Neoliberalism and the Moral Economy of Fraud

David Whyte, Jörg Wiegratz, David Whyte, Jörg Wiegratz

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317397496
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

There is evidence that economic fraud has, in recent years, become routine activity in the economies of both high- and low-income countries. Many business sectors in today's global economy are rife with economic crime.

Neoliberalism and the Moral Economy of Fraud shows how neoliberal policies, reforms, ideas, social relations and practices have engendered a type of sociocultural change across the globe which is facilitating widespread fraud. This book investigates the moral worlds of fraud in different social and geographical settings, and shows how contemporary fraud is not the outcome of just a few 'bad apples'. Authors from a range of disciplines including sociology, anthropology and political science, social policy and economics, employ case studies from the Global North and Global South to explore how particular values, morals and standards of behaviour rendered dominant by neoliberalism are encouraging the proliferation of fraud.

This book will be indispensable for those who are interested in political economy, development studies, economics, anthropology, sociology and criminology.

1 Neoliberalism, moral economy and fraud

David Whyte and Jörg Wiegratz

[H]igher immorality is a systematic feature of the American elite; its general acceptance is an essential feature of the mass society.

(C. Wright Mills, The Power Elite)

Politicians can only take money because people picture their corruption as being altogether finer and nobler than it really is.

(Berthold Brecht, Threepenny Novel)

Introduction

various forms of fraud and corruption are not just present, but are widespread in the economies of both income-rich and income-poor countries. As this book goes to press, the volkswagen defeat device scandal is the most widely publicised example of fraud in a key sector of the global economy. Yet, the automobile industry is only one of a number of industrial sectors, such as oil and gas, financial products, the arms industry and pharmaceuticals, in which fraud scandals have become commonplace (Braithwaite, 1984; Andvig, 1995; Chwastiak, 1998; Rosoff et al., 2002; Briody, 2005; Qureshi et al., 2012). Indeed, it is no exaggeration to say that many of the key business sectors in the global economy are rife with fraud. Certain practices and norms that many people in the Global North considered ‘shocking’ and ‘unthinkable’ only a while ago have become routinized in public life or have been institutionalised as the ‘new normal’ (Wiegratz, 2014; Whyte, 2015). This book brings a wide range of contributions together that show collectively how the practices of fraud and corruption are encouraged by a moral culture, i.e. a distinct set of ideas, norms and values that has social currency in contemporary capitalist societies.

That said, it is noteworthy that public and policy discussions of one of the most significant phenomena of pre- and post-crash capitalism – economic fraud – is barely informed by any empirical knowledge-base, particularly concerning the socio-cultural underpinning of fraud. Some studies do provide empirical evidence of this type (for example Whyte, 2007b; Wiegratz, 2010; Swader, 2013; Dewey, 2014), but the number of available studies is very small in comparison to the significance of the phenomenon. Moreover, the available material constitutes a very small fraction of the data that are produced and used – mostly by scientists based in the Global North – to discuss topics such as democracy and elections, political parties, security and terrorism, economic reform and structural adjustment, in terms often very narrowly prescribed by key state institutions and think tanks and thus supported via research and consultancy funding. But the failure to explore the incidence and production of corporate fraud empirically by much of the social sciences is not just a function of funding and priority dynamics ‘outside’ academia, but is also related to longer-term trends concerning how social sciences understand and research matters of the economy. The empirical study of economic practice (and its making) in modern capitalism, until recently, has been a marginal affair in a number of disciplines including political economy and sociology (for example Lie, 1997; Carrier, 1997; Carrier and Miller, 1998; Callon, 1998; Beckert, 2009), as the empirical study of corporate and white-collar crime generally has been (Tombs and Whyte, 2003).

There has clearly been a hesitation by the academic community in the North to study the crimes of the powerful – the practices of the economic and political establishment – in their own backyard rather than in distant places in the South. One reason for the lack of research data and debate on corporate fraud in the South is the almost exclusive focus of the international donor and aid community over the last two decades on matters of political corruption (as part of the concern with ‘governance’ and the state). Research agendas tend to be organized around dominant definitions that focus on the ‘corruption of public office’ (Wedel, 2015), and therefore leave off the radar the whole issue of private sector fraud, especially in everyday sectors such as health, education, food and agriculture. This situation has slightly changed recently given the string of revelations about financial sector fraud, tax evasion, production and trade of substandard goods, and official concerns about money laundering and ‘terrorism financing’. Some of those issues are beginning to attract official attention; for instance the illicit financial flows agenda (www.uneca.org/iff). That said, for the purposes of this book, we adopt a broad definition of the term fraud: the use of deception to make an economic gain, a practice that thus harms those who are being defrauded or those who ultimately have to pay the costs of the fraud.

Yet, where research agendas have taken private sector fraud seriously, they tend to frame the problem from a highly partisan and epistemologically restrictive perspective. Mainstream debates in Western academic scholarship on the complex relationship between neoliberalism and fraud have tended to make a common, over-simplified, assumption. This assumption is that ‘corruption’ and ‘fraud’ are likely to diminish in the current, neoliberal, period as global markets ‘liberalize’ and become more ‘open’, ‘competitive’ and ‘efficient’, and polities adopt liberal forms of democracy, transparency and accountability. This line of argument supposes that eventually, the dynamics of liberal market and polity will punish ‘wrong-doing’ (fraudsters lose customers or voters) and thus reinforce incentives for honesty and accountability. Thus, one key contribution asserts that although in the short term, structural adjustment policies and the globalization of trade may – because of the ‘openness’ and transparency of economic liberalization – heighten perceptions of corruption in a given economy: ‘[t]he spread of democratization and market reforms should reduce corruption in the long run’ (Ann Elliot, 1997: 176). The assumption that corruption and fraud are cured by more market discipline, and more structural adjustment – in other words, more neoliberal capitalism – has for many years been part of the common sense in much of what passes for academic literature on the subject (for example, Shleifer and vishny, 1993; Rose-Ackerman, 1999) not to mention the intellectual output of international financial institutions (IFIs) (for a typical articulation of this position, see Stapenhurst and Kpundeh, 1999; and Abed and Davoodi, 2000).

Crucially, guarantees that counter-corruption measures are in place are now used prescriptively as a precondition of grant aid, debt relief or of membership of international bodies. Counter-corruption policy in this form is often imposed by the same international institutions (such as the World Bank and the United Nations Development Programme) (Shore and Haller, 2005; Le Billon, 2005) that advance structural adjustment policies that demand the removal of protective economic policies and encourage privatization and ‘market’ reform. This contemporary counter-corruption movement – and the more recent counter-fraud movement concerning for instance fake agro inputs and pharmaceuticals in some African countries (for the cases of Nigeria and Uganda, see e.g. Nandudu and Baguma, 2014; Tibyangye, 2015; Yeebo, 2015) – therefore involves a much larger enterprise that goes beyond the eradication of corruption in business and political life per se. Increasingly, this movement can be understood not only as a political-economic programme that demands restructuring of the state and economy in the South but also as a moral crusade that organizes international opposition to what is framed as non-mainstream or deviant economic practices carried out by particular actors. The world of counter-corruption for instance is, in Sampson’s (2005: 129) terms, a ‘stage in which moral projects are intertwined with money and power’. In other words, it is a place where political economy and moral economy intersect. The IFI agenda on corruption can therefore be read as an attempt to organize a consensus around the need to reform states and economies that are targeted for structural adjustment. Being against ‘corruption’ and ‘fraud’ (and by implication being against opaque markets and opaque relations between technocrats, politicians and business actors) allows state officials to construct a moral narrative that legitimates all manner of political interventions at local, national and global levels (Gupta, 2005).

Yet, in contra-distinction to the position that fraud is a residual effect of pre-neoliberal forms of capitalism or, in Eastern Europe, socialism, the apparent rapid rise in a range of business and consumer frauds in many countries can be explained simply as a direct consequence of the liberalization of market, the re-regulation of particular economic sectors and the restructuring of the state in line with IFI structural adjustment principles (for a review of the evidence, see Karstedt, 2015). As the chapters in this book collectively show, the assumption that fraud and corruption will be cured by more market discipline is decisively challenged by our real, lived experience of the rampant opportunities for old and new forms of bribery and deception that have flourished in liberalized economies.

The evidence assembled in this book therefore demands that we reject the hegemonic (and often racist) assumptions that: (1) fraud is a problem of only the Global South, i.e. of regions and countries that are not yet sufficiently capitalist (and for this read ‘Westernised’); and (2) that the Global North sets the standards and is a force of clean business ethics and transparency around the world (Whyte, 2007a). In so doing, the chapters in this book collectively represent a way in to understanding and responding to fraud as a problem that is rooted in neoliberal capitalist economic relationships and in related political-economic and socio-cultural practices.

Neoliberalism’s moral project

Neoliberalism is a contested concept that tries to make sense of an empirically varied reality. However, we view neoliberalism as an analytical category which describes a set of policies that that seek the creation of fully fledged market societies across the globe. As part of this aim, these policies encourage the marketization of all social relations, a general empowerment of capital in the form of large private corporations, and the corresponding restructuring of people’s subjectivities, relationships and everyday practices (Harrison, 2005, 2010). Neoliberalism has been advanced via policy, programme and discourse (individual freedom, self-interest, free markets), and has usually triggered changes not only in the economy, but also polity, society and culture (Bush, 2007; Harvey, 2007; Mirowski, 2013). Importantly, ‘neoliberalism’ – that is the repercussion of neoliberal reform – becomes present and embodied especially in social practice and discourse (Harrison, 2010: 29). The process of neoliberal reform raises important questions related to the effect of neoliberalism on prevailing moral economies (Wiegratz and Cesnulyte, 2016): How do people in neoliberalized societies think about themselves and others, or their relationships with money? What set of social practices – as well as values and norms – is dominant, and why? What do people consider to be acceptable, proper, or necessary ways of earning a living, and treating others in the process?

This book analyses, in a wide range of different contexts, the process by which neoliberal reforms and resulting dynamics have changed not only the affected political economies but also respective moral economies. The book therefore asks what is regarded as acceptable and unacceptable, proper and improper, legitimate and illegitimate practice in contemporary societies, and whether there has been a recent change concerning notions of what is proper practice (Keller, 2006; Wiegratz, 2010)? Analytically, we perceive the phenomenon of fraud to be linked to the phenomenon of this neoliberal moral change. This moral change is closely linked to the political-economic change that neoliberalism brought about (Wiegratz, 2012). In that sense we understand contemporary fraud to be a phenomenon of both neoliberal moral economy and neoliberal political economy. This interaction in neoliberal society between political and moral economy – or the material and socio-cultural – and the resulting fostering of fraud will be analysed in this book.

Our book differs from dominant understandings of fraud that tend to project causal explanations that show deception and criminality to be a manifestation of the weakening of morals (due, for example, to the crowding out of nonmarket norms by market values; Sandel, 2012) or the absence of morals (‘bankers have lost their moral compass’). Those position typically suggests that people who harm others through fraudulent practices have either ‘lost’ their values or have no morals, or that practices such as bribery and fraud ‘undermine moral values’ and produce ‘moral costs’ (Della Porta and vannucci, 2012: 59).

In some of the least sophisticated analyses, it is assumed that in a battle between ‘good’ and ‘evil’, corruption is simply ‘bad’, or a pathological flaw or ‘a symptom that something has gone wrong in the management of a state’ (Rose-Ackerman, 1999: 9). For many analysts this flaw is made worse simply because academics find it difficult to intervene on the side of the ‘good’. Thus, as Rose-Ackerman (2006: xiv) has noted regretfully, ‘writing on corruption often stakes out a moral high ground, but economists are reluctant to sermonize about right or wrong’. For us, this is hardly the point. Economic and more broadly social practices are, for us, always supported empirically by a set of core moral understandings and claims advanced by social actors. And, together, the case studies in this book provide ample evidence of the moral economy that always stands somewhere in the shadows of fraud. This book thus conceives fraud as in part shaped by the acting out or operationalization of particular moral values and norms in a particular political economic context.

Counter to the dominant claims we find in much of the academic literature, then, we cannot assume that concepts of moral actor or moral economy automatically refer to pro-social practice, or our own, subjective, divisions between honest or ‘good’ and dishonest or ‘bad’ practice (Olivier de Sardan, 1999; Wiegratz, 2012). Fraudulent economic and political actors (e.g. fraudulent bankers, traders, peasants or politicians, and even those who are war criminals) construct what they do within a particular set of morals and norms. Rather than having no moral system to draw upon at all, fraudulent practices are guided by (interpretations of) particular values (say, personal success, materialism, enjoyment, power and self-direction) that for instance advance self-interest, require cutting corners and so on. Thus an oversimplified suggestion that a renewed focus on socially neutral ‘morals’ or ‘values’ will resolve the fraud problem makes little sense unless the content of the values and the link between values and political economy are specified.

Take the example of the banking sector in the US, the UK or Germany – riddled for years now by extensive and escalating fraud, or to use that analytically very ambiguous term, ‘malpractice’. We learn very little about the specific dynamics of fraud in a neoliberal society if we continue to simply refer to the age-old explanations for such money-making methods: greed, selfishness, ruthlessness. We claim that the action logics and justifications, including moral logics that underpin fraud in banking and elsewhere are a lot more complex and nuanced, and an outcome of a longer-term, multi-layered, collective, social process – rather than the ‘animal instincts’ of a lone actor who ‘messed up’ and ‘failed’ (e.g. the society/community). Yet, very few studies have to date explored via qualitative research the dominant norms, values and practices related to these structures of routine fraud (e.g. Honegger et al., 2010), let alone the political-economic and socio-cultural making of these norms, values and practices. It is this direction of enquiry that this book seeks to advance.

This book aims to show how, in a range of ...