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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Power and Corruption, Part 1

Most previous attempts to test the adage that “power corrupts” have been unconvincing either because the participants were responding to hypothetical scenarios, or when the situation was real, the incentives for behaving badly were too low to tempt people to corrupt behavior. Two new studies by John Antonakis and his colleagues at the University of Lausanne (Switzerland) were intended to overcome these problems.

The authors define power as “having the discretion and the means to assymetrically enforce one’s will over others.” In the study, they manipulated power by varying the number of others who were dependent on the leader, and discretion, the number of choices available to the leader. Corruption occurs when leaders make decisions that benefit themselves personally, but which harm the common good by reducing the outcomes of their followers. The authors specify that to qualify as corrupt, the behavior must (1) violate social norms, and (2) “destroy public wealth”—that is, the amount gained by the leader must be less than the amount lost by the followers.

Antonakis has prepared this video to explain his two studies.

In the first experiment, participants played the dictator game, in which leaders completely controlled their own and their followers’ outcomes. Power was manipulated by varying the number of followers the leaders had (either one or three), and discretion, the number of options they had (either three, one of which harmed the followers, or four, two of which harmed the followers). A separate study with different participants showed that both of these manipulations made people feel more powerful.

As predicted, both number of followers and number of options increased corruption, as measured by the percentage of leaders who made corrupt choices. Converted to dollars, the participants came away with between $12.30 and $21.24 for a study that lasted less than 15 minutes.

I have a reservation about the manipulation of discretion. Giving some leaders three options and others four complicates the data analysis. The authors deal with this by collapsing the two antisocial choices in the four option condition into a single category. That’s not entirely satisfactory. If you assume the participants responded randomly, 50% of them would make an antisocial choice in the four option condition, while 33% would make an antisocial choice with three options. Their choices can be compared to chance, but not directly to one another. Fortunately, the results are so robust that this problem does not appear to compromise the study.

The second experiment was more ambitious, introducing several new variables not present in the first:

• The definition of corruption states that corrupt behavior violates social norms. After the dictator game was explained to the participants, but before leaders were assigned, participants were asked what they thought a responsible leader should do. Eighty-one percent chose the default option. The poll results were announced before the game began, making it clear to all participants that when leaders made antisocial choices, they were violating a group norm.
• The phrase “power corrupts” is sometimes taken to imply that corruption increases over time. In this experiment participants played 15 trials of the game. Some of the leaders received more power (an additional follower and an additional option) over time. They increased their corruption, while those whose power remained low throughout did not. Payoffs in study 2 varied between $35.47 and $98.06. Unfortunately, since the amount of power possessed by the leaders increased over time, it’s not clear whether their increased corruption was due to the passage of time or their increased power.
• It might be argued that these studies merely show that people are greedy. To check this, the researchers collected a separate behavioral measure of greed (a prisoner’s dilemma game). Their results showed that high power participants became more corrupt even when individual differences in greed were statistically controlled.
• The authors thought that individual differences in honesty and testosterone level might modify the effects of power on corruption. Honesty was measured with a paper-and-pencil test and testosterone from a saliva sample. These measures were collected at a separate session not connected to the main study. The honesty measure added little of interest; it predicted initial level of corruption, but did not interact with power. Testosterone, which was analyzed separately for men and women, did serve to amplify the effect of the power manipulation. The highest level of corruption occurred when high testosterone was combined with high power.

What can be done to reduce corruption? The testosterone results suggest that we should try to place more women in positions of power, but other than that, they have no practical implications. Since announcing the social norm didn’t help, simply shaming powerful people who behave badly probably won’t help. Antonakis suggests that we need greater sanctions to deter corruption, but research is needed to address the practical problems of what the punishments should be and how they can be enforced.

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Power and Corruption, Part 2