By Walter Finch
CORRUPTION happens in the shadows, according to Transparency International.
The anti-corruption organisation defines the practice as “the abuse of entrusted power for private gain”, adding: “Corruption erodes trust, weakens democracy, hampers economic development and further exacerbates inequality, poverty, social division and the environmental crisis.”
The most famous index of corruption is the Corruption Perception Index, an annual report by Transparency International which measures public sector corruption and gives each country a score out of 100, with 0 being the worst.
Each year, it paints a map of the world in shades of red, orange and occasional yellow. The bloodiest shades can be found in Asia, Africa and South America, whereas countries in western Europe, North America and Australasia are sunnier hues.
One effect of this map and its depiction of corruption is to give the sense that western countries are clean and proper while developing or ‘global south’ countries are hopelessly wicked. And it is easy to see how, in the worst examples, such as Venezuela, Lebanon and Zimbabwe, the people suffer greatly.
Corruption is money exchanged in brown envelopes; public funds going to offshore bank accounts and shell companies held in the names of cousins and wives. As the name implies, accountability is transparent and corruption is opaque.
Yet when former head of the US Federal Reserve Janet Yellen accepted and disclosed millions of dollars from hedge funds in speaking fees and now has to rule over matters that affect those same hedge funds in her current role as US Treasury Secretary, it didn’t look good.
Those fees might colour her judgement and at minimum present the appearance of a conflict of interest to doing her job impartially. Will she recuse herself when ruling on matters concerning hedge funds who have paid her in the past?
“The secretary of the Treasury is one of the world-renowned experts on markets, on the economy,” Jenny Psaki, White House press secretary, told reporters at the time.
“It shouldn’t be a surprise to anyone she was paid to give her perspective and advice before she came into office.” In other words, a no – there is no conflict in paying an expert what they merit.
In the Gamestop saga from earlier this year, armchair investors on Reddit took on hedge fund Melvin Capital en masse, buying stocks in the online gaming firm Gamestop that Melvin was looking to short – or, in other words, profit from its demise. By buying those Gamestop stocks, the Reddit investors drove up its share price, devastating Melvin’s short position and forcing it into a $2.75 billion bailout from fellow hedge fund Citadel LLC.
Citadel LLC, who had paid Yellen a total of $810,000 in speaking fees in 2019 and 2020. Which begs the question: is $810k a reasonable going rate for a world-renowned expert to speak? Was the act of Yellen giving a speech worth that much money to them? Joseph Stiglitz, another world-renowned economics expert – but with no political influence – charges a tenth as much.
As Sri Lankan writer and commentator Indi, who grew up in the US but now resides in Colombo, writes in his blog: “No one’s paying her to talk, they’re paying her to listen.
“When Citadel or Citi calls she listens, because they’re paying her fucking mortgage. This is precisely how corruption works. Can the millions of people getting evicted call her? Haha f*** no, access is for PATREONS ONLY, and the first tier is $500,000.”
Indi told Redaction Report: “You [the West] just do it directly in public and you’re transparent about it. Therefore it’s not corruption. But no, it’s still corruption, and all the costs of corruption that Transparency International list, that is still happening.
“And we in the global south are not the cause of that. What we’re doing is amateur hour compared to the rampant corruption in the West.”
In the western world people confuse disclosing corrupt behaviour with actually fighting corruption, and in doing so they simply legalise it, Indi argues.
“Senators are owning stock and trading stock in industries they regulate – that’s corruption!” he says.
“And they disclose it, like it just makes it all go away.”
Transparency International defines corruption as something done in secret, and that is a false assumption, Indi contends. These core assumptions render the corruption that is all around them – and which they are part of – invisible to them.
He added: “They don’t see it, and it produces these racialized maps like the Corruption Perception Index.”
Transparency International research coordinator Roberto Kukutschka, who works on the Corruption Perception Index, took a different view.
He argued that the Corruption Perception Index does indeed capture a lot of this activity as public sector corruption.
“The US has been going down in the Index for the past five years or so. Now it’s under countries like Chile and Uruguay.
“These issues; lack of transparency and lobbying in political contributions and so on, is something that the index does capture. What we cannot forget is that if this is something that we see happening in the US, in developing countries this is even more likely to happen.”
The US still has a strong bureaucracy and institutions of accountability, including a strong Supreme Court – even if Kukutschka admits that it is becoming more politicised.
“In developing countries, that’s something that you don’t even have to start with. So if you have a situation like this, you cannot even take that to the Supreme Court; you cannot take it anywhere, because all of that is just part of this systemic issue of corruption.
“Although there is corruption in these Western nations, there is a very important qualitative difference between the type of corruption that we see in a country like the US, and the one that we see just across the border in Mexico, for example.”
The differences in corruption and prosperity between the United States and Mexico can be traced back to their economic and political institutions. As Daron Acemoglu writes in Why Nations Fail, a Mexican entrepreneur will face entry barriers at every stage of their career – including licences, red tape and politicians.
The US has institutions that were designed to ensure competitive politics and competitive free markets. Banks compete with each other to offer the lowest interest finance to entrepreneurs. They trusted the rule of law that underpinned the secure property rights that guaranteed that their profits would not be expropriated.
These institutions also made sure that, because political power was both limited between differing branches of government, vested interests could not hijack the government. Thus a set of economic institutions that created the incentives for prosperity could emerge.
In 2001, US antitrust legislation clipped Bill Gates’ wings when Microsoft was deemed to have abused monopoly power. Meanwhile in Mexico, Carlos Slim was busy taking advantage of the nation’s weak institutions to create his own private telecommunications monopoly. And thus it is the US and not Mexico that is home to innovators such as Apple, Google, Uber and the rest.
One issue with covering corruption is that the word is too broad and generalised. To many, corruption refers to an everyday evil that is unfortunate but inevitable; petty corruption. But corruption on a grand scale can be defined as efforts to dismantle the very institutions that create the incentives for prosperity and lock in privileges for the incumbent elites.
That so many nations are trapped in poverty or even middle income stagnation is often due to this sort of grand corruption; of having a class of elites who have neutered free competition to protect their own economic and political power. It is indeed the sort of situation that leads to these countries being painted red on the Corruption Perception Index.
The US has seen, over the past few years, an assault on these institutions. As Acemoglu writes, these US institutions of fair competition were the tech giants’ friends when they were startups – all the way until they were market leaders and they became their enemy. Donald Trump undermined all instruments of oversight and accountability – right up the holy grail of US democracy, the US elections. And even within the Biden administration, as with Janet Yellen, US Secretary of State Anthony Blinken has in-plain-sight conflicts, coming straight from running WestExec Advisors, a consultancy lobbying firm for international businesses.
“These more establishment types expect to buy into this network eventually,” US congressional staffer Paul Massaro, told Redaction Report. Massaro is a senior Helsinki Commission policy advisor and advises members of US Congress on matters related to corruption and kleptocracy.
“In a lot of cases, they’ve already been through the revolving door once or twice or three times and have no intention of dismantling it. I think that’s kind of the paradigm shift that needs to happen.
“I don’t think everybody who’s ever gotten a speaking fee needs to be punished.
“But we’ve got to recognise that the system’s played out. It never was right to begin with, and now it’s gotten so rotten to the core that it’s a real threat to democracy.”
In the UK, we see a government under Boris Johnson that gives out no-tender public contracts to ‘friends and donors’ of the Conservative Party, and tries to appoint ‘friends and donors’ to important positions – Conservative Party life peer Dido Harding, of failed test and trace initiative, to head the NHS, to name one example.
It is this advantaging and positioning of cronies to head key institutions that creates the kind of environment that neuters the free competition that underpins the prosperity of successful societies. Cronies valued for their loyalty get ahead while the most talented and the most innovative get sidelined.
These crony networks and revolving doors between public and private sector give rise to the grand corruption that threatens the institutions of democracy, prosperity and the rule-of-law.
Yet the issue is barely recognised in Washington. Both sides of the aisle benefit from it and so neither is keen to wield it as a weapon against the other or even bring it up. While the matter is not a concern for the electorate and unlikely to sway voting intentions, there is no incentive to upset the apple cart.
The eternal forces of corruption, cronyism and monopoly have been assailing western democracies in recent years – sometimes clandestinely and sometimes transparently. Forces that, if unchecked, would entrench privileges for the selected elites and reduce the portion of the economic pie left for the rest of society.
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