Posts tagged with: Political corruption

Blog author: jcarter
posted by on Monday, June 16, 2014

briberyThere’s an old saying that corruption is authority plus monopoly minus transparency. That combination makes state-level governments especially prone to the temptations of corruption.

A new study in Public Administration Review, “The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending,” looks at the impact of government corruption on states’ expenditures. Defining corruption as the “misuse of public office for private gain,” the authors of the paper note that public and private corruption can have a range of negative effects, including lower-quality work, reduced economic productivity, and increased poverty.

According to Leighton Walter Kille, the researchers explored two possible theories: First, higher levels of corruption should cause states’ spending levels to be higher than they would be otherwise. Second, corruption would distort states’ spending priorities in ways that favor bribes from private firms and others. Some of the findings include:
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Blog author: jcarter
posted by on Wednesday, March 26, 2014

Many who reject capitalism in favor of some “third way” do so because they often mistake it for government-corporate cronyism, says Jonathan Witt in this week’s Acton Commentary. But in countries that have begun extending true economic freedom to the masses, capitalist activity has already lifted hundreds of millions of people out of extreme poverty.

Happily, a new piece in The Economist magazine offers some helpful medicine for the confusion, insisting on the distinction between cronyism and capitalism while also pointing to some hopeful signs that a rising middle class around the globe is gaining the clout to fight the power structures that still wall millions out of the wealth creation game. My reservation about the article is that it misreads America’s Progressive era, and in the process, leaves cronyism’s favorite trick unexposed.

According to the piece, crony capitalism in America “reached its apogee in the late 19th century, and a long and partially successful struggle against robber barons ensued. Antitrust rules broke monopolies such as John D. Rockefeller’s Standard Oil. The flow of bribes to senators shrank.” Later, it tells readers that while developing countries are making progress against cronyism, “governments need to be more assiduous in regulating monopolies.”

The full text of his essay can be found here. Subscribe to the free, weekly Acton News & Commentary and other publications here.

Transparency International has released its 2013 findings regarding global corruption and bribery. The implications of corruption and bribery are manifold: they decrease confidence in governments, make it difficult for the poor and corruptiondisconnected to get out of poverty, and break down trust throughout society. In fact, Transparency International found that two institutions that should be the most trusted (police and the judiciary) are the ones most riddled with corruption, world-wide.

Here is one example:

Fifty-year old Carmela [name has been changed] was sleeping at home when she was woken by banging and shouting from the  apartment above, where her son lives. Rushing upstairs, she says she found the 27-year-old mechanic being beaten by police officers. Ignoring her cries, the officers dragged him from the apartment and took him to their local headquarters, where they demanded payment for his release. Carmela’s problem is not new in her community, a makeshift settlement where local people claim to suffer constant harassment from certain police officers who demand bribes in return for leaving them in peace. Fearing retaliation, people find a way to pay the officers, who reportedly ask for as much as several thousand US dollars. But for Carmela, a housekeeper with four children, one suffering from cancer, this was impossible. Acting on Carmela’s behalf, Transparency International Venezuela contacted senior government and police officials, calling on them to take action. As a result, when she went to the local police headquarters to pay the bribe, the state authorities were watching. As soon as the money changed hands, they moved in and arrested the officers involved. Her son was released without payment. The police officers were detained and now await trial, while a full investigation is underway.

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The Rana Plaza garment factory collapse in Bangladesh on April 24th killed 1,127 people, including almost 300 whose bodies have not yet been identified. In the article, “Buy Yourself a Cup of Tea” — A Collapse in Culture”, PovertyCure’s Mark Weber highlights a complex and deeply-rooted problem within Bangladeshi culture that has contributed to numerous disasters like this: corruption. The reversal of this pattern requires a commitment much stronger than any government regulation can provide, he maintains.

He says,

Corruption disguises what is true and what is untrue, what is safe and what is unsafe, what is legitimate and what is illegitimate. It disallows the ideal of a free market because the economic actors are not truly free, for they are subjects to a thousand cronies. This is why, while the push for increased corporate standards is indeed of utmost importance, a deeper conversation about corruption needs to take hold. Government regulations in the many forms of building codes are already well established; they’re just not being honored. Western companies are increasingly careful, if not by their own volition then by the powerful push from consumers, but they’re inevitably limited in their powers of supervision. For an end to the factory fires and structural disasters that kill innocent Bangladeshi workers every year, the culture of petty corruption needs to be overthrown. Such a revolt will necessarily have to come from within…

View the entire article on the PovertyCure Blog.

ForbesAlejandro Chafuen, president and chief executive officer of Atlas Economic Research Foundation and board member of the Acton Institute, recently wrote a piece for Forbes.com about crony capitalism.

Chafuen used to spend his summers in Argentina, so he begins his article with a story about a friend from Argentina. Enrique Piana, known to his friends as “Quique,” was heir to “Argentina’s oldest and most respected trophy and medals companies.”

During part of the ’90s, the government of President Carlos Menem, and then-Minister Domingo Cavallo, had a policy for the importation of gold and exports of gold fabrications that amounted to a major subsidy for exporters. Attracted by the incentives, Quique, who had become CEO of his company, became a key player in a scheme whereby exporting overvalued gold-plated products netted them 30 million in subsidies for fake transactions. As it seems that none of the medals were sold at artificial value to true customers, the only victims here ended up being the Argentine tax-payers.

The scheme involved a “business” in the United States. As there is still substantial respect for rule of law in the United States, Quique was indicted, captured, and—after some months in a U.S. jail—extradited to Argentina. In his book, he lists the government officials who he claims knew about the scheme and who received bribes for his fraudulent activities. I will not mention them here. None of them were sentenced to jail. (more…)

Blog author: ehilton
posted by on Monday, December 10, 2012

Perhaps one of the biggest obstacles to wealth creation in the developing world is corruption. Bribery, rigging of the political process, theft, lack of accountability: all of these lead to instability, bureaucracy, and a lack of incentive to invest. The United Nations has declared today International Anti-Corruption Day in an effort to bring light to this topic and work to prevent it.

George Ayittey, Ghanaian economist, explains how massive a problem corruption is for Africa:

Imagine, Africa has a begging bowl and that into this begging bowl comes… foreign aid. But this bowl has holes in it, so it leaks. There’s a massive hole here through which corruption alone cost Africa $148 billion dollars. That’s a massive leak. What should be done first – plugging the leaks or putting more aid money in? Now this is something which even an elementary school student should be able to answer. I mean, you pouring more and more and more into the bowl and then it leaks. Defining insanity: as doing the same thing over and over and over and again and expecting different results—makes no sense.

Osvaldo Schenone and Samuel Gregg share their thoughts on corruption and its scourge in the Acton Institute monograph A Theory of Corruption. The monograph explores the political and international ramifications of corruption, but also its moral implications. (more…)

Blog author: jcarter
posted by on Wednesday, June 6, 2012

“It’s helpful to look at the track record of this bipartisan idea that government is smarter and better at picking winners and losers in the marketplace,” said House Budget Committee Chairman Paul Ryan at a recent hearing on efforts to combat cronyism and promote upward mobility. “What we have learned from this bipartisan approach is that corruption does occur, cronyism does occur, and what ends up happening is those who are connected, those who have established connections, those who know the ways of Washington end up usually getting the benefits.”
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Blog author: kspence
posted by on Thursday, November 10, 2011

Director of Research Samuel Gregg’s thoughts on the debate are up at The Corner. He sees a parallel between the Italian crisis unfolding across the ocean and the problems facing the United States — particularly in Michigan, where this debate was held. The collapse of Italy would certainly be a dramatic illustration of the shortcomings of crony capitalism, and Gregg thinks a candidate could find a majority of voters who don’t want that to happen.

With the Italian-flavored shadow of the European Union’s ongoing financial implosion overhanging the United States, it was expected that America’s own fragile economic state would be front-and-center at this debate.

This time, however, there was less argument among the GOP candidates. Instead, there were far more direct critiques of (1) President Obama and (2) the pattern of crony capitalism with which more and more Americans are visibly losing patience. The debate’s setting — the state of Michigan — is a living exemplar of all the fallacies of bailouts and business-union collusion, as well as a failure to promote the type of innovation that produces wealth but that also threatens businesses (like the Detroit car companies) that don’t like competition.

Also noticeable was the increased willingness of the candidates to advocate market solutions to any number of problems, the most prominent being America’s ongoing mortgage farce, the looming crisis of student debt, and the inexorable rise in health-care costs. That’s a welcome development. If this trend keeps up, maybe one of them will make the dismantling of crony capitalism a central plank of his platform. That won’t please the likes of General Electric and the City of Chicago, but there are surely votes there.

Wang Yue

On The American Spectator, Acton Research Director Samuel Gregg looks at the death of Wang Yue, a Chinese toddler run over — twice — in a public market while passersby continued on their way.

Gregg:

Accidents happen. But what made little Wang Yue’s death a matter for intense public discussion was the fact that nearly 20 people simply walked by and ignored her plight as she lay bleeding in the gutter.

What, hundreds of Chinese websites, newspapers and even state media outlets are asking, does this say about Chinese society? Have Chinese people lost all sense of concern for others in the midst of the scramble for wealth unleashed by China’s long march away from economic collectivism? One local official summarized the collective angst by stating: “We should look into the ugliness in ourselves with a dagger of conscience and bite the soul-searching bullet.”

Gregg points to widespread business-government corruption as a major contributor to China’s moral crisis:

The problem, from the perspective of China’s party-government-military elites, is such soul-searching may lead increasing numbers of Chinese to conclude that the circumstances surrounding Wang Yue’s death are symptomatic of deeper public morality problems confronting China, some of which could significantly impede its economic development.

One such challenge is widespread corruption. By definition, corruption doesn’t easily lend itself to close study. Its perpetrators are rarely interested in anyone studying their activities. Few question, however, that there’s a high correlation between corruption and widespread and direct government involvement in the economy. The more regulations and “state-business” partnerships you have (and China has millions of the former and thousands of the latter), the greater the opportunities for government cadres to extract their personal pound of flesh as the price of doing business.

Read “China’s Morally Hollow Economy” on the website of The American Spectator.

Blog author: jcouretas
posted by on Friday, March 11, 2011

In a new essay for Public Discourse, Acton Research Director Samuel Gregg explains why we shouldn’t only focus on public sector unions as examples of organizations that seek government power and taxpayer dollars to advance their ends. “A considerable portion of the business community is equally culpable,” Gregg writes. Excerpt:

The attractions of business-government collusion are enhanced when the state’s involvement in the economy grows. This is partly a question of incentives. The larger the scope of government economic intervention, the more businesses are incentivized to cultivate politicians in much the same way that public sector unions have.

As a result, consumers become displaced as the focus of business activity. Nor do the incentives for people of an entrepreneurial bent lie with creating something that the entrepreneur thinks consumers will value.

Instead the incentives become increasingly aligned with successful political entrepreneurship. Competition becomes less about a company’s ability to offer new and better products for consumers at lower prices. Instead, it become a struggle among businesses to secure state subsidies, to lobby legislators to establish tariffs that stack the deck against foreign competition, or to persuade governments to provide one company with exemptions from regulations that apply to every other company in the same industry.

It’s a form of soft corruption that produces higher prices for consumers, undermines value creation in the marketplace, and facilitates unwholesome relationships between politicians and businesses. It also represents the gradual subversion of the market economy by mercantilist arrangements. Smith identified the core of the problem in his Wealth of Nations (1776): “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and consumption.”

In the end, however, everyone loses.

Read Samuel Gregg’s “Business vs. the Market” on the Public Discourse website.