Governance

The website of the London Economist newspaper has a reference to an official of a certain country referring to a journalist in words similar to what follows – I have substituted words which would be appropriate to an officer and a gentleman addressing a lady, for what was actually allegedly used, as the original is unprintable.

He described her as: ‘An excreta consuming, fornicating porcine’.

This is a classic for bad standards of governance. After all media freedom and use of civil language is at the core of good governance. Abuse of media personnel is certainly not.

Mantra of the politician

The homage to good governance has become the mantra of the politician, the business community and the bureaucrat and NGO persons. They all piously pretend to worship at the altar of the god of good governance, intent on doing what is right, the right way, at the right time but, simultaneously, some of them do quite the opposite.

This ranges from filling their own pockets with taxpayers’, investors’ and donors’ money, as the case may be, or doing blatantly wrong things and later piously holding out that they had the best interests of the jeopardised party at heart – the current Z score fiasco regarding university admissions is a case in point.

Two generations of students who aspired to graduate from our universities have had their aspirations blasted, by the arrogant incompetence of those responsible for policy and its implementation in this area. But when the excreta hit the fan, and the gross incompetence was exposed by the Judges of the Supreme Court, no less, there’s no one to take responsibility for the shambolic policy mess, the incompetent implementation and resultant chaos. It seems the President and his Secretary had to step in. Indeed one politician was waxing eloquent that none of his colleagues could take responsibility and all the fault lies at the official level.

Let’s get one thing straight, the ministers decide policy. The officials have to implement it. When ministers formulate and approve policies of the bovine excreta variety, officials should advise them of the consequences. But the final call on the policy is firmly with the minister, who takes political responsibility and is accountable to Parliament and the people.

What seems to happen now is that the officials seem to gleefully consume the gibberish, all the while singing hosannas to the policymaker and the brilliance and divine inspiration of the policy! But when the truth is exposed, they all are in the cattle shed, cowering, and some other is sent out to redefine the role of a minister in deciding policy.

To labour the point, the reality is: Ministers are politically accountable for policy, to the voters, in addition to being subject to the law – civil, criminal and administrative for policy misadventures. Officials are responsible for the management of the implementation of the policy, again subject to the law – civil, criminal and administrative and in addition, liable for violations of the Financial and Administrative Regulations and the Establishments Code.

The whole Z score fiasco stinks and is a national disgrace. But we get the ministers we deserve. Friends, in case you don’t realise, it’s called democracy, but it’s more likely an Inept’ocracy – rule by the inept, through incompetent officials, of long suffering voters! It was interesting that a news item, referred to a reshuffling and/or removal of ‘inept’ secretaries, always the fall guys for incompetent and inept ministers!

Ayn Rand

Ayn Rand was a Russian-American novelist, philosopher, playwright and screenwriter. She lived from 1905 to 1982. Born and educated in Russia, Rand moved to the United States in 1926. She worked as a screen writer in Hollywood and had produced a play on Broadway. In 1943 she achieved fame with her novel ‘The Fountainhead’.

In 1957 she published her best known work, the philosophical novel ‘Atlas Shrugged’. Rand advocated reason as the only means of acquiring knowledge and rejected all forms of faith and religion. She supported rational and ethical egoism, and rejected ethical altruism.

In politics, she condemned the initiation of force as immoral and opposed all forms of collectivism and Statism, instead supporting laissez-faire capitalism, which she believed was the only social system that protected individual rights.

Readers may not agree with Ayn Rand’s views, but there is a quotation from ‘Atlas Shrugged’ which is very relevant to the situation of good governance in today’s world: “When you know that in order to produce, you need to obtain permission from men who produce nothing, when you see that money is flowing to those who deal not in goods but in favours, when you see that men get rich more easily by graft rather than by work, and your laws no longer protect you against them, but protect them against you, you know that your society is doomed.” You cannot find a better description of an Inept’ocracy!

Readers can judge to what extent Rand’s views are applicable to us. But on the good governance aspect, two recent events in China and Russia, both virtual Communist Party dictatorships seem positive.

China

China’s local governments have run into a cash crunch. Local government revenues from tax and land sales have been declining recently after many years of heady growth. Risk-taking businesses in the provinces are struggling to pay back the loans they have taken, due to the slowdown in the Chinese economy; the burden has fallen on the local governments to turn things around.

For this they are really tightening their belts, cutting back on banquets, curtailing travel and trimming the fleets of luxury limousines that have long been the standard issue for politicians and bureaucrats of the Communist Party.

Professor Tao Ran, a local government expert at People’s University in Beijing, says: “It is a sign of the difficulties facing the local government finances.” China’s local governments have been auctioning off fleets of official luxury cars as a part of this effort to bolster revenue negatively affected by the countries slow down.

About one in every five Audis in China – the German manufacturer’s biggest car market in the whole world – is owned by the Government, according to industry estimates – a lifetime away from the massive, fuel-guzzling, Chinese-made Great Wall limousines of Mao’s era!

More egregious examples of police officers driving Porsches, and even a Maserati with military number plates, have prompted angry Chinese citizens, annoyed about official corruption, to post photographs on the internet!

Wenzhou, a south eastern coastal city hard hit by the economic slowdown, recently sold 215 cars, fetching Renmibi 10.6 million or US$ 1.7 million. It plans to sell 80% of the municipal fleet – 1,300 vehicles – by the end of the year.

Yulin, a city in Shaanxi Province, that until recently was on a natural resource driven boom, due to its coal mines, raised Renmibi 5.6 million in one day in June by auctioning off vehicles. Up for grabs were a number of Audis and the biggest draw was a luxury Toyota Land Cruiser SUV, much sought after in the province due to the rough roads leading to the coal mines.

The Government is publicising the luxury car sell off, because they need to generate the revenue and also to head off the anger of ordinary people due to the perceived corruption of the Chinese Communist party elites, both politicians and bureaucrats, often manifested by Red Princelings (sons of top Communist Party cadres and progeny of Heroes of the Revolution – the new Chinese Communist aristocrats) hurtling around Beijing and Shanghai in blood-red Audis, Maseratis, and Mercedes Benz sports cars.

The top leaders Mercedes Benz and the Red capitalists Rolls Royces are also the target of much vituperation. But as Prof. Tao points out, “It’s not only about reform; many local governments are short of money.”

The ordinary Chinese citizen may not know that the President of the Indian Republic Prathiba Patel, Sonia Gandhi and Prime Minister Manmohan Singh of India and their cabinet and bureaucratic colleagues, still move around the national capital of New Delhi in the fabled Indian Ambassador, designed based on the venerable British Morris Oxford of the 1950s era, only with red or blue flashing lights on the roof, to indicate status in the hierarchy.

Sri Lanka

Sri Lanka would certainly present itself as a better model for good governance, if the ministers and top bureaucrats could resist the temptation of running around in luxury Land Rovers, BMWs, Mitsubishis and Toyota Prados, SUVs and Mercedes and Audi limousines.

After the much-heralded end of the conflict, the need for bulletproof BMW, Mercedes and Volvos may not be a big issue. But certainly there is a great amount of criticism and annoyance among the general public, the much-maligned ordinary man, trying to cope with the rising cost of living and uncontrolled inflation, when motorcades race past sirens wailing, belching out black diesel exhaust smoke with pilot cars, limousines with blacked out windows, backups and men leaning out in suicidal fashion frantically waving white-gloved hands in hysterical gymnastic gyrations, others poke ubiquitous AK 47s or T 56 weapons out the windows of the vehicles and even the odd ambulance frantically trying to keep up!

Russia

The other example is from Russia. Russia’s national airline Aeroflot is owned 51% by the Government. The rest of the shares were sold to private investors. The Government intends to sell off completely by 2016.

Billionaire Russian businessman Alexander Lebedev owns roughly 15% of Aeroflot. Lebedev is London based, and among other assets, owns the British newspapers – the Independent and the Evening Standard.

Lebedev used the leverage of his shares in Aeroflot to appoint Alexei Navalny, a leading Russian opposition figure and blogger renowned for railing against corruption and good governance failings of Russian State-owned enterprises, on the Managing Board of Aeroflot.

Navalny is a controversial figure in Moscow political and business circles. He has traded his corruption-fighting reputation to become a leader of the largely Moscow-based, middle class opposition movement in Russia. Since 11 June this year, when Russian internal security police searched his apartment in Moscow, he has been under investigation over allegations of inciting a riot.

Navalny’s appointment was confirmed at the Annual General Meeting of Aeroflot held in June 2012. On hearing the news Navalny joked that he would have to shuttle between Aeroflot’s boardroom and the headquarters of Moscow’s internal security police!

Aeroflot’s Chief Executive Vitaly Savelyev has said that he “saw nothing dangerous” in Navalny’s election to the Board of the airline: “I don’t know Navalny personally. But we have a shareholder, Alexander Lebedev; with his shares he can appoint any candidate on to the Board.”

Dmitry Lobachev, of the law firm Yukov Kherov and Partners, said Navalny’s appointment would give him “more instruments to defend the interests of minority shareholders”.

It is believed in Moscow business circles that the State was not actively opposed to Navalny’s candidacy for the airline’s Board. It remains to be seen whether Navalny’s reputation for rooting out corporate malfeasance at Russia’s biggest corporates will make Aeroflot a more attractive business for investors and ensure better returns for shareholders.

Mikhail Ganelin, a business analyst at Troika Dialog, a Moscow-based investment bank, has said: “From a media perspective, there is a lot of attention on this because Navalny is a famous name. But from an investment perspective, it’s not so significant.” But it is expected that the performance of Aeroflot would improve due to the appointment of an aggressive, investigative independent director.

This is a huge step forward in the struggle for better corporate governance in State-owned enterprises or enterprises in which the state or its agencies have a controlling interest.

The Sri Lanka equivalent of Navalny’s appointment would be to have anti-corruption activist, Chartered Accountant, former Chairman of the Ceylon Chamber of Commerce and good governance apostle, Chandra Jayaratne, or even a nominee of Transparency International Sri Lanka, such as Attorney-at-Law J.C. Weliamuna, being appointed on to the Board of Directors of SriLankan Airlines or Mihin Air! Then it would be really interesting to watch what the repercussions are; it may be comparable to the tsunami of Navalny hitting Aeroflot.

Governance and economic growth

In a developing economy, there is a clear correlation between governance and economic growth. Pro-poor growth relies on the state providing an enabling policy environment, the provision of public goods and social protection mechanisms, and the creation of institutional conditions for more inclusive and equitable development.

Achieving this requires that policies be adopted and implemented effectively, which in turn means that there must be institutional and governance structures that are capable and willing to devise, and implement such policies. Reaching this point requires changes to the political arrangement between the state, the private sector and civil society.

The state clearly has a role in terms of pro-poor growth. This role is normally seen as including and not limited to, investing in public goods, delivering services and providing an enabling environment for private investment. However, institutional change is clearly necessary, before the state is capable of engaging effectively in dialogue, with its citizens, the private sector and civil society – if the state is to know what goods and services are needed, where and by whom, at least the freedom of expression in all its manifestations is fundamental. Weak accountability to the electorate and poor capacity to deliver means that the state is often unwilling or unable to fulfil these roles.

This relationship between governance and economic growth is complex. Our experience clearly shows that governments are likely to be more developmental if they have to compete politically to stay in power and where their discretionary authority is restrained by effective institutional mechanisms, an independent judiciary and public service and independent police service, a free media, etc.

Good governance supports wealth creation, but conversely, economic growth, per se, does not necessarily result in improved governance. Political stability and the rule of law are associated with growth, and also with poverty reduction. Enhancing civil liberties and political freedom are also linked with poverty reduction.

A developmental state

For pro-poor development the state must be developmental. Governments may lack the capacity or incentives to promote economic growth or to institute pro-poor policies. Poor people have limited influence over policy and the way in which the state allocates rights and resources. What are the characteristics of a developmental state?

State control and legitimacy: State authority must be strong and viewed as legitimate. Progressive taxes are collected, labour is regulated, and the poor protected. There is a sense of nationhood. Investment is attracted and development goals are promoted.

Public service: A competent, autonomous, and stable bureaucracy exists. Its political loyalty is not tested and it has the authority to create, direct and manage development. Other effective institutions and networks, such as Chambers of Commerce, organisations of professionals and independent research institutions exist to interact with the state on policy and implementation.

Government legitimacy: Government has legitimacy, and is not required to redistribute public goods or change development policies or processes to retain support and power.

State and non state actors: The state should be independent of special interests although well linked with non state actors who contribute to policy formulation.

Policy priority: Development is consistently prioritised by government policy which promotes productive entrepreneurship.

National behaviour and attitudes: Innovations are welcomed, indigenous or external and used to solve problems. Tolerance, meritocracy, social mobility and education are valued and promoted.

Elite: Leaders promote development; corruption is limited or at least not predatory.

State entities and bureaucrats selling off luxury vehicles in Communist China and seasoned anti corruption fighter being elected on to the board of directors of autocratic Russia’s leading State-owned enterprise may not be a big deal, but it certainly could be a signal that governments, even communist and autocratic dictatorships, are being compelled to be more accountable and responsive in today’s emerging economic environment.

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)