Corruption, Culture and Markets - Essay Example

Introduction One of the continuing problems encountered in globalization is corruption. The definition of corruption varies across nations and cultures since acts that are considered unacceptable in one country may be acceptable in another country. The United Nations Crime Prevention and Criminal Justice Division defines corruption as bribery or other behavior of persons entrusted with responsibilities either in public or private sector that violates the duties that accrue from their status as public official, employee, independent contractor or agent with the aim of obtaining undue advantage for themselves or others. Corruption refers to abuse of power or position by government officials in order to attain illegitimate personal gain. Corruption is a complex political, social and economic phenomenon that affects all nations since it undermines democratic institutions and slows down economic development since investors shy away from investing in countries that are deemed to be corrupt. Corruption occurs in the forms of bribery, nepotism, extortion, patronage, embezzlement and influence peddling. Corruption is closely linked to organized crimes such as drug trafficking, terrorism and money laundering. Corruption is perceived to be widespread in some nations than others due to the historical, cultural and differing levels of economic development. Countries with more developed economies and histories of British rule are perceived to be less corrupt due to traditions and values of democracy and good governance inherited from Britain rule. The definition and legislation on corruption differs across nations since there are different sanctions and penalties for engaging in corruption. Some countries define corruption as the bribery of public officials while others define corruption as the soliciting and acceptance of gifts. In other nations, corruption is broadly defined as the abuse of public office for personal gain while others define corruption as the possession of unexplained wealthy. In many nations, the civil and criminal law provide for provisions that determine corruption related offenses and enforcement measures such as penalties and jail terms for engaging in corrupt activities. In other countries such as emerging markets, there are anti-corruption agencies that are responsible for investigation of corruption-related offenses and making recommendations for prosecution of the offenders. Active and passive corrupt practices are criminal in countries like Singapore, China and Hong Kong and bribery of public officials in criminal offense. Countries like India and Malaysia have legislated against illicit enrichment and officials are expected not to accumulate large wealth that is disproportionate to their official remuneration. The United Nations Convention against Corruption (UNCAC) has provided a model legal framework for prevention of corruption through criminalization of wide range of offences, exchange of information across nations and mutual assistance in corruption investigations. According to World Bank, the nations with weak legislation and enforcement framework should consider banning receiving of gifts by public officials, implementing mandatory asset declaration by public officials and bank the hiring of close relatives in the same offices regardless of their qualifications. Corruption undermines the rule of law and enforcement of contracts thus distorting markets and creating unfair competition practices in the global marketplace. Corruption undermines democratic governance since it reduces accountability of the elected officials and further leads to inefficient provision of public services. In judiciary, corruption compromises the rule of law and business regulatory framework thus undermining the protection of consumer welfare. Corruption is a challenge to the current globalization of multinational enterprises since it increases the costs of doing business through the illicit bribes to the officials of the corrupt nations. The multinational managers are tempted to engage in corruption in order to overcome the lengthy business licensing processes and acquire government tenders and contracts. Corruption in public sector is evident in emerging economies since public officials divert the public investments in to major projects where they expect kickbacks from the contractors. Corruption is erodes the social fabric of the society by undermining the citizens’ trust in their political system and institutions. A distrustful society is another challenge to globalization since citizens will pay higher prices for goods. Corruption is closely linked to environmental degradation since corruption leads to lack of enforcement on pollution emission laws. Corrupt public officials preside over careless exploitation of natural resources since multinational companies pay bribes for unrestricted destruction of the environment in their oil and gas exploration or mining activities. According to righteous moralist views, a company should maintain its home-country ethics wherever it operates since the home-country views on ethics is superior to other views. For instance, multinational companies that expand from their developed home markets to emerging markets where local managers engage in bribing officials should instruct their subsidiary managers to refrain from acts of bribery of any officials (Wild & Wild, 2012, p 97). Just like the political and cultural systems vary from one nation to another, corruption also varies from one country to another. In some countries, bribes are routinely paid to retailers and distributors throughout the distribution channel. In such countries, corruption is perceived as the major determinant in obtaining lucrative business contracts or avoiding being shut down completely. The perceived level of corruption is determined by the corruption perception index (CPI) of the nation and some nations are more corrupt than others. Some conditions that favor corrupt business practices include lack of freedom of information and freedom of the media, weak accounting practices, tax heavens, weak legal systems, lack of independent civil society, lack of judicial independence and lack of measures to protect the whistleblowers. A corruption perception index (CPI) of 100 signals absence of corruption in that country while a CPI of 0 indicates a hopelessly corrupt nation. According to CPI statistics released by Transparency International, an NGO that advocates for end of corruption, the Nordic countries such as Finland, Sweden, Denmark and Norway are the least corrupt nations while the most corrupt countries include Somalia, Sudan, Libya, North Korea and Afghanistan. The US has a corruption perception index of 73 and is listed as among the top 20 least corrupt countries. The CPI rating indicate that Africa, Eastern Europe and Latin American countries are perceived to be more corrupt that nations located in North America and Western Europe. The developed countries are perceived to be less corrupt than developing countries. Countries with high GDP, high economic growth rate, higher disposable consumer incomes and high population development index such as high literacy levels experience least corruption due to high awareness of the negative effects of corruption that poor countries with low population development index. The developed countries have implemented a system of checks and balances that guides the award of government contracts and laws the guide procurement processes. Accordingly, developed countries protect the identity of whistleblowers and undertake measures to investigate corruption allegations. The obvious risk and cost of engaging in corruption is the possibility of being caught and prosecution and this depends on the effectiveness of the legal system. Some sectors of the economy are more prone to corruption than others since sectors that deal with valuable raw materials such as oil, minerals and metals offer greater illicit gain for the public officials who request for kickbacks in order to grant exploitation licenses. The sectors that involve contracts with government, regulatory compliance, foreign trade or tax collection are more prone to corruption. The sectors of the economy that are prone to corruption include public works an d construction, defense, oil and gas exploration, real estate, mining, telecommunications and heavy manufacturing. These sectors entail high-value investments and high profits and thus managers form close relationships with pubic officials in the developing countries in order to attain contracts. Companies from China and Russia that engage in heavy manufacturing or oil exploration are perceived to be more likely to engage in bribery. Light manufacturing, business services and agriculture are least prone to corruption since these sectors involve minimal capital investment and lenient regulatory framework. The US has enacted strict legislation to deal with corrupt business practices that threaten the stability of the economy. A clear example is Enron Corporation that admitted it had been overstating its earnings and this led to significant loss in the value of Enron stock as investors fled in droves and the company later went bankrupt. The European banks incurred losses estimated at $ 2 billion due to loans they had lent to Enron and its subsidiaries while employee retirement savings disappeared as the firm disintegrated (Wild & Wild, 2012, p 98). Corruption at Enron prompted the US Congress to enact Sarbanes-Oxley Act that provides guidelines on corporate governance and requires stringent accounting reporting standards in order to ensure transparency in financial reporting and deter corrupt business deals. The American Anti-corruption Act aims at preventing domestic corruption while the Foreign Corrupt Practices Act ensures that US multinational companies do not engage in corrupt business practices such as provision of kickbacks in securing contracts and business deals in other countries. The US laws provide comprehensive framework for dealing with corruption such as asset freezing of the corrupt public officials, mutual legal assistance and cooperation with emerging nations in order to investigate corrupt activities of US multinationals in developing countries and economic sanctions for corrupt multinationals. Conclusion Corruption refers to use of official position for personal gain and occurs in various forms such as bribery, kickbacks, undue influence and embezzlement. Corruption undermines democratic institutions and distorts markets in globalization since businesses have to pay kickbacks in order to secure operating licenses or contracts. References: Wild, J.J & Wild, K.L. (2012). International Business: The challenges of globalization. London: University of London. Lipset, S.M & Lenz, G.S. (1999). Corruption, culture and markets. New York: George Mason University. Johnson, R.A. (2004). The Struggle Against Corruption: a comparative study. London: Palgrave Macmillan. Roeber, J. (2001). The Hidden market: The effects of corruption in the international arms trade. London: New Press. Eicher, S. (2012). Corruption in international business: the challenge of cultural and legal diversity. New York: Gower Publishing. Rose-Ackerman, S. (1999). Corruption and government: causes, consequences, and reforms. Cambridge: Cambridge University Press. Read More