Skip to main content

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

By Jeffrey Miron, Special to CNN
updated 11:46 AM EDT, Thu April 26, 2012
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
updated 2:12 PM EDT, Fri August 1, 2014
By now it should be painfully obvious that this latest round of the Israeli-Palestinian crisis in Gaza is fundamentally different than its predecessors.
updated 5:24 PM EDT, Fri August 1, 2014
Sally Kohn says like the Occupy Wall Street protesters, Market Basket workers are asking for shared prosperity.
updated 7:31 PM EDT, Thu July 31, 2014
President Obama will convene an Africa summit Monday at the White House, and Laurie Garrett asks why the largest Ebola epidemic ever recorded is not on the agenda.
updated 2:03 PM EDT, Fri August 1, 2014
Seventy years ago, Anne Frank made her final entry in her diary -- a work, says Francine Prose, that provides a crucial link to history for young people.
updated 7:50 PM EDT, Thu July 31, 2014
Van Jones says "student" debt should be called "education debt" because entire families are paying the cost.
updated 3:41 PM EDT, Wed July 30, 2014
Stuart Gitlow says pot is addictive and those who smoke it can experience long-term psychiatric disease.
updated 7:00 PM EDT, Thu July 31, 2014
Marc Randazza: ESPN commentator fell victim to "PC" police for suggesting something outside accepted narrative.
updated 2:45 PM EDT, Thu July 31, 2014
Mark O'Mara says working parents often end up being arrested after leaving kids alone.
updated 4:31 PM EDT, Wed July 30, 2014
Shanin Specter says we need to strengthen laws that punish auto companies for selling defective cars.
updated 12:45 PM EDT, Wed July 30, 2014
Gabby Giffords and Katie Ray-Jones say "Between 2001 and 2012, more women were shot to death by an intimate partner in our country than the total number of American troops killed in the Iraq and Afghanistan wars combined."
updated 7:58 AM EDT, Wed July 30, 2014
Vijay Das says Medicare is a success story that could provide health care for everybody, not just seniors
updated 1:43 PM EDT, Wed July 30, 2014
S.E. Cupp says the entrepreneur and Dallas Mavericks owner thinks for himself and refuses to be confined to an ideological box.
updated 9:11 AM EDT, Wed July 30, 2014
A Christian group's anger over the trailer for "Black Jesus," an upcoming TV show, seems out of place, Jay Parini says
updated 4:28 PM EDT, Wed July 30, 2014
LZ Granderson says the cyber-standing ovation given to Robyn Lawley, an Australian plus-size model who posted unretouched photos, shows how crazy Americans' notions of beauty have become
updated 3:39 PM EDT, Wed July 30, 2014
Carol Dweck and Rachel Simmons: Girls tend to have a "fixed mindset" but they should have a "growth mindset."
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT