Corruption in interior

What is the institutional culture that permits the senior management of a federal agency to engage in an extended practice of conflict of interest, exchange of gifts, drugs, and sex, and corrupt collusion with energy companies leading to the loss of millions of dollars of revenue for the Federal budget? These allegations are contained in a series of reports issued today by the inspector general of the Department of Interior, concerning the practices of the Minerals Management Service, the division of the Department of Interior responsible for collecting billions of dollars in royalties from energy companies (New York Times article, Washington Post article).

What these investigative findings look like from the outside is fairly simple: officials who are in positions to convey favorable treatment to major businesses, who profit from this position in the most venal way imaginable. It looks quite a bit like a very ordinary kind of big-city corruption — except that it is occurring within a major Federal agency, under the supervision of the President of the United States.

So it’s a tough question: what explains this behavior? Is it greed? Is it contempt for the fiduciary obligations that officials in these roles have to the public? Is it a deep blindness to the meaning of the conduct?

And what explains the blindness of higher-level supervisors to these apparently widespread practices? Where is the accountability that our system of civil administration must depend upon? Where was the Secretary of the Interior during this period of abuse? Where were the effective management structures that could give managers at each level the confidence he/she needed that behavior within his/her scope was honest and mission-driven?

And while we’re asking tough questions, let’s ask another: why is it that the Department of Justice has decided not to pursue charges against the most senior officials engaged in these practices? Are these officials above the law? Are the standards governing official misconduct more exacting in Detroit than in Washington? Does the Department of Justice intend to give the impression that the improper exercise of the powers of office is excusable, if the party affiliation of the officials in question is aligned with the executive branch?

How much self-dealing and hoodwinking of the public will American voters tolerate before they insist on a change of party and executive behavior?

Public versus hidden faces of organizations

Think of a range of complex organizations and institutions — police departments, zoning boards, corporations, security agencies, and so on indefinitely. These organizations all have missions, personnel, constituencies, and policies and practices. They all do various things — they affect individuals in society and they bring about significant social effects. And, in each case there are at least three aspects of their realities — the ways they publicly present themselves, the ways their behaviors and effects are perceived by the public, and the usually unobservable reality of how they actually behave. Usually the public persona of the institution is benign, fair, and public- spirited. But how close is this public persona to the truth? In many of our basic institutions, the answer seems to be, not very. We are daily confronted with cases of official corruption, corporations that abuse their power, legislators who take advantage of insider status, and the like. So how can we conceptualize the task of getting a reasonably accurate perception of the hidden workings of our major institutions and organizations?

First, let’s consider whether it is possible to specify a minimum charter of good organizational behavior in a democratic society. This would be a partial answer to a part of our question: what defines the conditions of a socially acceptable and publicly defensible organization? Consider these aspirations —

The organization should have goals that are compatible with enhancing the public good.
The organization should have appropriate policies about behavior towards employees and the public.
The organization should genuinely incorporate a commitment of compliance to law and regulation.
The corporation should embody a faithful commitment to exerting its efforts on behalf of its stated mission and stakeholders.
The organization should be committed to transparency and accountability.

Bad business practices and corruption can often be traced to a violation of one or more of these principles. The most offensive practices by powerful organizations — predatory behavior, asset stripping, the use of coercion and threat to achieve organizational goals, fraud, deception, illegal behavior, toxic waste dumping, evasion of regulations, and bribery — all fall within the categories identified here.

So how are we to determine whether our existing organizations and institutions satisfy these minimal conditions? We might imagine a routine “scan” of major institutions and organizations that asks a small set of questions along these lines:

What are the real operational goals and priorities of the organization?
What are the operational policies that govern corporate action?
How do agents of the organization actually treat members of the public in carrying out their tasks?
To what extent are there discrepancies between policy and practice?
To what extent do powerful leaders and managers use their positions to favor their own private interests? (conflict of interest)
To what extent do business crimes occur — accounting fraud, investor deception, evasion of regulations for health and safety?
And, most generally, to what extent is there a discrepancy between the official story about the organization and its actual practices?

It is very easy to think of examples of bad organizational behavior illustrating each of these questions — waste management companies fronting for organized crime groups, pharmaceutical companies producing defective generic drugs, police officers accepting bribes from speeding drivers, mining companies hiring “security workers” to evict “squatters.” And it would be a very interesting exercise to try to provide brief but accurate answers to each of these questions for a number of organizations. Based on the answers to questions like these that we are able to establish, we could then make an effort to answer the question of how great a discrepancy there is between the benign public persona of major institutions and their actual workings.

In theory we might say that answering these questions is no more difficult than putting a man on the moon — costly but straightforward. However, as was said twenty years ago in the context of anti-ballistic missile technology, the difference is that the moon doesn’t fight back. Organizations — particularly large governmental and corporate organizations — are very adept at covering their tracks, concealing bad behavior, and re-telling the story in their own interests. So the investigative challenge is a huge one — we might speculate that corruption multiplies geometrically, while investigative capacity multiplies arithmetically (a sort of Malthusian theory of misbehavior). Any given abuse can be uncovered in the New Yorker or on the 6 o’clock news — but bad behavior outstrips investigative resources.

So the task of understanding this aspect of modern society amounts to finding effective ways of shining a light on the real practices and priorities of important organizations and institutions. And the practical interest we have in controlling bad organizations — controlling corruption, ensuring good environmental and labor practices, eliminating coercion and violence — comes down to the challenge of enhancing the ability of democracies to investigate, regulate, and publicize the standards and outcomes of behavior that are required.

(Earlier posts have addressed aspects of this issue, including comments on corruption and publicity.)

Trust and corruption

The recent collapse of a major skyscraper crane in New York City last month led to a surprising result: the arrest of the city’s chief crane inspector on charges of bribery. (See the New York Times story here.) (The story indicates that the facts surrounding the charges are unrelated to this particular crane collapse.) Several weeks earlier, a Congressional committee heard testimony from three F.A.A. inspectors to the effect that the agency had permitted Southwest Airlines to fly uninspected planes (story), and some attributed this lapse to too cozy a relationship between the F.A.A. and the airline industry:

The F.A.A.’s watchdog role, to many Democrats in Congress who now oversee airline regulators, grew toothless. “We had drifted a little bit too much toward the over-closeness and coziness between regulator and regulated,” said H. Clayton Foushee Jr., a former F.A.A. official who led a recent inquiry by Mr. Oberstar’s committee. (story)

The basic systems of a complex society depend upon the good-faith commitment of providers to give top priority to safety, health, and quality, but they also depend upon regulation, inspection, and certification. Caveat emptor doesn’t work when it comes to airline travel or working in a skyscraper; we simply have to trust that the airliner or the building is built and maintained to a high level of safety standards. The food we eat, the restaurants we patronize, the airlines and railroads we travel on, and the buildings we live and work in (and send our children to) provide complex products for our use that we can’t independently evaluate. Instead, we are obliged to trust the providers — the builders, the airline companies and their pilots and mechanics, the restaurant operators — and the regulatory and inspection regimes that are intended to provide an assurance of quality, safety, and health.

And yet there are two imperatives that work against public health and safety in most modern societies: the private incentive that the provider has to cut corners, and the perennial temptation of corruption that is inherent within a regulatory process. On the providers’ side, there is a constant business incentive to lower costs by substituting inferior ingredients or materials, to tolerate less-than-sanitary conditions in the back-of-restaurant areas, or to skimp on necessary maintenance of inherently dangerous systems. And on the regulatory side, there is the omnipresent possibility of collusion between inspectors and providers. Inspectors have it in their power to impose costs or savings on providers; so the provider has an economic interest in making payments to inspectors to save themselves these costs. (See Robert Klitgaard’s fascinating book, Controlling Corruption, for a political scientist’s analysis of this problem.)

In a purely laissez-faire environment we would expect there to be recurring instances of health and safety disasters in food production, building construction, transportation, and the healthcare system; this seems to be the logical result of a purely cost- and profit-driven system of production. (This seems to be what lies at the heart of the Chinese pet food and toy product scandals of several months ago, and it was at the heart of the food industries chronicled by Upton Sinclair a century ago in this country.)

But an inadequate system of regulation and enforcement seems equally likely to lead to health and safety crises for society, if inspection regimes are inadequate or if inspectors are corrupt. The two stories about inspection mentioned above point to different ways in which a regulatory system can go wrong: individual inspectors can be corrupted, or honest inspectors can be improperly managed by their regulatory organization. And, of course, there is a third possibility as well: the regulatory system may be fully honest and well-managed but wholly insufficient to the task presented to it in terms of the resources and personnel devoted to the regulatory task.

These two tendencies appear to be resulting in major social problems in China today. There is little confidence in the Chinese public in building standards in even the major civil engineering projects that the country has undertaken in the past ten years (CNN story, BBC story), there is widespread concern about corruption in many aspects of ordinary life, and there is growing concern among consumers about the safety of the system of food production, public water sources, and pharmaceuticals (story). (The anger and anguish expressed by parents whose children were lost in collapsed schools in Sichuan appear to derive from these kinds of mistrust.) So one of China’s major challenges for the coming years is to create credible, effective, and trusted regulatory regimes for the areas of public life that most directly affect health and safety.

But the stories mentioned above don’t have to do with China, or India, or Brazil; they have to do with the United States. We have lived through a period of determined deregulation since 1980, and have been subjected to a political ideology that minimized and demeaned the role of government in protecting the health and safety of the public — in banking no less than air safety. It seems very pressing for us now to ask ourselves: how effective are the systems of regulation and inspection that we have in our key industries — food, pharmaceuticals, hospitals, transportation, and construction? How much confidence can we have in the basis health and safety features of these fundamental social goods? And what sorts of institutional reforms do we need to undertake?