Corruption: How it corrodes Brand India

It's called ghoos (घूस) in Hindi, mordid in some Spanish speaking countries, and baksheesh in some Near Eastern countries. In the U.S., bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in charge of a public or legal duty. The cultural expectation that bribes have to be paid to get things done is threatening economic growth in India. According to Transparency International, the global civil society organization leading the fight against corruption, India ranks 87th in the world (see:  http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results). The group defines corruption as the abuse of entrusted power for private gain. It has become endemic in Indian society. There's even a website that encourages Indians to report personal instances of having to pay bribes to get things done. The site (http://www.ipaidabribe.com/)  reports about 8,600 such incidents as of May 11, and counting. It has been estimated that the cost of bribery to the Indian economy is about $2.5 billion (Rupees), or $55.8 million. A 2008 study put India's underground economy at 50 percent of the country's gross domestic product (GDP) or $640 billion!              

The problem has gotten so bad and threatens all systems in society (political, social and economic) that activist Anna Hazare proposed an anti-graft "Jan Lokpal" bill that calls for creating an independent ombudsman with court-like power that could prosecute ministers, bureaucrats and judges involved in scandals that have plagued the government of Prime Minister Manmohan Singh. The bill would send a clear message to those in high positions that they cannot escape (the consequences of) graft, but, according to Vijay Anand, president of 5th Pillar, a grassroots group that helps citizens seek transparency and accountability in governance, the country "must also look at protecting whistleblowers and also providing immunity for bribe payers." He believes "people are often afraid to come forward and report those who ask for bribes they have ended up paying, because they fear prosecution."

Some blame the rapid movement toward privitazation of business during the past 20 years for adding to the already existing culture of corruption in India. It seems as though payments must be made under the table to get virtually anything done whether it be of a personal nature or in business. Citizens pay simply to have their passport applications processed. Businesses pay to get their tax refunds. No, I'm not talking about accelerating the process. I'm talking about getting someone to do something that should be done anyway in the ordinary course of doing business. The government's benign neglect of the problem fosters a "pay to play" culture in India.

The Organization for Economic Cooperation and Development (OECD) characterized these so-called facilitation payments at its November 2009 "International Anti-Corruption Day" as “corrosive . . . particularly on sustainable economic development and the rule of law.” The only countries that permit facilitation payments are the U.S., Canada, Australia, New Zealand and South Korea. The 2010 UK Bribery Act that goes into effect in July 2011 bans facilitation payments – or “unofficial payments,” a departure from the U.S. Foreign Corrupt Practices Act that permits such payments but bans bribery. The OECD encouraged "companies to prohibit or discourage the use of small facilitation payments [by establishing] internal company controls, ethics and compliance programs or measures, recognizing that such payments are generally illegal in the countries where they are made, and must in all cases be accurately accounted for in such companies’ books and financial records."

Returning to India, an interesting proposal comes fromIndia’s chief economic adviser, Kaushik Basu, who, in a working paper, argues that for a certain class of bribes, which possibly for want of a better word he describes as ”harassment bribes,” bribe giving should be a legitimate activity. Such bribes should be directed only toward getting services to which a person is legally entitled at the moment, such as an income tax refund or customs clearance for an exporter’s goods. Basu argues that decriminalizing bribe paying would cause a sharp decline in the incidence of bribery. The reasoning he offers involves game theory, which tries to analyze how players will act in situations where the outcome also depends on the behavior of others. He suggests that once the law is altered in this manner, the interests of the bribe giver and the bribe taker will be at odds—and that will help reduce corruption.

The danger of Basu's recommendation is that it sanctions immoral behavior in the name of business practicality, a kind of moral relativism that opens the door to each country's definition of just what are harassment bribes and each person's and company's interpretation of the rules. More important, it fails to address India's underlying moral malaise that threatens its economic growth and development.  

Blog by Steven Mintz, aka Ethics Sage, May 11, 2011

(Note: Readers may be interested in one of my earlier blogs about the SEC's pending investigation of IBM for paying bribes to government officials in South Korea and China in exchange for millions of dollars in contracts. Link to: http://bit.ly/hnj4vj).