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India! I dare you to be rich

Tag Archive: Eliminating corruption

Are you serious about removing corruption? Then follow the POSITIVE solution

Basically corruption can be attacked in one of two ways:

a) By ensuring that good people join politics – 'rulers' who do not demand bribes (positive solution)

b) By preventing already corrupt 'rulers' from receiving bribes (negative solution).

I've noticed that a lot of otherwise highly competent people advocate the NEGATIVE solution. But that is not actually a solution. It simply deals with the symptoms, and does not deal with the causes – the underlying MENTAL disease that afflicts the corrupt 'rulers'.

NEGATIVE SOLUTIONS HAVE VERY LIMITED EFFECT

Let me discuss the negative solutions first. What are these solutions?

1. Stop 'criminals' from becoming 'rulers' (the Quraishi solution)

2. Stop corrupt 'ruler' from receiving corrupt offers from international firms (the Transparency International solution)

3. Stop corrupt 'rulers' from stashing money in Swiss accounts (Baba Ramdev solution)

4. Punish corrupt 'rulers' (Lokpal bill – Anna Hazare and IAC solution)
 
5. Hang the corrupt (Baba Ramdev/ Chinese solution)
 
Now, ALL evidence so far is that these "solutions" don't work (and they can't!)
 
Why not?
 
 
Imagine a malaria infested area near a stagnant pond.
 
If you keep killing mosquitoes, or using half-open mosquito nets, or have people who WANT to be bitten by mosquitoes, then you CAN'T get rid of malaria.
 
Mosquitoes bite AT NIGHT. They are INVISIBLE. You CAN'T KILL ALL THE MOSQUITOES INDIVIDUALLY.
 
Similarly, the corrupt operate in INVISIBLE WAYS. They are blatant, but invisible. And there are LOTS AND LOTS OF THEM.
 
What's the solution? Drain the pond. Make sure no mosquito can be born in the first place. 
 
You don't get malaria in the Sahara desert. Make sure you have a clean system.
 
 
POSITIVE SOLUTIONS ARE THE ONLY ONES THAT WILL WORK
 
So what is positive solution? It is very simple. It has JUST ONE MAIN OBJECTIVE: to ensure that good people are EASILY able to enter politics and become 'rulers'.
 
It is positive, because it ensures that mosquitoes can't get to breed in the first place. It doesn't go about fighting each of the MILLIONS OF MOSQUITOES.
 
Such good people will of course REDUCE unnecessary government intervention, and get out of the way of the people. They will ensure liberty. If any of them applies socialist policy, then the swamp will come back again.
 
Think of this as getting BUTTERFLIES instead of mosquitoes:
 
If we get good people (NOT MOSQUITOES) what happens then?
 
1. The 'rulers' NEVER demand bribes.
 
2. The 'rulers' RAPIDLY PUNISH those who offer bribes (or take bribes, below them).
 
And no one in the business world has any incentive to bribe (although that can't be ruled out – however such business people will be very scared once honest people become 'rulers').
 
GONE! Corruption gone! Over. Finis.
 
The solution is therefore simple: ENSURE THAT GOOD PEOPLE CAN EASILY ENTER POLITICS AND BECOME 'RULERS'.
 
How can we do it?
 
2. Remove all limits to electoral funding
3. Ensure the MOST RIGOROUS disclosure requirements for political donations
4. Pay the politicians VERY WELL.
5. Elect politicians who promote classical liberalism.
 
[Details in BFN]
 
What will happen then? 
 
People like me will find it worthwhile to contest elections and many such people will get elected. Today, people like me simply can't contest elections, because the system is designed to REWARD THE CORRUPT and THWART people like me.
 
Once good people have got elected, they will automatically (without having 'fasts unto death') establish effective systems to catch and punish any residual mosquitoes – the corrupt, etc. That's when negative solutions can help.
 
But today, just by focusing on negative solutions while ALL OUR POLITICIANS ARE 100% CORRUPT, corruption will never be removed.
 
Drain the swamp.
 
Q.E.D.
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Transparency International’s model does not attack the cause but the symptom

I support TI and indeed, all anti-corruption work. But I hadn't heard the fully story of TI till today when I chanced upon the following video (worth listening – 16 minutes). After listening to the video, do consider reading my comments, below.

(to get the full screen option click this, instead)

I thoroughly commend TI's founder Peter Eigen who is a true leader, a doer, not just a preacher or teacher.

However, and this is an important point: TI's efforts have NOT been successful in removing corruption. 

They CAN'T WORK

That is a key point to note.

It is like trying to fight malaria through a half-open mosquito net.

Yes, some foreign aid projects or defence purchases by poor nations may no longer involve significant corruption on the surface,  but these projects will be substituted by others that do allow corruption. 

So long as the Third World leaders WANT corrupt money, there is NOTHING that TI or anyone else can do to stop corruption.

India is a WORLD WIDE HERO in corruption despite all TI efforts. So also China.

The solution, I'd like to suggest to Peter (and to TI), is different. 

It involves promoting liberty across the Third World. It involves studying the detailed design of governance systems in the Third World and fixing the incentives that (today) ONLY allow the corrupt to rise to the top.

In other words, BFN-type solutions will work, not TI-type solutions.

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I’m withdrawing my support for “India Against Corruption”

I thought I'd publicly record my withdrawal of support of the IAC movement. I have been generally positive about them so far, but they seem to be a ONE TRICK PONY.

They seem to imagine that by undertaking a series of hunger fasts, corruption will be removed from India.

They imagine that by supporting a COWARD like Baba Ramdev that corruption will be removed from India (they still have a photo of this pathetic coward on their website).

I've read a fair bit about the kinds of people whom they have collected as their leaders: many are socialists; others are rabid communal fanatics. A motley mix. The hallmark of these leaders is that NONE of these people have the courage to contest elections and change things the proper way – through the Parliament of India.

Their "Jan Lok Pal" bill has ZERO prospect of reducing corruption (even if it were enacted, which is not going to happen, given it basically upturns all parliamentary powers). 

I have on numerous occasions pointed out to IAC (on its FB group, for instance) that they need to understand the CAUSES of corruption and address them. And that their methods must be political. They must fight elections and win – and change the laws.

But they are determined to undermine democracy and give power to UNELECTED PEOPLE.

But it is their continued support of Ramdev that is the last straw. They must immediately distance themselves from this pathetic coward.

Further, it is OBNOXIOUS BEYOND IMAGINATION to have photos of Anna Hazare in the same frame as Mahatma Gandhi on the IAC website. There is simply NO comparison between the two. Hazare is a intellectually challenged man without a theory of society or theory of nation (he praised Narendra Modi, for instance, but more importantly has no systematic philosophy). At best he is a cheap copycat of Gandhi who doesn't know that Gandhi warned people against conducting fasts unto death. This man should be arrested and force-fed, not glorified.

Let me end this post by clearly saying this: Anyone in India who believes he can resolve the issue of corruption should CONTEST ELECTIONS and get the PEOPLE'S MANDATE to change the laws, as appropriate. Please don't create anarchy.

And stop associating with this cowardly fellow Ramdev.

Let me also remind those who are GENUINELY interested in the removal of corruption that FTI is working towards this goal in a systematic manner, and if they are genuinely interested, they can join or otherwise support it. They can also read BFN to get an idea of how corruption (and poverty) can be eliminated. 

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This flimflam about Jan LokPal bill won’t clean India’s image

Indians are DELUDED if they think that the enactment of a Jan LokPal bill will clean India's image in the world.

All the gloating and celebrating about this Bill won't budge corruption ONE BIT, because EVERYONE in the world knows that this Bill is a sham.

The Bill  doesn't deal with the fundamental DRIVERS of corruption. They know that just aping (and that too badly) a tiny part of Hong Kong's anti-corruption framework won't make the slightest dent in corruption in India.

I therefore GUARANTEE (and I'm happy to be held to account on this guarantee) that the rankings of India on the Transparency International index won't budge even after five years of enacting this bill UNLESS the other reforms, clearly outlined in BFN, are implemented.

Without very significant policy changes, corruption in India CAN'T be budged. 

The right policy changes CAN make a huge difference, within less than fives years. The Freedom Team is India that aims to deliver such fundamental reforms is India's ONLY HOPE.

I encourage you to join/support FTI! Be not deluded by the enactment of trifles. The goal should be not just to stop the generation of corruption but to create high quality education for everyone, and freedom to trade and produce. 

Not ONE party (or the India Against Corruption movement) understands what it will take to move India in the right direction.

Investment in India now suffering due to corruption

The future of India is being compromised by bad policies. Corruption is just one of the many reasons why India is losing its attraction as an investment destination. The package we offer to investors is decidedly unattractive – blocking them at every step. 

Just for the record, I'd like to copy most of this article from The Economist, for wider dissemination.

The price of graft

Investors have gone off India. Blame, in part, uncertainty over corruption

Mar 24th 2011

CORRUPTION is dreadful in India, as shown by a current “season of scams”—over mobile-phone licences, the Commonwealth games and more. Politicians, notably the ruling Congress party, are now feeling the public’s ire (see article). Worries have also grown that graft is scaring away foreign businesses.

Circumstantial evidence points that way. A spokesman for a big Western firm mutters into his cappuccino about a recent High Court decision, which if upheld would cost his company billions. It was so strange, he says, it could be explained only by judicial graft. A representative of a British media firm, SIS Live, which broadcast the Commonwealth games from Delhi, in October, is furious—along with other contractors—at being left millions of pounds out of pocket because, he says, payments have been frozen by investigators digging up evidence of corruption at the event.

Across the board, surveys regularly tell how graft is an unusually heavy tax on Indian business. An annual one published on March 23rd by PERC, a Shanghai-based consultancy, shows investors are more negative than they were five years ago. Of 16 mostly Asian countries assessed, India now ranks the fourth-most-corrupt, in the eyes of 1,725 businessmen questioned. Being considered worse than China or Vietnam is bad enough; being lumped with the likes of Cambodia looks embarrassing.

Outsiders may get an exaggerated view. India’s democracy, with a nosy press and opposition, helps to trumpet its scams and scandals, more than happens in, say, China. Yet locals tell similar tales. A cabinet minister frets that there is so much ghotala (fiddling), “it tells the world we are all corrupt. It may be a dampener to investment.” Others agree. KPMG this month reported on 100 bosses who were asked about their own experience of graft. One in three said it did deter long-term investment.

Clean-up costs

Judging how much difference it makes is tricky. Right now, investors may be spooked as much by the fight against graft as by the corruption itself. Arpinder Singh of Ernst & Young in Mumbai says foreigners, especially those with some connection to America, increasingly hire firms like his to help them comply with America’s Foreign Corrupt Practices Act. Once a foreigner holds more than about 5-10% equity in an Indian firm, it is seen as having some responsibility for how it is run.

Now even Indian firms, if they want to raise money abroad, or if their bosses want to protect their own professional reputations, are doing the same. As other countries, such as Britain, bring in tough anti-graft laws like America’s, the trend will continue. Yet many Indian firms still fail to comply with higher standards, so deals falter. Mr Singh ticks off a list, “in infrastructure, ports, toll roads, irrigation, microfinance”, of deals he has worked on that collapsed over “governance problems”.

None of this is enough to prove that graft, alone, is scaring off business. Pranab Mukherjee, the finance minister, insists there is no correlation between corruption and foreign direct investment (FDI).

[Pranab Mukherjee is CLEARLY a big DONKEY - anyone have any doubt on this??]

But something is keeping investors wary. In 2010 the country drew just $24 billion in FDI, down by nearly a third on the year before, and barely a quarter of China’s tally. There is no shortage of other discouragements: high inflation, bureaucracy, disputes over land ownership, and limits on foreign ownership in some industries.

Even so, India is home to an unusually pernicious form of corruption, argues Jahangir Aziz of JPMorgan. Elsewhere graft may be a fairly efficient way to do business: investors who pay bribes in China may at least be confident of what they will get in return. In India, however, too many crooked officials demand cash but fail to deliver their side of the bargain. Uncertainty, not just the cost of the “graft tax”, may be the biggest deterrent of all.

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How to remove corruption from India – the ACTUAL solution

(Note: Read these later posts first - Are you serious about removing corruption? Then follow the POSITIVE solution - 13 August 2011 and this: Anna can’t guarantee ZERO CORRUPTION. I can, and do 24 August 2011)

As a counter-point to Anna's over-hyped work re: the LP Bill (which appears likely to get some traction, given the mass mobilisation involved), let me extract the key reforms from my book, Breaking Free of Nehru (BFN) to outline what India actually needs to implement in order to remove corruption. 

Basically, we need to make India's governance incentive compatible - to ensure that interests of the elected representatives are aligned with the interests of the citizens.

Note that the reforms outlined below are only PART of the total package and won't work in isolation. And do note the richness of thought and depth involved in this way of thinking, compared with the shallow thinking that underpins the LP BillIf things were as easy as passing a Bill, India would have resolved its many problems long ago by legislating them away!

After reading this extract from BFN, you may conclude that this package won't work. But you must first read BFN  and understand the complete  package carefully before you can judge this "solution" – which only forms the KEY part of the package. Indeed, within the framework of this reform package, outlined in BFN, something like the LP Bill WILL work. However, the LP Bill WON'T make any difference to corruption or governance under the current system.
 
I must add that I GUARANTEE that the package in BFN will not just eliminate corruption but will eliminate poverty, create HUGE amounts of wealth for India, and ensure high quality education for everyone. A good system has spinoffs EVERYWHERE. On the other hand, a shallow "reform" like the LP Bill – in isolation – will become quickly bogged down in a range of impossibilities.
 
(Note: If, like the votaries of the LP Bill, you can only think of ONE thing at a time and can't digest complexity, then read ONLY this blog post: First step in removal of corruption: State funding of elections)
 
Finally,before going to the solution, let me invite those who are interested in REAL reforms in governance in India to join the Freedom Team of India.  Now for the solution:
 

Extract from chapter 6 of BFN

Being committed to a squeaky clean government, I cannot afford the luxury of Cabinet colleagues being paid poorly. As an interim measure, my Cabinet will significantly increase the salary of members of Parliament. State Governments will also be funded for similar increases for their assemblies and councils. The monthly wage of MPs and MLAs would go up from the current Rs 33,000 to, say, Rs 3,50,000, with proportionate increases for Ministers. There will also be an annual adjustment based on the cost of living. Simultaneously, all perquisites and indirect benefits will be abolished.
 
A system of performance bonuses for all MPs and MLAs will be introduced:
  • For every 1 per cent increase in per capita GDP growth beyond 5 per cent per annum, all our representatives will get a one-off 5 per cent bonus.
  • For every 1 per cent permanent reduction – defined as a reduction sustained for two years – in the number of people below the poverty line, MPs and MLAs will get a permanent 1 per cent increase in their base salary. Once the negative income tax system is fully established, the entire reduction in poverty will be incorporated permanently into the base salary.
  • For every ten ranks that India rises on a sustained basis of two years in Transparency International rankings, there will be a 5 per cent one-off bonus.
  • There will be a permanent 20 per cent increase on base salary upon India’s becoming the world’s least corrupt country for two years in a row.
  • The sum of these bonuses will be limited to a total of 50 per cent of the base salary in any given year.
 A virtuous cycle of morality will thus be established which will not only eliminate poverty but overcome the vicious cycle of corruption established by Nehruvian socialism. Legislation will also be introduced to create a genuinely independent Political Representative Incentives Commission charged with research on, and making recommendations on the following:
  • a compensation mechanism for peoples’ representatives that will eliminate all reasonably foreseeable incentives for corruption, or will otherwise promote the freedom of citizens; and
  • any matter related to the mechanisms of political representation, such as electoral laws.
The Commission would consult widely with the community and look at international best practice. The recommendations of the Commission, made at its sole discretion and whenever it considers fit, would bind the public exchequer, i.e. there will be no voting on its recommendations. This will eliminate the dilemma faced by political representatives who find the public or media unsupportive when they vote for an increase in their own salaries. Such lack of public support creates strong incentives for subterfuge through a host of ‘perquisites’ and underhand dealings. The independent commission will bring sanity into a matter as fundamental and important as this.

High Priority Electoral Reform

Interim electoral reforms based on the arguments outlined in Chapter 4 would be introduced in Parliament; things such as:
  • repeal of the requirement in the Representation of the People Act for Indian political parties to swear allegiance to socialism;
  • removal of limits on political fund raising and expenditures subject to stringent disclosure. These disclosure requirements will include third party audits and audit by the Election Commission. There would be penalties of up to Rs 10 crores and jail terms of up to three year for failures to accurately report on and declare all receipts and expenditures related to political purposes. Penalties for making unauthorized political expenditures on behalf of another person would be increased to Rs1 crore along with a jail term of up to one year;
  • state funding of elections (being retrospectivefor the elections that would have led to the formation of my government) would be introduced. Candidates who secure more than one-twentieth of the valid votes polled will be reimbursed Rs 25 for each vote polled on a formula linked to the population and geographical extent of the constituency, normalized to an assumed 100 per cent voting rate. Surveillance will be strengthened through video cameras in polling booths and other security measures taken, as well as very significant penalties imposed, on people who engage in booth capturing; and
  • the security deposit for elections would be increased to Rs 5 lakhs from the current Rs 10,000, and forfeited when less than one-twentieth of valid votes are polled by a candidate. This lower forfeiture limit will allow many more candidates to contest, while the much higher security deposit will deter non­-serious candidates.
There is clearly some arbitrariness in these numbers which will need to be fine-tuned over time to ensure that the gate is kept open for serious candidates but shut out for frivolous ones.
 
ADDENDUM: How to remove corruption from India

(Given the popularity of this blog post on Google search engine, I'm also providing the info that I've provided separately, here).

In addition to my book, Breaking Free of Nehru, which has extensive discussion of this matter (including solutions), the following ILLUSTRATIVE blog posts throw light on this matter:

The problem of corruption

Causes of corruption
How to remove corruption
Things that won't work
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The dramatically over-hyped faith in the Jan Lokpal Bill

A friend asked me for my view on the Anna Hazare fast. I thought I'd copy my response to him on this blog, so my view is more widely known.

First, what is the Lok Pal Bill? 

First, an extract from an email I received on the subject:

Drafted by Justice Santosh Hegde, Prashant Bhushan and Arvind Kejriwal, this Bill has been refined on the basis of feedback received from public on website and after series of public consultations. It has also been vetted by and is supported by Shanti Bhushan, J M Lyngdoh, Kiran Bedi, Anna Hazare etc. It was sent to the PM and all CMs on 1st December. 

  • An institution called LOKPAL at the centre and LOKAYUKTA in each state will be set up
  • Like Supreme Court and Election Commission, they will be completely independent of the governments. No minister or bureaucrat will be able to influence their investigations.
  • Cases against corrupt people will not linger on for years anymore: Investigations in any case will have to be completed in one year. Trial should be completed in next one year so that the corrupt politician, officer or judge is sent to jail within two years.
  • The loss that a corrupt person caused to the government will be recovered at the time of conviction.
  • How will it help a common citizen: If any work of any citizen is not done in prescribed time in any government office, Lokpal will impose financial penalty on guilty officers, which will be given as compensation to the complainant.
  • So, you could approach Lokpal if your ration card or passport or voter card is not being made or if police is not registering your case or any other work is not being done in prescribed time. Lokpal will have to get it done in a month’s time. You could also report any case of corruption to Lokpal like ration being siphoned off, poor quality roads been constructed or panchayat funds being siphoned off. Lokpal will have to complete its investigations in a year, trial will be over in next one year and the guilty will go to jail within two years.
  • But won’t the government appoint corrupt and weak people as Lokpal members? That won’t be possible because its members will be selected by judges, citizens and constitutional authorities and not by politicians, through a completely transparent and participatory process.
  • What if some officer in Lokpal becomes corrupt? The entire functioning of Lokpal/ Lokayukta will be completely transparent. Any complaint against any officer of Lokpal shall be investigated and the officer dismissed within two months.
  • What will happen to existing anti-corruption agencies? CVC, departmental vigilance and anti-corruption branch of CBI will be merged into Lokpal. Lokpal will have complete powers and machinery to independently investigate and prosecute any officer, judge or politician.

Now, what's my view on all this?

I understand that people like Justice Santosh Hegde, Prashant Bhushan and Arvind Kejriwal (and Shanti Bhushan, J M Lyngdoh, Kiran Bedi, Anna Hazare etc.) mean good, and believe that more laws and more "institutions" to catch "thieves" will make a difference. Yes, and no. Yes, the RTI act has helped reduce petty corruption, but it is NOT the solution, and the total amount of corruption has INCREASED.

Similarly, I think LokPal Bill is over-hyped. It will NOT achieve anything substantial and may INCREASE corruption.

The problem in India is not corrupt people, but the system that makes them corrupt. The problems are explained in BFN, and the solution must start with a change in electoral laws.

I am CERTAIN that the LP will drive corruption more under-ground than it is today. LokPal can be an add-on, once corruption starts reducing after a change in electoral laws, but currently, with 100% of the politicians being corrupt, and 90% of the bureaucrats, it will only touch (at most) the tip of the iceberg. And it will merely drive corruption into Swiss accounts.

Anna is a nice man but doesn't understand the causes of India's problems. He is a Gandhian, I understand. That school of thought is incapable of creating wealth in India or removing poverty, or corruption.

And yet, I do believe these are nice people and their efforts must be respected. I applaud Anna for his belief that he is fighting against corruption (that this is not the way to do it, is a different matter). Similarly I applaud Baba Ramdev for his fight against corruption (although he too, doesn't have a clue about resolving this matter).

On corruption, JP of Lok Satta is FAR AHEAD in his understandings of the causes (and solutions), and FTI is definitely at the very top of the 'tree of understanding' on this issue. 

Indeed it is very clear to me that corruption is NOT A PROBLEM but a SYMPTOM OF VARIOUS OTHER PROBLEMS. 

Lok Pal Bill, as a band-aid, can't and will NOT resolve the causes of the problem – which arises from bad policy and shoddy electoral laws.

ADDENDUM

See this blog post and my comment.

TWO MORE BLOG POSTS I'VE PUBLISHED ON THIS ISSUE: here and here

(If you find it challenging to understand complex things and must only think of ONE thing, then read this blog post:
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