Wednesday, August 22, 2007

Top-down won't work

By Mr Arun Maira of Boston Consulting (Published in the Times of India)

A business daily criticised the prime minister for referring to poverty 15 times and economic reforms only once in his Independence Day speech. It said that Atal Bihari Vajpayee had made a better speech in 2000 because he referred to economic reforms 13 times. India shines in the business press, but what about the people? The Vajpayee government paid the price for its hubris in 2004.
Another commentator was critical of central planning and licensing in the 1950s, forgetting that scarce resources were required to be purposefully allocated to meet developmental goals that had international currency in the 1950s. It continues to be implemented in the private business sector where portfolio management and capital budgeting are applied to produce desired outcomes. No business corporation, no matter how large - and some are said to be larger than countries - runs an internal free market.

Mahatma Gandhi not only sought freedom from the yoke of foreign rulers, but also freedom from the shackles of caste, ignorance, and poverty. A free market may be a better idea than central planning but, without interventions, it cannot be an effective instrument to help people overcome deep-rooted handicaps. The principle on which a free market runs will ensure that those who have the initial means - capital, education, access to power - will get even more. The invisible hand is not often just. What needs to be done in the next 60 years? India must provide all-round economic, social and political freedoms on a scale and at a pace that no other society has so far achieved. We should discover a better way for economic markets to function. For that we need new ideas and institutions (in government and the private sector) to combine demo-cracy and markets more sensitively.

A cabinet minister recently yearned for a time when economists could concentrate on the economics of change and not worry about the politics of it. The truth is far more complex. When Vajpayee was presented a nine-point plan for India by an international economics consultancy, he famously asked, "Yeh sab kaise hoga"?

At a recent book launch, the panelists agreed that the way forward for poverty reduction and inclusive growth was to improve social services for the poor - education, health care, sanitation, clean water and access to credit. Rajiv Gandhi's lament that only 15 per cent of money allotted for such schemes actually translates into benefits for the poor was cited. This statement is misinterpreted to mean that 85 per cent of the money is lost in corruption, whereas much of this goes into administrative costs and misdirected expenditures. About 50 per cent of money donated to some well-known inter-national NGOs is similarly lost in administration and waste.

An economist suggested a simple solution: give the money directly to the poor. What education, health care and other services would the poor buy with this money, in a situation where these services barely exist?

The present, top-down, government-dominated approach for providing social services is not working. A simplistic hand-it-over-to-the-private-sector model won't either. The recognition that the capabilities of government, businesses, civil society groups and people themselves must be combined to enable faster and sustainable improvement has turned public-private-people partnerships into a buzzword. While it is a necessary solution it is not an easy one.

Different opinions have to be reconciled and prejudices, sometimes deep-seated, among potential partners overcome. The way forward for India is for people to master the art of collaborative working. Our education systems do not prepare people for this. We should make this a compulsory component in education, not only in our management schools but also in all school programmes and partnership initiatives. Learning and effectively applying a more collaborative approach could help improve delivery of social services. This could be an answer to Vajpayee's question: How will all this be done?

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