How attractive is politics

Written by Sharad Raghavan | Updated: May 23 2012, 08:27am hrs
When the public is asked why they think people join public office, that is, become politicians, the most popular (and cynical) response is that the opportunities to make money (legal and illegal) are incredibly vast in politics, apart from the perks of a government-provided car, house, etc. The National Bureau of Economic Research paper titled Private returns to public office, then, is a pertinent study of how much politicians who win elections see their assets grow by, compared to their competitors in the same election.

The authors of the paperRaymond Fisman, Florian Schulz and Vikrant Vigrestrict their data sample to elections in the 24 states that had at least two elections between November 2003 and December 2011, which covers about 94% of Indias total electorate. Making use of the Right to Information Act, the authors have access to affidavits from all the candidates stating the composition and value of their assets. After whittling down the number of candidates to meet their parameters (such as coupling winners and runners-up in the same constituency for an accurate comparison of the gains of public office, taking only those names that appeared for re-election in the second election so that asset growth can me measured, etc) the authors are left with 1,100 candidates.

The findings are revealing. The paper finds that winning politicians saw their assets grow between 3-5% per year faster than those of the runners-up, and this winners premium is slightly higher for politicians winning in close elections. At once, this tells us that though candidates might be homogeneous before the elections (and the authors go through some pains to ensure this, as the runners-up are their control group), post elections there is a divergence in their asset growth, with the ones who won the election better placed to grow their assets faster. More interestingly, the paper finds that highly-placed politicians see their assets grow at a much faster pace. Members of Councils of Ministers saw their assets grow 13-16% more than the runners-up. This disparity between the growth of assets of most politicians and upper-level politicians comes despite the fact that COM members earn almost identical salaries to other legislators, implying that most of their gains are coming from non-salary sources of revenue.

Two points must be made here. The first is that, since this paper takes into account only the declared assets of these politicians, it must be assumed that the numbers provide only the lower bound for their asset ownership (assets are left undeclared for several reasons, including their possible illegal source or simply to evade paying tax on them). The actual asset ownership could be much higher. The second point is that, as Abhay Pethe (an economist with Mumbai University who is guiding a similar ongoing study on Mumbai politicians) pointed out, politicians often have prior information that could greatly aid them in asset creation. For example, knowledge about an upcoming building project that has not been made public yet can be used to buy property in and around the area before the rush starts. Presumably, the higher up the politician is in the chain of command, the more such information he has access to, and can use for his benefit.

The second set of findings of the paper is equally illuminating, this time in getting a gauge on the actual attractiveness of joining politics for the first time, as opposed to the motivation of a career politician. The paper finds that there is a large difference in the winners premium between incumbents and candidates who have never held public office before. Theres little financial return to winning for first-time politicians. In fact, after running the numbers, the papers authors find that there is a negative return for non-incumbents. By contrast, the winners premium for incumbents is 12.6%. This suggests that non-incumbents private sector earnings potentials are at least equal to, if not more than, what they have in public officetheres no financial attraction to joining politics. But it makes sound financial sense for politicians in the game to stick it out, as the returns only grow higher with repeated performances. The reasons for this divergence in the winners premium isnt discussed in the paper in any detail, but one could be that incumbents have learnt from past experience how best to leverage their positions, while new politicians are still learning the ropes.

While it must be noted that this study doesnt take into account either corruption or the benefits accruing to politicians once they leave office due to their lobbying and other activities during power, it provides a good picture of what drives politicians to remain in the running year after year, and why politics itself isnt seen as a very attractive option for private sector players.