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Inequality, power and morality

Australian Institute of Criminology , Susanne Karstedt
12 August 1997

Dr Susanne Karstedt - University of Bielefeld, Germany

Contents

  1. Elites and the "demoralization" of society
  2. Elites and their crimes
  3. The impact of elites on morality, norms, and illegal behaviour
  4. The impact of inequality
  5. What could be done?

1. Elites and the "demoralization" of society

Australia is one of the most egalitarian societies in the world. Its citizens are proud of this achievement. They have extended egalitarianism beyond the majority of the population by integrating groups of different ethnic background into a multicultural society. Australia can serve as a model for many European countries that only recently acknowledged the fact, that they have to increase their endeavours to integrate foreigners. Why then should Australia have a problem with elites and their crimes? Is it possible that the criminality of elites has an impact on Australian society and the morality of the population?

Worldwide, elites are on the rise. During the last twenty years, the gap between the upper 10% of incomes and the lowest 20% increased in all western industrialized societies. The middle class struggles increasingly to keep pace. Inequality has increased in the western world, the process being led by the United States. Australia, more than ever integrated in the global economy, is no exception.

Generally, criminologists focus their attention on the impact of rising inequality on the lower classes. These groups experience most of the pressures from economic change and inequality, and crime seems to be a kind of natural solution when they try to get their piece of the pie. Consequently, criminologists have neglected the impact of inequality on crimes of elites, and rarely given attention to alarming facts. But Australian criminologists have taken the lead in the international discussion of elite and particularly business crimes. And the facts are alarming, too. A majority of the respondents of the Australian 1997 Fraud Survey (KPMG 1997) rated fraud as an increasing problem, continuously so since 1993. 77% of the frauds were perpetrated by employees, and among this group, 67% of the perpetrators came from the management. The reasons given by the respondents were increasing economic pressures, and a weakening of society's moral values, that has affected the law-abiding middle-classes and higher ranks of the society.

Germany does not deviate from the Australian experience. Here, many assume that a causal relationship exists between upper- and lower-class crime, particularly of the middle classes. Not at the margins of society, but at its core, law violations have become widespread, and the attitudes of the population quite negligent toward restrictions of the laws. Insurers name their losses at 3 to 5 billion D-Mark (2.1 to 3.6 billion $) from millions of very ordinary offenders. The situation in Australia seems to be remarkably similar to that in Germany (Baldock 1997). It is interesting that these facts are connected to corruption scandals, large-scale fraud by businessmen and prestigious professionals like physicians. Politicians are the group mostly blamed for this development. "It is the greedy and insatiable politicians and the powerful, who served themselves with incomes and pensions, with travelling and other privileges, while they tightened the budgets for social welfare, and demanded thrifty ways of life from the population, or enforced it by increasing taxes and other payments to the government"(Gloede 1994, pp.148-9). It comes as no surprise that enrichment at the cost of the firm is named among the most common fraud in the Australian KPMG Survey: purchase for personal use, misappropriation of funds, misuse of expense accounts. In Germany, the large banks cooperate with middle class tax evaders in their crimes or at least close their eyes to it. Comparing the two countries, we find more similarity than difference between them with regard to the increasing problems of crimes of the highest and the middle levels of society.

This paper tries to focus attention on these problems, and to relate this to the most recent developments in western industrialized societies. It centers on three main questions: First, does inequality have an impact on crimes of elites, and by which ways? Second, do members of elites have an impact on crimes of the lower ranks of society, particularly on the middle classes? Are members of elites role models, not only for conformity with laws, but for illegal and criminal behaviour, too? Do they contribute to the weakening of society's values more than other groups? Finally, will increasing inequality contribute to these processes?

For example, does it matter for the small-scale tax-evaders, if they witness how leading businessmen and managers in prestigious firms practise it on a large scale? Does it matter if politicians evade tax laws on campaign contributions, and subsequently try to exonerate themselves by an amnesty, as happened in Germany? Did the discoveries on the illegal behaviour of their elites cause the demoralization of the whole population in the post-communist countries of East Europe?

In fact, the population of Germany has not been unaware of the illegal behaviour of its elites. The proportion of those who doubt the law-abiding behaviour of high-ranking managers, civil servants, professionals and politicians has steadily increased. While in 1965, only 10% assumed that they did "dirty business" and 16% of the respondents held them to be "cunning", this proportion had more than doubled in 1983 (25% and 33%; Allensbach Institute 1983). Mostly those with a higher education mistrusted business. While in 1964, 49% took for granted, that civil servants were "incorruptible" and "not bribable", in 1992, 45% did not believe that anymore (Allensbach Institute 1992). It is reasonable to assume that Australians do not differ. But how do these perceptions influence the deviant behaviour of the population at large?

2. Elites and their crimes

Let us start with a more precise definition of "crimes of the elites". Apparently, those cases are not included, when the public witnesses crimes committed by high-ranking members of society, and mostly gleefully; being rich or a celebrity does not prevent from committing the very normal or more outstanding crimes. Instead, crimes of the elites are those crimes, to which elites have particular access, and which therefore are the typical crimes that they commit: white-collar crime, corporate crime, corruption, bribery, misuse of power. They do not rob banks, but commit fraudulent bankruptcy. How might these elite crimes have an impact on society? How are these processes influenced by inequality?

Figure 1: Relationships between inequality, elite crime and lower class crime

 Figure 1: Relationships between inequality, elite crime and lower class crime

Figure 1 shows several causal paths relating inequality and crimes of elites and the lower social ranks. First, inequality causes high or increasing rates within both social groups, but independently from each other. Next, the criminality of elites influences that of the middle- and lower classes. Hypothetically, we may assume the opposite direction, though it seems to be highly unprobable. Finally, inequality might have an impact on crimes of the elites, and under these conditions cause the spread of specific types of crimes in the lower classes (dotted line). These causal paths will be analyzed in more detail in the following sections.

a. The role of elites in modern societies

At the dawn of modern society, elites still could easily be identified. They included the traditional powerful groups who had inherited their position and their wealth. Slowly, new elites emerged from the rising bourgeoisie, the middle classes and the professionals. Within the extremely unequal society at the end of the 19th and at the beginning of the 20th century, the new elites seemed to form a powerful, integrated network. Sociologists and philosophers contrasted this group with the rest of the population, which they saw as a powerless, disintegrated, amorphous "mass". The "mass" lacked the means of efficient participation, and therefore could easily be manipulated.

It soon became obvious, that this concept could not comfortably fit within the the realities of modern societies. Elites in modern societies are much more differentiated, less exclusive, subjected to social (downward) mobility, and much more dependent on the public in modern democratic societies. The traditional elites have given way to "positional" elites, who occupy the highest ranking positions in all social institutions - from business to government. A more recent development are "reputational" elites like celebrities, who represent dominant values like success. Both types of elites influence the public, either by their decisions, that might affect millions of lives, or by the life style and norms they incorporate and convey to the public. We find these elites at every level of the society - in the community, the states and on the federal, national level. The welfare state added another group of "distributional" elites, who in bureaucracies decide about the distribution of welfare funds , and by this wield considerable power.

On the other hand, the lower ranks of the society are much more diverse and differentiated than was assumed previously. Democracy contributed to the emergence of various institutions of civil society. In elections or by the media, the general public exerts a kind of control over their elites. Elites become more and more dependent on public opinion. The sociologist R. Inglehart describes this far-reaching and general change in all western societies as a change from elite-guided to elite-guiding policies. Today, public opinion has a considerable impact on politicians and other members of elite groups.

In modern societies elites do not consist of a coherent or monolithic group. Instead, they are differentiated into several groups, each with its own base of power and its particular interests. Consequently, in modern democratic societies wealth cannot be easily converted into political power and influence and vice versa, as the economist Lester Thurow (1997) points out. Though the democratic societies differ on that, those with strong political parties clearly restrict the convertability of money into political power, e.g by restrictive regulations on campaign funding. German, Scandinavian or Dutch politicians neither become rich in politics nor are they rich before, and the public is highly suspicious if they get rich. Australia certainly is part of this group. Cooperation and bargaining is characteristic for modern elite groups with different interests at stake. Typical are loosely coupled networks, exclusive circles and lobby groups that exert a nonetheless considerable influence on decisions.

Social mobility and democratic participation both have closed the gap between elites and the other groups of society. But still, elites are defined by the social distance between them and the "others". Today, the distance is smaller, and it is bridged increasingly by public opinion, the media, public participation or community activity. Bridging the gap between elites and the other group supports, enhances and institutionalizes the social control of elites. This is a decisive factor of the criminality of elites and the prevalence of elite crimes in a society.

b. Inequality, elites and crime

Inequality in a society has many different faces: differences in power, income, wealth and general conditions of living between its social groups. But usually, these are closely connected to each other. Inequality generally results in large differences between the highest and all other groups with regard to each of the dimensions. Inequality increases the social distance between elites and all other groups. This can be shown by contrasting societies with low inequality - egalitarian - and with high inequality - non-egalitarian.

Table 1: Elites in egalitarian and non-egalitarian societies
Egalitarian societiesNon-egalitarian societies
high mobility between elites and lower ranks of society low mobility between elites and lower ranks of society
high social control of elites by lower classes and institutions little social control of elites by lower classes and social institutions
elite-guiding style of policy elite-guided style of policy
types of elites: positional elites; celebrities; types of elites: positional elites; inheritance; tranditional elites

Egalitarian societies are characterised by high mobility between elites and other groups; by elite-guiding styles of politics; by positional and reputational elites. Elites depend to a high degree on how the lower ranks of society judge them. In such societies, elites have a background in the lower ranks of society, because they are recruited from these groups. Consequently, they are submitted to social control from below: public opinion matters for them, public participation makes them responsible, institutions and legal regulations subject them to the norms and laws like all others.

In non-egalitarian societies, social mobility is severely inhibited. Elites are recruited from their own groups. They can rely on traditionally established networks of power and influence. They are more coherent and tightly knit groups, and close ranks more easily. Wealth and power are more easily convertable. They exert influence on the different institutions of government. Consequently, social distance between elites and other groups increases with inequality. In non-egalitarian societies, social control of elites is severely inhibited, either by the lack of public voice and participation, or by the efficient repression of control mechanisms e.g. by influence on the justice system. Elites in non-egalitarian societies think of themselves as being "above" the law and feel no need to care about it. Those in the lower ranks do not dare to challenge this view.

Inequality thus makes elites less vulnerable to social control. On the one hand, inequality strengthens the networks that provide opportunities for elite crimes. On the other hand, inequality makes elites less susceptible to deterrence, shaming by public opinion, or regulation by legal institutions. Both processes contribute to higher levels of elite crimes, particularly corporate crime and corruption.

This is confirmed by a small study that relates corruption and two measures of inequality. The Internet Corruption Ranking for 1997 is available for 52 countries. The measures of inequality were taken from a recent study by the author (Karstedt 1997), and include a structural as well as a cultural index of inequality. This study includes 39 countries, so that finally 35 countries could be ranked. The structural index is the Gini Index of income distribution, that measures the inequality of household incomes (1). The cultural index is the Power-Distance-Index, that measures the distance in social power that is accepted and legitimate within a given culture. In non-egalitarian societies, power distance is high, while low in egalitarian societies (Hofstede 1980). Both indices are from the 1970, and societies definitely have changed since then. Therefore, the most cautious measure of congruency between the rankings was applied, and only to the ten highest as well as to the ten lowest ranking countries. Though ranks may change, it is less probable that such broadly defined groups change considerably. In addition, a rank correlation coefficient was computed, that indicates more precisely the degree of congruency between the whole range of the two rankings.

Table 2: Corruption in countries with high and low economic and cultural inequality
Ranking of countries by level of corruption with Gini and Power Distance Index, 1997
Corruption RankingGini IndexPower Distance Index
Lowest Ten
 Congruency Index: 60%Congruency Index: 60%
Denmark Australia Austria
Finland Canada Denmark
Sweden Denmark Israel
New Zealand Great Britain Ireland
Canada Norway New Zealand
Netherlands New Zealand Norway
Norway Pakistan Sweden
Australia Portugal Finland
Singapore Switzerland Switzerland
Switzerland Taiwan Great Britain
    Germany *
Highest Ten
  Congruency Index: 70%
Kendalls tau: .58; p < 0.1
Conrguency Index: 70%
Kendalls tau: .52; p < 0.1
Colombia Chile Venezuela
Pakistan Colombia Mexico
Mexico France India
India Brazil Singapore
Venezuela Mexico Philippines
Philippines South Africa Brazil
Thailand Turkey France
Turkey Venezuela Hongkong
Argentina Philippines Colombia
Brazil Thailand Turkey
*Great Britain and Germany have the same ranking

The findings support a quite strong impact of structural and cultural inequality on elite crimes. Of those countries that rank lowest in structural inequality (Gini Index) 60% are among the ten countries that are rated least corrupt by the international business community. In contrast, 70% with the highest inequality rankings are among the ten countries with the highest rankings of corruption. The same result is found for the cultural index of inequality. This degree of congruency between the rankings significantly exceeds what could have been expected by chance (8%).

Why is corruption higher in non-egalitarian societies? Networks between different elite groups, a minimum of institutional control, and a lack of well informed public opinion, or media control; all combine to seed corruption. It is prevalent where cultural values create a great distance between elites and other groups, and result in little interference with their affairs from below. Inequality provides the structural opportunities as well as the cultural legitimation for this typical crime of elites. It should be noted here, that this does not extend to the legality of corruption. It is illegal in all countries included, and though perhaps widespread, not legitimate.

Australia is among the 10 countries that are ranked lowest in corruption, and it is as well among the ten most egalitarian countries in the world. Its cultural values nonetheless seem to be not congruent with its high degree of equality. It has to be noted, that the study has been conducted in the early 1970s, when power distance between both genders was still high (see Karstedt 1997). This might have influenced its cultural values on power distance to a significant degree. This definitely has changed today. But it points nonetheless to the dangers that might emerge from highly gendered hierarchies and networks, within which corruption might spread. It directs attention to groups who still support non-egalitarian attitudes particularly with regard to gender relations. The "Practical Guide to Corruption Prevention" (1996) issued by the Independent Commission Against Corruption deals with these problems.

3. The impact of elites on morality, norms, and illegal behaviour

In egalitarian societies, elites are obviously limited in manipulating legal norms or in imposing their own values and norms on society as a whole. In contrast, they seem to be increasingly subjected to the norms of the middle classes, which they have to represent. This applies equally to the surviving traditional elites in western industrialized countries. Elites are forced to reach their high-ranking positions by legal and legitimate means, otherwise they lose their reputation and their prestige. Members of elites therefore pay attention to actions and persons that might damage the reputation of the whole group. In Germany, politicians, and to a lesser extent entrepreneurs and businessmen, have continuously lost reputation and prestige, and are seen increasingly as "corrupt" and "cunning". A continuous series of scandals obviously contributed to this development. Loss of reputation seems to be an efficient deterrent against corporate and white collar crime, as Fisse and Braithwaite (1983) have shown. Politicians try to control damage that might spread from other elite groups to their own, as Chancellor Kohl did recently, when a construction firm fraudulently collapsed with about 15 billion D-Mark in debts (more than 10 billion dollars), and endangered many small firms in the East of Germany.

In egalitarian societies, both mechanisms - dependency of elites on the lower ranks of society, and interdependency among elite groups - contribute to controlling elites efficiently from below. But will the smaller distance between elites and other groups enhance their impact on the public and weaken society's values at large? I will identify three processes by which elites exert an influence on deviant behaviour in the lower ranks of society: (a) delegitimation of basic values and belief systems; (b) delegitimation of the criminal justice system; (c) their illegal behaviour.

a. Delegitimation of basic values and belief systems

Framing
Though elites depend on public opinion, they are capable of determining the frame of reference for the public discussion of important issues. Their definition of problems, issues and solutions might extend the limits of legitimate behaviour, or induce others to resort to deviant solutions. Evidence for this process is found in the recent discussion of immigration and asylum policies in Germany. A link can be established between public statements of politicians in leading newspapers and violence against foreigners in Germany (Ohlemacher 1994). The statements of politicians reframed the public discussion toward more restrictions for foreigners, and by this fuelled xenophobic sentiments, that were expressed by some - mostly from the lower classes of society - in violent actions. These mostly young people felt encouraged to commit their horrible crimes by the reframing of the problems of immigration.

Damaging basic belief systems
Elites have to submit to the same standards of behaviour like all others, and especially to those, that they themselves propagate. If elites continuously, and as a group, do not live up to these standards and the basic values that support them, they undermine essential values of the society. In addition, this might spread to the institutional system of the society, and erode basic mechanisms of trust. The transformation of communist societies gives ample examples of this process. While the former elites had propagated a strict morality and egalitarian values, it became evident after their fall, that they by no ways had lived up to these values. They not only exploited the system for their own profits, but took to illegal means to a vast extent. It is argued, that this has severely weakened norm conformity, and installed the impression in the population that "anything goes". In addition, it has undermined trust in the institutions of society in general, thereby affecting the new democratic institutions.

b. Delegitimation of the justice system

Especially in non-egalitarian countries, elites might exert a continuous and strong influence on the justice system by impeding prosecution, putting pressures on judges, or trying to intervene in procedures. This might affect the reputation of the institutions and public trust in them, as can be shown for Italy and the post-communist states. Nearly in all post-communist countries the trust in the justice system was lowest soon after the initial transformation. Particularly in Poland, the low reputation and trust in the police was caused by the close cooperation with the political and economic elites during communism, and the huge increase in crime is attributed to the weakening of this central institution of the justice system.

c. Illegal behaviour of elites

Pressures on lower ranks
Elites rely to a large extent on others who do the work for them. Their criminal activities are by no means different from their normal ways of life with respect to this fact. Particularly corporate crime and corruption often include more than one hierarchical level in organizations and bureaucracies. Rarely do managers exert direct pressure. More often, they set high-level targets and do not specify the means how to reach them. Economic and career pressures as well as competition add to the forces that make lower ranks compliant to demands for illegal behaviour, however implicitly they are communicated. In Germany, corrupt business practices seem to be widespread within retail networks, or big manufacturers put pressure on the smaller firms who supply to them. The more power the higher ranks have, and the more intense economic pressure is felt by the lower ranks, the more these mechanisms will work. Social inequality will certainly contribute to both processes and their effect on the spread of crime through all ranks (see Independent Commission Against Corruption 1996).

Illegal behaviour
Elites are known for doing things on a large scale. This applies to their crimes as well: fraud on a large scale, corruption and bribery with huge profits for themselves and their friends. But these crimes mostly require high skills and particular knowledge. The public often is at a loss understanding the way crimes were committed, or even what the crime was. The delicacies of the export and subsidy laws in the European Community can be handled by only a handful of experts, and cannot be grasped by the general public. Consequently, elite crimes cannot serve as models but in a very generalized way. It seems to be mostly the fact of wrongdoing that has a generalized impact on the public. Showing no respect for the law by cunningly circumventing it - and in a way nobody else can afford - seems to model more to the public than the specifics of the crimes committed.

4. The impact of inequality

Crimes of elites rely on power, resources and networks, in egalitarian as well as in non-egalitarian societies. The impact of elite crimes on the morale of society does not simply work through increasing elite crime rates. Increasing inequality shifts power, resources and control toward the high ranking groups. It widens the gap between the highest and lowest ranks, making the former less, and the latter more vulnerable. It has been shown that inequality increases elite crimes. But it is doubtful if in democratic societies elites can go unpunished, and without loss of reputation. It might not be the crime itself but the feelings of unfairness, or of economic pressure, that makes the lower ranks more susceptible to the bad models from the higher ranks as well as to direct pressure that is exerted on them. Inequality weakens society's values by two processes: by augmenting opportunities for crimes in the elite ranks, and by increasing readiness in the lower ranks to act accordingly or to submit to pressures, which then can be more easily legitimized.

Inequality should particularly affect the justice system. Inequality tightens networks, and increases the chances to convert money into power. Elites are more easily able to build up networks that reach into the justice system. They have increased resources to set incentives for corruption and bribery in the lower ranks. This should increase their chances to be more efficiently shielded from controls by the justice system. A justice system that cooperates closely with the elites and submits to their demands easily underminds its reputation. The communist and post-communist countries of East Europe give evidence of such processes. But though the justice system is much more independent in democratic societies, and well equipped against political and other pressures, it is not invulnerable: Belgium and Italy are recent examples for the cooperation of the justice system with elites in democratic societies, and the considerable loss of reputation when its extent is discovered.

When social and economic inequality is on the rise, income, wealth and power is shifted toward the higher ranking groups in society. Consequently, they have more to hand down to the lower ranks, but simultaneously they can more easily block access to money, careers, and positions. The public becomes more dependent on them. This has a double impact. Those in the lower ranks will be more susceptible to the rewards handed down to them, if they cooperate in illegal behaviour, and the sanctions, if they do not. People will be much less willing to blow the whistle on illegal behaviour at the top. Thus, control of elites is considerably weakened, even in democratic societies with a well established system of regulations and control. As the study on inequality and corruption showed, this crime increases if a society moves toward greater inequality. This might particularly result from the fact that the middle and lower ranks in organizations and bureaucracies are more easily integrated into corruption schemes.

5. What could be done?

There is no doubt that social and economic inequality is on the rise. But democracies have established strongholds against converting it into high differences of power. As was shown, crimes of elites are facilitated by economic conditions as well as by political and institutional conditions. Social control of elites is embedded in the economic structure, but predominantly in the political structure of a society. It is exerted by public opinion, by the media, by institutions of government on all levels - communities, states, nation - as well as by non-governmental organizations.

Even when social and economic inequality is on the rise, the functioning of democratic institutions can impede the process, or hold it at bay. But this implies that they should be strengthened in times of rising inequality, and not be weakened. This equally applies to the individual whistle-blower, who might be under stronger pressures (see Independent Commission Against Corruption 1996). Strengthening independent democratic institutions seems to be the most reasonable strategy against elite crimes when society becomes more and more unequal.

Notes

* I want to thank the Australian Institute of Criminology for its great hospitality. My thanks to the audience who contributed many of the ideas that helped in the revision of the paper. And thanks to Professor Ross Homel, Griffith University, and Prof John Braithwaite, Australian National University, for giving advice and information on the situation in Australia. I thank John Myrtle, Principal Librarian, J.V. Barry Library, at the Australian Institute of Criminology, for supportive editing and eliminating all mistakes.

(1) The Gini Index is based on the share of wealth, income and land, that the different proportions of society own. If for example, 5 % of the population own 95% of all property, and 95% of the population own 5%, the Gini Index is high indicating an extremely unequal distribution of property. This measure is based on household income. It is better in indicating income differences in industrialized countries, but not in others. In this study, Pakistan has a low Gini Index, signifying a more egalitarian income distribution. This certainly is not true. But income in Pakistan is based on agriculture, which does not produce as high differences in cash income. A more precise measure would be the distribution of land among the different social groups, which certainly will indicate a high degree of inequality.

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