Reform and Rent-Seeking

Posted on May 24, 2009 by

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The News – Sunday, May 24, 2009
Nadeem Ul Haque

The elite — beneficiaries of government largesse, power-brokers, in other words rent-seekers- all do not see any reason for change. They are begging for money to forestall change. With dollar assets held abroad, rupee liabilities at home, and foreign passports conveniently hidden, they have no noblesse oblige or enlightened self-interest.

In this arrangement, should the excluded poor merely wait for donor-funded projects to come through? Will they get more than liabilities? Perhaps Islam is a better alternative for them!

There is a way which if adopted could develop social harmony – the path of reform! Deep reform of all institutions to include all and dismantle our rent-seeking system!

The reformist argument runs as follows.

  1. The structure of governance and the economic policies that arise from it are based on rent-seeking for the elite and exclusion of other classes.
  2. The various organs of the state – the army, the civil service, the judiciary, and the executive – are now incapable of providing for the social contract state because they are totally enmeshed in the rent-seeking system.
  3. The system has evolved to prevent reform from even being a serious topic of discussion.
  4. The result is that rent-seeking and elite aggrandizement has eroded the state to the point that it now cannot even perform the basic functions of providing law and order and personal security.
  5. Rent-seeking and a dysfunctional state are incapable of delivering economic growth and development
  6. International aid and borrowing are only fueling rent-seeking and not reform

This state is incapable of providing on macro- and sectoral objectives or of maintaining a sound macro economy, or providing a minimum of public service to the people while also acting as the arbiter of justice. This state also does not provide opportunities for social mobility. On the contrary it seeks to maintain an apartheid society, subsidizing elite schools, elite community centres and elite housing societies and protecting and enlarging elite industry and assets while killing opportunities for small start-ups by the underprivileged.

While the ‘macro” thinkers continue to look to the state to do good things like eradicating poverty, providing public services and infrastructure, the reformists would argue that it is the state that needs fixing before we can expect it to do the things that civilized states do.

The first item on a reformist agenda is therefore “fixing the state”. The state must first provide the social contract good, law and order and security of life and contract before it runs around doing the donor bidding of providing development for it is clear that without security of social contract there will be no development. Fixing the state will mean:

  1. Reviewing our constitution for better representation, for dispersal of power through the system, for more meaningful separation of powers, and for greater devolution to communities.
  2. Deep reform of government administration and personnel management to reward professional and technical public service, rather than power politics and rent distribution.
  3. Reviewing the legal and judicial system for modernity and speedy justice.
  4. A police system that is independent of the current elite. Fixing the state also means prioritizing state activities.

The second item on the reformist agenda would be dismantling the rent-seeking state that protects the rich and develop an equal opportunity state. Rent-seeking right now relies on three main components,

  1. State subsidies, licensing and regulation;
  2. Special perks and privileges for ministers and army and civil service employees;
  3. Land distribution system which allows the poor man’s land to be acquired for the elite especially the army and civil service.

To reduce rentseeking, policy must accept markets as means for determining success rather than trying to pick winners through industrialization and export policies. In addition, the following 3 items need to be implemented:

  1. Defence Housing Authority’s special privileges are repealed and the various agencies are privatized;
  2. Cooperative housing authorities where fraud thrives are abolished; and
  3. Land acquisition act is strengthened to apply only to public purpose.

Land and real estate as a business should then be allowed to develop on commercial basis with no privileged players like DHA or co-op housing.

The third element in a reformist agenda should be developing agencies of change or constituencies of reform. Historically reform and modernization has begun in robust academic centres – universities and think tanks. When these idea factories are churning out fresh ideas a free media has some grist to mill. A free and robust academic sector will be created by allowing social science thinking to thrive in many different autonomous places and allowing them to compete in the idea space. For this let academic salaries and status should be raised to levels even beyond that of the army and civil service. At the same time civil service control of universities and thinks should be relinquished.

A technically well-trained and modernized civil service would be an important handmaiden for the implementation of reform ideas. For this only three small critical changes could go a long way.

  1. Monetization and then elimination of all perks with only cash payments every where in the public sector.
  2. All senior positions above joint secretaries to be made through open competition.
  3. The abolition of transfers and the institution of term appointments for all positions! These changes should induce professionals interested in a legacy of change and productivity to come into the civil service.

This is only the very beginning of a reform agenda and by no means even complete and fully honed. To avoid fundamentalism and anarchy, much deep reform–beyond that related to the usual macro and sectors – will be required. Pakistan requires a long period of reform – a decade or two to modernize every aspect of not only the economy but also society and our behaviour. Without that, the excluded majority will be right in welcoming the Taliban for they do represent liberation from the current oppressive system.

However reform remains a dirty word happily for both the elite and the fundamentalists. Currently the dominant macro-strategic thinkers, many of whom belong to the elite, prevent reform.

Reform needs more space in the country’s thinking and in the media if extremism is to be avoided!

The writer is a former vice-chancellor of the PIDE. Email: nhaque_imf@yahoo.com

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