By David Callahan

The views expressed are his own.

The demise of the News of the World after a phone hacking scandal will not change a troubling truth about tabloid journalism – or business in general these days: Bad ethics can yield big financial rewards and such are the upsides of cheating that even honest professionals may feel they must bend the rules to compete.

Tabloid editors will surely think twice now before drawing on illegally obtained information. But other unethical practices – used by a range of print, broadcast, and online media businesses – will continue, like paying sources for dubious information (“cash for trash”) or fabricating juicy stories outright to boost circulation or ratings.

This sleaze machine is fueled not by the deviance of editors and producers but by rational incentives. The media business is brutal, with intense competition, impatient shareholders, and often razor-thin profit margins. Everyone in this world is under extreme pressure to perform and cutting ethical corners is one way to get an edge. The News of the World became Britain’s highest-circulation newspaper in large part by being less scrupulous than the competition. Cheating paid – at least until this week.

These dynamics are not unique to the media industry. All publicly-held companies are expected to show robust earnings every single quarter and while executive compensation has skyrocketed it has also become more tied to performance. With the sticks hitting harder and the carrots getting fatter, it should be no wonder that scandals have consumed so many industries – whether it’s corporations cooking their books or bankers lying about the toxicity of mortgage-backed securities or pharmaceutical executives authorizing the illegal “off-label” marketing of drugs.

When cheating pays, and few people are punished for breaking the rules, even those who want to be ethical may find that this isn’t so easy. If other tabloids are paying cash for trash in the hottest story of the moment, and you’re not, good luck with those circulation numbers – and getting that year-end bonus or even keeping your job. Many bank and mortgage executives during the real estate boom weren’t thrilled about embracing ethically dubious lending practices, but worried about losing market share to less scrupulous competitors if they didn’t.

A cheating culture feeds on itself as wrongdoing becomes normalized and sucks in more people. A truly appalling revelation – like a tabloid raising false hopes among the relatives of a murdered teen – can interrupt this cycle, but typically not for long. While Enron’s collapse in 2001 was a massive shock, the shenanigans around subprime mortgages started to spread before that company’s executives even got to trial. The closing of the News of the World is draconian, but even the summary execution of an entire paper is unlikely to lift tabloid journalism out of its gutter.

So what might disrupt the cheating culture in leading industries? Long term, we need to reform capitalism to temper the insidious mix of harsher bottom-line pressures and bigger financial rewards for winners – a sure formula for bad behavior. In the meantime, though, tough law enforcement action can deter cheating. Steroid use in Major League Baseball, for instance, has declined amid the prosecution of high-profile dopers like Barry Bonds and Roger Clemens.

Bolstering regulations and professional ethics can also make a difference. Big Pharma may have gotten a slap on the wrist for its illegal marketing practices, but there has been an impressive push in the medical profession to toughen the rules governing doctors’ ties with drugmakers. At the same time, a number of states have passed laws making it illegal for doctors to accept industry gifts.

Tabloid journalists may seem beyond hope. But new laws can curtail some of their worst abuses, as we’ve seen with California’s anti-paparazzi law. Indeed, the authorities are at last questioning and even arresting editors whom they suspect had knowledge of the crimes in this News case and others. Also, the media world writ large can try to exert more peer-pressure through professional associations and other levers of influence. And big advertisers can use the power of the purse to send a moral message, as we’ve seen in the last days of the News’ life.

Cheating to beat the competition and bolster profits may be rational today in media and other industries. But, with changes in incentives, that need not always be the case.

PHOTO: A woman walks out of the News International HQ building, in east London July 6, 2011. REUTERS/Olivia Harris