As Trump continues to run America using a template that many in the Third World are all too familiar with, the American media is trying to figure out what is going on and – just as importantly – what name to bestow upon this new Trumpian reality. First off, in case you have been hiding under a rock for the past 90 days, here are some key highlights from the USofA: “Attorney General Pam Bondi has ordered the Justice Department to prioritize cases related to criminal cartels and closed down Task Force KleptoCapture and the Kleptocracy Asset Recovery Initiative; Trump himself ordered a pause in new investigations or enforcement of the Foreign Corrupt Practices Act for six months….
The Trump administration has fired at least 17 inspectors general—offices installed after the Watergate scandal as an independent check on mismanagement and abuse of power within government agencies—as well as several senior Justice Department employees. The president also issued an executive order that undermined the independence of agencies such as the Federal Trade Commission and Securities and Exchange Commission, both of which have important roles in detecting and punishing corruption.”
Then the author of this piece, Jodi Vittori, turns to the tricky business of definitions. She begins by defining ‘corruption’ and ‘grand corruption’: “While there is no universal definition of corruption, one of the most common, as defined by the advocacy group Transparency International, is “the abuse of entrusted power for private gain.”…
There are a variety of flavors of corruption. Currently, the most concerning kind is grand corruption. Grand corruption is when public institutions are co-opted by networks of ruling elites to steal public resources for their own private gain. It involves a wide variety of activities including bribery, extortion, nepotism, favoritism, cronyism, judicial fraud, accounting fraud, electoral fraud …
In dismantling systems that protect against it, there are fears that the Trump administration could be opening the door to grand corruption in the future. Rep. Mark Pocan has criticized Musk’s situation as a special government employee with federal contracts—at least 52 are ongoing, with seven government agencies—as “ripe for corruption”…In a New York Times op-ed in February, five former Treasury secretaries expressed concern about “political actors” from DOGE gaining access to the U.S. payment system…
In contrast to grand corruption is the petty kind, which citizens encounter when asked for bribes or other favors in places such as hospitals, schools, and police departments… When grand corruption increases, lower-level officials may feel even more emboldened to demand bribes in ways new to many Americans.”
Having done all this hard definitional work, Ms Vittori now helps us understand what a ‘kleptocracy’ is: “Kleptocracy takes corruption—even grand corruption—to a whole new level. There is not one specific definition of kleptocracy beyond that of “rule by thieves.” As with grand corruption, a kleptocracy involves tightly integrated networks of elites in political, business, cultural, social, and criminal institutions engaging in bribery, extortion, and other destructive actions. But additional characteristics make kleptocracy stand out even above grand corruption.
First, the grand corruption in a kleptocracy is systemic, deeply networked, and self-reinforcing…transforming institutions to keep multiple streams of grand corruption through multiple networks ongoing for years or decades is a whole different level of kleptocratic wherewithal.
Second, the consequences of a kleptocracy will distort long-term political and socioeconomic outcomes. While grand corruption schemes may amass elites billions of dollars, if those occur in a large enough economy, they may not necessarily impact the average citizen much. In a kleptocracy, the distortions are so massive that average citizens cannot miss the impacts on their lives.
Third, in non-kleptocracies, grand corruption scandals may shock the conscience and grab headlines because they are not the norm. Such grand corruption in a kleptocracy is not an aberration but instead the unifying purpose and core function of the state…
Key elites—referred to popularly as oligarchs—are instrumental in a kleptocracy.”
After all this build-up, we come to the question du jour ‘Is America a kleptocracy?”. Ms Vittori writes: “…kleptocracies share common characteristics, and there are signs a uniquely American form is already emerging… Should the United States fall into kleptocracy, a few winners will benefit greatly. …In 2023, there were 1,050 billionaires in the United States, with a combined wealth of almost $5 trillion…Under an American kleptocracy, the number of billionaires would likely grow along with the already disproportionate wealth of the top 1 percent.
In a kleptocracy, preferential policy access and outright grand corruption for oligarchs mean that procurement prices rise, public services are further privatized, and nitpicky fees abound. Thus, more public roads turn into toll roads, and businesses from airlines to hotels to credit cards can pile on the fees and surcharges. The Trump administration’s attempt to shut down the Consumer Financial Protection Bureau, and the cessation of its investigative work, is a possible harbinger.
As oligarchs can further avoid taxation, taxes fall more heavily on the poor and middle classes. Tariffs typify this trend, since they are taxes paid primarily by the consumer, not the supplier. Price increases from tariffs on food will hit the poor especially hard…
Social programs—especially for a nation’s poorest citizens—are increasingly curtailed, underfunded, or cut entirely in a kleptocracy. The recently passed House budget proposes to extend Trump’s 2017 tax cuts, which primarily benefited the wealthy…
Politicized institutions, especially law enforcement, are necessary to keep the kleptocracy going. As former Peruvian dictator Óscar Benavides put it, “For my friends, everything; for my enemies, the law.”….
Journalists in a kleptocracy are further constricted because libel laws may be skewed to make it easier for those in power to mount strategic lawsuits against media, civil society, or even ordinary citizens who might report on malfeasance to silence them….”
Those of us who live in India have never experienced anything of the sort described above. In case you have experienced what it feels like to live in a kleptocracy, please drop us an email sharing your experiences.
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
