Corrupnomics

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Idrees Khawaja

The nexus between the sale of adulterated goods and corruption is well known.

MUMTAZ Mufti, the great Urdu writer, writes in one of his books, that being used to something (ie manoosiat) is God’s big blessing bestowed upon mankind. While the rainbow surprises us but everyone’s voice being different does not surprise us. Even the most complex of God’s creations ie men and women, do not surprise us because we see them all the time. If we were not manoos (used to) to these things we would face a surprise every moment and this would make it difficult for us to go through our daily routine. This makes manoosiat a blessing.
Pakistani society often takes a benign view of corruption. Why? Because we are used to it – we see it every day, everywhere – a traffic warden stops a motorcyclist for not wearing a helmet and the two begin a conversation, the onlookers know what’s happening. We see the likes of it daily on the road pavements encroached by traders, in the offices of the building authorities where plots are transferred and building plans are approved, and in patwarkhanas where fard is issued. The list goes on, not to exclude the deals and projects negotiated by the government of any shade. Being manoos to corruption we take it as something benign and thus carry on with our daily routine, with corruption happening right under our nose.
Economics offers two conflicting hypotheses on corruption – it ‘greases the wheel of (economic) growth’ or ‘sands the wheel of growth’. The former is best described in Pakistan by the slang, ‘file ko pay laggard daina’ (putting wheels under the file). Research evidence favours the ‘sands’ hypothesis, still many subscribe to the ‘greases the wheel’ view. Many also feel that corruption has only a trivial adverse impact on the economy, which does not hinder development. I argue that corruption directly harms Pakistan’s economy significantly.
Illegal construction, without bribes changing hands, is hard to imagine. The inside-the-river hotel, swept away in recent floods, or the nasala tower constructed over a nullah (and raised to the ground under supreme court orders) could not have been possible without bribing quite a few. Only these two examples are enough to show that corruption has huge human and economic consequences, but I delve into pure economic reasoning as well.
With a low fiscal deficit, a country living within its means is considered good for the economy (though the jury is still out on this). IMF also insists on keeping the fiscal deficit under check. The two components of the fiscal deficit are tax revenue and government expenditures. Less revenue and/or more expenditure increases the fiscal deficit. Corruption is a major cause of our high fiscal deficit. How? Economic theory prefers raising tax revenue mostly through direct taxes, like the income tax. Pakistan collects tax revenue mainly through indirect taxes, (like import duties and sales tax etc) and withholding taxes, which in essence are indirect. A lot many firms and individuals manage to avoid paying the income tax payable by bribing the collectors.
To raise revenue then, the government is forced to rely on indirect taxes – the low tax revenue and greater reliance on economically inefficient indirect taxes are owed to corruption.
We lament the complexity of the tax system. The complexity pays for the tax collectors – it leaves room for an interpretation – favourable for taxpayers who bribe the collectors and unfavourable for the rest – corruption contributes to making things complex. Tax exemptions to scores of industries contribute to the low tax revenue. Unreasonable exemptions or concessional import tariffs are secured by bribing people up and down the chain – even research studies are contracted to make a case for exemptions – industries lobbying for tax and tariff concessions pay for the studies – bribes again!
Economists agree that government expenditures should be cut significantly. An air conditioner that an individual buys for Rs.70,000, a government entity ends up buying the same for significantly more (maybe somewhere around one lac). Why? Because the vendor must bribe officials to get a contract for the supply and then for the release of payment due. The bribes payable by the vendor are built into the quoted price – development and non-development government expenditure would be a lot lesser, minus the bribes payable.
Economics considers productivity – a primary determinant of economic growth – (‘X’ and ‘Y’ type 40 and 30 words per minute respectively – ‘X’ is more productive). Firms having productive workers hire lesser manpower, incur less salary expenditure, and still produce more. Officials assigned to approve files, purposely work at breakneck speed on the files that are ‘wheeled/greased’ and at snail’s pace on the rest of the unwheeled files. The unwheeled files constitute the bulk – corruption kills productivity and hence economic growth. All cannot afford to pay bribes – the rich climbs up the ladder thanks to the ‘wheeled’ approvals, and the poor ones look on. The gulf between the rich and the poor widens. Corruption increases income inequality – volumes are available on the adverse social effects of income inequality. A healthy labour force is more productive. Consuming adulterated goods affects workers’ health. The nexus between the sale of adulterated goods and corruption is well known.
Entrepreneurs must wade through a plethora of NOCs. Getting a NOC often involves paying bribes. NOCs constrain economic activity. A lot many unnecessary NOCs cannot be eliminated because cutting NOCs means cutting bribe revenues for those who grant NOCs. Broadly, corruption obstructs the ease of doing business. Business and other court cases take ages to conclude thanks to the stay orders and adjournments – many make money in the process. Many investors are deterred by the never-ending litigation – corruption kills investment and entrepreneurial intentions. Despite the scenes of corruption being witnessed everywhere, only a few have ever been sentenced for corruption. Reason – those accused of corruption, whether of pennies or billions, can play with the investigation and the litigation process using the money acquired through questionable means – corruption hinders punishing the corrupt.

The adverse impact of corruption on the economy is significant, not trivial! What to do? The younger generation is more conscious of conserving the environment, women’s rights, transgender rights etc. This gives hope that advocacy works. To develop an aversion to corruption, teach lessons from corrupnomics at home, school, universities, and everywhere – the problem is that when a father bribes a traffic warden to avoid a challan (fine) for a traffic violation, and the son sitting at the other seat observes, then advocacy may not work. Needs deep thinking!

The writer can be reached at Idreespide@gmail.com and tweets @khawajaidrees11.