In a piece on this blog last March, Rick highlighted a perverse consequence of requiring transparent bidding in government procurement. Although bid disclosure is intended to prevent public officials from secretly favoring companies that pay bribes, it can facilitate collusion among bidders by making it impossible for cartel members to defect from collusive agreements without getting caught. As a result, the cartel is easily enforced and the public pays an inflated price for the goods or services being supplied, yielding improper profits for the winning firm just as if it had paid a bribe to secure the contract.
Rick’s example reminds us of the importance of considering the collateral consequences of anti-corruption remedies before employing them. Nonetheless, public procurement reform could be an instance in which it is desirable to shift the method of corruption, even if we can’t reduce the total loss to corruption on a dollar-for-dollar basis. Even if the private cartel problem worsens, this could be a cost worth bearing if it leads to less collusion between government procurement officers and favored private firms.
There are three main reasons why private collusion (cartels) may be less harmful than public-private collusion (bribery) in the procurement context:
- First, the concentration of corruption in the private sector may make it easier to detect and punish the bad guys. Because price-fixing requires collusion among many parties, there should be more opportunities for disagreement or amnesty incentives to entice self-reporting than in a two-party briber-bribee relationship. Furthermore, competition and fraud laws punishing private misbehavior may be more developed and offer heightened deterrence relative to public integrity laws. For example, U.S. antitrust law already offers a private right of action with the potential for treble damages, remedies not available under the Foreign Corrupt Practices Act. On the enforcement side, the Department of Justice has demonstrated a willingness to prosecute foreign corporate antitrust offenders and even seek to extradite individuals with limited U.S. contacts.
- Second, we might have greater confidence that an enforcement agency will pursue the investigations even-handedly when the corruption is limited to private entities. If public officials are directly involved in wrongdoing, government leaders or their allies may have a stronger incentive to hide the corrupt activities and block independent enforcement. As a result, the taint of public corruption is more likely to be imputed to the reliability of subsequent enforcement efforts. Of course, this only holds true to the extent the cartel is not viewed as manipulating government through other means, such as political alliances and financing—but this would be equally true if the underlying wrongdoing was quid pro quo bribery of procurement officials rather than private collusion.
- Third, by distancing public officials from direct involvement in corruption, we may bolster confidence in government capacity and fairness in the long term. Though many factors contribute to public confidence in the political system, studies show that endemic public corruption has harmful effects on trust in government, political participation, and the quality of individuals who enter government service. Even if the resulting expenditures are equally wasteful, a tender system that insulates the bureaucrats involved from wrongdoing may boost the reality and perception of neutral decision-making and provide a model for other government functions, such as regulatory adjudication and resource allocation.
None of this is to say that corrupt acts occurring outside of government are less reprehensible. Though public corruption seems especially pernicious, experts have called attention to ways that private corruption can be just as harmful in its effects on third parties, particularly by undermining trust in the marketplace. Furthermore, the influence of the private sector over public activity through lobbying and political giving can render any public/private distinction blurry. But even if procurement reforms (like procurement transparency) only squeeze the balloon of corruption, such reforms can still be a valuable starting point if they create defensible islands of integrity within the larger bureaucracy. There may be little hope for rooting out the deeper causes and mechanisms of corruption unless we can begin with such incremental improvements.