India's largest scam was in its most liberalised sector. Why?

During the debates on Lokpal many argued that the antidote to corruption is competition. They cited telecom sector as an example. With competition, customers got quality services and corruption reduced. It was hence argued that liberalisation is the way to address corruption and instituting lokpal is an incorrect way to address corruption.

Ironically, India's largest scam, the 2G scam, happened in most liberalised sector, the telecom. Why is that so?

It calls for a more nuanced understanding of types of corruption. Corruption can be categorised into two types - collusive corruption and extortive corruption. Extortive corruption is the petty corruption at local level where officers demand bribe to issue certificates. Such corruption thrives under scarcity and monopoly. In collusive corruption, government officials collude with others to do favours.

The liberalisation of telecom sector, allowing private companies into the sector, reduced scarcity of phones and abolished monopoly of BSNL. It thus reduced corruption.

With time, the scope and nature of corruption has gotten complex. Earlier it was about issuing phones. Now, it is at higher policy making levels.

2G scam is an example of shift in nature of corruption from local level to policy making levels. While corruption at local levels could be addressed by abolishing monopolies, the monopoly of government's policy making role can't be abolished. One needs a different mechanism to address such problem.

Unlike petty corruption that's clearly visible, corruption at policy making levels is hard to recognise. It requires strong domain knowledge to detect any such wrong doings, making it difficult to expose. We need more preventive measures in such situations. Deterrence through strong, swift, certain punishment is a strong preventive measure to address corruption at higher levels. Lokpal is well suited to do this.

Without recognising this distinction in nature of corruption and strategies needed to address corruption of different kinds, Lokpal was unfairly blamed for not being suitable to address all types of corruption. Such narrative helped governments to discredit Lokpal and stall it.

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