WDR 2017: Revisiting Corruption, Capture and Clientelism

It was one of those cold misty mornings that you only get in North India in January, and I was being dropped to the airport at 5 a.m. by the hotel cabbie, and we were  lamenting the state of the world (ALL Indians always lament the state of the world when passing the time with total strangers…). Anyway, it emerged that despite working for a luxury hotel run by what is considered India’s most ethical business group, the driver is paid such a paltry salary that his family just makes it above the poverty line. And this despite being at the hotel’s beck and call 24/7. I am sure his father would have blamed his poverty on bad karma from an earlier life, and as a younger man, this gentleman would have ranted about discrimination (in arguably the world’s most discriminatory and unequal society), but in Modi’s India he blamed it on one single thing – corruption.

There is of course, a growing school of thought which believes that neo-conservative regimes like the current Indian government come to power by promising development, and blaming the preceding governments for holding the country back because of widespread corruption. Come elections, they promise to eradicate corruption through ‘good governance’. Their concept of governance (based on the classic World Bank model) is however, more like corporate governance with all emphasis on efficiency, grand announcements and fast but centralized decision-making, with the citizen-centric governance promoted by UNDP, totally forgotten along with effectiveness, participation, responsiveness, and accountability. Naturally, in this context, the entirely business-centric scales like Transparency International’s to measure corruption, or WEF’s ease of business are given far too much importance, and the UN reports on social indicators generally neglected. Consequently, wealth qua wealth is worshipped and accumulated, enterprise rewarded, bad debts incurred, and the informality and inequality in the country keep rising.

This is how the very core neocon agenda undermines itself, because as the social analyst Jong-Sung You argues in his latest book, inequality produces several causal mechanisms that serve to embed corruption within democratic structures and make them difficult to eradicate. Linking economic to political power, he explains how the ruling elite in an attempt to safeguard its own interests, buys political influence through both legal and illegal channels in order to ensure their interests are over-represented in the corridors of power. High rates of inequality thus compound the problem of state capture by powerful figures in politics, business and the media, with the result that democratic processes of accountability are undermined by corrupt practices.

Further, Dr You points out that an unequal state with enfeebled democratic infrastructure is ripe for persistent and prevalent clientelism, forcing the poor to become dependent on corrupt chains of patronage for the provision of particular benefits like medicine, education and nourishment, which would otherwise be considered entitlements in a functioning democracy. These chains of patronage on which the poor rely, are then mobilized during elections to buy votes and, in the bureaucracy, to buy favours. Importantly, this illustrates that the role elections should play as a mechanism for accountability ceases to function under high conditions of inequality; elections meant to fight corruption, become a means to legitimize a corrupt regime. And so we have come full circle.

Maybe it is the work of thinkers like Dr Jong-sung You which has begun to influence that bastion of free enterprise, the World Bank. Their latest World Development Report is a refreshing recant on their earlier version of governance and now considers governance as “… the process through which state and non-state actors interact to design and implement policies within a given set of formal and informal rules that shape and are shaped by power. This Report defines power as the ability of groups and individuals to make others act in the interest of those groups and individuals and to bring about specific outcomes.”

So there you have it: in the end, the institutions of governance do eventually subserve the demands of the most powerful in society. The WDR 2017 acknowledges that the power asymmetries in society can greatly undermine development and policy making and implementation because they lead to exclusion, capture, and clientelism. This in turn leads to the power of elite bargaining in a modern democracy, and its impact on policy-making and eventually, development.

As part of the World Development Report 2017, the World Bank, in collaboration with the V-Dem Institute, has conducted expert surveys to generate cross-national indicators that enable comparison of who holds bargaining power and how they wield this influence. The surveys cover more than 100 years of data in 12 countries across six regions and their findings are very interesting, as this graph shows:

WDR 2017 Elites.png

Some observations:

  • Power in Russia, Turkey (and Rwanda!) is apparently centralized totally to the exclusion of all other actors. So what happens when the mighty One is no more?
  • Do Brazilians really feel that the media there are such powerful players? Perhaps, especially after the media hounding of a democratically elected President…
  • Are foreign governments and international donor agencies really so powerful in Sri Lanka, or is there a defence angle India should worry about?
  • Local Governments, Organized Labour Unions and Civil Society Organizations seem to wield power only in Bolivia making it some sort of last refuge for the socialist idealist, and
  • Finally, India is true to the South Asian archetype, where power is centralized in the National Executive, National legislature, the Judiciary, national political parties and the All-India Civil Services – a permanent bureaucracy bequeathed by our erstwhile rulers to the entire sub-continent. Noticeable too is the absence of influence at the local or municipal level, despite the 74th Constitutional Amendment on decentralization, dating back to 1992, and that goes a long way in explaining the pathetic state of India’s burgeoning cities…

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…