There is an important and growing trend in democracies around the world. Public outrage over governmental corruption is toppling more and more leaders. In the last six months alone, leaders from Malaysia, Spain, South Africa, Armenia, Peru, and Slovakia have been forced to resign on charges related to corruption. In the past five years, more than 10 per cent of countries in the world have experienced leadership changes related to corruption (See the list below).
This is a phenomenal development and points to an increased awareness and a growing desire among citizens to become more actively involved in governance. In the information age, voters are more aware of what the government does and doesn’t do. Increasingly, people are beginning to question the power grabbing by elected representatives and how it is used to enrich those who can control the levers of state power. Technology is making it possible for citizens to get information that otherwise would be impossible. The hacking of records of a law firm in Panama—called the Panama Papers–revealed a treasure trove of information on money stolen by global leaders and hidden under layers of offshore entities. In this era of connectedness and social media, there is no place for corrupt politicians to hide.
History may never repeat itself in the same form, but the pulls and pushes of state power have cycles. Throughout most of history, people have lived under the rule of feudalistic monarchs, kings, oligarchs, emperors–with little freedom and very few rights. The first recognition of rights came with the signing of the Magna Carta in 1215 when King John of England was forced to sign a document guaranteeing a set of basic legal rights and liberties. But it was a very limited charter and applied mostly to the Church and the Barons. The next milestone in the development of rights came in 1647, when a group of English political activists, called the ‘Levellers’, produced “An Agreement of the People”, which set forth a collection of principles in matters of religious freedom, and freedom from conscription, and asked that laws apply equally to everyone.
However, the event that forever changed the course of liberty and human rights transpired in 1776, when thirteen colonies of the British Empire revolted against the British crown and formed the United States of America. The central theme of that revolution was the desire for liberty and a set of rights and privileges that were made available to everyone. And, for the first time in human history, a document was drawn detailing an individual Bill of Rights. By proclaiming that all men are born equal, it was implied that everyone had equal rights and that these rights were available to all irrespective of caste, creed, status, race, etc. This was the beginning of the movement to greater human freedom and eventually to many of the rights that citizens of the free world enjoy today.
It is not a coincidence that the Constitutions of at least 20 countries, including India, start with the words “We the people” to signify that the constitution has been written to protect citizens and not political leaders.
It is “we the people” that have been slowly losing relevance over the last six decades. World War II did a huge disservice to humanity, not only in terms of its wanton destruction and killing but also in its promotion of the notion that a big powerful state is required to protect its citizens. This was followed by the growth of communism and state-controlled economies in Russia and China. Powerful governments, central planning, cronyism, and massive loot of public money became the order of the day for governments across South America, Africa, Baltics, and Asia.
It was the elections of Margaret Thatcher in UK and Ronald Reagan in the USA in 1979 that finally brought an end to the era of big government. The inability of socialist governments to deliver on their promises of prosperity, security, and social justice led to a profound disillusionment with the government throughout the West. There was a pronounced move away from reliance on the government towards greater economic freedom and free markets, lower taxes, fewer regulations, the rule of law and self-responsibility. Increasingly, people began to see the benefits of free markets and two of its most prominent proponents, economists Frederick Hayek and Milton Friedman, won Nobel Prizes. The Libertarian philosophy, which guided the Bill of Rights and put the citizen at the centre of social and economic progress, was back in prominence.
The next twenty years were a period of high growth worldwide. Average growth rates nearly doubled, and newly liberated countries of Eastern Europe and the Baltics joined the free market revolution. The Asian tigers—Japan, South Korea, Hong Kong, Singapore—also saw unprecedented economic development in the 1980’s and 1990’s. Within a very short period, economic liberalisation and free-market policies had lifted more than 2 billion people worldwide out of poverty. World Bank Statistics show that the percentage of people living in absolute poverty dropped from 60% in 1970 to less than 10% by 1999, despite a more than doubling of the population during the same time. India too joined the economic liberalisation party in 1991, and in less than two decades its growth rate doubled, and poverty levels dropped from 48% in 1990 to 18% by 2005. “We the people of India” were finally enjoying the benefits of our hard work.
But something changed after 2000. Maybe it was 9/11, perhaps it was the bursting of the dot-com bubble in 2000, but the era of big governments slowly started to come back. The power of governments, their reach and size, began to increase in response to the global war on terrorism. As a result, both political and economic freedom began to get curtailed. Governments began to expand and with it the cost to run government bureaucracies. Average government spending as a per cent of GDP in Europe has doubled in the last 15 years. Greece, Spain, Italy are now basically bankrupt states crumbling under the weight of excessive government spending. Brazil’s economy, a beacon of hope a decade ago, is under severe pressure as government spending has increased by 70% in the last seven years. In the US, government spending as a percentage of GDP has almost doubled in the last decade.
And as governments got bigger, global growth rates started to drop. The average GDP growth rates fell by almost 2% (200 basis points) from 2000 to 2015. Empirical analysis of data from 23 OECD countries shows a strong negative relationship between the size of government and GDP growth. As governments get bigger, and the subsidies required to maintain their vote banks get larger, GDP growth rates start moving down.
Bigger governments also require more money to sustain themselves and governments started to pile up debt at an alarming rate. The total debt of all the governments in the world increased from $18 trillion in 2000 to $63 trillion in 2018, an annual growth rate of 7.5% –twice as fast as global economic growth. This is clearly unsustainable.
Why is this important and what is its relevance to corruption? Big government and corruption go hand in hand; they feed off each other. The vast majority of corruption occurs in transactions in which someone from the government is involved–police, politicians, bureaucrats, public works officials, etc. There is little need for bribes in private transactions because they are conducted on a voluntary basis with no coercion. No bribes are required, for example, when transacting at the local grocery store or shopping online. But government transactions involve asymmetric control and authority which create opportunities for government officials to extract bribes. A recent survey by corruption watchdog Transparency International found that 93% of the bribes paid by people were to local, state and central government employees and only 2% to the private sector.
The increase in corruption over the past two decades is a direct result of governments getting bigger and more powerful. It appears, however, that the cycle may be starting to turn around again. And, the biggest disruptor is technology. It has changed people’s awareness of the government, and with it, its relevance. Block technology, for example, now makes government record keeping of property, birth and death records, taxes etc. redundant; internet delivery of essential services has reduced red tape and lowered public interaction with officials, and data and knowledge are better disbursed reducing the informational advantage governments once had. There is little need for the government now except the limited and enumerated purposes it was initially conceived for in the Declaration of Independence: protection of citizens and their property, ensuring a level playing field for commerce, and provision of public goods.
The final nail in the big government coffin maybe an awakened electorate which has started to understand that it is they who wield power and not the politicians. Recent events against corrupt leaders should be a wake-up call to corrupt politicians in India—the world is a much smaller place now. There is no place to hide.