Management Consultant Mike Eldon

Corruption rife in the West too

I was in London for a few days in December, and there I came across an article on corruption in the Sunday Times by Matthew Syed—a management consultant like me—about how it works in western liberal democracies. He reckons the cancer of corruption has been growing there for decades, resulting in such consequences as the stagnation in their economies, the rise in inequality, and the collapse of trust in government.

He accepts that some may challenge his diagnosis of the underlying disease, pointing to Transparency International’s Corruption Perception Index (CPI) where Western nations continue to score favourably. But while the US, the UK and the EU countries tend not to engage in the kind of “transactional” corruption measured by the TI survey, what is seen in the West is a different kind of decay, subtler and more insidious.

He mentions the significant number of politicians who pass through the revolving door and earn huge sums of money from companies over which they once had oversight; notes how political parties are funded by an even smaller number of mega-donors; and observes that those who chair public committees and tribunals know that their elevation to the peerage is in the gift of those over whom they sit in judgement.

So it’s not about straightforward bribes. Rather “it is a covert edifice of nods, winks and reciprocal obligations that has created a parallel system of political power”. Thinkers over the ages like Milton Friedman and Friedrich Hayek have noted that corporations are not seeking to act in the public interest but “to protect themselves from the cleansing power of open competition by advocating sweetheart regulations, covert subsidies and other barriers to entry from insurgent rivals”.

Syed also quotes Luigi Zingales, who noted that “the best way to make lots of money is not to come up with brilliant ideas but to cultivate a government ally”. The consequence of such activity today is that dominant companies are staying ever longer in the main indices, and start-up rates are dwindling on both sides of the Atlantic.

Syed then quotes Matt Ridley, who saw that of Europe’s 100 most valuable companies, none was formed in the past 40 years. “Free markets have been replaced with rigged markets,” concludes Syed, “capitalism with a cronyish impostor.”

How extraordinary. In among all one reads about the contemporary trend of corporate social responsibility and about how we are becoming much more sensitive to the environment, to social issues and to good governance, here’s a contrary view, a really gloomy one.

As interesting as Syed’s observation of “corruption’s revolving door” are his proposals for how to seal that door before it is too late. His first one is to impose a ban of at least five years on ministers and regulators working for companies over which they had had oversight.

Meanwhile, he would significantly increase the salaries of ministers, which he accepts would be an extremely unpopular move. His logic is that higher-quality candidates would be attracted to such positions, and that they would be happy just serving the public interest rather than using their jobs in the subsequent service of corporate clients from whom the real money would be earned after leaving office.

One more suggestion, hard to imagine how it could work even in the environment Syed was writing about: a voucher system for funding political parties, where each person would have, say, £50 to contribute to the party or the candidate of their choice, encouraging parties to engage much more widely with voters. Alongside this, a cap on private donations. Without such remedies, Syed is convinced, the body politic risks being fatally harmed by the corruption cancer within.

As I read the article, I first wondered how mainstream Syed’s views are, and to what extent his suggested remedies are being considered. But mainly I thought about how what he spelt out relates to what happens here. Our position on Transparency International’s CPI is low, as we are expert at indulging in what Syed describes as “officials asking for bungs; ministers giving jobs to nieces and nephews; politicians siphoning off funds from state coffers to Swiss bank accounts”, the kind of corruption that has eased off in the West.

For sure here, “knowing people” so as to have allies in government is as important as anywhere; and offering soft-landing jobs to former politicians and senior government officials is commonplace.

It’s all relative, isn’t it though? While we are worse off than many, we are still not as bad as plenty of others. The struggle continues, here and elsewhere.