Алистер Смит - The Dictator's Handbook - Why Bad Behavior is Almost Always Good Politics

Wall Street: Small Coalitions at Work

From any boss’s perspective, the best way to organize a business is exactly the same as the best way to organize a government: rely on a small group of essentials, drawn from a small group of influential selectors, who are drawn from millions of interchangeable selectors. That, of course, is a perfect description of most modern, publicly traded corporations. It also happens to be a pretty good description of organized crime families. A coincidence? Probably not—and not for the reasons you may be thinking.

Big corporations do not coerce people to consume their services. In fact, they provide valuable services that lead people voluntarily to spend money on them and to make themselves generally better off for having done so. But, like the mafia, and like monarchies and petty dictatorships, publicly traded corporations are made up of a small coalition, a small group of influentials, and masses of interchangeables. That means that for their leaders—the CEOs, CFOs, and other senior management—to survive in office they must provide lots of private goods to their coalition of essential supporters.

The media (itself made up of just such corporations) like to portray Wall Street businesses as tone-deaf and greedy. We take a broader view: pretty much all of us are greedy, some for money, some for adulation, some for power, but all greedy nevertheless. Some few among us have the opportunity to act on our greed, while most of us are confined to pursuing our greed in minor ways. Wall Street bankers have the opportunity to satisfy their desire for money and power in a big way and we should not be surprised that they do so.

As we all know, the world economy went through a massive tumble in recent years. Even several years after the near-depression’s onset, unemployment remained high and economic growth meager. And yet—here being the media’s basis for the accusation of tonedeafness—Wall Street bonuses remained huge even as the banks lost their proverbial shirts. Wall Street financial houses distributed $18.4 billion in bonuses in 2008, even though many of the largest Wall Street firms begged for and got billions in bailout money from the federal government. Of course, these bonuses, distributed among the leaders, their coalition, and their influential backers, are the very private goods that helped keep the existing managers in their jobs. It is equally worth noting that these bonuses were more than 40 percent lower than in 2007, the year before the economic collapse. Private goods are doled out from revenue. If revenue is down, private goods are likely to go down too, because, after all, leaders want to keep as much for their discretionary purposes as possible, and when there isn’t much money around it is not as if those getting private goods can easily find a better deal by defecting to some alternative leadership.

Dealing with Good Deed Doers

We commented earlier that “Successful leaders are not above repression, suppression, oppression, or even killing their rivals, real and imagined.” The truth of this statement is demonstrated routinely in the world’s smallest coalition environments. Aleksei Dymovsky’s unhappy experience in Russia is nothing compared to what happens when anticorruption campaigns are mounted in really small coalition settings.

Africa provides many of the worst cases. Daniel Kaufman, a senior fellow at the Brookings Institute, estimates that more than a trillion dollars is spent annually on bribes worldwide, presumably with most of it going to government officials. With so much money on the line, it is no wonder that he also reports, “We are witnessing an era of major backtracking on the anticorruption drive. And one of the most poignant illustrations is the fate of the few anticorruption commissions that have had courageous leadership. They’re either embattled or dead.” Two examples among many include the deaths of Ernest Manirumva of Burundi and Bruno Jacquet Ossebi in the Congo. Mr. Manirumva was investigating corruption at high levels in Burundi when he was stabbed to death. Although he apparently was not robbed of his personal possessions, the president of the nonprofit organization he was working with reported, according to the New York Times , that, “A bloodstained folder lay empty on his bed. Documents and a computer flash drive were missing.” Coincidence, no doubt!

Mr. Ossebi’s error was to cooperate with Transparency International in its lawsuit to recover wealth allegedly stolen by Congo’s president. Mr. Ossebi died as the result of a suspicious fire in his home. Alexei Dymovsky, if he knows these facts, must count his good fortune in living in a country that is transitioning away from democracy rather than in one that never got close to such a status in his lifetime.

Cautionary Tales: Never Take the Coalition for Granted

Whistle-blowing is not the only way to get in trouble. Leaders can put themselves at dire risk if they take their coalition’s loyalty for granted. The rules governing rulers teach us that leaders should never underpay their coalition whether they do so to reward themselves or the common people. Those who want to enrich themselves must do so out of discretionary funds, not coalition money. Those who want to make the people’s lives better likewise should only do so with money out of their own pockets and not at the expense of the coalition. Leaders sometimes miscalculate what is needed to keep the coalition happy. When they make this mistake it costs them their leadership role and, very often, their life. The stories of crime boss “Big” Paul Castellano and Roman emperor Julius Caesar are cautionary tales for any who would make the mistake of not giving the coalition its due.

“Big” Paul Castellano, who inherited control of the Gambino crime family in 1976, made just such a mistake. He shifted the focus of the family business to racketeering and shaking down the construction industry. Indeed it was said that no concrete could be poured on projects worth over $2 million in New York City without the mafia’s permission. That would have been fine for his crime family if the wealth from these new activities flowed to its members, or if he continued to pay sufficient attention to their traditional revenue sources. Instead, he neglected the traditional businesses, like extortion, loan sharking, and prostitution that were the source of income for his coalition of mafiosi. When a moment of opportunity presented itself, triggered by the death of a key supporter, Aniello “Neil” Dellacroce, and the pressures from the ongoing Mafia Commission Trial prosecuted by Rudy Giuliani, Castellano’s erstwhile backers turned on him. John “the Dapper Don” Gotti, Frank DeCicco, Sammy “The Bull” Gravano, and other captains worked together to gun down Castellano outside of Sparks Steak House on Forty-sixth Street in New York.13

Castellano rewarded himself at the expense of his supporters and it cost him his life. A few thousand years earlier, Julius Caesar’s mistake was to help the people at the expense of his backers and this too cost him his life. Julius Caesar’s death at the hands of some of his closest supporters is often portrayed as the slaying of a despot. But the facts don’t support this interpretation.

Julius Caesar was a reformer. He undertook important public works, from redoing the calendar and relieving traffic congestion, to stabilizing food availability. He also took steps specifically designed to help the poor. For instance, he provided land grants to former soldiers and got rid of the system of tax farming, replacing it with a more orderly and predictable tax system. Not only that, he relieved the people’s debt burden by about 25 percent.

Not surprisingly, though these policies were popular with the people, many came at the expense of Rome’s prominent citizens. Tax farming was, of course, lucrative for those lucky few who got to extract money from the people. High indebtedness was also lucrative for those who were owed money. These groups found Caesar’s reforms hitting them straight in their anachronistic pocketbooks and, therefore, not at all to their liking. Popular though many of his reforms might have been with the man on the street, they harmed the welfare of the powerful influentials and essentials, and it was of course these people who cut him down.14