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08/28/2005

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Anonymous

I'm reading this from the highly-corrupt capital of Yemen, where I'm currently doing dissertation fieldwork. Needless to say, this is an issue that predominates public discourse in what the World Bank has just named the world's poorest country.

The idea that doing business with strangers can be costly when the legal system fails to provide effective and impartial enforcement of the law is very much at the core of nepotism here. But further underscoring this is the fundamental rationality of a corrupt exchange - people frequently comment to me that "everyone walks away a winner" under the current system. Of course, the more sensitive add to this something like "except society at large." But there is a firm belief (rooted at least partially in traditional modes of tribal conflict regulation) that anyone can be brought to the table and that as long as everyone walks away with something, no harm, no foul. For as long as such economic incentives exist, it's very difficult to convince people to pay the costs of opting out of the corrupt exchange.

There was recently a meeting of parliamentarians and civil society activists in Sana'a designed to convince the parliamentarians that they needed to back a certain set of economic reform measures. They were reluctant to do so. Evidently, one of the activists said "Okay, so you don't want to do it for the good of the country, fine. But do it for the money!" What he meant, of course, was that foreign donor agencies reward economic reform with lucrative aid packages - without reforming the corrupt practices, that money goes right into the pockets of people like those at the meeting.

I'm not sure that I agree with you about the relationship between corruption and immigration - it seems to me that people respond rationally to economic incentives, and until the incentive structure is changed from above, they can't honestly be expected to behave too terribly differently.

David

Corruption is motivated by the same force as most crime: greed. People with power abuse that power to extract illegal gains for themselves. It's no different, really, than embezzlement, insider trading, Enron-style accounting tricks, or any other sort of white collar crime. The corrupt official uses his position to exact a premium from the "customer."

I agree with Posner that a weak rule of law leads to corruption, because the corrupt official has nothing to fear. Similarly, a weak SEC leads to insider trading, and a weak police force leads to rampant street crime. If the criminal perceives little chance of getting caught, there is little incentive to refrain from crime.

Corruption has nothing to do with markets or with "excessive" gov't regulation. Nor does it have anything to do with the party in power. Both Republicans and Democrats have been guilty of corruption, and good prosecutors of both parties have zealously pursued corruption. Some state prosecutors have been even more zealous than federal prosecutors. For instance, Eliot Spitzer of New York has cracked down on corrpution on Wall Street, while the Republicans in Washington have largely looked the other way.

The problem with Posner's analysis is that he views corruption as a "voluntary transaction" rather than a pure crime. Bribery is never voluntary. No one wants to bribe an official or a waiter at a NY club. But in corrupt cultures it is necessary, so it is done. Bribery is as voluntary as extortion.

R

I don't know that I entirely agree, David. Bribery might be akin to extortion where it is the norm in a given industry, and you can't do business without it: where you have to bribe a customs official to enter a country, or something like that.

But sometimes it is a single briber who comes upon the idea. When gamblers approached the white sox to convince them to throw the world series, they (the gamblers) were not being extorted.

Peter Pearson

Becker's and Posner's apostrophes show up as three unusual characters on my screen, and looking at the page source, I see that they *are* three elaborately coded unusual characters. For many months I've been assuming that this minor annoyance was a maladjustment of my browser, and that everybody else could see the emperor's clothes, but now I have the courage to ask:

does everybody else see apostrophes?

David

R. - good point; I should be more specific. There are 2 types of bribes.

The first are those demanded by officials (public or private) to perform a duty that they are supposed to do anyway. Those bribes are a akin to extortion. I understood Judge Posner's post to refer mainly to those types of bribes.

The second type are bribes offered by a person to obtain special, illegal favoritism. The 1919 White Sox would be an example, as would a speeder who offers a cop $100 to get out of a traffic ticket. Those bribes are illegal because they disrupt the expectations of society about how the system is supposed to function, and they also subvert the equal protection of the law.

Notably, if type 2 bribes become a regular practice, instead of just an unusual occurrence, they can become type 1 bribes, because everyone realizes that they have to pay them. For example, suppose that police officers or judges routinely dump cases if paid bribes. The bribe then becomes a form of extortion that must be paid. If bribe acceptance by a cop or judge is an aberrant practice, it is probably not extortion (because it is not an expectation of the system), but it still subverts the equal application of the law. And, if a person can "buy out" of the law by paying a bribe, the legal system loses credibility, and the rule of law breaks down.

David Cohen

One of the reasons why the term "corruption" is so slippery is based in its history. Much of the modern use of the term "corruption" as a term of censure (in instances where the activitiy is not explicitly illegal)has its origins in the so-called Country critique of the emerging English civil service / central banking system in the Seventeenth and Eighteenth Century. The concept was that accepting/proffering payment for public service (i.e., patronage-type jobs) and by the government accepting loans from private individuals or banks, the government, or the public servant was in a sense enslaving itself/himself. The term of abuse that the Country party used for this kind of activity was "corruption." This critique of market capitalism was very influential in America via the writings of Harrington and others. While never a dominant force (in my opinion, although others would differ), it was influential, and one can trace opposition to central banks in US history to Country ideology.

The Court party (the people who engaged in such so-called corruption) response to the Country party was to argue that so long as there were adequate incentive for proper behavior, the alleged corruption was a non-issue. This belief was adopted by the founders (Especially in the Federalist papers).

While this greatly simplifies both the respective ideologies and histories, I think the Country party critique of public action speaks to a powerful feeling that people should engage in public action out of a sense of obligation as opposed to incentivization. I wonder how much carping about "corruption" really boils down to differing opinions about human nature, unrealistic expectations about our ability to engage in proper behavior, and how to structure the political order to take into account these opinions.

jasmine

from an efficiency point of view, i first think about the quality of the company being hired as a result of bribery. i would worry about shady business practices elsewhere, other inefficiencies or even that the business may be acting illegally (abusing ununionized or illegal workers).

in short, that a bribery results in inefficient hiring. where a company that, without the bribe, wouldn't have been given the contract for a number or reasons then gets the contract after the offer of a bribe.

N.E.Hatfield

One culture's "corruption" can very well be another's standard business practice. It seems that the differences are based on underlying fundamental moral & ethical principles that have become articulated in the body of Law of that culture. If so, that points to "relativism" as being an operating principle in Ethics (something I really don't care to consider at this point).

It may also be due to a more highly developed Legal code as developed by Legislative enactment. A "Corruption Code" if you will. But in the end, it always come back to basic fundamental Moral Principle and the actions of individuals in the grips of Greed. As someone once said, " being human, nothing human is foreign to me."

TheWinfieldEffect

POSNER: "And fourth, a bribery culture reduces pressure to repeal inefficient laws--in fact, it creates in public officials a vested interest in preserving such laws. In that respect, it is a protection racket."

I wonder whether such laws are really inefficient. Such laws may be inefficient at promoting the interests of some citizens, but more efficient at promoting the interests of others; bribery may be efficient at promoting the interests of some citizens, but inefficient at promoting the interests of others. In other words, the coexistence of bribery and the legal system may be a sophisticated form of political price-discrimination; those who can afford the bribe pay the bribe-price; those who can afford to go through the system pay a premium for the privilege of using it.

POSNER: "In contrast, corruption should be rare in a free-market system with courts that enforce contracts honestly and dependably."

Does this depend on who is making contracts? Posner asserts that bribery and nepotism are substitutes for a rigidly contractarian legal system (the less contractarian, the greater the gap being filled by bribery), but whereas courts that enforce contracts are funded by the public revenues, contract-drafting and the attendant costs for legal help are privately paid. If the cost of having a fairly drafted contract in a rigid contractarian system is greater than the price of bribing the right official in a slightly less contractarian system, then, theoretically, some class of persons are better off paying the bribe than paying to have a contract drafted that protects their interests. Quite obviously, those who can pay a small bribe but cannot pay for exorbitant legal fees are poorer than those who can afford to pay either. Shifting to Posner's rigid contractarian system shifts control over the substance of deals to richer parties and creates deadweight loss by knocking poorer consumers off the market (why would a poor person contract with a rich person who absolutely dominates the bargaining process? why wouldn't a richer person extract a premium from a poorer person, in the form of a "harder" contract, to compensate for the risk that the poor person, who may be judgment-proof, won't meet his obligations under the contract, e.g., predatory-lending or dragnet-clauses?). It seems that if the court system is in the main enforcing contracts between richer parties, poorer parties will need some access to the system, and bribery (or political pandering) will spring up precisely for that reason, i.e., to include the excluded. (Note: I am not referring to "The Rich" and "The Poor", but discussing relative wealth.)

POSNER: "It seems less common than a half century ago, and perhaps that is because there is somewhat less economic regulation and also a somewhat greater professionalism in civil services, police, and the judiciary."

This argument, it seems to me, cuts both ways so long as "corruption" can be accurately described as "public officials as 'selling' public services to their friends and relatives." It is professional and ethical for lawyers to provide pro bono services to those who cannot afford their market rate, but to charge exorbitant fees to multinational corporations who seek their services. Why isn't it professional and ethical -- or, is it professional and ethical -- for politicians to sell their "brokering" services at a higher price for special interests represented by lobbyists and a discount price for poorer interests whose voice is not represented by lobbying groups? What about poorer interests that are represented by private gap-filling non-profits, like the NAACP Legal Defense Fund or NOW Legal Momentum or NGOs? Furthermore, is the "politician-as-broker" the proper conception of a politician, or should our politicians aspire to statesmanship (and, what, exactly, is "statesmanship")?

MikeTheBear

It's no different, really, than embezzlement, insider trading, Enron-style accounting tricks, or any other sort of white collar crime.

Enron was a good example of how the free market deals with perpetrators of fraud. As I recall, post-Enron, the Big Six accounting firms suddenly became the Big Five. I certainly feel bad for the employees of that accounting firm (was it Deloitte and Touche or Arthur Anderson? I forgot which one) and for the investors who lost millions, but I wonder what message, if any, other would-be fraud perpetrators received from this debacle.

MikeTheBear

Becker's and Posner's apostrophes show up as three unusual characters on my screen, and looking at the page source, I see that they *are* three elaborately coded unusual characters. For many months I've been assuming that this minor annoyance was a maladjustment of my browser, and that everybody else could see the emperor's clothes, but now I have the courage to ask:

does everybody else see apostrophes?

I have IE 6.0 and I see what looks like a Cyrillic character and a trademark symbol.

Letís run a test: ëíííí

The question marks above should be apostrophes. I wrote the above in Word and copied and pasted. Word processing software will sometimes put strange coding in characters that shows up as something totally different in HTML.

The Paper Chaser

Living in NYC, I have been exposed to the ÔøΩcorruptionÔøΩ of bribing the doorman in order to get into a restaurant or a club. However, corruption in the US is nowhere near that of countries such as Azerbaijan (my country of origin). There, all types of transaction are done with the ÔøΩefficiencyÔøΩ of corruption. However, the biggest problem with corruption is getting ride of it. Azerbaijan has gone through a number of political changes, including the fall of the USSR, and corruption has always been the rule and not the exception. At this point you could say that the only thing keeping the political system of the country in balance is the constant pyramid of bribes finding its way up the political ladder. The corruption in the US is on a much smaller level, things can get worse very easily and it will be very hard to do.

Aditionally, we need to take into account the individual who cannot afford to give the bribe, or does not even know about the bribe system; how is he supposed to get into the restaurant or renovate his house without blocking the sidewalk. True, stopping bribes would only increase the price of the restaurant, but being able to predict the costs of going out or of a renovating project is a valuable as well.

TheWinfieldEffect

PAPER CHASER: "Azerbaijan has gone through a number of political changes, including the fall of the USSR, and corruption has always been the rule and not the exception."

1. What kind of corruption has always been the rule and not the exception? Good corruption or bad corruption?
2. Did the kind of corruption change as the form of governance changed? Or no?

Seth Ayarza

Judge Posner,

I suggest a simplified yardstick in judging corruption good or bad by classyfing whether it is a relatively inelastic, or elastic good that is involved.

I think exampels of inelastic demand would be services provided by the police or, as in the case of the NYtimes example, access to ones' offspring in which one would pay basically any cost:

http://www.nytimes.com/2005/08/30/international/asia/30bangalore.html?ex=1125979200&en=19b2d6899f5a9226&ei=5070&emc=eta1

Night clubs on the other hand have plenty of alternatives like frat parties.

Wes

Becker and Posner have a pattern of defining their discussions very narrowly to focus on conservative concerns while the more serious concerns encompassed by the issue under discussion are ignored.Last week they discussed racial discrimination but focused on affirmative action while ignoring the ethnic homelands that the Bush administration is creating and maintaining in the Middle East which are much more devastating instances of racial discrimination.The week before that they discussed separation of church and state but focused on the appropriateness of religious decorations on public property while ignoring the extent to which right-wing fundamentalism is driving the Bush administration's policies which is a much more serious infringement of separation of church and state.The week before that they discussed free trade but focused on the national security issues of a situation that never materialized (Chinese ownership of an oil company) while ignoring the much more serious issues of worker exploitation resulting from "free trade" as it is implemented in practice.The week before that they discussed how economic factors force young men to become involved in violent conflicts instigated by older men but focused on an isolated incident in England and ignored the hundreds of thousands of young men in the United States forced by economic circumstances to fight in conflicts instigated by Bush.The week before that they discussed the issue of whether stockholders are getting their fair share of corporate profits but focused on profits donated to charity and ignored the much larger share of corporate profits siphoned off unchecked by corporate executives.This week they discuss corruption of public officials but focus on the relatively minor issue of bribes and ignore the much more serious instances of corruption in which public officials undermine the basic principles of individual freedom, the impartial rule of law and informed democracy. The discussion this week focuses on "corrupt" headwaiters taking "bribes" in New York nightclubs fifty years ago while completely ignoring the corruption of the Bush administration.The Bush administration has severely undermined the principle of informed democracy by deliberately giving the impression that it had secret evidence that Saddam Hussein was planning a major attack on the United States using weapons of mass destruction.The Bush administration has severely undermined the principle of the impartial rule of law by picking and choosing among (and often ignoring altogether) established laws. If the USA is at "war" with Al Qaeda then it can't complain when they blow things up and kill people because that is the normal conduct of war and the Bush administration insists that the Geneva conventions don't apply. If the USA is not at "war" with Al Qaeda then it can't complain about the laws they have broken because the Bush administration insists that international law is irrelevant and that US laws don't apply to non-US citizens outside the United States (eg. Guantanamo).The Bush administration has severely undermined the principle of individual freedom by forcing people to pay for and fight in a war that unnecessarily blows things up and kills people. If Bush and his friends wanted to renounce their US citizenship, hold a bake sale and buy weapons with the proceeds, and head over to Iraq to get themselves killed while blowing things up and killing people for whatever it is that they believe in then that would be fine.What is not fine is that the Bush administration has lied to the American people and ignored the rule of law to force the American people into a war that is costing thousands of lives and hundreds of billions of dollars with the primary benefits accruing to Bush's friends in the oil, defense and religion industries. It would have been a lot better for the American people, and the world, if Bush had just given himself and his friends a few billion dollars directly instead of trying to benefit indirectly through costly wars.Corruption is not "bribes" - it is abuse of power. The real corruption and the real abuse of power that is devastating the USA and the world is the conduct of the Bush administration. But that would be off topic because Becker and Posner want to focus only on bribes - particularly to headwaiters in New York nightclubs fifty years ago.

WaitingForGoogle

Last year,liberals like Wes complained about the Iraq War. Last month, liberals like Wes complained about the Iraq War. Last week, liberals like Wes complained about the Iraq War. Today, Wes is complaining about the Iraq War.

a

http://www.nytimes.com/2005/08/30/international/asia/30bangalore.html?hp&ex=1125460800&en=c3e71df2565ff550&ei=5094&partner=homepage

Willie Fox

Posner's comments regarding corruption in America's big cities probably addresses only the origin of that corruption, but not its persistence into today. Mike Royko's Boss described a Chicago alderman named Paddy Bauler as saying "Chicago ain't ready for reform." Today, after 30 years of U.S. Attorneys prosecuting and convicting city and county workers, Chicago still "ain't ready for reform." Nor, apparently, are the collar counties or Springfield, although the state courts seem to have substantially cleaned up their act as a result of federal prosecutions. Except for reducing the influence on courts and many local governments of the Chicago "Outfit" as our multi-ethnic Mafia is known, the prosecutions do not seem to have made much systemic difference in .Chicago

Why are voters (or the campaign workers who motivate them to vote) so willing to support officials who tolerate if not encourage bribery and other public corruption? I think, anecdotally, that it's because residents in immigrant or otherwise culturally isolated communities see bribery as the answer to the question "Where's mine?" But surely this is a subject worthy of some sociological or economic analysis to help prosecutors and others focus their efforts in directions more productive of systemic change.

I know that sociologists have studied the reasons why street-level drug dealers will work for compensation that effectively is less than minimum wages to have an opportunity to "make it big." Has anyone studied public corruption in Chicago or elsewhere systematically?

N.E.Hatfield

Willie, At least Chicago prosecutes its Corruption on a regular basis, normally when and where it's found, unlike most cities that continue to sweep it under the carpet. It also makes for good entertainment!

As for the paradigm of "Boss", hiz Honor, once said, "You can have money or you can power, but you can't have both." and Chicago was known as the City that works.

nate


The URL below takes you to a Yahoo site. I did not write the text found at the URL below.

What is Posner's perspective on this?

http://tinyurl.com/dmlao

Ivan

One class of situations when corruption can have severely inefficient consequences, unmentioned in the article, may occur in industries (either private or government-run) in which reputation is especially valuable. In such situations, discovery of even a single case of corruption may have severe consequences for the reputation of the institution, thus conferring a large negative externality on all parties who normally benefit from this reputation. For example, a large part, if not most of the capital of a reputable educational institution rests in its reputation. If a corrupt teacher is found who has awarded undeserved marks in exchange for bribes, the reputation of the school may suffer severely, and the negative externality affects not only the parties who have direct interest in successful operation of the school (its employees and, depending on whether the school is private, the government or the owners) -- but also its former students, who now find their degrees less prestigious and less valuable on the job market. In this case, the inefficiency due to corruption is truly severe, since the difference between the gain to the participants in corruption and the total negative externalities conferred on the third parties is enormous.

nate

The success of alumni may be more important than "grades". Some of this success may depend on grades that led to an opportunity. However, for some success itself may be the grade. Consider Kilts from U of C - he gets an A to A+ for business savvy.

"Distinguished" alumni in senior leadership positions that forget to buy insurance or hedge big risks do not help. This does make it harder for new alumni.

BillKorner

The present thesis is that corruption can be good when it promotes economic efficiency, but on balance is bad because it on balance does not.

The underlying presupposition would seem to be that economic efficiency (= wealth maximization or else pareto efficiency, I take it) is the principle value of interest. Otherwise, corruption could conceivably be good even when and if (on balance) it is inefficient.

I can't accept this premise/prioritization:

The relevance of pareto (allocative) efficiency (and the general equalibrium theory that makes it central) was successfully called into question by Amartya Sen in his lecture "The Concept of Efficiency" years ago at the University of Warwick and collected in a corresponding volume.

The relevance of wealth maximization in legal economics was equally well undermined by Ronald Dworkin's debate with Prof. Posner, as represented in D's article "Is Wealth a Value" which can be found in the Journal of Legal Studies.

Palooka

"The problem with the word is twofold. First, identical practices sometimes are "corruption," sometimes not. Second, despite the pejorative connotations of the word, the normative signficance of corruption is not always clear.

Fifty years ago it was common in nightclubs in New York (maybe it still is--I haven’t been in a nightclub in New York in 48 years!) to have to give the headwaiter a tip in order to get a table, even if there were many empty tables. This was a form of bribery, but accepted as proper. Management knew about the practice and condoned it."

Interesting thoughts, but I am afraid your sentiments are mistaken. The tip you paid for a good table is simply not a bribe, except perhaps in the most technical sense (it is meant to influence behavior). Are tips left for waiters "bribes" for good service?

I don't think corruption is all that hard to define, and I view with great skepticism your claim that it is often benign or beneficial.

Let me try to illuminate the concept. Typically, "corruption" exists where at least one party is in violation of a fiduciary duty. A police officer is supposed to enforce the laws, even stupid laws, and refusing to do so, especially when bribed to not do so, is a violation of his duty to act on behalf of his employer. The same goes for a judge or politician or CEO. Breaching a fiduciary duty is part and parcel to corruption. It is just another manifestation of the principal-agent problem.

Posner wrote: "The weaker the legal framework, the more difficult it will be for the government to prevent bribery, a classic "victimless" crime because bribery is a voluntary transaction; and it requires a sophisticated legal machinery to detect and punish such crimes."

When viewed from the perspective of a taxpayer, competing firm, or defendant before a corrupt judge, bribery is not a classic victimless crime. Of course it isn't. Your distaste for the regulatory state has colored your analysis.

Angus

The thing that seems to be missing from this discussion is precise definitions and data.

Corruption is a loose term. Are all bribes corrupt or only illegal bribery? Is bribery practically illegal if there is a law against it which is not enforced? What if pervasive lack of enforcement creates an expectation that bribes are required? This begins to look like a fee for service. And, of course, as several people note the question of corruption is not limited to illegal payment. The presence or absence of a coercive threat is a critical characteristic to consider.

I think most of the example-counter-example discussion is really about the definitional question of what are the various types of activities that fall in the broad swath of corruption, and how are they the same and different. On one extreme are cases where bribery is illegal, but the prohibition is not enforced, payment is expected by all parties and some form of market regulates the price. The example of New York nightclubs is such a case (though I'm not even sure the bribes are illegal). On the other extreme, are people who are using power conferred to them by the government to extort funds from others, such as a policeman who threatens to break your headlight and then write you a ticket for it unless you pay him. The moral and economic issues are different between these extreme cases, and among the myriad cases that fall between them.

The impact question goes to data. The discussion is littered with ìseemsî and ìappears.î Is there any good data to bounce these assertions against? There are published indices the purport to measure corruption, but I think they actually measure public opinion about corruption. Bribery, as a black market activity, would seem to be hard to measure objectively, but there must be ways to estimate it like the estimates that are made of the volume of the drug trade. Measuring the extent of coercion seems even harder. Any ideas?

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