Friday, July 20, 2007

A much maligned lot

It was almost like a deja vu. About three years back, I was a much depressed soul around this time of the year. I was part of team that conducted interviews with a sample of small and medium entrepreneurs in a major city in India. The reason for my depression was how the lot was faring. Here was a bunch of young and middle aged, well educated and highly motivated people who wanted to be entrepreneurs and the common story that emerged from most of them was how difficult running a business was within the administrative setup in India. Almost all of them had complaints about bureaucrats in India and most of them had nothing but complaints. I was decidedly angry at the whole system and have been frustrated with the whole idea since then. That was a major turning point in my research career. Today I had the opportunity to be at the other side of the table. I had a two hour discussion with a couple of individuals (I'll call them Mr.A and Mr.B) well placed in the Civil Services in India. The story that came out was as depressing as the ones with the entrepreneurs. Here is a lot of honest individuals who are unable to break out of the vice of the system. They want to bring changes and are as unhappy with the system as I am. One interesting observation that came out of the whole conversation was that they are being unjustly lumped into one lot and branded as corrupt individuals and derided even though there are those that are honest and motivated and driven to do what they are there for. This group is also looking for solutions to end the rampant corruption in the system. There are clear examples of individuals who wanted to do something good and have hit against a concrete wall of vested interests. Apparently, lower cadres follow leadership and under honest and able leaders the system seems to have functioned; however, these individuals are transferred pretty often and once the good leadership moves out of the jurisdiction the lower rungs move back to their old ways. This makes me think that there is something to the system where it is individuals and not ideas that are important. Historically, movements that have been based around individuals tend to die out and those that are based on ideas continue and grow. Why is it so perverse in the case of corruption in Indian Civil Services that power of good ideas has not taken over?

The Economic argument is always that of incentives. In this case as one of them pointed out clearly, monetary incentives are useless because it is difficult to objectively measure the output of some of these cadres. In addition what they can make under the table cannot be competed against by the State. How do you bring in competition in this setup? Approbation is a beautiful tool that can be used effectively in this system. I have long noticed that in the US, local news stations play up 'heroic acts' by individuals. Since the individual is the point of measurement, any small good act by the local cop is played up by the media, and he/she is given a medal in an ostentatious ceremony by some local big shot (the Mayor etc..) Why hasn't the well developed Indian media, who are so easy to point out the misgivings in the government and its departments as willing to shower accolades on the local leader or bureaucrat who has sincerely done something good for the community? There is a clear short supply in this field and there are huge gains to be made by both media and the general public in this field. Adam Smith talks about the power of approbation in the Theory of Moral Sentiments.

The other suggestion that came out was the power of civil societies in retaining good bureaucrats. The public obviously likes someone who is an active leader and who does something tangible and visibly better for the lives of the community members. There is no dearth of societies in India; however, they also seem bureaucratic and there is something to be said about the political nature of even civil societies in India. It is true that bureaucracy begets vested interests and there will be principal agent problems. My colleague from GMU Josh Hill has an interesting argument about the Principal agent problem in the British bureaucracy during colonial times and how approbation works in this setup. This was mentioned by Mr.A a well today that British bureaucracy is tied in with Knighthood. A complete revamping of the system is required in India. However, the problem is circular, the change needs to be brought in by the very same people in the system and that needs at least a few individuals stepping into the fire and suffering third degree burns in the process. No self interested individual is likely to do that however well meaning. Again as Mr.B pointed out, there is something inherently wrong with the system where a person has to sacrifice a whole lot to do what is right.

Are there any practical, workable, implementable economic solutions other than the easy ones my anarchist friends are likely to give me(i.e., get rid of the whole system overnight)? I am strongly inclined to believe that there is a solution from sound economics. Every thing does boil down to self interest and incentives (monetary or otherwise)

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