People's Democracy
(Weekly Organ of the Communist Party of India (Marxist)
No.
49
December 05, 2010
|
Vol. XXXIV
No.
49 December 05, 2010 |
Corruption
as Primitive Accumulation
C
P Chandrasekhar
IN a mind-boggling series of revelations,
government functionaries, corporate players and even sections of the
media have
been subject to allegations of malpractice, fraud and/or corruption.
The sheen
of high GDP-growth has been sullied by such allegations, which relate
to a host
of areas: the sale of scarce resources such as 2G spectrum, land and
mining
rights to purchases made as part of large and concentrated public
expenditures
(as in the case of the Commonwealth games). These ostensible instances
of
corruption that are huge in scale and involve the brazen violation of
the law,
overwhelm the evidence of small scale corruption among petty
bureaucrats and
local government functionaries.
The scale and nature of these allegations
of corruption point to changes in the role that corruption plays.
Associated
with such instances of the possible misuse of powers held by state
functionaries for substantial private gain is huge profit for some of
the
richest individuals and for leading domestic and foreign business
groups. This
leads to substantial surplus accumulation among two groups. The first
is among
those serving the state apparatus in high positions. The belief that
this could
be occurring is strengthened by the growing nexus between politics and
business
and the sharp increase over time in the reported asset position of some
politicians
contesting for parliament and the legislatures. The second set of
potential
beneficiaries of surpluses accumulated in this fashion consists of the
business
groups which derive gains from the purchase of pecuniary benefits for a
small
price. Thus, if we go by the Comptroller and Auditor General’s
estimate, the loss
of revenues to the state from the mispricing of 2G spectrum alone is Rs
1.76
lakh crore or close to 10 per cent of gross fixed capital formation in
the
economy in 2008-09. If a large share of that loss is being transferred
to those
acquiring spectrum it points to huge benefits for business groups.
It needs to be noted that transfers of this
kind to private capital are not always seen as the result of corrupt
practice. There
have been many instances where sections of the private sector have made
huge
gains through means that are “unfair”, even if not illegitimate, though
they
have not been associated with credible allegations of corruption. One
such,
again within the cellular industry, was the implicit bail out of
investors who
made irrational bids for bandwidth during the first round of cellular
spectrum auctions.
A few players chose to make huge bids for licences to operate in
multiple
circles and won the right in many more than one. If they had been
required to
make payments for all circles they had won, these bidders would have
been in
financial trouble. The government, therefore, allowed them to retain a
few of
these licences and give up the rest. But, despite this, when these
bidders turned
operators, they discovered that they could not operate profitably if
they were
actually required to pay the amounts they had bid to obtain their
licences. The
government, therefore, allowed them to migrate to a revenue sharing
regime
rather than a specific licence fee system, allowing them to make huge
profits
subsequently.
UNFAIR
REWARDS
The point to note is that the irrational
bids made by these operators had kept out a number of rational bidders
who may
have been more efficient suppliers. When it became clear that those
offering
the highest bids were unable to meet their commitments for one reason
or the
other, they should have been penalised and their more rational
competitors
brought in. By allowing the irrational bidders to limit the commitments
they
had to honour and then dilute those commitments by permitting migration
to a
revenue-sharing scheme, the government rewarded the irrational bidders.
This
was to say the least was unfair, even if not illegitimate because no
clear
evidence of corruption emerged. This was one more instance where unfair
business practices and patronage from the state at the expense of the
exchequer
permitted sections of the private sector to garner huge profits. Thus,
patently
wrong policies that transfer surpluses to the private sector are
visible not
only in instances where allegations of corruption are involved.
It is to be expected that such instances
would increase under liberalisation since the state increasingly
dilutes or
gives up its role as an agent influencing and regulating the nature and
scale
of private activity to take on that of being a facilitator of private
investment. In fact, the very process of transition to a more “liberal”
regime
is fraught with potential instances of corruption, as the allegations
of under-pricing
of public assets in the process of disinvestment of public enterprises
illustrates. The process of decontrol and deregulation is also
accompanied by
efforts at promotion of private investment, involving help to the
private
sector to acquire land, grow in new areas, and expand its activities.
As a
result, besides the old type of corruption where state functionaries
demand a
price for favouring individual firms with purchase orders or
permissions and
exemptions, there is a new form in which those benefiting from state
support
could be called upon to share the transfers they receive with the
decision
makers involved.
Advocates of liberalisation have always
argued that by reducing state intervention and increasing transparency
economic
reform would reduce corruption. The allegations of and evidence on
large scale
corruption show that this is not true. In fact, they make clear that
liberalisation
does not mean that the state withdraws from intervention but merely
that there
is a change in the form of state intervention, which also enables the
state to deliver
illegitimate gains to individuals and private players.
The flip side of this process is that there
are new avenues through which the private sector can garner windfall
gains that
raise private profits, increase internal resources and allow for an
acceleration of private capital accumulation. There is ample evidence
of a substantial
increase in private profitability, corporate savings and private wealth
since
the launch of liberalisation and especially during this decade. But
this has
been attributed to the entrepreneurial energy released by
liberalisation, with
no role given for, to the benefits from transfers engineered by the
state. In
fact, when discussions of corruption occur, the possibility that it
serves as a
mechanism for private aggrandisement receives little attention. The
tenor of
the discourse is that the virus of corruption afflicts only the
government
officials and politicians who control and misuse state power. This may
have
been a partly reasonable position to take if corruption is merely
reflective of
the price to be paid to state functionaries for private individuals or
entities
to realise what would have been legitimately due to them. But
increasingly
corruption appears to reflect payments made by the private sector to
realise
illegitimate gains that are not merely violative of fair practices
and/or the
law, but damaging from the development, environmental or fiscal points
of view.
Given the large amounts that can be garnered in this fashion the state
seems to
be turning into an important site for primitive accumulation for the
private
sector during the phase of liberalisation and economic reform. If true,
this
makes the private sector not just complicit but a participant in the
acts of
corruption, if any, involved.
CAPITAL
FLIGHT
An aspect possibly associated with such
corruption is the flight of capital from the country. Those making
illegitimate
or excessively large windfall gains may need to evade the tax and/or
other laws
of the country. The illicit transfer of wealth facilitates such
evasion. Thus
liberalisation by making such transfers easier encourages capital
flight. According
to a recent estimate by the Global
Financial Integrity programme of the Centre
for International Policy, the money that had illicitly flown out of
Thus, a feature of the new liberalised
economic environment seems to be that private players begin to look for
ways in
which state influence can be exploited for quick and substantial
economic gain,
sometimes at the expense of the state exchequer. A concomitant is an
increase
in the instances of alleged corruption. While sectors like real estate
and
mining are obvious examples of how this can occur, the number of such
instances
is larger and more varied. But this feature of the new environment
tends to be
missed. A sudden increase in the wealth of an individual can be as much
an
indicator of business acumen as of the misuse of power or the violation
of law
for profit. But in a world where profit making and the accumulation of
wealth
is celebrated and rewarded, where it is the “bottom line” that finally
matters,
unless circumstances lead to the detection of fraud or a violation of
the law,
there is no needle of suspicion when wealth is accumulated rapidly and
in large
measure. An increase in the wealth of a private sector player is
normally seen
as a virtue and a reflection of “entrepreneurship” and “innovation”.
This does limit the degree to which the
problem of corruption can be addressed. If corruption tends to be
embedded in
the process of accumulation it is expected that it would be far more
present
than would otherwise be the case. Whenever allegations of corruption
emerge
because of “leaks” possibly triggered by corporate or political
rivalry,
controversy ensues and investigations begin, but little of significance
results. The nature and functioning of the law in the country is such
that the
investigations drag on for such a long time that public attention wanes
and is
in any case diverted to new instances of corruption. This makes the
demand for
better ways of investigating and awarding punishment in proven cases of
corruption eminently sensible. But this alone would not do. What is
required is
a change in the policy regime that legitimises the conversion of the
state into
a site for the primitive accumulation of capital. Also required is
caution when
celebrating evidence of quick and substantial enrichment of sections of
the
private sector.
