Combating Indiaphobia, Part One: Corruption

In the past decade, many of India’s busiest international airports have been renovated in two very different ways. The first is structural-aesthetic—the terminals were upgraded to offer the amenities and services characteristic of a world-class airport. The second was nomenclatural—many of the airports were renamed after figures who better reflect Indian nationalism, much like our own John F. Kennedy International Airport in New York City, or Ronald Reagan International Airport in Washington D.C. I flew into Mumbai through Chhatrapati Shivaji International Airport, formerly bearing the peculiar name of Santa Cruz International Airport. I’m on the way to Delhi, entering through the newly renovated Indira Gandhi International Airport (though it was renamed earlier, in 1986).

Through signage and announcements, airports here discourage incoming travelers from taking any services offered by strangers at the airport, be it luggage-caddying, transportation, or communication. They instead offer their own official services. Certainly, this is in the airport’s own economic interest, but it is also advertised as serving the travelers’ safety: ostensibly, to avoid getting scammed.

Though it is a common fear of foreigners, locals, and returning nationals alike, India’s informal economy is a thriving source of revenue and resources for both citizens and foreigners. After all, it allows for the exchange of goods and services that would otherwise be unavailable to many. Sometimes this is because they would be too expensive, as in the case of brand-name knockoffs. Sometimes they would be otherwise banned, as in the case of alcohol in prohibitionist states.

But often these goods and services would simply be impossible to come by through a legitimate route—Think of scalping rare tickets outside a concert. Perhaps one of the most prominent forms of informal economy can be found in the real estate business in many of India’s metropolises. Soon after Indian independence, many city governments were growing anxious of the developing politics of real estate. Demand for housing in a rapidly urbanizing India was so high that landlords could hike up prices as much as they wanted to, evicting any tenants who were unwilling to pay. As part of a larger project of rent reform to ameliorate this power imbalance, many governments issued a policy that effectively bound landlords and tenants to the rent of their original contract, and prohibited landlords from evicting tenants for not paying. For instance, let’s say in 1975 I begin renting a flat in Mumbai for one hundred rupees a month. So long as I continue paying rent, the landlord can never increase the rent, and cannot evict me. I can continue paying rent for one hundred rupees a month right up through 2011.

This price control, however well-intentioned, has led to immense problems of its own, by entirely changing the system of incentives in real estate economics. As India’s economy has grown, so has inflation, and yet rents remain frozen. One hundred rupees is peanuts compared to what it used to be, and so tenants continue to rent flats from decades ago for next to nothing, sometimes even just using the flats as storage space. Rental properties effectively become useless to landlords as a source of revenue, and landlords have little incentive—and really, little financial ability—to pay for the upkeep of their properties. This burden is then shouldered by the tenants. With a little money, it is easy enough to manage the upkeep of one’s own flat. However, when renovations or repairs need to be done on the entire building, such as plumbing or power, consensus is needed for everyone to pitch in some funds to do so. There are often conflicts as to if, when, and why renovations are needed, especially if a repair affects some tenants more than others—repairing a broken elevator, for instance.

Sometimes, tenants will offer to purchase the property from the landlord, effectively converting the building into a co-op. However, it’s often cheaper for the renters to just continue paying their minimal rent. In that case, the only way for the landlord to exert any power over the situation is if an old tenant decides to leave, opening the flat for a new renter. At that point, the landlord can charge a much higher rent to the new tenant. However, the landlord has to create an incentive for the old renter to leave. Usually this takes the form of a pagri. The landlord charges the new tenant an exorbitant “buy-in” fee. This fee is then split between the landlord and the old tenant, giving the old tenant something of a “parting gift” to ease his or her departure.

All of this dealing is in black money, under the table and outside the auspices of the formal economic system. It is quite illegal. Yet, because of the structure of urban real estate, and because of the funny laws in these cities, these practices ultimately become necessary for anything useful to happen.

Despite its necessity, the informal economy is a source of frustration for many. As a diagnosis, corruption is often conflated with the broader informal economy. The two aren’t quite the same, of course—when people think of corruption, the image that seems to come to mind is high-level power abuse, ineffective governance, and breakdown of social services. Still, a lot of smaller-scale stuff, particularly things like beat cops collecting bribes, straddles the line between corruption and informal economy (which we’ll see a little later), and in practice, it seems common to lump everything into a big category of undesirable behavior labeled “corruption.”

The front page story of today’s Times of India highlighted a new initiative to combat corruption. There’s a general belief that jail time is no deterrent, since people seem to be able to just get their black money back later, after their time is served. To correct this, there has been a proposal that, if an individual is found guilty of corruption, any of their assets which have been obtained through corrupt means can be seized by the government. The burden of proof will be on the guilty party to prove otherwise.

Even low-level corruption—the sort that straddles the line between corruption and informal economy—triggers fear in many foreign travelers. It is said to be unavoidable. Taxi drivers rigging meters for people with Western accents, vendors hiking barter prices based on the look of their customers, agencies overcharging non-citizen tourists. Of course, this phenomenon is not unique to India. You find something similar anywhere in the world, and we in the United States are no strangers to treating the foreigner differently from the citizen: think tuition rates, social services, and civil rights.

But corruption doesn’t just affect tourists, and in India, a lot of civil society organizations have been up in arms about corruption. Grassroots groups like 5th Pillar have responded through, for instance, issuing these zero rupee notes:

The notes are printed on thick paper to prevent folding; folding bills is a common way of issuing bribes discretely

Cute, right? I was initially excited about the prospect of using these notes. I imagined myself to be some sort of moral cowboy, exposing evil corruption with my fake rupees. My best friend then reminded me that, while these notes may be a creative means of shaming officials attempting to elicit illicit bribes, it may not be as effective in actually combating corruption structurally. And, indeed, for me to use the zero rupee notes at all is a little presumptuous. Let me explain.

Like the informal real estate economy, other aspects of the Indian economy, even that low-level sort of “corruption,” seem to be products of the structure in which they emerge. Take the case of beat cop bribes again. For many, this may appear to be an abuse of power. Yet the fact is that many city beat cops are living in slums. They are underpaid and overworked, and the benefits they supposedly receive from working for the state are highly diluted. Police bribery, especially for many in the lower ranks, functions as a sort of supplementary income, and is so commonplace that it is almost as expected—and as integrated into the salaries police are given—as tips are for waiters. Moreover, these beat cops really often possess so little power, institutionally and materially, that in some cases, demanding bribes may not be so much an abuse of power than an exertion of power.

Price gouging foreigners, too, is something about which a lot of tourists often feel defensive. They may feel disrespected, and often vigorously try to avoid paying more many than a “local” person would for the same good or service. Yet the fact is that many of these commercial industries rely on the extra income supplied by tourists and the wealthy in order for them to offer cheap prices for the same goods to locals, who otherwise would not be able to afford them. That isn’t to say that price gouging is the result of compassion. It’s simply an emergent property of the economic structure, the system of incentives generated by the way social policy and informal economics operate. In this case, it’s a sort of redistribution of wealth, which may be frustrating to some, but which, realistically, is what the economic structure seems to rely upon. Indeed, it may not be able to function without it.

This isn’t to say that low-level corruption isn’t a problem. Indeed, the fact that the informal economy operates outside the shadow of the law means that a lot of nasty conflicts emerge, invisible, unmediated, and unchecked. Theft, violence, murders—the kinds of things you hear about loan sharks and mafiosos. These seem to be the kinds of things we would want to prevent.

But maybe passing moral judgments on corruption is somewhat irrelevant, if we want to actually eliminate it. If rather than legal impunity, it is the social and economic structure that produces this corruption, or this informal economy, then the best way to tackle the harms created by it is at the level of structure itself. Just as structural reform completely transformed the system of incentives of urban real estate in India (in some ways for the better, in many ways for the worse), well-thought out and well-researched structural reform may be able to eliminate much “corruption” right from the source.

Part of this may involve identifying whether some illegal activities are directly harmful, or instead, are harmful only as a side-effect of their being illegal. This is a very Dutch pragmatism. One example is giving foreign tourists higher prices explicitly and on paper, so they don’t feel as if they are being scammed opportunistically. A second is encouraging formal, legitimate cooperative ownership of properties through financial incentives, and providing conflict resolution services to allow them to more effectively manage their building. There are many such possible structural changes to preserve the informal economic powers of locals, while reducing their harm.

In my view, a big step in reducing the harm of illegal behavior is legitimizing its harmless aspects, so as to separate and isolate the harmful components. And a big part of legitimizing anything that is already ubiquitous is for all members of a society to know when to expect it. When people have this kind of knowledge in advance, norms form, which can help to regulate, limit, and empower.

This plane is about to land, so for now I’d better sign off of these ramblings. These are all thoughts that I’m still working through, so we’ll see if I still agree with myself tomorrow. But I’m curious to hear your thoughts. I do believe in finding a way to maintain the few powers of people whose only powers seem to be confined to the realm of illegality. The story illustrated by the law alone seems to be a bit too simple there, but the story outside of it is too complex for me to see on my own.

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One thought on “Combating Indiaphobia, Part One: Corruption

  1. Ronak, this post was fascinating! I’m enjoying finding the connections between the forms of social reform you learned about last year in Amsterdam and how they could potentially be applied to Indian society as well. Granted, I’m sure the cultural differences between the two mean that reforms in practice must be adjusted accordingly, but the theory behind it is a refreshing change from the way our government approaches problems. No questions from me here yet, merely taking in what you’ve got to offer, so keep your observations and acquired knowledge coming!

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