Minneapolis, dot grrreat zesspool tovard vitch all the filth of Minnesota efentually flows.
I was around 10 years old when George, a recent immigrant and an elder in our Dutch Reformed church, delivered that assessment of Minnesota’s largest city.
I was struck by the phrase “great cesspool,” though it lost some punch when in subsequent years I heard George also apply it to New York, Washington, D.C., Grand Rapids, Mich., (home of the denomination’s headquarters) and even Sioux Falls, S.D.
But it came to mind when yet another Minneapolis city councilman was indicted on corruption charges last week. Following the Brian Herron case by less than a year, Joe Biernat’s legal problems may cause people to wonder if something is rotten in Denmark.
There’s not. In fact, there’s less corruption in U.S. local government now than at virtually any time in our past. Our sister city may have two cases in close succession, but compared to either of the Twin Cities in the 1930s, Minneapolis is closer to a clean lake than a cesspool.
But these incidents raise the larger economic question of why corruption occurs and what economic function it plays in a society. Economists have gone back and forth on this question.
These days many see corruption as a serious impediment to economic growth and would have some advice for Minneapolis city leaders: Get rid of obsolete regulations that motivate favors and bribes.
The traditional view was of corruption as a cultural issue. Corruption was seen as a symptom of moral or cultural inferiority, particularly when perceived as an aspect of another group such as “those Irishmen in Tammany Hall” or “those crazy Brazilians.” Corruption was a manifestation of ineffective government, many said, and an explanation for lousy public services but had no economic function in itself.
A few decades ago, some economists began to see corruption, especially petty varieties, as more benign, even positive.
In developing countries with ineffective taxing systems, it’s hard to pay policemen and inspectors enough to live on. Tacitly letting them take minor bribes helped make police employment more attractive and allowed poor countries to have more cops on the beat.
Yes, rich motorists got shaken down for bribes once in a while, but a visible police presence deterred more serious crimes against people and assured basic public order.
Paying bribes to expedite business applications was not good, but when countries had the excessively bloated and centralized public administrations common in ex-French, Portuguese and Spanish colonies, it was economically more efficient than for business investment and innovation to languish.
More recently, the pendulum has swung the other way. Nobel Laureate James Buchanan and his colleague Gordon Tullock looked at “rent-seeking” activity. That is, efforts to gain wealth from others by manipulating laws or regulations rather than by producing anything that was valuable in itself.
Corruption and rent seeking feed off each other. In a culture where bribes are common, lawmakers and bureaucrats create laws that are difficult to obey, thus generating more opportunities to collect bribes.
A Peruvian engineer, Hernando de Soto, investigated the steps necessary to set up a legal small business under his country’s heavy regulation of commerce. He found it took months, many people and hundreds of legal steps to comply.
Because of this, most small businesses in Peru and many other developing countries are technically illegal. The owners were not able to jump through legal hoops required to establish their enterprises legally.
The rent-seeking theoreticians and applied scholars like De Soto hold the intellectual upper hand right now. And their insights prompt some advice to government leaders everywhere. Get rid of regulations that serve little purpose, but offer opportunities for favors or outright bribes.
Council member Biernat allegedly appointed someone to a city board that licenses plumbers to work in Minneapolis. In exchange, he received some $2,500 worth of free plumbing at a property he owns.
With state licensing of plumbers and a statewide plumbing code, why does Minneapolis need a board to examine plumbers to determine their competency?
This board is a silly holdover from the guild system and, even when administered without bribes, serves principally to restrict the supply and raise the cost of plumbing in that city. The potential for favoritism and petty graft is inherent in many municipal functions that are vital and necessary.
City governments shouldn’t amplify this necessary danger by maintaining additional superfluous bodies and functions that serve only as magnets for corrupt activity.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.