Economic incentives of agents who run the institution are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. But if corruption is exposed and the disincentives are high, then corruption would cease
Last week, veteran Indian activist Anna Hazare was arrested hours before launching a hunger protest. His cause is corruption. He is demanding that the government pass a stronger law to combat corruption. The government rather disingenuously threw him in prison. Prime minister Manmohan Singh says that Mr Hazare's methods of protest, which includes hunger strike, posed "grave consequences" for Indian democracy.
Still, Mr Singh's remarks and his government's actions are hardly surprising and go to the heart of the problem of corruption. For contrary to its definition, corruption is not a moral issue, it is an economic issue, a law and economic issue.
Laws are provided by the state. Each and every law guides behavior by providing incentives and disincentives. For example a law governing criminal conduct, like stealing, provides the disincentive of incarceration. Some laws provide economic disincentives like fines. Other laws provide economic incentives. An example would be a tax law that provides you with a special tax rate if you take certain actions.
Most legislatures and governments feel that they can solve problems with laws. They can't. There are very real limits to what laws can do. The reason has to do with enforcement. Some laws cannot be enforced. For example, laws relating to certain goods or services like drugs and prostitution are basically impossible to enforce. The reason is that the economic demand for these goods and services are widespread.
Other laws concerning the market are also difficult to enforce. The Chinese feel that they can control inflation with laws relating to price controls, but these always fail. Their attempt to restrict exports of rare earth metals just led to smuggling. Any international investment banker worth their salt can circumvent regulations or utilise regulatory arbitrage to lessen their effect.
The same problem exists with corruption. The problem is that the government is trying to use law to cleanse itself, but that is an enormous conflict of interest. It is really an agency problem.
In game theory, managers, elected officials and even police officers are agents. Managers are the agents of a principal, the owner or shareholders. Elected officials, bureaucrats and security personnel are agents of citizens. The best move for an agent is to cheat the principal. The principal hires a watchdog and the agent's best move is to suborn the watchdog. As long as the institution has the job of policing itself, it will fail. The economic incentives of the agents, who run the institution, are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. So in many ways it does not matter how strong the anti-corruption law is. As prime minister Mr Singh has aptly illustrated, it is not in his best interests to stop what has helped keep his party in power.
This does not mean that citizens are helpless. It does mean that there are limits to what a strong anti-corruption law can do. The solution though might lie elsewhere. The best way to control corruption is to deal with the asymmetries of information and economic incentives. If corruption is exposed and if the disincentives are so high, then the corruption would cease.
Fortunately, we live in a time where each and every owner of a cell phone has access to millions as never before. You don't even need a computer. Your cell phone allows you the ability to network and that power allows all of us to expose corruption. The other part is to provide economic and social disincentives.
One thing that Mr Hazare's campaign has shown is that you can market anti-corruption. But why stop with just hunger strikes or inflammatory editorials? Make it a contest. In the United States and even Afghanistan there are televised contests and prizes for amateur performers. Why not have televised contests for whistle blowers? Whistle blowers, or enforcement personnel, should not only receive some sort of immunity, but celebrity status, cash rewards, honorary medals, titles, sinecures or automatic political office granted not by the government, but by cell phone vote. Cash could be generated by fines from both personal and corporate liability.
Corrupt officials should not be neglected. There should be contests for them as well. The most corrupt official should be the subject of both weekly, monthly and an annual vote for town state and country, perhaps on a specially designated Corruption Day. Annual lists should also include all past year's winners. Shame can be as powerful a disincentive as incarceration.
Stopping and preventing corruption is certainly possible, but to do so we have to recognise the limits of the law. If the institution is corrupt, which it is by definition, so will the law. But that does not mean that society is completely helpless. It just has to know how to advertise.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected].)
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Precisely why we pay the policeman when we are caught driving without proper documents, or jumping a signal,parking in a no parking zone etc.Or we bribe the municipality official to reduce the property tax or allow us to build differently from the sanctioned plan.We bribe the income tax official to reduce our tax liability or the sales tax official to look the other way when we underinvoice goods sold.We bribe MLAs or ministers to get land allotted under some discretionary quota etc.The list goes on and on...
If all the people desist from giving any bribe anywhere,which means that they need to be honest first, the corruption tiger would not be what it is now.Can we honestly say that we will not break any rule or law and if caught we will pay all the fines and penalties.NO WE DO NOT.So......, it is not enough to have a Lokpal bill or whatever but the people should become civil and not be corrupt themselves.
Then why not shame the bribe receiver.Unfortunately now there is no color to the money one has.He is respected for the money he has, the means are not an issue anytime.He or his family are well received in the community for the car/property he owns,the jewelry the wife shows off or the snazzy clothes and the super bikes the kids of the corrupt display.
Now imagine the situation wherein the corrupt are paraded in their neighbourhood with a board around his neck stating"I AM CORRUPT" .Or when a banner is stuck in front of the corrupt official stating that this house belongs to the corrupt officer Mr/Ms______ working at ____ department.
The wife and children of the corrupt can put pressure on their spouse/parent to be straight because of the social embarassment and stigma attached as part of a corrupt family.
Why not the activists go to the identifiable corrupt offices and keep a vigil there?They can meet the head of the department or office and ask him to display a board which will mention as to the procedure involved for any work in the office and how long it would take to complete that.All visitors/persons having work in the office must be given serially numbered tokens and at the end of the day display the number of those tokens which are still pending.This will give an idea of why somebody was treated earlier preferentially.
The group against corruption can put up a board in front of the office stating "This is a corruption free office and we will ensure that".The board needs to have contact numbers of the group leaders/members to be contacted in case of need.If the group stays put in front of the office to catch hold of the corrupt, who in the office will be brave to take bribes.All the people who are now going to Ramlila grounds/Freedom park etc and the volunteers/youth/students can take turns to ensure vigil at offices.
It is not enough to pass a lok pal bill.
Group Action will also be needed to take the movement to its logical end.
It is a long haul but it can't end with slogan shouting and going on (hunger)strike!!
Draft Lok pall Bill Aug 2011.
Not with standing any thing contained in any other Act the following provisions of the Lok pal Act shall apply>
Each and every non-secret government order issued shall be necessarily released as authenticated electronic version along with all the policy background information, the file through which this excutive action is take under the policy, the complete set of documets relied upon. the noting of various levels of government officers/or PSU officers, or officers of the regulatory authority; all this shall be released in public domain on secure central government servers with mirror copies at the servers with the Lok Pals. These documents shall have complete legal validity without further authentication.
A special bench of Supreme Court of three judges at center and three Judges of each High Court shall be constituted by each Chief Justice with a minimum tenure of 2 years for the members, who are sitting judges of the court.
An additional registrar with special facilitation of electronic office with dedicated server with access to central data server which stores government orders and the concerned image files leading to the orders, complete by itself will be available for use of the Lok Pal.
Lok Pal will have a panel of experts to advise in each sector if needed.
The Lok Pal is free to initiate a case, suo moto or on appeal by an aggrieved party, or a CAG reference, or a media report with reference to the public data base of the file systems, based on information available on the servers with them, give one chance for the government to add any clarifications to the files already in servers, which also will be public, and then pronounce their judgement which can only be appealed to the central Lok Pal of the Supreme Court. this decision will be final for setting aside the order. But the punishment or other wise of the guilty will not arise at this stage. That is because most probably no damage would have occurred and after all it could be a matter interpretation.
Unless a repetitive or gross wanton misjudgment is detected, prima facie, the Lok Pal will not initiate steps for punishing the Minister or the officer involved.
When such occasion arises, then orders to take the person off the responsibility, and orders to initiate criminal proceedings will be given to the government which follows the normal course that law currently takes. Even here the documentary evidence and the Lok Pal's directive will be weighing factors unfavourably for the person so charged and the Sessions Court Judge will pass the orders for the fit punishment."
Unquote
The problem in India is greater centralisation of authority in Government functionaries and antiquated laws and systems.There exists mind boggling corruption opportunities within the governance system. Anti-Corruption machinery can not transform the decision-making processes within the government and make decision-makers more accountable. India needs systemic reforms, improvements, changes in administration and decision making processes which have in-built opportunity for indulging in corruption and also amending antiquated laws which have lost relevance. (Its altogether a different issue that existing Anti-Corruption Departments are colluding with the corrupt).
The following are few examples of systemic reforms under implementation or to be implemented-
1) New building norms introduced by Municipal Commissioner of Greater Mumbai- The proposed new building norms will at one stroke reduce misuse of discretionary powers of Municipal Commissioner and thus significantly reduce FSI scams and massive corruption in Building Proposals department. More importantly, the new norms creates transparency in real estate transactions immensely benefiting flat purchasers. (It is well known that existing Vigilance Dept was colluding with the corrupt).
2) RTI, PDS and a teenager- The continuing crusade of a teenager in Gujarat forced the Government to pass an order under section 4(1)(b) of RTI Act, making it compulsory for all fair price shops in the State to disclose all the details about rations received and kept in the ration shop. At one single stroke, the teenager reduced corruption in the PDS and alleviated the suffering of the masses who depend on ration shops for food grains. Unfortunately, this achievement was ignored by the media.
3) Reforms in indirect taxation- Introduction of Goods and Service Tax (GST) will eliminate multiple taxes, significantly reduce tax evasion, corruption and black money, reduce consumer prices and increase State revenues! It is estimated that India's GDP will increase by 2% by introduction of GST. For the first time in history, India will usher in a "Common Market".
4) Reforming subsidies- Creating efficiencies in subsidy delivery system to targeted sections of society based on UID/AADHAAR- Nandan Nilekani would be creating a revolution. The sums involved in subsidies are mind boggling in multiples of 2G scam, and that too annually! This will not only reduce quantum of subsidies, but simultaneously reduce wastage, inefficiencies and corruption inherent in the system.
5) Delivery of Govt. services in time bound manner as per Citizens Charter or Govt Rules- This significantly reduces corruption opportunities.
6) Agriculture Produce Marketing Committees Act (APMC) - Antiquated APMC laws (a State subject) across the country needs amendments. Farmers in Nashik or Pune are prohibited to sell farm produce directly to retail markets in Mumbai. They are compelled to sell their farm produce to the middlemen at the APMC Market, Vashi, Navi Mumbai controlled by a powerful lobby of traders and politicians. The farmer gets only about 30% of the final price paid by the consumer, rest is cornered by a chain of middlemen. There is an urgent need to at least exempt perishable farm produce like vegetables and fruits from the ambit of the Act which will reduce wastage (estimated at 25 to 40%), increase realisations for farmers and reduce prices for consumers.
7) Reforms in Police, Judiciary and Electoral system- It is well documented that these important areas need reforms.
8) Eliminating discretionary powers with authorities in various fields - Its well known that discretion breeds corruption. For instance, eliminate discretionary powers in land allotments and introduce transparent procedures.
9) Transparency and participation in Decision-making process- Decision-making has to involve the participation of the maximum number of people and there has to be a move from bureaucratic processes to democratic ones. The devolution of powers as envisaged in the 73rd and 74th Constitution amendment has to be implemented. The authorities should suo motto put important decisions of Govt/authorities in public domain/websites.This significantly reduces corruption.
10) Transparency in Administration as envisaged under section 4 of RTI Act has to be implemented- A few examples would be - a) Posting information on details of expenditure from discretionary funds of MPs, MLAs, Councillors, and Mayor on websites. b) Posting information of Building Proposals sanctions on MCGM website. c) Putting entire list with relevant details of MCGM owned Open Spaces (RG/PG) on website. There will be thousands of such examples across the country. Let all citizens act as Watchdogs!
11) Strong and Independent Regulators - Strong and independent Regulators in important economic areas like Oil & Gas, Mining/Natural Resources, Capital Markets, Telecom, Power, Insurance, Real Estate, etc. significantly reduces political interference and discretionary powers that cause big ticket corruption.
A right prescription can only be made if we truly attempt to diagnose the disease. If at all we believe that our anti-corruption prescription is only about creating hundreds of Anti-Corruption Watchdogs as panacea for all ills and turn India in to a Police State, then we are living in fools paradise. The corrupt will continue to thrive and invent ingenious methods and that too in collusion with the Police State. A true crusade against corruption and for good governance must begin with radically improving and changing State structures, institutions and processes.
(Associated with NGOs Janhit Manch, BEAG, and others)
Transparency can level much of the corruption too and technology is beginning to play an increasingly powerful role here too.
Anna says the corruption will go down 65%. I say even if it goes down 10%, it won't stop at that.
Thank you once again for encouraging discussion.
Regards
There is no dearth of honest Indians. These Indians should be protected when they blow whistle. The irony is that these whistle blowers are crushed and corrupt against whom whistle is blown are awarded.
My advice to Dr Manmohan Singh to protect whistle blowers was not taken and the result is real chaos all around.
Even now Dr Manmohan Singh can salvage the grim situation by passing JAN LOK PAL BILL.