The Telegraph
Since 1st March, 1999
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- Few would cut corners at the price of social disapproval

The author teaches economics at the University of New South Wales, Sydney, Australia

The level of economic development which a country has attained is faithfully mirrored by the smoothness of the flow of traffic in its cities, and the patience with which its drivers obey road rules. In a developed country the streets are smoother and wider, and the traffic lights work. The cars are newer and better and kept in good repair — the owners can afford it — so there are fewer breakdowns and consequent holdups. But wide streets and good cars would be of little use if drivers sacrificed rules to the pursuit of advantage: squeezing unauthorized through momentary gaps in traffic, careening through red lights and in defiance of the policeman’s arm, and charging up the wrong way on one-way streets. It is not only traffic that works well in developed countries — everything functions more smoothly. People stand patiently in line without cutting in front of each other. Government clerks come in to work at nine and work until five on the clock. Drivers seeking a licence actually take driving tests in which failure occurs regularly and bribes are not exchanged.

Presumably each of these persons, during an average day, comes upon several opportunities to cut a little corner. In passing up that opportunity, he ends up putting in a small amount of extra effort. On the aggregate level, that little extra effort is multiplied several times. Compared to their third-world cousins, there are ten first-world clients who each save an hour’s wait in line because the clerk came to work on time. A hundred drivers are at less risk on the road because the incompetent aspirant cannot bribe his way to a driver’s licence. There is less hypertension because there are no angry words over queue-jumping.

The routines of everyday life in Melbourne and Minneapolis are far less exciting than those in Cairo or Calcutta. Why is it that in some parts of the world entire populations resign themselves to the tyranny of rules, and why is our part of the world not on that list'

Recent economic thinking has thrown up an answer which may be the key to understanding economic development. But first we must dispense with a traditional explanation which will not suffice. The favourite — and racist — handwave: “It’s in the blood”, is a non-starter. Indians are not genetically more predisposed to disharmony than the Singaporeans or the Swiss. The large concentration of Indian genes in Singapore is evidence enough. Otherwise, step across the Arabian Sea to the Gulf, and it is instantly obvious that Indians are among the most rulebound and hardworking people on earth. Indeed, there are a few million Indian-born men and women who live day in and day out in the first world, and do so perfectly in tune with its norms. Every public sector clerk in India who fails to show up at the office until noon has a cousin in Toronto who has been at work since eight in the morning, and that driver who just cut dangerously across the traffic in front of you has a sibling who is patiently waiting at a red light in a Frankfurt intersection. It is not in our blood. An alternative explanation is taking shape, and it has the advantage of simplicity. Economists call it “coordination failure”. I shall illustrate below with a simple example adapted from Debraj Ray’s excellent Development Economics.

Imagine a city with a large number of drivers, each of whom is regularly tempted to make an illegal move on the road. When he succumbs, he evokes the ire of other drivers, who signal their displeasure by honking, shouting, giving the finger or — in Los Angeles — shooting at the offender. The offender in turn feels shame and guilt in proportion with the intensity of disapproval shown. If others don’t seem too concerned, then the offender does not feel too guilty. If they are very agitated, then he is correspondingly more ashamed at his misconduct. The simplest economic calculation that the potential offender makes is that of balancing the benefit from his illegal move against the psychic cost of social disapproval. When this cost is low, the sum swings in favour of making the illegal move. When it is high the potential rulebreaker resists the temptation to offend.

Thus the choice turns on the determinants of the degree of disapproval. Of these there are two: the direct harm which the action causes, and the extent to which the action is commonplace. It is the second which concerns us. We all feel more outraged at offences which are out of the ordinary. For example, we do not bat an eyelid at people disposing of their garbage on the sidewalk in Calcutta, because it is a common occurrence. In Singapore it would lift all available eyebrows, because it is not common.

Similarly, I would not be surprised if a clerk at a government counter asked for a small consideration in return for processing my application, but a Dane would call in the authorities (who would take the matter seriously). Indeed, in Calcutta, the occasional non-resident Indian may dump her Bhelpuri packet on the sidewalk, which she wouldn’t dream of doing in her hometown of Calgary. This is because she makes exactly the same calculations.

If there is a rule that everyone breaks, then any one individual breaking the rule cannot possibly face a large consequence. Society simply does not have a large enough stock of serious consequences. If everyone takes a bribe, then the probability that any one bribee will be caught is low, because the stock of law enforcement officers (even if they were incorruptible) can only bring so many to justice. Further, the moral imperative against corruption is weakened, because “everyone does it”. Thus on average, the potential cost of taking bribes must seem small compared to the gain. Hence just about everyone takes a bribe, even if it is a small one.

On the other hand, if the rule is seldom broken, then a single individual breaking it will indeed get it squarely on the chin. If only the isolated official takes a bribe, the entire vigilance commission will be on his tail (they don’t have much to do otherwise). In addition, the moral cost is high when one stoops to things which are simply not done.

The sum of sanctions against taking a bribe is large. That is why no official in his right mind will take a bribe, especially a small one. Thus with the same rule there can be two stable outcomes. In one the rule is universally respected, and in the other it is universally broken. The actual outcome is the result of coordinated action by everyone in society, but for each individual the incentive to choose the action comes precisely from the fact that everyone else is choosing the same action. It does not need different kinds of people, but it does give rise to different kinds of societies, with vastly different degrees of efficiency.

I was in Hong Kong recently, and two things struck me. One is the observation that Hong Kong was once a city permeated by corruption, but in a celebrated transition during the Seventies, corruption was practically eliminated. The second is that in many ways Hong Kong is very similar to Calcutta. Similar size, similar popula tion, many narrow streets, colonial architecture, elaborate government offices. Indeed, I felt quite at home. The difference is that the clerks in those Hong Kong offices come in at nine and stay until five on the clock. No doubt each one does so because that is what everyone else does. And, because drivers have a similar collective afflic tion, the traffic flows smoothly in the streets.

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