The Free Market 15, no. 8 (August 1997)
The Clinton administration has targeted a new batch of global enemies. It wants to crush them with the usual mix of negotiation, treaty, and enforcement through spying, fines, and propaganda. It’s all in a day’s work for the “world’s indispensable nation”—the administration’s new name for itself.
Oddly, these enemies pose no military threat. They are not amassing weaponry, committing acts of terrorism, or threatening anyone in any way. They are not running drugs, trafficking in stolen goods, or violating anyone’s property rights. They are merely engaging in commercial relations in a manner the State Department dislikes.
They are American businesses operating in foreign countries that make payments to foreign officials to smooth the way. The Clinton administration calls this bribery, and says it must be stamped out. Somehow, however, the Clinton administration as anti-bribery squad doesn’t quite parse, especially considering the global escapades of its Commerce Department.
Nonetheless, the U.S. has declared a veritable global war on bribery. It says all OECD nations must pass laws to criminalize bribery of government officials, foreign or domestic. True to its conviction that whatever the U.S. bureaucracy does is right, the Clinton administration insists that the model legislation is the Foreign Corrupt Practices Act passed by Congress 20 years ago. Imagine that: Congress also legislates against bribery!
The law imposes huge record-keeping costs on all U.S. businesses engaged in cross-border trade. In a deep audit, every dollar that is not documented can be considered a bribe. It’s up to the business to show otherwise.
That’s not easy, since the definition of “bribe” is arcane. Small payments for continued business are fine, for example, but start-up bribes are out of bounds. Yet bribes are an inherent part of business life in many countries. Indeed, many American politicians might as well carry “Bribe Me” signs. So U.S. companies must choose between accepting a competitive disadvantage, sneaking around the law, or giving up.
It’s no surprise that the other negotiating nations—more wise to the ways of the world—dislike imposing such a law. Most countries have no statutes against bribing foreign officials. Indeed, the tax codes of eight European countries, as well as New Zealand and Australia, make foreign bribes a deductible business expense. After all, it’s not the fault of the businessman that a foreign government extracts bribes as a condition of producing or selling.
These countries should stand up to the U.S. government by taking the only correct free-market position: there should be no laws against bribing foreign officials. In many countries, bribes are the only means for outwitting leviathan, and thus serve as an institutional bulwark of prosperity.
Think of it in terms of market pricing. A software company wants to set up a shop in Moscow, and the fee is officially set at $100. But in order to open its doors, the company needs to pay $10,000 in bribes to obtain a panoply of licenses and permits, and another $5,000 for legal protection. It doesn’t matter to the company whether it pays the whole $15,100 directly or apportions it out between permits, bribes, and kickbacks.
Paying the full price for the permits to the government is seen as decent and honest, whereas private bribes are considered seedy. But why? If the government gets the money, it is paid out to government workers, who then pay taxes on their income. Bribery is far more efficient. It allows the full price for permits and protection to be split between direct and indirect payments to private parties, partially bypassing a useless and destructive middleman.
The truly moral thing for the businessman to do is pay all bribes necessary to get the job done. Only then will the Russian people get their software, the bribe-paying businesses their profits, and the bribers extra spending money. Everybody wins in this exchange.
What business is it of the U.S. government to intervene? Because the U.S. government hates competition. It pays bribes all the time to other governments and politicians, sometimes openly in the form of foreign aid and foreign lending, and sometimes covertly through the CIA. The difference is that these bribes come at taxpayer expense. Private bribes don’t cost the taxpayer a dime.
It’s also perfectly sensible that bribes should be tax deductible like any other business expense. Otherwise, businesses are being taxed in their own country based on how officials in foreign governments divide up the profits of doing business. Again, why should it matter for the purposes of assessing taxes whether expenses are paid directly to foreign governments or indirectly to private parties who work for governments? Both payments are part of the cost.
The U.S. may object that it is sheer corruption for an official of a foreign government, and especially an employee of a private foreign company, to extract bribes. But that depends on the nature of the briber’s employment contract. For example, if an employee takes illicit kickbacks, he violates his terms of employment. That’s the problem of the employer who hired the bad egg, not the person whose payments greased the wheels of commerce.
Whatever may be wrong with bribery should be handled, not by special statutes and not by global anti-bribery laws, but through the law of contract. If an employee takes a job on the condition that he not accept payola, he should not do so. Neither should he miss a day’s work to visit his girlfriend. But to hold the briber responsible is like holding the girlfriend accountable for her beau’s lack of self-discipline. The wrong party is being punished.
There are two possible interpretations of the U.S. government’s misguided war on bribery. One is that it reflects astounding levels of naiveté. There are only a handful of countries in the world where it is possible to do business without making payments to government officials. Where there are regulatory barriers to enterprise, there will always be bureaucrats willing to remove them at some price.
Fully a third of economic activity in Russia, according to some estimates, is underground and the rest is tainted to some degree. Outlawing bribery would be tantamount to outlawing economic exchange. The same is true, though to a lesser extent, in many well-developed countries like Italy and Spain. Indeed, the only effect of outlawing bribery the world over would be to put new shackles on businessmen trying against all odds to bring good products to the world.
The other interpretation of the U.S. government’s campaign is that it reflects an ambition to supervise and control all economic activity no matter where it occurs. The U.S. has the world’s most draconian laws on a whole variety of make-believe crimes (like “smurfing” cash payments) and demands that everyone else have the same as an act of obeisance.
Bribers of the world unite, stand up for your right to bribe, and demand an end to the war on bribery before it does grave damage to global commerce. Bribes will be abolished when artificial barriers to doing business are abolished. Until that time, surely there are more menacing problems, like the substantial abuse of power within the ranks of the U.S. executive branch itself.
Llewellyn H. Rockwell is president and founder of the Ludwig von Mises Institute
