The ECB and the peloton of corruption


The 15th stage of the 2009 Tour de France finished with an ascent of Verbier.  Alberto Contador smashed the record for the ascent.  He went up the mountain in 20 minutes 55 seconds — 43 seconds faster than Andy Schleck who finished second.  Following that stage Greg LeMond, a three time winner of the Tour, questioned whether Contador’s accent of Verbier was humanly possible without performance enhancing drugs.   LeMond argued in the Le Monde newspaper that Contador’s VO2 max (maximum capacity of the body to transport and use oxygen) was implausibly high without drug enhancement.  Lemond suggested that it was either the greatest aerobic performance in human history or cheating.

During the 2010 Tour Contador tested positive for the banned substance clenbuterol.  Clenbuterol is a powerful stimulant to the central nervous system which increases oxygen transportation in the blood.   LeMond calculated that Contador’s performance was implausible without artificial stimulation of his aerobic capacity and then that artificial stimulation was detected.  But  never mind, the Spanish cycling federation have accepted Contador’s claim that a cow took the stimulant first and then Contador ate a part of the cow.  That decision has been appealed by the International Cycling Union to Court of Arbitration of Sport, but no verdict will be delivered until after the 2011 Tour.  What a joke.

The international administration of quite a lot of sports is simply corrupt.  Cycling is, soccer is, even cricket is.  The rules of cricket were changed rather than accept that one bowler was throwing the ball.   This corruption of international sporting governance is an inevitable result of the governance structure of many of these sports.  If over 100 countries have equal voting rights to appoint the governing board, then no one country has the incentives or the right to monitor and enforce good governance.  

The same problem arises in corporate governance.  If the ownership of shares in a corporation is atomised, then no one shareholder has the incentive to closely monitor management, nor do they have the voting power to remove poor management.  The difference in the corporate sphere is that there is external monitoring and enforcement of minimum standards by the regulators and the courts.  But that is not true for international sporting bodies.  Control is diffuse, so governance problems arise, and there is no outside monitors or regulators exist to enforce minimum standards of governance.

Of course sport is not that important.  Ultimately it doesn’t matter much who wins the Tour de France.  But mitigation of corruption is a vital matter for other international bodies that have diffuse control and competing national interests.  An interesting case here is the European Central Bank.  You might think that the ECB would have been set up with equal representation and control from all 27 members of the European Union or at least all 17 members of the European currency union.  Let’s say that was true, then Greece and Germany would have the same say in the running of the ECB, just as they have the same say in the running of FIFA.  But that is not true.  It is evident that Greece has very little say in the governance of the ECB.

The ECB was established as a corporation with an initial capital of 5 billion euros.  The shares went to member countries in proportion to their GDP.  That ensures that Germany and the low countries, France, Italy and the UK have complete control of the ECB.  The governing board has only six members.  Those members are currently from France, Germany, Belgium, Italy, Spain and Portugal.  They are an impressive group of well trained economists, with two having PhDs from Chicago and Columbia.

Germany was never going to share control of the ECB with Greece.  The ECB had to be made in the image of the Bundesbank and be based in Frankfurt or else Germany would not participate.  The fear of inflation is a central part of Germany’s rememberance of its 20th century nightmare.  The first world war took the sons of German families and the hyper-inflation of the Weimar Republic took their savings.  The resultant despair fed the rise of the Nazi party.  It is remarkable that Germany ever agreed to a common currency and demonstrates their commitment to the European project.  But they are not going to ever relinquish control of the ECB.

There is an important lesson here in the creation of multi-national institutions.  Control has to be concentrated and not diffuse.  This issue will arise as institutions are created to help control global warming.  If there is to be a global agreement on controlling global warming then there will have to be institutions that monitor compliance with the international agreement and enforce it.  Control of those institutions will have to be highly concentrated and in the hands of countries that can be relied on to keep it free of corruption.

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