Jun 3rd 2015

The Impunity Trap

by Jeffrey D. Sachs

 

Jeffrey D. Sachs, University Professor at Columbia University, is Director of the Center for Sustainable Development at Columbia University and President of the UN Sustainable Development Solutions Network.

"Recent studies have shown that when “generalized trust” in society is high, economic performance is improved and life satisfaction is higher. Among other reasons, commercial agreements are more easily reached and efficiently implemented. It is no coincidence that the Scandinavian countries rank among the world’s happiest and most prosperous year after year."

NEW YORK – Ours is a world of impunity. Allegations of corruption swarmed around FIFA for decades, culminating in mass indictments of FIFA officials last week. Yet FIFA President Sepp Blatter was re-elected four times, including after the indictments were filed. Yes, Blatter has finally resigned, but only after he and dozens of Federation members once again showed their scorn for honesty and the law.

We see this kind of behavior all over the world. Consider Wall Street. In 2013 and 2014, JPMorgan Chase paid more than $20 billion in fines for financial malfeasance; yet the CEO took home $20 million in compensation in both 2014 and 2015. Or consider corruption scandals in Brazil, Spain, and many other countries, where governments remain in power even after high-level corruption within the ruling party has been exposed.

The ability of those who wield great public and private power to flout the law and ethical norms for personal gain is one of the more glaring manifestations of inequality. The poor get life sentences for petty crimes, while bankers who fleece the public of billions get invitations to White House state dinners. A famous ditty from medieval England shows that this is not a new phenomenon:

The law locks up the man or woman
Who steals the goose off the common
But leaves the greater villain loose
Who steals the common from the goose.

Today’s greatest thieves are those who are stealing the modern commons – raiding government budgets, defiling the natural environment, and preying on the public trust. When the indictments against the 14 FIFA officials were filed, the cast of characters included not only miscreants from the sports world, but also some familiar players: secret Swiss bank accounts, Cayman Islands tax havens, shell corporations – all of the financial appurtenances that are literally designed to shield the rich from scrutiny and the law.

In this case, the FBI and US Justice Department have done their jobs. But they did so, in part, by penetrating the murky worlds of financial secrecy created and protected by the US Treasury, the Internal Revenue Service, and the US Congress (ever-protective of Caribbean tax havens).

In some societies and economic sectors, impunity is now so pervasive that it is viewed as inevitable. When unethical behavior by political and business leaders becomes widely viewed as “normal,” it then goes unpunished by public opinion, and is reinforced as normal – creating an “impunity trap.” For example, with politicians in the United States now so flagrantly and relentlessly on the take from wealthy donors, much of the public accepts new revelations of financial impropriety (such as the Clinton Foundation’s morally dubious financial dealings) with a cynical yawn.

The situation in the global banking sector is especially alarming. A recent careful study of ethical attitudes in the financial-services industry in the US and the United Kingdom showed that unethical and illegal behavior is indeed now viewed as pervasive. Some 47% of respondents said that it is “likely that their competitors have engaged in unethical and illegal activity,” and 23% believed that their fellow employees have engaged in such activities.

The younger generation has learned the lesson: 32% of respondents employed in the financial industry for less than ten years said that, “they would likely engage in insider trading to make $10 million if there was no chance of being arrested.” The chance of being arrested for such malfeasance is, alas, probably very low.

Yet not all societies or sectors are caught in an impunity trap. Some societies, most notably in Scandinavia, maintain the expectation that their public officials and business leaders should and will act ethically and honestly. In these countries, ministers are forced to resign for petty infractions that would seem trivial in other countries.

Convincing American, Russian, Nigerian, or Chinese citizens that corruption can indeed be controlled might seem to be a futile task. But the goal is certainly worth embracing, because the evidence is overwhelming: impunity is not only morally noxious; it is also economically costly and deeply corrosive to wellbeing.

Recent studies have shown that when “generalized trust” in society is high, economic performance is improved and life satisfaction is higher. Among other reasons, commercial agreements are more easily reached and efficiently implemented. It is no coincidence that the Scandinavian countries rank among the world’s happiest and most prosperous year after year.

So what can be done to overcome an impunity trap? Part of the answer is of course law enforcement (such as the FIFA indictments) and protection for whistleblowers. Yet law enforcement is not sufficient; public attitudes also play a major role.

If the public expresses contempt and revulsion for bankers who cheat their clients, oil executives who wreck the climate, FIFA officials who countenance kickbacks, and politicians who cozy up to all of them in exchange for campaign funds and bribes, illegality for the few cannot become the norm. Public scorn might not end corruption immediately, but it can make life far less pleasant for those who are stealing the commons from the rest of us.

One candidate for US President in 2016, former Maryland Governor Martin O’Malley, recently launched his campaign by asking why not a single Wall Street CEO was convicted of a financial crime in the wake of the 2008 financial meltdown. It is a good question, the kind that can help the US to overcome its impunity trap.

Yet we can ask an even simpler question. Why are those same bankers still fêted by President Barack Obama, invited to glittering state dinners, and reverently interviewed by the media? The first thing any society can and should do is deny respectability to political and business leaders who willfully abuse the public trust.


Copyright: Project Syndicate, 2015.
www.project-syndicate.org

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Mar 16th 2023
EXTRACT: "Putin is desperate for a ceasefire, but he does not want to admit it. Chinese President Xi Jinping is in the same boat. But US President Joe Biden is unlikely to jump at this seeming opportunity to negotiate a ceasefire, because he has pledged that the US will not negotiate behind Zelensky’s back. -- The countries of the former Soviet empire, eager to assert their independence, can hardly wait for the Russian army to be crushed in Ukraine. At that point, Putin’s dream of a renewed Russian empire will disintegrate and cease to pose a threat to Europe. -- The defeat of Russian imperialism will have far-reaching consequences for the rest of the world. It will bring huge relief to open societies and create tremendous problems for closed ones."
Mar 15th 2023
EXTRACT: "Fifty years ago, a war broke out in the Middle East which resulted in a global oil embargo.... " ---- " Many historical accounts suggest the decade of global inflation and recession that characterises the 1970s stemmed from this “oil shock”. But this narrative is misleading – and half a century later, in the midst of strikingly similar global conditions, needs revisiting." ----- "In early 2023, the global financial picture feels disconcertingly similar to 50 years ago. Inflation and the cost of living have both risen steeply, and a war and related energy supply problems have been widely labelled as a key reason for this pain." ---- "In their public statements, central bank leaders have blamed this on a long (and movable) list of factors – most prominently, Vladimir Putin’s decision to send Russian troops to fight against Ukrainian armed forces. Anything, indeed, but central bank policy." ---- "Yet as Figure 1 shows, inflation had already been increasing in the US and Europe long before Putin gave the order to move his troops across the border – indeed, as far back as 2020."
Mar 7th 2023
EXTRACT: "The United States is in the midst of a book-banning frenzy. According to PEN America, 1,648 books were prohibited in public schools across the country between July 2021 and June 2022. That number is expected to increase this year as conservative politicians and organizations step up efforts to censor works dealing with sexual and racial identity."
Feb 28th 2023
EXTRACT: "As was the case before World War I, it is tempting to minimize the risk of a major conflict. After all, today’s globalized, interconnected world has too much at stake to risk a seismic unraveling. That argument is painfully familiar. It is the same one made in the early twentieth century, when the first wave of globalization was at its peak. It seemed compelling to many right up to June 28, 1914."
Feb 19th 2023
EXTRACT: "Another front has opened in the global rise of populist authoritarianism. With their efforts to weaken Israel’s independent judiciary, Prime Minister Binyamin Netanyahu and his corrupt coalition of Messianic fascists and ultra-Orthodox allies are determined to translate their anti-democratic rhetoric into authoritarian policy."
Feb 17th 2023
EXTRACT: "One year on from the start of a military operation that Moscow was expected to win easily, there are increasing signs of anger, frustration and resistance from ordinary Russian soldiers. These are important reminders that these men are not mindless pawns who will do Putin’s bidding under any circumstances."
Feb 16th 2023
EXTRACT: "Over the past few days, more details have emerged about the alleged Russian plot in Moldova. Apparently, well-trained and well-equipped foreign agents were meant to infiltrate the ongoing protests, then instigate and carry out violent attacks against state institutions, take hostages and replace the current government. This may seem far-fetched, but is it? Yesterday, Moldova denied entry to Serbian soccer fans who had planned to support their team, FK Partizan Belgrade, in a Europa Conference League match against the Transnistrian side Sheriff Tiraspol. ---- " ..... there is a history of Serbian football hooligans being involved in paramilitary activities, including war crimes committed by the notorious Arkan Tigers during the war in Bosnia in the early 1990s. Moreover, Russia attempted to overthrow the Montenegrin government in October 2016, just ahead of the country’s Nato accession the following year, in a plot eerily prescient of what was allegedly planned recently in Moldova.
Feb 14th 2023
EXTRACT: "As the British novelist L.P. Hartley once wrote, the past is “a foreign country: they do things differently there.” Alas, this does not mean that we necessarily do things better now. But to understand that lesson, we have to follow Santayana’s advice, and study history very carefully.."
Feb 7th 2023
EXTRACT: "Others who have left Russia include tens of thousands of the country’s excellent computer scientists, whom the armament industry desperately needs. In fact, so many Russians have emigrated to neighboring countries that Armenia expects its 2022 GDP growth to come in at a whopping 13%. Unlike oil fields, this is capital that Putin cannot nationalize or seize."
Feb 6th 2023
EXTRACTS: "Under these circumstances, Ukraine’s allies are right to scale up their military assistance, including by providing battle tanks. The goal is for Ukraine to prevail against its aggressor. But we cannot wish for that end without giving Ukraine the means to achieve it. The alternative is a prolonged war of attrition, leading to more deaths in Ukraine, greater insecurity for Europe, and continued suffering around the world (owing to Russia’s weaponization of energy and food supplies)." ---- "And make no mistake: the sanctions are working. Russian oil is selling at a $40 discount to Brent, and its daily energy revenues are expected to fall from around €800 million to €500 million after our latest measures kick in this month. The war is costing the Kremlin dearly, and these costs will only rise the longer it lasts."
Feb 6th 2023
EXTRACTS: "Brezhnev, in power from 1964 to 1982, signed the 1975 Helsinki Accords, together with the United States, Canada, and most of Europe. Eager for formal recognition of its borders at the time, the USSR under Brezhnev, together with its satellite states in Central and Eastern Europe, underestimated the potential impact of the Accords. That is probably why it agreed to include commitments to respect human rights, including freedom of information and movement, in the agreement’s Final Act." --- "Putin’s regime is turning its back on the legacy of Soviet dissent. Worse, it is replicating the despotic practices of Brezhnev and Soviet totalitarianism. If it continues on this path, it risks ending up in the same place."
Feb 5th 2023
EXTRACT: "....when countries like Saudi Arabia, Egypt, and, above all, China flagrantly violate their citizens’ human rights, liberal democracies must unite to constrain their behavior. Ultimately, it is up to those of us who believe in the universality of human rights to expose crimes against humanity and to uphold liberal-democratic values in the face of authoritarian threats" --- "....liberal democracies have a shared responsibility to support the Ukrainians fighting to defend their homeland and to protect their rights to self-determination and statehood in the face of Russian aggression."
Jan 14th 2023
EXTRACT: "On balance, then, the events in and around Soledar over the past week illustrate that no matter the outcome of the current fighting, this is not a turning point. It’s another strong indication that the war is likely going to be long and costly."
Jan 14th 2023
EXTRACTS: "Russian President Vladimir Putin has long regarded the collapse of the Soviet Union as a “geopolitical catastrophe.” The invasion of Ukraine, now approaching its one-year anniversary, could be seen as the culmination of his years-long quest to restore the Soviet empire. ..... "With Russia’s economy straining under Western sanctions, some of the country’s leading economists and mathematicians are advocating a return to the days of five-year plans and quantitative production targets." .... "The logical endpoint of a planned economy today is the same as it was then: mass expropriation. Stalin’s collectivization of Soviet agriculture in the late 1920s and early 1930s led to millions of deaths, and the post-communist 'shock therapy' of privatization resulted in the proliferation of 'raiders' and the creation of a new class of oligarchs. Now, enthralled by imperial nostalgia, Russia may be about to embark on a new violent wave of expropriation and redistribution."
Jan 11th 2023
EXTRACT: "These developments suggest that Indian economist Amartya Sen was correct when he famously argued in 1983 that famines are caused not only by a shortage of food but also by a lack of information and political accountability. For example, the Bengal famine of 1943, India’s worst, happened under imperial British rule. After India gained independence, the country’s free press and democratic government, while flawed, prevented similar catastrophes. Sen’s thesis has since been hailed as a ringing endorsement of democracy. While some critics have noted that elected governments can also cause considerable harm, including widespread hunger, Sen points out that no famine has 'ever taken place in a functioning democracy.' --- China’s system of one-party, and increasingly one-man, rule is couched in Communist or nationalist jargon, but is rooted in fascist theory. The German jurist Carl Schmitt, who justified Adolf Hitler’s right to wield total power, coined the term “decisionism” to describe a system in which the validity of policies and laws is not determined by their content but by an omnipotent leader’s will. In other words, Hitler’s will was the law."
Dec 29th 2022
EXTRACTS: "On August 1, 1991, a little more than three weeks before Ukraine declared independence from the Soviet Union, US President George H.W. Bush arrived in Kyiv to discourage Ukrainians from doing it. In his notorious 'Chicken Kiev' speech in the Ukrainian parliament, Bush lectured the stunned MPs that independence was a recipe for 'suicidal nationalism', 'ethnic hatred', and 'Local despotism.' ----- ....the West’s reluctance to respect Ukraine’s desire for sovereignty was a bad omen, revealing a mindset among US and European leaders that paved the way to Russia’s full-scale invasion in February. ----- .... Western observers, ranging from Noam Chomsky to Henry Kissinger, blame the West for Russian President Vladimir Putin’s decision to invade, or have urged Western leaders to provide Putin a diplomatic off-ramp by compelling Ukraine to give up territory. Policymakers, too, seem to view Ukraine’s self-defense as a bigger problem than Russia’s genocidal aggression. ----- ..... despite the massive material and military support the West has provided to Ukraine, the fateful logic of appeasement lingers, because many Western leaders fear the consequences of Russia’s defeat more than the prospect of a defeated Ukraine. ----- This war is about the survival of Ukraine and the Ukrainian people. In the words of the Israeli leader Golda Meir, born in Kyiv, 'They say we must be dead. And we say we want to be alive. Between life and death, I don’t know of a compromise.' "
Dec 29th 2022
EXTRACT: "China’s flexible, blended, increasingly dynamic private sector could do all that and more. ----- Then came Xi Jinping. "
Dec 29th 2022
EXTRACTS: "For a few years in the late 2010s, it seemed to be only a matter of time before China would replace the US as the world’s largest economy and overwhelmingly dominant technological superpower. Then came the COVID-19 outbreak in Wuhan in late 2019. " ---- "How could China’s seemingly all-powerful autocrat understand so little about the social contract on which his power rests? For all its difficulties, liberal democracy – with its transparency and self-imposed limits – has once again proved more efficient and resilient than autocracy. Accountability to the people and the rule of law is not a weakness; it is a decisive source of strength. Where Xi sees a cacophony of clashing opinions and subversive free expression, the West sees a flexible and self-correcting form of collective intelligence. The results speak for themselves."
Dec 12th 2022
EXTRACTS: "Next time you’re in Ukraine’s capital, Kyiv, don’t bother looking for Dostoevsky Street. It’s been renamed: it’s now Andy Warhol Street. ..... because many Ukrainians regard Andy as Ukrainian. Was he? The evidence is mixed." ---- "Warhol remained a committed Greek Catholic all his life. He regularly prayed, both at home and in church, and frequently attended Sunday Mass. His bedside table contained a crucifix, a Christ statuette, and a prayer book. After he died on February 22, 1987, he was buried in St. John the Divine Byzantine Catholic Cemetery, some twenty miles south of Pittsburgh, in a simple grave next to his parents." ---- "When it comes to objective cultural affiliation or subjective ethnic identification, the United States—with its diverse Slavic heritages—has the greatest claim on Warhol and his art."
Dec 12th 2022
EXTRACT: "Cellular agriculture provides an alternative, and could be one of this century’s most promising technological advancements. Sometimes called “lab-grown food”, the process involves growing animal products from real animal cells, rather than growing actual animals. If growing meat or milk from animal cells sounds strange or icky to you, let’s put this into perspective. Imagine a brewery or cheese factory: a sterile facility filled with metal vats, producing large volumes of beer or cheese, and using a variety of technologies to mix, ferment, clean and monitor the process. Swap the barley or milk for animal cells and this same facility becomes a sustainable and efficient producer of dairy or meat products."