Ever thought why the corruption is low in Capitalist countries like say US, UK, France, Singapore or Japan but high in countries which follow a socialist model of economy like say India, Pakistan or Islamic countries and highest in erstwhile communist countries like Russia, China etc.?

The difference between Capitalism and Socialism is: in the former Govt. is least involved in business where as in later Govt. controls the major businesses.

India, starting from Independence followed a “mixed” economy. The word “Mixed” meant that both Govt and private will run businesses. Govt is supposed to control all large businesses and private parties controlled small businesses.

Why did such a system result to corruption? 

When we say Govt. controlled business, it means the ruling political party controlled the business. In India, we saw that the ruling political leaders gave the contracts and sub-contracts to those people who were close to them and in many cases were their near and dear relatives. And in other cases, the businesses inside the PSUs were done using bribery. And we saw in India, one political party ruled for several decades. Due to that PSU monopolies were created. No private companies were allowed to do business as the PSUs (due to corruption) remained uncompetitive. And the loyalists if that party got entrenched inside the businesses done by the PSUs directly or indirectly.

But in countries like US, where the businesses are privately owned, these issues never arose. Since there were rarely any monopolies, open competition kept the governance clean.

Why did such a system result to a dynastic rule: 

Lets take the example of Oil PSUs. The petrol pump dealership is given to the relatives of few political families.  When a big chink of the business is controlled by Govt., the sub contacts are given to those people who are close to the political personalities who are in govt. The people who benefit from PSUs will lose business if another political personality comes to power. Hence, they want the same political family to rule. Of course, these issues would not have arose had the businesses been private.

Hence, it is no coincidence we see dynastic politics losing its steam after the LPG reforms started 1990s after PV Narsimha Rao Govt came to power.

And it is no coincidence, we see either dictators or dynasts or both in countries where the Govt. has large stake in country’s businesses.

Further more, it is not a coincidence that corruption skyrocketed in India after the word “socialist” was added to Indian constitution.

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