The global 'financial crisis' is a crisis of government. It is a crisis of those who want to be seen as doing good, so that they can be re-elected to places of power. The medium of their paraded compassion in saner times was other people's money, collected through the medium of taxes. When tax collections fell short of their need to posture, they borrowed the money being handed out as largesse.
Once the cycle of borrowing begins, it creates an imperative to raise taxes next year, next decade, and - in the financial impossibility that is the US government's real balance sheet - several generations into the future. At some point, debtors start doubting the ability of governments to pay, and raise the rate at which they are willing to lend funds; if, at the same time, citizens are unwilling to pay higher taxes, the Never-Never dream peddled by politicians becomes unsustainable, and you have a sovereign debt crisis, as we recently saw in Greece.
The Indian fiscal situation, though stretched, is nowhere near as precarious, because growth and inflation will keep raising tax collections well into the future. However, the UPA government, threatened by its non-performance on issues of governance, is developing a huge appetite for expensive measures that it hopes will be short-cuts to the popularity contest of elections – most visibly, the NREGA, and the Food Security Bill. Going by the recent history of most social-democracies, such demands for welfare schemes have a way of mushrooming, till they imperil growth, and destabilise the finances of the nation.
Empirical studies show that an increase in the size of government is associated with lower annual growth rates. At the same time, the Nordic countries, exemplified by Sweden, have been able to develop larger government sectors, levy higher tax rates, and still enjoy higher growth rates. Current research puts this down to three sets of reasons -
1. Countries with higher social trust levels are able to develop larger government sectors without harming the economy.
2. Countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas.
3. 3. Judicial efficiency, low levels of corruption and a well-organized public bureaucracy help foster higher rates of growth.
To put it simply, only nations with highly developed societal and governance systems can afford the burden of redistributive economics. One of the foremost researchers in the field, Nannestad, believes that “trust makes universal welfare systems sustainable because people in countries with higher trust are less worried about free riding problems linked to extensive welfare policies. Consequently, trust and trustworthiness of citizens and public bureaucrats minimize problems of tax evasion and public sector inefficiencies.”
Trust, in our nation, has reached an all-time low. Our public debate is roiled by the furore over black money in Swiss banks, and by scams in telecom licences, illegal mining and forced land acquisition for the 'public purpose' of private gain. Those with even a nodding acquaintance of the Public Distribution System for food agree that between 40 and 60% of the grain procured never reaches the intended beneficiaries. Despite this, Sonia Gandhi's government is ushering into parliament a Food Security Bill that will further enhance the scope – and expense - of our food subsidy.
This goes against the observation that, logically, “Countries with lower levels of trust have developed less extensive welfare systems.”
Typically, lower levels of societal trust in a nation are also signalled by a widespread belief that the nation needs detailed regulation in every sector. This certainly mirrors the situation in India, where there has been no wide-spread call for speedier deregulation of our economy. To the contrary, the Lokpal drive could be seen as a reflection of the need to add a whole new layer of regulation – of those who could broadly be called our regulators. Aside from underlining the current level of (mis)trust in our society, every extra bit of regulation slows the speed of growth of our economy, inhibiting our potential to make up for higher welfare costs by higher growth.
Which leaves us to deal with the third societal characteristic that fosters the growth needed to pay for welfare - “Judicial efficiency, low levels of corruption and a well-organized public bureaucracy”. Every effort to benchmark Indian public administration and the carriage of justice against other nations has put us near the bottom of the heap. These are scarcely the conditions in which to entrust the administration with a larger share of the economic pie.
The trust of a people, especially one with a long history of subjugation and colonisation, has to be slowly won. To do this, those elected to govern the nation have to behave with restraint and exemplary probity. Their sustained success in this endeavour will spawn our trust not just for institutions of governance, but also for each other.
It is my belief that compassion is part of the human condition. In an atmosphere of mutual trust, this compassion will find its expression in a million initiatives to alleviate the suffering of those around us, and to help the young maximise their potential through educational institutions of quality.
When, instead, the government takes on the mantle of 'Mai-baap', it dilutes our sense of moral responsibility to each other. The situation is compounded by the promulgation of bad laws, which divide society and create an atmosphere of mutual distrust. The 'Right To Education' (RTE), for example, regulates and inhibits private initiatives in education, yet sees the same private schools as a leg-up for the poor, in whose name it arrogates 25% of primary school seats. A whole raft of private schools have moved the Supreme Court against the RTE, underlining how it has set the public against the private, rather than create conditions for the nation's educators to work together.
Those in the government who proclaim the evils of the private sector (even while consuming the goods and services they put out), are bound to create these schisms. Those sitting outside it, who defend the Indian welfare faith, do not trust the institutions that are supposed to deliver the goods. Thus you have the leading lights of 'civil society' using their right hands to force the government of the day to promulgate increasingly lavish welfare schemes. Meanwhile, with their left hands, they create the Right To Information and the Lokpal to police the administration.
This is not going to work. Firstly, politicians and public servants are both more numerous and street-smart than the NAC, Anna Hazare, and their supporters – who have already begun the road to factionalisation. More importantly, policing those supposed to govern the police is a process that can be infinitely extended, each such step diminishing the trust that needs to be the bedrock of a healthy, progressive society.
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