David Osterfeld

Prosperity Versus Planning

First, an MNC may attempt to pressure the host government to get special privileges, such as tax exemptions and subsidies, or licensing restrictions and tariffs, thereby protecting it from competition. It may do this through either lobbying, bribery, or veiled threats to locate elsewhere. That should hardly be surprising. Contrary to the usual chamber of commerce rhetoric regarding the glories of free enterprise, businesses are not particularly fond of competition. Far from favoring open entry, businesses have often been at the forefront of attempts to get the government to 'rationalize' the economy through the imposition of regulations restricting entry and thus competition. That does not change merely because a firm crosses a political boundary.

But there is no reason that such questionable practices have to originate with the MNC. It would be surprising if there were not at least some highly placed host-country government officials who had used their positions to obtain special advantages for themselves, that is, to extort MNCs for their own benefit.

There is a variety of questionable payments. One can distinguish between two types of payments originating from the MNC intended to influence public officials in the host country: 'grease' and bribery. Grease is so named because its purpose is to 'lubricate' or facilitate certain government activities. Grease payments normally go to low-level government employees and are typically small bribes—gratuities—intended to get the government employees either to perform their duties or at least to perform them expeditiously. Those duties include such things as providing work permits, visas, licenses, customs clearances, police protection, hotel accommodations, appointments with public officials, and a host of other services. But grease may also be used to get local officials to look the other way, to shirk their duties, to ignore certain regulations, thereby enabling the MNC to conduct certain types of business operations or at least to conduct them at a lower cost. Examples include payments by the MNC to allow it to evade customs duties or to circumvent various tariff restrictions on imports. Thomas Gladwin and Ingo Walter reported that while grease accounts for about 95 percent of all questionable payments made by the MNCs, the dollar amount is probably less than 25 percent of the total.

Bribery is the payment of large sums of money, or its equivalent, to high-ranking government officials. The purpose is to obtain benefits that lower level officials are not in a position to grant. These include such things as the acquisition of contracts, tax concessions, import as well as export exemptions, and changes in the laws and policies of the host country. While cash payments are the most common form of payment, other forms are not unheard of. They might include a gift of a Mercedes-Benz, jobs for the official's relatives or friends, or free vacations on the Riviera, to name but a few.

Finally, there is blackmail or extortion, where the questionable practice originates at the receiving end. Blackmail would include such things as threats to renege on existing or potential contracts, to nationalize or expropriate the company, or even to harm or kill MNC officials if the demands are not met.

Since both bribery and extortion are illegal, it is probably impossible to determine just how common such practices are. However, the available information suggests that those activities are fairly common.