Growing pains?….Sathi Alur
Widespread corruption is a phase in the evolution of democratic capitalism – to overcome it, leaders and citizens must comfront reality
Widespread corruption is a phase in the evolution of democratic capitalism – to overcome it, leaders and citizens must comfront reality
Early last year, the economic mood in India was positively optimistic. The national mood and Sensex rose steadily till the last quarter, reaching a crescendo with the Obama visit. Subsequent events have rudely turned the mood into one of depression and despair, leading many to ask: “Will India ever change?” No pillar of our democracy has emerged looking good. The C-word is out in the open, discussed in social circles, debated on TV and denounced by all. Everyone, whether from the world of business, politics, bureaucracy, judiciary or media, or the aam aadmi, feels themselves the victim rather than the colluder. That itself is a good sign. Have we reached that inflection point in our maturity,at which we can grasp the nettle of corruption and make the radical change that is necessary?
Indian democratic institutions are imperfect, but they are well-established. There are disproportionately positive returns from dealing with corruption, and society can respond by confronting realities head-on.
The cost of corruption in India has been estimated by some analysts to be about 2 per cent of GDP. The late C.K. Prahalad startled the nation by estimating it at 5 per cent of GDP. 2 per cent amounts to Rs. 90,000 crore per year, equivalent to the NREGA spend every year! At 5 per cent or $50 billion, we could provide quality education to all our children: a huge demographic dividend that would convert this nation in a decade into a truly global economic and political powerhouse.
One may not agree with the number, but many would concur with three statements about corruption: first, it is a moral and ethical stain on the national character which corrodes; second it is economically inefficient and harms the poor disproportionately; and third, it is a huge financial drain on the economy.
In this article, I argue that these recent events represent the “adolescent phase” of a maturing democratic capitalism and that positive change is possible when leaders in our society confront reality.
Just as adolescence is a necessary part of a person’s growth, widespread corruption that touches almost everybody represents an adolescent phase in the development of a nation. Just as adolescence passes, corruption also morphs from being widespread and petty to fewer but bigger instances. Recall how, only 20 years ago, petty corruption characterised railway ticket booking, milk purchases, telephone booking and even cinema ticket buying. Luckily these are now distant memories. This, one would call the “shortages syndrome”, where the rent-seeking class extracts disproportionate rewards from ownership of or the power to administer resources.
One political theorist portrayed 18th century England as “shot through with corruption and venality”. It was as late as in March 1888 that a Royal Commission in England recommended “that it would be well if it were made a criminal offence to offer any member or official of a public body any kind of payment.” (Corruption, Michael Clarke, Frances Pinter, 1983). Historians seem agreed that “corruption was endemic in 18th century politics, with the sale of office being a widespread phenomenon throughout Europe.” (Political Corruption: Concepts and Contexts, K. Swart).
It is not clear historically how corruption declined as late as the 20th century. With the birth of the modern state and democracy, the line between private market and state affairs began to sharpen. “The emergence of proto-liberal sensibilities nurtured and promoted values such as neutrality, impartiality, merit and egalitarianism”, according to Lisa Hill. (Adam Smith and the Theme of Corruption.)
Similar lessons can be drawn from the development of innovative and new business domains. Studying the history of technology diffusion, Harvard Business School academic Debora Spar suggested that there were four phases.
First was “innovation’” marked by tinkering, laborious exploration and the sudden thrill of discovery. Second came “commercialisation”, when young pioneers rushed along the emergent technological frontier. They wanted to “grab the land” and call it their own. For example, radio spectrum became very controversial in 1924. Secretary of State Herbert Hoover aggravated the chaos by stating in an interview with the New York World that “if anybody would have an exclusive use of a certain wavelength, he would have a monopoly of that ether. That cannot be permitted.” Third came “creative anarchy”, when the pioneers demanded a level playing field and transparent rules to be able to hold their conquered lands. Lastly came the rules and regulators.
If leaders confront realities and act, the next phase does emerge. In the case of India, the uniquely inverted sequence of experiencing democracy (1947) before experiencing the power of entrepreneurship aka capitalism (1991) provides a further twist. America, England and Europe (also China and East Asia) experienced capitalism before full-franchise democracy. The industrial revolution ushered in capitalism. The resultant entrepreneurship made it possible for common folks to amass wealth and status, thus breaking down the traditional social structure. The possibility of earning money thus preceded the exercise of voting franchise, making people aware of their obligations before they became aware of their rights and privileges. So In India, rights and privileges were tasted before duties and obligations.
To confront reality, developments must become hurtful to enough players. Society and business people think of themselves as rational people, and part of that rationality is that once you have occupied a hole, you must keep your position in the hole. If matters get more difficult, then they dig the hole deeper. At some stage, it becomes clear: the deeper hole takes longer to get out of.
At such a turning point, leaders openly acknowledge that there is a problem. That is what “confronting reality” means. This could take the form of a demand, for example, to eliminate opaqueness, or to set out clear rules, or to stop obfuscating, all three being characteristic of the third phase of creative anarchy. It marks the transit point from the anarchy phase to the much needed rules phase. System and order follow because the pioneers begin to realise that there are costs to the chaos.
The final transition is just ahead, namely, competitive capitalism. Software, media, hospitality and FMCG are already there. The Indian economy is perched at the inflection from creative anarchy to the rules phase. It is time to lead and march in this new direction. We must see more wise leadership and citizenship.
The writer is a UK- and India-based economic and social policy analyst