With today's news on a Deutsche Bank money-laundering investigation piling on top of recent news about Danske et al, it's worth remarking how huge a theme corruption is today, compared to say 15 years ago. Why is that? /1 ft.com/content/fff8c5…
My own thinking about corruption was transformed a few years ago when I started reading the work of Nobel-laureate economist Douglass North. en.wikipedia.org/wiki/Douglass_… /2
In his last book "Violence and Social Orders", North, Barry Weingast and John Joseph Wallis take up the question of why corruption is so persistent in some countries from a different angle: a theory of human political history. /3 cambridge.org/core/books/vio…
They divide political history into three "orders": the forager order (applying to hunter-gatherers); the "limited-access order"; and "open-access order". The limited-access order covers almost all the states in history, so they also call it the "natural state". /4
The first point is that the aim of the state is to handle the problem of violence--to keep people from killing each other all the time over resources. The Natural State has an elegant solution to this problem... /5
In the Natural State, a hegemon divides the economy into rent streams, and hands out those rent streams to potential warlords ("violence specialists") to keep them happy. Examples: Feudal Britain, Pharaonic Egypt, the USSR...almost all the states in recorded history. /6
This is a "limited-access order": what economic activity you can pursue is based on what group status in society you occupy--House, nomenklatura, religion, etc. Almost all states are like this, with one rare exception: the "open-access orders". That's us. /7
The open-access orders are basically the liberal-democratic capitalist states that evolved, first in Europe, from the 18th century. In our societies--MORE OR LESS--everyone can access all parts of the economy. Everyone has rights, enforced impartially. /8
The hegemon enforces equality and the rule of law because it generates HUGE rewards. It opens up capital. It opens up talent. There are only a few open-access orders, they're weird exceptions, but they are the richest, most powerful states in the world. /9
So here's the thing: what is "corruption"? Let's look at countries like Russia or KSA, the sources of so much money-laundering. These are limited-access orders, "mafia states", where rents are distributed in exchange for political loyalty. /10
North would call these Natural States. They work the way most states have always worked. Corruption is both the aim and the method of governance. Nothing strange there. Just old-fashioned feudalism. But... /11
...in the modern world, the biggest rents don't come from apportioning agricultural land. They come from energy resources or--most important--banking and finance. The ability to issue bank charters, access SWIFT etc. /12
This financial architecture is the creation of the open-access order countries: us. But the limited-access orders are now parasitic on it. They use our economies, our banks, our courts, as the infrastructure to distribute the rents that sustain their rule. /13
So in North's frame, this is what we're seeing here. Our democratic, liberal societies are being infiltrated by more primitive limited-access orders that use corruption as their method of rule. This is the EU v Russia, the US v KSA, etc. /14
The most dangerous part of this story is that the corruption is hollowing out our societies' open-access infrastructure. We are becoming prey to oligarchs of our own. There's no guarantee that we will win. But this is what the fight is about. /end
