. He is Managing Director, International, of Acton Institute.
"Although I was born and raised in a
country where corruption, especially petty corruption, had become part
of many aspects of life, I only began studying the issue more thoroughly
when corruption measurements were published. The first of these was
that of Transparency International, which released the Corruption
Perceptions Index (CPI) in 1995. The annual index continues to be
expanded and improved, and the
2019 ranking was released last week. It covers 180 countries and territories around the world.
The launching of the first indices of corruption coincided with
another first, the release of measurements of economic freedom. The
Fraser Institute in Canada was the first to begin to study how to
measure economic liberties. Soon after, the Heritage Foundation began to
produce a competing index. Thanks in part to this healthy competition
among think-tanks, both indices have improved in rigor and
user-friendliness, and have led to the elaboration of other indices and
countless studies. In 1997, Eugenio Guzmán, then a recent graduate of
the London School of Economics and today the dean of the school of
government at the Universidad del Desarrollo in Chile, and I conducted
the first study correlating economic freedom with corruption data from
Transparency International.
The study, which shows that there is a strong and significant
correlation between higher economic-freedom scores and lower corruption
scores, was preceded by an analysis of the theories and studies of
corruption which had been conducted until then. Since that first effort
in 1997, I have conducted studies and correlated the data on a regular
basis, and the basic conclusion and insights remain the same: Economic
freedom is a major deterrent to corruption.
The 2019 Corruption Perceptions Index and the 2019 Heritage Index of
Economic Freedom are no exception. As the chart shows, more economically
free countries are also less corrupt. The opposite also holds:
countries with the most corrupt leaders and institutions show dismal
scores in respect for economic freedom.
Given the many ways in which corruption vitiates and stains the workings
of the market economy, I have offered another measurement which
increases the relevance of transparency. I still need to find a good
name for it, however. For the present I have called it “clean economic
freedom” or “honest economic freedom.” It comprises the average of the
index of corruption and the index of economic freedom, I add both scores
and dived by two. Table 1 shows the top 20 countries in “clean economic
freedom,” while table 2 shows the bottom 20.
Focus on companies that pay bribes; another black eye for Sweden
As we say in Argentina, my native country, it takes two to tango.
When speaking of corruption, those of us in the free-market camp point
fingers at government officials and cronies who receive bribes. Those on
the other side of the political equation, who favor more statist
policies, point to the private-sector companies who pay the bribes.
Several years ago, Swedish construction company Skanska was involved
in a major corruption scandal in Argentina. Then-congressman and current
Senator Esteban Bullrich denounced the company, which acknowledged
paying bribes to win contracts for infrastructure projects from the
state gas company, Energas. Skanska sacked all its Argentine managers
and paid back the several million dollars it had saved in taxes due to
the bribes. There were other companies, 16 in total, involved in the
corruption scheme, but to my knowledge only Skanska returned the money.
In the 2019 CPI, Transparency International presents the case of
another Swedish company, telecommunications giant Ericsson. According to
the report, Ericsson “agreed to pay over US $1 billion to settle a
foreign bribery case over its 16-year cash-for-contracts campaign in
China (41), Djibouti (30), Kuwait (40), Indonesia (40) and Vietnam (37).
This is the second largest fine paid to US authorities.” (The numbers
in parentheses show the respective countries’ CPI scores.)
The Scandinavian countries also challenge the views of those who
blame corruption on high government spending and the welfare state. In
economic freedom indices, these countries score among the worst in
government spending yet still score among the best in low levels of
corruption. The economic policies in those countries have high respect
for market mechanisms in prices, trade, investment, and sound money,
which compensate for the high level of government spending.
The pervasive problem of cronyism or quasi-corruption
Analyzing the problem of corruption gets more complicated when we
incorporate the phenomenon of quasi-corruption: cronyism. Given some of
the efforts to combat corruption through stricter regulations and
enforcement – especially the United States’ Foreign Corrupt Practices
Act, which can impact all companies who do business in the United States
– the buying and selling of privileges has become more sophisticated.
They can be disguised in many ways and are usually justified by
authorities in the name of urgent need.
A powerful businessman, for example, can promise to speak well of the
president of his country and “coincidentally” receive a lucrative
no-bid contract. Newspapers and media outlets receive abundant
government-paid advertising and “coincidentally” become advocates for
government policies. Relatives of senior government officials can get
lucrative speaking fees, large donations to foundations they control,
and even senior positions in private companies. A new book by Peter
Schweizer,
Profiles in Corruption, focuses on the exchange of
favors by leading “progressives” of the Democratic Party, from Senator
Elizabeth Warren to former Vice President Joe Biden. None of the six
politicians covered in the book has been formally condemned for corrupt
activities, so the book could have been called
Profiles in Cronyism. In the book one sees countless subterfuges used to disguise corrupt activities. In
Extortion, a 2013 work that I have mentioned in
a previous column, Schweizer also pointed at some leading Republicans of that time. He has been a balanced and courageous investigative writer.
Unfortunately, there are very few academic articles about cronyism. For example, the various editions of the Concise Encyclopedia of Economics,
a 600-page volume published by Liberty Fund with the collaboration of
many of today’s most prominent economists, devote several pages to
corruption. But there is no entry for cronyism.
The example of U.S. corruption in the
Concise Encyclopedia
describes how former President Lyndon B. Johnson earned half of his
fortune. His wife purchased the license for a radio station in Austin,
Texas, at “a very low price and then applied for permission to operate
the radio station twenty-four hours a day and on a much better part of
the AM band. The Federal Communications Commission granted her
permission within one month. In return, Johnson helped save the FCC from
budget cuts. Here is a case of corruption that was probably completely
legal. The key to corruption is the combination of power and discretion
in the hands of government officials.” In a very good
article about inequality in Reason
magazine, the author of the encyclopedia entry, Dr. David Henderson,
describes the Johnson case in great detail. However, the scheme looks
more like the quasi-corruption described in
Profiles in Corruption than corruption that can be legally prosecuted.
Although I have always praised Transparency International’s efforts
to measure corruption, the analyses that accompany its index could be
much better, especially in their recommendations. They completely ignore
economic factors. They focus on campaign finance regulations and
similar measures, saying that countries that enforce them will have an
average transparency score of 70. But economic freedom is a better
indicator: countries which score as “economically free” in Heritage’s
Index of Economic Freedom, for example, get an 80.7 transparency score
on average. If we include countries classified as “mostly free,” the
average transparency score is still 70.5. Transparency International’s
apparent blindness to the benefits of economic freedom is apparent in a
massive study (more than 600 pages long) that the organization conducted
in Brazil in conjunction with the Getulio Vargas Foundation. This study
also failed to mention economic freedom as a factor or a solution. At
the same time that polls show President Jair Bolsonaro’s approval
ratings improving, in part for his fight against corruption,
Transparency International’s new CPI offers a snide remark about
President Bolsonaro as a threat to anticorruption efforts. On the
contrary, I expect that once Brazilian economic liberalization laws are
implemented, Brazil’s transparency score will show great improvement.
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