Devangshu Datta: When corruption is healthy

Visible corruption among the countless confused, accused and strung-out ones is a sign that the 'club' has opened up its membership roster and made its criteria less exclusionary

When an Indian wishes to enter a long-term relationship with somebody, he or she initiates a process that can be termed “due diligence”. The high-tech aspects may involve tracking the party of the second part on Google, Facebook and Twitter. But the key, absolutely indispensable element is finding common acquaintances and asking searching questions.

This goes a long way beyond enquiries into financial probity and narrow specific competencies. It encompasses school and college records, “background” (often code for caste and religious affiliation), personal sexual predilections, food habits, hobbies, clubs, family scandals, political leanings and so on. If everything checks out, the party of the first part seeks an introduction to the party of the second part from one of those common acquaintances.

The convoluted processes and the extensive gathering of personal data make sense when arranging a marriage. However, Indians also indulge in this when they’re contemplating long-term business relationships. It’s much less about balance sheets, which can be fudged, and much more about “fit”. Once that undefinable factor matches, there is a great deal of comfort because both parties know that the relationship can survive the vagaries of business in an uncertain world.

Over millennia, this has helped India develop a network of cosy relationships between traditional “business partners”, who are comfortable risking vast sums and even life and liberty, on the word of mouth alone. Call it a club, if you like.

Business in this context has a wider definition than mere monetary transactions. A Rajput or Maratha warlord, or a Muslim one, needed to know which vassals could be trusted and which were likely to emulate Jaichand or Mir Jafar. A Brahmin needed to know which patrons would be generous and which capricious (the two are not incompatible).

Other Oriental civilisations also have similar clubs and relationship-based business systems. The People’s Republic of China receives most of its vast foreign direct investments from overseas investors of Chinese origin. When Deng opened up in 1979, the overseas Chinese community pumped in money, relying on pre-revolutionary ties between clans to protect their capital and ensure returns.

Korean chaebol and Japanese zaibatsu built their impenetrable cross-holdings on the basis of relationships. Malaysia, Indonesia, Vietnam, Arabia and Turkey have similar systems. So do the successor-nations of the former Soviet Union and many former Warsaw Pact nations.

These informal systems work. What is more, these systems are often the only things that work in societies lacking in a formalised legal system with good laws and efficient processes for ensuring legal compliance. If, say, a Jain does business with another Jain, neither will break his word, for fear of social ostracism. Loans can be raised informally and money transferred without fuss across frontiers. Disputes are settled by elders respected by both parties, without wasting time and effort on interminable breach-of-contract cases.

Such informal methods were superseded in Western Europe and the United States relatively recently. Hitler, for example, rebuilt the shattered German economy in the 1930s by allowing free rein to old firms such as Krupp and Siemens. Western Europeans were forced to codify business practices, when the immigration-colonisation drives started because, for example, a German immigrant to New York couldn’t develop deep background on an Irish immigrant. Even so, various immigrant communities in the US and Latin America still prefer to do business within the community.

There is only one major problem and that is why these clubs are sometimes vilified as hotbeds of “crony capitalism”. Somebody who does not belong to the right gender, clan, tribe, caste, “insert criteria here”, is excluded. If he or she wants in, he must pay upfront for the privilege of membership. That is why visible corruption among the countless confused, accused, misused, strung-out ones and worse may well be a healthy development. It is a sign that the “club” has opened up its membership roster and made its criteria less exclusionary.