Overcoming the Malign Effects of Self-Interest

Gurcharan Das writes in The Times of India (15 July) about ‘Capitalist morals’ and his experiences on joining the board of a private company and discovering that the new MD had been compelled to pay a bribe to get a government department to pay an outstanding invoice (here):

“Seventy percent of the company's sales came from this government customer, who had always received 2% of the invoice under the table for expediting payments. The bribe was shared by many state employees. Our new MD, who had joined a year ago, refused to pay the bribe.

Are people honest only because of the fear of punishment? Without checks would people behave like Duryodhana in the Mahabharata? Modern social scientists assume that people are only motivated by 'self-interest'. But is that true? If a child is in danger, don't we have a natural desire to rush and save it? Adam Smith called this sentiment 'sympathy' in his Theory of Moral Sentiments. Rousseau called it 'pity' in his classic, Discourse on the Origin of Inequality.

We are not purely selfish, but our public institutions have to hold individuals accountable. In our case, accountability is eroded because our idealistic labour laws relied on the worker's 'good' nature and his superior's 'bad' nature. Hence, there isn't quick punishment for corruption in the government (while you are sacked in the hour in private companies.)

Institutions have to depend both on the 'good' and 'bad' in human beings. If one is cautious and re-designs government only on selfish motives, you might erode whatever public spirit that exists. But ours was the opposite mistake — we relied on too much public spirit. To restore accountability now you don't need new solutions. Just adopt the accountability systems of high performing governments like Canada and Australia. Even better, follow the recommendations of our own administrative reforms commissions.”

Comment
Corruption is reputed to be endemic in Indian government. That was the impression I got when I studied defence economics in the 70s and 80s. It was certainly not surprising when the massive regulatory regimes of government and large state sector activity were considered, plus tariffs on imports and on exports (I kid you not; ‘if it moves tax it; if its hidden confiscate it’).

Gurcharan Das makes an interesting observation on India’s perspective: too naïve an official attitude that people are good basically and are only bad if treated as if they are, is a theme running through much of the social work community (until, that is they have been about six months in the job).

Pufendorf, a philosopher who influenced Adam Smith’s thinking) commented in 1722 on this sort of idealistic belief by observing ‘it being much more easie to fansie perfect Men than to find them’ (Pufendorf, Law of Nature and Nations, 7.1.6).

In the old Soviet Union, corruption was also widespread. It goes with state controls because with controls those who administer and police them have discretion on what’s allowed and what’s not, and who’s allowed to do something and who’s not, i.e., a potential market in corruption.

I knew a trader operating in the old Soviet bloc, who bought million-gallon quantities of a chemical substance for his western company. He split a fine commission on the per gallon price with the Soviet official who paid it into two Swiss accounts. How do you monitor such activities? Appoint inspectors to find them? That makes for a three-way split into three bank accounts... and so on ad finitum.

“Modern social scientists assume that people are only motivated by 'self-interest'.”

Self interest is much maligned and much misinterpreted. Smith included in a persons’ self interest, a concern for family and so on, through to strangers in diminishing intensity.

He also noted that the European who was supposedly indifferent to 100 million Chinese people losing everything in an earthquake, would (it’s in the next often unread sentences) recoil because ‘when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration’… ‘It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.’ (TMS III.3.4: p 137)

If a society can engender such a ‘superiority of character’ to come to the fore – corruption corrupts those who stand-by and let it pass – then it does not need the fear of punishment to do what is right, but meanwhile that is all we have. Those whose standards drop and who are caught and who go to jail are not indicators of the end of game of a society; they are indicators that its end game is postponed once again.

That Gurcharan Das is discussing the ‘incident’ openly in The Times of India is a huge step forward. Congratulations.