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When Regulation Leads to Bribery

In developing nations, rules written by governments and corporations alike are understood as a tool for extortion.

An aerial image of downtown Lagos, the largest city in Nigeria, Africa's most populous country. In many African cities there is a belief that government rules are meant to facilitate corruption, since bribery becomes the only way to get things done. In fact, extortion is viewed as a fact of daily life, according to the author. Without bribes nothing happens.
Americans generally take it in good faith that the regulations they live under were created for good reason. Different ideological sides argue about the costs vs. benefits of government regulation, but less about the underlying motive. The Environmental Protection Agency exists to control pollution, the Securities and Exchange Commission to prevent securities fraud, and so on. But in developing nations, people work from different assumptions.

There’s a general dislike of government here in Africa, where I’m currently staying, premised on a jaded attitude that those entering government do so to get rich. There's also a belief that the rules themselves are meant to facilitate corruption, since bribery becomes the only way to get things done. Talking to countless people along my 18-month Global South tour — from large real estate developers to cab drivers — I find extortion is viewed as a fact of daily life. Without bribes nothing happens.

Constituents of developing nations have a basis for thinking this. In his book The Mystery of Capital, Peruvian economist Hernando de Soto wrote of this regulation-bribery link. One reason poor countries remain poor, he explained, is that governments build a protectionist regulatory architecture that makes everyday life very difficult. To demonstrate, he sent some of his students out to try opening a legal garment shop in a shantytown neighborhood of Lima, Peru. This became, thanks to city rules, an endeavor that took most of a year and would have been financially out of reach to average Peruvians.

Such things are common across developing nations. Shockingly large percentages of the populace must live informally, dwelling in homes and opening shops that are technically “illegal.” Their non-compliance impedes them from growing their businesses and becomes a means for extortion. De Soto notes that in such neighborhoods, a large chunk of business revenue is siphoned into bribing public officials. The Arab Spring, de Soto adds, started when a Tunisian fruit merchant lit himself afire after an inspector, citing lack of licensure and inability to pay a bribe, confiscated the man’s fruit.

I’ve experienced such corruption myself. Many African countries have Kafkaesque tourist visa processes. For the privilege of flying in and spending thousands of dollars in these desperately poor places, one must buy advance flight and hotel reservations, get an invitation from an incorporated business, write a self-intro letter, and fill out long forms on malfunctioning websites.

Nigeria was one country where I tried going through with this process, only to find the immigration service wouldn’t approve the visa. Having already purchased accommodations, I flew in anyway, hoping to work with the officers. But they held me in the airport for 12 hours, confiscating my passport and harassing me about the supposed “errors” on my application.

Only when describing my situation to a Nigerian friend was I told what to do: pay a bribe. Some $285 later, my passport was returned by an officer with an approved visa slip.

Had I not paid, I would’ve needed to hire a lawyer to get my passport back. That would’ve cost $1,200, much of it likely also kicked back to Nigeria’s immigration agency. Which explains why the country keeps this visa process rather than adopting a looser one as others have: It perpetuates their ability to extort. The complexity is the point.

When I arrived in the Nigerian metropolis of Lagos, I found a similar mindset had spread to the private sector. At various times, private security guards, retail clerks and bank tellers denied me service (such as a Western Union withdrawal), citing "company policies." Locals chuckled about this when I recounted the stories, explaining that those staffers just wanted their cut.

While there are corrupt cities in this country, the U.S. doesn’t have nearly this culture of bribery. But we do have a more formalized, codified version of the same thing. Increasingly, business owners in the U.S. must obtain occupational licenses and take other compliance steps for permission to sell goods and services. This has created a cottage industry of lawyers, consultants and government officials who advise them. Congress is the ultimate example: Half of its former members become lobbyists after leaving office, getting paid by businesses to navigate the regulatory soup they helped create.

While the answer for developing countries is obvious — tear down these protectionist systems — that won't happen in regions where corruption is entrenched and no incentives for reform exist. For all de Soto’s cross-ideological support in the two decades since his book was published, developing nations haven’t changed. Most commerce is informal; in Nigeria the shadow economy equals 58 percent of GDP.

The answer for the U.S. is more subtle, because government regulation has at times been necessary and effective. But for those who view it as a useful tool for solving societal problems, it’s worth taking a dose of developing nation skepticism. Even when such rules are written with good intent, they can be weaponized later on for self-interest. And once on the books, they’re hard to roll back.
A journalist who focuses on American urban issues. He can be reached at or on Twitter at @sbcrosscountry.
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