Securing engineering contracts in developing countries — is corruption a necessary evil?

Group 20

The fate of many companies, CEOs and even western governments has been shaped by the eruption of corruption scandals linked to foreign investment. Only in 2011 the UK’s parliament passed The Bribery Act (1)which holds a “commercial organization” liable for “failure … to prevent bribery” and it is partly inspired by the American Foreign Corrupt Practices Act of 1977 (2), which was the first piece of legislation enacted to fight corruption in foreign investment projects. Despite the enactment of new legislation, foreign corruption remains rampant: might it be the only way to do business in some parts of the world?

For

There is strong evidence from economic statistics that two of the least developed regions in the world – namely Africa and, albeit decreasingly, Asia – correspond with the areas where corruption and opaque regulation are the most widespread (3). It is often the case that western companies face the choice of either “facilitating” the completion of a project through paying monetary compensation or not getting involved at all. In some cultures, corruption is seen more as a culturally embedded phenomenon rather than a dishonest appropriation of public funds (4).This serves as a strong argument against the current western anti-corruption legislation: companies should adhere only to local legal standards, hence increasing the opportunity of securing foreign contracts.

Following a utilitarian approach, it can be argued that taking any kind of measure that helps decrease barriers in international trade is ethically acceptable. It is well recognised among experts that increased levels of FDI (Foreign Direct Investment) have been largely positive for the world economy. Especially in less developed economies, that often have limited productivity and technological know-how, the influx of foreign capital has fuelled economic growth and human development. In fact, research has shown that foreign investment translates into higher growth, depending on a country’s ability to efficiently use foreign capital (5). Some papers even go as far to say that there is a positive correlation between corruption and FDI, denoting that corruption can, in some cases, increase interest for FDI (6).

Aside from the standing traditions and governmental structure, another ethical reason for companies to adhere to local legal standards is the progression of human rights and labour laws. As previously mentioned, adhering to local legal standards would break down trade barriers, increasing FDI as a result. With this in mind, studies find that there is a positive correlation between FDI and workers’ rights (7). This is shown to be particularly true in the manufacturing sector (8) with local workers’ rights held to the standards of foreign investors. This process is a cycle, with foreign investors outlining higher standards of work, to those standards being attractive to future FDI.

With the theme of positive change in the host country, from workers’ rights to long term benefits of FDI on the community (9), a Utilitarian approach can be argued for deciding upon the ethics of corruption. With the mentioned FDI benefits to the local workers, population, authorities and the hired company, it is possible to argue that allowing corruption and as a result the increased FDI, does in fact do the greatest good for the greatest number of people.


Sunday Times – Dr Jack Swanepoel 1997 (18)

Against

However, in the UK and most western nations, corruption and bribery regulations exist in order to protect the interests of customers and ensure fair competition. This legislation encompasses all layers of administration: an employee of an engineering firm will agree to a code of conduct with a clause against bribery; governing bodies such as the IMechE warrant that members “take steps to prevent corrupt practices” (10); and governments have outlawed bribery of foreign officials, with sizeable penalties for companies found to be non-complying. These regulations are necessary to uphold a fair tendering process in which all parties are treated as equals, benefiting business.

A further argument against “turning a blind eye” to corruption in developing countries is that it completely contravenes the trading standards that the western world has been trying to impose on the developing world for decades. It would be hypocritical for western organizations, proclaiming themselves as upholders of the free market, to suborn bribery out of self-interest.  This is ironic considering the defamation of “fantastically corrupt countries”, as PM David Cameron let slip during an anti-corruption summit in 2016 (11).  

Moreover, contracts obtained through corruption may not be given to the most capable firm, and thus may be offered at inflated prices or at a lower quality. In 2016 Brazilian firm Odebrecht were fined over $2.6bn for bribery of around 200 politicians and officials (12). It is claimed that the company “rigg[ed] bids and pa[id] bribes to secure contracts at inflated prices” (13) and Brazil’s state-owned oil company “lost about $14bn through over-pricing.” (13). Essentially it is difficult to ensure that contracts obtained through corruption are not exploitative, as self-interest of officials can often pervert the tendering process. 

Businesses embroiled in corruption scandals can additionally suffer from loss of reputation. Siemens faced huge fines when it was discovered in 2006 that slush funds and bribes were used to obtain contracts globally (14). In addition to $1.6bn in fines, Siemens suffered a near 8% drop in share price, and the brand was severely tarnished. Staff spoke of a “corporate culture tolerant of bribes” where they were “not only acceptable but implicitly encouraged” (15). Siemens worked hard to regain their lost status: they retrained/replaced staff and updated business practices, but regaining public trust was an uphill struggle lasting over two years.

Finally, it is widely accepted that corruption is always morally unjust, in accordance with Kantian ethics (16). Rather than contracts being awarded based on merit, for a party to cheat and benefit themselves to the detriment of others seems simply wrong. To equate corruption to petty theft would be diminishing: while a common thief has no authority over the property they steal, a corrupt official in a position of authority betrays the trust of their people for selfish motives. Thus for western companies to partake in such activities and fuel this corruption is unacceptable.

Initial Judgment

Having considered both arguments, the initial conclusion drawn is that corruption – even as the only method of securing contracts – is never excusable and should not be tolerated.

References

  1. https://en.wikipedia.org/wiki/Bribery_Act_2010
  2. https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act
  3. https://files.transparency.org/content/download/2383/14554/file/2018_CPI_Executive_Summary.pdf
  4. https://www.tandfonline.com/doi/pdf/10.1080/00076791.2017.1330332?needAccess=true
  5. https://www.hbs.edu/faculty/Publication%20Files/07-013.pdf
  6. https://www.sciencedirect.com/science/article/pii/S0176268005000194
  7. https://www.oecd.org/investment/investmentfordevelopment/1959815.pdf
  8. https://www.researchgate.net/publication/254242241_Labor_Rights_and_Foreign_Direct_Investment_Is_There_a_Race_to_the_Bottom
  9. https://www.ejist.ro/files/pdf/369.pdf
  10. https://www.imeche.org/Libraries/Membership/CodeofConductAugust2009.sflb.ashx
  11. https://www.bbc.co.uk/news/uk-politics-36260193
  12. https://www.bbc.co.uk/news/business-38397289
  13. https://www.bbc.co.uk/news/business-43825294
  14. https://www.nytimes.com/2008/12/16/business/worldbusiness/16siemens.html
  15. https://www.theguardian.com/sustainable-business/recovering-business-trust-siemens
  16. http://www.bbc.co.uk/ethics/introduction/duty_1.shtml
  17. Cover Image https://www.mirror.co.uk/news/uk-news/bungling-david-cameron-caught-out-7938482
  18. Cartoon by Dr Jack Swanepoel for the Sunday Times 1997

16 thoughts on “Securing engineering contracts in developing countries — is corruption a necessary evil?

  1. Corruption is a slippery slope- acceptance/paying of bribes is made palatable by the statistics listed in the “For” section, but ultimately this kind of back alley dealing tarnishes all parties, lowers standards for the consumer and discourages ethical business practices.

  2. I agree with the initial decision made. Most of the companies bidding for projects in the developing world are billion dollar companies whose greed is allowing them to anything in their power to secure projects. By choosing to operate in an environment in which opportunity are not always presented based on competence, they should accept that some projects will not be acquired and operate to the same standards as they would in the developed world.

  3. I agree with your conclusion. However, I don’t think that corruption will never end. Because in certain countries it’s embedded within their culture, which complicates the elimination of this problem.
    Also, the English judges in case of an investigation they can’t know the business culture of a foreign country, and this makes their job even more complex.

  4. It’s no wonder the culture of bribery remains so prevelant when the small companies, who could change the status quo, have no chance of securing contracts.

  5. What a fascinating topic – great choice.

    You need to make more use of the theories, especially care ethics. They were in the background but needed to be brought to the front.

    Arguments for corruption (please don’t quote this!): different cultures may find it acceptable, is it right for one culture to force its morality on another (Kant’s theory), alternatively who doesn’t want to make extra money (Kant’s theory again).

    Arguments against: it’s not virtuous, and it can lead to inflated prices/shoddy projects – utilitarianism. Kant’s theory can be used here as the majority finds bribery unacceptable.

    As I said, I think the theories are there, but in the background.

  6. This is a really interesting topic-I’ve never thought of the pros of bribery and corruption before! But, as the conclusion says, I don’t think corruption is ever justified and it would be better to increase pressure on countries to try and deal with their own corruption issues than adapt ourselves to them

  7. Thanks for the read! Thought provoking and allowed me to understand why bribery of this sort happens and why we should not turn a blind eye.

    I agree with the conclusions drawn, and you pointed out that what is important here morally is the progress of the developing country. This is not the same as the interests of the investing company, especially when bribing so that they secure revenue from the project long term.

    To defend bribery by saying it is required by these countries’ officials is exactly the argument those officials would use to secure bribes – it is nonsense and the attitude of the country needs to change. It needs to be stamped out on a nationwide level, but this requires the nation to look ahead and see that clean foreign investment results in a better project and better results for the nation as a whole.

    Attitudes of foreign investors also need to change to stop being complicit, although I imagine regulating the international market is tough.

    1. Maybe in an ideal world, @DrBRabit, but how can there be any way to achieve any foreign investment on the current world stage without some bribery? We can’t just refuse to invest in a country on moral grounds, that would be worse. I think we have to play the game for now and slowly the country will start to value its own integrity.

  8. The article raises a really interesting question. I have to agree with the judgement, and although embracing corruption offers some pragmatic benefits, the exploitation of those that corruption hits hardest should be held at the forefront of the decision making process.

  9. This is a very important question to ask . Personally, I believe that the loss of confidence from the public is too big of a risk, as it could potentially be a real challenge to get back. Also, it could lead to a loss of workforce, as some staff who abhor this type of thing would probably look for work elsewhere, especially if a scandal got out.

  10. Excellent topic which is so prevalent with the expansion of various engineering businesses to LEDC. Bribery means smaller businesses are still able to secure contracts, although the public perception and branding of this is would be too hard to regain confidence. It happens day in day out across the world and leading professionals turn their back to it… something that shouldn’t be so common, although we don’t know it.

  11. The case you make in the ‘For’ section is thought-provoking and challenging to my pre-conceptions; I’d never considered the possibility that corruption might actually incentivise FDI, for example. Nevertheless, I think the wider benefits of a strong international norm against corruption ultimately outweigh the benefits of permitting it.

  12. The concept of honesty varies from culture to culture – and as you show in your FOR argument – what one country considers to be corruption is what another considers to be normal working practice. If a certain amount of bribery is the only way to ultimately improve the skills and working conditions of a labour force – then this is more important.

  13. A very fascinating topic. While of course it is wrong, I agree with your argument that corruption is on some occasions a force necessary to secure a better overall outcome for everyone involved, especially in cultures where it is commonplace and accepted.

  14. Nice article, but perhaps it’s helpful to recognise the difference between gifts given after contract award to incentives given prior to award. In many cultures one is friendship and the other is corruption.

  15. Nice Read Thank You…I Do Wonder Whether The Fair Argument Is Valid…As Those Who Are Arguing It Is Unfair Would Be The Ones Losing Out On The Contract…But Then Again The Corrupt Companies Have No Legs To Stand On…Makes You Think

Leave a Reply