Please read Part 1.
The experiments described by Antonakis and his colleagues involve interactions between leaders and one or more followers. Corruption occurs when leaders take more money for themselves, leaving less for their followers. In order to qualify as corrupt, the leaders’ actions must destroy public wealth; that is, the amounts taken by the leaders must be less than the amounts lost by the followers. This analysis strikes me as incomplete, since it views corruption as only involving two parties, leaders and followers. Some corruption fits this model. For example, a public official may embezzle public funds (although, in this case, there may be no loss of public wealth, since the amount gained by the leader probably equals the amount lost by the followers). However, in the most interesting cases of corruption, third parties are involved.
In this video, Dr. Aaron Carroll discusses research on conflicts of interest among medical doctors.
Let’s consider the case in which doctors receive benefits from drug companies, such as meals, travel, honorariums for speaking, grants for research, or part-ownership of companies. Studies cited by Carroll show that they are more likely to prescribe drugs sold by those companies. In some cases, the doctors may prescribe that company’s drugs rather than an equally-priced competitor’s product. However, they could also prescribe patented drugs rather than their cheaper generic equivalents, or even unnecessary drugs. There is destruction of public wealth if (as I suspect) the extra amount patients spend for higher priced or unnecessary drugs exceeeds the value of the benefits received by the doctors.
Here’s a political example involving corporate welfare. Wisconsin Governor Scott Walker recently signed a bill giving away $250 million in public funds to the owners of the Milwaukee Bucks pro basketball team to build a $500 million arena. It was simultaneously revealed that Jon Hammes, a minority owner of the team, had donated $150,000 to a PAC supporting Walker for President. Of course, the situation is more complicated than that. Not only the Governor but the majority of the Legislature had to approve the giveaway. It is likely that other contributions were made by Milwaukee Bucks owners to Governor Walker and members of the Legislature.
Governor Walker justified the expenditure on the grounds that the team threatened to leave Milwaukee if the state didn’t pay up. He said it prevented the loss of $6.5 million per year in state taxes paid by the team and its players. (At that rate, it should pay for itself in only 38.5 years.) In all likelihood, this was an empty threat designed to give political cover to Walker and his merry band of athletic supporters, although this would be difficult to prove. It can also be argued that the citizens of Wisconsin will receive more than just tax revenue from the new arena. Some of them will receive the enjoyment of watching basketball games (although they will pay dearly for the privilege), the bars across the street from the arena will sell more beer, etc. Nevertheless, if we could quantify all these costs and benefits, the bottom line would probably show considerable destruction of public wealth.
By coincidence, Governor Walker and the legislature cut $250 million from the University of Wisconsin’s appropriation this year.
One way of looking at these examples is to ask: If there is destruction of public wealth, where does it go? In the Antonakis experiments, it disappears into thin air. This is built into the pay schedules devised by the experimenters. In the real world, that wealth goes to third parties.
I suggest that a typical case of public corruption looks something like this:
- A donor or group of donors pays a relatively small amount in benefits to a leader or group of leaders.
- The leaders take an action or series of actions which result in their followers paying a much larger amount to the donors.
- The difference between the two amounts (Antonakis’ “destruction of public wealth”) is the profit to the donor.
Implied in the above is that not only are the leaders corrupt, but also the donors, and that the donors derive more profit from their corruption than the leaders do. If this were not the case, they would no longer continue to donate. By concentrating on leaders and followers, the Antonakis research lets those corporations and rich individuals that comprise the donor class off the hook.
The three party (leader-follower-donor) model proposed here is an oversimplification. In the case of political corruption, at least two other groups of actors are involved: campaign finance organizations, such as political action committees, and lobbyists. The donors seldom pay the leaders directly, but contribute to campaign finance organizations controlled by the leaders. The purpose of this is to avoid the appearance of quid pro quo corruption, which might meet the legal definition of bribery. The lobbyists also transmit some benefits to the leaders, as when they attend their fund raisers, but their primary function is to tell the leaders what the donors expect them to do in exchange for the benefits they have received (or hope to receive). Since this occurs at a time and place removed from the original payment, it also helps to avoid the appearance of impropriety.
Free lunches and campaign contributions persist because they are good investments. The Sunlight Foundation, using public records, found that between 2007 and 2012, 200 of the most politically active American corporations spent $5.8 billion on campaign contributions and lobbying and received $4.4 trillion in federal business and support. That’s $760 for every for every dollar spent. Of course, not all of this is destruction of public wealth. The government purchases goods and services from some of these corporations. It would be difficult to determine how many of them are actually needed and whether they are fairly priced. It should also be noted that corporations receive other government benefits that the Sunlight Foundation could not quantify, including tax breaks and influence over trade agreements and labor and environmental regulations.
All of this is perfectly legal in the United States. In a future post, I’ll try to explain the difference between quid pro quo and dependence corruption, and how all but quid pro quo corruption came to be legal in this country.
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