What price integrity today?

British sleaze is no different from everyone else's corruption, argues Vincent Cable

The border zone between business activities and politics is an ethical minefield. For the foolish, careless or venal it can be fatal. Willy Claes, the Nato Secretary-General, is just the latest European politician to fall casualty to accusations of corruption, following a sizeable number in Italy, France and Spain.

Simultaneously, Britain has been overrun by a seemingly endless succession of scandals at the interface of business and politics. Yet in this, as in other matters, we are not fully at the heart of Europe. We make a general assumption that Britain is different, that what happens here is on a small scale and involves lapses from generally high ethical standards rather than abuses of the law or systematic looting of the public purse.

But this is lazy cultural stereotyping, treating real corruption as an exotic growth indigenous to tropical and Mediterranean climates - the distant world of Mobutu, Marcos and the Mafia. If British businesses or politicians are compromised in these foreign parts, we can be sure it is for good patriotic reasons: promoting British exports.

There is even a distinct British vocabulary. Rather than "corruption" we use the word "sleaze": a ludicrous, nebulous concept covering everything from love affairs and local government gerrymandering to kickbacks on big export orders.

What does, so far, differentiate Britain from the Continent is the absence of investigating magistrates and the police. This may indicate a superior level of political conduct, or it may simply be that the threshold of legal intervention is higher. Britain, in fact, may have more in common with other democracies, such as India, where political life is punctuated with numerous financial scandals unearthed by investigative journalists and parliamentary committees, but rarely does anyone appear in the dock.

Whether Britain has an Italian, or Indian, or simply its own, model there are certain elements which suggest that Britain is, indeed, part of a bigger picture. First, there has been a significant breach of the long- standing convention that public figures and their families should not leave office significantly richer than when they entered it. There may be important differences of detail between the case of Mark Thatcher and the "Red Princelings" of China or the children of Indonesia's President Suharto, but the similarities are also striking.

Second, it is far from obvious to the untrained eye how the British experience of large-scale political donations from business differs significantly from that which has ensnared Messrs Emmanuelli, Claes and Andreotti. In each of these cases individuals, for no apparent personal gain, were trying to help their parties to raise money by dispensing favours to friendly businesses with an interest in past or future regulatory changes or public sector contracts.

The key issue, however, is not the particularities or otherwise of British practice but the way so many liberal democracies everywhere are being subverted by public cynicism about political corruption. Since the Western model of capitalist market economics and parliamentary politics is being promoted and adopted everywhere, it is appropriate to ask if there is a systemic flaw.

In theory, at least, market-based systems should be less corrupt, less prone to what economists call "rent seeking". They should eliminate the black markets generated by controls that drive a wedge between supply and demand. Reduction in the scale of government through deregulation and privatisation should reduce the scope for political patronage. Competition should sweep away protected monopolies. Clear, legally based property rights should increase business security and reduce dependence on the capriciousness of politicians and officials.

The idea that competitive capitalism is an ally of public honesty gained much support from the experience of planned, state-controlled economies. The greed and corruption of Brezhnev's entourage contributed enormously to the collapse of faith in Soviet Communism. The venality of governing lites in Africa, Latin America and parts of Asia could also be attributed to the dirigiste structures that they controlled. The inter-penetration of state and business in Italy became similarly corrupt.

Yet something is not quite right with this story. In Eastern Europe, Russia, China and Vietnam, and in semi-planned countries such as India where state controls are being swept away, official, if sullied, puritanism seems to have given way to abuses on an even bigger scale. In a more modest way, Britain's experience of liberalisation has diminished, not enhanced, faith in the integrity of government. The explanation may lie in the fact that something has been lost along the road to liberalisation: the idea of public service, or the common good, which more than any law is the main bulwark against corruption.

There remain, moreover, large areas of economic activity in which potential conflicts of interest and anti-competitive activity abound. The arms trade is an obvious one, public works contracts another. Privatised economies subject to regulations create strong temptations for business to engage in "regulatory capture": to subvert regulators rather than defer to them. In an extreme case Silvio Berlusconi, who was the main spokesman for the "new" liberalised Italy, saw his corporate strategy as best advanced by the capture of the state itself. What may be happening more generally is that while economic liberalisation, at most, eliminates some of the opportunities for corruption, it is removing ethical self-restraint and inhibitions at an even faster pace.

This is where democracy should enter to promote transparency and accountability, and to check the corrupt abuse of power. President Collor of Brazil was checked by democracy from becoming another corrupt billionaire. Indian politicians on the make are regularly and unceremoniously evicted by their canny electorates. It is comforting to believe that European and specifically British abuses will be checked by the same cleansing process.

There is, however, an emerging danger. Democratic politics is expensive and the obvious sources of funding are drying up. The decline in class- based and ideological left-versus-right politics has eroded the commitment both of individual mass membership and traditional funding constituencies in unions and business. Unless parties have access to state funding or, as in the US, can rely more on the private wealth of individual candidates - both of which present serious problems of their own - there will be powerful temptations to cut corners and to seek funding in return for services rendered.

If the institutional and ethical safeguards against political corruption are weakening, there is need to reinforce them. The Nolan committee will be an important test of commitment in Britain. One measure of its seriousness will be its willingness to tackle the bigger systemic issues, such as party funding. Another will be to escape the partisanship and pettiness of the British "sleaze" debate. Seen more widely, the freeing up of economies on a global basis is generating many benefits but also many dangers. The relationship between businessmen and politicians, in particular, cannot be self-regulating; it requires stringent safeguards.

The writer is head of the international economics programme at the Royal Institute of International Affairs.