Andrew Spalding is a faculty member at the Chicago-Kent College of Law and a former Fulbright Senior Research Scholar in India. His research focuses on the impact of anti-corruption laws on developing countries.
With the dark cloud of the Commonwealth Games hovering on the horizon, Transparency International India and the American Chamber of Commerce in India gathered a group of anti-corruption professionals to discuss “the role of business ethics and integrity in preventing corruption”.
This dialogue occurs at a pivotal time in relations between India and the west. After several decades of steady progress, the recession has regrettably brought about a period of scepticism and withdrawal, isolation and protectionism. Consider, for example, news in the last week alone: Ohio, a mid-size U.S. state, has banned offshore outsourcing on state-funded projects; the Bombay High Court let stand a shocking $2 billion tax on Vodafone’s acquisition of an Indian wireless business; and the pastor of a small southern U.S. church threatened to burn the Koran.
Even civilian nuclear cooperation, once the cornerstone of India-U.S. relations, has suffered a setback. The Indian parliament recently departed from international standards by extending nuclear liability to suppliers, potentially driving away the very country - the United States - that defied world opinion to grant India the technology. It now seems that relations between India and the west could go either way.
And what role will corruption play? While the era of active global anti-corruption enforcement remains relatively new, empirical evidence already points to a disturbing trend. Prominent economists have demonstrated that as enforcement of the U.S. Foreign Corrupt Practices Act goes up, investment goes down (controlling for other variables) in countries where bribery is perceived to be common. This trend is hardly surprising, perhaps even intuitive, but it is nonetheless cause for alarm.
Moreover, the research shows that as foreign direct investment diminishes, the resulting void is filled by companies from countries that do not enforce anti-corruption laws. Think Russia and, especially, China. These “black knights” rise in influence in countries with high potential investment returns and comparable levels of corruption. In bribing without fear of punishment, they reinforce and thus perpetuate the culture and institutions of corruption, and their stamp can be seen throughout the developing world today. As one Indian lawyer recently told me, “Chinese companies are winning more and more bids in India, and no one quite knows how”.
What, then, is the remedy? “India Inc.” must change the perception that bribery is an unavoidable tool of business. Business leaders must take the lead in developing effective strategies for avoiding corruption, and must shamelessly promote themselves to the world as attractive business partners. We already have prominent examples of major Indian conglomerates defying the odds, successfully doing business while taking a stand against corruption: Tata, Godrej and many others. We need more.
We have always thought of combating corruption as an issue of ethics, and of economics. It is becoming increasingly clear that we must also think of it as an issue of international relations. Anti-corruption measures are proving to be among the key building blocks to the political alliances that, for good or for ill, will reshape our world.