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Learn from Modi’s mistake
Narendra Modi became India’s Prime Minister in 2014 in an anti-corruption wave. His election slogan ‘Good governance and lean government’ appealed to India’s middle class voters who had been angry at the Manmohan Singh Government for its inaction in fighting corruption.
Bundled with another promise of a fast economic growth for India, his good governance move received an unprecedented landslide victory at the elections. The very same Modi has now been humiliated by Delhi voters by delivering him a totally unexpected defeat at the recently-concluded elections for power in India’s state capital.
At these elections, a new party – Aam Admi Party or Common Man’s Party headed by the commoner Arvind Kejriwal – which had robbed the anti-corruption slogan from Modi, has trounced the Bharathiya Janata Party winning 67 seats out of 70 in the state assembly.
The lesson taught to Modi and also to the new Government in Sri Lanka is very clear. When people are running ahead of political forces, the failure to catch up with the speed of the people will pretty soon be fatal to such political forces.
Common candidate Maithripala Sirisena just followed voters’ expectations
Sri Lanka’s common presidential candidate, Maithripala Sirisena, too fought the recently concluded presidential election on the promise of delivering good governance and eliminating corruption. His rival, the all-powerful Executive President Mahinda Rajapaksa, used all the resources within and outside his command to foil Sirisena’s attempt at grabbing power from him.
It was unthinkable and unprecedented in Sri Lanka’s politics that an incumbent President could be defeated at elections. It was specifically unthinkable in Mahinda Rajapaksa’s case because he had earlier grabbed all the powers within the government through an amendment to the Constitution and establishing an unchallengeable two third majority power in Parliament.
Hence, right from the beginning, Sirisena’s battle was a battle of a loser. Yet, he fought his election campaign, like Modi, on the slogan of delivering good governance, eradicating corruption, establishing the Rule of Law, restoring human rights and above all, abolishing the Executive Presidency.
This promise-mix was not his or his campaign managers’ creation. It was simply the recognition of the collective expectation of the voters, especially the middle class voters, of the day. These voters had been weary of the worn-out war victory euphoria and development of mega infrastructure projects by the Government. Instead, they had assigned a higher value to the need for re-establishing democratic norms and institutions in the country.
Former President Mahinda Rajapaksa ignored the call
Former President Rajapaksa and his key advisors stubbornly refused to recognise the need for establishing democratic institutions, observing the rule of law and practicing good governance that lead to elimination of corruption. That was despite many erudite and responsible members of the civil society continuously writing on the subject.
H.M.G.S. Palihakkara, one time Foreign Secretary and presently Governor of the Northern Province, in a speech delivered in Colombo in May 2012 highlighted that it was the rule of law and not the rule of men that would usher prosperity for the country (available at: http://www.ft.lk/2012/05/28/rule-of-law-or-rule-of-men-what-will-usher-prosperity-and-development/). K.H.J. Wijayadasa, retired civil servant and Secretary to the President, in a book titled ‘Governance, Heritage and Sustainability’ argued that good governance is the foundation of sustainable development.
V.K. Nanayakkara, former civil servant and Secretary to Prime Minister, presented a blueprint of a new constitution emphasising the need for establishing good governance and rule of law in the country. A civil society group organised as Friday Forum continuously brought to the notice of the Government many instances of violating sacred principles of democracy and human rights.
This writer too drew the attention of the Government and its key policy makers on this need in a number of articles written under this series. The following are the highlights of these articles: good governance should be a passion and not a fashion (available at: http://www.ft.lk/2011/05/04/good-governance-should-come-from-the-heart/); countries implode from inside if they fail to arrest corruption (available at: http://www.ft.lk/2011/07/11/china-at-risk-of-imploding-if-corruption-is-not-checked/); representative democracy becomes a mockery if powers re not properly guarded (available at: http://www.ft.lk/2011/06/13/represenatative-democracy-economic-costs-are-huge-if-powers-are-unguarded/); authoritarian regimes do not bring prosperity in the long run (available at: http://www.ft.lk/2013/03/18/authoritarian-regime-for-economic-prosperity-not-even-a-little-bit-will-work-in-the-long-run/); and Sri Lanka should take notice of slipping down in the corruption perception index (available at: http://www.ft.lk/2013/12/09/slippage-in-corruption-perception-should-sri-lankans-take-note-of-it/). But the Government paid a deaf ear to these calls presumably believing that war-victory five years ago and mega infrastructure projects since then could deliver them victory at the elections.
But some believe corruption is good
There is a school of thought that believes that corruption is necessary for rapid economic growth of a country. Their contention is tha
t corruption unblocks many hurdles that stand in the way of economic development projects.
With corruption that oils the palms of everyone involved, projects could be implemented smoothly without delays. But if policy makers go by procedures and systems, they argue, that are intended to keep corruption at a minimum level, things get unduly delayed and in some cases could not be had at all. Thus, public goods that are produced by governments are unnecessarily hindered if systems are introduced to eliminate corruption. So, societies have a choice: whether to have corruption and goods or no corruption and no goods.
Taming of bureaucrats by corrupt politicians
One notable advocate of the beneficial role of corruption in society has been the Harvard University’s Political Scientist Samuel P Huntington. In a book titled ‘Political Order in Changing Societies’ and published in 1968, Huntington argued that when societies attain higher income levels and modernise themselves, the emphasis they place on public welfare gets shifted to private personal interests.
When public servants start working for their personal interests, they invariably look for avenues to enrich themselves and those avenues are exploited by them by resorting to corrupt practices. Thus, corruption proliferates in society. However, Huntington has argued that such corruption has a beneficial side too. The politicians who now resort to corrupt practices are able to tame the public servants who have become all powerful in those societies.
The weakening of the bureaucracy helps these societies to develop their political parties. Modernisation which involves losses for some and gains for others makes everyone stressed and unless those stresses are managed, they would lead to conflicts and violence. Corruption is a way to moderate these stresses and thereby it helps societies to stimulate economic development.
What is wrong if people are willing to pay?
Thus, if a person has found the prevailing public service a hindrance to get a service done, oiling the palms of the public servants is the sure way to have the otherwise unmovable bureaucracy moved. To do so, people are ready to spend money and there are people in autho
rity who are willing to accept that money too. Thus, paying some extra money to get a public service delivered to a citizen on time becomes an institution in the economic system.
Though it is not a legitimate institution, its existence is felt by everyone and its rules are observed by everyone. Once this illegitimate institution encompasses the whole society, it is not possible for citizens to bypass its accepted norms which are enforced just like the rules and regulations of a formal authority. It is therefore accepted as a natural component of the ethos of the existing society. Under this ethos, goods are delivered to society in double quick time making society a beneficiary of tolerating corruption.
But corruption is bad for a society due to a number of reasons as this writer has argued in a previous article in this series.
Empirical evidence: Corruption destroys a country
First, there is mounting evidence now that corruption in a society in fact prevents it from sustaining a high economic development on a durable basis. Two German economists, Axel Dreher of the University of Goettingen and Thomas Herzfeld of the University of Kiel, have documented a number of empirical studies that have assessed the long term economic cost of corruption in a paper they published in 2005 under the title “The Economic Costs of Corruption: A Survey and New Evidence” (available at: ideas.repec.org/p/wpa/wuwppe/0506001.html).
According to them, corruption has a negative impact on economic growth, the level of per capita income or PCI, investment activity, international trade and even the successful control of inflation. In addition, corruption causes an unhealthy change in the government expenditure programmes favouring those who are prone to corrupt practices and who have a higher bargaining power in the allocation of public funds. Even when they do not have a higher bargaining power, they are in a position to buy those who have the power to make Government’s expenditure allocations.
By using six possible channels through which corruption affects economic growth, they have calculated that if the level of corruption, as calculated by Syracuse based PRS Group in its International Country Risk Guide or ICRG index, increases by one index point, economic growth is reduced by 0.13 percentage points and per capita GDP by $ 425. Though the two authors have not taken Sri Lanka as a country of study for their analysis, their general conclusions are a pointer for Sri Lanka since countries like India, Bangladesh and Viet Nam which are also in the same category as Sri Lanka with respect to perceived corruption have been included in the study.
Corruption breeds more corruption
Second, though Huntington has inferred that corruption will make it easier for the wheels of the public sector administrative machinery to turn smoothly and effectively, two economists attached to the US based National Bureau of Economic Research or NBER, Daniel Kaufmann and Shang-Jin Wei, in an NBER Working Paper titled ‘Does Grease Money Speed up the Wheels of Commerce?’ have challenged Huntington’s inference.
They have asked the managers of corporations in different countries covered in World Economic Forum’s Global Competitive Index about the level of corruption they have to tackle, amount of time they have to spend with government offices to receive various services and how the government regulations have imposed burdens on them. The findings of the two authors have been that when the level of corruption has increased, so has the level of regulatory burden. This is because the corrupt officials and politicians, having noted that their prospective corruption gains enormously increase with the level of regulations, have tightened the regulatory mechanism in order to increase their corruption gains too.
Economists call this behaviour resorting to ‘moral hazard practices’. A corrupt public official may resort to harassment of his customers or delay the approvals he has to give in order to demand for a bigger bribe from them. Kaufmann and Wei have found that corporate managers have to spend more time in government offices to receive public services if the corruption level in the country is too high. Hence, the private sector in an economy gets caught up in an expanding and vicious circle of bribe-paying in which small bribes become large bribes, occasional bribes more frequent bribes and secretive bribes more open bribes.
Corrupt people drive out honest people
Third, if corruption is not eliminated right at the inception, small corruption is bound to become wide-spread corruption infecting the whole society with its virulent viruses. Economists call this the operation of the Gresham’s Law.
The story is that Queen Elizabeth the First in England had been about to issue cheap metal coins for circulation along with gold coins of the same denomination because she had been advised that by debasing coins in that manner she could make good profits. On hearing this, Sir Thomas Gresham had written to her in 1558 warning her that people will hoard all gold coins which have a value and reissue for circulation only the cheap metal coins because they could also do the same job as the gold coins. Thus, it was said that ‘bad money in circulation would drive out good money’.
Today, economists use this as a general law, named after Gresham, that suggests that if a bad thing is tolerated, it will certainly displace good things and as a result, society will end up with only bad things. Similarly, if corruption is tolerated by any government for whatever the reason, it drives out all the honest people and eventually fills the entire society with corrupt people. Once corruption gets institutionalised in this manner, everyone has to pay more for whatever the services they expect from a government.
Citizens pay twice for corrupt projects
Fourth, when corruption has been allowed to be institutionalised, everyone has to pay twice for the government services. In the first place they pay taxes to maintain a government. Then, when the Government starts providing public services, if good tender procedures, transparency in awarding tenders and accountability are not observed, the tenderers are required to jack up the tender prices above the normal competitive bidding prices in order to accommodate the payments they have to make to corrupt politicians and public servants.
So, citizens in this case are forced to buy the public service products at a price higher than the normal free market prices. The difference between the high tender price and the low free market price is a second payment which the citizens are required to pay.
Corruption makes the poor poorer
Fifth, the cost of corruption falls more heavily on poor people than the rich. When it comes to the cost of the general Government services, it is the poor people who pay more for such services because the indirect taxes or inflation which is used to fund a government falls more heavily on the low income categories in a society. When specific public services like health services and education are considered, if users are required to pay a bribe to get the service, the cost of the bribe will be a bigger percentage of the income of the poor people than that of the rich.
When school admissions are governed by bribes, the poor will lose access to decent education and miss the opportunities for social mobility. In addition, the spoils of corruption are appropriated by the rich creating a newly-powerful rich class which muffles the voice of the poor in important political and economic decision making. It also leads to a worsening of the income distribution in the economy.
Corruption is a bad example for the young
Sixth, corruption gives a bad signal to young people because they are told by social demonstration that there are easier ways of making money than working hard. The money made through corruption is a loss to the general public but a gain by those who are engaged in corruption.
Since it is earned without making any productive contribution to the economy, it does not add any value to the national wealth. Economists call this ‘unproductive rent earning’. If an entire society is covered by such ‘rent-seekers’, it hinders the real wealth creation and causes the economy to perish over time.
Don’t take impatient voters lightly
This is why voters have become impatient when the Government which had promised a corruption free society has failed to deliver its promise promptly. Since people are ahead of politicians, the chances are that a new political force, maybe the one that has been ousted, will grab the slogan and drive the movement to their personal gain. That is what Modi has experienced in Delhi recently.
If the Sri Lanka Government delays its reform program for whatever the excuse it has, its destiny is written on the walls of Delhi today.
(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at
[email protected].)
