It has been known for long that markets function better when participants have access to information they can trust.
Does the same hold for political markets? Do people elect better representatives when they have more information about the candidates?
Indian politicians standing for elections have been asked by the Election Commission since 2003—after a Supreme Court judgement on a public interest litigation by the Association for Democratic Reforms that was initially filed in the Delhi high court—to disclose what they own and owe. The run-up to the national elections that are due to start on Thursday has seen candidates disclosing their assets to the public. A lot of the debate about these disclosures has been focused on the amount of wealth owned by certain candidates.
But that still begs the larger question: Does such information lead to better choice in our political markets? And what do voters do with this information that is splashed all over the newspapers?
An interesting research paper by four economists on disclosure by politicians offers several insights into the link between disclosure and governance. Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer say that 109 of the 175 countries in their sample have disclosure requirements for politicians.
They point to four main conclusions. One, only one-third of the 175 countries they have studied have laws which ensure that disclosures are made public. Two, while there is an undoubted trade-off between the privacy of politicians and the legal insistence that they make their family wealth public, disclosures work as an antidote to corruption and poor governance only when information is available to all citizens. Three, what matters more is not the size of a politician’s assets and liabilities but how they were earned. Four, public disclosure is more effective in democratic rather than undemocratic countries, which points to "the complementarity of transparency and democratic governance".
As India moves into its 15th general election, it is the third point that needs to be given importance in the future.
We currently have politicians of all hues declaring their assets without batting an eyelid. There is already reason to believe that these disclosures do not tell the entire story. Some of the most corrupt politicians in our country claim to be worth only a few crore, which is hard to believe when you consider the recent case of a Delhi police officer who allegedly had assets of Rs36 crore and a monthly salary of Rs30,000. That’s an extreme example of the type of loot that the Indian system is exposed to.
And even though he has in all probability exaggerated the numbers, there is also L.K. Advani’s estimate that between $500 billion to $1.4 trillion of Indian wealth is in Swiss banks. "While Indian businessmen and professionals visit Switzerland very often, even Indian politicians keep visiting Switzerland and some ministers do it as the personal leg of their official tour," Advani writes on his website.
It is safe to assume that many politicians do not disclose the entire truth about their wealth to the Election Commission. Yet, there is no point in being cynical about the new disclosure practices. In fact, they need to be strengthened—and one way to do so is to take forward one action point that emerges from the research done by Djankov and his co-authors.
It is as important to know how much a politician is worth as it is to know how he earned the wealth. Has a house been gifted by a business group whose interests have been protected in Parliament by the politician? Are there payments from lobby groups for certain industries? Have ministers represented certain companies in the courts over the years, a fact that could be quite relevant, given the numbers of top lawyers who are active in national politics? Or has the wealth been built up through inheritance or something as benign as book royalties?
It is time that Indian voters got to know about this as well.
But that still leaves citizens with a huge task—using all this financial information to make better voting choices rather than being swayed by the usual tribal passions. There is a useful analogy to be drawn from the world of corporate governance. It is always good when companies are asked to provide trustworthy financial statements as well as information on conflict of interest actions such as insider trading. But a lot depends on what shareholders make of this information. We know very well that activist shareholders are rare in India and most owners of equity—both individual and institutional—tend to be somnolent. The same is, unfortunately, true of Indian voters.
Better information about politicians is undoubtedly an important step forward for Indian democracy, but more needs to be done in the future.
Your comments are welcome at firstname.lastname@example.org