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Corruption and international trade: The Australian Wheat Board in Iraq

by Dr Simon Longstaff
06 February 2006
BUSINESS AND PROFESSIONAL ETHICS;
LAW, JUSTICE AND HUMAN RIGHTS
Adam Smith is often credited with providing the intellectual foundation for free trade. So, what would he make of the evidence emerging from the Cole Commission enquiring into alleged ‘kickbacks’ from Australian companies to the regime of Saddam Hussein?

Smith was not an economist; rather, a professor of moral philosophy at the University of Glasgow. He had a robust and pragmatic view of the ethical underpinning needed for any free market to operate. Smith knew that if a market is to be truly free, then its participants must never lie, nor cheat nor use their power oppressively to secure advantage over their competitors.

It is not simply that lying and cheating are ‘wrong’ – of equal importance is the fact that such behaviour brings distortions to the market. The effect of these distortions is that corrupt traders end up paying the wrong people the wrong price for the wrong products.

It's not just that lying and cheating are dishonest – widespread corruption of markets is lethal.

To those of us reading such ideas from the relative comfort of affluent Australia, such points may seem to be rather unimportant. However, if you put yourself into the shoes of a person struggling to survive in a developing country, then the effects of market corruption can make the difference between life and death for you and your family.

It is for this reason that organisations like Transparency International have been so motivated to expose and eliminate corruption. It's not just that lying and cheating are dishonest – widespread corruption of markets is lethal.

Adam Smith would urge us to create a ‘level playing field’ in which honest traders win or lose on the basis of the price and quality of the products they offer to sell. He would be appalled by any suggestion that Australians have profited from duplicity. That's the theory.

Now to the reality. When it comes to trade in international commodities, the playing field is anything but level. For example, Australia's wheat farmers compete against others whose governments subsidise production and/or have few scruples about bribing their way into a contract. For most of history, trade has been facilitated by a combination of gunboats and bribes – with the major traders applying two basic principles: "do unto others … before they do it to you" and "do whatever it takes".

The reality is that international traders and their governments have only one allegiance – and that is to the people who produce the commodities they sell. It is a zero sum game. If you lose the contract, then that loss is total. Not a dollar will flow back to your farmers, miners … whoever.

This is a tough world in which there are no natural allies and in which nations fight a proxy war – with relatively few equivalents to the established laws and conventions that govern the conduct of armed services around the world.

The murkier side of international trade is rarely noticed by those of us who benefit from successful trading. It's not just farmers and miners who do well when our trade in commodities prospers. We all do. Many markets are ‘clean’. But not all.

So, in a few cases it is convenient to turn a blind eye – enjoying the fruits of our labours mediated by a handful of traders who are left to get their hands dirty in the trade wars. Let me be clear, the people who do this work are hardly shrinking violets forced to violate their conscience for the sake of the nation. Many love the thrill of it – living in a ‘cat and mouse’ international environment where playing the game hard and winning can be an exhilarating tonic for life.
 
Australia's ability to lead the debate in favour of genuinely free trade depends, to a large degree, on the moral justification of our cause and this cannot be completely separated from perceptions about our own ethical standing.

What of those who govern the activities of our trade warriors? Well, they are often tempted to revel in success while not asking too many questions about how that success has been achieved. Indeed, I suspect that there is a fair amount of 'tactical ignorance’ employed in order to insulate the ‘good and the great’ from the realities of effective marketing in some of the more difficult environments.

The dilemma at the heart of Terence Cole's enquiry is this: we would like to win the trade battle with honour. But are we prepared to lose with honour?

Some people will answer that question with an unambiguous appeal to principle. Others will take the view that we should be no worse (and no better) in our behaviour than our least ethical competitor. Others might turn to domestic and international law. However, a few will also wish to play the ‘enlightened self-interest’ card.

That is, more than most nations, Australia has an interest in promoting genuine free trade so that our efficient producers can succeed on fair terms. Australia's ability to lead the debate in favour of genuinely free trade depends, to a large degree, on the moral justification of our cause – and this cannot be completely separated from perceptions about our own ethical standing. In the end, hypocrites usually have to rely on naked power to succeed. And we are not that powerful.

So, the short-tem gain achieved by someone finding a loophole, or by ‘gaming’ the system through clever but sharp practice or through the studied indifference of corporate and government leaders to the way some traders operate on our behalf. All of this may, in the end, cost us more than we reckoned.

I know that you cannot live on a good reputation alone. But a good name may be worth more than can be reckoned in dollars alone.

 
Dr Simon Longstaff AO is Executive Director of St James Ethics Centre.