Regulating Ethics in a Bust
Booms and busts are common not only in a financial system. They are
also common in government ethics.<br>
<br>
Booms are when things are good, when local politicians seem worthy of
our trust. Busts are when we find out that things aren't what they
seemed. In other words, when there's a scandal.<br>
<br>
In an <a href="http://www.economist.com/finance/displayStory.cfm?story_id=13446173" target="”_blank”">Economist
guest article</a> last week, economist Raghuram Rajan wrote about the
problem of regulating during economic busts, which is the norm. Much of
what he says applies to improving a local government's ethics program
after a scandal, which is similarly the norm.<br>
<br>
Here's how Rajan describes the situation:<br>
<br>
<div>in the midst of a bust ... is when
righteous politicians feel the need to do something ... and regulators
have their backbones stiffened by public disapproval of past laxity.<br>
</div>
<br>
Bust-time is actually the time when financial regulation is least needed, Rajan argues. It is also the time when government ethics reform is least needed,
because things are out in the open, people are watching, and officials
are sensitive to appearances of impropriety.<br>
<br>
It's when a few years have
passed, when people are trustful and officials are overconfident again,
that improved ethics programs are most needed. But it is often then
that disclosure is weakened, that officials stop asking for advisory
opinions, and that funding as well as transparency dry up.<br>
<br>
Rajan argues that to create stability throughout the cycle, new
regulations have to be comprehensive. In finance, if three areas are
heavily regulated and one is not, investments will tend toward the area
that is least regulated. That is true in government ethics, as well.<br>
<br>
If, for example, there is a scandal involving a lobbyist, lobbyist laws
are often improved, with other areas left the same. In a local
government that has a weak ethical environment, this will only move
unethical activity out of the hands of lobbyists.<br>
<br>
The entire ethical environment has to be dealt with at once. But in a
scandal situation, this is almost never done. The most recent war is
fought, with maybe a few other tweaks for good show, and that is it.<br>
<br>
As with our economy, fixing one part of a local government's ethical
environment does not improve the whole. The occasion of a scandal is
hard for ethics reformers to pass up, because this is often the only
time that people will listen to them. But they should make it clear
that a partial solution is not a solution at all. A comprehensive,
ongoing, fully funded, and well-led ethics program is necessary not
only to prevent future scandals, but to give the community the ethical
environment it wants and deserves.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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