Yale Law School, Program for Studies in Law, Economics and Public Policy, Working Paper No. 221
Corrupt payoffs frequently involve multinational corporations operating alone or in consortia with local partners. The persistence of corruption involving such important economic actors suggests that their managers and owners believe that it is economically beneficial, in spite of the costs to host countries and the costs to the reputation of global businesses. To understand why the avoidance of corruption is an ethical issue for business one needs to understand, first, why it often appears to be a value-maximizing strategy. The paper thus first presents the business firm's justification for paying bribes to get business--a justification that depends both on a notion of the proper role of the business firm and on a claim of little or no harm to the country involved. Second, the paper critiques this position by isolating the costs of high-level corruption in developing and transitional economies. The paper next considers the ethical obligations of multinational businesses and their managers when they operate in a corrupt environment. Finally, acknowledging the free rider problems facing multinationals, the paper summarizes the international efforts currently underway to limit corruption and suggests some additional responses. It stresses the interaction between external constraints on business, such as international treaties, and the internal structures and policies of firms.