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Western aid agencies and scholars agree that the rule of law is required before developing countries can reduce poverty and corruption. For decades, they have supported aid programs designed to help developing countries establish law-based states.

But our research suggests that they have the sequence backward. Before urging governments to adopt the rule of law, they must first advise reformers to take one key step: eliminating the government subsidies that sustain criminal elites and replacing the compromised bureaucrats who patronize them.

What is rule of law?

By the rule of law, most specialists mean a system of sophisticated laws that apply to everyone regardless of wealth, power or status, including the bureaucratic and judicial agencies needed to administer and enforce the rules. In a rule-of-law state, the rules apply even to the rulers, not just the ordinary folks.

The rule of law is not the same as democracy. Scores of developing countries have demonstrated that establishing democracy is the easy part. The rule of law is harder to attain. From India and the Philippines to Argentina, democracy coexists with endemic corruption, and elites remain largely exempt from the rules.

Why Estonia succeeded

Our research shows that a few good policies can pave the way for the rule of law. For instance, Estonia’s clean and capable state administration represents a model of post-communist success. But this was not always the case. In 1991, when communism collapsed, Estonia, like other post-Soviet countries, had almost no working institutions and a burgeoning class of economic predators, nor was Estonia economically privileged. In the early post-Soviet years, its income per capita was only 10 to 20 percent higher than that of Russia and Romania and 20 to 30 percent lower than that of Croatia, Slovakia and Hungary.

But Estonian leaders acted boldly. First, they swiftly eliminated compromised communist-era civil servants and replaced them with motivated, young opposition activists. This deprived would-be political capitalists of the patrons they needed to pursue their illicit ends.

Second, early Estonian governments ended practically all subsidies to state and private enterprises. Such a move always triggers charges of “neoliberalism” from some Western scholars (see hereherehere and here), many of whom fail to recognize that, in developing countries, state subsidies almost always benefit corrupt elites more than ordinary people.

This policy cut off the budding economic criminals who profit from state largesse rather than entrepreneurial aptitude — and made it possible for real entrepreneurs to thrive. Deprived of subsidies, old-guard enterprise directors and crony capitalists could not muster enough political influence to hold governments hostage. Estonian leaders could then create a rule-of-law state that stands alone among its post-communist peers. 

The West’s involvement

Unfortunately, Estonia is the exception and not the rule. That’s  not for lack of trying on the part of the West. The United States, the European Union, the World Bank, the European Bank for Reconstruction and Development and the United Nations have spent billions of dollars for the express purpose of helping countries build a rule of law. NGOs such as the American Bar Association and the MacArthur Foundation have also contributed, marshaling hundreds of millions of dollars in rule-of-law assistance.

Yet it isn’t spreading

But they’re stumbling. The Western effort assumes that the rule of law will flourish only if developing countries receive enough education, guidance, training and money. In fact, a growing body of research throws such optimism into doubt. The rule-of-law campaign has had disappointing results (see here, here, here and here).

Why? The underlying problem is political. Developing-country elites often depend on the rule of law’s absence for their survival and enrichment. More money, training and education won’t work as long as those who hold power prefer that it not arise and can easily undermine any efforts to introduce it.

That’s because adopting the rule of law is complex. A country needs to enact an immense number of rules. Crafting and enforcing those rules requires cooperation among legislatures, ministries, departments of ministries, the judiciary, local governments and more. At each stage, defenders of the status quo can sabotage or twist the effort to their advantage.

For instance, countries such as Ukraine and Nigeria have received copious support from the international rule-of-law community. But to this day, unaccountable elites control those countries while prosecutors’ offices are run as private extortion rackets. Elites regularly manipulate or hollow out laws — including those pushed by well-meaning Western and international agencies — that are supposed to promote openness and accountability.

Ukraine’s laws on minority shareholder rights serve as an example. While the laws look progressive, in practice predatory business groups allied with politicians have used them to buy up small shareholdings in targeted companies so that they can illegally seize them from the majority owners. Similarly, a much-praised recent law that aimed to enhance judicial independence was rendered meaningless when the prosecutor general rigged the selection process to hand all prosecutorial appointments to compromised loyalists instead of independent-minded outsiders.

Or look at Kosovo. Since 1999, when a NATO military intervention freed the province from Serbian rule, Kosovo has not merely received foreign assistance; it has been partly governed by the European Union and United Nations, which have invested tremendously in establishing the rule of law. In 2008, the E.U. brought in a dedicated law-enforcement agency, EULEX, endowed with sweeping powers to investigate, prosecute and judge corruption cases.

In 2014, after 1 billion euros had been spent on the program, investigators concluded that EULEX had backfired. According to an investigator, “the political elite and EULEX have fused. They are indivisible. The laws are just for poor people.” He concluded that organized crime and corruption had worsened under EULEX’s tenure. Today, Kosovo remains mired in corruption and misrule, controlled by elites who are wholly unaccountable to the law.

Scholars often treat the rule of law as a prerequisite for market-oriented economic policies such as liberalizing prices and trade and eradicating wasteful subsidies. They’re getting it backward. Instead, first eliminate the subsidies and purge the compromised bureaucrats who stand in the rule of law’s way. This is hard to do. It will provoke tremendous resistance from those who profit from the status quo. But it’s far more realistic and effective than simply encouraging countries to adopt the rule of law.

Neil A. Abrams, PhD, is a political-risk consultant for investors in emerging-market countries. He is completing a book on corruption in post-communist Europe. Follow him on Twitter: @neil_abrams.

M. Steven Fish is a professor of political science at the University of California at Berkeley.