THE CORRUPTION OBSESSION

Part of the root of the skepticism of government is a widely shared obsession with corruption in government across the world. Perhaps it is because the idea of government officials living the easy life on taxpayers’ money offends people, and therefore is often at the heart of political campaigns.

But the view that all it takes to root out corruption is the will to do it misses the key point about the sources of corruption and our ability to control it. It is often precisely because governments do things the market will not touch that they become susceptible to corruption. Take the example of a fine for polluting. The polluter would gladly pay someone in the pollution control office a portion of the fine to make the evidence go away. But would things improve if a profit-maximizing private firm was collecting fines? Probably not, since they like money at least as much. Moreover, as the history of private tax collection (“tax farming”) tells us, incentivizing private agents to collect taxes (or fines) runs the risk they will extort those who are not liable as well.

Or consider a slot in the best public schools. It is very tempting for a school official to accept a payment to open a “side door” for a rich but unqualified student, and it is rumored to be a common practice in China’s top high schools. But this is not about government per se; it is about rationing. Whenever a good is rationed, the temptation to just pay one’s way in is very strong. This was made abundantly clear by the admission scandals that shook elite private universities such as Stanford and Yale in 2019; parents who were wealthy but not wealthy enough to pay the full “price” of back door entry for their offspring (say, a building for the university) worked with a consultant who offered a more affordable side door (e.g., a bribe to the sports coaches).

The broader point is that our social objectives often push us to not follow the market’s dictates. There is no pure market solution for collecting fines, and the reason why public schools have low fees and private universities do not charge the price the market would bear is because we want poor but talented kids to be able to get the best opportunities. But whenever anyone tries to get in the way of the market there will be a temptation to cheat. Since it is in the nature of the government’s job to interpose itself in front of the market, the fight against corruption in government will be an uphill and continuous battle, even with the best intentions.

Moreover, fighting corruption is by no means costless. In Italy, an umbrella government organization called Consip was set up in reaction to a succession of corruption scandals. Its job was to purchase supplies on behalf of government departments. What it purchased changed from time to time; as a result, sometimes government departments had to provision certain things on their own, while at other times they relied on Consip. When government departments had access to Consip, they used that option most of the time, but it ended up costing the government substantially more for exactly the same products, because usually there was a cheaper version of the product on the market. In other words, the departments could have bought what they needed more cheaply, but they chose not to exercise that option when Consip was available. As a result, on net Consip turned out to be a money loser. Trusting government officials to do what they had always done, without constraining them, would have been a better idea.²⁰

Why did almost everyone use Consip when it was available, even though they knew they could get products cheaper elsewhere? Probably because they knew that this way they were protected from any accusation of corruption. There is nothing special about government officials in their desire to check all the boxes to avoid trouble.

This illustrates a broader point. The current fashion in fighting corruption is transparency, the idea that the workings of governments should be available for scrutiny by outsiders like independent public auditors, the media, and the public. There is solid evidence that in many situations transparency helps. In particular, informing the ultimate beneficiaries about the difference between what they are entitled to and what they are getting is a powerful instrument for fighting corruption.²¹ However, as the Consip example makes clear, there is also a downside to transparency. Monitoring often relies on outsiders limited in their ability to understand the bigger picture or evaluate how well the overall social objectives are being served; the most they can do is to verify that due process is followed. In turn, this means bureaucrats tend to focus a lot on checking off the right boxes to avoid attracting attention. This creates a specific bias toward following the letter of the law, even when its spirit is somewhere entirely different.

Ultimately, the portrayal of bureaucrats and politicians as either bumbling idiots or corrupt sleazeballs, for which economists are probably partly responsible, is deeply damaging.

First, it prompts a knee-jerk reaction against all proposals to expand the government, even when government is clearly needed, like in the United States today. In our survey of US respondents, trust in bureaucrats is as low as trust in economists: only 26 percent of our respondents trust civil servants either “somewhat” or “a lot.”²² This probably explains why so few people think government can be part of the solution.

Second, it affects who wants to work for the government. Attracting qualified people is essential to a well-functioning government. But to a talented young person in the United States, a career in government, given its reputation, is unappealing. Neither of us has ever had an undergraduate about to receive their diploma tell us they were headed to a career in government. This kind of sorting can turn into a vicious cycle. If only the less able work in government, we get an ineffectual government no one of talent would want to join. In France, on the other hand, there is prestige attached to working for the government, and the best and brightest do so.

The image of the government also affects the honesty of those who want to work for it. A study in India replicated the Swiss experiment with bankers we discussed in chapter 4,²³ where participants (in this case, college students) were asked to privately roll a die forty-two times and record what numbers they got each time; the reward was half an Indian rupee for a one, one rupee for a two, one and a half rupees for a three, and so on. Students were free to lie about the numbers they rolled, and roughly the same proportion as in Switzerland did. But, just as those who were reminded of their identity as bankers cheated more in Switzerland, in India students planning to work for the government cheated more.²⁴ In contrast, when the study was again replicated in Denmark, which is justifiably proud of its social sector, researchers found the exact opposite as in India: those planning to join the government were much less likely to cheat.²⁵

Third, if it is assumed most people in government are either venal or lazy (or both), it makes sense to try to remove all decision-making power from them (and thereby banish all creativity and all creative people). This has a direct impact on what government officials can do. In a recent experiment in Pakistan, providing a bit more flexibility to the procurement officers of hospitals and schools by giving them some free cash to spend on basic supplies greatly improved their ability to negotiate low prices, leading to big savings for the government.²⁶

Putting too many constraints on government officials and government contracts can discourage talent when it is the most needed.

Finally, and perhaps most importantly, the mantra that government is corrupt and incompetent has produced the kind of jaded citizenry who can react to news of shameless corruption among its elected leaders with a shrug, from Washington, DC, to Jerusalem and Moscow. They basically have learned to expect nothing else, and stop paying attention. Perversely, the obsession with petty corruption is breeding room for venality on a grand scale.