However, this does not mean that workplace fraud has disappeared. Instead, allegations about VW have illustrated what banks have taught us for years - that it is no longer shopfloor workers but managers and senior employees who are on the fiddle. And VW's share price - which is 36 per cent down since the allegations emerged - shows that it is shareholders who carry a lot of the cost of their misbehaviour.
Worse still, the fraud that is uncovered might be only the tip of the iceberg. Luigi Zingales at the University of Chicago has estimated that one in seven US companies might be defrauding shareholders.
The problem here is that the barriers against fraud are weak.
One of these is direct oversight.
It's often been said of 'Anglo-Saxon' companies that shareholders don't control companies adequately because of a failure of collective action arising from dispersed ownership: individual shareholders own only a tiny fraction of the company which represents only a small part of their portfolios and so nobody has the incentive to do the hard work of fully overseeing the company, because the benefits of that scrutiny will accrue mostly to other shareholders. However, this is not VW's problem: a big chunk of the firm is owned by the Porsche family.
Instead, what we have here is a lack not of incentives but of ability. Shareholders don't know enough about what's going on inside the company, and senior managers don't know enough about the behaviour of their underlings.
All this has been known and ignored for years. Way back in 1945 Friedrich Hayek argued that centrally planned economies would fail because the central planner could not possibly gather all the fragmentary and dispersed information necessary to make correct decisions. But large firms are in fact centrally planned economies: VW has almost 200,000 employees, many of them doing specialist complicated work which cannot be fully overseen. This is exacerbated by the tendency for underlings to tell their superiors what they want to know rather than what they need to: "we're passing the emissions tests" is an easier memo to write than "we need to rebuild all our engines." The upshot of this is that, as Kenneth Boulding said back in 1966, top decision-makers can end up "operating in purely imaginary worlds".
You might think the solution to this is to incentivise people properly. But incentives are often the problem, not the solution. The same incentives that cause VW's employees to produce good cars - and as the owner of one I can attest to their quality - also cause them to deceive regulators and consumers. As George Akerlof and Robert Shiller write in their important new book Phishing for Phools: "Competitive markets by their very nature spawn deception and trickery, as a result of the same profit motives that give us our prosperity."
For years, bosses and senior employees - especially in banks - have been paid 'efficiency wages': in effect, bribes to behave honestly. But these can backfire: if you are paid so much that you need never work again, why care about the threat of the sack?
Self-respect, you might think. One reason why people behave well is culture, which ex-Barclays boss Bob Diamond defined as "how people behave when no-one is watching". The philosopher Alasdair MacIntyre distinguished between those who pursue the good of effectiveness such as wealth and power and those who seek excellence in the sense of mastery of a skill. We've long known that many (but by no means all) bankers chase the former. But if German engineers are no longer dedicated to excellence, one wonders who is. MacIntyrean effectiveness, it seems has supplanted excellence, for reasons which lie outside the purview of this magazine.
All of this raises a question for shareholders and economists. We should ask: what behaviour is being selected for here? What exactly is being incentivised? Wishful thinking about the benign effects of incentives is inadequate. Instead, we must follow the Nobel laureate Oliver Williamson and go beyond microeconomics and company accounts to study precise individual transactions as they occur in specific institutional and technological contexts. I fear that, in most cases, shareholders lack sufficient knowledge of firms to do this - which is yet another argument for them to hold tracker funds.
Doing this would draw attention to another question: who exactly is it who has the power to extract wealth from a firm? As VW's woes show us, the answer is often: not shareholders.
