Corruption And The Global Financial Crisis

When in 2004 I calculated an index of "legally corrupt" manifestations (measured through the extent of undue influence through political finance and powerful firms influencing politicians and policy making), the U.S. rated in the bottom half among the 104 countries surveyed. Countries like the Netherlands, Norway, Denmark and Finland exhibited low levels of "legal corruption" (ranking Nos. 1 through 4, respectively). Yet the U.S. was rated 53rd, a few ranks below Italy. Chile rated 18th. Also rating better than the U.S. were countries like Botswana, Colombia and South Africa.

The new U.S. administration has stated its intention to address the challenges of transparency and accountability in its stimulus plan. The devil will be in the details. Merely creating an oversight institution will not do; system-wide reforms in incentives are required. Deep-seated transparency reforms need to be a cornerstone in the government's plan, and should apply to U.S. public agencies as well as domestic and international financial institutions. Regulations supporting effective disclosure, as well as improved audit, accounting and risk-rating standards, should be preferred to restrictive regulatory controls that block innovation and growth.