The World Needs Better Bribes

BRIBEThe investigation of corruption in FIFA, the governing body of world soccer, has unearthed evidence of rampant vote-buying around the choice of host countries for the World Cup. Court documents suggest Jack Warner, former head of the Confederation of North, Central American and Caribbean Association Football, took $10 million in bribe payments from South Africa to deliver votes for the country?s successful 2010 bid.

That?s a lot of money, certainly enough to support a comfortable lifestyle. Perhaps some of it helped Warner?s alleged co-conspirator Chuck Blazer pay for a $6,000-a-month apartment for his cats in New York?s Trump Tower. But relative to the billions of dollars spent on the World Cup itself, $10 million is a leftover cat treat. In that sense, the World Cup bribery scandal echoes what we know about government corruption in general: The size of the bribes is a small fraction of the value of related contracts and the potential economic impact of corrupted deals.

New and refurbished stadiums cost Brazil, host of the 2014 World Cup, about $3.6 billion. The total bill for the event was around $11 billion. On top of that, FIFA collected about $5 billion from sponsorship and television rights. Qatar is spending as much as $200 billion on infrastructure related to the 2022 event. That suggests the odd $10 million bribe is equal to less than a tenth of 1 percent of the expenditures related to the Brazil World Cup and is even smaller compared with the financial and economic impact of the Qatar award decision.

It?s a similar story with corruption in general. Compared with the potential payoff or impact of a corrupted decision, the bribe payments involved are often quite small. Take German conglomerate Siemens, fined for multiple violations of the Foreign Corrupt Practices Act in 2008. According to court documents, the company paid $1.7 million in bribes related to 42 contracts under the oil-for-food program in Iraq that were worth $80 million?or about 2 percent of their value. It paid $31 million in bribes related to a $1 billion national identity card project in Argentina and $19 million on bribes on the Venezuelan Maracaibo and Valencia metro projects, contracts worth a combined total of around $340 million. The bribes amounted to less than 4 percent of the contract values involved.

It isn?t just Siemens that?s paying out miserly bribes relative to contract values. Payoffs from numerous construction companies seeking the contract to build the Lesotho Highlands dam in southern Africa amounted to about $6 million altogether, but given the project costs were $2.5 billion, that?s less than 0.3 percent of costs. Energy company Enron shelled out $20 million on ?education and project development process? expenditures related to the construction and operation of the Dabhol power plant in India, but that project cost $1.3 billion. Add up the bribes paid above, and they were worth only about 1.6 percent of the value of the contracts involved.

As large as it is, the gap between the size of the bribes and the value of the contracts they?re meant to buy doesn?t adequately capture the harm done by such bribery. In defense of Siemens, it usually delivered quality products even after it paid bribes to win contracts. The same cannot be said of Enron: The Dabhol plant was so expensive to run (producing electricity at a cost that was double the retail tariff) that it was mothballed for a number of years. Construction payoffs all too often go to entice government officials to build the wrong thing, or to look the other way when it?s built badly?as was tragically the case with schools across Sichuan province in China that collapsed on students during a 2008 earthquake.

Rapacious companies are ripping off corrupt government officials, who really ought to be charging more for doing the wrong thing. But even if a higher bribe price might sometimes reduce the incentive to corrupt, the answer isn?t necessarily to encourage bureaucrats to demand bigger bribes. Nor does it makes sense to spend resources trying to uncover the relatively small sums currently involved in payoffs.

It?s far easier to spot the impact of the most damaging forms of bribery?in terms of the wrong thing being built poorly, for example. And a focus on contracting results rather than procurement receipts can reduce the risk of the most damaging corruption. If a stadium is built well at a competitive cost, the economic impact of any bribes associated with the project is necessarily limited. Rather than starting with auditors and accountants, governments should finance more independent engineers to ensure construction quality and publish procurement information and contracts to allow citizens to see whether they?re getting what their tax money has paid for. Where cases of poor contracting outcomes arise, that?s the time to bring in the auditors and look for criminal firms and corrupt officials.

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