The New Norm?

Researchers have created an “index of corruption,” using a data base of court cases to rank different states.

According to Fortune, the “researchers studied more than 25,000 convictions of public officials for violation of federal corruption laws between 1976 and 2008. And they found the cost to be an average of $1,308 per year, or 5.2% of those states’ average expenditures per year.”

Before this systematic research, we all had impressions and opinions. So it will come as no surprise that topping the list of the most corrupt states are Mississippi and Louisiana. But who would have thought that Illinois ranks as the forth most corrupt state? And what about New York, the financial capital of the world?

According to the report, “states with higher levels of corruption are likely to favor construction, salaries, borrowing, correction, and police protection at the expense of social sectors such as education, health and hospitals.” The paper explains that “construction spending, especially on big infrastructure projects, is particularly susceptible to corruption because the quality of large, nonstandard projects are difficult for the public to gauge, while the industry is dominated by a few monopolistic firms.”

To be sure, the data is based on legal proceedings and inevitably leaves out the corruption that does not come to the attention of prosecutors.

And it leaves out the private sector, including the financial industry, where the pattern has been for firms caught engaging in questionable practices to pay out immense fines without acknowledging guilt. Corruption there is massive, fueled by billions of dollars of profit.

Peering into these murky depths, another study based on a statistical analysis of trades strongly suggests that “A quarter of all public company deals may involve some kind of insider trading.” According to The New York Times: “The study, perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012.”

“The results are persuasive and disturbing,” wrote The Times, “suggesting that law enforcement is woefully behind — or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines.”

The business school professors who did the study are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading “arising out of chance” were “about three in a trillion.” (It’s easier, in other words, to hit the lottery.)

“But, the professors conclude, the Securities and Exchange Commission litigated only “about 4.7 percent of the 1,859 M.&A. deals included in our sample.”

It seems an inexorable conclusion that we are getting more corrupt. At the very least, corruption is becoming more pervasive and acceptable. As the new norm, businesses and individuals will feel that they will have to join the crowd in order to remain competitive.

As a result, elected officials will have fewer compunctions about accepting bribes or “contributions” to their favorite causes in exchange for favors. Investors will expect to know more that “outsiders” know and will be upset if challenged. Bankers will think it a reasonable goal to rig markets, and will figure out ever more ingenious ways to do that.

Or has all of this already happened? Perhaps we are just catching up with reality.