Saturday, September 03, 2011

Jagdish Bhagwati's naivete about corruption in India

Columbia economist and free trade evangelist Jagdish Bhagwati is right in criticising Anna Hazare and his friends for not understanding the phenomenon of corruption. It is a valid point. Where he seems to fumble is when he makes the simplistic point that the dismantling of the licence-permit-quota raj has drastically reduced levels of corruption, and the only corruption that exists is at the level of the clerk. He does not seem to realise that freign companies as well as Indian ones still pay out quite a lot of money at various levels for setting up their manufacturing units, and it is not so only in India but also in China, and in many places in Africa. Perhaps, he should not overlook Europe -- not just the bad apples like Greece and Spain and Portugal -- but also at France, Germany and Britain.
The levels of corruption in the reforms era have grown exponentially because the MNCs are able to dole out the bribes in dollars. The cases remain to be proved, but no one denies that they exist and that it is factored into costing.
It can be argued that corruption would amount to no more than a few per cent of the total business costs and it might turn out to be true as well.
But it is sad that Bhagwato does not seem to recognise that market economy is not insulated from corruption, though it is possible to keep it down through transparent systems.

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