Corrupting Influence On Growth & Development
Indians do not get what they pay for, but they are surely ‘coerced’ into paying for what they receive.
We see corruption as self-serving influence, not unlike gross regressive tax. Many ‘experience’, and most believe that corruption is a piece-rate pay that provides for, and induces a more efficient provision of government services. Bribery, a sweetener, or ‘backhander’ paid to the right person at the right time makes all the difference. Similarly, entrepreneurs ‘accept’ it as a leeway to bypass inefficient regulations.
Bribery soon gives way to extortion
The ‘hafta’ paid by the hard-working street vendor and a bribe paid to the tax inspector by the economically strapped micro entrepreneurs in an ecosystem where legitimate opportunities are scarce, and difficult to scale. These transactions proliferate a culture that encourages, invites, even attracts corruption.
A person paying the bribe is establishing that the officials can enrich themselves by dragging their heels, "losing" paperwork or concocting other ‘requirements’.
Policymakers must be particularly concerned about the long-term and the widespread cost of corruption. It discourages meritocracy, kills innovation and investment in excellence. It diminishes the outcome.
Corruption has formidable costs
However, the policymakers must be more concerned of the relationship between corruption and poverty. Corruption denies opportunities to the deprived on one hand and exploits the vulnerable on the other. It undermines several basic rights including property rights, the right to justice and protection. It distorts, impends, and deflects growth and veers benefits to the rich and the endowed, increasing inequality.
The deeply and damaging dynamics are all around us.
However, most victims regrettably do not understand the malaise nor appreciate the impact it has on the economy and society. They therefore neither fight back, nor ‘discourage’ corruption.
Similarly, many honest leaders, and some steely bureaucrats focus more on the long-term ‘consequences of corruption’, ignoring the short-term effects. They are not averse to ‘tolerating’, even encouraging corruption, as it lubricates operations, enhancing the efficiency of the economy. They believe in the (wrong) notion that in economies with a history of bureaucratic climate, corruption counteracts the suboptimal bureaucratic rules & regulations and promotes economic growth by ‘polishing’ the system.
Nothing could be further from the truth.
Cultural, context matters, intent matters more
Tolerating corruption perpetuates, deepens poverty, triggering a vicious cycle. Corruption not only catalysis but also blossoms into a weak, inefficient, and indifferent political, social, and economic ecosystem.
Up until the 1970s the research on corruption was largely confined to political science, administration, and sociology, focussed on the weaknesses in public institutions and distortions in economic policies. The nucleus was criminal law and justice.
The narrative has changed.
Attention is now more on the linkages and the wider ecosystem, as we begin to realise and appreciate the wider, deepening suboptimal impact. Corruption not only slows growth but is also detrimental to development ethos. The social cost is much more, taking a toll on society’s collective integrity.
The corrupt are stubborn; corruption pervades
There are several challenges related to the measuring corruption as it is ‘open’, yet clandestine, often perception-based data, which itself vary across culture and societies. A Crux insight focussing on ‘anticorruption’ highlights how corruption influences investors' assessments of the relative merits of investments; and leads to resource misallocation by government agencies. The suboptimal utilization of capital and labour shrinks the size and diminishes the impact.
Similarly, the study reveals that, not all types of corruption are the same; so, the approach to combat must be different, even unique. Multiple perspectives are needed based on the specific nature, context, and the stakeholders.
The study emphasises a negative correlation between economic growth and the level of corruption. The economic cost is tangible, often robbing a third of the potential growth. Even in the micro markets (districts), growth is afflicted. These markets not only operate improperly but also preclude the natural laws of the economy from functioning freely, denying the citizens several rights and benefits.
Most suffer.
The social indicators are no less visible, with lower literacy rate, higher infant mortality, increasing crime, poverty & inequality and fraying the social fabric. The Crux insight articulates that Indians distrust almost every social institution. Except for the election commission none of the institutions have the trust of more than 58% of the youth, 72% of the others.
The study concludes with a more pertinent and relevant point. A 25% reduction in the corruption index is equivalent to lowering the marginal tax rate by 10%. This translates into a 25% increases in FDI. Corruption obviates economic development, diverts investments into unproductive areas, tarnishing the image to junk status.
Poisoning the pool from which we drink
Political and bureaucratic corruption is related. There is empirical evidence that it flows down.
New breed citizens are beginning to take note and are concerned. The well-endowed are using the social media (unfortunately double-edged sword), the others are applying the grassroots approach. A few others are using the ‘for profit’ ventures, crowd sourcing, and media to highlight and fight corrupt practices.
The noise is deafening, and leaders can no longer ignore them.
However, eliminating corruption will require more collective action from those with the noblest intent, the strongest incentives, and people with acuminous abilities.
Business leaders have the power, and must chip in. We admire corporate citizens like the Tata’s who take a vocal stand against corruption, and practice. The study also indicates that organisations with anticorruption practices may have lower growth, but they are more profitable.
The Prime Minister must weigh in
No economy can eliminate corruption, but that does not mean that we should not try.
Our existing laws are sufficient to prevent and punish if enforced well. We are blessed with an independent judiciary, a vibrant democracy, and effective demography. An active media can make a difference. The muddle is often the disregard for the rule of law, and not the deficiencies in laws or the weakness in the institutions themselves
While the leadership is motivated to eradicate corruption, the effort is often driven by normative considerations, on one hand, a perceived need to ‘demonstrate’ a tough stand to the voters on the other.
People equate inefficient, illegal, and unjust policy decisions with the leadership. Corruption erodes trust.
The PM musty do, demonstrate and exemplify.
