By Kim Piper Corruption exists in almost all of us — extreme cases place entire nations in danger.

By Tom Gara

"Corruption? Corruption is government intrusion into market efficiencies in the form of regulation! That’s Milton Friedman — and he got a goddamn Nobel Prize! We have laws against it precisely so we can get away with it! Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the street. Corruption is why we win!”

This monologue — delivered by a smug, poorly drawn caricature of the corrupt Washington bureaucrat — seemed out of place in its original delivery in Stephan Gaghan’s 2006 film Syriana. But, as anyone who has done time in emerging markets knows, corruption indeed keeps many, many people “safe and warm.”

Judging by the 2007 Global Corruption Perceptions Index, released each year by corruption watchdog Transparency International (TI), people here just keep on getting safer and warmer. In 2006, Egypt ranked 70th on the index, and dropped a depressing 35 places in 2007, moving down the list to number 105, alongside failing states such as Burkina Faso and Albania.

TI defines corruption as “the misuse of entrusted power for personal gain.” When senior civil servants or property inspectors earn less than LE 1000 per month (usually much, much less) — yet still manage to own a villa on the North Coast and drive a shiny new Mercedes — you can be fairly sure that it isn’t a vigorous saving program or heavy credit card debt that paid for their prized possessions. Equally, when police officers, school officials and teachers — all officially paid LE 300-500 —manage to lead comfortable middle-class lives, it is obvious that there is something else supplementing such low incomes.

Bribe-taking is often justified as a necessity for survival of underpaid state employees, who will understandably do whatever is needed to make ends meet for themselves and their families. The idea of state or business figures taking multi-million pound bribes to do something that is against the interests of the people is almost universally condemned. Once it moves down the value chain, however, the dual human instincts of compassion (“they’re underpaid, it’s understandable”) and relativism (“it’s only LE 20, its nothing really”) both kick in.

The problem is, once the pyramid-like base of millions of lowly paid government workers accept small bribes with open arms, a culture of corruption is supported, making it all the easier for those at the top to take bribes in a big way. While the chicken-and-egg query of where the root cause of corruption lies may be too big to tackle, the symbiotic relationship between low-level, baksheesh-style corruption and top-level official corruption is undeniable.

Cultural differences regarding the appropriateness of gift giving, relationship building and ‘facilitation payments’ make corruption a difficult issue to make sweeping judgments about. One man’s bribe may be another man’s gesture of friendship. This relativity is often used by kleptocratic governments and crooked businessmen as a basis to deny the validity of anti-corruption efforts, which are led primarily by groups based in the West. At the lower end of the corruption scale, it is indeed difficult to draw the line.

When it comes to high-level corruption, the line is more easily drawn. As Transparency International says, “cultural relativism ends when the Swiss bank account enters the scene.”

So let’s forget, for the time being, that low-level corruption hurts the poor far more than it hurts the rich (paying LE 10 to renew a driving license is nothing for many people, but represents over 10% of monthly discretionary income for others). And forget also that the small bribes necessary to open doors in government offices in an emerging economy mean that these doors remain closed to the very people most in need of public services. To stay in the safe waters of moral certainty, let’s focus exclusively on high-level official corruption — that of the Swiss bank account variety.

Official corruption weakens the two sectors that are most crucial to social and economic advancement: government and the private sector. It weakens government by making officials at all levels more focused on pleasing their benefactors than on doing a good job. It weakens the private sector by distorting the competitive arena, helping uncompetitive companies succeed through bribes rather than good business.

“Instead of looking for ways to improve their operations, corrupt companies look for someone to bribe,” says Kamal El-Mesbahi, a long-running anti-corruption activist, university professor and board member of Transparency International in Morocco. It is no coincidence that the world’s least corrupt economies are also home to the world’s most competitive businesses, and vice versa.

The same, unfortunately, cannot be said of bribe-paying. Transparency International’s 2006 Bribe Payers Index, a report on the countries whose national businesses were most and least inclined to pay bribes abroad, singled out Italy and France as two countries whose businessmen were particularly impartial to the odd brown paper envelope handed under the desk abroad, particularly in the developing countries of Africa.

“It is hypocritical that OECD-based companies continue to bribe across the globe, while their governments pay lip-service to enforcing the law. TI’s Bribe Payers Index indicates that they are not doing enough to clamp down on overseas bribery,” said David Nussbaum, Chief Executive of Transparency International. “The enforcement record on international anti-bribery laws makes for short and disheartening reading.”

Corruption is a dance for two, payer and receiver, and as long as Western businesses keep paying bribes in order to compete, you can be guaranteed that there will continue to be corrupt government officials throughout the world.

It is also conceivable that corruption can make doing business easier, at least in the short term. Since 2001, Egypt has crashed from number 54 to number 105 in the Corruption Perceptions Index, moving from middle-of-the-pack to miserable territory. At the same time, the World Bank has lauded the country as the world’s best reformer for ease of doing business, foreign direct investment has boomed and the CASE has become the best performing stock market in the world. What is going on?

El-Mesbahi believes that in the short term, corruption can help a company become more profitable, especially in countries where corruption extends all the way to the top. By avoiding the costs of complying with government rules and regulations, securing government contracts without the necessary investment or effort, or receiving inflated fees for their services, companies can create the illusion of success. In the long term however, a corrupt company will suffer just like a corrupt country. The illegal tactics that made it successful will just as surely lead to its demise, as it loses the capacity to compete in open, transparent markets.

Corruption is much like protectionism, in that it can build strong, successful companies in the short term, and flimsy house-of-cards-style companies vulnerable to genuine competition in the long term. The worst kind of protectionist policies, much like corruption, create uncompetitive businesses that operate more like an arm of the government and less like a business. It reduces the need to innovate, removes accountability to the end customer, and reduces the incentive to create products and services that are on par with the international competition.

Unlike protectionism, high-level corruption is never done with the best interests of the nation at heart. The government official who pockets a few million dollars that were meant to be spent on a school, road or hospital, is a thief and a criminal, full stop. The intentions of those who promote and implement protectionist economic policies are rarely as downright bad, although the results of their actions may be equally destructive to economic life.

An unfortunate reality of the world is that often, the best places to do business are repressive and corrupt authoritarian states. Most of the world’s current superstar emerging markets — think China, Russia, Thailand, the MENA region — are known internationally for their powerful central governments, “flexible” attitudes toward the enforcement of labor and environmental laws and billionaire politicians.

That global investors are happy to do business, and often pay the bribes necessary to do so, isn’t surprising, given the history of international business. From slavery to colonialism, apartheid, communism and corrupt kleptocracies, there has rarely been a time when international businesses were not willing to hold their noses, look the other way and work within an odious environment in order to make a dollar.

Google is comfortable cooperating with Chinese state censors in order to do business in the world’s most lucrative market. Chinese firms are all too happy to take a ‘no questions asked’ attitude toward the failing African states in which they operate, particularly in oil-rich Sudan, where their government provides political cover for the ongoing atrocities in Darfur. British defense firm BAE Systems is currently facing corruption probes by the UK’s Serious Fraud Office for questionable payments made in countries across the world. The list goes on.

It is all too easy to look at flagrant cases of bribery with disdain, putting yourself above the corruption of big businesses and crooked politicians. But isn’t bribery something that exists in varying degrees across the world, even in the most respectable of businesses? When a consulting firm continually flies managers of client companies to exotic locales to deliver presentations and hold “strategic meetings,” (all, of course, billed right back to the client), is it not making it more likely that those managers will want to work with the firm again in the future?

Closer to home, when press events are held in plush five-star beach hotels with sumptuous buffets and travel/accommodation expenses included, is it not somehow aiming to give a personal, rather than professional, incentive for media to attend? When a businessman takes another out for a lavish meal to “talk business,” who is he really wooing — the company, or the individual?

Perhaps the most difficult thing about corruption is that like most of the world’s evils, it exists somewhere deep inside of all of us, in different levels of dormancy. Dangle a free meal in front of most people, and it’s likely that they’ll gobble it up with varying degrees of enthusiasm — it just depends how hungry they are.  bt