International Law

The Business of Justifying Bribes

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Economists should find bribery fascinating.  Bribes perform a neat trick: they make expensive goods more in demand, or what economists call goods with high income elasticity.  Characterisically of that profession, the only goods economists identify they call "luxury goods".  (I leave it to the reader to determine whether this is a matter of ignorance or very dry wit.)

Charlie Munger made the point this way:

"And nobody has yet come up with the main answer that I like [about an example of high income elasticity]

Suppose you raise that price, and use the extra money to bribe the other guy's purchasing agent? (Laughter).

Is that going to work?

And are there functional equivalents in economics - microeconomics - of raising the price and using the extra sales proceeds to drive sales higher?

And of course there are zillion, once you've made that mental jump. It's so simple"

Munger went on to say that he never has done business this way because it is wrong.

Not everyone accepts Munger's admonition.

For Siemens, bribery appeared to be the business model.  Here is the transcript for the PBS upcoming documentary on the Siemens bribery scandal.

"Mr. Siekaczek, who cooperated with German authorities after his arrest in 2006, has already been sentenced in Germany to two years' probation and a $150,000 fine.

During a lengthy interview in Munich, a few blocks from the Siemens world headquarters, he provided an insider's account of corruption at the company.

The interview was his first with English-language news outlets.

"I would never have thought I'd go to jail for my company," Mr. Siekaczek said. "Sure, we joked about it, but we thought if our actions ever came to light, we'd all go together and there would be enough people to play a game of cards."

Mr. Siekaczek isn't a stereotype of a white-collar villain. There are no Ferraris in his driveway, or villas in Monaco. He dresses in jeans, loafers and leather jackets. With white hair and gold-rimmed glasses, he passes for a kindly grandfather -- albeit one who can discuss the advantages of offshore bank accounts as easily as last night's soccer match.

Siemens began bribing long before Mr. Siekaczek applied his accounting skills to the task of organizing the payments."

What is intereting is Mr. Siekaczek's view of his own moral fibre. " He considers his personal probity a point of honor. He describes himself as "the man in the middle," "the banker" or, with tongue in cheek, "the master of disaster." But, he said, he never set up a bribe. Nor did he directly hand over money to a corrupt official."

I find this fascinating, in light a new HBS Working Paper, Dishonest Deed, Clear Conscience, authored by Lisa L. Shu, Francesca Gino, and Max H. Bazerman.

The authors argue, buttressed by some clever experiments, that "People routinely engage in dishonest acts without feeling guilty about their behavior. When and why does this occur?

Across three studies, people justified their dishonest deeds through moral disengagement and exhibited motivated forgetting of information that might otherwise limit their dishonesty."

I read the paper, thought that the three experiments were intriguing.  

But, our Mr. Siekaczek doesn't seem to feel guilty about his role in the bribery, nor do I detect any moral disengagement or ignorance about the moral code regarding bribery.

What am I missing?

Thanks to the Daily Caveat for the link to the PBS show.

Full post as published by Misleading Advertising Law on February 20, 2009 (boomark / email).