Sep 5, 2008

World - Why corruption persists

The Parliamentary Committee investigating the cash-for-votes drama has sought and got a month’s extension to complete its inquiry. Meanwhile the aam aadmi, to use a clichéd word popularised in this regime, didn’t need this TV show of notes to complete his own inquiry — he already knows that the public system is flush with money. Us voters are cynical and the persistence of corruption in public institutions is seen as something that is beyond change and must be endured.
The politically correct term for corruption is leakages. These can be in trickles, which undermine growth, or, as we have all seen recently, have the potential to result in a flood with catastrophic consequences. There are those who accept this as karma, but for those who are looking for some reasoning behind their continued suffering, Haldun Evrenk of the Department of Economics, Suffolk University, has an interesting paper on the persistence of political corruption in democracies, “A Game-Theoretic Explanation for the Persistence of Political Corruption”*. He shows through game theory modelling that “when the level of political corruption is high, and when competing politicians care about their future rents, both corrupt and honest politicians have the incentives to block a fully effective and costless reform”. While the case for the corrupt politician blocking reform is clear, i.e. he loses future rents, the case for the honest politician is not that apparent. Evrenk believes that a rival’s corruption provides a positive externality for an honest politician, competing against a corrupt rival gives him an advantage in elections. But remove the corrupt politician and the honest one loses his edge. So, the end result is a political system with an aversion to reform.
Can voters who are fully informed make a dent in this system? Well, voters can try to vote strategically by committing to vote for a particular candidate to ensure he supports reform, but this kind of pressure will be credible only when reform is the main issue for elections. Further, even if reform is the only agenda, the threat of not being elected in one period is not enough to convince candidates to support reform agenda, when expected value of future rents is high. In reality of course, the conditions to ensure reform are not easy to replicate — political corruption is hard to kill.
Corruption will always exist. Take the US — there were reports of cash- filled paper bags in the US Senate in the 1950s and now there is the Alaskan Senator Ted Stevens indicted on the charge of failure to disclose more than $250,000 in gifts from oil companies. He has meanwhile won the primary and is ploughing on regardless. Sounds familiar? It is only a question of degree and visibility — whether Kenya, Italy, or Bihar, the story is similar everywhere — corrupt governments get re-elected. Giovannoni and Seidmann** have worked out some models to study the implications of Acton’s axiom “ Power corrupts and absolute power corrupts absolutely” in government formation. Their modelling is simplistic, in the sense, it deals with a stationary environment and looks only at the changing dynamics of corruption on ruling parties.
Why should economists do such modelling? Is this just another manifestation of the confused world of economics or is it that with physicists taking over the financial frontiers, we are looking to spread our tentacles into other disciplines? The truth lies somewhere in between. Actually, economics is going back to its roots, interest in ‘political economy’ and institutions has fortunately made a comeback. There is a two- way relationship between economic policy and outcomes and quality of political institutions that affects growth and development in the long run, so this “intrusion” into political science is quite natural.
While the papers deal with persistence of political corruption, for the common man, this is less of a headache than corruption by lower public officials. Also, the pessimistic results are because the models do not allow for change in the “underlying environment”. In reality, of course, as the link between political and bureaucratic corruption is clear, for systemic reform, change is possible but must come from the top. Releasing the Transparency International India Corruption study, the vice-president said that the onus was on the government and civil society to take corrective action. That is true and it is for this reason that the Parliamentary Committee report, whenever it sees light, should not come up with a damp squib.

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