Welcome to, it's so sad to say, but the final lecture of the final conference of the final year of the Edmond J. Safra's lab on institutional corruption. I, for the final time get to say, I am Larry Lessig, and I am the Director of the Center. I'm grateful that you are here to celebrate this conference, and the work of the lab, and to hear from our speaker. Francis Fukuyama is the laureate nominally, Senior fellow at the Freeman Spogli Institute for International Studies. Residents in the FSI Center on Democracy Development of the rule of law. Professor of Political Science at Stanford. He has written widely on the issues of development and international politics. His book, The End of History and the Last Man, published in 1992, captured the debate of a world, for many years to find the way we debated and talked about that incredible period in world history. But it's his most recent book, Political Order and Political Decay, that drew me to ask him to close this project on institutional corruption. As those ideas from that perspective, I think have so much to inform, and complement, and critique the work that we have done here. Frank received his BA from Cornell in Classics, his PhD here at Harvard in Political Science. He was a member of the Political Science Department at Rand, and of the Policy Planning staff of the US Department of State. He has taught at Johns Hopkins and George Mason. He is a public intellectual, in the very best sense of that term. Serious and engaged. Most striking to me is the practiced humility of his engagement. Not just with academics, but with a committed public eager to understand our place in our history. All of us have learned an extraordinary amount from his contributions. I am so grateful that he would fly across the country for the single purpose of closing this conference and this lab. Please join me in welcoming Frank Fukuyama. [APPLAUSE] Thank you very much Larry. It's really a pleasure to be here. I'm actually on my way from San Francisco to Korea. I decided to stop off in Cambridge, [LAUGHTER] which means that I'm actually going to be going all the way around the world in the next few days. But it is a pleasure to be here, and I'm really very honored that Larry invited me. I want to join all the people last night in congratulating him for his leadership over the last several years of this lab. I'd like to congratulate all the participants in the lab for what has been a really terrific burst of creativity and intellectual energy. I want to thank all of you as well. Let me begin. The title is, A State of Courts and Parties, and it's a story about the United States. But I need to explain how I got into this issue because I'm not a specialist in American politics. I came to this subject by a rather circuitous route. For the last 10, 15 years, my main focus has been on governance in developing countries. I've done a lot of consulting work at places like the World Bank. I think that one of the realizations that many development economists have come to in recent years, is that the source of poverty in the world really is not a lack of human resources, natural resources, physical capital. It is actually bad governance, and that corruption is one of the single most deeply rooted, and difficult obstacles to overcome in turning poor countries into rich ones. That's why that whole development community has undertaken the study of corruption and efforts to combat it. I would say, unfortunately, with relatively meager results for reasons that I will get into. I think that in many ways, I was led to this subject by thinking about poverty and corruption. But then, when turning to the United States began to recognize that although certain types of corruption that exist in very poor countries have been eliminated in the United States, we've actually replaced it with a different, and in a way more sophisticated version, and in many respects history is simply repeating itself, but in a slightly different form. I also think that there's going to be a couple of bottom lines to the message that I want to leave with you today. The first one is that corruption [NOISE] is very much shaped by the nature of institutions. If you look comparatively around the world at different societies, there are different levels of corruption. Part of that is shaped very much by the institutions that they have. The institutional rules of the game, while not determinative, play a big part, and I think they play a part in the United States. Then the second takeaway is that actually history matters a lot, and that the sequence by which different societies put different institutions into place has shaped very much the present day outcomes. In some sense they are to this day prisoners of that. I think that one of the countries that is a prisoner of its own particular institutional path of development is the United States with its state of courts and parties. Now, let me begin just with my general conceptual framework for thinking about what a liberal democracy is. I think that a well-functioning liberal democracy is actually a collection of three actually heterogeneous institutions. The first institution is the State. The state is about, as Max Weber said, a legitimate monopoly of force over territory. I think that's still the best definition of a State because it really distinguishes States from other kinds of social organizations. States are about power. It is about the power to enforce laws to protect the community against internal and external threats, to deliver services like health, education, infrastructure, and so forth. The second important institution is the rule of law. To be true rule of law, law has to apply not just to ordinary people, but to the most powerful political actors in the system. If they are exempt, so if the president or the prime minister, the king, whatever, can make up the rules as, as they go along, then that is not the rule of law. The rule of law actually is an institution for limiting power. It pushes in the opposite direction of the state. The state tries to increase and use power, and the rule of law is fundamentally a constraint on power. The third set of institutions has to do with democratic accountability, which we understand today as a set of free and fair multi-party elections. These procedures are intended to produce substantive accountability, meaning that the political system ought to respond, not just to the elites that happen to be running the system, but to the whole community in as representative away as possible. If you think about the structure of liberal democracy, it requires a balance on the one hand, between the state, which is the power generating and utilizing institution, and the rule of law, and democratic accountability on the other hand, which are the power limiting and the power constraining institutions. Intuitions. If you get out of balance, you're not going to have a happy situation. Obviously, if you have only a modern state, but no instruments of constraint, no rule of law and no democracy. You're basically where China is today. You've got a dictatorship that can get pretty nasty. On the other hand, if you don't have a state and you only have the institutions of constraint, or you have some of the institutions of constraints. You're also not in a good place because you could be in Syria and Libya where the state is broken down completely or you can be in a place like Nigeria where you've got a semblance of a state and you've got a semblance of law and a semblance of democracy, but such high levels of corruption that you can't even do something like fight Boko Haram on your own territory. In fact, I think a lot of the global instability that we are seeing is really related to the fact that you've got a very wide band of countries that now includes a very large part of the Arab world, but much of sub-Saharan Africa, Afghanistan, Pakistan, and so forth, where you basically don't have coherent states that cannot guarantee security on their own territories. Now, there's one more important distinction which is between a traditional or a patrimonial state and a modern state. A patrimonial state is a state in which the political system is regarded as a species of private property, its patrimony, and therefore, the days when you had kings and queens, the king could actually give a province to his daughter as a wedding present because he owned that territory and all the inhabitants and he could give it away to somebody else if he wanted, so today, nobody dares to say, I own this country. They have what political scientists now call Neopatrimonial Islam in which you've got the outward form of a modern state. But in fact, everybody is in it to get rich. The state is basically a rent-sharing coalition by which elites dole out economic favors to one another and that is their motivation for being in politics. A modern state, by contrast, is one that is impersonal, that treats citizens equally on the basis of their citizenship and not whether they have some personal relationship, friends or family with the person that happens to be in power. I think actually in looking around the world that the transition from a patrimonial state to a modern state is actually a much more difficult transition than from autocracy to democracy. I've spent most of my life wanting to promote democracy and thinking that elections are good things. If you think about Iraq and Afghanistan, we actually held elections or election like events that produce governments that had some degree of actual democratic legitimacy. The one thing we completely failed at doing was to make modern states in these countries, states that were uncorrupted could deliver services, that could provide security over their whole territory. This is the big political development failures. This modern state that is impersonal is really the thing that has undermined many societies causes poverty and is one of the weaknesses in democratic systems. I just give you a couple of examples. In Ukraine, It's been in the news considerably there is an Orange Revolution in 2004 where all these young Ukrainians came out on the streets after a stolen election, they forced out a victory, Yanukovych, and there was a new election. You had the orange coalition put into place. But they absolutely could not deal with the problem of corruption. They were corrupt themselves, they squabbled, they failed to deliver basic services and as a result, Yanukovych was re-elected in 2010, and you had to do it all over Again. At the end of 2013, those same young people had to come out again and force him out and the real issue between the us and the Russians at the moment is not democracy because Yanukovych was elected fair and square. Vladimir Putin, if there was an election in Russia, tomorrow would probably be re-elected with a very substantial majority. The issue is not democracy. It is a fact that both the old Ukraine and actually unfortunately a lot of the current Ukraine and Russia and many of the states in that region are neo-patrimonial. They are rent-sharing gleeks in which elites basically are padding their own nests and the struggle in Ukraine that all these young people were willing to die over was not so much democracy is the fact that they didn't want to live in that a kleptocracy that they wanted to live in a state where there was a clear distinction between public and private and public officials acted in the public interests. I think that that's actually the big dividing line in the world right now. Of course, democracy versus authoritarian government matters a great deal. There are many governments that violate the rights of their citizens that aren't democratically responsive. But actually, this ability to deliver state services in this modern impersonal way is at the core of many of the world's problems today so that's the general windup. Let me go over a couple of definitions. I'm a political scientist, I'm not a lawyer or an ethicist, and I know that Larry has used it, a definition of institutional corruption that is quite broad and applies not just to public institutions but to private ones as well. These are the topics that you've been talking about, but I think that there are a couple of other issues that are important. One has to do with the question of economic rents, which conomists worry a lot about. Rent is any kind of service over the cost of calling a good into production that can be allocated basically through a political process, or many of them are allocated through political processes. Economists for good reasons don't like rents. They see a lot of political activity as essentially rent-seeking. I would just point out that there are good rants and they're bad rents, and that we actually socially approve any number of rents. But the distinction between the good and the bad is an important one to keep in mind. The most obvious kind of good rent is a patent or copyright by which we allow creators of intellectual property to benefit. I know Larry again has written on this that maybe the definition of copyright is too restrictive and so forth. But I don't think anyone would contest the fact that copyrights play a basic role in stimulating innovation and creativity and so on and so forth. The other important distinction has to do with the distinction between patronage and clientelism. Again, even the political scientists are not agreed on what I'm going to tell you, but I think it's an important one nonetheless. A patronage relationship, I would define as one between a superior and an inferior, in which political support is traded for some kind of an individual benefit, usually on a face-to-face basis. Now, it is my belief that this is biologically rooted, that there are two biological human proclivities. One is what William Hamilton called the Principle of Inclusive Fitness. That it's not just human beings, but all sexually reproducing species favor genetic relatives over strangers. The other one is what Robert Trivers called reciprocal altruism, which is the exchange of favors, again, on a face-to-face basis. Patronage in that sense, that either this genetic, nepotism [LAUGHTER] to call it by its name, or reciprocal altruism are universal. They exist in all societies and they exist in rule of law societies. Hillary Clinton, if she gets elected president, is not going to give jobs to simply the most qualified people, she's going to give jobs to people that worked with her over the years and that she trust and knows and has exchanged favors with and so forth. This kind of structure exists, it exists in the communist parties of North Korea and China, and in a lot of other circumstances. Clientelism is slightly different and I would reserve that for electoral democracies that faced the problem of mass voter mobilization. The distinction I would make is that when you have to do mass mobilization, you cannot have this direct face-to-face patron-client relationship and you need a whole series of intermediaries. Classic clientelism is really the political machine that gets to vote out on election day on a mass basis. But the important definition is exchange of political support for an individualized benefit, not for a targeted public good that applies to a class of people and that's an important distinction because what I'm going to tell you shortly is that the United States had a really big problem with clientelism in the 19th century, and we largely got rid of it. But that we've got a different kind of problem right now, which is not clientelism in that sense, but it is the reciprocal exchange of favors in terms of interest group politics. It's different, but it's different in certain ways that are important to note. Now, clientelism is I would say, a feature of virtually every poor democracy that has ever existed in the world. If you go to Brazil, or Mexico, or Indonesia, or India, clientelism and the associated forms of corruption are practiced very broadly. This is how political machines get ordinary voters to vote for them. I however, would argue that it should not be regarded as a pure form of corruption where comparable to say, an education minister pocketing $50 million and just putting it in a bank account in Switzerland for the benefit of his family. Because clientelism actually does involve a reciprocal exchange of favors so that the politician actually has to give something back to the voters, even if it is in effect an individual bribe. There is a degree of reciprocity. I think what I'm going to argue is that clientelism actually arose and it should be more properly regarded not simply as a form of corruption, but as an early stage of democratic mobilization. That in societies with low levels of education and wealth, that this is actually the most efficient way to get people to the polls. Because most voters in such societies actually, they don't care about global warming or trade talks with Japan or kinds of public policy issues that more developed countries worry about. They worry about, am I going to have food on the table for my family? If the politician can give them the Christmas turkey or the get out of jail card for their cousin or whatever, that's the basis on which they're going to vote. We tend to look down on countries with these clientelistic systems and say, well, they just don't understand how a proper democracy, that you're supposed to vote on programmatic issues for candidates that layout general public policy positions and define themselves more by ideology and less by these personal exchange of favors. But we don't understand that this is exactly the way that American politics worked through the better part of the 19th century. Here's starts the history lesson. If you look at what the American government looked like in the years after the signing of the constitution, the ratification of the constitution, you could describe it basically as government by the friends of George Washington. Meaning that the Federal government, to the extent that it existed at all, they were mostly customs inspectors, some postmaster, some leaders of local militias, this sort of thing to the extent that it existed at all. Most of the leaders were actually elites of that time, and a lot of them graduates of places like Harvard and Yale and Princeton. But the principle of equality was deeply embedded in the declaration of Independence and the United States was one of the first countries in the world to open up the franchise and many states began to do this in the 1820s. The critical election was really the election of 1828 that brought Andrew Jackson to power. Because this is the first election in which a majority of states voted with a universal male franchise. This is really the first country anywhere in the world that implemented a universal male franchise. This led to the need, first of all, for political parties because all of a sudden, instead of these elite factions, and that's basically what the Federalist Party was, you had these new parties that had to come into being in order to get people to the polls. There is this recognition that the easiest way to motivate people to vote was actually to bribe them individually. In the 1828 election at featured Andrew Jackson against John Quincy Adams, this was a classic polarity in American politics. John Quincy Adams was a Harvard graduate. He had traveled in Europe. He could speak many European languages. His father was the second president of the United States, so a classic Boston Brahmin. Andrew Jackson was a frontiersman. He was a Scotch Irish brawler, drinker, Indian fighter. He had almost no formal education. He made his name fighting in the Cherokee and Seminoles. Drove the Seminoles out of Northern Florida. Won the Battle of New Orleans, and as a result of his military successes, ran for president, and won in 1828. When he won, he said two things. He said, first of all, I won the election, so I should get to choose who runs the US government, and second, he didn't put quite in these terms, but he said it doesn't take a genius to run the American government. This was a period in which the average level of education in the United States was probably somewhere third or fourth grade. At this point, not even a majority of Americans even had an elementary school education. That meant that if an ordinary American was put in a position of postmaster, customs official or so forth, they didn't have a whole lot of skill and this inaugurates this period that is alternatively known as the spoils system or the patronage system that lasts for about 100 years in American history and with every passing year after the 1828 election, both the emerging Democratic and Republican parties begin to use this as a means of voter mobilization so that by the time of the Civil War, virtually every appointed official from the federal government all the way down to local post masters and Indian Reservation managers were all there as a result of a payoff by a politician to some political supporter. If you read Abraham Lincoln, particularly after he was reelected in 1864, he is just in tears and tearing his hair out at the fact that he has got to deal day after day after day with office seekers who say, I supported you in the election, so you owe me a job and what are you going to give me? In fact, a lot of the early battles that the Union lost was because Lincoln felt compelled to appoint people like Dan Sickles or other political generals who are essentially politicians that could bring political support in an election but we're completely incompetent military leaders and it's really only as the war dragged on at huge cost that he realized that merit was actually an important principle for recruiting general. Finally, it took them several years to find Ulysses Grant and promote him to the top. This is really the system that existed in the United States into the second half of the 19th century. That's the first part of the American story, but we got out of this system and I'm going to get to that in a second. But here's the point at which a more comparative analysis, I think is very helpful. This clientelism trading of political support for individualized benefits does not exist equally in all developed countries and in fact, if you look at the European Union right now, one of the big divides between countries that got into trouble during the euro-zone crisis and those that didn't is precisely due to clientelism. The survival of clientelism, particularly in Greece and in Italy. Clientelistic politics is still a feature in both of those countries. For example, the regime of the colonels is a dictatorship with the colonels ended in 1974 but after that, the two Greek political parties, pay sock and new democracy, center left and center right. They traded positions as they're supposed to in a competitive democracy repeatedly in the decades following but every single time that they traded positions, they use their power to fill the civil service with their own political supporters, the Central Bank, teachers, so forth, to the point where by the time of the Euro Crisis, the Greek government had something like seven times a per capita number of civil servants that Britain did. One of the reasons that they could not control their wage bill was that they could not back out of these commitments and even now after all of the pressure that's been put on them by the troika, they have still not really admitted that this is a bad principle of politics and that in the future, political parties would win elections should not try to fill the civil service with their own political supporters. That exists. Then Southern Italy, under the Christian Democrats in the post-war period, practiced exactly the same politics. Why is it that in Scandinavia, in the Netherlands, in Germany, you don't have this clientelism and yet you do have it in Greece and Italy. It's not a cultural thing because it doesn't correspond to a Protestant, Catholic or Protestant orthodox cultural division. But it does have to do with the historical sequence by which institutions were adopted. In Germany and Sweden, for example, the Charles Tilly hypothesis that war makes the state and the state makes war was the explanation for how they got to relatively good, clean, meritocratic government. Beginning in the late 17th century with the rise of the Holland Zoller and family Great Elector, Germany, Prussia rather decides that it's going to survive by building a permanent army. To get the army it needs a bureaucracy, it needs taxation, it needs centralization of bureaucratic authority so it goes through all of the stages that China went through at the time of the Chin Dynasty in the 3rd century BC and creates a relatively modern merit-based government that is relatively free of patronage. This process really doesn't get completed until the Stein Harden Berg reforms after the defeat at the Battle of Vienna in 1806 but by the 19th century, you have a classic insulated autonomous bureaucracy that is law-based and is highly meritocratic. In fact, when Max Vaber wrote his famous definition of modern bureaucracy, he was thinking about the German bureaucracy of his time. He was not thinking about the American bureaucracy which he believed to be hopelessly corrupt. This is an argument that Marten Scheffer has made, which is that the survival of clientelism into the present really has to do with the sequence and that those countries that develop these kinds of modern states under autocratic conditions and then democratized later, retain them. The current German bureaucracy is really the air of this organization originally created by the Great Elector and the tolerance and in fact, there's a tremendous amount of bureaucratic continuity. Same thing happened in Japan after 1945, another country whose clean government was really shaped by military competition. On the other hand, Greece and Italy had the opposite sequence. They democratized before there's any consolidation of the state. In fact, a lot of people don't realize this. But Greece was, I believe, the earliest country in Europe to open up the complete male franchise. They did this in the 1860s and they basically shifted from a rural patronage based system to a monitoring plan to logistic one as their democracy developed and that is an uncertain way, the same situation that they are in today and the reason that Southern Italy and Greece, in a sense retain this system had to do, I think ultimately with state weaknesses, a subject that Bob Putnam is written on, I don't think he's quite right about some of the historical details about this, because I think that the Greek state and the Italian state in the South were both foreign dominated and foreign controlled and lacked legitimacy and therefore, the habit of not paying taxes was deeply ingrained. Greeks were not paying taxes to the Ottomans when Greece was an Ottoman province and so therefore the legitimacy of a public sector that serve public interests in a transparent and impartial way never took root in either of those places and I think a lot of their continuing problems have to do with that. I do not want to leave you with the impression that the only way you get to clean modern corruption-free government is to replicate Prussia's root and turn yourself into a militaristic aggressive conquer that then gets defeated and says, "Okay, we're going to have a democracy." No. That's not a good route. Although, I think Japan, in certain ways, did that as well, and I think China, many, many, millennia ago actually went through something like that. I mean, they haven't got to the democracy stage, but that's how they got their modern state. But I think that the experience of the United States in the Progressive Era is really the model for how do you get out of this kind of a bind of pervasive clientelism. The story begins with economic change and with social change. By the 1880s, the United States was being transformed from a primarily agrarian society into a modern, urban industrial one. The agent of change was the railroads. The railroads were the Internet of that day. They created national markets. This is the way that farmers in the Midwest could get their crops to international markets. For the first time, you got an extensive division of labor, people moving to cities, the emergence of a middle class and so forth. Under those conditions, you develop a lot of social groups that did not have an entrenched interest in the old patronage system. But the problem with political reform and the reason that you cannot get rid of these old corrupt system that easily is that all of the incumbent stakeholders have a very powerful interest in maintaining it. It is a political issue. It is not a technical issue. It's not that they don't understand what good government looks like and no amount of lecture, and this is the World Bank's problem. They thought that they would just lecture these countries about good governance and they'd say, "Oh, okay, that's how you do it." The reason that you can't get to good government is it is not in anybody's self-interest, at least of the existing political stakeholders, and so therefore, you've got to engage in political struggle and you also need a lot of good luck. The luck, I don't know if you call it luck, but the triggering event in the American story was the assassination of Garfield. He was elected in 1882, and shortly thereafter, he was shot by a guy named Charles Guiteau who thought he should be the consul to France. He was a disappointed office seeker. Congress, which had been unwilling to vote for something called the Pendleton Act prior to this, were so embarrassed by the fact that the President of the United States had been assassinated by one of these patronage job seekers that they voted for an act that created the Civil Service Commission and enshrined the principle that federal employees ought to be hired on the basis of having taken and passed a civil service examination rather than as a payoff to a politician. Given the American political system, it took another two generations to really extend classified offices to 80% of the federal bureaucracy, and even today, we have many, many more political appointees. In the case of ambassadors, it's just embarrassing. It doesn't matter which party is in power. We still have about 4,000-5,000 appointees that turnover with every change of administration between parties, which is way, way more than almost any other democracy. But we still managed to get the number down to 4,000 in this period. I think that this is the pattern that any country that wants to get rid of this pervasive clientelism is going to have to adopt. As a result of economic and social change, you restock the social deck. You get new actors that do not have an interest in the old system that wanted change. So in the late 19th century, the business, the railroads, they had learned to play the corruption game very well. In fact, Leland Stanford was one of these railroad barons that basically owned the California State Legislature. But there are a lot of people that were being screwed by this behavior. Shippers and smaller businesses and so forth, and they form part of a progressive coalition that included midwestern farmers, urban reformers, intellectuals, people like Frank Goodnow, Woodrow Wilson with that time was a professor of public administration at Johns Hopkins, and then went on to Princeton and so forth. So you had several things that had to come together. First, you had a grassroots movement, and this is one of the things that we don't appreciate about that time. All of these grandmothers around the United States were really upset that their fourth-class postmaster was some political hack, and they thought this was terrible, and that this ought to change. They organized, and they wrote letters, and they demonstrated in favor of this change. The second thing was you needed an idea, and at that time, actually, it was people like Wilson and Goodnow and so forth that brought these ideas of modern government from Europe to the United States and made them respectable and made Americans feel bad that they didn't have this kind of a modern government. You needed leadership. One of the most important leaders was Teddy Roosevelt. He was actually, at one point, the Chairman of the US Civil Service Commission. He believed that civil service reform was an incredibly important issue and that you made a centerpiece of his own presidency. It's this combination of grassroots mobilization leadership and ideas, I think, that created that coalition that made that possible. I think that that's what's going to happen in places like Brazil and India in the next decade or two and you already see the beginnings of this. You already see grassroots mobilization, mostly of middle-class people that don't want the old corrupt system. It's not going to work in the short run. It took 40-50 years for the United States to get rid of this system in our own history. It's not going to be a quick process. But as far as I can see, if you don't approach this thing politically, it's not going to happen. Let me just get onto the question of the actual state of courts and parties and what I think our problem is right now because I think that we don't have that classic, except in certain municipalities, we don't have that classic clientelism anymore, but we've got a much more deeply rooted and harder to extricate form of corruption which Larry and other people have, I think, very nicely explicated, and it's all based on this biological principle of reciprocal altruism. So that we've managed to define corruption in such narrow terms as a transaction that involves a quid pro quo and we leave completely legal the exchange of favors over time where the explicitness is not built into the system, and that's the present-day lobbying industry. Now, why is this a bad thing? Because there is a pluralist tradition that actually, in a certain sense, begins with James Madison in Federalist 10 that says the diversity of interests groups is actually a good thing because they'll all cancel each other out, and as long as no single interest group can dominate the whole system, we preserve freedom. I think the problem exists really in the failure of certain kinds of collective action, and the problem I think is the following. There's two things that have been going on in American society that have laid the groundwork for that. One is polarization. There's a big debate whether polarization is more in the political system or it's in society itself. I think the evidence indicates that it is pretty much out there in society. So people have been sorting themselves residentially. It's not just a matter of gerrymandering in the house, which in any event wouldn't explain why the Senate is so polarized. You have this situation in which the two political parties do not overlap at all. If you look at the DW nominate scores that measures where you are ideologically, there's no overlap between the Democrats and the Republicans whatsoever. Second, social development is the rise of very well-funded and extremely well-organized interest groups, across the spectrum and the kind of order of magnitude rise in the amount of money that has gone into politics and so forth. Now, those two things by themselves would not necessarily lead to a political crisis if they did not interact with the nature of American institutions. But America is a very unusual kind of democracy when we compare ourselves to other democracies in advanced industrialized countries around the world. Founding fathers placed a great deal of emphasis on freedom and protecting individuals from the overweening power of a centralized state. And so they created a very anti-majoritarian system in which a lot of parts of the system were given essentially veto power over the rest. That's the system of checks and balances. You got two houses of Congress a very powerful upper house, which is actually added to its own powers through the use of the filibuster and senatorial holds and this sort of thing. You've got a Supreme Court that can invalidate a legislation. You've got devolution to states and municipalities. You've got a constitution that allocates budgeting authority to Congress rather than to the government. The combination of all of these things gives interest groups many more points of access to the political system. When you combine these things, when you combine the institutional structure of checks and balances with the social trends towards polarization and the evolution of a well-organized and well-funded interest groups. You get what I call democracy, meaning rule by veto in which many, many parts of the system are able to stop things that are bad for them. That's the real negative impact of a lot of these well-organized interest groups, but they are not powerful enough to dominate the system. But there's no, there's still a huge collective action problems. Many things that are collectively desirable and in the public interests as a whole cannot get done because you cannot generate, you can't get past the individual vetoes and the way that's used, there's just many examples of this. So budgeting, I mean Congress has not passed a budget by its own rule since 2008 because they simply can't agree on what collection of tax cuts and tax increases and spending cuts are appropriate. Bad legislation. I was in favor of both Dodd-Frank and Obamacare, the two signature pieces of legislation of the Obama administration, because I think both universal health care and financial regulation are extremely important. But if you actually look at the actual pieces of legislation, they're just horrendous. They are hundreds of pages long. There's one actually big data study that a political scientist did of Obamacare, in which he traced every single clause in this 900-page bill to a prior piece of legislation that at some point in the last 10 years, had been written by some lobbyists. And the people that voted for this thing, none of them knew what they were voting for really. And it turns out that one part of it is badly drafted and the Supreme Court may use that to invalidate the whole legislation. So this is not a good way to do, this is not a good way to make sausages. This is really not a good way to make sausages. The tax code got a 35% corporate tax rate is much higher than the OECD average, be much better to get rid of all of the special exemptions because very few corporations actually pay the nominal rate, then you'd bring home a lot of money that's being kept abroad because of that tax rate. So everybody on the right and left degrees that kind of reform where you trade all the special privileges and exemptions in favor of the lower rate would be a good thing and you can't do it. You can't do it because of the institutional structure of US government. Finally, I do want to mention courts, we are in a law school, but this is another respect in which America creates more vetoes than other developed democracies. The basic problem with and why we've in a sense returned to what Stevens Corona called a state of courts and parties is the outsize role that the judiciary plays in a lot of ordinary political decisions, and by that I don't mean things like Roe v Wade. What I'm thinking of is actually the expansion of standing that accompanied a lot of the social legislation. There's 12 or 13 really major bills that were passed in the 1970s regarding environment, equal opportunity, disabilities, so on and so forth. And in most of them, congress saw fit to expand the standing of ordinary citizens to bring suit against the US government, either enforce the law or to desist from enforcing it. This is part of what's driven this explosion of litigation. This is one of the reasons that the United States really has a huge amount of problem doing infrastructure projects, because the moment that you announced a big engineering plan, you get sued by all sorts of groups that have a very marginal relationship to the actual project. I mean you can multiply examples of this, the Americans with Disability Act as a whole industry devoted to suing small businesses in particular jurisdictions for noncompliance with the ADA because you can actually make money doing this sort of thing. That's just another retail level example of vetocracy, where the system privileges relatively small but well-organized and determined groups within the society in a way that I think collectively doesn't necessarily add up to public interests. I'm going to stop, I think that this is a problem of political decay. In my view, political decay happens when modern state institutions are captured by elites. I just don't see any other way than of understanding what's happened to the American political system over the last 20, 30 years other than decay of this sort. I don't think that's unique to democratic systems because I think an authoritarian system can be captured as well. But our democratic system has permitted capture in a way that probably wouldn't happen in a parliamentary system. This is I suppose, well to closing thoughts. One is, institutions still really matter, the institutional rules of the game. The United States provides many more access points for interest groups to exert corrupt influence than most European parliamentary systems do. In Europe, it makes no sense to go to an individual member of Parliament in Germany or Britain or France and lobby them for a tax break because they don't write the tax laws and therefore they don't do it. I mean, they lobby the bureaucracy, they lobby other other parts of the system, but there are many fewer points of entry. Furthermore, we Americans love continuing this political fight even into the implementation stage. Look at what's happening to Obamacare, which now people are trying to, they couldn't win the legislative battle so they're now trying to defeat the bill in the implementation and block it at that retail level. And again, this doesn't happen in most parliamentary systems. Final point I'll close on is that this matters for the global democracy. As I said, the reason I got into this issue of American politics and American decay is that I've been noticing around the world that compared to 25 years ago actually when I first wrote The End of History, that America is simply not regarded as the leading model of a modern well-functioning democracy. Its just not, you know, you go to Eastern Europe or to Russia or to China and the people struggling there for democracy. When they look at Washington, they don't say, Yeah, that's what we want. We want deadlock and we want one party to hold up the whole government by threatening to default on its sovereign debt. Yeah, that's really what democracy is really about. I think the projection of the idea of democracy is really heavily dependent on how well it appears to be working in the United States. That's something that I think has really changed in the present world and I'm really disappointed about it, and that's why I think stuff that Larry and all of you have been working on is God's work and I wish you success and I hope the fight continues. Thank you very much [APPLAUSE]
