Abstract

Consider the following problem. A multinational corporation is expanding its operations to a developing country. The developing country in question is now a democracy or is in the process of becoming one, it has a (fairly) independent and corruption-free judiciary (or is in the process of establishing one), its human rights record, while not perfect, is improving, and its bureaucracy and police are not now terribly corrupt. But not too long ago, none of these things were true. A few years back, the nation was run by a dictator, and the bureaucracy, judiciary, and police were all corrupt. Business people, and everyone else, had to operate within this corrupt system, and for business people this usually involved—at a minimum—lending tacit support to the existing regime, paying bribes, making financial “donations” to the ruling party, overlooking various “activities”, and so forth.