Saturday, July 21, 2012

Controlling institutionalized rent-seeking in engineering bureaucracies

One of the most pernicious forms of corruption is the institutionalized rent-seeking chain that pervades engineering bureaucracies in India. Robert Wade documented the flow of rent transactions among irrigation engineers in South India in decision-making on water discharge into irrigation canals and canal O&M contracts. In simple terms, bribes are transacted in a cascading manner between the contractor or water recipient and public functionaries at different levels. 

A recent op-ed in Times highlighted similar rent-seeking chains in China. I'll stick out my neck and claim that there are "no straight roads" in India too. A well-entrenched rent-seeking chain underpins all roads and other engineering works. Further, this chain, which covers functionaries from the work site inspector to the highest supervisory official, is extremely difficult to penetrate. Conventional approaches to tackling corruption are not likely to succeed much in breaking this chain.

There are two features of the environments in which these works are executed which add several layers of difficulty in their management.

1. The contractors and officials are involved in repeat games, played with high frequency. Engineering officials are likely to be in a post for 3-5 years, and the lower level supervisors are generally non-transferable. Contractors, especially the sub-contractors, have strong local roots, and are regular participants in government works in that area. In addition, both of them have strong links with the local political representatives. A three-way, mutually beneficial and therefore self-reinforcing, long-term chain gets established, both at the personal and also the institutional levels.

In the circumstances, the contractor finds it optimal to pay officials their standard rents, which gets proportionately distributed all along the official chain of command. They internalize this as the cost of doing business at their terms (read, poor quality and slow pace) without being inconvenienced. They also realize that they have to continuously do business with the same functionaries and get their help on expediting various issues related to the construction work. Given this, any major deviation from the standard norms (of rent-seeking) will immediate invite an institutionalized backlash.   

2. The engineers, especially those at the field level, exercise considerable leverage over the contractors. The contractor requires their help in securing the worksite, co-ordinating with other government departments for various services, obtaining permits and clearances for material procurements and transportation, supervising the quality and pace of construction, recording of work done, its sample check measurements, and payment of bills. And the level of engagement required from the officials is very high in certain types of works.

Standardizing the interfaces between officials and contractor is very difficult, even impossible in many of these works. For various practical real-world problems, the process of handing over the worksite, obtaining clearances from other departments, and so on, is a continuous process that is spread over the entire work duration. This is all the more so with road, irrigation, electricity distribution and transmission, urban infrastructure, and similar others with extended worksites.

I am inclined to the belief that the standard approaches to controlling corruption - increased transparency, expedited single-window clearances, standardized work plans and schedules, fixed timelines for work recording and bill payments etc - may not yield the desired results when dealing with such deeply institutionalized rent seeking. Strong enforcement through efforts to detect and punish the errant officials too is not likely to make much dent in this practice. Even innovative outcome-based contracting systems may not be able weaken the corruption chain significantly.

In the circumstances, a more relevant and effective strategy (based on anecdotal personal experiences) to controlling institutionalized rent-seeking corruption in the execution of these engineering works would be to work backwards by tightening quality control during execution. It works on the premise that once the estimates are prepared and work tendered out, if the quality of execution is maintained, there is very little margin for excessive rent seeking.

Currently, the rents come by way of compromises made with the quality of procurements and construction. Therefore, if the quality of execution is monitored rigorously, any rents will have to come at the cost of the contractor's standard profits. This will face strong pushback from the contractors, especially their sub-contractors, whose margins are smaller. It is certain to align incentives and generate enough internal forces to dampen tendencies for widespread rent-seeking and thereby minimize this corruption. 

It would be interesting if someone could study the dynamics behind such corruption and see whether the aforementioned anecdotal story squares up with the reality. 

2 comments:

KP said...

Dear Gulzar,

Enjoyed the post, and I do wish that there will be an opportunity to do such an exercise in such a highly publicised manner that it sets a precedent.

This will create a compelling benchmark for all engg / infrastructure projects to follow.

I am not sure if delhi metro has set such a precedent, or whether the result is purely reflective one man and his likeminded team.

Will be a small step but a definitive one.

(on a lighter note ... apparently an example of honesty and integrity in execution of the metro rail project is only a reference for other metro rail projects only ... is a proof of concept of such integrity such a narrow example ...funny)

regards,KP.

Anonymous said...

yes, this approach will work, and it had worked to some extent in the PMGSY road projects. but after some time, the independent advisers become dependent on the bureaucracy! and the contractors are now often in the third generation! welcome to india!