governance, political economy, institutional development and economic regulation

Posts tagged ‘Governance’

Let billionaires manage the global commons

Zukerberg

Photo credit: huffingtonpost.in

Facebook CEO Mark Zuckerberg’s pledge to give away 99 per cent of his shares in the company, assessed at $45 billion, is the most recent in a series of over 138 billionaires who have signed the “giving pledge” to donate 50 per cent of their fortunes to charity. The 500 top billionaires in the Forbes list have a net worth of $4.7 trillion. Donations to charity, in the US alone, amount to over $300 billion every year.

Compare this with the fate of the pledge to stop climate change, proposed at just $100 billion every year from 2020 onwards. The nations of the world are scrapping over who should pay how much. Nothing better illustrates the ascendancy of the “box wallahs” (big business) versus the public bankruptcy of nation states.

gatesbuffet

photo credit: http://www.cnbc.com

The leaders of 190 nations of the world and their extensive delegations could have more effectively sought an appoint-ment with the 1,826 billionaires in the Forbes list with a net worth of $7.5 trillion — equal to around 10 per cent of the world’s gross domestic product. With an estimated annual income of around $150 to $200 billion they could potentially make up for the international intransigence in funding the global commons.

Private wealth has always been a metric of success, especially if it is built up within one’s lifetime, if it is legitimate and if some of it is used to do good deeds. Could the talent, which has demonstrated private success, be institutionalised for achieving similar success in global public affairs?

This rhetorical question merits consideration because the governance record of multilateral institutions has been pretty lacklustre, particularly in matters related to promoting the global commons. And time is running out.

Cynics would assert that billionaires are created from unpaid taxes, which they are big enough to avoid paying, unlike common folk. Others may baulk at trusting rich folks with the world’s future — after all many have grown their private wealth at public expense — as is the case with oil, mining and tobacco companies.

Why trust those who don’t walk the talk?

But it sounds somewhat ridiculous that the heads of 196 nations should have more “voice” in managing our future than 138 billionaires who are willing to pledge more money to charity, than all these nations can collectively gather over the next two decades, to protect the global commons.

Big is not beautiful

Have we ballooned the functions of nation states way beyond what they can efficiently do? Is the nation state a “fit for purpose” entity for the new, integrated world order of this century and beyond?

It is conventional to think it necessary to limit the power of the state versus the human rights of citizens — a concept embedded in the principle of the rule of law. It is less conventional to think it necessary to limit the economic functions and fiscal powers of the state. The success of “developmental” states, like China, in sharply reducing poverty and spurring economic growth has bolstered the case for fiscally empowered, intrusive or “nanny” states. The world and India are rediscovering the virtues of public finance-led growth.

This is a sharp departure from the conventional wisdom, which prevailed from the latter half of the 1980s till the 2008 financial crisis, that private investment and management trump public finance options in effectiveness. The 12th Five Year Plan (2012-2017) — incidentally possibly the “last supper” for planning in India — reflected this earlier consensus by relying on private investment for around one half of the plan outlay. The definition of “private investment”, of course, was somewhat disingenuous. Loans taken by a private firm from a publ-ic sector bank were categorised as private investment. Today, such loans, particularly to private infrastructure developers, have turned sour and increase the non-performing assets (NPAs) of publicly owned banks.

Minimum government equals maximum governance

Fiscally muscular, democratic states, with expansive public ambitions, are wasteful and inefficient. Their instinct is to throw money at the problem. This is always the politically safest option though it may not be the most efficient “value for money” alternative. Examples abound. Why is it easier to construct a village school building than to staff it with teachers? Why are public buses in Delhi, bought just five years back during the Commonwealth Games in 2010, increasingly seen on the roads in a breakdown condition? In both cases, a fiscal windfall — a central scheme or a high-prestige project — makes available the capital investment, but there is no link with sustainable revenues for keeping the asset operational over its useful life.

India’s electricity supply industry is another case in point. In the First Five Year Plan, large-scale public investment was the planner’s choice for rapid electrification. More than six decades on, distribution utilities — primarily publicly-owned and managed — have an accumulated loss of $50 billion despite two previous bailouts in 2012 and 2002. Sadly, even on the most easily achieved efficiency metric of transmission and distribution loss, only the private utilities and some public utilities in Maharashtra, Gujarat and West Bengal perform well. In others, between a quarter to one half of the energy input into the grid, never gets billed to customers.

The core developmental function of the government is to regulate by setting standards of performance and by financing the delivery of public goods and services, which the private sector would otherwise have no incentive to supply. In India, unfortunately, our first response is to propose the direct delivery of public goods and services via state-owned enterprises. This in-house option is often preferred as being less time consuming and more controllable. There is also the implicit comfort that no one gets punished for the inefficiency of the public sector. But officers rooting for private sector service delivery face the challenge of having to stand ready to be hauled over the coals for the slightest mishap.

If our concern is jobs and better service delivery, it is only private investment and management which can generate results. Open the gates to the innovative genius of public-spirited billionaires. Why look a gift horse in the mouth?

Adapted from the authors article in the Asian Age December 10, 2015 http://wwv.asianage.com/columnists/let-billionaires-save-world-605

Liberals; smell the coffee please

police

(photo credit: http://www.thehindu.com)

Liberals and human rights advocates are a queasy bunch with no stomach to face up to the honest truth that effective governance implies a better informed and more intrusive government.

Light handed regulation” is the mantra of neo-liberal economics. But such regulation fails unless the regulator can monitor compliance with the rule of law by acquiring more and better, real time data on individuals and business entities.

Take the simple case of ensuring that shop workers are not exploited by owners and get at least one weekly holiday and enjoy restricted, daily, working hours. The “heavy handed” manner this is done is by shutting entire markets down on a specific day and prescribing shop opening and closing hours. The “light handed regulation” option could give shop keepers the liberty to set their own working hours. But to protect workers’ rights, effectively, it would need to generate a real time centrally networked, database of cash transactions- to validate shop working hours and a bio-metric clock- doing the same for employees working hours.  How does this square with the Liberal preference for “small government”?

Consider the case of self-assessment by tax payers. Regulation cannot get lighter than that. But to be effective, it has to be coupled with predictable and significant sanctions against deviant behavior. This means generating a database, on each tax payer, comprising an effective audit trail of all financial transactions and a tax agent randomly trawling this data, using “red flags”, so that deviance can be detected and brought to trial.

Tracking phone call, social media, emails and physical movement of individuals all becomes part of “Big data” which needs to be captured to provide the information required for credible sanctions systems. This is especially necessary, in democracies like India, where all sanctions are appealable and hence must be backed by “judicial quality evidence”.

“Big data” does have unintended but positive outcomes. The clamour, amongst the elite,  for the status symbol of publicly provided, security guards can be greatly reduced, if “security” comes with a GPS enabled, real time, tracking of location and real time reporting, via a smart phone app, of whom the VIP is meeting as a routine procedure.

No Liberal would object to the installation of CCTV cameras where they live, to protect their lives and property. But this comes with the potential downside of intrusive government. Taking cameras closer to people generates “Big data”. Its value lies in the ability to constantly trawl it to prevent crime (or even natural disasters), by identifying “hot spots” and patterns of criminal behavior and to bring criminals to book. Constraints on individual privacy are inevitable. Also there is bound to be misuse, despite checks to prevent gaming; for example the illegal use of individual information, acquired for security purposes, to black mail individuals. There will always be “insiders”, who could trade off any inherent inefficiency in keeping “big data” secure.

Is Edward Snowden a traitor or an American hero? His country folk were divided on the fine point of the “tipping point” between an “insiders” duty to guard official secrets versus the citizens moral responsibility to fight “Big Government”. There is a stark choice between ensuring security and preserving individual freedom. Too much individual freedom (say the right to religious beliefs which may even bar or restrict social integration, as is available in India and the US) can be as negative as too little individual freedom (China, Russia) in the name of national security.

But the flash points where security collides with individual freedom are more often due to “entrenched privilege” being threatened, than the high ground of morality being squashed.  Indian Liberals, who willingly submit to racial profiling and body searches at US and UK immigration, are outraged if an Indian security personnel, so much as dares to question them about what they are carrying in their bags, whilst boarding domestic flights, trains or buses.

Of course most Liberals in India belong to the elite. For them the State and its officials are only to be suffered, not recognised. There is an implicit sense of “entitlement” amongst the elite, who expect to be “served”, even if they dodge their taxes. Much of this springs from the unfortunate spectacle, of fawning subordinates around a preening public official, in much the same manner, as courtiers may have supplicated before our erstwhile Maharajas.

Liberals mourn that there is too little reliance on “trust” and too much emphasis on “surveillance”. But isn’t it ironic, that in the US: the birth place of Liberal policy practices and “small government”, it is “legally enforceable contracts”, which are the life blood of social and even personal interaction. A society governed by “contracts” by definition, is a society which does trust anyone, including the State, to do the right thing.

It is the same with the theory of incentives. The fundamental basis of neo-liberal policy practice is to embed the correct “incentives” in regulations, which then elicit the desired behavioural outcomes associated with the desired results. The provision of artificially embedded incentives, as neo-Liberal policy practice seeks to provide, inevitably come with intrusive metrics of measurement because what is not measured can neither be sanctioned nor rewarded. Regulatory intrusion, big data and “big” government are the inevitable consequence.

In direct contrast, are systems which rely on “belief”, “religion” or “spirituality”. These seek to bind people to a higher morality and blind them to the needs of individuality. Communism is one such “belief” which relies on the morality of the State and not contracts. Of course, it also comes with high levels of State control and intrusive oversight by a bureaucracy of the faithful, exactly as any other religion.

The Liberal position becomes even more laughable when we consider the available “best practice” on poverty reduction; a key objective for developing economies. “Tightly targeted, cash transfers” to the poor is the latest mantra. But these have to be preceded by identification of the poor; close monitoring of their locations and current incomes. In fact, what this requires is a national database of the entire population of India so that we can segregate the poor from the non- poor; citizens from non-citizens and similarly along any other targeted classification (gender, caste, religion or spatial location). 25% of the Indian population is migratory. This requires “spatial location” enabled assessment of their current economic status since poverty levels vary across states. You can’t get bigger data than all these demographics on 1.25 billion people.

The loss of individual privacy is embedded in the logic of extensive digitization of information. Think of the benefits from being able to identify people uniquely; record their demographics (age, marital status, gender, health and education metrics) securely; store transactions securely and access the stored information instantly. If it is alright for the government to be intrusive versus the poor, why is it so horrible for the “privacy” of the rest to be invaded? The much touted right of the individual “to be forgotten” can exist versus other individuals (though how even that could be enforced is not known) but it must never exist against the State.

“Big data” and a better informed government are here to stay. Liberals should wake up and smell the coffee.

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