Economists have shown that corruption reduces growth in developing nations. Stefan Zeume, a faculty member at the Ross School of Business at University of Michigan, wanted to study the supply side of bribes—specifically, the need of bribes for doing business.
The World Bank estimates that $1 trillion is paid in bribes every year. In an attempt to fight the economic consequences of corruption, some developed nations have implemented unilateral regulation punishing the use of bribes; other nations— such as, China and India—have not. Opponents of anti-bribery regulation argue that unilateral regulation puts affected firms at a competitive disadvantage on the grounds of bribes being indispensable for doing business in certain regions or industries.
Zeume used the impact of the passage of the UK Bribery Act 2010 that required firms to implement internal controls aimed at preventing the use of bribes to examine if indeed such anti-bribery mechanisms put UK firms at a disadvantage.
- Zeume found that UK firms operating in high-corruption regions of the world displayed a drop in firm value after the Act’s passage.
- He also found that relative to comparable continental European firms, UK firms expanded their network of subsidiaries less into high-corruption regions and their sales in such regions grew six percentage points more slowly.
- Finally, Zeume found that non-UK industry peers competing directly with UK firms in specific corrupt countries experienced positive benefits from the passage of the Act.
Zeume concludes that the results suggest that bribes are indispensable for doing business in certain regions. The consequences of unilateral anti-bribery regulation, such as the UK Bribery Act 2010, warrant attention from policy makers for the competitiveness of affected firms.
The UK is not alone in having such anti-bribery regulations. The United States has what is known as the Foreign Corrupt Practices Act (FCPA). The FCPA makes it illegal for companies and their supervisors to influence anyone with any personal payments or rewards. The FCPA applies to any person who has a certain degree of connection to the United States and engages in foreign corrupt practices. The Act also applies to any act by U.S. businesses, foreign corporations trading securities in the U.S., American nationals, citizens, and residents acting in furtherance of a foreign corrupt practice whether or not they are physically present in the U.S.
There have been several high profile FCPA cases in the United States. For example, Wal-Mart has been charged with paying bribes in Mexico and Hewlett Packard has been charged with paying bribes in Russia.
Zeume’s research seems to indicate that if the U.S. has tougher anti-bribery regulations than some other countries, such regulations put U.S. firms at a disadvantage when competing in such countries where bribes are relatively commonplace.
So the question is do you lighten up on such regulations until the consequences are similar across the globe, or do you continue to legislate in a way that you believe is the most ethical, but puts your country’s firms at a competitive disadvantage.
I don’t think the answer is a simple one, and I certainly don’t have a suggested solution.
But perhaps there is something to the old saying, si fueris Rōmae, Rōmānō vīvitō mōre; si fueris alibī, vīvitō sicut ibi, (“if you should be in Rome, live in the Roman manner; if you should be elsewhere, live as they do there”).
After all, that saying allegedly dates back to 387 A.D., and the FCPA didn’t come into existence until 1977…