Sharing the Wealth? The Impact of Elite Capture in Indonesia

 

DEVELOPMENT

Sharing the Wealth? The Impact of Elite Capture in Indonesia

Rema Hanna Faculty ResearcherRema Hanna, Associate Professor of Public Policy, Harvard Kennedy SchoolPaper Title
Does Elite Capture Matter? Local Elites and Targeted Welfare Programs in IndonesiaCoauthors
Vivi Alatas, Ririn Purnamasari, Matthew Wai-Poi, World Bank; Abhijit Banerjee, Benjamin Olken, MIT

In 2011, the non-governmental organization Transparency International surveyed Indonesian citizens to gauge views of government corruption in their country. Of those polled, 43 percent believed that corruption had grown worse over the previous three years, and 20 percent believed that no improvement had been made. However, systematic data on corruption are hard to come by, and much of what is known comes from anecdote or conjecture, argues Rema Hanna, associate professor of public policy at Harvard Kennedy School, and her coauthors in a research paper titled “Does Elite Capture Matter? Local Elites and Targeted Welfare Programs in Indonesia.”

The Indonesian government runs a number of household-targeted social programs focusing on food aid, health care, and cash transfers. Concerns over “elite capture,” a form of corruption in which village leaders extract funds meant for others in the community, have caused the government to adjust the way in which these programs are administered, essentially removing local leaders from the equation. “Large swaths of development policy have been designed to systematically marginalize local leaders,” the authors explain, highlighting that this decision comes “with potentially significant costs.”

In their study, Hanna and her colleagues analyzed elite capture by examining data on targeted social programs collected by the Indonesian government. Additionally, they performed a high-stakes field experiment in which they “randomly varied the degree of control that local leaders could exercise over a program,” and allowed substantial flexibility for local elites in allocating the benefits to their community. The goal of the study was to determine whether elite capture is “quantitatively large enough” to justify the government’s concern and subsequent marginalization of local leaders.

The authors found “little evidence of local elite capture,” noting that “eliminating elite capture of the beneficiary list altogether would increase the welfare gains from the programs by at most about one percent.”

The study did find some evidence of elite capture among formal elites — those holding elected offices — but only in certain cases. “To the extent that we observe capture by formal elites, it is most likely when there are additional benefits left over after addressing the very poor,” they explain, “or when the coverage is high enough that it is at least plausible that relatively well-off households could potentially be eligible.” Hanna and her colleagues argue that the government should focus on other challenging problems affecting social welfare programs.

Because “collecting a census of data on the asset variables is challenging,” Hanna says, the government should focus on methods “to improve data quality at this large a scale.” Another problem is that “it can be hard to predict consumption with assets” and thus “there are inherent challenges in devising formulas to determine eligibility.”

In its effort to prevent elite capture, the Indonesian government may also be missing an opportunity. The authors posit that because local leaders possess area knowledge that can be beneficial in allocating funds, they should be relied on as a resource, not cut out of the process. Additionally, including local leaders in the allocation of funds will help them to hone their leadership skills and demonstrate performance.

When asked if her research could have an effect on how Indonesia handles its targeted social programs, Hanna responded that it already has. “The Indonesian government has included a community-based approach as a methodology for the targeting list to be updated in cases where richer people have been inadvertently placed on the list,” she explained.

By invalidating the basis for skepticism of the government in Indonesia, the study demonstrates the critical role that research and data play in constructing development policy. “Empirical research has the potential to surprise us — to update our beliefs on how policies operate in reality,” Hanna explains. She admits that she was initially very skeptical of community approaches, because of elite capture. But, “in this case, the data made me much more favorably inclined to these types of policies.”

- by Jane Finn-Foley

“Because local leaders possess area knowledge that can be beneficial in allocating funds, they should be relied on as a resource, not cut out of the process.”


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