[Economy] High GDP and High Corruption: Cause or Consequence?

Economy, miscellaneous

LaxmikanthEthics

Not really an article, just some fodder/food for thought.

  1. High GDP= High Corruption= Bright Future!
  2. Land Grabbing = Universal phenomenon
  3. High GDP => High corruption
  4. The Incentive structure
  5. High level corruption
  6. High corruption => High GDP!

High GDP= High Corruption= Bright Future

Mark Twain coined a term “America’s Gilded Age”. It has been used to describe, roughly, the last four decades of the 19th century. During that time situation in America was as grim as India’s current political and economic situation.

  1. During that time, majority of American population was involved in agriculture and allied activities (just like Indian population right now)
  2. During that time, USA’s GDP growth rate was 7% per year (similar case in India right now.)
  3. And during that time, USA  too had high-level of political corruption and scandals. (Just like India)
  4. By the end of this Gilded Age, USA became an urban majority society And went on to become the superpower, supercop, judge, jury, executioner, leader, financer and  top innovator of the world.

So one can be optimistic that the situation in India today, is just normal and expected-sign of good things to come, just like the labor pain before a child delivery.

Land Grabbing = Universal phenomenon

  • Today, India has four times as many people as the US, but only a third as much land.
  • It means Land in India, is very scarce.
  • Therefore, India’s politicians and businessmen end up buying land wherever they can, however they can and then bribe get the government to convert its use from agricultural to commercial.
  • Such transformation of land-use raises the value of land by 10 to 20 times.

China and S.Korea

  • A roughly similar process of land-grabbing and political corruption is under way in a high-growth China.
  • But because of strict internet and media censorship, we don’t see/hear about anti-corruption protests (dharnaa-pradarshan) in Beijing, like we hear in Jantar Mantar of Delhi.
  • Similarly, during South Korea’s rapid transformation in the 1970s and ’80s it also faced the same situation like we are facing right now.

In short, the corruption problem is universal and not related with Indian morality or lack of it. Rather, high economic growth brings with it a set of virtues and vices. But How?

High GDP => High corruption

  • If GDP of a country is growing at an average of 8% per year then some sectors are likely to grow at 15-18 per cent. (service sector, telecom, mining, industries for example)
  • Rapid GDP growth makes overnight millionaires, even overnight billionaires, possible in those sectors.
  • So, if government regulations and permissions are required in such sectors, then a government-business nexus is very likely to emerge. (as it did, in 2G and coal mining)
  • Thus, high growth creates enormous opportunities for corruption.

Does it means High GDP growth itself is responsible for corruption? No, not the GDP but the incentive structure.

The Incentive structure

If Government of India makes a new policy that every Government Primary school teacher’s salary will be directly proportional to number of students passing from his class. Sounds good? Well think of the consequences.

  1. Now the teacher has incentive to personally look after every student and see that he/she is learning every lesson.
  2. Now the teacher has incentive to setup very easy question paper so that every student passes in the exam.
  3. Now the teacher has incentive to evaluate the answersheets in very liberal manner so that every student passes in the exam.
  4. Hell, now the teacher has incentive to leak the damn question paper one week before the actual exam or simply dictate  answers in the examhall!

Yes, there will be some good teachers, opting for option (a) and there will be some good students who will study seriously, irrespective of the cheap tricks used by their teacher to up the passing rate. But by and large, most teachers would opt for the option b, c or d.

Then Government makes excuse “Our policy is good but implementation is bad”, “we send money from Delhi but State Governments are not doing enough!”
But can a policy be good if it has not taken precautions to prevent bad things @implementation level, in States and Districts?

  • An Economy/country/society works because people respond to incentives.
  • Therefore job of the Government is to create laws and policies in such manner that good people have incentives to do good things and bad people have incentives not to do bad things.
  • If Raja and Kalmadi can walk out jail and walk into parliament again- Then something is wrong with this incentive structure.
  • At the same time, Society too has a role to play in it. If we keep attending and admiring the lavish wedding reception parties held by corrupt people -our neighbor and relatives, then we too are creating incentives for them to accept bribes to finance their expensive wedding.

Mr. Vijay Kharadi (IAS, Gujarat cadre), recently got married. Ofcourse, we’d expect this ought to be an expensive wedding ceremony.
But it wasn’t. He married in a simple mass-wedding ceremony.
His words, “Spending on extravagant weddings is a complete waste. I am a tribal, and I know my community lives on the fringes. We need to spend on health and education, not weddings. I want to set an example by getting married in the simplest way.

  • In 2011, Erode (TN) District Collector Mr.R. Anandakumar admitted his daughter in Government primary school. His decision has surprised many parents in the district, which has a number of well-known private schools.
  • Now The Collector will be making sure that Government schools are working nicely, they has sufficient funds, teachers and infrastructure. It will encourage more parents to admit their children in government schools and feel safe about their future.

Ofcourse the cynics can brush off both Vijay Kharadi and Anandakumar that “you cannot change the mindsets of thousands by doing such acts of symbolism.” But for them Andrew Jackson had said, “One man with courage makes a majority.”

  • In TV Debates, politicians often cite these one man with courage, as a good excuse to suggest that “by and large majority of our ministers and bureaucrats are honest, only a few bad fishes. Otherwise aal ij well”.
  • But “aal ij not well”, otherwise we wouldn’t be hearing about a new scam every week- India as a nation, has not done enough thinking about what kind of laws and policies are necessary to change the incentive structures, reducing temptations for bribes and making politics and bureaucracy much more cleaner.

High level corruption: Solutions?

  • the Use of technology like Aadhaar-UID will reduce lower-level corruption, @district, tehsil, PDS ration shops, but what about the upper-level, high level, “white collar” corruption?
  • How about a debate on the reform of election and party financing?
  • Can we really clean up the businessmen-politician nexus without reforming how political parties are funded in India during election campaigns?

Anyways upto this point, the argument was “corruption follows High GDP” .

Now how about the reverse Argument? High GDP follows corruption!

High corruption => High GDP!

  • The bribe money in India either goes to tax heavens abroad (Switzerland etc) or gets invested in gold and real-estate (buildings, farm houses, properties)
  • So, if bribe money does not go into tax heavens abroad, it creates employment in India and improves our GDP!
  • Around 2 crore people are employed directly or indirectly in real estate & construction sector = employment = more demand (because they’re employed so they’ll buy more stuff)= more production =higher GDP!
  • If the corrupt person hosts a lavish wedding reception party = more employment for cooks and catering wallas.
  • if he decides to spend vacation in any tourist resort of India = again GDP boosted.
Is/Can/should GDP alone be the criteria to measure the Aukaat of a Country? And Can “end-goal” justify the “means” used to achieve it?
If yes, then
  • How about cut down all trees, make furniture and export it to USA?
  • How about kill all tigers, sell their hides and bones to China and Thailand?
  • How about legalizing gambling and cricket betting?

Ref

  1. Ashutosh Varshney, http://www.indianexpress.com/news/growth-and-graft/1022031/0
  2. Navendu Mahodaya, http://rivr.sulekha.com/carry-on-tamasha-28_594824_blog?c=2263181
  3. http://www.indianexpress.com/news/gujarat-ias-officer-to-tie-knot-in-mass-wedding/940786
  4. http://www.thehindu.com/news/cities/Coimbatore/article2109347.ece