For years, people have relied on Transparency International’s Corruptions Perceptions Index (CPI) as the global arbiter of corruption amongst various countries. Therefore, I was quite surprised when I looked at the recently released “heat map” showing which countries are corrupt (red) and which are not corrupt (yellow).
Within seconds of looking at the map, I was struck with a question—why are the English speaking and Northern European countries considered the least corrupt? Is this an actual fact or are the people submitting data to the study using their own biases in ranking the various countries?
Let’s start with the obvious; what is corruption? Corruption is defined in the dictionary as “dishonest or fraudulent conduct by those in power,” simple enough, right? Of course, there are lots of types of corruption; there’s stealing from the government, there’s racketeering and stealing from the citizens and finally, there is the use of arcane laws to impede progress on something. I’m going to focus on this last aspect of corruption as it’s the most ubiquitous.
All countries have some corruption; however there are differing degrees of how blatant that abuse of power can be. Usually, this is determined by how likely it is that someone will be caught. In the US, it is unlikely that you can take a duffel bag of money to a decision maker in Federal Government and get the decision that you want—there are too many people watching. Depending on the city in question, this fact will be true to differing degrees, all the way down to the very lowest levels of municipal government.
Why won’t US civil servants take the money? It is usually a combination of tradition, pride and the risk of getting caught. Compare that with the reddest countries on this map—in those places envelopes of money are part of daily business—they’re the cost of getting stuff done. If not for this graft, in many cases, nothing WOULD get done.
So, how does stuff get done in the US? I’d like to posit a radical idea—the US is just as corrupt as many of the red countries. It is just that corruption has matured a bit in the US—we no longer use cash—we trade favors and job appointments.
Here’s how American style corruption works; a regulator decides to impede something. The regulator has in-house lawyers and the businessman needs to hire his own lawyers. Millions get spent on legal fees by both sides. Eventually, the businessman hires someone very expensive with “senior agency experience” to advise him and the problem is rapidly “solved.”
In the example above, the government agency impeded a process so that former regulators can get cushy jobs in the private sector. The quid pro quo is that by agreeing to resolve the obstruction, the current regulators will get private sector jobs in the future, sometimes even at the same firm that they obstructed. We see this playing out all the time in the US. Just look at how incestuous the relationships are at various large businesses, which continue to hire former regulators and then watch as these people eventually cycle back into the much less lucrative regulatory world in order to refresh their relationships. Meanwhile, lower ranking regulators cycle between staffing at law firms and the regulatory world as they build up their resumes. Is it any wonder that the legal fees are so high in America? It’s a carrousel of corruption.
The same can be said for the lowest levels of government in the US. Is it any surprise that most experienced property developers have a former member of city council as a permitting advisor? Now, I’m not going to say that hiring people with experience and relationships is wrong—it’s smart business. Instead, I’m going to say that the yellow countries approach corruption differently than the red countries and US style corruption can pass a big-4 audit.
In my life, I’ve now done business in 3 cities; New Orleans which is hopelessly corrupt, Miami which has improved a lot and Ulaanbaatar, Mongolia which has the least corruption of all three. Now, maybe New Orleans and Miami are bad comparables, but I have to say that I’ve been surprised at how little corruption there is in Ulaanbaatar. Most notably, what I haven’t seen in Ulaanbaatar, is systematized corruption like in the US, where there is an organized process to obstruct and shake down businesses—often with the help of various special interest groups and the media.
As I stare at this heat map of corruption, I wonder how much of the color coding is based on accuracy in evaluating differing degrees of corruption and how much of it is based on the preference of businesspeople surveyed by Transparency International to favor institutionalized processes—as opposed to the ad hoc system of corruption that exists in many of the more crimson countries. Is a yellow country less corrupt than a red one? Or, is it that a yellow country gives you a receipt when you “bribe” someone?
Disclaimer: I am the Executive Chairman of a public company that invests in Mongolian property assets. This is in no way a recommendation to buy or sell securities (or commit corruption in any country).