A corporate abdication of corruption

June 4, 2014

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Allegations of corruption did not exactly cost King Juan Carlos the Spanish throne, but they probably played a role in his decision to abdicate. A popular desire for change was fuelled in part by claims of a 5.6 million euro fraud by his son-in-law, Inaki Urdangarin, who denies any wrongdoing. The resulting dynastic change may be considered a sign that corruption has become less acceptable. That would be a misreading.

Actually, it is hard to decide whether corruption is waxing or waning globally, because the concept is hard to define. A Danish anti-corruption group’s explanation captures the ambiguity: “Corruption is a broad term covering a wide range of misuse of entrusted funds and power for private gain… A corrupt act is often – but not necessarily – illegal. In handling corruption you will often face grey zones and dilemmas.”

That sounds about right, and the grey zone is large. A bribe, for example the sort of payment alleged to have contributed to Qatar’s selection as host nation for the 2022 soccer World Cup, is obviously corrupt. But what about a consulting arrangement that channels a substantial portion of the revenue from an oil well to someone with excellent political connections? In the country with the oil, such payments can be perfectly legal and socially accepted remuneration for services rendered. Outsiders see a corrupt power and business elite.

The Danish group was not considering the huge pay packets of corporate chief executives, but they seem to qualify as at least grey. Like a consulting contract, the money in question is considered a legal and socially accepted remuneration for services rendered. However, outsiders usually see a corrupt power and business elite. The seals of approval from remuneration committees and consultants only make the corruption look more deeply entrenched.

The best – if not the most commonly accepted – way to think of corruption is as a departure from bureaucratic and fair market standards for doing business. Those standards are simple. Employees at all levels are supposed to do their jobs in a professional way, following the accepted rules. In exchange, they are supposed to be paid a salary that is appropriate to their work. Prices for goods and services are supposed to be fair.

There is corruption whenever these conditions are violated: when salaries are supplemented by payments by outsiders, when insiders break the rules or receive excessively high pay, and when some sort of collusion artificially increases the prices of goods and services. By this bureaucratic standard, the practice is almost certainly rising globally.

It is impossible to measure the trends for fully illegal corruption – payments by drug dealers to law enforcement officers, unequivocal bribes and extorted contracts. However, there are few reports which suggest that these practices are in decline.

Semi-legal corruption – favourable contracts, exorbitant fees and quid pro quos – is probably declining in developed economies like Spain. The royal retreat goes along with multi-national crackdowns on tax shelters and attacks on parliamentary abuse of expense accounts. Just last week, a corruption scandal caused the resignation of a leading French opposition politician.

However, the modest retreat must be set against a likely rise in the developing countries which now account for about half of the world’s GDP. The practices are often technically illegal, but even more often they are considered integral parts of the business and political culture. As these lands become wealthier, fair market values have become more widespread, but the opportunities for enrichment have advanced faster than the intolerance of corruption.

The Russian oligarchs offer a prominent example. These extremely rich people mostly acquired their wealth in inappropriate ways. They maintain it with the help of corrupt officials at home and a corrupt, though generally legal, nexus of banks and lawyers abroad.

What about legal corruption, using my bureaucratic definition of the concept as a deviation from fair pay and correct practices and prices? By that common-sense standard, the business and political systems of developed countries look more corrupt than they have been in decades. Forget the fuss about inequality – legal corruption is a much greater scandal.

Totally unmerited pay packages are only one part of the problem. Another is regulatory capture, which is now standard practice. Then there are the elected politicians who retire to become lobbyists and business fixers, not to mention the too-intimate relations between governments and developers.

The rise of all sorts of corruption is unlikely to stop without more significant changes than royal abdications or highly publicised campaigns. After all, a fight against corruption amounts to an attack on powerful people and on widely accepted behaviour, much of which is completely legal.

What is needed is a new attitude throughout society, an unwillingness to accept business-as-usual. It probably cannot be led by today’s elite. Perhaps more of them should think about abdicating in favour of a new generation of untainted leaders.


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In other words, Humans suck!

Posted by tmc | Report as abusive

Corruption is tolerable if it is only a tax upon the diligent. When it is common place it leads to facism and failure. As we can see it is. Why try when effort is stolen? What purpose is capability when no reward is forthcoming? When all are corrupt (or brainwashed), who will do what needs to be done? There is a real world and only relatively few who know it. We can coast on past sums of endeavour for just a moment more and then nothing.

Posted by brotherkenny4 | Report as abusive

Highly perceptive and unique insight, Mr. Hadas!

Posted by OneOfTheSheep | Report as abusive

The last 3 paragraphs describe pretty well the awful situation that we’re now in, and “today’s elite” are in no hurry to relinquish control!

Posted by TocoToucan | Report as abusive

Many of todays elite were yesterdays poor. It seems to me that they make far worse elitist than the old family dynasties do. They were raised to manage the help. The new ones made there money on the backs of others and pulled up the ladder behind them.
I guess I’m saying that corruption and greed are a part of humanity. It will not go away without bio-engineering.

Posted by tmc | Report as abusive