Table of Contents

Innovation, Evolution and Economic Change

Innovation, Evolution and Economic Change

New Ideas in the Tradition of Galbraith

New Directions in Modern Economics series

Edited by Blandine Laperche, James K. Galbraith and Dimitri Uzunidis

The book begins with a penetrating analysis of the main features of today’s capitalism and in particular the conflict between shareholders and managers. It moves on to focus on the consequences of globalization in the decision-making processes of large corporations and represents an important step in the development of a theory of fraud and corruption within corporations. In the final part, the authors address and explore the consequences of the domination of influential groups over major social and political decisions, on the blurred boundaries between the public and the private sectors and its consequences in the fields of technological regulation and the evolution of public services. In so doing, the authors question the meaning and power of democracy in today’s society.

Chapter 9: The Corrupt Corporation: A Galbraith-Inspired Analysis

Michael Dietrich and Abhijit Sharma

Subjects: economics and finance, economic psychology, economics of innovation, history of economic thought, innovation and technology, economics of innovation


Michael Dietrich and Abhijit Sharma 1. INTRODUCTION This chapter presents an analysis of corrupt corporations that builds on theoretical principles developed by J.K. Galbraith. The inspiration for the chapter is threefold. First, is the obvious presence of corrupt companies in modern economies, particularly since the 1980s. Second, are limitations and inadequacies of the usual explanation of such corruption based on regulatory failure; an argument propounded by, for example, Stiglitz (2003). A simple indicator of the inadequacy of the regulatory failure account of corruption is that millions of firms exist in the same regulatory environment, but a relatively small proportion appear corrupt. Hence, at a basic level, a complete analysis of corruption requires regulatory failure plus an analysis of the motivation of corrupt firms. This analysis of motivation leads to the third inspiration for the chapter: use and development of the framework presented by Galbraith to analyse the modern corporation. Corruption is a subject that can be studied from several different perspectives. We choose a Galbraith inspired framework to make the discussion meaningful within the context of firms (especially corporate entities). This framework can be used to provide the necessary analysis of corrupt motivation in a corporate setting, involving in particular the importance of a company’s ‘technostructure’. But the Galbraith framework requires reinterpretation to incorporate corruption. This development and reinterpretation is arguably necessary as witnessed by the opinion expressed by Galbraith, in a recent interview conducted by one of the authors (Dietrich 2003), that modern firms are fundamentally well run. Corrupt...

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