Fraud and Corruption Kill and Maim

• In Event: Comparative Analyses of Corporate Corruption and State Crime

Abstract

Three ongoing examples from the automobile industry illustrate that white-collar crime can be a crime of violence. George Akerlof was awarded the Nobel Prize in Economics in 2001. The committee noted in particular his 1970 article on markets for “lemons.” Economists are taught that the article is about “asymmetric information,” and how markets respond to such asymmetries. Typically, the subject is treated as another example of how the market triumphs. Akerlof, however, made three points that are overwhelmingly ignored by economists. First, such asymmetries can lead to fraud by the seller. Second, there is no certainty that the market will suppress the resultant frauds. Third, the result can instead be a “Gresham’s” dynamic in which bad ethics drives good ethics from the market. Each of Akerlof’s examples of fraud in his 1970 article were discussed solely in terms of financial loss – the buyer paid too much for an inferior car. Akerlof’s signature example of fraud, the one that gave his article its title (“lemons”), was fraud by sellers about the quality of automobiles. Those quality problems can kill and maim the customer and people (and other living things) that are not parties to the transaction. The paper discuss the common characteristic of the Takata airbag, GM ignition switch, and VW pollution scandals. Each poses a risk of maiming and killing people and other living things through fraud. In each case, the senior executives responded to this risk for years by covering it up.

Author

• William Black, University of Missouri - Kansas City