BREAKING: Bribes, Corruption Drive Central Asian Business

by Joshua Foust on 4/30/2007 · 6 comments

Yet another U.S. oil bribe conviction over energy rights in Kazakhstan. Oil company Baker-Hughes apparently paid $4 million in bribes to develop the massive Karachaganak natural gas field in western Kazakhstan. It is (really) small potatoes compared to the reported $78 million James Giffen paid out to Kazakh officials on behalf of several oil companies in the early 2000’s, but that doesn’t matter. Corruption retards economic development.

Yet, the moral outrage here shouldn’t really stem from the bribery, which is, let’s be honest, SOP in much of the developing world. It is really how our courts, which handle these convictions, expect American companies to operate overseas when they can’t grease the gears. It’s not a moral judgment (bribery and corruption are clearly bad things, and if they can be eliminated, they should), but a business one—American companies will not be able to compete if they can’t play on the same playing field. For the time being, that playing field is unspeakably corrupt, driven by bribery and extortion.

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– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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Michael Hancock April 30, 2007 at 11:52 pm

I hate to say it, but I agree with your take. Corruption and Bribery are terrible, and yet the only thing we can by taking the high road is our own self-righteousness. It would be better to do whatever necessary, I think, and then fight corruption and bribery internally, once there is more leverage for American companies to prove the superiority of a more honest business model.

Al May 1, 2007 at 12:29 am

Sorry, I can’t help but react to this moralistic BS about superiority of an ‘honest’ business model. The reason that corruption retards economic development is that it is UNpredictable and not because it is a deadly sin in your obscure worldview. If everyone knows exactly how much to pay to an official to get a certain good, we would still work with no efficiency loss. In fact, the levels of bribes to cops on the roads are pretty much common knowledge, and that’s why it is so easy to deal with a cop on a street of Tashkent.
This petty corruption doesn’t harm the world, it’s just a transfer payment. Or will you tell me that you won’t risk driving because there are corrupt cops out there? Surely, not.
And as long as you see foreign companies crowding at the doors of kazakh officials with fat gifts one can argue the same thing. Corruption will start hurting us when it reaches levels unacceptable for foreign and domestic investment. But then again, it will stop being profitable since nobody is going to pay.
Here’s a solution for you: get those rich foreign companies out of Kazakhstan. Persuade them to stop business in corrupt countries, punishing such governments for unfair practices. They know precisely, what they’re in for, and they know they’ll still make profit, even if they through a few bones to the dogs in the government. So don’t blame the US courts for doing precisely what they must do: punish those firms that DO NOT punish corrupt governments.

Alexander May 1, 2007 at 2:17 am

I think the headline for the story is totally mistaken. Should be: “Western companies drive corruption to Central Asia.”

Joshua Foust May 1, 2007 at 4:14 am

Al, if bribes are official and predictable, don’t they then simply become usage fees or some such? The real problem with bribes is that they actually ARE unpredictable, and unofficial. As such, they degrade the rule of law, which is a prerequisite for a thriving local business sector. If only wealthy foreign companies and dictator-associated elites can afford to pay the bribes necessary to do business, then you are strangling economic development.

That being said, most countries must go through a period of bribery as the rule of law gets settled and established. As an emailer pointed out to me, this specific case is not really a big deal, and as I said in the post itself $4 million is really nothing compared to other active bribery cases, to say nothing of rumors of what some other companies have paid for access. Anti-corruption measures only work if they’re applied equally; otherwise they just selectively target and cripple those who are forced by their own governments into following the law.

Alexander, you’re right that that would better capture the headline. How about I change it to “Bribes, Corruption, Drive Central Asian Business.” Because not only western companies are responsible for the bribery and corruption—don’t forget the presence of India, China, and soon to come Japan.

Partial observer May 1, 2007 at 11:40 pm

Of course companies should be prosecuted for corrupt practices, and it’s a shame that other countries let the bribe-givers away with it, either for simple economic advantage or to avoid “offending allies” (viz the UK government’s decision to drop the corruption investigation into BAE arms sales in Saudi Arabia). We should applaud this decision of the US courts.

And a cynic might point out that the United States in any case has other ways to manipulate the slope of the playing field to ensure massive contracts to its companies – how much money is Haliburton making out of Iraq?

KZBlog May 6, 2007 at 2:41 am

Al: I disagree with your assertion that corruption is only damaging economically because it is unpredictable. There are a host of other practical issues. Corruption benefits the wealthy and the connected, as opposed to the competent. If everyone knew the bribes and IF everyone had equal access to the same decision makers and IF everyone could afford the bribes, that would be a start to an even playing field. However I can’t imagine you truly believe it is equally efficient to hire people who are able to pay a certain fee, as it is to hire people who are qualified. Or to choose your suppliers based on their ability to bribe you, not on the quality of the goods. Nor is there much reason to believe that companies who engage in bribery will suddenly be models of honest, hard work.

Furthermore, in a culture of corruption corrupt people spend all their time trying to serve those who bribed them, or attempting to attract bribes or trying to get jobs that get them lots of bribes. They are not worrying about serving their country, serving their company, or doing their job.

Finally to the extent that corruption diverts funds from its intended use, it can create both economic inefficiency and moral problems. For example, the HIV crisis in Kazakhstan that apparently stemmed from hospitals selling clean needles. If you argue that isn’t a case of corruption I urge you to review Ministry of Health financial records and you will see that money for hospitals is siphoned off left and right. it’s surely an obscure and archaic worldview that believes children dying with AIDS is any kind of sin. But surely even the modern worldview admits that it’s a blow to the workforce and consumer base.

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