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'Government should encourage, not prosecute, whistle-blowers'

April 19, 2013 14:48 IST

Tarun Jain of the Indian School of Business, Hyderabad says allowing legal immunity to bribe-givers motivates citizens to increasingly report bribe demands, in an interview with Faisal Kidwai.

The government should encourage (or at least not prosecute) whistle-blowers who bring fraud, corruption and waste to public notice, says Tarun Jain, assistant professor of economics and public policy at the Indian School of Business in Hyderabad, in an interview with Faisal Kidwai

You along with Klaus Abbink and Lata Gangadharan from Monash University and Utteeyo Dasgupta from Franklin and Marshall College recently conducted an experiment to study how those giving the bribe and those receiving it react. Could you tell us a bit about the reasons behind this experiment?

When he was the chief economic ddvisor of India, Kaushik Basu proposed that citizens should not be prosecuted when forced to give bribes after public officials “hold up” delivery of services that citizen are anyway entitled to. For example, imagine that your passport is ready and just has to be handed over to you. Just before giving you the passport, the official asks for a bribe. At this point, you might be forced to give the bribe because not doing so might mean losing your passport.

Basu’s argument was that not prosecuting citizens in such cases would encourage them to report corruption, which might increase chances of prosecution and therefore decrease the likelihood that officials would demand bribes.

The proposal generated considerable debate among policymakers, in the media and among the public. Among the critics, Jean Dreze, who campaigned for the Right to Information Act, said  Basu’s proposal ignored moral considerations (many citizens refuse to pay bribes even under pressure) and did not account for low prosecution rates in corruption cases. Others observed that officials might retaliate against citizens who report bribes, which could reduce the effectiveness of the proposal.

These arguments back-and-forth were made without any data on how citizens would actually behave when bribe-giving is legalised. Since the effectiveness of the proposal depends critically on actual behaviour, Klaus Abbink and Lata Gangadharan of Monash University, Utteeyo Dasgupta of Franklin and Marshall College and I conducted an experiment. The experiment with students in Hyderabad (many of whom unfortunately had an experience giving bribes) examined what would happen if the rules for bribe-giving by citizens (but not bribe-taking by officials) changed as Basu specified. The experiment allowed citizens to take a moral stand against corruption if they wished. The experiment also examined what happens if officials can retaliate against citizens who report them, and how much citizens are motivated by monetary rather than intrinsic rewards.

What were the major results of this study?

The study found that allowing legal immunity to the bribe-givers motivated citizens to increase reporting of bribe demands. Correspondingly, officials reduced the demand for bribes. We also find that despite significant costs, a substantial minority of citizens refuse to pay bribes indicating that the behaviour of many of the participants in our experiment was driven by principles rather than incentives. However, Basu’s proposal by itself did not change the moral authority of the law on citizen behaviour and does not have to be interpreted as a “licence to bribe”, which was one of Dreze’s major concerns.

Implementing Basu’s proposal might face significant challenges, especially when officials are able to retaliate against citizens who report bribe demands. In such situations, the positive benefits (in terms of higher reporting and fewer demands) of Basu’s proposals are wiped out. Basu’s policy proposal can be a credible step towards fighting harassment bribes if accompanied by additional measures that reduce the power of officials, improve the protection of whistle blowers and promote better prosecution of the accused.

The paper is available for free download here: http://papers.ssrn.com/abstract=2166221

Basu has said that for a class of bribes, the law should not punish the bribe-giver. Do you think there should be different laws for bribe giver and taker?

In my opinion, the central lesson from Basu’s proposal and the results of our study is that policymakers should encourage (or at least not prosecute) whistle-blowers who bring fraud, corruption and waste to public notice. Insiders often have the best knowledge of corrupt transactions, and their testimony is critical for successful prosecution. Our experiment showed that protection from retaliation is very important. In fact, anonymity may be an even stronger motivation than monetary rewards to whistle-blowers. Effective anti-corruption legislation should strengthen protection for those who report corruption.

Broadly, in my view, we should encourage and protect whistle-blowers regardless of whether they are bribe-givers or bribe-takers, citizens or officials. And this might be true for corruption in government as well as corporate settings.

Why is there so much corruption at all levels in India? Is it because of lax laws or is there more to it?

In my opinion, corruption thrives because of strong economic incentives. Anti-graft laws typically outlaw specific behaviours but these behaviours are easy to hide or circumvent. The punishments are toothless because prosecution itself is very difficult and takes a long time.

The most effective anti-corruption measures target processes by increasing transparency (such as the Freedom of Information Act in the United States) and protecting those who complain. The Right to Information Act was one of the few measures to increase transparency, but it is disheartening to see attempts to dilute its provisions.

In India, we have witnessed cases (such as those of whistle-blowers Satyendra Dubey and Shanmughan Manjunath) of retaliation against those who investigate or report corrupt activity. Despite this, the Whistle Blowers Protection Bill has yet to be passed by Parliament. And it is disappointing that the bill does not cover the private sector when firms themselves face large losses due to corruption.

In my view, strong protections for whistle-blowers are critical for reducing corruption.

Faisal Kidwai in Mumbai