Bribery and Corruption

by Dr. Meir Tamari

The “Buy British Last” policy, inaugurated several years ago by the Malaysian government, resulted from allegations in the British press of bribes being offered to officials, in order to secure major contracts. These officials, according to the press, included the Prime Minister himself. At the same time, the question arose in Britain of the propriety of using funds, ostensibly for economic aid to Malaysia, as a national bribe for the same purpose. British firms now stand to lose about 1 billion pounds in cancelled contracts, denial of participation in major projects and unaccepted goods. Naturally, in addition to financial losses, there will also be increased unemployment if the policy is indeed effective and prolonged.

Firms that operate in a foreign country are often challenged to operate according to ethical principles or moral standards, which differ from those maintained in their home country. As often as not, Western European and American corporations claim that bribery, unsafe production methods, and ecologically damaging manufacturing are accepted as part of the culture and therefore, as normal business in many foreign countries. Those corporations not operating according to these different standards will find themselves at a great disadvantage if they maintain their normal standards while their competitors do not. It is argued for example, that the enactment of the Corrupt Practices Act in the U.S.A. constitutes such a disadvantage, since many European and South Eastern Asian countries do not have similar legislation.

However, Malaysian indignation in reaction to the argument that, both the use of State aid and the private bribes, were essential because of the “different culture,” would seem to be perfectly justified. After all, it can be shown that the unethical practices and moral issues involved, are present in almost all economies and in firms of all sizes, irrespective of their ethnic or national origin.

Corporate purchasing agents are often given “kickbacks” in order to make their purchases from a specific supplier. Tour operators may receive special unpublicized commissions or payment in kind or services, in order to include certain airlines, hotels, restaurants, and stores in their itinerary. Civil servants in regulatory agencies, usually badly paid relative to the economic power they possess, may find it hard to refuse payment in exchange for waiving the regulations or to tailor specifications and contracts, to suit special groups or firms. All forms of undisclosed payments, information supplied to unauthorized parties, or even membership in privileged yet limited networks, constitute, in effect, bribery.

All of these cases are marked by damage to consumers, competitors or both. The direct cost of the bribe is passed on to the consumer, either in the form of higher prices or in inferior goods or services. Firms that cannot afford the illegal payment will not be able to compete. This results in not only reduced sales and profits for them, but also a loss to consumers who will often bear a cost, because of the reduced competition.

Of greater importance than the economic effects on consumers or competitors, would seem to be the moral effects on all involved parties. Judaism would view all those whose decisions effectively transfer wealth and property from one individual to another, as judges. Government officials, elected political representatives, corporate directors, and certain employees, who accept such payments, therefore distort their decisions exactly as the various levels of the judiciary, with exactly the same results. The Biblical verses, that bribery blinds the eyes of wise and distorts the words of the righteous, apply to them as well.

However, the source of the payments is no less guilty. It is the payment which leads the recipient to distort his judgment or to abuse his position. Without it and without the action of the paymaster, nothing immoral or unethical would happen. Our sages succinctly observed that it is not the mouse who steals but the hole.

Absolute Power Corrupts Absolutely

Government activity in the market place itself, often constitutes just such a hole and gives rise to immoral acts. France is the latest country in which a major figure, President Mitterand, is involved in a scandal involving payments from a major French businessman. In Italy, front-ranking industrialists, political leaders, and senior civil servants, have been so implicated in scandal, that not only have they been imprisoned or dismissed, but in the new anti-corruption election parties like the Christian Democrats have been voted out of office. The belated enactment of ethical codes by major Italian corporations is only their reaction to public demands for reform. Japan has also not been immune to the wave of reform. The election several years ago removed from power the Liberal Democratic Party after decades of rule, replacing them with anti-corruption zealots.

When one seeks a pattern common to these and other countries, similarly reeling from financial scandal, it is not a non-western accepted ethical framework which is found, but rather the involvement of government in the market place. In Italy, over 50 percent of economic activity was generated by public sector corporations. France is still trying to shed its socialist economic heritage. In Japan, there has always existed an integrated relationship between the financial and industrial leadership and the political one. In all of them, the ability of the government to regulate, the existence of government owned corporations with social aims rather than economic ones, and the influence of the state budget on economic activity, present the necessity and opportunity for financial scandal. Payments to senior civil servants, political contributions and the abuse of bureaucratic power become accepted business behavior rather than aberrations caused merely by personal greed.

It is true that there are numerous social or environmental needs, which the individual or corporate sector cannot satisfy, either because of the cost, the scope or the conflict between public good and personal gain. This means that a public sector needs to be part of a socially just economy and that regulatory legislation may often be necessary. Yet, at the same time, the potential for immorality must not be forgotten. Meritorious and ethical as they may be, taxation and public sector economic activity need to be policed and scrutinized more carefully than individual or corporate business activity – after all, power corrupts and absolute power corrupts absolutely.

Since Biblical times, socially orientated legislation, geared to funding the needs of society, has always been a feature of Judaism. At the same time, great care was taken to educate and to legislate protection against the abuse of power. The priest who collected the Temple funds, did so barefoot and dressed in a pocketless simple shift. The sons of Eli the High Priest and of Samuel the Prophet were not allowed to succeed their illustrious fathers because of their economic dishonesty. Even Moses, the lawgiver, father of all prophets, took care to account for all the wealth amassed for the construction of the Tabernacle, so as to be clear of any suspicion. While the King, i.e. the State, has the right of taxation and that of eminent domain, these can only be used for the welfare of society and not for his personal benefit. So there was prophetic sanction for a tax revolt against Rehoboam, son of Solomon, and halachic sanction for the refusal of Nabot to sell his vineyard to King Ahab; the latter echoes in the revolt of the puritan parliament against the Stuarts.
Dr. Tamari is the former chief economist of the Office of the Governor at the Bank of Israel, and the founder of the JCT Center for Business Ethics and Social Responsibility.