More thoughts on corruption. Why are middlemen so widely pervasive in government? There is the obvious economic efficiency logic that middlemen have competency in delivering the service for a fee. In simple terms, middlemen have developed a core-competency in penetrating government bureaucracies and delivering hassle-free service - or citizens outsource the inconvenience of interfacing with government to a "professionally competent" agency!
Less obvious is the behavioral psychology of their existence. In the absence of middlemen, officials would have to directly deal with each individual citizen. Such multiple interaction channels naturally increases the risks associated with any rent-seeking. Middlemen mitigate this risk by gaining the trust of partners in the bureaucracy. Like in any other similar non-formal (or plain illegal) occupations, trust underpins the survival of all the participants in the rent-seeking market.
It is in the interest of the middleman that he maintains strict confidentiality on all his transactions. Any deviation would not only imperil his accomplice in the government, but also mark him out as an unreliable partner for potential government partners and thereby force him out of the market. This tightly binding relationship between accomplices on both sides means that it is extremely difficult to penetrate the network, thereby leaving regulatory solutions and supervision with limited chance of success.
The inherent strength of the rent-seeking market therefore lies in both its economic efficiency and organic unity. In the circumstances, the only way to overcome this corruption is to completely eliminate this market by creating a parallel one that services the fundamental need - hassle-free access to government service for consumers with a willingness to pay.
As I have blogged earlier, possible solutions are two-fold - differential pricing and outsourcing. In the former, government appropriates the bribe in return for a promise to deliver a premium hassle-free service. In the latter, government legalizes the "non-formal" outsourcing arrangement.