PrimeFlight To Lay Off More Than 300 At Texas Airports After Getting Busted For Labor Violations

Bad: when your employer forces you to lie about your tip income in order to pay you less than minimum wage. Worse: when your employer gets caught, they then lay you off as if its your fucking fault. Here is AviationPros.com with the details:

PrimeFlight Aviation Services, a national ground handler accused of wage standards violations last year, will lay off about 64 people at San Antonio International Airport after losing a contract with Delta Air Lines.

The Nashville, Tenn.-based company told the Texas Workforce Commission that the employees would lose their jobs on April 30, the day PrimeFlight's ramp contract with Delta ends.

PrimeFlight officials could not be reached for comment. The company provides a variety of services at San Antonio International, including curbside baggage handling and ground handling services for aircraft.

Airport spokesman Rich Johnson said PrimeFlight had contracts with both Delta and Aeromexico. How many PrimeFlight employees would remain after the layoffs was unclear.

The company also expects to lay off 276 employees at Bush Intercontinental Airport in Houston after United Airlines replaced it with another contractor there. Those layoffs are scheduled for May 15.

PrimeFlight drew headlines last year when employees in both Houston and San Antonio said they were pressured by management to report more tip income than they actually made so PrimeFlight would not have to kick in money to meet minimum wage guidelines.

It gives me a warm, safe feeling all over to know that people employed in the airline industry are being treated fantastically by their employers.


Bonus: I'd like to dedicate this song to PrimeFlight...

Death is in the air there's trouble all around
Now you got it coming This time you're going down
Deeds not words you should've told the truth
You're a liar and traitor and now we got the proof

Leon Panetta's Weekend Commutes Cost As Much As That GSA Party

Maybe we shouldn't be so hard on those Las Vegas partiers at the GSA. After all, the Secretary of Defense has been blatantly wasting taxpayer money for his own personal convenience as well. Atlantic Wire has the details:

That Leon Panetta has spent an incredible $860,000 to fly between his day job in Washington and his home in Northern California since taking office may not exactly be his fault, but even the thrifty secretary of defense himself this week can't help but notice the irony of that flight bill. Today, the airfare bill is even getting compared to the Government Services Administration's now infamous Las Vegas bender.

A brief rundown of the controversy: Earlier in April, the AP revealed that the secretary of defense, pushing to get the military to stop spending money like it's still the Cold War, billed the government $32,000 per private flight home since taking office in July, reimbursing the government only $632 for each, an amount dictated by law. Now, Panetta had no choice but to fly on the government's dime, if he wanted his weekends home. "No one understands the budget pressures on the Pentagon better than Secretary Panetta," a Defense spokesperson defensively noted. "As a required-use traveler, he must use government aircraft for all travel." But this Monday, Panetta had his hat in hand, saying he regretted the burden the trips put on taxpayers. And in a comparison of ironies, Foreign Policy notes today that $860,000 is only $28,000 more than the clown-filled Vegas conference for the GSA, an agency tasked with curtailing spending.

But really, Panetta and his flights aren't worthy of the ire of GSA's party. "I’ve gone home because my wife and family are there and because, frankly, I think it’s healthy to get out of Washington periodically just to get your mind straight and your perspective straight," Panetta explained to reporters Monday. We want our family-man military chief to be happy, too. As Time's Mark Thompson puts it, "It is a grueling, relentless job. If Panetta wants to jet off to his California walnut farm to tend to a different kind of nut than those he has to deal with daily in the capital, he should."

But ultimately, the flights are for personal use and not business, so we do have a modest request, Secretary Panetta: as you look for ways to cut military spending, consider your flight bill. If not for taxpayers, then just for the sake of good optics as you push more significant spending cuts elsewhere.

I've got a better idea...why not have Secretary Panetta MOVE HIS FUCKING FAMILY TO WASHINGTON, like any other government official has to do. Or better yet, if he wants to be with them so goddam badly, let the fucker resign. It's not as if there aren't another couple of dozen or so completely amoral high ranking assholes who wouldn't take the fucking job in a minute if he stepped down. We have have a trillion-and-a-half dollar annual federal budget deficit that is actually the gravest national security risk we face. SOMEBODY has to make fucking sacrifices, and it might as well start with the guy who heads the fucking war machine.


Bonus: This sounds like an idea that's actually long overdue

GSA Scandal Addendum: What I Did On My Taxpayer Paid Las Vegas Vacation

Protip: If you are a government official who wastes a shit pot load of taxpayer money taking completely frivolous trips to Las Vegas with your wife, you should probably make sure wifey doesn't post the vacation photos on the internet. Here is Atlantic Wire with the story:

G.S.A. regional commissioner Jeffrey Neely had a rough Monday as he very publicly invoked his 5th Amendment rights during a Congressional hearing into his agency's spending scandal, and photos of he and his wife doing all that aforementioned spending leaked around the internet, thanks to ABC New's Jake Tapper.

Neely's wife posted photos of their trip to the Las Vegas M Hotel in 2009 on her Google+ account. The trip was one of eight pre-conference "scouting" forays the agency apparently required just to make sure they weren't, you know, wasting $800,000 of taxpayers' money on hotel with small tubs or bad views. Judging from Neely's contented smile in the hotel tub, they weren't. (Insert your own "in hot water joke" here.)

We'd like to think being a hotel scout for your agency's indulgent conference is about as awesome a job as testing all the well-fed king's food for poison. That's to say, it's pretty awesome gig, until you get poisoned, or, in Neely's case, you get a Congressional hearing and possible criminal investigation. As the executive responsible for the conference itself, he was subpoenaed to testify Monday for the House Oversight and Government Reform Committee, and as expected, he took the Fifth and was quickly dismissed from the hearings. Perhaps it was the best legal move, but choosing silence over self-incrimination never plays very well in the press.

You want a real laugh? From Wikipedia, here is the mission statement of the General Services Administration:

The General Services Administration (GSA) is an independent agency of the United States government, established in 1949 to help manage and support the basic functioning of federal agencies. The GSA supplies products and communications for U.S. government offices, provides transportation and office space to federal employees, and develops government-wide cost-minimizing policies, and other management tasks.

Truth is not only stranger than fiction, sometimes it is downright absurd.


Bonus: "I think I'm dumb...maybe I'm just happy"

GSA Chief Resigns After Throwing $800,000 Taxpayer Funded Party In Las Vegas

Maybe it isn't being repeated often enough so that the political appointee types in Washington are getting the message: America has a trillion dollar plus annual federal budget deficit that desperately needs trimming. Now is not the time to be blowing taxpayer money frivolously. Got it?

Well, apparently not. Here is the Atlantic Wire with the sordid details:

Martha Johnson, chief of the General Services Administration, and two of her top executives resigned today. You probably would too if you spent over $800,000 of taxpayer dollars on an extravagant "conference" off of the Las Vegas Strip. If you don't know the General Services Administration (GSA) was created to, in their words, "streamline the administrative work of the federal government" and it "oversees the business of the U.S. federal government." Somehow, Johnson and her crew parlayed those tenets into a "regional meeting" in Henderson, Nevada (having the discretion to not be at a hotel on The Strip--that's a modicum of modesty right?).

Thanks to an investigation and report from GSA Inspector General Brian D. Miller, The Washington Post, and the Associated Press, we now know how Johnson and her team spent all that money. Here's how it breaks down (keep in mind that in 2010, according to Inspector Miller's report, the meal and incidental expenses allowance was $71 per day):

$31,000 on a "networking reception" that featured $19-per-person "American artisanal cheese display" and $7,000 in sushi

$3,200 on a session with a mind reader

$5,600 for in-room parties

$100,405.37 in employee travel costs to scout the event--meaning, these people returned to the Las Vegas area multiple times to visit hotels before settling on the fancy M Resort and Casino.

$3,700 for T-shirts

$2,800 in water bottles

$1,500 for "Boursin scalloped potato with Barolo wine-braised short ribs" and a $525 bartender fee for a cash bar.

Three officials spent almost $400 for rented tuxedos

$1,840 for vests for the 19 “regional ambassadors” and other employees

$146,527.05 was spent on catered food during the entire conference

$6,325 was spent on commemorative coins in velvet boxes to reward all participants for their work on stimulus projects (because a certificate and the $800,000 party they're at wouldn't do)

$75,000 for a “team-building” exercise — the goal was to build bicycles (which would later be donated to a Boys & Girls Clubs)

But, we felt this one deserves a special shoutout: "Another agency employee sought a discount on a $98 purse from the hotel gift shop. She received a $30 break," reported the AP. Because hey, when you're making it rain with $7,000 sushi, who has $98 dollars to spend on a tacky gift shop purse?

WTF? $3200 for a freakin' mind reader? Seriously?

The very first question I had when I read this story was to wonder was this idiot's background is and what she was doing before Obama appointed her to the job. Fortunately, the Washington Post had me covered. First up, here is what Martha Johnson had to say upon taking office:

In her resignation letter, Johnson acknowledged a “significant misstep” at the agency that manages real estate for the federal government. “Taxpayer dollars were squandered,” she wrote. At the start of her tenure in February 2010 she called ethics “a big issue for me.”

Okay, that's a really funny joke. What could possibly top that? Well, how about her resume:

Career History: Computer Sciences Corp., vice president of culture (2007 to 2008); SRA-Touchstone Consulting Group, director and vice president, (2004 to 2007); Council for Excellence in Government, vice president of leadership and performance, (2002 to 2004)

I swear, you really can't make this shit up. But I have an idea that might put a stop to this kind of garbage. Instead of just letting Johnson resign, stick her with the bill for the total cost of the conference. Then maybe the next asshole political appointee who takes her place might think twice before trying to so blatantly fuck over the taxpayers.

Addendum: This story has been ballooning pretty quickly. After I wrote the initial post, CNN posted this rather ridiculous update:

The same week that a report documented massive overspending at the General Services Administration, a video emerged Thursday showing an agency employee joking about the excess spending and saying he would never be investigated for it.

The video also mentions an awards program for employees that gave out $200,000 worth of taxpayer-funded iPods, electronics and gift cards to entry-level government employees.

"I buy everything your field office can't afford," raps the employee in the video. "I'll never be under OIG investigation."

OIG refers to the Office of the Inspector General, who originally looked into the GSA's spending on a 2010 training conference held in Las Vegas. His report found the federal agency spent $822,000 on the event, including $75,000 on team-building exercises, $6,000 on commemorative coins, and $6,000 on canteens, keychains, and T-shirts.

The revelations prompted GSA Administrator Martha Johnson to resign this week.

House Oversight Committee Chairman Darrell Issa's office, which is investigating the excess spending, received the video from the inspector general and released it to the public on Thursday.

The video was the winning entry in an employee video contest at the 2010 conference. In handing out the award for the video, the deputy commissioner of the Public Building Service appears to mock oversight of the GSA.

The revelations about the GSA's overspending are prompting outrage among lawmakers who are furious about taxpayer money being wasted. The inspector general's staff briefed congressional investigators Wednesday, and a source familiar with the briefing told CNN they were "pretty astonished at the blatant misuse of funds."

As it turns out, they aren't the only ones.


Bonus: I'll bet Martha Johnson wishes she had taken Sheryl Crow's advice

The Greatest Day in South Carolina?

Hat tip to Satori at Silent Country.

Last September 30th, I posted a Friday Rant entitled, "The Impotence of Positive Thinking," in which I blasted South Carolina's Tea Party Governor Nikki Haley for her asinine directive forcing beleaguered Palmetto State employees to answer the phone with the phrase, "It's a great day in South Carolina." Well, maybe soon that will really be true for every citizen of the state. Here is Palmetto Public Record with the details:

Two well-placed legal experts have independently told Palmetto Public Record they expect the U.S. Department of Justice to issue an indictment against South Carolina Gov. Nikki Haley on charges of tax fraud as early as this week.

A highly ranked federal official has also privately confirmed rumblings of an investigation and possible indictment of the governor, though the official was not aware of the specific timeframe.

Yesterday, Palmetto Public Record exclusively reported that the Internal Revenue Service has been investigating since March of 2011 the Sikh worship center run by Gov. Haley’s father. At least five lawsuits have been filed against the Sikh Society of South Carolina since 2010, alleging that the group bilked contractors out of nearly $130,000 for the construction of a new temple.

Gov. Haley is reported to have managed the temple’s finances as late as 2003, and our sources believe any indictment would center on what happened to the missing money.

You can bet that if Governor Haley is indicted, those state employees will be saying that stupid phrase as they answer the phone while trying to keep from laughing.

The Perfect Candidate

Wow, it really IS a Great Day in South Carolina! Here is Talking Points Memo with the details:

South Carolina Lt. Gov. Ken Ard, who spent campaign money on a Playstation, women’s clothing, iPads and his wife’s cell phone bill, will submit his resignation on Friday morning.

“During my campaign, it was my responsibility to make sure things were done correctly,” Ard said in a press release, according to The State. “I did not do that.”

Ard said he “must take full ownership and resign from the Office of Lieutenant Governor … I am deeply sorry and take full responsibility.”

Here is where I really have to ask a simple question: what exactly is the problem, anyway? All Lieutenant Governor Ard really did was uphold the preeminent value of modern day America: consumerism. In fact, I would argue that Lieutenant Governor Ard is actually a true American hero for helping to so vigorously stimulate the economy at a time when the nation is still trying to recover from the lingering effects of the Great Recession. Come on, South Carolina, LEAVE LIEUTENANT GOVERNOR KEN ARD ALONE!

Oh come on, Bill. The man used his campaign funds to purchase stuff for his own personal use and the use of his family. That's a crime. Certainly you of all people should be demanding that Ard be vigorously prosecuted. You going soft on us?

Not at all. For what is a campaign contribution, anyway? It is money given to a candidate by either a rich asshole who is trying to buy influence or a delusional twit who still thinks their vote really matters. Either way, I really don't give a flying fuck what happens to their money after they willingly surrender it to some scumbag politician. If Ard didn't spend it on a Playstation, he likely would have instead bought some stupid teevee attack ads or something equally corrosive and wasteful. At least his Playstation and his wife's cell phone won't be responsible for helping to dumb down the public discourse.


Bonus: "Big man, pig man...ha ha, charade you are"

Chicago Called Most Corrupt City...Ooh Look, Boobies!

A story appeared this past week that caught my eye for the right reasons, but reading it filled me with loathing and disgust for the precisely the wrong reasons. As I've mentioned a number of times before on this blog, I originally hail from the Great State of Illinois, and actually lived within the Chicago city limits for three years after college. For someone who grew up in a small town, the Windy City was a stimulating and exciting place to spend my young adulthood. It still had a reputation for corruption, of course, but in the early-90s era in which Mayor Daley the Younger (and far more articulate) was first elected mayor, that all seemed like a relic of the distant past, no more relevant to my generation than were the riots at the 1968 Democratic convention.

Well, apparently Chicago has not buried its history of corruption, as reported by CBS Chicago.com:

A former Chicago alderman turned political science professor/corruption fighter has found that Chicago is the most corrupt city in the country.

He cites data from the U.S. Department of Justice to prove his case. And, he says, Illinois is third-most corrupt state in the country.

University of Illinois at Chicago professor Dick Simpson, who served as alderman of the 44th Ward in Lakeview from 1971 to 1979, estimates the cost of corruption at $500 million.

It’s essentially a corruption tax on citizens who bear the cost of bad behavior — police brutality, bogus contracts, bribes, theft and ghost payrolling to name a few — and the costs needed to prosecute it.

“We first of all, we have a long history,” Simpson said. “The first corruption trial was in 1869 when alderman and county commissioners were convicted of rigging a contract to literally whitewash City Hall.”

In the Northern District of Illinois, which includes Chicago, there have been a total of 1,531 public corruption convictions since 1976, Simpson found. A distant second is California’s central district in Los Angeles with 1,275 public corruption convictions since 1976, Simpson found.

Statewide, that number hits 1,828. Only California and New York have more, but those states have much higher populations. Per capita, only the District of Columbia and Louisiana have more convictions.

Since the 1970s, four of Illinois’ seven governors have been convicted (Otto Kerner, Dan Walker, George Ryan and Rod Blagojevich). In addition, dozens of Chicago alderman and other city and county public officials have been found guilty, Simpson said.

Corruption, Simpson said, is intertwined with city politics. Simpson found that about a third of sitting alderman since 1973 have been corrupt.

“We have had machine politics since the Great Chicago Fire of 1871,” he said. “Machine politics breeds corruption inevitably.”

Now that is an important story that ought to be read by every resident of the City of the Big Shoulders so maybe they can be stirred to finally take action and do something about ithis appalling state of affairs, right? Well, not withstanding the fact that very few people actually still read these days, the text of this story was wedged on the website page between a column highlighting other stories labelled, "Don't Miss This," with flashy color pictures on one side and an column of intrusive Google ads on the other.

The Don't Miss This stories included:

Remembering Whitney Houston (with a picture of Whitney singing)

Grammys: Who Looked Good? (with a picture of the relentlessly untalented but big-chested, hypocritical Christian singer Katy Perry)

Oscar Nominees (with a picture of some actress I didn't recognize because I rarely go to the movies anymore. Not because I don't like movies but because most of what Hollywood produces these days is pure shit)

Hottest Celebs With Babies (with a picture of Brittany Spears wearing a releaving outfit showing off her cellulite while "singing")

Victoria's Secret Fashion Show (with a picture of a lingerie clad Victoria's Secret model)

The Google ads opposite also had pictures and the text of the article was actually bent around them. There were also links to other serious news stories, but they were down at the bottom of the page where the reader would actually have to search them out and had no associated pictures.

Now I know some will argue that page view volume is the only way these websites can make money, so they deliberately place the most eye-catching links to their other stories where viewers will be most likely to see them. Britain's Globe and Mail newspaper website is particularly notorious for doing this, running a picture-laden, celebrity-driven column of pap chauvinistically labelled, "Femail Today," down the far right column next to every news story. The overall effect is to subtly indicate that a serious news story like the one above is not any more important than the sheer fluff that is being otherwise highlighted.

I had a cyber conversation the other day on an online forum in which the subject turned to whether the Internet is now serving to destroy people's attention spans even more so than television had already been doing for a couple of generations. Thinking about it, I realized I myself have had a problem with the distracting effects of the Web. I've been an avid book reader my whole life, but I've become so used to clicking from story to story online just long enough to get the gist before moving on that I've noticed my patience for sitting down and reading a serious work of fiction or nonfiction for an hour or two is not the same as it used to be. If that is what is happening to someone with the level of concentration it takes to be a writer, and I am actually aware that it's happening, what corrosive effects are the countless hours of Internet viewing having on the critical thinking skills of those who read books rarely if at all?

I don't think you have to look too hard to see what effect our mass distraction is having on our culture as a whole. The infantile rhetoric spewing forth from the Republican presidential primary campaign and the fact that Obama's approval ratings have been soaring lately despite his manifest failure to keep any of his campaign promises are strong indicators of a society that has completely lost its ability to think critically.

Anyway, food for thought. As for Chicago, it sounds like my former place of residence is in deep do-do. Maybe someday, someone who lives there will give more of a shit about the endemic local corruption than they do about who looked good at the fucking Grammys.


Bonus: Tift Merritt is the anti-Katy Perry

Kinetic Concepts Inc. to Lay Off 114 in San Antonio After Leveraged Buyout

This story caught my attention because the scenario is very similar to the one that caused my father to be laid off for six months back in 1986: a leveraged buyout attempt by a UK based equity firm. My dad was eventually rehired. These folks may not be so lucky, as reported My SA.com:

San Antonio-based medical devices and biotechnology firm Kinetic Concepts Inc. announced 127 layoffs on Tuesday, 114 of them in San Antonio, most involving administrative positions, as the company realigns its three business units.

The company employs about 7,100 globally, 2,100 in San Antonio. The layoffs account for a little more than 5 percent of the San Antonio workforce and less than 2 percent companywide. The 13 layoffs outside of San Antonio involved positions within the United States.

The layoffs mainly eliminated positions in finance, human resources, information technology and corporate communications. To a lesser degree, layoffs occurred in marketing and research and development, a corporate spokesman said.

Okay, lay some corporate FlackSpeak on me:

“Throughout our 35-year history, we've been a stable employer and provided good jobs to thousands of employees — even during the global economic challenges of the past few years. With the changing landscape in healthcare, and with an eye toward the future, we need to match our workforce to the needs of the business and our customers.

“We will continue to maintain a significant employee base in San Antonio and look forward to opening our new global headquarters here this summer,” the statement concluded.

KCI last year acquired 8.3 acres at 12930 Interstate 10 West, south of Hausman Road, where a three-story, 100,000-square-foot building is being built for its new headquarters.

The layoffs follow the November leveraged buyout of KCI by a group led by London-based private equity firm Apax Partners. The deal was valued at $6.1 billion.

So typical...the billionaires play their buyout games and the workers get the shaft. That's how it is in our crony capitalist system these days.


Bonus: "Games people play...you take it or you leave it. The things that they say don't make it right"

Smith & Nephew Eliminating 800 Jobs Due to Corporate Malfeasance

Bad: getting laid off. Worse: getting laid off because your company had to pay huge fines because it got caught paying bribes. Here is the Fierce Markets Network with the details:

It has been a tough few days for medical device manufacturer Smith & Nephew ($SNN) and particularly for its Memphis, TN-based division.

The company announced Monday that it would pay the U.S. $22.2 million in fines and profit disgorgement to settle claims that it won business in Greece by bribing doctors in that country's public health service. Its U.S. subsidiary, Smith & Nephew Inc., based in Memphis, is shouldering $16.8 million of the settlement with the Justice Department.

The settlement came days after the company announced that it would cut about 800 jobs from its orthopedics unit and place emphasis on emerging markets and research and development.

The bribery charges date to 2007 when an investigation found that the company, with the help of a distributor, paid $9 million in bribes to Greek doctors. The company agreed to maintain an enhanced compliance program to be reviewed by an outside monitor for 18 months.

But of course, none of the corporate managers who either made the decisions to pay the bribes or looked the other way while it was happening will lose their jobs. Because accountability is only something that applies to peons, who suffer even if they had nothing to do with the original crime.

Policy making and accountability

Consider this. The national economy is liberalizing and individual states are competing with each other to attract private investments. They try to out-bid their competitors by offering attractive concessions - tax breaks, concessional utility services, land at lower rates or even free, and so on - to external investors.

It is that early phase of liberalization and economic growth when investors are uncertain of the area's economic potential and pro-active industrial policy is required to incentivize them. In these circumstances, any policy that seeks to attract investors through open-competitive bidding or auctions are not likely to have many takers.

In many states, the industrial or investment promotion policy itself explicitly provides policy makers the flexibility to offer concessions depending on the competition. The state governments (and its political leaders and officials) exercise discretion, on case-by-case basis, to attract investors. While there are broad guidelines, many of the decisions on concessions and preferential allotments are made based on estimates of what would be required to incentivize the investor prefer this state over its competitors. In the process, as is inevitable with such discretionary policies, especially when the stakes are massive, there are instances of excesses, corruption and nepotism in the concessions offered.

Now fast forward ten years. Large investments have flowed in, the state industrial sector has much greater depth and breadth, and its economy has taken off. The conditions that necessitated the promotional policies have changed and the state has established itself as an attractive investment destination. Many of the same promotional policies, while still in force, stand out as obvious anachronisms.

Concurrently, a few sordid tales of discretionary policy corruption emerge, wherein politicians, officials, and corporate groups colluded to cause loss to the state exchequer. The popular outrage leads to an acrimonious post-mortem and revisit of all the industrial policy decisions taken ten years back. Investigations begin and many of the discretionary policy decisions taken to attract investments, including those done in good faith, are called to question on the grounds that it caused loss to the public exchequer and therefore get attributed with malafide intent. So what gives?

Any post-facto assessment, especially given the passage of time and the dramatically changed economic environment, of such decisions are liable to be flawed unless carefully done. Most importantly, it needs to avoid getting entrapped into examining the policies and resultant decisions against the backdrop of the prevailing macroeconomic environment and the lens of regulatory governance. Such cognitive biases and investigation norms are most often difficult to side-step.

The investigations have to draw the clear distinction between the discretionary investment promotion policy decisions taken on behalf of democratically elected sovereign governments in good faith and those taken with malafide intent. Further, the malafide intent has to be established by deep scrutiny of the facts and circumstances surrounding the allotments, instead of the automatic presumption from the (now) apparent excessively generous nature of the concessions allotted.

I will go even further. If the due process has been followed and the democratically elected government has, in its wisdom (or lack of it), granted concessions to a corporate group, howsoever generous, then the investigations should be confined to examining the evidence of any malafide intent behind the decision or failure to adhere to the procedure established by law in its implementation. As to the magnitude or extent of concessions or the policy paradigm (say, auctions against the discretionary allotments) followed, I strongly believe that its adjudication should be left to an appropriate forum, say, the judiciary or the respective appellate tribunals. Atleast in democracies, any investigation by any subsequent governments, should adhere to the aforementioned principles.

In the absence of such protection, any exercise of judgement, on the part of an official or political leader, however well-intentioned, can be questioned subsequently on grounds of having caused loss to the public exchequer. All such decisions, by their very nature, incentivize and provide preferential treatment to one investor, so as to encourage them to invest in the state. Perforce they involve immediate loss to the exchequer. The trade-off is the expectation that it will set the platform for industrial growth and the recovery of the short-term loss through longer-term gains from economic growth.

If this subtle dimension to policy making is not appreciated in any post-mortem, the moral hazard generated by the apprehension of a possible future implication, will restrain policy makers from making judgement calls on such policies. An environment of decision paralysis will result.

Unfortunately, as this environment of suspicion and media trial gets entrenched into the psyche of civil society and defines the agenda of mainstream debates, policy making that involves any exercise of judgement will become a minefield. It will handcuff even those officials whose intentions are in the larger public interest.

This argument is not in anyway an approval or condonation of the obvious irregularities and corruption that have been a characteristic feature of investment promotional policies in many states and at the center in the past decade or so. Those responsible for the malafide actions and administrative irregularities that caused loss to the public exchequer should be punished and the deterrent against such actions strengthened.

However, this should not be at the cost of simplistic appraisals of complex decision-making environments that can only end up paralysing decision-making at all levels and turning the country into a banana republic. It is also pertinent to point out that the propensity for such excesses and corruption are an inevitable accompaniment to economic development in emerging markets.

The descent into a Banana Republic?

The quality of debate surrounding the Supreme Court's decision to cancel 122 2G spectrum licenses with the "stroke of a pen" is a reflection of the standards that prevail in public issue discourses in mainstream media in India.

Stripped off all its sensationalism, the 2G spectrum issue essentially boils down to this. The Government of the day, in its wisdom (or lack of it) and well within its rights, put in place (or inherited) a discretionary telecommunications spectrum allotment policy. However, in its implementation (during the 2008 allotments), there were clear discrepancies and irregularities, atleast in case of some of the bidders, that leave no doubts about malafide intent.

So the Supreme Court - three years after the allotments are made, operators have stabilized their full commercial operations, and a web of contractual obligations involving different market stakeholders have emerged - steps in and examines the evidence on corruption in the allotment process and puts a full-stop by cancelling all the spectrum allotments made during that period. What's more, it goes beyond the malafide intent and questions the government's use of a discretionary allotment policy and effectively seeks to "legislate" an "auction-based" allotment process. A nascent mobile telecommunications market-space, the equivalent of a mid-size European country, is decreed to be wiped out in four months.

Now consider this. A newly elected democratic government of Banana Republic, a war torn and military-ruled country in the continent of Timbuktu, decides to encourage foreign investments to boost its economy. It offers attractive concessions like free land, tax holidays, and so on in mineral exploration and manufacturing sector. Investors flock to Banana Republic, enter into sovereign contracts with its government, and start exploration and manufacuting activities. The economy booms, tax revenues increase, and the country starts its recovery from its war-era devastation. There are the inevitable tales of cronyism and corruption in some of the contracts awarded, all of which have aroused some national indignation. Then disaster strikes and the military takes power. Its first act is one of deep populism. It plays on the national resentment at the corruption in contracts signed with foreign investors and cancels all sovereign commitments of the previous government and expropriate the foreign investments. Banana Republic slips into its normal state of turmoil.

Apart from the different exterior trappings (the cancellation was at the "stroke of a pen" in the former, while it was at the "boom of a gun" in the latter), on substantive terms, is there any difference between the two scenarios? In both cases, sovereign policy commitments made by the respective democratically-elected governments of the day (whatever its flaws) and implemented deficiently (as is the case with any implementation in such societies) are, without any of the legal requirements of fairness and justice, cancelled over-night at the arbitrary discretion of a few individuals. In both cases, apart from moral hazard arising from defaulting on sovereign commitments and the long-term economic damage caused, the decision-makers have clearly over-looked the fact that much water has flowed under the bridge subsequent to the "original sin". The decisions extinguished the multiple economic transactions and contractual commitments - many of them without any malafide intent, based on legally valid legislative and executive decisions, and a consequence of the natural flow of economic activity - that have emerged after the original decisions/allotments.

Not for a moment am I holding any brief for those who violated their constitutional responsibilities or who benefited fraudulently. All of them should be brought to book for their criminal liabilities. The political masters, bureaucrats, and the businessmen who colluded to defraud the exchequer should all be throughly investigated, their criminal intent established and punishment imposed. For example, the public servants who took part in the conspiracy should be punished under the prevailing rules, while the businessmen who benefited from it should be punished under the relevant rules and the amounts defrauded quantified and collected from them and their partners. This should be done in a manner that least disrupts the competitive marketplace (and even its critics would admit that the economic outcomes - technology, business models, consumer surplus etc - of India's telecommunications reforms has been one of its economic and policy success stories) that has emerged from the original decisions.

In any case, the sovereign policy commitments of democratically elected governments, however flawed, should always prevail and not be left at the mercy of flippant individual discretion, howsoever mighty, provided the allotment process is in conformity with the broad constitutional principles. This becomes all the more important if subsequent transactions, in good faith and based on the sanctity of a sovereign commitment, have been executed on the original decision. However, law should take its course and severely punish those who displayed any malafide intent, discrepancies, and wilful omissions in the implementation of the allotment process.

The term "banana republic" is characterized by two features - a country operated as a commercial enterprise for private profit and one where the sanctity of long-term policy commitments of any of its governments is of questionable value. On these grounds, does India qualify to be a "banana republic"?

The Scum Also Rises: The 50 Most Powerful People in Washington

Once again, GQ Magazine has put together its list of the 50 Most Powerful People in Washington (other than Obama and Biden). The article is a slideshow with details on each person listed and why they were chosen, but I've reprinted the actual list below. Even though I think some of the choices are a bit daffy (the list includes Washington Nationals pitcher Steven Strasburg, but not Harry Reid or Nancy Pelosi...WTF?), it really is all you need to know to know why we're screwed.

1. Eric Cantor: Virginia Representative, House Majority Leader

2. Mitch McConnell: Kentucky Senator, Senate Minority Leader

3. David Plouffe: Senior Advisor to the President

4. Leon Panetta: Secretary of Defense

5. Hillary Clinton: Secretary of State

6. Ben Bernanke: Chairman, Federal Reserve

7. David Petraeus: Director, CIA

8. Kevin McCarthy: California Representative, House Majority Whip

9. Peter Rouse: Counselor to the President, the White House

10. Tom Donohue: President, U.S. Chamber of Commerce

11. Tim Geithner: Treasury Secretary

12. John Boehner: Ohio Representative, Speaker of the House

13. Karl Rove, Steven Law, Ed Gillespie: American Crossroads & Crossroads GPS

14. Tommy Boggs: Chairman, Patton Boggs

15. Dan Pfeiffer: White House Communications Director

16. Gene Sperling and Jack Lew: Director, White House National Economic Council & New White House Chief of Staff

17. Chuck Schumer: New York Senator

18. Grover Norquist: President, Americans for Tax Reform

19. Chuck Todd: Chief White House Correspondent, NBC News

20. David Rhodes & Ben Rhodes: President, CBS News; Deputy National Security Advisor and speechwriter

21. Paul Ryan: Wisconsin Representative

22. Denis McDonough: Deputy National Security Adviser

23. Heather and Tony Podesta: Heather Podesta + Partners; Podesta Group

24. Chris Van Hollen: Maryland Representative

25. Paul D. Clement: Partner, Bancroft

26. Jim DeMint: South Carolina Senator

27. Kathy Ruemmler: White House Counsel

28. Joe Pounder: Research Director, Republican National Committee

29. Tim Scott: South Carolina Representative

30. Nancy Hogan: Director, Presidential Personnel

31. Brian Deese: Deputy Director, White House National Economic Council

32. Arne Duncan: Secretary of Education

33. Jake Sullivan: Director of Policy Planning, State Department

34. Ezra Klein: Blogger, The Washington Post

35. Rob Nabors: White House Director of Legislative Affairs

36. Bill Daley: (Former) Chief of Staff, White House

37. Patty Murray: Washington Senator

38. Capital Weather Gang: Bloggers, The Washington Post

39. Liz Cheney: Co-Founder, Keep America Safe

40. Mike Allen: Reporter, Politico

41. José Andrés: Restaurateur

42. Svetlana Legetic, Jayne Sandman, Barbara Martin: Party planners

43. Marco Rubio: Florida Senator

44. Jeremy Bernard: White House Social Secretary

45. Charles Krauthammer: Syndicated Columnist

46. Chris Dodd: Chairman, Motion Picture Association of America

47. Stephen Strasburg: Pitcher, Washington Nationals

48. Jack Quinn: Chairman, Quinn Gillespie & Associates

49. James Alefantis: Restaurateur and Bon Vivant

50. Bradley Graham & Lissa Muscatine: Owners, Politics & Prose

Bonus: Imagine how much better off we'd all be if Washington's very own Fugazi topped the list instead

Discretionary public policy - the case of 2G spectrum allocations

This post will be provocative. I have a simplified interpretation of India's controversial 2G telecoms spectrum allocation process.

The fundamental issue is that the government of the day decided to allocate the spectrum without any competitive price discovery process, and subsequent events (spectrum resales by a few purchasers) point to the allotment having been made at a steep discount thereby causing huge losses to the public exchequer. In simple terms, the spectrum was sold cheap, and private spectrum purchasers benefitted at the expense of the tax payers.

Critics of the allotment process claim that if the spectrum was auctioned off, as happened with the subsequent 3G auctions, the government would have raised huge amounts. The bidders would have paid close to the actual cost of the spectrum. There would have been no corruption. So what gives?

Here is a thought experiment. I can imagine two forces that were generated by the low spectrum prices.

1. The substantial discounts enabled the telecom operators to keep their initial fixed investments low. They now had resources to spend on technology and more importantly, aggressive expansion. Furthermore, it gave all players the initial cushion to establish the market, without having to over-charge. Such over-pricing is a characteristic feature of any nascent market, as the first generation of firms try to establish themselves. It generally takes time before the market stabilizes and the firms start responding to market competition signals.

2. It cannot be denied that the lower spectrum prices dramatically reduced entry barriers and contributed towards creating an intensely competitive marketplace. The threshold cost to enter the market was lowered. In simple terms, the government subsidized the private operators significantly.

As the private operators got established, the market stabilized, customer base exploded, these two aforementioned factors interacted to generate fierce competition. This competition benefited the customers and the market itself.

Consider the counterfactual. Assume the spectrum was allocated by auctions. It is most certain (especially given the information asymmetry in a new market) that the process would have been affected by "winner's curse", whereby bidders would have quoted a premium on the fair market value. The successful operators would have entered the market with strained balance sheets and limited inclination to be aggressive in their investments and pricing. Instead of spectacular explosion, the market would have grown in fits and starts. Most certainly the government would have had to intervene subsequently to prop up the market with various types of fiscal concessions.

The central point I want to make is that the discounted allocations provided the operators with the required cushion to be aggressive and innovative in a nascent market. This in turn helped lay the foundation for a very competitive and vibrant telecoms market in India. The aforementioned dynamics is true of any emerging market. China is the best and most recent exemplar of the wastage, excesses, and corruption that lubricates such emerging markets.

In any typical emerging market, governments provide considerable fiscal support, directly and indirectly. In its absence, the only way in which a market can emerge is if large foreign competitors, with deep-pockets and a commitment to take sustained losses for some time, enter the market.

Much of this support is not planned and is a response to problems posed by emergent difficulties in the growth process of the particular sector. In fact, there is considerable corruption (sanitized through lobbying which conceals an equally nauseating underbelly of quid-pro-quos) involved in these policy decisions. It would be interesting if we could compare the fiscal support given to sunrise sectors like IT and biotechnology with that given to the mobile telecom sector.

The critical governance question here should be about the extent of malafide discretion involved in the allotment process. The acrimonious post-mortem has revealed that the government, or influential people within the government, played an important role in picking winners and enriching themselves at the cost of the public exchequer. It is this market failure that should be the cause for the greatest concern.

This also raises another question. If auctions would have led the market into a low-level equilibrium and discretionary allotments spawned massive corruption, what is the alternative? What process of allotment would have given the participants with the required cushion and allowed the market to develop fast without causing incentive distortions that spawn corruption? I am not sure there is any such process.

This brings us back to the inevitability, even desirability, of discretionary public policy, espcially in incubating new markets. In the circumstances, the focus should be on minimizing corruption in the discretionary public policy making space.

White House Threatens to Investigate Chris Dodd for "Bribery" Over SOPA Dispute

Just when you thought politics in America couldn't get any more surreal, now you have the specter of a Democratic president potentially launching an investigation of a prominent retired Democratic senator for accidentally telling the truth about the way the political system really works. Last week, Motion Picture Association of America President Chris Dodd was none too pleased when President Hopey-Changey read the political tea leaves and actually managed to come out on the right side of an issue for once by saying he would veto the hideous SOPA bill that would have effectively killed the Internet as we know it. As reported by The Register, here is a recap of Dodd's reaction to Obama's position on the legislation:

“Those who count on quote ‘Hollywood’ for support need to understand that this industry is watching very carefully who’s going to stand up for them when their job is at stake," Dodd told Fox News. "Don’t ask me to write a check for you when you think your job is at risk and then don’t pay any attention to me when my job is at stake.”

Well, you just knew the White House wasn't going to take that lying down. But the administration's forceful reaction surprised even a cynical old bastard like me:

The comments caused a huge stir, and prompted a petition, hosted on the White House's "We the People" opinion-seeking site, that calls for an investigation of the MPAA on bribery charges.

Once the number of signatures on the petition reaches 25,000, the White House has to issue a statement – and as of early afternoon Washington DC time, over 19,000 signatures had been attached. It was such a petition, by the way, that prompted the White House to express its initial disapproval of SOPA.

“This is an open admission of bribery,” the petition reads, "and a threat designed to provoke a specific policy goal. This is a brazen flouting of the 'above the law' status people of Dodd's position and wealth enjoy. We demand justice. Investigate this blatant bribery and indict every person, especially government officials and lawmakers, who is involved.”

Dodd may have thought he was among friends on Rupert Murdoch’s “Fair and Balanced” Fox network, or could just have been angry at the temporary hold put on the legislation, but it’s highly unusual for anyone in his position to openly acknowledge the way the US political system works. Companies and individuals who "donate" to US lawmakers usually express the convenient fiction that their financial contributions are expressions of support for a candidate, and not attempts to bribe them on specific issues.

Now then, let me just state for the record that I absolutely loathe Chris Dodd and believe that he should have been vigorously investigated and prosecuted for the bribe sweetheart mortgage deal he accepted from Countrywide CEO Angelo Mozilo becuase of his oversight role of the mortgage industry as Chairman of the Senate Banking Committee. Countrywide, you'll recall, was one of the prime movers in pushing subprime loans that were a primary cause of the housing crash. A U.S. Senator from Connecticut for three decades, Dodd was the very personification of the corrupt Washington insider. By hiring him as their president despite his having ZERO experience in the film industry, the MPAA expected that he would be able to twist arms in Washington on their behalf.

Unfortunately for Dodd and the MPAA, they ran into a Category 5 shit storm of public sentiment against the awful SOPA bill. No doubt smarting and all butthurt in the wake of the major Internet protests against the bill last week, Dodd stupidly let the cat out the bag as to why the MPAA actually pays him a huge salary. What he said is really the very essence of what lobbying is all about. The only thing that is surprising about this story is that so many people are actually surprised by it.

Do I actually think the White House will sic the Department of Justice on Dodd and see him indicted as a result of this? Not a chance. But I still enjoy seeing the fucker squirm, and if this story causes even a few more people to wake up and smell the coffee about how thoroughly corrupt our whole system of governance is these days, especially liberals and progressives who still persist in stupidly thinking that Democratic politicians are looking out for them, that can only be a positive.


Bonus: Just imagine what the Man in Black in his prime would have done to the sorry ass likes of Chris Dodd

New Navy Minehunter Ship Can't See or Stop Mines

Despite having massive and unsustainable federal government deficits, we just CAN'T cut the Pentagon's budget...or the Red Chinese hordes will descend upon upon us and um, eat our babies, or something. That's what the many Congresscritters who are bought-and-paid for appendages of the military-industrial complex want a gullible public to believe so they have an excuse to keep lining those defense contractors' pockets (and hence keep the campaign cash a-flowing). Meanwhile, as reported this last week by Danger Room, the Pentagon continues to waste that taxpayer money in massive quantities:

It’s bad enough that the Navy’s newest ship has had wicked problems with corrosion, missed out on the latest naval wartime missions and is generally something of a Frankenstein’s monster. Now the Pentagon’s top weapons tester has found problems with its abilities to find and withstand mines — which is a big problem for a ship that’s supposed to be the Navy’s minehunter of the future.

That’s the assessment of the director of the Operational Testing and Evaluation office, summing up a year’s worth of trials for the Littoral Combat Ship, the Navy’s cherished — and expensive — next-generation ship for warfare close to a shoreline. Little wonder that defense analysts think the ship is headed for the budgetary chopping block, even though the Navy wants 55 of the things and only has three.

The report finds that the Littoral Combat Ship’s systems for spotting mines, the AN/AQS-20A Sonar Mine Detecting Set and the Airborne Laser Mine Detection System, are “deficient” for their primary task. That deficiency, if uncorrected, will “adversely affect the operational effectiveness” of a ship that’s already “not expected to be survivable in a hostile combat environment.”

And here is what a military blogger had to say about this latest boondoggle:

So, we have a warship design that is not expected to fight and survive in the very environment in which it was produced to do so. Poorly-armed, poorly-protected, with an over-abundance of speed that will eat through a fuel supply in half a day.

Yet, the Navy leadership on whose watch this abomination was delivered is hypersensitive to criticism of either their performance or the LCS itself. That such a questionable and limited capability will cost taxpayers UNDER $500 million per copy is a seeming source of pride for them.

Warships remain the single most expensive combat system a nation can buy. Has been so since the beginnings of the iron warship. Those who run the United States Navy (not just NAVSEA) are entrusted with billions of this nation’s treasure. And this is the result. A half-billion dollar counter-drug and counter-piracy platform.

Combat in the littorals is characterized by fierce and unexpected engagements, from small and fast surface vessels, submarines, shore-based weapon systems, missiles, mines, and aircraft. Putting US Navy Officers and Sailors on a platform such as LCS borders on criminal. It is an act of sheer folly, or one of desperation.

Actually, you left one out. For what it really is represents is an act of sheer greed on the behalf of the defense contractors who build these expensive-but-useless pieces of shit and don't care that they are ripping off the taxpayers in the process. Moreover, the Navy is hardly alone in such fraudulent procurements. The war machine marches on, devouring around one-trillion dollars in direct and indirect federal spending every year because it is profitable to everyone involved in getting these projects approved. If this country still had any common sense, the defense contractors are the people we'd been hauling off to Guantanamo, for they are doing far more collective damage to America as a nation than the terrorists ever did.


Bonus: "Listen son, said the man with the gun, there's room for you inside"

What's the Matter With Philadelphia?

Nothing, really, that isn't wrong in the rest of a nation where voters just unthinkingly keep reelecting the same corrupt fucking assholes time and time and time again. Here is Philly.com with the details:

City Councilwoman Marian Tasco will retire on Friday, collect a six-figure pension payment and then return to work after she is sworn-in on Monday to serve her seventh term.

Francis Bielli, executive director for the city’s Board of Pensions and Retirement, said he was recently notified that Tasco, who is enrolled in the controversial Deferred Retirement Option Plan, will retire on Friday and collect $478,057.

Tasco did not respond to requests for comment.

Tasco was reelected despite her participation in DROP, which drew public ire after elected officials entered the program, ran for re-election and retired for a day to get hefty pension payments, only to return to office.

All is not completely bleak in the City of Brotherly Love, however:

Retiring Councilman Frank DiCicco, who is also in the program, considered running for re-election, but after controversy erupted over DROP, he decided not to. Retiring Councilwoman Donna Reed Miller, who is also enrolled in DROP made a similar decision. Councilman Frank Rizzo lost reelection due in-part to his participation in DROP.

I care not one whit which political party City Councilwoman Marian Tasco represents. Nor should anyone else. The fact that some political hack would so blatantly rip off the taxpayers regardless of partisan affiliation is the real problem. Officerholders of both parties do shit like this and they do it all over the country. And until the electorate wakes up and votes them out of office it is going to continue to happen.


Bonus: The voters of Philadelphia need to start exercising some of this

The changing dynamics of public rent-seeking in India

Ashutosh Varshney recently wrote about the dynamics of rent-seeking in India,

It is worth noting that the countryside, where 68 per cent of India currently lives, is not where most of national income is generated. At this time, not more than 25-30% of India’s GDP comes from villages, with agriculture accounting for a mere 15% of GDP. More simply stated, over two thirds, perhaps as much as three fourths, of the nation’s GDP is generated in cities where less than a third of the country lives, whereas less than a third, perhaps as little as a fourth, of the country’s GDP is produced in the countryside where over two thirds of the national population resides.

As a consequence, for politicians, the city has primarily become a site of extraction, and the countryside is predominantly a site of legitimacy and power. The countryside is where the vote is; the city is where the money is. Villages do have corruption, but the scale of corruption is vastly greater in cities.

In fact, this analysis, while broadly accurate, can be made more nuanced. The top tier of the political and bureaucratic establishment is increasingly getting its dominant share of rents from the high rent yielding infrastructure sector. These sectors are predominantly urban in nature and their rent interfaces (say, decision makers and corporate offices) are located in urban areas. As opportunities in these sectors have grown, the politicians and officials in the upper tier have vacated their traditional rent space for those at the lower rung.

Consider this illustration. Since independence, until a few years back, the major sources of rent-seeking for everyone was in the local sources of patronage - dealership of fair price shop, control over anganwadi center and school, local officials postings, small local engineering works (of the panchayats and other departments) etc. The large construction works and private industrial establishments, except in industrial belts, were generally absent or marginal. The rents available too were minimal. Everyone from local government politicians to the state and central legislators sourced their rents from this small pie.

Over the last decade or so this landscape has been undergoing a transformation. There have been steep increases in infrastructure investments even in rural areas, which in turn have spawned off property booms in their catchment areas. Big infrastructure contracts involve large private contractors, who provide great opportunities for the local political establishment. Private investments too have flowed into many areas. Since the pie has expanded dramatically, the upper levels of the political establishment can now feast on these larger opportunities and leave their local minions to corner the older set of opportunities.

Obviously, the degree of evolution of this pattern varies from state to state. In certain states, this pattern has advanced considerably. In any case, this transformation only shifts the agents of corruption without altering any of the existing incentives to seek rents.

Why has rent-seeking increased?

Corruption is arguably the dominant public policy issue being debated in India today. The popular lament is about an alarming increase in corruption. The graphic below highlights a part-philosophical, part-economics explanation.



The dynamics of philosophy and economics have combined to mis-align incentives badly to favor those seeking rents. The returns from rent-seeking have surged, whereas the risk of getting caught has come down. Therefore, naturally, the rate of return, per unit of risk assumed, has exploded. Further, the self-respect quotient among public officials has declined precipitously (partly because the strong stigma associated with rent-seeking has long since disappeared and also since rent-seeking has got closer to the norm). So is there any surprise at the dramatic increase in corruption?

Benford's Law in accounting

Tim Harford, Mark Thoma and Marginal Revolution have interesting posts on Benford's Law, which in essence states that in contrast to the statistically irregular manipulated data, "real" data in any type of data distribution have some statistical regularity.

Tim Harford writes,

"Benford’s Law was discovered in 1881 by the astronomer Simon Newcomb, and then again by Frank Benford, a physicist at General Electric, in 1938. The law is a curious one: it predicts the frequency of the first digits of a collection of numbers. For example, measure the lengths of the world’s rivers, and see how many of the digits begin with “one” (184 miles; 1,543 miles) versus “three” (3,022 miles) or “nine” (985 miles). Newcomb and Benford discovered that the first digit is usually a “one” – fully 30 per cent of the time, over six times more common than an initial “nine”. And the result is true whether one counts the numbers on the front page of The New York Times or leafs through baseball statistics."

And he gives an example of how manipulated data fails the Benford test,

"A manager who must submit receipts for expenses over £20 may end up filing claims for lots of £18 and £19 expenses – and the data will then contain too many ones, eights and nines. A forensic accountant can easily check this, and while not an infallible check, it’s an indicator of possible trouble."

Marginal Revolution draws attention to a post by Jialan Wang who shows how Benford's law reveals possible manipulation of corporate accounting statements.

"So according to Benford’s law, accounting statements are getting less and less representative of what’s really going on inside of companies. The major reform that was passed after Enron and other major accounting standards barely made a dent... deviations from Benford's law are compellingly correlated with known financial crises, bubbles, and fraud waves... Accounting data seem to be less and less related to the natural data-generating process that governs everything from rivers to molecules to cities."

Can analytics software developed based on Benford's Law be of practical use in monitoring public policy? For example, can it be used to detect cheating in performance reporting among all types of officials, say, students academic performance reported by teachers?

Corruption and growth

Tim Harford points to this insightful joke which captures the difference between the roving bandit and the stationary bandit, about which I had blogged earlier.

"A bureaucrat from Sani Abacha’s Nigeria visits a bureaucrat in Suharto’s Indonesia and is impressed that his Indonesian counterpart lives in a nice house and drives a Mercedes. "Do you see that road? Ten per cent," the Indonesian explains.

A couple of years later the visit is reciprocated. Suharto’s man finds the Nigerian civil servant in a palace with a pair of Ferraris. "Do you see that road?" says the Nigerian, gesturing at virgin rainforest. "One hundred per cent.""

He explores the challenge of reconciling the incentives of the inevitable corruption among politicians and bureaucrats with those of promoting national economic growth. He points to the success as countries like South Korea, which despite close and corrupt nexus between businessmen and the ruling elite, managed to escape being grid-locked in corruption and stagnation by focusing on export-driven growth. This focus on export markets and the need to be competitive ensured that corruption did not compromise on productivity and quality.

Similarly, the spectacular Chinese economic growth story conceals rampant corruption involving close relationship of politicians, bureaucrats and businessmen. However, certain systemic incentives sought to mitigate the adverse consequences of such corruption and align incentives of all sides towards promoting growth. The export driven growth model, which underpinned the success of town and village enterprises (TVEs), and the informal economic performance based promotions of local party apparatchiks contributed in no small measure to China's success.

In all these models, the ruling establishment, wilfully or otherwise, succeeded in putting in place mechanisms that incentivized economic growth and more critically linked the flow of corruption benefits itself to this growth. In other words, these systems ensured that corruption was sub-ordinated to the achievement of the broader macroeconomic and growth objectives. As the economic growth increased, all stakeholders realized the benefit of nurturing the goose that lays the golden egg, a virtuous cycle of growth and corruption got entrenched. I have two observations about this.

1. Is it possible to replicate this model in countries like India? I am inclined to believe that there are a few ingredients that served to sustain this model, which may be missing in countries like India. The most important ingredient is literacy. I believe that high-levels of literacy exposed all stakeholders to the benefits of sustainable economic growth. Most often, as is evident in the lower level corruption in countries like India, where illiteracy is widespread, the extent of corruption is not dis-similar to Abacha's Nigeria. Though I am not aware of any empirical validation, I believe that there could be a positive correlation between stationary bandits and literacy, and vice-versa between roving bandits and literacy.

Another factor that could possibly come in the way of the formation of such mutually-beneficial coalitions in India may be democracy itself. Does the inevitable lack of discipline of democratic politics erode the stability of such coalitions? Does the lack of continuity in multi-party democracies hamper the establishment of a stable elite?

2. An important point about state-driven industrial policy that is often missed in standard debates about its pros and cons is its role in building and sustaining such coalitions. Supporters point to its role in effective allocation of resources in developing economies. However, they overlook its equally important role in sustaining the careful equilibrium among a set of stationary bandits.

The industrial policies followed by countries like South Korea and China have for long been accused of having engendered a system of crony capitalism. However, the redeeming feature of this capitalism, appears to have been that these capitalists were interested in first expanding the pie and then nibbling the expanded pie!

In other words, East Asian industrial policy not only allocated resources efficiently, but also did so in a manner that reconciled the apparently contradicting need to appease the rent-seeking inclinations of the ruling elites and maintain economic growth.