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Will bureaucrats take a pay cut, please?

It was the inaugural address of the National Conference and Annual Session 2007 of the Confederation of Indian Industry in New Delhi on May 24 where the Prime Minister Manmohan Singh set the cat among the pigeons.

Speaking to the audience comprising largely of captains of Indian industry the observations of the PM on the theme 'Inclusive Growth -- Challenges for Corporate India' triggered a series of comments from political commentators, analysts and economists.

Dealing with a ten-point charter, the prime minister outlined the need for a new partnership for inclusive growth model of the Indian economy. While the overall thrust of the speech was centered on the issue of addressing the rising inequality within the Indian economy, the suggestion to corporate India to restrict excessive remuneration and desist from conspicuous consumption as a plausible solution to address the same has set an intense debate.

Further, the prime minister stated, rising inequalities could lead to social unrest, especially when electronic media carries the images of the lifestyle of the rich and famous into every village and slum in India. Such vulgar display of wealth, according to the prime minister, insults the poverty of the less privileged while it plants seeds of resentment in the minds of the have-nots.

While surely the issues raised by the prime minister are profound and merit deep contemplation not only by corporate India, but by one and all, the fact of the matter is that the solution to the issue on hand as suggested is unmistakably Utopian.

Implicit in the argument of the prime minister is the outworn socialist ideas of restricting income generation to reduce inequalities within an economy -- of making the rich poor rather than making the poor rich. No wonder, the above suggestion, however idealistic, romantic and noble it may seem, has been virtually dismissed by the nation that has very recently understood the power of wealth generation.

It may not be out of place to mention that during the mid-sixties when India faced a famine-like situation, as a countermeasure the then prime minister late Lal Bahadur Shastri suggested nationwide fasting on Monday evenings. Silly as it may look at this point in time, especially to the generation that was born after his demise, it has to be noted that virtually the entire nation responded to his call as one man then.

The power of his call can be gauged by the simple fact that even restaurants were closed on Monday evenings. In fact, there was no national debate on what Shastri said, or on the pros and cons of his advice, or on the merits and demerits of his suggestion. That was the towering stature of Lal Bahadur Shastri who led by example. Naturally, he had overwhelming influence on his countrymen.

It could be argued that Manmohan Singh might not have the stature of this illustrious predecessor. Also times have changed and India of the year 2007 is in no way comparable with India of the year 1965. Those were different times when India was an innocent nation. Today's India is a demanding nation, with a generation that is impatient to catch up with the developed world.

Such advice as offered by Manmohan Singh is not only anachronistic to modern times but also out of sync with its current temperament.

But will salary cuts of CEOs help farmers contemplating suicide?
Having examined the prime minister's suggestion in the overall context of why it is being dismissed by the nation, let me turn to specifics. Worldwide, economists have more or less come to the conclusion that it crucial to establish complete linkages between the risk and reward for the overall success of an economy.

Crucially, it has been the experience of countries around the globe that without this link, economies do not work to their full potential or efficiency. And when linkages are established to near perfection, as witnessed in the twentieth century in developed countries, economies prosper rapidly.

Needless to state even communist countries -- which for long held contrary views (as China, for instance) -- have come to the conclusion that it is futile to restrict the reward for the risk undertaken, particularly through governmental or any other artificial intervention.

It is in this connection that one is tempted to quote the late communist leader Deng who said, "It is glorious to be rich."

And when the linkages are established, it is the economic equivalent of a nuclear reaction. This is what is happening in India today, albeit at a limited scale. Decades of repression, state control and restrictions on our business, when removed are indeed having a positive impact on the economy.

Naturally, it must be understood that as economy grows inequalities will increase. And surely one cannot blame the private sector, its robust growth and the universal principle of the risk-reward mechanism for this inequality.

Nevertheless, for long, we have grappled with the idea of dealing with inequality at a superficial level. Our repeated attempts in distributing poverty and not in wealth creation have been our bane for decades. The stated observations of the prime minister are yet again symptomatic of how our political class seeks to deal with this issue without recourse to any objective and rational analysis.

Assuming for a moment that the remuneration of corporate India is indeed restricted as suggested by the prime minister, would the farmer in Vidarbha or elsewhere in the country contemplating suicide benefit in any manner whatsoever? Crucially, does it offer such farmer any succour? The answer will indeed expose the hollowness of the prime minister's idea. Surely the economist prime minister seems to have has lost touch with fundamental economics.

To address inequality, the government has to reinvent itself
This is not to state that the issue of inequality need not be addressed. In fact, we should attempt it through a well-defined, affirmative and comprehensive agenda. As conceded at the outset, the fact of the matter is that the issues raised by the prime minister are indeed profound.

What is unacceptable is the puerile solution offered to solve this problem.

As modern governments find that it is the unbridled initiative of an individual that transforms economies, they also discover that the resultant inequality arising out of this situation needs to be addressed only through State intervention. This is simply because modern economics has not yet developed alternate institutions other than governments to address this crucial issue.

Obviously, this makes the role of the government vital, especially in India. Needless to emphasise, the government needs to reinvent itself along with the changing times.

To improve quality, make bureaucracy the consumer of its own produce
Given the pathetic state of governance in India, it may not be out of place to mention that addressing delivery issues, especially in health, education and rural infrastructure are central to our fight against inequality.

Strangely, despite their overwhelming importance, by their very design these departments are left without any effective monitoring mechanism.

Consequently, services provided by the government to those who need it most are often substandard, inadequate and unsatisfactory. This actually accentuates the problem.

Obviously, we need to think out of the box to address the issue. It may be noted that the producers of these services -- government officers -- are not consumers of the services produced by them. For instance, with the children of government officers being educated in the best of private schools, the government by itself has no vested interest in improving the quality of education in the public schools run by it.

Ditto with public health. With the government officers entitled to seek health services in the best of corporate hospitals, where is the incentive for the government to improve health services?

And the only solution to this vexed issue is to ensure that the children of our bureaucrats are mandated by law to go to public schools. This would at once change the character of the public schools as every government officer would, because of his personal stake, ensure that the public schools run far more efficiently than private schools.

Crucially, this would ease the pressure on private schools. This in turn would bring down the cost of education in India.

This idea can be extended to virtually every government department. The dramatic transformation that it would at once have on these institutions or systems is beyond my comprehension at this point in time. But I am sure that the natural beneficiary of all this would be the aam admi.

For long we have had a mechanism that ensures a complete disconnect between the administrated and the administrators. Unless this disconnect is demolished it is impossible to address the issues relating to our inequality.

Unless this is done, India would have a few islands of prosperity amidst seas of poverty.

It may be noted that these are practical suggestions to address the issue on hand. And it is paramount that our political leadership, cutting across the party lines, demonstrates collective will to solve this problem. For that to happen the prime minister has to first display his ability to take on the vested interests within the bureaucracy.

And should he succeed, my gut feeling is that a grateful nation would be ever-indebted to him. For starters, would he begin with a similar advice to the bureaucracy as he gave to CII?

Published at: http://www.rediff.com/money/2007/jun/07guest.htm

Last modified on Sunday, 07 July 2013 07:36

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