Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) was put in place in the United States to prohibit bribes from American firms to foreign officials.  This begs the question, is this policy good or bad for American businesses?  The argument against the policy has a good point.  Those against argue that bribes are just a part of doing business and it puts American firms at a disadvantage against firms that are willing to bribe.  American firms have lost a lot of projects by not choosing to use bribes, but the alternative brings a much higher cost than just the bribe.  I've been learning a lot about ethics and integrity in my classes this semester and this topic on bribes just solidifies how important it is to be ethical.  If a company chooses to use bribes as a business strategy, it creates an environment where corrupt behavior is more likely to appear, which will create agency problems.  Does the end justify the means?
To get a perspective on the rampant bribes these days, "the World bank estimates that more than $ 1 trillion dollars are paid each year-roughly three percent of the world economy."  How terrible is that number?
Bribes are a way for less competitive companies to gain projects and other incentives.  Going with this thought, the FCPA has been good for American firms because it has forced them to become more efficient, more competitive and find new ways of doing things.  All of which has a major impact on the global economy.
I believe the FCPA to be a good policy.  Is it perfect? Probably not, but at least it is something.  It is a step in the right direction to make that business practices and strategies are fair.

Foreign Corrupt Practices Act

1 comment:

Dr. Tufte said...

Brett Bodily: 94/100 (the very last sentence is missing some words).

Ooooh, Brett, I don't know about this one.

I'm not advocating bribery at all.

But, having said that, there's evidence in economics going back to the 1950's that bribes can be efficiency improving. Now part of that may be that a bribe is just one form of corruption being used to alleviate some other cost that probably comes from corruption too. Yet sometimes not.

What I wonder about is when our inclination to impugn bribery conflicts with the Coase Theorem.* Coase argued that no matter how inefficient the initial pattern of ownership is, there always exists a pattern of side payments that can make it efficient.

In our world, stuff get allocated one of four ways: by lottery, by first come first served, by command and control, and by market mechanisms. In many cases, the underlying reasons for the use of one or the other were not made on economic grounds. The Coase Theorem is saying that the fourth one can alleviate inefficiency problems in the first three. It is not saying that the converse is true (that using one of the first three methods can alleviate efficiency problems in the fourth — so, for example, you can't improve the efficiency of a market outcome by bringing a gun with you). What I wonder is how much of what we call bribery amounts to the observation that one of the first three methods is used, followed by the presumption that anything attempting to improve on that choice must be wrong.

* One thing I don't like about Baye and Prince is that they don't put enough emphasis on Coase.