Wal-Mart, The Victim of Extortion

It’s easier and more efficient in Mexico

By Jeffrey Tucker

Over the weekend, we were treated to a preposterous display of hectoring of allegations that Wal-Mart Mexico (prepare yourself for a shock) paid bribes to public officials for the legal right to do business in that country.

You see, to do serious business in America requires vast campaign contributions to several layers of elected politicians, an army of lobbyists in Washington, retired government employees on your board and public devotion to the American civic religion. It goes on every year and restarts every election cycle.

Even then, it is hard to know if you are going to get what you pay for.

It’s easier and more efficient in Mexico. You pay bribes directly. The decision maker gets the money. He or she clears the path for you to do the thing. The facilitator takes a slice. People mostly keep their promises. The deal is done.

Apparently, bribe paying in the United States is a sign of a healthy, functioning democracy; doing the same thing in Mexico in a more streamlined way is a criminal violation of the standards of good corporate governance.

Here we have The New York Times “exposing” the shocking and presumably ghastly fact that over several years, Wal-Mart paid out some $24 million in payoffs to politicians, bureaucrats and petty gatekeepers in Mexico, all in the hope of employing people who need jobs and bringing goods and services to those who need them.

The breathless and bloviating Times expose is written as if these intrepid reporters were exposing a violent mob engaging in killings to get its way. You never quite get that Wal-Mart would much rather have used the money to expand its business, hire more employees or beef up its inventory. Money used for bribes is a loss to any company, a terrible price of doing business under the state.

In any case, the trove of information was shoveled on the paper by disgruntled employees. And it is hardly unusual. It’s how business is done. Regardless, the Times is out for blood — not from the extortionists who run the system, but the victim, Wal-Mart.
At last count, there were 1,200 news stories about this on the wire. Forbes reports: 

“Wal-Mart Stores will likely face the wrath of the U.S. Department of Justice for reining in an internal investigation into bribery allegations at its Mexican subsidiary.”

I’m sure that congressional investigations are around the corner, with all the named executives hauled before committees and harassed by regulators.

The bitter irony is that it will transfer more of the Mexican system to the U.S. To survive, Wal-Mart will be forced to spend more than the $12 million-plus it already spends every year on campaign contributions and lobbying.

All that enforcement of the Foreign Corrupt Practices Act (FCPA) does is increase the amount of domestic corrupt practices. Indeed, that is the way the system is supposed to work. Truly, if the FCPA were actually enforced as written, business around the world would come to a grinding halt.

Under the well-known Mexican system, people called “gestores” specialize in interfacing between business and bureaucracy. They deal with inspectors, permit issuers, environmental bureaucrats, labor officials and zoning regulators. If the gestores can make the deal, they keep 6% as a matter of convention. Even average citizens use these people to stand in line for them — all in an effort to find nonviolent means around the bureaucrats.

Given the ridiculous barriers in place, it’s not a terrible system. Corrupt government that you can buy your way around is far better than “good government” that blocks all progress.

The rap on Wal-Mart is that it did far worse. When the company discovered this was going on, it buried it, rather than go public. No kidding. Maybe the company imagined that it would be smeared and attacked?

Bribing officials is illegal in Mexico, just as it is in the United States. But of course, that is just the gloss. Anywhere there is government, there is corruption. That’s the purpose of barriers to enterprise, to extract wealth from those who want to get past them.

Is it worth it? It is either pay or don’t do business, which means lasting poverty. Today, Wal-Mart Mexico employs 209,000 people and is the country’s largest employer. It has provided a fabulous example of the merit of private enterprise in this country, which is finally getting on its feet economically. It has brought food, goods and services to millions of people who otherwise would not have them. It has done more in 10 years for Mexico than all the government bureaucrats have done in one hundred or a thousand years.

For its crime of bringing economic development to this country, it must be smeared, beaten and forced to pay obeisance to the American political class. Why should Mexico enjoy such largess when there are millions of American bureaucrats who need to be part of this gravy train?

You can read thousands of academic papers on the problem of “corruption” in countries around the world and completely miss the central point. The way to eliminate the corruption is to eliminate the barriers to enterprise. Why is this not obvious? Because many people imagine a utopian ideal that does not now and never has existed: good government. They imagine that government rules can be enforced impartially based on science or the public good.

It’s sheer nonsense. As Ludwig von Mises writes in Human Action:

“Unfortunately, the officeholders and their staffs are not angelic. They learn very soon that their decisions mean for the businessmen either considerable losses or — sometimes — considerable gains. Certainly, there are also bureaucrats who do not take bribes, but there are others who are anxious to take advantage of any ‘safe’ opportunity of ‘sharing’ with those whom their decisions favor… Corruption is a regular effect of interventionism.”

But here’s the part that upsets me so much. Somehow, private enterprise is always and everywhere blamed for perpetuating corruption, when the truth is obviously that the blame rests with government. It’s like watching a mugging and blaming the mugged for carrying too much money. It’s like telling anyone who faces the demand “Your money or your life” should always choose to give up his life.

The background here is nothing short of anti-capitalist resentment. The elites loathe Wal-Mart for its achievement in putting on display the incredible reality about capitalism that you never hear about in school: It is a system that is maniacally focused on the well-being of society in service of the common man.

Go to Wal-Mart and you see the workers and peasants not rebelling against the system, but buying stuff that makes their lives better. It looks rather mundane. It’s how civilization is built: one economic exchange at a time. The people who stand in the way don’t deserve a dime, but private enterprise is kind enough to cough it up, anyway. Wal-Mart deserves sympathy, not condemnation.