Issue 252 of SOCIALIST REVIEW Published May 2001 Copyright © Socialist Review

Corruption

THE BEST MONEY CAN BUY

Say capitalism and you say corruption, argues Simon Basketter

Who gains?

  • Candidates who raised more money than their opponents captured all but 29 of the 469 seats up for grabs in Congress in the recent US election.
  • According to Lodwrick Cook, the co-chairman of telecommunications giant Global Crossing, who gave $361,500 to the Republicans, 'If we're going to compete, we've got to be heard. I don't apologise for access.'
  • The construction industry wants regulations on unionised labour removed, so two associations of construction firms gave $2 million to George W Bush.
  • Coins

    While Peter Mandelson was explaining how he didn't try and get a passport for the wealthy Hinduja family, mass demonstrations were forcing the resignation of the president of the Philippines, Joseph Estrada. Estrada stood accused of accepting millions of dollars in kickbacks from illegal gambling and shady bank deals. People gathered at the shrine to the 1986 protests that brought down the corrupt pro-US dictator, Ferdinand Marcos. From Peru to India to Ireland corruption scandals are a constant part of political life. The question of how Indonesia's President Suharto had piled up so much wealth was one of the chief causes of the demonstrations that pushed him from power in 1998. This year thousands of protestors demonstrated at the presidential palace in Jakarta again as Suharto's successor was revealed as a crook.

    Al Capone once called capitalism the 'legitimate racket of the ruling class'. He had a point. The World Bank estimates some $80 million is spent on bribes annually. In Indonesia the payments that enterprises make to keep bureaucrats off their backs, called pungli, add up to about a fifth of their total operating costs. German businesses are reckoned to pay more than $3 billion a year to win contracts abroad. In the international arms trade, probably the world's dirtiest business, nearly a tenth of turnover is paid in bribes. According to some estimates, kickbacks can make up as much as 40 percent in some arms deals.

    Despite all this, corruption is presented as being about individual rotten apples. In particular, it is seen as a problem purely of developing nations, of a 'crony capitalism' that needs to be updated to the neoliberal agenda. The US has pushed its Foreign Corrupt Practices Act, which made it a criminal offence for US companies to bribe foreign officials. A 'bribery convention' signed by all the members of the OECD, which between them account for the bulk of world trade, plus five non-members, requires the signatories to make it a crime to bribe any foreign official to win or retain business or for any other 'improper advantage'. Although under the US anti-bribery law the penalties sound tough (multi-million dollar fines and jail terms), on average only one case a year has actually been prosecuted.

    Anti-corruption drives are as much about corruption as the war against drugs is about stopping cocaine use. IMF packages frequently hide damaging cuts under the guise of anti-corruption campaigns--linking the aid they offer to poor countries to those countries' willingness to provide 'good governance'. While opening up an economy to the multinationals offers opportunities for corruption, the reforms urged on countries by the international community, as it is often called, actively encourage it. Privatisation in Russia became an orgy of sweetheart deals, and when India and Taiwan devolved power from central to regional governments, to the applause of the 'good government' advocates at the IMF, the opportunities for bribe collecting increased exponentially.

    The best money can buy

    Cronyism

    Further, in the case of the World Trade Organisation, patronising statements are also a cover for hypocrisy. While protests raged outside the Seattle WTO meeting in December 1999, one aspect of the WTO was often overlooked. The Seattle host committee offered companies access to government officials in return for sponsorship money. The Seattle host committee--whose co-chairmen were Bill Gates of Microsoft and Phil Condit of Boeing--aimed to raise $9.2 million from the private sector. While the donors were granted access to the politicians, their names were of course kept confidential. This was the first time that a WTO meeting was financed by the private sector. But business sponsorship for international government meetings is now common practice. Since 1997 all G7 (now G8) meetings have had sponsors, as have a number of Nato conferences.

    Probably the most prominent anti-corruption lobby group is Transparency International. Each year its corruption index gathers publicity as it ranks countries by levels of corruption. That it works out its league table on a fairly random survey of business opinion and doesn't name companies that bribe might not ensure confidence. But far more dubious is the organisation itself. Peter Eigan, a World Bank executive, founded it in 1993. It has an annual budget of $2.5 million. A third of its funding comes from international bodies such as the World Bank. Another third comes from large corporations, including companies such as General Electric, which have been convicted of bribery. According to Eigan, 'We're not a club of angels. Many companies want to stop bribing, but they don't know how to do it. They're frightened of losing all their business to their competitors who will continue bribing. No one wants to stop first.'

    Corruption is the logical outcome of the way that society is organised. While 'the business community' is presented as just one other lobby group that enters the political field as equals to those to whom they are vastly superior economically, the reality is since payments are the way business is done it is also the way business does politics. Since capitalism is based on competition, this creates pressure on a company to develop strong relations with the state. It also means a pressure to cut others out to gain advantage over rivals. Often the methods used are secretive and underhand, and border between legality and illegality. For instance, in the gambling dens of the stock market cheating at gambling is frowned upon. But insider trading is profitable. One study of 172 mergers on the US stock exchange found that there was insider dealing in 172 cases!

    Corruption is not just about the developing world but is prevalent in the centre of the system. Corruption in Asia has been blamed on different value systems, while corruption in Italy has occasionally been dismissed due to its supposedly weak democracy. Yet Helmut Kohl, for 16 years Germany's chancellor, was put under formal investigation after admitting taking millions in secret donations. The German press started to call him Don Kohleone. In France scandals stemming from the state oil company Elf have seen numerous high profile people implicated, including former foreign minister Roland Dumas.

    New Labour's speed at joining the gravy train is the norm rather than the exception.

    Mandelson's acceptance of a 373,000 loan from Geoffrey Robinson and the million pound donation to New Labour from Bernie Ecclestone were signs that Labour had entered fully into how the system operates. Their relationship with the Hindujas merely brought back the similar associations of the Tories. Asil Nadir, a businessman who subsequently fled Britain to avoid prosecution, donated 440,000 to the Tories; and the family of Ma Sikchun, who fled Hong Kong to avoid drug-running charges, also stumped up 1 million. When one is in power one gets friends in low places.

    'We're building a relationship,' Dan Scheinman, a vice-president with Cisco Systems, explained to the Wall Street Journal as his boss, John Chambers, handed out $582,933 to candidates for federal office and their political parties. 'Money contributing is part of the relationship.'

    But overall it is about cutting taxes, regulations, wages and compensation lawsuits. 'I see no difference between the Republicans and Democrats,' according to one banker who gave $107,000 in donations to the Republicans. 'Both are pro-business, which is what I care about.'

    The above estimate doesn't include cash from what is called 'soft money' tax exempt groups. A loophole in the law allows groups not to disclose their contributions or spending. Much of the drug companies' lobbying came from a Republican group called Citizens for Better Medicare, created by drug manufacturers and their allies. Some of the other Bush supporters include Business Leaders for Sensible Priorities, Saving America's Families Everyday, and Republicans for Clean Air.

    Rage against the system

    Dollar notes

    When Bush put two fingers up to the rest of the world and said he would not abide by the Kyoto protocol on global warming signed by the US in 1997, it showed the effect of business supporting democracy. Since coming to office he has thrown out new standards limiting the amount of arsenic in drinking water, and has allowed mining companies to ignore fines for environmental damage. Not surprisingly Bush and vice-president Dick Cheney took $47 million from energy companies for their election campaign. Bush's national security adviser is Condoleezza Rice, former director of Chevron Oil, who has an oil tanker named after her. Bush's biggest corporate backer is energy supplier Enron Corp which gave $1 million to his campaign. As Texas state governor, he made sure Enron was one of 26 companies exempted from compliance with clean air laws. Finally Gale Norton, the interior secretary, was a lobbyist for the National Lead Company and co-founded Republicans for Environmental Advocacy, sponsored by the National Coal Council, the Chemical Manufacturers' Association, the National Mining Association and the Chlorine Chemical Council.

    Lobbying is simply well organised corruption. Everyone remembers the 2,000 per question for Tory MPs. Less well remembered is that behind the brown envelopes stood a network of big businesses spending huge sums on lobbying for their interests. There are probably 40,000 lobbyists working in Washington and a similar amount around the institutions of the European Union. This is not to suggest that these relationships necessarily run smoothly. In the run-up to the American election money came from the makers of patented drugs and companies whose profits are in generic brands. The makers of patented drugs have deeper pockets and so are having more influence. But this shows that inside individual countries there are different bosses who have different interests. That is one of the reasons corruption develops--the different interests of the competing bosses competing for access. This means that while corruption is logical it is not always healthy for the system. If one set of capitalists is more successful at influencing politics in their interest, inevitably others will do badly.

    So in periods of instability corruption comes to the fore. At one level during periods of economic crisis the pressure for business to get an inside edge increases. But more fundamentally, changes in power and political crisis bring the relations between politics and business to the foreground. They reveal that a system built on exploitation, theft and competition will put the political system as much as everything else at the service of the market. But the other thing corruption scandals do is feed into people's rage against that system. And as Suharto and Estrada learned, that can be dangerous. As Zimbabwean students protesting at Mugabe's cronyism put it on their placards: 'If Indonesian students did it--we can do it.'


    Return to
    Contents page: Return to Socialist Review Index Home page