What follows is a random, hastily written observation about corruption in politics.
Countries typically have GDPs far in excess of the revenues of most corporations. Even otherwise, leading a country is a significantly more challenging task than leading a corporation. Then why are leaders of countries entitled to far less compensation than say CEOs of companies?
Take the case of Egypt for example. It has a GDP of $500 billion. Hosni Mobarak was at the helm of the country for 30 years. What would be the net worth of a typical corporate CEO who has been heading a company of equivalent size for 30 years? A billion dollars would be easily achievable!
So why are Mobarak’s finances a problem? Well for starters, it is stolen money. And that’s that. There is no excuse for Mobarak to have made that amount of money. But our political systems are set up in a way that incentivizes people like Mobarak to steal.
Say my family owns a business that no one from our family is interested in running on a day-to-day basis. So we decide to hire a manager. Since we own the business, the money it generates belongs to us. We will use that money to pay the manager. We can’t hope to hire a good manager if we offer a bad salary. Or we will find a really smart manager who understands he is worth more than we are offering, but figures that he can bridge the difference by skimming off some money.
I claim that tax payers are unwilling to pay a good salary for the CEO of their country. I claim that our political leaders should be compensated in a manner that is commensurate with the intellectual complexity and importance of the job we hire them for. And the compensation we offer should be competitive with what the private sector can offer. We don’t believe that corporate CEOs do their jobs solely out of the desire to make the world a better place. So why do we expect our political leaders to do so?
There is a problem with this scheme. Once a leader is in power and is raking in the big bucks, why would she relinquish power? I can imagine it is a problem in countries like Egypt where dictators rule for 30 continuous years. But in countries like India, where elections are held frequently and largely fairly, with an independent press and judiciary, this shouldn’t be an issue.
CEO incentives are aligned to the best long-term interests of the company they head, by giving them an ownership stake in the company. If we can come up with a similar system, which gives every leader a fair ownership stake in the country, perhaps one of the big drivers behind top-level corruption will go away.