Sunday, January 1, 2012

Ludwig von Mises on CORRUPTION

Indian parliament passed the so-called anti-corruption Lokpal Bill, but that bill failed to pass in the assembly. People saw the crazy politicians' fighting and tearing the Lokpal Bill in the assembly. Anna Hazare is now in hospital and doctors have advised him not to go on fasting anymore.

Despite this political drama, Indian population still believes that passing of such so-called anti-corruption bills will end the corruption. Nothing could be farther from the truth. As I have repeatedly said time and again, the root of corruption lies in the system of government interventionism in the market economy, and it cannot be rooted out without removing those interventions. Without dismantling the bureaucracies and ministries, it is impossible to remove political corruption.

Recently I am reading Ludwig von Mises's wonderful little book, A Critique of Interventionism. While discussing the harmful effects of government intervention in the economy via direct restriction on production and price controls, Mises discusses the issue of corruption. I am amazed to read these paragraphs where Mises with a great prescience describes the whole phenomenon of corruption. While reading these paragraphs it feels like Mises is talking about the recent Indian corruption issues! He tells us, that the corruption on part of the politicians is not the root cause of the ailing economy; the laxity on part of the various bureaus to enforce various interventionist measures is not the cause of poor economic condition of the economy. In fact, such laxity is what keeps the economy going while under the burden of myriad of governmental interventions! Mises says - as I have said after him - that, corruption is good for the hampered market economy. He and I, of course, are not saying that corruption per se is good and we should not remove corruption if given chance. I abhor corruption to its core. I too don't want to live in a corrupt society. But, as Mises said, corruption is not the root cause of our economic and societal problems. It is just an effect of government intervention in the economy. Government interventionism is the root cause of the poor health of our economy and it is the root cause of corruption too. I quote the paragraphs from the book so that you can understand the issues clearly,
"The economic layman only observes that “interested par­ties” succeed again and again in escaping the strictures of law. The fact that the system functions poorly is blamed ex­clusively on the law that does not go far enough, and on cor­ruption that prevents its application. The very failure of interventionism reinforces the layman’s conviction that pri­vate property must be controlled severely. The corruption of the regulatory bodies does not shake his blind confidence in the infallibility and perfection of the state; it merely fills him with moral aversion to entrepreneurs and capitalists.

But the violation of law is not an evil that merely needs to be eradicated in order to create paradise on earth, an evil that flows from human weakness so difficult to uproot, as etatists so naively proclaim. If all interventionist laws were really to be observed they would soon lead to absurdity. All wheels would come to a halt because the strong arm of gov­ernment comes too close.

Our contemporaries view the matter like this: farmers and milk dealers conspire to raise the price of milk. Then comes the state, the welfare state, to bring relief, pitting common interest against special interest, public economic view against private point of view. The state dissolves the “milk cartel,” sets ceiling prices, and embarks upon criminal prosecution of the violators of its regulations. The fact that milk does not become as cheap as the consumers had wished is now blamed on the laws that are not strict enough, and on their enforcement that is not severe enough. It is not so easy to oppose the profit motive of pressure groups that are injurious to the public. The laws must there­fore be strengthened and enforced without consideration or mercy.

In reality, the situation is quite different. If the price ceil­ings were really enforced, the delivery of milk and. dairy products to the cities would soon come to a halt. Not more, but less milk, or none at all, would come to the market. The consumer still gets his milk only because the regulations are circumvented. If we accept the rather impermissible and fal­lacious etatist antithesis of public and private interests, we would have to draw this conclusion: the milk dealer who violates the law is serving the public interest; the govern­ment official who seeks to enforce the ceiling price is jeopar­dizing it.

Of course, the businessman who violates the laws and regulations in order to produce regardless of government obstacles is not guided by considerations of public interest, which the champions of the public interest belabor con­tinually, but by the desire to earn a profit, or at least to avoid the loss which he would suffer complying with the reg­ulation. Public opinion, which is indignant at the baseness of such motivation and the wickedness of such action, can­not comprehend that the impracticability of the decrees and prohibitions would soon lead to a catastrophe were it not for this systematic disregard of government orders and prohibi­tions. Public opinion expects salvation from strict com­pliance with government regulations passed “for the protec­tion of the weak.” It censures government only because it is not strong enough to pass all necessary regulations and does not entrust their enforcement to more capable and in­corruptible individuals. The basic problems of intervention­ism are not discussed at all. He who timidly dares to doubt the justification of the restrictions on capitalists and entre­preneurs is scorned as a hireling of injurious special inter­ests or, at best, is treated with silent contempt. Even in a discussion of the methods of interventionism, he who does not want to jeopardize his reputation and, above all, his ca­reer must be very careful. One can easily fall under the sus­picion of serving “capital.” Anyone using economic argu­ments cannot escape this suspicion.

To be sure, public opinion is not mistaken if it scents cor­ruption everywhere in the interventionist state. The corrup­tibility of the politicians, representatives, and officials is the very foundation that carries the system. Without it the sys­tem would disintegrate or be replaced with socialism or cap­italism. Classical liberalism regarded those laws best that afforded least discretionary power to executive authorities, thus avoiding arbitrariness and abuse. The modern state seeks to expand its discretionary power—everything is to be left to the discretion of officials.

We cannot here set forth the impact of corruption on pub­lic morals. Naturally, neither the bribers nor the bribed real­ize that their behavior tends to preserve the system which public opinion and they themselves believe to be the right one. In violating the law they are conscious of impairing the public weal. But by constantly violating criminal laws and moral decrees they finally lose the ability to distinguish be­tween right and wrong, good and bad. If finally few eco­nomic goods can be produced or sold without violating some regulation, it becomes an unfortunate accompaniment of “life” to sin against law and morality. And those individ­uals who wish it were different are derided as “theorists.” The merchant who began by violating foreign exchange controls, import and export restrictions, price ceilings, et cetera, easily proceeds to defraud his partner. The decay of busi­ness morals, which is called “inflation effect,” is the inevi­table concomitant of the regulations that were imposed on trade and production during the inflation.

It may be said that the system of interventionism has be­come bearable through the laxity of enforcement. Even the interferences with prices are said to lose their disruptive power if the entrepreneurs can “correct” the situation with money and persuasion. Surely, it cannot be denied that it would be better without the intervention. But, after all, public opinion must be accommodated. Interventionism is seen as a tribute that must be paid to democracy in order to preserve the capitalistic system.

This line of reasoning can be understood from the view­point of entrepreneurs and capitalists who have adopted Marxian-socialistic or state-socialistic thought. To them, private property in the means of production is an institution that favors the interests of landowners, capitalists, and entre­preneurs at the expense of the public. Its preservation solely serves the interests of the propertied classes. So, if by mak­ing a few painless concessions these classes can salvage the institution that is so beneficial to them, and yet so harmful to all other classes, why jeopardize its preservation by ada­mantly refusing the concessions?

Of course, those who do not share this view regarding “bourgeois” interests cannot accept this line of thought. We do not see why the productivity of economic labor should be reduced through erroneous measures. If private property in the means of production actually is an institution that favors one part of society to the detriment of another, then it should be abolished. But if it is found that private prop­erty is useful to all, and that human society with its division of labor could not be organized in any other way, then it must be safeguarded so that it can serve its function in the best possible way. We need not here discuss the confusion that must arise about all moral conceits if law and moral precepts disallow, or at least revile, something that must be preserved as the foundation of social life. And why should anything be prohibited in the expectation that the prohibi­tion will be largely circumvented?"

As you can clearly see, corruption is not the real problem faced by our economy. The economic system of 'government intervention' IS the real root cause of poor health of the economy and corruption. Passing such Lokpal Bills will never remove corruption or cure the ill health of the Indian economy. If we want to remove corruption and improve the economic condition of people, then, we need to remove the government intervention. We need to repeal all the regulations and control over the market. We need to discuss the fundamental issue of the role - if at all any - of the State in our societies. By asking the question of corruption people are making a false beginning. If people will ask wrong questions then they will never get the right solutions. Government will be very happy to indulge people in such useless corruption removal issues as long as they are not asking questions regarding the very existence of the system of the State and its intervention in the market economy.

1 comment:

  1. Many people now rely on their income protection cover to help them get by in case of unemployment. that only means they have already lost their confidence to their elected officials due to corruption.


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