The stock market walloped Wal-Mart after publication of a big New York Times expose alleging bribery and a cover-up tied to its Mexico operations. Investors knocked almost 5% off its shares in trading Monday, while the broader market was down only 1%.
And make no mistake, the Times’ report does look pretty damning for the Bentonville, Ark. retailing behemoth. While Wal-Mart deserves a chance to respond and the benefit of any doubt, if employees at Wal-Mart broke laws, they should be punished. Regardless of the norms at work in developing countries, American multinationals must not bend the rules when trying to expand.
Wal-Mart is accused of paying politicians and other politically powerful figures to help approve new stores in Mexico. But while we’re on the topic of companies having to pay the politically powerful for access to markets, can we stop for a moment to examine how things sometimes get done right here in the United States? It’s not uncommon for big box retailers to pony up cash and other unearned benefits in order to break new ground on stores.; what’s different here, however, is that members of our political class often force them to do it. And it’s all perfectly legal.
Consider a recent bill in Maryland, where I live, aimed at big box retailers. Firms like Wal-Mart, Costco, and others hoping to expand operations in wealthy Montgomery County, just outside Washington DC, would be forced to negotiate legally-binding “community benefits agreements” as a condition for building and operating new stores. These sorts of bills are not uncommon when big retailers want to expand or enter into new markets.
The upshot is that politically well-connected local stakeholders – unions, community organizers, and other interest groups – get cash, hiring promises, and other benefits from the retailer in exchange for dropping any opposition to a new store.
Among the possible benefits are “assistance to community organizations and programs.” These organizations can, in turn, use this “assistance” to support the political candidates who push this kind of legislation in the first place.
It’s not bribery, of course; but it’s corrupt nonetheless; and too often it’s politics as usual when it comes to major urban area retail and development markets.
"It’s hard to see how these sorts of political shakedowns of super stores are good for the public interest. They enrich the politically connected while likely breeding cynicism among consumers and voters." Regardless of what one thinks of Wal-Mart in particular, or big box retailing generally – I’m in the camp thinking the objective data say Wal-Mart is a long run force for good in society – it’s hard to see how these sorts of political shakedowns of super stores are good for the public interest. They enrich the politically connected while likely breeding cynicism among consumers and voters. It’s a kind of corrupt crony capitalism that does nothing to advance the general welfare and everything to reward those who see politics as a game for extracting rents, rewarding friends, and punishing enemies.
The United States remains one of the least corrupt countries on the planet. But the U.S has room to improve. According to Transparency International (TI), the US is 24th on its Corruption Perceptions Index. That puts the U.S. behind Qatar and Chile and barely ahead of Uruguay (and not much ahead of Botswana).
The Team at TI says “Public sector governance that puts the interests of its citizens first is a responsibility that transcends borders. Governments must act accordingly. For their part, citizens need to continue demanding better performance from their leaders.” So while we need honest dealing from our corporations as they look to expand around the world, we need the same from our political class as well.
Nick Schulz the DeWitt Wallace Fellow at AEI and editor-in-chief of American.com