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A corrupt equilibrium

A corrupt equilibrium
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First Published: Sun, Dec 19 2010. 10 25 PM IST
Rajaraja Chozhan I was a great king of southern India in the 10th-11th century. Rajaraja’s empire extended from Sri Lanka to Kalinga. He built the magnificent Brihadeshwara temple in Thanjavur, which has been beautifully restored (it is a must visit temple in Tamil Nadu now). A. Raja ruled the telecom ministry for a brief period in the 21st century. Time will tell if his magnificent temple of alleged corruption will stand as tall.
What is corruption? Why does it rile us so? Why are some so easily co-opted into “organized” corruption, while others hold out at the potential cost of life and limb? Corruption has so been a part of the post-independence fabric in India that we might well be lost without it. Imagine a day when you can establish your newly-formed company in the morning, switch the gas connection before lunch, and help register your mother’s property in the afternoon, all without an illegal rupee having to change hands. Just imagine.
Wikipedia has a page devoted to the “political scandals of the United States”. These are so numerous and of such variety that there is an index that categorizes them into “federal” and “local” and in turn into the executive, legislative and judicial branches. And here we were, thinking that at least in the matter of scandals and corruption, nobody could match us. The maximum number of gold medals would go to India. Maybe; maybe not.
The equivalent page titled “corruption in India” talks about corruption in politics, the bureaucracy, judiciary, police and even religious institutions. So is it this all-pervasive, daily corruption that gets our goat? If we were to magically reduce day-to-day corruption while still keeping the hard to see, harder to prove instances of mega corruption, would we be less agitated? After all, there are numerous instances of sophisticated corruption in the US, the UK, Russia, Italy, Korea, even Sweden. Why the angst then?
Corruption is a collective action problem in classical game theory. All bribe payers would be better off by not paying a bribe. However, each acts in a “rationally irrational” manner. It makes individual sense in a corrupt system to be corrupt, but that causes calamity at the systemic level. Understood in a game theoretic framework, once corruption becomes systemic and the existence of widespread corrupt practices becomes “common knowledge”, we seem to have a case of an extremely robust inefficient equilibrium. To use Pranab Bardhan’s expression: “corruption represents an example of what are called frequency-dependent equilibria, and our expected gain from corruption depends crucially on the number of other people we expect to be corrupt” (Corruption and Development: A Review of the Issues).
So what are we to do?
There are two broad approaches. One suggests an incremental, oasis-by-oasis approach to get rid of corruption; another, to go with a “big bang”. The oasis approach would connect pockets of relatively clean activity into a web that would eventually eradicate ordinary corruption. One example of a recently created oasis is the way in which online booking changed railway ticket corruption. The solution to day-to-day corruption may well be to set up quality institutions, and systematically eliminate the incentives for corruption. This can only be done with a big bang. Clear and transparent rules co-existing with competitive choice usually helps mitigate corruption.
There is just one small problem here: constructing such institutions is in itself a collective action problem that is not likely to be solved within a society dominated by corrupt agents (Dino Falaschetti and Gary Miller, Constraining the Leviathan: Moral Hazard and Credible Commitment in Constitutional Design.). According to Nobel laureate Elinor Ostrom, there exists a collective action problem of the second order. Why would agents that either stand to gain from corrupt practices or who can only lose by refraining from corruption at all be interested in creating such “efficient” institutions”?
Tweaking our system is unlikely to yield results because we have reached a robust (corrupt) equilibrium. A big bang cleansing of institutions, bureaucracy, corporations and political milieu is required. This is unlikely to happen of its own accord. The collective energy of the people rising up to demand this radical overhaul may well have to be the trigger. Such “revolution” is only likely after major, disruptive change.
Lots of little things have been done to try and combat corruption. One major step has been the path-breaking right to information (RTI) Act. We have had a flood of news on scams and scandals in the last few months. At some point, the dam will break and the people will rise as one in protest. Do you think we are at that point? Then, and only then, will we begin to really address the problem of corruption.
P.S. An ancient Sanskrit saying attributed to Chanakya reads “yatha raja thatha praja”, which means “like ruler, like ruled”. Today’s corollary to that would have to be “yatha praja thatha raja”.
Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at narayan@livemint.com
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First Published: Sun, Dec 19 2010. 10 25 PM IST