Acton Institute Powerblog

Corruption’s consequences

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Walmart agreed last month to a $282 million settlement with the Securities and Exchange Commission and the Department of Justice, resolving charges of bribing foreign officials. While company leadership committed themselves to “acting ethically everywhere we operate,” reports indicate that Walmart allowed third parties in China, Mexico, India, and Brazil to make payments to government officials.

Of course, while a $282 million settlement would ruin many corporations, it will barely dent the over $100 billion in profits that Walmart brought in last year. Further, the settlement appears modest compared to others the SEC and DOJ have orchestrated, such as the $1.78 billion payed out by Brazilian oil giant Petrobras.

Nevertheless, even these numbers underestimate the impact of corruption on the global economy. Last year, UN Secretary General Antonio Guterres estimated the costs of corruption as $2.6 trillion, or roughly 5% of global GDP. Individuals and businesses both engage in this greasing of the political bureaucratic machine.

Although Walmart’s infractions occurred overseas, the United States is not immune from corruption. A recent study by the University of Illinois at Chicago finds that Chicago alone saw over 1,700 federal corruption convictions from 1976 to 2016. Other natural urban culprits follow closely. Los Angeles saw over 1,500 federal corruption convictions in the same period, while Manhattan alone had over 1,300, Brooklyn over 800, and Philadelphia over 1,000.

While corruption is worsening in the United States, many countries around the world are far worse, with clear economic consequences. According to Transparency International’s Corruption Perceptions Index, Sub-Saharan Africa is the worst region globally, while other nations struggle much more than their neighbors, such as Venezuela, finishing 168th out of 180 nations assessed.

This existential problem of corruption is tied to political authoritarianism. As AEI scholar Clay Fuller has recently testified, nearly all of the increase in corruption after the Cold War has occurred in dictatorships, not democracies. With less transparency than democratic governments, authoritarians often resort to private exchanges and arrangements to build ties of loyalty. Fuller goes so far as to say that the “corrupt dynamic of authoritarian rule is universal.”

Freeing markets and increasing democratic participation can combat a history of corruption, and therefore has the potential to significantly reduce corruption, liberating resources and imaginative potential for value creation around the globe. However, formally democratic institutions do not suffice to prevent corrupt practices. While they may provide some restraint on extremely unscrupulous actions, the evidence of Latin America and Southeastern Europe show that a level of graft far beyond that of Western Europe can flourish alongside representative patterns. The Petrobras scandal mentioned above emerged in democratic Brazil after all.

Thus, while policy is important, corruption must be considered in relation to the human heart as well as the laws. In Mexico, thefts of oil from pipelines owned by Pemex, the state-owned oil company, have already mounted to over $2.6 billion in 2019. Immeasurably worse, though, are the 137 deaths this January from an explosion at an illegal siphoning gone awry in the state of Hidalgo. Roughly 80% of such heists result from tips by Pemex officials to bandit leaders in exchange for bribes. Over 95% of thefts are arranged by drug cartels in an increasingly dangerous atmosphere.

This points to the true root of the problem of corruption: sin. Those Pemex officials that selfishly choose their short-term gain over the welfare of their fellow citizens and humans are wronging them by setting up a cycle of violence and death in exchange for dollars.

Because of sin, reliance on economic liberty alone is not sufficient. Nurturing a moral culture at the level of the family and through broader social institutions must be a priority to counteract the everyday reality of sin. As our hearts are corrupt, it’s no wonder that business dealings will be also. Addressing the latter alone can do some good, but may simply unleash human creativity towards circumventing and undermining the laws and restrictions raised to corral it. Only a moral culture, integrated with the rule of law, can channel human action toward the creation of wealth and recognition of personal dignity called for in the vision of human flourishing animated by religious faith.

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Stanley Schwartz Stanley Schwartz is a research intern at the Acton Institute. A former Fulbright postgraduate scholar, he has Bachelor’s degrees in History and Economics.

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