Posts Tagged ‘corruption’
“Two and two makes five”*…
Boots are stamping on faces, but the trains are not running on time. The estimable Noah Smith brings the receipts…
The selling point of authoritarian rule has always been that dictators, oligarchs, and strongmen are competent and purposeful — that democracies dither while authoritarians act. When people tell you that “Mussolini made the trains run on time”, this is what they mean.
I’m not prepared to render a verdict on whether and when democracies or autocracies are more effective at governance (there is a very long academic literature on this, but few solid conclusions). I would certainly never claim that only democracies can govern effectively — Park Chung-hee, Deng Xiaoping, and Lee Kuan Yew certainly put that notion to rest. But I want to push back on the notion of authoritarian effectiveness in two concrete ways…
The authoritarians of the world are making a pretty good case for liberal democracy simply by being incredibly incompetent: “Authoritarians are not governing effectively,” from @Noahpinion.
* George Orwell, 1984
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As we contemplate competency, we might recall that it was on this date in 1970 that Richard Nixon’s Vice President, Spiro T. Agnew, gave in to the Nattering Nabobs of Negativism (and to charges of extortion, tax fraud, bribery and conspiracy) and resigned.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it”*…
It seems that money can trump sin, at least in the professional services arena in Italy…
We investigate if organized crime groups (OCG) are able to hire good accountants. We use data about criminal records to identify Italian accountants with connections to OCG. While the work accountants do for the OCG ecosystem is not observable, we can determine if OCG hire “good” accountants by assessing the overall quality of their work as external monitors of legal businesses. We find that firms serviced by accountants with OCG connections have higher quality audited financial statements compared to a control group of firms serviced by accountants with no OCG connections. The findings provide evidence OCG are able to hire good accountants, despite the downside risk of OCG associations. Results are robust to controls for self-selection, for other determinants of auditor expertise, direct connections of directors and shareholders to OCG, and corporate governance mechanisms that might influence auditor choice and audit quality.
“Does the Mafia Hire Good Accountants?“
Commenting on the report, Cory Doctorow (@doctorow) notes…
The authors suggest that when the mafia chooses an accountant, they have to choose between two mutually exclusive strategies:
I. Hire a stupid accountant that you can trick into signing off on dirty books; or
II. Hire a smart accountant who can turn your dishonest business into one that is honest on paper, even if that erodes your profits.
The authors make a compelling case that the mafia choose the second strategy. What’s more, they show that even accountants with known mob connections have no trouble finding non-criminal clients (“it is disheartening the Mafia can hire seemingly good accountants who appear to suffer no adverse reputation effects from their Mafia ties”).
Perhaps that’s because the mafia is so crucial to both the Italian and global business world: the authors quote a 2017 ISTAT study that says that 12% of Italian GDP is mafia activity and a 2011 UNODC study that attributes 3.6% of global GDP to Italian mafia groups.
But it would be a mistake to think that just because the mafia has clean books that it runs good businesses. Businesses that are run or colonized by mobsters aren’t good firms – they pay poorly, produce low-quality goods and services, and engage in a variety of crimes and regulatory violations.
This is a fascinating and clever analysis, though it’s short on recommendations. The most concrete policy proposal the authors advance is for police to maintain a public registry of accountants under investigation for mafia ties, and to bar those accountants from practicing until they are cleared…
* Upton Sinclair
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As we deconstruct the devil’s due, we might note that today is Groundhog Day, rooted in Pennsylvania Dutch lore that if a groundhog emerging from its burrow on this day sees its shadow due to clear weather, it will retreat to its den and winter will persist for six more weeks; if it does not see its shadow because of cloudiness, spring will arrive early.
While the tradition remains popular in the 21st century, studies have found no consistent correlation between a groundhog seeing its shadow and the subsequent arrival time of spring-like weather.
“Money laundering is giving oxygen to organized crime”*…
The United States Treasury Department is putting art galleries and museums on notice over the high risks of financial crime in their trade, warning that various aspects of the art industry makes “it attractive to those engaged in illicit financial activity, including sanctions evasion.”
The advisory, published on Oct. 30, calls out the art industry’s heavy use of shell companies. Citing the “high degree of confidentiality and anonymity” in the art trade, the advisory cautions that art dealers may find themselves unwittingly working with criminals seeking to move illicit funds. It also notes that artwork’s often “subjective value” creates an additional attractive value to financial criminals — who are known to manipulate invoice prices to covertly shift money around the globe.
“The advisory serves as another reminder that the $28.3 billion American art market is the largest unregulated industry in the United States,” [said] Tess Davis, executive director of the Antiquities Coalition, which advocates the return of stolen relics to their home countries…
The U.S. Treasury urges new safeguards against financial crime, money laundering, and sanctions evasion: “Secretive high-end art world can be vehicle for dirty money.” From the International Consortium of Investigative Journalists, part of their on-going investigation of international money laundering, FinCEN Files.
Turns out that a U.S. Senate investigation led to the same conclusions: “The art world has a money laundering problem.” So did a House investigation: “Art and Money Laundering.”
And for the curious, here is a look at how it’s done: “Laundering money through art, if you’re into that sort of thing.”
All-too-appropriately, Hasbro has released, in collaboration with the Metropolitan Museum of Art, a fine-arts edition of its flagship game: “Monopoly: The Met Edition.”
* then-President of Mexico, Enrique Peña Nieto, June 2012. It’s alleged that he spoke with authority based on personal experience: in 2020, his successor as President, Andrés Manuel López Obrador, asked Mexicans if they would like to see former Mexican presidents face trial against allegations of corruption (a move deemed constitutional by the Mexican court and laws); the people will vote to decide in a referendum in 2021. According by a survey by newspaper El Universal, 78% of Mexicans polled do indeed want the former presidents of Mexico to face trial– and Enrique Peña Nieto is the one they most want to be incarcerated.
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As we note that cleanliness isn’t always next to godliness, we might spare a thought for Jean-Baptiste Say; he died on this date in 1832. An economist and businessman, Say argued in favor of competition, free trade, and the lifting of restraints on business, and was among the was among the first economists to study entrepreneurship– and to valorize entrepreneurs as organizers and leaders of the economy.
He is probably best remembered for the assertion that supply creates its own demand– “Say’s Law“– a label first used by John Maynard Keynes, who went on to argue that it is wrong… the debate (e.g., as between Steven Kates and Paul Krugman) continues to this day.
“There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: ‘I seen my opportunities and I took ’em.'”*…
McKinsey has a lot of high-flying rhetoric about strategy, sustainability, and social justice. The company ostensibly pursues intellectual and business excellence, while also using its people skills to help Syrian refugees. That’s nice.
But let’s start with what McKinsey is really about, which is getting organizational leaders to pay a large amount of money for fairly pedestrian advice. In MacDougall’s article on McKinsey’s work on immigration, most of the conversation has been about McKinsey’s push to engage in cruel behavior towards detainees. But let’s not lose sight of the incentive driving the relationship, which was McKinsey’s political ability to extract cash from the government. Here’s the nub of that part of the story.
The consulting firm’s sway at ICE grew to the point that McKinsey’s staff even ghostwrote a government contracting document that defined the consulting team’s own responsibilities and justified the firm’s retention, a contract extension worth $2.2 million. “Can they do that?” an ICE official wrote to a contracting officer in May 2017.
The response reflects how deeply ICE had come to rely on McKinsey’s assistance. “Well it obviously isn’t ideal to have a contractor tell us what we want to ask them to do,” the contracting officer replied. But unless someone from the government could articulate the agency’s objectives, the officer added, “what other option is there?” ICE extended the contract.
Such practices used to be called “honest graft.” And let’s be clear, McKinsey’s services are very expensive. Back in August, I noted that McKinsey’s competitor, the Boston Consulting Group, charges the government $33,063.75/week for the time of a recent college grad to work as a contractor. Not to be outdone, McKinsey’s pricing is much much higher, with one McKinsey “business analyst” – someone with an undergraduate degree and no experience – lent to the government priced out at $56,707/week, or $2,948,764/year.
How does McKinsey do it? There are two answers…
The estimable Matt Stoller (@matthewstoller) explains: “Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor.”
See also: “How McKinsey Makes Its Own Rules.”
[Image above: source]
* “Everybody is talkin’ these days about Tammany men growin’ rich on graft, but nobody thinks of drawin’ the distinction between honest graft and dishonest graft. There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: “I seen my opportunities and I took ’em.” — George Washington Plunkitt, New York State Senator and “Sage of Tammany Hall”
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As we reconsider consultants, we might recall that it was on this date in 2010 that Tunisian street vendor Mohamed Bouazizi, despondent after the confiscation of his wares and the harassment and humiliation inflicted on him by a municipal official and her aides, set himself afire in his home town of Sidi Bouzid… a central catalyst for the Tunisian Revolution— the Jasmine Revolution– and the wider Arab Spring uprisings against autocratic regimes throughout the region.
“The exchangeable value of all commodities rises as the difficulties of their production increase”*…
A vanilla flower is pollinated by hand
Though Madagascar now produces 80% of the world’s vanilla, the vine is native to Mexico. The Maya were the first to cultivate it in the jungles of the Yucatan peninsular. They flavoured their chocolate drink with the spice. When the Spanish conquistadores arrived early in the 16th century, they took both cacao and vanilla back to Europe. By the end of the 18th century, Mexico was exporting a million vanilla beans a year to Europe.
Vanilla was considered a luxury. Its delicate flavour is best expressed in the presence of fat, which is why the creams and custards of the elite’s pastry chefs became its natural milieu. One of its earliest appearances was in a recipe for “vanilla ice” in a cookery book published in Naples in the 1690s. Thomas Jefferson fell in love with French food when he served as the American ambassador to France in the 1780s. He transcribed many recipes including one for “ice cream”, using egg-yolk custard simmered with “a stick of vanilla”. When he became president in 1801, Jefferson served these dishes in the White House – his import eventually became a classic American desert.
But for well over a century real vanilla remained out of the reach of most Americans. Spain controlled the Mexican trade and though a number of people tried to grow vanilla elsewhere, the blooms failed to produce beans because they lacked natural pollinators. It took a young slave boy called Edmond Albius, working on a plantation in the French colony of Réunion, to discover a method for hand-pollinating vanilla flowers in the 1840s. His technique quickly spread to nearby Madagascar, where French administrators encouraged its cultivation…
How did hunger for the humble vanilla pod lead to greed, crime and riches? “Vanilla Fever.”
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As we rethink our Starbucks orders, we might recall that it was on this date in 1908 that John Albert Krohn dressed up in colonial garb and set out to win $1,000 by walking the U.S. border within 400 days – pushing a wheelbarrow. “Colonial Jack,” as he called himself, had wagered ten of his neighbors in Newburyport, Mass., that he could circumnavigate the country in that time. agreeing that, if he lost, he would give them 2,000 copies of the book he planned to write about his adventure. In the end, he made the trek in 357 days, having rested on Sundays. It was the second of three such round-the-nation walks Krohn undertook.
He had to meet several conditions: He had to push the wheelbarrow to show he couldn’t get a ride. And he had to get cancellation stamps from 635 post offices along the way.
By the end of his journey, Krohn walked 9,024 miles and visited 1,209 cities. He went through 11 pairs of shoes, 112 pairs of socks and five wheels and three tires on the wheelbarrow. The trip cost an average of $3.25 per day. [source]
Colonial Jack
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