Anti-Corruption War: Western Ways Doomed to Fail

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Co-authors: Anna Astvatsatryan, Michael R. Czinkota

In November of 2014, leaders of the Group of Twenty (G20) vowed to implement an anti-corruption action plan. Although the proposed strategies might improve the situation for G20 member states, using the same toolkit will not work in the developing world. One needs to take into account culture, traditions, and historical circumstances, when crafting anti-corruption strategies for the developing world.

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Trust: A tool to defeat corruption

By Michael R. Czinkota and Courtlyn Cook

Trust bridges are increasingly emphasized in business relations and partnerships. They not only help to fight corruption, but also establish a sense of community that binds people together. Corruption continues to be a hot issue in business and is more prevalent than most people acknowledge.

The baseline standard of corruption, defined by the non-profit Transparency International, is an “abuse of entrusted power for private gain”.  The group sees corruption as the pursuit of selfish, individual gains and the desire to get ahead. Of course, corruption is an individual, as well as a corporate choice. Transparency International’s latest study reports that 25% of people used a bribe in the past year, which means that corruption infiltrates a significant portion of business transactions, which is crucial to take into consideration.

Corruption interrupts corporate culture because it destroys previously established trust that has been earned on a long-term basis. Trust is a valuable corporate asset since it typically translates into fulfilled expectations, which allow for better forecasts, less uncertainty in the future, and more realism.

Trust bridges, developed by shared expectations and experiences, allow people to get to know each other quicker, and help establish fair business practices on global terms. Thus, trust is one of the best ways to combat corruption. Connections that bring people together and lead to greater trust can be built upon a shared alma mater, military service, same work experience, sports fans for the same team, and even practicing the same religion. People are more likely to bond over these personal preferences and organizations because they already share a similar interest; therefore they expect to share similar values.

If two companies operate in similar environments and share values, they are more likely to connect and establish warm and trusting relationships. This ultimately establishes credibility and allows business to select patterns based on trust rather than strictly on proximity or financial measures. Trust is developed through interaction, although there are other spillover effects that come into play. An example would be two organizations that are led by former sports champions might be more likely to trust each other, particularly when it comes to sports. This may also connote, but does not necessarily require trust in financial matters.

It is important to note that trust is an extension of confidence, so high expectations often accompany trust. One such trust enhancing activity is especially present in the German model for developing trust, which due to its reliance on standardized training and internships, focuses on keeping processes flowing due to confidence in and reliance on other’s work. In contrast, less training in the US often leads to a lack of trust and little confidence in work. Therefore trust bridges may not as visible in the American corporate world.

Political connections often have a greater impact on communities that experience very little corruption. This means that people are not relying on bribes or other forms of under the table compensation to make business and personal decisions. Also, this may partially explain research on municipalities, which found that established trust bridges led to government growth and increased profitability of firms.

Relationships that are rooted in trust discourage people from engaging in dishonest behavior. One can therefore argue that corruption inhibits the foundation of relationships. When discovered, corruption can ruin a reputation. Once trust bridges are destroyed, they are difficult to rebuild.

In today’s global economy that is ruled by rapid, if not constant, communication and connection through technology, global trust standards can converge where people hold each other to the same standards. This makes international business easier because it reduces the necessity of local standards, which often results in greater costs for companies since they have to meet different standards in every country of operation.

If a global standard were in place, every country would more likely partake in international business interactions, and therefore would have a better chance of establishing trust bridges. Additionally, companies and managers making crucial decisions based on current trust bridges need to exercise less oversight. All this translates into more effective and efficient use of resources. Thus, trust bridges not only reduce the likelihood of corruption, but also lead to more efficient and profitable business transactions.

Prof. Michael Czinkota (czinkotm@georgetown.edu teaches international business at Georgetown University in Washington D.C. Courtlyn Cook is an undergraduate student at Georgetown, working on a degree in international business. is maimCCC

 

ANTI-CORRUPTION WAR: WESTERN WAYS DOOMED TO FAIL IN DEVELOPING NATIONS

by Michael R. Czinkota and Anna Astvatsatryan*

In November of this year, leaders of the Group of Twenty (G20) vowed to implement an anti-corruption action plan. Although the proposed strategies might improve the situation for G20 member states, using the same toolkit will not work in the developing world. One needs to take into account culture, traditions and historical circumstances, when crafting anti-corruption strategies for the developing world.

It has been more than a quarter century that industrialized countries began their anti-corruption crusade. International organizations and developed economies offer a standard toolkit of programs to fight corruption such as: changing education systems; enforcing legislation against domestic and foreign bribery, increasing transparency of the government, and combating money laundry. Every year, Transparency International produces the Corruption Perception Index (CPI). The latest report indicates that a one-generation effort dedicated to the reduction of corruption and bribery has, unfortunately, not led to major changes. Countries where bribes and corruption were acceptable twenty-five years ago have not shifted their positions in the ranking today. In these countries people still perceive bribery as a routine transaction. The top ten corrupt countries remain the same. These findings were based on the Global Corruption Barometer – a Transparency International survey that includes 114,000 people in 107 countries.

It is important to understand that countries with high levels of corruption are more likely to be governed by corrupt officials. Many businesses are either owned by government officials or their family members, or have other personal connections to the government.

According to a study at University of Texas, corrupt connections can negatively affect export capacity of a country. Major government connected companies in transition economies, are less likely to export, as they get more preferential treatment and artificial competitive advantage at home. In addition, these companies are used to the business practices specific to their home market and like to know all the major players. These biased conditions make them less competitive in the international trade; which therefore reduces their volume of exports.

High-level government corruption will also affect the outcomes of the majority of international projects. When in the early 2000’s, the Turkish Parliament investigated allegations of corruption of two former prime ministers, it looked like the beginning of a serious anti-corruption campaign. However, soon a decision of the Parliament cleared them of charges. This news raised eyebrows in the global community.

Some countries are not ready to participate in wide ranging anti-corruption actions and prefer to act on their own. China’s latest anti-corruption campaign has been criticized for being more of a weak attempt rather than а structured anti-corruption effort. The arrests of key members of the Communist Party have so far not been followed by deeper investigation. In addition, China raised a last-minute objection to the G20 anti-corruption plan by refusing to support the principles of transparency that would help fight against shell companies engaged in tax evasion and money-laundry. In 2014, China ranked 100th according to Transparency International, a drop of 20 places from last year.

In systems, where corruption is firmly established, it is oftentimes dangerous to be the whistleblower. For example, in the Czech Republic, 95% of citizens believe that corruption is prevalent at all levels of the government. However, there are no whistleblower protection laws, so many people are actually afraid of being persecuted for exposing cases of high-level corruption.

Culture and history can also represent big obstacles for fighting corruption. In India and Hungary, it is widely accepted to bribe a doctor or an official in order to skip the line and get better service. According to a study at the KOF Swiss Economic Institute in Zurich, in heavily regulated and burdensome entry markets, entrepreneurs often use bribes to facilitate the start of operations. Bribes are considered a greasing mechanism that helps accelerate business processes rather than do harm. De Jong and Bogmans of the University of Amsterdam found that in some countries, bribes are triggering imports, as they allow companies to bypass the waiting times and paperwork at customs. A study by Fisman and Miguel has found that diplomats from corrupt countries are usually getting more parking tickets, but are less likely to pay them. This is another illustration of how deeply rooted a cultural and historical mindset can be, and how it can manifest itself internationally.

Post-industrialized countries are still struggling with corruption and bribery within. In 2013, multiple organ transplant centers across Germany were placed under criminal investigation over allegations of wait list manipulation. This revelations of bribery and dishonesty staggered public trust towards the health care system. Can developed countries expect to defeat corruption worldwide, when they still have very serious bribery cases domestically?

When crafting strategies to defeat corruption both in developing countries and domestically, leading economies should focus more on culture, traditions and historical circumstances of each country. Building trust relationships between the businesses and individuals will create internal capacities to fight corruption, and develop understanding of the negative effects of corruption within developing economies.

Anna Astvatsatryan is a graduate student working on a degree in Communications. Her professional work is in the fields of marketing and international business.