ITALY'S CORRUPTION BACKLASH A LESSON

How do you deal with corruption? Strict moralists say you don't deal with corruption, period. Pragmatists point out that in many parts of the world you do, indeed, deal with corruption, or you don't deal at all.

March 8, 1993

3 min read

How do you deal with corruption?

Strict moralists say you don't deal with corruption, period.

Pragmatists point out that in many parts of the world you do, indeed, deal with corruption, or you don't deal at all.

Oil companies with expanding international oil operations must grapple with questions about corruption more frequently than most of them care to admit in public. It's a difficult subject. All moral issues are. But corruption has an economic dimension, too. A scandal in Italy may be demonstrating how this often-overlooked piece of a complex puzzle might help weaken corruption's grip where it has become a way of fife.

MORALITY IMPORTANT

To recognize an economic dimension of corruption is not to diminish the moral considerations. Without question, corruption is wrong. But defining it can be difficult. What business people in some cultures construe as a bribe others may see, even expect, as acceptable courtesy. The truly moral walk away from offensive deals rather than accommodate their beliefs to commercial pressures. But corruption doesn't end when they do. Someone else will make the corrupt deal and see nothing wrong with it.

In Italy, a recent wave of prosecutions indicates that rigged contracts, bribes, and kickbacks have been the rule rather than the exception at top levels of an industrial system dominated by state-owned companies. The government even ensured that political parties received illicit funds in proportion to their electoral support.

As in other countries with entrenched corruption, an explanation exists for Italy's problems, which threaten to topple the Socialist government and flood Italian prisons with government officials and corporate executives. During the Cold War, mainstream political parties extracted money from businesses in the name of anti-Communism. The Italian Communist party, they suspected, received aid from the old Soviet Union and its allies; they were just balancing the scales. Things grew from there--and kept growing after Communism slipped into decline. Explanations for rampant corruption elsewhere often relate to endemic poverty, which nowadays at least evokes more sympathy than anti-Communism.

Whatever its origins, however, corruption is corruption. And Italians have had their fill of it. The sweeping prosecutions in Italy have solid popular support. An impressive democratic backlash is under way, its aims moral but its motivations at least partly economic. The Wall Street Journal recently reported estimates by the Einaudi Institute of Turin that corruption has cost Italy's economy as much as $4.1 billion/year and added 15% to its debt, which amounts to 105% of annual gross national product of roughly $1 trillion. The costs and their effects on individual standards of living no doubt helped fuel the very proper moral outrage now pushing Italian democracy toward reform.

A USEFUL LESSON?

A lesson resides in all this, one that oil companies might somehow use to advantage in a world short of moral absolutes. Money spent on bribes and kickbacks is money that cannot be invested in oil wells and factory equipment, distributed in taxes, or spent on goodwill projects such as school construction and medical service. Money spent on bribes and kickbacks benefits a few to the detriment of many. Injustice such as this historically provides the fuel for change. It demands that economics be reconciled with morality and that government be held to new account. Italy appears ready to show how democracies accomplish the task. Companies tired of outstretched palms should call attention to these exemplary developments.