The best job-creation strategy: Getting rid of corruption
May 11, 2012 6 Comments
“We stand by the Constitution as inherently conservative,” says the U.S. Tea Party web site. “We serve as a beacon to the masses that have lost their way, a light illuminating the path to the original intentions of our Founding Fathers.”
Now there’s something you don’t hear every day about the Canadian constitution, which hasn’t been a topic of much interest, even to political buffs, since prime minister Brian Mulroney drove the whole country nuts by talking about it nonstop 20 years ago.
Yet the constitution is a hot topic in the United States, where many on the political right see a more literal reading of the document — with a special emphasis on looking for areas where the federal government has overstepped its authority — as the way to restore optimism in a country exhausted by terrorism, war, recession and political dysfunction.
They are, in a way, both right and wrong.
Let’s start with the wrong. Constitutional fundamentalism won’t do much to restore American prosperity or hope. Neither will abolishing the Federal Reserve, reinstating the Gold Standard or eliminating anti-poverty safeguards.
Now here’s what right about it.
The U.S. constitution was designed in a world where monarchs and warlords ran roughshod over everyone else. Laws were written, enforced and tossed aside whimsically. Corruption and violence were rampant. Human rights were non-existent.
Suddenly, a new concept: a written constitution that would apply some discipline and consistency to law creation and enforcement, rein in the corruption a bit, offer some protection from anarchy and guarantee some basic rights.
In the world of the 1780s, this was a truly innovative idea.
The guarantee of somewhat fair treatment — at least compared to the abysmally low standards of the 18th century — made the United States an extremely attractive place to do business, and gave that country a tremendous economic advantage that lasted well into the 20th century.
But somewhere along the way, the U.S. stopped leading on that front.
By world standards, still abysmal after all these years, the United States still has excellent constitutional safeguards that broadly ensure basic human rights and the rule of law.
Yet, it falls short of being the cleanest place to do business in the world, or even the Americas. According to Transparency International’s 2011 Corruption Perceptions Index, Canada, Barbados, Bahamas and Chile all have less corruption.
Corruption matters. It’s not just a matter of bribes and kickbacks to get government contracts, the protection of favoured businesses from competition, or the patronage appointments. (That the Canadian Senate is still filled with partisan appointees in this day and age is deplorable.)
It’s about government actively seeking good advice, and being frank with the public about what it wants to do, why it wants to do it, and letting people know what to expect well ahead of time.
It’s what divides relatively successful northern Europe, where unemployment is still only five percent in the Netherlands and eight percent in Denmark, from southern-tier countries like Greece and Spain, where the official unemployment rates are 22 percent and 24 percent, respectively.
Spain is only the 31st least-corrupt country in the world according to Transparency International, while Greece ranks a miserable 80th — tied with Colombia, El Salvador, Morocco, Peru and Thailand.
In corrupt countries like Greece, where six-in-ten citizens supposedly bribed public officials in 2011-12, good advice doesn’t get heard or acted upon by those at the top if it conflicts with the interests of those few who benefit handsomely from the corruption.
And it shows in the local job market. The graph below shows the relationship between a country’s reputation for not tolerating corruption and the health of its job market.
About 60 percent of the difference between job markets can be accounted for by a country’s level of freedom from corruption, with the cleanest countries having the most jobs to go around.
How can corruption hurt the economy, and by extension, job markets?
- In 2009, the Oxford Review of Economic Policy found that corruption “leads to pure waste and to misallocation of resources” and is “a likely source of unsustainable development”.
- “When a culture of corruption in a state raises uncertainty or the cost of doing business, capital flows to more amenable institutional environments,” noted a 2009 working paper written by researchers at Virginia’s George Mason University. “[E]ntrepreneurs may respond to corruption by choosing ‘fly-by-night’ technologies with too little fixed capital so they can credibly threaten to disappear should bribe demands become too high.”
- “Corruption makes local bureaucracy less transparent and hence acts as a tax on foreign investors,” two researchers from Oxford University and Columbia University wrote in 2009. [C]orruption decreases the effective protection of investor’s intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly . . .”
In every country, the honesty and openness of government can no longer be treated as an issue not relevant to job creation and economic growth — it is at the heart of both issues.
All places, including Canada, Manitoba and Winnipeg, can always take steps to make government ever more open and honest, and benefit from the resulting job creation. Here’s how:
- Wherever possible, laws against basic forms of corruption — such as bribes, kickbacks and influence-peddling — should be toughened up and more rigorously enforced.
- The media and the public should continue criticizing political patronage, such as the appointment of partisans to the Senate and the boards of Crown corporations as thinly disguised rewards for services rendered.
- Attempts to toy around with the integrity of the electoral system through “robocalls” and fiddling with constituency boundaries should also be severely dealt with.
- More governments should follow in the path of Australia’s southeastern Victoria state, which publishes the contracts it awards online for anyone to read.
- Freedom of Information laws should be brought up to high Scandinavian standards — and it should not cost $1.9 million to get information. Federal and provincial Transparency Commissioners should be established to nag governments on issues like this.
- Political life should be organized less on hierarchical lines, given a 2005 study’s finding that “the level of political corruption is higher in hierarchical societies” (and almost certainly in hierarchical organizations as well). Thus, governmental pleas for greater public deference — “just trust us” — should be greeted with scepticism. So too should claims by public figures that they speak on behalf of an entire group of people, which is another common plea for deference to those at the top of a hierarchy.
- Protectionist policies should be eliminated as much as possible, given that a 2009 study found “strong evidence suggesting that corruption is significantly higher in countries with activist trade and industrial policies” on the grounds that these give government officials greater discretionary power.
- Major legislation and regulatory changes should be subject to public hearings, with presentations for and against the legislation being posted online for public viewing. This lends itself to good decision making and allows important information to be brought forward by those without the funds to run a public awareness campaign.