Skip to main content

Prosecute Wal-Mart, but get rid of anti-bribery law

By Jeffrey Miron, Special to CNN
April 26, 2012 -- Updated 1546 GMT (2346 HKT)
Wal-Mart store signage is seen from within the store on April 23, 2012 in Mexico City, Mexico.
Wal-Mart store signage is seen from within the store on April 23, 2012 in Mexico City, Mexico.
STORY HIGHLIGHTS
  • Jeffrey Miron: Wal-Mart is facing allegations it covered up a bribery scandal
  • He says the company should be prosecuted if it violated the law
  • Miron says the law forbidding bribery overseas is a mistake, penalizes U.S. companies
  • He says law discourages U.S. companies from doing business in the poorest nations

Editor's note: Jeffrey Miron is senior lecturer and director of undergraduate studies at Harvard University and a senior fellow at the Cato Institute. Miron is the author of "Libertarianism, from A to Z". In 2001, Miron consulted for the International Mass Retail Association, which receives funding from Wal-Mart.

Cambridge, Massachusetts (CNN) -- Did Wal-Mart's Mexican subsidiary pay bribes, in 2005 and earlier, to the Mexican officials who grant permits for stores like Wal-Mart? And did Wal-Mart cover up these actions for several years, after an internal investigation discovered the bribes, before finally reporting the internal investigation to the Department of Justice and the SEC last December?

The answer, according to recent news accounts, is yes. This could mean that Wal-Mart violated the Foreign Corrupt Practices Act, adopted in 1977, which forbids U.S. companies from paying bribes to foreign officials.

If Wal-Mart violated the law, U.S. officials should prosecute. No one should be above the law, whether the law is sensible or not.

Jeffrey Miron
Jeffrey Miron

Yet the public and policymakers should also consider whether the Foreign Corrupt Practices Act is good policy. And despite good intentions -- particularly, the goal of reducing corruption -- it is not.

The act is difficult to enforce on a consistent basis, since companies that wish to pay bribes can circumvent the law in numerous ways, mainly with minimal risk of exposure. So, most violations go undetected. The act therefore hurts companies that break the law clumsily and get caught, thereby creating a competitive advantage for companies that break the law cleverly and get away with it.

Follow @CNNOpinion on Twitter and Facebook.com/cnnopinion

The most likely outcome is therefore that the Foreign Corrupt Practices Act has minimal impact on bribes but enriches the least honest companies. And if the act deters bribes by U.S. companies operating abroad, that is even worse.

The reason is that the threat of prosecution under the act discourages U.S. companies from doing business abroad in the first place. This holds especially with respect to poor countries where corruption -- pay to play -- is endemic. Thus foreign investment, along with the higher wages and increased competition this investment promotes, is less likely to occur in these countries, condemning their citizens to ongoing poverty.

The act is also harmful, especially when it reduces bribes, because much bribery is an attempt to get around laws that make little sense in the first place. Such laws include barriers to entry, union protections that make firing or plant closures all but impossible, and excessive environmental, health and safety regulation.

These policies have good intentions, but they are frequently so onerous that their main effect is to discourage economic growth, which is critical for alleviating poverty. These policies are a key cause of corruption; it is impossible to do business in some countries without paying bribes that limit the impact of costly regulations.

The Wal-Mart example is a perfect illustration of this dynamic. Mexico has a messy permitting process for allowing companies like Wal-Mart to open new stores. This permitting barrier is bad for Mexicans because it reduces the number of new Wal-Marts or slows their opening. Mexicans therefore pay higher prices for the wide array of inexpensive goods sold by Wal-Mart.

If these negatives were not enough, the act harms U.S. companies relative to those from other countries that do not face something like the Foreign Corrupt Practices Act. Other countries have adopted similar laws in recent years, but enforcement is often weak.

Corruption is a huge problem in many countries, especially the developing world. Much of the corruption, however, arises from excessive government that hurts economic productivity and creates the incentive to pay bribes. The best solution is to scale back these aspects of government. Since that is not always possible, however, it is better to allow companies from the United States and other rich countries to pay the bribes that diminish the negative impact of excessive government.

Follow us on Twitter: @CNNOpinion

Join us at Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Jeffrey Miron.

ADVERTISEMENT
Part of complete coverage on
December 18, 2014 -- Updated 2311 GMT (0711 HKT)
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
December 18, 2014 -- Updated 1951 GMT (0351 HKT)
Jeff Yang says the film industry's surrender will have lasting implications.
December 18, 2014 -- Updated 2113 GMT (0513 HKT)
Newt Gingrich: No one should underestimate the historic importance of the collapse of American defenses in the Sony Pictures attack.
December 10, 2014 -- Updated 1255 GMT (2055 HKT)
Dean Obeidallah asks how the genuine Stephen Colbert will do, compared to "Stephen Colbert"
December 18, 2014 -- Updated 1734 GMT (0134 HKT)
Some GOP politicians want drug tests for welfare recipients; Eric Liu says bailed-out execs should get equal treatment
December 18, 2014 -- Updated 1342 GMT (2142 HKT)
Louis Perez: Obama introduced a long-absent element of lucidity into U.S. policy on Cuba.
December 16, 2014 -- Updated 1740 GMT (0140 HKT)
The slaughter of more than 130 children by the Pakistani Taliban may prove as pivotal to Pakistan's security policy as the 9/11 attacks were for the U.S., says Peter Bergen.
December 17, 2014 -- Updated 1600 GMT (0000 HKT)
The Internet is an online extension of our own neighborhoods. It's time for us to take their protection just as seriously, says Arun Vishwanath.
December 16, 2014 -- Updated 2154 GMT (0554 HKT)
Gayle Lemmon says we must speak out for the right of children to education -- and peace
December 17, 2014 -- Updated 1023 GMT (1823 HKT)
Russia's economic woes just seem to be getting worse. How will President Vladimir Putin respond? Frida Ghitis gives her take.
December 17, 2014 -- Updated 0639 GMT (1439 HKT)
Australia has generally seen itself as detached from the threat of terrorism. The hostage incident this week may change that, writes Max Barry.
December 12, 2014 -- Updated 2020 GMT (0420 HKT)
Thomas Maier says the trove of letters the Kennedy family has tried to guard from public view gives insight into the Kennedy legacy and the history of era.
December 15, 2014 -- Updated 1456 GMT (2256 HKT)
Will Congress reform the CIA? It's probably best not to expect much from Washington. This is not the 1970s, and the chances for substantive reform are not good.
December 15, 2014 -- Updated 2101 GMT (0501 HKT)
From superstorms to droughts, not a week goes by without a major disruption somewhere in the U.S. But with the right planning, natural disasters don't have to be devastating.
December 15, 2014 -- Updated 1453 GMT (2253 HKT)
Would you rather be sexy or smart? Carol Costello says she hates this dumb question.
December 14, 2014 -- Updated 2253 GMT (0653 HKT)
A story about Pope Francis allegedly saying animals can go to heaven went viral late last week. The problem is that it wasn't true. Heidi Schlumpf looks at the discussion.
December 14, 2014 -- Updated 1550 GMT (2350 HKT)
Democratic leaders should wake up to the reality that the party's path to electoral power runs through the streets, where part of the party's base has been marching for months, says Errol Louis
December 13, 2014 -- Updated 2123 GMT (0523 HKT)
David Gergen: John Brennan deserves a national salute for his efforts to put the report about the CIA in perspective
December 12, 2014 -- Updated 1426 GMT (2226 HKT)
Anwar Sanders says that in some ways, cops and protesters are on the same side
December 11, 2014 -- Updated 1439 GMT (2239 HKT)
A view by Samir Naji, a Yemeni who was accused of serving in Osama bin Laden's security detail and imprisoned for nearly 13 years without charge in Guantanamo Bay
December 14, 2014 -- Updated 1738 GMT (0138 HKT)
S.E. Cupp asks: How much reality do you really want in your escapist TV fare?
December 11, 2014 -- Updated 1828 GMT (0228 HKT)
Rip Rapson says the city's 'Grand Bargain' saved pensions and a world class art collection by pulling varied stakeholders together, setting civic priorities and thinking outside the box
December 13, 2014 -- Updated 2310 GMT (0710 HKT)
Glenn Schwartz says the airing of the company's embarrassing emails might wake us up to the usefulness of talking in-person instead of electronically
December 12, 2014 -- Updated 2233 GMT (0633 HKT)
The computer glitch that disrupted air traffic over the U.K. on Friday was a nuisance, but not dangerous, says Les Abend
ADVERTISEMENT