The risk of a stagnant economy and a failed state

02-03-2014 Sunday Island

by R.M.B Senanayake

The Economist recently carried an article about Argentina, a country whose income levels at one stage ranked high. But over the last 50 years it has slipped into stagnation. Here is what it said "….their country is a wreck. Its Supreme Court has been repeatedly tampered with. Political interference has destroyed the credibility of its statistical office. Graft is endemic: the country ranks a shoddy 106th in Transparency International’s corruption index. Argentina is once again at the centre of an emerging-market crisis. This one can be blamed on the incompetence of the president, Cristina Fernández, but she is merely the latest in a succession of economically illiterate populists, stretching back to Juan and Eva (Evita) Perón, and before. Building institutions is a dull, slow business. Argentine leaders prefer the quick fix - of charismatic leaders, miracle tariffs and currency pegs, rather than, say, a thorough reform of the country’s schools". Our country too has embraced populism and destroyed institutions.

The disappearance of institutions

The ordinary people came to appreciate the peace and good governance provided by the British ruler. The British ascribed their success to the bureaucracy they established in the Colonies.

At Independence D.S Senanayake, a wise politician, listened to his enlightened Advisers in his decision making. But soon other populist politicians took charge and introduced free or subsidized rice, universal free education, free medical care and cash grants to the poor who covered 50% of the population. Funds for these welfare schemes were found through taxing to death the productive tea plantations. In 1959 T.B Ilangaratne introduced money creation in addition and the SLFP has used it ever since. Result was high inflation and/or current account deficits in the balance of payments, funded by foreign borrowings.

The lesson from the parable of Argentina is that good government, not populism, is what matters. Good governance in Sri Lanka has disappeared because the underlying institutions for it were done away.

The first to disappear was the bureaucracy inherited from the British. It didn’t exist during the rule of Sinhala kings although its origins can be traced to ancient China. The British copied it from the Romans and ran their vast empire for nearly 200 years. They attributed the strength of the Empire to the bureaucracy and the institutional structure for justice they built in the colonies. The institution of bureaucracy developed over a long time. In feudal times the King who wielded all the power of the State appointed Ministers to assist him but he was not bound to accept their advice. He also appointed Chieftains to whom he farmed out territories to collect taxes for him and maintain the writ of the State. They enjoyed wide powers of governance as long as they did not incur the King’s displeasure. Modern government is different with its checks & balances, an independent Judiciary and a bureaucracy as the instrument of governance with politicians kept in check through law and the institutions.

In 1956 a new political class which came into power wanted to substitute the direct rule of politicians for the rule through a bureaucracy. Recently a senior minister told me that they don’t believe in giving power to the bureaucracy. They want to exercise power personally. But a modern country can’t be run without a bureaucracy. In the case of Argentina its politics was captured by the Peróns and focused on personalities and influence peddling. Here it was first the Bandaranaikes and now the Rajapaksas. Politicians who were elected to the legislative branch of the State to be lawmakers involved themselves in the running of the Executive branch. So we have many ministers including district ministers.

They began dictating to the bureaucrats who were expected up to that time to work acting to the laws with the ministers confined to policy making and holding the bureaucrats accountable in terms of law and regulations for good governance. Not anymore. They are now required to carry out the orders of the ministers and the elected politicians violating even the laws. No wonder politics is an attractive career. Prior to 1972 the bureaucrats enjoyed protection for their tenure. They could not be penalized for not carrying out an illegal or unlawful order of a minister. They were protected by an independent Public Service Commission. But not after 1972. They now hold office only as long as they please the minister and he demands a servile obedience. The pre-1956 bureaucrats were appointed for their knowledge and competence in a particular field of knowledge and developed expertise in management. But now they are appointed on the favor of the President or minister. According to the Peter Principle they would prefer to appoint officials who are inferior to them in intelligence and ability. So merit has disappeared from the public service.

The previous generation of educated politicians was succeeded by the products of the Swabasha education, ignorant of modern science and technology. A language not only transfers knowledge but also cultural values. The Sinhala educated politicians do not know the values of democratic administration nor care for them. They want naked power. Anagarika Dharmapala romanticized the past as a glorious age when Buddhism flourished. So the Buddhist clergy want to take the country back to the past. As Kennedy pointed out a country that looks to the past will miss both the present and the future. Our rulers do not understand that a modern country cannot be run without a competent bureaucracy - a bureaucracy recruited on merit and educated in modern knowledge. Today the functions of government are complex and correct decisions require modern knowledge. Should money be spent on coal power, natural gas or nuclear power to generate electricity? Should the government build a new international airport and if so where? Should we go for electric trains? These issues require sound technical knowledge in engineering, aviation and modern economics. If the decisions are to be taken by ordinary laymen lacking such knowledge there could be a waste of resources and any mistakes will require even more resources to correct them.

Negation of the principles of public administration

There is also a body of knowledge drawn from years of practical experience in administration and management, called the theory of Public Administration ( Henri Fayol & others). One such principle is that that organizations and managers therein should be placed in a hierarchy of power and rank. Another is the need for unity of command based on the Biblical principle that no man can serve two masters. So officers should not face orders from two different superiors which could be in conflict. This can be avoided only by orders proceeding down a single channel of command or authority. The administrative arrangements for the devolution of power under the 13th Amendment has violated this all important principle and produced a dual administration. Officers have to take orders from the Governor and the Chief Minister of the PC.

Who is the Chef Executive in the NPC - the Chief Minister or the Chief Secretary? Violations of these principles operate blatantly in the relationship between the Governor and the Provincial Council Administration. It would seem that in the Sinhala PCs the Governors do not intervene in the decisions of the Provincial Council. The violation of this principle is well known to produce role conflict, stultify the organization and cause dissatisfaction among the recipients of the service. It is not workable. Was it devised by Sinhala nationalists under Premadasa to make devolution a failure ab initio? The dual administration of land in the North has produced chaos. There are said to be over 70,000 unresolved land disputes on State lands in the North. Land powers earlier confined to the 20 odd Kachcheris have been decentralized to over 300 Divisional Secretaries with a consequential shortage of staff experienced in land work. Result: a breakdown.

Oligarchy replaces meritocracy

All modern states and societies belong to one of these two categories: meritocracy (the rule of elite on merit) or oligarchy (the rule of a elite based on some membership criterion). 1956 saw the emergence of an oligarchy constituted of a Sinhala Buddhist elite. Elite membership would eventually be based on ethnic cum religious identity, not on merit. But in a plural society only a meritocracy can sustain a unified state.

In this complex world, the rule of elites is inevitable. The amount of knowledge needed in order to exercise effective government has become so large - that only a select few can attain it. What differentiates meritocracy from oligarchy is in the membership criteria and in the way that they are applied. Our oligarchy enrolls its members on Sinhala Buddhist identity. The war was won by such an elite. So it must depend on the same elite to remain in power and effectively counter any UN Human Rights Council Resolution which cannot be implemented as long as it is in power and is backed by Russia and China in the Security Council. It has to use the Sinhala Buddhist identity to mobilize the people behind it to remain in power. It has managed to take the Christian and Muslim minorities on board by dispensing largesse despite the fundamental differences in interests. But the oligarchy needs to mobilize the support of the majority by demonizing the minorities as unpatriotic.