Category Archives: Accountability

Light, Camera… What is missing is…..

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“If liberty means anything at all, it means the right to tell people what they don’t want to hear.”

 George Orwell

The PM’s agenda of Governance is wrapped up in six impressive sets of buzzwords.

  • Pro-people good governance is about putting people at the center of development process;
  • Minimum Government, Maximum Governance limits government’s role to that of a facilitator;
  • Need for Action, Not Acts is about bureaucratic shift;
  • PPPP (People Public Private Partnership) is about making people partner in policy formation and execution;
  • Sabka Saath, Sabka Vikas defines collective efforts for inclusive growth; and
  • Bring out Red Carpet, not Red Tape for investors.

I remember the old sentiment “Sometimes I’ve believed as many as six impossible things before breakfast” , but then, not everyone is in wonderland.

Unfortunately, good governance is not always available on order. Participation is not synonymous with transparency. Simply adding a fourth “P” in front of PPP does not automatically ensure accountability of the electorate. Getting India’s encumbered bureaucracy to take real action will require much more than the closure of one Planning Commission. Investors will definitely appreciate PM’s red carpet, but once they get to the end of that (very short) carpet, there will still be the same maze of red tape to navigate.

“Governance” is a popular term, but often imprecise and used to mean different things: a minimal state; the introduction of new public management; defining a new process or method of ordering a society, and so on. Similarly, to achieve good governance one will have to work on many ends simultaneously. An efficient, open, and accountable public service delivery will need bureaucratic and political competence, incentives, and most importantly, integrity.

There are many internal contradictions within these six strands too. The PM is silent on the way to resolve these trade-offs and conflicts. For example, how will minimum government be able to deal with the complex choices of PPPs (which seems to be a panacea of this government)? The United Kingdom, for example,had to set up many new agencies to deal with private infrastructure. Today, infrastructure projects are a series of opaque and very complex contracts between private sector sponsors and governments, providing pre-defined utility services. This approach to infrastructure presents major economic, social, and political risks for not only today’s consumers, but also for our future generations. Huge economic rents are inherent and so far neither politicians, nor bureaucracy have scored well on integrity scales anywhere in India, including PM’s “Janmbhoomi” Gujrat. The mere fact of people’s participation will not subsequently guarantee better governance.

100-day milestone for the new government is approaching fast and perhaps it is time for the PM to move away from the Humpty Dumpty approach: “When I use a word, it means just what I choose it to mean, neither more nor less.”

Good governance has to begin with meaningful participation by all stakeholders, open debate about options, and decisive steps forward, where integrity and accountability are demonstrated with…action.

 

 

 

 

And Let the People Rule…….

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The Comptroller and Accountant General of India’s (C&AG’s) address “Social Obligations of Public Auditors” to the Kennedy School has created a mini storm yet again: C&AG chose to take debate about his mandate to what he calls “America’s most elite university”. The question raised is: should public auditors be mere accountants and do arithmetic over government expenditure or should they go beyond their (constitutional) mandate and seek to sensitize public opinions on audit observations? With this new mandate, C&AG hopes to  become an active participant in public governance rather than a mere report pusher.

 

In this new audit model, C&AG advocates broadening his stakeholders beyond the executive, legislature, judiciary and to include civil society, social organizations, media, and the public.  The new normal for C&AG includes three initiatives: first, “the fault-finding auditor”, “wiser at hindsight”, will be replaced with positive and balanced reporter. Second, “Noddy” type booklets and pamphlets on audit observations will awaken citizenry to demand better governance from various departments. And finally, participation of social groups in social audit will give better outreach and inclusion of wider groups.

 

Let me start with  some interesting takes on his approach. C&AG declared in the speech that “Today’s youth is discerning, demanding, and believes in respecting institutions. He is not willing to see politicians subvert these institutions. He seeks a new moral and ethical framework for sustainable governance.“ Seriously? Evidence in India seems to suggest otherwise: numbers at anti-corruption rallies are dwindling forcing Anna Hazare to take a short pause. Unless a critical mass of empowered youth leaders is allowed to emerge and they invest in their own future, their engagement on such issues will remain episodic.  They are more likely to be disillusioned and disengaged against continuous negative flows of global and local news, thus creating a wedge between their intention and action.

 

Second, respecting institutions also means that changes are brought in legitimately, following a due process, and not at the whims or the fancies of its leaders, however good these might be. One should never forget that the role of the rebranded US Government Accountability Office was changed over a very long period. And this was done at the behest of the US Congress, through an act in 2004.  As early as 1967, US Congress asked the then General Audit Office (GAO) to review federal government’s anti-poverty program. In 1974, GAO’s role was expanded to cover evaluation functions. With these changes, GAO no longer was staffed with accountants alone, but included scientists, economists, and other policy experts.  We do not have to follow these steps, but three lessons are worth noting: first, there was an explicit demand for professional and independent support from US Congress to see how government money was spent for the welfare of American people. Second, the change process took over 30 years from the first step in 1967 to the ultimate full recognition and rebranding of General Audit Office to Government Accountability Office.  Third, the organization itself changed to meet the rising challenge and now has become a multi-disciplinary expert agency, well respected by the media and the Congress. Some of these steps are inevitable if the role of India’s C&AG is to change to cover broader mandate.

 

Third, no doubt informed electorate is a key to effective democracy, but informed legislature will necessarily be the important first step towards this end. Even though technology has improved communications a great deal, it is really the Parliament that will have to be the supreme institution of accountability in our democratic society.  In fact Justice R M Lodha, in his famous judgment  “C&AG is not a munim” reminded all of us that C&AG is a constitutional authority and it is for the Parliament to correct the mandate.  Unless C&AG is seen to bring value to the Parliament as a whole, (as was the case for the US Congress), it can snatch a headline or two, but will not deliver the broader mandate of improving governance.

 

Fourth, creating trust requires credibility:  there have been many articles in the Press and in the academic world about the C&AG’s numbers, be that for 2G Scam, or for coal. There are also reports where C&AG seemed to have agreed to suggestions that some of the estimates can be debatable, but having the right number is what I expect from my accountant, more than anything else.  Don’t you?

 

Finally, media and technology enables information dissemination, may even raise social awareness, or assist in crowd sourcing, but certainly, it cannot replace the slow and painful task of institution building. Democratizing accountability sounds great, but will it address our fundamental challenge of development?

 

Sources of Temptations

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For the first time, I find myself agreeing wholeheartedly with Arundhati Roy when she writes about her unease at the developments currently unfolding in New Delhi. Anna Hazare is leading a campaign for strong Lokpal Bill to make India corruption free. Delhi’s Ramlila Maidan is a scene of this protest and Anna is on fast for the last eight days. Generation Y is particularly mobilized and if the media is to be believed, this campaign’s online presence is orchestrated by a Canadian Indian who has worked in conflict zones such as Sierra Leone to Afghanistan, using technology to introduce people-powered politics.

My first concern is that assembling such an enormous crowd on an emotive issue like corruption (which is deceptively easy to reduce to moral absolutes but in reality immensely complicated) without clear leadership is always cause for alarm. To do so in India, which struggles to straddle any number of cleavages, is downright dangerous. Igniting unrest and tension along any one of these societal fault lines is a risk that India cannot afford. The media, in particular, has a responsibility to maintain a balance where all views are heard and debated. The difficult questions must be asked – and answered: Where are the voices of reason? Where is the much-needed political leadership?

Secondly, I agree with Roy’s assessment that Hazare’s fast will not help solve the crisis. Corruption is a major problem, in India and elsewhere, but the scope and means of the current debate are very narrowly focused. Lokpal Bills are not, unfortunately, magical solutions. Weak institutions and even weaker wills ensure that corruption cannot be legislated away; Instead, movements like Hazare’s will only raise false hopes.

Lastly, 2010 and 2011 have borne witness to the undoubtable power of social media to galvanize ideas and mobilize people, especially the youth. But let us be clear: The current situation in India is not and should not be swept into the rhetoric of the Arab spring, or any efforts towards oppressive regime change. India is a vibrant democracy: We allow for debate and dialogue. We do not need support or sympathy from the rest of the world to protest against our own government. In the past sixty years, we have used democratic processes to retire administrations that do not work for our people and to reelect those that do.

Instead, let’s mobilize against the sources of temptations. In the next five years, India is planning to spend a trillion dollars on infrastructure – and how we invest those funds will be crucial not only for our economic development, but also for good governance. Will the government adopt and enforce strong anti-corruption mechanisms? Will the government seek the help of civil society to stop potential leakages? And what will the government do to bring back money already stolen from India?

Ultimately, even if Hazare’s demands are met, corruption will not disappear overnight. Democratizing accountability through crowd sourcing can only be a means to raise awareness, nothing more. We have a long way to go and work has to begin on curbing major sources of corruption.

Democratized Corruption?

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When Jawaharlal Nehru christened the Bhakra Nangal dam the “temple of modern India,” he foresaw today’s reality: Modernity is dependent on infrastructure. But sixty years on, India seems no closer to the dream he envisioned. And the question is inescapable: Why not? Where has the money that could have been used to build our dams, power plants, schools, roads, and research institutes gone?

$1.5 trillion in unaccounted funds parked in Swiss bank accounts reportedly belongs to Indian nationals. This is more than the total deposits of nationals from all other countries. And with tens of other tax heavens dotted around the world, the amount of national wealth that could have been recycled as investments but is instead tucked greedily away in private accounts is unknown. What we do know is that this can happen only in an environment where corruption is rampant. And as multiple scandals break in our newspapers and on our television sets, it is unsurprising that so many of them are infrastructure-related.

But for ordinary citizens like you and I, a figure of $1.5 trillion, while shocking, is ultimately abstract. It means little. So instead I thought of writing about the everyday cases of corruption that we witness personally.

Until just a few years ago, Delhi used to have power outages so often that waiting impatiently in the dark became part of our daily routine. Several legitimate factors were behind these shortages: Inadequate capacity, lack of investments in infrastructure, low power prices, inefficiency across power systems, and an ever increasing demand for power from a growing city. In recent years, energy provision has improved significantly because of sector reforms, new capacity, and the entry of private power distributors. But isolated black-outs continue. What is interesting is that these power problems persist in a number of wealthy residential areas, often affecting single homes – and, in the most unlikely of coincidences, when residents host parties. When a driveway full of visitors’ cars becomes the cause of a black-out, it is clear that technical or structural shortcomings are no longer at fault.

Christmas usually comes early to Manila: From early October carols are played on repeat in shopping malls, lights twinkle along every building edge, and Styrofoam snow sprinkles from rooftops. But along with the usual yuletide spirit comes the inevitable serge of traffic as the city slowly grinds to gridlock. But what’s the connection? Bus-loads of out-of-town shoppers surely add to regular traffic volume. Numerous mega-sale events tempt even the most conservative shoppers out of their homes. Limited public transport and the relatively low cost of driving certainly don’t help. Then there is the basic reality that existing roads are inadequate to deal even with everyday traffic and Christmas simply tips the scale. But these factors provide only part of the explanation. There is one more answer. Invariably, traffic lights are switched off at peak times and even with dozens of policemen on the ground to direct vehicles, traffic comes to a complete halt. But not everyone loses in these tough times: Street vendors make brisk business selling snacks, drinks, and trinkets to the exasperated drivers.

In both these cases, market and government agents have specific information from which to extract economic rent. In Manila, the story is that some traffic enforcers receive pay offs from street vendors benefiting from bored buyers trapped in traffic; In Delhi, some home-owners have to bribe local power company agents to ensure uninterrupted power supply during parties to prevent them from losing face in front of guests.

Clearly, it is not only large-scale corruption in infrastructure investments that raises the transaction costs of business, loss of employment opportunities, or cripples economic growth. And it is the commonplace instances of corruption, those that rarely make headlines, that are far more difficult to fix. In today’s democracies, no one individual or group has a monopoly on corruption.

Four fundamental limitations

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Incentives drive behavior. I believed in this completely and as a result, for a while, both my children grew up with an elaborate incentives framework. It was indeed a short-lived experiment because I found it extremely hard to tailor incentives for my teens.

And so it is no surprise that the era of using incentives for regulation of economic infrastructure seems to be up for a major revision. The process started five years ago. In his last book, Regulation and Development, one of the world’s best regulation specialists, Jean Jacques Laffont presented four limitations of the theory of regulation when applied to infrastructure in developing countries.

Limited capacity is about inability of country’s policy makers to implement policy due to a variety of reasons: lack of financial and human resources available to regulators or even capacity to audit costs that would lead to excessive returns to regulated firms.

Limited commitment by government often creates renegotiations of contracts. There is a widespread belief that institutional weakness makes it impossible for the firms to rely on contracts thus increasing risks regarding prices or demand conditions. Lack of commitment leads to adverse selection in the bidding process and the firms selected are often those who think they have the best chance of success in renegotiations rather than most efficient ones.

Limited fiscal efficiency arises from inefficient tax administration and high cost of public funds. Both these factors limit fiscal space available to government to distribute gains from sector regulations widely across different income groups or support public investments.

Limited accountability is the final institutional failure which leads to collusion and regulator capture. Often government agents are also not the benevolent social maximizers and the media is full of stories of economic rents and corruption linked to infrastructure projects.

Almost all infrastructure problems, be that lack of universal access, high cost of services, poor quality, or wide spread corruption can be traced to these four limitations. Laffont did suggest possible alternative structures, but the world is quite far from a relevant theory of regulation that can mitigate the daily problems faced by infrastructure policy makers.

Why do I bring these four limitations to the forefront today? First, to remind ourselves and academicians that even though five years have passed since the release of this book, we still do not have a workable theory of incentives and regulation of economic infrastructure in developing countries. Second, efforts to overhaul financial sector regulation comprehensively are ongoing but no such efforts are in sight for infrastructure. Surely, there is a need for greater debate. Third, developing countries are investing billions to improve infrastructure and the existing blueprints of regulatory structures borrowed from the developed countries are not delivering. Manila’s water tariffs have gone up four times instead of the promised 50% reduction by water regulator. India’s power costs are set to rise with one and half percent increase in base rate and additional incentive bonus of half percent for keeping the schedule. How many other industries are assured of 16% rate of return by regulators?

India’s growing pains

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Today’s global media is full of stories on India and most of it is certainly not what the Indian government had hoped for five years ago when it signed up for the mess that is called the Commonwealth Games (CWG). The first Asian Games, held in New Delhi too were delayed and had to be postponed from the original schedule of 1950 to March 1951 due to delays in preparations. India was a young nation and the World was perhaps kinder then. Learning from this experience, Delhi was fully ready for the Asiad, the 1982 Asian Games. The planned infrastructure, a new Asiad village with good road network, was all in place, on time. The country also launched color television at that time so that larger numbers of Indians can see the games. No doubt, there were several tense moments, but in the end, India was able deliver. So what is wrong this time? Is it just the scale of corruption?

And though CWG is getting all the attention these days, I want to remind ourselves that most public and semi-public infrastructure projects have suffered similar fate all along for the last sixty years. How would you otherwise explain another grim headline yesterday from New York? UN just released the Energy Poverty report where India tops the global list. Over 400 million people do not have access to electricity in India, the largest single country group. China has managed to give electricity to its billions except just about 8 million. Moreover, 855 million Indians use traditional biomass for cooking, twice the number for China. This is in spite of the fact that India has been planning to provide modern energy sources to all for last several decades. In the transport sector too, we have yet to achieve the pre-independence promise laid out in the 1943 Nagpur Plan connecting all of India to an all weather road-network. Overall achievements on all large infrastructure projects remain illusive, time and time again.

The usual comment one often hears is “a good plan implemented badly”. Prof. Mrinal Datta-Chaudhury in 1990 argued that this dichotomy between the formulation and implementation of a plan is usually false. “If a plan is supposed to be a feasible action program, then it must cover the expected behavior of all economic agents.” Some twenty years later, nothing is changed. India’s planning remains divorced from implementation. India is not, as yet, able to fill the yawning gap between plan and execution because the existing institutions and processes continue to provide perverse incentives: as is evident in the CWG episode, delays usually lead to a lax scrutiny with larger potential pay –offs for those who want to benefit from public money. In fact rent-seeking behavior thrives under delays and mismanagement of large projects. It is difficult to see India getting its seat at the World’s big table without addressing this fundamental flaw in her institutional structures.

Assurances are given to all of us by our political leaders that appropriate accountability will be established in the CWG episode and the guilty punished, hopefully severely. If the results of such a scrutiny helps to instill a better accountability through fundamental institutional changes across Indian political economy surrounding all large infrastructure projects, not all is lost. History will judge this episode, as an expensive treatment of India’s growing pains.