A decade ago, Kaushik Basu, a Cornell University economist, caused a furor in India when he proposed that for a certain class of bribes, the act of giving a bribe should be considered legal. Basu, who at the time was the chief economic adviser to Prime Minister Manmohan Singh, described the reaction in his 2016 book, “An Economist in the Real World: The Art of Policymaking in India”:
What I did not anticipate was the level of anger (and misreporting) that my note would generate. It began with small mentions of my paper in the newspapers, followed by lacerating editorials and op-eds. Some of them stemmed from the mistaken view that I was somehow condoning corruption and saying that bribery should be made legal.
Two members of Parliament wrote to Singh in protest. “Then the television channels picked this up and there were some screaming matches debating the idea,” Basu wrote.
I’m writing about this dust-up at a 10-year remove for two reasons. One is that Basu’s idea is genuinely interesting, although as I’ll show, not perfect. The other is that it says a lot about how hard it is to change policy when, rightly or wrongly, the change offends people’s sense of common sense or justice.
A bit of background. Countries differ on whether bribery is punished symmetrically (same for givers and takers) or asymmetrically. According to a 2014 article in the Journal of Public Economics, the United States, Britain, France and Germany are like India in equally punishing givers and takers of harassment bribes. In contrast, China, Japan and Russia have “comparatively mild” punishments for bribegivers, the article says. I don’t know of any major changes since that article appeared. This compilation by the law firm Baker McKenzie is a good resource.
In his 2011 proposal, Basu was referring to what he calls harassment bribes, also known as “speed money,” which are bribes demanded for the performance of legal activities, such as getting a license. (Collusion bribes, where the giver is trying to get special treatment illegally, are a different matter.)
Basu’s concept was simple: If bribegivers are punished as severely as bribetakers, they will have no incentive to go to the authorities after forking over the cash. If the law is changed so that bribegivers aren’t punished, they will be more likely to report the bribe, and consequently officials will be less likely to ask for bribes in the first place. It was an elegant application of game theory, specifically what theorists call a “subgame perfect equilibrium.”
The objections to his proposal were both moral and practical. On the moral side, Jean Drèze, an economist who has lived and worked in India for decades, wrote in The Indian Express, “Not only does it condone bribegiving, it also relies on bribegivers being doubly corrupt: by giving a bribe, and by stabbing the bribetakers in the back as they blow the whistle after the event.” Drèze also raised practical objections. He said bribegivers would be unlikely to blow the whistle if they couldn’t get their bribes back — a real concern given that accounting for bribes tends to be sketchy. He also said bribegivers might stay quiet to avoid retaliation by bribetaking officials.
The 2014 article in the Journal of Public Economics tried to sort out the dispute by enrolling 360 university students in Hyderabad, India, in an experiment.
The researchers found that as Basu hypothesized, people were emboldened to report bribes when they were exempt from punishment. However, as Drèze suspected, they were less bold when they risked not getting their bribes returned or being retaliated against.
The authors recommend “rotating officials in different posts to mitigate the effectiveness of retaliation.” They also propose promising anonymity to whistle-blowers and swiftly punishing bribetakers. At the same time, they acknowledge a problem: “While citizen reporting is useful to identify corrupt officials, citizens themselves could misuse this leniency measure and report honest officials.”
Basu’s argument hasn’t carried the day. India doubled down on punishing bribegivers in a 2018 amendment to the Prevention of Corruption Act. But Basu says he’s still happy that his ideas got a hearing. He recalls in his book that Singh, the prime minister, told him he disagreed with him but that “I should feel free to articulate my ideas in public and discuss them.” We need more of that spirit.
The Readers Write
My friends in Israel are incredulous that we here in California use potable water to irrigate our crops. The other day, as I was driving past the beautiful fields in the Watsonville area on a hot afternoon, I couldn’t help but notice the sprinklers spraying water up over the crops and into the noontime sun. All this while my family and I are limited by our California county to 42 gallons of water per person.
Santa Cruz, Calif.
Quote of the Day
“Economic transitions are inevitable, but the degree of pain they inflict is not. In the end, preparation gives us agency. It is our duty to use it.”
— Mary Daly, president of the Federal Reserve Bank of San Francisco, in a speech on June 22, 2021.
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