Corruption is as American as apple pie, or so it would seem. A casual survey of the political and corporate landscape in recent weeks alone provides a troubling reminder that corruption is endemic to our way of life:
Sen. Robert Menendez, D-N.J., the new chairman of the Senate Foreign Relations Committee, is facing a Senate ethics probe for accepting two free trips to a Dominican Republic resort on the private plane of a Florida doctor suspected of Medicare fraud. Former Illinois Gov. George Ryan was released from federal prison after serving more than five years for corruption, while another former governor, Rod Blagojevich, has 14 more years to go on his conviction for demanding cash in exchange for an appointment to President Obama’s former Senate seat.
Washington, D.C. Mayor Vincent Gray is a target of a federal investigation into campaign finance corruption, while former Michigan Supreme Court justice, Diane Hathaway, pleaded guilty to bank fraud for concealing assets in a real estate transaction.
Meanwhile, the Justice Department accused Standard & Poor’s Ratings Services of intentionally inflating its ratings of dubious bond issues in 2007 that later imploded and cost investors $5 billion. And mega-bank JPMorgan Chase was accused in federal court in Manhattan of having duped investors by selling them troubled home loans bundled into complex securities that later went bust.
And on and on.
Little surprise, then, that Americans hold the government and financial institutions in very low regard. Surveys by the Gallup Organization last year found that 60 percent of Americans believe corruption is widespread among businesses, while only about one in five has much trust in banks. As for politicians, 54 percent of those surveyed rated members of Congress “very low” on honesty and ethical standards.
Those are harsh assessments, but they’re fairly easy to understand in the wake of widespread corrupt practices of major Wall Street banks that helped trigger a financial meltdown, hundreds of billions of dollars in losses to unsuspecting investors and home owners, and the worst recession of modern times. Not a single top executive from a major bank was ever prosecuted in the massive financial scandal, which has added to the public’s cynicism and prompted critics to question whether high-rolling bankers are “too big to jail.”
That cynicism and distrust of public figures is further fueled by an ever growing rogues gallery of disgraced members of Congress, such as former Republican Nevada senator John Ensign who resigned his seat in May 2011 after arranging for the payment of hush money in his messy extramarital affair, or former House Majority Leader Tom DeLay, R-Tex., who was convicted in November 2010 for money laundering in connection with the Jack Abramoff lobbying scandal.
Public policy researchers Betsey Stevenson and Justin Wolfers noted in a May 2011 study documented what they called a “recent sharp decline in the confidence the American public has in their government, financial, and business sectors, and to a lesser extent, their media and their courts.”
Stevenson and Wolfers concluded that the business cycle has immense influence in shaping the public’s attitudes about its bankers, business leaders and politicians. When times are good, their approval ratings rise, and when times are bad – like during the past five or six years of economic crisis and slow recovery – those ratings plummet.
“We found in our research that during times of relatively higher unemployment or economic downturn, the public had far less trust or confidence in finance, big business and sometimes government,” Wolfers, a professor of public policy at the University of Michigan, told the Fiscal Times last week. “And when the economy improved, those approval ratings inched up.”
Ironically, it’s often during those boom times in the business cycle – with huge profits to be made – when investors and businessmen are most inclined to cut corners, chisel or outright steal from investors, and when politicians are most on the prowl to line up campaign contributions or business deals that can help line their pockets, according to business and government watchdog groups.
“A government launching a competitive tender, a company setting up operations abroad, a politician raising funds to campaign for office – these are just a few of the areas where corruption can breed, according to Transparency International, a corruption watchdog organization that annually ranks countries in how well or poorly they seem to be doing in cracking down on corruption.
Eduardo Porter, writing in The New York Times last year about the public’s relatively blasé reaction to the Libor scandal in which some of the world’s largest banks manipulated a key interest rate for large profits, said that: “We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust.” And as Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”
While some may despair the seemingly rampant financial and political corruption in this country, from a global perspective the U.S. fares pretty well. For instance, a Corruption Perception Index produced annually by Transparency International placed the United States relatively close to the top of the list of clean countries – or 17 among 174 countries and territories.
The rankings are based on a series of polls and surveys of business people, academics and analysts in each of the countries rated. The Corruption Perception Index scores countries on a scale from zero (highly corrupt) to 100 (highly clean). While no country has a perfect score, two-thirds of countries score below 50, indicating a serious corruption problem. The U.S. received a score of 73.
To be sure, the U.S. lags well behind such goody-two-shoes countries as Denmark, Finland, New Zealand Sweden, Singapore, Switzerland, Australia and Norway. But for more than a decade, the U.S. has consistently ranked in the upper tier of relatively clean countries, along with Japan, the United Kingdom and Israel.
And the United States moved up in the latest ranking from 24th place in 2011. If Stevenson and Wolfers are right in their theory of the power of the business cycle, then the gradual improvement in the U.S. economy is helping to remove some of the tarnish from our business and political leaders.
Lurking at the bottom of Transparency International’s index are the ten dirtiest countries around the globe, with Somalia, a lawless country best known as a safe haven for high seas pirates. The others include North Korea, the Sudan, Myanmar and Afghanistan – where half of all Afghans claim to have paid bribes, according to a United Nations report.
“Looking at the Corruption Perceptions Index 2012, it's clear that corruption is a major threat facing humanity,” according to Transparency International. “Corruption destroys lives and communities, and undermines countries and institutions. It generates popular anger that threatens to further destabilize societies and exacerbate violent conflicts.”