How Corrupt Are Politicians? Less Than You Might Think!

The search for better economic policy.
April 26 2012 7:30 AM

How Corrupt Are Politicians?

Less than you might think.

(Continued from Page 1)

For anyone familiar with the magic of compound interest, 6 percent a year can add up pretty quickly—at the end of five years in office, winners end up with assets worth nearly 70 percent more than their unelected counterparts, or about $60,000 in extra wealth. This is more than can be accounted for by the very meager official earnings of state parliamentarians, which were generally no more than a few thousand dollars a year during this period, but also far from the million dollar paydays that capture the public’s imagination.

But that 6 percent difference between winners and losers is misleading. There is a much wider divergence in wealth when it comes to elite members of the government. MLAs who are appointed to cabinet-level posts in the state’s Council of Ministers grow their wealth at a rate that’s 15 percent faster than runners-up. By the time they finish their time in office, they’ve got more than double the wealth that runners-up or other elected officials have. Once you take MLAs who become ministers out of the picture and then compare winners to losers, the MLAs who are left behind don’t do any better financially than election losers at all. The fortunes made by state ministers aren’t a smoking gun—cabinet posts aren’t handed out randomly, so someone with the smarts to be appointed minister may also be a better investor than a run-of-the-mill MLA. But it still suggests that watchdog organizations like the ADR should take a careful look at the land deals and bank transactions of state ministers and their families.

We also found that the size of the MLA “winner’s premium” depends on whether a candidate is running as an incumbent. Incumbents who were re-elected out-earned incumbents who lost, but the pattern was reversed for candidates coming from the private sector: Winners earned less in the next few years than losers. It may be the consequences of becoming a political lifer in India, where legislators may not have the same lobbying opportunities that their counterparts in the United States do, and they haven’t developed the skills they need to make a lot of money when no longer in office. Politicians coming in from the private sector, on the other hand, can go back to earning decent wages if they lose, but are stuck with the paltry salary of a state assemblyman if they are “lucky” enough to win.

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Overall, the numbers belie the widely held view in India that politicians are on the take. Before letting them off the hook completely, though, it’s worth keeping in mind that we only account for the wealth that MLAs themselves report in their disclosure documents.  Funds or jewelry may be hidden in foreign accounts, secreted away in bank vaults, or “loaned” to cousins—though given these holes in the disclosure laws, it is all the more surprising that the data reveal the rich returns of state ministers.

There will always be ways of eluding public scrutiny—the goal of disclosure laws is to make it harder, not impossible, for politicians to exploit their positions for personal gain. To really accomplish this objective, it’s also crucial to get the disclosed information—imperfect as it may be—into the hands of voters who can then reach their own conclusions about whether there’s something suspicious going on.

Researchers at Harvard and MIT have in fact taken advantage of Indian disclosure laws in a study which finds that the electorate does make use of information from their MLA’s disclosures when casting their ballots. It may be quixotic to hope that greater disclosure and transparency will cleanse the world of corruption, but it can at least help voters keep their politicians just a little bit more honest.

Ray Fisman is a professor of economics at the Columbia Business School and co-author of The Org: The Underlying Logic of the Office. Follow him on Twitter.

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