Avinash Dixit, John J. F. Sherrerd '52 University Professor of Economics at Princeton University is a pioneer of game theory, and a major influence behind the Nobel Laureate Paul Krugman’s acclaimed work on International trade. Dixit was one of the speakers at the recently concluded Delhi Economics Conclave.
In a conversation with Shanu Athiparambath, he spoke on the importance of collective action and social ostracism in fighting corruption. Excerpts:
Q. You said that people themselves should take initiative instead of waiting for the Maa Baap Sarkar to do something about corruption. But, when a government official asks me a bribe, isn’t it true that I am better off if I simply pay the bribe?
A. Exactly. Individuals cannot fight corruption. But, the Indian business community can do something about it. If no one is going to give a bribe, what is the government official going to do? You need collective action, and the businessmen who refuse to co-operate should face the threat of ostracism. They have to know that if your fellow businessmen find out, you will be out of business. The cost of being found out is much bigger than the benefit from a single contract.
Q. The present day Somalia has a similar system to enforce contracts, and there were similar societies in the past. What is the likelihood of India having such a system to fight corruption?
A. There were many places where there were institutions which were exactly of this nature, under the threat of sanctions by fellow businessmen. Indian businessmen and business school professors should see that this deserves more serious study. It makes little sense to argue that such a system will never work in India. Why not look into it and see what the chances are? I am not offering this as a ready solution or as a ready package.
Q. Independent institutions like the central banks in the western world are more efficient and less corrupt than politically controlled institutions. Do you think that an independent body like the Lokpal is likely to be more effective in fighting corruption?
A. The answer to this question depends on the specifics of the case, and how it is likely to be implemented. I am not an expert on India. But, yes, when an institution is independent, it is often the case that there is less room for corruption.
Q. Public work projects like NREGA are quite popular in India, and people think of them as a cure for poverty and unemployment. Do you think that such policies are inefficient and creates ample opportunities for corruption?
A. Again, the answers to such questions are dependent on specific details. Many countries have unemployment compensation schemes. Sometimes, they are purely redistributive schemes. When you have programs that are purely redistributive, they redistribute wealth at too great a cost. When you make public funds available, people will line up, and you are smuggling in corruption through the backdoor.
Q. There is one argument that NREGA transfers money from the tax payer to workers who often work on worthless projects.
A. Yes. Remember that during the great depression, there was exactly the same kind of schemes that put the unemployed to work. But in principle, you can design decent infrastructure projects, like for instance, roads to smaller villages. I do not know how the argument is framed, but one argument is that there is no net benefit to anyone when money is taken from the tax payer and given to the worker. But, that is not necessarily true.
Q. The government recently won the vote for allowing FDI in multi-brand retail in the parliament. Economists have always supported free trade, but why do people oppose foreign trade and investment even today?
A. People who are likely to be affected by policies like FDI are always likely to oppose it. There are going to be people who are affected by such policies. But, in many cases, I am not really convinced that the losses are entirely unavoidable. There are opportunities to change occupations, and effectively deal with the situation. It need not take as much time as it is assumed.