Yahapalanaya and investment

There was a new dawn with the new President’s election. The sky lit up beautifully, with the aura of Yahapalanaya. A great dawn does not guarantee a nice evening .Yahapalanaya is a little like that. The rest of the day has not turned out as well as the dawn.

Mythology

According to mythology the Nagas lived in ancient Sri Lanka. They worshipped Serpent Gods. Some of them were many-hooded serpent gods and had mystical powers. I would like to imagine that the patron and enforcer of Yahapalanaya is Naga, a double-hooded Serpent Deity with special powers that are required to catch the big shots who had collected the big bucks and allowed corruption to spread like flu all over the country. 

With its two hoods and 360-degree vision, we believed this Naga Serpent Deity would spit and sting all those who transgressed. It did not. Instead it was like a pussy after milk lying quietly in the basket.

No one of significance has been convicted of corruption and the general perception is that corruption continues. Perception is reality and will remain so until something changes that perception. That has not happened

This little ramble brings into focus two questions. Why are we concerned about corruption, bribery and nepotism? Why is it that Naga who was determined to end corruption is finding it difficult to do so?

Corruption corrodes

If someone powerful collected a billion rupees in bribes, it is bad and we must be angry. But this by itself is not a big deal! If it was collected by inflating the cost of a tender, the cost to the country would increase by a billion, but that is a small number in a national context. It only does a teeny weeny bit of damage to the country. But when corruption spreads, it becomes a different story.

Corruption corrodes the whole economy, when it cascades downwards. When the big politicos take bribes, the smaller ones say ‘I should also take,’ and the next and the next do the same. Then when corruption is endemic in the political sphere, another strand will emerge. Those that have no connection with politics will also begin to take. So Policemen will take, Customs officials will take, Excise inspectors will take, etc.

It spreads

The culture of corruption can spread to the most unlikely sectors of society. If the stories circulating are true, the disease has spread to the professional classes. Doctors ask for unnecessary tests and scans to get revenue for the private hospitals in which they practise. Lawyers engineer postponements when the case is called but take a full fee for appearance! 

Service charge

If in one way or another a million people make money through corrupt practises, it can be viewed as a sort of service charge the other 19 million have to pay! We have Value Added Tax and this can be called the Enterprise Tax as you have to be enterprising to levy it.

An economist will say that the initial impact of the enterprise tax on the economy is neutral, as bribery is simply a transfer of disposable income from one lot to another. But if one persists (as one should with economists) and seeks the longer term impact on the economy, the answer would be unequivocal. It will impact investment and hence growth.

Investment and growth

The investment growth dynamic is clear. No investment, no growth.

The Government invests to provide the infrastructure, but as industry, trade and business is in the hands of the large private sector and the people’s private sector, to get real bubbling sustainable growth both parts of the private sector must invest.

A large part of the country is rural and is the heartland of the people’s private sector. Without investment in this sector, growth will not hit the top numbers, and importantly there will be no inclusive growth. Economic strategies must be structured to facilitate investment from the vast people’s private sector which includes agriculture, agro industry, small manufacturing industry, fishing related industry, and trade, in its many diverse forms.

Corruption and investment.

The investor, both big and small, is like the shy animal in the jungle that will look around furtively and sniff the air, and if the vibes are not good it will move away. The investor too will sniff the air to find out if there is a smell of bribery, corruption and nepotism, and will walk away if he smells corruption in any form.

The investor takes on the commercial risk of the venture and the burden of debt. The big corporations will take on debt in a variety of ways and the people’s private sector investor will have to borrow from friends, family, and banks. Every investment is a risk, but what causes a tightening in the chest is the concern that issues outside the project can descend and impact the cost or viability, due to the need to pay right along the road to get approvals. That is why he must sniff the air before he invests.

The literature on the subject is conclusive that corruption frightens and drives away investment.

 

Yahapalanaya 

A Yahapalanaya society, free of bribery, corruption, and nepotism, is the optimum climate to attract investment. Loud ringing statements and even a sincere desire do not create Yahapalanaya, or make any one to believe it has arrived. In spite of all the recent rhetoric it was reported that the LMD-Nielsen Business Confidence Index in December “plummeted to 117 and is now at its lowest since July 2013”. It is not words but actions that curb corruption that will create the conviction that Yahapalanaya is well, alive and kicking.

The two-headed Naga deity has not succeeded because it is indeed very difficult to prevent corruption as the powerful devil that supports corruption is called discretion. The challenge is to block, strangle and where possible entirely remove discretion. That is the medicine to kill the disease.

Discretion and corruption

The traffic Policeman who stops you for speeding has the discretion to charge you or to take Rs. 1,000 and let you go. The Rs. 1,000 will win. The Customs officer too can charge you or use the discretion available to him and let you off in exchange for some sum of money. 

The taxman can use his discretion, so can the Pradeshiya official who has to approve building plans, and so can the man who issues driving licences, and the man from Coast Conservation, and the man from the Coconut Cultivation Board, etc. They all have discretion and can approve or not approve or give one a real run around. The Minister who has the discretion can entertain unsolicited tenders and award them. The Technical Evaluation Committee on tenders can use their discretion and recommend what pays best. 

The power of discretion stirs that irresistible desire to derive income from corruption. Arguably that is the single most important cause of corruption.

Deeds not words

Rhetoric will not establish Yahapalanaya. Sermons, prayers and poojas will not establish Yahapalanaya. Only one thing will and that is to control and circumscribe the power of discretion in all parts of the public sector. All facets of bribery, corruption and nepotism are primarily or almost solely in the public sector. That is where all approvals are given, tenders are given, and jobs are given. The private sector is the unwilling partner when they have to pay to get the necessary approvals in this highly regulated environment.

Discretion can be circumscribed and controlled with good processes. What is required is a will to do it.

Conclusion

The heartland of corruption is the State sector including its political component. It flows from an abuse of power by using the right to exercise discretion in a manner that satisfies the irresistible desire to make money.