Tuesday, December 22, 2009

Capitalist public administration

Sauvik Chakraverti has a provocative op-ed in the Mint which claims that India’s bureaucracy is wasteful and cumbersome and advocates a "truly capitalist public administration" ("government comprised of magistrates, policemen, judges, jailors and hangmen—nothing more"). While not holding a brief for Indian bureaucracy and even being sympathetic to the accusation, the solution advocated is at best ignorant and at worst dangerous.

Apart from the highly simplified, to the extent of being obtuse, ideological position articulated, there is a shocking level of (wilful) ignorance about the application of abstract concepts like "new public management" to our context. Take the example of the "capitalist administration" of garbage collection, steered by "just one civic official" and "rowed" by the market, to replace the "department with many rungs, recruits thousands of sweepers, buys hundreds of trucks", with its "very big jharoo tender".

"We in India, too, face a spiralling government deficit. In all our cities and towns, huge bureaucracies have been set up which contribute nothing towards improving our lives or our urban environs. These must be sacked and the system of government service delivery drastically reformed. Further, if we save money by contracting out garbage collection, we will have more left over for building roads. In my book, roads and garbage collection must be top priority for all urban local governments — and both must be provided non-bureaucratically."


The underlying assumptions in this arguement include

1. Urban bureaucracies are grossly inefficient and contribute little or nothing towards improving our lives
2. Huge amounts are being squandered by urban local bodies (and their bureaucracies) that is adding to the government deficit
3. Contracting out garbage collection is more efficient and effective than done by government
4. There are private contractors with adequate capacity to step into the shoes of the "department" and collect garbage.
5. That private contractors can do garbage collection cheaper than the "department"
6. That there are piles of money to be saved, which can be used to build roads

The reality is that most of our cities are run on shoe-string budgets, relying predominantly on property taxes and user charges (both lightly levied). India stands alone among major countries where urban local bodies do not get a meaningful share (in some states it is nothing) of the direct and indirect taxes collected by state and central governments. Urban local bodies, except in the metros (and here too small in proportion), receive hardly anything from the "government", to contribute to the "government deficit". And talking about deficits, if only our debt-averse local bodies could actually get themselves to borrow more (and of course the debt market to have the depth to supply the credit)!

About private contractors, one only needs to look at the litter of failed experiments, across cities, with civic services contracting (garbage collection, street-lighting, water and sewerage treatment facilities etc) to realize the shallowness of the "market". The perception that private contractors can do the same service, with better quality, cheaper than government is one of the most enduring fictions in the privatization folklore. For some practical evidence of such "market" interventions, see this, this, this and this.

Apart from all the aforementioned substantive problems, these canards do considerable dis-service to the final objective - efficient and cost-effective delivery of quality public services. Here are just two examples.

One, the perception that urban local bodies (or government "departments") are wasting massive financial resources, which can be saved to finance other activities, is oft-used by many (fiscally constrained) state governments to deny cash-strapped urban local bodies even the the meager resources committed under the Finance Commission recommendations. The slogan is - cut down expenditures and save money to increase revenues! People just don't seem to realize that delivering quality civic services costs handsome money, which has to come from both much higher user charges and share of taxes.

Second, the arguement that we can dramatically transform civic services in our cities by pulling out the "department" and bringing in private contractors is also fraught with dangerous implications. Given the serious problem of supply-side constraints associated with private contracting of works and services, it is only inevitable that there are failures and bad experiences (more failure than sccesses, atleast in the initial years) with outsourcing and privatization, which ends up discrediting the process itself. We need to look no further than the controversial water privatization in Cochamamba, Bolivia (or water supply O&M by Delhi Jal Board and electricity distribution franchising in Orissa) that put privatization on the backfoot and ended up becoming a rallying symbol for opposition.

And finally, Sauvik's priorities, garbage collection and roads, are at odds with the priorities of just about any civic specialist (not just officials and public representatives) which are water and sewerage, along with solid waste treatment. Incidentally, roads, though very important, come much later, so much so that the Government of India refuses to sanction road works under the JNNURM.

None of this is to decry private participation in urban civic services (regular readers of this blog will appreciate its position on the debate!). Nor is it a defense of the department. This is only a note of caution against embracing attractive ideological shibboleths ("city managers using NPM")that grossly simplify the complex challenge of delivering public services in extremely challenging environments with scarce resources. We need "practical public administration" and not "capitalist public administration".

8 comments:

Harish YN said...

Very well replied.

It is true that our three-tier system of governance is highly structured and least empowered. The Urban Local Bodies(ULB) in particular starve to mobilize the resource to meet the demands of the rapid urbanization. The much required political will and actions to devolve more powers to the ULBs is the need of the hour.

The skills and patience of the Indian bureaucracy should be appreciated to meet the growing challenges of urban governance.

Conservative Lounge said...

I am not sure if you are right here. Neither does pointing out to cases prove your point. As far as my understanding goes, private contractors have to pass the regulatory tests of the civic officials before bagging contracts. That's enough of an 'unfree' market for me to dismiss your case against privatization of garbage collection.

gulzar said...

Conservative Lounge,

The practical reality is that there aren't too many (no large one, I can think of) private service providers, with the requisite capability to collect garbage (entire solid waste management chain) for even the not-so large cities, to even appear for the regulatory tests. There is no market itself!

It needs to be borne in mind that you cannot make a linear extrapolation between (the challenges and difficulties of)collecting and disposing garbage (or supplying water or sewerage services) in the sanitized environment of small housing colonies and doing the same in large towns. The variables are just too many to make the former a model.

And one another thing I missed in the post. There is a strongly entrenched stereotyped conception about what goes on in the field (reinforced by the immediate experience of wastage and inefficiency at the micro-level, say an inefficient or corrupt employee) that becomes the basis for much of the prescriptions of the liberals (just as the failure of privatization experiments become the convenient excuse for opponents!). In other words, they conceive a specific (wasteful, inefficient and corrupt) environment and then suggest presciptions based on the sanitized model (of immediate experience).

This fantasy is doubly wrong - the world (including the department, atleast in many places) has changed substantially (for the good) over the last decade or so, and the market is far from ready to step in and replace the "department". So the challenge, atleast for sometime to come, is to use the "market" to make the "department" deliver outcomes more efficiently.

Harish YN said...

I agree with gulzar.

The market forces in India are yet develop relative to the rich OECD countries. The market-oriented and choice-seeking developmental approach of New Public Management can't be blindly copied to our administrative setup. NPM may become a threat to the social equity and inclusion in a vast country like India. It suits more to the OECD economies.

Our traditional system needs to be empowered not discarded. We can afford to practice NPM in some specific sectors in a limited way without jeopardizing the socio-economic ecosystem.

Conservative Lounge said...

Gulzar, my touch with reality is very minimal in this case. But when I talk with businessmen who wanna start a business, the sort of government procedures(which obviously includes all bribes) they have to pass through makes starting a good sized business extremely difficult. And all those taxes and stuffs just take the shit off people's ass.

For example, if I am to trust this source(from which I quote below), India doesn't really sound like a business-friendly country:

"Starting a business takes an average of 30 days, compared to the world average of 38 days. Obtaining a business license requires about the world average of 18 procedures and 225 days."

http://www.heritage.org/Index/Country/India#business-freedom

And if people are ready to pay for garbage collection, I don't find any reason why entrepreneurs wouldn't pop out to exploit the market.

I am surprised that you have also talked of private companies having no chance to carry out things like supplying drinking water. I just wanna let you check out the scam that was exposed in an Indian state where a Russian company which promised to recycle water at very low costs got scared away by the bribe demands and regulatory strictness in the Indian bureaucracy.

gulzar said...

Conservative Lounge,
thanks for your comments.

anecdotage (talking to businessmen, personal experiences, streotypes and perceptions etc) does not make for good public policy conclusions.

"And if people are ready to pay for garbage collection..."

the fundamental issue is exactly this "if", and evidence from across cities appears to point to the contrary! positive, individual "willingness to pay" survey results do not automatically translated into policies. they get filtered through the net of democratic politics and gets entangled there.

India not being business friendly (and I agree with it) is of little relevance to the issue at hand - whether "market" has the requisite depth to deliver these services. Realistically, it will take years, even decades, for us to achieve the same levels of transparency, even if the procedural and bureauctratic regulations are streamlined. We cannot wait for that long. In any case, experience from across the world shows that the "market" has limited presence in many public service infrastructure sectors (I have blogged extensively on this).

And about the Russian company, if there was so much money on the table, why is this Russian company not recycling water in Russia itself? Classic case of demand and supply sides being corrupt and not able to make a deal!! Just check up whether Vivendi, Bechtel or Thames (or even the likes of our own Ramky) could have offered to do the same activity at the same rate?

By the way, recycling of water (for regular use), on commercial scale (not small pilots), is extremely expensive, would cost 3-4 times more than the highest rate charged on regular drinking water supply in any Indian city.

U can uncover such examples across major Indian cities (and especially in the last few years), not just from Russia (and especially in solid waste management), where foreign companies promise spectacular results, get land allocated, avail of fiscal concessions, and the project never takes off!! and like all corrupt deals, these are all nomination deals, done without competitive bidding. And the fundamental reason why cities do not do competitive bidding (or even when they do, nothing much comes out) is that such bids either generates no response (beyond initial inquiries) or results in quotes that are prohibitively expensive.

Conservative Lounge said...

Hi, it's nice to read your blog. So it's good to be commenting here.

Anecdotage seems to be a better bet, trust me. Our hefty planners with doctorates from London have got their *policy prescriptions* quite wrong almost all times throughout history. So, *policy prescriptions*, as intellectual as it may sound hardly works in real economies.

And it isn't a big 'IF'. It's a matter of common experience that business sprout out when people are ready to pay for it. Hey, 'greedy' businessmen are the latest scapegoats for our educated world leaders, no?

The business environment in India has everything to do with this issue. What other index do you want me to look at then?

And regarding the Russian example, you are only reiterating my point on the corruption that is involved in carrying through these deals. And the cause being government regulation and permissions involved in allowing new capital to come in.

Regarding costs of these projects, the government subsidies don't come from nowhere. They come only citizens' pockets. Of course some people may not be able to afford it then. But having a competitive market changes the ball-game into the race to provide cheaper services which is essentially cut-off when you have a monopoly government control.

The scene of government inviting bids itself sounds so regulatory and bureaucratic. All that setting up a recycling plant should require is capital, labor and land; not regulation, license and bids. Goes to show how 'free' things really are.

gulzar said...

thanks for those comments...

is there any place u are aware of where the market does the selection - land, labor, and capital coming together and providing water supply or electricity? a world where the "market" allocates resources for public goods - mass transit, garbage collection, water supply etc?