How heavy regulation forces people to bribe
Instead of intervening in the everyday economic activity of citizens, the government should protect their liberties
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 using legitimate means. “I had no option,” replies Sikander as the viewer sees the inevitable death of one of its naive and idealistic 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 a restaurant fails to pay up a 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. In a 1974 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) shows 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 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 officials, political activists who use moral suasion or protesting 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 TI 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 bribes can only come down if the government redirects its capacity from being a paternalistic intervener in everyday economic activity to being a protector of life and liberty of its citizens. Measures suggested by policymakers such as increasing penalties for bribe against businesses and citizens end up exacerbating this sickness rather than curing it.