Real Drivers of Corruption in India and the Rest of the WorldPublished: March 23, 2012 in Knowledge@Wharton
Corruption is the most important and topical issue in India today, writes Dilip Gadkar, editor of Macro Viewpoints, in this response to an article published in Knowledge@Wharton in January. In this opinion piece, he disagrees with the article's thesis and argues that there is no innate, structural difference between western ethics and Indian ethics. Rather, Gadkar writes, the difference between corruption in India and the rest of the world is essentially a matter of scale and institutional development.
Corruption is the most important and topical issue in India today. Nationwide disgust at the unwholesome political-business nexus has created a spontaneous anti-corruption movement led by the Gandhian Anna Hazare. Recently, the Supreme Court of India cancelled all 122 licenses that were granted in a highly irregular auction of spectrum by India's telecom ministry as part of what has come to be called the 2G scam.
So we were happy to hear that students from the Lauder Institute at Wharton had published an article in Knowledge@Wharton titled, "Business vs. Ethics: The India Tradeoff?". Unfortunately, we were disappointed in what we read. We felt the article, though written no doubt with the best of intentions, seemed to manufacture a thesis rather than provide an analysis.
In this opinion piece, we lay out the reasoning that leads us to our conclusions and state our own views about the topic.
The following seems to be the thesis of the article:
- There is an innate, structural difference between "western ethics" and "Indian ethics",
- These differing norms evoke stereotypes of the "unethical emerging East and the ethical emerged West",
- Further, the weaknesses of "Indian ethics" are derived from Indian cultural contexts and ethical equilibriums and in particular from the revered religious texts of Ramayan and Maha-Bharat and from politico-economics treaties like the ArthaShastra.
This is a bold thesis. Unfortunately, the authors provide no evidence to justify it. Even more unfortunate is the lack of an analytical chain linking their hypothesis to their conclusion. We thoroughly disagree with their views.
Our Views - No Innate Difference, just Differences of Scale
Our own view is that the differences between business ethics in America and in India can be generally attributed to differences in the development, institutionalization and capital generation stages in the two countries. They seem more alike when you look back at American business during the "robber barons" age (1890-1934) in America. By the 1890s, this term was typically applied to powerful American businessmen who were regarded as having used questionable practices to amass their wealth. This included several names that are considered venerable today, including John Jacob Astor, Andrew Carnegie and John D. Rockefeller, to name a few.
The article also focuses on the Indian practice of using the politico-business nexus of "getting policies fixed, obtaining clearances and resolving irregularities" or what the authors call "getting to the cheese". The article specifically describes the case of Amar Singh, a well-known politician and member of parliament, who has been accused of wrongdoing. No wonder average Indians are sick of the way their government and parliament work.
But is this structurally or innately different than today's American way of getting to the cheese? We don't think so. America has established a clear, semi-structural process for businesses to "get to their cheese" through a process called lobbying.
Today, all major businesses, old companies or new entrants such as hedge funds and technology companies, understand the need to engage lobbyists in Washington D.C. That is the price they pay for access to the U.S. Congress to fix policy, obtain legislative clearances and influence political decision making. For example, Google recently announced the hiring of Susan Molinari, a Republican politician, to head the company's Washington D.C. office.
Prominent, powerful U.S. Congressmen and Senators routinely migrate to private industry where they use their congressional relationships, expertise and contacts to lobby their ex-colleagues. Last year, Senator Chris Dodd, the author of the Dodd-Frank legislation designed to root out unethical practices, moved over to become a richly compensated Chairman & CEO of the Motion Picture Association. In this new role, Senator Dodd tried to push through legislation protecting the profits of the motion picture and content companies. Congressman Oxley, the author of the Sarbanes-Oxley bill, left the Congress years ago to become a highly paid lobbyist, first for the Nasdaq and then for FINRA.
The facade covering the lobbying process was shredded by the conviction of lobbyist Jack Abramoff in 2006. That case also led to the conviction of White House officials, a U.S. Representative and nine other lobbyists and Congressional aides. This is why the average American is sick of the way Washington D.C. works. This is why every politician running for office, from the President to a freshman Representative, tries to campaign with the "I am against Washington D.C." war cry.
India does not have a semi-structured "lobbying" process like America does. There it is still free form. And the absence of institutional safeguards ensures that the process of influence peddling is a free-for-all. Perhaps, that is why the level of corruption is much larger than that in America. But there is nothing innately or structurally different between the American and Indian process.
There is one big difference in the way the two political systems are set up, though. In India, the various attorney generals merely serve the state, meaning the regimes in power in India. In America, the state attorney generals are elected -- so they serve the voters, the people of their states. This is why attorney generals, especially in New York, are not afraid to confront politically connected businesses. Perhaps that is why the last two attorney generals of New York -- Eliot Spitzer and Andrew Cuomo -- went on to become governors. The US Attorneys are also driven to get the big game. A record of getting the big game can become a springboard for a political career, as it did for former New York City mayor Rudolph Giuliani.
But this difference is restricted entirely to America. There is nothing "western" here.
The Notion of "Western Ethics"
This notion is particularly objectionable, in our opinion. Just look at Europe today. Can anyone really argue that ethics in Greece, Italy, Spain or Portugal are similar in any way to American ethics? Can any American politician compete with former Italian prime minister Silvio Berlusconi?
In fact, America's founding fathers took great pains to make America fundamentally, inherent and structurally different than Europe. American corporations have in place a human rights, anti-discriminatory regulatory structure that is noticeably absent in European corporations. This is why companies such as PepsiCo and Citibank could select Indian-Americans as their CEOs. In contrast, most German corporations would find it difficult to select Greek, Spanish or even French executives as CEOs.
Europe has had an atrocious history of colonization of other countries and civilizations. These involved gruesome and almost genocidal levels of violence in Latin America and in parts of India. The record of crimes against humanity is just as bad within Europe. The Spanish Inquisition and the Nazi Holocaust are two examples that speak loudly about European ethics.
Real Driver of Corruption
Most defenses are overrun by stampedes or floods. This simple physical phenomenon has monetary equivalents, as we saw in the U.S. from 2004 to 2007. The U.S. experienced a credit bubble thanks mainly to the easy money policies of the U.S. Federal Reserve. The flood of free money pouring into the financial sector was so large that it engulfed the entire financial sector, including banks and insurance firms, and the housing and construction sector andexecutives.
We all saw the results, not just the upside but also the downside. Bank executives who were initially lauded for their brilliance were condemned later for their stupidity and greed. If you strip the kimono of U.S disclosures, you will find naked greed, the desire to flout all rules, to make as much as possible while the going was good. This 'ethic' was not restricted to any one company or sector. It became the prevailing norm during the credit bubble. This is well understood in America today.
What is not as well understood is the vast credit bubble that enveloped India and other emerging markets. India saw inflows of money that the country's politico-business arena had never seen before or even contemplated. Politicians saw businessmen become billionaires in a few months because of licenses the politicians had granted. This created a render unto Caesar what is Caesar's type of demand. The demand was met because the flood of money was so large. We think this decade's explosion in corruption in the Indian political-business sector was primarily due to the waves of foreign capital flooding into India.
A serious problem with the article is its myopic focus on Indian corruption. Had the authors taken a global view, they would have realized the fallacy of their argument. For example, they would have seen a far greater level of corruption in China. During the past several years, more foreign money went into Chinaeach month than what went into India each year. In addition, Chinese enterprises are actually state-driven or politician-supported entities while Indian corporations tend to be privately owned. So Chinese political leaders, central as well as regional, have far greater opportunities for massive corruption than did their counterparts in India.
Corruption also is widespread in Russia. That country, unlike China or India, is a major oil and gas exporter -- and it has received enormous inflows of money during the past several years. Russian energy giants like Gazprom are all state-owned. So how rich are the Russian political leaders? Mort Zuckerman, an American multi-billionaire real estate mogul, once said on TV that he was a pauper compared to Russian leaders. And last month Steve Liesman, CNBC's senior economic editor, made the following comments about Russia's out of control corruption:
- I visited a couple of guys I knew when I was living here [Moscow]. They tell me the corruption story which was big back then is off the charts now... One guy I know was putting on a multimillion dollar international trade show; he was threatened to be shut down a couple of days before it started by a fire inspector asking for a bribe..theamount of the bribe asked by the fire inspector - $300,000
Last month, we heard from a Turkish CEO in Mumbai who laughed at the concept of corruption in India. His point: "Come to Turkey and you will see what real corruption is like." So while corruption in India has exploded in the past few years, it is a much smaller rise than that of China, Russia and other emerging markets.
Let us be clear. None of this excuses the corruption that is endemic in India. But it needs to be placed in a global context to really understand the drivers of corruption. This is where the authors of the article made their central mistake, we think.
Instead, they made an amazingly creative jump and attempted to link Indian corruption to Indian cultural contexts and religious texts. Would they link Russian corruption to Orthodox Christianity, Turkey's corruption to Muslim religious texts and Chinese corruption to Buddhists texts? We doubt it.
Indian Religious Texts
This is the section that has outraged a wide cross-section of readers. The authors clearly did not know that the doctrines of ethics, including those of dharma-yudh (ethical war), were first established in ancient Indian texts including the Ramayan and Maha-Bharat. These texts cover the aspects of dharma-yudh in great detail with a multiplicity of metaphysical approaches. Some European scholars argue that the doctrine of just war borrowed heavily from Indian metaphysics of that era. That is not so hard to believe when you consider that European and Indian languages are derived from the same Indo-European family and today's European languages have borrowed a great deal from Sanskrut. And then you have the physical evidence.
European and Chinese chronicles describe a great level of naval and overland trade between the Roman Empire and India. According to Pliny, the Roman philosopher and naval commander (23-79 CE), nearly 50 million sesterces flowed every year from Rome to India to pay for the balance of trade. This is borne out by the huge hoards of Roman coins unearthed in Indian soil. This trade flourished from the early days of Rome to, according to Chinese chronicles, as late as the sixth century CE.
Indian religions, both Brahman (later termed as Hindu) and Buddhist, were a living force in the region where Christianity arose and had its early field of activity. Alexandria was the great meeting ground between Rome and India, metaphysically speaking. Clement of Alexandria (220 CE), has given detailed accounts of both Brahmans and Buddhists. It is generally agreed by historians that Indian philosophy exercised great influence on the development of Neo-Platonism. Getting back to the Maha-Bharat, that epic specifically mentions Greek and Persian warriors fighting in that great war.
So it is possible that Indian cultural contexts may be linked to "European ethics" as well as to "Indian ethics". Clearly, the authors did not know this. Otherwise they would not have based their thesis on a "never the twain shall meet" type of unbridgeable difference between the East and the West.
Debate is always illuminating. Thanks to this article, we have been able to provide a greater collection of views and information about Indian ethics and its level vis-a-vis the rest of the world. We hope the authors do not stop here. There are many areas for study and for shedding intellectual light on business practices in India.
We ourselves would have liked to discuss the phenomenon of vast amounts of Indian wealth held outside India. This topic is not as simple as the article describes it. In particular, it has resemblance to the vast amounts of cash held outside America by U.S. multinationals. This has already become a topic in the political contest between President Obama and Governor Romney.
Another issue that is worth studying is the morphing of Indian politics into a hereditary system in which children of politicians at all levels are increasingly taking over political reins from their parents. Again, this issue is not simple or as clear-cut as it might appear.
We hope Knowledge@Wharton and the Lauder Institute will keep up their efforts to shed light on business ethics in India. Such study has great merit will benefit India as well as the world.