Principles before pounds, please

JP Morgan Chase and Co. harvested a bright new recruit in early January. Former British Prime Minister Tony Blair joined the venerable US bank as a senior advisor. He will provide "briefings on political trends" to the company's senior management and participate in senior-level client events. Blair says he "hopes to help the company grow".

Although Blair's appointment further burnishes JP Morgan's reputation for business acumen - it avoided the worst of the recent sub-prime banking drama - it also adds to the troubling trend of politicians working in private industry after leaving politics.

Blair is not the first to accept such a position. Following their terms in office, John Major and George H.W. Bush both walked into positions with the Carlyle private equity firm. In Australia, Bob Carr, the long-serving premier of New South Wales (Australia's richest state with capital Sydney), became senior advisor to Macquarie Bank, Australia's largest investment bank, barely two months after leaving office. A recent Wall Street Journal revealed Bill Clinton's profitable involvement with Yucaipa, his friend's investment company.

This practice is neither right nor inevitable. Politicians should not be allowed to work in private industry following their retirement from office. If public opprobrium proves an inadequate disincentive, then the law should step in.

After a lifetime of reflection on government, Nobel prize-winning economist and political philosopher Frederick Hayek wrote in his book Law, Legislation, and Liberty that politicians "should not be re-eligible ... to return to earning a living in the market [following office] but be assured of continued public employment in such honorific but neutral positions as lay judges, so that during their tenure as legislators they would not be concerned about their personal future".

Hayek's concern stems from two potential conflicts of interest. When former politicians take positions in private industry, they naturally bring with them a host of informal contacts within the legislature and - if their party is still in power - the government itself. Such contacts can lead to information flows that impair fair competition.

For example, how will Tony Blair's reports on "political trends" remain objective when he himself is still part of those trends, and when his long-time colleagues and friends occupy the upper echelons of the British state? Also, JP Morgan's knowledge advantage could start a corporate scramble for the well-connected, a highly undesirable outcome.

The second, potentially more serious, conflict arises for serving politicians. When lucrative post-political positions are in the offing (Blair is reportedly being paid over £500,000 a year for his services), politicians might modify their behaviour with an eye to future employment prospects.

In December 2007 the British government appointed Goldman Sachs, the giant American investment bank, to find a buyer for the ailing British bank Northern Rock. No doubt due process was followed, but when the criteria used to select among tenders potentially extends to include employment possibilities, perverse incentives arise. This is not to impugn anyone, but to admit that the probability of malfeasance is significantly strengthened when it becomes usual for politicians to seek positions in the private sector.

Arrayed against these arguments are three stale points. First, politicians are poorly paid compared to corporate directors, and their recent opportunism is at least understandable. Second, politicians are able people who should be able to make contributions beyond the confines of public office. Finally, it is unfair to hold politicians to such a high moral standard. To the contrary:

The career of politics grants a feeling of power. The knowledge of influencing men, of participating in power over them, and above all, the feeling of holding in one's hands a nerve fibre of historically important events can elevate the professional politician above everyday routine even when he is placed in formally modest positions.

The analogy of politics to private management is unwise, unhelpful, and unoriginal. What Max Weber said above, in his famous 1919 lecture, Politics as Vocation, is still true today. Yet this is often unappreciated.