Despite what Rob thinks, it’s odd for me to disagree with him, bribery will continue. Rob has written a very, very good piece on why bribery is good and bad. He concludes with:
In the long-term, bribes are complicated and add to the cost of doing business. Companies will take that into account when deciding where to locate, and the countries that require bribes will lose out to the countries that don’t. I think in the long-term, the market will fix this problem. In the way that English has become the language of business, U.S. business practices will become the worldwide standard.
The problem is that this argument is fundamentally flawed, mainly by a misunderstanding about how deeply ingrained bribes are in the system of many countries, specifically African nations.
It is entirely normal to bring along an extra 500$ when doing a 2-week trip to Africa merely to get through border controls. These aren’t the ‘free market’ type bribes that Rob is talking about, thse are grease bribes, but the point is the same. The smaller bribes are taken by the people at the lowest rungs for two reasons. The first is that they see people higher up doing it. The second is that they know the higher they get, the higher priced the bribes become.
Rob also fails to realise that there are two very distinct kinds of bribes. There are bribes which allow you to do exactly what the system does, only faster. For instance, going through routine checkpoints in Africa. If you pay the 10$ bribe you can drive right through, only showing your passport. If you don’t, you will often wait for an hour while the full procedure is followed.
The second kind of bribe, though, is more insiduous and, really, is the one that should be protested against. This is a preferential bribe. One that allows you to either get somewhere the system wouldn’t allow, or one that places you above competitors.
A free market is one which encourages preferential bribing, but it is also the most volatile kind. A company which sets up operations in a country through preferential bribing will always be vulnerable to a ‘correction’ in the market, mainly due to a new political influence in the region.
One who engages in grease bribes hasn’t, in essence, done anything wrong. They haven’t circumvented the system so much as they have increased efficiencies in the process.
To get back to Rob’s post, I don’t see grease bribes going away. Ever. Preferential bribes could go away, but that would require more than just regulation. I believe it’s one of those things that would take at least a generation to change. Otherwise those who were low-level officials taking grease bribes will become high level officials and be naturally inclined to preferential bribes.
It will also take a fundamental shift in foreign companies’ policies. As long as the two forces of a free market are still in play (supply and demand) it will continue to happen. However, once there is no supply (companies paying); the ability for the cultural shifts necessary to reduce the demand (officials expecting) may eventually come into play.
If they don’t, though, companies will quickly start paying the bribes again.
I’d place the likelihood of favorable conditions in which all US companies stop paying bribes, and enough foreign officials in a region stop expecting them as very, very low.
January 9th, 2004 at 11:08 pm
Your blog was most illuminating. I was unaware of the distinction between preferential and grease briberies. I think we can all agree that preferential bribery creates inefficiencies; and is harmful to the economy of any nation that permits them. In the long run of course these nations will be surpassed. Unfortunately the citizens of such a nation will pay the price; and the parties extracting the bribe will have plenty of time to enjoy the fruit of their malfeasance. The famous quote of Keynes comes to mind, “In the long run we are all dead.” It is perhaps true that the FCPA is a well intentioned effort to aid the citizens of such a nation. However, I agree with you that it well may be impossible to ban either form of bribery during our lifetime. The impracticability is demonstrated by the example as recited in Rob’s post at the businesspundit.com. Whether the Bribe was illegal as a preference; or a legal greasing of the wheels permitted by the law may be a matter open to interpretation. It appears, the french judge viewed Halliburton’s actions as a preferential bribe, although Rob calls it a grease payment. Although, I think it is impracticable to force our legal preferences on other nations; I also believe both forms of bribery are ETHICALLY WRONG. Preferential bribes are wrong, because they economically damage the citizens of those nations that permit them. Grease bribes, because permitting them imposes an inequitable system into the marketplaye; those wealthy enough to afford bribes or to afford higher bribes obtain privileges not available to the poor or middle class actor. The playing field is ruinously tilted to the disadvantage of poor sellers and buyers. It may even be a breeding ground for revolutionary or socialistic tendencies. In my book both are bad, but perhaps not a matter that can be efficaciously dealt with by a nation foreign to the place where the evil persist. Who was it that said we can be a policeman to the world. In any case I agree as practical matter we will have to wait for the invisible hand of the market to work. Slow though that medicine may be, it is perhaps the only one available.
January 12th, 2004 at 6:34 am
I agree with you. The cultural aspect of bribery is so ingrained that even a multitude of succeeding generations could only hope to change it. Go to Mexico, for example, and try to get anything done without paying mordida. They view it as an entitlement.
January 8th, 2004 at 12:13 pm
Halliburton, Bribes, and Foreign Business Ventures
This article about how the French might indict Cheney for Nigerian bribes has caused me to give some thought to the bribery problem in general….
December 7th, 2004 at 1:09 am
[...] of 2004
In no particular order, here are my Top 24 Posts of 2004: Bribery Will Continue Innovation is Useless What Companies Need: A Blogging Boo [...]