December 1, 2015The Hindueconomicsgovernance

The unpopular case for paying public officials well

Not all politicians and civil servants will be completely honest, but at the margin, having a higher pay can help reduce corruption.

The Hindu This is from my column in The Hindu (2015-2016)

Of course implementation of the Seventh Pay Commission’s recommendations will have a fiscal impact. Even if this works out to an additional 0.65 per cent of GDP — and the odds are that the estimate will prove to be understated — it would be a mistake to begrudge civil servants and pensioners the additional money.

Now, public opinion anywhere in the world has no obligation to be logically consistent and India is no exception. We think the government must deliver public services, despite us knowing that it is bad at doing this. We expect that the procedures must be carried out by-the-book, but we still engage those consultants” and hangers-on near the regional transport office and the sub-registrar’s office.

An index of our attitudes

It is no wonder then that our attitudes towards remuneration, of public officials, is self-contradictory. We expect that civil servants must be competent, yet instinctively recoil from paying them well. This attitude extends towards elected representatives too. Once on a television show, former Union Minister and Congress leader Mani Shankar Aiyar responded to my argument for realistic pay packages for Members of Parliament by saying that they should be paid the Rs.500 that was set during Mahatma Gandhi’s time. Similarly, there are many people who scrutinise the accounts of non-government organisations and express shock that their staff are paid that much”. A direct consequence of this logically inconsistent attitude is that politicians who are honest have trouble maintaining themselves and their offices, civil servants yield easily to temptation and non-profits find it hard to recruit good talent.

Unfortunately, there are hardly any individuals of sufficient public standing to make out the unpopular case for paying public officials well. Clearly, not all politicians and civil servants will be completely honest, but at the margin, having a higher pay can help reduce corruption. In any system, bad people do bad things and good people do good things. The system works when the balance is in favour of the good. Better pay and social prestige can, at the very least, prevent those who are good from leaving for greener, cleaner pastures. Since there is no way of isolating the good people and paying them better, it becomes necessary to pay everyone better.

Widening governance gap

In any country, the economy and society are usually ahead of the government, which causes a governance gap to emerge. In India, this gap is wide and growing. The only way to narrow it is by increasing the quality and, yes, the quantity of public officials. We do need to minimise government to maximise governance, but that refers to the scope of what the government does; not how many people the government employs.

Despite the perception that our government is overstaffed, the reality is that India has very low numbers of civil servants who are necessary to carry out the basic functions of government. The Seventh Pay Commission refers to this in its report, noting that in the United States, the federal government has 668 employees per 1,00,000 population. In comparison, the Union government employs 139. This is not even considering the fact that under India’s constitutional structure, the Union government has a bigger charter than its American counterpart.

India has one of the lowest ratios of government employees to population in the world. In a World Bank study in the late 1990s, Salvatore Schiavo-Campo, Giulio de Tommaso and Amitabha Mukherjee found that less than 1.5 per cent of India’s population was employed in government, which was behind countries such as Malaysia and Sri Lanka (4.5 per cent) and China (around 3 per cent). In fact, government employment ratios in the rich and better governed West are much higher: around 15 per cent in Scandinavian countries and 6-8 per cent in the U.S. and western Europe.

It turns out that richer countries have more government employees when compared to the poorer ones. In trying to explain why this might be so, the legal scholar, Richard Posner, posits that [perhaps] the relation between a nation’s economy and the percentage of its public workers is determined by a political and social culture that determines what tasks are assigned to government, what incentives and constraints are placed on public workers, and who is attracted to public service. Maybe, with the right combination, public service can be as economically productive as private enterprise.”

Anyone who finds too much traffic and too few traffic policemen; too many foreign policy issues and too few diplomats; too much garbage and too few city officials; too many stray pigs and too few pig catchers (there is only one in entire Bengaluru) will attest to the fact that we actually do need more public officials. The shortage of officials is something that runs through the Union, State and local governments. In the Union government alone, the Seventh Pay Commission reports, there is an overall vacancy of around 18 per cent. It is unable to fill even the sanctioned strength, leave alone raising the numbers to levels adequate to deliver adequate baseline governance.

So, if we are concerned about improving governance, we should be really concerned about how to add strength to the machinery of the government. When you have only around 130 police personnel and 1.2 judges per 1,00,000 population, and you need at least 200 of the former and 10 of the latter, asking whether they are being overpaid misses the point.

Will better pay, perks and pensions be enough? By no means.

Restructuring the bureaucracy

In all the debate over the Pay Commission’s recommendations, what you do not hear is the need to implement the recommendations of the Second Administrative Reforms Commission (ARC), another commission that submitted a series of reports to the Union government through 2009. By no means radical, it still offers several concrete proposals on restructuring the bureaucracy. The civil service will resist change, but it is up to the political leadership to insist that the Pay Commission and the Administrative Reforms Commission are two sides of the same coin. With better remuneration, there is an accompanying need to modernise government machinery. Unfortunately, the United Progressive Alliance government went cold on this. The Narendra Modi government would do well to use the opportunity created by the Pay Commission to implement the recommendations of the Reforms Commission.

Restructuring the bureaucracy involves, as Posner argues, a review of what government employees do, what incentives they face and what type of people are attracted to the job. Many regulators believe their job is to limit the industries they regulate. Unless they are given a new song sheet that explicitly changes their mandate to ensure competition and fair play, they will continue their old ways. Given his comments on the railways, Mr. Modi does not appear to believe in getting the government out of business. That still leaves room for corporatisation and also freeing ownership from direct management of businesses by civil servants. Every civil servant running a business is a civil servant taken away from policymaking and governance.

Today, except for a few departments, we neither appoint nor promote civil servants based on their performance. There are many other criteria — from preventing nepotism to promoting social justice — but the Indian government is perhaps the only organisation in the country where doing the job well” ranks as being relatively unimportant to one’s career prospects. Contrast this with the humble tea stall, where the proprietor is first concerned about the integrity and competence of his employees. An edifice constructed on badly designed incentives cannot be expected to deliver the desired outcomes. Implementing the Administrative Reforms Commission report is the first step in bringing about change of this nature.

Expect the next weeks and months to be consumed by debates on edges”, panels, allowances and pensions that the various civil, paramilitary and military services get. There will be a lot of heartburn, jealousy, genuine grievances and ill-will. These are the inevitable result of an unreformed bureaucracy, but of little consequence to the larger public interest.

The rest of my The Hindu columns are here

What the Modi government should do is announce that, henceforth, India will have a combined pay and administrative reforms commission, reflecting a new mindset. One that is ready to pay its public officials well, increase their numbers, invest in building competency, and, in the same breath, restructure government machinery to remain current with the times. That would do wonders for minimum government, maximum governance.

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