Wednesday, August 8, 2012

International Bribery: Economically Uncool

I came across this recommended read in the New Yorker about international bribery and the arguable role it plays in economic development within nations:

Without bribes, the argument goes, it takes much longer to do anything, and you end up with less economic activity—fewer Walmarts, less trade. Seen this way, bribes grease not just palms but the very wheels of commerce...
[However,] for the firms paying the bribes, corruption is costly—not just monetarily but also in terms of time and uncertainty, since bribery requires bargaining and monitoring. Kaufmann and Wei show that businesses that paid more bribes spent more time dealing with government officials, not less, and that their cost of capital was higher, not lower. Far from greasing the wheels of commerce, bribery tends to throw sand in them."
So bribery is bad.  Who knew?  How do we combat it for sustainable economic development internationally?  Get as many countries as possible to take a stance together against corruption-facilitating practices:

Bans on bribery work best when they’re widespread; otherwise, companies start to feel competitive pressure to bribe. The problem today is that some of the biggest players in the global market, like India, don’t have laws against foreign bribery, while others, like China and Russia, have laws but little or no enforcement. A recent study by Transparency International found that Chinese and Russian companies—which, in 2010, invested a whopping hundred and twenty billion dollars abroad—were the most likely to pay bribes. It’s no wonder that there have been recent calls to roll back, or even repeal, the F.C.P.A [Foreign Corruption Practices Act]. But weakening it would only lead to an arms race of graft. The smarter strategy is to use what leverage we have—including things like membership in the O.E.C.D.—to get countries to adopt a standard [against corruption].   
We should persuade others to join us there.

But an interesting question arises.  If individuals and firms bribe to engage in business instead of going through official channels, wouldn't that mean that bribes (as perceived by the firm) must be less costly?  Or else, why would the firm dabble in bribery if it doesn't receive a higher return from engaging in business through official channels?

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