India & China- Allies in Corruption

by PRANAB BARDHAN



All pervasive corruption in the world's two fastest growing economies defies marketonomic's bottom-line logic which holds that free play of market forces automatically squeezes out scope for foul play. Is this the lesson from 20 years of liberalisation?

In a dubious landmark and a first for India, Parliament could hardly meet for its winter session, paralysed by an alliance of Opposition parties in protest against a corruption scandal in the allocation of the telecommunication spectrum.
The scathing public auditor report as well as energetic judicial intervention comes close on the heels of other recent scandals involving land and housing schemes and the malfeasance widely reported in the arrangement of the Commonwealth Games.

Some of the Opposition parties, of course, throw stones from their own glass and illegal mines in Karnataka.

Are there structural reasons for such pervasive corruption? And does India’s corruption differ from that, say, in China? A common question is why corruption, once associated with the discretionary powers of the earlier “license-permit raj,” seems to be on the rise in India, instead of falling with the abolition of that control regime. One can immediately think of at least three reasons to explain this puzzle.

First, despite a great deal of deregulatory reforms and trade liberalisation, some major controls, particularly at the level of state governments, remain. For example, anyone who wants to start a factory needs land, often acquired from the state; water and electricity connections made possible by relevant departments; and then need environmental clearance, putting the applicant at the mercy of factory inspectors and labour-law implementing agencies, and so on. This is not to suggest that some of these regulations do not have rationale based on legitimate social objectives — say, overseeing minimum work conditions in factories or restrictions on pollution — but considerable official discretion is involved and, with that, some scope for corruption.

Secondly, with high economic growth the market value of scarce public resources — land, oil and gas fields; mineral resources; the telecommunication spectrum and more — has gone up enormously, and so has the chance of making money from their favored allocation. For example, in the case of the allocation of 2G spectrum, instead of the standard method of auctions, the Minister concerned allocated them to favoured agents in 2008 at low 2001 prices, resulting in a loss to the treasury of up to $39 billion, according to an estimate, possibly bit of an overestimate, by the public auditor.

Third, over time elections at all levels have become more expensive in terms of advertisement costs, petrol for transport, and alcohol and cash for the large numbers of vote-mobilising youth, particularly as an Indian constituency involves numbers of voters much larger than elsewhere, more than a million in case of parliamentary seats.
Without public financing of elections, raising money from all kinds of private sources, often through illegitimate means, is indispensable. Of course, those private sources in turn demand and get quid pro quo from politicians in terms of policy favours.

In comparing India with China, this last reason of election expenses is barred. Yet the other two reasons remain valid in China as well and may explain part of the large corruption there. In fact, with fewer checks and balances either in government institutions or from independent judiciary or media or civil society, the corrupt in China can get away with unscrupulous behaviour much more easily. In rural areas, where households do not have ownership rights on

land, Chinese local officials, in collusion with local business, have been much more peremptory in acquiring land without adequate compensation. Nothing like India’s recently enacted — though as yet weakly implemented — Right to Information Act deters the corrupt Chinese official.
Of course, those caught in the act face the threat of more severe punishment in China: Corrupt officials are sometimes summarily executed while in contrast, Indian corrupt officials, if punished at all, get off relatively lightly. But in general, Chinese punishment for corruption is often arbitrary and, more often than not, used against political adversaries or small fry.

Of course, public protesters against corruption are also punished sometimes on charges of disrupting public order — a recent case in point is that of the large-scale tainted milk scandal of 2008, which led to the execution of a high official and also imprisonment of protesting parents of some victims.

It is interesting to note that Chinese journalists who were

fully aware of the developing story of the tainted milk scandal postponed writing about it until the 2008 Olympic Games — China’s moment of international glor y — concluded, in order to be “harmonious,” as one editor explained to a foreign reporter in justification. Meanwhile 300 children fell sick, and dozens died.
In contrast, media fury in India broke out over reports of official ineptitude and corruption in the arrangements for the Commonwealth Games in New Delhi this year just before they began.

There are, however, grounds to suggest India has more institutional inducements for corruption than in China. First, in China the lines of authority are more well-defined and streamlined, whereas India operates with an administrative system of multiple veto powers on a given decision — a legacy of colonial times and distrust institutionalised in the administrative process.

An apocryphal story has it that one high official in New Delhi told a friend, “if you want me to move a file faster, I am not sure I can help you,

but if you want me to stop a file, I can do it immediately.” In this system, even after paying a bribe, one can’t be sure if the job will get done, and payment may be required again.
Secondly, in China official rewards and promotions are more directly linked to local economic performance.

Stealing so much as to affect local economic growth is affected can seriously hamper an official’s chances of promotion.

In Indian civil administration there are a few rewards for enabling good local area economic performance; reputation for administrative efficiency does play some role in promotion, but seniority trumps most other factors in career paths. Staff is posted in a given area for only a short period, plum postings often carry a price that the political boss does not forget to exact, and so the corrupt official often has the incentive to squeeze the maximum out of the posting.

In the recent media splashes and leaks around the corruption scandals in India, showing the sticky fingers of corporate and real estate tycoons, lobbyists and

journalists in good measure, the cozy nexus is usually described as crony capitalism.
But such cronyism is actually more acute in China, where successful state-owned companies are often controlled by powerful political families.

It’s been reported that of the multimillionaire residents of China the overwhelming majority are relatives of high-ranking Communist Party officials. While there are hereditary political bosses and family business empires in India, there’s also a more vigorous private corporate sector and quite a bit of churning in the list of top companies.

India’s crony capitalism does not approach the levels found in China.

The sound and fury around the recent corruption scandals in India will serve some purpose if they strengthen the resolve for eternal vigilance on the part of civil society rather than reinforce the enveloping cynicism.

(The writer is author of “Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India”. He is Professor of Economics, University of California, Berkeley)