Volume 5, Number 116
4 February 2005

Breaking the Vicious Cycle

Dear Friends,

I have just read a new book-length report from the American Friends Service Committee, entitled Putting Dignity and Rights at the Heart of the Global Economy, now available on the AFSC website (click here to obtain the report). Here are my first reactions.

As usual with reports from Quaker organizations, this is an earnest and well-meaning effort. It is infused with concern for the plight of the world's poor, and careful prescriptions for correcting faults through a multi-level plan of action. However, I found the report notable for what it failed to say.

Members of the working party for the report included three businessmen, two writers, two economists, two political scientists, one community activist, and seven AFSC staffers or program directors. The core of their report is the first two chapters. The third chapter is very short, and concerns the AFSC itself, while the fourth is a two-page call to action. Appendix A summarizes the recommended actions.

What Dynamics?

The first chapter, on the dynamics of the global economy, focuses more on facts and figures than on actual dynamics. This isn't in itself bad — we need facts before anything else — but I found precious little on the insidious dynamics that keep poor countries trapped in their condition. The term "vicious cycle" appeared just once, in a fleeting reference to gender inequality. The term "dynamics" appears only in the chapter title, never in the text. Most ills are attributed to unequal power relations between nations, while deeper dynamics are ignored or misidentified. This is a study that only barely scratches the surface in its exploration of cause and effect.

When I saw the title of the second chapter, "Governance in the Global Economy," I thought, "Aha! Now we are getting somewhere!" But as I read this chapter, my emotions fell from eager anticipation to disappointment and finally to dismay. Friends, in my opinion the committee that wrote this report is still in the dark about many of the deeper dynamics at work in the world today.

It is my view that the core problem does indeed lie within the domain of governance — the formal and informal procedures of government — and that corruption and lack of transparency allow unscrupulous corporations to exploit unequal power relations between countries.

Symptoms of a world in a state of disequilibrium abound — population explosions, famines, mega-cities, economic depressions, wars, coups d'etat, religious fanaticism, gross income disparities. But one symptom in particular keeps appearing in my simulation models of society, forcing itself into my attention over and over again. This symptom is actually a group of institutional dysfunctions, known collectively as "corruption." It is at once a symptom (an effect), and also a pervasive cause of further dysfunction in all sectors of society.

Among all the many vicious cycles that I have seen and analyzed and then incorporated into my models, corruption is the most vicious, the most tenacious, the most lethal to the dreams and aspirations of a nation.

In picking apart and studying the various kinds of corruption — bureaucratic, judicial, legislative, corporate, police, military — and looking at how they feed upon each other, I was of course looking for vulnerabilities in this self-sustaining system, links in the chain that if broken would halt this insidious process in its tracks. What I found has been found and described before, but seldom with an adequate appreciation of its debilitating effects on the entire dynamic of economic growth and social justice. This is the insight that I was looking for in the AFSC report on the global economy, but did not find.

An Alternative View

My experience and study of dynamic models suggests that the vicious cycles that entrap poor countries can be broken by a program that starts with severing political parties from their traditional role in allocating jobs in the public sector (the "spoils" system). This is the crucial step, the step without which all other reforms fail. This is where the most serious dysfunctions of governance begin.

If the party in power earns its income from the distribution of jobs, then its legislators have every incentive to proliferate new positions, offices, regulations, and fees, and in so doing stagnate the economy. Public salaries fall, giving a powerful incentive to otherwise honest public employees to seek ways of extracting additional bribes and payoffs. To protect their corrupt officials, the party controlling the executive and legislative branches must then subvert the judicial branch. Deepening poverty and governmental incompetence are the result. As corruption increases, income disparity in the country skyrockets — in rich as well as poor countries, without exception.

Trade negotiations, foreign investment, foreign aid, customs agreements, cross-border mergers and acquisitions: all of these are easily exploited by corrupt officials for their own enrichment, often without the knowledge of foreign partners and always without public scrutiny or transparency. The result is a perversion of liberalized trade, and the continued impoverishment of an economy. When the rule of law is absent or crippled, as it so often is, then:

liberalized trade + corruption = local economic disaster.

I outlined some of these ideas in greater detail in TQE #110 and #112, and I hope eventually to make all of my models and causal analyses available for public inspection on my NationLab website. As the AFSC report correctly points out, these are multi-layered interlocking problems, none of which can be studied in isolation from the rest.

I have spent the last ten years visiting developing countries, reading the local news, asking questions, analyzing data, listening carefully, and studying centuries-old historical patterns. I have tried my best to embed all of this into dynamic mathematical models that integrate medical, social, political, and economic processes into a unified whole. My goal has been to reveal the interplay of vicious and virtuous cycles of cause and effect — the vital dynamics that entrap some societies in misery, while allowing others to burst out into healthy growth and development.

Public health, education, and nutrition are the cornerstones of development, but over the years it has gradually dawned upon me that no nation can move beyond the middle bracket of development without the rule of law. In effect, corruption holds veto power over further progress. Eliminating corruption is a complex process, but I submit that it begins with the incremental professionalization of the civil service, from the bottom up. This interrupts the self-sustaining dynamic of political corruption, brings qualified people into government, and unlocks the economy — whether it is capitalist or socialist, or anything in between.

In Summary

I regret to say that while the action plan of Putting Dignity and Rights at the Heart of the Global Economy has some good ideas, it still does not touch the core problem, the spoils system that infects third world governance like a disease. Instead it recommends a variety of symptomatic palliatives, e.g. living-wage legislation, which if implemented may actually increase poverty (see TQE #42 for more on this).

The report advocates reform of the United Nations and the World Trade Organization — a worthy idea — but it fails to address the crucial fact that for most countries these jobs are plum patronage positions, awarded to the wrong people for all the wrong reasons. The incompetence of these political appointees hurts the UN and all other international institutions, and it is the primary reason why third world countries cannot hold their own in bilateral and multilateral negotiations.

I believe that we need to start from the bottom up, by encouraging the professionalization the civil service of each country, rather than by reforming from the top down, starting with the United Nations. Only command structures, e.g. military and police forces, absolutely require top-down reform; political history suggests that all other branches of government are better reformed from the bottom up. It is slow, but it works.

By ignoring the deleterious effects of the spoils system on the rule of law and international power relations, by advocating top-down rather than bottom-up reform, and by recommending ineffective symptomatic palliatives for economic ills, the AFSC report has fallen short of its goals. Perhaps in a future TQE we can outline a more effective plan of action.

Have I been too harsh? Left out something? What are your opinions?

Sincerely your friend,

Loren Cobb

P.S. I want to give the Editorial Board special thanks for their suggestions on this issue, which resulted in a major rewrite. — LC

Readers' Comments:

Note: Please send comments on any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer! The email address is tqe-comment followed by @quaker.org. All published letters will be edited for spelling, grammar, clarity, and brevity. Please mention your home meeting, church, synagogue (or ...), and where you live.

The AFSC report is 125 pages long, of which 3.25 pages are the "Private Sector" section, and most of this is a criticism of Wal-Mart. I contrast this paper from AFSC with papers related to economics on the Catholic website: The Acton Institute. If the stuff on the Acton Institute website is indicative, Catholics like free markets and the private sector a lot more than do the people who wrote the AFSC paper. I thought you could take several of the long-run trend charts in the AFSC report and make a much cheerier argument for "globalization" than AFSC makes. The following quote comes to mind:

"You cannot redistribute wealth you never created. You can't be pro-jobs and anti-business at the same time. You cannot love employment and hate employers." — Paul Tsongas, in a speech to the 1992 Democratic Convention.

I'm no economist, just an investor and observer. It strikes me that the economies that have lifted themselves out of poverty in a fairly short period of time (Hong Kong, Ireland, Singapore, etc.) have fostered, through good government policies including pretty low tax rates, a pro-business environment. As a business person, I sensed a pretty negative vibe toward business from the AFSC report.

— John Spears, Princeton (NJ) Friends Meeting.

I wonder how much is encompassed by the concept of corruption, which could be seen as (a part of) the opposite of the rule of law. Placing the entire weight on government-awarded jobs seems excessive. First, until the second half of the 19th century the US had a spoils system, but since government was so small it made little difference (and there were other checks for government predation). Second, "jobs for the boys" is only one of the many ways in which politicians can thwart production and exchange.

— Steven Williams, Bethesda (MD) Friends Meeting.

Thanks for the helpful analysis, Loren. I think all of us, especially Friends, need multiple essays on "globalization" and its many definitions and ramifications. As one who has engaged in international ventures in several of the former USSR countries, I can vouch for your emphasis on the importance of governance and corruption in creating economic inequities within and among countries. I look forward to future TQE letters on this issue.

— Norval Reece, Newtown (PA) Friends Meeting.

There is no doubt that the abuse of patronage is a major element in the economic woes of the poorest countries but it is not the only element or even, necessarily, the most important one. Patronage is endemic in China but it has achieved very high growth rates in the recent past — due, I would guess, to the Chinese obsession with education, its long entrepreneurial tradition and its sense of its own long history as one of the great nations. A second point is that patronage is a staple of all political systems, even the most democratic and economically advanced, and it is hard to believe that any political system will ever be entirely rid of it. The task is to identify that kind of patronage which is really harmful and to work for its elimination. One such example in the developed West has been to hand control of inflation and central bank powers to an independent body.

I have only recently found your website — it is a breath of fresh air. I note that the site is mostly devoted to an exploration of economic issues and the formation of positions that are consistent with basic Quaker philosophy. I would be interested in Letters which dig down further and ask about the connection between core Quaker beliefs and how we should act in the world. There are, I believe, some very thorny issues here: given that Quakers in the unprogrammed tradition believe, via the doctrine of the Inner Light, in private revelation from which there is no appeal, how do we get from that private space to public space. The danger of course is that we go off on grand projects which do not come from God but from our own broken humanity. Justification by works is one such temptation.

— Paul Hartigan, a Friend from Canberra, Australia.

Reply: Although my knowledge of the East is fragmentary, I believe that China mitigates the effects of patronage in three ways: (a) the Confucian tradition of a dedicated and highly professional civil service is still very much alive, (b) the death penalty for official corruption is in active use, and (c) their legislature and system of civil law works differently. I suspect that the Chinese experience may actually demonstrate my point, but I admit to great uncertainty.

As for Letters on the connection between core Quaker beliefs and how one should act in the world, YES — these are on the way. I believe that insights of modern depth psychology have much to offer to Quakers of all traditions. TQE 115 gave hints of my personal spiritual path in this domain, without psychological jargon or religious theology, and there will be more, interspersed with traditional economics. I hope occasionally to address such issues as irrational choice, awareness of delusions and denial, healing from trauma and despair, and enlightenment through metaphor, myth, and meditation. — Loren

Thank you Loren for #116. Your comments were both gentle and constructive. I think that the AFSC would benefit form more economics, in their economic commentary.

— Kruskal Hewitt, Media Monthly Meeting (PYM)

I really appreciate your article on global governance. Much has been said in the past regarding different development paradigms, from neo-liberalism to export-led growth, but preciously little has been said about the importance of governance.

Take Hong Kong and Macao as examples. Why is it that Hong Kong eventually develop into an international financial center, while Macao remains a third-world outpost? There are many reasons (for instance, Hong Kong is much larger in size than Macao), but one of the dominant factors is governance. Hong Kong, being a British colony, inherited much of the British common law legacy and the norm known as the "rule of law." Whereas Macao was run by Portuguese bureaucrats who were themselves educated and trained under a semi-fascist authoritarian regime, with no tradition like "judicial independence" whatsoever.

But such an example would also imply that to have a sound system of governance that actually works, one must first have the law/norm of liberty, etc. be "written in the heart" of the populace. Otherwise, even with the best system at hand, nothing is going to happen. Another good example would be most Latin-American countries. When Bolivar first liberated Venezuela from Spanish colonial rule, the Constitution his republic adopted was more or less similar to the U.S. Constitution. But this didn't really help, since the norms upon which the U.S. Constitution was built were absent in 1830 Venezuela.

So I guess when it really comes down to the basics, what matters is not only the institutions of governance, but also the culture, norms, laws, etc. of a nation, and these may take hundreds of years to develop.

— James Chang

Reply: Thanks for the wonderful Macao – Hong Kong comparison! I will use it in my work. With respect to Venezuela, however, I don't agree. The US Constitution contains nothing that prevents a spoils system. The USA had to go through a 50-year incremental process of professionalizing the civil service, starting with the Pendleton Act of 1883. In Britain the reforms began in 1870. Venezuela took the first step down this road in 1972, but the effort has stalled. It is not a cultural matter, in my view. Any country can do it. — Loren

Today's Prensa Libre reported the failure to get an indictment against some 18 members of the national police force arrested for extortion, kidnapping, drug trafficking, etc. It also reported an effort to get the army paid by check rather than cash, so that records would exist of who was paid and how much. It also mentioned the check cashed by a cabinet minister's brother shortly after that minister changed the rules to favor a particular cellular telephone company. Finally, it summarized a study by the World Bank saying that Central America will remain left behind as long as lack of security and bureaucracy continue to be the rule of the day. It sounds like you touched on all of these points in your latest letter on inequities in the world economy and how to address them.

— Jack Page, Santiago Atitlan, Guatemala.

Reply: Guatemala pays its military with cash??? Now there is a good system for hiding corruption. Incidentally, the World Bank report is well worth a read. It is available in English here. — Loren

I am puzzled that you talk about "unlocking the economy" of capitalist and socialist regiems as if they were substantially similiar in this vein.  While Sweden and many other european states are often called "socialist" they are driven by market actors far more than by bureaucrats, are they not?  Where then would your example of a socialist economy being unlocked exist?  Or are you one of those utopian socialists who comfortably predicts the eventual refinement of socialist techniques, and practically never remembers to mention that socialism actually murdered over 100 million humans last century?

— Dave Meleney, Unitarian Church, Denver, CO.

Reply: I was thinking specifically of Sweden and Finland when I referred to socialist countries. As you point out, these countries do have a substantial market economy — but that has become an essential part of modern democratic socialism. There are still a few neanderthal socialists in the world who aspire to total state ownership of the means of production, but they are a small and disappearing lot. Modern academic and political proponents of socialism recognize the power and efficiency of markets.

Countries like Sweden, Finland, and Germany have very large bureaucracies, but they are extremely professional, honest, and efficient — and, not coincidentally, held at arms length from political parties. Political appointees are limited to a thin layer at the very top of the bureaucracy. Communist countries that followed the Soviet model were the polar opposite of this, in the sense that the political party in power controlled every job in the entire bureaucracy, from top to bottom.

In other words, I see two primary dimensions here. The first is the size of the government, which from a practical point of view can range from about 5% to 95% of the productive capacity of the economy. The second dimension is the fraction of government employees whose jobs are controlled by a political party, which ranges from about 1% to 99%. In my essay I was attempting to point to the latter dimension as the greater culprit. The murderous socialist and fascist governments of the last century shared this quality: total control of all government operations by a single political party. — Loren

Your premise that corruption is the basic cause of difficulty in bring the third world into the developing world is correct.  But there is a very insidious contributor to political corruption (tribal or otherwise) and that is the greedy multi-country entrepreneuring company after whatever can be had for nothing or next to nothing. What chance is there of home countries requiring that their laws and regulations be followed by any company doing business beyond its borders? ...

Keep up the good work. The AFSC has always deserved to be watched carefully by the economists!

— Ted Church, Albuquerque (NM) Monthly Meeting.

Reply: The history of US corporations during the "Robber Baron" era, roughly 1870-1910, was reminiscent in many ways of our contemporary experience with multinational corporations. In 1870 the US civil service was 100% political appointees, corruption ran unchecked through the entire federal government, large corporations got away with murder — literally! — and the institutions of justice were weak compared to the new industrial giants.  It took many decades of incremental reform, but ultimately the rule of law prevailed. Indeed, the classic liberal position is that by the late 20th century the US government had overshot its mark, had in fact grown too large and too powerful.

The international playing field for multinational corporations is at present extremely uneven, and gross injustices have been perpetrated upon both people and the environment. However, the same forces that eventually succeeded in the USA and Europe over a century ago are now slowly but visibly at work on a planetary scale. Multinational corporations are feeling the heat, and an international system of justice and regulation of commerce is under construction. We need to persevere, while taking great care not to erect a flawed system. There is only one planet Earth, so failure is not an option. — Loren

"Breaking the Vicious Circle" makes interesting reading. I appreciate it very much that you sent it on to me. We spend too much time analysing, re-analysing and talking. When you get down to it, talk is just talk. Nothing more. We will get nowhere until we walk the talk.

Have you read Jeffrey Sachs' book, How To End Poverty? There was an extract in Time magazine of 14 March 2005. It is well worth reading. We have spent too much time analysing third world poverty. We need action. [Click here to see the article by Sachs in Time Magazine. — ed.]

— Manu Chandaria, Nairobi, Kenya.

I enjoyed reading this TQE and concur with your comments. The information given by Mr. Chang also has some value.

It is important to remember that one of the major differences between British and Spanish colonists was that in the case of the latter the crown owned everything. The British gentries, in contrast, became owners of property in the new world. Also, you made no mention of the church and its influence in Latin America. In the US, freedom of religion was an important aspect of our constitution. In Latin America this became a major stumbling block, because the Catholic Church, regardless of who was in power, always exerted significant influence on governance.

The "new American republics" have also lacked consolidated democratic institutions. Part of this problem, as you mention, is the absence of a professional civil service. Second, the conflict of interest on the part of political parties under the "spoils system." In third place would be the lack of an independent judiciary. And finally, there is the tendency, when everything is up in the air, to let the military come in and attempt to clean house.

In summary: cultural idiosyncracies, the Church, politics, and the military all have had an influence in the region.

— Mike Gonzalez, Miami, Florida. [Jan 2006]


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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board

  • Loren Cobb, Boulder (CO) Friends Meeting, Coeditor.
  • Chuck Fager, Director, Quaker House, Fayetteville, NC.
  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Valerie Ireland, Boulder (CO) Friends Meeting.
  • Jack Powelson, Boulder (CO) Meeting of Friends, Coeditor.
  • Norval Reece, Newtown (PA) Friends Meeting.
  • J.D. von Pischke, a Friend from Reston, VA.
  • John Spears, Princeton (NJ) Friends Meeting.
  • Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

Members of the Editorial Board receive Letters several days in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

Copyright © 2005 by Loren Cobb. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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