ECONOMIC ANALYSIS: Those from corrupt cultures more likely to ignore laws

February 5, 2007

Do we obey laws because we fear punishment? Or is it simply a habit we acquired to which we don't otherwise give much thought? Either way, it is a good thing for our communities, our governments and our entire society that so many of us are, generally speaking, law-abiding.

One can scarcely imagine the chaos that would be caused if 300 million people lied, stole and murdered our way through the day without giving it a moment's thought.

It's good for the economy as well. The expectation of honesty in all things dealing with market transactions-the truthfulness of information, the genuineness of assets and currency, and the sanctity of property rights-is the glue that holds all forms of commerce together. The fact that there are so many honest dealers out there makes the effective enforcement and prosecution of crooks and frauds feasible, which, in turn, helps us trade and invest with confidence.

Of course, that confidence is occasionally shattered by stories of corruption and fraud. It exists, of course, without question. But in most places and on most days in America, paychecks don't bounce, bank deposits don't disappear, and the government doesn't show up at your door and seize your assets.

That's not the case in other parts of the world. In some countries, the glue is weak or missing altogether, and the economy suffers for it. And, sadly, it's having an impact on a tragic situation in our own country as well.

An interesting little study by our friends at the National Bureau of Economic Research throws a new light on the timeless problem of fraud and corruption. To investigate the questions posed at the beginning of this column, they investigated parking violations of United Nations diplomats working in New York by country.

Since, before 2002, their diplomatic status gave them immunity from prosecution, enforcement of parking restrictions on these individuals was impossible. Yet, NBER researchers found that those who came from countries generally regarded as having low levels of corruption, like Norway or New Zealand, tended to obey them, anyway. But diplomats from Nigeria and Indonesia-countries from the other end of the rankings spectrum-piled up mountains of traffic tickets.

Perhaps that comes as no surprise, but it does reveal that the lessons taught to us about how to behave, and not merely laws and their enforcement, explain our willingness to act in ways that support commerce and exchange.

This observation puts a decidedly different spin on the events still unfolding in the much-maligned efforts of the federal government to rebuild the Gulf Coast areas that were so devastated by the hurricanes of 2005.

To the casual observer, this may look like

just another story of bungled bureaucracy, perpetrated by incompetent agencies that can't spend the money Congress appropriated to get the rebuilding job done or even started.

But the environment in which these projects are taking place is relevant. Mississippi and Louisiana, particularly in their public sectors, have consistently ranked among the most corrupt states in the nation.

Louisiana's longest-serving governor, Edwin Edwards, is in the midst of serving a 10-year prison sentence for racketeering. An FBI sting in the mid-1980s led to the convictions of 55 of Mississippi's 410 county supervisors, as well as two state highway commissioners, on bribery, extortion and other felonies.

In short, the presumption of dishonesty that underlies the oversight, delay and reporting red tape of federally supported rebuilding programs in the Gulf states is borne out by experience. When criminal behavior is the norm, the cost can be high, and that is a tragedy for those struggling to rebuild.

Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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