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25 June, 2019 00:00 00 AM / LAST MODIFIED: 25 June, 2019 12:52:57 AM

Luxury item expenditures are keys to societal corruption

Luxury goods are used to facilitate corrupt transactions and launder dirty money
Mohammed Abul Kalam, Ph.D
Luxury item expenditures are keys 
to societal corruption

Prime Minister Sheikh Hasina recently said the public perception that many Anti-Corruption Commission staff are involved in corruption is not fully false. "All (ACC staff) are not innocent. No one can guarantee that all are 100 percent honest," the Prime Minister told parliament in reply to a supplementary question of ruling Awami League MP Maj (retd) Rafiqul Islam (Chandpur-5).

"The ACC will have to be careful from now on about those (ACC staff) who will work [investigate] so that they can't get involved in such activities that create such public perception," Sheikh Hasina said. In his question, Rafiqul Islam demanded Speaker Dr. Shirin Sharmin Chaudhury expunge the words-many staff of ACC is involved in corruption-from the question of Jatiya Party MP Rowshan Ara Mannan (Reserved Seat-47) that was raised before the Prime Minister (The Independent, June 13, 2019).

Honest behavior is a central feature of economic and social life. Without honesty, promises are broken, contracts go unenforced, taxes remain unpaid, and governments become corrupt. Such breaches of honesty are costly to individuals, organizations and entire societies. The global cost of corruption and other illicit financial flows has been estimated at 1.3 trillion dollars annually. There is a connection between corruption and luxury items. This is more than a rhetorical point. It is almost certain that some of the profits made by all sellers of luxury goods come from criminals who have siphoned off government funds. Rather than being spent on health, education and other social welfare programs, the money has been spent on luxury goods.

Luxury goods are used to facilitate corrupt transactions and launder dirty money. Using data for 32 high-income and emerging economies, I have found a strong correlation between luxury item expenditure and societal corruption.This write-up investigates the effect of control of corruption on the consumption of luxury goods, after controlling other relevant determinants of luxury spending. The model is empirically tested for 32 developed and emerging economies between 2004 and 2014. Using panel fixed effects, difference generalized method of moments (GMM) and instrumental variable estimation methods, and two measures of the control of corruption (Transparency International Corruption Perceptions Index and the World Bank's Control of Corruption Index), the results show that higher levels of control of corruption decrease luxury spending. This relationship is stronger in countries with higher levels of press freedom and information transparency. These findings offer some important implications. Governments and policymakers may develop and implement regulations that increase transparency in luxury gifting and limit corruption practices. Luxury brand companies should further enhance their due diligence obligations to minimize reputational risks in the long term.

My findings confirm previous research, such as luxury car sales were substantially higher in OECD countries with higher perceived corruption levels. I am not saying that luxury brands are doing anything criminal. Nonetheless, they could make a great gift to the world by pitching in to build the institutional architecture needed to combat corruption.

Calculation of the correlation:My analysis covers all countries for which annual data on luxury spending per capita are obtainable, from 2004 to 2014. The sample includes the major emerging economies (Brazil, China, India, Russia, and South Africa) and major high-income countries (the US, Japan, and Germany). Collectively the 32 sample countries represent about 85% of the world’s GDP.

I have cross-referenced these data with two corruption measures: the World Bank’s Control of Corruption Index, and Transparency International’s Corruption Perceptions Index. My calculations make allowances for variables such as relative wealth and spending by tourists. Greater spending on luxury goods is to be expected in richer nations and in international travel hubs such as Singapore, Hong Kong, and Dubai. I have also controlled for factors such as inequality, with demand for luxury goods increasing as the income gap widens. And my results suggest stronger anti-corruption controls reduce luxury spending. More press freedom and information transparency help too, presumably because this increases the chance of corruption being exposed.

Conspicuous consumption:In countries where paying bribes to government officials to secure government contracts or operating licenses is common practice, luxury goods are often used instead of direct monetary payments. Such “gifts” do not leave a transaction trail so are less likely to result in legal action against corrupt officials.

Another explanation for the link between corruption and luxury spending is that corrupt individuals send signals about their “services” by demonstrating a lavish lifestyle beyond their official source of income. It is a form of conspicuous consumption - – buying something not for its intrinsic utility but as a signal to others.

It may not seem logical or good value for money, but there are plenty of us that will fork out for expensive presents atChristmas. Maybe it will be close to the US $3,000 for premium seats to see Wagner’s Ring Cycle?? Or maybe you prefer to spend thousands on fancy white goods like retro-inspired coffee machines or fridges?

Many of these products may not be considered by us to be luxury products, but they are certainly a product of desire. In reality, nobody “needs” a $ 700 pair of shoes or a retro $2000 fridge, but these products seem to transcend their rational utility. They have meaning beyond their function. They are objects of desire that help us to communicate to ourselves and others who we are.

Desire, status, and luxury are concepts that have been explored for hundreds of years. Probably one of the best-known books about this topic was by sociologist and economist, Thorstein Veblen, published in 1899. Veblen suggested the act ofbuying expensive things was a means for people to communicate their social status to others. He suggested that the purchase of luxury goods, expensive houses, or attending exclusive soirees was a form of “wealth signals”, or what others have called “peacocking”.French philosopher Pierre Bourdieu took this interpretation a step further in 1979, by suggesting that what we buy is a product of our social conditioning. He argued that the objects and things we consume are a means of communicating to others a symbolic hierarchy, as a means to enforce our distance or distinction from other classes of society.

It’s even arguable that our contemporary predilection for all things authentic, artisanal, and bespoke is an attempt at acquiring some meaning in the things we consume. Consumer preferences are rarely the outcome of some innate, individualistic choices of the human intellect, but a more complex, somewhat unclear desire to be part of something bigger than ourselves.

Consumption does not occur in a vacuum. The things we buy, the things we do, the people we associate with, the places we live and the places we visit all possess meaning for us as human beings.  Research can tell us a lot about the contradictions in consumer behavior when it comes to the purchase of luxury and desired goods. Researchers Hudders and Pandelaere found that purchasing designer handbags and shoes were found to be a means for women to express their style, boost self-esteem, or even signal status. Their research suggested that some women also seek these luxury items to prevent other women from stealing their man.

A surprising finding in their work was that feelings of jealousy triggered a desire for luxury products, not just for women in committed relationships, but also for single women. Many single women obviously want designer products, but instead of these products saying “back off my current man”, the single woman is saying “back off my future man”. That isn’t to say that only women desire luxury goods. The men, women, old people, young people, poor and rich people all desire things that others can’t have. For most of us the desire to distinguish ourselves as individuals, among our peers, is built into our DNA. And what we consume helps to make clear that distinction.

It seems humans will always want something that others in our groups don’t have. The fact that we are exposed to, and seek out stories about, success and wealth, has been shown to actually influence how badly we want luxury items.

Another study found that simply reading a success story increased a desire for luxury brands among the study’s participants. What was interesting about this study was the findings weren’t the same in all circumstances. The desire for luxury brands only seemed to be present when the participants read a success story about people that they saw as similar to themselves. The researchers found the participants only desired products and outcomes that they could see themselves achieving.

Media portrayals of wealth on TV, on the news and even in social media,have been shown to define consumers’ worlds by creating an image in their minds of what life should be like. This skews their values of reality toward the norms, values, and social perceptions represented in the media that we consume.

In one study, the researchers found that people who watched more television assumed higher estimates of the average level of wealth and affluence in the US. This also led them to believe they were missing out on the tennis courts, private planes and swimming pools they saw represented in the media.

But even for those on low incomes, products are more significant than their simple utilitarian capacity. We buy goods to enhance our lives, to fit in, but also to remind ourselves that we are just a little better than most of our group. Viewed through a rational lens, it is pretty tricky to explain why someone would pay the US $3,000 to watch 15 hours of opera that finishes where it began, or US $450 for a kilo of steak full of intramuscular fat, or the US$ 1.4 million for a red car that goes very fast.But being human is more than being rational.

Transparency International notes in its 2017 report Tainted Treasures: Money Laundering Risks in Luxury Markets:: “For individuals engaged in corruption schemes, the luxury sector is significantly attractive as a vehicle to launder illicit funds. Luxury goods, super yachts and stately homes located at upmarket addresses can also bestow credibility on the corrupt, providing a sheen of legitimacy to people who benefit from stolen wealth.” Clean up the luxury market:I agree with Transparency International that laws, policies, and practices to combat this connection are underdeveloped.Anti-corruption policies need to include monitoring luxury markets and developing regulations that increase transparency in luxury gifting. The merits of doing so are demonstrated by anti-corruption efforts in China. In 2012 the Chinese government initiated plans to track corruption by looking at luxury goods ownership. As a result, the consumption of luxury goods fell from US$93.48 billion in 2011 to US$73.1 billion in 2014.

There needs to be established in global policies. The countries that host the largest luxury markets – China, France, Germany, Italy, Japan, the US, and Britain – must also do more to ensure sellers of luxury goods follow due diligence and reporting requirements.In Britain, for example, Transparency International reports that auction houses (such as Sotheby’s and Christie’s) filed just 15 of the total 381,882 suspicious transaction reports made to law enforcement authorities in one year. In Antwerp, the largest diamond exchange in the world, suspicious transaction reports by precious stones dealers were totally lacking.  

Luxury goods dealers have too little motivation to ensure those buying their trinkets and toys are not using the money gained corruptly.We’re a product of the culture in which we live, and we purchase products to reinforce our connection to that culture. What we desire and what motivates us to buy luxury goods can only be understood by considering bigger human questions.

The writer is  former Head, Department of Medical Sociology,

Institute of Epidemiology, Disease Control & Research (IEDCR)

Dhaka, Bangladesh

E-mail: med_sociology_iedcr@yahoo.com




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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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