Henninger: Capitalism’s Corruptions; Corruption suppresses growth because citizens in time recognize that honest work produces a lower return than spending one’s energies gaming the system

April 3, 2013, 6:47 p.m. ET

Henninger: Capitalism’s Corruptions

On capitalism, Pope Francis, Barack Obama and François Hollande aren’t singing from the same hymnal.



Public relations for capitalists hasn’t been so hard since Thomas Nast was caricaturing them in 19th-century America. The back wash of the 2008 financial crisis has put capitalist baiting back in vogue. The president of the United States got himself elected to a second term with a four-year assault on “the wealthiest” and the “well off.” French President Nicolas Sarkozy attacked the “free-wheeling Anglo-Saxon model” of capitalism, so the French dumped him to elect an aggressive anti-capitalist.Now comes the pope.

In his Easter message Sunday, Pope Francis devoted nine words to a “world still divided by greed looking for easy gain.” Does this mean we have the answer to whether Francis would join the ranks of capitalism’s critics? Some thought so.

From a headline in the U.K.’s Guardian newspaper: “Pope appears to put uncaring capitalism on a par with armed conflicts.” And the Independent newspaper: “Pope Francis used his first Easter message today to criticize the forces of capitalist greed.”

Let the record show that Pope Francis did not use the C-word in his Easter message. He invoked the G-word. Some will say that’s a distinction with no difference. Capitalism is greed.

Pope Francis might be amused to know that the late New York Times columnist Bill Safire once wrote an “Ode to Greed,” arguing that greed should be delisted as one of the seven deadly sins because, on balance, greed produces more good than harm. One of greed’s indirect social benefits is that it lets amassers of mind-numbing wealth, such as George Soros or Warren Buffett, do good as they understand it.

But the good done on a vast scale by a Bill Gates or Andrew Carnegie is irrelevant to the redistributionists now in power. A Barack Obama or François Hollande looks at the portion of national wealth held by citizens in the highest and lowest income brackets and concludes that capitalism has failed.

I’m going to guess that Pope Francis and Messrs. Obama and Hollande aren’t singing from the same hymnal here. The pope couldn’t care less about Barack Obama’s and François Hollande’s running battle with the income-distribution tables in countries that measure their gross domestic product in the trillions.

But make no mistake: This pope, with every waking hour, cares about the shafting of the world’s poor, and soon is likely to talk about it at length. It would be a breath of fresh air (another papal concern) in the social-justice debates if a pope set aside the capitalist straw man. The mere presence of men making money is an insufficient explanation for the persistence of poverty. You have to look elsewhere.

The plight of the world’s poor can be summed up in three truly ugly C-words: corruption, collusion and cronyism. All three may be kissing cousins but each in any language makes a mockery of both capitalism and justice.

Some 20 years ago economists began asking why so many countries, especially in Africa, never get better, even amid periods of global growth. An enormous body of economic literature now exists confirming that corruption keeps the poor down. A survey of this work for the International Monetary Fund concluded that countries get stuck in a “vicious circle of widespread corruption and low economic growth.”

Corruption suppresses growth because citizens in time recognize that honest work produces a lower return than spending one’s energies gaming the system. And, they’ve also found, the vicious circle worsens when real productivity falls alongside an inexorably expanding public sector.

Global poverty persists because corruption kills capitalism. History’s most recent exhibit is the Arab Spring, a product of economic exasperation, especially in Egypt. In time, corruption accelerates political instability, erodes democratic order if it exists, and someone from the outside has to clean up the mess. Think Syria or Mali.

One may ask, what is a pope supposed to do? One might ask in reply, what will be gained spending another century railing against the shapeless clouds of capitalism? Appeals to justice can be shrugged off because the idea is undefinable and endlessly arguable. By contrast, if a pope, or even an American president, were to visit a country and talk bluntly about ruinous effects of bribery, collusion and cronyism, he would be talking about real people. The corrupt know who they are, and their impoverished victims know who they are.

Yes, we know it’s hard. Recall the famous case of Paul Wolfowitz, who on becoming World Bank president in 2005 made withholding loans to corrupt governments an explicit goal of the bank. Like a swamp’s toxic gases, the bank’s bureaucracy, abetted by amoral Western governments wanting access to corrupt but lucrative foreign markets, joined to expel Mr. Wolfowitz.

It’d be nice to see them take on the pope.

Psychologists may explain why denunciations of greed and uncaring capitalism so often come from a London, Washington, Paris or Rome. A pope’s limited time must be spent with moral issues more real than imagined. Corruption qualifies.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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