Corruption and Ethics in the Russian Economy

Back in February I blogged about Russian Business Ethics, and about the way that watching a developing economy helps us see the significance of ethics in the functioning of any economy. If you want to understand the role of honesty, trust, and transparency in a market, you just need to look at a society experiencing a severe deficit of those things.

Here’s more in a similar vein, by Sergei L. Loiko, for the LA Times: Taking on Russian corruption

Moscow lawyer and blogger Alexei Navalny has been singlehandedly taking on Russia’s state-controlled energy giants, accusing them of large-scale embezzlement and corruption….

(See also this piece on fighting corruption in India: Wake-up call on anti-graft laws, from The Hindu Business Line. I also blogged last year about Business Ethics in China.)

It’s perhaps worth pointing out that there really is no ethical debate over corruption: there is no pro-corruption case to be made. No one is in favour of corruption, generally — though of course the corrupt are in favour of those instances of corruption that help them. There just is no systemic upside to bribery, embezzlement, and unremediated conflict of interest. But this fact sometimes go unnoticed when people lump bribery, for example, in with various other dubious practices that North American companies might engage in overseas. I recently had a senior academic suggest to me, in the context of a discussion of labour standards, that third-world sweatshops are just another money-grubbing technique that corporations use whenever they can get away with it — just like, you know, bribery. But there is an important distinction to be made there: sweatshops may sometimes play the role of unfortunate-but-necessary engine of economic growth. Bribery is just a drag on an economy. As seen by competing businesses, it’s a zero-sum game: either my bribe works or yours does. From a social point of view, it results in misallocation of resources: contracts go not to the most efficient producer, but to the producer that excels at the bribery game. This is another example of why it’s so important, in our normative evaluation of business practices, to maintain a mental distinction between things that are unfortunate, and things that are wrong.

2 comments so far

  1. Randy Grein on

    I suspect there is a disconnect around the definition of ‘sweatshop’ in terms of your analysis. If conditions are merely bad for workers (low pay, long hours, etc) then your case holds water, at least as terms of business ethics go. If, however it includes functional slavery, refusal to abide by the terms of employment, unnecessarily exposing workers to dangerous conditions or other illegal/unethical behavior then of course our conclusions about the ethics of the system would be rather different.

    At the heart of the distinction is choice and coercion. Sweatshops thrive when a ready supply of workers with few options is available; IOW a monopoly on employment exists. However it comes about the employer extracts most of the value of the relationship because they have the economic leverage to do so. Resources are then misallocated, resulting in a drag on the economy. Misallocation of resources does not make it an ethical issue however – as you say, it can be an unfortunate consequence of conditions rather than unethical behavior. Legal restraints (such as a minimum wage) are attempts to balance the equation, bringing economic optimization and fairness into the market. They are unlikely to strike a perfect balance, but they are more likely to do so than unrestrained market forces will under such conditions.


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