GOVERNANCE REFORMS CONFERENCE 13 and 14 April 2013, New Delhi DRAFT SLIDES FOR PUBLIC CONSULTATION...
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Transcript of GOVERNANCE REFORMS CONFERENCE 13 and 14 April 2013, New Delhi DRAFT SLIDES FOR PUBLIC CONSULTATION...
GOVERNANCE REFORMS CONFERENCE
13 and 14 April 2013, New Delhi
DRAFT SLIDES FOR PUBLIC
CONSULTATION26 March 2013
WELCOME ADDRESSSanjeev Sabhlok
Objective of this Conference
To identify reforms to governance frameworks that will lead India to world-class governance Public administration framework Economic policy framework Regulatory policy framework
The Conference will not identify policy reforms to specific sectors, eg. Education, etc.
Structure
Two part presentation by Sanjeev Sabhlok Will be uploaded later on Youtube
Detailed workshops by participants on key topics Some papers to be presented and discussed
Action plan/ recommendations prepred for use by: Government of India Major political parties Future political parties and reform movements
Conference Report to be published
INAUGURAL ADDRESSGurcharan Das
Inaugural Address: Gurcharan Das
World renowned author
India Unbound and
India Grows at Night
CHAIRMAN’S REMARKST N Chaturvedi, Chairperson IIPA
HOW WE - TOO – CAN GET WORLD CLASS GOVERNANCE
Sanjeev Sabhlok, former IAS (1982 batch)
Distillation of key learnings from over 30 years of experience in the IAS and Victorian Public Service
Given limitations of time I will focus on frameworks (systems): Public administration system Economic policy system Regulatory policy system
Plan of my presentation
Part 11) Theory of good governance2) India’s system compared with Australia’s system3) Public Administration reforms for India
Part 24) Economic policy reforms for India5) Regulatory policy reforms for India6) Transition from India’s system to world-best system
1. THEORY OF GOVERNANCE
Crucial importance of meta-policy: policy about policy
We need to start at the highest level of thought
What is policy and what should it consider?
We need a policy about policy Frameworks and systems
Without clarity on the policy concept and policy process (frameworks) bad policy will invariably emerge
Two main questions to ask
What should a government do? Are there limits to what a government can
do? How do we arrive at these limits (eg. net
benefit test) How should it do it?
How can a government comprising self-interested politicians and bureaucrats do what we want it to do? (public choice theory)Policy that doesn’t consider both these
issues will be fundamentally flawed
The “What” must be well thought out “Bad administration, to be sure, can destroy
good policy, but good administration can never save bad policy.”
- Adlai E Stevenson Jr
The “How” must also be well thought out Policy that is unable to pierce the veil of
incentives during implementation is bad policy
Good policy necessarily considers implementation issues
This is what we want
Goal
This is what we get
OurGoal
Bureaucrat
(black box)
…. by failing to think about the politician’s and bureaucrat’s incentives
Bureaucrat’s goal
Sequencing of my talk
I will discuss the “How” first Public administration reforms
Then I will discuss the “What” Policy framework and gatekeeping Economic policy
A word re: Arthashastra
Arthashastra underpinned India’s past success
For 12 out of the past 20 centuries India was the world’s wealthiest, and 2nd wealthiest in six out of the remaining eight centuries Due to the public policy stance outlined in
Arthashastra
We must put Arthashastra squarely into the centre of public policy discourse
Most analysts of Arthashastra have missed its point
its insights are extremely modern we should read between the lines to
understand what Chanakya is trying to tell us
All about INCENTIVES
Chanakya wanted a strong, minimal state, with mastery of incentives
Two axes: liberty, incentives
Liberty
Incen
tives
Key dimension #1: Liberty
Liberty is an end in itself. But it is also necessary for people to do their best
Lao-Tse’s advice to the king: “Win the world by doing nothing. How do I know it is so? Through this: The more prohibitions there are, the poorer the people become… The greater the number of statutes, the greater the number of thieves and brigands.”
“I love quietude and the people are righteous of themselves. I deal in no business and the people grow rich by themselves.”
India was much wiser in ancient times
कहा�वत
जहाँ�� का� रा�ज� हाँ� व्या�पा�रा� वहाँ�� का� प्रज� हाँ� भि�खा�रा�
Government should not engage in business Free markets Free enterprise
The natural effort of every individual to better his own condition is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.- Adam Smith 1776
“Any restriction on liberty reduces the number of things tried and so reduces the rate of progress”
- H.B. Phillips (mathematician)
1
2
3
n
Two obstacles to freedom
Opportunity(technical
frontier)
Governance must enable liberty
(social reform is not a government’s job)
Ideasdon’t
come fromgovernments
People create ideas, and wealthGrowth = f (freedom, opportunity)
Innovationpushesout the frontier 2) Social control
• interfering religious beliefs• science and critical thinking insufficiently valued
People innovate better if the
government getsout of their way
1) GovernmentNanny, paternalistic state:• interfering policies and laws• “Food police”
Injustice• contracts not enforced
Key dimension #2: Right incentives
Chanakya thoroughly understood incentives: He wanted the best talent in government He wanted high salaries for top officials and
Ministers But vigorous audits (even spying) Instantaneous dismissal and severe punishment
for non-performance/corruption
Today we have the OPPOSITE incentives in India! The results achieved today are inevitable
The problem of government failure
“Power corrupts, absolute power corrupts absolutely” Politicians lavishly spend taxpayers’ money Bureaucrats maximise their empire
Policy makers typically focus on market failure.
The real elephant in the room is government failure.
Understanding incentives
Institutions (rules)
Incentives
Response
EndowmentLocal circumstances
(beyond the control of the policy maker)
SystemCreated by policy maker}
Examples: Incentives explain behaviour
Disposing our personal rubbish Indians don’t throw rubbish on the roadside in
Singapore
Tenure Without job tenure an IAS/IPS officer will focus on
delivery of outcomes, for fear of losing his job
Corruption Indians were incorruptible when British merchants
first came to India. They were astonished! But today Indians are world-famous for corruption.
Incentives are at work 24-7
We ask our politicians to lose crores of rupees during elections. Then we pay them very low salaries. Question: Will such people serve us or loot us?
=> Our system guarantees corruption. Chanakya would have easily understood
why India is so corrupt today
Burying our head in sand won’t make incentives disappear
Incentives are at work even in our dreams!
Incentives are as powerful as a physical force
Gravity pulls downwards, hence water flows downhill
Incentives drive human behaviour and predict what someone will do
But incentives are hard for most people to analyse They are invisible They are complex, layered, and conditionalDespite this, we ignore incentives at our peril
Example of the power of incentives
I offer you Rs. 100 or Rs.200. Which will you pick?
Rs.200 Always.
Incentives are subtle but very real And predictable
Need not just be economic, but economic incentives often overwhelm others
Myth: Indians are special
Apparently Indians are “different” they have a natural tendency to be corrupt
Not true They respond EXACTLY as predicted, to
incentives
China has moved toward incentives and markets-based governance
Teachers are dismissed in China if a class’s academic results are not up to par In India some teachers get paid
even if they don’t ever go to school
Results of this are as predicted
Half of Class 5 kids in India can’t read Class 2 texts
The problem of control (principal-agent problem)
Agency theory Company owners motivate managers through incentive contracts so manager actions (which are unobserved) can be aligned to owners’ goals.Usually:
1. Base salary (for participation) plus2. Performance pay (incentive compatible wage)
And hire/fire instantly based on performance
Controlling bureaucrats is much harder
Citizens are the masters in a free society but:
How to control our representatives (politicians)?
How do politicians control bureaucrats?
Citizen
How to control
?
How to control
? Black boxof incentives
Black boxof incentives
Problem: Hidden actions, complex incentives
Politicians’ interests generally don’t align with ours
Politician’s goal is to get re-elected He knows that citizens can’t agree on
anything Impossibility theorem
He can game the system by catering to a niche Median voter theorem Lobbying/ pandering (subsidies/loan waivers)
In addition, he MUST necessarily be corrupt, being a requirement of Indian electoral system
How can we get politicians to look after our interest?
At least meet the participation constraint High salary to attract good people into politics
Pay incentive compatible wage Salary high enough to prevent incentives for corruption Link pay with performance Reduce tenure (from 5 to 3 years) to keep them on toes Australia pays politicians very well, thus attracting top
talent and minimising corruption Partly fund elections by the state to reduce
use of black money Australia pays about $2 per valid vote cast
Bureaucrats’ interests are different to ours, too
“Lurking below each public servant is a full-fledged human being with predictable self-interested behaviour” (Sabhlok,BFN)
His main goal: to expand his empireSo: Meet participation constraint
High salary to attract good people Pay incentive compatible wage
Performance based reward/pay Abolish tenure (at all executive levels) Stern punishment for underperformance/ corruption
Chanakya’s insight re: incentive compatible wage
"the highest salary paid in cash, excluding perquisites, was 48,000 panas a year and the lowest 60 panas a year. The ratio of the highest salary to the lowest, was eight hundred to one.” (source: B.Sihag)
If lowest salary is Rs.4000 per month, then highest should be Rs. 32 lakh per month (or Rs.3.8 crores per year) Just suggestive
Even a top salary of Rs.1 crore will go a long way
The current situation (re: bureaucracy)
Top talent not attracted to government jobs Salary not high enough to prevent corruption
Indeed, rewards for corruption No punishment for non-performance
Tenure Tenure is particularly insidious
Articles 310,311
The politician therefore can’t expect bureaucrats to perform
2) INDIA’S SYSTEM COMPARED WITH AUSTRALIA’S SYSTEM
Flexible control over bureaucracy
Bureaucracy is controlled by Acts of parliament Public Service Acts of 1902, 1922 and 1999 In Victoria, recent Public Administration Act
2004
This, being flexible, allows continuous improvement
Agile system. It empowers but expects total accountability
Secretaries appointed by Prime Minister/Chief Minister Contractual; with specific KPIs
Secretary empowered to hire (and fire) others Secretary appoints Deputy Secretary, who appoints
Directors, etc. Open market recruitment by application for each
position Market competitiveness of remuneration Contractual service at all executive levels Hire and fire option with 4 months notice Portability of employment contributions for retirement
Australian government doesn’t dabble too much with the economy
Limited role of government in managing economic activity Virtually no administered prices Freely floating currency Very low duties (free trade) Almost no subsidies for any sector
=> Starkly different governance Superior management (including project
management) skills Self-actualising organisational culture Strong performance management system Diverse background of government employees
(most have private sector experience) Head of civil service is often as young as mid-30s
Good performers are rapidly promoted Extensive delegation of responsibility Free and frank policy advice Significant use of modern IT
Strong system for accountability KPIs and performance contracts for Secretaries
KPIs flow into performance plans of lower officials All executives accountable for contracted results Independent review of Secretaries’ performance
Performance bonus contingent on performance
Not uncommon to have executives dismissed/demoted for non-performance
Organisational culture
Blue culture on the "circumplex“
Self-actualising No one is called "Sir",
only first names. Everyone is equal as a
person.
India's culture is very red in comparison!
(Aggressive/Defensive)
Staff are expected to:
show concern for the needs of others involve others in decisions affecting them resolve conflicts constructively be supportive of others work to achieve self-set goals help others to grow and develop point out flaws (ie not just accept low standards) be a good listener give positive rewards to others
Staff are not expected to:
do things for the approval of others "go along" with others win against others accept goals without questioning them be predictable never challenge superiors do what is expected oppose new ideas
Focus on world-best quality
Policy officers conduct world-class research Short, crisp, professional briefings for
Ministers No “peons”/clerks
Officers organise everything themselves Rapid turnaround of documents/emails Independent Board (with non-
departmental directors) provides high quality corporate governance
Best tools and engagement with experts
All documents dealt with electronically Key documents auto-scanned at time of receipt TRIM to store documents including emails Govdex to share confidential documents across
Federal and State governments Telepresence (Huge TV screens)
No unnecessary travel for meetings Constant interaction with OECD, other
jurisdictions and world-best academics Eg. Centre for Market Design in University of
Melbourne
3) PUBLIC ADMINISTRATION REFORMS FOR INDIA
Political incentive reforms
Key reforms needed: State funding of elections High salaries but no perks Performance bonus based on
increased GDP reduced corruption, etc.
Bureaucratic system reforms
Key reforms needed: Eliminate tenure
Contractual appointments at Under Secretary and above
Performance pay and outcomes related wage contract Salaries and incentives comparable with private
sector Ability to dismiss without notice for non-
performance (with 4 months salary in lieu)
Reduce clerical staff and hire policy experts
But this is "not practical”!
Good policy maker always designs a transition path.Eg. Following steps 0: Stop deputations to centre for two years Ask an HR company to advertise all Secretary positions Month 3: Prime Minister and Ministers appoint New
Secretaries on 2-year contract based on merit Secretaries not successful in getting these job sent to cadre New Secretaries then advertise Addl and Jt Secretary
positions and hire in next three months Month 6: Those not successful return to cadre
… contd
Transition contd.
Month 9: Strategic plans Month 21: Implementation of strategic plans
completed New Public Administration Act Any relevant Constitutional amendment
By end of 2nd year, full transition to be rolled out in the Centre Similar transition rolled out in the States
Within three years civil service would be fully restructured
4)ECONOMIC POLICY REFORMS FOR INDIA
Chanakya’s insights, again
Chanakya does not prohibit anything Alcohol/ prostitution
He regulates it He promotes trade, particularly imports
Open economy is the key to prosperity
India: the world’s laboratory for policies of freedom
Freedom has been increasing rapidly since 1990s in India Most sectors have been liberalised
Mobile phones Some sectors are free because the government doesn’t
deliver But overall, still low levels of freedom
Need to liberalise most sectors Education Health
Liberalisation does not equal deregulation
India’s output has responded rapidly to the limited increase in freedom
Table: Share of world output measured in terms of PPP
Country 1980 1990 2000 2010 2016
China 2.2 3.9 7.1 13.6 18.0
United States 24.7 24.7 23.6 19.7 17.8
India 2.5 3.2 3.7 5.4 6.6
Japan 8.7 9.9 7.6 5.8 5.0
Germany 6.7 6.1 5.1 4.0 3.4
Russia 0.0 0.0 2.7 3.0 2.9
Brazil 3.9 3.3 2.9 2.9 2.9
United Kingdom
4.3 4.1 3.6 2.9 2.6
Australia 1.3 1.3 1.3 1.2 1.1
What more is needed?
Key reforms needed: Dramatically review and reduce any
unnecessary role of government Fiscal system reform Financial sector deregulation Privatisation across the board including
utilities and defence production Open economy (trade) Urban/regional planning reforms Infrastructure reforms (PPP etc.)
5) REGULATORY POLICY REFORMS FOR INDIA
We need optimal regulation: just right
Liberalisation does not equal deregulation
Enough to avoid harmful effects No more than that
When social marginal cost equals social marginal benefit (SMC=SMB)
Can be assessed through a cost-benefit test
Regulatory Impact Statement
Gatekeeping role Bad policy is reduced (not perhaps
eliminated) Includes consultation, cost benefit test
Concept applies to all projects (eg. infrastructure/ public private partnerships)
Independent gatekeeping mechanism
Independent Commission in Victoria assesses RISs
Treasury advices Cabinet
10 questions that eliminate bad policy
1: What would happen without any role for government2. Identify problem/s with the base case and explain why these are problems3. First principles test (should government intervene at all)4. What can government do about the problem/s?5. Freedom test
10 questions that eliminate bad policy
6. Strategic gaming test7. Government failure test8. Real experience test9. Cost benefit test10. Transition path
For details see template for policy competition held by Freedom Team of India
Regulatory reforms for India
Key reforms needed: Legislate a requirement for RIS Create independent Commission to
assess adequacy of RISs
Reducing red tape
How to measure the change
Standard Cost Model method (European) Regulatory Change Measurement
method (Victorian) Benefits businesses and the community
6) TRANSITION FROM CURRENT SYSTEM TO WORLD-BEST SYSTEM
First, this is not impossible
Good economic and governance policy is not a secret
Indians are EXACTLY the same as other humans
There is no doubt that given the determination India can achieve world class governance
Chanakya School of Governance needed. Now!
India has tens of technology, medical and management schools.
Not even one School of Governance! LBSNAA (where I taught) is the most dismal place for
teaching governance This explains India’s dismal governance performance
We need a world class Chanakya School of Governance
How can we set it up in India?
PLAN FOR THE REST OF THE CONFERENCE
Three streams
Public administration reforms Policy framework and regulatory policy reforms Economic policy reforms
The task: You are Prime Minister’s main policy adviser Prepare a strategic plan (with transitional
steps) to deliver governance reforms in each of the above sectors
Follow the template on the next page
Example of Conference outputs
What? Restructure the civil servicesWhy? To better align bureaucracy and citizen objectivesHow much?
Significantly increased salaries for top officers. About Rs.100 crores needed
How hard?
Ways need to be found to overcome legal obstacles, but theoretically there is no obligation for government to make everyone from IAS into a Secretary
When? A total of two years from start to finishHow? Provide details [eg. the ones discussed in my talk]
CONTRIBUTE FUNDS
Request to contribute funds
Please contribute to the India Policy Institute and IIPA
To meet cost of this Conference To expand reform work