Regulation Corrupts
In the economy of India, you face a choice, writes Jayant Bhandari: obey the law and go out of business, or find ways around the law and make a profit. The result is a vast black-market economy that the government can use to expose corruption arbitrarily. The only real answer to boosting economic conditions of the poor in such economies is not regulation but letting the market work. FULL ARTICLE
Comments (12)
It is evident from this article that the behaviour of the government of India and its law enforcement agencies are quite deplorable, if not outright harmful to the eradication of Indian poverty. In, light of this article, its a damn miracle that India was actually able to solve its annual famine problem. Either the government relaxed some economic/social restraints that cause the agricultural bureaucrats to back off, or the black market food producers are geniuses in that enough food is produced to feed India's teeming millions. There now is a high-tech boom in Bangalore and Hyderabad . . . . one wonders how the American companies that opened offices in those centres achieved that end.
The question begs to be asked as to whether the Indian economy will ever be deregulated. Such deregulation would ultimately have to involve the permanent closure of all agencies of economic regulation. Such action would go far to eliminate corruption, except that in India, such a goal would be mission impossible.
Following the publication of this article, will Jayant be considering a future visit to India?
Harry Valetine
Published: June 28, 2005 9:58 AM
Given that my family in India runs a medium size business(not me though), I think I can comment a little bit on this.
Some unwritten rules to do business --
a) If you want to start a new venture, go ahead and do it. don't ask anybody, break all the rules. You can get government clearences after you start it. If some govt. enforcer stops by, you can always bribe him.
b) Don't try to get clearences yourself. There are people who will take money from you (touts/agents/lawyers etc. -- it is their livelihood) and already have relationships with all the beaurecrats, and will get all the clearences for you. Every one of the government dept. inolved will get its share.
c)Never pay sales tax unless specifically asked by the customer. The customer may need a receipt for reimbursement etc.
d)Maintain two sets of books -- one for the govt., and one for yourself. You pay taxes only on the transactions in govt. book.
e) Personal trust is of the utmost importance. Most of transactions will be either word of mouth or a small scribble on a piece of paper with no signature. If people loose trust in you, it is the end of business for you. The reason is that any transaction that is recorded will probably result in you paying taxes. This really works -- word of mouth contract breaking is extremely rare between businesses.
Published: June 28, 2005 10:26 AM
Fascinating, JC.
It's interesting to see that once state control and corruption have taken their logical courses, doing commerce "by the rules" becomes impossible, a new free market (albeit underground) emerges. What's more, the free market gets things done where the government-sanctioned market cannot.
Published: June 28, 2005 8:07 PM
JC, some of that advice is already useful in the United States, as well.
Published: June 28, 2005 8:09 PM
This article is so applicable to Texas, where employers now voluntarily contract with undocumented folks, esp. in construction/trades. Usually with phoney papers, sometimes off the books. Regular American folk cost him big: ss taxes, unemployment comp, workmans comp (as much as 50% of wages per hr), benefits. Plus, we tend to sue over injuries, and racial and age "discrimination," take mandated family leave.
Because of the abundance of folk looking for work, wages are lowered for all, Americans as well as the undocumented.
Published: June 28, 2005 10:38 PM
I live in India and I agree with Jayant. I would like to add two observations:
1. Whatever good I see around me started with the liberalization of the economy in the 1990s. It's evident and undeniable. Yet, I find most of the intelligentsia crying for regulating what they see as runaway success. If the system is creating so much prosperity, then the assumption is, some poor guy somewhere must be losing out. Most of these elites sound like a bunch of control freaks who develop cold feet at the idea of a self-regulating, cooperative system. Capitalism is a good idea, they agree, but it has to benefit everyone equally, i.e., it should be made to achieve the objectives of socialism.
2. The Indian software industry is a heroic, self-made story. It was a good thing the govt. was too ignorant to know how to help it. But today I hear self-made software industrialists pleading to the govt. for regulations, protection, and tax breaks. It would seem the Indian software industry was in immediate danger of extinction without help from the sages in Delhi. Whatever happened to old-fashioned pride?
This brings me to the conclusion that as long as the govt. has regulating powers it will be corrupted by people who want to cut corners. Also, that they will be helped by control freaks who are afraid the free market will put them out of jobs.
Just some thoughts!
Published: June 29, 2005 5:48 AM
India is a food surplus nation. About 17 million tons of grains lie stored in the godowns of the Food Corporation of India, while people die of poverty in a South Eastern state- Orrisa. A big reason for India's food surplus, although I hate to admit it, agricultural subsidies in terms of free electricity to pump ground water, a monstrously unjustified Minimum Support Price for agricultural produce, just to mention a couple. The effects, North India which was predominantly wheat cultivating is cultivating the highly water intensive rice at a dramatic rate, and there is severe ground water depletion in states like Punjab and of course we are battling with fiscal deficits.
Although it is true that there is high tech boom in cities like Bangalore and Hyderabad, infrastructurally the former is pathetic, and am amazed that foreign companies have want to set up their BPOs in areas which are accessible by roads that can be at best be called widened trails.
JCs comments are true. What amazes and saddens me is the amount of productive potential that goes waste trying to get around bureaucracy. Hats off to your family and all the other entrepreneurs running their business "against all odds". Corrupt or not, atleast the wheels are turning.
Published: June 29, 2005 11:43 AM
Harry: People in the West see what the Western media tells them about India. Until a decade back it was a country of snake charmers, now it is a country of software engineers. None is this is fully true.
There are still hunger related deaths in India. This is despite the fact that India has more food that it needs. On occasions it exports it. The earth gives us so much that despite the wasteful regulations there is enough to eat. In fact, agriculture is one of the most regulated industry. Technically you can own agricultural land of only a few acres, so that makes it impossible to own modern machinery. Who said that libertarianism is about the rich, it is mostly about the poor? I think the poor have benefited the most the liberalization in India. The rich had always managed it. (Also, see what Triya says in his/her comments).
Even today, it is called “smuggling� if I transfer food from one place to another. So private companies cannot operate in satisfying the need of food in the area where it is in short supply. Only the black-marketers can do the business, making food expensive. The stupid politicians than go on aerial surveys of the affected areas.
Anti-trust laws of the USA is a farce. I guarantee that even the US consultate pays bribes (may be in kind) to keep it telephones ringing and postal service working. I worked for 8 years in India and have to say that I always found the foreign companies most honest. A lot of them would rather suffer than pay bribes. But, then when they have to (and there are occasions, when you have no other choice – see my article in the current issue of Le Quebecois Libre – they pay money to someone officially who than does the dirty job for them. Anti-trust laws have only institutionalized hypocrisy.
I don’t know what you mean by “…if I would consider visiting India…� If you mean about my personal safety, the reality is that in my opinion the only difference benefit of democracies in the developing world over dictatorship is that it makes the ruling class insecure and spineless (a safety valve). I always fought against paying bribes in India, and in one case wrote in a newspaper about a top intelligence officer in Delhi asking for bribes from me for my passport. Nothing happened to him, and neither to me.
Once the ruling class is spineless, the USA finds it easy to pressurize to keep the policies of the ruling class in the developing world humane. Three years back there were anti-Muslim riots in India. It was not Indian democracy that reigned in; it was a rebuke from the EU and the USA and the possibility that the Chief Minister of the province might be denied visits to the West. He is no better than what Hitler was like, only spineless.
JC and MCLA: It is people like your family that have kept India going. I think I agree with what you say about the Indian software industry. It became a success as the government did not know how to control it.
Sara: I have heard it many times people saying that the situation in Canada and the USA is similar. Yes, it is true that there is bureaucracy and corruption in the West, but such a statement would be erroneous as you would be comparing an elephant with a mouse. I have run business in Canada and in India and I can tell you that what I suffer in Canada is a million times less than what I would in India.
Finally, government had to liberalize in early 90s as its giant pyramid scheme had failed, and Indians have shown that they were a poor country not because we were racially inferior but because of the state and unimaginebly stupid ruling class. A lot of the young are now confident and honest and truthful, and say what they see, as the Indians who have commented on my article. My parent’s generation would never have accepted this. Liberalization has improved our morality, substantially – the biggest benefit of capitalism.
Published: July 1, 2005 1:35 PM
I would like to commend all people who have submitted comments on Jayant's article. Triya, thank you for your insightful comment. It is evident that India's economy would greatly improve if the regime of economic regulation were curtailed.
I have had first hand experience with how India's economic regulation has actually been exported beyond its national boundaries, right into the USA and Canada. One example involved a guru of enlightenment who was putting on seminars in larger centres over here. At the end of his presentation, he would make an appeal for donations to be sent to the poor children of India . . . the high-pressure "appeal" was riddled with intimidating and manipulative comments thrown at the audience, even to the point of employing tactics to embarrass people who refused to make a donation. He also "encouraged" seminar participants to register their friends for his following seminar . . . advising that in India, even the poor people would scrimp and save so that they could afford his tuition fee.
I would certainly be interested in knowing whether the poor people of India are indeed scrimping and saving so that they could afford the tuition for seminars put on by gurus of enlightenment.
The other point that I would like to know is that during India's famine years, was northern India by any chance producing an excess of food that never reached the starving citizens?
The world hear so little of the truth as to what is really going on in India. Jayant's online commentaries have certainly been an eye-opener. I hope that in the future, Jayant will present more such commentaries about how India's economic regulations are harming ordinary people in India. In my view, India is a nation of stupendous potential . . . it could become a powerful and dominant world economic power if India's political and bureaucratic elite came to their free-market economic senses.
Harry Valentine
Published: July 2, 2005 1:37 AM
What is the name of this guru?
Yes, the poor give money. If the poor have no liberty to work and live a happy life, and if what they do is dictated by others, they have no choice but to sit and chant, and hope - perhaps wait for the next life. These so-called spiritual teachers cater to such need.
The real one's tell their followers not to have escapist attitude - but who like such teachers?
Published: July 2, 2005 4:36 PM
Jayant,
The "guru" who made the statement about India's poor saving money to attend his seminars, was part of a larger organization. The material they presented practically duplicated material that Dr Phil McGraw (Dr Phil of TV fame) wrote up in his book entitled LIFE STRATEGIES.
There is material on the internet that critiques the Large-Group intensive seminars. In his book entitled WORKING WITH EMOTIONAL INTELLIGENCE, Dr Daniel Goleman sited objective studies involving actual measurement, that indicated that over the long term, participants did not retain the material let alone apply it in their lives. These offerings did enhance the bottom line of the people who ran them.
Poor people of any nation are easily duped and misled. India's regime of comprehensive economic regulation has not only sustained the hardship of India's poor, it has actually opened the door for them to be exploited. Under Indian regulation, a few people may actually create real wealth in an environment riddled with politically well-connected parasites. India's economy and government could certainly do with a mega-application of free-market insecticide.
Harry
Published: July 4, 2005 10:50 AM
Corruption is largely present in govt. depts of all sorts. You meet the bureaucrat later, the tout pounces on you much earlier.
http://apunkadesh.blogspot.com
Published: September 13, 2006 6:32 AM