Thursday, 16 November 2017

Why do politicians hate technocrats?

Whenever ‘elected’ dynastic governments start to unravel the myth of a technocratic government backed by the army is rolled out by politicians and sympathizers of their misrule.

Myths about ‘technocrats’
1.     ‘Technocrat’ is anyone “not in bureaucracy or army, not in politics and somewhat educated.” In an age of specialization, all semi-well clad, reasonably well-read people who are outside the government are regarded as power hungry connivers looking for an in with the army. All retired bureaucrats or army generals are technocrats as are all businessmen even if their own businesses are not growing or successful.

This definition is very different from what the rest of the world thinks. Technocrats is more or less an obsolete term used to describe technically capable people who could provide research, managerial, and other technical skills towards the making of a better society and government. The emphasis was on the need for specialized skills in areas such as the management and development of energy, transport, environment, economics, education health and many other increasingly technical subjects as societies and economies get more complex.

2.     All army coups are backed by and staffed by technocrats. Review the evidence and you will see that this myth is based on the definition of technocrat as a dilettante.

It is true that dictators make an effort to find some professional people for better governance and policy. After an initial 2-3 years, their cabinets contain the usual politicians. Even the early technocratic cabinet had businessman and retired bureaucrats in cabinet positions and not necessarily highly skilled professionals matched to the right positions.

The truth is that the invisible bureaucrat--the powerful mafia in control—has run all systems through both martial law and democracy even when occasionally a few technocrats are allowed into the periphery. They thrive on the notion that any bureaucrat with no specialized training is very well-equipped to revolve between managing and making policy in education, health energy, railways, and all other technical positions in government and even outside.

3.     Democracy is incompatible with technocracy. Recently the Interior minister wrote an op-ed arguing that the issue was “democracy vs technocracy.” Civil servants, columnists and anchors all point out that policy and projects are whims of politicians with no need for technical scrutiny. Politicians love this arbitrary power that is handed to them and argue vociferously against technical skills in government. Sympathizers especially the civil servants have a vested interest in decrying special skills in government. 

4.     Government only needs politics and no technical skills. Elected governments revel in bad appointments and their supporters don’t seem to mind.

Yet modern governance--whether martial law or democracy--requires that key positions--management of public sector agencies as well as the development of policy—should be staffed by the best available professionals. Regulatory agencies—SBP NEPRA, PEMRA, SECP, OGDC etc.—should be deeply staffed with the best professionals and be given the widest possible autonomy to do their job. Similarly, universities, hospitals, utilities and many public service provision agencies should all be professionally staffed and with autonomy from politics.

Why would elected governments not demand competence in government?

5.     We elect an imperial Prime Minister. The Urdu word ‘hakumat’ helps creates this erroneous impression. They want the PM to have unbridled power and everyone should be ‘under him.’ Most commentators believe that elected leaders have a ‘divine right to rule.’

People elect representatives asking them to frame laws and influence policy in line with mandate from the election. Elections don’t give the right to rule the country whimsically, signing foreign deals at will, initiating projects as they like, spending public money without check, and gifting state land and contracts to favorites.  

The role of elected leaders

Consider how a corporation is run. Shareholders elect the board of directors to oversee the running of the company who in turn hire the best professional managers to execute the policies approved by the board. Even the policies of the corporation don’t come only from the board. Guidance and suggested directions come from the board. But mostly well-researched proposals from the management and staff are put up to the board for guidance and approval.  

We should think of the elected parliamentarians and the cabinet as board members. They are there for guidance, oversight and decision-making not to run the government. Ministers should not be running executing agencies for public service provision. Cabinets and parliaments review reports and policy proposals arising from agencies. Ministries monitor and develop reports on public service provision and occasionally propose required policy changes. 

Good governance arises through such checks and balances and specialized roles.

Professionalizing government is no longer an option. For too long, dilettantes have had their whimsical ways and have refused to succumb to discipline. All positions everywhere—government agencies, universities, police, journalism and TV—should be filled with competent professionals of a high quality.

Continuous attacks on professionals must be understood as means to preserve status quo of arbitrary rule. ‘Democracy versus martial law with technocrats’ merely suggests that democracy wants an Imperial Prime Ministry which is totally undemocratic.

Let us also stop talking of obsolete terms like technocrats that lump all manner of skilled professionals into one vague category.

Politicians must stop dumping on knowledge and skilled people. Instead they need to develop a healthier relationship with learning and professionals. 

Friday, 6 October 2017

Pakistan’s reform moment missed again

Pakistan is again in the news with the dismissal of the Prime Minister by the Supreme court. The international media is calling it a manipulation of the Pakistan army.

Yet experience shows that democratic governments reveal incompetence and corruption within a year of taking oath. The polity starts bubbling with rumors of misgovernance and corruption. The opposition which is always marginalized finds street protests preferable to parliament. Why?
Part of the answer lies in the fact that Pakistan hastily adopted the UK constitution, which is an unwritten set of norms and rules embedded in British history and culture. No serious attempts have been made to adapt it to local environment and culture

For example, election process and party system has never been properly defined. Every election is considered to be rigged and all parties are virtual personality cults with no internal process, management, policy development capacity or clear membership. 

Elections are mere selection of dynasties and democracy mere bickering among the few who have regarded the country as a fiefdom. 2 families—Bhuttos and Sharifs—have led politics for the last 40 years while evidence (Ali Cheema et al) has shown that about two thirds of legislators have come from about 400 families to make policies in a country of 200 million people.

The state is captured by dynasties. Dynastic politicians don’t even file a tax return and those that do have a life style way beyond the tax that they paid. Beyond taxes power is egregiously abused every day. Recently a minister (member of an important clan) ran over a policemen a in broad daylight and it remains to be seen if he faces any consequences. In the past, too often they have not.

Parliament is dysfunctional. The Chairman of the senate repeatedly complains of the lack of attendance and the continued absence of ministers and the PM. Budget discussions are among the shortest in the world and pass without any opposition. But then, parliament made itself redundant by making it mandatory to vote along party lines (14th amendment).  

Elected PMs operate through an ‘inner cabinet’ of favorites—family members, civil servants and unelected friends. Policy is merely PM’s whim. Policies and projects are put in place without due diligence; international agreements signed without analysis; and loans are signed with no transparency. Public disclosure is severely limited.

The executive retains many control devices (inherited from the raj) to corrupt all and weaken democracy. Like a medieval king, the PM can at his discretion award favorites—judges, officials and others-- government-owned mansions, cars, land grants and post retirement jobs.

The PM does not see himself as the first minister leading the process of changing policies through debate in Parliament cabinet and the public domain. We hear of Nawaz Sharif wanting better ties with India but on a personal level. Yet, no policy statement has been made by him, nor have we seen a cabinet or parliamentary process for making this happen.

Perhaps Fareed Zakaria’s book “Illiberal democracy” needs a follow-up to tell us how to fix this authoritarian, dynastic system. 

If he did, surely, he would point to needed constitutional changes to build checks and balances to arbitrary power. At a minimum, the PM needs to be fully engaged with a working, independent parliament and an engaged consultative full cabinet. No more whimsical policymaking without due process.

Several options are available to end dynastic politics. Election systems independent of the executive and beyond rigging are a must. Term limits, even family limits, systems other than mere first-past-the-post, formalized party systems that allow more in-party democracy and much more can be considered.

Perhaps the most important crucible of democracy local government, which dynastic politics has blocked for decades, could be developed to bring democracy closer to the community.

Government departments and agencies are an agency of restraint against willful government. The excessive centralization of inherited colonial systems must be reformed to allow more room for independent regulatory and watchdog agencies to provide more monitoring and evaluation to voters.

Pakistan polity needs reform. Talking conspiracies and personality politics will lose yet another reform moment.  

Tuesday, 15 August 2017

Finance and a donor-distracted SBP Nadeem Ul Haque

In 2008 financial overzealousness led the global economy over a precipice but it did not kill the romance of finance. In particular donors love finance and love to offer financial inclusion as a panacea for all societal ills.

DFID and the IFC have made the State Bank of Pakistan (SBP) run programs for financial inclusion in exchange for loans for more than a decade. SBP mission expanded into development and it opened up departments on housing, small and medium business and microfinance. Meanwhile, the IMF was pushing for independence for SBP with a sharp focus on monetary policy. 

The country’s development body, The Planning commission has been rendered a mere project office because donors have full freedom to do policy everywhere.

SBP engaged in mission creep could not even design its own financial inclusionprogram; it needed Oxford Policy Management, a UK based consulting firm, to do the design.

Many million dollars later, SBP is pushing financial programs for these SMEs, housing and microfinance with some form of subsidy or guarantee. Received wisdom in this area is that the supervisor of the banking system should not be involved in any way in either directing credit or offering subsidies or guarantees. Monetary-Policy making can be conflicted if the SBP gets involved in development policy. 

Has the SBP done a sterling job in its primary mission—managing inflation and the exchange rate? I think the consensus would be “NO!” SBP presided on the at least 2 crises in recent memory and managed them badly. In 1998, they had let the foreign exchange deposits grow to about 10 times reserves and could only exit with a default.

In the early 2000s they had held on to a policy of exchange rate over- valuation for about 7 years with widening inflation differentials.  Eventually the bubble burst with an exchange rate crisis when the rate depreciated by about 40% in a matter of weeks. In other words, policy created room for an ‘exchange rate attack.”

Perhaps focused on development, SBP has always been wrong on exchange rate. SBP has always erred on the side of keeping the exchange rate over valued i.e., the dollar is cheaper that it should be. 

Much research and evidence shows that a developing country must keep the exchange rate undervalued i.e., make the dollar more expensive than the fundamentals would suggest. Most glaring example of that recently has been China.

(But before people think I am advocating a devaluation. No! it is a question of managing a policy that will allow the correct exchange rate to emerge just like the temperature and the RPM of a finely balanced machine. Fixing the rate is not a good policy. This requires skill and research.)

Quite possibly, SBP focused on its primary task might have managed exchange rate and monetary policy better. But now more than half the bank is doing development policy in probably a turf battle with the Planning commission. Remember, this has happened through the candy of money offered by donors. 

But now our distracted SBP has once again over-valued our exchange rate to decimate our export sector.

Many studies (World Bank Doing business) have shown that investment is largely constrained by factors such as weak property rights and contract enforcement and poor governance (registration processes, taxation and corruption) and knowledge and space constraints. A course in elementary finance suggests the pricing of such risks will preclude most investment possibilities. Still expends real resources trying to solve the problem through improving loan terms. Offering cheaper and better loans to propositions that have huge structural hurdles is unlikely to make them grow and achieve solvency.

How does this make sense and has this helped or hurt SMEs? Could DFID and IFC evaluate their little experiment and tell us how the costs of a distracted SBP square off against the non-existent benefits of this decade-long activity. Are the 100 million + USD spend here justified? Could we not have dedicated that money better to importing a few professors for our professor-less universities?

Could they also tell us if all real problems can be solved merely with clever finance? Is there no need to fix domestic institutions and governance first?

Surprisingly this project was initiated at the time of the global crisis. It seems neither the donors nor SBP learned anything from the global crisis. 

And let us not ask does EAD know anything of this? Should they have?