"If the major opportunities for future growth of government lie in the area of conventional taxation, are there any defenses available to the citizenry? ... Perhaps the most fruitful advice comes in two parts. The first piece of advice is to avoid war and the rumor of war: this is history's greatest boon to the tax man. ... The second piece of advice is to seek ways of inhibiting government's ability conveniently to increase its collections. Possibly the very increase in that ability that is in prospect can be turned to account by a constitutional provision which forbade the income tax, and perhaps even the storage of information regarding individual incomes by third parties, including government." ~ Benjamin Ward
How to Battle Corruption
Why is India in such a deplorable state? Have we Indians sold our conscience to Satan and accepted corruption as part and parcel of our life? Is this then the vicious circle of corruption from which we have no deliverance? In a country where every other politician is charge-sheeted, where bribery is the code name for getting any work done through bureaucracy, common people seem to no longer bother about such mundane issues.
My attempt in this article is not to stir the moral conscience of my fellow Indians, but to critically analyse the roots of corruption in India, and hence suggest an antidote for the same.
If one reviews the data a little carefully, it is not difficult to note that the countries at the top of the list have one thing in common (irrespective of their demography). The least corrupt countries are economically more free, with a less intrusive government and much less regulations. Similarly, the countries that are the most corrupt also have something in common: They have a burgeoning government that endorses protectionist policies armed with tariffs, quotas, prohibitions and similar such evils.
To put it in very simple words, countries that have a free market policy are the least corrupt, whereas countries that are dependant on government are the most corrupt. This then is the simple truth about corruption, though my socialist friends will scoff at this idea. They have not only placed the government to the ugly status of demigod, but also look up to the government for solutions of all social evils. The government is not the solution for corruption, but it is definitely the precursor of corruption.
I will give an example to exemplify my argument. The Prohibition Act of the 1920s in America forbid liquor to enter America from other countries. The American government thought they could cure the drinking problem just by legislating an act. The inevitable result was the emergence of a parallel black market and prominence of mafia ganglords like Al Capone.
The best example of how a market-driven economy weeds out corruption, compared to a government-dominated country, is the 'Enron-UTI' saga. Enron, one of the wealthiest companies in the world, as well as its auditor (accounting giant Arthur Andersen), both went bankrupt as soon as the accounting scandal unfolded. The punishment for fraudulence was swift and lethal. In a market-driven economy, consumer confidence is the cornerstone of success, and once it is breached, it is an unpardonable offense. On the other hand, the Unit Trust of India (UTI), the largest government-run mutual fund in India, duped millions of investors out of their hard-earned money. But what did the government do in this case? It bailed out UTI for the second time by injecting fresh funds into the company. And where do these fresh funds come from? The government taxes people to raise the money it uses to bail out UTI. Isn't this one of the most hideous forms of corruption?
The bureaucracy in India is actually a sophisticated name for kleptocracy. These thick-skinned people not only take bribes shamelessly, but have also started considering such payments as their rightful earnings. A small example in this perspective--It takes approximately three to four months to secure a simple passport from Calcutta (one of the largest metropolitan cities of India ), any only after paying a hefty bribe, (not less than $500)! Instead of this government monopoly, if we had competitive agencies issuing passports, it would have taken at most a week to get a passport without paying any bribes!
Adam Smith in his famous book The Wealth of Nations had postulated the primary role of the government as providing security to the citizens against internal and foreign aggressions. But the current spate of defense corruption raises doubt whether the government is capable of performing this basic function satisfactorily or not!!
The policemen, municipal authorities and political dadas (supposed to provide protection to common people) extort a huge sum of money from vendors, rickshaw pullers, taxi drivers, etc. every year. The misery of these free agents of trade can be solved by not viewing them as a nuisance, but including them in the town planning.
The emergence of underworld don Dawood Ibrahim and sandalwood dacoit Veerappan can be traced directly to the ban on the gold imports and the ban on cutting of sandalwood trees respectively. This bears testimony to the simple fact that banning and prohibition policies do not cure the problem but give rise to outlaws.
Granted, such outlaws exist. Is it not possible for the police to catch them? The political backup of the mafias often leaves the few honest cops without any choice. A symbiotic relationship seems to have developed between the mafia, the politicians and the cops. The politicians provide all kind of protections to the mafias to undertake their illegal activities, whereas the mafias provide the cash required to run a political campaign. The policemen are like hyenas who functions as a catalyst in the nexus between the politicians and the mafias.
Heard of the 'trickle up approach'? The grants given by the World Bank and IMF are government-to-government transfers. The leakages in the system have transformed the economic principle of the 'trickle down approach' to the 'trickle up approach.' One famous economist aptly remarked about this: The aid given by the World Bank and the IMF passes from the poor people of the developed countries to the rich people of the underdeveloped countries!
Now if we accept that government is the main predecessor of corruption, there is a solution to the problem as well. Suppose there was no restriction on immigration. Any person can stay in any country he or she wishes. Rational people will prefer to stay in that country where the government is limited and efficient, taxes are lower, etc. Now suppose on the basis of these criteria, a lot of Indians move to other countries. The Indian government will suddenly find itself bankrupt, as there are no people left to pay taxes. This competition among the governments of different countries to attract people will not only help to weed out corruption, but will also foster a limited, efficient, stable government. If we can have competition among consumer durables, why can't we have competition among governments? This might seem a very far-fetched idea, but it is not an impossible one.
Similar is the case for legalizing drugs and prostitution, which will not only bring an end to the unaccounted for, uncontrolled drug and women trafficking but will help to bring the problem under control.
Free society is of course not a perfect society. There will always be some murderers, rapists, and drug addicts in a free society. But the three pillars of liberty, property rights and free trade will not only help to curb corruption but also foster a sustainable and civil society.