Introduction: overview

Arms industries form the supply-side of arms markets. Typically, the major arms producers are large firms forming national monopolies, duopolies or oligopolies. US arms firms dominate the world industry (see Chapter 2). Examples include Lockheed Martin, Northrop Grumman and Raytheon, and they often operate in national oligopoly industries. European rivals include Airbus, BAE Systems, Leonardo and Thales, with these companies usually being national monopolies. In terms of firm size, a distinction can be made between absolute and relative size. Absolute size deals with firm size measured by absolute sales and employment numbers, whereas relative size focuses on firm size relative to the market or industry. For example, a large number of absolutely large and similar-sized firms forms a competitive industry compared with one absolutely large single supplier forming a monopoly.

Ownership differs between nations. Privately owned arms producers are typical of the US, the UK, Germany and Sweden. State-owned arms producers are typical in Brazil, Italy, China, India, Israel, Russia and South Africa. France has a mixed ownership model with variations of private and state ownership (but traditionally, state ownership has dominated). Public ownership is also typical for procurement agencies providing research advice to national governments, but the UK is an exception in that most of its former government research agencies have been privatized: QinetiQ is privately owned but the Defence Science and Technology Laboratory (DSTL) remains state owned.

Industry structure facts

Arms industries are continuously changing in size, structure and the organization of firms. War and peace have resulted in larger and smaller arms industries, respectively. Mergers, acquisitions, new entry and exits have affected industry structure. Company names often change and firms frequently change how their businesses are organized.

An example was the 1993 restructuring and reorganization of the US defence industry, which was characterized by mergers, acquisitions and exits. New names such as Lockheed Martin and Northrop Grumman emerged, while other names remained unchanged even though there were major acquisitions. For example, Boeing acquired McDonnell Douglas and Rockwell but retained its Boeing name. Raytheon acquired Chrysler Defence Electronics, Hughes Aircraft and part of Texas Instruments.

Introduction

Arms industries are often condemned for being part of a powerful military–industrial complex that determines arms decisions. Is this a figment of the imagination or a real feature of arms industries? Developments in the economics of politics and public choice analysis provide valuable insights into understanding this complex.

The term is associated with President Eisenhower’s farewell address in January 1961, when he referred to the need for society to “guard against the acquisition of unwarranted influence … by the military–industrial complex”, adding that “the potential for the disastrous rise of misplaced power exists and will persist” (Eisenhower 1961). The political component has been added to the description military–industrial complex to recognize the role of political markets within the complex. Political markets comprise governments, political parties, bureaucracies and various other interest groups consisting of producers, consumers, and the disarmament, peace, environmental and green movements. This approach departs from the traditional economic model of competitive markets assuming large numbers of buyers and sellers. Instead, arms industries operate in political markets where the government is the only or major buyer and where there are often monopoly or oligopoly suppliers with barriers to new entry and markets typically in disequilibrium rather than achieving some neat mathematical and theoretical equilibrium. A further political dimension arises where arms producers are state owned rather than privately owned. The result of arms industries operating in political markets is that we need to use public choice analysis to further understand and explain behaviour in such markets.

A public choice approach

Public choice analysis explains behaviour in political markets using the concepts of self-interest and mutually beneficial exchange operating within the rules determined by the constitution or by some other rule-making individual or group. It involves the application of economics to political science and studies non-market decision-making. The analysis identifies various agents within democratic political markets, consisting of voters, political parties, governments, bureaucracies and interest groups. Each agent will pursue its own self-interest, which will determine its preferences for public policies towards arms industries. Examples include the choice of which arms to buy, from which contractor (national or foreign), how the arms will be bought (choice of contract) and at what price and profitability.

This chapter analyses the relationship between the economy and corruption. In many ways, this relationship is a straightforward one; the effects of corruption on economic development are overwhelmingly believed to be negative. While it is impossible to quantify the costs of corruption, and, indeed, many of the figures that are quoted in this regard are nothing short of simple guesses, it nonetheless remains clear that corruption can be a debilitating drain on economic development. It is beyond question that corruption costs rich and poor countries alike significant amounts of both money and resources. This chapter begins by illustrating why that is. It explains that even the most cursory of glances at the data reveals that corruption skews the allocation of resources, often has a detrimental effect on economic growth, undermines both the rule of law and property rights and impacts negatively on standards of living.

Nevertheless, the following carefully points out that much (although not all) of the econometric analysis that is done in this area is conducted on shaky ground. None of the traditional measures of corruption are rigorous enough to facilitate the data crunching demanded of them; however, much economic analysis ignores this and carries on regardless. Simply noting that they are the best measurements of corruption we have is not a good enough reason to go on and use them as if they were actually reflecting real-world activity. This poses a real challenge for economists and those seeking to create economic models that can be tested with real-world data.

This chapter illustrates two further things. First, the economic impact of corruption is differential. Indeed, context is important in explaining why corruption can be so utterly corrosive in some places and have a much more sanguine effect in others. This does not mean that corruption is a positive influence, but it does mean that there are some awkward real-world situations involving what is clearly corruption that need explaining. How, for example, did the Asian Tiger economies of the 1980s and 1990s manage to mix dynamic growth with sustained and deeply ingrained corruption?

As the previous chapters have illustrated, in recent times we have seen policy-makers adopt a wide array of anti-corruption policies. While some have had limited success in achieving their aims, many have outright failed. Indeed, corruption remains every bit as challenging today as it was when it was first catapulted into the international policy arena in the 1990s. This final substantive chapter looks in detail at one of the responses to the apparent “failure” of the more traditional approaches to tackling corruption. It assesses the role that individual citizens can and do play in both highlighting corrupt practice and trying to do something about it. The rise of “citizen-centred approaches” has taken different forms in different places, and the scope and scale of their aims is broad. In plain English, some have much more potential to effect change than others. But, as a whole, they represent a new, interesting and potentially important set of anti-corruption ideas and opportunities.

THE ANTI-CORRUPTION INDUSTRY

Why have citizen-centred approaches recently taken on more prominent roles? One reason is the apparent failure of so-called top-down approaches to make much genuine headway. Indeed, the exponential rise in the salience of corruption as a public policy issue has gone hand-in-hand with criticism regarding what those active in the anti-corruption world have actually achieved. Such criticism is not (usually) directed at the authenticity of these activists’ aims, but rather at some of the unintended outcomes of their work or, indeed, the way that many have become part of an “anti-corruption industry” (see, e.g., Michael 2004).

In terms of unintended outcomes, some have argued that noble anti-corruption aims simply lead to more bureaucracy, more red tape and very little ostensible and verifiable change in the extent or type of corruption that actually exists. Anechiarico and Jacobs, for example, use anti-corruption reform in New York to provocatively claim that such reforms not only often lead to “no change”, but also contribute to “proliferating regulations and oversight mechanisms” that can “seriously undermine our ability to govern” (Anechiarico & Jacobs 1996). Anti-corruption sounds good, but in effect it means more hurdles for the good guys while the not-so-good guys simply find other ways of achieving their aims.

Policies that have been developed to counteract corruption inevitably make a number of assumptions about corruption’s causes. Indeed, in many cases, these assumptions are quite clear; people are rational, self-interested creatures, who, if the projected benefits outweigh the costs, should be expected to indulge in corrupt activity. These assumptions have led rational-actor and rent-seeking models to dominate much of the thinking on corruption’s causes. Yet they clearly are not the only ways of thinking about this. Different disciplines approach the challenge of working out what precisely causes corruption in strikingly different ways. This has led to the development of a body of work that questions the dominance of these rational-choice approaches. This chapter unpacks both the dominant thinking in the field and the revisionist positions of its critics.

One thing that everyone can agree on is that understanding how to tackle something is much easier if you understand why it exists in the first place. Doing that, of course, is unfortunately not quite as straightforward as it might appear. There are often many factors that contribute to any given outcome, some much more obvious (and easily identifiable) than others. Assumptions that initially seem plausible can often turn out to be far off the mark. This is not just a problem for those looking to understand what drives corruption; pinning down causal effects in the social world more broadly is far from simple. There may well be strong statistical relationships between phenomena, but that does not mean that A is necessarily causing B. Between 1999 and 2010, for example, there was a strikingly strong correlation between the number of people in the US who drowned after falling out of a fishing boat and the ups and downs of the marriage rate in Kentucky. Between 2000 and 2009, the relationship between per capita consumption of mozzarella cheese and the number of civil engineering doctorates awarded was also remarkably strong and consistent. Yet no one has (yet) come anywhere near to explaining how the relationships between these phenomena might actually function in practice; there are, in other words, plenty of spurious correlations that exist by chance and not by design.

Given the amount of time and effort spent analysing corruption in recent years, it should come as no surprise that there are a wide variety of potential remedies on the market. Indeed, the world is most certainly not suffering from a dearth of toolkits, action plans, agreements, conventions, treaties and agendas for change. The aim of this chapter and the two that follow is not to unpack every anti-corruption option available, but rather to look at the evidence for what seems to work and what does not. The latter point is particularly important. Despite the multiple calls to arms of recent years, the evidence that genuine progress has been made is disappointingly thin on the ground. There is subsequently a case for both rethinking what we think might work and assessing what indeed “success” might mean.

For starters, any anti-corruption attempt that claims to want to eradicate corruption or adopt a “zero-tolerance approach” should be treated with more than a dose of scepticism. The aims are too grand and, quite frankly, incompatible with the rough and tumble of everyday life. Corruption will often be deeply embedded in given social and political practices, and part of complex and ever-changing power relationships. This is all before, of course, any consensus has been reached as to what exactly the problem is, and what needs to be done to put it right. The specific aims of any attempt to tackle corruption, in other words, need to be carefully defined.

Successful anti-corruption is, by definition, a piecemeal affair. As Michael Johnston has noted, reforms often take a long time to work; they need a modicum of good fortune along the way and can be “a lot more messy and acrimonious” than is generally anticipated (Johnston 2013, 2016: 16). One-size-fits-all policies, even of the most obvious nature, can be counterproductive. A given anti-corruption mechanism may work well in one setting but have little impact in another, whereas it could cause far more problems than it solves in a third context. Carefully designed strategies focused on local contexts and specific problems are very much the order of the day, even if they, too, fail from time to time.

I started this book with three specific aims. I wanted to say something about what corruption is, what causes it and what we might want to think about when trying to tackle it. Perhaps unsurprisingly, finding consensus in doing justice to those aims is a task fraught with pitfalls. Corruption remains very difficult to accurately define (and every bit as hard to measure); there are a number of different ways of explaining the reasons for its existence; and, although there are a multitude of anti-corruption options out there, success stories are depressingly thin on the ground. If corruption was not such a serious problem, causing so much pain and distress to so many, then it might be tempting to follow the logic of Homer Simpson and turn our attentions elsewhere. As Springfield’s finest once said, “if something’s hard to do, then it’s not worth doing”. For good measure, he followed that with “if at first you don’t succeed, give up”. However, given that corruption has become one of the most prominent global public policy challenges of the twenty-first century, these simply are not options.

Before we can begin to rise to the challenge of tackling corruption, we have to do quite a lot of groundwork. It is clearly not possible to pick anti-corruption policies from a catalogue: anti-corruption is not like mail-order shopping. It is, however, certainly worth studying the experiences of states that have made the transition from high-corruption countries to nominally low-corruption settings. We nonetheless need to be clear that it will never be possible to replicate the Swedish or Danish experiences (to take just two of the most frequently lauded) elsewhere. Indeed, if the Swedish model was dropped onto a territory where systematic corruption was the norm, then you would not suddenly have outbreaks of interpersonal trust everywhere and the rapid development of an expansive, high-quality welfare state. If the Swedish model were placed into a developing state, you would be much more likely to inadvertently encourage even more rampant rent-seeking. It would not and could not work. As and when states do try to take a short cut to tackling corruption, they quickly run into problems.

The international approaches to tackling corruption discussed in Chapter 7 still inevitably have as their focus the work and behaviour of governments, businesses and civil society organizations that work largely within national boundaries. Corruption is, in other words, a transnational phenomenon that requires internationally agreed responses to be translated into the frameworks and cultures of national political life. This ensures that the divide in this book between international and national approaches is, by definition, something of a false one. International approaches are translated into national contexts, while national (and, indeed, local; see Chapter 9) approaches often have their roots in – or, at the very least, a relationship with – initiatives that began either in the international arena or simply in other places. The notion that there is a clear divide between the national and international arena therefore needs to be dispelled right at the beginning.

There has also been a fair amount of diffusion in anti-corruption thinking. Throughout the 1980s and 1990s, the institutions of the Washington Consensus (World Bank and IMF), for example, had a considerable influence over how states thought about anti-corruption. Still, some of the most popular tools that national governments use start out as discrete responses to specific national (or subnational) problems. They can prompt copycat actions elsewhere; in terms of national anti-corruption commissions, for example, the creation of the Hong Kong Independent Commission against Corruption (ICAC) in 1974 prompted scores of similar (although rarely identical) institutions to be created in other jurisdictions. The ICAC was a genuine trailblazer. The American FCPA, passed in 1977, has become a piece of legislation that firms all over the world, and not just those who conduct most of their business in the US, are aware of. National anti-corruption initiatives can, and do, have international effects.

This chapter analyses how national governments tend to approach the anti-corruption challenge. Given that many anti-corruption reforms are not particularly successful, this chapter begins by grappling with a potentially tricky question: how does the outside observer know that a given authority is actually serious about wanting to tackle corruption in the first place? Just about every politician everywhere decries corruption’s deleterious effects, and they all claim to want, in some way, to do something about this.

Corruption, so it seems, is everywhere. One indicator of this is the amount of coverage that it gets in the popular press. In 2015, for example, the word “corruption” appeared 1,240 times in UK newspaper article headlines. “Fraud” was even more prevalent, appearing on 4,177 occasions. The word “bribery”, meanwhile, came up a mere 264 times. The types of cases covered were wide, varied and often bewildering. On one day alone in the UK (24 November 2015), The Independent was analysing how the Vatican was putting reporters on trial who had previously uncovered corruption cases in its midst, while The Times was reporting a story about an apprentice jockey who was facing a ban from horse racing on account of deliberately riding to lose. At the same time, The Herald was discussing Kenyan President Uhuru Kenyatta’s anti-corruption reforms, while The Guardian was analysing FIFA’s alleged corruption problems.

The world of academia is also covering issues of corruption in ever more depth and breadth; a search in mid-2016 for the term “corruption” on JSTOR, the digital library of academic publications, revealed no less than 169,941 journal articles in which corruption was mentioned. “Fraud”, meanwhile, appeared in 105,144 articles, and “bribery” came up on 22,971 occasions. While not all of those articles will have been on corruption as it is understood in the social sciences, it is still clear that the term, and concepts that are closely linked to it, are on a lot of people’s minds.

There are plenty of good reasons for that. In 2014, the World Economic Forum estimated that $2.6 trillion was being lost yearly to corruption, while the World Bank has claimed that $1 trillion is paid out every year in bribes (OECD 2014: 1). In 2015, Global Financial Integrity, a Washington-based non-governmental organization (NGO), bemoaned the fact that between 2004 and 2013 developing and emerging economies lost $7.8 trillon in illicit financial flows (Kar & Spankers 2015). Furthermore, it is not just in the most impoverished parts of the world that corruption takes place; as the Organisation for Economic Co-operation and Development (OECD) has noted, it has been estimated that between 5 and 10 per cent of the budgets of Medicare and Medicaid, the American health care programmes, go missing on account of corruption (OECD 2014: 3).

Much has been written about corruption in recent times. Indeed, as was noted on page 1, thousands of articles are written on corruption and related terms every year. This was not always the case. Indeed, corruption analysis was often seen as peripheral to academic life. Back in 1957, Eric McKitrick, writing in the Political Science Quarterly, bemoaned the fact that the “investigation of corruption” did not seem to be something of “very intense interest to social scientists” (McKitrick 1957: 502). Michael Johnston, one of the political scientists who has done the most to put corruption analysis back on the map, agrees; he noted in 2006 that “American political science as an institutionalized discipline has remained steadfastly uninterested in corruption for generations” (Johnston 2006: 809). Ten years later, he further lamented the fact that corruption had “more or less dropped off the academic and international policy agendas for nearly a generation” (Johnston 2016: 13). This former indifference of political scientists towards the study of corruption was best described by John Peters and Susan Welch at the end of the 1970s, in their now much-cited piece for the American Political Science Review (APSR), “If political corruption is in the mainstream of American politics, why is it not in the mainstream of American politics research?” (Peters & Welch 1978: 974).

Peters and Welch posed an interesting question. Even post-Watergate, an event that caused corruption to lurch into the mainstream of American public consciousness, corruption analysis remained notable by its absence. The leading social science journals in America rarely discussed it, and when they did, corruption was only infrequently regarded as a phenomenon that needed to be explained; it was corruption’s impact on other things that generally grabbed people’s attention. Peters and Welch blamed this apparent neglect on the challenge of defining the concept, but the prevailing analytical and methodological assumptions of their discipline no doubt also played a role. When your aim is to use data systematically to test hypotheses and you want to use increasingly sophisticated statistical techniques to do so, then corruption is by no means a straightforward concept to get a handle on.

The last chapter looked at the history of corruption as an idea, but it skirted around the vexed question of what precisely corruption is. We know that the meaning of the term has changed over time, and that traditionally this meaning had a lot to do with morals and ethics. We also know that when morals are brought into the debate – as they arguably have to be – we are faced with the tricky conundrum of right and wrong as well as the inherent challenge of subjectivity. This particular set of challenges has often made conducting empirical research difficult, which is the main reason that until the 1990s corruption remained a subject of largely secondary interest in academia.

Paradoxically, the problem of pinning down a definition of corruption led to a plethora of potential definitions developing. What you do not specifically explain will often be interpreted in ways that suit those doing the interpreting. Nevertheless, in the world of Western policy-making, at least, this has not prevented an emerging agreement on corruption’s definition from developing (see below). Be that as it may, corruption remains “a capacious, changing and contested term” (Knights 2016: 3).This chapter unpacks the most important of these definitional dimensions, identifying not just the strengths and weaknesses of the definitions used but also how useful they are for understanding real-world corruption challenges.

One part of that definitional challenge is undoubtedly linguistic. On the one hand, this comes from the way that the term corruption is used in public discourse. The term is now often utilized as a stick with which to beat political opponents, and it frequently appears to be more of a term of abuse than a statement with any basis in reality. Indeed, there are times when it appears to be fine to label virtually anything you do not like as corrupt. Whether it is Donald Trump claiming that Hillary Clinton may be the “most corrupt person ever” to run for president, or tabloid newspapers bemoaning the “corruption of the political class”, we are in danger of turning the term into an empty box, into which you can simply place things of which you do not approve (Gambino 2016; McKinstry 2010).

When policy-makers claim that they want to tackle corruption, they are making a statement about how much of it they think exists. For many, the answer to that question is likely to be simple: “too much”. As a result, politicians are often happy to concentrate on tackling the problems that they see before them, without worrying unduly about broader issues of quantification. There is still, however, the nagging problem of how one empirically illustrates that an anti-corruption policy or approach is working. Before long, that inevitably brings you back to the thorny problem of measurement in some form.

Trying to discern how much corruption exists is nevertheless a task fraught with difficulty. For some (see below), the task is bordering on pointless. You cannot know for sure, so why bother spending lots of time and effort trying to find out? This has not stopped a growing number of organizations and individuals from trying to do justice to the measurement challenge. Some of their approaches are based on perceptions of corruption, some on individual experiences. Others use a range of proxies to measure what they argue might well be corruption. This means that, despite the deep-seated problems inherent in trying to quantify the phenomenon, we now have a range of tools at our disposal. This chapter outlines some of the most well known of these tools, illustrating both what they do well and where they fall down before moving on to analyse how their findings can inform the real world of anti-corruption policy.

As we saw in the previous chapter, there is still no agreement on what corruption precisely entails. Given that, what hope is there of reaching an agreement on how much of it exists? This leads critics to argue that, while most attempts to quantify corruption are no doubt well intentioned, corruption remains a classic contested concept that is, in effect, immeasurable. Corruption, in other words, is like the notions of fairness, freedom, democracy and justice: we know what they are when we see them, but knowing how much we have at any one time is, in any practical sense, impossible.