Jaimini Bhagwati: Why bother about corruption?

To strike at the roots that feed corruption in India we need to move quickly on poll campaign finance reform.

It is often suggested that corruption improves the efficiency of public services in a society with a "rigid, overcentralised and dishonest bureaucracy". There may be differences of opinion about the extent of corruption in India but most would agree that the negative social fallout from corruption far outweighs any efficiency gains. A case study on obtaining driving-licences in New Delhi, which was reported in the June 2006 National Bureau of Economic Research (NBER) Working Paper No. 12274, titled "Does Corruption Produce Unsafe Drivers?", illustrates this point.

This study followed the progress of 822 applicants for driving-licences in Delhi, from October 2004 to April 2005, after dividing them into three groups. The first group was given a bonus to get licences quickly, the second was given free driving-lessons and the third was a comparator group of regular applicants who were not provided any inducements such as bonuses or free lessons. The study indicated that the bureaucracy giving licences failed candidates randomly, irrespective of their ability to drive. Consequently, individuals were forced to engage agents as conduits for bribery. It was found that the bonus group got their licences 40 per cent faster and at a 20 per cent higher rate than those in the comparator group. On average, those in the free driving-lesson group did not receive their licences any faster than the comparator group. The most socially damaging finding of the study was that the bonus group had not learnt to drive safely since 69 per cent of them failed an independent driving-test.

The year was 1976, the place Jalandhar, and I am still amused by what a local businessman said with a perplexed look: "I don't understand this constant fuss about corruption in India""after all the money remains within the country""the bribe-giver gets what he/she wants and so does the receiver". This matter-of-fact observation illustrates an unfortunately wide acceptance of how things get "done" in our country.

Has much changed since 1976? Almost 30 years later, in 2005, on Transparency International's 0-10 scale (from very corrupt to least corrupt), India scored 2.9 and stood 90th among 159 countries. Many in India would take issue with this ranking but not with the conclusion that there is widespread corruption in the country. The contention against such rankings is that corruption, in all its manifestations, is too complex an issue to be amenable to a numerical cross-country comparison. The argument is that financial corruption at the level of, for example, police constables, civil servants, the judiciary, legislators and journalists can be recognised and assessed. However, it is difficult, if not impossible, to quantify other forms of corruption, for example, corporate lobbying to reduce competition or dilute environmental safeguards. Further, intellectual corruption can be even more damaging. There are several examples of national leadership persisting with economic/strategic policies either because of domestic political compulsions or due to coercion from external sources even when it is clear that these will be harmful to the country's overall interests.

There is also the aspect of fixing responsibility for abetting corruption. Large-scale corruption in a developing country is invariably accompanied by flights of capital to tax havens or developed countries where identities are protected by banking secrecy laws. It should be evident to the receiving bank that large cross-border deposits made into personal accounts from unidentified sources are from ill-gotten funds. International banks implicitly promote corruption when they do not provide greater disclosure. Post September 11, 2001, regulatory authorities are coordinating cross-country efforts to track funding of terrorist activities. However, no systematic effort has been made by OECD financial sector regulators or by multilateral financial institutions, which are at the forefront on issues of corruption in developing countries, to contain the wrong-doing associated with confidential banking facilities. Given that attempting a broad-based discussion on corruption is literally equivalent to opening a "Pandora's box", this article will limit itself to financial corruption within India and not with intellectual and other forms of corruption.

One universally recurrent theme over the years about corruption in a democracy is that it radiates from election malpractices. The following extract from a Karl Marx article in the New York Tribune of August 20, 1852, on corruption in British elections, seems familiar and relevant in today's India:

"The means of corruption and intimidation were the usual ones: direct Government influence. Thus an electioneering agent at Derby, arrested in the flagrant act of bribing, ... Threats of ejectment by landlords against their farmers, unless they voted with them ... Threats of exclusive dealing against shop-keepers, of dismissal against workmen, intoxication, etc ... To these profane means of corruption spiritual ones were added by the Tories; the royal proclamation against Roman Catholic Processions was issued in order to inflame bigotry and religious hatred ..."

The back-room deals and compromises made to raise campaign funds form the core from which corruption radiates. To weaken the close nexus between unaccounted money and elections in India, we need to widen the set of people who are prepared to take up a career in politics. To use an economic metaphor, we need to lower the barriers for entry into public life. An obvious constraint preventing the formation of new national political parties in India is the lack of transparent sources of funds to contest elections. Consequently, from the perspective of those who are concerned about corruption and its damaging impact on public policy, campaign finance reform is the crux. Again, the cynical response in India is that this is much easier said than done. The tired refrain is that even a constitutionally protected democracy is rendered dysfunctional if the checks and balances are themselves infected by corruption.

Regardless of this apathy, to strike at the roots that feed corruption in India we need to move quickly on campaign finance reform. To promote fresh entrants to electoral politics, the central government could, for instance, provide complementary campaign funds. Of course, the eligibility criteria for such funding support would need to be framed carefully, e.g. minimum amounts to be first raised by the candidate/party, and a ban on those with criminal records, etc. and these need to be practically enforceable. It is likely that voters would be prepared to pay a cess linked to consumption of high-value goods (to spare the indigent) to finance matching campaign funds if a detailed accounting for the use of such support is made available on a publicly accessible web-site.

j.bhagwati@gmail.com