Deepak Lal: Political corruption

An important reform would be to remove all restrictions on the private funding of political parties.

Tony Blair is in trouble, accused of offering peerages for large loans from millionaires to the Labour Party. George Bush's Republican Party is caught up in the corruption charges swirling around a powerful lobbyist for casinos. Bill Clinton was notorious for selling access to the White House for donations to the Democrats. In India it is an open secret that contracts in the gift of the ruling party are used to obtain black money to finance party expenses. The secret Russian archives and the Volcker report document the influence foreign governments have sought to acquire in the country by sending secret funds to the ruling party. More recently, it is reported that a government advisor to Tony Blair has been arrested after he told an undercover reporter that contributors to the British PPP (public private partnership) scheme for funding Blair's flagship Specialist schools and Academic Trust would be recommended for an OBE, CBE or a knighthood, and for £10 million could get a peerage. All these examples, and they could be multiplied, show that democracies, even the most mature, face problems of corruption in the interaction of business and politics. What can be done?

First, note that this is a systemic problem of politics and not merely of democracies. In fact as in democracies, unlike dictatorships, there is at least a chance that the rascals can be thrown out, this political self-seeking will be more limited. This systemic problem arises directly from the very nature of the State, whose very existence depends upon giving its agents a monopoly of coercive power within its territory. This is needed to provide the basic public good of law and order, without which the anarchical state described by Hobbes would prevail. The central question of politics, which has exercised the best minds over the ages, is how the State can be made to fulfil its basic functions of protecting its citizens without preying upon them for its own selfish ends. Idealists have always been attracted by Plato's answer: create a class of selfless Guardians who are only concerned with the common weal. But, bitter experience should have disabused us of the feasibility of creating these noble creatures.

By contrast, the sages of the Scottish Enlightenment""Adam Smith and David Hume""with their more clear-headed view of human nature saw the inherent propensity to predation of the State, and sought to limit it by reducing the opportunities provided by State interventions in the economy to subserve various purported desirable social ends. They saw clearly that politics, particularly democracy, was a zero-sum distributive game where favours would be granted by the State to some, to be paid for non-transparently by the rest of the populace, in exchange for the means to maintain its agents in power and in the style they have become accustomed.

Given this and the above examples of "corrupt" means to obtaining party funds for fighting and winning elections in democracies, an important reform would be to remove all restrictions on the private funding of parties that all democracies have misguidedly introduced under populist pressures demanding "fairness". In this unequal and imperfect world, money will always be important, but not necessarily decisive, in determining electoral outcomes. Much better for transparent contributions from Big Money, by allowing unlimited but publicly declared private contributions to political parties. There should also not be any of the legislated spending limits on election expenses to be found in many democracies. Instead, major parties in the UK are clamouring for the public funding of elections. This would in effect be another tax on the general populace to subsidise the political class. It needs to be fiercely resisted.

The "corruption" involved in the UK PPP contracts is likely to spread to India with its embrace of the concept. To finance its immense infrastructure needs? With the worldwide move to the market, a more insidious form of creeping dirigisme is emerging. With the reduction of direct interventions of the Permit Raj, which gave immense scope for "rent seeking", a Regulation Raj and soon a PPP Raj are emerging, which will provide fresh avenues for predation by politicians and those they favour. I will deal with this prospective PPP Raj in my next column, but for present purposes it should be noted that the troubles Tony Blair is having with his PPPs for schools arise from the reluctance of the Labour Party to give up its ideological adherence to a failed model of State education. In India the need for PPPs (particularly for electricity, water, ports and transport) has arisen because of the reluctance of the Left in the current government and its outside partners to privatise these infrastructural services.

This reluctance may be ideological but it probably also conceals a predatory political purpose, which is most clearly seen in the social democratic paradise of Sweden and is rapidly emerging in Blair and Brown's Britain. One way of gaining electoral support and keeping it for a social democratic agenda is to create an economy in which most citizens become wards of the State. The employees of public enterprises clearly provided such a committed constituency. With its demise with privatisation, employees in the burgeoning publicly provided health and social services provide a continuing vote bank for social democrats. If, in addition, by emasculating private pension provision, raising taxes which are then handed back as targeted benefits""as Gordon Brown has done""a large part of the population becomes dependent on the State, it becomes virtually impossible to roll back the State""and the "corruption" its extension inevitably entails. Thus, it has been estimated that in Sweden over 50 per cent of the population receive State benefits directly or indirectly, and the UK will also soon be reaching this sorry state.

Fortunately, India is still far from this social democratic paradise. With the end of the Permit Raj, a continuing source of political corruption would be ended with the removal of restrictions on election spending and with unlimited but public donations allowed to political parties. But the emerging PPP cum Regulation Raj will provide new pastures for the predatory state.