Tuesday, January 17, 2006

Here's a question I asked a couple of weeks ago, which has been nagging at me for a while.


I'm curious as to what the private sector solution to bribery is? You never hear that the Vice President of Marketing of MegaCorp was caught taking bribes. I wonder why.

Is it because there's no incentive in private corporations? Or are there correcting mechanisms that don't exist in government? Or is it that what's called "corruption", simply isn't considered "bad" in the private sector?

6 comments:

Bill Seitz said...

IBM was early in the zero-tolerance position on this.

There is "bribery" in the private sector. Plenty of people making big purchasing decisions (CRM systems, ad campaigns) have gone to a lot of sports events, fancy dinners, and even condo vacations on the tickets of salesmen.

And look at the way investment banks give out their IPO allocations...

phil jones said...

Agreed.

Maybe it's a perception thing. Would you be more comfortable having dinner with a guy in a private company who earned kick-backs from the salesman, than a guy in government who earned kick-backs from the salesman?

Ironic if the main "problem" of government corruption is simply that people are more tolerant of employees stealing from the shareholders of private companies.

Kaunda said...

This is a good question, and the nagging bit is infectious. Certainly it's more complicated than "bribery is wrong."

http://www.mises.org/story/1884

Pierre Lemieux asks: "How is a bribe different from a straight price in a free-market exchange?" and answers that it's not much different.

http://www.marginalrevolution.com/
marginalrevolution/2006/01/
why_the_war_on_.html

Is a brief summary of a work by Gary Becker, et.al regarding how elasticity effects illegal markets.

My wild speculation is that corporate bribes are more common for goods and services where demand is inelastic.

Extortion is also a cultural practice more common that we'd all like to admit in the business community. In order to be successful extortion must be restrained so that it doesn't go into runaway and upset the whole system. Extortion and bribery exist in the same ecosystem of business culture. Too some extent I suspect that the necessity to contain extortion from escalating restrains customary bribes.

phil jones said...

I think this is a good example of the willful self-deluding insanity to be found on mises.org

Pierre Lemieux :

Whether the state’s reasons for prohibiting its officials to accept bribes are legitimate or not, the economics of bribes suggests that they are not harmful to the general welfare: under a state that acts in the public interest, there is little that the subjects can gain with bribes, and thus no imperious reason to prohibit their offer;

My emphasis.

What an absurd statement! If the state acts in the public interest then anyone who wants to use the state against public interest has something to be gained by bribing it.

It's only by assuming that any market decision (ie. payment) by definition, is good for the general welfare that you can make this sort of statement.

Kaunda said...

LOL it's embarassing to show my ignorance and foolishness.

I don't think I really understood your quesiton. When I think of bribes, I think of payments to functionaries of governments. Clearly Lemieux's piece concerned bribes understood in that way.

But I was thinking you were suggesting different view of bribes; that is, bribes within the private sector not associated with payments to government functionaries.

I'm cynical enough to believe such customary payments are common. I referenced Lemieux's piece because it seemed to represent the kind of thinking that allows such payments to go on without any notice. "A market price looks like a bribe that the buyer gives the seller in order to persuade the latter to part with something (or do something) the former wants."

So for example, the incompetent supervisor is retained because she provides her immediate boss after school child care for "free." Maybe that's not a very good example, but business cultures are built on networks of "favors." That's one reason it's so difficult to change business cultures or to "blend" them in mergers. Such favors simply aren't imagined as bribes.

As far as bribes understood in the normal sense where businesses pay bribes to government functionaries, I think that practice is widespread.

Payments by governments to individuals as bribes are not unheard of, for example the Utah bribery of Olympic organizing committee members. And here in the USA "tax breaks" for businesses to locate or stay are veritable bribery auctions.

The current concern in the US about Abramhoff involves organized slush funds which often benefited particulars in the web, both in and out of government.

My premise is that businesses quite often look at bribes as ordinary business costs. They don't see a problem.

Extortion also plays a role and is certainly a part of the business culture too. Small creditors are the most vunerable to the old fashioned threats of violence against property and persons at least here in the USA. The reputation of violence dissuades people from going through legal chanels because it's so slow. What good is it to eventually "win" if in the meantime you're injured or killed?

SLAPP--Strategic Lawsuits Against Public Participation are an extention of the normal climate of extortion which businesses function. Again these are most effective against regular individuals or small entities.

Part of the reason that there's been a very organized effort to stack the courts in the USA against individuals in favor of statist intrests, I believe, has to do with the ability of very large corporate interest to go up on level of power and wealth as to whom they can extort in these "legal" ways.

Tyler Cowan has a blog I very much enjoy called Marginal Revolution. He talks about the public's irrational hatred of economists. I'm too lazy for much hating, but that makes me smile because economist quite often give me the willies. So often the basis for their ethical judgments seems out of kilter to me. Perhaps, I'm just irrational.

My ignorant sense of most economists is "public interest" is hardly factored into their analysis at all.

Mark said...

hey phil, come put together your page, if you feel like it. :-)

http://www.wikiindex.com/ThoughtStorms