What Corruption?

by Bob Murphy  

Has anybody else noticed that even the “liberal” media is offering fairly moderate pieces lately?  The last few times I’ve heard NPR interviewing Iraqis, they’ve all been pro-American.  (Presumably the point is to challenge the conventional wisdom that says Iraqis resent foreigners ruling their country.)  When it comes to the Internet, there is the Nov. 3 article in Slate by Daniel Drezner, which argues that—contrary to clichéd leftist charges—the Bush Administration is not favoring its political cronies with reconstruction contracts in Iraq .  

Drezner is responding to a report by the Center for Public Integrity, which concluded (after six months and 70 Freedom of Information Act requests) that there is an obvious connection between U.S. reconstruction contracts in Afghanistan and Iraq, and the campaign contributions that such companies made to Bush.  In particular, and as many leftists instinctively believed, there appears to be obvious favoritism for Halliburton, the company that Dick Cheney used to lead and to which he still has financial ties.  

A look at Drezner’s own Table 1 (reproduced below) gives the reader a taste of the data uncovered by the CPI report:  

TABLE 1: TOP U.S. CONTRACTORS IN IRAQ AND AFGHANISTAN

This looks pretty damning, especially the size of the Halliburton contract.  But Drezner will have nothing of such conspiracy theories:  “[A] glance at Table 1 shows that of the 10 largest contractors, only four firms made contributions greater than $250,000 over the entire 12-year span of the study.  Another four firms among the top 10 averaged less than $1,000 per year in campaign contributions, a pittance by Beltway standards.”  

To prove that campaign contributions have no clear relationship to reconstruction contracts, Dreznel argues that “if you look at Table 2 [reproduced below], top 10 campaign contributors, you find that only four of them received more than $100 million in contracts—and none of those top four donors are in the top 10 for contracts.  General Electric, the biggest campaign contributor, has actually spent more in contributions than it has received in reconstruction contracts.  Bechtel and Halliburton have given millions in political contributions, but the top 10 lists don’t support the notion that those campaign contributions were responsible for their winning bids.”  

TABLE 2: TOP 10 CAMPAIGN CONTRIBUTORS AMONG CONTRACTORS FOR IRAQ AND AFGHANISTAN

  Now there’s something fishy going on here.  Dreznel is arguing that the size of the contract has nothing to do with campaign contributions, because (for example) General Electric isn’t getting more money than Halliburton, even though GE donated more money to the Bush campaign.

But this is attacking a strawman.  Of course the Bush Administration can’t literally give out money solely on the basis of contributions; there must be some surface plausibility to the awards.  Thus Halliburton, in the capital-intensive oil and refining business, can more plausibly be given billions for its work in Iraq rather than, say, the 700 Club.  Indeed, no matter how much money or support Pat Robertson may have given to Bush, it would be politically impossible for Robertson to be awarded $1 billion to hand out Bibles in Iraq .  It just wouldn’t fly.  But to acknowledge this truism doesn’t thereby prove that corruption is impossible; of course it’s possible.  It is still very suspicious that Halliburton has gotten $2.3 billion, and this is true despite GE’s smaller handout of $5.9 million.

(Two related points on GE:  One, is this the only government contract that GE is receiving?  Does Dreznel think that GE is actually losing money overall, and is thus contributing to politics out of a sense of civic duty?  Two, wouldn’t it be a bit embarrassing if GE got over $3.2 billion, and yet the Iraqis still had no power?  Again, some things are politically impossible.  This doesn’t prove the absence of Bushian corruption.)

Dreznel goes on to make one final, apparently “scientific,” observation:

If the corruption argument is true, then the size of campaign contributions should be strongly and positively correlated with the size of government contracts.  

Running the numbers, the good news for the Center for Public Integrity is that there is indeed a positive correlation…The bad news is, the correlation coefficient turns out to be 0.192 and not statistically significant . . . . An old joke among statistically minded social scientists is that “the world is correlated at 0.3.”  

Again, I must object.  What we really want to test is whether the individual firms would have received such large contracts had they not ponied up money for Bush’s campaign.  No analysis of statistics will enlighten us of this counterfactual.  

However, if we want to feel like objective scientists, the next best thing would be to isolate each contract, then run a regression on the money that various bidding companies got versus how much they contributed to Bush.  This would give a much better indication of the level of corruption.  (Dreznel acknowledges as much in a footnote, but thinks that what he did instead “is still a fair test of whether there is systemic corruption.”)  

To understand my point, imagine that Halliburton has four competitors who bid on the contracts, and that they each gave Bush nothing.  Imagine that GE has two competitors who also bid on the relevant contracts, and that they also gave Bush nothing.  Etc.  Now if it turned out that the Bush Administration picked the recipients of contracts on the basis of (1) a company that could actually fulfill the contract reasonably well and (2) the company that gave the most money to the campaign, then the results would be perfectly consistent with the numbers in Dreznel’s Table 2.  Of course I’m not saying that this is how the contracts were awarded, but the fact that such an outcome is consistent with Dreznel’s low correlation coefficient just proves how irrelevant his regression is.  

Perhaps I can drive the point home with a different example.  Suppose that Bush gave every unemployed member of his family between the ages of 20 and 50 a job in the federal government.  Let’s say that there are 200 such people.  

Now Noam Chomsky comes along and charges Bush with nepotism.  In response, a professor from the University of Chicago runs a regression, with income from the federal government as the dependent variable, with years of education as an independent variable, and finally with another variable set to 0 if the person is unrelated to Bush, and set to 1 if the person is in the Bush family.  

I submit that if he were to run such a regression, this professor would come up with a very small correlation coefficient on this last variable, because it would largely capture  the difference (if any) in average education among Bush family members versus the population of government employees.  (Indeed, if the average Bush had more education than the average federal worker, the correlation coefficient might even be negative!)  The Chicago professor would then announce that a person’s relation to Bush has very little explanatory power when it comes to a person’s job status with the federal government.  Furthermore, the professor could draw up a chart depicting the Top 10 Salary Earners in the Federal Government.  Presumably Bush’s second cousin (who can’t multiply numbers bigger than 9) would not be at the top of the list, and hence (the professor would conclude) Noam Chomsky’s clichéd charge of nepotism is unfounded.

In summary, the CPI’s report is troubling indeed.  The admittedly knee-jerk suspicion of the connection between money and politics seems to have some basis in fact, after all.  Daniel Drezner’s attempt to prove otherwise is just another example of bad statistical reasoning.