Call it what it is: Corruption
Forensic economists can now measure corruption
More proof that government operates to concentrate benefits on a few and spread costs around on the many. This 2008 article was posted Nov 21 on AlterNet.
By Joshua Holland, staff writerWhen the Big Three's best Rep. lost a key committee spot, their share prices dropped. That's not just business as usual, it's a sign of corruption. The stock prices of politically connected companies or industries are impacted by the changing fortunes of politicians with whom they're cozy.
Over the course of loser Representative John Dingell (MI) career (in 1955, Dingell took the seat his father had held until his death), three of his top four contributors were GM, Ford, and Daimler-Chrysler. His wife, Debbie, was an industry lobbyist until their marriage in the early 1980s and continues to work for GM today. The couple owned more than a million bucks worth of Big Auto stocks and options as of 2006.
Dingell lost control of the House Energy and Commerce Committee to Henry Waxman (D-CA). They have clashed on a number of issues over the years like beefing up regulation of vehicle emission standards. Waxman has fought for stronger environmental standards and oversight of the "security contractors" that have run amok in Iraq.
Corruption is difficult to measure. Organizations like Transparency International rank countries according to people's -- especially business-people's -- perceptions of government corruption. But perceptions can be a tricky thing -- people doing business in a country can have all sorts of motivations for under- or over-reporting the degree of corruption they encounter. And critics have claimed that the rankings are highly politicized, with business-friendly countries getting a pass even if their customs inspectors and highway cops shake down everyone passing before them.
But, as Raymond Fishman and Edward Miguel, authors of Corruption, Violence, and the Poverty of Nations, wrote recently in Foreign Policy, forensic economists are trying another way to measure government corruption: watching how the ups and downs in the careers of government officials impact the stock prices of firms to which they're connected in one way or another.
What's the real value of hefty campaign contributions or cushy jobs for former politicians? The scholars wrote: "If connections buy tax breaks, valuable licenses, and advantages in bidding for government contracts, then strengthening political ties should boost profits. These higher profits translate directly into higher stock prices, and conversely, removing those ties should send profits -- and stock prices -- tumbling."
Purdue University economist Mara Faccio studied those ties in every country that had a functional stock market. Faccio found strong connections between business and government across the board, but she also noted that the value of those connections in terms of stock prices varied greatly.
In the UK, for example, stock prices don't move at all when a firm's political ties wax or wane. When Rolls-Royce Chairman John Moore was appointed to the House of Lords, it didn't touch Rolls-Royce's stock price. But in Italy the picture's quite different. When Fiat chief Giovanni Agnelli was appointed to the Italian Senate, Fiat's stock soared by 3.4 percent, adding millions of dollars in value to the company in a single day.
The drop in US auto stocks says that we're a lot closer to Italy's infamous level of public corruption than we are to that of our British cousins. It's also the case that Congress hasn't yet given the Big Three the $25 billion in "bridge loans" they'd begged for, which no doubt hurt their share prices as well. But, as Fishman and Miguel noted, the pattern is well-established:
Numerous studies have found that the economic fortunes of well-connected U.S. companies mirror the political fortunes of their connections. When U.S. Sen. Jim Jeffords defected from the Republican Party and handed Senate Democrats a slim majority in 2001, Democratically connected companies benefited in the immediate aftermath. Similarly, the stock value of companies with former Republican lawmakers on their boards increased an average of 4 percent when the Supreme Court handed the 2000 election to George W. Bush, while companies with former Democratic politicians on their boards declined.
JJS: Well duh. It’s to spend your money that people try to be the government. Yet discretionary spending by politicians could be reduced by ratcheting up discretionary spending by citizens. That is, we could pay the citizenry a dividend from surplus public revenue.
To create such a surplus, we’d not only have to curb corporate welfare and militarism, we’d also have to shift the tax base. That is, levy taxes and fees to redirect all our spending on land and resources into the treasury while ending taxes on labor and capital. Letting labor and capital become more productive pumps up the value of land and resources. So the public would recover more revenue even as the economy grows more efficient. By sharing that bounty, we could end political corruption.
Jeffery J. Smith runs the Forum on Geonomics.
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