Congressional minority report: "The Costs of Corruption to the American Economy"
And, of course, it's about Trump.
And, of course, it's about Trump.
Unfair advantages for firms and executives with political connections at the expense of more productive and innovative firms stifles innovation and constrains the American economy. Indeed, some business owners are already claiming that President Trump’s ongoing businesses connections and leverage of the Office of the President are creating an unfair competitive advantage that hurts their business.22 The owner of a restaurant competing with that of the President said, “We feel that the president of the United States, owning a hotel, owning restaurants, promoting those restaurants, is unfair and to the detriment of other businesses in the city.”23 When the President cashes in on his position, and creates an environment in which others do the same, he threatens the efficiency and productivity of the American economy.
Slower Economic Growth
Researchers consistently find that the costs of increased levels of corruption are large.24 Based on estimates in a study from the 1990s, if the United States government had been as corrupt as Italy’s, per capita GDP would have grown at 2.1 percentage points less every year.25 This has huge implications for Americans: if GDP per capita had grown 2.1 percentage points less in 2016, output would have fallen by $1,170 per person. 26 Higher corruption is associated with higherinequality, which is associated with lower growth.27 These aggregate effects on the economy
operate through a diverse array of channels, discussed below, ultimately hurting the country’s economic potential and constrain the productivity growth that translates into higher standards of living for all Americans.
Less competition, productivity, and innovation
Surreptitiously directing business in one way or another skews fair competition in the marketplace, enticing companies to spend money on cultivating political patronage rather than on innovating. Political connections can transfer profits from more productive to less productive firms, decreasing overall productivity.28 Indeed, if seeking favors becomes more profitable than coming up with the next big innovation, then we can expect to see fewer innovations as businesses concentrate on currying favor instead of innovating.29 Corruption also can hurt competition, which is a driver of productivity growth and innovation.30 Americans would see fewer positive innovations and lower productivity, resulting in real effects that reverberate through American households.
Costlier and less effective government
More corrupt governments are also more expensive for their citizens. Firms with political connections are more likely to attempt to evade taxes, as they are less likely to face an audit than non-politically connected firms.31 Municipal bonds can become more expensive in more corrupt governments, increasing the cost of governing.32 Decreased tax revenue and increased costs of borrowing are even more problematic because more corruption leads to increases in public debt as the government increases its spending.33 Corruption can also decrease the effectiveness of regulation by allowing businesses to avoid compliance.34 Corrupt practices undermine government regulations and anti-trust practices that are put into place to correct market failures.35 For example, firms with more political connections may be more likely to violate regulations and shirk responsibility for behaviors that might otherwise invite civil or criminal penalties. Moreover, corruption leads connected firms to leverage their political relationships to secure laws and regulations that help amass and protect their market power at the expense of other businesses, workers, and consumers.
Lower private investment
Private investment—when companies spend money to expand and enhance their equipment and workforce, or to research or develop new innovations—is an important driver of productivity growth. Corruption discourages private investment partly by increasing the costs of investment.36 In a world where the most productive firms are not the most profitable, the traditional investment incentive mechanisms fail to work.