Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

December 4, 2005
David Warsh, Proprietor


| contents |

On Post-Modern Corruption

When Harvard University Professors Edward Glaeser and Claudia Goldin set out to write an introduction to a conference on the history of corruption and reform in the United States in a volume that will appear next year, they began by noting that conventional measures ranked the U.S. among the ten least corrupt countries in the world.

“To most Americans,” they wrote, “corruption is something that happens to less fortunate people in poor nations and transition economies.

“But America’s reputation as an untarnished republic is a modern phenomenon.” Political bribery once had been an everyday occurrence, they explained, infecting American politics at all levels.  Perhaps lessons could be learned from one country’s escape from routine cheating.

Well, welcome to the post-modern era. It wasn’t just the business scandals associated with the end-of-the-century Bubble. The mushrooming case against former House majority leader Tom DeLay is a troubling reminder of how far the United States has drifted from the days, 25 years ago or so, when its citizens took their leaders’ honesty and integrity pretty much for granted. (Watergate? The whole point was that it was a shocking anomaly.)

One of the things about corruption is that its cutting-edge cases can be difficult to explain. The Washington Post last week added a sensational new wrinkle to the DeLay matter when it reported that the Justice Department staff — six lawyers and two analysts — had unanimously concluded in late 2003 that DeLay’s Congressional redistricting plan for Texas was illegal because it deliberately diluted African-American and Hispanic voting power.

In a highly unusual step, senior Justice Department officials under Attorney General John Ashcroft then overruled the staff.  DeLay’s plan immediately went into effect, and in 2004 the Republican Party gained five seats in Texas in the elections, solidifying its control of the House of Representatives. The memo had been widely sought but closely held under a gag order, until Friday, when The Post disclosed its contents.

Friday, Attorney General Alberto Gonzales promptly acknowledged the memorandum, but told reporters that he was confident that the Department’s decision had been correct. He noted that a three-judge appellate court panel had upheld the redistricting, corroborating the Justice view. Texas Democrats have appealed the decision to the Supreme Court.

To this point, the case against DeLay has been seen as a relatively narrow legal matter in the Texas courts, where the most powerful Republican leader in the House has been charged with violating the state’s campaign finance laws. But a Washington lobbying scandal involving one of his most energetic and reliable fundraisers, Jack Abramoff, is threatening to unwind.

And the disclosure of the staff memo seemed likely to broaden the story to the Justice Department, to the three-judge panel who upheld the re-districting, and perhaps to the White House itself. George W. Bush, a two-term governor of Texas, has supported DeLay, who has resigned his official leadership positions pending the resolution of the charges against him.

It was DeLay after all who as Republican whip in the House, personally led a state-wide fund-raising effort in Texas in 2002 that ensured enough Republican victories to take control of the state legislature. The redistricting plan ensued, complete with what at the time seemed merely colorful high-jinks — the Democratic membership fled the state in hopes of denying their Republican colleagues a quorum, the majority dispatched lawmen to try to bring them back.

Compared to all this, the case of US Rep. Randy “Duke” Cunningham (R-Calif) was small potatoes. The former Vietnam War fighter pilot ace (reputedly the model for the Tom Cruise character in the film “Top Gun”) pleaded guilty last week to taking bribes and evading taxes and resigned from Congress in the middle of his eighth term. He faces up to ten years in jail.

Cunningham was widely condemned by the Republican leadership, as if his were an isolated case.  But at least five other Congressmen are under investigation in the Abramoff case.  Journalist Michael Kinsley, writing in Slate, put the matter in perspective when he recalled how DeLay three years ago had warned Washington’s lobbying community that they would be without influence in the Congress unless they hired Republicans to oversee their pleadings — and their campaign contributions.

“No prominent Republican upbraided Delay for his open invitation to bribery. And bribery is what it is: not just campaign contributions, but the promise of personal enrichment for politicians and political aides who play ball for a few years before cashing in.”

It is hard to say exactly when this new style of post-modern corruption started. Kinsley dates it to the election of Ronald Reagan in 1980. Certainly a new era of partisanship was inaugurated then.  I am more inclined to think the era began with the 1980s asset markets boom and the subsequent extensive restructuring of corporate America.

With the end of the Cold War, discipline significantly relaxed and corruption gradually spread from the financial to the political order. It metastasized with the “Contract with America” election of 1994 — the one that produced a Republican majority in the House. Certainly the previous scandals involving prominent Democrats — Dan Rostenkowski, Barney Frank, even House Speaker Jim Wright and, of course, President Bill Clinton — were of a very different order. (Two Democrats, Reps. James Traificant of Ohio and Michael “Ozzie” Myers of Pennsylvania, have been ousted since 1980 for taking money.)

It is against this background that a seemingly unrelated matter, the Andrei Sheleifer case, should be considered. Readers are all too familiar with the details of how a 31-year-old Russian expatriate, swiftly risen to eminence as a Harvard University economics professor, was put in charge in 1992 of a huge US government-financed, Harvard-administered mission to advise the Russian government of Boris Yeltsin on how to establish a market economy of their own — until he was discovered in 1996 to be lining his own pockets, and those of his wife, his deputy and the deputy’s girlfriend. At that point the mission collapsed.

Four years later, the US Attorney in Boston sued. Four years after that, Shleifer was found to have committed fraud and Harvard University to have breached its contract. Each was ordered to repay the government.

Perhaps the Shleifer story is no big deal, and not the symbol of post-modern corruption having spread to universities that I think it is. Yet there are similarities to the Congressional situation, I believe. The case against Shleifer case was a civil complaint, not a criminal charge. Cunningham was elected, Shleifer was hired. Each helped himself to some good old-fashioned graft, and each was found by a court to have done (in the words of the San Diego prosecutor) “the worst thing an Éofficial can do — he enriched himself through his position and violated the trust of those who put him there.”

And just as the tactics of the House leadership are more alarming than the conduct of the lowly Cunningham, so the determination of Harvard’s administrators to defend Shleifer for nine long years is more astounding than what Shleifer actually did. He was young and inexperienced. They had all the advice and time in the world. His culpability has been established. Theirs has barely been addressed.

Indeed, Cunningham’s choked-back sobs as he entered his guilty plea in San Diego last week were a reminder how far from closure the Shleifer case remains. At least Cunningham apologized to those who had trusted him. “I know that I will forfeit my freedom, my reputation, my worldly possessions, and most importantly, the trust of my family and friends.”

There has been no such contrition from Shleifer.  No apology to the Massachusetts Institute of Technology professors who taught him; to the members of the Harvard economics department who hired him (and who to this day persist in an embarrassing silence about their colleague, however various their opinions); the colleagues whose work in Moscow he undermined; the Harvard Institute for International Development, which he destroyed; the Harvard administrators who decided to defend him; the elders of the economics profession who voted him the John Bates Clark medal; the man who endowed the chair he was awarded not long after he was sued;  the European worthies who conferred on him  the honor of the Munich Lectures in Economics last year;  the officers of the American Economic Association who installed him as editor of the Journal of Economic Perspectives, a position from which he expertly wields enormous power.

Least of all has there been any disruption of Shleifer’s quarter-century friendship with the man he met as a brash 19-year-old Harvard sophomore, who mentored him in economics, introduced him to international consulting in Lithuania, helped contrive his return to Harvard and his appointment to the mission to Moscow, oversaw US policy towards Russia as a Treasury official, vacationed with Shleifer and his family throughout and who only distanced himself reluctantly and minimally after the project crashed.

Harvard University President Lawrence Summers even stayed with Shleifer while interviewing for the school’s presidency. Upon taking office, he told the dean of the faculty that it was important not to lose his friend to another university. Only when the university’s governing Harvard Corporation insisted, according to The Wall Street Journal, did he recuse himself from the matter,

In their introduction to the forthcoming volume on corruption, Glaeser and Goldin trace the decline in its incidence in the United States between the mid-1870s and 1920, not to any fall in the returns to bribery and cheating, but rather to a big increase in the costs to politicians who got caught. Crucial to their story are newspapers, which learned they could attract readers by exposing corruption. Muckraking changed voter expectations, and before long, revealed corruption was more likely to lead to political defeat.

The same mechanism may be at work in the era of post-modern corruption. Certainly the Delay case has been getting its share of ink. The representative from Sugar Land (his district includes Houston and Galveston as well) already has been challenged for leadership in the House. He may face a strong opponent in his next election.

One of the biggest riddles of the Shleifer matter has been the failure of the case to attract more attention.  Among the national media in the US, only the Journal has covered it. The New York Times and the Washington Post have all but ignored the story.

Meanwhile, my hunch — it borders on a firm expectation — is that, sometime next year, Harvard’s Larry Summers will announce his departure to head a foundation. The underlying reason for his decision will not be last the storm that broke last spring after his remarks on the handicaps women face making careers in mathematics and science. Nor will it be the “no confidence” vote that stemmed from his the alienation of a large portion of the Faculty of Arts and Sciences.

Rather it is the university’s wealthy alumni who are most put off by Summers, chiefly because of the arrogant way in which he ran off Jack R. Meyer, president of the Harvard Management Co., who in fifteen years had increased the university’s endowment to $22 billion from $4.7 billion, earning annual returns that averaged nearly 16 percent, an astounding figure.

With an enormous capital campaign about to begin, designed to extend Harvard’s campus across the Charles River into Boston and scheduled to take many years, Summers is facing widespread antagonism among the very people he would have to ask for money. One of them asks, “How many strikes do you get?”

No one who has read Summers’ letter on the challenges he sees facing the university can fail to understand why so many people thought he would have been a great president. Harvard is the certainly world’s richest university and probably its best. It operations are fabulously complex.  The economist has demonstrated an ability to assess its opportunities coolly and perceptively, like so many investment goods in a capital asset pricing model: fire that dean, hire that architect, open that canteen, close that door. True, the experience of a dozen years of government service probably eclipsed what he learned in the scant three years he spent as a full professor before he went to Washington. But his real shortcomings in the job are intrinsic to his personality.

The likelihood then is that the Shleifer matter will be swept off the desktop at Harvard by a wholesale reorganization of the place — even the little eight-member corporation that has managed the university more than 350 years may be replaced by a larger, more modern board. But though the university may solve its own problem, the economics profession will still have one of its own. Shleifer’s talents are very great, but they aren’t enough to warrant expunging his sins from the record.

It isn’t necessary to put his picture on milk cartons. Here’s a suggestion. Now that the court battle is over, why doesn’t the Journal of Economic Literature commission a first-person article by Shleifer about the history of the case, and several commentaries on what he writes, pro and con, by senior figures? That might put the matter to rest once and for all — and rescue the American-dominated discipline itself from the shadow of post-modern corruption.

| contents |


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.

Camisetas de fútbol baratas camisetas fútbol camisetas futbol Réplicas camisetas de fútbol Camisetas futbol tailandia Camisetas nba baratas nike air max pas cher nike tn nike air jordan nike free zapatos deportivos baratos