Legitimization: A New Era in Organized Crime

“The death-knell of the republic had rung as soon as the active power became lodged in the hands of those who sought, not to do justice to all citizens, rich and poor alike, but to stand for one special class and for its interests as opposed to the interests of others.” – Theodore Roosevelt, 1903

Organized crime or criminal organizations are transnational, national or local grouping of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity e.g. monetary profit. For example, criminal organizations e.g. terrorist groups are politically motivates, while some criminal organizations force people to do business with them by extorting money from shopkeepers for protection such as an organized gang or criminal set referred to as a mob. In the United States, the Organized Crime Control Act of 1970 defines organized crime as “The unlawful activities of […] a highly organized, disciplined association […]”. Criminal activity as a structured group is called racketeering a popular past time of the Mob. In the U.K., police estimate that 38,000 people operate in 6,000 organized crime groups. Due to the violence involved in Mexico’s drug war, the Mexican drug cartel according to the United States Department of Justice report is the “greatest organized crime threat to the United States.” Organized crime may be defined as systematically unlawful activity for profit on a city-wide, interstate and international scope as corporate criminal organizations are a far cry from their small-scale predecessors such as Bonnie and Clyde. Often their illegal operations are kept secret and members confer and carry out activity by oral contracts. In order to maintain strong standing, criminal organizations must have the support of the society within which it operates so it is advantageous and frequently expedient for it to compromise upright member such as judiciary, police forces and legislature through bribes, blackmail and build mutually dependent relationships with legitimate businesses. Therefore the racket is integrated into a lawful society protected and legitimized by corrupted politician, law enforcement and legal counsel, while the revenue to keep the enterprise strong comes from narcotics trafficking, extortion, gambling and prostitution, among others.

Due to the demand for illegal goods and services, more centralized and powerful crime syndicates have emerged who are better adept therefore successful in undermining public morals and neutralizing law enforcement through corruption and infiltrating the legal economy without countermeasures. There are four aspects to this model: government, society, illegal markets and organized crime. While all four elements of the model do interact reciprocally, in the last instance the purpose is to explain the variation in power and reach of organized crime in the sense of a unified organized entity. Organized crime groups operate as smaller units in an overall network therefore tend to value significant others, familiarity of social and economic environments or tradition. Accordingly, they are composed of:

  • Hierarchies based on ‘naturally’ forming family, social and cultural traditions;
  • ‘Tight-knit’ locus of activity/labor;
  • Fraternal or nepotistic value systems;
  • Personalized activity; including family rivalries, territorial disputes, recruitment and training of family members, etc.;
  • Entrenched belief systems, reliance of tradition (including religion, family values, cultural expectations, class politics, gender roles, etc.); and,
  • Communication and rule enforcement mechanisms dependent on organizational structure, social etiquette, history of criminal involvement, and collective decision-making.

Bureaucratic or corporate crime groups have a rigid internal structure focusing on how the operation works, succeeds, sustains itself or avoids retribution as follows:

  • A complex authority structure;
  • An extensive division of labor between classes within the organization;
  • Meritocratic (as opposed to cultural or social attributes);
  • Responsibilities carried out in an impersonal manner;
  • Extensive written rules/regulations (as opposed to cultural praxis dictating action); and,
  • ‘Top-down’ communication and rule enforcement mechanisms.

Unfortunately, the following flaws are inherent in this structure:

  • The ‘top-down’ communication strategy is susceptible to interception, more so further down the hierarchy being communicated to;
  • Maintaining written records jeopardizes the security of the organization and relies on increased security measures;
  • Infiltration at lower levels in the hierarchy can jeopardize the entire organization (a ‘house of cards’ effect); and,
  • Death, injury, incarceration or internal power struggles dramatically heighten the insecurity of operations.

Whilst bureaucratic operations tend to emphasis business processes and strongly authoritarian hierarchies, these are based on enforcing power relationships rather than an overlying aim of protectionism, sustainability or growth.

Organized crime often victimize business through extortion or theft and fraud activities by hijacking cargo trucks, robbing goods, committing bankruptcy fraud, insurance fraud or stock fraud. In addition individuals are victimized through car theft, art theft, bank robbery, burglary, jewelry theft, computer hacking, credit card fraud, economic espionage, embezzlement, identity theft and securities fraud, while some aim at defrauding national, state or local governments by bid rigging public projects, counterfeiting money, smuggling or manufacturing untaxed alcohol or cigarettes and providing immigrant workers to avoid taxes. In order to carry out their activities, organized crime requires the help of corrupt public officials in executive, law enforcement and judicial roles in order to avoid or receive early warning about investigation and prosecution. Organized crime groups also provide a range of illegal services and goods, such as loansharking of money at very high interest rates, assassination, blackmailing, bombings, bookmaking and illegal gambling, confidence tricks, copyright infringement, counterfeiting of intellectual property, fencing, kidnapping, prostitution, smuggling, drug trafficking, arms trafficking, oil smuggling, antiquities smuggling, organ trafficking, contract killing, identity document forgery, money laundering, point shaving, price-fixing, illegal dumping of toxic waste, illegal trading of nuclear materials, military equipment smuggling, nuclear weapons smuggling, passport fraud, providing illegal immigration and cheap labor, people smuggling, trading in endangered species, and trafficking in human beings. Organized crime groups also do a range of business and labor racketeering activities, such as skimming casinos, insider trading, setting up monopolies in industries such as garbage collecting, construction and cement pouring, bid rigging, getting “no-show” and “no-work” jobs, political corruption and bullying.

The Racketeer Influenced and Corrupt Organizations Act not only covers traditional crimes, but also covers acts motivated by accumulation of monetary gains and political or ideological gain or acceptance. The latter describes terrorist organization even though there is no legally binding criminal law on the definition of terrorism. Some common definitions include only to those violent acts which are intended to create fear (terror), are perpetrated for a religious, political or ideological goal, deliberately target or disregard the safety of non-combatants (civilians), and are committed by non-government agencies, while some include acts of unlawful violence and war, especially crimes against humanity e.g. Nuremberg Trials. Notable groups include Al-Qaeda, Animal Liberation Front, Army of God, Black Liberation Army, The Covenant, The Sword, and the Arm of the Lord, Earth Liberation Front, Kurdistan Workers’ Party, Lashkar e Toiba, May 19th Communist Organization, The Order, Revolutionary Armed Forces of Colombia, Symbionese Liberation Army, Taliban, United Freedom Front and Weather Underground.

Organized crimes generate large amounts of money through there illegal activities due to their ability to disguise and convert their funds into legitimate investments. The methods use to turn their dirty money into clean assets encourages corruption due to the need to hide the money’s illegal origin. The group is allowed to expand as the laundry or wash cycle operates to cover the money trail and convert the dirty money into usable assets. Money laundering as it is called is bad for international and domestic trade, banking reputations, for effective governments and rule of law. According to the U.S. Congressional Office in 1995, the figures were between $200-$600 billion per year throughout 1990s, while the U.N. estimated the numbers in 2002 to be between $500 billion and $1 trillion per year. According to Robinson, this makes organized crime the third largest business behind foreign exchange and oil with rapid growth in money laundering due to:

  • the scale of organized crime precluding it from being a cash business – groups have little option but to convert its proceeds into legitimate funds and do so by investment, by developing legitimate businesses and purchasing property;
  • globalization of communications and commerce – technology has made rapid transfer of funds across international borders much easier, with groups continuously changing techniques to avoid investigation; and,
  • a lack of effective financial regulation in parts of the global economy.

Money Laundering is a three-stage process:

  • Placement: (also called immersion) groups ‘smurf’ small amounts at a time to avoid suspicion; physical disposal of money by moving crime funds into the legitimate financial system; may involve bank complicity, mixing licit and illicit funds, cash purchases and smuggling currency to safe havens.
  • Layering: disguises the trail to foil pursuit. Also called ‘heavy soaping’. It involves creating false paper trails, converting cash into assets by cash purchases.
  • Integration: (also called ‘spin dry): Making it into clean taxable income by real-estate transactions, sham loans, foreign bank complicy and false import and export transactions.

Means of money laundering:

  • Money transmitters, black money markets purchasing goods, gambling, increasing the complexity of the money trail.
  • Underground banking (flying money), involves clandestine ‘bankers’ around the world.
  • It often involves otherwise legitimate banks and professionals.

The policies enacted aim to make the financial markets transparent while minimizing the circulation of criminal money and its cost upon legitimate markets.

The level of taxation taken by a nation-state, rate of unemployment, mean household incomes, level of satisfaction with government and other economic factors all contribute to the likeliness of criminals participating in tax evasion. As many crime organizations operate in the space tween legitimate and illegitimate markets, the economic factors stated above must adjust in order to deter people from practicing tax evasion, however with technological advancements the illegal activity has been made easier, faster and more globalized. The ability to operate fraudulent financial accounts, utilize illicit offshore bank accounts, access tax havens or tax shelters and operating good smuggling syndicates to evade importation taxes help ensure financial sustainability, security from law enforcement, general anonymity and the continuation of their operations.

Political corruption involves the legislated powers by government officials for illegitimate private gain, however misuse of government power for purposes of repression of political opponents and general police brutality are not considered political corruption. Neither are illegal for individuals or corporations without involvement from the government. The act is considered political corruption only if the office holder commits an act related to their official duties such as bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement. Depending on the country or jurisdiction, what constitute illegal corruption varies but may include activities such as drug trafficking, money laundering, and human trafficking e.g. certain political funding practices may be legal in one place and illegal in another. This may be due to government officials having broad or poorly defined power making it difficult to distinguish between legal and illegal action. Worldwide, bribery alone is estimated to involve over $1 trillion annually. A state with unrestrained political corruption is called kleptocracy, literally meaning “rule by thieves”. Much like political corruption, corporate corruption may not be a crime if they are not illegal under a given system of law e.g. insider trading. Corporate crimes refer to crimes committed by a corporation or business entity or by an individual that identifies with either one.

Today’s criminal organizations find working together rather than in competition more advantageous and beneficial making it harder for law enforcement agencies to crack down forcing many agencies to work together. This led to the rise in global criminal organizations such as Mara Salvatrucha, 18th Street gang, American Mafia and their associations with groups in Italy such as the Camorra, the ‘Ndrangheta, Sacra Corona Unita, and Sicilian Mafia, Cosa Nostra has also been known to work with the Irish Mob (John Gotti of the Gambino family and James Coonan of the Westies are known to have worked together, with the Westies operating as a contract hitman for the Gambino family after they helped Coonan come to power), the Japanese Yakuza and the Russian Mafia. The United Nations Office on Drugs and Crime estimated that organized crime groups held $322 billion in assets in 2005. With the rise of cooperation between groups, so has there been an increase in law enforcement agencies doing the same. The FBI operates an organized crime section from its Washington, D.C. headquarters working with other national (e.g., Polizia di Stato, Russian Federal Security Service (FSB), and the Royal Canadian Mounted Police), federal (e.g., Bureau of Alcohol, Tobacco, Firearms, and Explosives, Drug Enforcement Administration, United States Marshals Service, and the United States Coast Guard), state (e.g., Massachusetts State Police Special Investigation Unit and the New York State Police Bureau of Criminal Investigation) and city (e.g., New York City Police Department Organized Crime Unit and the Los Angeles Police Department Special Operations Division) law enforcement agencies.

The United Nations Office of Drugs and Crime is the guardian of United Nations Convention against Transnational Organized Crime and the three Protocols -on Trafficking in Persons, Smuggling of Migrants and Trafficking of Firearms – that supplement it. This is the only international convention dealing with organized crime making it a landmark achievement representing the international community’s commitment to combating transnational organized crime and acknowledging the UN’s role in supporting this commitment. The adoption of the Convention at the fifty-fifth session of the General Assembly of the United Nations in 2000 and its entry into force in 2003 also marked a historic commitment by the international community to counter organized crime. This allows states parties a structure to prevent and combat the crime and a platform of cooperation to do so. State parties commit to the establishment of criminal offences of participating  in organized crime groups, money laundering, corruption and obstruction of justice in their national legislation, while the UNTOC provide States access to new framework for mutual legal assistance, extradition and law enforcement cooperation. States also commit to promoting training and technical assistance to help national authorities address organized crime. Since most groups have three or more people working together for an extended period of time, the defining characteristics of organized crime groups under the Convention are their profit driven nature and the seriousness of the offences. The UNTOC covers only transnational crimes where offences are committed in more than one State, crimes that take place in one State but are planned or controlled in another, crimes in one State committed by groups that operate in more than one State and crimes committed in one State that has substantial effects in another State. The implied definition ‘transnational organized crime’ covers all profit-motivated serious criminal activities with international implications.

According to John Lea’s article, Organized Crime, the State and the Legitimate Economy, the relationship between legitimate world and the powerful and profitable organized crime world is highly complex and variable. Most people see crime as a battle between good and evil where the legitimate world including law enforcement agencies, the political system, business, communities, legitimate society as a whole, is threatened and disrupted by various criminal activity therefore the legitimate world wants to repress it. In recent years, crimes has become in a sense normal as it pervades the political and economic structure of society becoming part of the way the system works rather than a disruption. In the past for example the old Sicilian Mafia was able to gain significant political power in the face of a weak central state. For the purpose of this discussion we take two key institution of legitimate society, the state and business, and study the type of relationship relative to organized crime that may exist. The circumstances discussed are determined by historical and social circumstances and may not exist in all cases and situations. The discussion will follow in terms of increasing degrees of contact and interconnection between the legal and illegal sectors with simple evasion first where minimal contact occurs with the legal sector and substitution being last where organized crime substitutes and displaces key elements of the legal sector.

In modern societies like those of Western Europe and North America it is often taken for granted that:

  • the state apparatus (in particular the security and law enforcement agencies) is stronger than even the most powerful organized crime groups 
  • is itself free of any tendency to engage in illegal activities. That is to say, politicians, and state employees (including police officers, magistrates and lawyers) are committed to ethics of honesty and integrity.
  • that the business elite is similarly committed to public probity, democracy, the rule of law and ‘good governance’
  • that the public have reasonable confidence and trust in the law enforcement agencies and are willing to provide information to them about crime

With evasion, weak, inefficient, corrupt states, and dubious business practices are things that exist as significant activities somewhere else therefore in this scenario organized crime operates with great difficulty as the public and legitimate business have no problem reporting criminal activity to the police. The later will pursue organized crimes making it advantageous for criminal groups to disguise their organization and activities from the state. As a result criminal groups can expect little protection from legitimate businesses. While these groups attempt to set up legitimate enterprise as a front organization to launder money to make plausible their income, the legitimate sector has not interest in illegality as acceptable profits can be made within the constraint of legal business activity. In this case, the market is limited to segregated markets for illegal goods and services as well as protection rackets. Therefore paying protection money, increases costs and insecurity which is counterproductive to the interests of legitimate business. Where the government was weak in the early stages of industrialization, organized crime could operate with a degree of freedom finding sanctuary from legal intervention. This allows the groups to pay less attention to disguising its activities from the state due to ineffectiveness of the latter. In addition, in regions where government is weak, organized crime will take over some of the states functions. However with the modern state becoming more powerful and its technique of surveillance more advanced, organized crime will have little sanctuary left forcing them to turn to techniques of disguise  such as money laundering. Therefore improvements in surveillance and investigation techniques will help to keep organized crime in check. Unfortunately, the effects of globalization has provided more effective ways for organized crime to disguise their activities as newer methods of work and flexible forms of criminal organization has become highly adaptable to the fast-moving global electronic networks e.g. financial networks, sophisticated money laundering processes, and ‘virtual sanctuary.’ Because of encrypted e-mail, anonymous web sites and the numerous instantaneous transactions making up the internet and financial markets, legal and illegal become almost the same as even illegal activity is hard to prosecute by national law enforcement agencies. Therefore criminality is normalized or according to sociologist Manuel Castells:

“The technological and organizational opportunity to set up global networks has transformed, and empowered, organized crime. For a long time, its fundamental strategy was to penetrate national and local state institutions in its home country, in order to protect its activities… This is still an important element in the operational procedures of organized crime: it can only survive on the basis of corruption and intimidation of state personnel and, sometimes, state institutions. However, in recent times, globalization has added a decisive twist to the institutional strategy of organized crime… the high mobility and extreme flexibility of the networks makes it possible to evade national regulations and the rigid procedures of international police cooperation.” (Castells 1998: 202 see also van Duyne 1997)

Sometimes the technology arms race between so-called good and evil become indistinguishable as some elements of business or state find their interests similar in nature to organized crime. This brings together the idea of collusion and corruption which are sometimes hard to tell apart as Lea considers them different sides of the same coin. According to Lea, some distinctions are as follows:

  • collusion is where the state or business corporations form covert and instrumental relations with organized crime groups for their own particular purposes. Organized crime acts in the subordinate role of service provider or subcontractor. The state or the business corporation retains the initiative and decides the services it will pay for. Organized crime accepts the ‘contract’ and delivers the goods.
  • corruption is where organized crime forms more lasting covert relations with elements of the state or business corporations which are of mutual benefit to both sides. Organized crime groups may penetrate the state organs (e.g. police and judiciary) through techniques of bribery and intimidation and use their power to deflect state agencies from their legal and democratically established goals. At the same time important political groups within the state may benefit from and use organized crime to secure their own political dominance within the state. 

The concept of collusion provide a framework where both state and businesses may find it beneficial to cooperate with organized crime groups and in some cases the relationships between states and terrorist groups. Some situations call for state authorities e.g. American CIA and British M16 to form relationships with organized crime groups as part of a covert operation which criminologist William Chambliss called ‘state-organized crime’ as “acts committed by state or government officials in the pursuit of their job as representatives of the government”. Chambliss asserts that governments engage in activities such as arms or drugs smuggling, assassinations and terrorist acts in order to further their own foreign policy by collaborating with organized crime or terrorist groups e.g. drug enforcement agents sought to arrest drug merchants associated with the contras, while the CIA and the North saw the contras as indispensable ideology allies in the war on Communism therefore doing their best to thwart the war on drugs. Some other examples are as followed:

  • alleged collusion by British military intelligence agencies with loyalist paramilitary groups in Northern Ireland
  • Russian military illegally selling armaments to organized crime groups. In fact during the Soviet period, organized crime provided many useful functions to state officials.
  • Authoritarian states using organized crime groups to destabilize democratic opposition movements. In South Africa, during the apartheid regime, the police frequently used criminal gangs to disrupt meetings and other activities of the anti-apartheid movements (Cawthra 1993, Policing South Africa: the SAP and the Transition from Apartheid. London, Zed Press. )

Business corporations from time to time will participate in criminal acts such as white-collar or corporate crimes. A legitimate corporation who engages in frequent criminal activities can be considered a form of organized crime, however the topic discussed by Lea refer to legitimate business outsourcing or subcontracting illegal activities to organized crime or to be of use to activities organize crime engages in e.g. toxic waste disposal, arms smuggling and people smuggling. An important service provided by legitimate business today is certainly money laundering. Vincenzo Ruggiero (1996 Organized and Corporate Crime in Europe: Offers that Can’t Be Refused. Aldershot: Dartmouth) distinguished between the various types of business corruption as follows:

  • ‘work as crime’: the criminal activities of legitimate business corporations. These are generally grouped under the heading of ‘white collar’ or corporate crime.

  • ‘crime as work’: traditional organized crime activities such as protection rackets, drugs dealing, and many activities in the ‘informal economy’

  • ‘offers that can’t be refused’: services to legitimate business offered by organized crime such as arms smuggling, illegal toxic waste disposal and smuggling of illegal immigrants for use as cheap labor; money from drugs sales as sources of funds for legal business etc. In the same way workers, especially migrants, may find themselves working in both the illegal and legal sectors of the economy, crossing the boundaries without even knowing it. (see also Ruggiero 1997 Criminals and service providers: Cross-national dirty economies. Crime, Law and Social Change 28: pp 27-38.)

Along with collusion, corruption in state agencies happen at all levels as organized crime needs to protect assets and activities according to John Lea. Even with the most powerful and democratic states and political systems, corruption often gets pushed down to the city and street level e.g. the United Kingdom, United Kingdom and other European countries could not say any politicians, senior members of the police or judiciary had links to organized crime, but the local level police corruption has become a problem. Political corruption takes place frequently when organized crime structures move up the upper echelons of the state apparatus e.g. Italy where a long-term relationship formed with the Italian political elite and the Mafia which helped to secure political superiority of key elements in the Christian Democratic party in Sicily and southern Italy in exchange for protection from police and judicial processes.

Business corruption can be defined as organized crime infiltrating legitimate business to serve their own interest. Like the previous example, the Sicilian Mafia and other Italian groups were able to penetrate the small business sector by providing finance and loans which the money came from the drug trade to small firms. Some might call this a form of loansharking. As a result, organized crime demand services e.g. money laundering and distribution points for drugs and other illegal commodities. This activity is part of  the informal economy of the most poor areas in large cities where financial institutions will not grant loans therefore money from drugs, protection rackets, vice etc. function as capital and funds for taxi-cab companies, night clubs, etc.

Substitution happens when organized crime replaces the state or business corporation, however does not completely run the system but participates in doing the same sort of things as legitimate organizations e.g. fulfilling law, order and dispute resolution functions as well as operate as a central part of the economy. As discussed previously, the role of organized crime in political control of  an area where state institutions are weak actually making the government dependent on organized crime for their function properly e.g. Nineteenth century Sicily and the collapse of the Soviet regime at the beginning of the 1990s where large-scale privatization of state assets allowed organized crime to buy a substantial section of the economy while functioning as private protection, enforcing contracts and assisting in elimination of competitors.

The Economist recently ran a story entitled Organized Crime Hackers Are The True Threat To American Infrastructure on March 11, 2013 where Chinese hackers had exploited the cyber security of American targets, however the damage done was little in comparison to what organized crime does. During the week, a large metropolitan utility in the United States had suffered a massive “distributed denial of service” (DDoS) attack, knocking out its automated online and telephone payment systems resulting in 155,000 customers having to pay their bills in person over the ensuing 48 hours. At the peak of the attack, the back-end computers running the customer database were flooded with 5.7 million spurious packets of data a second bringing the system to a standstill. On the second day of attacks, according to the Economist, the utility called Prolexic Technologies based in Florida was attacked by perpetrators in the United States which maintains scrubbing centers around America, Europe and Asia to suck up malevolent deluges like this. The culprits were hardened criminals who used rented “botnets” to extort money from their victims or steal intellectual property, industrial secrets and marketing plans for sale to rivals at home and abroad. These crimes are big business as criminals have access to automatic exploit kits and cloud based software services as advanced as those used by Fortune 500 companies making them undetectable for months or years. It is unknown how many firms buy “remedial solutions” to get their business up and running again, though Symantec, a large security provider, estimates that global cyber crime costs victims $110 billion a year in remediation, lost business and ransom payments.

Using simple techniques along with more advanced crimeware and cooperation among organizations, has allowed these crime to become more prevalent. Over the past five years, web attackers have combined forces with “botnet” operators who rent their virtual armies to shady organizations committing spam, fraud and other nefarious activities. One piece of crimeware called the Balckhole where someone is redirected from a legitimate site to a compromised site loaded with malware without even knowing and contributes to a third of all detected threats according to Sophos, a data security firm in Britain. The other piece is a rootkit called ZeroAccess which is able to hide its presence from all normal methods of detection, while maintaining access to a computer’s inner workings. Cyber criminals will often use it to install other malware like Blackhole without being detected by security software. Like Blackhole, ZeroAccess allows attackers to exploit the system for months or even years. It has become easier for cyber criminals to exploit the internet due to the fact that the internet did not have security in mind when it was conceived and social media allows for information gathering on people and business allowing scams that exploit human weaknesses to infiltrate a network’s outer perimeter. Unfortunately, the use of devices for personal and professional business has led to compromised security making it a paradise for hackers. Because of the increase need of cyber security, there have been more start-up ventures in security in recent decades and governments have begun to look at the problem more seriously.

Some forms of political corruption called “institutional corruption” are distinguished from bribery and personal gain e.g. campaign contributions. Even when legal, and not a quid pro quo, they often bias the process in favor of special interests and undermine public confidence in the political institution where the institution itself becomes corrupt rather than individuals. A similar problem arises when institutions depend on financial support from people who have interests that may conflict with the primary purpose of the institution. In politics, corruption undermines democracy and good governance  by flouting or subverting the formal processes e.g. corruption in elections and the legislature reduces accountability and distorts representation in policy-making, corruption in the judiciary compromises the law and corruption in public administration results in inefficient provision of services. Simply put, corruption erodes the state’s ability to govern as procedure are disregarded, resources are siphoned off and public offices are bought and sold. In addition, corruption undermines the government’s legitimacy through loss of democratic values of trust and tolerance.

In the private sector, corruption increases the cost to business by illicit payments, the management cost of negotiating with officials and the risk of breaching agreements or detection. While some see corruption as reducing the costs by cutting bureaucracy, the use of bribes may actually cause more officials to make up new rules and delays. It is better for the economy if costly and lengthy regulations are removed rather than bypassed using bribes as it inflates the cost of business and distorts the playing field making it easier for connected firms to operate without competition. Official may also increase the complexity of a project in the public sector in order to conceal or pave the way for bribes and kickbacks due to diversion of public investment into capital projects leading to a distorted investment. Corruption may also lead to lower or non-compliance with construction, environmental, or other regulations reducing the quality of government services and infrastructure, and increases budgetary pressures on government.

Corruption is most evident where incomes are the smallest per capita. In 2006 the World Bank reported that half the funds donated for health usage never made it to the health sector or those that needed medical attention and were expended to “counterfeit drugs, siphoning off of drugs to the black market, and payments to ghost employees”. When foreign aid is given, the money is enough for health in developing countries however political and government corruption uses those funds for personal gain rather than for necessary medical attention for their citizens. Besides health, corruption allows environmental destruction due to the fact that environmental legislation cannot be enforced if officials can be bribed. The same can be applied to social rights worker protection, unionization prevention, and child labor as violation of these laws allows corrupt countries to gain economic advantage illegally in the international market. Wile droughts and natural events trigger famine conditions, it is government action or inaction that determines its severity and even whether or not the famine occurs. A kleptocracy will undermine the food security even when harvests are good and steal state property such as in Bihar, India where more than 80% of the food aid to the poor is stolen by corrupt officials. Likewise, food aid is often robbed at gunpoint by governments, criminals, and warlords alike, and sold for a profit.

Humanitarian aid is highly vulnerable to corruption as some regions of the world become poor and unstable with food aid, construction and other highly valued assistance at the most risk. Food aid can be directly and physically diverted from a destination or indirectly through assessment manipulation, targeting, registration and distribution to favor a group or individuals. In addition, construction and shelter can become profit through substandard workmanship, funds can be diverted, kickbacks occur for contracts and favoritism for building materials in valuable construction. Humanitarian aid agencies will practice exclusion rather than inclusion due to too many recipients diverting the aid making aid only accessible to those who have connections, those who pay bribes or those who perform sexual favors, while others will manipulate  stats to inflate beneficiaries siphoning off additional funds.

In Western countries, cases of bribery and various other forms of corruption exist in all fields e.g. under-the-table payments by patients to reputed surgeons in order to move up a surgery, bribes to the automotive industry by suppliers to sell low-quality connectors used for safety equipment such as airbags, bribes paid to manufacturers of defibrillators by suppliers to sell low-quality capacitors, contributions paid by wealthy parents to the “social and culture fund” of a prestigious university in exchange for a child’s acceptance, bribes paid to obtain diplomas, financial and other advantages granted to unionists by members of the executive board of a car manufacturer in exchange for employer-friendly positions and votes, etc. Most importantly as a result corruption will present a danger to public health and discredit institutions or social relationships. In addition corruption can affect sports activities e.g. referees, players, medical and laboratory staff involved in anti-doping controls, members of national sport federation and international committees deciding about the allocation of contracts and competition places. Corruption involved every facet of the legitimate world from non-profit to non-governmental to religious organizations.

The conditions, which favor corruption, include the following:

  • Information deficits
    • Lacking freedom of information legislation. For example: The Indian Right to Information Act 2005 is perceived to have “already engendered mass movements in the country that is bringing the lethargic, often corrupt bureaucracy to its knees and changing power equations completely.” ( AsiaMedia, Right to Information Act India’s magic wand against corruption)
    • Lack of investigative reporting in the local media.
    • Contempt for or negligence of exercising freedom of speech and freedom of the press.
    • Weak accounting practices, including lack of timely financial management.
    • Lack of measurement of corruption. For example, using regular surveys of households and businesses in order to quantify the degree of perception of corruption in different parts of a nation or in different government institutions may increase awareness of corruption and create pressure to combat it. This will also enable an evaluation of the officials who are fighting corruption and the methods used.
    • Tax havens which tax their own citizens and companies but not those from other nations and refuse to disclose information necessary for foreign taxation. This enables large-scale political corruption in the foreign nations.
  • Lacking control of the government.
    • Lacking civic society and non-governmental organizations which monitor the government.
    • An individual voter may have a rational ignorance regarding politics, especially in nationwide elections, since each vote has little weight.
    • Weak civil service, and slow pace of reform.
    • Weak rule of law.
    • Weak legal profession.
    • Weak judicial independence.
    • Lacking protection of whistleblowers.
      • Government Accountability Project
    • Lack of benchmarking, that is continual detailed evaluation of procedures and comparison to others who do similar things, in the same government or others, in particular comparison to those who do the best work. The Peruvian organization Ciudadanos al Dia has started to measure and compare transparency, costs, and efficiency in different government departments in Peru. It annually awards the best practices which has received widespread media attention. This has created competition among government agencies in order to improve. (Mathiason, Nick (2007-01-21). Western bankers and lawyers ‘rob Africa of $150bn every year. London: The Guardian.)
  • Opportunities and incentives
    • Individual officials routinely handle cash, instead of handling payments by giro or on a separate cash desk—illegitimate withdrawals from supervised bank accounts are much more difficult to conceal.
    • Public funds are centralized rather than distributed. For example, if $1,000 is embezzled from a local agency that has $2,000 funds, it is easier to notice than from a national agency with $2,000,000 funds. See the principle of subsidiarity.
    • Large, unsupervised public investments.
    • Sale of state-owned property and privatization.
    • Poorly-paid government officials.
    • Government licenses needed to conduct business, e.g., import licenses, encourage bribing and kickbacks.
    • Long-time work in the same position may create relationships inside and outside the government which encourage and help conceal corruption and favoritism. Rotating government officials to different positions and geographic areas may help prevent this; for instance certain high rank officials in French government services (e.g. treasurer-paymasters general) must rotate every few years.
    • Costly political campaigns, with expenses exceeding normal sources of political funding, especially when funded with taxpayer money.
    • A single group or family controlling most of the key government offices. Lack of laws forbidding and limiting number of members of the same family to be in office .
    • Less interaction with officials reduces the opportunities for corruption. For example, using the Internet for sending in required information, like applications and tax forms, and then processing this with automated computer systems. This may also speed up the processing and reduce unintentional human errors. See e-Government.
    • A windfall from exporting abundant natural resources may encourage corruption. ( Why benchmarking works – PSD Blog – World Bank Group. Psdblog.worldbank.org. 2006-08-17. Retrieved 2009-11-05)
    • War and other forms of conflict correlate with a breakdown of public security.
  • Social conditions
    • Self-interested closed cliques and “old boy networks”.
    • Family-, and clan-centered social structure, with a tradition of nepotism/favouritism being acceptable.
    • A gift economy, such as the Soviet blat system, emerges in a Communist centrally planned economy.
    • Lacking literacy and education among the population.
    • Frequent discrimination and bullying among the population.
    • Tribal solidarity, giving benefits to certain ethnic groups. In India for example, the political system, it has become common that the leadership of national and regional parties are passed from generation to generation (Damania, Richard; Bulte, Erwin (July 2003). Resources for Sale: Corruption, Democracy and the Natural Resource Curse (PDF). Centre for International Economic Studies, University of Adelaide. Retrieved 2010-12-11. Soutik Biswas (1-18-2011). Is India sliding into a hereditary monarchy?. BBC. BBC News. Retrieved 3 September 2011.)
    • creating a system in which a family holds the center of power. Some examples are most of the Dravidian parties of south India and also the Congress party, which is one of the two major political parties in India.
    • Lack of strong laws which forbid members of the same family to contest elections and be in office as in India where local elections are often contested between members of the same powerful family by standing in opposite parties so that whoever is elected that particular family is at tremendous benefit.

Due to the need for financial contribution to campaigns, politician are put in compromising positions as it appears many are acting upon the interests of campaign contributors and not the general public which is not always the case. As some cases may be examples of this type of corruption, some donors contribute to support a candidate, party or policy because of personal preference rather than business or political aspirations therefore some contributions are not for quid pro quo. Certain countries e.g. France or Canada ban the corporate funding of political parties and placed a maximum spending cap on campaigning so that candidates who exceed those limits or hands in misleading accounting reports may risk being invalidated as a candidate or prevented from running in future elections. In addition, governments fund political parties according to their success in election with some countries running their political parties solely off subscriptions or membership fees. Unfortunately, people see this as a form of legalized corruption as one political party is favored over another becoming status quo. By allowing major parties to use public funding while constraining the possibility of private funding by outsiders, officials are taking money from the public in order to guarantee that they will continue to hold their influential and well paid positions. According to the Committee of Ministers of the Council of Europe, in 1996 the Recommendation on Common Rules against Corruption in the Funding of Political Parties and Electoral Campaigns was adopted. Some highlights include increasing transparency in the funding of political parties and election campaigns, ensuring a certain level of control over the funding and spending connected with political activities, and making sure infringements are subject to effective, proportionate, and dissuasive sanctions. Some watchdog groups include:

      • Global Witness, an international NGO established in 1993 that works to break the links between natural resource exploitation, conflict, poverty, corruption, and human rights abuses worldwide
      • Group of States Against Corruption, a body established under the Council of Europe to monitor the implementation of instruments adopted by member states to combat political corruption
      • Independent Commission Against Corruption (disambiguation)
      • Transparency International, a non-governmental organization that monitors and publicizes corporate and political corruption in international development
        • Corruption Perceptions Index, published yearly by Transparency International
      • TrustLaw, a service of the Thomson Reuters Foundation is a global hub for free legal assistance and news and information on anti-corruption

According to the United Republic website, A History of Political Corruption in America, big money has played a role for a long time in politics therefore its corruption but in the last 40 years has become a lot worse. Years ago, politicians only had to raise a few hundred thousand dollars to run for office, but now in order to run a candidate must raise tens of millions while the influence industry spends tens of billions of dollars annually on lobbying, campaign contributions, deceptive PR campaigns and phony grass-roots groups. This has led to political and lobbying organizations presenting well-financed special interests to achieve overwhelming control of the public debate and policy making. In 1905, Teddy Roosevelt called for a ban on corporate participation in elections which came two years later when Congress passed the Tillman Act prohibiting corporations from contributing to federal campaigns. Forty years later, the Taft-Hartley Act fortified the Tillman Act, banning labor unions and corporations from spending money in federal elections and from making contributions to federal candidates. Modern campaign finance rules started in 1971 with the Federal Election Campaign Act and strengthened by the 1974 Federal Election Commission. Of significant importance, Buckley v. Valeo was the first U.S. Supreme Court decision to equate political money with speech resulting in extreme abuse and preventing reform in recent years. As the United Republic states:

“The last 40 years have also been marked by some good news — significant improvements in the tracking of campaign-finance data, as well as some legal skirmishes that have attempted to keep Big Money at bay and create greater transparency of spending. Unfortunately, though, too much money — both lobbying and political expenditures — remains hidden.”

January 2010 led to a disregard for established laws and Big Money flooding the system with the U.S. Supreme Court’s Citizens United decisions. Political spending has increased in the past 30 years, however since Citizen United the 2010 elections saw a record-breaking $489 million spent by outside groups a 450% increase over the 2006 cycle. So called Super PACs were able to thrive in the new environment where political action committees could raise and spend unlimited sums of money to support or oppose candidates. Corporations are free to spend whatever they want in elections with a costly tab in 2012 of $6 billion. The Unite Republic believes that for this very reason “the industry trade associations representing energy, health care and financial services are poised to spend billions more in the coming years influencing policy making through lobbying, television ads and other political activities.” In response, many new citizen movements have developed such as the  Tea Party on the right and Occupy on the left which believe that government no longer is responsive to the average citizen. In addition, dozens of amendments to curb this spending have been proposed and state level courts are beginning to challenge the logic of Citizen United.

According to Transparency International and Michael Kelley’s article, The 12 Most Corrupt Countries In The World, the following 2012 list shows countries and territories based on how corrupt their administrative and political institutions are perceived on a scale from 0 to 100 called the Corruption Perception Index with “0” being high corrupt and “100” being very clean. The CPI is the most widely used indicator for corruption worldwide. Ranking 165 out of 174 countries with a score of 19 out of 100, Chad has failed to fulfill its promise to spend some of the billions of dollars annually it sees from the oil pipeline that stretches from Chad to Cameroon on social issues and has instead spent it on weapons with lenders failing to insist on transparency in the Chadian government. Burundi ranks 165 out of 174 with a score also of 19 out of 100 as the country due to corrupt officials and a deepening corruption crisis after the 2005 rebellion has little hope for peace and stability even after political power has transferred from the Tutsi to the Hutu. Haiti shares the ranking with the first two with the same score as the corruption in government has not changed even though the president has according to the 2011 Human Rights Report by the U.S. State Department. In addition, Venezuela  sharing the spot and score has remained corrupt since the first CPI in 1995. The discovery of oil in Venezuela has caused the slide into corruption to speed up and by 1970s petroleum sucked from the ground was called “the Devil’s excrement” by Venezuelans. Iraq ranks 169 out of 174 with a score of 18 out of 100 as the battle to stop corruption has been hard as the BBC reported in 2009 from a former political exile: “Millions of dollars are being stolen, and some of this money is going to terrorist groups. The government cannot win the war against the insurgency if it does not fight corruption first. And the war against corruption is much harder to win.” Some other countries include Turkmenistan ranking at 170 out of 174 with a score of 17 out of 100, Uzbekistan ranking at 170 out of 174 countries with a score of 17 out of 100, Burma ranking at 172 out of 174 with a score of 15 out of 100, Sudan ranking at 173 out of 174 countries with a score of 13 out of 100 and not too surprising is the countries ranking at 174 out of 174 with a score of 8 out 100, Afghanistan with the Kabul Bank Ponzi scheme and North Korea with its closed economy. The final spot tied with the previous two, Somalia, has been ripped apart by clans, warlords, pirates and government militias backed in the past by U.S. and U.S.S.R. political ideology fueling corruption.

Side Note: According to Michael Kelley’s article, The Three Least Corrupt Countries In The World, the same index above has  Denmark, Finland and New Zealand sharing the top spot. share the top spot. Both Denmark and Finland are based on the Nordic welfare state model, while New Zealand has developed into a free market economy in which welfare is provided mostly on the basis of need. Michael Kelley comments that all three countries operate with the right amount of openness and effectiveness to combat corruption as Transparency International notes to fight corruption “involves public participation and transparency mechanisms such as disclosure of information.” All three countries have high GDP per capita, low inequality rates, literacy rates close to 100% and prioritize human right issues such as gender equality and freedom of information. It is important to note that the scale does not take into account societal or private sector corruption, however the CPI remains the gold standard for such measurement.

As the Economist reported in January of 2012, trust in institutions is plunging worldwide:

“The latest annual ‘trust barometer’ published by Edelman, a PR firm, on January 24th [finds that] overall trust has declined in the leaders of the four main categories of organization scrutinized—government, business, non-governmental organizations and the media. Of the 50 or so countries examined, 11, nearly twice as many as last year, are now judged ‘skeptical’, with less than 50% of those polled saying they trusted these institutions. Trust in Japanese institutions plunged to 34%, from 51% in 2011, not surprising given the handling by leaders of the Tsunami and its aftermath. But the collapse in trust was even more striking in Brazil, the country in which trust was greatest in 2011, at 80%, but now, following a series of corruption scandals, has slipped to 51% (admittedly, still above America and Britain, among others).

This headline slump in trust is due, above all, to the public losing faith in political leaders. In 2011, across all countries, Edelman found that 52% of those polled trusted government; this year, it was only 43%. Government is now trusted less even than the media …. Trust in business fell slightly, from 56% to 53%, as did trust in NGOs, which still remain the most trusted type of institution, at 58%, down from 61% in 2011. As in previous years, the barometer is based on a poll of what Edelman calls ‘informed people’, which typically means professional and well-educated, though this year for the first time the views of the informed were bench marked against a poll of the public as a whole. For each institution, the broader public was even less trusting than the informed, with government trusted by 38%, business 47%, NGOs 50% and the media 46%.”

A leading business school, the Wharton School of Business, in American has published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton explains that restoring trust should be a priority to recovery and trust cannot be restored without people being held accountable for their action or for that matter inaction:

“According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. ‘Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.’ The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. ‘Normal expectations of what is safe and dependable were abruptly shattered,’ Sachs noted. ‘As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.’

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

‘By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,’ Sachs said. ‘In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.’

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to ‘hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.’ In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.”

As Iceland has demonstrated by prosecuting the fraudster bank heads and their former prime minister, they have been able to move forward toward recovering the economy due to trust being restored in the financial system. In February 2012, on The 700 Club, evangelical leader Pat Robertson agreed with the Nordic Nation:

 “They are putting people in jail.  Prime ministers are being indicted. They are going after banks. The people said the banks are ripping us off. We don’t like what they did, and they brought our country to ruin. Suddenly, Iceland is turning around and they look like a big success story!” “We could start putting all of those bankers in jail. There was not one banker prosecuted and so many people were lying, and so-called “no-doc loans” and liars’ loans, and none of them have been held accountable. Iceland is leading the way and their GDP is growing, and all of a sudden, they were in a terrible mess, terrible mess, and look what is happening!”


Though the Federal Reserve Board members are appointed and removed by the U.S. President and confirmed by the Senate, according to the Want to Know Website, the Federal Reserve is a privately owned institution controlled by large private banks as a result the government has no control over their decisions. Powerful bankers like J.P. Morgan had a great amount of power and control over the formation and management of monetary policy due to their power over the Federal Reserve with Congress having no influence. Another fact worthy of pointing out is the fact that non of the money in circulation is backed by any real value such as gold or silver due to President Nixon in 1971. Furthermore, all banks especially the Federal Reserve has at one time only 3% to 10% of all credit issued held in reserve as bank notes therefore the Federal Reserve is not truly federal nor a full reserve the website reports. The fact that the “United States Federal Reserve System” is printed on every U.S. bank-note raises serious questions. The history of origins date back to 1910 at the Jekyll Island resort where several powerful men who just happened to be the richest families at the time crafted legislation that eventually passed in 1913. The families in question are none other than the Rockefellers, J.P. Morgan family and the Rothschilds. Many objected to its passing as fears of turning over control of the nation’s money to private bankers would allow the rich to become ultra rich at the expense of the public. Some notable discussion on this topic comment on the secretive nature of the Federal Reserve (according to Wikipedia):

“A large and varied group of criticisms have been directed against the Federal Reserve System. One group of criticisms, typified by the Austrian School, criticize the Federal Reserve as an unnecessary and counterproductive interference in the economy. Other critiques include arguments in favor of the gold standard and criticisms of an alleged lack of accountability or culture of secrecy within the Reserve. Finally, a group of conspiracy theories make various charges against the Federal Reserve, generally claiming the Federal Reserve System is actually a scheme to enrich a few wealthy bankers at the expense of the public.

Economists of the Austrian School such as Ludwig von Mises contend that the Federal Reserve’s artificial manipulation of the money supply leads to the boom/bust business cycle that has occurred over the last century. Many economic libertarians … believe that the Federal Reserve’s manipulation of the money supply to stop ‘gold flight’ from England caused, or was instrumental in causing, the Great Depression.”

Another important aspect to note, fractional-reserve banking refers to the standard banking practice of issuing more money than the bank holds as reserves. As the Want to Know website states:

“Banks in modern economies typically loan their customers many times the sum of the cash reserves that they hold. Did you know that for every dollar in your checking or savings account, the bank can legally loan out $10 or more?

Here’s a description of fraction reserve banking’s origins from a standard university macroeconomics text:

‘When the ancients began to use gold in making transactions, it became apparent that it was both unsafe and inconvenient for consumers and merchants to carry gold and have it weighed and assessed for purity every time a transaction was negotiated. It therefore became commonplace to deposit one’s gold with goldsmiths whose vaults or strongrooms could be used for a fee. Upon receiving a gold deposit, the goldsmith issued a receipt to the depositor. Soon goods were traded for the goldsmiths’ receipts and the receipts became the first kind of paper money.

At this point the goldsmiths – embryonic bankers – used a 100% reserve system; their circulating paper money receipts were fully backed by gold. But, given the public’s acceptance of the goldsmiths’ receipts as paper money, the goldsmiths became aware that the gold they stored was rarely redeemed. Then some adroit banker hit on the idea that paper money could be issued in excess of the amount of gold held. Goldsmiths [then began to issue] additional ‘receipts’ … into circulation by making interest-earning loans in the form of gold receipts. This was the beginning of the fractional reserve system of banking.’

The college text from which the above quote is taken does not question the propriety of goldsmiths creating these new ‘receipts’ or money without any gold backing, without any authority, and indeed without any real reason to do so other than to enrich themselves. In fact, the text even praises the questionable behavior of the one who began this hidden form of corruption as ‘adroit.’

The unsuspecting public had no idea that goldsmiths were issuing paper receipts accepted as money which were backed by no gold deposits at all for ten times or more the amount of gold that had been entrusted to them. The goldsmiths were secretly creating money out of thin air. They thus made themselves fantastically wealthy without anyone noticing what was going on. To better hide this deceit and divert people’s attention, the goldsmiths stopped their old practice of charging for storing gold and instead began to pay customers a small interest on their gold deposits to keep them happy. Thus it was that modern-day bankers were born.”

Ultimately the hiding of information and massive deception, does nothing to serve the interest of the public and only re-enforces the powerful and corrupt banking institutions. No one bothers to question the text, the system itself, the ethics or morality of the fractional reserve system allowing corruption to take place in the form of creating money out of thin air. The system itself is part of formalized law and has been for centuries making it legal and acceptable common practice around the world. The creation of money makes it so banking institution has a rather large presence where ever they are and were ever they go. However, for centuries the system has managed to remain fairly stable up until recently.

“The powers of financial capitalism had [a] far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences.” – Quote from Caroll Quigley’s Tragedy and Hope, Chapter 20

Carroll Quigley’s, a professor of history at Georgetown University from 1941 to 1976, masterpiece Tragedy and Hope: A History of the World in Our Time covers the history of banking and money in western civilization. Some highlights of his life include being a professor at Princeton and at Harvard, lectured at the Brookings Institution, the U.S. Naval Weapons Laboratory, the Foreign Service Institute, and the Naval College at Norfolk, Virginia and a consultant in 1958 to the Congressional Select Committee which set up the National Space Agency. According to Quigley, western civilization is the richest and most powerful social organization ever created by man due to the successful implementation of the six successive states into their economic organization of which four are called “capitalism.” Each stage progresses to the next by creating the conditions needed. The stages are as follows according to Quigley’s book, Chapter 5:

“The [first stage] of self-sufficient agrarian units (manors) was in a society organized so that its upper ranks—the lords, lay and ecclesiastical—found their desires for necessities so well met that they sought to exchange their surpluses of necessities for luxuries of remote origin.

This gave rise to a trade in foreign luxuries (spices, fine textiles, fine metals) which was the first evidence of the stage of commercial capitalism. In this second stage, mercantile profits and widening markets created a demand for textiles and other goods which could be met only by application of power to production.

This gave the third stage: industrial capitalism. The stage of industrial capitalism soon gave rise to such an insatiable demand for heavy fixed capital, like railroad lines, steel mills, shipyards, and so on, that these investments could not be financed from the profits and private fortunes of individual proprietors. New instruments for financing industry came into existence in the form of limited-liability corporations and investment banks. These were soon in a position to control the chief parts of the industrial system, since they provided capital to it.

This gave rise to financial capitalism. The control of financial capitalism was used to integrate the industrial system into ever-larger units with interlinking financial controls. This made possible a reduction of competition with a resulting increase in profits. As a result, the industrial system soon found that it was again able to finance its own expansion from its own profits, and, with this achievement, financial controls were weakened, and the stage of monopoly capitalism arrived.

In this fifth stage, great industrial units, working together either directly or through cartels and trade associations, were in a position to exploit the majority of the people. The result was a great economic crisis which soon developed into a struggle for control of the state—the minority hoping to use political power to defend their privileged position, the majority hoping to use the state to curtail the power and privileges of the minority.

This dualist struggle dwindled with the rise of economic and social pluralism after 1945.”

The aim of capitalism is simply profit and never tries to achieve prosperity, high production, high consumption, political power, patriotic improvement or moral uplift. According to Quigley, the latter can be achieved or ant or all can be sacrificed and lost under capitalism depending on the relationship to the primary goal of capitalist activity, profit. As history has taught us, nine hundred years of capitalism at various points has contributed to the achievement and to the detriment of these other social goals. An example is the idea of mercantilism that takes place at the state of commercial capitalism where the restriction of goods for profit took over and profit itself became an end in itself rather than an accessory mechanism to the economic system as a whole e.g. the movement of goods for profit which increased prosperity by trade and production. As merchants shifted from good to profit, they became more concerned with the shipment and exchange of money not goods which led to concern with lending money to merchants to finance business activities even advancing money with high interest rates secured by claims on ships or goods as collateral repayment.

Eventually “each central bank, in hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, aspired to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world,” Quigley writes in his book. The financial capitalists wanted to hold the power and relinquish ownership of securities, while the industrial side wanted to advance monopoly and restrict production keeping prices up and their security holdings liquid. Due to demand for capital by modern industry, financiers sought to separate ownership from control by bringing together the capital owned by a large number of persons to create an enterprise controlled by a small number of persons. This resulted in larger and larger numbers of wealth being controlled by smaller and smaller groups of men. This led to the modern corporation law and practice, while establishing monopolies and cartels on the other. This helped to dig the grave of financial capitalism and pass economic control on to monopoly capitalism where financiers freed the controllers of business from the owners of business and at the same time gave rise to monopoly conditions freeing the controllers from the banks.

Quigley poignantly states in his conclusion:

“The hope of the twentieth century rests on its recognition that war and depression are man-made and needless. They can be avoided in the future by turning from … nineteenth-century characteristics … and going back to other characteristics that our Western society has always regarded as virtues: generosity, compassion, cooperation, rationality, and foresight, and finding an increased role in human life for love, spirituality, charity, and self-discipline.”

John Perkin’s, Confessions of an Economic Hit Man, book reveals his years as one of the world’s top economists working with the heads of the World Bank, IMF, and other global financial institutions. After 20 years, he quit due to the moral and ethical issues he encountered as a key player in creating a world empire at the expense of those less advantaged around the world. His job was to convince countries strategically important to the United States to accept enormous loans for infrastructure development making sure that the lucrative projects went to U.S. corporations. The book details the process in which Perkins created projections for countries to accept billions in loans that were unaffordable. The book provides an important blueprint of how Americans can work to end these practice which as a direct result has caused terrorist attacks and animosity toward the U.S. He believes “we have convinced ourselves that all economic growth benefits humankind, and that the greater the growth, the more widespread the benefits…The empire depends on the efficacy of big banks, corporations, and governments – the corporatocracy – but it is not a conspiracy. This corporatocracy is ourselves – we make it happen – which, of course, is why most of us find it difficult to stand up and oppose it. We cannot bring ourselves to bite the hand of the master who feeds us.” Perkins offers several ways to help stop “the corporatocracy and to end this insane and self-destructive march to global empire.” The suggestions below outline some of these ideas:

• Read between the lines of each and every media report and help others do the same. The majority of our media outlets – newspapers, magazines, publishing houses, television stations, radio stations, etc. – are owned by huge international corporations and these corporations aren’t afraid to manipulate the news they deliver. Always seek the truth and encourage others to do the same.
• Cut back on oil consumption and shopping. When you are shopping, be very aware of the products you buy and the companies you’re supporting.
• Downsize your personal possessions, including your home, your car and your office.
• Protest against unfair free trade agreements.
• Protest against companies that exploit desperate people in sweatshops.
• Protest against companies that pillage the environment.
• Look for ways to educate others about what is going on in the world. This can be done by writing letters and emails to friends, newspapers, school boards and local organizations.
• And finally, ask yourself the following questions:

  • How can I help our children understand that people who live gluttonous, unbalanced lives should be pitied but never, ever emulated, even if those people present themselves, through the media they control, as cultural icons and try to convince us that penthouses and yachts bring happiness?
  • What changes will I commit to making in my attitudes and perceptions?
  • What forums will I use to teach others and to learn more on my own?
  • Why have I allowed myself to be sucked into a system that I know is unbalanced?
  • What will I do to help our children, and all children everywhere, to fulfill the dream
    of our Founding Fathers, the dream of life, liberty, and the pursuit of happiness?
  • What course will I take to end starvation, and make sure there is never again a day like September 11th?

Early in April of 2013, due to the efforts of the International Consortium of Investigative Journalists into offshore holdings of people and companies in more than 170 countries and territories, these whistle blowers exposed trillions of dollars in hidden income and assets. The Deutsche Bank was one of the banks on the ICIJ report providing customers with “secrecy-cloaked companies” in offshore hideaways. An anonymous whistle-blower sent 2.5 million electronic files containing “the biggest stockpile of inside information about the offshore system ever obtained by a media organization.” 86 journalists from 46 countries analyzed the data and followed up additional reporting to put together their detailed expose, Secrecy for Sale: Inside the Global Offshore Money Maze. The investigation followed the “well-paid industry of accountants, middlemen and other operatives” that has “helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.” The report includes many of the world’s top banks including UBS, Clariden and Deutsche Bank, that “have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.” The report, for example, said, “Clariden, owned by Credit Suisse, sought such high levels of confidentiality for some clients, the records show, that a TrustNet official described the bank’s request as ‘the Holy Grail’ of offshore entities — a company so anonymous that police and regulators would be ‘met with a blank wall’ if they tried to discover the owners’ identities.” Let’s hope these companies do not find the whistle-blower that exposed their nefarious activities to the public and that the Internal Revenue Service takes this report seriously by taking action against this type of activity event though such action is doubtful as the IRS has not done anything in the past.

Recent poll after all said and done tell the true story of what scandals e.g Foreclosure Crisis and recent IRS scandal do to a nation’s trust and recovery.  A poll released by Quinnipiac University on May 30 revealed that 76% of registered voters including 63% of Democrats favored the appointment of a special prosecutor to independently investigate the allegations of wrongdoing. Pollster Peter A. Brown said there was “overwhelming bipartisan support” for such an investigation, according to Jonathan D. Salant’s article Special IRS Prosecutor Favored as Obama Support Drops on Bloomberg New site. An NBC News/Wall Street Journal poll conducted May 30 to June 2, 2013, found that 55% of respondents believed that the scandal raises questions about the Obama administration’s honesty and integrity. Nevertheless, only 33% of respondents blamed Obama directly for the actions underlying the scandal. The poll also found the public’s confidence in the IRS to be low, with just 10% of respondents expressing confidence in the agency.

Capitalism: A Love Story is a 2009 American documentary film directed, written by and starring Michael Moore. As Overture Films poignantly explains the film:

“Capitalism: A Love Story examines the impact of corporate dominance on the everyday lives of Americans (and by default, the rest of the world). The film moves from Middle America, to the halls of power in Washington, to the global financial epicenter in Manhattan. With both humor and outrage, the film explores the question: What is the price that America pays for its love of capitalism? Families pay the price with their jobs, their homes and their savings. Moore goes into the homes of ordinary people whose lives have been turned upside down; and he goes looking for explanations in Washington, DC and elsewhere. What he finds are the all-too-familiar symptoms of a love affair gone astray: lies, abuse, betrayal…and 14,000 jobs being lost every day. Capitalism: A Love Story also presents what a more hopeful future could look like. Who are we and why do we behave the way that we do? “

The film focuses on the late-2000s financial crisis and the recovery stimulus, while putting forward an indictment of the current economic order in the United States and capitalism in general. Some highlights include Wall Street’s “casino mentality”, for-profit prisons, Goldman Sachs’ influence in Washington, D.C., the poverty-level wages of many workers, the large wave of home foreclosures, corporate-owned life insurance, and the consequences of “runaway greed”.

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