Revolving Doors and Corruption

I recently came across a couple of interesting blog posts about corruption and the “revolving door” in the U.S. government (the cycling of individuals from the private sector to government and back again—often as representatives of the same industries they used to regulate while in government).

First, last month Chandu Krishnan (who served as Executive Director of Transparency International UK from 2004-2012) published an insightful post on the Safra Center’s blog, noting how the revolving door—and in particular the promise of lucrative post-government employment—may lead government officials to make laws that reflect the preferences of “industry lobbies” rather than the “will of the people.” Mr. Krishnan adds his voice to the chorus of calls for reform; in particular, he recommends lengthening the legally-required “cooling off” period (during which former government officials are prohibited from lobbying) from one to three years (or longer for positions involving especially high risk, such as procurement).

Around the same time, Mike Koehler, who runs the FCPA Professor Blog, posted a comment on Charles Duross’s recent departure from his position as head of the DOJ’s FCPA enforcement division to take up a position at the law firm Morrison & Foerster. In this post, Professor Koehler reiterated his earlier calls for extending and expanding the “cooling off” period, so that former government FCPA lawyers could not provide any FCPA defense or compliance services for five years after leaving government service.

What struck me about reading these two posts in rapid succession was the fact that although Mr. Krishnan and Prof. Koehler seem in agreement on the problem and the solution, in fact their hypotheses about the effect of the revolving door on government officials’ incentives are not only different, but polar opposites. Mr. Krishnan worries that the prospect of future employment at private sector firms will cause government officials to go too easy on those firms—leading to overly passive or timid enforcement of U.S. law. (He views this as a kind of “institutional corruption.”) Prof. Koehler worries that the prospect of future private sector employment causes government officials to be too aggressive in their enforcement of the law—creating or augmenting the demand for the defense & compliance services these ex-government officials then provide.

Because they’re dealing with different contexts, it’s possible that both Krishnan and Koehler are both right (just as it’s possible that they’re both wrong). But the fact that they both articulate plausible but contradictory hypotheses about the impact of the revolving door on official incentives should make us think more carefully and critically about the relationship between revolving doors and government policy.

There’s already some interesting academic scholarship that helps clarify some of the issues, including a 1995 paper by the economist Yeon-Koo Che. Simplifying a bit, Che notes that if a government official’s regulatory activity can signal to private employers that she has valuable skills (say, a deep understanding of the issues, or the ability to negotiate or litigate effectively), then the revolving door may incentivize the official to acquire those skills and to exert more effort (Koehler might say too much) in carrying out her functions. On the other hand, Che also notes that if private firms do not hire ex-regulators for their skills, but only for their ability to influence the agency they used to work for, then the revolving door will not have this benefit, and will generally have bad effects overall. (Of course, for someone like Prof. Koehler, who is worried about overzealous regulation, that might be a blessing rather than a curse.)  So to figure out the effect of the revolving door on the efficacy of regulation, we need to think carefully–in the particular context–about what sorts of activities by government officials tend to improve their post-government employment prospects.

Another factor that Che does not consider explicitly, but might be important here, is the incentives that the revolving door may create for high-talent individuals to pursue government employment in the first place. It would be nice if everyone who pursued government service did so out of pure public-spiritedness, but the fact of the matter is that many high-talent individuals could make a lot more money if they stayed in the private sector. The prospect of being able to “cash out” at the end of a stint in government by taking a job with a private firm may make government service more palatable to those individuals. For that reason, proposals like Krishnan’s and Koehler’s have a significant and underappreciated drawback: even if they improve the incentives of government officials when in office, they may substantially lower the quality of the officials who serve.

I don’t want this post to sound too much like an apologia for the revolving door. I very much share Krishnan’s concerns. (I’ll confess that Koehler’s are less persuasive to me, mostly because I’m much more supportive of the aggressive expansion of FCPA enforcement than he is.) But I do think there’s a tendency to treat the “revolving door” as if it necessarily leads to corruption—or sometimes as if it’s corrupt by definition—when the reality is, in my view, significantly more complicated.

5 thoughts on “Revolving Doors and Corruption

  1. I think this is fascinating analysis. One really interesting question here is if we think that the revolving door can have both positive and negative effects, then how should we go about designing reforms that capture the positive effects and mitigate the negative ones.

    I have two thoughts about this issue: The first is that to the extent the revolving door system is having the positive effect of incenting zealous prosecutions, that effect is probably centered in the lower levels of the bureaucracy. A senior level official, I would guess, is primarily valuable because of the inside knowledge, contacts, and understanding of government policy he/she brings to the table. I doubt that an official’s being a particularly zealous prosecutor while in office would bear much on firms’ assessment of those traits. A junior/mid-level line prosecutor, on the other hand, seems much more likely to be judged by potential private sector employers on her performance as an investigator/lawyer, as seen from the other side. Therefore, it probably makes sense (as Koehler admits) to limit revolving door reforms to higher level officials.

    Second, the concern you identify about the effect of reform on the pipeline of people entering government service strikes me as quite serious. Asking someone who worked exclusively on FCPA enforcement to stay out of that kind of work entirely for half a decade, as Koehler does, would be asking them to commit to a severe career handicap – I’d be very surprised if many people signed up for that sort of thing. For this reason, if we think FCPA is an area where the revolving door is doing more harm than good, maybe a better strategy than a revolving door ban would be for DOJ to focus on the “front end” — hiring and retaining people who are in it for the “long haul” and aren’t interested in the private sector to begin with. I’m less certain about how to do this (perhaps some combination of rotations and a salary increase?), but it seems like a much less risky approach than instituting a cooling off period and letting the chips fall where they may.

  2. The points raised in this post is really interesting in light of my recent trip to DC where I met a few individuals who switched from government to the private sector. After reading this post I wonder if there is a valid concern in the first part of the revolving door scenario when individuals make the first switch from the private sector to the government. Should some form of regulation be required for this switch? I understand that government employees can be restricted from assignments that involve their former private sector employers but I also wonder if more regulation is necessary when the employee is working on an assignment that involves companies similar to their former employer?

    For example, in an FCPA investigation involving mining company A which operates in the Amazon region, it is possible that one of the DOJ employees had some tie to mining company B which operates in the same region. Let’s say that mining company B made it a point to not engage in bribery and was part of the Extractive Industries Transparency Initiative. Will that employee be more aggressive about FCPA enforcement against mining company A because he or she has a negative bias towards companies that are not part of the Extractive Industries Transparency Initiative and/or companies assumed to have engaged in bribery? I think this example could be an extreme scenario but I wonder if this part of the revolving door is worth critiquing.

    • I was in DC with Maryum, and that trip did make me think about revolving doors.
      I’d like to question the argument that restricting revolving doors would lower the quality of people serving in government. I gather that this makes sense in the American context, but have trouble accepting that this is a universal phenomenon, especially in well-off countries with lower inequality. It would be interesting to learn more about the revolving door phenomenon in, say, continental Europe.

    • I’m not sure I agree. Even though I raise questions about the “revolving door” arguments in the post, I’m not sure it’s a question of whether these employees “deserve” high paying private sector jobs. That argument would be compelling if the objection to the revolving door were somehow based on moral desert, but I think the better and more common version of the objection is based on consequentialist claims. I’m not sure those claims are always right (again, see the post) — but if they proved accurate, I don’t think I’d have any objection to limitations on private sector employment for former government employees.

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