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Sunday, 17 October 2010

YO'MAMA-NOMICS 101

The last few months have been very hard for Greece, with not only the sustainability of our public finances but also the moral fibre of our people coming into question. The response of many Greeks to this has been a tribal one: ‘so-and-so can’t call us corrupt/insolvent/a failed state! What’s so great about them anyway? We all know about their dirty little secrets!’ This kind of response is typical not only of the great unwashed but also of many MUPPETS among our political elite (such as this one and this one) and of course a number of economists for hire.

I call this type of analysis YO’MAMA-nomics. In a YO’MAMA-nomic argument, the issue quickly becomes not how badly Greece needs to up its game but how we can avoid losing face right now. Note that most of the accusations leveled at Greece regarding corruption or the parlous state of our public finances were things that one could have heard mentioned casually around dinner tables around the country for years and years prior to the IMF bailout. Indeed, one of our best-ever comedy series established the caricature that everyone is now so familiar with all of 21 years ago.



I have now found my favourite example of YO’MAMA-nomics and I’d like to share it with the world. It comes, as you might imagine, from a Greek academic with substantial activist credentials. The treatise in question can be found in an old paper by one Dr. Peter Bratsis, formerly of LSE and now of Salford University, that perfectly encapsulates the YO’MAMA-nomic mindset. Remember, this is not the rantings of a tro(ma)ktiko reader, but rather the abundantly referenced thoughts of a professional social scientist:   

“The point of departure for the present paper is to reverse the gaze, to not look to Greece in order to discover the source of its ‘corruption’ problem. Rather, this paper looks from Greece outwards in order to uncover why it is that people judge Greece to be corrupt. The paradoxical position of this paper is that the sources of the problem of corruption in Greece can not be found in Greece, they are to be found in the seemingly less corrupt states of the West (particularly the United States), in those concepts, rituals and myths that enable countless instances of private regarding within the public to be judged normal and acceptable and which shape our perceptions of Greek political life as being pathological. Although I do not doubt the presence of clientelism or bribery in Greece, I do question why these things (and not many others) should be considered a corruption. For example, why is it that clientelism should be a corruption but not corporatism or interest group politics? The spontaneous understandings and categorizations that we hold in our heads and which lead us to characterize some phenomenon as a corruption and others as not are what this paper seeks to uncover.”

Did you get that? Later in the same paper, he gives an excellent example:

“The tendency to give ‘envelopes’ [ed: a reference to bribes in the health sector] in order to receive preferential or attentive service is well known. From the typical western perspective, such endemic ‘bribery’ is sure to be labelled an example of corruption and this form of allocating medical care is likely to be judged undesirable. Indeed, I suspect that most Greeks would consider it a corruption and something that should be done away with. However, if we ignore the informal nature of the exchange itself and focus on the larger questions of how egalitarian the distribution of medical care is and how much money (bribe included) this care costs compared to other systems – we may very well judge the Greek medical system to be superior to many that are perceived as ‘uncorrupt’. Is an informal exchange between doctor and patient really more troubling than the power that the American Medical Association or the pharmaceutical industry have within the U.S. legislature? It could be, but the point is that an argument has to be made, the labelling of something as corrupt cannot trump real political discussion and analysis. What if we formalized ‘envelopes’ and called them co-payments? They would then likely fall under the category of not being corrupt, but would the Greek medical system be any better than it was before?”

You read correctly. The intuition that there is something deeply wrong with one’s doctor requiring an additional payment behind closed doors in order to do their job is irrelevant. Corruption is a Western gimmick, another word that the Americans use to put ‘us’ down. Bribery is the Greek way and who is to say it’s an inferior way? At any rate, what is desirable and what is not is a matter for ‘political discussion and analysis’ – i.e. for the good Doctor and his socialist circle-jerking friends to decide.

At any rate, the suggestion that people in ‘the West’ do not see most forms of corporate lobbying as corruption is naïve (whether one considers ‘the West’ in terms of its elites or in terms of the man on the street) and, one suspects, simply an assertion made to fit Bratsis’ narrative. More to the point, the contention that formalising bribery into a registered transaction would make no difference is so fantastically ignorant that it brings me to tears. The quickest rebuttal I can offer can be found here. I suspect the good Doctor would resent the suggestion that a price can be placed on public services, but I can’t win them all, can I?

A simple (economist’s) test that might help people gauge the relative toxicity of corruption in Greece vis-à-vis lobbying in the West would be the following: how easy is it to claim a piece of the action in each of the two processes? It ought to be the case that, the more rent-seeking the function of each group, the tougher the barriers to entry that incumbents will erect, and the higher the premiums that intermediaries will be able to charge. How hard is it for an ‘outsider’ to become a lobbyist in Washington or Brussels as opposed to a ‘fixer’ for corrupt civil servants or politicians in Greece? How expensive is it to hire each of these? How hard do Western politicians fight to ensure exclusive use of their lobbyist connections, and how hard do Greek politicians fight to maintain exclusive access to clientelist networks or shelter their corrupt henchmen? How much do these politicians ask in return for their services?

The first test is simple. There is an obvious entry point to the lobbying industry. You can apply and be interviewed. There is none in the ‘fixer’ industry in Greece. You have to rely on unique personal connections, usually built over many years of putting up posters for a political party, manning the phones at a pre-election call centre, carrying somebody’s briefcase or performing sexual favours (you laugh? Greek readers may remember this. That’s a former secretary-general of the Greek Ministry of Culture and his secretary). 

On very rare occasions, 'social partners' will put out an ad when they run out of lackeys who understand statistics or speak English, but even then they do so under cover of anonymity. All of the above suggests to me that ‘fixers’ are much more rent-seeking than lobbyists.

As for how expensive it is to hire a corrupt political fixer, the notorious case of Siemens gives us an appropriate benchmark – having paid a very substantial amount in bribes to Greek government officials from 1999 to 2006. According to insider accounts, the typical Siemens bribe would be 5-6% of contract value but could rise to 40% in especially corrupt countries.

Compare this to lobbying firms in the US, which earned a very modest $3.47bn in 2009, or 0.025% of US GDP. 
The champion lobbyists of the health sector paid only 0.046% of the sector’s GVA in lobbying. The notorious financial services sector paid only 0.015% of its GVA. The communication and electronics sector, arguably the most suitable comparator to Siemens, spent 0.024% of its GVA on lobbying (GVA of US industries available here). 

Fair enough, most of this business would have gone on without lobbying, as opposed to Siemens’ dirty dealings, but while the return on Siemens’ corruption spending was between 150% and 2,000% (assuming the figures quoted above refer to Siemens’ profit from the deal, not the amount quoted to the client), the return on individual firms’ lobbying spend in the States appears to be much higher, with figures of 600% to 2,000% and even a much as 22,000% mooted in some cases. Or even higher, if you’re willing to go out on a limb. In fact, management almost certainly foregoes more than the extra cost when using bribes as opposed to lobbying: first there is the risk of substantial penalties, and then there is the fact that, whereas the future returns from lobbying are partly factored into share prices, which makes money for clever managers, the future returns from bribery can’t be.

Clearly, it is much cheaper to promote one’s interests through western-style lobbying than Greek-style corruption, because bribery is a much more rent-seeking industry than lobbying. The rest of my economic test I simply don’t have the data for, for obvious reasons. But I suspect it would yield the same results. Corruption can subvert institutions in a way that no amount of lobbying can do. We know this because people are willing to pay the kind of money to corrupt officials that they wouldn’t dream of paying to lobbyists.

3 comments:

  1. Dr. Peter Bratsis,

    Sir I applaud your brilliant critique of the hypocrisy leveled at the people of Greece by journalists and academics in the West.

    Early on in my education I realized that plagiarism, cheating and petty bribery would help lead to a more egalitarian distribution of grading and a lower overall cost of education. I have long produced highly marked reports straight from a combination of Google books and Wikipedia articles. The Northern European concepts and myths of academic honesty and original scholarship come at the expense of the equally important social aspects of university life such as fornication and inebriation.

    Unfortunately in the States my university dean cannot accept the merits of the Hellenic social model and I am in the process of being expelled. I was thinking of enrolling in Salford University. Please consider the enclosed check an advance on my dissertation.

    Sincerely,
    Khawlin

    ReplyDelete
  2. @colin LOL. There are a number of things about Greece that, when taken out of context, appear obviously stupid. But we've thought of that.

    At a conference in early 2009, I asked two professors of a well-known Athens University plus the head honcho of the Greek Managers' Association whether they were at all concerned that the downturn might prompt the Greek state to intervene in the labour market or regulate in a disproportionate way.

    I was told by all three not to fixate on such ideological points and false dichotomies such as public v. private. Capitalism comes in many forms and who is to say one is better than the other?

    Well Professors, turns out our creditors have a very clear view on what type of capitalism they prefer.

    ReplyDelete
  3. Proof that I'm not making this up: http://ism.dmst.aueb.gr/fsdet/istoriko6.html See? I even gave a paper!

    ReplyDelete

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