Given that there is a corrupt Scandal breaking out almost every 24 hours in India currently, I took a step and asked myself – what really is the Economics of Corruption?
I put on my Rodinhood Cap and came up with these thoughts:
– At the outset, its important to recognize that ANYONE who takes a bribe or passes on a favor to someone or creates undue benefit for someone else (that is not legal) RISKS many things. The top risks being losing your job, being fined, being thrown in Jail and of course earning a permanently bad reputation.
So, if I asked you today to take off all your clothes and come to office, you would NOT. Simply because the Stupid FAME or VANITY of the challenge is not WORTH the damages that come with the outcome.
If that is the case, then I ask – what makes Corruption worthwhile?
INCOME PARITY
So, if you are a Cop in Mumbai and have 2 kids and a wife to feed, and the Salary that you officially earn as a Cop is a pittance, you start accepting petty bribes to supplement your income. Its done in a silly clandestine way that is quite embarrassing. However, the bribes create AN INCOME PARITY for you that matches your needs and expenses.
So, Bribes often make up for Disparity in income levels. If one totals the Bribes of a Police Department and divides it by the Cops employed, it tells you what they SHOULD HAVE been earning.
If they were officially paid this amount, would they still accept bribes?
VALUE DISCOVERY
Lets say that there is a massive Government owned Textile Mill Complex in defunct Textile District of Mumbai that a Builder discovers, and then bribes his way to owning.
Post paying the official price and the hefty bribe, he then works at creating a VALUABLE property around it and selling it to retail buyers . So a real business appears on top of a not so productive land that was acquired via a bribe. Now, the bribe is a serious crime and can send the builder to Jail. He lives with that gnawing pain at the back of his mind.
Does the builder pursue this dangerous path as a way of UNLOCKING VALUE of the real estate that otherwise would remain undiscovered or unexploited? If he would not convert the Mill to a Commercial Complex, the Government would keep running those defective Mills and make Cloth no one would buy and pay Salaries to unproductive workers from Our Tax Moneys.
Doesn’t the act of Corruption finally lead to preventing waste and unlocking massive value?
CREATING A LEVEL PLAYING FIELD
During the Indira Gandhi regime, personal Income Tax rates had climbed to as high as 90%! This immediately led to lots of people evading taxes by paying bribes to the Income Tax dept.
Their reflex action was to PRESERVE their wealth, rather than squander it away.
It has been subsequently proven ove the years that as the Income Tax code gets rationalized (reduced and made prevalent across more people), less incidences of evasion are found, since good sensible citizens would rather pay what seems to be a RATIONAL amount and sleep comfortably in the night.
Similarly, lets assume that I am a Soft Toy manufacture, importing artificial fur from China to cover my soft toys and then export them to the USA.
If the import duty on that Velvet is so abnormally high that my toys become ‘un-exportable’, then I may resort to bribing Custom officers to NOT pay my duty so that my business remains Viable.
In these cases, via corruption I am seeking TAX PARITY or Harmonisation with the world.
Again, its been proven that reduced Taxes (Import and Excise) dramatically increase GDP and of course are less cheated upon.
What do you think?