The corruption poser

Dr Basu presents the issues through the prism of economic theories - using game theory in abundance, but at a philosophical level these have tremendous resonance in Indian society

The Republic of Beliefs

A New Approach To Law And Economics

Kaushik Basu 

Princeton University Press

238+XVII pages; Rs 699

When does the law become effective? Why do some people observe the law and others flout them? What circumstances trigger such different responses to the law? How can we bring about a change in human behaviour so that laws can be enforced with greater effectiveness, thereby enhancing economic gains? These are some of the key questions Kaushik Basu, an eminent economist and former chief economic advisor to the Indian government, tries to explore in this highly readable book.

Dr Basu presents these issues through the prism of economic theories — using game theory in abundance, but at a philosophical level these have tremendous resonance in Indian society. One, India is a developing economy and a democracy. Its economic policy imperatives often put to the test the durability and enforceability of laws in far more complex ways than in a developed economy or a country that is not a democracy. That is also because Indians are not only argumentative by nature, but also excel in ingenuity when it comes to bypassing the law. Not surprisingly, Dr Basu relies on many Indian experiences to illustrate how there are serious problems in applying the lessons of law and economics in several economies of the world, particularly the emerging and developing ones.
 

In India, for instance, the perennial problem is how the law is impeccable on paper but is often poorly implemented. An associated problem arises out of the challenge to eliminate corruption. Corruption, argues Basu, can take many forms, but the heart of the corruption problem is the violation of the law. Perpetrated either individually or in league with a group of government officials or enforcers of the law, corruption prospers in spite of the existence of a legal framework. There are also no satisfactory answers to why some laws work, some laws work partially and some others don’t work at all. And this is one of the biggest failures of law and economics.

So, what solution or an alternative strategy does Dr Basu offer? The complicating parts of the book start here. He posits that the focal point approach is a possible way out of the failure of law and economics in dealing with corruption. The focal point approach is premised on the belief that a better-founded theory of law and economics should recognise that the outcome of a law is largely determined by its effect on the beliefs of people. But the challenge is how to influence the beliefs of people in an effective way. 

Dr Basu argues that a successful law is one that shifts human behaviour by creating a new focal point in the game every stakeholder in society plays. In other words, a new law can be effective only when it creates a new focal point to shift the behaviour pattern of people. He also proposes the idea of a focal player, who can make a big difference in changing the way people behave. A focal player is like a leader who directs a group to a certain outcome by asking them to behave in certain ways in a situation. The role of a leader deserves further scrutiny to determine how well it enhances the effectiveness of the focal point approach in changing people’s behaviour while dealing with new laws and economic situations. 

Dr Basu writes simply and attractively, but many of the ideas are abstract. In spite of his lucidity, he is clearly not at his best while explaining them. For instance, his explanation of the way the focal area approach functions and how it can change the behaviour of people is likely to fall short of expectations of many readers. 

Dr Basu is aware of the difficulty of the concept that he is trying to explain. Writing on the focal point approach, he confesses that “though there is need to sharpen these concepts and ideas and give them more formal structure, that is beyond the scope of the present book, which is the economist’s jargon for beyond the ability of the author.” You can’t really quarrel with an author whose self-deprecating humour enlivens many of the eight chapters that complete this monograph. 

By way of entertainment, there are many interesting anecdotes picked up from his days as chief economic advisor in the Manmohan Singh government. One of them deserves to be recounted here. Within months of joining the government, Dr Basu wrote a short paper on the need for amending the country’s corruption prevention law by declaring the giving of harassment bribes a legal act. His logic was that this would encourage the person who is being coerced to pay a bribe to spill the beans as he would no longer be treated the same way as the bribe receiver. And the incidence of bribery would come down. 

In his naivety, Dr Basu even posted his paper on the finance ministry website, only to create a furore with parliamentarians questioning the immorality of the idea. He managed to ward off that controversy through some clever phrasing of written replies to questions raised in Parliament. This was an example of how Dr Basu saw the need for changing the focal area approach to law-making. 

In less than a decade since the publication of that paper, the Indian government earlier this year amended the corruption prevention law in a bid to achieve precisely what Dr Basu had advocated. Perhaps Dr Basu’s contention that the discipline of law and economics must embrace the focal area approach has already been heard!