Thursday, April 17, 2014

Political Corruption, Skin In the Game, and Contestability

-- Posted by Neil H. Buchanan

Earlier this week, in a post titled "Government Size and (Non)Corruption," Professor Dorf discussed a recent report that two doctors in Florida: (1) receive the highest Medicare reimbursements in the country, (2) are major contributors to the Democratic Party, and (3) according to the report in the Times, "have turned to the political system in recent years to defend themselves against suspicions that they may have submitted fraudulent or excessive charges to the federal government."

As Professor Dorf suggested, the appearance of a connection between points #2 and #3 would, under a different set of campaign finance laws, actually pose a problem for the doctors.  Looks pretty sleazy, right?  But, in our system, there is simply no need for the doctors to do anything that would rise to a quid pro quo -- which, as Linda Greenhouse recently discussed, is now the only thing that the Supreme Court recognizes as corruption, even in the case of direct political contributions.  (She points out that McCutcheon was another Roberts Special: radically rewriting the law, while pretending that they were merely limiting the reach of precedent.)  Under current law, the Florida doctors can buy as much "access" as they want, gaining sympathetic attention from politicians to deal with their problems.  No bribery is necessary.

Professor Dorf also suggested that a conservative ideologue might try to use the Florida doctors as an example to demonstrate why Big Government is so dangerous: With entitlements like Medicare tossing round so much money, of course people will try to influence government to keep the gravy train rolling.  One implication of this argument, of course, is that such small-government types should fiercely oppose McCutcheon and Citizens United, because the easier it is to prevent money from having any kind of corrupting influence on politics and politicians, the easier it should be to prevent a government of any size from being influenced by people seeking to game the system for their own gain.  In reality, we see no such support from supposed government shrinkers for aggressive campaign finance laws, but logical consistency is hardly their hallmark.

The further issue that Professor Dorf explored, however, is whether there is a connection between the size of the government and the amount of corruption that one sees in the country's political system.  As he notes, the available statistics suggest no such connection.  Countries with large public sectors, especially the welfare states of northern Europe, have low corruption, and countries with small (or essentially no) governments often are open to large amounts of corruption.  Overall, there seems to be no consistent pattern, positive or negative, between government size and corruption.

Moreover, although cultural factors might explain why some countries have low corruption, the suggestion among anti-government conservatives is that government is deeply and inexorably corrupting, so that an expanding government sector tends to sap the moral core of a nation.  But if Denmark and Sweden, for example, can go for more than a half century with very large welfare states and squeaky clean politics, then it becomes much harder to make the "big government destroys society" argument stick.

I would add one further point.  A cousin of the "bigger government leads to more corruption" argument is the claim that "people who do not pay taxes naturally like big government, and people who pay taxes vigilantly prevent government from growing."  If, this argument goes, one does not pay for government, then one would like the government to become bigger, because: (a) even if one is honest, it might be possible to become eligible for a program that a smaller government would not provide, and (b) if one is dishonest, the more government there is, the more possible it is to find something to corrupt.

Of course, if we are talking about "the 47%," that is, the people who do not have net federal income tax liabilities in a given year (although the specific number will vary), then the opportunities to buy politicians are pretty limited.  The point, apparently, is that only people with "skin in the game" will have the proper motivation to diligently prevent the political system from wasting their money.

All the way back in 2008, I argued here on Dorf on Law that the "skin in the game" argument is incoherent, because it ignores the possibility of change.  That is, even if a person really were motivated by nothing other than trying to keep the government from imposing taxes, being currently untaxed does nothing to change that person's motivation.  Even if he is currently paying no taxes at all, and even if he never has paid taxes in the past, he might still be required to do so in the future.  Better to be vigilant!

Similarly, the "bigger government corrupts" argument presumes that the only way to gain advantage from government action is by getting the government to pay taxpayers' money to private interests.  Without favors to be divvied up, there can be no corruption, right?  But this is obviously wrong.  My recent run of posts about the "baseline problem" (see, e.g., here) is built upon the obvious fact that the government sets the rules within which commerce is conducted, and that none of those rules is inherently more "natural" than the others.  If a business (or the would-be founder of a business) can imagine a change in a zoning rule, or a copyright provision, or an environmental remediation requirement, or a labor law, or a tax exemption, or any other legal requirement that stands in the way of more profits, then that business will have reason to try to corrupt the decision makers.

This is, as a logical matter, an application of the idea of "contestability," which is a defense in antitrust cases.  There, the argument is that it does not matter if a business is currently a monopolist, because it might some day find its market contested by a new competitor.  Under this reasoning, the magic of marketplace competition need only happen in the mind of the monopolist, because merely knowing that a misstep could bring on a slew of challengers supposedly keeps the monopolist from exploiting its monopoly position.

There are many well-known (and fatal) weaknesses in the contestability argument in the antitrust context.  In the context of governmment corruption, however, the logic actually works.  No matter how large or small a government, the very nature of setting the rules by which business operates opens up the possibility of gaining advantage by inducing political actors to bestow favors.  Furthermore, because so many possible favors have nothing to do with the size of government, but are simply a matter of choosing one neutral rule that happens to favor Business X over a different neutral rule that happens to favor Business Y, there is no reason to think that motivated corrupters would care about the size of government.  And, as Professor Dorf noted, the data bear out that lack of connection.


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