All I’ve been hearing about on the news lately is stuff about oil in the gulf and a bailout of Greece. I thought I’d talk about a different kind of grease, the oily kind. So my idea to move the topic to something other than Greece or oil is a stretch at best, but bear with me, I’m hopped up on PSE for a hardcore cold.
Grease payments come in all sorts of shapes and forms, but more or less they’re designed to make things happen that would normally take a longer period of time to accomplish. Grease payments are often paid to individuals or organizations in a position to “make things happen”. In many developing nations, government officials regularly accept grease payments to get approval for building codes, or buying property. Cultural practices make it commonplace that people wishing to deal with the government have to expect to make a “facilitating payment” to get anything to happen. Naturally, this makes government jobs highly sought after positions. Perhaps an example would best illustrate a grease payment.
Say I’m an importer of (legal) drugs into India. But the regulating body works very slowly and is accustomed to taking grease payments to get faster approval to import new drugs. I might have to pay $2,000 to an official to make sure my application goes through faster in a process that may normally take a couple of years to complete. Is that wrong? Should the Indian government do something about it? It’s never that simple. The economics of such transaction that are deeply rooted are hard to simply pull up. Government officials likely price such payments into the salary of employees, saving the government some money.
Further skewing the issue is the presence of legitimate grease payments. In the strictest sense, when you pay UPS extra money to send a package faster, you’re making a grease payment. Instead of an employee getting the money though, it goes straight to the top-line of UPS’s financial statement as a sale. Is this fair? It’s going to slow down the delivery of other packages since resources have to be devoted to the faster package to deliver it faster. So if I’m too cheap to pay the extra to have my package delivered faster I get pushed to the side while other packages get priority simply because they have more money or a higher willingness to pay.
In economics, this is considered OK. In a market a firm seeks to maximize revenue. Sometimes the market must be segmented in order to do that. Proctor & Gamble segments the market into people willing to buy their products at retail and those willing to buy only with a coupon. Anyone can get a coupon, but only those willing to go through the effort to get one actually benefit. The difference of course comes in the allocation of resources. P&G doesn’t have to allocate more resources to one market or the other, take away resources for the opposite side. It’s a toss-up.
To figure out if grease payments are OK, we have to define exactly what a grease payment does. For the person giving out the money, a grease payment saves them time. If a $2000 payment expedites approval by 6 months then the payment can be considered a purchase of time from the person that receives the payment. So is it wrong to buy time? I don’t think so. But that comes with some clarifications. A grease payment is only acceptable if it’s available to everyone and serves the purpose of getting someone to the front of the line. It must not be abused to the effect of someone intentionally delaying an order or project simply because a grease payment was not made. There’s also a line with government. Grease payments can be made directly to the government (such as expedited passports), but not an individual.
But wait a second. Isn’t the paying off of officials simply bribery? I’d be bribing that Indian official right? Forget grease payments, this should be against the law completely! Not quite. One of the problems with the English language today is we seem to think multiple words have the same definition. It’s why I hate the thesaurus. We can turn one word into a dozen, thinking that simply because they are synonym they must have the same definition. In fact, Thesaurus.com lists “grease” as a synonym for bribe. There is a special distinction between a bribe and grease payment. A bribe compensates someone for doing something they wouldn’t do otherwise. The Indian official would get to my application. If he didn’t then I would have to bribe him to get to it. There’s another word in this grouping you might be thinking about, blackmail. Again, there is a difference. Blackmail uses leverage to get someone to do something they wouldn’t normally do. So the actions caused by bribery and blackmail are the same: get someone to do something they wouldn’t normally do. Bribery compensates someone for their trouble, blackmail gets that person to do it to avoid some kind of action (Hollywood prefers to threaten to kill someone’s family). The grease payment then is simply buying time.
How often do you use grease payments? Where do you draw the line on grease payments? If a culture welcomes it then are they ok even in government? Should I stop taking PSE for a cold?
Photo: papalars
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
