The Hindu Business Line : The utility of corruption

It is the operation of the "level-playing field" concept that is the driving force behind the law-abiding economic players beginning to break the law and become corrupt. The campaign against corruption should, thus, be handled with care so that normal economic activity is affected the least.

Corruption can be of many forms. It ranges from misdemeanour in personal ethics to `wrongdoing' in the political sphere, and, further, to corrupt practices in the wide realm of economics. Here we are concerned with the latter aspect of corruption, the focus of the write-up being on whether what we call `corruption' today is really harming the operation of the "economic wheel" so to speak or, importantly, whether it has become a part of the system in that its excision would not only harm operational `efficiency' but would also probably be impossible to give effect to.

A way of life

The first point that needs to be made is that the incidence of corrupt economic practices has been increasing over the years, as is corroborated by both official and unofficial statistics. In fact, the currency of such practices has gained so much strength in recent decades that those who are averse to using this route to get orders and bend policy to their advantage tend to feel alienated from the national stream of economic activity. One consequence of such pressure developing on the actual players in the economic arena is to "break the law" on occasion so as to create a "level-playing field". The problem is that once the fruits of such deviation have been tasted, what was had recourse to in the past as an exception becomes a habit. `Corrupt' behaviour then becomes a way of life.

Clearly, it is the operation of the "level-playing field" concept that is ultimately the driving force behind the process of law-abiding economic players (in whatever field) beginning to break the law and become corrupt. Obviously, also, the characteristics of the "level-playing field" (as it exists today) are what they are because those entrusted with the job of implementing the laws of the land have turned a blind eye to the transgressions taking place, and to such an extent that the transgressions have become the accepted `norm' so to speak. Why this has been allowed to happen is a different subject altogether, which is not the focus of this write-up.

This is the domestic scene. But the interesting point is that such practices geared to getting a level-playing field also extend to international economic operations, which is perhaps the most important reason why Indian businessmen operating abroad have been identified by agencies such as Transparency International (TI) as being in the forefront of the brigade not averse to employing unconventional practices to get their slice of the cake.

Thus, according to a study conducted by the Berlin-based Transparency International, it was found that India, China, and Russia were the worst offenders when it came to bribing to get a business contract.

Level-playing field syndrome

Of perhaps more interest is the inference one can draw from the study that the level-playing-field syndrome also affects international players who, within their own countries, are subject to, and abide by, proper anti-bribery, etc, legislation.

Among other things, the Transparency International study noted that "bribing private- and public-sector officials in developing countries and emerging markets is much more prevalent than in countries where anti-bribery laws are enforced". The agency was concerned `about business leaders' willingness to ignore the regulations of their home countries when doing business abroad". The TI CEO, Mr David Nussbaum, is quoted as having said: "It is hypocritical that OECD (Organisation for Economic Cooperation and Development)-based companies continue to bribe across the globe while their governments pay lip service to enforcing the law".

But apart from the level-playing-field argument, there is perhaps another aspect of `corrupt' behaviour within the country that needs attention — an aspect that reflects the very structure of business operations in India and, in the process, throws light on the subject of what is `corrupt' behaviour and what is not in the conventional sense of the term.

The importance of the entire issue is highlighted by the fact that this sort of behaviour runs through crucial segments of the national economy and handsomely contributes to the current 8 per cent growth regime.

One is, of course, referring to the study entitled "Financing Firms in India", which basically examines the "legal and business environments, financing channels and governance mechanisms of various types of firms in India and compares them to those from other countries".

The findings are somewhat revealing. In fact, they go against the common assumption that, with the maturing of the economy, ever-larger parts of the Indian marketplace have become more `organised' and have come to be included in the so-called organised sector in a very broad sense of the term. The abstract of the findings of the study says: "Despite its English common-law origin, strong legal protection provided by the law and a democratic government, corruption within India's legal system and government significantly weakens investor protection in practice. External financing of firms has been dominated by non-market sources of financing, while the characteristics of listed firms are similar to those from countries with weak investor protection".

Patronage route

Non-State, non-listed firms, especially small and medium-sized firms (SMEs) — which have grown faster than the rest of the economy over the past 15 years — have been surveyed, the finding being that "alternative financing channels provides the most important source of funds".

Further, "informal governance mechanisms, such as those based on reputation, trust and relationships, are more important than formal mechanisms (e.g courts) in resolving disputes, overcoming corruption and supporting growth".

As the study says, when asked about government regulatory authorities (for instance, obtaining a licence to start a business), the respondents for the most part indicated that corruption was a part of doing business.

Indeed, the two most common methods to "overcome corruption" were described as bribes and using friends of government officials, that is, the patronage route.

The study says that corruption "has not prevented a high rate of growth for India's firms, in particular, firms in the SME sector where legal protection is weaker and problems of corruption worse compared to firms in other sectors".

While this does not imply per se that corruption should be allowed to flourish, it does underline the fact that the campaign against corruption should be better informed and handled with care so that normal economic activity — which has corruption has a basic input — is affected the least during the cleansing process.

More Stories on : Economy | Economic Offences | Wide Canvas

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Cell cos miss deadline on subscriber verification

Ministry opposed to open skies pact with Asean now

The utility of corruption

Star hotels are all houseful!

MRPL approaches oil retail cos for refund of discounts

Shipping cos: Firm freight rates fuel earnings

Corus: Counter bid hurdle goes for Tatas

Semiconductor policy soon: Maran

Cognizant attrition levels rise to 20 pc in Q3

Yellow metal continues its upward momentum

Identifying talent: The Britannia way

Oil body forecasts lower kharif 2006-07 oilseed output

Sensex may continue momentum amid volatality

Teething troubles rock e-filing of tax returns