May 16th, 2011
11:03 AM ET

Fareed Zakaria: How to beat bribery

One out of every four people on this planet paid a bribe last year. Bribery has been said to cost the world $1 trillion a year. The United Nations says bribes accounted for one fourth of Afghanistan's annual GDP.

So I was intrigued to hear about an innovative idea to deal with corruption from one of the places most plagued by it - India.

India's Chief Economic Adviser, the economist Kaushik Basu, posted a paper on his personal website in which he made a case for legalizing certain types of bribes.

Corruption is a huge and growing problem in India. More than half of all Indians say they had to pay a bribe last year. Many of those are what Basu calls "harassment bribes" - illegal payments to get basic services, like an extra 100 rupees to get a driver's license or a routine permission.

These are the kinds of bribes Basu wants to change the law on. Under current Indian law, both the bribe giver and the bribe taker are guilty. If they're caught, both are fined an equal amount, say 100 rupees. So the state gets 200 rupees total.

Basu has a radical proposal. Fine the bribe taker, the government official, 200 rupees, he says. Let the bribe giver go scot-free. So the government collects the same amount in fines, but the person who had to pay the bribe is not fined. Instead, he gets his bribe money back.

So how does this reduce corruption? Well, Basu's game theory simulation suggests that bribery in general will decrease because people who are asked for bribes can pay the money and they can still go and complain without worrying that they will be prosecuted. And the corrupt official who takes the bribe will know that if they take the money they face twice the penalty.

It's a fascinating idea. It has come in for lots of criticism in India, but the critics are missing the point. India needs creative thinking to cure the cancer of corruption that is actually getting much worse, and not just in India.

Take a look at this map.

It's a corruption index, put together by Transparency International. The redder a country is, the more corrupt its bureaucrats. The yellow spots are less corrupt. You notice here in the U.S. we're not doing too badly.

So what's the least corrupt country in the world? Singapore.

About five decades ago, that tiny country was newly independent, and for all of the rapid growth, it had the usual third world baksheesh culture. That changed under Lee Kuan Yew. He decided to pay government officials at par with those in the private sector. That killed the incentive for officials to be corrupt.

The Singapore solution is expensive, especially for large countries with large bureaucracies, but it would probably still be a bargain considering how much corruption costs most economies.

Another innovative idea came out of Africa. The Sudanese-born billionaire Mo Ibrahim often wondered why his continent had the richest resources, the richest natural resources, and yet the poorest people.

Identifying corrupt leaders is the problem. Ibrahim tried to change those leaders' incentives. He instituted the annual Ibrahim Prize. It awards $5 million to an African leader who is not corrupt and leads office peacefully. The winner then goes on to get an additional $200,000 annually for life.

A great incentive, right? The problem is they couldn't find a winner for 2009 or 2010. The jury simply refused to make the award to someone who was not truly deserving.

But the point of this story isn't to despair. Corruption or bribery are not innate cultural qualities. Singapore shows that cultures can change. Studies show that these crimes are due to inertia. If everyone's doing it, then there's incentive to take and offer bribes as well. But how do you get to a critical mass where people stop doing it? Well, smart government policies and good leadership from the private and public sector help.

It is possible. This is the year of change, after all. And remember, much of the popular anger against governments in the Arab world this year was fueled by the sense that they were out of touch, repressive and corrupt. So let's try more ideas like the one from Mr. Basu in India.

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