Why do we tolerate so many conflicts of interest?

June 6th, 2010

The news this weekend abounds with conflicts of interest:

* Insider dealing (making a killing in buying or selling shares by using information to which one is privy inside an organisation, but which is not known to the public outside) persists in the City of London on a huge scale. There were 1,485 tip-offs (‘suspicious transaction reports’) notified to the FSA over the last 5 years, leading to just 6 rogue dealers being convicted, compared with 584 in the US over the same period. Why are we so complacent about this?

* Notoriously the Financial Services Authority (FSA), the bank regulator, has failed over this issue to tackle the big names in the banking and trading establishment – unlike again what has happened in the US. Might that be because the FSA is funded by the banking industry?

* Equally the credit rating agencies that are supposed to assess the creditworthiness of financial and corporate institutions are, believe it or not, funded by those same institutions they’re assessing. This is one major reason why banks or companies that were chock full of toxic derivatives that turned out to be worthless were nevertheless give top-level rating by the agencies. Why has there been no outcry about this, no prosecution of the agencies for gross negligence and wilful incompetence, and no reform?

* Liam Fox, the new Defence secretary, it has just been revealed, has opted to take on as his special adviser a former US army captain, Luke Coffey, when the UK Government is just about to undertake a sensive defence review which could strongly feature buying US military equipment at the expense of jobs in the UK defence industry. How is such a blatant conflict of interest, albeit one put in place by a Government minister himself, allowed to stand especially when the adviser hasn’t even been given full security clearance?

* It has also come to light this weekend that the Food Standards Agency, which is supposed to oversee the UK food industry, is hand in glove with the Agricultural Biotechnology Council (ABC) which was set up to promote genetically modified (GM) crops and represents companies like the US Monsanto. Emails revealed between the two organisations show that the ABC was allowed to insert key sentences into the official Government report strengthening the case for GM food. Two members of the FSA steering group have just resigned over this, one claiming that the FSA is “acting as a puppet of the GM industry”. So what machinery exists to disband the FSA as blatantly partisan pro-GM, contrary to the polled views of a mjaority of the British people?

These are just a tiny number of examples. Conflicts of interest have become more frequent and more insidious because they proliferate in an economic system doninated by markets and commercial profit. Apart from genuinely independent regulation and much more rigorous surveillance, what is really needed is a stronger role for the State in inculcating a public service ethos free of market self-interest.