Corruption is a systemic problem, not an idiosyncratic one

India: Past, Present and Possible Futures – Part 4

We all know that India is no Singapore. The differences between the two countries are stark, numerous and evident. India is large with 1,300 million people while Singapore is tiny by comparison with around 5 million only. In terms of economic freedom, Singapore and India occupy opposite ends of the spectrum, with India among the least free and Singapore among the most economically free nations of the world. India is riddled with corruption – ranking among the most corrupt nations – while Singapore consistently ranks among the least corrupt economies.

A few years ago, Lee Kuan Yew said that Singapore became rich but its leaders did not. In India we can make a distinctly different claim: India did not become rich but its leaders certainly did. Mr Lee Kuan Yew should know. As the prime minister of Singapore, he transformed a poor economy – a mosquito ridden swamp with little hope of going anywhere – into a formidable economic power with a per capita income rivalling that of the advanced industrialised nations of the world. Singapore and Singaporeans became rich. When he took office in the mid-1960s, Singapore had $100 million in the bank; when he left office, Singapore’s sovereign bank balance stood at around $300,000 million. No mean feat by any measure. How did that happen?

The short answer to the transformation of Singapore compared to the stagnation of India is that the former had enlightened leadership and the latter did not. The kind of leaders a country gets at its inception is a matter of luck. A country has no more say in it than a person has in who her parents are or where she is born – a random draw from the grand lottery of life. India drew a very poor hand got leaders who were probably clueless but certainly incompetent while Singapore got a Lee Kuan Yew not out of any merit but out of sheer luck.

Be that as it may, we still have a problem at hand that we have to grapple with, and solve, the matter of India’s failure to develop. This has something to do with India’s colonial past as I have argued in previous pieces in this series here. India was a British colony prior to 1947. Its colonial rulers created the hard and soft infrastructure to control the economy for extractive and exploitative purposes. The people who took control of the nation from the British did not find it in their interest to change the British-instituted systems and matters continued much as before, which is to say, the impoverishment of India.

Although India has been politically free for over 60 years, it is still not economically free. Lack of economic freedom leads to what we see as the defining economic characteristics of India today – widespread poverty, rampant public corruption, shortages and congestion. They are related and mutually supportive.

Government control of the economy is the lynch pin of what I call the shortage-congested economy. Shortages are ubiquitous in India, whether it is something as trivial as LPG cooking fuel or electricity, or as critical as primary, secondary and tertiary education. In any economy, acute shortages are unpredictable, sporadic — and most importantly, unsustainable. They don’t persist for long. Chronic shortages that last decades on end have to be engineered since shortages evaporate in any free economy.

The engineering of shortages can only be done by the Government. India is a classic illustration of that. Every sector of the economy where shortages persist is controlled by the Government. It is generally effected by controlling entry. Time was when entry in the telecommunications sector was denied to the private sector – and waiting time for a telephone connection was counted in years. With competitive entry into it, the shortages disappeared. That is just one of many examples. Look around and wherever you find a chronic shortage, you will find it is the Government that is involved – mostly by restricting entry or monopolising the sector.

Shortages, massive corruption, and Government control go hand in hand. It stands to reason. After all, why would anyone engineer shortages unless they gained from doing so? That establishes a motive and opportunities. It is a nexus of corruption, shortages and Government control. This is a systemic problem and unless we recognise this fact, we struggle in vain against any of the individual elements since they are an integrated whole.

We hear of groups that are trying to eradicate public corruption. Perhaps they are well-meaning but they are certainly misguided since they are not fighting the root cause of the problem. They are falling into a trap closely related to what is called the “fundamental attribution error” in social psychology. It is part of our human nature. Generally speaking, the fundamental attribution error arises from mistaking a systemic problem for an idiosyncratic one, or vice versa.

The Wikipedia distinguishes between the “dispositional” and the “situational” in the entry for the fundamental attribution error. “As a simple example, if Alice saw Bob trip over a rock and fall, Alice might consider Bob to be clumsy or careless (dispositional). If Alice tripped over the same rock herself, she would be more likely to blame the placement of the rock (situational).”

In our case of Governmental corruption, the error lies in not attributing the massive corruption to the system and instead attributing it to the people within it. That’s a difference between the systemic and the idiosyncratic. It is not that the people who are in positions of power and control are not corrupt; that they certainly are. But the corrupt are in positions of power and control because the system selects for that type.

The cause of the problem of corruption lies in the system, and not in the specific people within the system. You may be able to remove the current set of incorrigibly corrupt people but they will be replaced by the equally corrupt or worse. In fact, the system selects the most corrupt of the lot and once within the system, it ultimately further corrupts them. India, as I keep pointing out, is a kakistocracy – rule by the least principled and the most corrupt.

Singapore has economic freedom, does not suffer from public corruption and is economically prosperous. That’s how the Singaporean system has been designed. India, in sharp contrast, is desperately poor, economically shackled and suffers debilitating Government corruption. Indians are not congenitally corrupt but the system – what I call “British Raj 2.0” – unfortunately selects the most corrupt as its policymakers. The system needs change. And unless we change the system, it will not attract the kind of capable policymakers needed to transform India. How to change the system, then, is our major challenge.
(For the previous parts of this series, see Part 1, Part 2, and Part 3.)

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Atanu Dey

Atanu Dey is an economist. He blogs on India's Development at