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The Global Economy's Corporate Crime Wave
In Project Syndicate's newest video, Jeffrey D. Sachs expands upon the views expressed in this commentary. Click here to watch.
NEW YORK "“ The world is drowning in corporate fraud, and the problems are probably greatest in rich countries "“ those with supposedly "good governance." Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. Money talks, and it is corrupting politics and markets all over the world.
Hardly a day passes without a new story of malfeasance. Every Wall Street firm has paid significant fines during the past decade for phony accounting, insider trading, securities fraud, Ponzi schemes, or outright embezzlement by CEOs. A massive insider-trading ring is currently on trial in New York, and has implicated some leading financial-industry figures. And it follows a series of fines paid by America's biggest investment banks to settle charges of various securities violations.
There is, however, scant accountability. Two years after the biggest financial crisis in history, which was fueled by unscrupulous behavior by the biggest banks on Wall Street, not a single financial leader has faced jail. When companies are fined for malfeasance, their shareholders, not their CEOs and managers, pay the price. The fines are always a tiny fraction of the ill-gotten gains, implying to Wall Street that corrupt practices have a solid rate of return. Even today, the banking lobby runs roughshod over regulators and politicians.
Corruption pays in American politics as well. The current governor of Florida, Rick Scott, was CEO of a major health-care company known as Columbia/HCA. The company was charged with defrauding the United States government by overbilling for reimbursement, and eventually pled guilty to 14 felonies, paying a fine of $1.7 billion.
The FBI's investigation forced Scott out of his job. But, a decade after the company's guilty pleas, Scott is back, this time as a "free-market" Republican politician.
When Barack Obama wanted somebody to help with the bailout of the US automobile industry, he turned to a Wall Street "fixer," Steven Rattner, even though Obama knew that Rattner was under investigation for giving kickbacks to government officials. After Rattner finished his work at the White House, he settled the case with a fine of a few million dollars.
But why stop at governors or presidential advisers? Former Vice President Dick Cheney came to the White House after serving as CEO of Halliburton. During his tenure at Halliburton, the firm engaged in illegal bribery of Nigerian officials to enable the company to win access to that country's oil fields "“ access worth billions of dollars. When Nigeria's government charged Halliburton with bribery, the company settled the case out of court, paying a fine of $35 million. Of course, there were no consequences whatsoever for Cheney. The news barely made a ripple in the US media.
Impunity is widespread "“ indeed, most corporate crimes go un-noticed. The few that are noticed typically end with a slap on the wrist, with the company "“ meaning its shareholders "“ picking up a modest fine. The real culprits at the top of these companies rarely need to worry. Even when firms pay mega-fines, their CEOs remain. The shareholders are so dispersed and powerless that they exercise little control over the management.
The explosion of corruption "“ in the US, Europe, China, India, Africa, Brazil, and beyond "“ raises a host of challenging questions about its causes, and about how to control it now that it has reached epidemic proportions.
Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.
Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits. Roughly one-half of US Congressmen are millionaires, and many have close ties to companies even before they arrive in Congress.
As a result, politicians often look the other way when corporate behavior crosses the line. Even if governments try to enforce the law, companies have armies of lawyers to run circles around them. The result is a culture of impunity, based on the well-proven expectation that corporate crime pays.
Given the close connections of wealth and power with the law, reining in corporate crime will be an enormous struggle. Fortunately, the rapid and pervasive flow of information nowadays could act as a kind of deterrent or disinfectant. Corruption thrives in the dark, yet more information than ever comes to light via email and blogs, as well as Facebook, Twitter, and other social networks.
We will also need a new kind of politician leading a new kind of political campaign, one based on free online media rather than paid media. When politicians can emancipate themselves from corporate donations, they will regain the ability to control corporate abuses.
Moreover, we will need to light the dark corners of international finance, especially tax havens like the Cayman Islands and secretive Swiss banks. Tax evasion, kickbacks, illegal payments, bribes, and other illegal transactions flow through these accounts. The wealth, power, and illegality enabled by this hidden system are now so vast as to threaten the global economy's legitimacy, especially at a time of unprecedented income inequality and large budget deficits, owing to governments' inability politically "“ and sometimes even operationally "“ to impose taxes on the wealthy.
So the next time you hear about a corruption scandal in Africa or other poor region, ask where it started and who is doing the corrupting. Neither the US nor any other "advanced" country should be pointing the finger at poor countries, for it is often the most powerful global companies that have created the problem.
Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals.
Copyright: Project Syndicate, 2011. www.project-syndicate.orgNEW from Project Syndicate: Video Interviews with Regular and Featured Contributors. To hear more from Jeffrey Sachs on corporate corruption, watch the video.
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Username Password New registration Forgotten password Sasha 04:53 01 May 11Great article.
uchrisn 08:46 01 May 11The internet really is a great resource. Thank you for this information Mr. Sachs.
Perhaps I could reference you to Matthew Verse 23 of the New testament - 'a warning against hypocrisy' These people may try to sound just to themselves on the outside, however when you look at the inside, the figures show a different story. They are lucky to have people like you and others on this site to warn them as the really need to be saved.
mmeister 05:48 01 May 11Good stuff. You overlooked the supreme court citizens united decision as yet another factor leading to corporate greasing in the US. Probably the worst legal decision of all time and we've yet to see the long run effects yet.
ChaseWolfe 08:07 01 May 11Referring to the last part in your article, does a company have the right to keep its finances secret? If it's not a binary answer, what rights to financial privacy does a government have?
CarlWeetabix 08:26 01 May 11Excellent article, but I think you missed another important component:
Legalized corruption.
That is, things that should be illegal but through legislative capture have been enshrined as "legal" in our laws. Good examples are the usurious interest rates that credit cards charge, the gaping holes for off-shore tax havens, the completely inequal justice system (you can steal $100 from a store and spend decades in prison, or steal millions from investors and spend years or less), and even rediculous handouts, like the $4 billion to oil. These all are simply corruption in another guise.
lyndscott 11:40 01 May 11a corporate crime wave ..... so why isn't anything being done about it ? where's the good guys ? where's the justice ? when will the "crimesters/banksters" go to prison ? where are the clawbacks ?
alex 12:02 02 May 11The moral crisis.......will not be solved by more rules.
The "civilized" world is in deep denial because the stakes are so high.
" Greed, ladies and gentlemen, is good " (Trump for president)
Milton Friedman 's free market...
Noreena Hertz : The silent takeover & I O U
I am afraid we are way beyond the point of no return.
Alex, The Netherlands
PROCYON 01:24 02 May 11
Impunity is just a trade with some costs and consequences, while its long term impact continues to grow in character and intensity; it is fast proliferating into the costs that the poor pay through their lives for even the essential services needed for their livelihood.
Procyon Mukherjee
AUTHOR INFO Jeffrey D. Sachs Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals. MOST READ MOST RECOMMENDED MOST COMMENTED China's Bad Growth Bet Nouriel Roubini How Risky is the Global Economy? Mohamed A. El-Erian Gambling with the Planet Joseph E. Stiglitz Saif Qaddafi and Me Dani Rodrik Three Paths for Indebted Democracies Raghuram Rajan A New World Architecture George Soros No Time for a Trade War Joseph E. Stiglitz Did the Poor Cause the Crisis? Simon Johnson America's Political Class Struggle Jeffrey D. Sachs Avatar and Empire Naomi Wolf Saif Qaddafi and Me Dani Rodrik Hypocrisy and War Gareth Evans The Goldstone Reversal Aryeh Neier The Global Economy's Corporate Crime Wave Jeffrey D. Sachs China's Bad Growth Bet Nouriel Roubini ADVERTISEMENT PROJECT SYNDICATEProject Syndicate: the world's pre-eminent source of original op-ed commentaries. A unique collaboration of distinguished opinion makers from every corner of the globe, Project Syndicate provides incisive perspectives on our changing world by those who are shaping its politics, economics, science, and culture. Exclusive, trenchant, unparalleled in scope and depth: Project Syndicate is truly A World of Ideas.
Project Syndicate provides the world's foremost newspapers with exclusive commentaries by prominent leaders and opinion makers. It currently offers 53 monthly series and one weekly series of columns on topics ranging from economics to international affairs to science and philosophy.
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Great article.
The internet really is a great resource. Thank you for this information Mr. Sachs.
Perhaps I could reference you to Matthew Verse 23 of the New testament - 'a warning against hypocrisy' These people may try to sound just to themselves on the outside, however when you look at the inside, the figures show a different story. They are lucky to have people like you and others on this site to warn them as the really need to be saved.
Good stuff. You overlooked the supreme court citizens united decision as yet another factor leading to corporate greasing in the US. Probably the worst legal decision of all time and we've yet to see the long run effects yet.
Referring to the last part in your article, does a company have the right to keep its finances secret? If it's not a binary answer, what rights to financial privacy does a government have?
Excellent article, but I think you missed another important component:
Legalized corruption.
That is, things that should be illegal but through legislative capture have been enshrined as "legal" in our laws. Good examples are the usurious interest rates that credit cards charge, the gaping holes for off-shore tax havens, the completely inequal justice system (you can steal $100 from a store and spend decades in prison, or steal millions from investors and spend years or less), and even rediculous handouts, like the $4 billion to oil. These all are simply corruption in another guise.
a corporate crime wave ..... so why isn't anything being done about it ? where's the good guys ? where's the justice ? when will the "crimesters/banksters" go to prison ? where are the clawbacks ?
The moral crisis.......will not be solved by more rules.
The "civilized" world is in deep denial because the stakes are so high.
" Greed, ladies and gentlemen, is good " (Trump for president)
Milton Friedman 's free market...
Noreena Hertz : The silent takeover & I O U
I am afraid we are way beyond the point of no return.
Alex, The Netherlands
Impunity is just a trade with some costs and consequences, while its long term impact continues to grow in character and intensity; it is fast proliferating into the costs that the poor pay through their lives for even the essential services needed for their livelihood.
Procyon Mukherjee
Project Syndicate: the world's pre-eminent source of original op-ed commentaries. A unique collaboration of distinguished opinion makers from every corner of the globe, Project Syndicate provides incisive perspectives on our changing world by those who are shaping its politics, economics, science, and culture. Exclusive, trenchant, unparalleled in scope and depth: Project Syndicate is truly A World of Ideas.
Project Syndicate provides the world's foremost newspapers with exclusive commentaries by prominent leaders and opinion makers. It currently offers 53 monthly series and one weekly series of columns on topics ranging from economics to international affairs to science and philosophy.
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