CORRUPTION AND CRONY CAPITALISM

“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad man”

         -Lord Acton, the British Historian

Corruption is one of the biggest threat to the welfare state and an issue which explicitly or implicitly affects every Indian. It hinders economic growth and social progress. It is hard to find a literate Indian who never come across this word in India. Corruption has become something respectable in India, because respectable people are involved in it. In this article, efforts are made to understand corruption- its types, causes, and consequences.

What is Corruption?

Transparency International defines corruption as “the abuse of entrusted power for private gain”. In the given definition, the term ‘entrusted power’ means the task one is expected to perform with certain rules and norms. If one abuse that entrusted power by breaking a specified code of conduct and annihilate the goals of the tasks for fulfilling their interests, then it is called corruption. This can happen in two forms: first, in many cases, the corrupt official acts inconsistently with his or her mandate, and second, even if he or she only takes acceptable actions in response to a payoff, the official has sold a benefit that was not supposed to be provided on the basis of willingness to pay. Therefore, corruption comprises of giving clearances to unlawful proposals by accepting a bribe and demanding bribe for approving rightful bids. The presence of corruption can be felt both in the private and public sectors.

Types of Corruption

• Bribery: An act involving the exchange of money or something valuable with the corrupt aim of influencing an official in the discharge of his\her duties.
• Extortion: A form of bribery where bribe-taker places an active role sometimes violently.
• Nepotism: the practice among those in power hiring family members or relatives for jobs rather than qualified personnel.
• Electoral Fraud: Illegal interference in the process of an election for manipulating election results.
• Accounting Fraud: A company’s intentional misrepresentation of its financial statements by overstating revenue or assets and understating expenses or liabilities.
• Kleptocracy: A form of government using its authority to exploit people and natural resources for maximizing the personal wealth of those in power.
• Embezzlement: Theft or misappropriation of funds placed in one’s trust or belonging to an employee.

In a country like India, it is common to find all these types of corruption. The roots of corruption are deeply rooted in the Indian way of life. According to the recent study by a Berlin-based NGO Transparency International, India is ‘Most Corrupt in Asia-Pacific Region’. Seven out of every ten people in India had to pay a bribe to access public services.

Causes of Corruption

 The first major corruption case was recorded in 1948, one year after Independence. It is a jeep scandal in which V. K. Krishna Menon, then Indian High Commissioner to British, ignored protocols and signed an Rs 80 lakh contact with a foreign firm for the purchase of 200 army jeeps. From then, various corruption cases continuously surfaced and the magnitude of each such case surpassed the preceding in the amount involved.   

Some of the biggest corruption scandals in Independent India history are:

1)    Commonwealth Games Scam

2)    2G Spectrum Scam

3)    Coalgate Scam

4)    Punjab National Bank Scam

5)    Abhishek Varma arms deals scandal

The causes of corruption scandals in India are many and are quite complex to understand. At the micro-level, causes of corruption are lack of good vigilance mechanisms, ineffective management, poor remunerations, inappropriate employment, lousy leadership, and favoritism.

But through critical macro-level inquiry and analysis, it can be understood that the root cause which is giving space for people to corrupt is Crony Capitalism.

Crony Capitalism

If in an economy, success in business largely depends on close relationships between business people and government officials, then it is called crony capitalism. It may be exhibited by unfair preferences in handing out permits, government grants, tax breaks. Because of crony capitalism, state power will be used to crush the genuine competition.

Crony Capitalism can be better described as a corrupted form of capitalism in which affluent businesses use their links with the state to gain a decisive advantage over their competitors. The interaction between the corporate sector and the state is an unavoidable feature of crony capitalism.

There are three factors that are predominant sources of the wealth of our billionaires. They are land, natural resources, and government contracts or licenses. All of these factors come from the government.

Out of India’s 46 billionaires in 2012, 20 had drawn their primary source of wealth (at least originally) from sectors that can be classified as “rent-thick” (real estate, construction, infrastructure or ports sectors, media, cement, and mining). 43% of the total number of billionaires, accounting for 60% of billionaire wealth in India, had their primary sources of wealth from rent-thick sectors. Corporates acquire these factors to the maximum extent from the government.

On the other hand, governments need money for electoral purposes. Contesting in an election itself is a very costly affair in the present contemporary political atmosphere in India. So, government looks towards corporates for funds. This impulses people in power to give access to the country’s resources for those people who give huge commissions to them. A quid pro quo situation.

In a crony capitalist model, governments are always ready to do anything for the sack of businessmen. So, governments frame neo-liberal policies that emphasize privatization was in many cases accompanied by massive corruption (e.g. the Commonwealth Games and 2G scams), as politicians and bureaucrats received kickbacks from the corporates they favored. In other cases, even if there were no kickbacks, a lack of adequate regulation allowed corporates to make a windfall.

So, India’s transformation from being a state of crony socialism to crony capitalism surged prospects for corruption in it.

Consequences

Corruption is believed to have a detrimental effect on economic development and social welfare. Some of its consequences are:

• Distort public investment: Corrupt politicians will reduce public expenditure over sectors providing fewer bribery opportunities. Economist Paolo Mauro empirically observes that corruption significantly reduces public expenditure on education.
• Decrease in Foreign Investments: Higher levels of corruption will discourage foreign investments into India because high corruption in host countries may imply a high expropriation rate.
• Middle Income Trap: It is a situation in which a country’s growth slows after reaching middle-income levels. One of the greatest dangers to the growth of developing countries is the middle-income trap, where corruption creates oligarchies that slow down growth.
• Increase income inequalities: The rich get richer and the poor get poorer. This is true in the context of a corrupt state. All dispersion devised programmes are proven to be less effective.
• Welfare on the backburner: in a corrupt state, the objective of both private and government sectors is to earn profits at any cost. This will drive millions of citizens into the lowest rung of the economic ladder and opportunities are taken away from deserving candidates.

Conclusion

It is very clear that corruption puts India in hot waters. So, the prosperity of our nation lies in pulling out ourselves from corrupt elements. This is possible through the dilution of neo-liberal policies and the curtailing of crony capitalism. People in power must be answerable to their actions. The extent of transparency in governments’ actions should improve and people must be vigilant about the government’s actions.

Electoral reforms must be brought which will deprive corrupt politicians of power. Opportunities for development should be provided for everyone and it is necessary to give jobs for deserved candidates rather than cronies.

For a country like India, it is highly important for curtailing corruption to establish a welfare state where oligarchies will end, inequalities will vanish, and prosperity blossoms.