Is corruption a necessary ingredient in today global marketplace?

By Amos Kinuthia

Roughly 30 years after the American congress passed laws interdicting companies from paying bribes to secure foreign business, Goodyear subsidiaries in Kenya and Angola were found to be in violation of the US Foreign Corrupt Practices Act, which illegalizes bribery. The US Securities and Exchange Commission (SEC) fined the company in excess of $16 million for dubious businesses that violated accounting provisions as prescribed in the aforementioned act. Bribes amounting to $3.2 million were paid to well-placed officials in government-owned and private companies and passed through the company accounting records as genuine company expenses.

The official and overly absurd excuse given by Goodyear executives was lax internal controls.

The unofficial reason would be that, it is completely incomprehensible to operate in the Kenyan business sector without greasing some few palms. This is to a great extent accepted as norm in a market wrecked by the proliferation of cheap and counterfeit Chinese products which are threatening to edge many out of businesses. Further, strong corporate pressure to perform, relaxed compliance controls and public rationalization of debased corporate culture have served to make bribery and other forms of illegal incentives acceptable ‘modus operandi’.

Corruption in how contracts are awarded is mostly rampant in government-owned entities where company managers have to deploy bribes to cozy up to corrupt officials, usually upfront to ensure positive results in a rather opaque and unclear process that is ‘government contracting’. The clear message is that you are not going to win unless you are willing to part with something, monetary or otherwise.

Some call it the cost of doing business in a rather complex global marketplace that does not operate with uniform rules.

It is such situations that make bribery seem vital and to a lesser extent justifies the institutionalization of corruption by the current society as a necessary ingredient in running the economy.

When German conglomerate Siemens AG was rocked by a corruption scandal, Reinhard Siekaczek, a mid level manager justified his part in the scandal by saying, “it was about keeping the business unit alive and not jeopardizing thousands of jobs overnight.” The Siemens scandal was a result of complete disregard of revised briberly laws. Before 2000, bribing to get foreign business was a deductible expense in the German tax codes.

If estimates by the UN are anything to go by, roughly a trillion dollars in bribes is paid annually worldwide.

While there is overwhelming evidence that systemic corruption in its many forms (fraud, bribery and embezzlement) impedes economic development, several scholars and pundits have opined in the negative citing China, Indonesia, South Korea, Thailand, and Japan: Nations which have achieved impressive rapid economic growth despite widespread anemic corruption and the absence of key anti-corruption laws.

Andrew Wedeman, a professor of political science at Georgia State University called this ‘the East Asia paradox’. Faced with irreconcilable conflict on how continued and strong economic performance could coexist with unprecedented levels of corruption, Andrew concluded that corruption served to grease growth. In a pool consisting of all Southeast Asia nations, only Malaysia and Singapore managed above 50 score (where 100 is least corrupt and 0 highly corrupt) in Transparency International’s 2014 Corruption Perceptions Index.

In concept, a country plagued with great deal of corruption should experience stunted growth for several reasons. Apart from the common and simple reason that is misallocation and diversion of resources from public coffers into the hands of the corrupt elite and therefore hampering development, developing nation’s growth is mostly fueled by aid and concessional grants from developed nations which tend to steer away from nations associated with spiraling levels of corruption. Further, confidence in the political and financial system plummets and this discourages private businesses from committing to a long-term development strategy.

It may be unclear on how ASEAN nations have managed to juggle between corruption and positive economic growth but it’s clear that corruption has slowed overall development in emerging economies through inefficient allocation of public resources, low quality public goods and low foreign governments involvement.


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