I recently blogged about corporate crime and elite deviance, particularly why and how some companies might sell tainted products or swindle investors. Yes, greed and opportunity are major reasons that people try and get away with this kind of behavior. But what is our part in all of this?
The concept of hegemony is useful here. Italian social theorist Antonio Gramsci described how those in power don’t necessarily maintain their power by force, but by the process of creating consent. For a democracy like ours to continue, a significant number of people must agree that the system is legitimate and agree to keep it that way. This is done in part by encouraging people to think that the system is based on common sense.
Let’s consider the case of Ponzi schemes, like the one Bernard Madoff recently plead guilty to perpetrating and a Texas-based executive, R. Allen Stanford is accused of creating. Each of these schemes involved thousands of clients and over a billion dollars. In Madoff’s case, it is now estimated that he bilked people and charitable foundations out of $65 billion.
In a Ponzi scheme, hucksters promise high returns on investments and initially gain credibility by paying original investors with new investors’ money. The early investors can then vouch for the schemer and believe it is legitimate, encouraging others to invest as well. Like pyramid schemes, which promise a simple business opportunity that can pay big if you can bring new people in the business, a Ponzi scheme’s success depends on getting others to agree to participate.
While both pyramid and Ponzi schemes are illegal in the United States, they are not as uncommon as we might hope. People have attempted to lure me into pyramid schemes twice. When I was just out of college and looking for a job I responded to an ad in the employment section of the newspaper. The ad was vague but promised management opportunities for people with good communications skills, so I went to what I thought was an interview in a very fancy office building in midtown Manhattan.
Instead it was a meeting with others involved in “the company.” I can’t remember what the “product” was, only that the meeting had the feel of a religious service with people testifying how this business changed their life. “I used to drive a cab, now I drive a Porsche!” one man excitedly shared. Others had the same over-the-top enthusiasm that told me this “business” was suspect—that and the fact that I had to pony up a few hundred dollars to get started and find others willing to do the same, who would become my “employees” and I would get a share of their sales revenue.
A few years later, a friend (who was a newly practicing attorney) encouraged me and other friends to come to a meeting about a new business opportunity. I was very skeptical—as a graduate student at the time, I was busy with my research and had no interest in starting a business. But another friend convinced me that we could at least go and see what it was about so as not to offend our pal. Within seconds I had flashbacks of the first meeting: overly excited testimonials about how easy it is to make tons of money selling things I didn’t want to sell, all for a low start-up fee, of course.
I told my attorney friend that this was clearly not a legitimate business; for one, the product was something that anyone could buy at a grocery story for a fraction of their asking price, and the only way to make money seemed to be to lure others into the scheme. He looked dejected as he realized that I was right.
So how does an attorney get lured into a scheme like this? The same way so many investors placed their financial trust in Ponzi schemers like Stanford and Madoff: they wanted to get rich fast. As Los Angeles Times business columnist Michael Hiltzik noted, Americans often see wealth as just around the corner, a magical investment away from being ours (think lottery tickets). This, Hiltzik argues, is why many people identify with the rich and want them to pay lower taxes. We think we might be one of them soon; so, as Joe the Plumber famously did during the 2008 presidential campaign, argue that tax increases for the wealthiest 1% are unfair.
Back to hegemony now. In order for get-rich-quick schemes and investment fraud to work, participants must buy in to not only the scheme, but the legitimacy of the social system itself. One way that Madoff was able to defraud so many people was that he was once chair of NASDAQ, a major American stock exchange. Rather than a fly-by-night con artist, he had many long-term ties to the legitimate financial industry.
He also allegedly didn’t let just anyone participate in his scheme; by concocting an air of exclusivity he created the impression that it was a privilege to be accepted. Wealthy and aspiring wealthy people are used to “special” opportunities--hedge funds, for instance, are typically only open to people with lots of money and promise to beat the market. So the cultural belief that the rules for wealthy people are different might have led some investors to believe that the promise of unusually high returns every year was a realistic expectation.
The people who got ripped off did not consent to losing all of their savings. But they—and most of us—generally consent to the system of beliefs that enabled it to happen. Suppose one of the bilked investors was walking down the street and was robbed at gunpoint. They might give the robber their wallet that one time, but they would not agree that the means was legitimate and probably call the police immediately. Unlike Ponzi scheme victims, they would not encourage their friends to also give the robber their wallet or seek them out again later to give them more money. Only hegemony can enable thieves to take our money and make us, at least initially, happy to give it to them.