Introduction
George Santayana said, "Those who cannot remember the past are condemned to repeat it" Having forgotten the “Crony
Socialism” of the “License Permit
Quota (LPQ) Raj” that enveloped us from 1950 to 1980, many Intellectuals, Media and Politicians[i] have apparently discovered a ‘new’ phenomenon called
“Crony
Capitalism.” The LPQ raj consisted of stifling controls imposed on prices,
production, capacity, investment, imports and exports, capital markets, banking
and finance, land labor and natural resources. This provided ample
opportunities for collusion between corrupt government (politicians and
bureaucrats, which was initially used to generate money to run parties and
fight elections, but gradually and progressively became a means of generating
personal income and wealth. Controls
on pricing, production, investment and foreign trade in manufactured goods were
reduced in the 1980s and lifted in 1990s. There was also a reduction in
controls on banking and finance and some simplification of taxes. This reduced the scope for corruption in the
reformed areas.
Controls
still remain in other sectors, of which the most important from the current
perspective are government ownership of and/or control of land (land use),
minerals, energy (coal & oil) and infrastructure. With acceleration in the
growth of demand for natural resources, generated by the faster growth of the
economy, rents inhering in these “natural resources” have risen, providing
greater incentive for corruption. This
is particularly so for natural resources in which global prices have shot up
(oil, coal, iron ore) and for non-tradable goods & services (urban land,
electricity, transport networks) in which the demand- supply gap has widened. Rising growth rates have similarly raised the
rents implicit in public monopolies and the returns to and incentive for
corruption by those who control these monopolies.
History: Socialism
As documented by Thakurta(2003), “Long
before Dhirubhai entered the industrial scene, Indian politicians were known to
curry favour with businessmen – licences and permits would be farmed out in
return for handsome donations during election campaigns. Indira Gandhi returned
to power in the 1980 general elections and Dhirubhai shared a platform with the
then PM at a victory rally. He had also become very close to the then finance
minister Pranab Mukherjee, not to mention the PM’s principal aide R.K. Dhawan”. “In 1981 the
Indian Express exposed Maharashtra Chief Minister, Abdul Rehman
Antulay, for allegedly extorting millions of dollars from businesses
dependent on state resources and put the money in a private trust named after Indira Gandhi. The story led to his resignation
(Wikipedia).[ii] ‘The Indian Express detailed a
host of ways in which the government had gone out of its way to assist the
Ambanis (Thakurta).[iii] ‘In 1987 a customs show-cause
notice issued to Reliance Industries concluded that: "Reliance appears to
have unauthorizedly imported four additional spinning machines...in a
clandestine manner and without payment of customs duty on these machines."
The four machines are valued at Rs.53.02 crore and the total customs duty
demand is for Rs.119.64 crore” (Ninan).[iv] No industrialist in India
could dare to undertake such activity in the heydays of Indian socialism, without making ‘campaign contributions’ to cronies in the self labelled “socialist” Government.
Corruption
A
paper presented at the RGICS, New Delhi, in 2002, argued that the, “Government’s
power to do harm has increased, while its power to do good has reduced.” It
detailed through examples and experiences how pervasive and systemic corruption
had become at all levels of the India’s Governments.[v] Systemic corruption has been on a worsening
trend over four decades. The CWG scam was exceptional only in that so much
money was spent in such a short time to produce such shoddy work under the nose
of, and visible to, the National media. It was merely a tip of the corruption
iceberg that imposes a cut of 1/5th to ½ on all payments for goods
& services purchased by Central & State Govts, DPEs and PSUs from
suppliers.[vi] The 2G scam was in contrast an example of the use of government policy
controls over resources to create and extract rents. A 2002 EPW paper on telecom policyr had argued that
the only way to determine the correct market price for the spectrum over any geographical
area was through competitive auctions.[vii] Such auctions would allow any
“natural resource rents” inhering in the spectrum to be captured by government.
This argument was subsequently made in the TRAI (2005-6). The 2G scam would have been much more
difficult if these policy recommendations had been adopted / approved by the
Government. “Coalgate” is similarly facilitated by legal monopoly over coal
mines coupled with failure to auction this natural resource to determine the
market price of coal blocks given to private parties. The manipulation of policy, rules or
procedures by the political masters to extract rents, obviously requires
business partners (cronies) who will share the “resource rents” with the
minister. But this has nothing to do with, ”crony
capitalism” and everything to do with “corruption”-
Individual and Systemic.
Further, corruption is not just financial. It is also about law makers
and law enforcers knowingly violating the law, protecting those who have broken
the law and even rewarding them for serving political or personal objectives.[viii] In 2003, RBI revoked the license of the
Pratibha Mahila Sahakari Bank, on the basis of an inspection report that
stated, “Pratibha Patil is the founder member of the bank, who is a politically
influential personality. She has made all her relatives as directors of the
bank and the bank is being run as good as a family business. Because of the
influence of respondent no 8 (Prathiba Patil) the bank has given various loans
to the relatives and to a sugar factory of which she is a director.” “Her relatives have not paid back the loans.
Most of the loans were given without security. Most of the loans are closed”[ix]
Mrs
Patil, a lifelong congress women, whose brother G N Patil was accused in a
murder case, was alleged by journalist A Shourie to have obstructed justice in
this murder case.[x]
In 2007
she was nominated by the UPA for the post of President of India.
New Issues
A
new type of opportunity for financial corruption in public contracting has
arisen because of the introduction of PPP contracts. Given the limited experience (both Indian and
International) in Public Private Partnerships(PPP) in ‘natural monopoly’
segments of infrastructure, initial PPP contracts had flaws that could have created
subsequent opportunities for collusion with corrupt government ministers and
bureaucrats. There is now sufficient
experience of PPP in infrastructure, to modify these contracts and to build
corrective mechanisms into them. Another known failure is the absence of
strong, independent professional regulatory systems. Ministers who treat regulatory appointments
as sinecures for favored officials need to be exposed as (non-monetary)
corruption.
Conclusion
Words like
“Crony Capitalism” are ideological labels that hide more than they reveal. They
are likely to lead the debate into esoteric discussions of capitalism and
socialism and detract from finding and addressing the real problems. The real problem is the unprecedented and
incomparable system of government controls built under the Indian version of
Socialism. This has resulted in pervasive and deep rooted corruption. We need
policy reforms that reduce the incentive for corruption and institutional
reforms that catch, try and punish the corrupt.[xi]
-----
A version of this article appeared in The
Hindu, on April 9th , 2014, under the title “Crony Capitalism or
Plain Corruption,” http://m.thehindu.com/opinion/op-ed/crony-capitalism-or-plain-corruption/article5888056.ece/?secid=3010
[i] Much
of our intelligentsia consists of left intellectuals educated in Humanities and
“soft” social sciences, who espouse Marxian economic (which is mostly sociology
disguised as economics) and leftist economics devoid of quantitative/empirical
elements.
[iii]
Paranjoy Guha Thakurta, http://www.india-seminar.com/2003/521/521%20paranjoy%20guha%20thakurta.htm
[v] Arvind
Virmani, “A New Development Paradigm: Employment,
Entitlement and Empowerment,” Economic and Political Weekly, Vol. XXXVII
No. 22, June 1-7, 2002, pp. 2145-2154. This paper was simultaneously published
in a global journal and reproduced in four different books (compendium of
articles).
[vii] Arvind
Virmani, “A Communication Policy for the 21st Century”, Economic and Political
Weekly, Volume XXXV, No. 23, June 3-9, 2000, pp. 1907-1910. See also,
“Competitive Access to Telecom: Spectrum Policy and M&A”, Economic and
Political Weekly, Vol. XXXIX No. 7, February 14-20, 2004.
[viii]
Receiving free private medical, legal or HR services, absenting oneself from
work on a regular/organized basis (eg govt schools, health centers) or not
doing the job one is hired for are also forms of corruption, now barely
considered as corruption.
[x] Wikepedia:
http://en.wikipedia.org/wiki/Arun_Shourie
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