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“…corruption [is] the abuse of entrusted power for private gain.”
Corruption refers to when individuals or groups in positions of power (e.g. government officials, company executives, etc.) operate in an unethical or immoral manner. At its worst, corruption kills with immunity as those in power have unilaterally re-written the rules.
Corruption takes many different forms and can appear in many different settings. It ranges from public brutality to shady schemes devised behind closed doors. But considering the Zero Theft Movement is trying to eliminate the rigged parts of the United States economy, we will focus on how authorities can and arguably have corrupted the U.S. financial system.
What Is Economic Corruption?
Economic corruption, in essence, refers to actions that harm a country’s financial system and, therefore, the citizens.
Economic corruption includes, for example, unproductive and economically inefficient behavior that deliberately stifles market competition in order to boost profits at our expense. Generally, the lack of competition in a market means consumers (i.e. the public) will have to pay more for the goods or services. In some cases, you’re at the complete mercy of one supplier. We’ll go deeper into this later but just take a second and think about cases involving essential goods and services.
Medication, medical treatment, gas for those of you who own a car, etc.
Economic corruption can also extend to when corporations deemed ‘too big to fail’ face moral hazards. They can make excessively reckless investments, knowing that they’ll likely get bailed out by the government, with taxpayer money.
The government deemed the failing hedge fund Long-Term Capital Management (LTCM) too big to fail. The Federal Reserve created a $3.65 billion loan fund to bail the company out. This allowed LTCM to survive the market volatility and liquidate in early 2000. But did the Federal Reserve really have to bail out LTCM with taxpayer money? Or could global financial markets have fared well enough without the intervention?
Rent-Seeking Behavior, the Crux of Economic Corruption
Economic corruption boils down to something economists call ‘rent-seeking.’ In short, this is when businesses focus their efforts on boosting their profits without adding any extra benefit or value to society.
If they wish to rent-seek legally, they will lobby (not bribe) regulators and legislators in order to get special privileges (e.g. tax breaks, grants, protections, favorable legislation). This can lead to markets being uncompetitive by law. Think of patents in the pharmaceutical field, for example.
Corporations can also try to boost profits by breaking laws. For example, in 2019, 44 states came together in an antitrust lawsuit against 20 generic drug manufacturers. The complaint alleged, “Teva, Sandoz, Mylan, Pfizer and 16 other generic drug manufacturers engaged in a broad, coordinated and systematic campaign to conspire with each other to fix prices, allocate markets and rig bids for more than 100 different generic drugs.”
But what’s ‘rent’ exactly?
Don’t get confused. This term doesn’t refer to your monthly rent, nor does it refer to when you request a pay raise for performing the same duties at your job. While the latter technically counts as rent-seeking, that’s not really how economists use the term.
Generally speaking, getting a raise while still providing the same value is often viewed as positive, even expected behavior. Plus, your employer has a choice whether it values your services to the same degree you do. The power dynamic and leverage often favors the employer, especially if, for example, you haven’t received offers from competitors.
Economists use the term rent-seeking to refer to when corporations attempt to gain special privileges from the government in the form of tax breaks, grants, protections, legislation, etc. that stifles industry competition or otherwise harms the economy.
Economist Paulo Mauro, a Division Chief at the International Monetary Fund (IMF), penned an article explaining the dangers of economic corruption: “Every day private firms spend vast amounts of money attempting to convince legislators to grant monopolies or otherwise restrict competition so that some industry or individual can realize a rent. Throughout the world bureaucrats and people in authority are indefatigably maneuvering to position themselves in a tiny monopoly where they can be bribed for issuing a license, approving an expenditure, or allowing a shipment across a border. Studies have shown that these rent-seeking activities exact a heavy economic and social toll.”
Professor David Henderson proposed a much better term for this behavior: “privilege seeking.”
Illegal Forms of Economic Corruption
Illegal forms of economic corruption will most times, if not always, be a form of white-collar crime. For the most part, whether these forms of economic corruption harm the economy and the public isn’t really up for debate. They often do, with little question.
For example, take the case of a foreign kleptocrat (a.k.a. a ruler who uses political power to steal his or her country’s resources) who sets up a shell company in the U.S. to execute their money laundering scheme. According to the results of a Global Financial Integrity project, it’s easier to form an anonymous company than to get a library card in certain U.S. states.
Or take the infamous Panama Papers and Paradise Papers, where in both cases the financial information of wealthy individuals and multinational companies got leaked. The terabytes of documents uncovered hundreds of thousands of offshore entities in various tax havens. Which had allegedly been used to commit tax evasion, a crime in the U.S.
Per the International Consortium of Investigative Journalism, authorities across the world have recovered $1.36 billion as of April 6, 2021. They will likely recover even more funds, as the five-year investigation is still ongoing.
The Internal Revenue Service (IRS) estimated that tax evasion cost the federal government an average of $458 billion per year between 2008 and 2010. See what the ZT community has uncovered about corporate tax evasion…
The Gray Area of Economic Corruption
Perhaps, the more prevalent types of economic corruption are those that exist in the gray area, where the behavior does not necessarily break any current laws but is still debatably unethical.
A gray area case
Take the case of stock buybacks. By simultaneously reclaiming its own stock and decreasing the number of shares on the market, a company increases its relative ownership stake. Irene Tung and Katy Milan, for the Roosevelt Institute, published a report stating that publicly traded companies in the U.S. spent “almost 60 percent (58.6 percent) of their profits on buybacks between 2015 and 2017.”
That means, instead of those profits going to innovation, increased wages for workers, expansion to offer more jobs, they sit in the stock market and appreciate in value until company executives decide to sell them for their own gain.
Regulations do exist, but ironically, they appear to promote dangerous behavior. Economists William Loznick, Mustafa Erdem Sakınç, and Matt Hopkins penned an article called ‘Why Stock Buybacks Are Dangerous for the Economy.’ They argue, “Stock buybacks done as open-market repurchases emerged as a major use of corporate funds in the mid-1980s after the Securities and Exchange Commission adopted Rule 10b-18, which gives corporate executives a safe harbor against stock-price manipulation charges that otherwise might have applied.”
Should stock buybacks continue to be regulated as they are currently? If it is, why hasn’t Congress done anything about it?
How corporations play the gray area
In the U.S., the gray area of economic corruption primarily plays out in the form of lobbying.
We should be clear on this point. Lobbying as a concept isn’t so much an issue. It’s protected under the First Amendment, and everyone should have the chance to advocate for causes to government officials. However, lobbying in practice has become potentially problematic due to one simple factor: money.
As you can probably imagine, political campaigns require considerable funding. The Center for Responsive Politics reported that the 2020 Congressional and Presidential elections cost $14.4 billion ($8.7 billion Congressional, $5.7 billion Presidential). Ads, travel, lodging, rallies, the expenses appear endless when you think about it. According to FiveThirtyEight, the candidate with the most money wins over 80% of the time.
Money alone doesn’t win elections, of course. But it definitely helps.
Opportunists obviously saw this as a chance to capitalize, creating a multibillion dollar lobbying industry. How can the average citizen get one-on-one time with many politicians, if they’re worried about fundraising?
And while campaign finance laws are there to protect the integrity of elections, they don’t deter the circulation of dark money. Furthermore, lobbying isn’t always as above board as some might like to depict it.
How does Economic Corruption Harm You?
So, how does this affect you?
Economic corruption, illegal or within the gray area, potentially causes you to pay more and receive less. More on taxes, more for goods and services; less wages, less for your retirement. A rigged economy keeps the public and the economy from thriving as it should.
Think of economic corruption at its worst (at least in the U.S.), you or someone you know might not be able to afford life saving medications. Even for drugs whose patent has expired long ago. For example, political watchdog Public Citizen published an article entitled ‘Pharma’s Price Gouging on Insulin Is Literally Killing Patients’. It states: “[According to a study] the annual gross insulin cost for patients with type 1 diabetes in the U.S. essentially doubled from $2,864 in 2012 to $5,705 in 2016. During this same period, the average amount of daily insulin use for these patients increased by only 3 percent.”
As we said in the introduction, economic corruption can kill. But how can you stop it?
Join the Zero Theft Movement in the Fight Against Economic Corruption
We at the Zero Theft Movement, along with our growing community, work together to calculate the best estimate for the monetary costs of corruption in the U.S. Corporate, political, and everything in between.
We have built a safe and independent platform where you and your fellow citizens work together to investigate and debate potentially rigged areas across the economy. Through blockchain voting, the way to make all your work permanent, public, and unchangeable, you decide whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The ZTM community knows that many businesses, including some corporations, act ethically. We are trying to hold the bad actors accountable. The corrupt corporations, lobbyists, and government officials. That way, good people and businesses can properly thrive and enjoy the piece of the pie we’re all due.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.