China’s Economic Reckoning
The Price of Failed Reforms
It is like watching some chemical experiment: dye billowing through a cloud of invisible gas and lighting it up. Organized corruption, which has been rocking the globe for more than a decade, is finally appearing in plain sight.
It is bracing to read Philip Zelikow, Eric Edelman, Kristofer Harrison, and Celeste Ward Gventer’s warnings about this peril and their forceful appeal for serious policy attention to it (“The Rise of Strategic Corruption,” July/August 2020). I agree with their assessment that certain countries, including China and Russia, have weaponized this phenomenon and that those efforts pose a threat to the United States. Yet their important article underestimates the problem. And it does so in ways that flatter American egos and therefore ill-serve the authors’ stated cause: defending American democracy.
“Graft is nothing new,” the article begins. “What is new,” the authors assert, “. . . is the transformation of corruption into an instrument of national strategy.” But the nineteenth and twentieth centuries are littered with examples of colonial and postcolonial powers deliberately corrupting the leaders of lands they sought to dominate. The United Kingdom encouraged addiction to opium among the Chinese in the 1830s in order to undermine the Qing dynasty’s sovereignty. The French government’s long-standing practice of paying off dictators in France’s former African colonies (sometimes taking kickbacks from those despots in the form of campaign contributions) is so well known that much French media coverage evokes it with a one-word epithet: Françafrique.
Such imperialist tactics laid the groundwork for forms of strategic corruption that Washington itself has pursued, in which the U.S. private sector and federal government have cultivated kleptocratic networks overseas in pursuit of profits and political leverage. In the mid-twentieth century, for example, the United Fruit Company, backed by the U.S. government, directly corrupted or co-opted governments in a number of Central American countries. More recently, in the wake of the Soviet Union’s collapse, the Clinton administration and its allies in the business world and the nonprofit sector designed and presided over (and sometimes participated in) the transfer of untold Russian public wealth into private hands. That corrupt process gave rise to some of the very individuals, networks, and practices that Zelikow and his colleagues decry.
Strategic corruption, in other words, is hardly new. Perhaps what is new is that it is now being used so effectively against some of its original authors.
Corruption is a constant in complex, organized societies. But outbreaks of networked, systemic, transnational corruption come in waves. The last time the world saw one as dangerous as today’s was in the period between approximately 1870 and 1935—the Gilded Age and its aftermath, broadly speaking. During that time, rich and powerful countries deployed strategic corruption against weaker, poorer ones, even as widespread corruption took hold at home. Graft and bribery scandals plagued wealthy industrialized countries, including the United States, as interwoven networks of business magnates and public officials twisted political and economic systems to serve their own aims. Among the results were child labor and inhumane working conditions in mines, factories, and sweatshops; the relegation of hundreds of thousands of small farmers to peonage; the genocide of Native Americans; the near extinction of wolves and buffalo; and what amounted to the reenslavement of many Black Americans.
The grip of these kleptocratic networks was at last broken during the period that stretched from the launch of the New Deal until the end of World War II. In the decades that immediately followed the war, the United States enjoyed somewhat higher standards of public integrity—at least at the federal level. But beginning in the early 1980s, a broad array of social and political changes—including the frank embrace of excessive wealth, a shift in the tax burden away from capital and toward labor, and the deregulation of multiple industries, notably the financial sector—allowed for new networks of wealthy elites to begin rigging the system again in their own favor.
Zelikow and his co-authors miss the degree to which American elites have corrupted their own country.
In portraying the United States largely as a victim, Zelikow and his co-authors miss the degree to which American elites have corrupted their own country and made it that much more vulnerable to strategic corruption from overseas. The article singles out “political consultants and former U.S. officials who spend time in the large, lucrative, and lightly regulated marketplace of influence peddling” for the bulk of its criticism. But the disease has lodged itself more deeply in the body politic than this picture suggests. It is not just consultants, bankers, lawyers, real estate agents, and other service providers who are to blame. Rather, top corporate executives allied with or serving as top government officials have helped change rules, enforcement practices, and personnel in an effort to channel wealth into their own coffers and remove obstacles to its continuing flow. Leading Americans seeking to enrich themselves pushed to legalize the kinds of shell companies, “dark money” campaign contributions, and self-dealing contracts that foreign kleptocrats have exploited. The type of plots that Zelikow and his co-authors detail involved a collection of often dodgy and (relatively) low-rent enablers who were willing to skirt or break U.S. law on behalf of foreign clients. The greater danger, however, lies in the high-status elites who dismantled or deformed the regulations and agencies that protected Americans against such practices in earlier eras, making the U.S. political and economic systems more corrupt than they have been in a century.
It did not take a strategy cooked up in Moscow to get a network of American banking executives to persuade the Reagan administration to deregulate the U.S. savings and loan industry, allowing for a wave of fraud that brought the industry down. Instead of rebuilding the guardrails, President Bill Clinton, under the tutelage of a similar network, further gutted them, paving the way for the financial crisis of 2008, when millions of Americans lost their homes. In the wake of the crisis, vulture capitalists, enjoying privileged relationships with government officials, snapped up those properties and subjected renters to fraudulent fees and evictions. Some now hold top government positions.
Or consider the Defense Department procurement system, in which a handful of repeat violators of laws and regulations consistently win contracts in a market arranged by their former and future employees. Or consider the way in which the entire U.S. political system now runs according to pay-to-play rules, whereby the richest citizens are awarded the most political influence. These changes were not the work of foreign tyrants or Beltway hucksters: they were created by a coalition of American elites who continue to be richly rewarded and warmly embraced by both political parties and much of the news media. Thanks to them, legalized corruption has become business as usual in the United States.
So although Zelikow and his colleagues are right to identify corruption as a national security threat, they fail to see how deep its roots go right under their noses, in Washington and New York. The result is a crabbed and narrow set of recommendations. Tightening regulations on limited liability corporations, strengthening the Foreign Agents Registration Act, preventing the abuse of libel lawsuits, and stepping up counterintelligence efforts are all good ideas. But curbing corruption in the United States will require a far more sweeping set of reforms. To arrest the Gilded Age syndrome, it took the New Deal. Today’s reformers should be thinking on that scale.
At the most basic level, Congress should enact new laws to repair the damage done by a series of Supreme Court decisions that have steadily narrowed the definition of corruption. But a far broader set of changes will be necessary to limit the role of money in politics. Doing so will eventually require a constitutional amendment or a Supreme Court ruling reversing the effect of the Court’s 2010 Citizens United decision, which opened the floodgates to dark money. In the meantime, Congress should eliminate the tax exemptions and nondisclosure provisions currently accorded to nonprofits that promote candidates or their platforms. Lawmakers should also bar lobbyists (or anyone paid to advocate for an individual’s or a corporation’s private benefit) from making large campaign contributions. And Congress should establish an annual tax on lobbying, at a rate equal to 100 percent of what a company or a special interest organization spends on it.
Legalized corruption has become business as usual in the United States.
In place of weak and easily waived conflict-of-interest pledges, the United States needs far broader, harder-edged laws to prohibit former top corporate executives from serving in government agencies that oversee their former industries and to bar former government officials for several years after leaving office from advocating on behalf of industries they oversaw. Government agencies must require officials to recuse themselves from proceedings or decisions in which they may have a personal interest. Lawmakers should beef up public-integrity units at the state and federal levels, foster a culture that honors the investigators and prosecutors who take on complex corruption cases, and stiffen sentences for those convicted of bribery or graft.
The list goes on: these are just some initial steps that would demonstrate that the United States is serious about protecting itself from strategic corruption—foreign and domestic. The vulnerability is home-grown, and fixating on the role of foreigners will only reduce the resolve and energy needed to repair the damage.
How States Weaponize Graft