Right To Growth and Good Governance

This article appeared in The Indian Express Op Ed page on October 21, 2013, under the banner, "Right To Growth" Don't people in a Democracy have a right to good governance?
http://www.indianexpress.com/news/a-right-to-growth/1185215/0.

      Economic growth represents opportunity. India’s per capita GDP growth was 1.5% during the notorious License Permit Quota (LPQ) Raj from 1950 to 1980 (Nehru, Indira Gandhi 1).  The reversal of these failed policies in the 1980s (IG 2 & RG) almost doubled the per capita growth rate to 3%. This was further raised to about 5% (1992 to 2012) by the reforms of the 1990s (Narsimha Rao, Atal Bihari Vajpayee). The decline of per capita growth to 2% in 2012-13 has come as a shock to youth who have grown up in the decade of 6% average growth. 

    The media exposure of high level corruption at the Center and pervasive governance failure across the country (States) has heightened the outrage against the government for depriving them of this new hope of a bright future. There is also a perception that the decline in growth is due partly to the indifference of the ruling party and its ministers to the role of economic growth in creating opportunity for all, including generation of revenues so essential for enhancing opportunities for the poor through supply of Public Goods (public health, basic education & employable skills).  For instance despite decades of talk about supply bottlenecks in infrastructure, lack of productivity in agriculture, leakages in PDS-FCI, abysmal sewage systems there is little public evidence that State & Central ministers responsible for areas critical to growth and opportunity, are applying their mind and efforts to solving them. Don’t people in a democracy have a right to Good Governance?

    Perhaps we need, “A Right to Growth & good Governance Act” to ensure that government at every level from the Asha worker or primary worker in the village, to the humblest Babu in the Block office to the DC/DM at the district level to Chief Secretary of the State and all politicians holding office in State governments or autonomous bodies can be held accountable for economic growth.

      The Chinese experience suggests that this could be an effective way of achieving sustained development and faster poverty reductions.[i]  Since 1980, when the Chinese Communist Party (CCP) instituted market reforms, China has had an average per capital growth of 8.8 %, double the 4.3% average achieved by India.  One of the major factors has been its primary focus on economic growth for enhancing national welfare. The objective of maximizing economic growth has helped in achieving a very effective governance system that is highly decentralized in operation while maintaining the unchallenged authority of the General Secretary and the top organs of the party.  The basic objective of growth maximization filters down not only to every level of government and party but also to every State & provincial enterprise and party related enterprise. Within this overall objective, party cadres, govt officials and enterprise managers are relatively free to experiment on the means to achieve faster growth.  More importantly they are effectively rewarded for achieving growth targets. The intensity with which local officials compete to attract investment and the red carpet they lay out for FDI is apparent to anyone who has visited an enterprise zone in China.  

The higher levels of the party continue to provide overall guidance on the broad directions of growth. For instance the growth objective was achieved by incentivizing overseas Chinese entrepreneurs in Hong Kong and China to shift their entire labor intensive export manufacturing facilities to special zones in China.  When this opportunity was exhausted they turned their attention to more sophisticated FDI from developed countries. When export opportunities in developed countries appeared to flag and the Asian crisis struck, the higher level direction changed to using Infrastructure investment and import substitution of the export supply chain to sustain high growth. Thus the use of growth achievement to measure the performance of party members and bureaucrats and to reward them appropriately through promotion and economic opportunities for their family members has allowed them to develop a unique blend of centralization and decentralization that has sustained growth for a historically unprecedented 30 years.

     Though it is impossible to replicate the CCP controlled Chinese system in a democratic country, we can and should give much greater importance to the Growth objective and also use it to reward bureaucratic functionaries to promote good governance.  All public authorities responsible for licensing, permits, quotas and inspection would be judged by the growth of economic activity in their area. Electricity department could be linked to the growth of metered electricity sale and consequent increase in production. Similarly public health workers could be held accountable for the no of workers in their area falling sick due to waterborne or communicable disease and thus reducing production and growth.

    If the Right To Food Act can eliminate leakages, corruption & inefficiency in the PDS/FCI, as evidenced by the government’s calculation of fiscal costs, a “Right to (8%) Growth Act” can achieve wonders in eliminating corruption, improving governance and raising the rate of growth of the economy to its full potential of 8%.

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[i] China’s Socialist Market Economy: Lessons for Developing Democratic Countries,” Working Paper No. 5/2006-PC, Planning Commission, June, 2006. http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm

New Paradigm: Transform Governance

Governance Failure

 Though poverty has declined over the past decades, it has declined less in the poorer states, because the latter have grown more slowly than the country as a whole, with the result that inter-state inequality has increased.  A number of eminent economists have asked us the question, ‘What is the role of the State in dealing with this issue?’ under the proposed paradigm/approach.  Our reading of the ground reality is that most of these States are characterized by pervasive government failure.  Consequently, ‘the State is part of the problem and may not be part of the solution.’ 

            The senior most officials of one such State govt. admitted in a meeting with  peers from Central and State governments that they were not competent to procure excess production or deliver food to the starving.  Hearing this from a member of the elite service, an inheritor of the ‘steel frame of India,’ was a shock.  Similarly, the top political leadership of one State admitted the existing State machinery could not spend money productively and that it would be very happy if development activities could be carried out by anyone else, including the provider of the funds.

The only solution to this incredible failure of governance is to create alternative non-State institutions within such States to build physical & social infrastructure and carry out development tasks, perhaps including some of the basic functions of governance.  There is an even more urgent need than elsewhere to get the stifling hand of government out of the peoples’ business, by downsizing govt and liberalising State laws, rules and procedures, and focussing whatever positive energy the government is able to muster on the ‘basics of governance.’  The mammoth State of UP will perhaps also have be broken up into (about four) smaller States so that the span of state govt. control is more suited to the provision of basic public services and rural development.

The State and its functionaries have accumulated excessive power to the point that it has corrupted them not just financially but in spirit.  Paradoxically the system’s power to do useful work has been undermined, while its ability to do harm has multiplied. Countervailing power must be created to check the power to misuse and to strengthen the ability of the system to do good. Power must be returned to the people from whom it has been usurped and the State and its functionaries made accountable to the people. This will only happen if the State sheds all activities that the people and its institutions, both economic and social, can do, and the State becomes a facilitator instead of a controller.  Only then will the State focus on and accomplish what it alone is able to but has neglected to do.

INDIA VISION 2020

    Over the next decade (or at most two), the people must re-establish their democratic power by forcing the Central and State Governments to undertake the following reforms:

• ·         Review Laws, Rules, Regulations and Procedures to remove distortions and harmful incentives (e.g. red tape, corruption).

• Remove distortions that provide a disincentive to hire labour in the organised sector and encourage capital intensive, non-labour using techniques of production and supply.

• ·         Promote economic freedom and competition in the supply of all goods and services by removing controls on private/non-governmental economic activity and introducing modern professional regulatory mechanisms where needed.

• Regulatory systems are needed for ‘natural monopolies,’ fiduciary financial institutions, education (school and college) and health (food, drugs, surgery).

• ·         Privatize Public sector units producing ‘private’ goods & services.  Corporatise,  unbundle and privatize all departmental public enterprises (except those producing nuclear, aero-space or defense systems).

• ·         Privatize Public Sector Banks and Financial Institutions and move from government oligopoly to genuine competition.

• ·         De-centralize the supply of ‘Public goods and services’ to the lowest possible level of government and empower each level with the appropriate tax and expenditure power based on the principle of subsdiarity.

• Nagarpalikas and Panchayti Raj institutions must have the power to tax local land and property (within specified bands) and to control the supply of local public services.

• ·         Introduce a Right to Information act that gives the unfettered right to people/poor (& NGOs representing them) to all information relating to the expenditures made in their name and ostensibly for their benefit.  Empower user groups to ensure accountability of expenditures and provision of service to these users.

• ·         Government must ensure all its citizens (poor, rural, urban slums) the following basic entitlements:

• Drinking water of acceptable quality for all by 2010. Pollution of drinking water sources should be eliminated and drinking water quality reach global standards by 2020.
• Water harvesting, watershed development, tanks, wells for conserving water for personal, agricultural or other uses in all rural areas.
• Modern sewerage, sanitation waste collection and disposal facilities in all urban and semi urban agglomerations and appropriate systems for all villages. Emerging economy standards by 2010 and global standards by 2020.
• Epidemic and infectious disease control of global quality
• Permanent Road connectivity to all villages.
• Free and compulsory Primary education for all by 2010, followed by universalisation of secondary education by 2020.

• Though government has the responsibility to provide the funds needed for provision of these entitlements it need not produce everything itself.  Wherever more efficient non-governmental delivery mechanisms are available they should be used.

• ·          Reform the Police system by setting up operationally autonomous Police Commission in each State.  A Public oversight committee, with representatives of government and prominent citizens, would also be set up to ensure that the police do not misuse their authority and obey the law that they are charged to uphold.  The monitoring/oversight committee should have the authority to ensure that any policeman that misuses his position or violates the law is given exemplary punishment.

• ·         Set up a National Legal commission to provide similar oversight over the legal system and the neutrality and probity of judges at different levels.

• ·         Introduce a law to debar those against whom criminal charges have been framed in a court of law from holding or standing for election to a public office, till such time as the person has been acquitted.  Set up a special tribunal for expeditiously trying all such cases in which the person wishes to stand for public office or is holding public office at the time of notification of the new law.

• ·         Ensure access of the rural areas to information on crops, non-agriculture and related activities through telecom connectivity (internet, internet telephone) at competitive cost.  This requires immediate access of the private sector to monopoly networks like the telegraph system, elimination of explicit or hidden taxes (e.g. revenue share) on rural telecom provision, and modernisation of agricultural R&D and extension systems (autonomy, management, accountability).

• ·    Replace the myriads of anti-poverty and related programs for the poor by a smart card system that entitles the poor to a consolidated income supplement based on all relevant family parameters (income, health, age, gender) and identification & authentication systems.

"Conclusions"  from the paper, "A New Development Paradigm: Employment, Entitlement and Empowerment,"  Economic and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154. [  NewParadigm4nf ]

New Paradigm: Checks, Balances, Countervailing Power

COUNTERVAILING POWER

A.  Decentralisation

The Central and state governments have accumulated too much administrative power and this power must be dispersed to lower levels of government, the Panchayti Raj institutions (PRI) and Nagar Palikas (NPs).  This requires further changes in the PRI and NP & municipal acts.   The principle of subsidiarity must be applied so that all functions that are best carried out at the lowest level are devolved to them, and a similar allocation is done to the next higher level and so on up the ladder.  In particular responsibility for provision of local public goods (drinking water, primary school, PHC, irrigation water distribution, local roads) must be devolved to PRIs & NPs along with the power over local taxes and any additional funds required.  This is, however, only the first step.  These PRIs must also be made accountable to the local public, so that powerful caste and other sub-groups do not hijack them.

B.  Accountability: Peoples Power

1.    User Groups

One way to ensure accountability for provision of particular services is to require the setting up of specialised user groups for monitoring the availability and quality of specific services.  Thus for instance a user group that includes parents & grand parents of school going children along with the teacher would have a much greater incentive to ensure proper functioning of the local primary school.  The user groups for Primary health centres must have majority representation from senior citizens, potential mothers and mothers of pre-school age children, and disabled/ infirm/chronically sick or their close relatives.  Similarly an oversight group for a  ‘food for work program’ must have adequate representation of the landless and marginal farmers and a water distribution user group must have adequate representation of farmers.

2.    Non-governmental Organizations

The government must also actively support and strengthen self-help groups and civic groups doing social work (NPOs).  The existence of NGO entrepreneurs siphoning off funds for personal use cannot be used to discredit the entire movement, just as the existence of numerous charlatans who have made religion into a virtual industry does not discredit all religious figures.  Vested interests, whether bureaucratic or political, will inevitably make such charges and demands to preserve their own rents.

3.    Co-operatives

The inter-state co-operative law as well as the co-operative laws of States must be modernized to exclude ad hoc intervention by government and increase their autonomy & accountability to members.[1]  Any over sight by government must be through transparent institutions such as an independent professional regulator, who can ensure professional management of co-operatives and accurate audited accounts.

C.  Independent Regulators

There are three sectors of the market economy that clearly need regulatory systems for over seeing private (or government) provision and supply.  These are infrastructure service segments that have ‘natural monopoly’, the financial sector because of its fiduciary responsibility and two social sectors (education & health) because of potentially large and irreversible human consequences.  The modern approach to regulation is to ensure availability of information, transparency and detection & punishment of fraud, lying in the grey area between outright illegality and bad luck. 

Honest, professional suppliers of these services therefore welcome and support such regulation, making them the first line of administration through self-regulatory organizations.[2]  Given the deterioration in Governance in the private sector itself, though for different reasons than in the Public sector (e.g. the low probability of detection, prosecution and punishment for breaking the law), this cannot be taken for granted.  Though regulation can never substitute for a deteriorated police-legal system, there is a need for a quantum jump in the quality of regulation in the financial sector (e.g. co-operative banks, NBFCs, Chit funds).  Development of Regulatory institutions to meet such grave challenges will inevitably take time.   It follows that  privatization of Public sector banks must be done in a gradual manner (i.e. “with all deliberate speed”).  It also follows that entry of foreign banks that have a much stronger culture of corporate governance than old private banks, will be an asset to the financial system and the economy.

There are several reasons for removing the regulatory functions from government proper and putting them in a separate organization.  First, the generalist government has neither the expertise nor the professionalism needed to do a good job of regulation.  A professional organization staffed with adequate specialized skills and knowledge is essential for efficient regulation and this is best created within a separate autonomous and independent organization.  Second, such an organization can be better insulated from the day-to-day pulls and pressures of democratic politics as has been demonstrated in the case of the RBI.  Third, it allows government to act as a higher court of oversight in that it is available to act in the (hopefully) rare situation in which the regulator is tempted to extract rents.

D.  Civil Service Reform

Even if the government restricts itself to its basic functions, the civil service will still be needed to perform these functions.  One view is that the service is too politicized to even perform these functions effectively, unless its autonomy is restored to levels that prevailed during the first few decades of independence.  This requires the process of selection, appointment, posting and promotion to be distanced from politics and made relatively autonomous.  Another view is that once the government sheds all the lucrative rent generating functions that it has accumulated over the years, it will become less attractive to those who view politics and government as a (privately/ personally) profitable business or occupation.  The extreme forms of deterioration can then be controlled through the creation of countervailing power and new checks and balances.  Though efforts must be made to reform the system as proposed in the first viewpoint, in our judgement these are either unlikely to take place or will be effectively undermined by the system.  These efforts must therefore be focused on the most critical area, namely the police.  For the rest of the bureaucratic system it would be more pragmatic to take the latter viewpoint as the working hypothesis.

CHECKS & BALANCES

There is an urgent need to strengthen the checks and balances in the political system.  Though the framers of our constitution paid a lot of attention to the potential for corruption in the bureaucracy, they made the fatal mistake of assuming that all future elected representatives would incorruptible and self less like those who fought for independence.  They could not imagine that the judiciary could also be corrupted.

E.  Criminal Legislators

There is an urgent need for electoral reform to reduce the currently overwhelming incentive for corruption.  If the Neta-criminal nexus is not broken a time will come in the not too distant future when it will become virtually impossible to stop the criminalization of the entire police force.  In our view the minimal elements of a solution are, (a) State funding of elections through a matching funds approach. (b) Freedom to companies to donate funds subject to shareholder approval.  (c) Transparent accounting and mandatory auditing of the accounts of political parties that receive State or company funds. (d) Mandatory bar to running for any political office by any one against whom criminal charges have been legally framed, (e) Special courts to try politicians/potential candidates against whom such charges have been framed so that those who are the object of motivated/false charges can be tried and cleared quickly.[3]

F.   Police

The police force has over time become an important instrument of political power.  The police are therefore no longer an independent instrument for enforcing and upholding the rule of law and for providing personal security to all its citizens. The misuse of police by the political masters for personal ends as well as the use by the police of state power vested in them, for their own personal ends, is not merely a theoretical possibility but a frightening reality.  This enormous power of the police to do harm must be checked before it becomes uncontrollable.

A number of commissions from the Dharam Vira commission to the Law Commission have suggested the creation of a buffer between the political bosses and the day-to-day operation of the police.  One approach is to set up an autonomous police commission in each state along with open and transparent process for appointing the senior officers of the commission.  There is also need for an independent public prosecutor whose job is to take cognizance of, oversee investigation of and prosecute major crimes (e.g. murder, armed robbery/dacoity, kidnapping, rape, police crimes). To ensure accountability to the public, which has become the object of police harassment, each police commission & public prosecutor would be accountable to an oversight committee of representatives from all walks of life (including the administration & judiciary).  This would ensure that the police themselves obey the law and the law-breakers among them are given exemplary punishment.

G.  Media

A free media has a vital role to play in checking the abuse of power by the State.  One of the less remarked benefits of economic liberalization during the nineties has been the flowering and expansion of the media.  Even traditional media such as newspapers and magazines have been galvanized by the entry of new private TV and other media.  A responsible and responsive media can be an invaluable protector of the rule of law and the civil rights of its citizens.  Our media has demonstrated over the past decade that it can do so while taking due care to guard the national interest against hostile foreign nations and the terrorists sponsored by them.  This role can be further strengthened by further decontrol and strengthening of self-regulatory media organizations.

Extract from, "A New Development Paradigm: Employment, Entitlement and Empowerment,"  Economic and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154. [  NewParadigm4nf ]

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[1] A few states such as Andhra Pradesh have already reformed their law.

[2] This approach contrasts with the control approach that assumes that the policy maker or administrator knows exactly what the producer should or should not do in the interest of some higher purpose. 

[3] Penalties could also be prescribed against those who wilfully make false charges.