Law

It is fairly well-established, from a historical perspective, that the International Monetary Fund and the World Bank have been more involved in technical economic and developmental activities than business law more generally.  These traditional emphases, however, are changing quickly.  Indeed, as a series of devastating domestic and international economic crises have struck over the past two decades, there have been increasing calls by academics and policy makers for the creation of a new financial architecture to guide domestic and international business practices and legislative frameworks to implement transparent business operations.  Because the International Monetary Fund and the World Bank are the linchpins of the international financial system guiding and influencing business practices and legislative developments, both of these Bretton Woods institutions have been viewed as essential actors in terms of implementing this new type of international financial architecture.  As a result, both the International Monetary Fund and the World Bank have become much more active in devising, advocating, and attempting through their traditional financial tools to institutionalize a number of business law standards and legislative frameworks in ways that have traditionally been beyond the scope of their original mandates.  This essay will discuss some of the ways in which these institutions are affecting business law changes and developments globally more specifically, this essay will examine how the International Monetary Fund and the World Bank have evolved and are evolving in order to address important and controversial business law issues such as corruption laws, business privatization laws, and the rule of law as it pertains to businesses more generally.

Traditional Functions  International Monetary Fund and World Bank
As an initial matter, in order to understand why these institutions are well-equipped to deal with these business law issues and how they are adapting to perform these new functions, it is necessary to place these institutions in context.  Both the International Monetary Fund and the World Bank were created in response to widespread business ruin and financial crises that existed following the conclusion of the Second World War.  In much the same way that modern academics and policy makers call for the creation of a new financial architecture today in order to address widespread business failures and financial problems, so too did leaders in the aftermath of World War Two call for the creation and institutionalization of a new financial architecture.  Indeed, as has been noted by one scholar, From the ruins of World War II, the international community created the International Monetary Fund (IMF) and World Bank, acknowledging the growing interdependence of international economic markets.

This growing interdependence of international markets was premised on the internationalization of business and the need to create and implement uniform business laws and financial standards.  The International Monetary Fund and the World Bank, while being vested with different core responsibilities, were essentially
complementary creatures designed to make the transaction of international business more transparent, more stable, and to prevent the type of protectionism and competitive national brand of capitalism that led to the previous world wars.  Generally speaking, the International Monetary Fund was intended to stabilize national currencies and to promote financial stability so that international business could be carried out without financial crises that might lead to social instability and war.  In addition, donor nations contributed money that could be used to stabilize national economies in crises.  The World Bank, on the other hand, was primarily conceived of as a developmental institution.  Recognizing that business and developmental capacities differed significantly between and among different countries, the World Bank was intended to identify and to fund projects in countries that would ultimately allow poorer and undeveloped countries to participate more meaningfully and more intimately in international business and economic transactions.  Unlike the International Monetary Fund, the World Bank has been more directly and closely connected to the domestic politics and social peculiarities of different countries as a result of its development mandate.  As a result,
The World Bank is a development institution, but it is also a political animal. As a coalition of most of the countries of the world, it has no choice. Firms based in donor countries want to continue contracting with borrower countries under World Bank loans borrowers want to maintain Bank support. These interests of donors and borrowers form the political coalition that supports the Bank.

In sum, both of these institutions have since World War Two been vested with the authority for ensuring stable financial environments for the conduct of business, for making grants and loans conditional upon conformity to certain business practices and legislative enactments, and for engaging in developmental projects deemed beneficial to the economic development of many countries.  Problems, however, have consistently arisen as a result of competing political and economic interests and ideologies.   Developing countries, and particularly their business interests, are eagerly interested in access to the technical support and the financial capital that can be provided by the International Monetary Fund and the World Bank these are sources of capital and technical knowledge that would otherwise be unavailable to local businesses.  On the other hand, these offers of capital and technical support often come attached with conditions in terms of new business laws that must be enacted and transparently enforced.  These conditions, these business law modifications to existing practices in many countries, frequently threaten vested interests that have grown rich and powerful based on corruption, state monopolies, and a weak rule of law which sustains those benefiting from corruption.  The vested interests that feel threatened thus tend to characterize International Monetary Fund and World Bank motives as self-serving and assert that they are attempting to superimpose Western business ideals and business laws in ways that undermine local economies and business values.  In Thailand following the Asian Economic Crises of 1997, for example, the International Monetary Fund offered a financial stabilization package conditional on Thailand implementing a series of anti-corruption laws and privatization laws.  The attack on the Thai currency, it was widely believed, was a result of widespread business corruption associated with private firms and state-owned monopolies.  Vested interests resisted because anti-corruption laws and privatization threatened their golden eggs indeed, it has been noted in the academic literature that despite the soundness of the economic arguments, politics still remains a large obstacle to effectively privatizing Thailands SOEs. Unlike other countries that have already undergone privatization, such as those in Eastern Europe, Thailand seems not to have removed politics from the process, placing the State Enterprise Reform Committee ultimately under the hand of the Ministry of Finance and NESDB  HYPERLINK httpwww.questiaschool.comPM.qstaod5001747404(Dempsey 373)
 
The issues, however, have a much broader impact than in one country alone.  The Asian Financial Crises, instigated by non-transparent business practices and a weak rule of law pertaining to business, rapidly spread to other countries.  South Korea, for instance, experienced increasing unemployment and a variety of social and political problems as a result.  It is this notion of contagion, that business practices and business laws in one country affect business health in many other countries, that has inspired the International Monetary Fund and the World Bank to broaden their original mandates and functions in an effort to institutionalize certain minimum business standards globally.  These business law institutionalization efforts have primarily focused in anti-corruption efforts, privatization, and strengthening the rule of law as it pertains to business operations in domestic and international markets.

Evolutionary Functions and Business Law Implications
Business Corruption Legislation
It is widely accepted that corruption negatively impacts domestic business operations, international business operations, and the legitimacy attached to nations in which corrupt business practices are encouraged or tolerated.  As globalization has increased, in effect the internationalization of business and foreign investment, corruption issues have come to dominate policy discussions.  Indeed, recognizing the threat that corruption poses to financial and economic stability following the Asian Economic Crises of 1997, Both James Wolfensohn, the President of the World Bank (Bank), and Michel Camdessus, the head of the International Monetary Fund (IMF), have put the control of corruption on their institutions agendas.

This has largely been accomplished through education programs promoting specific types of business law frameworks and contractual stipulations in International Monetary Fund and World Bank lending packages that make the receipt of loans and grants conditional on the enactment and enforcement of specific types of business laws.  The rationale extends beyond the mere notion that corruption is morally wrong the dominant rationale for such contractual conditions is increasingly premised in the idea that  Research on corruption and on the quality of government institutions indicates that strong legal and governmental institutions and low levels of corruption have beneficial effects on economic growth and other economic variables. The implication, supported by the empirical evidence, is that a healthy and thriving business environment is dependent on national legislative schemes that are uniform and enforceable.

One complication, however, is the fact that corruption manifests itself in many different forms and that business laws must be comprehensive enough to cover the variety of acts and designs that constitute corruption.  Bribery is one of the most-cited examples of corruption in this context and bribery takes a variety of forms and is motivated by a variety of different contextual concerns.  Bribes are offered to provide incentives for government officers when issuing government contracts, to reduce costs by persuading government officials to create regulatory loopholes for certain business interests, or to secure state concessions or interests in state monopolies.  In an effort to standardize anti-bribery business laws globally, the International Monetary Fund and the World Bank have relied on domestic American laws and business standards as a model legal framework for the world business community more generally.  It is therefore necessary to first examine the American legal standards in this respect, most notably institutionalized in the form of the Foreign Corrupt Practices Act, before discussing how these types of American business law standards and sanctions are being advocated in terms of the creation and enforcement of uniform international business laws.

Recognizing the negative effects of corruption and bribery, both in terms of business ethics and business performance, the United States Congress directly addressed issues related to corruption more than three decades ago specifically, Congress enacted the Foreign Corrupt Practices Act (FCPA or Act) (1) in 1977 to criminalize illicit payments to foreign public officials by United States (United States or U.S.) businesses and individuals.  This business legislation, and its attendant criminal sanctions, had both benefits and drawbacks.  In terms of benefits, America was attempting to set clear legal standards to promote transparent business operations and to ensure the underlying economic legitimacy off business in international settings.  On the other hand, some American businesses complained that this type of business law was an unfair constraint because the countries in which they were conducting business often demanded bribes as a matter of course and that other foreign businesses and corporations were quite willing to pay bribes to gain access to lucrative markets or business contracts Consequently, U.S. businesses had to compete in international markets against foreign businesses that were unconstrained by laws proscribing bribery.  It was this perceived lack of equity which compelled American policy makers to begin demanding that Americas trading partners enact their own anti-corruption laws if they wanted to continue to have access to American markets and to continue to secure certain trading benefits.  The data supports this fear by American businesses indeed, a survey by the World Bank of 3,600 firms in sixty-nine countries indicates that forty percent of businesses are paying bribes. The same article states that German firms spend more than five billion dollars a year onforeignbribes. (George, Lacey and Birmele 1-2)   The American government assigned these duties, institutionalizing anti-corruption laws internationally, to both the International Monetary Fund and the World Bank to a significant extant.  Loans made to Argentina, for example, were made contingent on good governance policies and laws that focused on the eradication of corruption in business settings.  In China, a country increasingly influential in international business matters, it has been noted that
Western investors in China are of two minds. They are at once frustrated by the lack of transparency and predictability in the Chinese legal process. Indeed they frequently see China as having no law in the Western sense, with guan xi (personal connections) taking precedence over any formal contracts.

These personal connections, in a country that is gradually coming to dominate international trade and business, are a breeding ground for corruption.  Whether it is Argentina or China, the fact is that corruption is pervasive, that American businesses are frozen out of many business opportunities because of domestic business legislation such as the Foreign Corrupt Practices Act, and that vested interests in foreign countries are reluctant to enact business legislation advocated by the International Monetary Fund and the World Bank.  Notwithstanding these difficulties, however, some progress has been made toward institutionalizing international legal standards regarding corruption and bribery.  Recently, for example, is has been documented that the European Union has enacted antic-corruption business legislation and is pressuring its trading partners to enact similar legislation.  At the same time, the International Monetary Fund and the World Bank have taken a much harsher approach to countries without such business laws for instance,
James Wolfenson, president of the World Bank, claims that corruption is the biggest issue on the minds of voters and the single inhibiting factor for private investment.(196) The World Bank and the IMF are increasingly vocal about refusing loans to countries who are unable or unwilling to rid themselves of bribery, kickbacks, and political payoffs.

As a result, the International Monetary Fund and the World Bank have used Americas Foreign Corrupt Practices Act as a model for international business laws.  Whether real business law reform will actually occur in the international business environment remains subject to doubt because of the benefits some people derive from bribery and corruption.  The cautious trend, however, is toward international anti-corruption legislation and this movement is being spearheaded by both the International Monetary Fund and the World Bank.

Business Privatization Legislation and the Rule of Law in Business Contexts
In addition to advocating anti-corruption legislation, the International Monetary Fund and the World Bank have also evolved to become more intimately involved in efforts to compel business privatization legislation and the strengthening of the rule of law internationally as that law pertains to business operations and transactions.  Privatization, in many ways, is seen as a necessary precondition for the elimination of shady business practices and corruption.  This is because corruption most often thrives in situations where political actors become financially involved in state monopolies and the granting of state business concessions.  The argument is that private businesses tend to operate more transparently and that this transparency, in turn, compels the businesses to perform honestly.  There is also an argument to the effect that private businesses seek to minimize costs in ways that state monopolies do not because or public financing, and that this cost-minimizing feature of private enterprise functions to guard against the extra layers of costs associated with bribery and corruption.  Consistent with these arguments, both the International Monetary Fund and the World Bank have increasingly included contractual stipulations in loan and developmental packages which demand the enactment of business privatization laws it has been noted in this respect, for example, that  The International Monetary Fund (IMF), the World Bank, the Asian Development Bank, and other lending institutions tend to link monetary assistance to government promises to privatize state-run industries. HYPERLINK httpwww.questiaschool.comPM.qstaod5001747404(Dempsey 373)  In sum, both of these international actors are creating new business laws as they evolve to meet new business challenges in an increasingly globalized and interdependent business environment in the early twenty-first century.
 
Finally, in addition to promoting business privatization legislation, the World Bank in particular has demanded the strengthening of the rule of law as it pertains to businesses in countries in which it engages in developmental activities and projects.  These rule of law efforts include creating more credible law enforcement agencies, improving compensation scales for civil servants to decrease the incentives for corruption,  increasing accountability to stakeholders by creating laws requirement financial accountings and verification, and promoting a free media in order to encourage transparency and fair dealing.  It is therefore no longer possible to consider domestic business law frameworks on national isolation quite the contrary, it is necessary adopt a global business law perspective because business operations and activities are carried out in different legal jurisdictions with different ethical perspectives and business law frameworks.  The International Monetary Fund and the World Bank are evolving to meet these changes in the conduct of business and they are functioning as advocates and enforcers of new business law standards and practices.  Whether they will be able to harmonize disparate business law regimes remains the subject of the debate.

Conclusion
In the final analysis, business laws are primarily designed to create predictability, transparency, and ethics in the conduct of business.  These goals underlying the very existence of business laws, in turn, demand some uniformity of they are to be attained.  The international business environment is facing a crisis of confidence because different countries apply different ethical standards and different business law frameworks.  This leads to poor economic performance and creates a chilling effect with respect to internal business enterprises.  The International Monetary Fund and the World Bank have attempted to remedy some of these problems by making the enactment and enforcement of certain types of business laws a necessary contractual obligation for countries desiring loans and developmental capital.  These business laws have focused on anticorruption laws, business privatization, and the strengthening of the rule of law more generally as it relates to business through associated good governance policies and laws.  There remains a substantial amount of resistance and there is not yet enough evidence to conclude whether these efforts will prove to be successful I the long run.