Amaresh Bagchi: Wages of 'downsizing'

"If there has been a prevailing trend in the twentieth century it has been the increasing role of governments in the allocation of society's resources," said Robert Inman, the noted fiscal economist, writing in the late eighties.

In advanced countries, government expenditure as a proportion of GDP, which stood at 8 per cent on average at the close of the 19th century, measured 45 per cent in 1980.

In some countries (Denmark and Sweden) the proportion was as high as 60 per cent. In India too the ratio of government expenditure to GDP increased from 10 per cent at the time of independence to 20 per cent in just 20 years, reaching 28 per cent in another 10 years.

This expansion of government was "legitimate" and not just "a random event", as Musgrave puts it. It confirmed the prediction of Adolph Wagner, the German economist of the nineteenth century, based on his celebrated "law of government expenditure growth".

As economies get industrialised and incomes grow, government expenditures will also grow, he had predicted, driven by three major factors, viz. structural changes in the economy, democratisation of society, and increased concern for social justice.

The need for public services expanded with urbanisation, and the decline of self-sufficient rural households and of the joint family as a self-supporting unit. Wagner also expected society to be more concerned with the welfare of the citizens as a civilising process and thus with issues of distribution and "Sozialpolitik".

There is, however, a strong body of opinion that views government as a self-aggrandising Leviathan and the growth of government as an evil, being the product of majority voting, the opportunistic behaviour of self-seeking politicians and bureaucrats, and a "fiscal illusion" of the voters that public services are costless.

In recent decades, the collapse of centrally planned economies and the perceived failures of the welfare state in mixed economies have lent support to this view, giving rise to the demand for a "minimalist" state and downsizing government.

Downsizing has, however, not gone very far in the advanced countries. The average share of government expenditure in GDP still remains at around 45 per cent. The focus has been rather on improving efficiency in the use of resources in government through better public expenditure management.

The introduction in the UK of a comprehensive spending review every year""the golden rule that allows borrowing only for capital spending and radical change in the system of senior appointments in government""is a classic example. Even so some of the social sector spending like in higher education has felt the heat. Downsizing has, however, been nothing short of disastrous for India.

Faced with an acute balance of payments crisis, India had to undertake a sweeping reform programme starting in 1991 to restore balance in the government budget while opening up the economy.

Since revenue growth slumped as customs tariff was reduced and the revenue loss could not be made good through other taxes, expenditures had to be compressed. Since committed expenditures (salaries and interest payments) could not be touched, the axe fell on capital expenditures, bringing down its ratio to GDP in the Union budget from nearly 7 per cent to 3 per cent.

It may not be wrong to relate this to the sharp drop in agricultural growth in the nineties, bemoaned in the Mid-term Appraisal of the Tenth Plan.

Equally severe has been the impact on public spending in the social sectors, health and education, the responsibility for which lies primarily with the states. With falling revenue flow because of the drop in the Centre's tax buoyancy and the escalating burden of interest payments following financial deregulation, the states were obliged to reduce their spending where easily possible, e.g. by cutting capital spending, by not filling up vacant posts and starving the schools and hospitals of funds desperately needed to maintain their services.

So we have now government schools in Delhi lacking basic facilities like toilets and drinking water and even school building, and unfilled vacancies of over 2,000 teachers. And Delhi is by far the richest state in the country! The plight of government-run schools and hospitals in the eastern states (even the socialism-professing West Bengal) is unspeakable.

Of course, it will not be fair to explain the sorry state of public services just in terms of downsizing. If teachers do not teach in the schools where they are supposed to or doctors are not found in the centres where they are posted, despite hefty pay packets, the blame lies squarely with the governments concerned.

What lies at the root of the collapse is the tendency of the political parties to use government employees as their power base and placating them all the way. Given this reality, it would be futile to expect the governments to enforce discipline among employees. What then is the remedy?

The only way to deliver public services to citizens, it is now suggested, is through "public-private partnership". This, let me say, is nothing but escapism. Don't we already have P-P-P in ample measure in primary and secondary education, with the government underwriting the teachers' salaries?

School vouchers and requiring private schools to admit poor children, it is said, are the most efficient means to secure the value for public money. One wonders whether the proponents of these ideas cared to do their arithmetic. Can the government find the money that would be required if all needy children were to be provided with vouchers?

And will the children from the jhuggies be comfortable in the posh schools adjoining them? Yes, we will have a proliferation of world-class schools and hospitals supported by the government but let us not delude ourselves into thinking that they will serve the poor. Even Adam Smith did not have any such illusion.

It is time we realised that downsizing is not the answer while there can be no case for the government running useless commercial enterprises; the public sector must take care of basic public services like health, education, and sanitation.

Efficiency in their delivery can be secured through measures other than privatisation. Two essential steps are: one, let the "managers" manage""give them a free hand, and two, make them accountable to the beneficiaries, e.g. parents in the case of schools. Very little seems to be taking place in these directions, despite much talk. "Monitoring" from Delhi can be of no avail. We have had enough of that all these years.