India’s Choice: Saintliness Vs. Efficiency

The BJP can put India on auto-pilot over the next 18 months and will probably still win the next general election. After all, things are going quite well and the combined opposition has still to acquire the core characteristics of political credibility – leadership, resolve and broad agreements.

This high probability of winning in 2019 provides the BJP with ample breathing space to evolve strategies, rather than focus on tactics. This is especially true for the economy.

The key decision – morality or results

The key decision is to choose between prioritizing morality or efficiency. Going down the moral route, say “zero tolerance” for corruption, has severe consequences. The net result will be continued economic dislocation over the next two years; losing out on economic growth and inhibiting the availability of jobs.

In a largely informal, cash-based economy like India, putting anti-corruption first requires the private sector to reorganize, become more efficient and profitable by means other than just avoiding tax.

And while this adjustment process plays out, the state – despite it being more inefficient than private enterprise – would need to step in with an enhanced role.

However, this undoubtedly moral choice puts us on the long route to efficiency, which could last well into the second term of the government starting 2019.

Corruption has its uses

The “amoral” choice is to junk the fundamentalist approach to anti-corruption. It means fixing one’s eyes on the objective of high growth and navigating the waters by feeling the stones underfoot, to avoid deep pools where corruption and inefficiency overlap the most.

Corruption can be functionally efficient. Consider the case of information asymmetries. Stripped of the jargon, this simply means that it is not easy to know how or why government acts in a certain manner while awarding contracts, appointing employees or allowing its assets (like land) to be misused.

Democratizing access to information

If I bribe an official so that I understand the politics around a pending economic decision, corruption ends up “democratizing information.” That is the same outcome which a perfectly “transparent” system would achieve in, say, Norway or Sweden.

Consider, for example, that prisoners in Indian jails bribe guards merely to get minimum sanitary and nutrition conditions. Turning a blind eye to such “corruption” is “amorally pragmatic” till prisons become more acceptably habitable.

After all, prison is meant to reform — not penalize prisoners through health hazards. Petty corruption is the common persons way of dealing with administrative inefficiency.

Morality tends to exclude private enterprise

So why do morality and a “big” state go together? Consider a government which is stuck with a poorly motivated, inadequately qualified and shoddily managed workforce.

Suppose as well that his government chooses to bypass public inefficiency by outsourcing public service delivery to the private sector. How will they oversee the private provider?

Poor drafting of agreements and weak enforcement of contractual obligations generates corruption or delays execution. This is what took the fizz out of the juggernaut of Public Private Partnerships.

Remember, for instance, that India’s minister of railways decided to call in the Army to repair the collapsed pedestrian over-bridge at Elphinstone Station, Mumbai. The reason for that could well be that contracting private parties on an emergency basis inevitably has lags and creates opportunities for corruption. We saw a lot of this in the run-up to the Commonwealth Games, New Delhi in 2010.

The downside of that choice is that extensive use of state enterprises crowds out the private sector, which is hard put to better the riskless cost of finance available to the public sector.

If publicly managed service delivery is sustainable, there is no harm in that. But not every public leader is an efficient “saint” and public systems, set-up by them, revert quickly to the mean, once the leadership changes.

How many Saints do we have?

Saintliness, humility and frugality make great newspaper copy and attract votes. The problem lies in scaling up a system based on virtue and otherworldliness.

It is not for nothing that the competitive spirit — so important for sustainable efficiency — springs from the basic “killer” instinct to be number one. Saintliness is also rigid in adapting to the world. Effectiveness — getting results on the ground — requires flexibility in implementation.

The bottom line is high quality, morally upright leadership can also be inefficient if it ignores the need to minimize systemic disruption which compromises growth or creates joblessness.

There is no alternative to careful technical analysis of the costs and benefits of the available choices, including some which verge on the amoral. Choosing the least cost option is generally a good way to go. The morally right peg may not be the best to hang your hat on.