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Mainstream, VOL L, No 32, July 28, 2012

On the Topology of Corruption

Tuesday 31 July 2012, by D. Bandyopadhyay

Corruption co-existed with all systems of governance whether ancient, medieval or modern. Its basic feature of misuse on abuse of power for personal gain and advantage of public officials remains the same, though the process and methodology may very over time.

Long ago Kautilysa’s Arthashastra described various forms of bribery that were resorted to by the King’s minions charged with realisation of the King’s revenues. But because it has an ancient history it does not mean that time had at any stage sanctified it. It was and remains a scourge in any ordered system of governance whether public or corporate. Though this malaise is prevalent also in the corporate sector, in this piece we would confine ourselves only to public governance.
The ruling establishment in India has been oscillating between scam and scandal with the rhythmic regularity of a grandfather clock’s pendulum. The general populace is just fed up with these high-level corruptions. They want an end to such financial skullduggery. And would like to see a clean and transparent governance. But the big question is: how does one achieve it?

There are various facets of corruption. These include (i) bribery, (ii) extortion, (iii) fraud, (iv) embezzlement, (v) nepotism, (vi) cronyism, (vii) (mis)appropriation of public assets and property for private gain and use, (viii) influence-peddling, (ix) kickbacks, cuts and commission, (x) involvement in organised crimes. This is just an illustrative list.

Certain corrupt practices could be indulged in individually without the involvement of second party(ies) and there are others which require participation of two or more parties. Thus corrupt practices could be classified as unilateral and bi/multilateral corruption. Examples of unilateral corruption would be fraud and/or embezzlement, which could be done without involving others whereas bi/multilateral corrup-tions would be bribery, extortion, influence-peddling etc. which by their nature involve two or more parties. In such cases there would be “givers” and “takers” of any such corrupt deal.

Bribery is the most pervasive system of corruption. A large number of citizens become victims of this affliction. There could be bribery in awarding government contracts and/or varying the terms of the contract to give undue advantage to the contractors to the detriment of public interest. Bribery is resorted to influence allocation of monetary benefits, like credit subsidies, favoured prices and exchange rates, in obtaining permits and licenses, allowing imports of goods in short supply in the country with high demand etc. Bribery in the revenue assessing and realising machinery is well known. Arthashastra discusses it elaborately. Regulatory departments of the government, like police, customs, prevention of illegal immigration are badly afflicted with this disease. Bribes are offered to refrain from taking action, and to look the other way when parties engage themselves in violating existing laws, rules, regulations or in crimes. Similarly bribery is resorted to favour one party against others in court cases or in other legal and regulatory proceedings. One cannot make a complete list because of the ingenuity of the public servants to make undue gain in almost any governmental activity. A Bengali folklore illustrates it vividly. There was a highly efficient and equally corrupt official of a King. The King used to receive numerous complaints against him wherever he was posted. Getting exasperated the King wanted to punish him by assigning him the duty to count the waves of a river that passed through his territory. Lo and behold, soon thereafter the King was flooded with complaints from the merchants that no boat could cross an imaginary line of the river without paying a bribe to that person as that would interfere with his duty of counting of waves. The creativity of bribe-takers is immense and almost infinite!

In the literature of corruption the concept of economic rent occupies a dominant place. Economic rent arises when a person possesses something unique or special not available with others. A rather banal illustration may help in understanding the issue. A young lady of great beauty and with dramatic skills becomes a superstar in the film industry. She levies a huge fee for any engagement. She also has a law degree. The economic rent that she can charge is the average amount of fees that she gets as a film star and the average income she should have got as an ordinary practising lawyer. The difference is the economic rent that her pretty face and histrionic talents command in the market.

A similar reasoning can be applied to a minor bureaucrat in charge of issuing a licence which includes various activities of typing, stamping, obtaining the required signature and delivering the licence to the licencee. Say, the normal time is three working days. He may do it in one day. He may take seven days to complete the job. He has the monopoly of the entire process. He can acquire economic rent from the prospective licencees through his monopoly position. The economic rent can be measured by what he could earn if he were dismissed from the licensing office. The difference between what he would earn now (after dismissal) and what he used to earn when he was a licensing clerk is the economic rent. Thus most bureaucrats may command economic rent if they are so inclined in whatsoever activity he or she is engaged. Economists often use a very polite language in describing bribery, fraud, graft and other shady deals misusing and abusing the public office as “rent-seeking activities”.

One could argue that every bureaucrat in every public office is expected to act under
some statutes, rules, regulations, departmental manuals/instructions and guidelines. If so, where do they have the freedom to seek “economic rent”? It is admitted that-all these voluminous codes, rules etc. do limit the discretionary powers of the bureaucrats but they cannot eliminate them. Rigid and inflexible rules may create conditions which may ultimately hinder proper transaction of business. Some flexibility and discretionary powers have to be given to the administration in implementing and interpreting the rules and codes. All football matches are played according to the rules of the game. Yet the referee has wide discretionary powers. It is he who decides whether a penalty kick is to be given or not. It depends on his judgment. But his decision, assuming it was fair, would decide the fate of different teams. A referee decides in an open field in the presence of thousands of spectators which would limit his proclivity to do anything wrong. There could be error of judgment but the chances of a deliberate ‘foul play’ would be rather limited. But a bureaucrat does not generally operate in such open public glare.

Let’s take a simple example. Suppose the rule says that all luxury consumer electronic items would attract 50 per cent customs duty. An audio cassette player, when used by a well-to-do family, is a luxury electronic item. But the same cassette player, when used in a school, will be treated as an educational tool attracting only five per cent or zero per cent duty. It is the customs official on the spot who has to decide. And he has to have the discretion to do so. Otherwise if everything is done “by the book”, general paralysis will set in and the whole administration will come to a grinding halt.

A great check on the use of discretionary powers is to hold the officials accountable. Accountability could be in-house by proper and regular inspection by senior officers to ensure that discretionary powers were exercised properly. The other type of enforcing accountability is through the committee(s) of legislative bodies which would scrutinise on sample basis that the discretionary powers were properly exercised. Bureaucrats who have to exercise discretionary powers should be subject to both internal and external test-checks to prevent possible misuse of the discretionary powers amounting to corruption.

Economists are inclined to put their point of view in algebraic form. The formula used is as follows (Klitgaard, 1988):

C = R + D – A

In the above formulation, C stands for corruption, R for economic rent, D for discretio-nary power and A for accountability. In simple terms, it means the higher the D, the more the corruption. Conversely the higher the A, it would restrain the proneness to corruption to that extent. Thus in any fight against corruption, the laws, rules, regulations etc. should try to reduce the discretionary powers of the bureaucrats and enhance their accountability through various systems of checks and balances. But there should not be any excess in either case to allow the system to function.

One peculiar feature of corruption is its international character. Like terrorism, the drug menace, AIDS and environmental degradation, it is one of those problems that have no national boundary. The magnitude of this illegitimate business is unbelievably large. In a speech given in February 1998, Mr Michel Camdessus, the Managing Director of the IMF, said “estimates of the present scale of money laundering transactions are almost beyond imagination—2 to 5 per cent of global GNP”. The World Bank estimated the world GNP to be US $ 29,926 billion in 1997. Two to five per cent of it comes to around $ 600 billion to $ 1500 billion per year. Consider these figures against the total GNP of the low income countries in the same year—this was estimated to be US $ 722 billion. Worldwide corruption generated almost double the estimated GNP of the low income countries. One just cannot imagine the power and influence that these corrupt cartels exercise over the economies and governments of the low and middle income countries.

Corruption, at both the national and international levels, is a formidable enemy of good governance anywhere. Does our draft Lokpal Bill, which has been sent to the Select Committee of the Rajya Sabha, measure up to this challenge?

[Materials used in this article have been sourced from the internet. Certain global figures about corruption have been quoted from an article by U Myint published in the Asia-Pacific Development Journal, December, 2000, downloaded from the internet. — D.B.]

Architect of ‘Operation Barga’ during the Left Front Government in West Bengal, the author was Secretary (Rural Development) and Secretary (Revenue) in the Union Government. Now retired, he is currently a Member of the Rajya Sabha representing the Trinamul Congress.

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