The Neoercantilist Fallacy and the Contextual Reality of the Foreign Corrupt Practices Act

Abstract

The Foreign Corrupt Practices Act is domestic legislation and should be analyzed as such. This article addresses a persistent failure in analysis of the Act, by scholars and policymakers alike. Many discussions of the Act approach it from a neomercantilist perspective. This approach contains three flaws. First, whereas neomercantilism envisions manipulation of the market to give advantage to national champion industries, the Foreign Corrupt Practices Act was adopted for the purpose of strengthening and enhancing the integrity of the global market. A neomercantilist perspective is contrary to the purpose of the Act. Second, this article shows that neomercantilism fundamentally misunderstands the world of business – the modern equivalent of the mercantilist fallacy. Business firms form networks of relationships with little reference to political borders, whereas neomercantilism envisions a world in which business firms are siloed by national borders. By importing this fallacy, a neomercantilist perspective invariably yields a flawed analysis. Third, Congress asked that the Foreign Corrupt Practices Act become part of a global anticorruption regime, and that request has been robustly answered. By its own definitions the Act applies only to business actors engaged in transnational activities. These business actors will also be subject to the other elements of the global regime, as will their competitors. Neomercantilism cannot account for the Act’s place in that regime. Legal analysis in general has difficulty in accounting for domestic business regulations that encompass transnational behavior. Law must overcome this difficulty or it risks becoming irrelevant to business. Analysis of the Foreign Corrupt Practices Act must avoid the neomercantilist approach, not just for the sake of intellectual rigor, but also to accrue the benefits of a sound market as envisioned by Congress.