Saturday, June 18, 2011

Financial Pressure, Corruption, and the Decline of Work

Sometimes financial pressure, of the sort that most of the world has been experiencing during the last five years, can squeeze out corruption. Corrupt politicians get voted out; corrupt businesses fail; a few unlucky business criminals may even get prosecuted. But the same pressure can increase the reach of corruption. It depends on how decision-makers react. Governments can bail out corrupt institutions while forcing their competitors out of business; voters who lose patience can vote honest politicians out of office to give their corrupt replacements a chance; faltering businesses can shut down or sell off their legitimate business units to dedicate their resources to their more sleazy activities; politicians and regulators may feel they have to put up with abusive business practices for fear of forcing corrupt businesses to scale back and lay off workers; anyone under pressure might look for new ways to cut corners.

On the whole, it is hard to make the case that the current difficult economic times have resulted in a reduction in corruption. For every Egypt, where corrupt officials have been forced out, investigated, and arrested, there are at least five Wisconsins, where the government seizes on the crisis as a new excuse to divert public funds to private businesses. In Ireland, the corrupt political party that put the country in a financial crisis by bailing out all the banks all but disappeared in the last election; but in the United States, both major political parties were in on the Wall Street bailout that created the country’s economic crisis, and voters don’t believe they have anywhere else to turn.

There is a serious problem with corruption when you look at the economy as a whole. When the system is rigged, the incentives to work fade away. Doing well in a contracted and dysfunctional economy and labor market is a matter of clinging to a position, any position, rather than working hard, finding a job that matches your skills, or even possessing skills. The people who fare the worst are the people on the outside, those who have no positions to defend. Most of them are workers under 28 years old who don’t have a realistic chance of developing a history of work within the system.

All economic value results from work, so when “work” comes to mean “protecting a position” rather than “creating something useful,” the total value of what people produce does not increase so easily.

If workers cannot work within the system, in the well-recognized channels of employment, they will work outside it. If corruption has made the system so inefficient that the relatively inexperienced workers outside can compete with it, the whole system could then collapse from the new competition. The centrally managed economies of North America and Europe have not become so inefficient that this is a realistic prospect at this point, but they are not comfortably distant from this scenario either. In less flexibly managed countries like Iran, Syria, Libya, and Indonesia, the official economy is already obviously broken, and it is just a matter of time before it falls and the shadow economy takes charge.

There is a lesson in the high degree of organization and discipline in the Spain protests. The dispossessed young workers who organized the protests are skilled enough to run the country if they were to get the chance. If corruption continues to undermine Spain’s official economy and its two-party political system, they may get that chance — and the same thing could happen in more than a few other countries.