Bullshit Quotient - Sample Chapter

14. Corruption and the Democracy Machine

      If corruption is payment for services or materials that is not legally permissible or due, the popular view would hold that the Indian corporate world is famously corrupt. It’s not just a matter of kickbacks, rake offs, bribery or quid pro quos.  It’s the whole attitude of muscling others out of the way, with no thought to the means employed to do so. This view argues that the corporate world simply has no sense of equal opportunity, equal access to facilities or equal protection of the laws. Businessmen don’t like to stand in lines, await their turn or give the next man his due. What businessmen can’t get as of right or influence, they use cash to buy. In this view, if corruption is quite the word to use, business practices in India are defined by the corruption that lubricates them.
      There is another viewpoint too. In this second viewpoint, our democracy is the procedure by which gang-lords, hoods, crooks and thieves propel themselves from the margins of society right into the legislature, thus acquiring the power to make and implement laws. They also acquire the power to bully the bureaucracy, forcing the executive to do their bidding on pain of transfer. More recently, their powers of transfer have expanded in places like Uttar Pradesh to include the mercy killings of petty bureaucrats who have been caught doing what their political masters have demanded of them. It goes without saying that these politicians use their extensive powers to extort money, selling India by the kilogram so to speak. In this view, they terrorize the Indian corporate world, paralyzing business till it belches out dough enough to satiate the blackmailer, for the time that it does. Then the extortion starts again.
      If you look at the naked reality, no one need justify any of this, or from either standpoint. Everyone and their illegitimate cousins thrice removed agree that the political classes and all its constituents have their noses in the flour bin. Everybody but everybody also agrees that business is the other party to this transaction. By what intellectual construct can we claim that one party to a bribe is corrupt while the other is not? Regardless of who is the initiator of this activity, and who the opportunist responder, we will do well to agree that it must at some level work for everyone. The enduring stability of the system is the best evidence that it has not been in most people’s interest to change it. Both viewpoints are sapia images of the same Technicolour reality!
      So what makes the world of corruption – if we can call it that – go around? We could get into details and discuss the size of corporate tax evasion, taking up issues like the benefits of not asking for an invoice. Or we could discuss the extent of the black market economy, talking about the out of turn gas cylinders you can get if you wish. Or we could talk about the policy changes, or licences, you can buy for a price. There is a whole world of cash and carry out there – if you will pardon the facetious reference – and everyone knows everything there is to know about it. So instead of sitting around bad mouthing politicians or business for what they do, or are accused of doing, let us instead ask ourselves: ‘Why?’ Why do we have this system that we do? As it turns out, there is perfect logic to all this which is why it must be the way it is and no other way.
      Just as one man’s terrorist is another man’s freedom fighter, one man’s bribe is another man’s legitimate revenue stream! Given that the Indian economic system runs on a very uniquely Indian parallel economy, this tendency amongst our ruling elites to condemn ourselves without evaluation – to see ourselves as corrupt beyond redemption – is at best a distorted view of the reality. It does not strike us that our parallel economy is an entirely different way to run a country. The other side of the moral rhetoric and the hyperbolic hypocrisy, this parallel economy is the mantra that makes the desi world, corporate and otherwise, tick over smoothly.

         I’m serious. Let’s go back to the year 2011 when we achieved a new milestone in national hysteria. The provocation was yet another routine parallel economy caper that we grandiloquently named the  ‘2G scam’.  It was the same kind of caper that found former Telecom minister Sukh Ram with 2.45 Crores of cash in a trunk under his bed in 1996. At the turn of the 21stcentury, this was no big deal: everyone understood how telecom licence terms – indeed most all tender terms in most all government contracts – were manipulated to achieve certain pre-determined results. Law reports of judgments of High Courts across the country were and remain littered with the debris of manipulated tender terms that went just a bit too far in their blatant favouritism, forcing judges to interfere. It was illegal then as it is illegal now but no one claimed in 20th century India that it was anything but business as usual. Yet, in 2011, similar facts led to a feeding frenzy. The media first reported a Rs 22,000 Crores scam. By mid-February 2011, the figure had already crossed Rs 50,000 Crores! Where did these numbers come from?
    As far as I can tell, all this was predicated on completely absurd thinking. It was argued that if the telecom minister had not decided to sell Spectrum at depressed prices on an arbitrary first come first served basis, the national exchequer would have made a lot of money. Sure, that’s true. If you don’t subsidize anyone, the exchequer will always have a lot more money. India subsidizes fertilizer for farmers who want to grow more food, food for the poorest of the poor who haven’t enough to eat and diesel for the richest of the rich who own fuel guzzling SUVs. All of these are most definitely ‘losses’ to the exchequer, but are they scams? I think there is way too much muddle-headedness here because we are dealing with two entirely independent issues. First, there is this question of the price of Spectrum: should we sell it cheap to corporations? Second, there is this business of paying a minister to get a telecom licence. Perhaps we can ask if we should favour corporations that fund political parties over those that don’t, or don’t know how to?

      To answer the first question, I don’t think those who paid sixteen rupees a minute for mobile services in 1996 would have called lower 2G pricing a scam. Recall that fifteen years back, competitors bid up licence fees to some fantastic figures and then found that at those prices, the user base simply couldn’t support the industry. The government then took the sagacious decision to ignore the hysterical protests of the exchequer fixated lunatic fringe and err on the side of the larger national interest. The licence fees became a revenue share and the rest, to mount a very tedious cliché, is history. There were two lessons in that story. First, if you promote an industry by giving it sops in the short run, it pays you back with a lot more revenue in the long run. Second, if you insist on maximizing revenue in the short run, you get a bankrupt business, not a revenue windfall. All this is common knowledge, common to everyone but the media it seems!
      I will give you another example of dubious dealing for good causes. In the beginning, GMS operators monopolized mobility because that is what their licences said. At the time, basic licences meant wires. Somewhere down the line, along came Wireless-local-loop and before you could say Praveen Mahajan, every basic operator and his uncle was offering full mobility. I am sure you were gladdened by the fact that the introduction of mobility by basic operators led to cuts in mobile tariffs. Having said that, did you ask the name of the politician out of the goodwill of whose heart this shifting of the mobile goal post came? Did you even care, because I am sure Sunil Mittal did?
      So when we speak of corruption we need first of all to get it into an appropriate context. If a decision is good, the fact that some short sighted politician needed to be paid to take that decision does not take anything away from the quality of that policy decision. At the same time, given the dough under Sukhram’s bed, because a decision is sagacious and timely, it does not mean that some political prick didn’t have to be paid to take it. Here’s the thing: as you evaluate what’s going down, you have to draw a distinction between the decision and the collateral motives of the decision maker. There are mounds of literature to show that in many developed countries – and the US is a very good example – the economy grew quickly and infrastructure got built up at speed because someone was going to make an awful lot of money out of it, and someone got paid to facilitate the process. India has a flourishing parallel economy, but we don’t necessarily run the country badly only because of corruption.
      Seen in this context, the high pitched scam fixated protests of opposition politicians don’t fill my heart with nationalistic zeal. I don’t like the idea that opposition parties will jump on to any bandwagon to make their point, even a crank like Baba Ramdev. I like it even less that political parties forget the compulsions that drive the behaviour. Politicians like to trade charges because they live from election to election and need that voting adrenalin to bring citizens to polling stations. Ironically, roles get reversed when opposition politicians become incumbents. It’s a bit of a charade — like wrestling on TV — but the politicians are the last people you’d want to blame for it because public memory is never much longer than six months. We create our own monster-of-the-month, and notwithstanding our protests, we really like our monsters!
      This brings us directly to the second question we asked: should we preferably give telecom licences to companies that make political payments over those that don’t, or don’t know how to? My own view is that given the system we have established and nurtured over 60 years, I don’t see how else we are going to do it. The political process is heartless in its expectations and those who have the courage to step up to its demands deal with some terrifying home truths. Democracy is about elections and this means big money, money that is not earned in the usual way.
      How is the democracy machine organized in India? First, we find that democracy’s biggest pillar, political parties, are not organized along democratic lines. Most are run as family concerns, others are oligarchies or feudatories. They don’t hold regular elections or otherwise comply with significant features of their own constitutions. There is no such thing as internal democracy within Indian political parties. In this opaque political world, who controls the purse strings is quite the bank breaking question. How election funding is managed is an even bigger question. As is true of many features of our unique parallel economy, law and practice are at great divergence. Political parties are required to maintain lists of all persons who donate more than Rs 20,000 to it and tax exemptions are given to the donators too. However, rarely is the money put into any account that is subject to any due process. No one quite knows what went in and what went out. There are several reasons for this.
      First, elections are won on caste combinations and that requires grass root leaders to be purchased for cash. Much of the money that gets thrown at the elective process is chucked not at purchasing TV time or running print media campaigns, but at bribing local level opinion makers i.e. buying votes. This is not something you can do for cheque because those who receive the money neither want to be seen to receive them nor can justify why it was received. Before I part company with this point, I’d like to ask why you think that throwing money at TV advertising in America – i.e enriching the owner of a TV channel – is okay but throwing money at the sarpanch of the next village is not okay.
      Second, we live in an era of coalition politics. Since the days of Shibu Soren’s support for the Narasimha Rao government in 1993, it has been quite clear that coalition partner support in Parliament is purchased for cash, not political beliefs. The recent 2G scam is nothing if it’s not a case of cash for political support. Even Dr Manmohan Singh did not deny that coalition compulsions kept him from protesting telecom minister Raja’s actions. In effect, the ruling party was saying to the DMK: ‘Please support our government and we will give you a fruity portfolio you can squeeze all the juice you want from’.

      Third there is this asinine cap on electoral expenditure. If you are seeking election to a state legislature, at the time of writing in early 2012, you are not permitted to spend more than Rs 16 lakh. You are of course aware that each of the SUV’s you need to run during campaigning costs between Rs. 18 and 25 lakhs to buy! To win an election, you must have at least 250 workers. You would also need at least 50 MUVs to be able to move around your constituency. Three meals for 250 workers at Rs. 100 per day is Rs 25000 per day of campaigning. Rentals for 50 MUV’s at Rs. 1500 per day per MUV are Rs 75000 a day. For the month of campaigning, at a burn rate of Rs. One lakh a day, you are running out Rs 30 lakhs only on food and logistics for the campaigners. Now you can add the lakhs you spend on posters, gala events to pump up your campaigners, field offices in your constituency, communication costs including 250 mobile phones for your campaigners, the cost of getting in one or more star campaigners, gifts for your supporters, and whatever else besides. Who can possibly run even an ultra low budget bare bones skeleton campaign in less than a Crores of rupees?
      Desi reluctance to fill government coffers for no visible benefit is a fourth piece of this puzzle. If you receive revenue streams by cheque, you have to pay tax on it. Cheque payments mean that every participant ends up with a third less than he or she would if it was all cash. This is true at every level of the political process. If you want to rent a car, there is service tax to pay and besides the income in the hands of the taxi owner is taxable. If you want to print a poster, there is sales tax to pay. The election machine in India works on the basis of truckloads of cash. As a politician, or a service provider to the electoral process, what will you get for paying all these taxes? While you are at it, please also answer this question: in how many societies that you know do people happily pay taxes with little expectation of effective responsible governance or security leave alone the funding of the electoral process in return?

      This is probably a good time for me to pause and make my perspective clear. I am not for a moment suggesting that you can’t fix the corruption ‘problem’ at a micro level by catching this or that babu, filing charge sheets against this or that cattle-fodder stealing politician or chopping this or that corporate neck. I am arguing that you cannot solve the systemic problem – the institutionalized behavioural pattern – unless you attack it at its roots. So far, we have shown zero-appetite to appreciate the root of the problem, leave alone address it.
      The heart of the Indian corruption ‘problem’ is our inability to institutionalize the funding of the political machine through the cheque and banking system. If you want to stand for election, the government is not going to allocate a budget for you. How then is a politician to fund his election? In the old licence permit days, the money was everywhere. Every licence, every permit, every approval, every gate pass and every official nod had a price. It was the purest form of democracy tax and it was fairly spread and universally applicable. If you want to see it in terms of verticals, it came down to three major revenue streams.
      First you have the low intensity process-based activities. These include largely sovereign processes that generate low but reliable cash revenue streams: customs duties, sales tax, excise, income tax, industrial licences, construction permissions, customs registrations, et al. Such sources include grant of government jobs, routine repair and maintenance expenses of administration and renewals of approvals. The problem with a process-based graft is that a lot of the cash generated leaks as it travels up the food chain: everyone gets a bite of the burger. There are many reasons for this. When we know that our masters have their hands in the till, we feel entitled to wash our hands in the beatific waters of the flowing river. That however is not the main plot. The truth is that most low to medium level civil servants, especially those who sit in lucrative departments have purchased their jobs. They paid to have a lifelong revenue stream, and by Ganga, they want their upside.
      Much of this is of course very small ticket stuff. The real fun and games begin with ‘seats’ that generate large revenues, like octroi posts at state borders. Since collections run to millions of rupees a week, these postings are also sold for cash. An official who wants to make money goes to the minister and says, ‘I will give you half a million rupees to keep this post for a year’. If you think about it, the job of collecting bribes is being contracted out for a price to a civil servant. It works for everyone. The official makes money, the politician doesn’t have to keep tabs on actual revenue streams and the ‘public’ gets the service they want at a standardized price. It’s no different from auctioning a parking lot in a city high street. The problem unfortunately is the inefficiency of the collection: we can call it transmission losses as the State Electricity boards do!
      This is true even of the second major revenue stream that generates political funding: Government run pseudo corporations, like State Electricity Boards and Tourism Development Corporations. Last summer I was in Doda district, half way up between Jammu and Kashmir. The 6 bedroom tourist bungalow had 4 full time cooks, of which three were more or less permanently on leave because there wasn’t the work to justify them sitting around. The fourth was on call but could not cook. When I asked him why, he said that cooking skills were not the criterion by which he got his job! Naturally, none of these JKTDC employees had the slightest interest in work.
      The economics of the place was another joke. Every time I ordered a plate of chicken for a meal, the staff went off and slaughtered two whole chickens and served me a quarter of one. Since I only paid for a plate of chicken and the rest was eaten by staff on duty as was their right, the tourist bungalow never made any money. So a great many people pay tax so that the Government can establish a tourist bungalow that loses money because the people who run it purchased their jobs! There is a method to the madness though: the politician gets to fight his election, the tourists do go to Doda district and a lot of families of JKTDC employees get to eat every evening.
      Ergo, a department that generates political funds will be populated by people who are recovering the money they spent to first get the job and then the post. It’s a leaky way to go and not one by which a high-end politician determined to make a fast buck is going to hit the jackpot. Such an individual needs a high yield alternative. That comes from a high intensity event based fund source. The event based political revenue stream – the third leg of our grease-ball stool – is the one that has the most dramatic impact in print media! This is by far the best way to generate large political funding and for two reasons. First, it is efficient: it doesn’t take a leaky machinery to do it. A few people are involved, the parties negotiate more or less directly and the deal can be done in a simple format. Secondly, the receiver controls the largesse he has to give in return. There is a certainty of process, a direct give and take that both parties find easy to trust. This is the single window clearance that makes China so attractive to westerners!
      This brings us to the heart of the problem for the emerging India. Our licence-quota-permit system served its purpose for the best part of 50 years. Then we had to spoil it all by deregulating. The economy is getting deregulated and the system is becoming more transparent all the time. We are cutting down on licences, permissions, approvals and government intervention in private affairs generally. Inevitably, political resources have disappeared wherever deregulation has occurred. This means that areas of opportunity for politicians keep shrinking. Entire Government ministries have now become poor political resource generators. So while on the one hand, departmental resource generation is squeezed, on the other hand, the role of public sector companies in the economy is also declining. What you have left are two residual kinds of fund sources.

      It is in the nature of sovereignty that some things are difficult to privatize: income tax, customs, sales tax. These are and will in the near future continue to generate political revenues. As for the other source, the best event based opportunities still come from what survives of the licence permit Raj — ministries where the biggest licences are handed out – and that means infrastructure projects of any kind, especially power and — what else — telecom. In recent years, such events have also attracted the greatest media exposure. You bang harder for your bucks but that brings out the vultures.
      What you get at the end of the day is national hypocrisy. Unless we change the rules and address electoral funding in a way that is relevant to the reality on the ground, people at the top would continue to perpetuate the system while mouthing empty platitudes on TV and breast beating about the decline and fall of Indian morality or whatever other mindless self-righteous rhetoric comes to lip. We have here a stable system that works. If you want to change it, you need to come up with a better one. More significantly, you need to debate this whole question in a pragmatic non-judgmental way because whatever else may be, nobody gives you money for nothing. When a company agrees to fund an election, what is it paying for?
      This is the heart of the matter. In a level playing field, companies would struggle to keep at the competitive pace. The whole point of business is to get ahead of the pace and to do that you need to have a grip on the political process. When Sant Singh Chatwal organizes a dinner for Hillary Clinton and thousands of ABCDs buy high priced dinner vouchers, we are quite content to call it a fund raiser. Do all these ABCDs buy these expensive meals because their gourmet taste buds can’t resist the culinary experience? Corporate funding of politicians is a global reality and we have to see it in context. Politicians in the US provide corporations with the conditions necessary to make lots of money, like building a new highway or running a really destructive war with Iraq. It’s the same in India. Politicians in India provide corporations with arbitrary rule changes or changes in tax structures so that they can make a lot of money. It’s just a different system, that is all.
      Am I saying that there really is no difference between India and the world’s greatest power? No I am not. There is at least one very real difference. The difference is that one country runs on one set of accounting books while in India we run on two sets of books. Why you may ask should you care? The only guy who doesn’t get a piece of the second set of books is the tax man. That does not mean that the politician in power is not collecting his taxes through alternative channels. It just means it’s not part of the budget that gets to Parliament. Do you really care what gets into the taxman’s net? If you go by track records, I would say not. India has shown little appetite to respect the sentiments of the tax payer, or to reward them. It has shown even less appetite to spend the tax payers’ money wisely.
      I am not trying to take away from your right to try and change the system. I am arguing that the language in which you couch your objection is unfairly moralistic and self-righteous. Our objection may well be that we need to bring this parallel economy into the national budget because transparency is good for a democracy. Our objection may well be that transparency is more efficient. Our objection may well be that transparency will mean a more equitable, more just society. That said, our argument can never be that we are a sordid immoral people or that our companies are crooks. At the end of the day, all the moral hoopla is just a question of perspectives and contexts. The question we have to ask is this: what do we need to do to get to the next stage of our historic economic journey?
      To answer questions like these, we need to understand that all close up views of current events are deeply flawed. What we really need is the sanity of perspective: the Big History picture. We are not the world's first emerging economy and we are not the first to experience the trauma of growing up. As we see India's destiny unfold, we find parallels in all sorts of unlikely places. What are we to make of these parallels?

      There are two ways to look at corporate underwriting of the parallel economy depending on who you hate more – politicians or business. If the first is your target, in your perspective, criminals have taken over our government and prey upon their own people. They set up rules that make it impossible for honest commercial life to survive and then extort money to let you live. Seen from this perspective, it becomes easy to recall the manner in which Chinese communists – sponsored by Stalin – took power in the 1930s and reduced their people to penury within a decade. Am I the only one who hears corporate hotshots in India favourably compare China while disparaging India in the same breath? How many people today breast beat about the terrible price that China had to pay to grow out of its feudal culture, suffer the cultural revolution, then jettison every communist ideal — and the financial security that went with it? And may I remind you that nobody accuses Chinese politicians of being transparent or incorruptible.

      If, on the other hand, you hate wealthy businessmen even more, you would see India as a country of crony capitalists who promote whichever politicians best dish up rules that serve their purpose best. So you have the argument that Dhirubhai Ambani persuaded politicians to create rules to kill his competition (of which Orkay and Bombay Dyeing are usually most cited). You would then see the 2G scam as Dhirubhai ‘technology’ once again: a group of companies’ subverted administrative due process, jumped the queue and persuaded Raja to allot licences and Spectrum to them to the exclusion of others in the breadline outside. Seen in this perspective, you would see India as the happy hunting ground of a group of robber barons of the kind that dominated the American business world between the civil war and the turn of the century. Commonly known robber barons who acquired vast empires include John Astor, Andrew Carnegie, J.P. Morgan, John D. Rockefeller, Joseph Seligman and Cornelius Vanderbilt. The empires they created were and are revered as the engines that drove the American economy at the time. How many people in India today breast- beat about the great crimes on the back of which the American economy was built?
      Within the American context, this is what business historian Allen Nevins did in his biography of John D. Rockefeller when he argued that while Rockefeller may have engaged in some unethical business practices, he brought order to the regulatory and industrial chaos of the day. Many would agree that modern day Robber Barons made the United States the foremost economy of the 20th century. Many others would agree that Dhirubhai Ambani made the Indian stock market what it is today. He also taught us project finance.
      This takes us back to the heart of the parallel economy problem: what is so terribly immoral about it? The government creates tax rules so that it can collect legitimate taxes, as much and as efficiently as possible. Similarly, the operators of the parallel economy create rules not so that they are followed, but so that it is easy to channel money into the parallel economy. I will give you a small example.
      Indian customs disallow the import of any but the smallest radio-control helicopters. There must be logic to this. Theoretically, they can be used to kill politicians if you can find more than a handful of pilots who can keep them in the air for longer than a fraction of a second at a distance greater than 50 yards! Yet India is chocker blocked with these endearing little models. I hear Mr Rahul Gandhi loves to fly his model choppers too. Why have we set up this absurd rule? Let me assure you that the purpose of this rule is not to secure the well-being of people like Mr Rahul Gandhi who always run the risk of being attacked by unmanned aerial vehicles: it is to secure a Rs. 1500 payoff for the customs official who lets such a parcel slip through his fingers. This is what collaterally motivated regulation is all about.
      If you understand this, you will see that the issue may well be one of the efficiency of parallel taxation or the wisdom of unregulated tax collection. From the Big History perspective, breast-beating on TV about corruption misses the whole significance of the way we run our country, and the enormous heat we have generated since 2010 in an attempt to change it. The industrialization of America was a historical process and not a morality epic war between good and bad. Just as the Robber Barons were part of a historic process within an economic context, the Indian parallel economy is part of a historic process, and even more significantly, the unearthing of the Indian scams are part of a historic process that could have great long term significance. In this context, defocused debates about vaguely defined moral issued based on unexamined ideological assumptions cannot produce a useful understanding of what is going on in India today.

      The Bullshit Quotient:   India runs two parallel economies in part because it has failed to legitimize the funding of the electoral process. Politicians rely on three main election funding streams: sovereign functions like tax collection, job auctions in public sector undertakings and big bang sales of licences, quotas and tax holidays. The first two types of activities generate huge funding but remain low yield and quite leaky. The licence-permit-quota Raj was a stable system that has been subverted by deregulations, forcing political players to rely increasingly on big bang one-off funding events such as sales of licences. Politicians need to offer windfall gains to business so that business will underwrite these elections. The dynamic interplay between companies and politicians benefits both, and is necessary to the continuance of our democracy. Calling such processes scams misses their necessity. The media has highlighted the nature of the deal without suggesting any viable alternative to the compulsion that drives it. There is substantial historical evidence to support the view that political skulduggery and business perfidy is good for the economy. In short, companies are crooked, but there is no viable short-term alternative to their being crooked. If we want them not to be crooked, we need to create new rules of business and till that day dawns, this crookedness is good for all of us.