------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (July 2006)  
  
Edward L. Glaeser and Claudia Goldin, editors, _Corruption and   
Reform: Lessons from America's Economic History_. Chicago: University   
of Chicago Press, 2006. ix + 386 pp.  $75 (cloth), ISBN:   
0-226-29957-0.  
  
Reviewed for EH.NET by Louis P. Cain, Loyola University Chicago,   
Northwestern University, and the University of Chicago.  
  
  
_Corruption and Reform_ is a stimulating set of eleven essays that   
follow an instructive introduction by the editors, both of whom are   
Professors of Economics at Harvard.  The authors, stalwarts of the   
National Bureau of Economic Research's Development of the American   
Economy program directed by Claudia Goldin, first presented their   
papers at a July 2004 conference.  Edward Glaeser, in collaboration   
with Andrei Shleifer, wrote what is perhaps the work most frequently   
cited in this collection, "The Rise of the Regulatory State," which   
appeared in the June 2003 _Journal of Economic Literature_.  Glaeser   
and Shleifer use economic history to argue that the strategy a   
society chooses to enforce its laws depends on each alternative's   
vulnerability to subversion by affected interests.  Given their   
research interests, it is logical that these authors address the   
issues raised by Glaeser and Shleifer's hypotheses.  It is logical   
that this book focuses on the Progressive Era which, after all, "was   
dedicated to the elimination of corruption" (p. 4).  And, while it is   
unfortunate the total social costs of corruption are probably   
unknowable in any time or place, it is clear the reforms discussed in   
this collection were cost reducing.  
  
The volume is organized into four parts; the first consists of the   
editors' introduction and three essays under the heading of   
"Corruption and Reform: Definitions and Historical Trends."  The   
introduction and the first essay by John Joseph Wallis attempt to   
define what is meant by corruption.  As the editors note, it is   
essential to have a consistent definition in order to do time series   
work, but there are many possible definitions, and Wallis' article is   
particularly good in articulating the sometimes subtle differences.   
The definitions adopted in the other essays, while they differ   
slightly one from another, generally are consistent with what Wallis   
terms "venal corruption," a situation where economics corrupts   
politics, as opposed to "systematic corruption" where the reverse is   
true.  The editors present three series to establish a "time path of   
corruption in the United States" (pp. 12-18).  That path appears to   
have rather large cycles around a relatively horizontal trend between   
1815 and 1890, a downward trend between 1890 and 1930 (the   
Progressive Era), and much smaller cycles around a relatively   
horizontal trend between 1930 and 1975.  This is consistent with   
Glaeser and Shleifer who find that regulation became the increasingly   
efficient enforcement strategy in the Progressive Era.  One reason   
for the smaller cycles is that, over the twentieth century, the price   
paid by corrupt politicians has significantly increased.  The final   
two essays establish time paths consistent with those of the editors.   
Rebecca Menes' essay makes use of information on corrupt mayors and   
urban administrations, while that of Stanley Engerman and Kenneth   
Sokoloff examines cost overruns on major public works, beginning with   
the Erie Canal System and continuing into the twenty-first century.  
  
The second section, "Consequences of Corruption," consists of two   
essays.  The first, by Naomi Lamoreaux and Jean-Laurent Rosenthal,   
discusses how the rise of corporations diminished the protection   
afforded minority stockholders, a particular problem given the   
mergers and combinations of the Progressive Era.  They note the major   
movement toward reform here did not develop until the stock market   
crashed in 1929.  The second, by David Cutler and Grant Miller, looks   
at the development of urban water systems in the Progressive Era, a   
time when municipalities' access to capital was substantially   
increasing.  This essay does not confront corruption as directly as   
others in the volume, in part because they find "corruption-based   
explanations" for these municipal improvements are not supported.   
This, in turn, makes the useful point that corruption generally did   
not interfere with the creation of public goods.  
  
The third section consists of three essays concerning "The Road to   
Reform."  The two editors and Matthew Gentzkow examine the role of   
the media is providing a check against corruption.  Their essay   
contrasts two eras, the first characterized by the Credit Mobilier   
scandal of 1870 and the second by the Teapot Dome scandal of 1922.   
In the first, the media was largely "partisan," but in the second it   
was primarily "informative."  They attribute this change to   
increasing financial returns to the sale of newspapers (as production   
costs fell, circulation, advertising revenues, and the number of   
newspapers increased).  They simply comment, without attribution of   
causality, that this contributed to reform by providing supportive   
news coverage. Howard Bodenhorn, looks at the development of free   
banking in New York, one of the first reform movements in the United   
States.  He argues it resulted from the self-interest of one   
political party attempting to limit the rents of corruption accruing   
to the other, what Wallis terms a "classic case" of systematic   
corruption.  He sees reform as a result of parallel forces dating   
from early in the century that were moving toward greater economic   
and political self-determination.  In the third essay, Werner   
Troesken conjoins his knowledge of the ownership structure of   
utilities with a definition of corruption stressing the illicit sale   
of political influence to explain why there was a movement toward   
public ownership in the early years of the twentieth century and a   
movement away from it seventy-five years later.  His investigation   
reaches the conclusion that "corruption, and the necessity to   
eliminate corruption when it gets too costly, accounts for the   
efficacy of regime change" (p. 278); the direction of change is less   
important than the removal of corrupt elements.  
  
The three essays in the final section, "Reform and Regulation," look   
at safety reform in the workplace (Price Fishback), the Pure Food and   
Drugs Act of 1906 (Marc Law and Gary Libecap), and relief legislation   
during the New Deal (Wallis, Fishback, and Shawn Kantor).  Fishback   
notes that labor generally supported safety regulations in mining and   
manufacturing, while management generally opposed them. Mining laws   
were targeted to a single industry (devoid of women) often located in   
isolated areas where managers and owners were likely to have a   
disproportionate amount of political power.  Manufacturing   
regulations were applied to a broad range of industries and raised   
the costs of small firms much more than those of large firms, thus   
the latter's managers often favored the regulations. Law and Libecap   
note that the Food and Drug Administration resulted from a   
combination of consumers concerned about quality (concerns often   
attributable to muckraking journalists) and producers interested in   
calming those concerns.  After presenting three views of Progressive   
Era reform (regulatory capture, public interest, and rent seeking),   
they argue the evidence supports a "nuanced combination" of all   
three.  Wallis, Fishback, and Kantor argue that the move to federal   
provision of relief, particularly welfare and unemployment   
compensation, significantly reduced the corruption that had been   
endemic in local provision, and Roosevelt recognized the incentive he   
had to maintain the good will generated by the new system.  Although   
a portion of relief provision remained under local administration,   
the federal government controlled the distribution of funds and   
required that local administration be fair and impartial.  
  
All in all, this is a first rate collection on a topic that will   
always be relevant, at least from the perspective of one who lives in   
Cook County, Illinois.  A short review such as this can not do   
justice to the contributions each of these essays makes on a number   
of different margins.  Even though many are still available as NBER   
working papers, the intersections between them make the whole more   
valuable than the parts.  
  
  
Louis P. Cain is Professor of Economics at Loyola University Chicago,   
Adjunct Professor of Economics at Northwestern University, and   
Visiting Professor at the University of Chicago's Graduate School of   
Business where he is serving as Visiting Co-Director of the Center   
for Population Economics. With the late Jonathan Hughes, he is author   
of _American Economic History_, soon to appear in its seventh edition.  
  
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