The High Cost Of Corruption


By Jack and Suzy Welch What is the impact of corruption on a nation's economy? My impression is that there is no major corruption in America, which explains its entrepreneurial success. Is there corruption in the U.S. in any form or by another name? —R.M. Subbiah, Kuala Lumpur, Malaysia

Like heat, humidity, and tax rates, corruption falls into the "everything is relative" category. We happen to live in Boston, home of the Big Dig, said to be the second-largest public works project in history. The Big Dig, launched in 1991 to bury many of the city's highways and create a wide swath of parkland, was supposed to be concluded in 2001 for $2.8 billion. It may be done by 2010, with a final price tag of $14.6 billion. Now, anyone who has ever put in a new kitchen knows that renovations always cost twice what you expect, but an $11 billion overrun certainly seems to suggest that, yes, there is corruption in America.

But it's rare—comparatively. We recently returned from a trip to Latin America where we met with hundreds of business people in Brazil and Argentina. Their stories of ubiquitous corruption, much of it at the hands of the government, were chilling. Tax evasion is widespread; enforcement is spotty. In Argentina, several CEOs told us that if you attempt to conduct business without playing by the unwritten rules imposed by layer after layer of government bureaucrats, an army of tax auditors arrives at your door, paralyzing your company and often times staying until an employee or two goes to jail.

We don't mean to single out Latin America. Even in Europe, business-as-usual can include illegal activities. Yes, the situation has improved in the past decade. But European CEOs have told us that bribery was once so pervasive—in Germany, bribes were legal through most of the 90s—that they often did not know which of their own employees they could trust. Today, corruption is particularly rampant in the developing world, from India to China, and through Eastern Europe to Russia. It remains one of the main reasons that capitalism cannot take root in Africa. Corruption can make it just too expensive to start a business, or in many cases, to keep a small one running.

By contrast, the relative lack of corruption in the U.S. is a key reason, along with an entrepreneurial culture and the wide availability of venture capital, that we lead the world in business creation. Virtually no one starting a company in the U.S. today, and no one funding one, has to worry about covering the hidden costs of bribes, payoffs, and kickbacks. They just have to worry about coming up with great ideas, getting the best people, and delivering a terrific execution. That's hard enough!

Yes, the U.S. has its share of corruption in public works projects. And we did have a spate of corporate scandals—Enron, WorldCom, and Tyco, to name the most notorious. But those were mainly cases of individual fraud and malfeasance, not systemic corruption. We really don't have that. Which is why when you compare the sustained health and entrepreneurial energy of the American economy with the more corrupt countries around the world, your question says it all: Corruption is a competitive disadvantage.

When it comes to getting an entry-level job with a corporation, does it matter where a person went to college? —Ben Santacroce, Naples, Fla.

Every situation is unique, of course, but in general, college mainly matters if the person in question is sort of average—O.K. grades, O.K. recommendations, O.K. everything. In that case, a brand-name degree comes in quite handy. A Princeton or Williams stamp of approval has a way of opening doors that might be closed to a similarly average student from a state school. Hiring companies will hold their noses and say: "Well, he did graduate from Cachet CollegeParagraph ."

But stars are stars no matter where they go to school. We're talking now about students who have earned 3.5 averages or better, held leadership positions on campus, and because of their hard work and great attitudes, have garnered enthusiastic letters of recommendation from professors and summer employers. This crowd of winners is welcome anywhere with, perhaps, one exception: consulting firms. For reasons of prestige, they hire almost exclusively from about a dozen top-tier schools. It's their loss.

That said, how a person did at school—or to your question, where he or she went to school—becomes irrelevant after about one month on the job. At that point, a person's performance takes over as the driver of career success, rendering college to its rightful place as a happy memory.

Jack and Suzy Welch look forward to answering your questions about business, company, or career challenges. Please e-mail them at thewelchway@BusinessWeek.com For their podcast discussion of this column, go to www.businessweek.com/search/podcasting.htm


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