The expansion of the Wal-Mart investigation into India proves that history is indeed circular. These developments seem to be the early 1970s all over again, and that can’t be good for Wal-Mart.
Remember that we passed the FCPA in 1977 after revelations that Lockheed, a flagship U.S. corporation, had paid bribes in Italy, the Netherlands, and Japan. This was thought damaging not just to U.S. business interests, but to the broader movement to spread free enterprise and democracy across the developing world. Italy, in particular, was evenly divided at the time between liberals and communists; we feared that news of predatory and destructive practices by greedy U.S. MNCs could tip the political scales. And so the U.S. took what was then the absolutely unprecedented step of criminalizing overseas bribery. We wanted to send a message.
Fast-forward to India, circa 2012. Here, the flagship U.S. corporation is not Lockheed, but Wal-Mart. And the battle is not with the communists, but with what we might call the legacy-communist protectionists — those in Indian government today who remain sympathetic to the quasi-communist protectionism of modern India’s founders, particularly Mahatma Gandhi and Jawaharlal Nehru. Following the collapse of the Soviet Union and the near-collapse of India’s economy, India began a process of incremental liberalization, thanks largely to its finance minister — an Oxford-trained economist by the name of Manmohan Singh.
Singh, of course, is now the prime minister, and has continued to fight for liberal reforms. And although India has historically been especially protective of its retail sector, just last September Singh and his political party succeeded in bringing down the barriers that prevented companies such as Wal-Mart from opening up retail shops in India. Critics claimed that these predatory western MNCs would destroy India’s economic and social fabric.
And now this.
Never mind that the principal opposition to Singh’s liberal reforms, the BJP party, is as corrupt as the day is long. They can still spin the Wal-Mart story to their advantage. And thus if India is going to remain open to foreign direct investment — generally thought to be essential to the country’s long-term poverty reduction prospects — someone is going to have to send a message. Again.
Maybe it will be India; maybe the U.S. will help. But many still need persuading, both in India and the world, that FDI, properly regulated, is a good thing. And this will likely come at Wal-Mart’s expense.
Andy Spalding is a senior editor of the FCPA Blog.