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Third prong against graft

Third prong against graft
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First Published: Tue, Apr 12 2011. 08 21 PM IST
Updated: Tue, Apr 12 2011. 08 21 PM IST
In a speech he gave at the London School of Economics in 2006, Transparency International chief David Nussbaum said that corruption needs to be tackled on three fronts—political, legal and economic.
As the dust settles on the campaign to force the government to adopt a version of the Lokpal Bill that a group of activists has drafted, it is worth noting that India seems to see only political and legal solutions to every large problem. Force a few corrupt individuals to resign and all will be well. Draft a law and all will be well. Build another layer of bureaucracy to impose the new law and all will be well. This tendency fits in nicely with the psyche of a ruling alliance that seemingly has a new law for every occasion.
But let’s face it: even a powerful Lokpal law or 500 Anna Hazares in Parliament or honest ombudsmen in every capital city are not going to root out corruption, a scourge that extends from bribing a policeman to avoiding a parking fine to selling national assets at low prices.
Some thought needs to be given to the third element identified by Nussbaum: economic incentives and how they can be used to beat the problem.
The government’s chief economic advisor, Kaushik Basu, has already written a paper arguing that bribe giving should not be considered illegal, though only for a certain type of payments which he calls “harassment bribes”. These are paid by citizens to get their due such as an income tax refund, or when your bag is being needlessly searched at an airport. Only the act of taking a bribe in such cases should be punished.
“After the act of bribery is committed, the interests of the bribe giver and bribe taker will be at divergence. The bribe giver will be willing to cooperate to get the bribe taker caught. Knowing that this will happen, the bribe taker will be deterred from taking the bribe,” writes Basu. However, he does not argue in favour of retrospective pardons for bribe giving. “Retrospective pardons are like amnesties. They encourage rather than discourage corrupt behaviour by rewarding the corrupt. And, in the process, they corrode society’s morals.”
Basu has used game theory to build his radical argument. But the central idea is a simple one: the incentives of the bribe giver and the bribe taker are no longer aligned. The implicit collusion between the person who gives a bribe and the person who takes it breaks down.
Another example of the power of misaligned incentives is the 2G scam, when telecom spectrum was sold at low prices to companies allegedly favoured by former telecom minister A. Raja. Economist Indira Rajaraman had once suggested a neat solution: sharing of telecom licence revenues between the Centre and states.
Raja would not have been able to get away with the heist if the Union government had been sharing telecom fees with the states. The states, especially those run by the opposition parties and not bound to the infamous coalition dharma, would have protested since low spectrum prices would have meant lower revenues. What’s more, the states would have had the political heft to demand change. Their pushback would have been driven by enlightened self-interest rather than morality.
The trick is the same one: design incentives so that there are multiple interests in the game.
It is nobody’s case that incentives alone can beat the corruption problem. Other issues do matter. The success that Hong Kong had in reducing corruption has been linked to its tough anti-corruption agency. So India does need a good system of government ombudsmen. The more recent example of Japan in the aftermath of its tsunami shows (in a totally different context) the important effect of social norms on good behaviour: there was no looting or hustling after the killer wave struck. There is also strong correlation between economic freedom and corruption perceptions, though the causality may run in both directions, as Nitin Pai showed in a recent post on the Acorn blog.
However, designing government mechanisms that reduce opportunities for corruption is also very important. Among the possible solutions are further economic reform to reduce rationing of resources by the government, redesigning the architecture of welfare payments (where the debates about the role of Aadhaar, cash payments and a universalized public distribution system are very important), increasing salaries of government employees in important functions, and so on.
Instead, what we have is a huge and vacuous morality play being enacted on television channels, social networking sites and middle-class homes.
Gandhi had reportedly once said that there was little utility in designing laws meant for perfect human beings. The well-meaning neo-Gandhians who had assembled at Jantar Mantar in New Delhi should spend some time thinking about this blunt observation.
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at cafeeconomics@livemint.com
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First Published: Tue, Apr 12 2011. 08 21 PM IST