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IT may be difficult to describe a model of an efficient government. Here the discussion is not about kleptocrats and those whose avowed or hidden motive is to enrich themselves through loot and plunder. It is about governments which may be reasonably desirous of doing good for the public but fail to do so.
The primary criteria for judging a government is efficiency and equity. Efficiency requires a government to allocate available resources in an efficient manner so that it achieves set goals. Efficiency without equity is meaningless. A dictator or elected leader may efficiently direct the resources to himself and his hangers-on, but that would be theft. Equity entails equity between classes and regions. Class equity would demand that the bottom of the pyramid is made to shrink and not expand.
There are two notions of government failure — Pareto inefficiency and distributional failure. Pareto was an Italian economist who developed a model known as Pareto efficiency. Simply stated, it focuses on making someone better off without causing anyone to be worse off. Pareto inefficiency is the exact opposite. It is a zero-sum game.
Another approach to thinking about government failure which invokes an element of distribution is social surplus. It only makes sense as an efficiency criterion in the case of ‘transferable utility’. The surplus maximising policy should guarantee that gainers from the change can compensate losers. The gainers compensate losers by paying higher taxes.
Pakistan’s record in discarding poor leaders is dismal.
Pakistan has failed on this score miserably. The tax-to-GDP ratio is cited between 9pc to 10pc while in developed countries this is close to 40pc. Worse, the system is regressive. Almost 68pc of the collected money comes from indirect taxes, which fall disproportionately on the income of the poor.
It is argued by some that equity has to take a back seat till the cake (ie GDP) grows bigger. Make the cake as big as possible and then divide it into portions. The irony is that the ideal size of the cake never arises in any society. A small powerful class always captures the major portion and then never lets go.
The consequences of ignoring equity are manifest in Pakistan. Militancy in the country has grown among the disadvantaged classes and in poor regions. It has cost the country dearly in blood and treasure and is continuing to do so. It is a collective reflection on the failure of past governments both democratic and undemocratic. The reasons for government failure are ignorance, the use of private influence and the quality of leadership.
Ignorance is undoubtedly a pervasive feature of the policy landscape. It is also true that information may be available but not incorporated into social decisions. Democratic governments may be at an advantage as compared to undemocratic governments when it comes to accessing information as their presence is widespread among the masses. They are, however, constrained by constituency considerations.
Also, they keep an eye on the next election and do things which will get them votes rather than do what is needed. Is a single, visible mega project, sucking resources from many sectors, more desirable politically or investing in schools and hospitals around the country?
Whether democratic or not, governments are subject to influence from powerful organised groups. The exercise of influence leads to policy benefits skewed towards such groups. This takes two forms: pure corruption and costly rent-seeking. The first is a situation where a monetary payment — a bribe — is paid to the policymaker to influence the policy outcome. He could be a bureaucrat or a politician or both bureaucrat and politician could be working hand in hand. Corruption could lead to the materialisation of projects which are not the best or second best. Conversely, it could stop good projects if the transfers are from those against it.
Rent-seeking or lobbying is another ploy widely used. A rent-seeker tries to get a bigger share of what is already produced. Whether legal or illegal; as they do not create any value, rent-seeking activities can impose large costs on the economy.
The quality of leadership also has an effect on policies. The quality of the policy could be reflected in the policymaker’s own thinking. For example, some individuals can implement policies more cheaply or may have better insight into what works. In this case, the only way to improve politics is to change individuals who lack the requisite quality. So far, the Pakistani track record to discard ‘tried and tested’ leaders is dismal.
Then, some policymakers may be better at carrying out the citizens’ wishes and may have a better understanding of running large countries. They may be God-gifted in leadership and work through consensus when issues become divisive. Disasters creep in when leaders are struck by megalomania and a sense of infallibility.
The writer is a former secretary of the federal government.
Published in Dawn, December 22nd, 2015
