Here's proof ministers grow assets faster; don't ask how

Team Anna and their ilk may have got it wrong. They have seriously wronged our politicians by calling them names (rapists, murderers, et al), when in fact they are really top-class businessmen. Every time they get elected, they grow their assets better than most businessmen. Shining Path, one of Firstpost’s incisive bloggers, gave you the Full Monty on the acquisitive instincts and hidden talents of our Gandhi-topis (read here , and here and here ), but it needs research from the US to reconfirm what we know is true. Nothing like using Greek mathematical symbols and regression analysis to tell us we are right. [caption id=“attachment_317727” align=“alignleft” width=“380” caption=“Agencies”] [/caption] In a paper titled Private Return to Public Office, Raymond Fisman, Florian Schulz and Vikrant Vig - from Columbia University School of Business, UCLA Anderson School of Management and London Business School, respectively - tell us that winning politicians do indeed grow their assets faster than losers, and that ministers grow their assets even more quickly. In a National Bureau of Economic Research (NBER) Working Paper, the trio say: “In our baseline specifications, we find that winning politicians’ assets grow at a rate that is 3 to 5 percent per year faster than that of runners-up when we employ a basic regression framework; the “winner’s premium" is slightly higher for politicians winning in close elections…” Using another method called regression discontinuity, the authors found that the winners’ premium could be higher at 6 percent asset growth per annum. But the real moolah is in being a minister. The authors note: “Most strikingly, the asset growth of high-level politicians - members of the Council of Ministers (CoM) - is 13 to 16 percent higher relative to control candidates, a divergence that holds for very close elections….This is despite the fact that CoM members earn virtually identical salaries to other legislators.” They add: “Our regression discontinuity estimates imply a 29 percent premium relative to control candidates.” Translated, this means the real value in being a politician lies in becoming a minister. Being just an MLA or MP is not fully conducive to asset growth. Now, why aren’t we surprised? The most intriguing finding is this: newbies don’t make much money by getting elected; only career politicians make a pile. The Working Paper has this to say: “We find that there is a large difference in the winner’s premium between incumbents and candidates that had not previously held public office. There is little financial return to winning for first-time politicians.” The reason given is interesting. The authors suggest that new political candidates don’t grow their assets because they have other earning options beyond politics. As for incumbent politicians, “our estimate of the winner’s premium is 12.6 percent, primarily because of the very low returns earned by incumbents that lose in their electoral bids. This provides suggestive evidence that career politicians have relatively weak earning opportunities relative to public office.” Two or three observations (with due apologies to the authors) can be made cynically: First, to put in crassly, it seems politicians are good for nothing else beyond politics. They grow their assets by sticking to their core competence. It is thus in their interest to stick to office as long as they can, and even bring their sons and daughters into it to consolidate the business. Second, those who do have other job options enter politics only by exception – and usually not to grow their assets. Quite clearly, we don’t have enough of these types, but they are up against the career politicians who may see them as interlopers. Three, the attitudinal gulf between the first set of hardcore politicians and the second bunch of first-timers (which may include politicians, but also serious do-gooders) may be considerable. Our political parties may want more of the former, and Anna Hazare and India Against Corruption more of the latter. Little wonder, the two groups eye each other warily. A tailpiece: Just in case you think politicians make money from corruption, pause a bit. The authors observe: “We are unable in this work to uncover the mechanism through which asset accumulation takes place.” For that, we perhaps need Andimuthu Raja and Suresh Kalmadi to enlighten us.