The Prime Minister has suggested Nigeria and Afghanistan are corrupt. And he's right if you think that corruption is solely about those who abuse public office or tax systems for personal gain.
He failed to mention the fact that a whole of army of lawyers, accountants and bankers, many in tax havens, are required to undertake this abuse. Prof Prem Sikka has called them The Pinstripe Mafia.
And if you think more broadly about corruption then having a banking system that systemically mis-sells, where key financial data has been routinely rigged and where we permit 400,000 companies a year to disappear without trace because we cannot be bothered to enforce company law might also be considered signs of serious failure with regard to corruption.
But David Cameron is looking in the wrong direction. As a result he thinks Nigeria and Afghanistan are spectacularly corrupt. Actually we are too. A tax gap of £120 billion is the evidence of that.
Time to take action on the home front, I suggest.
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In my view it all comes under the rubric of what economists call “rent-seeking”. This is seeking to secure rewards and returns in excess of those generated by competitive market processes – and being willing to spend almost as much as is generated by these excess returns to secure them. This is the double whammy in terms of economic costs that rent-seeking imposes – and can cripple economies. But everyone, individuals and firms, is in the business of rent-seeking. There is nothing per se wrong with rent-seeking. It is the main driver of the capitalist system. The trick is to ensure that competition – ensuring rents are captured only on a temporary basis because there are no barriers to their being competed away – and economic regulation – preventing rent capture in the absence of competition – are sufficiently robust and effective.
Not surprisingly firms and individuals have huge incentives to seek to distort and suppress competition and regulation – and to retain the “Pinstripe Mafia” and to suborn poiticians, respectively, to effect their rent-seeking and to legitimise and protect their rent-seeking. The resulting sustained corrupt rent capture falls in to two categories – collusive corruption and extortive corruption. Advanced economies are characterised by the former; developing economies – in particular those with significant natural resource endowments – are characterised by the latter.
Politicians in the advanced economies are very quick to highlight extortive corruption in developing countries as a means to distract attention from the collusive corruption in their own. The irony is that the feeble legal systems in many of these countries that permit and encurage this extortive corruption are legacies of the colonial systems that authorised the exploitation of the indigenous people and the expropriation of natural resources. Post-independence native elites simply modified this system.
But collusive corruption is endemic and pervasive in every sector of the advanced economies. The banking and financial sector is particularly notorious, but other sectors are as bad. For example, the UK energy (electricity and gas) sector has been subject to a detailed 2-year investigation by the Competition and Markets Authority since the then government in June 2014 sought to defuse the justified popular anger Ed Miliband was channeling at the rip-off practices of the Big 6 energy companies. The Big 6 have won almost hands-down. Apart from some limited, potentially temporary, restraint on their ability to rip-off pre-payment meter consumers – often the poorest and most vulnerable consumers (which they game ferociously in any event), the Big 6 will soon be free to continue their rip-off of final energy consumers.
The ability of these companies – with their retained army of lawyers, accountants, advisers, consultants, tame academics, PR operatives and pliant media lackeys – to browbeat compedtition bodies and regulators and to suborn governing politicians is both awesome and frightening. It is nothing less than collusive corruption of the most blatant type. But will it be raised tomorrow as the anti-corruption jamboree? I think we all know the answer.
An excellent analysis of the advanced (legal) and primitive (illegal) forms of corruption – as seen by western politicians and business people.
The fact that western capitalism and its so called democratic political consensus in reality encourages, facilitates and benefits from both forms of corruption will not have been missed by those in positions of power and influence in all developing nations. Actions always speak louder than words! Leading by example is what is really lacking here.
But I disagree with your comment “There is nothing per se wrong with rent-seeking. It is the main driver of the capitalist system.”
There is in my view everything wrong with rent seeking, and everything wrong with the private financial capitalist system – especially when you look at it through the lens of those suffering at the bottom of this system.
If we continue to accept statements such as this without challenging them, we will fail to change the public narrative and ability to question that there really is always an alternative if we choose to seek it.
Thank you for your kind words. Though I am reluctant to apply labels they do occasionally serve a useful purpose. Your apparent visceral reaction to rent-seeking is a perfect illustration of what separates “liberals” from “democratic socialists”. (In the US the split is between “liberals” and “progressives”, but the grounds for the separation are similar.) Liberals try to deal with the way people actually behave; those advancing left-wing progressive alternatives apparantly believe people could and should behave differently – and some how better. This, of course, contrasts forcefully with the disingenuousness, dishonesty and hypocrisy – indeed brutal cynicism – of many of those on the left who seek, and seek to retain, political and economic power. And it is this which repels many liberals.
This apparently inevitable inability of liberals and progressives to maintain a common front allows the corporate capitalist elite and high wealth individuals (and the armies of advisers and functionaries they retain) to establish regimes of collusive corruption without any effective opposition.
It’s a good debate Paul and worth having.
I personally am all for liberal principles of freedom and equality in our personal lives, this was one of the greatest achievements in overcoming the divine rights of kings and subservience to an autocratic un-elected hereditary monarchy (even though we haven’t completely achieved that in the UK).
Where I struggle however is how these proud individual libertarian personal and social values have become intertwined with the entirely autocratic, non-democratic, non-personal modern day private finance and corporate structures. The end result is a perversion of liberalism into corporate liberalism, espoused into laissez-faire capitalism which has created the societal mess we are in today, in my view. (Call it neo-liberalism if this helps)
If you know you’re history, you will know only too well that the first Liberals were the real radicals and progressives of their day. But that was several hundred years ago and sadly most Liberals I know (in the UK and the US) are now really conservative in their views as they have secured sufficient social gains for themselves and do not wish to be threatened by any new social force for change.
So I actually agree with your statement below as it applies to modern day Liberals, but this is not what Liberalism was originally intended to achieve – which was continued social progress in my opinion.
“Liberals try to deal with the way people actually behave; those advancing left-wing progressive alternatives apparantly believe people could and should behave differently — and some how better.”
I’m confused Paul, while I agree that rent seeking is at the root of all our evils I disagree that it’s a mainstay of capitalism. It is a mainstay of a neo-liberal approach but that’s far from the entirety of capitalism.
The article itself is about corruption and the biggest facilitator of that is secrecy. Despite the reasons that get cited for the requirement of secrecy around financial transactions and beneficial ownership, I remain unconvinced.
Here’s a VERY ad rem site:
http://www.theguardian.com/politics/2016/may/11/nigeria-not-seeking-cameron-apology-wants-assets-back
Would seem to be a fairly complete example of both sorts of corruption, as posited by Paul Hunt, and a wonderful rejoinder to Mr Cameron’s unpleasant “preaching to the natives”.
That was an extremely effective response