How Capitalism Will Save Us (9 page)

Had the government not artificially lowered interest rates and done so much to encourage subprime lending, we would not have seen the recklessness that so distorted markets and led to the subprime meltdown. In a truly “free” market, fewer people might have gotten mortgages. But also fewer would have defaulted.

People in the subprime crisis suffered not because of the immorality of free markets, but because of markets that weren’t free enough.

A
t the height of the corporate-governance scandals several years ago involving Enron, WorldCom, and other companies,
Time
magazine asked: “Why a sleaze wave now? To some extent, it represents the dark side of President Reagan’s emphasis on the free market and individual enterprise.”
¹³
William Greider, a writer for
The Nation
and a harsh critic of free markets, called the scandals “a teaching opportunity” reflecting the essentially corrupt and narrow “soul of capitalism.”

Such views were not just voiced by the left. Then Federal Reserve chairman Alan Greenspan attributed the scandals to “infectious greed.”
Time
also quoted James Gattuso, policy analyst for the conservative Heritage Foundation, who observed, “We have more capitalism now, and it isn’t always pretty.”
¹⁴

These statements suggest that there would be fewer instances of white-collar crime and corruption if only we had more state control and less open markets. According to this line of thinking, without the temptation provided by the riches of capitalism, there would be less corruption and wrongdoing.

Really? Real World experience suggests the opposite: free markets encourage less corruption. Government control—instead of reducing wrongdoing—produces more.

There are relatively few measurements of white-collar crime. However, one international study by Transparency International, a nonprofit organization dedicated to fighting corruption, found that the United States is one of the
least
corrupt countries in the world when it comes to the crime of bribery. According to the report, about 10 percent of U.S. respondents reported paying bribes—unlike countries like Indonesia, Russia, Venezuela, Greece, and other nations, where as many as 50 percent of respondents reported doing so.

Bribery is a daily fact of life in many of these nations. Annelise Anderson, a former government economist now at Stanford University’s Hoover Institution, says a key reason for this is overbearing state bureaucracies. In order to get anything done, people have to pay officials or find other ways to subvert an unreasonable system. Anderson writes:

Cuba, with its controlled prices and black markets, illustrates just what Anderson is talking about. The
St. Petersburg Times
reported that

Ironically, one measure being considered in Cuba to remedy the situation is an
expansion
of private enterprise. Philip Peters of the Lexington Institute observed, “These are bitter facts to air in a place where socialist state enterprises are said to represent the revolution’s values, delivering services at fair, controlled prices without the exploitation or inefficiency of capitalist systems.”
¹⁶

One reason many people think prosperity brings more white-collar crime is that the definition of what constitutes white-collar crime changes with the political climate. In fact, some believe the government has gone too far in criminalizing economic behavior—making what are really regulatory violations into criminal offenses. Writes Paul Rosenzweig of the Heritage Foundation,

Prosecutors are increasingly launching criminal prosecutions of individuals who do not meet the traditional test of “mens rea,” or criminal intent. For example, in the middle of this decade nineteen employees of the accounting firm KPMG were accused of issuing “abusive” tax shelters. In the past, this would have been pursued as a regulatory matter. Instead it wound up in criminal court. But prosecutors couldn’t prove their case, and a federal judge threw it out.

Still, wouldn’t there be fewer corporate scandals, fewer Enrons and WorldComs, with less capitalism and more state control over markets? More control, of course, means bigger government. And government is even less transparent than the private sector—and has a more dismal record of safeguarding people’s money.

According to the World Bank, some $1 trillion worldwide are paid each year in bribes to government officials. In Africa alone, more than $400 billion has been looted by government officials and stashed in foreign countries.

In the United States, taxpayer money is regularly pilfered for questionable and often self-serving purposes through the practice of congressional “earmarks,” allocations for frivolous spending that are slipped into appropriations bills with no hearings, examination, or oversight. We don’t usually think of earmarks as white-collar crime—indeed, many people would take exception to the idea. Yet some of the worst earmarks are indeed criminal, a result of bribes paid to legislators.

FOX News reported on Pennsylvania congressman Paul Kanjorski, who earmarked $10 million in taxpayer dollars that ended up in a family-run company, Cornerstone Technologies, that eventually went bankrupt. Kanjorski’s story shows the double standard that can exist when determining what constitutes white-collar crime. Had the congressman’s misdeeds taken place in a public company, they would have been labeled theft.

Yet few news organizations covered Kanjorski the way they did corporate crooks like Enron’s Andrew Fastow and Jeffrey Skilling. Fastow and Skilling went to jail. Kanjorski is still in office.