Is corruption good or bad? Jury is out

Much has been made of the fact that Bihar has been an economic outperformer in the last five years. This is attributed to improved governance that has coincided with the regime of chief minister Nitish Kumar. Bihar now joins Gujarat at the top, with 11.03% GDP growth over 2004-09, just a whisker below Gujarat’s 11.05%.

Better governance usually means improved law and order and lower corruption. While there is some correlation between improved law and order and higher growth, there is no evidence that corruption impedes growth. India ranks a lowly 84th on Transparency International’s corruption index, but we are a miracle economy. Both corruption and economic growth have bloomed together. During the UPA regime we have seen brazen corruption (telecom licences, defence deals, Koda, Satyam), and the only reason we don’t care is because the man at the top looks saintly.

Is it possible that corruption provides its own spur to economic growth? When corruption is democratised (not hogged by a few) and widespread, it may even be lubricating growth. When money is spread over a larger number of recipients, it breeds inclusivity.

Let’s take an example. Indians are the world’s worst drivers (or best ones, considering our ability to survive any road). This is not because we don’t like to follow traffic laws, but because we don’t know driving.

We join driving schools to obtain a licence, not to learn good driving habits. We pay the school to keep the RTO chap happy, so that we do not flunk the test. In fact, one can often get a licence without turning up for a driving test.

You can also obtain a licence by learning with your uncle’s car, with your elder brother playing coach. But it’s not a sensible decision.

First, you queue up for a learner’s licence; after you learn your A-B-C (accelerator-brake-clutch), you queue up again for a test.

Then, once again, to receive the licence. If the RTO inspector does not smell moolah from your end, you may not get it.

On the other hand, you have created lots of jobs by winking at bribery through the driving school. The schools create jobs for drivers, and the umpteen facilitators at the RTO. Every rupee that goes to someone corrupt also helps the economy.

Dethroning this corruption-driven micro economy will entail many job losses and short-term economic strife. Corruption is an economic stimulant, just like Pranab Mukherjee’s deficits.

Now take the National Rural Employment Guarantee Act (NREGA). The flagship jobs scheme has benefited the rural economy, and brought the Congress back to power. But if you think it’s because every poor person got Rs 100 a day in wages, you are mistaken. A good chunk of NREGA money went not to the poor, but to the rich middleman. But the poor aren’t complaining. They are happy to get door-to-door service, much like your driving school that delivered your undeserved licence.

The poor are happy to accept Rs 25-50 (instead of Rs 100) from NREGA middlemen because they don’t have to turn up for work.

The rich share their gains with politicians — who help keep the scam going.

Politicians bribe voters on election day and, once again, a part of the money comes back to the poor NREGA non-worker, since he is now a voter. Every person who’s on the take hoards or spends the money somewhere.

This money again works for the economy. Along the way, it feeds millions of people, including the poor. Every corrupt rupee creates its own jobs, its own beneficiaries. In fact, the only tainted rupee which does not help the Indian economy is the bit that’s salted away in Swiss banks (or other tax havens). It will be creating jobs there.

The best way to make this money return is to invite it back. We need a scheme that allows any remittance from anywhere without
explanation if a tax of 30% (or whatever) is applied to it on entry.

Tainted money is merely money on which tax isn’t paid. But in economic terms, is that such a bad thing? If taxes are paid, some of it is anyway handed back to corrupt NREGA or defence contractors. So, there. One is not arguing in favour of corruption, but even black money does good. Corruption is a moral issue, and corrodes the economic machinery over time. But it greases some vibrant parts, too. The economic case against corruption isn’t ironclad.