Corruption is the Failure of International Development

Rolls-Royce is cooperating with Brazilian officials investigating corruption at the state-owned energy corporation, Petrobras

Rolls-Royce is cooperating with Brazilian officials investigating corruption at the state-owned energy corporation, Petrobras

If ever proof were needed of the direct interest Britain has in fostering development throughout the developing world, it’s supplied by the latest accusations of corruption being levelled against Rolls Royce. These allegations charge the globe’s second-largest manufacturer of jet engines with paying bribes in order to secure contracts in Brazil, Indonesia and China, and besides insinuating that British business play an active role in undermining global development, they also suggest that Britain itself suffers cross-contamination as a result.

Rolls Royce’s involvement in this saga all began in December 2013, when the Serious Fraud Office opened a criminal investigation in response to the “widely reported claim” that Rolls Royce had gifted a car and $20 million in the early 1990s to Tommy Suharto, the son of the former Indonesian president, Suharto. This donation was reportedly in aid of convincing the nation’s airline, Garuda, of purchasing the company’s new Trent 700 engines. As egregious as such a backhander might seem to anyone unfamiliar with Indonesian economics and politics, these (alleged) practices fit snugly into a system where the former bosses of regulatory bodies are sentenced to seven years in prison for accepting bribes and where newly appointed chiefs of the national police are suspects in bribery cases.

In other words, Indonesia is already a deeply corrupt nation, placing a measly 107th on Transparency International’s list of the world’s most transparent nations. The same holds for the other two countries in which Rolls Royce has been accused of malpractice, China and Brazil, which respectively sit at 100 and a slightly less heinous 69. In all three cases, bribery and other unethical practices were already entrenched within the nations concerned, arguably being “a way of life” for Indonesians and an everyday essential for Brazilians.

This is significant, not least because it strongly implies that, if any foreign enterprise wishes to set up shop in a country like Indonesia or Brazil, they almost <em>need</em> to bribe. If they don’t, they risk losing out to a competitor who is prepared to slip a few gifts to high-ranking officials and state employees, thereby taking advantage of the informal networks that exist in place of the formal system that has yet to reach full maturity. This is why the French multinational Alstom made unofficial payments to officials in Indonesia, Saudi Arabia, Egypt, Taiwan and the Bahamas, why Japanese firm Marubeni greased the wheels in Nigeria (in addition to being yet another company to stump up for lunches and limos in Indonesia), and potentially why Rolls Royce is now cooperating with investigations into bribery in Brazil.

Of course, this is not to excuse these corporations for their wrongdoings, which undermine trust in public institutions and retard economic growth, thereby rendering future corruption even likelier. It is, however, to underline the urgency of helping such nations as Indonesia to develop and modernize themselves, so that they can prevent corruption from occurring on the same scale as it has up until now.

Such aid and assistance, be it in the form of initiatives like the OECD’s or investments tied to conditions of transparency, would not benefit only its recipients, easing such problems as income inequality and ineffective institutions. It would also benefit investor nations by reducing the extent to which their corporations engage in corrupt practices, an engagement which has nurtured an arguable culture of corruption which itself has witnessed everything from the Libor scandal to a recent low in public faith in businesses.

This culture has potentially dire consequences for the nations mired in it, as borne out by the Great Recession, the fall of massive yet unscrupulous companies like Enron, and the disillusionment in representative democracy currently proliferating in such ‘First World’ countries as the UK and Greece. It’s therefore absolutely imperative that developed nations such as Britain act individually and in concert to spur international development, which will prove the single most important factor in the fight against global corruption.

Accepting this principle, it will no longer be enough to simply prosecute corrupt businesses and officials. No, what will be required is a double-pronged strategy which combines deterrent with the the kind of investment and development that would create greater incentives <em>not</em> to accept or offer bribes. Governments and international organizations like the EU therefore have to support emerging economies via consultation, loans, trade agreements and the creation of more incentives for foreign direct investment, while these economies themselves have to be helped to implement substantial regulatory frameworks that will facilitate a far greater level of transparency and oversight.

More importantly, it has to be recognized that the problem is not really one of ‘corruption,’ but rather of development. Without such recognition advanced nations will just continue focusing merely on prosecutions and sanctions, an approach which does little to alter the underlying conditions in, for example, Bulgaria, which as the EU’s poorest member state now accommodates around 158,000 ‘unregistered’ transactions every month. Of course, affirming that the issue is one of development rather than crime alone will be difficult for many economic powerhouses, since their primary goal is securing reliable and lucrative markets for their businesses, not securing prosperity for potentially competing nations.

Yet the fact remains that the short-sighted fixation on dependable markets and easy profits deprives nations of the very thing they covet. And as has been argued above, the failure to attend to the needs of less prosperous countries will ultimately risk their own prosperity. So rather than assuming that the latest claims against Rolls Royce are another indication that the international community needs to crack down harder on corrupt individuals and organizations, our leading economies should take it as a timely reminder that more work needs to be done to further global development and place globalization on a more equitable footing.

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