How can we fix the problem of corruption? I believe there is a solution, but it requires an overhaul of our perceptions about government benevolence. Before I go into how corruption and benevolence are linked together, let me go through a couple of alternative solutions, thereby also shedding light into the nature of this problem. This is an important question because a very popular figure (Obama himself) advocates government benevolence.

Red Meat for Dogs

I understand that there is a certain breed of dogs that can be trained to behave with remarkable self-control when juicy, fresh red meat is dropped right under their noses. I once saw a video of this, by way of dogs being tested. The dogs have just completed a training to be companions for the disabled. The dogs are lined up, in sitting position. Somebody carrying a bag of red meat comes into view, plopping about a pound of juicy meat on the floor, right in front of every dog. The video then zooms in on a dog that passes the test: the dog salivates, but it does not grab the pound of meat until commanded to do so. Amazing behavior, but these dogs are truly exceptional. In other words, of all the population of dogs, a relevant question to ask with respect to our current topic is: "How much percentage of all dogs behave this way?" That percentage must be very low (less than one percent I suppose) by definition of being "exceptional".

A similar test for humans would be to put a handbag full of hundred-dollar bills in a private place where nobody can possibly witness the subject, say in a toilet. When confronted with this situation, how much percentage of people in a certain population would behave honestly? (Honest behavior in this case means presenting the lost and found bag to the authorities.) It would depend on the characteristics of the population, but even in populations where the authorities themselves are presumed to be honest, I bet that the percentage of people who would behave honestly in this case is pretty low. (I would welcome any attempt to shoot holes into this assumption with actual experiments — in fact there may be existing reports posted on the Internet — but for now if you buy this assumption, the following discussion should be interesting.)

So, assuming that those who hold the highest levers of power in government are themselves honest, one solution to the corruption problem would be to hire exceptionally honest people in government, from the commissioners all the way down to supervisors. This is a tall order, but even if this can be done at the rate of say 80% (as in the percentage of honest officers in a government hierarchy), the problem would remain, at least in the Philippines. Here’s why. We have a history of corruption, and there will be a certain period of adjustment necessary among citizens. I doubt this period of adjustment can be overcome. Right now, for example, it is generally assumed that customs officers are corrupt. If a customs officer were to change his ways and start charging full for all items imported with no exception, he/she would in fact be risking her own life. Because of the assumption that she is corrupt, people would normally think that she is pocketing all the money, and so it is justified to kill her. So assuming that we can have 80% of honest customs officers, there will be a period in which the life of these customs officers would be in danger. No problem, we can just assign bodyguards to all customs officers. However, if part of our purpose is to increase government revenues, these extra personnel would be a big drain. Therefore, I am sure the "return on investment" for the government would still be low, at least for some time. Even if we can achieve 80% honesty in a government organization such as the Bureau of Customs (which by itself is highly doubtful), there are natural forces that go against this solution.

One reason I think it is very difficult to achieve 80% honesty in government is that honest individuals are naturally expensive. Remember that these are exceptional folks, and in order for them to remain exceptional in an average populace (let alone remain employed by government), they have to have exceptional pay. Aside from the problem of how we can pay exceptional salaries for what mostly are boring jobs, there is the problem of keeping the whole organization disciplined. All personnel will have to be trained like an army. This level of honesty is indeed difficult to achieve, even in first-world countries, specially if the laws or rules governing behavior are not clear. (More on clarity of rules later.)

Another Solution: Lowering the Price of Legitimacy

Another solution is to simply lower the price of compliance, or what economists call the "price of legitimacy". In other words, remove the red meat from the dogs’ view altogether, or reduce its size or attractiveness.

This is very easy to implement; the only problem is that there are strong interest groups that keep the price of compliance high. Take for example, the current ban on importation of used cars in the Philippines. (An outright ban in this case is equivalent to the highest possible price of compliance.) Ostensibly the purpose of this is to protect car assemblers or even manufacturers in the Philippines, but I doubt it. It would be more plausible to say that the purpose is to protect the environment, but even that I would doubt. I think the real purpose of this law is to protect the large importers of brand-new vehicles (Japanese and American vehicles), an industry group that has traditionally had real clout in government. Given the huge price differences between used and new vehicles, this law ("Executive Order") is very difficult to enforce and therefore encourages a lot of corruption. Lowering the price of compliance in this case can mean charging a percentage of the value that is inversely proportional to the age of the car. Let’s say we charge 50% maximum: 10% for cars between 0 (brand new) and 2 years old, 20% for 3 to 4 years old, 30% for 5 to 6 years old, etc. and 50% for cars 10 years or older. The car I want to import is about 9 years old. At 50% tariff rate, I would still take it with me. (We have finally determined that the duty or tariff is in fact 100%, and we have decided not to take the 2000 Sienna minivan with us.) At 50% tariff rate, I can imagine my conversation with the customs officer to proceed as follows:

"What year model is your car?"
"Year 2000."
"You will have to pay 50% of the value, and according to my calculations, that’s $5,000 dollars."
"I have documentation that proves I bought this car more than six months ago for $6,000 dollars, so the duty should only be $3,000."
"OK, but this is just between you and me: I can release your minivan for that much and I won’t even look at your documents."

If I were tired and grumpy, I would probably just pay the $3,000; but the point is that now I have a certain incentive to insist on proper compliance. It should be clear to you at this point that lowering the duty even more would increase my incentive to comply with the law, instead of giving the money to the customs officer. There would also be less incentive for corruption; and, because the customs officers would more likely follow the law, there would be increased revenue for the government. Having read this blog up to this point, the last assertion (increased government revenues) should be clear to you. However, this conclusion is far from obvious and is in fact counter-intuitive. "How can lowering taxes INCREASE government revenue?" your favorite senator would ask.

By the way, if it is not clear to you that lowering the price of legitimacy dramatically would also make government officers more likely to follow the law, just put yourself in the place of the officer. Even if you have a hungry family to feed, the risk of non-compliance would not justify the possible gain, which is now much smaller.

Simple but Strict Versus a Benevolent Government

Lowering the price of legitimacy is compatible with democracy and freedom. This is all very well, but there is one last important matter to consider. As I said, we have definitely decided not to take our Sienna minivan with us. We will only be taking only our furniture and other belongings. The law says we do not have to pay duty on these. However, our import broker tells us that even if no payment is due to the government in our case, added to his price of service is a certain amount of "grease money" to ease the release of our belongings. The customs officer still has the power to delay the processing of our belongings, and he can still earn some money by that power. It is also possible that the broker is lying to us, and the alleged corruption is just smoke-screen for his large profits. Nevertheless, I intend to face to customs officer myself, and I will report my experience in this blog.

Power over any group, large or small, provides myriad opportunities for proportionate corruption. Given that government has the monopoly on power (socialists and other folks think that corporations have more power than government, but that is another interesting point of discussion that I can write about in another blog), the objective of lessening or even eradicating corruption altogether requires limiting those powers over society. What is needed are well-defined powers, simple but limited powers. This requires a certain view of freedom that must be ingrained all the way up to the constitution, which I hold is lacking in the Philippine constitution. This view of limited government, in which laws are simple but strictly enforced, stands in stark contrast to another view, that of a benevolent government. A benevolent government is one in which "kindness" has a higher priority over strict adherence to impersonal rules.

Let’s talk about a recent phenomenon to illustrate the contrast between benevolence and strict simplicity. At the risk of over-simplification, I can say that one big cause of the recent credit crisis is government benevolence. A couple of quasi-government agencies (Fannie Mae and Freddie Mac) were created to encourage home ownership by families in the low-income groups. These two agencies not only guaranteed loans made by low income families, but also loans made by pure speculators. The unintended consequence is that house prices balooned to ridiculous levels. Eventually, the prices went beyond affordability and the buyers walked away, thereby causing prices to drop and mortgages to go underwater. If lawmakers were committed to the simple but strict principle instead of benevolence, Fannie Mae and Freddie Mac would not have even existed.

The fact is, even in industrialized countries, a large percentage of the electorate are for government benevolence. Just take Obama’s pronouncements on the subject. The electorate’s choice would even go as far as appointing Supreme Court justices who would judge on the basis of who appears to be the "victim" in a case (and putting more weight on the victim’s side), instead of equal and consistent application of the law.

Benevolence and Corruption

People for a benevolent government certainly have good intentions, but the consequences of this misguided principle can be destructive. A benevolent government is necessarily a corrupt government. How so? First of all, a benevolent government tries to fix more and more societal maladies, and therefore naturally grows in size. Secondly, if benevolence is more important than clarity of the law, laws tend to be complex and inconsistent, even self-contradictory. Thirdly, even if lawmakers try to limit the applicability of a benevolent benefit in an attempt to limit abuse, the result would be laws that subdivide the populace into ever smaller granularity of differences. A good example of this is the U.S. tax code: the longest text of law that nobody really understands. A large government let loose on the people with laws that even the Supreme Court itself cannot interpret is a sure breeding ground for corruption. (Even with the least of corruption, highly complex laws are a heavy burden on the population.)

Sadly, a very large and benevolent government is what characterizes our situation in the Philippines, and change in the opposite direction is very difficult. A non-benevolent government is a difficult thing to sell to the electorate. For now, I would be content with lowering the price of legitimacy. If the benefits of a lower priced legitimacy can be explained in a simple and compelling way, I think people can and will buy it.