Dr Bharat Jhunjhunwala
There is an all-round condemnation of the growing corruption among our politicians and government officers. ‘Corruption’ is usually thought of in terms of money and bribes. There is a bigger ideological dimension to corruption. It is possible that a politician may not take bribes but he may be implementing policies that are wholly harmful for the country. There were many stalwarts who most honestly supported British Rule over India. Such persons are not ‘corrupt’ in the sense that the term is generally used. However, they are more harmful than a politician who may take bribe of a few hundred crore rupees but implement the right policies. Ideally I would like to have a leader who is both financially and ideologically honest. But if required to make an unpleasant choice, I would support a financially corrupt person than an ideologically corrupt person. Reason is that money extracted from financial corruption is recycled in the economy while ideological corruption kills the economy at its roots.
Generally it is assumed that corruption hits at economic growth. For example, a road is constructed poorly due to corruption and wears off soon leading to high cost of transportation and lower rate of economic growth. India and China, being high in corruption, should have lowest growth rates. But the reality is exactly the opposite with these two countries logging high growth rates.
It seems the economic impact of corruption depends upon the use to which the bribes are put to by the bribe-taker. Say Rs 50 lacs were leaked out of a contract of Rs 1 crore given out for the making of a road. The road was made of inferior quality and affected growth rate adversely. But that leaves us with Rs 50 lacs lying with the corrupt engineer of PWD. He can spend this money in pleasure or he can invest in the share market. The negative impact of corruption is less if he invests in the share market. Say the Engineer purchased bonds of Rs 50 lacs floated by a company engaged in construction of dams and National Highways. This money is then used in the construction of Highways. The final result of corruption is that government road was made of poor quality but a private Highway was made. The negative impact of corruption is partially nullified in this way.
One businessman of Lucknow confided to this author that one former Chief Minister of the state has deposited a sum of Rs 20 crores with him for safe keeping at nominal rate of interest. Such corruption does not impact economic growth adversely even though it is immoral.
Investment of bribe-money in productive purposes partially nullifies the adverse economic impact. This difference can be seen clearly between India and Latin American countries. Both are highly corrupt but while Indian officers and politicians partly invest the bribe-money in share- or property markets, the Latin American counterparts mostly sent it away to be deposited in Swiss Banks. The result was that growth rate of Latin American countries declined while that of India did not-at least till the nineties. Unfortunately, the last decade has seen greater remittance of bribe money to foreign countries from India. This is responsible for lower growth rate in the last 5-6 years. In other words, financial corruption hits more when the money is remitted overseas.
Financial corruption can actually lead to higher growth rate. Economists have the concept of ‘propensity to save’. Additional income of Rs 100 is used differently by poor- and rich persons. A poor person consumes Rs 90 and saves Rs 10. A rich person consumes Rs 10 and saves Rs 90. The extortion of bribes from the poor directly harms them but it leads to higher savings for the economy. The poor person is deprived of Rs 100 which leads to a reduction of Rs 10 in national savings. But the corrupt engineer invests Rs 90 out of the bribes, which leads to an increase in national savings of Rs 90. Thus there is a net increase in national savings by Rs 80!
Every country seeking to develop economically has to reduce its level of consumption initially. A rickshaw-wala seeking to buy an auto-rickshaw has to initially consume less and save more. His consumption may increase after he has saved enough to buy an auto-rickshaw. This initial lowering of consumption is called ‘primitive accumulation’. England undertook such reduction in the consumption of the poor during the initial phase of industrialization in the eighteenth century. That is captured in Dickensian England. America did the same by reducing consumption of the black slaves imported from Africa. India is doing precisely this through corruption. Money is being extorted by the government officials from the poor and invested in share- and property markets. Surely such corruption hits at the welfare of the people. But it still becomes an engine of economic growth.
The purpose of this analysis is not to justify corruption. Purpose is to draw attention of the reader to the more harmful ideological corruption. A politician who makes an unfair treaty with foreign powers; allows multinational corporations to kill the jobs of the poor people; or makes no effort to bring back bribe money stashed abroad perpetrates much more harm to our people than he who takes bribes but implement the correct policies.
Gandhiji used to say that violence is better than cowardice while non-violence is best. Gandhiji was not a proponent of violence yet he said that violence was better than cowardice. We face a similar situation with respect to corruption. ‘Corruption-with-good policies’ is better than ‘Financial honesty with ideological sellout.’
The danger is that abetting financial corruption may breed ideological corruption. Or, it may happen, that the bribe money is sent abroad. This will have great negative impact in the long run. A student may pass his exams by cheating; or an athlete may win a race by taking drugs, similarly India is growing today by abetting corruption. This may be okay in the short run but will harm us in the long run. The student who has passed exams by cheating fails during interviews for a job. The athlete who wins a race by taking drugs is unable to maintain his record under strict surveillance. Similarly, it will be difficult for India to maintain its present high rate of growth for a long time by recycling bribe money. We must, therefore, make a three-step strategy. Immediately we must focus on controlling ideological corruption and, if helpless, accept financial corruption. Secondly, we must focus on preventing outflow of bribe money from the country. At the third level we must strive for a leadership that is both financially and ideologically honest.
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