and almost anarchic nature of Thai rent-seeking undoubtedly had a role to play in explaining the gradual adoption of unsustainable capital account policies which precipitatedthe 199? financial crisis. Based on our discussion so far, Figure lo summarizes some aspects ofthe inputs and rent-outcomes of rent-seeking in these countries, focussing on the industrial sector in the high growth period of the seventies and eighties. Differences between our countries in terms of rent-outcomes were signicant. We saw in Chapter 1 that these differences may be associated with very' large differences in growth rates and thus explain a signicant part of their differences in performance. In comparison, differences in the scale of their rent-seeking expenditures appear to be less signicant. This does not mean that differences in rust-seeking costs were not important, but it does mean that policy and analytical attention has to be re-orrented. 1.3- Pa'tr'on-client Networks and the Organization of Rentseeking So far we have looked at the types of rents and the associated rent- seeking costs in our countries. We now look at what we inrow about who was engaged in rent-seeking and how this rent-seeking was organized. In developing countries, a signicant part ofthe rent-seeking cost is spent within patron-client networks and the rents produced as a result are also often distributed within these networks. FL study of the resource ows witlun these networks is thus a very useful way of mapping differences in the organisation ofrent-seeking across countries. On the one hand, a large part ofthe total tryouts used in rent-seeking are often spent within these networks. Some of these expenditures are legal, such as electron expenditures or payments to party officials, but large parts are illegal or quasi-legal, such as payoffs to mafia bosses, payoffs to members of factions to retain their allegiance, illegal election expenditures, and so on. Collectively, these inputs maintain the organisational power of patrons, which is often critical for winning rent-seeking contests. Fit the same time, a large part of the rents which are the outcomes of rent-seeking are likely to be created for key members or constituencies within these networks. Thus, there is likely to he a \"circular ow" 1whereby part of the income om rents created for patrons as rent-outcomes in one period provide the resources for inputs of rent-seeking expenditures on clients in the next period. This sustains their organizational power and allows further rounds of rent-seeking. These flows of resources tlnrefore give us very' useful information about differences in the organization of rent- seeking across countries. Tl'us section loolcs at patterns of resource ows in our target cormtries based on a reading of their economic and political histories. We focie on those features of patronclient relationships in each country which are particularly relevant for our subsequent comparative analysis of rent-seeking. From the perspective of our subsequent analysis, we will be particularly interested in the distribution of organizational power within these countries. A comparative approach is very important because it directs our attention at an abstract level to what is overeat between countries. Looking only at one country often prevents such an understanding because to some degree all types of organizations and types of rent-seeking can be found in every country. What is important is that the relative importance of different processes can be signicantly different and the comparative approach allows us to focus on Ti'ihat is distinctive in each cotmtry. We focus on the industrial sectors in our countries over the sixties, seventies and eighties. We also touch on the likely changes in ows within networks and in the underlying distribution of power in the nineties, to see how the organisation ofrent-seeking was changing over time. The Indian Suboontinent. Despite important differences between India, Pakistan and Bangladesh, there are many similarities in the predominant ways in 1which rents are sought in these counties. They each have a very large number of factional groups which compete for redistributive rents. And in each case, members of the \"intermediate" or "middle" classes play a key organizational and leadership role within these factions. The intermediate classes are1 in the main, the educated. sections of the population, bod] employed and unemployed, and the richer peasants whose sons and daughters provide new entrants into the educated classes through the universities and colleges. 1ill-'hile capitalists and landlords may, as individuals, control signicant resources, they are too few in number to control the political process by themselves. In contrast, the middle and lower middle classes have the organismtonol power to dominate politics. The composition of the group of classes providing political and organizational leadership varies across regions in the subcontinent. But, by and large, the groups which domuiate organizational politics are neither capitalists nor landlords in the conventional sense, nor are they orn working class or poor peasant backgroinids. While their social origuis vary, they typically occupy an \"intermediate" position in society. Some Indian political economists have singled out professionals (white collar workers) as playing a distinctive role in Indian rent-seeking. For instance, Eardhan {1954] identies professionals as one of the three classes forming the coalition of dominant classes in India, together with capitalists and landlords. Professionals are a subset of the intermediate classes; they have high levels of education and therefore have more privileged positions in the job market. But professionals are not the only members of the urtermediate classes. Less well-educated lower middle class groups such as unemployed college graduates, the urban petty-bourgeoisie and richer peasants in the villages have substantial organisational power and play a key role Ln the competition for redistributive rents. We include all these groups in our category of the \"intermediate\" classes. The roots of the role played by the intermediate classes goes back at least to British colonial times, if not earlier. The British in India were so few in number that they could only have ruled with the complicity of Indian classes and groups which had the power to challenge them. These groups included, in the rst instance, landed elites and later members of the emerging \"middle class", both ofwhich became Itey.r players in the colonial polity. The strategy ofthe colonial state was to exploit divisions among these goups and indeed to create new divisions. The object of this exercise was to ensure that claims and counterch over resources were nely balanced so that the state had to deal with a small number of malcontents at any one time. On the other hand1 because redistributions were based on organizational power, there were big potential gains for factions with organizational power. I[liven the weakness of the productive classes, organisational power involved the construction of cross-class alliances led by political entrepreneurs om the intermediate classes. As a result, linguistic, religious and caste organisations proliferated. T'he lion's share of the redistributive rents were, of course, captured by the political entrepreneurs but to mobilize large numbers, at least some of the rents had to be distributed down the factional networks. Subsequent economic and political developments frn'ther strengthened the intermediate classes. The deepening of democrahc aspirations and demographic gtow'dr strengthened these groups both numerically and politically. Most political scientists agree that factional politics intensified in India after the mid-sixties (see, for instance, Rudolph dc Rudolph 1937'}. A similar intensication also happened in Pakistan and later Bangladesh at about the same time despite the presence ofmilitary governments in the sixties and again in the late seventies and early eighties {Khan 1989}. As the intermediate classes grew in strength, the numbers of factions and competing ideological identities also increased. New ethnic1 religious and caste groups entered the political arena. This pattern of pohtics has not enriched the vast majority of the populations of these countries, but has enabled successive layers of emerging middle class groups to get access to rents on the basis of their ability to organize the much more numerous groups below them. UHF. of the distinctive features of rent-seeking Ln the Indian subcontinent is that the number of competing factions has always been large, and moreover, since the sixties, has been rapidly growing. An important consequence of this was that for anyone with resources to spare, organizational power in the form of 'Hrnemployed\" factions could be cheaplyr purchased. This explains wh'j.r emerging industrial capitalists l[and in the countryside, rich landlords} have found it so easyr to contribute to factions which could provide them with additional political muscle. 'lhis in turn. has allowed capitalists and others to see]: and protect redistributive rents. The excess supply of organizational power and the fragmented nature offactions helps to explain the dense structure of interlinked economic and political exchanges within patron-client networks in the Indian subcontinent. This interlocking of economic and political excharges in Indian con'uption was identied by (amongst others] Wade (1984', 1935; 1989}. Figure 1.? shows the complexityr of the ows of resources between the state, capitalists and political organisers in the Indian subcontinent which we will later compare with our other countries. In these diagrams, bureaucrats (E) and politicians (P) are shown as two parallel hierarchies within the state. For simplicity, Figure 2.? only distinguishes between two social groups, capitalists [Cl and non-capitalists (DuJ, the htter being led in the main by the intennedrate classes discussed earlier. However, successful non-capitalist organizers can often become political leaders or even capitalists over time. The cross-cutting patronclient resource ows in the Indian subcontinent can be described asagmonteo'cr'ienr'efism. There are a large number of competing patrons supporting non-capitalist clients [the arrows from P to N}. These flows are, Ln the rst instance, resources which political entrepreneurs spend as rent-seeking tryouts to buy organizational power. The quid pro quo for these patrons is a reverse flow ofpolitical and organizational support om clients. Since this is not an economic ow, it is not shown in Figure 2.7", but the organizational power which patrons mobilize in this way plays a critical role in the rent-seeking process in these countries. 1Eli-'hen this type of rent-seeking is successful. redistributii'e transfer rents for factions are created as an outcome shown by ows of resources typically funded by transfers from the state. These rents can benefit different constituencies and are shown m the diagram as a number of ows: from B to 1'; {when transfer rents are created for noncapitalist constituencies}, from E to C, (when transfer rents are created for capitalists}: and from B to P, {when political Leaders directly gain control over budgets which they can allocate to their constituencies). Buregucracy Politicians 1&1'5.' :'L'F: l " Ii "-. I I 1 I" .' '.'. I. '1' B ' i . \"a 'i' \"1-. B hp P I\" 1" Ir. Ti" 1 x i- I '1. '5' 1' LB Eli ' I. DC C P Capitaligts Non-Capitalist Clients Figure I. 'l' Resource Flows in Patron Client Network: The Indian Subcontinent This fragmented clientelism has important implications for rent- outcomes in industry. Like capitalists in other countries. Indian capitalists have engaged in straightforward rent-seeking. They have spent resources on politicians and bureaucrats {the arrows from C to P and om C to E) in tlr: form of inputs going into lobbying and bribes. When this rein-seeking has been successful, the rent-outcome for capitalists has taken the form of transfers sustairung primitive accumulation, monopoly rents protecting particular producers or ostensible learning rents [all shown by the arrows om B to (3}. But apart from this standard type of rent-seeking, capitalists in the Indian subcontinent have also engaged. in \"political" rent-seeking. Given the excess supply of organizational power, capitalists have spent rent-seeking inputs purchasing political organizers (the anows 'om G to N and om C to P), and thus organizational power and \"protection". These inputs gat'e individual capitalists the political power to protect their rents. The rent-outcome of this type of rent-seeking 1was the pofii'icoi' protection of rents which had an important but subtle effect. The purchase of factional political power by capitalists made it difficult for the state to manage rents for learning efciently. Subsidies had to be ganted to capitalists attached to powerful factions and could not be withdrawn once granted. This ensured that rents which were ostensibly learning rents for infant industries were effectively converted into monopoly rents for protected capitalists. Subsidies for poorly performing industries and sectors persisted despite common knowledge oftheir performance failures l[Khan 1935']. Although the Plulippines has a very different social history, with the oligarchs this plan, and the organizational power and legitimacy of intermediate groups never developed to the same extent. To say that South Korean industrial policy eventually beneted om this social history is not to deny the importance ofthe leadership role of Park lIShung-Hee, nor the importance of the institutions under which rents for leaming were administered during the industrial policy phase. However, similar institutional attempts to discipline recipients of learning rents failed in other countries, such as Pakistan in the sixties, which did not have this social history (see, for instance, Khan 1999). The pattern of South Korean rent ows shown in Figure 2.8 did change over time. Rapid economic development eventually created a large middle class which, by the mid- eighties, became increasingly unwilling to accept the high- handed way in which resources were being allocated by the state. Not suipIisingly, by the early nineties, revelations of conuption increased dramatically, even though much of this referred to the efcient rent-creation peliod of the sixties and seventies. The evidence suggests that the pattern of corruption was also changing by the nineties. Evidence of value- reducing interlocking between political factions and capitalists along the Indian pattern begins to emerge. Thus, in 1997, the steel company Hanbo went bankrupt amidst allegations that it had continued to receive state support long aer its poor economic perfolmance had become well-known. Factions within President Kim Young Sam's party and one ofhis sons were implicated in supporting these subsidies. In the same year1 Kim Young Sam's nance minister seems to have supported a takeover of the automobile operations of the Kia conglomerate by its competitor Samsung, a strategy which many observers felt was motivated by political rather than economic considerations. The minister was closely associated with Samsung, and the company had also invested heavily in President Kimis home town of Pusan. These and other revelations led to a decline of domestic and international condence in industrial policy well before the nancial crisis of 1997'. lIShang, Park 3: 1foo {1998} argue that these examples of efficiencyreducuig corruption in South Korea were not typical of industrial policy in that country. They subscribe to the view that the gradual abandonment of industrial policy in the nineties and the shift towards liberalization was a policy decision which was not driven by any change in the viability of old-style industrial policy. They may be right, but it may also be that by the nineties, real changes were taking place in the distribution of political power in South Korea which allowed rent-recipients to fonn political alliances to protect then rents in ways which had not been possible earlier. The growing technical sophistication of South Korean industry was undoubtedly also melting the allocation of learning rents more difficult, since bureaucrats were less and less competent to judge perfonnarne. The shift towards liberalization in South Korea may well have been driven, at least in part, by a recognition within the state that efcient rents for learning could no longer be effectively managed. Tl'us does not mean that liberalisation of the type selected was the only or the best response. Constructing the institutions and political alignments to manage learning rents when political power is ag'mented is a challenge for all developing countries. For relatively advanced coimtries like South Korea, which are operating close to the technical ontier on many (but by no means all] fronts and have exhausted easy learning opportiu'iities, the challenge is more daunting. Here, the challenge is also to