Retooling Institutions

In the last two decades theoretical and empirical evidence have offered a new insight: that broader socio-economic development including the distribution of the benefits of growth is determined by the quality of governance and institutions.

Economic policies, however sound or benign they may be, cannot disperse the gains widely unless the institutions intermediating these policies are strong, efficient and effective. Although it is hard to precisely define governance there is wide consensus that good governance enables the state, the civil society and the private sector to enhance the well-being of a large segment of the population.

According to the World Bank, governance refers to the manner in which public officials and institutions acquire and exercise the authority to shape public policy and provide public goods and services. The key dimensions of governance are: public sector management, accountability, the legal framework for development and information and transparency.

Research by the Overseas Development Institute has shown that the historical context, previous regime, socio-cultural context, economic system and international environment are the main determinants of governance and development.

The 6 core principles identified by Hyden et al. that are related to good governance are:

• (a) Participation
• (b) Fairness
• (c) Decency
• (d) Accountability
• (e) Transparency
• (f) Efficiency

Each nation’s path to good governance will be different depending on culture, geography, political and administrative traditions, economic conditions and many other factors. The scope of activities allocated to the public and private sector diverges markedly and so does variation in scale. Yet governments share many features. They face similar responsibilities in that they need to establish a basic policy framework, provide critical goods and services, protect and administer the rule of law and advance social equity.

What has been the experience of Pakistan with respect to governance and how has the tension between the goal of collective good of society and the self-interests of state actors been managed? What can be done to improve governance and strengthen institutions to promote the welfare of the majority?

Most observers and analysts within and outside Pakistan firmly believe that the quality of economic governance and decision-making and the capacity of the key institutions have gradually deteriorated over time. Pakistan’s main problem in holding on to macro-economic stability, sustaining economic growth and delivering stability, sustaining economic growth and delivering public services to the poor is due to weak governance and a gradual but perceptible decline in institutional capacity.

The elitist nature of the state and the society, and both the conflict and collusion among the various power structures of the country can explain this phenomenon. It is not the content of public policies that has been wanting but the implementation of those policies that has proved to be the major culprit. The implementation capacity itself is a function of the vision and objectives of the political leadership, the competence of civil service and the capabilities of public institutions.

Improvement of economic governance has not been consistently pursued in Pakistan as implementation requires several decades while elected and military governments have short-term horizons. Elected governments, in their pursuit of winning the next election, and military governments, in their attempts to gain legitimacy, get bogged down in ad- hoc and occasionally populist measures without addressing the root cause: that is, building institutional capacity to deliver improved living standards for the majority of the population and setting up a viable governance structure. Personalised decision-making according to the whims and caprices of individuals at the helm has therefore displaced and informed well thought out institutionalised processes.

Chronic political instability and frequent changes in political regimes have also caused disastrous consequences for economic governance. During the 1990s the changes were too many and too chaotic. Invariably, 163the incoming governments abruptly abandoned, discontinued or slowed down the implementation of the policies, projects and programs inherited from their predecessors.

As institutions take a long time to nurture, the implementation of projects is spread over a multi-year period and the impact of policies is felt with considerable time­lag, premature abandonment caused more damage than good. Starting all over again and before the benefits started accruing, the government was either overthrown or had to step down before completing its tenure. The incoming government began the cycle again with a fresh set. The majority of the populace never witnessed any benefits while unending costs were incurred by every successive regime.

The situation is quite the opposite in India as aptly summed up by Arun Shourie:

In India, there is a consensus in practice so that whenever a group is in office, wherever it is in office, it attempts to do the same sorts of things. But when it is in opposition, where it is in opposition, it strains to block the same measures. We have the Communists in West Bengal garnering credit for implementing reforms in the State that they are blocking at the Centre.

What is the effect of this unending cycle of politically motivated economic governance on the majority of the population? A sense of deprivation and denial of basic economic rights creates feelings of cynicism, negativism and frustration. The credibility of governments in power—any government—is completely eroded.

Distrust of ‘government’ becomes so widespread and credibility of ‘government’ so low that unfounded and unsubstantiated rumours, mudslinging and suspicion about their motives assume a momentum of their own. In the last six to seven years the media, taking advantage of this widespread lack of government credibility have taken over the role of an opposition party and thus accentuated feelings of negativism.

Markets, on the other hand, function on sentiments. If market participants have confidence in the government and its institutions the overall result is stability in the markets. But if there is lack of credibility, an air of uncertainty, and crisis of confidence, the markets become nervous and jittery and high volatility is witnessed. However good and sound the 164policies may be, under these circumstances, private investment is hobbled and the economy suffers.

A society with positive attitude will give enterprises far greater freedom to compete than a society that perceives businesses to be unethical or in partnership with the government for personal aggrandisement. Patronage and cronyism in the form of licenses, tariff concessions, tax exemptions to only a selected few or sale of public assets to the favourites of the rulers or appointments to key public offices not on merit but on the basis of loyalty, affiliation and friendship sharpen the negative sentiment. Therefore the program of privatisation of public enterprises, economically desirable and so badly needed, has almost been abandoned ever since the perception, right or wrong, gained currency that the Pakistan Steel Mills was being sold for too low a price to the cronies of the government.

Alesina’s survey of literature suggests that when the values of political-institutional variables are compared for the ten slowest and ten fastest growing economies in the sample, the slowest countries tend to be more ethnically fractionalised and more politically unstable. They also tend to have much poorer indicators of the rule of law and institutional quality, much higher black market premium and greater income inequality. Alesina et al. found that political instability, government fragility (frequency of government changes and coup d’etats) and socio political instability (Political assassinations, riots and revolutions) have a negative effect on growth. Pakistan fits this model quite well as the frequency of government changes and socio-economic instability have been associated with low growth and macro-economic turbulence.

What are the essential ingredients of good economic governance? Participation, transparency, credibility, rule of Law, efficiency and accountability are now accepted as essential and are measured through indicators such as (a) voice and accountability, (b) political stability, (c) government effectiveness, (d) regulatory burden, (e) rule of law and (f) corruption.

How does Pakistan fare against these indicators? The common view about participation is that the Centre has assumed too much power and authority and this excessive concentration of power has led to inefficiency, social fragmentation, and ethnic divisiveness. Political leaders with the help of a small coterie of loyalists exercise absolute power 165and take all important decisions. Dissent within the political parties is hardly tolerated and Parliaments usually rubber stamp decisions taken by the leader of the party. Party cadres and National and Provincial assembly members are usually excluded from decision-making.

Devolution of powers to Local governments introduced in 2001 was a step in the right direction to promote broader participation but has not been fully implemented either in letter or in spirit. The incoming governments, instead of removing the deficiencies revealed during implementation have decided to dismantle the system simply because it was the handiwork of the previous government.

There is no consensus as yet on the contours of the new system. Meanwhile whatever access the common citizens at grass-roots level had begun to experience is being hampered because the power and authority are gradually reverting to the provincial capitals. It is quite ironic that while the Provincial legislators and ministers are quite vociferous in demanding autonomy from the Federal Government they are the most fierce opponents of devolution of powers to the local governments. This lack of consistency and absence of continuity in our governance structure have more hazards than is generally recognised.

Transparency in the actions of the government can be achieved by several means, i.e. hearings of Parliamentary Committees, question hours in the National and Provincial Assemblies, Freedom of Information Act, removal of several clauses of the Official Secrets Act, introduction of e- government and investigative reporting by competent and responsible journalists. Most of these measures exist but more in form rather than substance. In India, however, the Right of Information Act is bringing about a silent revolution and civil society is using access to information to expose corruption in public places and secure the rights of the poor. The bureaucrats have become more cautious as their actions are open to public scrutiny. In Pakistan, excessive misuse of newly acquired power by some media representatives in assassinating the character of political leaders or public servants without substantiation or evidence may prove to be more detrimental to the cause of disclosure and transparency.

The rule of law has been a subject of debate in Pakistan since March 2007. The lawyers’ movement demonstrated that if a particular community gets rallied around a legitimate cause it could make a difference. The 166judiciary at the highest level is indeed trying to assert its independence, enforce the rule of law and expedite disposal of cases. But it is not clear if a common citizen is any better off today in terms of access to justice, speedy redressal of grievances, enforcement of contracts or property rights. The reality is quite sobering.

Efficiency, as measured by government effectiveness either in maintenance of security of life or property, law and order or delivery of basic services, has rapidly declined over time. Most institutions entrusted with these responsibilities at the time of independence were relatively well run. But the opposite is true after sixty-three years. It is only a rarity that a public institution is found to be functioning smoothly and effectively. The differential treatment meted out to the well-to-do and influential segments on one hand and the rest of the population on the other violates the principle of fairness and equality for all citizens irrespective of caste, creed or social status. But this deference to the rich and connected has become the norm of bureaucratic behaviour in Pakistan. With each change of government a new cast of political elites and well-connected influentials occupy the space vacated by their predecessors.

A number of laws and institutions exist in the name of accountability in Pakistan. Starting from the Public Accounts Committees at the Federal and the Provincial Assembly level there is a plethora of committees, bureaus and task forces, charged with this responsibility. The National Accountability Bureau made a very promising start and instilled some fear and induced a deterrence effect but this was only for a short period of the initial three years of the Musharraf government.

Soon after, political compulsions gave way to a pragmatic approach whereby the impartiality and neutrality of the NAB came under serious questioning. Thus despite a very strong legal instrument and a well organised infrastructure of investigation, prosecution and courts, the practice of true accountability was once again set aside. Accountability has therefore lost its true sense and meaning in the vocabulary of governance and instead become associated with retribution, settling political scores and a tool for winning over opponents and witch hunting the recalcitrant.

The strategy for bringing about improved governance in the context of Pakistan would involve the breakup of the monopoly of economic and political power that has been amassed by a small class of politicians, large 167businessmen, military and civil service officers, professionals and zamindars over the last five decades.

The locus of power has become too much tilted in favour of entrenched interest groups and only a reduction in their power will be able to improve the quality and standards of living of the majority of the population. A more difficult question that remains unanswered is: How can this be done? This is an arduous task and there should be no illusions about it. All that can be done at this juncture is to spell out a long term agenda for system-wide reform based on diagnosis, field observations, evidence and consultations with stakeholders.

As the agenda for governance reforms spans over the tenures of several elected governments it is difficult to find ownership for these reforms. An enlightened leadership that has a sense of history and is not totally driven by the politics of electoral cycles can implement this agenda. The main ingredients of the agenda for governance and institutional reform would consist of:

• (a) Improving the quality and performance of Civil Services.
• (b) Restructuring the organisation of the Federal, Provincial and District governments.
• (c) Revamping the mechanism for delivery of basic public goods and services.
• (d) Strengthening key institutions engaged in economic governance.
• (e) Introducing checks and balances in the system by building up the capacity and authority of certain institutions of restraint.

Civil Service Reforms

In a recent study on Pakistan’s Civil Service, the International Crisis Group (ICG) concluded that:

To remedy this situation the best talent available in the country has to be attracted to the civil services, and a holistic approach that affects the entire human resource policy value chain has to be implemented.

The main elements of this value chain are:

• (a) Recruitment at all levels and grades of public services should be open, transparent, merit based with regional representation as laid down in the Constitution. These principles have been successfully practiced for decades, e.g. Pakistan Atomic Energy Commission, National Highway police, State Bank of Pakistan.

• (b) The artificial distinction between superior and non-superior services has to be replaced by the equality of all services at all Pakistan, Federal and Provincial levels. Terms and conditions of all the services in matters of recruitment, promotion, career progression, compensation, would be similar. The specialists and professionals would have to be brought at par with the cadre services.

• (c) To provide equality of opportunity to all deserving civil servants, National Executive Service (NES) and Provincial Executive Services (PES) ought to be constituted to man all the Federal and Provincial Secretariat and senior management positions. The selection should be made on merit by the Public Service Commission with due regard for provincial quota and reservation for women. The NES ought to have three streams—General, Social Sector and Economic Sector, thus promoting some limited specialisation among our civil servants.

• (d) Training of all civil servants should be mandatory at post- induction, mid-career and senior management levels. Promotions to the next grade ought to be linked with completion of training at various stages in the career.

• (e) Promotions and career progression for all public sector employees should be determined by their on-the-job performance, responsiveness to public and training outcomes.

• (f) The present outdated system of Annual Confidential Reports (ACRs) should be replaced by the modern Performance Management System (PMS), which evaluates performance objectively and identifies and provides opportunities to individual employees.

• (g) Compensation packages should be revamped to reflect market conditions and a decent living wage and retirement benefits should be made available to all public sector employees. Corruption among the majority of civil servants cannot be curbed by moral persuasion but by providing them with an adequate compensation package. To keep the wage bill of the government within the limits of the fiscal deficit, a freeze should be imposed on fresh recruitment to lower grades except for teachers, health workers and police.

• (h) As most of the interaction between an ordinary citizen takes place at the district level and the present level of functionaries consists of ill-trained, poorly paid, unhelpful, discourteous individuals enjoying arbitrary powers. District Service should be constituted for each District Government.

This will minimise the political pressures for transfers and postings as 1.2 million out of 1.8 million employees working in the provinces will remain in their respective District Governments. Training in technical and soft skills will be made mandatory for all members of the District services.

• (i) Education, health, police and judiciary which are critical for delivery of basic services should be excluded from the uniform Basic Pay Scales as it has created serious distortions. The backward districts and regions are lagging behind as the teachers, health workers, etc. have no incentive to serve these areas. Local labour market conditions of demand and supply should determine the salary structure of teachers, health workers and other professionals.

• (j) Security of tenure of office for a specified period of time should be guaranteed and implemented. The current practice of frequent transfer at the discretion of the political leaders has weakened the moral fabric of the civil servants who cannot withstand the social and financial costs of dislocation and at- times ostracisation. Pleasing the boss, whether or not his orders are legal, has become the norm, making fair and impartial dispensation of services difficult.