The Principal-Agent problem in governance

By Jhelum Chowdhury

It is time that Indians wake up to the fact that they are quite far from enjoying real personal, economic and political freedom.  Realization is the first step to rectification.

Typically a lot of care is taken in appointing and supervising our agents or vendors in different facets of our life.  Imagine the kind of effort we take when recruiting, appraising and promoting or dismissing at our workplaces and maybe more so at home.  But, paradoxically, in appointing the people who run our governments, and even less so in monitoring them, we have little teeth.  Principles of people management, so pervasive in all other aspects, go out of the window when it comes to appointing and running our governments.

The nomenclature “Representation of the People Act” is puzzling.  It appears that the people being one of the major stake-holders; are being represented in the process of appointment of governments.  It reads as if, and probably is, that the powers that be have benevolently given representation to the people also among other stakeholders.

A casual Google search throws light on this matter.  “The Representation of the People Act” was given the royal accent of His Majesty George V, King of the United Kingdom, in 1918 to enfranchise a greater number of his adult subjects as part of the fourth phase of electoral reforms.  This was a grateful monarch’s largesse to his subjects for loyally defending his crown and realm from the Huns.

This action seems to have been copied by the new rulers of India when the President signed into law “The Representation of People Act” of 1951.  Universal suffrage was granted to the entire adult population, which allowed them to vote in elections periodically on the principles of “one man one vote” and “first past the post”.  We find that a number of people, particularly in urban areas, did not vote, treating election dates as forced holidays.  Such people intuitively may have realized that the voting process is more an exercise of legitimizing the regime’s authority.  It is far from being a clear and robust process of appointment of agents by the people, who are the principals.

One would much rather propose that we give ourselves an “Appointment of the Government Act”. This change in terminology would put the principal-agent relationship in the right perspective.  The paramount authority of the people over the government may thus be made clear.

It is the thesis of this article that currently the people are ruled by the government, which legitimizes its position periodically through a balloting process.  Elections have been used in every time and country to legitimize authority.  Hitler was the elected leader of Germany, as also were several other heads of government of dubious distinction.  Democracy clearly is essential, but not enough.

There is an entity called the government of India, with vast land holdings, majority shareholding in massive corporations, owning almost all infrastructural assets, conducting foreign relations and engaging in deficit financing by printing money.  In effect, ruling India.  Besides the politicians, the civil services – modelled on that of the imperial Chinese bureaucracy, crony capitalists, family members and friends are beneficiaries and stakeholders of this setup.

The system of extraction of resources from this country has been fine tuned over two centuries of British rule and was pretty much taken over lock stock and barrel when they left.  In terms of cash flows, while earlier the bounty from the colonies used to flow to the metropole, nowadays the same is placed under custody of crony capitalists or moves into the international private banking system.  Such an arrangement is detrimental to the national interest.

Coming to the accountability and expectations from our agents, the principals, that is, Indians, do not have oversight over the conduct of their agents, once the election process is over.

We do not have a “Monitoring the Government Act” or a “Appraisal and Dismissal of the Government Act” to do exactly what the wording suggests, that is, watch over and guide the working of the agents, at every step, and possibly asking them to step aside if they do not make the mark.  It is unthinkable for Indians, used to millennia of servitude, to even imagine that they have a right of oversight over those who rule them.  So far, post elections, it is pretty much a free run for law makers and that small group who comprise the executive.  The work and workings of government is opaque to the ordinary citizen.

There is little effective supervision of the actions and motivations of the executive by institutional watchdogs, other than an occasional CAG report or a CBI enquiry, or judicial activism.  All these actions, if they happen in some cases, are post-facto, after the damage to the national interest has already been done.  Criminal proceedings against the guilty, does not even begin to recover the socio-economic cost of their actions.

It is a cosy situation for the bureaucracy, colloquially referred to as Indian Automatic Service.  They enjoy job security time bound promotion and enjoyment of resources far in excess of their contribution, irrespective of the outcome of elections or the state of affairs in the country.

Large numbers of educated and skilled Indians, who have chosen, or could not become part of the establishment, have immigrated to other countries, apparently in search of a better quality of life.  In their home country they may have found the lack of freedom stifling.

This is a diagnostic, no solutions are proposed.

To hark back to Abraham Lincoln’s Gettysburg address, “government of the people, by the people, for the people, shall not perish from the earth.”  Indians have a long road to travel, difficult choices to make and radically change long-held attitudes and assumptions.  Until and unless the people proactively appoint, guide, monitor and dismiss governments, those in power will continue to extract and exploit.  It is right and essential to upgrade and professionalize governance, so that the people of India finally become free.

Jhelum Chowdhury is a Fellow at the Takshashila InstitutionHe leads the policy research project on Pursuing Police Reforms in India. Follow him on twitter at @jhelumc

Source: http://broadmind.nationalinterest.in/2011/05/the-principal-agent-problem-in-governance/

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1 Comment

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One response to “The Principal-Agent problem in governance

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