Image from World Bank.
Casey Research founder Doug Casey explained why laws and regulations can’t stop corruption.
Louis James: I think the point of government-sponsored irresponsibility is particularly important, and often overlooked.
I’ve long thought that it was FDR’s New Deal that really pushed America over the edge, not so much because of the economic cost, but because it made it very clear to people that they did not need to be responsible for themselves. Big Brother now takes care of them when they get old, or should they fall ill, or lose a job; no need to plan ahead or save… It’s no wonder our culture has transformed from one of individualism and self-reliance to one of groupthink and reliance on the state, populated by entitlement-minded couch potatoes.
But what do you say to people who point to places like Sweden, a highly government-regulated society that seems to work? Such a nice, clean place, with lots of government.
Doug: It’s a good point. Sweden is at the low end of the corruption scale, but it’s not because they have laws against corruption; everybody has those. It’s because of the culture; the peer pressure, moral opprobrium, and social approbation I mentioned earlier. Sweden is a small country where word of misdeeds spreads quickly. It has a highly homogeneous culture based on deep-rooted traditions, and there’s a high degree of consensus about how things should be. That makes Swedes cooperate with the large body of law that reflects that consensus, much more than would happen almost anywhere else, or is even possible anywhere else.
Out of a couple hundred countries in the world outside of Scandinavia, I can think of two other places that have a similarly powerful culture that makes a “big-government” approach to managing society seem to work: New Zealand and Uruguay. These places are small, relatively isolated, homogeneous, and with powerful cultural traditions that have, unfortunately, been codified into law. These countries, coincidentally, also have the three oldest socialist governments in the world, all dating back to the turn of the 20th century. Trying to bribe officials in these places, even Uruguay, is pretty much out of the question.
But these places are anomalous. Because of their rare characteristics, they can’t be held up as role models for other places. Almost everywhere else, where there’s more diversity of ethnicity, culture, much larger population, and so forth, Scandinavian socialism wouldn’t even have the appearance of working. And, I’d argue, it won’t work much longer in Scandinavia either; Sweden and these other places will ultimately collapse under the weight of their mass of laws and socialist intervention in their economies.
L: It’s interesting: These countries where a high degree of legal regulation seems to work are also highly homogeneous and have very powerful cultures; makes you wonder if the laws are really doing anything at all, or if they are just window dressing on more powerful social systems.
It makes me think of the many experimental societies tried out in the 19th century in the U.S., when there were still open frontiers to which one could escape with like-minded people and try to do things differently. Most were communes. And most were disasters. Some worked, and a few even still exist in vestigial form today, like the Amana colonies. Those that worked best were religious communes. Just goes to show that if you can go beyond homogeneity and get unanimity, you can create a society that seems to defy all experience to the contrary. When everyone buys in, amazing things can happen…at least for a while.
Doug: Almost anything can work for a while. Some monasteries approach an almost perfect state of communism. It’s possible because everyone there chooses to be there and live according to those rules. Unanimous consent. But that’s not possible in an entire country, and even the super-majority buy-in of highly homogeneous cultures like New Zealand and Scandinavia is not possible in 98% of the rest of the countries in the world. If you look at the rest of the world, the more socialistic and regulated the country, the more corrupt it tends to be. And the larger the country, the more disparate the population and divergent the mores, the less effective the government’s regulation.
L: That would cover China, Russia…Brazil, Mexico.
Doug: And Argentina, where I am now. The customs inspectors down here, for example, all expect to retire as multimillionaires. That’s because they have so many laws on what you can export or import…how, when, and why, it’s almost impossible to comply with, or even know, all the laws. It’s much cheaper and easier to get the inspector to look the other way with a well-placed envelope.
There’s good news and bad news in this.
In itself, corruption is a bad thing; it shouldn’t have to be necessary. As I touched on earlier, insofar as it’s necessary, it’s also a good thing. If we can’t eliminate the laws that give rise to corruption, it’s a good thing that it’s possible to circumvent these laws. The worst of all situations is to have a mass of strict, stultifying, economically suicidal laws…and also have strict, effective enforcement of those laws. If a culture doesn’t allow people to work around stupid laws, that culture’s doom is further sealed with every stupid law passed, which is pretty much all of them.
L: Strict laws, strictly enforced, is a recipe for paralysis. I’ve often said that while Mexico is much less free than the U.S. on paper, it is much more free in fact. People in the U.S. fear their government, especially the IRS. In Mexico, people build what they want, eat what they want, sell what they want; tax evasion is the national pastime.
Doug: Right. This is one of the reasons why, though I’ve lived in New Zealand quite a bit over the last 10 years, I’m not really interested in hanging my spurs there any longer. Although it’s gotten vastly better since the reforms of the mid-’80s, it’s still a dull, insular place with a lot of ingrained socialist attitudes, but not much corruption to help you obviate them. And I wouldn’t want to live in the Scandinavian countries either.
They have all these incredibly stupid laws that sheep-like residents obey, enabling great tyranny, but it goes unrecognized because it has such popular support. It suits me much better to live in a place like Argentina, where there’s an equal number of stupid laws, but nobody pays any attention to them. And when there is a problem, it can most often be handled, informally.
L: I won’t ask you on the record if you’ve ever actually done that. Interesting comment about Scandinavia: I was just reading Google News yesterday, and one of the top video news stories was a clip about some poor woman in Sweden who’s had her twin daughters taken away by the child protection busybodies. The children were taken, without notice, from their school, and the woman didn’t even know it was an official abduction until she got a letter a week later. The real horror of it is that there isn’t actually any evidence of wrongdoing on the woman’s part. The law is preemptive and protective; the bureaucrats are authorized to remove children from their families if there might be danger to them. No due process, and forget about “innocent until proven guilty.” The breathtaking assumption is that it’s better to rip children out of their families than to find out if there’s a real problem first. This could only hold sway in a place where the culture is one of great confidence in the wisdom and benevolence of the state.
Doug: Scandinavia is on a slippery slope. I wouldn’t be surprised if a very nasty “black swan” the size of a pterodactyl landed there. The U.S. isn’t far behind. Big Brother is coming out of the cellar, where he’s been chained up, in the U.S. And I’m afraid he’s so strong and nasty that few people will be able to pay him enough to leave them alone.
There have long been local pockets of notorious corruption in the U.S., of course; building inspectors, people like that. On a national level, the DEA became very corrupt early on, a natural consequence of “regulating” an industry that runs on billions in cash.
Other federal agencies are more subtly corrupt. Generals are paid off by being hired by defense contractors after they’re mustered out. FDA types are hired by the drug companies and large agribusinesses, and executives from those companies become high-level bureaucrats in the FDA. Politicians rarely take envelopes of cash anymore. They wait until they are out of office to collect millions in directors’ fees, book deals, speaking tours, stock deals, and the like. Bill Clinton is a perfect example of someone who went from near penniless to a net worth of $50 million-plus overnight. The Clintons have made a huge leap from the days when Hillary had to take a $100,000 payoff in the guise of her totally transparent cattle-trading scheme.
The problem now, though, is that there are giant police bureaucracies like the TSA and the FBI that have no direct way of getting paid off. So they enforce the idiotic laws like robots. Other bureaucracies like NSA do their damage remotely, too far from the victim to be negotiated with. This is a real source of danger.
Doug Casey is a multi-millionaire speculator and the founder of Casey Research. He literally wrote the book on profiting during economic turmoil. Doug’s book, Crisis Investing, spent multiple weeks as number one on the New York Times bestsellers list and was the best-selling financial book of 1980. Doug has been a regular guest on national television, including spots on CNN, Merv Griffin, Charlie Rose, Regis Philbin, Phil Donahue, and NBC News.
Doug and his team of analysts write The Casey Report, one of the world’s most respected investment advisories. Each month, The Casey Report provides specific, actionable ideas to help subscribers make money in stocks, bonds, currencies, real estate, and commodities. You can try out The Casey Report risk-free by clicking here.
