Company Town: Fixing Corrupt Governments

Too many democracies are ruled by corrupt leaders, says HBS professor Eric Werker. So how about letting good corporate citizens run for elected office in Third World regions? Key concepts include:
  • Corporations should be allowed to run for office in corrupt Third World governments.
  • Companies and nonprofits have stronger incentives than do individuals to steer clear of bribes and kickbacks.
  • Voters might look favorably on a foreign "mayor" because it might be viewed as the only credible option to escape the corruption rut, and their taxes would fund good government.
by Eric Werker

Corporations could do a good job of running corrupt Third World governments.

Corruption rules in too many of the world's democratically elected governments. From Achocalla, Bolivia, to Mayuge, Uganda, voters pick their leaders through the ballot box, but an entrenched system of kickbacks, bribes, and graft means that citizens are cheated out of a fair government that operates efficiently and in the public interest.

It's time to consider a radical idea: Corporations and nonprofit groups, in addition to individuals, should be allowed to run for office in local elections. Firms such as KPMG, Ernst & Young, or McKinsey should all get a shot at becoming candidates to run cities and districts with a history of corruption. Entities that are experts at municipal accounting, consulting to foreign governments, or providing services like procurement support and corruption monitoring might consider becoming candidates.

This is not a call for privatization of services (like trash pickup), which is already widespread. Instead, it's a suggestion that the job of mayor itself be awarded by voters to a private firm. Unlike other privatizations, this would not be a one-off event. Every several years voters would get the chance to choose their administrator of choice.

While I am serious about this idea, I know that it can't work without the input of visionary policymakers who would hammer out all the details. If a company or nonprofit is elected mayor of Lagos, Nigeria, who would do the job? An individual, a group of people, or some sort of board? Where would those people come from? New York? Nigeria? London? To my mind, it should be left up to the elected entity. If KPMG wanted to fly in a vice president from the Chicago office, it could do so, or it could hire a group of three Nigerians. It could lay out its management plan as part of its election campaign, and voters would take that into account in making their decision.

Why would locals vote for a foreigner? If they felt it was their only option to get out of the high-corruption, low-efficiency rut. Keep in mind that in African villages, store owners paint Coca-Cola signs on the sides of their tin shacks. These signs are not sanctioned or paid for by the company. They are seen by locals as a sign of credibility.

Companies and nonprofits have stronger incentives than do individuals to steer clear of bribes and kickbacks. A corruption scandal in Lagos could harm KPMG's reputation in New York or Shanghai. Moreover, foreign firms are bound by many laws of their home country and by international laws, notably the antibribery convention of the Organization for Economic Co-operation and Development. In addition, a company or nonprofit must demonstrate to its shareholders or donors that it can perform efficiently.

To state the obvious, companies must make money. How could running a local government be a profitable enterprise? In a word: taxes. Voters in corrupt municipalities currently pay taxes to finance mediocre government as well as embezzlement. They might very well be willing to pay the same, or higher, taxes to finance good government, which would include a profit margin to the elected firm.

Corporations might find that some parts of running a city are less costly than running a business. For example, successful firms or nonprofits would get free advertising through the popular press, eliminating their need for private marketing while increasing their ability to win elections in other locales around the world.

Citizens in mismanaged locales deserve to have the option to elect competent, noncorrupt management, from anywhere in the world, and to remunerate them as the job requires.

About the Author

Eric Werker is an assistant professor in the Business, Government and the International Economy unit at Harvard Business School.