August 16, 2011

Big governments tend to be bad governments

Creating the constituency against corruption

We Indians seem to love government. And we seem to love a lot of government. Whenever there is an issue to be tackled, we say “the government should do something about it”. When we don’t like something we recommend that the government ban it. Till recently, we all wanted to be employed by the government, in some form or the other. In short, we are a society highly fond of government.

History bears this out. In some sixty odd years of independence, there has been exactly one attempt to decrease the size of the government—by the P V Narasimha Rao government in the early 1990s. It can be argued that the efforts of the United Front and National Democratic Alliance governments in this direction were just a hangover of the efforts of the Rao government.

Even that was by no means painless—the Congress party which headed the government was thrown out by the electorate and sank to new depths in every subsequent election until it made a comeback a decade later with the promise of more government. Rao  was virtually ostracised by most of the political class after his term as prime minister. His right-hand man in those efforts, Dr Manmohan Singh, did make a spirited comeback, but is quite a changed man now.

Recent events have shown that us Indians loathe corruption—at least we want to make a show that we are against corruption by government officials. In certain states, every time a government falls, the new government spends its first few months undoing everything the previous government did—alleging rampant corruption.

What is hard to understand, however, is that the large majority of the country fails to make the simple link between the size of government and corruption. Government officials at various levels have several discretionary monopoly powers—in the sense that if they refuse to do something there is no one else who can do it. A large portion of corruption stems from government officials utilising these discretionary monopoly powers to extract “rents”.

This is not to say that there are no checks and balances in the government—there exist several in order to prevent officials from extracting rents, but the problem is in latency—the time it takes to prosecute, prove charges and take action against someone deemed to be extracting rents is huge, not to speak of the rather low conviction rate. This implies that for the rational and selfish government official, the odds are stacked up in favour of extracting rents.

In order to minimise rent-seeking, there are two possible approaches. The one that has been tried so far, without too much success, is in improving legal processes to make it possible to punish the corrupt quicker and with a higher success rate. The intention is to deter a government official from extracting rent. For example, most states have a Lok Ayukta whose job it is to speed up the process of punishing the corrupt. It is debatable as to how successful this institution has been. The efforts to put in place a Jan Lok Pal (a proposal that has been pending for some 40 years) is again in a similar direction.

The alternate approach is to decrease monopoly powers, so as to reduce the number of people with discretionary powers, which could decrease rent-seeking. What this indirectly implies is that we decrease the size of the government. The question remains as to how we can achieve it.

There are significant hurdles. First, there is our people’s affinity to the government that was mentioned earlier. Second, there is the issue of incentives—which rational self-interested government in its right mind would want to let go of some of the discretionary powers that it possesses? Finally, there is the performance of the then pro-reform Congress in 1996 and the NDA in 2004 elections.

It is crucial, therefore, to educate the public about the link between size of government and corruption. Given the recent protests, corruption is something that is at the top of the public mind, and there is an opportunity to drive home this point. This is the hard, but certain route to good, clean governance. Until the connection permeates the national public consciousness, though, governments and their employees will continue to extract rents, irrespective of the number of government watchdogs who are supposedly trying to control that.

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