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Home | Wire | Conflicts of Interest in Government Are More Common than You Think

Conflicts of Interest in Government Are More Common than You Think

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Tags Cronyism and CorporatismFree Markets

01/23/2018

Recent allegations of improper conduct have been made against former US Secretary of State Hillary Clinton, and current Canadian Prime Minister Justin Trudeau. Both cases, which are unrelated, have raised questions about a conflict-of-interest, which arises when public office holders use their positions for personal gain. These stories about Clinton and Trudeau are nothing more than minor symptoms of a much bigger problem.

Clinton has been accused of “overseeing the sale of 20 percent of America’s uranium supply to Russia” and allegations have “been made that the approval of the sale of Uranium One benefited major donors to the Clinton Foundation.” Donations totaled at least $33.6 million. Trudeau violated “the Conflict of Interest Act when he and members of his family accepted” a trip to the Aga Khan’s private Bahamian island “which left taxpayers on the hook for more than $200,000.” Furthermore, “Trudeau didn’t properly recuse himself on two occasions in May 2016 from sensitive government meetings about the Aga Khan and a $15-million grant to the endowment fund of the Global Centre for Pluralism.”

The real problem is that the government’s definition of conflict-of-interest is far too narrow, thereby ignoring the overwhelming conflict-of-interest which defines the entire relationship between the rulers and the ruled. Thus, there is no discussion about the extent to which government policies enrich special interest groups. Therefore, citizens are unaware that the hidden economic cost they absorb from these policies each year far exceeds their annual tax bill (more on this below).

Harmony of Interests in the Private Sector

Private businesses do not have legal authority to seize my money, as the government does with taxation. Therefore, these businesses must find a way to persuade me to give them money. If I don’t like the product in one store, I can visit other retailers. When I find a product that satisfies me, I voluntarily hand over my money, and the store clerk voluntarily relinquishes the product. This exchange occurs because I value the product more than the money, and the store owner values the money more than the product. We both benefit. It is a win-win situation. The exchange is an outcome of a harmony of interests, not a conflict-of-interest.

In other words, voluntary exchanges on the free market occur because each party is incentivized to satisfy the interest of the other party. The absence of coercion enables this harmony of interests.

In contrast, forced taxation means taxpayers are forced to satisfy the interests of the government, while the government has no incentive to satisfy the interests of taxpayers. This represents a clear conflict-of-interest. It is a win-lose situation because it is not a voluntary exchange.

The Government’s Excuse, and the Real Agenda

The government says it cannot make all the people happy all the time; that there are always competing interests; that it must balance conflicting interests. This is correct, and that is exactly the point. Only the market can transform conflicting interests into a harmony of interests. The coercive institution of government is designed to avoid the discipline of the market, so that special interest groups may be served at the expense of the interests of the majority. So much for majority rule. As Professors Martin Gilens and Benjamin Page wrote, “The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all ...”

Because the government is always forcefully taking and spending large quantities of other people’s money, the inherent conflict-of-interest ensures that corruption is widespread, as various groups purchase favors from the government. Analysis by the Sunlight Foundation revealed the effects of lobbying:

Between 2007 and 2012, 200 of America’s most politically active corporations spent a combined $5.8 billion on federal lobbying and campaign contributions. A year-long analysis by the Sunlight Foundation suggests, however, that what they gave pales compared to what those same corporations got: $4.4 trillion in federal business and support.

After examining 14 million records, including data on campaign contributions, lobbying expenditures, federal budget allocations and spending, we found that, on average, for every dollar spent on influencing politics, the nation’s most politically active corporations received $760 from the government.

The Sunlight Foundation made note of a US Supreme Court decision in 2010, where the majority wrote that corporate spending to influence federal elections would NOT “give rise to corruption or the appearance of corruption.” Canadian authorities also deny any such connection. In Ontario:

Cash-for-access has become the Liberals’ primary fundraising tool. From Ms. Wynne’s February, 2013, swearing-in to the end of 2015, the party held 223 fundraisers, of which 159 were private affairs for 50 or fewer guests. After event costs, the Liberals collected $19.6-million for party coffers.

... Ms. Wynne’s spokeswoman, Jennifer Beaudry, denied that corporate and union leaders who bought access have swayed government decisions. “We have been clear that donations do not influence policy decisions; any suggestion otherwise is completely false,” she said.

It is naïve to believe the ‘authorities’ when they say that the coercive institution of government does not facilitate corruption. Coercion = Corruption! Corporations profit handsomely from government spending decisions, but they also benefit from government regulations which impose restrictions on competition, and the cost to the average citizen is enormous.

Average Citizens Pay a Huge Price

When a corporation(s), or an industry, or some other interest group, lobbies government for new regulation, they are the intended beneficiaries, and they usually write the regulations themselves.

Numerous regulations are enacted because the government says it can correct market inefficiencies and protect consumers. Regardless of intent, however, the real effect is to reduce competition for various companies by imposing regulatory costs on all companies within a particular industry. The large company(s) which lobbied for the law can easily absorb these costs, while their smaller competitors and potential start-up companies, lacking the financial wherewithal for regulatory compliance, are often eliminated.

The ‘regulatory compliance costs’ which companies incur is often paid by consumers through higher prices. Estimates in the US and Canada have pegged this cost at a minimum of $3,000 annually, per person. But that’s not the worst of it.

We Pay a Really Huge Price!

Even though all firms, large and small, may pass their regulatory compliance costs onto consumers/workers through higher prices/lower wages, small firms operate at a disadvantage. Small firms have fewer employees and a smaller customer base, compared to larger firms. Therefore, the dispersal of compliance costs within small firms can produce larger wage reductions and/or larger price increases, as compared to larger firms. Thus, many small businesses are unable to compete, not because the entrepreneurs, managers, and workers are not good enough, but because they are compelled to obey authoritarian laws favoring firms with more political influence.

Opportunity cost represents lost opportunities for entrepreneurs to create wealth because of the high cost of regulatory compliance. Less competition = less wealth creation, which is reflected in fewer jobs and lower incomes for the 99 percent. Economic growth is severely restricted. What is the cost?

John Dawson (Appalachian State University) and John Seater (North Carolina State University) published a long term study of the effects of US Federal Regulations on economic growth. They say “our estimates indicate that annual output by 2005 is about 28 percent of what it would have been had regulation remained at its 1949 level.” Their sample period ends in 2005, but assuming that the ratio of 28 percent carries forward to 2011, they say that nominal GDP in 2011 would have been $53.9 trillion instead of $15.1 trillion, and

“an annual loss of $38.8 trillion converts to about ... $129,300 per person.”

This means that US citizens were legally denied the opportunity to increase their incomes by an average of $129,300 per person in 2011. Remember, this calculation captures data only at the federal level, and for Canadians, we can assume their opportunity cost would be roughly similar to the US figure (in $CAD). As Laura Jones and Stephen Graf noted in a Fraser Institute report (2001), “Canada and the United States have similar regulatory regimes.” And as Fraser Institute editor Kristin McCahon said, “a lot of productive activity doesn’t happen in Canada because of regulations.”

Conclusion

Politicians, like magicians, are masters of misdirection. Political propaganda assures us that our altruistic government creates countless agencies and regulations for the sole purpose of promoting prosperity for all, while satisfying and protecting the interests of regular citizens (I recently wrote about one such agency). However, as we have seen, far from encouraging economic growth, the government is actually making us poorer. The coercive institution of government severely penalizes regular citizens and lavishly rewards special interest groups. This represents a massive conflict-of-interest.

Beware of the government’s cheerleaders, the mainstream media. Do not be distracted by their feigned contempt for the actions of Clinton and Trudeau and many others like them, who they accuse of engaging in acts of conflict-of-interest which amount to no more than a drop in the bucket. $33.6 million in shady donations to the Clinton Foundation? Who cares? Let’s talk about the amount of wealth which has been surreptitiously denied to regular folks — tens of trillions of dollars annually.

Following a 23-year career in the Canadian financial industry, Lee Friday has spent many years studying economics, politics, and social issues. He operates a news site at www.LondonNews1.com

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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