The Financial Express

SUMMARY: Politicians in power accumulate more wealth compared to those who are out of power

Recent convictions in corruption and disproportionate asset cases have once again brought the issue of corruption to the spotlight. A number of recent careful political economy research papers have focused on the issue of wealth accumulation by incumbent political leaders. Such studies have found that politicians who win Parliamentary and state elections grow their wealth at a significantly higher rate over the next five years when compared to the runners-up. This points out at the possibility of (mis)use of political power for personal gain.

Until the year 2002, it was almost impossible to obtain data relating to assets and liabilities of candidates contesting Parliamentary and state elections. Situation changed dramatically in 2002, when, in response to a public interest litigation by the Association for Democratic Reforms, the Supreme Court made it mandatory for candidates contesting elections to disclose their criminal, financial and educational background. The Supreme Court tightened the rule further by mandating the disclosure of assets owned even by close relatives of a candidate. The Association for Democratic Reforms compiles such information filed by the candidates and discloses it publicly. The media has used such a disclosure policy to highlight astronomical growth rate in assets belonging to some politicians.

This data is, indeed, a goldmine for researchers working in the political economy area. The most interesting aspect of this data is that a significant number of candidates contest elections repeatedly. They have to file updated asset and liabilities statements each time they contest elections. This facilitates a time series study of candidate attributes. Such a data allows comparison of asset growth of a candidate between periods when such a candidate is in power and periods when she is not. A number of eminent scholars have used the data to examine various aspects of the functioning of the world’s largest democracy.

Rikhil R Bhavnani finds that an average election winner grows her assets 4% to 6% higher when compared to an average runner-up. Raymond Fisman, Florian Schulz and Vikrant Vig, in a research paper appropriately titled “Private Returns to Public Office”, also obtain similar results. Their research design is quite interesting: Here the comparison is between a pair of candidates who contest two successive elections in the same constituency. One of them is, of course, a winner in the previous election. To fix ideas, let us consider a constituency X where candidate A and B contest against each other in election 1. Let us also assume that they again contest against each other in election 2. In such a situation, wealth growth of the loser after election 1 provides a neat counter-factual to the wealth growth of the winner. These papers ascribe the incremental asset growth of the winner causally to the fact the she holds a public position.

The later study also finds that members of the council of ministers contribute most towards such increase. The growth in the assets of ministers is 13% to 29% higher than non-winners. A number of influential politicians managed to grow their assets by three-digit percentage points even when the rest of the world went through economic turmoil.

However, the mere existence of correlation between election victory and subsequent asset growth is not sufficient to prove causality. It can be argued that winning candidates are more talented than the losers. The same incremental talent that led to election victory may be behind higher rate of asset growth. In short, the argument is that election winners would have grown their assets by a high rate even without having access to power. To counter such arguments, researchers examine the sub-sample of the Members of Parliament who win their last elections in a very close contest. Thus, such candidates although win de jure, de facto it could have been anyone’s gain. Hence, the question of having significantly higher talent does not arise in these cases. Even in such cases, it has been documented that the rate of wealth accumulation is both economically and statistically higher for those that happen to win the election and become Parliamentarians. Another interesting aspect that these papers have pointed out is that the first-time winners do not seem to outperform losers in an election. Incumbents who get re-elected account for most of the incremental asset gains.

It is reasonable to assume that most of the asset declarations are likely to be understatements and, hence, should be taken with the proverbial pinch of salt. However, despite such understatements, researchers have found robust results regarding asset growth. Actual asset growth could be even higher. We are in the process of examining the asset growth achieved by candidates who have contested at least three elections and have tasted both victory and defeat at least once. We compare the asset growth of the same candidate during the five years when in power versus when out of power. We find similar preliminary results as the paper mentioned above. Our research design overcomes the problem of ability influencing results as we compare within a candidate over time. Our preliminary findings also reveal that the chief source of growth in assets comes from growth in the value of real estate.

I hope that voters take note of these results and start examining the asset growth achieved by their incumbent legislators. Incremental growth achieved by the incumbent over and above her opponents can serve as a first warning regarding the possibility of corruption.

The author is associate director of the Center For Analytical Finance,

Indian School of Business

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