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The Cost of Corruption and Abuse

Copyright (C) 1994 Constitution Society. Permission is granted to copy with
attribution for noncommercial purposes.

The Measure of Corruption

During the past several decades, American citizens have become increasingly
aware of corruption and abuse in this society, both official and corporate.
Many by being the victims of it, or by personally knowing its victims. Others
through the many exposes that have been written. However, most of these provide
only anecdotal evidence. What is missing are estimates of the extent of this
corruption, and the costs of it to our country.  Such estimates must of
necessity be very rough, as reliable statistics are generally not accessible
if they exist at all, but we can come up with working numbers until better
ones become available, based on both public and insider information.

- Market Corruption. This covers all those commercial transactions made
not on the basis of price or merit but as the result of bribes, kickbacks, or
extortion. It includes rigged bids on construction contracts, excessive prices
on items sold, labor padding, and bribes paid to secure peace with labor. It
also includes the excess costs of red tape intended to prevent such abuses,
which would not be necessary if the threat were not as great, although such
measures seldom prevent waste or abuse and often serve more to cover up
the abuse than reduce it. In many jurisdictions, such corruption is endemic,
and few if any areas avoid it. It has been variously estimated that such
corruption adds between 5 and 15 percent to the cost of all goods and
services. The latter figure is probably closer, and it may even be higher.
     A general excess cost of 15 percent is the equivalent of a tax to the
average worker, with a median annual income of $23000, of $3450 per
year. If made available for productive purposes, that could be expected to
increase the number of jobs by about 10 percent, or about 12 million jobs,
which would be more than enough to absorb the entire unemployed
population of the U.S., estimated to be about 10 million, and could also be
expected to raise average income by about 10 percent, and add about .5
percent to the average annual growth of the GDP.

- Narcotics. Illegal drugs are estimated to drain about $200-300 billion
from the economy each year, which amounts to about 4-5 percent of the
GDP. Contrary to disinformation about a "war on drugs", that volume of
trafficking is made possible only by official protection or participation,
probably at least 80 percent of it. It is estimated that about 40 percent of
all cocaine and heroin is smuggled in directly by such federal agencies as
the CIA, DEA, and FBI, especially the CIA. The "war on drugs" is only to
keep prices high, limit competition, and deceive the public. Some of the
money is used to finance covert or illegal government operations, but much
of it is used to enrich officials, international bankers, and to acquire assets.
The results of that acquisition is to bring an increasing proportion of the
economy under the control of criminals, and with it increasing political
power.
     To the direct costs of the drugs must be added the costs in increased
crime, law enforcement to deal with that crime, and the cost in lost lives,
health, and property. Taken together, we can estimate that the aggregate
cost amounts to about 12 percent of the GDP, 80 percent of which is
attributable to official corruption, equivalent to a tax of about $2300 per
year for the average worker. It can be estimated that more than half of that
money is not returned to the economy as consumption or new investment,
but is used to acquire existing assets without creating any new value,
resulting in a loss to the economy of about 8 million jobs, or almost as many
as the number of unemployed. It also makes a major contribution to the
balance of payments deficit, perhaps as much as $40 billion a year, since
most of the money is removed from the U.S. and only returns from abroad
to acquire assets or purchase U.S. government bonds, the interest on which
is then repatriated abroad. This balance of payments deficit increases the
cost of imports to U.S. consumers, especially oil, which is the major
product imported, which in turn contributes to increased costs for
everything. At the same time it increases the capital available for creating
jobs abroad that compete with U.S. workers, further contributing to
unemployment, far more than the effects of reduced tariffs.

- Raiding. This covers a variety of attacks on productive assets, including
financial institutions, businesses, and individuals, by corrupt parties,
including several agencies of the U.S. government. The largest category of
this raiding was the contrived collapse of the savings and loan industry,
mainly under the direction of the CIA and Justice Department. Thrift
institutions were induced to make bad loans to members of the conspiracy,
then taken over, looted, and seized, their owners wiped out, and their assets
sold to the conspirators at firesale prices, paid for with the same money
obtained by the bad loans. This process placated the public during the
1980s by stimulating a real estate boom, which created a brief period of
prosperity, but led to the recession of the 1990s when the real estate boom
failed. It is estimated that the collapse of the thrifts diverted about $1
trillion from productive use, about half of which went into the offshore
coffers of the CIA and other corrupt interests. It resulted in an increase in
the national debt which may cost the average worker about $2000 a year
for the next 50 years, and will cost the economy about 8 million jobs a year
over that period.
     Lesser but still important forms of raiding include bankruptcy fraud,
not just the kind in which the bankrupt commits fraud, but the kind in which
parties who file for Chapter 11 protection have corrupt judges and trustees
contrive to cause them to lose all their assets, which are then bought up by
cronies of the judges and trustees for pennies on the dollar. Again, the CIA
has played a prominent role in orchestrating this kind of raiding.
     Another approach to raiding is done by having subsidized government-
owned businesses called proprietaries compete with ordinary businesses,
forcing them into financial distress, then manipulating their financing
sources to force them to liquidate or sell. Once the agencies gain control of
the businesses, they either loot them of their assets and cover their tracks by
putting the business into bankruptcy, or else continue to operate it and to
bring strategic sectors of the economy under agency control. Again, the CIA
has been one of the major agencies doing this. It is estimated that this
approach is costing the economy more than $100 billion a year, or about 1
percent of GDP. It also results in increased unemployment as looted or sold
businesses lay off workers, and although many of them get other jobs
elsewhere, there is a net loss during the period they are unemployed, and a
loss in reduced wages after they do get other work.

- Legal abuse. This is essentially a conspiracy of most of the legal
profession against the public, resulting in an excess of legal costs over what
they should be of about 80 percent, which in turn increases the costs of
goods and services by about 2 percent, on the average. In some cases, by
much more. For example, about 70 percent of the cost of a new aircraft is
due to the cost of liability insurance, which is the indirect result of this
legal conspiracy. It also takes other forms. Attorneys often sell out their
clients to the opposition, resulting in their clients losing their cases.
They also often conspire to defraud the heirs in probate, manipulating
appraisals and diverting the assets to themselves or their cronies. More
than half of all judges are compromised, and pervert the judicial process
to serve the interests of  the Power Elite.

- Vote fraud. Most computerized elections can be rigged whenever the
Shadow Government chooses to do so. It goes through the motions of
influencing elections with large contributions and manipulation of the
mainstream media, but if those methods fail, the voting machines give the
result that was predetermined. This results in a terrible cost of a loss of
public confidence in the political process and the legitimacy of the
established institutions of society, a loss of morale and confidence, and
reduced cooperation and compliance with voluntary taxation.

- Rodney Stich, Defrauding America, 1994, available from Diablo Western
Press, Inc., PO Box 5, Alamo, CA 94507, 800-247-7389, $27.25.
- James M. & Kenneth F. Collier, Votescam: The Stealing of America,
1992, available from Victoria House Press, 67 Wall St #2411, New York,
NY 10005, $10.00.

For more information contact:
Constitution Society, 6900 San Pedro #147-230, San Antonio, TX 78216,
210/224-2868

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