Customs receiverships and Crown Agents

  So Doug is in Tanzania, working on something mysterious designed to make the world a better place. On a previous excursion to Congo, Doug discussed the general malfeasance of the Congolese government. He also thought hard about the administrative competence of the Belgian bureaucrats who ran the colonial government. They ran that government to little purpose, but they ran it efficiently. 

One way to stylize Congo’s dilemma is that the government can’t control its own agents. To which there may be a solution: get foreigners to do it.

Kris Mitchener and I have just written a brief piece for Paul Romer’s Charter Cities blog that summarizes our work on customs receiverships and Crown Agents. The piece draws from the early 20th-century experience of circum-Caribbean countries with customs receiverships, where countries relinquished management of their customs services to a small group of American managers, and the early 21st-century southern African experience of doing the same thing with a small group of British managers. There was a failure — the fellow who was able to run customs in Haiti found the more sophisticated Panamanians running rings around him when he became the fiscal agent there — but in general corruption went down and collections went up. Crown Agents, the organization that took over in the 21st century, had an earlier cameo on this blog.

Politically feasible? Well, Angola and Mozambique did it. So did several eastern European countries (in a slightly disguised form) when customs corruption looked set to hold up their ability to join the E.U. Long-term benefits or spillovers to other parts of the government? Well, at best the jury is out. But sometimes peoples need their governments to do certain things well right now.

Read the piece and tell us what you think.

Comments

[ironrailsironweights.wordpress.com]

Wouldn't customs agents require police authority, to make arrests and carry firearms and so on? I could see issues with giving these powers to employees of a private foreign company.

Peter

[Carlos]

Poor Addison Ruan. And reading between the lines, the Panamanians immediately hooked his successor on the P&B lifestyle.

Odd that other countries haven't implemented this strategy for evasion much.

[Tzintzuntzan]

There's certainly precedent in most of Africa, including Congo itself. A lot of African countries subcontracted various jobs to their Cold War allies (like Cubans in Angola).

Trouble is, what stops the foreigners from becoming just one more group of rivals? In 1994, the Prime Minister of Congo (not Mobutu, who was President)had the printing of money outsourced to two Lebanese brothers in South America. They printed four copies of each bill, serial numbers duplicated.

And I don't think the problem was that they weren't from a First World country; anybody would have been tempted at the least. Finding a foreigner who doesn't get sucked in may not be easier than finding a local who doesn't get sucked in.

[Noel Maurer]

That's actually an easy question to answer. The foreigners are stopped from becoming just another "group of rivals" by their home country's bureaucracy and legal system.

The example you gave from Congo is not what we propose. The government contracted two brothers --- not a reputable corporation and certainly not a foreign public agency --- located in a country with a dicey legal system. Don't ask me why the Congolese prime minister picked the two brothers, but it was not because he wanted to avoid corruption.

Most African countries outsource the printing of their currency. In fact, it was a request by the German government to Giesecke & Devrient in 2008 what finally pushed Zimbabwe to dollarize.

In short, the problem was exactly that the brothers were not in a "First World" country, where the government and legal system would constrain them. It isn't that the foreigners are any more honest; it's that the foreigners work under systems that give them incentives to be more honest.

(Ray Fisman and Ted Miguel would argue that the foreigners are also quite simply more likely to be honest, regardless of incentives. I recommend clicking the link; it's an awesomely fun paper. But you don't have to believe that for our argument to hold.)

After all, foreigners have been contracted to carry out state duties in many corrupt countries without becoming corrupted themselves. There are exceptions, of course --- Panama comes to mind --- but Crown Agents has done a fairly incredible job in the countries it works in, and so did the old U.S.-run customs receiverships.

[Tzintzuntzan]

Responding to this embarassingly late (I've been sick):

If I understand right, you're saying the problem here is that the brothers were just two private citizens, with absolutely no authority from the home country to restrain them (and the home countries of Argentina and Brazil, not good). So if they'd been officially contracted from a First World country, they'd have done better.

Has anyone ever compared foreign customs agents to other foreign advisors? I know that foreign security contractors like Sandline (despite being officially contracted from a First World country that regulates them) have been pretty embarassing, but I assume the temptations in security are nothing like in customs. For that matter, have First World customs and security contractors been any good in Colombia, Mexico, or other War on Drugs fronts? (I don't know.)

But as to the Prime Minister's intentions, he may have actually thought it would reduce corruption. The man in question, Leon Kengo Wa Dondo, was the West's favorite Congolese politician. He had actually brought Congo into compliance with IMF rules in the 1980s before Mobutu sabotaged him. Mobutu only brought him back in the early 90s as a sop to Western (especially American) opinion. The US State Department had really high hopes for him. Of course, he was still a creature of the Mobutu system, and only looked good if you wanted to play Edward Lansdale, but he does seem to have been sincere on this one point.