The Dictator's Handbook

by Bruce Bueno de Mesquita

  The 2002 Salt Lake City winter games are perhaps remembered almost as much for scandal and bribery as they are for athletic excellence. The Salt Lake Organizing Committee (SLOC) spent millions of dollars on entertainment and bribes, which included cash, lavish entertainment and travel, scholarships and jobs for relatives of IOC members, real estate deals, and even plastic surgery. In the fallout, ten IOC members were removed or resigned, ten others were reprimanded, and Tom Welch and Dave Johnson, who headed the SLOC, were prosecuted for fraud and bribery.

  Yet this was not an isolated incident. Indeed the Salt Lake bid committee felt they had been unfairly overlooked for the 1998 winter games. The Japanese city of Nagano, which won those games, spent over $4.4 million on entertainment for IOC officials. Improprieties of this sort abound behind virtually all bids. During its bid for the 1996 games, Melbourne, Australia, arranged a special concert for the Melbourne Symphony Orchestra to showcase the piano playing of the daughter of a South Korean IOC official. Clearly, any city that wants a serious chance at landing the games needs to lay on lavish travel and entertainment.

  Corruption and private dealing is not limited just to big bribes; money to be converted into private gains for backers is sought at every level. Indeed, the 1996 summer games, held in Atlanta, demonstrate that no threat to the IOC’s chance to shift money to its cronies and essential backers is too small to capture their attention. As the British newspaper, The Independent, reported in its Business Section (March 26, 1995):Even small entrepreneurs, from T-shirt vendors to Greek restaurants, need to beware. Under a 1978 US law—the Amateur Sports Act—the United States Olympic Committee (USOC) has a “super trademark” over any Olympic symbols or words....

  The promise of strict action has been critical to attempts by the Atlanta Committee for the Olympic Games (ACOG) to attract official sponsors, some of which must pay up to $40 million for the privilege. Those already signed up include Coca-Cola, which is based in Atlanta, IBM, Kodak, Xerox and the car makers General Motors and BMW. . . .

  Eyebrows have been raised, however, at steps taken to protect the Olympic trade mark. An Atlanta artist wanted the trade mark “USAtlanta” to market her works. ACOG objected, saying that it evoked the 1996 games.

  “I think that’s stepping over the line a little bit. I find it hard to believe that anyone is going to misconstrue her logo as being designed to profit from the games,” said John Bevilaqua, a sports sponsorship consultant in Atlanta, who none the less sympathizes with the organizers.

  Perhaps the oddest case is that of Theodorus Vatzakas, who opened a Greek restaurant in Atlanta in 1983—long before the city won the right to stage the 1996 games—and called it the “Olympic.” In 1991, he was advised by ACOG that he was infringing the 1978 Act and would have to change the name. Eventually he did, at a cost to himself of $1,000, calling it “Olympia Restaurant and Pizza.”

  “I am very upset about this,” he complained, “but I changed the name because I don’t have any money to fight these kind of people. Really, I think it’s crazy.”10

  Even one of the authors of this book—Bueno de Mesquita—experienced firsthand how eager Olympic committees are to control the flow of money and the opportunities for private gains. His wife, Arlene, together with two friends, founded a company called Cartwheels (which they eventually sold) to make fun products, like T-shirts, jewelry, stationery, and music CDs, all on a gymnastics theme, for competitive gymnasts. As Arlene recalled about Cartwheels’s experience with regulations from the IOC and the USOC leading up to the 1996 Atlanta Olympics,Our company designed t-shirts and other products for gymnasts. Prior to the Atlanta Olympics we tried to design some with rings, torch or any other ‘Olympic’ related logo, but were told that no one would print them and we would wind up with big legal problems. It didn’t matter if we used completely different styles or colors from the official designs. We could not use any form of the word Olympic, nor any allusion to rings or torch. We even had to stay away from the official colors. In order to fulfill our clients’ demands for Olympic goods, we had to buy only official USOC products at greatly inflated prices. Some of the quality was awful, making us wonder about how some of these companies got their sponsorship.

  The answer, according to our way of thinking, is straightforward. Cartwheels, like many others, was compelled to pay high prices and buy from vendors chosen by the IOC or AOC to fund the pot of money that the IOC and AOC used to enrich itself and pay for the lavish private rewards it doled out to others. And just as we should expect, quality was as low as prices were high.

  The scandalous corruption that seemed to accompany almost all business aspects of the Olympics appeared finally to come to a head with Salt Lake City. The negative publicity surrounding the corruption scandal did inspire the IOC to promise reforms and to place restrictions on gifts, luxury travel, and perks in bidding cities. But as the dictates of political survival leads us to expect, this was unlikely to last since the Olympic organizations are all small-coalition operations. In fact, an undercover investigation by the BBC’s news program Panorama suggests bribery is still active. In the runup to the announcement of the location of the 2012 games, secretly taped meetings suggest a price on the order of around $100,000–$200,000 per IOC vote.11 Distressing to sports lovers to be sure, but this is no surprise to anyone who thinks about political survival.

  That the IOC is plagued by bribery and corruption allegations is exactly what we should expect when we explore its institutional structure. The IOC, created in 1894, runs all aspects of the modern Olympics. The IOC is composed of only up to 115 members drawn from current athletes (up to fifteen), members of international sporting federations (IFs) (up to fifteen), senior members of National Olympic Committees (NOCs) (up to fifteen), and up to seventy unaffiliated members. IOC members are selected and voted in by existing IOC members. The IOC is responsible for selecting the senior Olympic executives and executive committees, regulating IFs and NOCs, and selecting the site of future games.

  Fifty-eight votes are all that are needed to guarantee someone’s election to become IOC president or host the games. Not surprisingly, IOC presidents keep their jobs for a long time and maintain lavish expense accounts. Since 1896, the date of the first modern Olympic games, there have been only seven presidents. In practice, often even fewer than fifty-eight votes are required because not all 115 positions on the IOC are filled and representatives are ineligible to vote on motions involving their home nation. For instance, London’s bid for the 2012 games beat out Paris by fifty-four votes to fifty. At the level of Panorama’s estimates it costs less than $10 million to win. While this is a substantial sum of money, it is insignificant when compared to the IOC revenues (nearly $5.5 billion for 2005–2008, the period covering the Beijing games) and the estimated 9.3 billion (approximately $15 billion) Britain will spend on venues and infrastructure for the 2012 games.12 Building better stadiums, which benefits the whole Olympic movement—athletes, officials, and audiences alike—is a much more expensive way to buy support than doling out $10 million in private gains to a select few.

  The design of the IOC lies at the heart of the scandals it faces. When fifty-eight votes guarantee victory, and the IOC president can handpick IOC members, politics and control will always revolve around corruption and bribery. As long as the IOC’s institutions remain as they are, vote buying and graft will persist because it is the “right” strategy for any IOC president who wants to survive. Regulating “gifts” and travel cannot change the underlying incentives to compete on the basis of private rewards rather than better management and facilities for the games.

  When billions of dollars are at stake and winning requires the support of a mere 58 people, any nation that relies solely on the quality of its sporting bid will be a loser. Salt Lake learned this lesson bidding for the 1998 winter games. It was an error they did not repeat for the 2002 games, although they got caught in the process. Many in Salt Lake may have feigned outrage, but many might also have been glad
. After all, in spite of the subsequent allegations, the games were not reassigned.

  The IOC is not alone in engendering corruption. FIFA, soccer’s international governing body, is even worse. On December 1, 2010, FIFA announced that it had chosen Russia and Qatar as the sites for the 2018 and 2022 World Cup Finals. Russia beat out bids from other European rivals, including England, a joint bid by Belgium and the Netherlands, and a joint bid from the Iberian Peninsula. While there were many attractive features to Russia’s bid, it is becoming increasingly difficult to understand Qatar being chosen over Australia, Japan, South Korea, and the United States.

  Qatar, a tiny state in the Persian Gulf, has the world’s third largest known gas reserves and possibly the highest per capita income in the world. However, as a site for a soccer tournament it is problematic. Sharia forms the basis of its legal code. Alcohol consumption is harshly punished, homosexuality is banned, and Sepp Blatter, FIFA president, has already been condemned for making insensitive remarks on this topic. Beyond these concerns, the weather remains the most serious impediment to Qatar’s sponsorship. It is so hot and humid that many Qatar’s residents even leave for the summer months. To make it possible for the players to compete, Qatar’s bid entailed constructing specially built, fully air-conditioned stadiums. FIFA is now contemplating moving the tournament from its traditional June and July dates to the winter months, when the temperature is much cooler. This would severely disrupt domestic competition in the European football leagues, where many of the world’s top players ply their trade. Needless to say, it is hard to rationalize having this debate after the vote rather than before if the objective was to do what is best for soccer/football.

  Since just twenty-four members of FIFA’s executive committee determine the location of the finals, the winner requires the support of only thirteen members—if that. For the December 2010 vote only twelve votes were required after two members were suspended for allegedly trying to sell their votes. One of these members, Amos Adamu, was caught asking for an $800,000 bribe in a sting operation by the Sunday Times newspaper. While the money was nominally for building artificial pitches, the deal required that the $800,000 be paid directly to him. Three days prior to the location vote the BBC’s Panorama once again exercised its penchant for unearthing corruption in sports by airing a documentary entitled FIFA’s Dirty Secret, which detailed bribery and corruption among a number of senior FIFA officials. It is thought this severely harmed England’s bid to host the 2018 finals, since three of the officials accused were among the twenty-two executive committee voters. Perhaps the fact that the backers of England’s bids, including British prime minister David Cameron, immediately expressed full confidence in the fidelity of the accused FIFA officials is a telling sign that bribery is the modus operandi at FIFA. Why call for an investigation, after all, when it could only imperil England’s future prospects?

  Fortunately, devising reforms that would promote sport and competition over bribery and corruption is straightforward, and a comparison of bribery at the two institutions shows why. To buy the Olympics takes approximately four times as many votes as to buy the World Cup, fifty-eight versus thirteen. And, if the details of alleged corruption are to be believed, the size of bribes is substantially smaller, $100,000–$200,000 per vote versus $800,000. This is a direct illustration of the role of institutions in action, and it makes the solution clear.

  As the number of supporters needed increases, private goods become less important. Bribery could easily be made a thing of the past by simply expanding the IOC. For instance, all Olympians might be made IOC members eligible to vote for the executive officers and the site of future games. There were nearly 11,000 athletes at the Beijing summer games and over 2,500 at the Vancouver games. Alternatively, medalists, or to prevent overrepresentation of team sports, one representative per medal, could become IOC members. Either way, within a few years the body of the IOC would swell, and officials and bidding cities would have to compete on the quality of leadership, games, and facilities rather than on lavish travel trips. (Alastair laments that fixing the English football team poses a far greater challenge.)

  Wall Street: Small Coalitions at Work

  From any boss’s perspective, the best way to organize a business is exactly the same as the best way to organize a government: rely on a small group of essentials, drawn from a small group of influential selectors, who are drawn from millions of interchangeable selectors. That, of course, is a perfect description of most modern, publicly traded corporations. It also happens to be a pretty good description of organized crime families. A coincidence? Probably not—and not for the reasons you may be thinking.

  Big corporations do not coerce people to consume their services. In fact, they provide valuable services that lead people voluntarily to spend money on them and to make themselves generally better off for having done so. But, like the mafia, and like monarchies and petty dictatorships, publicly traded corporations are made up of a small coalition, a small group of influentials, and masses of interchangeables. That means that for their leaders—the CEOs, CFOs, and other senior management—to survive in office they must provide lots of private goods to their coalition of essential supporters.

  The media (itself made up of just such corporations) like to portray Wall Street businesses as tone-deaf and greedy. We take a broader view: pretty much all of us are greedy, some for money, some for adulation, some for power, but all greedy nevertheless. Some few among us have the opportunity to act on our greed, while most of us are confined to pursuing our greed in minor ways. Wall Street bankers have the opportunity to satisfy their desire for money and power in a big way and we should not be surprised that they do so.

  As we all know, the world economy went through a massive tumble in recent years. Even several years after the near-depression’s onset, unemployment remained high and economic growth meager. And yet—here being the media’s basis for the accusation of tonedeafness—Wall Street bonuses remained huge even as the banks lost their proverbial shirts. Wall Street financial houses distributed $18.4 billion in bonuses in 2008, even though many of the largest Wall Street firms begged for and got billions in bailout money from the federal government. Of course, these bonuses, distributed among the leaders, their coalition, and their influential backers, are the very private goods that helped keep the existing managers in their jobs. It is equally worth noting that these bonuses were more than 40 percent lower than in 2007, the year before the economic collapse. Private goods are doled out from revenue. If revenue is down, private goods are likely to go down too, because, after all, leaders want to keep as much for their discretionary purposes as possible, and when there isn’t much money around it is not as if those getting private goods can easily find a better deal by defecting to some alternative leadership.

  Dealing with Good Deed Doers

  We commented earlier that “Successful leaders are not above repression, suppression, oppression, or even killing their rivals, real and imagined.” The truth of this statement is demonstrated routinely in the world’s smallest coalition environments. Aleksei Dymovsky’s unhappy experience in Russia is nothing compared to what happens when anticorruption campaigns are mounted in really small coalition settings.

  Africa provides many of the worst cases. Daniel Kaufman, a senior fellow at the Brookings Institute, estimates that more than a trillion dollars is spent annually on bribes worldwide, presumably with most of it going to government officials. With so much money on the line, it is no wonder that he also reports, “We are witnessing an era of major backtracking on the anticorruption drive. And one of the most poignant illustrations is the fate of the few anticorruption commissions that have had courageous leadership. They’re either embattled or dead.” Two examples among many include the deaths of Ernest Manirumva of Burundi and Bruno Jacquet Ossebi in the Congo. Mr. Manirumva was investigating corruption at high levels in Burundi when he was stabbed to death. Although he apparently was not robbed of his personal possessions,
the president of the nonprofit organization he was working with reported, according to the New York Times, that, “A bloodstained folder lay empty on his bed. Documents and a computer flash drive were missing.” Coincidence, no doubt!

  Mr. Ossebi’s error was to cooperate with Transparency International in its lawsuit to recover wealth allegedly stolen by Congo’s president. Mr. Ossebi died as the result of a suspicious fire in his home. Alexei Dymovsky, if he knows these facts, must count his good fortune in living in a country that is transitioning away from democracy rather than in one that never got close to such a status in his lifetime.