The anchorman of the Talk Show on the FM Radio Channel was an angry man. The newspapers had regularly reported the rampant corruption in various government bodies and the failure of the anti-corruption authorities to eradicate them. The incidence of corruption had increased day by day and the anchorman felt that the whole nation was on its way to inescapable doom. He angrily called the bribe-takers and corruption practitioners ‘cancer spreaders’ in the society and wanted the government to mete out punishments in public as a deterrent to others planning to join that parasites’ club.

Many at our lunch table had heard this anchorman and felt that he was correct. According to them, he was doing some social service by highlighting the bribery and corruption which were on the increase. They were unanimous that the government take tough measures to put a stop to this social parasitic disease. In fact, they were an angrier lot than the anchorman.

“But economics tells us something else about bribery and corruption,” I pointed out to them. This contrary view appeared to have surprise them. After the initial shock faded away, one asked me why I said so. “Bribery and corruption had been a problem in state financial management throughout the history. It was such a social malady in the 3rd Century BC, even Kautilya’s attention was drawn to it,” I clarified. “What did Kautilya say about it?” somebody asked.

“Kautilya in his text on economics titled The Arthashastra advised the king that ‘just as it is impossible to know when a fish moving in water is drinking it, so it is impossible to find out when government servants in charge of undertakings misappropriate money’. So, his advice was to eliminate opportunities for such malpractices and punish those who were found guilty of corrupt practices.”

“That’s interesting,” one of the lunch-table mates said. “Economists are also interested in bribery and corruption.” Yes. Not only are they interested, but they also have a separate economic theory of bribery and corruption,” I replied. Their faces glowed with interest and I had to tell them what it was.

“Economics recognises that when someone or a group of people has discretionary powers, they have incentives to profit from such powers. Kautilya said that ‘when there is honey on the tip of your tongue, you cannot resist the temptation to taste a little bit’. So, it’s unavoidable. The first guard against these practices is to give a sufficient remuneration to those with discretionary powers so that they’ve no necessity for looking for extra income elsewhere. That’s why in Singapore salaries of ministers and civil servants were deliberately set at high levels. Their motto was ‘if you pay peanuts, you simply get monkeys’. In other words, you get people with lesser quality and low moral standards.” “Has Kautilya also made a similar recommendation?” one of them wanted to know.

“Yes, indeed,” I said. “His recommendation was that if an assistant gets one, his boss should get double that. The head should get double the salary of the mid officer or four times the salary of the assistant. He said such a structure is necessary to prevent them from succumbing to ‘temptation’. So, a socialistic type pay policy in which the boss gets only a peanut above the assistant would breed ‘temptation’ to misappropriate.”

“What else should be done,” they said in unison, interested to know more. “The second guard is to reduce the opportunities for discretionary powers. The key to this is to make the government smaller. When it handles the entire range of economic activities in an economy, the government gets substantial monopoly powers and citizens have to come to government for every service. It gives opportunities for state officials and politicians to make money out of their monopoly powers. Economists call it earning ‘rents’, because they get this additional money not for their services, but something extra. It’s an unearned income and they don’t have to put extra efforts for that”.

“How do you make the government smaller?” “By getting the government to do only what it can do best and allow the private citizens to provide other services. In ancient Sri Lanka, local chieftains were given licences to construct local irrigation tanks, sell water to users, maintain the tanks out of the revenue and pay the king his due. This is similar to the build, own and operate or BOO system we’ve today.
“Suppose you make the government smaller. Still that small government can become corrupt. What can you do about it?” somebody asked.

“Then, it’s manageable because it’s limited activity. You’ve to introduce monitoring and penalty systems. Those who’re caught have to be punished severely. Kautilya recommends in some serious cases even death penalty and a fine as high as 12 times the amount misappropriated. That’s where the anti-corruption authorities should come to the scene. The most important requirement is that anti-corruption officials should be paid the highest, for otherwise they’ll also become ‘tempted’. So, make the government smaller and make their job easier.”

“What can we do about it?” They now wanted to know the role of the citizens in checking corruption.
“Don’t ask for everything from the government or a ‘big government’ and a ‘corruption free society’ at the same time. These are two paradoxes,” I said.