When morality comes up against profit, it is seldom that profit loses," said African-American Congresswoman Shirley Chisholm, a strident critic of corporate greed. Scandals, scams, Ponzi schemes and the financial crisis raise concerns about dishonesty, corruption, fraud and greed and whether they are evil characteristics of capitalism.
Adam Smith, the doyen of capitalism — which he called "natural liberty" — might have agreed with Chisholm. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner," he wrote.
Real and suspected rip-offs, frauds and cons are everywhere. I am, for instance, laying fraud and theft charges against one of SA’s biggest companies and will expose one of its scams in a future column.
Is compromised integrity a characteristic of business or of people in general? Is it more common in capitalism (business) or socialism (government)? Far-reaching and costly policies are implemented by the government to curb unethical business practices. Is this the pot calling the kettle black?
Media coverage suggests that, in all countries, corruption is more common in government than in business. That is why terms such as "corruption" and "bribery" usually imply government as the common denominator.
SA is ranked in the Transparency International Corruption Perceptions index as halfway down and falling. President Jacob Zuma ordered anticorruption investigations in various departments, including public works, arts and culture, education (the Eastern Cape), social development, human settlements and even our putative protectors, the police. Anticorruption philanthropist Bob Glenister estimates that we are half as prosperous as we would be without corruption. Direct losses, he points out, are only part of the picture. We must add the unseen cost of virtuous people "walking away".
Which side is more blameworthy when businesses bribe officials and politicians? Does it matter? When discretionary power is granted, it tempts people to solicit and others to offer bribes. A striking feature of the corruption index and the Economic Freedom index is that the same countries tend to be at the top and bottom of both. That those countries with smaller governments have less corruption suggests that governments tend to be more corrupt than businesses. But the correlation could be explained by other factors, such as biased definitions or entrepreneurs being better at concealing corruption.
Entrepreneur Nic Frangos argues compellingly, in an unpublished work in progress, that "corruption is agnostic", that it is an "ever-present threat" and that it "magnifies when certain circumstances are present". The corruption index defines corruption as "the abuse of entrusted power for private gain". It distinguishes between "grand" high-level corruption, "petty" corruption involving citizens, and "political" manipulation for power, status and wealth.
Combine the insights of Adam Smith, the Corruption Perceptions index and Frangos, and the solution becomes obvious. Smith pointed out 300 years ago that people promote their own ends rather than anyone else’s. It is impossible for them to do otherwise. They promote the ends of others only if they coincide with their own, which happens in the absence of the "circumstances" to which Frangos refers. Ethical leadership — a moral compass — helps, but because people are fallible, what matters most are proven checks and balances that fail when not applied or because they have been eroded, which is more common in government.
These checks and balances include the rule of law, separation of powers and functions, objective criteria instead of discretionary power, clearly defined and quantified goals, transparency, accountability, efficacy monitoring and the like.
A distinctive problem in government is that those who make and enforce public policies pay no price for being wrong. Plato, like Smith, cautioned us to beware of benevolence: "This, and no other, is the root from which a tyrant springs: when he first appears he is a protector."
This article was first published in Business Day on 27 February 2013
• Louw is executive director of the Free Market Foundation.