------------ 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.
Copyright (c) 2006 by EH.Net. All rights reserved. This work may be
copied for non-profit educational uses if proper credit is given to
the author and the list. For other permission, please contact the
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229).
Published by EH.Net (July 2006). All EH.Net reviews are archived at
http://www.eh.net/BookReview
-------------- FOOTER TO EH.NET BOOK REVIEW --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review
|