What if everyone breaks the rules: then is anyone really cheating?

My favorite comment after Bernie Madoff’s Ponzi scheme was uncovered was made by an investor with Madoff. He said that he knew Madoff could not have been making the returns legally. Nevertheless, he invested because whatever illegal means Madoff was using were enabling him to generate very attractive returns. In other words, this investor did not care that Madoff might have been cheating, just as long as he could benefit.

Either as a society we tolerate cheating and thus change the rules so that fewer activities break any laws, or we draw a line in the sand and devote the resources necessary to enforce the rules/laws and establish sufficiently large penalties to discourage cheating.

Consider the following examples.

The Tour de France appears to have been a hotbed for cheating, with more and more revelations about the use of various types of performance enhancing drugs. So what? If all the top teams were encouraging and facilitating the use of drugs, did any of these teams and their riders have an “unfair” advantage as a result? Of course, the riders did put their health at risk. But they are adults who seemed to be willing to sacrifice their long-term health for money and prestige today. Why should we care about the trade-offs they have made?

If the Tour de France was ever serious about eliminating drugs from the race, stricter enforcement and much larger penalties (e.g. one failed test and the entire team could have been banned from all professional races permanently) should have been enacted.

Professional baseball has made a big deal about the use of steroids, and several players will never be elected to the Hall of Fame by self-righteous sportswriters. These “purists” do not want the records of the “great” players of the past tarnished by the cheaters. These purists ignore the fact that pre-World War II, purity in baseball meant only white players need apply. I wonder how well the “greats” of this era would have been if baseball had been integrated from day one?

While the people who run this sport today are trying to enforce bans on the use of steroids and other drugs, they largely look the other way when some of their stars abuse their spouses or girlfriends, or get drunk and risk the lives of others when driving under the influence.

In US college sports, especially football and basketball, individuals and teams are penalized if a recruit receives any form of compensation. Yet the schools and the NCAA are quite pleased to capitalize on the talents of young and largely underprivileged individuals. Critics of the current rules claim that the schools are prospering on the backs of the new generation of indentured workers.

The NBA even has a rule that disallows a high school graduate to be drafted. These young men have to wait at least one year, forgoing large sums of money and possibly risking their careers if they get injured during the “sabbatical” year.

Why shouldn’t the athletes be compensated? Perhaps, if they were, more would complete their education.

Finally, the US Department of Justice had a major victory against insider trading in the case of Raj Rajaratnam. Will this victory deter others?

Insider trading, however defined, has been rampant in financial markets for ages. Does anyone really believe that all of the “trading geniuses” at hedge funds and other financial institutions have been successful solely because of their intelligence?

More likely, any success any have had has been the result of luck and insider information. The players in the financial markets are just as hyper-competitive as professional athletes and will break every rule to gain an edge. There is just too much money and glory at stake.

So, either insider trading is legalized and all companies are compelled to release information, material or not, much more quickly than required at present; or the penalties are greatly increased and convictions are much easier to get. The latter option does not seem to be a possibility because politicians do not want to antagonize their backers in the financial industry.

Some times, the rules make little sense, and cheating should be openly tolerated. Other times, we might want to further limit cheating by more vigorously enforcing the existing rules and increasing the penalties.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.