A general theory of corruption

Corruption is any human action that is not what it appears to be.

You fold a benjamin in your passport and hand it to the Ruritanian douanier. To anyone behind the yellow line, the douanier is ensuring that your presence will not endanger the peaceful citizens of Ruritania. To the two of you, the douanier is imposing a Ruritanian entry tax. And only the douanier knows he has to kick back half that tax to his boss, and another third to the shop steward.

The government of Ruritania builds a space shuttle so that it can build a space station. It builds the space station, then maintains the shuttle so that it can maintain the space station. Even better, the station is an emergency destination in case there are mechanical problems with the shuttle, and the shuttle can evacuate astronauts in case of an accident on the station. Even better, the intricate and incredibly expensive custom components that comprise these systems are produced by a large industry spread across every province in Ruritania, but especially concentrated in the electorally important provinces of Mexas, Guatifornia and Floruba.

The Ruritanian people come together and, acting as one, decide that all Ruritanians will, in future, be philosophers. To this end it drafts all Ruritanian philosophers into the Ruritanian Peace Force, which will organize and undertake this glorious task. The philosophers, of course, are reluctant, because all they want to do is sit around in togas and conduct symposia in their leafy academic groves. However, they are Ruritanian patriots and they reluctantly accept their temporary commissions as colonels in the RPF, whose commitment to peace is legendary. Each colonel is assigned to a military district, where he works closely with the Laputanian assistance mission. (The Ruritanian people are deeply thankful to the citizens of Laputania for their unflagging commitment to stamping out the gangs of bandits and terrorists behind the occasional disorders in a few isolated, backward areas of Ruritania where no one would ever want to go, anyway.) A peaceful solution to the terrorist problem, of course, can only be obtained through education. To this end the philosopher-colonels are empowered by the Ruritanian people to employ all resources at their command in the glorious task of educating every young Ruritanian as a philosopher. And so on. You get the point.

We see that there are lots of kinds of corruption, but they all have one thing in common: deception. Actually, I prefer that glorious Soviet word, disinformation. Since there is no corruption without disinformation, any theory of corruption is a theory of disinformation.

Disinformation is Burnham’s formal meaning. The douanier is checking your passport, the space shuttle is maintaining the space station, the Ruritanian tots are learning Plato. Sure.

What any theory of corruption has to explain is how disinformation can succeed in the real world. How does disinformation outcompete information? For any item of disinformation, there is an item of true information which contradicts it. Since few people want to admit to themselves that they believe, or still worse repeat, a lie, one would expect disinformation to have a hard time surviving, much less propagating itself.

I don’t think corruption can exist without the following two factors:

One, the real or informal action generates some relative advantage, as compared to the formal action that it pretends to be, to one or more of the parties involved.

Two, an open recognition of the informal action would generate some relative disadvantage, as compared to the maintenance of the formal pretense, to one or more of the parties involved.

Consider the case of the Ruritanian douanier. If the entry tax is acknowledged and formalized, the receipts from this tax will inevitably disappear into the treasury of Ruritania, from which it will be stolen by someone else entirely. The douanier, his boss, and the shop steward will receive no payment at all. Worse, the nosy foreign advisors who are constantly bedeviling the patriotic civil servants of Ruritania will wonder why it employs this weird tax, which probably incurs a high Laffer overhead due to its discouragement of tourism and commerce.

One way to understand the process of corruption is to look at how corruption develops in a self-regulating, valuable eleemosynary institution managed on the rotary system. In other words: in the liberal democratic state.

The general form of disinformation in a corrupt democracy is the proposition that the state exists only to serve its citizens. As the public choice economists described in exhaustive detail – and as purged prewar antidemocrats such as Michels, Mosca and Pareto observed first – the democratic state’s motivation to fulfill its formal eleemosynary function (“government for the people, by the people, of the people”) is weak. And its opportunity to transform itself into an informal lucrative institution is high. Since its motive is obvious and its propensity is notorious, we should expect the uncorrupt democratic state to be quite the rara avis.

Let’s look at some of the patterns that democratic corruption can take.

The simplest form of corruption is direct private taxation by government employees. I favor the Spanish word for this practice: la mordida, or the bite. If the bite stays entirely with the biter, we have simple mordidism.

Simple mordidism is a characteristic of extremely weak states. If the state is not politically powerful enough to at least generate centripetal revenue flow, it’s barely worthy of the name. States which exhibit simple mordidism tend to provide poor customer service.

A more advanced form of corruption, and a more common one, is complex mordidism, as demonstrated by our Ruritanian douanier. The profits of graft flow upward in a pyramid, complementing or even replacing the formal taxation system. Complex mordidism is more stable and pernicious than simple mordidism. It’s an institution in its own right. It’s impossible for anyone in the pyramid to avoid the professional necessity of stealing.

Nonetheless, it remains a characteristic of weak states. Because the source of the revenue stream in mordidism is the public, its disinformation has trouble defending itself from public opinion – when the cops take tips, pretty much everyone knows it. Mordidism is highly vulnerable to undercover investigation, and a state with an honest, loyal, and unhampered law enforcement and judiciary arm can easily root out and destroy it.

When most people – such as my favorite NGO, Transparency International – use the word corruption, they tend to mean only mordidism. By this standard, corruption is rare in First World democracies. However, I think my broader definition is more useful, because other forms of corruption can be even more inefficient. After all, mordidism is just unstructured, unpredictable taxation. If it was lethal to all productive enterprise, there would be no such thing as Italy.

In First World democracies, the primary form of corruption is patronage. In a patronage system, the state creates unnecessary work, or venal offices, as a way of rewarding its political supporters. (In its mildest form, necessary work may be distributed to employees who are selected for political reasons, but the result is the same: inefficiency.) Patronage is not a democratic invention – Louis XIV sold venal offices – but the democracies have certainly raised the art to an unprecedented level of sophistication.

The most primitive form of patronage is retail patronage, in which successful political organizations allocate jobs directly to their supporters. The classic form of retail patronage in the US was the spoils system, which is now mostly extinct, although various forms of it still exist in the murkier depths of closed-shop unions. “Pork” in modern US politics is also a form of retail patronage.

The modern democratic state runs on wholesale patronage, in which the state creates and/or supports entire industries – as in the case of the Ruritanian aerospace industry. The advantage of wholesale patronage is that, compared to either mordidism or retail patronage, it seems extremely hygienic. However, it is also far more scalable than retail patronage. Wholesale patronage can easily corrupt a country’s entire economy.

For example, when we describe government actions as “creating jobs,” we are speaking in the language of wholesale patronage. The modern omnipotent state can create as many jobs as it wants. It can command businesses to hire an extra worker for every position, whose task will be to stand next to the existing employee. Government actions that increase efficiency actually tend to destroy jobs. Which may be why these actions are so rare.

The problem with wholesale patronage – and the reason it was perfected only in the 20th century – is that it depends on an extremely ambitious level of mass disinformation. Radio and TV were a critical aspect of its breakout. Persuading Ruritanians that they needed to put a Ruritanian on the moon, an awesomely costly and absurdly pointless endeavor, was as much of a breakthrough in public disinformation as in aerospace engineering. It was the pinnacle of 150 years of evolution in Ruritanian patronage technology.

Now, of course, we’ve moved on. Clearly the most advanced form of wholesale patronage in the world today is environmentalism, or what might be called ecopatronage. Raise your hand if you know someone who owes his or her job to the environmental movement. Raise your other hand if you know more than five such persons. Ecopatronage is especially excellent because it creates not just jobs, but high-status “professional” jobs. And lately it has metastasized, creating entire “green industries” which seem to have nothing at all to do with the State. If only.

Of course, good customer service requires some level of environmental law enforcement. I have no desire to find blobs of mercury floating in my milk. I think it’s nice that I can take a boat out on any river in the US and not have to worry that when I light a cigarette, a slick of volatile petrochemicals will ignite and incinerate me in a great gout of flame. And so on. However, I don’t think it is too cynical of me to feel that the production of thousand-page “environmental impact statements” for new buildings in existing cities has a slight odor of travail artificiel. Who knows what these documents say besides “pigeons will fly into it,” but I suppose they must say something.

Therefore, when we argue about the percentage of ecopatronage in modern environmentalism, we have, as the proverb goes, established the principle, and are merely negotiating the price. Again, motive, propensity and opportunity are all quite evident.

Another form of high-tech modern patronage is edupatronage, in which the state funds and encourages the strange practice known as education. In the last 60 years, the traditional fields of art and science have been thoroughly assimilated into higher edupatronage. The quantity of art and science produced by the edupatronage machine is mind-boggling by any historical standard. Its average quality, of course, is extremely low. While it’s hard to speculate on the product of these weird divergent curves, it’s clear that edupatronage absorbs a large number of very intelligent citizens, whose labor could produce many useful goods and services if returned to the productive economy.

Edupatronage is especially nifty because it kills two birds with one stone: it simultaneously produces patronage jobs, and propagates the disinformation that these jobs are essential. Of course, an effective edupatronage system can produce all kinds of disinformation, and thus protect all kinds of corruption. The relationship between edupatronage and ecopatronage is quite symbiotic, for example.

It is not quite patronage per se, except in the sense that it creates the profession of suffering for pay, but another form of corruption that’s quite common in modern democracies is pseudocharity. The formal meaning of pseudocharity is that the state is maximizing aggregate utility, by transferring resources from those who need them less to those who need them more. And it may well be doing exactly this. However, the actual reason for the prevalence of pseudocharity is that it’s a perfect way for the state to buy votes. Pseudocharity also tends to be delivered in kind rather than in cash, providing abundant opportunity for patronage proper.

It’s always easy to distinguish pseudocharity from actual charity, because pseudocharity strives to create dependency whereas charity strives to avoid it. Pseudocharity will go almost all the way toward making charity a legal right, but it will not go all the way, because if charity rights were true property, the recipients would feel no political obligation to their masters.

For example, rights to future Social Security payments could easily be converted to Treasury obligations and simply given to the recipients. Rights to free medical care could become diagnosis-triggered payments which the recipient could spend on either expensive, painful and ineffective heroic measures, or on a last vacation to Tahiti. Either of these transformations would be Pareto-optimizing and eliminate large Federal bureaucracies and political constituencies, which is probably why I’ve never heard anyone even suggest them.

If you feel that tax revenues should be used for charitable purposes, there is a simple way to accomplish this. Securitize the tax revenues as a Treasury bond, and give the bond to the private charity of your choice. Any other approach is probably a form of pseudocharity, even if that is not the intent. (It’s almost never the intent.)

Of course, one invariant in democratic disinformation is the proposition that the rotary system is an infallible prophylactic, or at least the best available prophylactic, against corruption. As we’ve seen, to describe this proposition as implausible is to describe the Pope as Catholic. All of today’s democratic governments originated as minimalist eleemosynary states whose only formal purpose was to protect their citizens and enforce the law. All are now unapologetic tax maximizers, most of whose activities can be described as patronage and pseudocharity.

Why is this not surprising? It’s not surprising because the idea of limited government is inherently implausible. Note the suspicious passive voice in “limited.” Who is doing the limiting? Government is sovereign by definition. Who can force it to limit itself? The Pope? How many divisions does the Pope have?

During the Second Republic period (1789-1861), the US Federal government remained quite small, though some of its military and financial ventures were nontrivial. This may be partly explained by its legal formula of limited government. But the Supreme Court under John Marshall discarded the theory of enumerated powers quite early. Probably a more parsimonious explanation is the structure of political factions in this period, which opposed aristocratic centralists against populist decentralists, the latter being generally triumphant. The invention of populist centralism toward the end of the Second Republic, culminating in Lincolnian Unionism, terminated small government in America. Anyone who thinks he can uninvent this idea, or any idea for that matter, is smarter than me.

In general, I think, the error of the libertarian minarchist is to believe that making the state weaker is an effective way to make it smaller. Since most of the activities of the informalized pseudo-eleemosynary state constitute corruption, and since it’s actually harder for a weak state to control corruption, the means is inappropriate to the end.

Similarly, the state that does not maximize tax revenue provides, in the revenue it foregoes for eleemosynary reasons, a juicy target for political factions who would redirect that revenue to patronage or pseudocharity. Foregone revenue can be redefined as revenue distribution to those who benefit from low taxes. And the ratchet pattern of tax increases across democratic history testifies to the comparative strength of corruption, as opposed to eleemosynary rectitude, as a principle of political organization.

Perhaps the nastiest bit of democratic disinformation is the association of democracy with social harmony. In fact, the conflict between political factions is a form of ritualized warfare any way you slice it, and it doesn’t take much to degenerate into actual combat. The American Founders actually thought they had designed a factionless, semidemocratic republic. Um, sure. The real miracle of American democracy is that it’s produced only one major civil war.

My conclusion – which is why I’m a neocameralist – is that the sovereign eleemosynary institution is the political equivalent of the perpetual motion machine. The real choice is not between the eleemosynary state and the lucrative state, but between the informal lucrative state and the formal lucrative state.

In the formal lucrative state – by definition – we see no systematic mordidism, patronage or pseudocharity. The formal lucrative state is managed by and for its shareholders. Any sort of corruption comes straight out of their pockets, and they have no reason to tolerate it.

What I haven’t explained, however, is why the formal lucrative state is any better than its unfortunate democratic competitor at maintaining this formalism. The fact that mordidism, patronage and pseudocharity are very rare in private corporations does not demonstrate that these phenomena will be equally rare in sovereign corporations. They are also rare in private eleemosynary institutions, and for the same reason: because they are prohibited by law, and the law is enforced by the chartering sovereign.

The essential question is whether a sovereign lucrative institution – an animal which has never existed in history, although some approximations have approached it – can remain formal. As we’ve seen, reason indicates that a sovereign eleemosynary institution cannot regulate itself and prevent corruption, and history gives us no cause to doubt this conclusion. Next week, we’ll try to figure out whether shareholders can maintain control of a sovereign corporation, or whether it is likely to suffer the same fate of being seized informally by its management.

(And yes: I am aware that mercury sinks in milk. It’s a metaphor, dammit.)

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