It shouldn't pay to pay bribes

Corruption cannot be eliminated. Human beings are not always given to ethical behaviour. If it suits me, if it benefits me, i will on occasion submit to the temptation of being a bribe-giver or a bribe-taker. If i am clever, i will create situations where i can rationalise my acts and convince myself that i am not really corrupt.

When a pharmaceutical company organises a cruise holiday for doctors, one can always rationalise it saying that it is an "education tour" by arranging for a few inconsequential lectures during the cruise. The doctor who goes can rationalise it saying he is really not "influenced" by the freebie and, of course, with the perennial argument that "everyone else does it", he "would be a fool not to".

I am deliberately using doctors as an example. They are a widely respected group, unlike politicians who are the targets of our customary collective wrath. The point that needs to be empha-tically made is that corruption is not confined to politicians or bureaucrats. Over centuries, we have lived and still live with the hope that the strong professional ethics of the medical fraternity backed by their Hippocratic oath will minimise the baneful consequences of their subversion.

No one can dispute that there is some (if not a lot) of corruption in the "purchase and procurement" department of every company in the private sector. Corruption is not the prerogative of the state sector. The only thing is that the costs of private sector corruption are borne by shareholders whereas all citizens bear the costs of corruption in government. Shareholders have been grappling with the problem of how to set up structures and incentive contracts to minimise corruption levels in companies which they invest in. This is the famous "agency problem" and attendant solutions which stalwarts of the past like Adam Smith and more recent scholars like Stigler, Jensen and Meckling have written about.

From the perspective of the private sector, government corruption leads to increase in transaction costs. It leads to crony capitalists getting an upper hand over genuine productive entrepreneurs, and is inimical both to economic growth and social mobility. Corporate India collectively (with the exception of crony capitalists, needless to say) therefore has a vested interest in reducing government corruption. The paradox is that no single company has such an incentive because it does not help one firm if it avoids corruption while its competitors do not. The rhetorical solution "do not pay bribes" simply will not and does not work as long as "it pays to pay bribes".

The solution has therefore to be a systemic one. The simpler the rules, the lower the role of discretion, the more transparent and open the processes, the higher the government official`s salary, the greater the probability of being shamed, the lower the probability of being able to hang on to wealth generated through corruption — the lower the overall government corruption. The first systemic change is to publish all rules clearly, openly and transparently while doing away with the insidious requirement of "prior approvals".

If i am following all the rules, why do i require prior permission for any activity from a government functionary? The corollary to that is that if i break rules, the fine imposed should be sufficient penalty to incentivise me not to break them. I mention "fines" which are a civil penalty quite deliberately, because in civil procedures (e.g. income tax) preponderance of evidence is sufficient. We do not need to prove things "beyond all reasonable doubt" as in criminal proceedings.

As an example, if rules regarding environmental pollution are published, then a factory should not need prior permission from any government department or agency to get started. If the factory breaks the rules, the government agency should be in a position to impose a penalty that exceeds the profits derived from breaking the rules through a simple civil procedure which can then be appealed in efficient tribunals. If a company is supposed to install an effluent treatment plant and does not do so, fine the company promptly; do not waste time and effort in trying to send the chairman to jail.

Such procedures will be faster, more efficient and therefore more effective than thousand-page criminal charges which rarely result in convictions. This one change in government practice will result not only in enormous reduction in corruption, but would provide for increased economic growth and easier entry and operation for genuine entrepreneurs as against crony capitalists.

We have inherited from our former colonial masters an edifice of "prior approvals" required from the state for too many economic activities. We are also burdened with a tradition of opaque rules with the caveat that "notwithstanding anything contained in these rules, the collector/commissioner/secretary/minister can provide an approval if he…thinks it proper". And there`s the rub! Opacity and discretion! Our erstwhile rulers found it a useful tool to `control` us and to make sure their favourites (usually British companies) got the coveted approvals. It is high time we as free citizens change the system. Otherwise we will be doomed to low growth, increasing inequity that favours crony capitalists and endless moral corrosion of our society.

-TOI