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Spotlighting the Shadow Economy

For too long, fighting corruption has been left off the sustainability agenda – but battling sleaze is fundamental to meeting social and environmental goals, argues John Elkington.

Many years ago, I visited the managing director of a leading electronic goods company in Tokyo. I was with a Japanese colleague, who suggested that we buy some chocolates on the way as a small gift for our host. Imagine my discomfort, then, when this top businessman – with all due ceremony – gave me a mini camera. Sensitive to cultural differences, I accepted. But as soon as I got back to London, and told our team what had happened, we put in place a gifts policy to make sure that, in future, people knew to refuse presents above a certain value.

Early in my career, I worked for the United Nations in Egypt, and found bribery and corruption to be endemic. The team’s advisers included a former government minister known as “Mr Five Percent” and a former mayor of Cairo – “Mr Two Percent”. And that’s one key reason why, shortly after, I shifted from working with governments to working with business, where, at least in my experience, corruption was less of a problem.

Over the years, many people have expressed surprise that I saw bribery and corruption as integral to the sustainability agenda. They found it hard to see the connection. And it’s interesting to note that when GlobeScan and SustainAbility did a survey of sustainability experts late last year, just ahead of the Copenhagen summit, they identified no less than a dozen issues as urgent or very urgent – and corruption was not among them.

But whichever of their twelve priorities you choose to look at – be it shortages of clean water, climate change, poverty or economic instability – corruption is almost always a contributory factor. Think of carbon-intensive industries lobbying governments to stall climate-friendly regulations, dictators salting away billions in Swiss bank accounts or (an example that came to mind when I was in Greece a few weeks back) millionaires and billionaires ensuring that they pay little or no tax in their home countries.

So why are bribery and corruption so important? The evidence of the problem is all around us. Think of the scandalous reports emerging from the erstwhile US Minerals Management Service (MMS), responsible – ahead of the Deepwater Horizon blow-out in the Gulf of Mexico – for policing the oil industry, but accused, instead, of being in its pocket. Well before the disaster, the MMS was notorious for cocaine-fueled sex romps between government officials and oil-industry executives. In a version of the revolving door phenomenon found in too many industries, government inspectors were given free football tickets or offered jobs by the same companies they were supposed to regulate.

Or consider the case of vote-buying by Japan ahead of this year’s meeting of the International Whaling Commission (IWC), where it has been revealed that small nation representatives were bribed with cash and prostitutes to ensure they backed Japanese plans for wider slaughter. In the end, the negotiations broke down and have been postponed for a year – a year during which the IWC needs to clean up a situation where the man who chaired its latest summit, the Antiguan ambassador to Japan, had his costs paid by a Japanese company.

It probably wasn’t particularly diplomatic of me, but I raised the issue of corruption publicly when addressing a major conference in Athens and – partly I suspect because the audience was self-selected for an interest in transparency, accountability and sustainability – saw a considerable number of nodding heads. The problem takes many forms in Greece, from the super-wealthy tax evaders to the arsonists who set the country’s forest ablaze so that new developments can rise from the ashes, with no need to worry about conservation constraints.

When we [at Volans] asked the Global Reporting Initiative (GRI) community to rank the importance of different issues during research for our latest report, The Transparent Economy, we specifically asked for their views on transparency efforts to tackle shadow economies related to drug trafficking, the weapons trade, illegal waste-dumping activities and corruption. Three quarters saw this set of challenges as “urgent” (33%) or “very urgent” (41%).

Bribery and corruption shrink the time-scales over which decision-makers think –pushing their decisions towards personal, family or tribal outcomes. And this is exactly contrary to what we will need if we are to have any chance of achieving economic, social and environmental sustainability.

The scale of the global shadow economy is large—and growing. The UN Office on Drugs and Crime (UNODC) calculates that the trade in drugs, people, arms, fake goods and stolen natural resources is now worth around US$130 billion (882 billion yuan) a year. So great is the problem, UNODC concludes, that there is a growing threat to peace and development in a number of regions – and threats to the sovereignty of some nations, notably in Africa.

Among the organizations we highlighted in our report that are fighting different forms of corruption are Transparency International, which publishes the highly influential Corruption Perceptions Index, measuring the perceived level of public sector corruption in 180 countries and territories around the world, and the Business & Human Rights Resource Center, whose website covers over 4,000 companies across 180 countries and receives 1.5 million hits per month.

Bribery and corruption can have unfortunate impacts on the board agendas at the world’s top firms, as illustrated by recent controversies around companies like Daimler, Rio Tinto (in China) and Siemens. Chief legal officers and chief ethics officers are closely involved, as are chief purchasing officers and chief security officers, particularly in troubled areas of the world. Over time, the shadow economy has the potential to damage a surprising range of companies – and should, therefore, be a regular item on the leadership agenda.

Ask BP. If the US regulators had been up to their job, maybe they wouldn’t have accepted environmental-impact assessments that focused, among other things, on Arctic animals completely absent from the Gulf of Mexico. A spectrum of industry influences, from behind-the-scenes lobbying through to blatant bribery, helped to fog the vision of those who should have been looking out for all our best interests.


John Elkington is executive chairman of Volans and non-executive director at SustainAbility.

Image: Junichi Sato and Toru Suzuki, Japanese environmental activists, stand outside a 2008 press conference at which they accused the whaling industry of widespread corruption. Photo by Greenpeace.

This post originally appeared on China Dialogue.

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Comments

David Brin has made the following suggestion to tackle this:


The proposal is radical economic transparency. Imagine a simple requirement, negotiated into a treaty that encompassed the world, that is so simple it can be encapsulated in a few sentences.

Anyone who owns anything larger than a small farm or shop must simply declare and avow, openly, that they own it. People should state what it is that they own, and how they came to own it.

Oh, there is one necessary corollary to spell out.

Further -- no property may be possessed by any set of holding companies more than two layers deep, before getting to actual human people, who admit, assert and avow that ownership.

That's it; all there is. There ain't no more. Isn't it enough?




Is it enough?


Posted by: Tony Fisk on 18 Aug 10

Corruption is a worldwide problem.Many organizations want to help to fight corruption. And with the help of every citizen corruption can be solve.

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Posted by: Rebecca Toseland on 18 Aug 10

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