Corruption and growth; are they bipolar options?


The Chinese are masters at human psychology. They stuff citizens’ faces so full of money that they can’t dissent and have left the government to its own devices over the last thirty years of high growth. When the average citizen sees her lot improving every year she is more forgiving about the big boys raking in billions. Now that growth is dipping (below 8% in 2012) and constraining the future for Chinese citizens, they are fingering princelings, party bosses and shady business men for corruption and chaff at the lack of “voice” and participation.

In contrast, Indian citizens have unfortunately never experienced the thrill of sustained, explosive, growth.   In China growth dipped below 8% per year in only five years during 1980 to 2012. In India, growth was 8% or more in only seven years of these thirty two years. Low and fluctuating levels of growth, high levels of poverty and hopelessness engender negativity and citizens cast around for scapegoats. Foreign domination (no to FDI in retail) and big business (“sab chor hai” “thieves all”) are the standard fall guys.

The Liberal development literature presents corruption as a drag on high growth since it reduces the effectiveness of public expenditure; muddies signals for entrepreneurs and enhances uncertainty.

The actual development experience is quite different and nuanced. Whilst it is no one’s case that either is a precondition for the other, many would agree that “grand corruption” of the 2G, Coalgate kind, is less corrosive for social harmony than “petty corruption” which is more in your face; babus extracting their share from citizens seeking public services; getting a passport; a car registered; a birth certificate; getting public health care or acceptable quality education.

Strange as it may seem, the volume of “petty corruption” is much more than of the “grand corruption” kind. Just as a dripping tap wastes more water than can be stored, petty but visible corruption etches the primacy of the bureaucracy over citizens into our minds and dilutes our sense of entitlement (our right to be served) as citizens. We stand humbled before the discretionary power vested the petty representatives of the State.

Arun Kumar (Indian Economy, 2013) has diligently collected data on scams reported by Times of India during the period 2005 to 2007. These collectively amount to just 0.4% of the Gross National Income during that period. How does this compare with the levels of “petty corruption”? We use a back of the envelope calculation which assumes that the aggregate budgeted salary bill of government under estimates the real earnings of babus. Think of the “dastur” for peons, court case clerks, policemen, inspectors, higher level babus getting their children educated abroad for free courtesy an obliging company, luxurious gifts at Diwali, consumer durables, houses and commercial property bought at less than market prices, houses rented out at more than market prices, spouses provided employment courtesy a supplicant, “lifestyle benefits and you get the picture.

Would it be fair to say that the actual income of government servants is 30% higher to conservatively assess the ball park number for the level of petty corruption? This amount is more double the level of scams reported but is still just 1% of GNI. Both data sets are flawed for a rigorous estimate. But they serve our purpose to highlight why “petty corruption” is more significant, principally because it creates a, pervasive, vitiated governance environment.

It is easier to deal with “petty corruption” and quick results become visible. In the 49 days of Kejriwal’s government, harassment of the aam admi who occupy public land for private business, like street vendors, reduced significantly…though their prices did not come down to pass on the reduced transaction cost to customers! Digitization of processes can further reduce discretion; dilute the physical interface between service provider and user and enhance service quality.

It is also easier to track “petty corruption”. Corruption indices, like Transparency International primarily track “petty corruption” because it is based on the actual experiences and perceptions of citizens which can be periodically and reliably surveyed.  In contrast “grand corruption” has to be unearthed by the Vigilance Commission, Auditor General or Parliament, all of whom are inevitably politically tainted.

Consider Kejriwal’s FIR against Moily and Ambani. There is hardly any useful information available in the public domain; the subject is so very technical and international indexing of costs so difficult, if at all possible, that it is tough to take a reasoned view on the substance of the allegation of corruption. Opinions, expressed in support of Kejriwal seem biased by the perception of Reliance, as a company, which is not averse to bending rules and leaders to their advantage; in which, whilst they are numero uno, they are not the only one, or on the generic desirability of market based pricing methods. Neither set of views are credible.   

Controlling grand corruption needs a leader with impeccable credentials and high ideals; sound technical advice; efficient public financial management and procurement systems which generate and share management information publicly; an efficient and independent prosecutorial agency; an efficient and independent judiciary and a watchful Parliament.

India has all these preconditions except credible leadership. The last four decades of rapacious loot of public resources have eroded public morals and made corruption “acceptable” to citizens as a part of life, very much like daily commuters impossibly squeezing themselves into the Mumbai local trains by “adjusting”.

Credible and value based leadership is a gift not a certainty. Of course voting for credibility and honesty helps. But the electorate has seen too many seemingly committed and honest leaders go to waste in the hot seat. The trick is to distinguish those who have lived by their ideals and who are in public life for the long haul, from opportunists and poseurs. Controlling corruption is important but growth comes first.


One thought on “Corruption and growth; are they bipolar options?

  1. Hope Kejriwal and others read this. Its absolutely correct that routine daily corruption causes greater loss than scams. It also makes us all part of the chor biradri (community of crooks) thereby bringing about demoralization and reducing dynamism in the society.

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