How Bribery and Other Types of Corruption Threaten the Global Marketplace (page 3 of 3)

The U.S., he adds, is believed to already be using intelligence agency reports from Latin America and the Middle East to track bribery. Further, competitors who wish to uphold high ethical standards have every motive to report another company for failing to do so.

Strategies for Saying No
Corporations, Nichols believes, must create a corporate culture that doggedly refuses bribe requests and establish clear corporate codes that employees unwaveringly adhere to. They must also assure managers that the company will back them when they refuse to pay. "A company would be foolish not to develop two general strategies, one for dealing with bribe demands and another for dealing with competitors who offer bribes," he says. "The potential, in terms of criminal liability, skewed relationships, lost contracts, disqualification from government contracts, loss of reputation and so on is simply too great to ignore.

"Perhaps the most useful action a business can take is to really understand corruption, and to create and articulate a general response to corruption before it encounters difficult situations," Nichols says. "It's also useful for businesses to work together to create assurances that each will adhere to some agreed level of behavior."

Other risks and costs abound for companies that succumb to the bribery game, Nichols says. Because bribery is illegal, it is conducted behind closed doors, with those involved expending time and resources to keep their secret. "For obvious reasons, we have not really been able to study the quality of corrupt relationships," he says. "But those who have endured them often describe them as unhealthy, unstable and unenforceable." He adds that firms' reputations suffer when word ultimately leaks, as happened with those who conducted business with the family of former Indonesian President Suharto. Prior to and just following Suharto's 1998 resignation, the former leader, his children and associates were widely accused of taking advantage of benefits such as monopolies and tariff breaks to amass enormous personal wealth.

Companies also face the very real possibility of being pushed to pay more and more bribes as their reputation as a bribe-payer spreads. "One European businessman told me that after his company made its first few payments, bribery became a part of the normal course of business because bureaucrats worldwide expected similar treatment," Nichols says. "This is far from uncommon."

Lastly, there are international trade implications surrounding bribery. Bribery degrades markets. Economist Paolo Mauro, in the article "Corruption and Growth," finds a direct link between high levels of corruption and low levels of foreign direct investment. Though Mauro's work does not explain this finding, Nichols offers three likely reasons. "First, corruption actually increases the amount of time a company must spend with a bureaucracy; second, corruption makes it more difficult to obtain information, which increases transaction costs, and third, corrupt relationships are less predictable and less enforceable. There's probably a fourth reason too, which is that most business people are good people and have a distaste for endemically corrupt environments," he says.

"Corruption also drastically affects economic development by causing a misallocation of resources. Yes, Africa is littered with bridges instead of hospitals. But more damaging is the fact that in endemically corrupt systems, regular people are not getting served by the government; they don't trust the government so they don't interact with the government," Nichols says. "But people have to get things done. So they create their own systems to do things, such as resolve disputes or enforce contacts or even police neighborhoods."

These systems, however, "are not free," Nichols adds. "They cost money. So money goes to supporting the government system and money goes to supporting the shadow system; twice as much money goes to bureaucracies as it should. That means money is not going to increasing food production, or to health, or to enlarging the economy. And that stinks."