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Thursday, Oct 17, 2019

How heavy regulation forces people to pay bribe

Instead of intervening in the everyday economic activity of citizens, the government should protect their liberties.

analysis Updated: Mar 15, 2019 07:39 IST
Archit Puri
Archit Puri
The cost of following the regulations is often too high for businesses and thus they are forced to function in the informal economy
The cost of following the regulations is often too high for businesses and thus they are forced to function in the informal economy(HT File )

Paise khilaye tune? (Did you pay a bribe?)’’ asks a disappointed Bhavesh Joshi in the 2018 Indian vigilante film, titled Bhavesh Joshi Superhero. Bhavesh’s friend and fellow anti-corruption crusader, Sikander pays a police officer after repeated failures to obtain his passport through legitimate means.

“I had no option,” replies Sikander as the viewer sees the inevitable death of naive and idealistic activism by one of its protagonists. The scene breeds cynicism about the possibility of a virtuous world and leaves you bitter in the same manner as observing woke male feminists being called out as sexual harassers or progressive free-speech advocates preventing the entry of speakers with dissenting opinions to college campuses.

Sikander was made to pay (as Kaushik Basu labels it) “a harassment bribe” where a citizen has to shell out money for services that he has a right to. Most often such bribes are a result of heavy government regulation which exists for the purpose of rent-seeking (taking money for the usage of public resources that they manage) by government officials.

Businesses and small enterprises are among the worst hit victims of harassment bribes. Let’s take the example of the restaurant industry.

The extent of regulation in this industry is such that the restaurant management often has to break one law to ensure compliance with another. Harassment bribes need to be paid to the fire department, the police, the excise department and multiple other government officials, not once, but on a recurring basis. If by any chance a restaurant fails to pay up a harassment bribe in the renewal process, an official can possibly close down the establishment. It is no surprise, then, that in India, unlicensed restaurants account for 66% of the market share.

The cost of following these regulations is often too high for businesses and thus they are forced to function in the informal economy. Shruthi Rajagopalan, in her Livemint article, succinctly sums up this problem:

“Most businesses have no choice but to hide from the regulatory system, which imposes too high a burden. If firms actually comply with all the regulation, their costs are too high to offer competitive prices to the customers. Customers look elsewhere (usually imports or the informal economy) and the firms go out of business. This is the short version of the tragic tale of most firms in India.”

This idea is not new. In 1974, in a seminal paper on corruption, American economist, Anne O Krueger, explained that excessive state regulation led to rent-seeking activities, which had detrimental effects on gross domestic product growth of countries.

One might suspect that it is the rich who are the most capable and responsible for bribe giving in India. But research released by Transparency International (TI) proves this hypothesis wrong, showing that 73% of the poorest people paid a bribe for public services against 55% of the richest. This is due to the poor (especially the rural poor) being forced to depend on the government for the provision of basic services.

Around two millennia ago, Kautilya in his Arthashastra rightly warned us, “Just as it is impossible to know when a fish moving in water is drinking it, so it is impossible to find out when government servants in charge of undertakings misappropriate money.”

In his book ,Corruption – the World’s Big C: Cases, Causes, Consequences, Cures, Ian Senior finds that there is no significant correlation between a culture of personal honesty or religious practice in countries with their quantum of bribe taking. In India, where 69% of the population admits to greasing the palms of public officials, political activists who use moral suasion or protesting (on social media or at Jantar Mantar) as a means to curb bribing should perhaps find themselves a new hobby or at least enrol in an economics 101 class on incentives.

Most of the countries that Transparency International reports as having high levels of corruption are ranked in the bottom one-third in terms of economic freedom from government intrusion in the annual Index of Freedom report. Thus, chances to ask for harassment bribes can only come down if the government redirects its capacity from being a paternalistic intervener in the everyday economic activity to being a protector of life and liberty of its citizens. Measures suggested by policymakers such as increasing legal penalties for bribe giving against businesses and citizens end up exacerbating this sickness rather than curing it.

Archit Puri is a Delhi based researcher and writer

The views expressed are personal

First Published: Mar 15, 2019 07:39 IST

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