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Burke FilesPrivate Investigator at Financial Examinations & Evaluations Inc
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Corruption - No Saints Desired Just Solutions.

April 24, 2012 by Burke Files

Corruption, no saints desired just solutions.


There is a big clue as to why corruption exists, it works as a short cut.  It eliminates the economic friction of building relations, preparing lengthy and exhaustive bids, not wasting your time and effort to see if you will make the sale.  You have bought the answer you wanted.  The closest analogy is in gaming, corruption is a lot like fixing a horse race, a boxing match or a soccer game.


The west looks at places like Africa and Asia with distain.


Bribery as once practiced in tribal West Africa could be seen as a responsible practice gone awry. In a traditional village context, African leaders earned respect by providing gifts and favors to their subjects. That wasn't simply a patronage system; it was also a form of rational redistribution. The chief channeled wealth where it was most needed for survival, for gaining favors in time of conflict or even to prevent conflict.  With the coming of colonialism and Western-style institutions based on merit, men frequently left villages to take government jobs in the city. They continued to use gifts to obtain influence and side step bothersome issues of merit. The bribes and payments kept coming but what was forgotten was the context left behind that had structured and guided the practice of payments. Responsible generosity and the balancing of needs became irresponsible unstoppable influence peddling.


Gifts to officials can play an important role in relationship building in Asia. For example, Korean businessmen granted a meeting with an important official may bring an envelope full of cash as a token of gratitude. They may send the official a generous gift in observance of a wedding, or in condolence after a death in the family. Within limits, these gifts merely signal a commitment to the relationship. Culturally appropriate gift-giving can, of course, easily slip into quid-pro-quo bribery, as frequently happens in Korea. Side payments are a constant temptation in a relationship-based system, because they are a shortcut past the slow and laborious process of building relationships based on merit and trust.


But the west has its own temptations. With our increasing reliance on rules and transparency, the power of relationships and personal authority in our culture has weakened over the years. With legal supervision relatively light, the system relies largely on voluntary compliance and within some ethical and legal norms. This makes for an efficient economy, but there is constant temptation to cheat or take shortcuts. That is corruption.  One has pressure from competition on pricing on delivery dates for goods and services.  What better way to make more money than to pay the “decision maker” a nice fee to fix the outcome.  Maybe you don’t pay him direct.  Maybe his kids are lucky and win scholarships for schools, maybe his wins a few dollars every night on the weekend card games, or is paid large sums of money for speaking engagements.  The bribe can be buried very deep, very deep indeed. 


Acting in a corrupt fashion is about facilitation - it’s about making things work economically for you or your group at the expense of the rules others, who are less adept than you at spreading favors, are expected to play by. Corruption is an activity that undermines the system in which it occurs. While business systems work very differently, in different cultures, different kinds of activity corrupt them similarly.


By the way there is a universal constant that exists in the difference between bribing an elected official and a judge.  An elected official understand the value of long term commitments and help out when needed, but a judge is very ethical - they only work on a case by case basis.


We are taught that freedom is a by product of diligence and eternal vigilance is the price of liberty.  Do we really need to live like that? Does any one really live like that?


Pascal was a wiser man than most.  Pascal maintained that we are not virtuous by love of virtue but by the balance of two opposing vices. It takes a vice to check a vice and the resulting byproduct of the stalemate is virtue. 


I am very curious what the good readers think the opposing vices under Pascal’s theorem of virtue?


Corruption in a state makes for a sick economy.  Much like a person can be either well or sick, so can a state’s economy.  Corruption is a sickness of a state and it is a sickness that weakens the economy, the economy runs poorly and inefficiently.  World Bank and IMF studies concur that well economies, those with less corruption,  grow and function about 30% better than sick and corrupt economies.


Why is this? Much like fixing a horserace, one is never sure how much the fix is going to cost.  There is the initial fee, the follow up fee for the officials and after the horserace you have to pay hush money to those who know what was done. The same is true for bribing officials.  You have to constantly keep money flowing in to their pockets to stay in business.   If you don’t pay the bribe, maybe you get a flat tire or your power goes out,  maybe a small fire in the trash bin as a reminder of the debt.  If you still don’t pay the state comes in and shuts you down for any number of violations that you are well aware of, but were paying “fees” to officials to over look. Finally the state revokes your license because you did not pay, or someone was willing to pay more. Either way you are shut down.


Imagine that I have an investment club, and each time we meet I change the rules, just a little bit.  Do you investment with me?  Of course not - there are no fixed rules and you have no idea what I am going to do next.  Well the same is true for businessmen, the rules are both unwritten and fluid - one cannot gauge the risk and opportunity properly, one never is quite sure they have paid all of the right people the right amounts - so investment in a corrupt economy is harder to develop.


So what is a nation to do to reduce corruption?  What are the steps need to take to cure a sick nation and help it get better.  I am sure there is a difference between correct and perverse incentives, but remain curious on how to establish them or migrate an economy from one to the other. I have some ideas but I would really like to hear from you.


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