Focus: An Increase In MPs' Salaries Will Be Gift From India!

By Kartik Trivedi in Boston

Higher wages do not deter corruption, as is evident from the Enron and Satyam frauds. By how much would we have to raise salaries to deter a 2G-scale scam and most deadliest Vyapm scam to name a few?

"If we want India’s brightest to take to politics, we had better pay them well", Akshat Khandelwal committee has justified a proposal to increase the salaries of parliamentarians. His argument sounds logical on the surface but contains some deep-seated flaws.

Four points formula:
1. Wage as incentive: A higher wage is an incentive for people to take up politics.
2. Commensurate wage: An MP’s job is tough so an increased wage would be commensurate with his or her duties.
3. Increased wage as deterrent: A higher wage is a deterrent against corruption.
4. Fiscal impact of the wage increase: Total cost of the increase MPs is meagre compared with the size of the Indian economy

Let me address the fourth argument first. The author reports that the total cost of increased wages for MPs of both houses will only be Rs 8 crores. His assertion is right. I would go a step ahead and say that for an economy like India, such a small amount is small change. Leave alone the money we spend on elections, we might be losing even more on public schemes per day because of inefficiency. But a comparative argument cuts both ways. The sum may be meagre in comparison to what we spend on an election, but might very well resolve the farming crisis in Vidarbha.

Coming to the third argument, we all dislike corruption. But if merely a high wage can act as a deterrent to corruption, then there should not have been any Enron or Satyam scams. By that logic, higher wages in the private sector should have prevented corruption there, but that has not been the case.

On the contrary, the effect of wages on corruption is anything but impressive. "[I]n order for developing countries to decrease corruption levels to those of the least 50 corrupt nations, there needs to be an increase of 422.51% in their government wages,” says Vansh Muttreja in his 2012 doctoral dissertation submitted to Duke University titled "Effects of Wages of Government Officials on Corruption in Developing Countries". When payoffs from being corrupt are huge, a wage increase will not be the deterrent one thinks it might, as argued by Van , Caroline Rijckeghem and Beatrice Weder in their paper "Bureaucratic Corruption and the Rate of Temptation: Do Wages in the Civil Service Affect Corruption, and By How Much?", which appeared in the Journal of Development Economics.

The flaw in the logic is not that a higher wage does not reduce corruption. The flaw is that the author considers all corruption to be equal. The economics of low-value corruption, such as a bribe to a traffic policeman, is different from the large-value corruption that we have come to associate with our MPs. The problem of petty corruption can be addressed through wages. But corruption at a higher end, running into millions if not billions of rupees, cannot be solved by increasing wages. By how much do you think we need to increase our MPs’ wages to deter a 2G-scale scam, which involved corruption in the allocation of telecom spectrum to private companies? The better option to reduce corruption is to increase the wages of peons in central government offices.

Tie wages to performance
Take the second argument: being an MP is a tough job. Perhaps this is true, but consider the fact that we have never seen an MP removed from his or her job because of poor performance. Administrators who are appointed to various ministries, however, are removed because of poor performance. If we citizens agree to giving MPs higher wages, should we not also demand performance-based wages?

If an MP misses a day in Parliament, let us demand some stringent and punitive measures against him or her. Why should folks in the civil aviation ministry be paid on a par with those in other ministries when they cannot manage an airline? On the flipside, we do have some good public servants who deserve bonuses, performance-based pay and other perks, all above what they are getting as salaries.

Finally, take the first argument, which I think was the article’s central point. Higher wages do provide an incentive for smart people to take to public service, according to evidence from Mexico, described in a paper "Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service", published by by Ernesto Dal Bó, Frederico Finan and Martin A Rossi, in 2013 in The Quarterly Journal of Economics.

At the same time, the study was done on the lower end of the public-service spectrum, whereas becoming a MP would be at the opposite end of the spectrum. The nature of the job, the political power and investment required to become and remain an MP are very different from that required by a public servant at the district level. The logic that works at a local level becomes tenuous at the central level.

Unfortunately, there is not much research on the effect of wage levels at the top end of the public service hierarchy. But we know that even there, salaries and monetary incentives work only to an extent. Even if we discount the politics involved, individuals coming from the private sector might look for other incentives besides wages, as argued by Martin Dewhurst, Matthew Guthridge and Elizabeth Mohr in "Motivating People: Getting Beyond Money", published in the 2009 McKinsey Quarterly.

But does the government work like a private enterprise? I think not. Public service requires a special desire to forgo wages or monetary incentives in favour of an opportunity to do good to society. Putting a monetary value to that is rather difficult, and more so at the national level.

Attract talent at the lower level
The challenge in terms of attracting talent to Parliament has less to do with wages and more to do with the political economy of becoming a MP. Higher wages won’t solve anything in that regard because of the inherent complexity of politics in this nation. Politicians who reach Parliament generally move through the throes of local politics. This means that the issue of talent in Parliament has more to do with the pedigree of local politicians. If there is any need to attract talent, then it is painfully so at the state and local level.

A political system is complex, and there is no single way of attracting top talent to politics. The process is and will be slow, and it starts with democratic participation at a local level. If we have to think about increasing wages, then I would first consider increasing the wages of municipal representatives. There are some success stories from Brazil, as described by Claudio Ferraz and Frederico Finan in their 2009 paper, "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance" published by the National Bureau of Economic Research

The criticism of the wage increase proposal may or may not be misplaced. But any argument from MPs to support it is self-serving and may not lead to any wide-ranging social good. Higher wages for MPs will only be a gift to them by citizens of India, nothing else.