Is Bribery Bad?

Or should we just live with it?

Bribery is so pervasive throughout the world today that at least one pundit thinks outlawing it only disadvantages those who play by the rules.

Wal-Mart and Morgan Stanley are the most recent cases in point. The former’s illegal payments to Mexican officials for zoning permits and the latter’s pay-offs to a real estate official in China show once again that bedrock American companies engage in foreign bribery. Along with their numerous predecessors, these exposés have now called into question whether national anti-corruption laws – such as the U.S. Foreign Corrupt Practices Act (see Winning Business Abroad) and the UK Bribery Act — will ever actually root out official bribery or just continue to hamper the business prospects of law-abiding multi-nationals.

In a Forbes article last week on the Wal-Mart scandal, Tim Worstall, a Fellow at the libertarian Adam Smith Institute in London, advocated repeal of national anti-bribery laws on the ground that they fail to recognize differences in international cultures and practices. “There are simply parts of the world where it is impossible [to conduct business activities] and not be in breach of the [FCPA or UK Bribery Act].” According to Worstall, laws that disregard that fact are doomed to fail.

Rebutting Worstall’s laissez-faire argument in an FCPA Blog post, Elizabeth Spahn, a professor at New England Law School, maintained that bribe-based decisions undermine rational market discipline by ignoring such factors as price, quality, safety and service. As a result, she claims, bribery undermines competition and paid-off projects are therefore less efficient and more hazardous than those conducted in a corruption-free environment.

The FCPA and UK Bribery Act are premised on the notion that bribery of foreign officials is inherently unethical. Not everyone in the world would agree with that. The perquisites of bureaucrats vary widely across different countries and under different governmental systems. Also, while we might view bribery as channeling business to inefficient companies and imposing unnecessary costs on society, others view payments to public officials (whether directly or through “fixers” such as the gestores whom Wal-Mart engaged in Mexico) in more pragmatic terms, such as how badly do you want the business (or the permit).

As of now, only 39 countries have signed the OECD Anti-Bribery Convention and adopted anti-corruption statutes similar to those of the U.S. and U.K. For whatever reason, everybody else apparently discounts the damage bribery arguably does to public confidence in the integrity of their markets and the ethical reputations of their commercial enterprises. Both of these economic harms were cited as rationales for passing the FCPA and UK Bribery Act.

The objective of anti-bribery legislation is to achieve a level and uncorrupted international playing field. Although we can never hope to eliminate bad actors entirely, we can at least strive to get every government in the world to endorse the OECD Convention and eliminate corruption arbitrage across national borders. Closing our eyes to official bribery, on the other hand, would almost certainly depress world-wide ethical standards below their current level, and, given what we now know happened at Wal-Mart and Morgan Stanley, that’s not anything to crow about.