Can we stop corruption?

The real problem with bribery is paradoxically a problem with law. So, the best and most economically efficient method of eliminating corruption would be simply to eliminate the laws themselves

Kaushik Basu is a professor of economics at Cornell University. Cornell is located in the quaint, neat and beautiful town of Ithaca, which is about 320 km, or a four-hour drive north of New York City, in the US. He has recently returned to India, the country of his birth, to advise the government.
 
Like all emerging markets, India has a problem-too much corruption, too many bribes. Professor Basu has a solution. He has suggested that paying bribes should be legal.

His ideas come from one of my favorite disciplines, game theory. The logic goes like this. Right now, both the government official, who receives the bribe (in good legal speak the bribee), and the person making the bribe (the bribor?) are punished if the crime is discovered. Since both are equally guilty under the law, the bribor has no incentive to expose the activity.

Professor Basu's idea is that for so-called "facilitation payments", small payments made to expedite routine business needs, like clearing customs or obtaining permits, the bribor's actions should be legal. In theory, once the bribe has been made, the bribor can expose the bribee to prosecution. This threat would act as a legal disincentive to deter the bribee or government official from soliciting the bribe in the first place. Right now, the interests converge. Since both bribor and the bribee face punishment, it is in both their interests to keep quiet.

But will it work? To answer that you have to ask why do people pay bribes anyway? Bribes by definition involve government activities. There has to be a government official. The bribor wants the government official to act, refrain from acting or act in a manner that favors the person making the bribe.
 
In the case where bribes are paid for purely ministerial functions, making bribe-paying legal might help, if we assume that the government official once exposed would actually be subject to punishment. No doubt this would occur in Ithaca, New York, but would it occur in India or another emerging market? Probably not.

Recently, according to the Indian newspaper, The Hindu, via WikiLeaks, an American diplomat was shown two chests full of cash that the ruling Congress Party was going to use to bribe opposition Members of Parliament at $2.2 million apiece. Although, no doubt well aware of the bribes, the squeaky clean Congress party leader, prime minister Manmohan Singh, denied the allegation.

Again, by definition, the government official taking the bribe is part of a government. The government, or the party in power, most likely appointed the official for political reasons. As the former American president, Ronald Reagan, said "the 11th commandment was that thou shall not criticize a member of your own party."
 
So the government, in order to protect itself, will not have an incentive to prosecute the official receiving the bribe. Instead it will be more likely to persecute the person who exposed the malfeasance, the whistle-blower. Which points to the problem neglected by professor Basu, other economists and financial analysts, who assume that their theories will work anywhere regardless of the legal framework.

The real problem with bribes for ministerial functions is that the government has monopoly. For example in many countries for many years the state controlled telephone service. Getting a landline often took many years and many bribes. With the advent of mobile phones, multiple companies offered service and the monopoly disappeared along with the potential for corruption.

The other aspect of bribing government officials has to do with having the government official use his discretionary power in a manner that benefits the person paying the bribe. In this case, if paying the bribe was legal, it would make the situation worse.

The person making the bribe is doing so to obtain a competitive advantage, like a cheap mobile licence. If he exposes the official, then he loses the advantage. So his best move in game theory would not be to expose government official, but rather use the evidence of the bribe to extort further advantages.

One of the main problems with bribery is transparency. Businessmen are not sure who to bribe, how much to bribe and how to ensure that the bribed official actually performs the contracted action, so the market is always inefficient. Decriminalizing the paying of bribes will simply help the bribors enforce the contract through extortion.
 
The real problem with bribery is paradoxically a problem with law. Many laws have a tendency to distort the economic environment and markets. So, the best and most economically efficient method of eliminating corruption is usually simply to eliminate the laws themselves. Reducing the size of government, reducing its monopoly, outsourcing its services, limiting discretion, reducing regulatory interference, diversifying enforcement and above all, increasing transparency, are far better methods to eliminate corruption than decriminalising an obvious theft.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])
 

Comments
RNandakumar
1 decade ago
The recent elections have given the public an opportunity to learn about our Politicians assets. It is interesting to note a strange and notable coincidence of the wives of politicians being always richer than the politicians. Another intriguing aspect without exception in all the politician's
asset is that they have doubled or tripled at the minimum within the last five years. I do not know whether these are brought to the notice of Income-tax department. Perhaps like CBI they too wait for an order from the politician to probe his wealth. When Tiger becomes vegetarian our politicians would be corruption free.
nagesh kini
1 decade ago
The euphemism "facilitation payment" or "speed money" or "cost-benefit-analysis" for the payments whether made over or under the table or in suitcases displayed by Ram Jethmalani and Harshad Mehta or routing them via "Corporate Consultancy" through Niira Radia seek to "smoothen" the rough passage! That is why our business honchos have chosen not to sign the appeal as they perceive that they've nothing wrong(?) They believe these don't attract the Anti-Bribery Laws!
We have enough laws but not effectively implemented and/or enforced.

The Jan Lok Pal in its present form proposes to extend it to higher neta-babu-judges

It ought to be more pervasive to specifically include others like professional go-betweens be they lawyers, tax consultants and architects.
suresh kumar yvs
1 decade ago
yes. there should be time limit to close any file. example if there is a person retired, his documents should be immediately processed and which ever is pending, the reason should be written and taken an acknowledgement by the person. this is for govt. related. even for works, etc., it is very difficult to define the process. it should be in-build within public and politicians. if they found guilty, the punishment should be loss of job, imprisonment for min 5 years and max 14 years..even for a small or big bribe. after all bribe is bribe.
Shadi Katyal
1 decade ago
One misses the point that such corruption is legalised through the Constitution of India and thus niether the officer nor the clerk has anything to worry.
The Economist last week had witten that failure of India is due to such bribes and promises and thus money spent or given has no hope of anything being done.
There is no accountability of any officer and thus files can lie in dust till more money is paid.
It is harsh to say but it is evident that we Indians have now become used to such bribes inordeer to facilitate any thing to be done in time. Whether it is a driving licence or pasport, begging hands are always there.
Unless Law and Order has some power we will neve become an economic power.
Most of the investment are passing buy to Thailand,Vietnam and we still scratching our heads.
One of the biggest problem is that we have become to such GHOOS so well that we dont feel the pinch
Angelo Extross
1 decade ago
Some classify bribes into two categories: - one, speed money and the other, illegal execution. While some do not term the former as a "bribe", they denounce the latter. The question is, "Why speed money".
The answer is quite simple, "Because there is no time limit specified in any Govt. office for the job to be done." If this is done a lot of the former type of bribes will vanish.
firstchoiceipo
1 decade ago
As long as we have corrupt political leadership ( all parties included), it is difficult to put an end to corruption. The action should start from the political field.
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