Why we are corrupt, and what we can do about it

TV anchors these days are frothing at the mouth while discussing Lalit Modi's peccadilloes at the Indian Premier League (IPL).

Well, one need not grudge them the need to work up a lather over what they think is a moral issue, but sometimes it is worth sitting back and looking at the opposite idea: are corruption or cronyism purely moral issues? Or are there systemic incentives for corruption and disincentives for honesty and probity?

All human systems work on the basis of incentives and penalties. These incentives need not always be monetary; awards and public recognition are examples of two non-monetary incentives that could motivate people to excel and succeed.

The question we need to ask is: what is it in the Indian ecosystem that motivates crooked behaviour? There must be something that rewards such behaviour and punishes good conduct.

There is. First and foremost, we do not reward those who follow the law; in fact, society often patronises them and regards them as good-hearted fools.

There are examples from every sphere. There are tax breaks and loopholes available for the moneyed, not the salaried. If you slow down seeing an amber traffic signal, you run the risk of being hit in the back by the driver behind who thought he could take a chance with the traffic policeman. If you were to be at the scene of an accident and did your best to help the victims, chances are you will be harassed by being summoned repeatedly to give evidence. Or even penalised for failing to tell the police first. The law is on the side of those who turn the other way.

Second, we do not penalise wrongdoing — at least not enough. When was the last time you saw a corrupt politician or criminal being jailed quickly for his crimes? Even if you are caught red-handed with stacks of rupee notes under your bed — as former telecom minister Sukh Ram was in the 1990s — you may not go to jail. At best, you may be a regular visitor to various courts in the land.

Worse, your constituency actually defends you because you are one of us. This is the reason why Mayawati or Lalu Prasad can cock a snook at the law. They can claim to be victims of caste prejudice.

The Ambanis got away with murder through much of the 1980s and 1990s — when they sneaked things around customs officials. Even in the late 1990s, they entered mobile telephony through the backdoor — through the wireless-in-local-loop route. Their misdemeanours were excused with a fine, thus proving once again that illegalities are mere inconveniences in the Indian context.

Third, we have created a system of economic exclusion, first with the licence raj, and now with other devices like regulation or policy. Every businessman thus learns that success depends on achieving a monopoly and excluding others from business opportunities.

It means building allies among politicians and bureaucrats — who can be partners in divvying up the booty. Lalit Modi knew that his power depends on excluding some and letting in others — which is why he was so opposed to Kochi’s entry and not Adani’s. The linkages apparently worked better for him with Adani than with Kochi’s unknown investors.

While the licence raj was a formal system of regulation, today exclusion can take place in the guise of policy. For example, in aviation you cannot fly abroad till you have completed five years of domestic service. There is no logic to this policy, except to restrict the entry of more competitors. The minute more domestic carriers could enter the business, international fares crashed. Exclusion thus allowed foreign carriers to mint money — and we thought we were protecting our airlines.

The preference for monopoly is widespread. We know about IPL’s policy of exclusion. In the media business, The Times of India follows the same policy. To stifle competition, when DNA entered the field, it got into market-share agreements and private treaties with advertisers to ensure that DNA suffers commercially.

Advertisers who agreed to exclude DNA were given sweetheart deals — exactly as Modi tried to do at IPL by excluding non-favoured bidders. It is another matter that DNA had no intention of obliging The Times, but that doesn’t mean the latter did not try.

Only competition and the demolition of the monopoly mindset can defeat corruption and hankypanky. Wherever we have opened up, there is no corruption. We once used to bribe telephone company people to get a phone. Now mobile companies pester us with mouthwatering offers. To reincentivise good behaviour and punish the bad, we have to chip away at monopolies by consistently opening up our economy to competition.