2nd April 2011
Not one reason to be honest – Part 3
Despite my strenuous objections to electoral expenditure limits, I will now assume for the rest of this chapter that expenditure limits do exist, and will analyse the impacts of our current system on potentially good candidates. I will examine the linkages between expenditure limits, the actual expenditures, the standards of accountability and their enforcement, and the wages of political representatives. The results of this analysis will show us that the interplay of these factors filters out each and every competent and honest person who may have otherwise considered contesting elections in India.
Filter 1: Monetary Losses Keep the Prudent Out
The largest of these three sieves or filters gets rid of 99% of the people of India from the field of potential candidates. People excluded include:
- rich people who are prudent;
- those belonging to the middle classes; and
- the poor people of India.
To see how this filter works, let us consider the case of Mr. Aaaj-ka Harishchandra, aged 50, who is a decent person of good character and also happens to be ‘in any intellectual respect superior to average’. He is modestly endowed financially, earning Rs. 20,000 per month as a junior accountant in a private firm. Mr. Harishchandra had acquired some basic knowledge of economics while in school, but has since avidly read the fortnightly Sunday columns of Gurcharan Das, as well as drafts of this book placed in 2007 on the internet. He is now enthused about reforming India by contesting elections and becoming our political representative.
A small hitch has come up, though. While Mr. Harishchandra has a house (on mortgage) and is able to financially maintain his small family, he does not have the minimum spare Rs. 25 lakhs needed to propagate his message to voters in the Parliamentary constituency he wants to represent. It is theoretically not necessary to spend such a large amount of money if one is a really good candidate, but Mr. Harishchandra finds upon talking to a few past contestants that this Rs. 25 lakhs is the bare minimum he must spend to have a serious chance of reaching out to his vast electorate of ten lakhs. In reality, Rs.25 lakhs is insufficient, since most serious candidates will spend many multiples of that. But we live within the law of the land in this book, and so we will leave aside that inconvenient truth.
To meet these funds requirements, he works out that he can collect small donations worth a total of Rs. 2.5 lakhs from one thousand supporters. Five big donors have also agreed to fund him unconditionally for a total of another Rs.2.5 lakhs. These are unconditional contributions because Mr. Harishchandra has made it clear that he needs the freedom to think independently for all citizens of India once he is elected. Also, he has told people that their contributions must be from declared income; he has warned people not to give him black money or he will report them to the income tax authorities. Mr. Harishchandra doesn’t belong to any major party given that he doesn’t agree either with their ethics or with their policies. That means he must raise the remaining Rs. 20 lakhs he needs either by withdrawing from advance payments made on his mortgage, or by taking a personal loan. Either way, he will have to repay this money.
When elections are announced, a hopeful Mr. Harishchandra, being the prudent accountant he is, whips out a pen and paper and makes a calculation on the back of an envelope of the costs and ‘benefits’ of contesting the election. He will contest elections only if he has a reasonable chance, if he is elected, of earning an income that will be sufficient for him and his family to maintain an existing middle class lifestyle, after paying off all election expenses.
As it is early days, Mr. Harishchandra doesn’t know how many candidates will contest. He assumes that ‘n’ number of candidates will contest in all, giving him, all other things being equal, a 1/n chance of winning the election. If successful, he expects to be able to represent his constituency for five years. He assumes he will not be assassinated during this period and will live on after his term is completed. Being 50 years old, he expects to live another 25 years upon retirement from Parliament. He estimates that he could lose his security deposit of Rs.10,000 if more than five other candidates contest, but that if only up to five others contest, he will scrape through by getting one vote more than others, i.e. just over 1/6th of the votes polled. In his calculation, he therefore ignores the security deposit, which in any case is peanuts compared to the main expenditure.
Being an MP is almost a full-time job if it is to be performed well, including the time spent to read Bills, to meet his constituents and to prepare for Parliamentary sittings. So he expects to give up his current full-time job and will live entirely on his salary as an MP, which is the following:
- a take-home component of Rs.33,000 per month (actual salary only Rs.16,000 plus some extras),[i] i.e. Rs.3.96 lakhs per year; and
- upon retirement, a Parliamentary pension of Rs.8,000 per month, i.e. Rs.0.96 lakhs per year.
- He works out the expected present value[ii] (PV) of his ‘return’ from being an MP, which is:
If n = 2, i.e. there is only one candidate contesting against him, and θ = 0.02,[iii] then the PVreturn = Rs 18.18 lakhs approximately. The expected net present value of his ‘investment’ is then equal to PVreturn– 20 = – Rs 1.82 lakhs, i.e. he will lose nearly two lakh rupees.That means thatafter repaying his loan of Rs. 20 lakhs, he will receive a net of – Rs.1.8 lakhs in his entire remaining life, which means he will starve to death!That is shocking.He then considers the other scenarios. See the table below:
|No. of Candidates||Expected Loss (in Rs. lakhs)[iv] of Mr Harishchandra by Borrowing Rs 20 Lakhs|
*(i.e. he makes a ‘profit’; he can live very frugally on this for the rest of his life.)
In all scenarios except when he is the only candidate, he finds he and his family will starve to death, since he has to repay his loan first and only then can he eat. Given that, at times, people contest elections to become MPs merely for one year when casual vacancies arise, or if the Parliament is suddenly dissolved, and given that most candidates will never get elected anyway, it implies that there is virtually no hope for any candidate in India to recover the costs of contesting elections, even if the candidate spends only up to the legal upper limit. This is true unless almost all expenses are borne by a major political party. State funding, conditional upon the number of votes obtained, is another option – one that I recommend – but it is not currently available in India.
A more complete analysis will include other factors as well, such as:
- the opportunity cost of a potentially well-paying career forgone for six years. This includes a year before elections, being the time needed to familiarize voters of the selected constituency with one’s policies;
- risks to life such as attacks by political goondas and terrorists who like killing politicians for the publicity that gets them;
- reduced focus on his children’s education during these six years; and, last but not the least,
- an increased risk of divorce since the spouse can become very annoyed with the continuous influx of people into the house at odd hours!
Doing calculations such as the ones above, and finding that representing the people of India is a guaranteed recipe for the ruin of his family, Mr. Harishchandra cancels his plans to contest elections. Therefore, this filter, which ensures that people who fund elections by themselves will lose significant amounts of money even if they are successful in being elected,eliminates all those who cannot afford to lose such huge amounts of money.
* * *
At this point, you could very well ask me if this is for real! Is it really possible that all our representatives or political parties lose big money by representing us? Well, this calculation, based on information in the public domain, certainly says that is true. If I’m proven wrong, and it is found to be financially viable for people of ordinary financial means, or people who are rich but prudent, to contest elections without joining a corrupt political partyand using black moneyI’ll be grateful for that information. I may even be willing to then review my personal plans and return to India earlier than is feasible at present, with a view to contesting elections and representing you.
The main thing, though, is that if this calculation is correct, it shows that we are living in a ‘fool’s paradise’ if we expect anyresponsible, prudent, person to lose a significant amount of money in order merely to represent us. While a few people may find spiritual bliss in ‘serving’ us by going bankrupt and starving to death, no sensible person will do so. As a result, we attract primarily two types of people into the electoral fray:
- rich and imprudent people (such as some erstwhile maharajahs and feudal zamindars, or sons of corrupt socialist leaders who have so much black money they don’t know what to do with it); and
- completely unethical people, being those who have never had, nor will never have, the slightest compunction in misusing their elected office to capture rents from the government machinery and business in order to more than adequately recover their black money investments.
The first group of people, namely, those who possess sufficient money that they could lose well over 20 lakh rupees without batting an eyelid, comprise a very small part of India’s population. There is no reason to believe that such people are even modestly competent in public policy. In any event, no free country can expect to be successful by putting imprudent peopleat its helm. Imprudence is a personal trait which can transmit to the way public funds are handled. We’d rather have people lead us who have worked hard for their own money and know the worth of every single rupee. Even more importantly, we want no favours from anyone; we don’t need people to lose money to represent us. Free, able-bodied people do not care for anyone’s charity. Charity is poison for such able-bodied people. Rich people who contest elections by throwing money at us insult us. We want good governance services and are prepared to pay what it takes to get them. We must insist on paying these representatives sufficiently, if for no other reason but to make it abundantly clear to them that we are their masters and that they act on our behalf, as our agents in Parliament. We do expect them to lead us, but that is why we employ them.
The second group comprises morally challenged people (MCPs), who comprise less than 1 per cent of the population. There is a very strong overlap between these two groups. In total, a maximum of 1 per cent of India’s population is therefore eligible to contest elections. Ninety nine per cent of us are knocked off from the contest. As far as the second group goes, namely MCPs, the moment they get elected and become Ministers, all hell breaks loose! They frantically begin to work not only to recover their election campaign investments, but to make sure that they build enough reserves for future elections some of which they are bound to lose. Public policy is totally secondary to such people. They enter politics solely to make money. To them, government departments are vehicles to be exploited and sucked dry; not an opportunity to provide us with services. Hence the infamous horse-trading that takes place in India after each election for so-called ‘lucrative’ departments like public works, education and rural development.
But if recovering electoral expenses and building future campaign reserves was the only thing these MCPs wanted to do, there would eventually be an end to their rampage. They would stop once they recover, say, their Rs. 25 lakhs (or two crores, or whatever it is they ‘invested’), plus a 25 per cent return, multiplied by three! But from my experience, these are fundamentally evil people. Many of them will not rest without building large mansions in all corners of India and the world during the few years they manage to cling to office. Their families and relatives will flourish in hitherto unprecedented ways. Many of them open hidden bank accounts in Switzerland or otherwise palm off their wealth in benami deals. It is common for very poor government school teachers from remote villages to become elected as Chief Ministers and suddenly become wealthier than the richest industrialist in India!
To be true to the facts, there is, in addition to these two groups of potential candidates, a miniscule third group comprising ethicalbut incompetentpeople who, by virtue of their hard work and continuous presence at the grassroots, manage to get elected from time to time. These candidates largely belong to parties which have an excellent grass-root network such as the CPI(M). Such candidates are committed to a life of personal destitution and penury. But whether these people are competent in any way is seriously questionable. Predominantly communists, their policy credentials are totally dubious. These are ordinary Level 1 leaders whose ideas are entirely wrong and knowledge pathetic. It is simply not good enough for India to depend on this incompetent category of people for the advancement of its interests.
Present value is a convenient method to value future costs or incomes (cash flows) as an equivalent value today. Future cash flows are ‘discounted’ by a term called the discount rate, which, in the calculation shown, is the theta (θ).
A low discount rate is assumed, being a ‘real’ discount rate, since inflation is not factored into the cash flows. This is for simplicity.