Posted in Accountability and Corruption

Costs of Corruption

B-school grads and non-resident Indians get very perturbed each year, when Transparency International publishes its Corruption Perception Index, with India lingering somewhere in the lower reaches, among the poor and corrupt of Africa and Asia. They feel that corruption and bribery dent India’s image abroad and prevent Foreign Direct Investment (FDI) by Multi-National Corporations (MNC), so necessary for its economic growth. (Really? I thought it was more for the economic growth of the MNCs, but never mind…)

What these advocates of ‘probity’ forget is that the Corruption Perception Index is just that – a set of ‘perceptions’ with all the in-built biases that the word implies. In fact, the 12 contributing organisations are all based in the US or Western Europe and are strong advocates of free market capitalism.

In 2013, Alex Cobham of the Centre for Global Development in Europe, went so far as to suggest that the CP Index embeds a ‘powerful and misleading elite bias’ in popular perceptions of corruption, and should be discontinued. What could be more biased than the fact that many of the highest scorers appear ‘clean’ simply because they have long ago institutionalised and legalised various forms of corruption – like old-fashioned bribery of politicians made kosher by re-naming it as a campaign fund-raiser!

Yet, if bribery continues to grow, then there must be someone somewhere profiting from it. At its most basic, a company’s shares are guaranteed to shoot up if it lands a big contract, and as the profit made by its share-holders far exceeds any bribes paid to procure that contract, corruption is justified! Take that to the level of natural resources and infrastructure, and we are really talking big money.

If like me, you believe that the hand which gives a bribe is as dirty as the one which takes it, it is very enlightening to look at the whole issue from the point of view of the bribe-givers – the large MNCs in a largely globalised world. I came across a very interesting graphic on statista.com, sourced from OECD, which is a kind of league table of industries where bribery flourishes the most. And here it is:

bribery

It stands to reason that the most laws and regulations in any country always safeguard an activity or commodity that is of greatest significance to that country, right? And the largest bribes would be demanded where the most laws and regulations need to be bent or broken, isn’t it? No wonder Multinationals are willing to pay the most bribes (OECD estimate 21%) for the extractive sectors like oil, gas and mining of coal, rare earths, uranium, gold or diamonds, because that’s where the largest profit margins are. Stands to reason.

For global corporates it’s a win-win situation, and only the host country is the loser – its most precious resource is gone forever; the profits have gone to another country; and the taxes thereon to another exchequer. RIP.

MNCs salve their guilt of profiteering by claiming to create jobs in the host country, but at what cost? The bribe culture lets them get away with paying pitiful wages, running sweatshops, employing child labour, and providing terrible work conditions with minimal regard for worker health and safety. These practices would be unthinkable in the MNC’s home countries, and would probably attract swift legal retribution as well.

And to add insult to injury, the same MNCs insist that the country they are stripping of its precious and irreplaceable resources should provide the necessary infrastructure and transport for the commodity extracted. And voila! A host of other MNCs step in to provide just that… No wonder construction and transport are the next two sectors in the bribery league table.

Furthermore, the development of infrastructure comes with strings attached – the host country is offered soft loans by various international bodies, and it is estimated that for every US$1 borrowed, some African countries have had to pay back as much as US$15! It is this debt repayment which has broken the back of half the countries in that region.

And at the end of the day, what are we left with – swinging 6-lane expressways to and from the larger cities, while 90% of the rural population is lucky to be able to afford a bicycle!

What intrigued me looking further down the chart, was the inclusion of storage with transportation as a high bribery industry. Until I had a eureka moment. Of course, we are talking about storage and subsequent disposal of e-waste, hazardous materials, radioactive waste, and other nice things.

For example, the UN’s Step Initiative says that the global volume of electronic waste is expected to grow by 33% in the next four years, and contains toxic substances such as lead, mercury, cadmium, arsenic and flame retardants. Once in landfill, these toxic materials seep out into the environment, contaminating land, water and the air. In addition, devices are often dismantled in primitive conditions. Those who work at these sites suffer frequent bouts of illness, and long-term diseases.

Evidence of the aftereffects of working with hazardous materials are near at hand in India – in fact in Mr Modi’s home State of Gujarat, at the ship-breaking yard at Alang, considered the largest graveyard for ships, salvaging 50% of the world’s old super-tankers, car ferries, container ships… The workers there have a joke that their fate is from ‘Alang to palang’ (from the Yard to the deathbed)…

Alang

A recent study by the Tata Institute of Social Sciences, Mumbai, discovered that the health services are so appalling and inadequate that injured workers have to wait for hours for the government ambulance, or the one provided by the ship breaking association, to get to Bhavnagar, 50 km away. And yet the officials in charge claim to have taken care of workers’ health and safety concerns! Bribery always makes the regulators look the other way…

I am sure there are thousands of such ‘honest, concerned and vigilant’ officials all over the developing world – because that’s where Western Europe is increasingly dumping its e-waste and hazardous materials, according to Interpol. “Much is falsely classified as ‘used goods’ although in reality it is non-functional. It is often diverted to the black market and disguised as used goods to avoid the costs associated with legitimate recycling,” said an Interpol spokesman to the Guardian newspaper. “A substantial proportion of e-waste exports go to countries outside Europe, including West African countries. Treatment in these countries usually occurs in the informal sector, causing significant environmental pollution and health risks for local populations,” he said.

So that explains the high rates of bribery in the transport and storage sectors.


It is nobody’s case that bribery and corruption does not harm a country. It’s just that I would put the onus of this damage more on the greed of the corporates, than on the misguided bribe taker, who is ready to sell out his country and the future of his children.

It is as though the colonial era never really ended…

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Posted in Accountability and Corruption

Political Capture and Growing Disparity

In the 1960s and 1970s, cold and hot wars were fought to push the idea of benevolent capitalism – believing that creation of wealth at the top of the pyramid would ‘trickle down’ and eradicate extreme poverty across the world. That did not happen.

Since the 1990s, the mantra of globalisation has been that high rates of economic growth will greatly reduce the incidence of poverty worldwide. That has not happened either.

In reality, the globalised world economy has deeply fragmented production processes, labour markets, political entities and societies, creating a plethora of interest groups and lobbies which have undermined the integrity of civil society and its rights and entitlements across the world. This is becoming increasingly visible in rich and poor countries in the form of growing disparity between places, people and groups. In particular, it is manifested in much greater income inequalities.

While a small but economically powerful section are now true global citizens and look outward for direction, the majority survive day to day, with ever reducing options and choices, pushed deeper and deeper into the world they once knew, but which is fast disappearing. The centrifugal forces of the one and the centripetal forces of the other will one day tear society apart. The cracks are already beginning to show – religious extremism, communal strife, growing racism and violence against women, more conspiracy theories and paranoia, more and more right-wing governments… The sorry stuff of headlines every day, everywhere…


An interconnected global economy has resulted not only in greater corruption and clientelism but also political capture, where the laws of the land increasingly favour the rich over the poor. (See my earlier post: The 3 Cs…)

Oxfam set the cat among the pigeons when it put out the following figures:

  • Almost half of the world’s wealth is now owned by just one percent of the population.
  • The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population, which owns the same as the richest 85 people in the world.
  • Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
  • The richest one percent increased their share of income in 24 out of 26 countries, for which Oxfam have data, between 1980 and 2012.
  • In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

image

Measuring Disparity

The Gini Coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in 1912. It measures the inequality among values of a frequency distribution, for example levels of income. A Gini Coefficient of zero expresses perfect equality, where all values are the same e.g. where everyone has an exactly equal income; while a Gini coefficient of 1 expresses maximal inequality among values e.g. where only one person has all the income. Some Gini Indices are expressed as percentages, as in the chart below:

Income_Gini_Coefficient_World_Map

Looking at a select few countries representative of the global economy, the following picture emerges:

Gini coefficient

It is interesting to note that out of the BRICS countries in the above graph, South Africa demonstrates the highest inequality of incomes, perhaps a reflection of its largely natural resource based economy (gold and diamonds), which has traditionally been developed by a rich white minority during the long years of apartheid.

Brazil too has a long history of military juntas which allowed a class of the super-rich with immense land holdings to flourish. It is only recently, that concerns of the poor have moved centrestage in Brazilian politics, and with the re-election of President Rousseff, are likely to remain there.

The growing disparity in China is indeed a surprise, especially because it is the last surviving communist regime of any consequence in the world. Perhaps the unnaturally rapid urbanisation and industrialisation in a traditionally agrarian society has allowed individual entrepreneurs to accumulate immense fortunes in a relatively short period of time.

The majority of the countries in the world have a Gini coefficient between 0.3 and 0.4. In the case of developing countries like India and Egypt, it is a reflection of the growing middle class post-globalisation; while in the case of USA and UK, it is a testament to their relatively secure health and income safety nets, which prevent extreme deprivation and hardship in the population.

News just in: A Credit Suisse Report says that disparity is growing rapidly in India, with the top 10% now holding 74% of the country’s total wealth, while the bottom 10% hold just 0.2%. The share of the top 1% (nearly half the country’s wealth) has always been lower than the share of the global 1%, but is now growing faster than the rest of the world. Yet Indians make up nearly 20% of the world’s poorest 10%!

Not surprisingly, Sweden repeatedly tops the charts for both highest Human Development and lowest disparity, clearly demonstrating the inverse relationship between disparity and human well-being.

Oxfam recommends that governments wishing to reduce the income disparity in their countries as a means of tackling poverty should consider:

  • Cracking down on financial secrecy and tax dodging
  • Redistributive transfers and strengthening of social protection schemes
  • Investment in universal access to healthcare and education
  • Progressive taxation
  • Strengthening wage floors and worker rights
  • Removing the barriers to equal rights and opportunities for women

Going by the experience and the professed policies of the new government in India, is any of this likely to happen soon? I think not.

Maybe after 5 years, the most tangible legacy of this government will be an India with a higher Gini coefficient.

And that may get the voters rethinking the promised ‘good times’…

Posted in Accountability and Corruption

The 3 Cs- Corruption, Clientelism, Capture

It is now universally acknowledged that in most developing countries, the hard-earned resources invested in welfare and development programmes have leached away, mainly because of the curse of the three Cs: Corruption, Clientelism, and Capture.

CORRUPTION is commonly understood as the use and abuse of legal authority to benefit oneself (embezzlement), or kith and kin (nepotism), or another (expediency, bribery).

In India, it has long been a way of life – an ordinary citizen makes allowances in his budget for corruption. To get one’s child admitted to this playgroup, or that school or a better college – everything requires some wheeling-dealing. Of course, bribery has become a fine art in local governments, where a series of agents act as brokers to procure every service (which you are in any case entitled to), like a power or water connection for a new house. The scale rises as one goes higher up the ladder to procurement of contracts, for example.

The underlying assumption is that a corrupt act or practice is always at the cost of the rights of another individual, group or organisation. Compounded over its entirety, corruption results in huge financial losses and social cost to any country.

Robert Klitgaard, economist and academic – considered the world expert on corruption – set forth the problem succinctly in his famous formula:

Corruption = Monopoly + Discretion – Accountability

Therefore, Governments with the willingness to seriously tackle corruption must minimise monopolistic structures, reduce discretion and enhance accountability.

They can take several immediate and concrete steps:

Monopoly: Where possible, the effects of monopoly can be reduced by allowing some private operators to provide the same services, but there must be a proper regulatory mechanism in place, right from the point of award of contracts, to avoid situations which have erupted in various ‘scams’ in India recently.

Where a service provider is monopolistic by its very nature (like a Municipal Corporation) we need to look at ways to mitigate the monopoly of decision-making. The most obvious way is widening the space for decision-making through regular and formalized public consultations and participation. Furthermore, outsourcing the basic services to workers’ collectives, NGOs and CBOs, will also soften the monolithic, monopolistic work culture of these places. Another way would be through the lateral induction of managers who have had corporate experience in the areas which the monopoly deals with.

Discretion: Most day-to-day bribery is a result of the enormous discretionary powers given to individuals. It is necessary to revisit some of the archaic laws, vestiges of British Rule, where the ruling class did not trust the natives, and all powers were vested in senior civil servants. Did you know that there is a major element of discretion in assessing the property taxes for your property? It is no secret that even middle level workers can make big sums of money by manipulating the area for commercial property in the bigger metros. The only way to outwit individual discretion is through e-Governance, where there are several layers of checks and balances; business processes have been re-engineered; and standardization has been put in place. Moreover, people’s access to information is much greater in an IT-enabled environment, allowing for greater vigilance by civil society.

Accountability can be increased by Access Legislation, like the Right to Information (RTI) Act of 2005, provided it is adhered to in letter and spirit by both sides. There are far too many instances of the misuse of RTI by vendors, contractors and losing sides in a tendering process. This results in a huge burden on the Government body – and sullen, half-baked replies, which help no one.

Much greater transparency and proactive disclosure in the procurement process and the award of contracts will greatly enhance accountability – especially at a time when we have put in power a Government that believes in running the country through Projects, rather than Policies.

Summarising: Governments that are serious about reducing corruption in public systems need to look earnestly at 5 key issues:

  • Building objective criteria and benchmarks for decision-making, thus reducing individual discretion and arbitrariness
  • De-bureaucratization or simplification of procedures so that expediency does not become a reason for corruption
  • Enunciating clearly the role of various agencies, provisions, conditionalities, benefits, monitoring and evaluation mechanisms of Government schemes
  • Putting in place mechanisms for social, financial, legal and political accountability at every level – local, regional and national
  • Creating public awareness of the mechanisms of redressal available to citizens when faced with corruption

Corruption and fraud it seems, is no longer a monopoly of the government machinery, but is growing with alarming rapidity in the private, non-government and professional sectors as well. Perhaps the time has come for better regulation of all transactions in the public domain.

CLIENTELISM: Early definitions of clientelism were confined to the exchange of votes for favours returned over a long period of time. However this rather simplistic ‘sale of votes for future favours’ is now recognised simply as corruption. The growing cost of fighting and winning an election – especially one as long-playing and complex as that of the President of the United States, say – has given clientelism a whole new meaning.

According to Federico Varese in the Oxford Political Dictionary, clientelism today usually involves rewarding clients with public office, contracts, appointments and the like not because of merit or qualifications, but because of their prior support. Given the nature of this exchange, the relationship between a politician and client tends to be both clandestine and long-term.

It is worth noting that Clientelism does not become ‘corruption’ if it remains on the right side of law and is socially acceptable.

In fact according to Varese, if the exchange goes counter to public sentiments, it still qualifies as clientelism and not corruption (although the public frowns upon it) because no laws have been contravened. As most clientelist transactions take place away from the public gaze, their vitiating influence is best countered with open public debate on the subject and bringing these transactions out into the light of public scrutiny.

The most prevalent form of clientelism thrives in India because of our ‘first past the post’ electoral system (yet another legacy of the British!). Where a small swing of 2-3% can win a seat, the local power-broker who can deliver such a swing, gets the assurance of a ticket in the next local or state election along with the organisational and financial support from the concerned political party to win his/her seat when the time comes. This is clientelism in action, and as no laws have been broken in coming to such an agreement, both the patron and client can argue that it is not corruption – merely the voice of an aspiring society!

The obvious way to reduce the impact of clientelism is to go in for ‘proportional representation’ a common practice in all the more mature democracies in Europe. However, it is unlikely that this change will ever happen in India as all parties are opposed to it. Have you ever wondered how certain leaders manage to win again and again in their home constituencies, cultivated over long years, no matter how badly their party performs elsewhere? Well that again is clientelism…

CAPTURE: The concept of state capture came into prominence with the break-up of the Soviet Union, and the emergence of powerful ‘oligarchs’ who shaped and controlled the economy and policy in most of the transition states.

‘Capture’ is understood as firms and businesses shaping and affecting formulation of the rules of business through private payments to public officials and politicians, or contributions to campaign funds at the time of elections.

Capture is also referred to as ‘crony capitalism’ and was considered one of the main reasons for the 1997 economic meltdown of the Asian Tigers. Many analysts blame these practices of the military-industrial complex in developed countries, for pushing those countries into unnecessary wars to make a profit.

So how does it work? If the land acquisition norms are disregarded to favour one businessman, that is capture. If the land laws are to be amended in favour of big business, that is capture. If the environmental norms are to be disregarded to expedite particular projects, that is capture. If a nationalised bank extends credit to a business for investment abroad (without any jobs being created in India!), that is capture. If Natural Resource companies in the Public sector are de-nationalised to enable private companies to pick up cheap shares, then that is capture. (In fact this was the favourite tool for enriching the oligarchs in Yeltsin’s Russia, and it took a massive re-nationalisation effort during Putin’s first term, to get the economy back on track.)

The proposed infusion of Private investors into infrastructure building is also a form of Capture, because, across the world, private firms are only interested in ‘cherry-picking’ and go only for profitable projects. This means that the social objectives of infrastructure are seldom met through private sector participation in infrastructure, and the country has to pick up the tab to service unprofitable sectors.

Again, capture by the business elite is not just a financial burden to the country but also entails heavy social costs, as the rich get richer, and social disparities increase exponentially. Capture economics can also demotivate smaller businesses and entrepreneurs.

The only way to counteract capture is to have a vigilant press; constant scrutiny and publicity of such instances; and a willingness of the opposition to take these issues head on in Parliament. But alas in the present Indian situation, it will perhaps become a case of ‘who will cast the first stone…”. And the less said about the ‘vigilance’ of our mainstream media, the better.

In my next few posts, I would like to look at urban poverty in its various dimensions, and try to understand issues of human development and sustainable livelihoods. Keep reading…

Posted in Accountability and Corruption

Social Accountability

The credit for bringing Accountability to the centre stage of Indian politics should perhaps go to the eventual founders of the Aam Admi Party (AAP). They brought to our consciousness the concept of Social Accountability, which was gathering momentum across the developing world from Africa to South East Asia, thanks to the efforts of local NGOs, Civil Society Organisations (CSOs) and international aid agencies like the World Bank, which saw their aid efforts being eroded by the unaccountability of the ruling elites in these countries.

So who is accountable? The simple answer to that is ‘those who govern, and have the power and authority to do so.’ By this definition, the elected representative wins legitimacy by getting the political mandate in an election, and then the law of the land confers power and authority upon her/him. This constitutes political authority, which is in turn delegated to the bureaucracy as administrative authority. In this way are policies, programmes and decisions implemented, through a well understood and well regulated delegation of power and authority.

Through regulation, governments are both mandated by, and made accountable to society at large, putting all governance in an essentially social context – hence SOCIAL accountability. Further, this mandate confers the power and authority to use PUBLIC funds to run the country and its government, making those who govern financially accountable as well.

Accountability is an essential component of a democratic system. Accountability systems are based on periodic elections and different types of vertical and horizontal accountability arrangements that hold executive branches accountable to legislature; civil servants to politicians; and businesses to their shareholders.

Such systems comprise of a range of independent regulatory agencies, such as superior audit institutions and corruption commissions that scrutinise the actions and decisions of businesses, politicians and bureaucrats.

Accountability, therefore, is about holding people to account for the impact of their actions, and ensuring that those people who are impacted have the right to be heard and their views taken into account; that those in power have the obligation to listen and respond; and that a system of sanctions is in place to enforce these rights and obligations.

By this definition, one can also extend the concept of social accountability to the Private Sector. Although Corporates may feel that they are accountable only to their shareholders, staff and customers, their operations may impact much larger sections of society, sometimes directly, or sometimes unexpectedly. The most obvious and visible impact of corporate production may be pollution of the air and water in its vicinity, indirectly impacting the health and life expectancy of the people living in that area. The Bhopal Gas tragedy and its aftermath, is the most extreme example of lack of corporate accountability, which India has had the misfortune to encounter first hand.

Similarly, the much vaunted industrial development of Gujarat has come at a high price:

  • The Central Pollution Control Board of India declared Gujarat to be the most polluted state in 2010
  • Due to critical levels of pollution, the Central Government’s Ministry of Environment and Forests in 2010 banned all new projects and expansion of existing ones in the industrial cluster of Vapi in Southern Gujarat
  • The Central Pollution Control Board in 2012 declared three Gujarat rivers to be the most polluted in India*

But which industrialist in Gujarat has ever been held accountable?

There are two ways in which Social Accountability can operate:

The first is known as demand-side Social Accountability and figures largely in the urban, educated middle class discourse on accountability. The best known mechanisms of demand-driven SA operate from the bottom up, and include means like Citizens’ Charters, Independent Budget Analysis, Municipal Participatory Budgeting and Planning, Sectoral Expenditure Tracking, and Social Audit.

All these demand-side mechanisms of Social Accountability essentially pivot around civic engagement. They presume an enlightened, empowered and enabled civil society, both willing and able to demand accountability from those in power, and bring the wayward to book. And that is why, despite sporadic attempts in metros, they have never really taken off in India.

In a developing country like India,  where vast swathes of the population are busy just surviving from day to day, who has the luxury of time to hold the powerful to account? Therefore it makes sense to look at the other side of the social accountability coin viz. government-driven or supply-side mechanisms, and how these can be effectively strengthened.

Some initiatives which have worked well in countries like Australia and New Zealand are:

  • Open Government which proactively seeks greater civic participation through information and consultation
  • Proximity initiatives aimed at reducing the “distance” between the governed and government by identifying citizen needs and preferences
  • Citizen involvement in making decisions which directly affect them, like municipal budgets
  • Emphasis on voluntary disclosure under freedom of information laws
  • Commitment to transparency on the part of public bodies

Signs of such an awakening in India are already visible, as almost every Central Government scheme now provides for some form of social accountability (like Social audits in MNREGA), and the changes though slow in coming, are beginning to happen, as we see from the various government-led initiatives like proactive disclosure under Section 4 of the Right to Information Act, 2005.

In my next post we shall look closer at Corruption and its hidden aspects, such as Clientelism and Capture…Meantime have a look at: *http://blogs.lse.ac.uk/indiaatlse/2014/04/04/gujarats-troubling-environmental-record)