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Systemic Corruption

Page history last edited by spencer.graves@prodsyse.com 8 years, 2 months ago

The Crisis in US

Politics & Economics


     Lawrence Lessig's recent book, Republic, Lost, argues that the there are very few corrupt individuals in business and politics today, but the system has evolved to provide perverse incentives that reward destructive behaviors and thwarts reform efforts from all sides of the political spectrum.  This system has worked to convert the on-going international economic crisis into a massive windfall for the major banks.  Financial crises in general create windfalls for people with cash, who can find great bargains from people who have assets but desperately need cash.  It often takes a decade for people who work for a living to recover what they lost during a recession, if they ever recover.[1] This is without the massive gifts from the taxpayers to the leaders of international finance, who can now take bigger risks with more money and greater confidence than before that their losses will be socialized.[2]  Typical returns on "investments" in lobbying and contributing to political campaigns range between $6 and $220 for each $1 so invested.  


The public debt of the United States government is exploding, due not only to the current financial crisis but also to the increasing institutional corruption embedded in the US political economy, described in the accompanying figure.  This trend will likely increase dramatically as a result of the flood of new corporate money entering the political discourse as a result of the "Citizens United" decision of the Supreme Court, which declared that money is speech and cannot be regulated.[3]   If current trends continue, as seems likely, this trend will bring the US to financial ruin, possibly even worse than the current problems of Greece or the 1990s collapse of the Russian economy.[4]  


Corrupt Political System

     Money appears to be a primary (though not the only) determinant of electoral success, especially for national office such as the US House and Senate. Incumbents who want to get reelected need lots of money. To make it easier for them to continue to raise money in the future, most legislation that gives something to a private interest includes a time limit. The implied threat of a failure to renew a previous grant provides substantial though implicit extortion to bring in new money.[5]

     This system works in part because the major commercial media conglomerates have found ways to retain their audiences while exposing very little of this corruption. Consequently, very few people have enough information to effectively confront this corruption. The result helps stifle competition to incumbent politicians and big businesses.  

     There are numerous examples of this corruption.  One is the current international economic crisis including the crisis in housing foreclosures in the US that reportedly cost 3.4 percent of Americans their homes in a process that is only half over.[6]  Another is the massive increase in income inequality in the US, which has cost the median American family $39,000 per year ($100 per day) in lost income over what they would have received if the benefits of the productivity growth over the past 40 years had been broadly shared, as were the benefits of productivity growth from 1947 to 1970.     


How to Fix

     In the system diagram above, everyone except the electorate has a conflict of interest that drives action to prevent reform.  By far the greatest return on investment for big business today comes not from legitimate innovation that could help the economy but on special favors from government to thwart competition:  By far the easiest way to get returns of $6 or $20 to $1 is through corruption, as noted above, provided you already have enough money to "buy" the "access" required to get these returns.  This corruption is so massive, it tends to stifle creativity and inhibit economic growth.

     Politicians need money for campaigns. The commercial media sell behavior change in their audience to advertisers.  Media executives know that advertisers have options that have been used in the past against media companies that exposed too much of this corruption.  

     This analysis suggests two possible solutions:

  1. Revise campaign finance rules so candidates can win on good ideas and communications skills without massive amounts of money.

  2. The electorate could support substantive investigative journalism and stop paying attention to the major commercial media.  


     Lessig recommends that the first $50 of taxes anyone pays be set aside for "Democracy Vouchers", which each person could donate to candidates who commit to campaigning only on the money from these "Democracy Vouchers" plus contributions with a maximum of $100 per person. This will not solve all our problems.  For example, most of Europe has public funding of political campaigns, and they also have problems with systemic corruption.  However, the problems with corruption are not as bad by some perspectives (e.g., income inequality) as the US.  "Democracy Vouchers" explicitly encourages citizen participation in the political process, unlike other systems for public funding of political campaigns.   

     "Move To Amend" is a partial response to the first suggestion.  It should help rebuild the dam destroyed by the "Citizens United" decision, but the problem was already huge without that decision.  However, Lessig opposes this as an encroachment on free speech that could set a dangerous precedent.   

     Changing campaign finance rules may help reduce the value of incumbency but will only be able to combat the corruption in the system if the citizenry also supports investigative journalism at a level that exposes substantial portions of that corruption.  Fortunately, a trend in this direction has begun with the members of the Investigative News Network.  The idea of "Democracy Vouchers" could be extended to provide a similar amount of money that each citizen could donate to either research or investigative journalism.  Europe and Japan have governmental funding of investigative journalism, and research results indicate that their citizens tend to be better informed than people in the US.  

     The probably of success of these reforms would be enhanced greatly if we could make talking politics the national sport. Too often, we hear, "We don't talk politics." This is a problem, because the essence of democracy is civil society. Elections are a minor portion of a legitimate democratic process, and if people don't talk politics, they are more easily polarized and misled to the detriment of themselves and the entire world.  

     These reforms may never succeed without serious trust busting of the major media conglomerates.[7]  Unfortunately, the current trend is in the opposite direction, massively extending copyright powers that today make criminals of virtually every Internet user.  Changes in copyright law since 1974 have extended the duration, scope, reach, control and concentration of the media industry that give the industry tools that are stifling creativity and competition in the US and internationally.  For example, the control of current copyright law now extends to "derivative works" so vaguely defined that the first commercially successful Mickey Mouse cartoon, "Steamboat Willie", might have been blocked as a derivative work of a Buster Keaton movie, "Steamboat Willie, Jr.", that appeared earlier in that same year (1928).  The extension in reach allowed the Recording Industry Association of America to successfully sue 3 college students in 2002 for almost $100 billion for improving search engines used only inside university intranets that made it easier for others affiliated with that university to find copyrighted songs people had placed in their "public" folders.  Similarly, lawyers and venture capitalists were successfully sued for supporting Napster, when "they should have known" that Napster was illegal.  

     Some recent attempts to increase the power of existing media conglomerates have been checked momentarily by the protests against ACTA and SOPA.  However, the major media conglomerates are highly motivated to protect their current hegemony over that market and would be foolish not to spend substantial sums to get governmental assistance in suppressing their competition.  They are looking for allies in undemocratic countries.  In a 2010 private ACTA meeting in Mexico, a representative of the Recording Industry Artists Association told negotiators that “Bring in a censoring firewall to block piracy and you can use it to shut off sites that embarrass your government, like Wikileaks." 


This article was initiated by Spencer Graves, 2012-03-04.  It reflects the perspective of the author (possibly as modified by other editors) and does not necessarily reflect the view of any specific group.   


  1. Charlton, A. (2008) Capital Market Liberalization and Poverty, ch. 5, pp. 121-138, in Ocampo, J. A., and Stiglitz, J. E., eds., Capital Market Liberalization and Development, NY: Oxford U. Pr.
  2. Lawrence Lessig (2011) Republic, Lost: How Money Corrupts Congress -- and a Plan to Stop It (Twelve, esp. p. 186; see also Wikipedia, "Republic, Lost")
  3. One citizens' initiative to fight this is "Move to Amend" (http://movetoamend.org).
  4. In the 1990s, life expectancy at birth in Russia fell by roughly 5 years for males and 2 for females as the economy collapsed in response to "shock therapy", during which public assets were "sold" to the new "oligarchs", often with no money down. See the Wikipedia articles on "Economic history of the Russian Federation" (http://en.wikipedia.org/wiki/Economic_history_of_the_Russian_Federation) and "Demographics of Russia" (http://en.wikipedia.org/wiki/Demographics_of_Russia).
  5. Lessig (2011, esp. ch. 12. How So Damn Much Money defeats the Right)
  6. The Lost Ground, 2011 report from the Center for Responsible Lending says that 2.7 million American families took out loans between 2004 and 2008 and lost them between 2007Q4 and November 2011. This is 3.4 percent of the 78.6 million households in the US. (The population of the US is 310 million in households averaging 3.94 people per household.)
  7. One leading advocate of media reform is Robert w. McChesney. See the Wikipedia article on him (http://en.wikipedia.org/wiki/Robert_W._McChesney). For an analysis based partly on McChesney, see Spencer Graves (2012) "Media and Politics" (http://occupy.pbworks.com/w/page/51429142/Media%20and%20Politics). Graves (2012) "Media Antitrust" calls for antitrust action against the major media conglomerates for abuses of power in obtaining corrupt expansions of copyright powers, for using those powers to stifle creativity and competition, and for stampeding the US into war in Iraq in 2002-2003 on fraudulent grounds. (http://occupy.pbworks.com/w/page/51550749/Media%20antitrust).

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