McCloskey Wants the U.S. to Repeal the Foreign Corrupt Practices Act

By William K. Black
Quito: March 8, 2015

This is the fourth column in my series of articles critiquing Deirdre McCloskey’s book review in the Wall Street Journal entitled “Two Cheers for Corruption.”  McCloskey has subsequently written to New Economic Perspectives – but apparently not the WSJ – to complain that the title was authored by the WSJ and is contrary to her views.  As I mentioned, in my third column, the title is also innumerate in that McCloskey’s book review actually endorsed three types of corruption – and corruption is inherently a composite of bribery, extortion, and fraud.  She claimed that these three types of corruption exemplified why corruption can be desirable because it makes society more “efficient and just.”  I addressed in my second column in this series the first form of corruption that she endorsed – secret bribery, fraud, and corruption by firms in order to violate building safety codes with impunity.

McCloskey’s second example of “efficient and just” corruption is bribery by U.S. military contractors of Egyptian governmental officials in order to “smooth” the sale of weapons to the Egyptian military.

“But corruption can be efficient and just, too. It can be good for efficiency if, say, bribes are paid to get around bad laws (such as most of the building codes in American cities) or to smooth the course of sales by U.S. businesses to the Egyptian military. And the turkey at Christmas supplied by Tammany Hall justly helped the poor—if they voted right.”

The bribery or extortion of foreign public officials by, or at the direction, of U.S. persons has been a crime since the enactment of the Foreign Corrupt Practices Act of 1977.  Amendments to the FCPA in 1998 extended the Act’s scope.

“With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.”

It was the bribery of Japan’s political leaders by a U.S. military supplier, Lockheed, in order to corruptly secure Japanese purchasing contracts that prompted the passage of the FCPA.  The United States, therefore, eventually followed by the entire membership of the OECD, concluded that allowing procurement fraud through bribery and extortion was “[in]efficient and [un]just.”  McCloskey, however, thinks foreign bribery and extortion by U.S. military contractors in order to maximize their sales of weapons to nations like Egypt should be encouraged.  That has to mean that she believes the U.S. needs to repeal the FCPA.  That would, of course, likely lead the OECD to remove its requirement that member nations adopt similar anti-corruption laws.  The ethical race to the bottom – a Gresham’s dynamic – would be greatly intensified.  Only the least ethical corporations can prevail in this setting and they will enrich the most unethical senior government officials, providing them through bribery with the funds to be political kingmakers in their nations.  McCloskey asserts that this rampant bribery, extortion, and fraud will make the world more “just.”  She does not offer the reader any rationale for her assertion.

Procurement fraud leads to poorer goods and services being purchased at a higher price (plus the implicit loss of any bribes paid, which should have gone to reduce the purchase price).  This is the opposite of efficiency, which is why honest, competent private firms make stringent efforts against procurement fraud when they buy goods and services.  The inefficiency danger of procurement fraud is probably at its greatest in the sale of weapons to developing nations.  The corrupt government officials can be induced to buy big ticket items that the military contractors are most eager to sell (for reasons of inventory and profit margins).  U.S. military contractors have been involved in the sale of over 1,000 M1A1 main battle tanks (MBT) to Egypt and are eager to sell more.  Indeed, U.S. military contractors co-produce the M1A1 with Egypt.  Only the U.S. has more M1A1 tanks than Egypt.  The U.S. no longer produces or purchases the M1A1 for the U.S. military, so U.S. military contractors are particularly eager to sell M1A1’s to the Egyptian army.

Egypt has the fifth largest force of MBTs and seventh largest number of fighter aircraft in the world.  U.S. defense contractors are eager to sell highly advanced F-16s to Egypt.  Egypt needs far fewer MBTs and fighter aircraft and far more and better schools, medical facilities, and infrastructure.  The only obvious entity that Egypt could use its vast MBT and modern fighters and fighter bombers against is Israel.  U.S. military firms also make large weapon sales to Israel.

The resumption of bribery, extortion, and fraud in the sale of U.S. weapons to Egypt and other nations as the norm, through the repeal of the FCPA and the allowance of foreign bribes as a deductible “business expense” for U.S. corporations (a logical implication of McCloskey’s pro-corruption views), would immediately reduce efficiency and justice.  It would also kick-off a Gresham’s dynamic in which the mot unethical firms in the word would compete as to who could most successfully bribe and extort the most unethical government officials in the world to “smooth” the sale of the most grotesquely inefficient, wasteful, and dangerous weapons in the world to some of the poorest nations in the world at the most excessive prices.  Those weapons would be used in many cases to impose and keep in power military dictatorships by killing and maiming the citizenry.  McCloskey wants to bring back the ugly American, and his Western counterparts, and allow him to bribe, extort, and defraud the [fill in the bigoted term for the citizens of the nation we are selling our weapons to here] with impunity.

Of course, the arms dealers of the world (aka “the merchants of death”) are only one example of the corrupt epidemics of bribery, extortion, and procurement fraud that McCloskey’s calls for unleashing on developing nations.  Her same logic applies to all foreign corruption and procurement fraud.  (If it makes the world more “efficient and just” when our elite CEOs and their leadership teams can bribe, extort, and defraud foreign government officials with impunity, it must do the same when they corrupt U.S. officials to “smooth” the sale of goods and services to the United States.  McCloskey’s “logic” implies that we should eliminate or create vast loopholes in laws against domestic bribery, extortion, and fraud. ) Want to “smooth” the sale of your drugs that failed FDA safety and efficacy tests to another nation that would ordinarily have rejected purchasing those drugs – then bribe and/or extort the purchasing officials or their political masters.  Want to “smooth” your foreign sales by forming a cartel to engage in bid rigging to commit procurement fraud in a foreign nation – that too is fine under McCloskey’s “ethical” “logic.”  Any unethical act that will “smooth” the sale of inferior quality U.S. goods at inflated prices to developing nations, particularly bribery, extortion, and fraud, is to be applauded (but not “cheer[ed]”) because it will make America more “efficient and just.”


It is time for McCloskey to stop blaming the admittedly pro-elite white-collar crime WSJ opinion page ideologues for crafting the risible “Two Cheers for Corruption” title for her article.  If she reads what she wrote in the paragraph I quoted above, she will see that she did say that elite white-collar criminals should be encouraged to commit bribery, extortion, and fraud in at least three huge areas of economic and political life.  Her “logic” implies that there are many more such examples and that the key is the CEOs should be immune from prosecution for these felonies.  I hope she will decide that she made a mistake, retract her piece, and begin to write the “sermons” on the vital need for greatly enhanced ethical behavior among our elite economic and political actors that her book review said were essential to “stop” “corruption.”  The WSJ will not publish those sermons, but we will be happy to do so.


3 responses to “McCloskey Wants the U.S. to Repeal the Foreign Corrupt Practices Act

  1. Bribery is a crime, according to Black’s Law Dictionary:

    Bribery is the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in charge of a public or legal duty.

    Not only does international capital operate outside the bounds of any moral structures, but now its proponents want to eliminate any legal structure as well, all in the name of free market efficiency and justice. Once you have degraded and diminished morality and legality, all bounds are removed and all actions are justified, by practice and by definition. They would grant to themselves permission to operate outside the law that they would not grant to anyone else. Why? Because they are of the class that knows best and that does “God’s work”.

    It is completely astounding, but best to recognize reality and push the very limits of imagination to comprehend what these people are capable of. Al Capone was far less a threat than these people, no matter how fine their tailored suits or access to political power.

  2. McCloskey is apparently arguing that only “just” bribery/corruption should/will take place, and that “unjust” bribery/corruption simply won’t, by some unexplained (and I would say unexplainable) mechanism. And “just” and “unjust” is apparently an idiosyncratic definition which boils down to whether McCloskey approves of it in that case. I’d have to agree with you that the case of selling ever more weapons to the Eygyptian military doesn’t sound terribly just. I also disagree that circumventing “most of the building codes in American cities” is a just cause; it sounds more like a recipe for disaster. That the disaster is accompanied by someone getting rich off the resulting tragedies does not make it any more just, IMHO.

  3. Erick Borling

    Quite the kerfuffle y’all got goin’ on here. After carefully reviewing this series and McCloskey’s writings to the detriment of my more urgent studies, I’m just going assume we’re adult enough to not have to sugar coat the truth. So here are the facts stated dispassionately. Dr. Black’s assessment is perfectly accurate and not vituperative.

    About the substance of her writing; of course regulations/laws originate in morals. However, regulations (these are the same as “laws”) cannot be replaced by morals alone as Dr. Black has described the many real-life outcomes. Just ask the residents of Texas City where BP killed an average of three people a year. Even after years of community outrage, BP’s cost-cutting agenda was not deterred; BP’s safety-last agenda led to the near-sinking of the Thunderhorse platform and then the Deepwater Horizon accident.

    According to McCloskey, accurately describing the trajectory (implications) of her ideas is not only a mischaracterization of the idea’s trajectory, but cause for her to feign being a victim of slander and then fire off an adolescent volley of pop-psychology condescension alleging that Dr. Black is vexed by some nonsense diagnosis du jour (lately people think they can opine about ‘sociopathy’) such as anger or bitterness or whatever. McCloskey’s book review is understood by other analysts to have the meanings described by Dr. Black AND the WSJ who gave her review an apt title as per thier understanding of her meaning(s). McCloskey is obviously intellectually dishonest. As such, her comments stain the integrity of those who share the title of distinguished professor and cause me much incredulity that she holds such a posting. It’s not difficult to see that the invisible hand of the free market mostly slaps and picks the pockets of the majority rather than delivering a wonderful life of shared prosperity. I am grateful that Dr. Black has mentioned how corruption kills people; often sufferring all the way to the grave. Perhaps being a prof in Chicago surrounds her with Miltonian colleagues who share “the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds.” I like how Jack Donaghy said that “The founding fathers never intended for the poor to live into their forties.” My sermon has remediated McCloskey’s error as she indicated this is how it’s done.