When bribes don’t work

When bribes don’t work

With the dominant discourse on corruption in India centred on values and ethics, more practical solutions are hard to come by. On Monday, speaking at a Confederation of Indian Industry summit, Deepak Parekh hinted at one such. His suggestion, borrowed from a proposed British legislation, involves making companies responsible for preventing bribery, and penalizing them if they fail to do so.

This is relevant against the backdrop of several disclosures of a deep-seated corporate-political nexus in India. A legal and possibly monetary disincentive on bribes increases their overall cost, and decreases their value for companies. That, however, might not be the only outcome.

In a 2007 paper published in the Public Choice journal, Nauro Campos and Francesco Giovannoni present the relationship between corruption, specifically bribery, and another aspect of corporate culture that has been in the news in India lately—lobbying. They theorize, based on data from about 4,000 firms in 25 countries, that lobbying is often a more effective and less costly method of gaining political influence. The reasoning: lobbying seeks to change rules to align them with business interests, while bribery tries to affect the implementation of existing rules. Since such changes are difficult to reverse, lobbying also has a deeper effect than bribery, which may quickly lose its use.

The political environment also plays a role. The authors suggest that in parliamentary democracies (such as India), where political agency is diffused, firms may not be able to access all the touch points required to affect policy. The particular expertise of the lobbyist, and the shared resources of a lobby comprising firms with shared interests, can instead serve the purpose.

Thus lobbying gains in viability in a hypothetical scenario where bribery carries high disincentives, such as the one Parekh imagines. This is worrying because, though lobbying in itself is not an illegal activity, it can easily be manipulated into serving the interests of the few at the cost of the many. Recent experiences bear this out.

It is usual in these instances to blame companies for being ruthless. Such criticism must be taken with a pinch of realism. Companies are by their very nature profit-seeking enterprises, and are expected to adhere to their self-interest. But a political environment bent on extracting monopoly rents from companies engenders a system in which only corrupt firms are able to get ahead. Faced with such asymmetric competition, honest firms either die out, or succumb to the lure of corruption. Parekh’s suggestion thus addresses one part of a large and complex problem. The other is still mired in neglect.

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