Thursday, 12 August 2010

The real villain is Klepto-Capitalism

 

 

DNA / R Jagannathan / Thursday, August 12, 2010 2:28 IST
 
Infosys Technologies' chairman and chief mentor NR Narayana Murthy has the ability to say it like it is. A year before he hangs up his boots, Murthy has cut loose on our unspeakable netas and babus, accusing them of a fundamental lack of ethical behaviour — though in not so many words.
Our netas, he said, saw no need for transparency and behaved like masters. Our IAS babus were no better. Their general administrative skills and colonial mindset were largely unrelated to the needs of the day. As for governance, there's no such thing, and accountability is largely absent in the system. His solution: abolish the IAS and set up an Indian Management Service manned by specialists who were paid market-clearing wages.
 
Murthy is only half-right. He has diagnosed the symptoms, and said little about the underlying disease. The IAS as such is not the problem. The question is: why does the IAS cadre behave like it does? Why does it treat its customers (citizens) like chattel? Why do their bosses (the babus) focus more on accumulating wealth than on delivering governance? The answer lies with us. Murthy himself excoriated citizens for apathy, which allowed corruption to flourish and criminals to go unpunished.
 
To understand the malaise at its roots, we need to start with our flawed democratic system. The cost of winning elections creates a huge demand for unaccounted cash to bribe the voter with. This is why no honest person can hope to get into politics. Even the not-so-dishonest politician needs lots of moolah to win the next election. This can only come from corruption.
The system is built around this fundamental flaw. This brings us to the next big stakeholder in corruption: business. Since businessmen cannot afford an unstable policy environment, they have a stake in funding sleazy politicians. Businessmen running competitive enterprises cannot afford to divert huge sums of money to bribery and skullduggery — unless there is another source for it.
This is one reason why they get into rent-seeking behaviour. In order to generate volumes of cash without business risk, they seek opportunities to make money out of scarcity. In the past this was done by manipulating the licence-permit raj.
 
In the post-liberalisation era, the focus has shifted to land ("they ain't making any more of it no more") and spectrum (again, a limited resource).
Ever wonder why no one can afford a decent home in Mumbai or in any of India's big cities? Politicians and businessmen have ganged up on you to bottle up available land and make money for themselves. Land is released by netas and babus in driblets, so that prices can be raised forever, and slush funds generated.
 
Former World Bank chief economist Raghuram Rajan makes the same point in his latest book Fault Lines. He told DNA in an interview: "The predominant sources of mega wealth in India today are not the software billionaires who have made money the hard way by being competitive in a global economy. It is the guys who have access to natural resources or to land or to particular infrastructure permits or licences. In other words, proximity to the government seems to be a big source of wealth."
 
This is why when Murthy talks of lack of transparency, it is a mere description of the problem, not its underlying cause. If the neta, the babu and the lala (the rentier class of businessmen) are hand-in-glove to make a pile for themselves by generating scarcity, why would any of them want to be transparent? The neta-babu-lala combine is replacing genuine, participative democracy with a narrow kleptocracy laced with populism. To bring in the vote, the politician prefers the grand feudal gesture (doles for the poor) to genuine empowerment and reform; the businessman prefers land-grab (klepto-capitalism) to building a genuinely profitable business model through hard work; and the bureaucrat prefers to block change rather than facilitate it since he has more to gain personally from it.
 
The only way to weaken the nexus is by making democracy cheaper and election funding transparent. This may not eliminate corruption altogether, but would take away the main reason for it. Elections can be made cheaper by state funding of political parties and tax-free contributions, but we also need to use technology better.
If, for example, we create a countrywide broadband network that can reach every village, no neta will need to hire hundreds of jeeps and helicopters to reach his message to voters. He can do it from anywhere. He can communicate directly with his voters — just as his rivals can. Voters, armed with Nandan Nilekani's unique ID, will even be able to vote over the internet. The only way to stymie a corrupt kleptocracy is to make democracy less expensive.

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