Wednesday, October 27, 2010

Dilemmas in administration

Here is a parable that illustrates the complexity of emergent scenarios at the intersection between politics, public policy and social objectives.

The Government of Corruptionland decides to build a world-class highway road which would function as a ring road to its capital city of Metropolis. The economic benefits of the road are considerable, immediate, well-established and not disputed.

However, complicating matters is the fact that the proposed alignment comes in the way of land owned by Mr Pirate Ram, one of the most powerful political leaders of Corruptionland. In the prevailing political circumstances, it is impossible to build the road along the proposed alignment against the wishes of Mr Pirate Ram.

The Principal Secretary of Roads Department proposes an alternate alignment which skirts the lands owned by Mr Pirate Ram (note the slippery slope in this line of thinking). Though it does not compromise on the larger alignment and broader objectives of the road, the new alignment would involve displacing considerable numbers of poorer people, besides affecting other people.

Once the new alignment is proposed and some insider brokers access the critical information that Mr Pirate Ram would never permit acquisition of his land, they sense rent-seeking opportunities. They open negotiations with the other land owners along the original alignment offering to save their lands in return for some gratification. In an environment of information asymmetry, the land owners are most likely to agree. This coalition, bound together by a mutually beneficial financial transaction, gathers a momentum of its own, and multiplies the opposition hitherto led by only Mr Pirate Ram.

What are the choices facing the bureaucrat? Wait for the next elections to see out the current government and hope that Mr Pirate Ram's powers would have waned? Or accept the new alignment and structure a generous enough compensation package for the poor land losers? Also ignore the rent transactions that inevitably follows the change in the alignment?

The former would involve many costs - loss of the benefits that would have accrued by way of the road coming in early, higher construction costs, and the considerable risk that the same politician would be able to stall the road even with the new government (money knows no political boundaries!).

Let me therefore situate the problem facing any decision maker.

1. A good quality road has to be built.
2. In its present alignment, the road is a non-starter.
3. An alternate alignment, which does not compromise on the broader objectives, is a reasonable second-best alternative.
4. This new alignment entails loss of property for considerable numbers of poor people.
5. Accepting the alternative alignment creates rent-seeking opportunities.

The alternate alignment would result in Mr Pirate Ram's land being saved and its values rocketing up, the poor beneficiaries would be adequately compensated (if a satisfactory rehabilitation is done), the entire rent-seeking chain would feed on the transactions, and a world class road would get built.

In the second-best world, the Principal Secretary's priorities would appear to revolve around ensuring that

1. the second-best alternative does not compromise on the broader objective.
2. the poor people who lose their lands are appropriately compensated, not only for the loss of property, but also livelihoods (if required). In any final costing, in case of most projects this would be a minor blip.
3. the road is built professionally, within time and with good quality.

The slippery-slope hazard with accepting the new proposal is that it opens the door for similar demands from others whose lands fall along the alignment. And this will inevitably be followed by rent-seeking from those sensing an opportunity to make a quick buck by taking up the cause of the land losers. Sensing the distinct possibility of saving their lands, the land losers too gravitate towards fixers and local middlemen who step in with offers to save their lands in return for a fee. A rent-seeking network develops.

Note: I thought about the possibility of some publicity about the fraudulent activities bringing in judiciary and civil society organizations and getting the road built along the original alignment. The inevitable result would be delays and cost over-runs, even cancellation of the project. It appears that whichever way we see it, the net economic benefits of a good quality road constructed in time exceeds its costs.


choten lama said...

and every crooked thing happening in this country is thus justified!!!

Jayan said...

An old story- badly narrated.

Akbar and co finds a person is taking money from tax payers. Akbar punishes him. Birbal argues the corruption can never be 100% curbed. Akbar was not convinced. They put the corrupt person to count 'waves' in the river. After a couple of days - what did they find? The person was not allowing fishermen to use the riverside as it affected the wave-count. The fishermen then paid small somes and got 'permission' to use river.

When the road is never build or getting delayed many years, Pirate Ram is not affected much. The poor people would have lost more grounds and became more poorer.

The PS should try build road quickly, even if benefit Pirate Ram more than poorer section. More energy could be spent on getting a fair compensation to displaced people.

sai prasad said...

Fortunately for some and unfortunately for some, such decisions are not made simply based on classical economic thinking.

The human sense of right and wrong and circumstances surrouding the issue determine what would get done.

gulzar said...

yes choten, that is the dreaded slippery slope!!

Bhupesh said...

Why not government acquire 4 times required land specially for road projects. 1 part get used in road construction, 2 parts can be distributed back to landlords from whom land was acquired (so every one get half of his land back), and remaining one part can be auctioned to compensate landlords in cash or to build road itself.