In India, we are currently being deluged by media reports about corruption in one form or another. Corruption doesn?t seem to be the exclusive province of either public officials or private corporations. Worryingly, corruption does not appreciably seem to have reduced in the recent past, despite the liberalisation of the economy and high rates of economic growth. (One admittedly controversial measure is that Transparency International?s survey-based corruption index rating for India has barely moved over the past five years, and places India at the same ranking as Jamaica, Albania and Liberia.)
The impact of corruption is disturbing. There is the inevitable concentration of wealth in the hands of a few and the negative effects are disproportionately felt by the poor. Numerous studies by the World Bank, IMF, African Union and DFID, among others, have shown that corruption significantly reduces the provision of public services such as basic health and education to those below the poverty line. Both public and private sector corruption increase the costs of doing business, and act as a drag on the smooth functioning of capital and labour markets.
Is there anything that can be done about corruption in India, or should we simply adopt the misanthropic (and oft-repeated) view that human nature is inherently flawed and there is nothing to be done about the issue? Should we believe that the attendant income and wealth inequality, and the degradation of the lives of the poor are a sad but inevitable outcome?
One useful counterpoint is offered by American history in the late 19th century and the turn of the 20th century, a period known as the ?gilded age?. At the time, the American business landscape was transformed by powerful figures such as Cornelius Vanderbilt, Andrew Carnegie, John D Rockefeller and J Pierpont Morgan. These well-known figures became immensely wealthy and powerful titans over a short space of time and their rapid ascent was controversial?there are numerous reports and a debate to this day about the extent of corruption that they brought to American business and politics. Then something transformational occurred: the birth of modern philanthropy.
In 1889, Carnegie wrote a powerful essay, entitled Wealth, in which he considered how wealthy individuals ought to spend their fortunes. He rejected out of hand the notion that the entire corpus should be bequeathed to one?s family, suggesting that this practice would neither benefit society, nor indeed the family members themselves, as their newfound wealth would act as a significant disincentive to exerting effort. He also rejected the notion that wealth should be appropriated by the state, as ?the cases are not few in which the real object sought by the testator is not attained, nor are they few in which his real wishes are thwarted?. His chosen path and resulting prescriptions to the wealthy are salutary, and serve as useful words to live by: ?…to set an example of modest, unostentatious living… to consider all surplus revenues which come to him simply as trust funds… to administer in the manner which, in his judgment, is best calculated to produce the most beneficial result for the community?the man of wealth thus becoming the sole agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability…?
While philanthropy does not neutralise the effects of corruption, or make it less pernicious, it is a virtuous activity with potentially highly positive effects on standards of public morality. In terms of changing the culture of corruption, it could be transformational. It would help to change the current focus from accumulating wealth qua wealth or status into a more public-spirited endeavour. More cynically, perhaps, substantial philanthropic activity serves as excellent corporate advertising. For example, economists Ray Fisman and Geoffrey Heal present an interesting model in which corporate philanthropy serves as a signal of trustworthiness for corporations who sell goods with inputs whose provenance is difficult to verify (such as fair trade goods).
Carnegie?s tenets have been adopted by many of the wealthy around the world, including most visibly Warren Buffet and Bill Gates and those who have signed up for their much publicised ?giving pledge?. However, with a few notable exceptions, philanthropy on that scale seems strangely absent in India, where, according to a Bain and Company study, only 10% of charitable giving comes from individuals, in comparison to 75% in the US. Part of the reason for these low levels of giving is that the bureaucracy involved in setting up charities is onerous and tax relief for charitable giving is relatively low. These are important policy changes that can easily be implemented.
Another possible reason for low levels of philanthropic giving involves the pattern of Indian equity ownership, which is still significantly tilted towards family-owned and controlled structures. As equity ownership expands to include a broader set of stakeholders, the uses of the profits from corporate activities may also naturally shift towards enriching a broader section of the population. But we shouldn?t have to wait that long. The wealthy, whether they got there honestly or dishonestly, should look long and hard at upping their philanthropic activity.
It offers one way to a brighter future for India?s poor.
?The author is a financial economist at Sa?d Business School, University of Oxford