Business
Politics and patronage bar to development

Whatever hope there is for economic development depends on a new type of governance, according to criteria of technical soundness and economic efficiency. Decision makers in the public sector, whether Ministers or lesser mortals, will have to give up decision-making on the basis of political advantage and instead adopt decisions in the public interest. The success of the economic growth policies in the developed countries as well as in the East Asian NICs like Singapore, Hongkong, South Korea, Taiwan is due to their adoption of western management processes and techniques and decision-making in their governments on the basis of merit, rationality and economic efficiency.

They did not fall back into feudal ways of government to which all these countries were used to prior to the colonial conquests. The Confucian based cultures had inherited a bureaucracy for governance unlike the Indian subcontinent. So it was less difficult for such cultures to adopt rational criteria for decision-making since the bureaucracy had always been challenged to prove that their decisions are in the public interest and not in their private interest. Of course corruption and nepotism was widespread in the Confucian cultures.

The Predatory State

The traditional state under feudalism both in Europe as well as in Asia was an absolutist predatory state A single ruler — a hereditary monarch, may control the government. The monarch may change but the form of government did not change. Change may also come from palace coups or victory in the internecine wars that took place between kings and pretenders to the throne. There were no interest groups apart from the nobles who were large landowners, on whose land the peasants lived and worked. Interest groups in the modern sense did not exist and there were little or no checks on the power of the ruler. The tradition of checks and balances is alien to the East.

Hume in his essay "Of the Independence of Parliament" wrote "Political writers have established it as a maxim that, in contriving any system of government and fixing the several checks and controls of the constitution, every man ought to be supposed a knave and to have no other end, in all his actions, than private interest. By this interest we must govern him and by means of it, make him notwithstanding his insatiable avarice and ambition, co-operate to public good. Without this....in the end we shall find that we have no security for our liberties or possessions except the goodwill of our rulers; that is we shall have no security at all."

We are today in this sad state where too much power has been given to our politicians with very few checks and balances and where even such checks do not work because loyalty to the party counts for more than truth and moral values — the syndrome of backing our rogues because they are our party rogues rather than theirs. Will the new government succumb to this same attitude of mind? Some Ministers seem to be veering towards the pursuit of political advantage. Pavement hawkers have returned in force not only in Colombo but also in Kalutara. Lets not forget the yeoman service done by Minister Mangala Samaraweera.

UNP crooks and racketeers seem to be rearing their heads once again. Fixing tenders seems to be again beginning judging by the recent actions of one or two Ministers. Will anything change?

Need for rational decision-making in government

Consider what happens in the decision making process today. Professional personnel whether they are teachers, engineers, accountants or Heads of Departments and Secretaries to the Ministries are all appointed not merely on their suitability for the job but also on where they are supporters of the party as in the former one-party Communist states. But a modern state requires expertise and such expertise cannot be found except in a meritocracy where professional ability alone should count. Nor can such experts flourish except in an atmosphere of freedom where the Ministers who in any case are ignorant nitwits, do not treat them as menials.

In Britain the Permanent Secretary ranks equal in status to the Minister while our Secretaries got into the servile habit of addressing them as ‘Sir’. It is the Permanent Secretary who should supervise the departments on behalf of the Minister. Having grown up in the public service he understands the procedures and the rules of management while the Minister unless he himself has managed a large organization in the private sector, will have no appreciation of the rules of management. The penalty for violating the rules of management is administrative atrophy.

Theorists in Public Administration draw a distinction between large and small organizations. The Chief Executive of a small organization will not acquire the management expertise of a management official in a large organization. USA can draw top managers from the private sector to head public sector organizations and do perform satisfactorily. But our private sector consists largely of small businesses and many of them are traders not industrialists. So picking private sector men to head public sector organizations should be with caution.

What inducement will a successful private sector businessman have to join the public sector? The People’s Bank employees are complaining about the large perks and remuneration given to the experts taken on to restructure the Bank. They certainly have a point when they oppose excessive perks to such experts. After all, all banking experts in the country are those who have some time or other worked in the two state banks which monopolized banking for so many years and did so poorly. They could hardly claim exposure to modern banking methods and procedures.

To get back to the point however a Minister must heed the advice of his top officials. He is there only to sell the ideas to the people since most decisions cause pain to the people in the short run although they will bring prosperity in the long run. So no decisions on technical or economic matters should be taken by the President, or the Cabinet without hearing the officials and experts and being guided by them. But once stooges and lackeys of the Ministers get entrenched in public office whether as Secretaries or Heads of Departments, there is no hope for rational decision-making on the basis of objective criteria.

All decisions will then be made with an eye to political advantage or the personal benefit of the Minister. No money will be spent on developing the electorates, which elected the Opposition MPs although the Opposition is an essential element in a democracy. No project will be sited in their electorates although the economics of location would indicate so. As for the investment projects funded by foreign aid the international financial institutions like the World Bank agree that 30-40% of the funds do not go to the project but to fill the pockets of the Ministers and their agents who collect the loot for them. Will the UNP re-establish a politically neutral bureaucracy recruited on merit? Only time will tell. But the odds however are not in favour of such an institution.

The Power Crisis

Consider the present power crisis. It is obvious that supply is unable to cope with the demand and hence there is rationing in the form of power cuts. It is obvious that demand should not have been allowed to explode unless the supplier can meet it at the supply price, which should cover the costs of generation and transmission and also provide a return on the investment. But all governments held down the price of electricity and stimulated an artificial demand through populist programs like rural electrification. The priority should have been to raise the incomes of the rural households so that they can afford to buy the electricity at the cost of production. Instead the Government stimulated demand on the false belief that it would spur economic growth in the rural areas.

We are still enslaved by subsidies. Economists point out that price must be fixed at the marginal cost. The earlier investments in hydropower were no doubt cheap since they were carried out some time ago. But costs of investments go up with inflation. Coal power generation is no doubt relatively cheaper than other sources of power. But even coal power is likely to add to marginal cost even if it were much less than other forms of thermal generation. The marginal cost of adding to the national grid would have to be reflected in the price of electricity. But the cost consists of two components- the fixed costs or overheads and the variable costs.

It is a characteristic of public sector enterprises that fixed costs or overhead costs are excessive. This is due to the tendency of politicians to pack state enterprises with excess staff and the lack of proper incentives to cut costs in a state enterprise. The public is not aware of the cost per unit of the CEB. Nor is the public aware of the fixed costs in the CEB. The general trend is for excessive fixed costs in state enterprise and in fact this is one of the underlying factors why these state enterprises should be exposed to competition. The CEB is of course a monopoly and its managers have no incentive to minimize fixed costs and overheads. Instead the top managers serve themselves first. The Minister should look into the perks and privileges of the top officials of the CEB. They certainly have no right to burden the public by padding costs with their perks. The CEB top officials should be put on rolling contracts and no official should have his contract renewed unless he can produce results.

There is also the enormous loss of power in transmission. It’s said to be about 20%, which is excessive. It denotes the large-scale theft of electricity. What does the Government do to minimize such theft? Nothing much unfortunately and the new Minister should insist that such losses be brought down considerably. It is said that there are a large number of consumers who are not metered and who pay only a fixed monthly charge. The Minister should go into this matter. It is said that a bigwig professor on the ground that they were not accurate enough rejected a local manufacturer who produced meters. Wasn’t it possible to use such meters making an appropriate allowance for the error as statisticians do? If the error can be kept constant, can’t such meters be used? Haven’t the CEB officials heard of second best solutions familiar to economists?

The Government should stand up to pressure groups whether they are its own staff, the clergy, businessmen or environmentalists and act only in the larger public interest. The politicians should lead not follow, should educate the public about what is in the public interest not capitulate to vociferous pressure groups. Nor should Ministers drawn from the minority groups consider only the interest of their minority or favour their minority out of public funds. The Prime Minister must act firmly against such Ministers, come what may.

A nation of stooges and sycophants

The Ministers should realize that we are a nation of stooges and sycophants. So is it with senior public servants, the bureaucrats who work closely with the politicians. They prefer to curry favour with the Ministers for promotions, scholarships, trips abroad etc. rather than fearlessly express their opinions as they are expected to do. That’s why these matters must be taken out of the control of the Ministers.

There are also those businessmen who forge close links with ruling politicians to obtain unfair advantages in business matters. How can there be free and fair competition if the Ministers favour their cronies who are in business. The politicians for their part who seek to favour their supporters; their friends and stooges in the bureaucracy are seeking not to follow the public interest but their political advantage and personal benefit. Where does this leave the public interest? There is nobody then to look after the public interest.


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