59. What is corruption and how does it affect international business?

Consensus now exists that corrupt behavior reduces economic growth and can destabilize governments. Corruption erodes respect for the law and deters honest people from entering public service. It results in over-invoicing and substandard work by contractors and reduces tax revenues. Corruption also undercuts environmental regulations and building code regulations, discourages foreign direct investment in developing countries, and facilitates other crimes, such as drug trafficking. Corruption—broadly defined as “the abuse of public or private office for personal gain”14—takes many different forms, from routine bribery or petty abuse to the amassing of spectacular personal wealth through embezzlement or other dishonest means.

60. What is bribery and how is it being addressed by international agencies?

Between 1994 and 2001 the US government received reports of 400 international cases worth US$200 billion signed between governments and businesses worldwide that purportedly involved bribery Between May 2001 and April 2002 alone, the US government learned of 60 contracts worth a total of US$35 billion that had been affected by bribery.17 Some 70 percent of the allegations that the US government received in 2000–2001 involved companies from countries that had signed the Organization for Economic Cooperation and Development’s (OECD’s) 1997 anti-bribery Convention. Corruption scandals in the 1990s (in France, Brazil, Japan, Pakistan, and elsewhere) demonstrated that corruption is widespread, even in democracies. In recent years, government leaders and nongovernmental organizations have developed a variety of strategies to expose corruption and counter its effects. Transparency International, a global organization with chapters, builds anticorruption coalitions with governments, business people, and representatives of civil society. The World Bank and the International Monetary Fund focus on introducing reforms in developing countries to address the demand side of bribery. In cases where a country has high levels of corruption and a government that is not instituting reforms, international financial institutions may reduce or eliminate aid. In 1996 the UN General Assembly approved a code of conduct for public officials and called on member states to make the bribing of public officials a crime. Corruption reform programs have been successful in exposing government bribery by conducting national surveys and by publishing “report cards” that detail specific instances of corruption. “Big Mac Indexes,” which reveal suspicious cost differences in a country for similar commodities, such as a school lunch or a bottle of aspirin, can be especially effective. As an example, Transparency International/Argentina conducted a Big Mac survey, which revealed that a school lunch in Buenos Aires cost the equivalent of $5. A comparable lunch in Mendoza, which had been implementing anticorruption measures, cost the equivalent of 80 cents. Within days of publication of the survey’s results, the cost of a school lunch in Buenos Aires was more than halved. World Bank research, meanwhile, shows that one third (35 percent) of foreign companies operating in the countries of the former Soviet Union pay kickbacks to obtain government contracts, of which US and European companies are among the worst offenders. Despite US anticorruption legislation,20 42 percent of US companies reported paying bribes in these countries, compared to 29 percent of French firms, 21 percent of German firms, and 14 percent of British ones.21 In those countries with particularly high levels of corruption, meanwhile, over 50 percent of multinationals admitted to paying public procurement kickbacks.