CAPITALISM AND CORRUPTION

On the Political Economy of Fraud

By Michael R. Kratke

[This article published in: Ak-analyse & kritik, 2/01/2007 is translated from the German on the World Wide Web,  http://www.linksnet.de/drucksicht.php?id=2834.]


“Enrichissez vous” – Enrich yourself! The Juste Milieu of the upper middle class, the money aristocracy, once came to power in France with this slogan, an unbeatable program of ingenious brevity… Whoever enriches himself however shamelessly does not only benefit himself but does an inestimable service to the Fatherland. Managers and owners of capital liked to hear this message.

Morality became shaky because whatever brought private profit, corruption and buying and selling what was really not for sale were now deemed sensible and meritorious. Deceit and fraud were ordinary practices in the competition of enrichment-fanatics. Tradition, reputation and businessmen’s honor lost all respect. One can read in Balzac and Flaubert how capitalism undermines civil society.

Corruption, bribes, illicit cash, organized swindle and accounting forgery are current business practices in German big business, not only abroad in developing and threshold countries. Corporations use frauds and manipulations. The most prominent businesses of the German export industry, world corporations like VW, BMW and Siemens are suspected of corruption and their managers put on trial.

Peter Hartz, originator of the “Hartz reforms” that failed grandiosely, has stepped down on account of suspicion of corruption. He is only one of many in the corruption quagmire. The scandals mount up and are repeated – in Germany and other capitalist countries. They increase in all branches and all countries. There can be no talk of isolated cases and “black sheep.” Big European businesses including many German corporations were and are keen on bribing foreign government officials and politicians.

ENRICH YOURSELVES – LIKE CRAZY!

Medium-size firms diligently join in the business with corruption like world corporations Henkel, Daimler-Chrysler, Degussa, Siemens and Schering. Two simple facts must be confronted. Firstly, a whole branch of professional mediators lived and live from the constant corruption practiced everywhere. These mediators act as representatives of German firms abroad and pocket juicy commissions as corruption intermediaries. Secondly, up till recently the bribes paid by German firms abroad were deducted from the corporation tax as operating expenses. This embarrassing state of affairs was ended in Germany in 2002 (on pressure of the UN) but bribes are still deducted from taxes in several European countries. Thus corruption is seen as normal legal business practice – as long as it happens abroad.

The current line of defense in the latest scandals in Germany and elsewhere is one of heart-stopping insolence. Every chairman of the board of a big concern must be put in prison, declared the highly paid lawyers specializing in economic criminal law. These ladies and men blab out a truth that they keep under their hat. Corruption and fraud are common. The protagonists of concrete capitalism act criminally everywhere in the world today.

From the start, capitalism was a very moral arrangement and is still today for its believers. The neoliberal dogma doesn’t need any religion any more since it makes capitalism itself into a religion and changes the imperatives of capitalist economy into universal moral norms. Walter Benjamin saw coming the elevation of capitalism into a universal cult religion in which market exchange plays the role of the cult and the homo oeconomicus transformed into nature plays the role of God. (1) Whoever practices the cult of the market day after day and submits completely to competition acts morally good and right.

Historical capitalism has lived from religious and moral resources that present-day capitalism seems to destroy or has already destroyed. Adam Smith regarded the “invisible hand” of the market as effective only as long as a social morality based on empathy and sympathy ensured that private persons regarded one another and in no way sought to enrich themselves unscrupulously and boundlessly at the expense of their fellow-citizens. However this middle class social morality is no longer what it once was.

The loud cry for an “economic ethic” that suits capitalism, as the everyday religion is not by chance. The elites of middle class society feel the deficiency. Pure capitalism is not an adequate foundation for a viable community. The cult of abstract riches cannot replace morality. When the resources are used up, they cannot be replaced. Capitalism faces this problem with morality and with nature.

Everyday corruption, the systematic fraud, is part of present-day capitalism like internationally organized community and “crony capitalism,” the “capitalism of dirty hands.” The friends of “pure theory” would sneer at this but criticism of political economy cannot renounce on criticism of fraud and the “illicit” economy.

THE MORAL ECONOMY OF MODERN CAPITALISM

There were and are structural causes for fraud and corruption as well as for their heyday in recent times. Capital exploitation is a strenuous and risky business. It costs time and effort and can bring losses. Bankruptcy threatens. Therefore capitalists of all kinds since time immemorial were susceptible to the “craving to enrich themselves through the theft of foreign wealth, not through production.” (MEW 7,14). The laborious production process that is full of risks appears to capitalists only as “a necessary evil to the end of moneymaking.” As a result, “all nations with capitalist modes of production…are periodically seized by fraud when moneymaking is carried out without the incursion of the production process.” (MEDA 11).

We witness thriving fraud today in the boom years of the “new economy.” Since the productive part of the capitalist world economy has long been in a situation of structural over-accumulation, fraud seizes industrial production now and then and becomes permanent. Organized corruption and fraud are attempts at avoiding the traps of the market and controlling market events – a rational conduct in an irrational system of increasingly expensive general competition.

In structural over-accumulation, surplus capital presses on the finance markets. Mergers and takeovers become the most important forms of “real” (direct) investment. Both strengthen the tendency to fraud and manipulation. From the start, capitalism is an expropriation economy. Dispossession through fraud, swindle and skillful financial maneuvers instead of open use of force is trump today.

In many countries, a form of capitalism prevails in which corruption, fraud and criminal intrigues have become routine, firmly institutionalized and standardized business practices without which nothing happens. Russia and the successor states of the Soviet Union, China, Brazil, Mexico and Indonesia are usually called homelands of “crony capitalism.” However the US or at least some sectors of the US economy like the energy sector, the military-industrial complex and the entertainment industry also belong there. In many European countries, we know a milder variant of this type where the “old boys networks” pull all the strings. In every case, organized market power and access to public power and public wealth are central. Corruption is a tried and tested means of keeping the regulators and controllers of markets on all planes under check since unregulated and unorganized markets only exist at the margins of the real world of capitalism. Buying officials, unionists and NGOs is faster and costs less than fighting them.

MONEYMAKING WITHOUT THE DANGERS OF PRODUCTION

Corruption becomes a customary system thanks to an organized “elite change,” a constant and easy exchange of positions between “private” and “public,” “politics” and “economy” as in the Russian and US variants of “crony capitalism.” This has consequences: organized election fraud, buying politicians and parties, influencing the media, buying newspapers and television stations, systematic intimidation and corruption of journalists and systematic disinformation with all means and on all channels.

Neoclassical economists regard corruption and fraud as harmful when they lead to “misallocations” of capital. Corruption and fraud are dangerous – not only because of the loss and the rapidly growing number of victims of the “new” expropriation economy. The popular myth that the wealth of the upper classes, managers and entrepreneurs was gained honestly and lawfully as deserved wages for special achievements and efforts is undermined in the long run when corruption and fraud take place routinely everywhere and the criminal economy spreads. Even the holy of holies, middle class private property, appears in a different light when everyone knows or suspects that the constantly swelling private assets are not genuine. Property is theft. This venerable formula of middle class radicalism can come back to favor again. In the lands of “crony capitalism,” it is obvious for everybody that “politics” and “economy” are by no means separated worlds. Thus the belief in the state as a protective power of the poor and exploited is weakened.

Can corruption and fraud be removed? Can capitalism still be saved, not before the indignation of the exploited and oppressed of all countries but before the greed and folly of its protagonists? Yes, if something like an “ideal capitalist” still exists who would defend this historical economic order against the shortsighted stupidity of its profiteers. However that has been thoroughly denied in the course of the neoliberal revolution. The insight seems temporarily confirmed: Capitalism belongs to its “elites.”