We’ve talked before about the problems of corruption, and of nonprofit innovative solutions to the problem – specifically, an Indian group’s spreading of a Zero denomination Rupee to be handed to bribe-asking officials. Recently, corporations are trying to do their part, pledging to boycott bribery:
Dozens of international firms doing business in Russia have pledged not to offer bribes, in a move aimed at fighting corruption collectively. The accord, signed at an official ceremony in Moscow, was initiated by the companies, not the Kremlin, said the Russian-German Chamber of Commerce.
According to the article, about $300 billion is extracted every year in bribes. Of course, this doesn’t count all the inefficiencies introduced into the system by firms being chosen over competitors for reason of bribe rather than superiority.
Now, this does seem to be a nice little pact, and we can all snap some pictures and shake hands and go home. But as far as I can see through a number of news stories there’s nothing enforceable or transparent about this pact; it’s just some words. In fact, the head of Transparency International in Russia admitted:
any company working in Russia could find itself in a situation when it did not want to give bribes but was forced to do so if it wanted to carry on doing business. The agreement would not solve situations such as these, she said.
I believe the main problem of bribery and incentives is one of the commons. The tragedy of the commons is a well known economic problem. Essentially, when a rent producing commodity, such as a lake or the air, is unowned there is little incentive to preserve it because all actors know that their effect is small and their incentives to gain the short term big. This leads to overfishing, air pollution etc. Typically this can be solved by adding property rights; if someone owns the lake they’ll fish at a constant and conservative rate in order to maintain the long term population of fish. Giving property rights works: observe the massive success of the cap and trade system in stopping acid rain.
How does this relate to bribery? Consider corporations as partakers of the government; they are fisherman in the lake of government. As each of them interacts with government, many of them lose money as a result of bribery. But because of the small effect it has on each of them individually – though its effect may be large in the aggregate – it isn’t worth it for them to create enforceable, binding pacts against it. And in fact, some of them gain from the system, as HP seems to have when it essentially bribed itself into a contract. Because there isn’t any ownership of the long run management of the government, rent-seeking firms can manipulate it to their advantage and others have to simply pay to play. Their stake in the game isn’t valuable enough to risk bucking the system.
Alternatively, one could see this as a problem of the anti-commons. These are instances of the opposite problem: over-ownership. As Michael Heller discusses in his new book, when a property is too subdivided it can cause massive gridlock in a system. For example, if a new type of rice is created mixing a couple genes, it may be impossible to bring to market because each of those genes may be separately patented. Apparently, in the creation of online banking over 10,000 patents were involved. Ownership can spur innovation, but over-ownership cuts it down.
This would relate to bribery so: if there were a very small number of firms who were tied tightly into the bribery scheme, it might make sense for all them to collude and boycott bribery. However, as the number of firms explodes it makes sense for those firms with current contracts gained through bribes to avoid binding pacts against bribery because on an individual level it helps those firms using it to maintain their positions. However, in the aggregate this rent-seeking simply harms the economy.
Of course, there is a pact. But due to its lack of transparency or enforceability, it’s hard to see how its rules won’t be bent.
Still: both these explanations, I think, cannot be right. There can’t be too much and too little ownership. So which is it?
Related articles by Zemanta
- H-P Executives Face Bribery Probes (online.wsj.com)
- HP Russia Offices Searched Over Bribery Suspicions (huffingtonpost.com)
- Firms pledge no bribes in Russia (news.bbc.co.uk)