Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

While turning a blind eye to ethically challenged activities in their own ranks, economists essentially dictated what corruption is. Their way of thinking was constructed to deal with what is now characterized as “need” corruption, which “builds on coercion and extortion,” as two political analysts have defined it. There was little room for “greed” corruption, in which actors collude to advance their own agendas and which is more difficult to see. 13

Moreover, the flawed analytic tools the economists crafted and sold us served to shove accountability under the rug. Their faulty metrics would point the finger in the opposite direction from themselves. Thus the First World banker trading in exotic derivatives and betting against his own clients would get a pass, with economists’ political influence helping keep regulations at bay and thereby sanctioning the lack of sanction against these practices. Meanwhile, the mid- or low-level Nigerian or Ukrainian bureaucrat earning many times less than his Western counterpart is disparaged for taking bribes that feed his family. The new corruption right under the economists’ noses—the bad actors soon to help unravel the world economy—was ignored. Their actions were often even embraced as financial “innovation.” And many of them were welcomed, some quite literally so, into the halls of power in Washington.

However unaware of their blinders and however well-intentioned many of the economists and their acolytes might have been, this narrow view of corruption offered the perfect intellectual cover. And with corruption defined down, First-Worlders could feel good about their countries’ favorable scores on corruption indices.

It would be another decade before the seeds of unaccountability sown by the likes of the Committee to Save the World would undeniably blossom in the West. But blossom they would, and bear bountiful and continuous bitter fruit for the world to swallow. Through it all, the new corruption flourished.

THE HIGH PRIESTS

Central bank leaders, predominantly economists, have been likened to Old Testament prophets and medieval priests for their near-unquestioned infallibility and power. 14Still, boring, nerdy economists may not have seemed like good candidates for making corruption hot. But indeed they did. Economists plied their trade, the public-policy equivalent of sex toys: media-friendly numbers and headline-making ranking systems. They also bandied metaphors—yes, metaphors—which routinely seduce our unsuspecting selves and which are widespread in economics more generally. The metaphors encapsulated their theories and made them accessible. With the exception of the isolated scandal, corruption had pretty much just sat on the shelves of social scientists. 15But now, these innovations were attracting attention to the topic and giving corruption a seat at the public-policy table.

Ranking schemes, notably TI’s Corruption Perceptions Index, were the divining rods of the High Priests and a communications bonanza. The CPI was, in the words of the organization, “one of TI’s most important tools in raising awareness for the problem of international corruption.” 16Indeed, as TI reported: “The 1996 Index generated headlines literally around the world. In Berlin we were besieged with telephone calls, in one day responding to interview requests from about thirty radio stations in four languages. Several of these were from international radio services.” 17

The CPI was easy to grasp. Johann Graf Lambsdorff, a German economist, had created this grading system. Executed, seemingly with military precision, through one simple number, in one fell swoop, it revealed who’s most corrupt, who’s least, who’s somewhere in the middle—and who has moved up or down since last year. Just one number released each year, in the same vein as the monthly figures that track the rate of inflation or the number of jobs lost each month or the level of unemployment, would mark a country for the coming year and beyond.

Metrics made corruption easily digestible for busy reporters without the need to investigate a specific case or news story. A regularly updated, soundbite-ready ranking is, in the words of a TV business news producer during the 1990s, “an easy hook” for a simple story without much context. 18Ivan Krastev, a Bulgarian-based political scientist who observed the anti-corruption industry as it revved up, argues that corruption-ranking indices generated essential momentum. 19To amass resources and build a continuous cycle of mobilization, the movement had to attract the media. It had to create buzz and keep that buzz going. The annual CPI releases did just that. High-powered, attention-grabbing conferences also helped. Within a few years, policy circles spanning international financial institutions, Western governments, big business, NGOs, and Third World elites embraced the anti-corruption cause.

The High Priests were steeped in a theory that guided a lot of public-policy thinking and would skew understanding of corruption and how to curb it. The principal-agent theory, as it’s called, is simple: there are two parties. One party (the principal) employs another party (the agent) to do a job for him. Let’s say that the principal is a government and the agent is a bureaucrat. The agent is supposed to be working for the government and not in his own interest. If he thinks he can do better for himself by taking a bribe rather than working “clean” for the government, then, the theory goes, he’ll take the bribe. As economist and corruption scholar Robert Klitgaard explains, “An agent will be corrupt when in her judgment her likely benefits from doing so outweigh the likely costs.” 20The challenge for the principal, then, is to devise incentives to ensure that she (the agent) will act in the best interest of her principal. This is the essence of the principal-agent theory in terms of corruption. 21It forms the High Priests’ scripture on corruption and underpins many anti-corruption efforts. 22

The public and the media didn’t need to quite grasp the theory, because the High Priests—like anyone else, including me, trying to get a point across—explained it to their supplicants using metaphors. While policymakers routinely spoke of “combatting” corruption (a military metaphor), the High Priests are fond of medical metaphors. Thus corruption is an “illness” or a “disease [with] many . . . strains and mutations,” as economist Klitgaard declared. 23“ Pathologies in the principal/agency relation are at the heart of the corrupt transaction [emphasis added],” as another economist, Susan Rose-Ackerman, wrote. 24Such dramatic metaphors command our attention and are catnip to quote-hungry media outlets—ever more so in an age of 24/7 news cycles and multitasking attention deficits. They prod us to action: with failures of the system (like parts of the human body) being disorders that require redress, and corruption a disease, it follows that “skillful surgeons” can excise it, as Klitgaard claimed. 25The economists, of course, signed up for the role of surgeon.

The High Priests were accustomed to this role. Since mid-century, economists had dominated the world’s financial institutions such as the International Monetary Fund, the World Bank, and the OECD. Eminent players routinely bounced between the ivory tower and, say, the Federal Reserve or the U.S. Treasury.

The economists assumed even more power in the 1990s, after the “end of history” and with the “new world order” brought about by the collapse of the Soviet Union, as President George H. W. Bush declared. 26In the exhilarating days of America’s having “won” the Cold War, the icons of American capitalism and their true believers were on top of the world. Economists and Wall Street pundits gained outsized visibility and influence outside the ivory tower. The new cable-TV business channels offered them an outlet to promote their ideas, and they were gobbled up as gold. Economists of high repute, such as the late Nobel Laureate Gary Becker, whose musings on corruption had heretofore been confined to academic journals, now expounded on the issue in publications like Business Week . 27American-style capitalism lifted all boats. It was thoroughly embosomed not just by its usual sponsors—Republicans—but now by Democrats too. With America and its economy riding so high, and American hubris and can-do-ism at full throttle, economists became even more godlike.