About Disha Verma

Disha is a student at Harvard Law School. She was previously an Engagement Manager at McKinsey and Company, focusing on public sector and economic development projects.

The Economic Benefits of Golden Visa and Golden Passport Programs: A Response to Professor Stephenson

In the past few months, there has been a healthy debate on this blog about “golden visa” and “golden passport” (GV/GP) programs, following reports by Transparency International-Global Witness and the European Commission on the corruption risk associated with these programs. In his post a few weeks ago, Professor Stephenson goes even further, contending that such programs carry no economic benefit and should therefore be abolished. I respectfully disagree. Even taking the status quo as is, the $28 billion these programs have brought in over the past decade make them a savvy tool for nations seeking to attract investment. All GV/GP programs are not equal, and there are vast differences in the transparency and potential for abuse across countries. Reforming GV/GP programs with high degrees of risk, as discussed previously on this blog, is a better answer than abolishing them, since the concerns raised are straightforward and addressable.

Professor Stephenson’s post focused only on the economic aspect of GV/GP programs, so my response will do the same, but it is worth noting that a lot of the criticism of these programs comes from the ethical questions they raise over whether one should have the “right to buy citizenship.” Though this objection is not my main focus here, I can’t help but point out the irony of worrying about the unfairness of a system that allows the wealthy to buy citizenship against the background of a system that confers the privileges of citizenship simply by an accident of birth, and in which immigration systems are so badly broken that, for example, immigrants to the US face a 150 year-long waiting time for a green cardthrough routine channels. But my main focus here is on Professor Stephenson’s argument that GV/GP programs lack a sufficient economicbenefit to justify the corruption risk, and on this question, I believe he is mistaken. 

Let’s start with some top-line numbers: The sale of EU passports accounted for as much as 5.2% of Cyprus’s GDP in 2017. Portugal’s scheme has delivered close to €4 billion to the economy. Malta enjoys a budget surplus because of its growing trade in residency and citizenship. Over in the Caribbean, income from GV/GP programs has contributed up to 25% of the GDP, and even the majority of government revenue. The outsized impact of these programs is hard to deny. Professor Stephenson does not contest the accuracy of these or similar statistics, but he denies their significance for several reasons, each of which is flawed:

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How Can India Cleanse Its Politics of Dirty Money?

India’s 875 million voters make it the world’s largest democracy. Yet Indian elections, though generally seen as free and fair, have become the country’s “fountainhead of corruption.”Parties and candidates spend billions getting themselves elected—current forecasts predict $8.5 billion will be spent in the 2019 election, making it the most expensive election globally. Much of that money comes from illegal or at least questionable sources, a problem exacerbated by the fact that campaign financing in India is a black box, with no transparency into donors or income sources. Recent changes by the Modi government have made the process even more opaque. And much of the money raised is spent illegally. For example, up to 37% of Indian voters have received money for votes. 

The massive amount that politicians are willing to raise and spend to win elections is understandable when the payoff to the winning candidate is considered. Putting aside any ideological or egotistical motives for seeking public office, there’s also a material incentive: studies have found that, in the years following an election, winning candidates’ assets increase by 3-5% more than losing candidates’ assets, and this “winner’s premium” is even higher in more corrupt states and for winners holding ministerial positions. The material benefits of office may also partly explain the alarming percentage of Indian politicians with criminal histories. Currently, over a third of Members of Parliament (MPs) in the Lok Sabha (the Lower House of the National Parliament), are facing at least one serious criminal charge, and politicians with cases pending against them are statistically more likely to win elections. Moreover, the ever-greater spending on elections means that winners, in addition to lining their own pockets and saving for the next election, need to repay those who helped them prevail. The more money politicians spend on elections, the more they need to earn back or repay through political favors.

The high payoff to candidates who win elections (often because of the opportunities for corruption) both attracts dishonest individuals to seek office and encourages ever-higher election spending, which in turn inspires corrupt behavior to repay debts, whether through money or political favors. Therefore, any serious attempt to reduce corruption in India has to begin with electoral reform. The constitutional body tasked with administering elections in India is the Election Commission (EC). The EC oversees the election process, and it also can issue advisory opinions (though not binding decisions) regarding the post-election disqualification of sitting MPs and Members of State Legislative Assemblies (MLAs). The EC is also responsible for scrutinizing the election expense reports submitted by candidates. But the EC is in many ways a toothless tiger, able only to recommend actions and electoral reform to Parliament, without any real power to fix the electoral system. 

There are, nonetheless, a few things that the EC could do now, acting on its own, to help address at least some of these problems. But more comprehensive and effective reform will require action by the legislature or the Supreme Court.

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