Sunday, February 13, 2011

system corruption

 by punem sexena

Democracy is flawed. How else would you explain the perverted incentive system that plagues democracies? We call this plague corruption. The Lok Sabha election of 2009 costa whopping Rs. 10,000 crore (1.8 billion USD). That makes Indian election $ 200 million more expensive than the American elections. Of this exorbitant amount, election candidates are expected to raise Rs. 4,350 crore. Now how does an MP whose annual salary was recently raised to Rs. 20 lakhs a year do that?

Assuming that an MP saves100% of his/her salary (which he/she could easily do considering the various amenities he/she receives), it will amount to Rs. 1 crore. Of the Rs 1 crore, MPs have to donate to the party fund and run their own campaign. Simple math tells me that the demand for money far exceeds the supply of salary. Now is it as surprising to see or hear about corruption?

In Indian politics, the rise of big money is relatively new. But the perception of political leaders being affiliated to business remains morally blasphemous in society. While fundraising isn’t illegal in India, it highly discouraged in our social practices. Instead, when businesses approach political leaders, it has to be in the shady night. The consequence: 2G scandal.

Undoubtedly the Rs 3,000 crore that A. Raja pocketed from the scam was wrong but from an economists perspective it was only a matter of time before cabinet ministers and political leaders started engaging in corrupt behavior. Seeking financial support from business houses is not regulated and therefore a political leader can exploit the system. Similarly businesses too, can ask for the sky from political leaders. Inevitably political leaders swindle away hundreds of crores, unworthy businesses houses makes hundreds of crores while the country loses thousands of crores.

In Florida, when I worked for a state Senator, I came across a solution to this problem. It was called lobbying. For all practical purposes lobbying can be thought of as controlled corruption. Businesses register as interest groups and approach political leaders with their plans. Any transaction that takes place between the politician and the lobbyist is recorded and made available upon request. You don’t see hoards of money floating around because interactions are regulated (or American politicians are particularly good at hiding the money). This doesn’t mean that America isn’t haunted by lobbying issues but they are better at dealing with it. A World Bank economist commented on the current corruption crisis by saying “even greed needs to regulated.”

In India, regulated lobbying doesn’t exist. When news breaks about corruption there is chaos.

Eventually, individuals like Nira Radia are identified. They are mocked till the next scandal emerges. Rather than identifying the core issues and dealing with them, we are often taken aback by the audacity of political leaders to ally with business houses. Is it that big of a surprise to know that the major industrialists of India employ a group of people to lobby politicians at all time? Maybe it is time to take corruption out of the murky undergrounds, exposed it to the daylight of regulation and recognize that money and politics will also be intermingled. It is about time to regulate this phenomenon so that such high level exploitation does not occur.

The more central issue when discussing corruption is also our expectation from political leaders and public servants. A political leader has tremendous power and to counter that we have placed checks and balances internally and externally so that we can ensure power is not misused. However, how do we incentivize the individual not to exploit their position? After all, elected officials and selected IS officers spend a lot of time and energy to get in to office and recognize that they have only a limited time in office. So wouldn’t they want to make hay while there is still light? Could a similar regulation like lobbying even combat corruption to its fullest? Or is it time to renounce the democracy and come up with the next best political system?
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