Abstract
This paper investigates the delegation of economic policy implementation in non-democratic settings. It draws on a dataset of statutory and administrative regulation created between 1991 and 2011 in Kazakhstan in order to investigate economic effects of bureaucratic discretion. The examination of regional and temporal variation in the number and detail of economic regulations shows that while regulatory intervention does not have a discernible effect on economic performance, statutory constraints on bureaucratic discretion have a positive effect. This finding supports the notion that in the absence of societal accountability, statutory constraint on the administrative apparatus leads to a more stable business climate and better economic performance. The paper explicates the ways in which theories of delegation apply to autocracies and broadens our understanding of political control over economic policy implementation.
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Notes
This assumes the regulatory regimes are exogenous to the private sector’s preferences, costs, and profits. This closely reflects the empirical reality of the Kazakh case. According to the Business Environment and Enterprise Performance Surveys (BEEPS) conducted in Kazakhstan by the World Bank (http://www.enterprisesurveys.org/data), business people believe their influence over the content of government regulations is negligible at most. Only 3 % of Kazakh firm managers believed their firms had significant to major influence.
Notice that in this formulation a unit of discretion does not have a fixed cost. Instead, the effects of discretion are greater under a more burdensome regulatory regime.
This does not mean that the bureaucrats cannot extend favorable treatment to a subset of firms.
The dataset contains regulatory details going back to 1991, but the economic statistics for the early 1990s miss key regional indicators, which results in some discrepancy in sample sizes across different empirical models.
During the analyzed period Kazakhstan is ranked “not free” by the Freedom House.
These are called “decisions,” while the term “law” is reserved for the national-level legislative statutes.
The length of a preamble does not increase with the total length of the regulation. The variance in the length of regional statutes, therefore, is not driven by the description of their expected merits or the legislators’ political agenda. This makes the length of regulatory documents reflective of the amount of detail the legislators put into describing their content and implementation.
Laws in the spheres of language use, education, civil society, media, and social policy that are more politically sensitive and symbolically important, on the other hand, tend to have a declarative nature. These are more likely to contain political rhetoric, which does not add to clarity, specificity, or any meaningful constraint on bureaucratic policy implementation.
The resulting measure contains a lot of “noise,” since some regulations clearly matter more than others. To assess the validity of this measure, I compare it with the available 2002, 2005, and 2009 BEEP Survey data, which was reported for five separate geographical areas containing several neighboring provinces. Despite the limited number of observation points and considerable noise introduced by aggregation, there is a .73 correlation between the number of required visits by tax authorities and the number of general business regulations (n = 13), a .52 correlation between the number of regional laws and the percentage of firms identifying tax rates as the major problem (n = 8), and a .6 correlation between the reported number of days needed to obtain a construction permit and the number of construction regulations (n = 6).
Although provincial elections take place concurrently, turnover of legislators and their political affiliations vary across provinces and elections. Moreover, provincial assemblies follow different sets of internal procedural rules that make it easier or harder to introduce amendments and overturn the status quo. Combined with the varying degrees of legislative polarization, these result in more concise or more elaborate regional statutes (personal interview with Abiken Toktybekov, Director of the Institute of State and Local Government, Almaty, Kazakhstan, November 1, 2013). A thorough investigation of reasons behind these provincial variations in legislative behavior, however, goes beyond the objectives of this paper.
The classical Weberian account of modern rational bureaucracy was based on the authoritarian regime that used law and formal regulations to promote a strong authoritarian state. Although the Kazakh bureaucracy’s operations deviate from the ideal Weberian type of rational bureaucracy, the bureaucracy is built on rational principles, with the functions and operations of bureaucratic offices being prescribed by laws, and the bureaucrats being subject to formal rules.
Reports indicate that “the most widespread form of corruption in Kazakhstan is administrative, including routine extortion and shadow control of companies by unelected officials” (Business and Anti-Corruption 2012).
Section 2.8.2 (Construction site and materials transportation requirements), subsection 116, for example, stipulates: “...Along the perimeter of the construction site the contractor should erect a fence made of unpainted horizontally profiled galvanized steel sheets, no less than 2 m in height. The fence is to be constructed within one month of [executing] the contract of sale or land use and before the architecture and planning assignment.” This detailed description rules out alternative interpretation of what makes an appropriate construction site fence and prevents regulatory agencies from imposing arbitrary, contradictory, or volatile standards. A shorter Kyzylorda statute, in comparison, contains no explicit requirements, but states: “...construction sites should be properly fenced.”
Article 3.11 states: “The license is to be issued no later than 1-month period, or 10 days for the subjects of small entrepreneurship, after the date of application supported by all afore-mentioned required documents.”
This might not be of high relevance in common-law legal systems, where courts have greater freedom in establishing the legality of specific actions. In civil law settings, however, the codified principles are essential in establishing administrative violations.
I use the per capita measure for the same reasons the dependent variable is normalized by the size of the regional population.
All monetary indicators are measured in constant prices (adjusted by national CPI), but this masks the cross-regional variation in price levels.
Alternative model specifications using gross investment while controlling for the size of the regional population produce results similar to those reported in Table 2. Results are available from the author.
When I regress the number of economically active small firms per capita on measures of regulatory environment, the results support my main argument. Specifically, statutory constraints have consistent positive effect on the number of small businesses, while the effects of regulatory environments disappear when controlling for statutory constraints. Results are available from the author upon request.
The computed autocorrelation coefficient is .4.
In effect, the GRP per capita (wealth) is used in all models with per capita investment as the dependent variable, while the GRP (size of regional economy) is used in all models with small business revenue as the dependent variable. The wealth control (GDP per capita) is not included in the latter regressions because it is collinear with average wage.
I drop the autoregressive specification because changes, rather than levels, are used as regressors.
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Appendix A: Robustness of the Results
Appendix A: Robustness of the Results
The statistical tests presented in the paper show that while controlling for observed socio-economic conditions and unobserved region-specific effects, the overall length of statutory regulations is positively correlated with three different measures of provincial development: enterprise-financed investment, total revenue, and average revenue of the small business sector. The sub-national research design and provincial fixed effects minimize the omitted variable concern. Lags and autoregressive error process methods help account for temporal dependence in data. To check whether results are robust to other standard ways of controlling for temporal dependence, I substitute the number and length of regulatory documents in columns 1–3, Table 2, with a 1-year change in those variables. Table 4 presents the results.Footnote 22 The change regression confirms the finding of the previous section. Yearly changes in the number of regulatory documents do not affect the investment levels, while an increase in the detail of statutory regulations increases investments. All control variables shown in Table 4 are lagged by 1 year. Including these as 1-year differences instead of levels does not affect the results for the key explanatory variables.
One potential challenge to this analysis is that economic outcomes could influence regulations, rather than the other way around. Discretionary regulatory frameworks may be designed to attract more investment and small business activity to low-investment regions, while more vibrant regional economies might require more detailed economic regulation. These arguments suggest the reverse causal relationship from the one proposed in this paper. To check for the reverse causal link, I regress measures of regulatory environment and statutory constraint on the previous levels of investment, as well as the small business sector revenue. All models include the same set of controls as employed in the main analyses. Results are reported in Tables 5 and 6. I experimented with the number of lags and various model specifications and found no statistically significant relationship between the indicators of economic performance and subsequent levels of regulatory discretion. These results help rule out the reverse causal relationship, supporting the notion that regulatory specificity positively impacts business climate, rather than the other way around.
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Duvanova, D. Delegation of Political Authority to Bureaucratic Agencies in an Authoritarian Regime: An Analysis of Regional Economic Regulation in Kazakhstan. St Comp Int Dev 52, 87–114 (2017). https://doi.org/10.1007/s12116-016-9224-8
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DOI: https://doi.org/10.1007/s12116-016-9224-8