Leading economic centres including the US, UK and Singapore are among the countries most to blame for promoting international financial secrecy, according to a new index comparing the harm allegedly done by tax havens and rich nations.
The league table to be published on Monday by the Tax Justice Network, a respected campaign group, is led by the US state of Delaware and includes Luxembourg, Switzerland and Hong Kong in its top 10. The research – which comes ahead of the Group of 20 finance ministers’ meeting in Scotland next week – is an unusual attempt to measure whether powerful countries are as culpable over illicit fund flows as the offshore centres they have attacked since the financial crisis.
John Christensen, Tax Justice Network director, said the index outlined “a much more intricate story than has been told in the past about how financial markets have secrecy at their core”.
He said: “We like to think that liberalised financial markets are transparent. But when you dig deep into their arrangements, you find transparency is something of a chimera.”
The rankings are made by giving each of 60 onshore and offshore financial centres an “opacity score”, which is then weighted according to the jurisdiction’s significance in the world financial system. Delaware – a big centre for US corporate registrations that is widely criticised for its secrecy – emerges as the runaway winner, while the City of London’s size puts it in fifth place, even though it is judged the least opaque of the territories surveyed.
The tax havens hardly escape unscathed, with hedge fund centre Cayman ranked fourth and Bermuda, a leading base for insurers, coming in seventh. European nations fare badly, with Belgium and Ireland making it five entries for the Continent in the top 10.
Singapore’s eighth place reflects longstanding criticism from overseas investigators, who allege it is unco-operative despite its highly sophisticated financial system.
The question of the degree of blame attached to rich nations and tax havens for failings in financial transparency has become highly political in the wake of the credit crunch.
Corruption is now a popular topic in the social sciences. This expansion of interest is evident in economics and elsewhere, where a large number of articles on this theme have been published in leading journals. Some organizations publish indicative data on corruption. For example, Transparency International publishes a widely cited “Corruption Perceptions Index” for most countries, and these data are frequently used in statistical analyses of economic performance. Transparency International data for 2005 suggest that corruption is “rampant” in more than 70 countries.1 These include populous and fast-growing economies such as China and India, which account for a large and rapidly increasing share of the global economy. Recent empirical studies indicate that corruption has a negative effect on economic performance (Shleifer and Vishny 1993; Mauro 1995; Aidt 2003; Jain 2001; Pelligrini and Gerlagh 2004). The World Bank (1997) has identified corruption as “the single greatest obstacle to economic and social development.”2 However, much less attention so far, has been devoted to the concept of corruption, its meaning and its definition. This means much more than the lack of tidy terminology. As Arvind Jain (2001, 73) observes: “While it may appear to be a semantic issue, how corruption is defined actually ends up determining what gets modelled and measured.” Similarly, Toke Aidt (2003, F623) remarks that “the definition of the concept determines what gets modelled and what empiricists look for in the data.” It is argued here that this conceptual lacuna in the literature has led some authors – particularly economists – to adopt a narrow and inadequate definition of corruption that has led to skewed empirical measures and biased policy recommendations.3 It is shown below that prevailing definitions of corruption unwarrantedly and misleadingly confine the phenomenon to the public sector, despite the fact that 1044 Geoffrey M. Hodgson and Shuxia Jiang private sector corruption is often acknowledged. In addition, the rare but real phenomenon of “noble cause corruption” suggests that corruption is not strictly and universally for private gain, despite selfish motives often being involved. Another distorting factor that pervades the literature on corruption is the utilitarian reduction of morality to matters of utility or satisfaction. Consequently, the moral dimension of corruption has been dissolved into the hedonic calculus of individual gain or loss. Ideological and theoretical biases, prevalent in mainstream economics and elsewhere, have corrupted the concept of corruption. With the exception of the rhetorical allusion to the “corruption of economics,” this article is concerned with organizational corruption, rather than corruption in a broader sense, such as the corruption of language or a single individual. The following section criticizes the idea that organizational corruption is confined to the public sector only. A much shorter subsequent section briefly establishes that corruption need not always be for private gain. Another section criticizes utilitarian treatments of corruption and establishes its immoral character, leading to a specific definition of organizational corruption involving the violation of established, normative rules. From this perspective it is argued in the penultimate section that organizational corruption incurs social costs that cannot fully be internalized. Is Corruption Confined to the Public Sector? The root of the word “corruption” is in the Latin adjective corruptus, meaning spoiled, broken or destroyed. According to the Concise Oxford English Dictionary, a meaning of to corrupt in the social context is to bribe, and corruption amounts to “moral deterioration.” Neither of these definitions nor the Latin etymology of the word, confines the notion of corruption to the public sector. Accordingly, corruption can occur in the private sphere as well. Prominent international organizations adopt a similarly inclusive definition of corruption. The United Nations Office on Drugs and Crime emphasizes that corruption “can occur in both the public and private domains.” Its Global Programme Against Corruption (GPAC) defines corruption as the “abuse of power for private gain” and includes thereby both the public and private sector.4 Similarly, the World Bank does not regard corruption as confined to the public sector and has identified several cases of corruption among private corporations. For Transparency International, corruption is operationally defined as “the misuse of entrusted power for private gain.”5 This too covers individuals in both the private and public sectors. Among economists, however, a different consensus prevails.6 In his overview article, Jain (2001, 73, emphasis added) declares “there is a consensus that corruption refers to acts in which the power of public office is used for personal gain in a manner that contravenes the rules of the game.” In another major survey article in a journal of economics, Aidt (2003, F623, emphasis added) writes: “Corruption is an act in which the power of public office is used for personal gain in a manner that contravenes the rules of the game.”7 The Economics of Corruption and the Corruption of Economics 1045 The survey articles by Jain (2001) and Aidt (2003) accurately report and endorse the tendency of most economists to confine their definition of corruption to the public sphere. For example, in a widely cited article simply titled “Corruption,” Andrei Shleifer and Robert Vishny (1993, 599) confine their attention to government corruption only, defining it as “the sale by government officials of government property for personal gain.” The influential study of the negative effects of corruption on economic growth by Paolo Mauro (1995) has the unqualified word “corruption” in its title but in the text mentions government corruption only. Likewise, Daron Acemoglu and Thierry Verdier (2000) also have the unqualified word “corruption” in their title but in their analysis they confine themselves entirely to the corruption of government officials. Like many others, Daniel Treisman (2000, 399) defines corruption as “the misuse of public office for private gain.” A. Mitchell Polinsky and Steven Shavell (2001) confine their study to corruption in law enforcement. By definition or default, many economists confine their attention to corruption in the public sector. There are exceptions, and there is some discussion of private sector corruption in the literature, but a pronounced and questionable bias remains. A search for the phrase “corporate corruption” in the text of all the journals of economics in the large JSTOR (The Scholarly Journal Archive) electronic database of leading journals found only three articles in which the phrase was used, and none later than 1977. By contrast, a search in the same journals in the same database found 25 articles using the phrase “government corruption” and 9 using “public corruption.” The search was then widened to all items on the ISI Web of Knowledge (http://isiwebofknowledge.com/), in all available disciplines. In the accessible text of 35.9 million items, 13 mentioned “corporate corruption,” 22 mentioned “government corruption” and 8 mentioned “public corruption.” This shows that the frequency of the phrase “corporate corruption,” relative to the phrases concerning corruption in the public sector, is much less when the search is narrowed to leading journals in economics. Mainstream economists are much more likely to consider public sector rather than corporate corruption. However, this dubious bias is not confined to journals in economics. An early and influential article by the political scientist Joseph Nye (1967, 419) defined corruption as the deviation from the formal duties of a public role for private gain. Subsequently, in one of the few articles devoted entirely to the definition of corruption in the literature, John Gardiner (1993, 112) proclaims approvingly without much reflection: “All probably would agree with Nye’s emphasis on public roles.” Similarly, Daniel Kaufmann (1997, 114) is also among the many social scientists who define corruption as “the misuse of public office for private gain.” He is followed by Wayne Sandholtz and William Koetzle (2000, 31) and numerous others. Mark Warren (2004, 328-9) asks the question “what does corruption mean in a democracy?” and then immediately confines himself to political corruption and “the misuse of public office for private gain.” The analysis in Susan Rose-Ackerman’s (1999, 9) important and influential book is deliberately confined to government corruption, which is defined as payments “illegally made to public agents with the goal of obtaining a benefit or avoiding a cost.” 1046 Geoffrey M. Hodgson and Shuxia Jiang Two logical bases of this questionable bias are possible. One is to define corruption in terms that confine it explicitly to the public sector. Another is to admit a broader definition, but for some reason to bias research toward corruption in the public sphere. Examples of both stances can be found in the literature. We also need to explain what motivates either form of this bias. There is, of course, a huge and rapidly growing literature on business ethics, and moral issues are salient in the corporate governance literature and elsewhere. Often, other ethically loaded words are used instead of the term “corruption” in these literatures. Partly this is because of a concern with the ethical behavior of a corporation as such, rather than corruption within organizations. Nevertheless, terms such as “corporate corruption” and “business corruption” are in widespread use in popular and even legislative discourse. In sum, much of the literature on corruption in the social sciences has restricted itself to the public sector.8 This is objectionable, for several reasons. First, it ignores the reality of corruption in the private sphere. One need only mention the word Enron. There are well known instances of corruption in trade unions, including the U.S. Teamsters Union (Friedman and Schwarz 1989). Corruption has also been found in sports, including the bribing of players or challengers to “throw” contests. In 1997, the Organization for Economic Cooperation and Development (OECD) member states adopted a convention making business bribery abroad a criminal offense in the home country of the bribing firm. The opening years of the twenty-first century were marked by major cases of corporate fraud, involving U.S.-based companies such as Enron, WorldCom, Adelphia and Parmalat. Alarm about corporate fraud and corrupt accounting practices fuelled political pressure in the U.S. Congress. In response, President George W. Bush signed a “Corporate Corruption Bill” in July 2002, thus endorsing the notion that corruption is more than a purely governmental phenomenon. Second, there are several ways of defining the boundary between the public and private sectors, leading to classificatory problems if corruption is definitionally restricted to the public sphere. Consider a private corporation of which the state owns 51 percent of its share capital. Is it part of the public or the private sector? Does corruption within it magically cease if this state ownership drops from 51 to 49 percent? Some organizations – including nearly all British universities and the newly devised “foundation hospitals” in England – are formally private, but largely dependent on state funding and consequently come to some degree under state control. Are these in the public or the private sector? In response, one can refine the definition of the public or private sector, but that is beyond the point. We should be interested in the reality of corruption, whether or not these institutions are formally defined as public or private. Third, institutions that in some nations are private can be public elsewhere. In some countries, postal services, railways and universities are entirely run by the state. University professors and other functionaries in these sectors are essentially civil servants or state officials. Yet elsewhere, one can find instances where these services are privatized. An act of bribery involving an official within the French university, postal or railway systems would be corruption by most definitions. But would it cease The Economics of Corruption and the Corruption of Economics 1047 to be so if it occurred in the private equivalents of these institutions elsewhere, in say the United States? An affirmative answer would be absurd. Furthermore, France might have more corruption than another country with similar levels of dishonesty, simply because the public sector is larger. Once again, restricting the definition of corruption to the public sector leads to severe anomalies. Fourth, corruption is typically contagious and does not respect sectoral boundaries.9 Corruption involves duplicity and reduces levels of morality and trust. Once it takes root, it tempts others with its pecuniary gains and reduces incentives to conform to the rules. As levels of morality and trust are lowered, it becomes more difficult to resist corrupt practices. Virulent corruption can spread quite easily from the private to the public sector, or vice versa. Corruption involves negative externalities that traverse sectoral boundaries, by undermining legal and moral norms and facilitating further corrupt acts. Consequently, empirical studies of the levels of corruption should be comprehensive and unconfined to the public sphere. Given the absurdity of restricting the study and definition of corruption to the public sector, one may ask why so many social scientists define it in these limited terms? Political scientists may plead that their very role is to study political institutions, but this does not warrant the confinement of the definition to this terrain. Economists do not even have this excuse. One possible reason for their biased concern with public sector corruption is the widespread influence of individualistic and libertarian ideology. A primary target in this ideology is the abuse of power by politicians. The misuse of power by directors of large corporations does not raise the same level of concern among leading individualistic and libertarian thinkers such as Milton Friedman and Friedrich Hayek. According to this stream of thought, most voluntary contracts between consenting adults are moral and legitimate, as long as they do not harm others. Ignoring the negative externalities of corruption, it has been further argued from a libertarian perspective that bribery and other forms of corruption in the private sphere have potential benefits, and are expressions of entrepreneurial activity. By contrast, corruption in the public sector involves the misuse of powers within questionable state institutions. In sum, the bias toward public sector corruption in the literature partly reflects an ideological notion that the private sector is the zone of largely unconstrained individual liberty, whereas the state represents its antithesis and must be subject to rigorous scrutiny, confinement and restraint. From this individualistic and libertarian perspective the temptation is to see the solution to the problem of corruption as the reduction of the size of the state, particularly if corruption is defined as essentially a state phenomenon. As an extreme case, Nobel Laureate Gary Becker is quoted in Business Week as declaring: “if we abolish the state, we abolish corruption” (Tanzi 2000, 112). Of course, this would be true if corruption was definitionally confined to state institutions, but it is not particularly helpful or feasible. The alternative statement “if we diminish the state, we diminish corruption” would sustain the view that extensions of privatization and market competition are generally effective cures for a corrupt polity. Is such a proposition tenable?
(TO BE CONTINUED)
BY Geoffrey M. Hodgson and Shuxia Jiang The authors are from the Business School, University of Hertfordshire, UK and the College of Economics, Xiamen University, China. They are very grateful to Jitendralal Borkakoti, Michael Dietrich, Jane Hardy, David Reisman and others for helpful comments on earlier versions of this paper.
FIRST POSTED AT JOURNAL OF ECONOMIC ISSUES Vol. XLI No. 4 December 2007
GLOBALIZATION CONTINUING ITS WORK-THE WORLD CRISIS :WE NEED TO KNOW MORE...
William White, former chief economist at the Bank for International Settlements, argued that after two years of government support for the financial system, we now have a set of banks that are even bigger - and more dangerous - than ever before. That view has been argued by Simon Johnson, former chief economist at the International Monetary Fund. He says that the finance industry has in effect captured the US government and that "recovery will fail unless we break the financial oligarchy that is blocking essential reform".(V)
WE HEAR A LOT LATELY ABOUT THE END OF CRISES,ABOUT MARKETS RECOVERING AND WORDS FOR LOVE,CHARITY,BROTHERHOOD OF HUMANITY FROM THE POLITICAL-ECONOMICAL TEAMS,WHICH WERE GOVERNING BEFORE AND STILL DO, HUMANITY. BUT WE DON'T HEAR ANYTHING,ABOUT THE DEPTH OF THE PROBLEM,WE DON'T EVEN SEE A SCIENTIFIC APPROACH FOR ALL LEVELS OF GLOBAL K(C)YBERNITICS (GOVERNMENTS,JUSTICE,LOCAL AUTHORITIES ,UNIVERSITIES,NGO,ETC). SO THAT TO UNDERSTANDING WHO IS BEHIND THE BIGGEST CRISIS HUMANITY HAS EVER FACED FROM 18TH CENTURY. FIRST OF ALL THE PROBLEM IS POLITICAL AND FROM ITS BAD OPERATION ,BY THE MEANING OF POLITICAL MANAGEMENT,DECISIONS,IT BECAME ECONOMICAL. AREN'T POLITICAL THE DECISIONS FOR : A)THE PRIVATIZATION OF CENTRAL STATE BANKS OF USA AND GB(1913 FED,1977 BANK OF ENGLAND)(I,III),WHICH IS FOLLOWED BY OTHER COUNTRIES ALSO? B)THE CONTROL,REGULATIONS,OPERATION OF THE WHOLE SYSTEM ? WHY THE FINANCIAL SYSTEM HAS TO BE IN THE HANDS OF A FEW PEOPLE,WHO ACTUALLY WEREN'T INFORMING ANYBODY FOR THEIR ACTIONS,EVEN POLITICAL INSTITUTIONS LIKE CONGRESS,PARLIAMENTS ETC.? ISN'T THIS AGAINST DEMOCRATIC VALUES? C)FOLLOWING THE DEVELOPMENT OF A COUNTRY BY IMPLEMENTING ECONOMIC IDEOLOGIES BASED ON IDEAS FROM 18-19TH CENTURIES (CAPITALISM,COMMUNISM,SOCIALISM,FASCISM ETC)? AND FOR NOT RESEARCHING FOR EVALUATION OF NEW ECONOMIC CYCLES AND IDEAS? D)ORGANIZING OUR LIVES ONLY BY MOVING AROUND THE TEMPLE OF MARKET AND TRANSFORMING DEMOCRACIES IN MARKETOCRACIES? E)REPLACING THE SYSTEM OF BULLION(GOLD,SILVER,TRADE OF GOODS) BY COMPLEX PARAMETRIZED ECONOMIC VALUES,NON EASILY BEING UNDERSTAND BY THE GENERAL PUBLIC WHICH IS THE MOVING POWER FOR EVERY HUMAN ACTIVITY? ST)ORGANIZING THE DEVELOPMENT OF OUR COUNTRIES ON STATE DEBTS?(ESTIMATED USA DEBTS,domestic, commercial and consumer,ARE 51 TRILLIONS USD (IV))
WHAT ABOUT CDS (CREDIT DEFAULT SWAP)? WHERE IS IT BASED THE VALUE OF THE PAPER MONEY WHICH ARE CUT BY THE GOVERNMENTS? TO THE PARAMETRIZED ECONOMIC VALUES OF HUMAN ACTIVITY? THE TOTAL Financial LOSSES ACCORDING TO IMF ESTIMATIONS WILL REACH 4 TRILLION USD (FOR OUR OPINION IT IS MORE THAN 5 AND UP TO 9 TRILLION USD,FOR GLOBAL MARKETS),WHERE THESE MONEY HAVE BEEN LOST,ANALYTICALLY ? TO WHOM THE CITIZENS,OWN THE STATE DEBTS,APART FROM PRIVATE CENTRAL OR NOT, BANKS?
SO THE POLITICAL SYSTEM ,WHICH LATELY HAS STARTED SPEAKING FOR CORRUPTION,SHOULD GIVE THE AUTHORITY TO THE APPROPRIATE POWERS TO CAPTURE THOSE WHO TOOK THE MONEY. BECAUSE PUTTING IN JAIL SOME POOR GUYS WHO HAPPENED(?) TO STEAL BILLIONS OF USD OR EURO,DOESN'T GIVE CONFIDENCE TO THE MOVING ECONOMIC POWER OF THE PLANET,OUR MINDS. THE CLEARANCE SHOULD PROCEED TO ALL LEVELS OF SOCIAL LIFE NOT ONLY OF PRIVATE COMPANIES,ORGANIZATIONS,STATES ETC.BUT EVERYWHERE. IN THAT WAY AND BY AT LEAST 50% AUGMENTATION OF CITIZENS PARTICIPATION TO THE INSPECTION MECHANISMS,WE SHALL FACE A NEW RISE OF ECONOMY.THIS COMBINED WITH ANOTHER VIEW OF POLITICS BY TRANSFORMING REPRESENTATIVE DEMOCRACY TO A DIRECT ONE,WILL RAISE US TO ANOTHER SPHERE OF MATERIALISTIC AND SPIRITUAL ANELIXIS (=SPIROID RISE) FOR ALL.
ANGELOS CHARLAFTIS
PS. ALSO IF YOU CLICK ON THE TITLE LINK,YOU WILL BE GUIDED TO AN INTERESTING ARTICLE
OUR COMPANY BASED ON SHAREHOLDING LEGISLATION CONSISTS OF EXPERTS IN THE FIELD OF ECONOMICS,LAWS,ENGINEERING,CONSULTING,TECHNOLOGY,ECOLOGY,CAPITALISING WHICH ARE WORKING WITH PASSION TO IMPLEMENT OUR VALUES.(published by think tank IAMBLICHUS team)
