BUREAUCRACY: BEARING THE CRACKS
Yugank Goyal[1]
yugankgoyal@gmail.com
(Intern 2005 & LSS Delhi June 2005)

 Bureaucracy, by far, has been the easiest and perhaps the best target of politicians, press and people, when it comes to finding out the reasons for non-performance of any country.[i] And, over the years there has been a strong consensus being generated among the thinking minds of the country that vouches for doing away with the burgeoning bureaucracy. It inhibits the overall growth of the society and assists the government intervention, thus compounding the problem, which has long since ailed our country. And the irony is that despite more than a decade of divestiture efforts and the growing consensus that governments perform less well than the private sector in a host of activities, state-owned enterprises (SOEs) account for nearly as large a share of economic activity in the developing world today as they did twenty years ago. Indeed, in most developing countries, particularly the poorest, bureaucrats run as large a share of the economy as ever.

The economic problems that arise when bureaucrats are in business- that is, when governments own and operate enterprises that could be run as private firms- cannot be laid at the door of bureaucrats alone. To the contrary, bureaucrats typically perform poorly in business, not because they are incompetent (they aren't) but because they face contradictory goals and perverse incentives that can distract and discourage even very able and dedicated public servants. Requiring bureaucrats to oversee businesses better handled by private entrepreneurs places a heavy toll on developing country bureaucracies, diverting attention from problems that only governments can address. The problem is not the people but the system, not bureaucrats per se but the situations they find themselves in as bureaucrats in business. [ii]

All this stands true in the Indian context. We were meant to be a federation of states. However, to facilitate planning, the power to regulate, direct and undertake economic activities came to be centralized in the Union government. Over time, there has been a vast expansion of the Central government, which in 1995 had nearly 3.5 million employees, compared with total employment of about 4.5 million persons in manufacturing in private organizing sector. State government employed 72 million people which was close to the total employment in the entire private organized sector.[iii] Bimal Jalan says[iv] that the expansion of role of government in practically all spheres of the economy in the last fifty years occurred haphazardly; and as the government’s own needs for resources for investments increased, it became necessary to curb or control the private sector’s demands through rationing of foreign exchange, credit controls and industrial licensing.

World Bank has carried out an extensive study of both short and long term effects of bureaucracy and arrived at logical and comprehensive solutions.[v] Various articles hinging upon the study have derived meaningful and topical issues to discuss about. A conclusion that has branched out is that there are three conditions necessary for a successful SOE reform in the complexity and periphery of the political considerations:

§         Desirability: Reforms become desirable to the leadership in two complementary ways. The first involves a change in government: either an outright regime shift (as in Chile in 1973 or the Velvet Revolution in Czechoslovakia in 1989) or a shift in the governing coalition (as in Mexico in 1988) that changes the leadership's constituencies in such a way that those who might lose from -SOE reform are no longer a significant part of the leadership's support base. The second involves an economic crisis- for example, a significant drop in GDP (Czechoslovakia, Ghana, Mexico) or a sharp fall in net foreign assistance (Senegal, Egypt)that makes it increasingly difficult for the government to continue subsidizing SOEs. Empirical relations have also shown that desirability, in fact, is desirable.

§         Feasibility: Reform is politically feasible when the leadership can secure the approval and support of other government entities whose cooperation is critical to success. These include legislatures, bureaucracies and the state or provincial governments that are responsible for formulating policy or carrying out the reform. In addition, the leadership must be able to withstand opposition to reform from potential losers; these may be SOE employees, especially if they are organized, numerous and ready to engage in demonstrations, work stoppages in strategic industries, and other actions which might be costly to the government. The likelihood of opposition is greatest when the enterprise has excess employees- in some SOEs up to 90% of employees may not be needed. In such instances, workers, rightly worried that reform might lead to layoffs, have a strong incentive to resist.

§         Credibility: There are three ways to judge a government's credibility. First, credible governments have a reputation for keeping promises; for example, they announced and implemented overall economic reforms or have not expropriated private firms. Second, they face restraints on policy changes, such as constitutional restrictions which make it hard to overturn legislation. Third, they submit to international restraints, such as trade treaties or loan covenants, which make it costly to reverse reforms.

It is noteworthy in this respect that according to the World Bank data, India enjoys credibility, but neither of the first two advantages, and hence regarded as less successful reforming countries. However, I feel the data regarding size of the government has a lot to speak about.

An economic measure that quantifies a plethora of related issues related to reforms is the Economic Freedom Index, which is again based on assigning numerical values to a number of dependent variables.[vi] Government consumption as a share of total consumption and transfers and subsidies as a share of GDP are indicators of the size of government, which in turn explicate upon the depth to which bureaucracy is impregnated. For the former, Indian ratings have remained almost constant. While in 1990 (period just before the reforms) it was 7.2 (out of 10.0), it stood at 7.0 in 2003 (with an intermediate fall to 6.7 in 2000). Similarly, transfer and subsidies India has a decent rating of 8.4 in 1990 to 8.6 in 2003, without much deviation in between. The point of the matter is not that there is no substantial increase in the rating in last ten-twelve years but that this rating ranks India at higher place in the list under this sub-head.

A third component in this area measures the extent to which countries use private rather than government enterprises to produce goods and services. Where India’s score was actually a zero in 1990, it has seen only a noteworthy increase to 6.0 in 2003, and has shown a consistent rise. But the bone of contention arises when we consider it still less than in many other countries.

India’s score in EFI by the Heritage Foundation shows a pathetic scenario. We need to assess our problems (which actually abound), and apply a suitable correction. Reforms in India slowed their pace and started losing momentum during the end of the last century. We need to come back, with a new vigour and vitality to restructure the whole bureaucracy that has disparaged many other constructive efforts of ours. That bureaucracy is inefficient and needs to be done away with, needs no debate; as it has generated a near unanimity in the viewpoints. Just before the Civil Service Reform Act of 1978 was passed in the US, a National Journal article[vii] about bureaucratic reform began: “Bureaucrats. If you are not one of them, you probably can’t stand them. You figure that they are lazy and overpaid, that they arrive at work late and leave early and take long lunch hours. But you can’t do anything about it, because it’s impossible to fire a bureaucrat.”