When Corruption Becomes “Business as Usual”

Here’s a nice article that requires little commentary. From the NY Times: At Siemens, Bribery Was Just a Line Item. The story starts of with this dramatic account of one Siemens’s executive’s downfall:

REINHARD SIEKACZEK was half asleep in bed when his doorbell rang here early one morning two years ago.

Still in his pajamas, he peeked out his bedroom window, hurried downstairs and flung open the front door. Standing before him in the cool, crisp dark were six German police officers and a prosecutor. They held a warrant for his arrest.

That arrest was an important step towards last week’s announcement that Siemens would pay $1.6 billion in fines for bribery.
The story has some interesting bits about how bribery had become a central part of Siemens’s busienss model:

What is striking about Mr. Siekaczek’s and prosecutors’ accounts of those dealings, which flowed through a web of secret bank accounts and shadowy consultants, is how entrenched corruption had become at a sprawling, sophisticated corporation that externally embraced the nostrums of a transparent global marketplace built on legitimate transactions.

There’s also some good stuff about rationalization:

The payments, he says, were vital to maintaining the competitiveness of Siemens overseas, particularly in his subsidiary, which sold telecommunications equipment. “It was about keeping the business unit alive and not jeopardizing thousands of jobs overnight,” he said in an interview.

The whole article is worth reading. I’ll just close by noting two key arguments against bribery, one ethical and one prudential. The first is what we might call the “violation of duty” argument. When you pay a bribe, you’re attempting to induce someone to make a decision that is favourable to you, rather than a decision that is favourable to their employer. Perhaps that moral argument is obvious to everyone. The less-obvious point, perhaps, is that bribery also represents an unwanted expense for companies…an expense that all companies would like to be able to avoid, if they could. Paying bribes only works if you out-bribe the competition. If you & your competitors are all bribing with equal zeal, no one wins (and you’ve all suffered unnecessary, indeed, useless, costs). But of course, if everyone else is paying bribes, then the company that declines to is going to suffer losses. It’s a classic ‘collective action’ problem. One standard solution to such problems is the levying of penalties by a central authority, which is just what we see in the $1.6 billion fine mentioned above. But it’s important, in trying to understand the dynamics of such situations, to see that such enforcement is, in a sense, encouraging companies to behave in a way that they would prefer to anyway.

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