capitalism and neoliberal policies is interesting subject for further research.

introduced in societies with rent-based economies and a patrimonial socio-political structure, with patrimonial capitalism being a form of neo-patrimonialism.

Neo-patrimonial systems are combinations of legitimating practices and norms, combinations of forms of economic practice and of political practice. In neo- patrimonial systems personal ties and relations are complemented, complicated and sometimes conflicted by impersonal institutions that have some independent existence of individual actors. (Robinson 2013:137)

In conclusion, there was a lack of rule of law to protect a competition-based economy (Schlumberger 2008: 633). Another key characteristic is that, according to Schlumberger, patrimonial capitalism is only possible in a state with an authoritarian political system. As a result, it can only exist in a nondemocratic state (idem: 625-626) because a necessary condition is that the political control over the economy is concentrated in the hands of a small political elite. As Robinson (2013) summarizes, patrimonial capitalism is economically and politically unfree. The former because it changes the market competition, and the latter because it undermines formal economic laws. These laws are undermined because it, according to Robinson and Schlumberger, needs the malfunctioning of a democratic governance system. Otherwise informal practices could not be stronger than formal rules and laws (Robinson 2013: 138). There are some differences and similarities between the concepts of crony capitalism and patrimonial capitalism. As mentioned earlier, Oliver Schlumberger himself notices that his definition of patrimonial capitalism67 corresponds to a phenomenon that is given different names over time, only one of which is crony capitalism. For him ‘crony’ refers to the individual and personal economic and political relations that are the basis of the described system. His critique of crony capitalism is that it does not put enough emphasis on the political dimension and on vertical power relations. The latter point is one of the main differences between crony capitalism and patrimonial capitalism. Namely, that patrimonial capitalism emphasizes the power relations between the different elites more than crony capitalism does. Another important difference is, that because of Schlumberger’s definition of patrimonial capitalism as a system that only exists in a nondemocratic state, it excludes

67 Schlumberger (2008: 625-626) lists ten points as a definition of patrimonial capitalism.

democracies and developed countries from an analysis. Consequently, patrimonial capitalism is a more region-specific term. Also, the underlining reason for the emergence of both concepts differs, where patrimonial capitalism is necessarily caused by liberal economic reforms, crony capitalism is open for a higher variety of causes. Similarities are that both concepts/theories are proponents of an interdisciplinary approach. They also both make a distinction between the formal and informal sphere. Moreover, they both focus on imperfect market competition as the key outcome of the ‘economic and political hybridity’. According to both concepts/theories, crony/patrimonial capitalism results in structurally high transaction costs. Furthermore, they both assume that a strong political institutional framework is necessary for a functioning (market-based) capitalistic economic system. Lastly both argue that patrimonial capitalism and/or crony capitalism is not a small step in the development to a fully functioning capitalistic democratic system but a long-time, possibly independent political economic system. The reason for holding on to the concept of crony capitalism in this thesis is because it is a label for something new. The term itself and what it describes are deeply intertwined with economic modernization: a process that has led to an imperfect capitalistic system in most states. Although this imperfection is not necessarily (only) negative,68 it is important to start to explore its causes, consequences and solutions from a broad perspective. In order not to let the research on this process get obscured by assumptions, prejudices and other biases adopted from already existing labels, it is imperative to introduce a ‘new’ label to describe the relatively ‘new’ process of the conjunction of capitalist economics and neoliberal policies.69 A consequence of starting with such broad definition of crony capitalism, is that specific conceptualizations for different regions are needed.70

5.3 Conclusion In this chapter a refined definition of crony capitalism was developed using the results of the earlier analyses. Critique on crony capitalism as a label was discussed in paragraph 5.2, which also included a review of patrimonial capitalism. It is, however, concluded that patrimonial capitalism does not offer a more effective label. Crony capitalism is therefore retained as a useful label. The next chapter introduces a roadmap for further research on crony capitalism

68 Enderwick (2005) discussed the idea that the consequences of crony capitalism are not necessarily bad and can even contribute to the economic development of a nation. 69 For example, some commentators argue that developing countries are just not ‘trying hard enough’ to adopt liberal economic policies. This obscures the underlying mechanism and thus also possible solutions. 70 It is possible that patrimonial capitalism is a specific conceptualization of crony capitalism in a certain region.

and offers conceptualizations of the concept for Asia and the MENA region. But first a critique of the most common conceptualization of crony capitalism in the MENA region is offered.

6. Further research on crony capitalism Chapter 6 introduces a roadmap to analyze crony capitalism in the future. However, first a critique on the most common conceptualization of crony capitalism in the MENA region is offered. This is important because the Arab uprising needs an explanation. 71 Hence, the proper use of crony capitalism is most urgent in this region. Paragraph 6.2 introduces considerations to which one should adhere when researching crony capitalism and a plan for research on crony capitalism. Paragraph 6.3 is a start of the research plan recommended in paragraph 6.2. This includes region-specific conceptualizations of crony capitalism and the analysis of a failed attempt at operationalizing the MENA region conceptualization of crony capitalism.

6.1 Critique on the conceptualization of crony capitalism as PCFs Even though there is a lack of theoretical grounding, academics still adopt the concept of crony capitalism in their research, as is shown in the analyses done in chapter 3 and 4. Chapter 3 showed that crony capitalism is researched more but adopted less after the Arab uprising. This change cannot be contributed to the introduction of a theoretical framework. Contrary, this change is probably related to the urge of academics to explain the process behind the Arab uprising. As a result, they introduced the concept of crony capitalism without stating what it exactly is that this concept entails. This led to academic ‘anarchy’. The definitions, conceptualizations and operationalizations of crony capitalism are so diverse that a clearly determined research subject or research field is non-existent. This is certainly clear in the research on crony capitalism in the MENA region. Research can be categorized in quantitative research and qualitative research. Where the latter means that academics try to explain, state or argue for a certain hypothesis by researching words while quantitative analysis research numbers (Bryman 2012: 35-37, 163-167).72 Both types of research are used to investigate crony capitalism in the MENA region.73 Because of the emphasis on words and language it can be expected that research conducted with a more qualitative approach is less prone to the pitfalls of unclear definitions. However, this is not always the case, since also academics who adopt qualitative approaches use concepts as

71 This critique is offered here because it is important that the definition of crony capitalism is clear before the further steps in the analysis (such as conceptualizations and operationalizations) are seriously discussed. 72 Both methods are important for describing and understanding the world. the social sciences and both have benefits and pitfalls. 73 Data-driven research: Chekir and Diwan (2012), Oubenal (2016), Diwan and Schiffbauer (2016), Diwan (2012), Saadi (2016). More qualitative research: Joya (2011), Aoude (2013) although he does not mention crony capitalism in his paper, Gherib (2012) and Zubaida (2012).

explanatory variables without properly explaining or referencing them.74 So it can be said that not offering proper definitions of crony capitalism is common in both types of research. Certainly, for quantitative research this is problematic because one of its goals it to offer ‘facts’ (Bryman 2012: 35-37). In quantitative research different steps are taken to translate the investigated concept into numbers: 1) conceptualization, 2) operational definition, 3) indicators. This requires a theoretical framework because it makes sure that the research that is done relates to and thus says something about the concept under investigation. In the quantitative research on crony capitalism in the MENA region the lack of a theoretical foundation led to the conceptualization of crony capitalism as politically connected firms (PCFs). An important question is how these PCFs should be seen: as a proxy of crony capitalism, an independent concept or something else? To answer this question first two others should be asked: 1) why is PCFs chosen conceptualization of crony capitalism? And 2) how are PCFs operationalized? The first question is not directly answered in the articles. Most academics just state (a variation of) this: there is crony capitalism, thus there are relations between political and economic actors, this means that there is favoritism and thus politically connected firms or business-government relations.75 In some articles there is a lack of further legitimation, others references articles (on different subjects) with the same operationalizations.76 The second question, how are PCFs operationalized or in other words, how is it determined which firms are politically connected, is answered in the articles. All articles use interviews with experts, common knowledge and their own (expert) knowledge to legitimize their choice.77 There is thus not a (theoretical) argument for the relation between crony capitalism and PCFs. Furthermore, the determination of which firms are connected or not is not easily visible for outsiders. One can question the objectivity of experts in naming PCFs, certainly because the subject has a negative connotation.

74 Zubaida (2012) does not offer a clear definition, Joya (2011) only defines it for Egypt. 75 Concluded from: Chekir and Diwan (2012), Diwan (2012), Diwan and Schiffbauer (2018), Oubenal (2016), Saadi (2016). 76 Such as Oubenal (2016), who introduces the conceptualization of ‘interlocking directorates’. 77 Interviews: Chekir and Diwan (2012), Diwan and Schiffbauer (2018), and Diwan (2012) because it used the same dataset as Chekir and Diwan (2012). Oubenal (2016) uses interlocking directorates. How this type of operationalization is linked with the political element is not made quite clear. This is because he seems to use both interviews and databases for to determine this link. Saadi (2016) used: ‘The identification process of the politically connected firms (PCFs) took into account my personal knowledge of the private sector as well as the Moroccan political landscape. I picked up shareholders and managers’ names from the commercial court’s website and complemented it with data from the Moroccan Office Industrial and Commercial Property’s website, the Casablanca Stock Exchange and newspapers. I also took into account closeness to and/or friendship with the palace as reported by some businessmen I met with as well as by some newspapers to identify some firms as PCF.’ (Saadi 2016: 8)

An important consideration is that if PCFs are determined by (for example) looking up if company board members are, on a personal level, connected to politicians (or members of the royal family), the assumption is that those connections are used to acquire gains in an illegitimate way. It is for example also possible that firms with board members who are politically connected perform better because they come from middle class families who send their members to highly respected universities. This is an example of other causal mechanisms that cannot be ruled out when using PCFs as a proxy. Furthermore, crony capitalism is defined by imperfect competition made possible by rent-seeking individuals who are not restricted by regulative authorities. Hence, the observations that there are (personal) connections between political and economic actors and that firms with connections can get loans, does not necessary say something about the concrete use of these connection or if these connections lead to restriction of the market on illegitimate grounds. Therefore, it can be concluded that PCFs are a problematic operationalization of the concept of crony capitalism.78

6.2 Considerations in researching crony capitalism An important question to ask is whether we still want to use the concept of crony capitalism for academic research. Can crony capitalism still offer analytical clarity? The answer to the latter question is: ‘yes’. Crony capitalism has the potential to offer a ‘new’ perspective to theoretical and empirical research, in the social sciences, economics and the humanities. This is because crony capitalism offers academics the possibility to research the ‘shadow side’ of the political economic system. More precisely, it offers the possibility to research the effects of the combination of an economic capitalist system with (neo)liberalistic policies in both the developed and developing world. Although this research project covers an enormous and diverse scope and is thus in danger of becoming unmanageable and impracticable, it still is extremely important that academic research tries to analyze the whole context of processes, even as this means being aware of an immense context.79 To start a research field on crony capitalism, it is necessary to design a theoretical framework that is both broad and practical. Some things are important to keep in mind when doing this. Firstly, when starting with a broad definition of the concept, the different conceptualizations should be made for different contexts (such as geography and history).

78 Research on PCFs can lead to interesting observations but should be treated as an independent concept. Furthermore, the limitations of the concepts should be stressed more. 79 Furthermore, this also can help in analyzing the (growing) interconnectedness between economic, political and cultural processes worldwide.

This gives the concept range but also precision. Secondly, before anything else the concept should be thoroughly researched on a theoretical level. This is necessary to create a proper theoretical and conceptual framework, to subsequently be able to conduct more applied and specific research.80 A ‘roadmap’ for further research is introduced in textbox 2. This will hopefully be a start for the developing a serious discussion on the nature, theory, and empirical process of crony capitalism. The main thought is that, such as the method study books teach, one should move back and forth between theoretical work and empirical work.81

Textbox 2: Research plan crony capitalism • Step 1: Define the concept of crony capitalism by theorizing it • Step 2: Conceptualize crony capitalism with being attentive of the context • Step 3: Check the first steps in qualitative research • Step 4: Build a theoretical framework, by redoing step 1,2,3 • Step 5: Develop operational definitions and indicators of crony capitalism. • Step 6: Check operational definitions and indicators with qualitative research. (Mostly because indicators of the shadow side of political economic processes are quite hard to find.) • Step 6: Research both quantitatively and qualitatively crony capitalism. • Step 7: Go back and forth between all the steps to build a research agenda and to continuously improve the research field.

In this thesis some steps for the development of a research agenda for crony capitalism are already taken. Building on the research of Aligica and Tarko (2012 and 2014) a refined definition of crony capitalism is proposed. The next paragraph will go one step further by offering conceptualizations of crony capitalism in Asia and the MENA region.

80 Otherwise, the risk is that the same happens as has happened with the research on crony capitalism in the MENA region. Such a lack of cohesion that research cannot be adopted in a broader framework and researching proxies that do not really relate with the examined concept. 81 The idea of this research plan is not that is should be strictly followed by all academics, but that it hopefully can be the start of a discussion on the research on crony capitalism.

6.3 Region-specific conceptualizations of crony capitalism To apply the new definition of crony capitalism in academic research, the definition needs to be conceptualized. The research in this thesis focuses on Asia and the MENA region, so this paragraph develops two conceptualizations that are region-specific. The analysis in chapter 3 concludes that in the definition of crony capitalism in Asia the concept of ‘family’ was frequently mentioned. In the definitions of crony capitalism regarding the MENA region the concept ‘elite/class’ was frequently mentioned. So, those two concepts are included in the region-specific conceptualizations of crony capitalism. A short literature review of both concepts and their relationship with crony capitalism is incorporated to offer subsequently two complete conceptualizations of crony capitalism.

6.3.1 Family According to some academics’ crony capitalism is an Asian phenomenon because it is rooted in the role of family in the Asian culture. Ip (2008) defines crony capitalism as: ‘a capitalist political economic system where the allocation and distribution of opportunities, interests, benefits or resources are overwhelmingly based on personal relationships or guanxi in Chinese culture, where familial ties stand as a critical determinant in the process’ (Ip 2008:173). He observes both the economic aspect as the family aspect of crony capitalism. Moreover, he makes specific distinctions between different kinds of crony capitalism based on variations in culture, for example the difference between a Confucian variant of crony capitalism and a Taiwanese form of crony capitalism (Ip 2008: 173). Both Shaheen et al. (2017) and Khatri et al. (2003) argue that crony capitalism is more likely to appear in collectivist cultures than in individualistic cultures, because in the former there is a stronger emphasis on personal relations (Khatri et al. 2003: 2). Crony capitalism can occur in individualistic cultures but less intense and in a different manner. Khatri et al. (2003) define cronyism as: ‘favoritism shown by one member of a social network toward another member with the intention of producing personal gains for the latter at the expanse of parties outside the network, guided by a norm of reciprocity’ (Khatri et al. 2003: 1). As can be observed, there is an emphasis in their definition on personal relations. The definition developed in chapter 5 differs from the idea of Shaheen et al. (2017) and Khatri et al. (2003) in that instead of arguing for different types of crony capitalism, one overarching definition of crony capitalism is adopted and more specific conceptualizations. Chapter 3 shows that the concept of ‘family’ is important in the definitions of crony

capitalism used in the research on Asia. This is different from the definitions of crony capitalism in the MENA region, where ‘family’ is not at all incorporated in a definition.

6.3.2 Elite/Class The concept elite or class is frequently used in definitions of crony capitalism in research regarding the MENA region, as shown in chapter 3. For this thesis elite and class will mean the same thing, namely a certain group in society that can be distinguished from other by socio-economic status. Richards et al. (2013) sketch an interesting image of the economic development, and the role of class in the MENA region. After gaining independence most forms of state authority included that state resources were used to control the economic resources of the society. As a result, an enormous gap between the poorer and richer layers of society were created. This however did not mean that these postcolonial states had strong relations with the richer classes. Most did not and if they had, these relations did not preserve for long. Hence, there were no strong ties between the economic and political elites (Richards et al. 2013: 22). Not all countries however fit this description. Some countries, such as Syria, Iraq (until 1958), Lebanon, Turkey, Algeria and Morocco, had different relations with colonialism and thus different outcomes. These states adopted policies that involve heavy class-engineering. This made class important in these nations. After the liberalizations of the 1980’s, they only gained more prominence.

The well-connected private-sector elite has gained increasing prominence alongside the “state bourgeoisie”. But instead of giving rise to a dynamic form of capitalism, economic liberalization without a parallel political opening has produced a narrow and cronyistic form of market economy. Even if most business associations remain weak vehicles for the organization and representation of private-sector interests, informal channels have enabled well-connected elites to transmit their preferences to rulers, gain preferential access to business opportunities, and enhance their private holdings. (Richards et al. 2013: 22)

According to Richards et al. (2013) the changing structure of the class system, a structure that gave rise to a strong political economic elite, is the core reason for the emergence of crony capitalism in the MENA region. Richards et al. (2013) argue in their book The Political Economy of the Middle East that the creation of a much bigger middle class resulted in new

questions for the government. These questions did however not lead to more political interaction or democratization, but contrarily, to a more authoritarian state. This conflict between the government and the middle class led to the Arab uprising, according to Richards et al. (2013).82 Owen (2004) uses the research of Roberts and Leca83 to explain the crucial relation between the class consisting of state officials and the private sector.84 Political officials, who are afraid of losing their job and as a result lose an income, are trying to gain private property as insurance. This leads to relations with the private sector. The process is easy because the boundaries between formal and informal are not that clearly established anyway (Owen 2004: 35).

It was the existence of such links, based on shared interest and aspirations to a common lifestyle, that played an important role in skewing public policy in directions favorable to private accumulation, whether in the area of income tax (kept low), support for local companies against foreign competition, or access to scarce foreign exchange. (Owen 2004: 35)

Hence, according to Owen (2004) class, financial and political space, and uncertainty lead to relationships between political elites and private sector actors. Note that Owen’s work was published in 2004, almost a decade before the Arab uprising. Suggesting the idea that class was already important before 2011 and thus reinforcing the theory of Richards et al. (2013). Therefore, it is important to include the concept of class/elite in the conceptualization of crony capitalism in the MENA region.

6.3.3 Conceptualizations of crony capitalism for Asia and the MENA region For this thesis crony capitalism will be conceptualized for both Asia and the MENA region. A different conceptualization of crony capitalism for both regions is necessary because it emphasis the differences in the use of related concepts.85 For the conceptualization of crony

82 Diwan (2012) analysis the role of the middle class in the Arab uprising. 83 See (Owen 2004: 243: n27-29) for the precise incorporated research. 84 Furthermore, he notes that analyzing the role of different classes in authoritarian states is not easy. Because a ‘class’, the specific role of this class and the boundaries of a class are hard to locate and to determine. But even more because the authoritarian state is actively denying certain classes their expression power (Owen 2004: 34). 85 From the Oxford Dictionary: ‘Conceptualization: the action or process of forming a concept or idea of something.’ https://en.oxforddictionaries.com/definition/conceptualization accessed on 6 May 2018. Hence, this conceptualization in the next step after developing a more general definition of crony capitalism.

capitalism in Asia earlier examined ideas of Ip (2008) will be used as starting point because his work, and his definition of crony capitalism, is focused on the Asian variant of crony capitalism. The necessary conditions of crony capitalism also have to be incorporated in the conceptualization of the Asian variant of crony capitalism. This corresponds to the ‘capitalist political economic system’- element of the definition of Ip. The second necessary condition, imperfect economic competition caused by individuals who are looking for rents and not restricted by regulatory institutions, also needs to be included. The ‘private individuals’ are specified in the Asian conceptualization of crony capitalism, to mean ‘mostly families’. Hence, the conceptualization of crony capitalism in Asia is:

A capitalist political economic system with imperfect competition due to the rent-seeking actions of individuals who use their family ties to acquire those economic and political rents.86

The conceptualization of crony capitalism in the MENA region needs to include an emphasis on the role of the elite. This elite is characterized by not being fixed, as is shown by the overthrow of regimes during the Arab uprising.

A capitalist political economic system with imperfect competition due to the rent-seeking actions of political and economic actors who together create a variable cronyistic elite.87

It follows that both conceptualizations offer a definition of crony capitalism while at the same time focusing on related concepts that characterize crony capitalism in the specific region. It is important to permit differences in the conceptualization of the same concept because this also allows to choose an operationalization that fits the context. In this case, a conceptualization that fits the practices and characteristics of a specific region. This results in

86 Of course, variations of conceptualizations of crony capitalism in Asia can be developed. Hopefully an academic debate about what the exact context is that should be included can further develop this conceptualization. This attempt is intended to show that if conceptualization differ, operationalization can differ to and thus, results can. 87 Of course, variations of conceptualizations of crony capitalism in the MENA region can be developed. Hopefully an academic debate about what the exact context is that should be included can further develop this conceptualization. This attempt is intended to show that if conceptualization differ, operationalization can differ to and thus, results can.

a conceptualization that holds on to the broad definition of crony capitalism that makes it possible to still compare different conceptualization of crony capitalism.

6.4 Operationalizing crony capitalism To show that an operationalization of crony capitalism is presently not possible, an attempt at operationalizing crony capitalism is included in this thesis. This paragraph therefore tries to develop an operationalization of crony capitalism, specifically from the conceptualization of crony capitalism in the MENA region. This attempt fails and shows what the encountered problems are. Moreover, this failed attempt strengthens the above argument that a theoretical framework is necessary before quantitative research can be conducted. The operationalization of a concept provides a measurement of that concept, which means expressing the concept in a quantitative way. This entails having an operational definition; a definition of the concept containing the indicators that are used to measure the concept. An indicator is ‘something that is devised or already exists and that is employed as though it were a measure of a concept’ (Bryman 2012:164). There exists direct and indirect indicators of concepts. For example, the indicator ‘yearly income’ has a strong direct relationship with its' concept (income). While if the same indicator is used for the concept ‘social class’ there is a less strong relationship. In developing an operational definition of crony capitalism in the MENA region it is important to keep this in mind. The conceptual definition of crony capitalism in the MENA region that is used to derive the operational definition from is: ‘A capitalist political economic system with imperfect competition due to the rent-seeking actions of political and economic actors who together create a variable cronyistic elite.’ (paragraph 6.3.2) From this conceptual definition a lot of different operational definitions can be derived. The reason to choose one over another operational definition stems from the context and thus the specific proxy you want to research. Furthermore, the available data(sets) or the possibility to construct one are leading considerations in choosing one operational definition over another. This is precisely where the problems start to arise. An operationalization is usually legitimately chosen because of the context, therefore it is important to know what the context is. Without a clear vision and theory about class/elite in the MENA region it is not possible to argue for one dataset over the other. Moreover, the causal relationship between the two concepts should be evident. Otherwise it is not possible to legitimately argue for a certain set of indicators. If one does not take the theorizing/investigating of this relationship between different concepts seriously, one ends up with proxies that do not research crony capitalism

but a phenomenon/process that is (possibly) related. The danger is that in the end, we know a lot about a proxy, such as politically connected firms, but still nothing about the concept of crony capitalism. And consequently, also still know nothing about its consequences and possible solutions. It is important for the academic community, governments and organizations dealing with a crony capitalistic environment to know what it is, what the consequences are and what makes it different in different places around the world. This can only be answered if the theoretical foundations of crony capitalism are clear.

6.5 Conclusion This chapter started with a critique on politically connected firms as conceptualization of crony capitalism. Paragraph 6.2 concluded that quantitative research on crony capitalism is, at this moment, not possible as a result of the lack of a theoretical foundation. It subsequently offered a plan for further research on crony capitalism. The last paragraph offered a start of further research into crony capitalism by introducing two region-specific conceptualizations of crony capitalism. The failed attempt to operationalize the MENA region conceptualization of crony capitalism confirms the conclusion that quantitative research on crony capitalism is currently not possible.

Conclusion This thesis started with the observation that the concept of crony capitalism is incorporated into research without a proper understanding of what this concept entails. In other words: crony capitalism lacks a theoretical foundation. The academic use of crony capitalism was analyzed through the investigation of definitions of crony capitalism, conceptualizations, operationalizations and titles, keywords and subheadings. This analysis concluded that the academic use of crony capitalism is incoherent. Aligica and Tarko (2012, 2014) are the first who purposively tried to develop a theory of crony capitalism. They grounded the concept of crony capitalism in the idea of rent-seeking societies. As showed in chapter 4 the necessary condition of populist politics is not found in research on crony capitalism. Furthermore, their theory does not correspond enough with the use of crony capitalism in the academic literature to offer a theoretical foundation for the research on crony capitalism. Hence the theory of Aligica and Tarko needs to be further developed. The first steps for the further development of a theory of crony capitalism are set in this thesis. By firstly developing a new definition of crony capitalism, which states that:

Crony capitalism is: a capitalistic political economic system with imperfect competition due to the rent-seeking activities of private individuals who are not restricted by regulatory institutions.

Secondly, a roadmap for further research on crony capitalism was proposed. Thirdly, an example of the potential of the new definition was explored by developing two region-specific conceptualization of crony capitalism. This refined definition and further worldwide research on crony capitalism is needed to investigate the consequences of the overlap between capitalist economy and neoliberal policies for governments, organizations and the academic community this refined definition and further worldwide research on crony capitalism is needed. This is relevant because it is important for those institutions dealing with a crony capitalistic political economic system to know what it is, what the consequences are and what makes it different in different places around the world. A definition that starts extremely broad and can be made specific (through different conceptualizations) is required to investigate the crony capitalistic system on a micro-, macro- and global-level. With this approach all proxies and consequences of crony capitalism can be

investigated, and subsequently be located in the ‘broader system’. Moreover, with such a definition it becomes difficult to make mistakes that lead to analytical unclarity, such as the research on crony capitalism that turned into research on PCFs. In other words, it becomes possible to research the proxies without losing the connection to the questioned concept. This approach can also be adopted to research other concepts. A possible problem with this kind of definition is that it is so broad that it cannot be used for categorization. This is a serious disadvantage of this definition and the proposed researched plan. However, as Holesovsky (1977) argues it is the first requirement for a proper definition that it is analytical clear, not that it is extremely practical. The definition proposed in this thesis is certainly not the most practical. It is however a satisfying compromise between practicality and analytical clarity. There are some other limitations of the research conducted in this thesis. Firstly, the results of this research are biased to some extent because the term ‘crony capitalism’ is included in the search for articles. As a result, all articles necessarily include crony capitalism, as term, concept, keyword or object of research in some way. Therefore, the extent to which academic research is conducted on related concepts and similar processes is not analyzed in this thesis. As a result, it is possible that interesting conceptual relationships are not observed. A suggestion for further research on crony capitalism would therefore be to include research on corruption, rent-seeking and other related concepts. Thirdly, the software program that was used for the word count in chapter 3.4 did not allow for the exclusion of the literature section of the analyzed articles. As a result, these were included in the word count. This alters the results to some extent and should be considered when analyzing the results. Although it probably does not have severe consequences for the frequency of most mentioned concept. This problem can be avoided by using another word count program that can exclude the bibliography. In conclusion, this thesis offers a critique on the research conducted on the concept of crony capitalism. This thesis should be regarded as a start of further theorizing, discussing and researching crony capitalism. The most practical recommendation for future and further research on crony capitalism is that at present, quantitative research of crony capitalism is in danger of not actually researching crony capitalism. Hence, the theoretical foundation of crony capitalism should be (fully) developed before further quantitative research should be conducted.

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Appendix

Table A1 Name Region Publication date Included in analysis: Beresford 2015 Africa 2015 Table 2, table 4. Chivangue 2015 Africa 2015 Table 2, table 4. Khan 1998 Asia 1998 Table 4 Hughes 1999 Asia 1999 Table 1, table 2. Khan and Formosa 2002 Asia 2002 Table 1, table 2, table 4. Johnson and Mitton 2003 Asia 2003 Table 1, table 2, table 4. Kang 2003 Asia 2003 Table 1, table 2, table 4. White 2004 Asia 2004 Table 1, table 2, table 4. Chong et al. 2006 Asia 2006 Table 1, table 2, table 4. Singh et al. 2006 Asia, USA 2006 Table 1, table 2, table 4. Ha and Lee 2007 Asia 2007 Table 1, table 2. Ip 2008 Asia 2008 Table 1, table 2, table 4. Muzumdar 2008 Asia 2008 Table 1, table 2. Wong 2010 Asia 2010 Table 1, table 2, table 4. Bai et al. 2014 Asia 2014 Table 1, table 2. Khair et al. 2015 Asia 2015 Table 1, table 2, table 4. Ford et al. 2016 Asia 2016 Table 1, table 2, table 4. Khatri & Ojha 2016 Asia 2016 Table 1, table 2, table 4. Shaheen et al. 2017 Asia 2017 Table 1, table 2, table 4. Li et al. 2018 Asia 2018 Table 1, table 2, table 4. Sharafutdinova 2007 Eurasia 2007 Table 2, table 4. Guliyev and Akhrarkhodjeava 2009 Eurasia 2009 Table 2, table 4. Peev 2002 Europe 2002 Table 2, table 4. Martins 2010 Europe 2010 Table 2, table 4. King 2007 MENA 2007 Table 1, table 2, table 4, figure 1. Schlumberger 2008 MENA 2008 Table 1, table 2, table 4, figure 1. Catusse 2009 MENA 2009 Table 1, table 2, table 4, figure 1. Marks 2009 MENA 2009 Table 1, table 2, figure 1. Joya 2011 MENA 2011 Table 1, table 2, table 4, figure 1. Chekir and Diwan 2012 MENA 2012 Table 1, table 2, table 4, figure 1. Diwan 2012 MENA 2012 Table 1, table 2, table 4. Gherib 2012 MENA 2012 Table 1, table 2, table 4. Jones 2012 MENA 2012 Table 1, table 2. Martin 2012 MENA 2012 Table 1, table 2. Zubaida 2012 MENA 2012 Table 1, table 2, table 4. Malik and Awadallah 2013 MENA 2013 Table 1, table 2, table 4, figure 1. Hinnebusch 2015 MENA 2015 Table 1, table 2. Oubenal 2016 MENA 2016 Table 1, table 2, table 4, figure 1. Diwan and Schiffbauer 2018 MENA 2018 Table 1, table 2, Calabresi and Leibowitz 2013 North-America 2013 Table 2 Salter 2013 North-America 2013 Table 2, table 4.

Macey 2014 North-America 2014 Table 2 Rubin 2016 North-America 2016 Table 2, table 4. OECD Coco and Lagravinese 2014 countries 2014 Table 2, table 4. Haber 2002 South-America 2002 Table 4 Hughes and Lawson 2004 South-America 2004 Table 2 Vaugirard 2005 South-America 2005 Table 2, table 4. Klor et al. 2016 South-America 2016 Table 2, table 4. Wei 2001 n/a 2001 Table 4 Khatri and Tsang 2003 n/a 2003 Table 2 Khatri et al. 2003 n/a 2003 Table 2, table 4. Enderwick 2005 n/a 2005 Table 2, table 4. Khatri et al. 2006 n/a 2006 Table 2, table 4. Morck et al. 2010 n/a 2010 Table 2, table 4. Holcombe 2013 n/a 2013 Table 2, table 4. Zudenkova 2015 n/a 2015 Table 2 Khan 2017 n/a 2017 Table 4. Note: this table includes all articles incorporated in the tables and figures. n/a = not applicable.