Freedom Line Blog

In recent days, Wal-Mart has been rocked by the New York Times‘ reporting on a bribery scandal in Mexico, where the firm reportedly paid over $24 million to government officials to fast-track the permitting process for stores built south of the border.

The left, of course, is all over this because Wal-Mart is their corporate bete noir of choice. Personally, however, I think the party that bears the most guilt is the Mexican government, which has created an atmosphere in which graft is the easiest way to do business. Absent those conditions, the need for bribes would have been minimal and the issue would’ve been moot. Regardless, however, there’s an important angle here that gets fleshed out by the American Enterprise Institute’s Nick Schulz, writing for Forbes:

… While we’re on the topic of companies having to pay the politically powerful for access to markets, can we stop for a moment to examine how things sometimes get done right here in the United States? It’s not uncommon for big box retailers to pony up cash and other unearned benefits in order to break new ground on stores.; what’s different here, however, is that members of our political class often force them to do it. And it’s all perfectly legal.

Consider a recent bill in Maryland, where I live, aimed at big box retailers. Firms like Wal-Mart, Costco, and others hoping to expand operations in wealthy Montgomery County, just outside Washington DC, would be forced to negotiate legally-binding “community benefits agreements” as a condition for building and operating new stores. These sorts of bills are not uncommon when big retailers want to expand or enter into new markets.

The upshot is that politically well-connected local stakeholders – unions, community organizers, and other interest groups – get cash, hiring promises, and other benefits from the retailer in exchange for dropping any opposition to a new store.

Among the possible benefits are “assistance to community organizations and programs.” These organizations can, in turn, use this “assistance” to support the political candidates who push this kind of legislation in the first place.

What Schulz is describing is no more representative of free-market capitalism than the bribery going on in Mexico. As long as business owners have to compensate others who have contributed absolutely nothing to their efforts as the predicate for setting up shop, political power over business is still excessive. At least the folks in Mexico have the decency to call this what it is.