Thieves of State: Why Corruption Threatens Global Security (32 page)

In the end, as Iceland pulled out of its economic slump, public pressure waned, and parliament never put the draft to a vote. Instead, it changed the rules for passage, so as to require a more substantial majority,
thus making adoption of the draft even less likely. The new constitution languished.
¹⁰

Still, Icelanders’ instincts were right. They understood that their political leaders had to be held to account. They realized that the contraption that had ordered their government for decades needed maintenance and retooling if it was to continue to serve its purpose. And they knew that the governed had the right to roll up their sleeves and play mechanic.

Americans might learn from their Icelandic neighbors.

The politicians and bankers in Ireland and Iceland, the real estate speculators, the property developers, the investors, loan sharks, and advertising consultants, not just in Europe but in Egypt and Tunisia and other outlandishly corrupt countries, gained inspiration from a common source: the United States. Ideas on the benefits of quick privatization, the harmfulness of financial and environmental regulation, the ability of markets to self-regulate, the virtue of making a killing and flaunting it, the acceptability of corporate payoffs to politicians via outsized campaign contributions, all have their origins here.

Too many excellent books have been written about the failings of U.S. governance that prompted the global financial meltdown of 2008 for me to hazard a summary of that tale here.
¹¹
But a few quotes make the key points. In
13 Bankers
, Simon Johnson and James Kwak suggest that the kleptocratic capture of U.S. institutions may even have been more significant or insidious than it was in the type of countries this book has covered—partly because it was nearly invisible.

Between the revolving door and the competition for regulatory “business,” there was a confluence of perspectives and opinions between Wall Street and Washington that was far more powerful than emerging-market-style corruption. Wall Street’s positions became the conventional wisdom in Washington; those who disagreed with them . . . were marginalized as people who simply did not understand the bright new world of modern finance. This group-think was a major reason why the federal government deferred to the interests of Wall Street repeatedly in the 1990s and 2000s.
¹²

During that period and later, those who represented the particular interests of Wall Street monopolized the top government positions that oversaw their area of activities. This “party of men” was able to design “villainous laws that circumvent law by law,” so as to render their corruption legal.

“A lot of that stuff wasn’t necessarily illegal,” President Barak Obama opined on October 6, 2011. “It was just immoral or inappropriate or reckless.”
¹³

Others disagree.

“We are not talking about walking out of a store absentmindedly and forgetting to pay,” writes the documentary filmmaker Charles Ferguson, whose
Inside Job
won the 2010 Academy Award for best documentary,

or littering, or neglecting some bureaucratic formality. We are talking about the deliberate concealment of financial transactions that aided terrorism, nuclear weapons proliferation, and large-scale tax evasion; assisting in major financial frauds and concealment of criminal assets; and committing frauds that substantially worsened the worst financial bubbles and crises since the Depression. . . .

Tolerance of overtly criminal behavior has now become broadly, structurally embedded in the financial sector, and has played a major role in financial sector profitability and incomes since the late 1990s. . . . The absence of prosecution gradually led to a deeply embedded cultural acceptance of unethical and criminal behavior in finance. And . . . it generated a sense of personal impunity.
¹⁴

Ferguson goes on to list the prosecutable offenses most likely committed during the lead-up to the crisis, including securities and accounting fraud, bribery, perjury, RICO offenses, and personal conduct offenses.
¹⁵

“If . . . the Great Recession was in material part the product of intentional fraud,” wrote Judge Jed Rakoff, of the formidable Second District Court of New York, in early 2014, “the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.”

Federal prosecutors, Rakoff suggests, may have been focused on different priorities. But the main explanation he offers for the lack of prosecution is “the government’s own involvement in the underlying circumstances that led to the financial crisis.”
¹⁶
With their government helping create conditions favoring criminality, the people of the United States had no effective means of appeal.

And it’s not just the financial industry that has enjoyed a uniquely symbiotic relationship with U.S. government officials. Add the defense industry, the energy sector, and the health care industry, and it becomes clear that just a few “classes of men” have held inordinate sway over the functioning of Washington in the past several decades. Something systemic is wrong.
¹⁷

The American state is not entirely captured yet. But to stop its drift into the hands of our own criminalized networks—and to forestall the extremism that is born of desperation—it is time to consider revision of the venerable clockwork that has ordered our polity and provided redress for more than two centuries. It is not potential improvements to its workings that we lack. It is clear-sightedness about the gravity of the danger we court, and the courage to dare to design them.

APPENDIX

The critical distinction between these two diagrams is the direction of the money flow. In patronage systems, as in healthy modern governments (
p. 212
), resources are drawn from the population to the center, but then are largely distributed back downward within the system, in the form of patronage, or else infrastructure, public services, decent salaries for public officials, and so on. In today’s Afghanistan, the money is moving upward within the system and is largely sent outside Afghanistan altogether. (“Dubai” is a placeholder for offshore financial havens.) The revenue streams captured are listed on the top left. In return, the government provides free rein (“permission” ) to extract resources, protection from repercussion, and punishment of officials with too much integrity. The bounceback arrow on the top right represents the contractors’ profits and other overhead spending that never reaches Afghanistan at all. (“USA” is a placeholder for the international community.) Note the absence of any arrow representing taxation.

Mubarak’s Egypt had two main—and largely separate—kleptocratic systems, which were only beginning to compete late in the first decade of the twenty-first century. The oval on the left represents Gamal Mubarak’s crony-capitalist network, and the levers of state power it captured, while the lighter oval on the right represents the military-kleptocratic network. More money is distributed downward in Egypt, in the form of public services and so on, than in Afghanistan.

Note the important role of the private sector and especially the banking system in Tunisia’s kleptocratic structure. “RCD” was the ruling party, which infiltrated the entire country via its local and professional “cells.” “26/26” was a purportedly voluntary charity fund controlled by the Ben Ali clan.

In Uzbekistan, at least up through 2013, there seemed to be three primary kleptocratic networks. Gulnora Karimova’s, which focused primarily on “pay-to-play” authorizations for foreign investments, especially in the telecommunications sector, is depicted on the left. The middle oval represents the huge cotton sector. And the oval at the top right is the National Security Service (SNB), whose principal revenue stream is trafficking and customs fraud. The right-hand arrow indicates money into the system as a whole, not specifically to the SNB network’s revenue stream.

The most significant difference between Nigeria’s structure and the others depicted is the degree of downward distribution that occurs within the system. Large blocks of oil revenues are sent downward from the center to state governors, in what remains to a significant degree a patronage system. Pressure to provide redistributive patronage remains strong in lower echelons of society, and in complex ways conflicts with—and reinforces—the extractive corruption of the elites. Upward extraction by way of extorted bribes remains rampant, however, and a key feature of the system. Public funds are siphoned away from the national and state budgets by way of contract fraud perpetrated by civil servants, who gain access to their positions by way of the education system. As in colonial times, public schooling is thus seen by many as an intake valve to the corrupt system.