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

The Patient Is the Other

The most important thing to know about any patient is that the patient is sick. In the language of economists and the anti-corruption industry, many Second and Third World countries were very sick. The entire enterprise embraced this underlying assumption. 51

During the Cold War, there had been a lively intellectual debate about the benefits versus the harms of corruption, as I mentioned earlier. Some economists and political scientists had argued that corruption could have developmental benefits. But after the Cold War, “out” was debate about whether corruption is harmful. “In” was discussion about how to “cure” the “cancer” of corruption. Any mention of the potential benefits of corruption virtually disappeared from the economics literature, 52apparently under the weight of the massive resources that had been made available to study the subject. As economist Lambsdorff reflected in 2006, years after the anti-corruption effort had burst forth, “Most economists . . . have become much less tolerant of corruption than their predecessors. Current research emphasizes the adverse welfare consequences of corruption.” 53

The essentially unified opinion among economists about the harms of corruption now was the same sermon preached by U.S.-based multinational businesses. American companies, arguably the strongest in the world, were eager to curb corruption and level the business playing field. 54

The idea of corruption as bad for big business became an article of faith among economists and business leaders alike. In the anti-corruption world, as well as in big business and investment circles, the conventional wisdom had it that corruption, because it distorts the “free market,” diverts resources to ineligible or unintended recipients, holds back economic development, and frustrates business goals.

The second crucial thing to know about this particular patient, as viewed by the economists, is that the patient is rarely us. The patient is the Other, whether an entire country, a government, or a bureaucrat. TI’s 1997 annual report is telling. A chapter on “National Developments” devotes, in this order, seven pages to Africa; eight pages to the Americas, concentrating on Latin America (with the United States covered in less than a page and a half, reporting TI-USA’s assistance to international anti-corruption efforts and standard setting); about seven pages to Asia; eight pages to Europe (with attention to Central and Eastern Europe and Russia, and then to Western Europe, mentioning the work of national TI chapters, as well as scandals involving the Belgian police and judiciary and Swiss banking’s lack of transparency); and not quite two pages to the Pacific. 55Of course, this idea that the patient is the Other is hardly surprising, given that the anti-corruption industry came on the heels of the Western push to reform and transform the former Soviet Union and Eastern Bloc. And the fact that the World Bank, the premier global development institution, was a chief leader of the anti-corruption charge could only reinforce corruption as belonging to those Others. 56The Russian financial crisis of 1998, as well as the Asian one that erupted a year earlier (which was attributed to “crony capitalism”), intensified the “otherness” of corruption even more.

Just which corruption—and causes thereof—the economists chose as their focus helps explain why they couldn’t see the new corruption in the making. While the new corruption crosses borders, the ranking systems of the anti-corruption industry generally imply that corruption is endemic to a specific country (recall TI’s Corruption Perceptions Index). 57Moreover, corruption emanates from the inside. Largely excluded are external influences, say, the impact of foreign-aid dollars on local politics, which, as I noted, can be all-important. 58

But while players of the new corruption meld their official and private activities for maximum influence, the anti-corruption industry zoned in on governments, not on the whole latticework of power. In the economists’ creed, corruption primarily afflicts governments, not private sectors. 59Because the public sector is a fountain of corruption in this approach, minimizing it contains corruption. As Gary Becker advised in Business Week , “To Root Out Corruption, Boot Out Big Government.” 60Business is the salvation. Of course, this, and also the idea that markets are best left to self-regulate, were prevailing tenets in 1990s America about how to fix most everything. In this view, the state is evaluated according to how friendly it is to business, with corruption treated “as both effect and cause of incomplete, uneven, or ineffective economic liberalization,” as Michael Johnston, a political scientist who studies corruption and efforts to counter it, has written. 61

This perspective has been expressed in two distinct aid approaches, often undertaken in tandem. The first was to streamline government by reforming the bureaucracy or, say, shrinking opportunities for corruption by decreasing the number of bureaucracies that an entrepreneur needs to engage with to start a business. The second form of this containing-government approach was the push to privatize state-owned companies. 62The argument fit perfectly with the no-holds-barred, almost frenetic rush to privatization of the early to mid 1990s that I saw firsthand in Russia, underwritten by economists’ ideology and Western resources. 63This was little surprise, since the drive in the West to privatize and deregulate had been gathering steam since the Reagan era and now found staunch Democratic adherents in the Clinton White House. But when deployed unregulated, in lands where virtually everything had been owned by the state, such divestiture (whether underwritten by the West or not) was a virtual guarantor of corruption, sometimes on a colossal scale, as scholars and analysts documented as early as the 1990s. 64Throughout the region, political-business networks with inside information routinely “grabitized”—that is, privatized—for themselves entire swaths of heretofore state enterprises at fire-sale prices. 65

By and for insiders, this privatization of priceless national goodies produced powerful oligarchs, “clans,” and other informal ruling elites. It produced fantastic income inequalities. And it created countless opportunities for expanding unaccountability. In providing incentives to players to fuse state and private realms, privatization fostered the new corruption. 66Such fusion and the practices it invited would find their way back to the West.

News reports and scholarly works about these elites, as well as “mafias” and transnational organized crime groups, emanating from the former Soviet Union and Eastern Bloc, eventually attracted mainstream attention, including at the World Bank. Still, it wasn’t until after many, if not most, of the privatization schemes in the region had been implemented that the High Priests began to make the connection between the rise of these groups and the thrust to privatize in the absence of legal and regulatory accountability. 67To plenty of economists, state institutions mattered little beyond privatizing them.

Reducing Corruption to Bribery

While the High Priests were busy shrinking the states of their would-be supplicants, their colleagues in ivory-tower seminaries were conceptualizing corruption essentially as bribery and as illegal activity—that is, primarily as “need” corruption.

Economists treated corruption, in effect, as a synonym for bribery. 68The World Bank’s definition of corruption as “the abuse of public office for private gain” could be interpreted more broadly. But the working definition had it that most acts of corruption are committed by public-sector bureaucrats, with the typical act of corruption being a bribe—an illegal, one-off transaction in a single venue. The task of the analyst, as economist Rose-Ackerman writes, is “to isolate the incentives for paying and receiving bribes and to recommend policy responses based on that theory.” 69The concentration on bribery and single transactions also meant, as I laid out earlier, that the anti-corruption prescriptions tended to target the rank and file, not elite players. 70