For the few, by the few

The median price of corruption, at least at the highest levels, has gone up tremendously in the post-liberalisation era. When I was a college student, the biggest corruption story was the Bofors gun scam. It had all the ingredients of an international crime thriller - two prime ministers, unsavoury arms dealers, Swiss bank accounts and crusading journalists trying to uncover the truth.

The Bofors scam and other corruption investigations were central to Rajiv Gandhi’s government losing power in 1989, despite a record mandate five years earlier in 1984. The price of corruption has greatly increased since the days of Rajiv Gandhi and Olaf Palme. To put it bluntly, a government fell in 1989 because it couldn’t explain Rs.64 crores while in 2010 alone we have had scams totalling more than Rs.200,000 crores. In our current dispensation Rs.64 crores will not even buy an MP, let alone a prime minister.

How did this happen? Why has the price of corruption galloped ahead of inflation by so many orders of magnitude?

I think the answer to these questions has to do with structural changes in the Indian political economy since liberalisation in 1991. These changes aren’t unique to India; they are inevitable by products of winner-take-all nature of the current phase of globalisation. Before we move into the characteristics of this phase of the Indian economy, let us first define corruption operationally, as “any transaction in which access to resources is restricted to a smaller group of individuals or collectives than is ethically, economically or socially natural”.

This definition of corruption is clearly broader than what we usually imagine it to be, which focuses on bribes and similar illegal monetary transactions. However, I believe that the above definition correctly identifies many practices as corrupt even if they are legal.

For example, hospitals that charge enormous amounts of money and make immense profits while turning poor people away are corrupt, even if they are within their rights to refuse treatment to anyone. Similarly, people eating dinner at a fancy restaurant that costs more than the annual income of the family living in the slum across the street are corrupt. A political party whose president is always from one family is a corrupt party, even if its prime minister and its president do not take a single rupee in bribes.

Corruption in post-liberalisation India has four features that I want to highlight:

• Its magnitude. It is clear that the scale of corruption has increased tremendously in the last two decades, partly because there is a lot more money to be made at the top. It takes a lot more to buy a spectrum license because a license that takes Rs.1650 crores to acquire can be sold for Rs.10,000 crores. Indian billionaires are as rich as their American counterparts and almost as numerous these days; it is no surprise that when the stakes are high, it takes a lot more to play the game with the big boys.

• Corruption is a global phenomenon that comes from small groups of people having the power to leverage a whole system to their individual benefit. (Above: The Commonwealth Games were among the worst examples of this leverage this year.)

  • Honest is, as honest does

  • Protocol of vested interests

  • Wounded pride or vanity?

  Its mode. Corruption in India, like much of the legal world of business and politics is about access to family and caste networks that are strictly regulated. After all, Raja was a go-between for a party run by a patriarch and his children and another party run by a matriarch and her children. The major corporate players in the scandal are all family owned businesses.

• Its pervasiveness. Corruption, as broadly defined earlier in this essay, pervades Indian society. It is not restricted to licenses and party donations. Every transaction has ‘gatekeepers who restrict access and ‘donors’ who grease palms to create access. From gated colonies in Bangalore that monopolise scarce water resources to actual bribe giving, it is clear that the broad shifts in our economy is creating a winner-take-all society in which a large share of resources goes to a small segment of society. Every sector of our society, from politics to media to academia is restricting access to citizens.

• Its power hierarchy. In the old license raj days, the politician and the babu were kings, and the businessman was the supplicant. Now it is the other way around. While the neta and the babu in the telecom scam might have made a few hundred or even a thousand crores, the real winners were businesses who bought a Rs.1650-crores license and sold it for six times that price. Software engineers working for Infosys or Wipro and living the good life can keep the doors open for themselves while shutting the door on anyone who they distrust. People in government - both politicians and bureaucrats - are increasingly incapable of putting curbs on these elites.

Three of these four trends are not unique to India. A widely reported statistic shows that in 1965, CEOs of major corporations in the United States earned 24 times as much as the average worker while in 2005, the same CEO earned 262 times as much as the average worker. Statistics like these are not unique to CEO compensation; the New York Times reports that “In 1982, the top 1 per cent of pop stars, in terms of pay, raked in 26 per cent of concert ticket revenue. In 2003, that top percentage of stars - names like Justin Timberlake, Christina Aguilera or 50 Cent - was taking 56 per cent of the concert pie.”

The same trends can be seen in media, sports etc. It is clear, especially after the current downturn in the west, that most people believe that such income disparities are unacceptable, even if they are legal. According to my definition of corruption, the prevailing CEO compensation schemes are corrupt practices. Why do CEOs get paid more and more? The answers vary, but the consensus is that companies have globalised and grown larger and wealthier, the top level talent pool is small and there is an incestuous link between those who set the compensation (the boards of companies) and those who nominate the board (often the CEO).

Many networks spawned by globalisation are eventually controlled by a small group of people who have the density of connections, access to resources and bargaining power to reap inordinately large benefits. Corruption is a global phenomenon that comes from small groups of people having the power to leverage a whole system to their individual benefit.

This is not a conspiracy; instead the current state of corruption is a natural outcome of the global political economy. However, the power of the small cabal at the top is not god-given or socially mandated, like the feudal societies of medieval Europe. Instead, the emergence of a small group of power centres is an impersonal process, where one set of top dogs can easily be displaced or demoted. There is always someone else to take their place, just as IBM was replaced by Microsoft that was outpaced by Google and so on. The problem is structural rather than individual.

Corruption in India is part of this global trend; the only difference is that Indian corruption is channelled through family and caste networks that are more difficult to penetrate than the CEO circles on Wall Street. While the top layer of India is quickly achieving parity with its counterparts in the rest of the world, the bottom eighty per cent of the Indian population is perhaps irredeemably divorced from these networks of wealth and power. If the United States has inequality, we have hyper-inequality.

I can only foresee two outcomes of hyper-inequality: either the bottom of the pyramid gives up hope altogether, creating a permanent unproductive majority, or there are increasingly violent protests. Neither of these alternatives is acceptable. It should be our goal as a nation and as a society to end corruption. However, the change has to start with recognising that corruption is a far deeper malaise than a man in a safari suit carrying a suitcase full of cash to a minister’s office.

To end corruption, we will need wide-ranging reform of the fundamental units of Indian society, starting with the family.