Australian Prime Minister Kevin Rudd, in his widely published essay on the cause of the global financial crisis, hit out at ‘extreme capitalism and unrestrained greed’. Many politicians and commentators have made the same point. But what were the triggers of the crisis? Along with the known triggers, for example – government policy pushing home ownership, banks forsaking prudent risk management and unrealistic expectations about rising home prices – there is evidence that the corrupting of the regulatory process in the USA played a significant role.
Daniel Kaufmann, senior fellow at the Brookings Institution, in Forbes magazine (27 January 2009) writes that ‘capturing’ or changing national regulatory systems is now the new corruption. Corruption has moved on from bribing government ministers and officials to win a contract or gain entry to a market. Large business interests now aim at changing the regulatory system to suit their interests and requirements.
He says, ‘Subtler forms of capture and “legal corruption” exist: an expectation of a future job for a regulator in a lobbying firm, or a campaign contribution with strings attached. In many countries this may be legal, even if unethical. In industrialized nations undue influence is often legally exercised by powerful private interests, which in turn influence the nation's regulations, policies and laws.’
Kaufmann, formerly a director of the World Bank, made the following points:
• In the US, Freddie Mac and Fannie May, the major mortgage providers in the housing market, ‘spent millions of dollars lobbying some influential members of Congress in exchange for, among other things, lax capital reserve requirements for these mortgage giants’.
• AIG’s office in London was able by lax regulatory oversight to take unwise and extreme risks which eventually brought down AIG and its 100,000employees in 130 countries.
• In a 55 minute meeting the largest investment banks persuaded the US Securities and Exchange Commission to relax regulatory requirements allowing them to take on larger amounts of debt.
London’s Financial Times (7 May 2009) reported that the top 25 US originators of subprime mortgages – the risky assets that sparked the global financial crisis – spent almost $370m in Washington over the past decade on lobbying and campaign donations as they tried to ward off tighter regulation of their industry. ‘Their unbridled political contributions and massive lobbying created the lack of regulation and oversight that led to this crisis,’ said Bill Buzenberg, who headed the Center for Public Integrity investigation.
Political leaders and media commentators, not only in the US but around the world, advocate stricter regulations to rein in ‘extreme capitalism’. They may however not be going far enough. Not in relation to regulation, but in failing to come to grips with corruption on a global scale. Ten years ago the World Bank Institute estimated that annually worldwide bribery topped US $1 trillion, i.e. $1000 billion. Transparency International in 2005 reported that corruption worldwide was still growing.
Unless governments and businesses take on to advance the voluntary practice and culture of integrity, little will change by regulation alone. Indeed highly regulated economies are sometimes the most corrupt. Twenty-nine of the richest nations in the world in 1997 signed the OECD Convention against bribery overseas and passed national laws criminalising the bribery of foreign government officials. Yet six years later there had been no convictions recorded and neither had bribery of foreign government officials decreased.
Transparency International’s chairperson, Huguette Labelle, said, ‘Fighting corruption requires more than tools and programmes; it requires role models who inspire.’ Last year TI publicly honoured David Leigh, Investigations Editor at The Guardian (UK) and Roman Shleynov, Investigations Editor at Novaya Gazeta (Russia) for their research and exposure of corruption in defiance of bureaucratic obstacles and the risk of legal action against them, in order to penetrate secret webs.
In the field of politics, Clean Election Campaigns which have taken place in Taiwan, Brazil, Kenya, Sierra Leone and Solomon Islands point to what can be done. Launched by Initiatives of Change national groups, these campaigns have reduced the corruption in elections particularly the evil of vote-buying.
Now in the wake of the global financial crisis may be the time for business and political leaders, who have a passion for integrity, to take up the challenge of changing on a global scale the moral environment in which business is conducted.
Brian Lightowler is an Australian, committed to Initiatives of Change, with extensive experience in Asia, a campaigner for integrity and author of the recently published book 'Corruption: Who Cares?'.
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