Thursday, March 28, 2013

The economics of an election

My state is coming into election time. The politics of it - who will win; who will lose, etc is beyond the purview of this blog. But this blog will certainly muse on the economics behind it.

I am foxed as to why anybody wants to stand for any election - for the economics behind this is akin to a Las Vegas casino. On a conservative estimate, each candidate would spend about Rs 15 crores in each assembly seat ( see this speech as evidence of such numbers). More than three quarters of it is not for campaigning, but to bribe the voters (shame on you and me). Traditionally it used to be just cash and liquor.  But apparently now even water drums, watches, sarees and T shirts feature, as evidenced by this photograph and this article from The Hindu today.

The number of assembly constituencies in Karnataka is 224. There are four political formations in the fray. So that makes for 900 serious candidates. At Rs 15 crores per candidate, that amounts to an expenditure of Rs 13,500 crores .  Karnataka's GDP is about Rs 4,60,000 crores. So, something like 3% of GDP will be spent by candidates - that by any stretch of imagination is a staggering sum.

As JP Narayan, says in the video I refer to earlier, you have to spend this money to stand a chance. Spending it does not guarantee victory, but not spending it guarantees defeat. So, if you stand, you have to spend.

Consider for a moment, the ability to have a sum of Rs 13500 crores created for spending. Since much of the spending is illegal, the money has also to be generated by questionable means. It is actually not so easy to siphon away 3% of GDP - even corruption has its limits. Add the problem of keeping Rs 13500 crores in cash. If it is all packed in Rs 500 notes, each crore weighs 34 kgs. So Rs 13,500 crores weighs 460 tonnes - that is 46 lorry loads. You can't brazenly transport 46 lorry loads around - some will be stolen, some will be seized by the Election Commission officials, etc etc. And consider the logistics of buying so much liquor (and water drums). Its a mammoth logistics exercise and all has to be done surreptitiously.

And there can be only one winner in each constituency. What about the three blokes who lost. They have washed Rs 45 crores down the drain. They will virtually be bankrupted, for there is no way to earn it back until the next elections and , even then, only if they win. For the winner, he has to recoup a decent return on his investment - let us say he must make Rs 60 crores - to recoup a return on his investment and to create the capital for the next election. That is also not easy -  each winner to make Rs 60 crores is not an easy task.  A few can make that, but for everybody to make this sort of an amount is a tall order, however brazen the corruption is. And this alone is not enough, for each of his hangers on wants to make money as well. 

If you put your money in a bank deposit you can make 50% in 5 years, virtually risk free. With a little more luck, in the stock market or in gold, you can double it in 5 years. So, why take such wild risks for relatively meager returns and the possibility of losing it all. Obviously economics is not the strong point of those who stand for elections.

Many of the citizens are disgusted with those who would like to be our elected representatives. The best way to give them a big knock on their head is to vote such that the government will fall every year and elections are needed. Three elections in three years is enough to bankrupt them all. And then, maybe fresh air will emerge.

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