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Public domain, private incentives - II

By Subir Gokarn
August 18, 2003 11:54 IST
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In my previous column, I had concluded that the Indian government, broadly speaking, was trapped by severe rigidities in its human resources.

There are a number of reasons for this, among the most important of which is the stagnation of employment growth, particularly in the organised sector. This makes government jobs extremely precious for those who have them and extremely desirable for those who don't.

Under these circumstances, any significant downsizing seems highly improbable, while the temptation to increase hiring, while constrained currently by the fiscal situation, will never quite go away.

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Public domain, private incentives - I


Dealing with redundancy and inefficiency in the public service delivery mechanism, therefore, can only be based on approaches, which work within the confines of these rigidities.

Taking a long-term view, several structural changes are possible and should be initiated immediately. The principle of 'grandfathering' -- preserving status quo on existing contracts -- must be used to push through a whole series of changes in the contractual terms of government service.

These include elimination of job security with the introduction of terminable contracts (not fixed-term contracts, which have their own disincentive effects), no guaranteed promotions, and very importantly, a fully and transparently funded retirement benefit programme.

There has been some headway on the last component, which is fine, but the other two are also essential components if one wants to reform the way in which the system works.

There are efficiency and fairness-based arguments against grandfathering. There are also incentive-based arguments against different, let alone diametrically opposite, contracts coexisting within the same organisation.

Without questioning their validity, one has to emphasise the practicality of grandfathering in a situation characterised by the kind of rigidities that the Indian government is in.

The adjustments will be painful and the conflicts will have to be carefully managed. But, in the end, there is little alternative to moving in this direction.

However, this is a long-run transformation, which will have small, if any, impact on the immediate quality of public service delivery.

It has to be accompanied by changes that fully utilise the room that the government has to sharpen the incentives and disincentives within the existing system.

It has to be able to differentiate effectively between the deliverers and the non-deliverers in ways, which very quickly induce desirable kinds of behaviour among civil servants at all levels.

Again, one could argue that such differentiating incentives are already built into the system and it is the interference of politicians in pursuit of their narrow objectives that has subverted and ultimately derailed the system.

If this is the case, then the balance and the boundaries between the political establishment and the civil service also need to be explicitly defined as part of the short-term strategy.

Against this backdrop, let us try and characterise the system of incentives that a typical civil servant operates in.

Assume for a moment that the system is clean, that he is under no compulsion, internal or external, to be corrupt. Does this guarantee the quality of delivery?

No, for at least two reasons. One, there is nothing within even an entirely clean system that specifically penalises non-delivery.

In terms of the job security and other protections offered to the civil servant, there is no differentiation based on competence or achievement.

If a person is put into a situation in which he does not deliver, the only consequence is that he is put into another position; there is no material loss.

Two, from the perspective of the system as a whole, if enough people are non-deliverers, how can it actually find the right person for the right job?

In this context, transfers are actually a positive process of matching competencies with job requirements and, in the right circumstances, will actually improve the efficiency of the system.

But, transfers that are not based on this matching criterion simply result in random matching between people and jobs, with no guarantee of positive outcomes.

When the system has a high proportion of non-deliverers and you rarely know what a person is good at, transfers are tantamount to a lucky dip.

What does a government do in this situation? First things first: identify all the people at various levels who have proven competence in any area of public service delivery, whether it is with public interface or in the back office.

Formal evaluation records will be a part of this process, of course, but more important is the informal knowledge that exists within the system and needs to be tapped into.

These individuals should be provided long career tracks in the sector of their competence, which gives them incentives to produce as well as constantly upgrade their skills.

Upward mobility should not be dependent on movement to another sector, which is the norm now and, in my opinion, a huge systemic deterrent to service quality.

Next, one has to deal with a large number of potentially competent and enthusiastic people who may not have had a chance to demonstrate any particular affinity. They should be asked what they would like to do in government, given a choice, and, as far as possible, given a choice to do it.

It is very likely that some of these people will migrate to the first category.

Having been allowed to decide what they would like to do, latent talents and capabilities will inevitably emerge. Others, however, will find themselves in dead ends.

A monitoring system that identifies them is necessary, along with a mobility mechanism that uses knowledge gained about their aptitude to place them in more appropriate situations.

Most people deserve at least a couple of chances to prove their worth.

Hopefully, these two categories will be almost exhaustive, leaving only a small number of perpetual malcontents and misfits to be dealt with.

The government would also have an idea as to where the big mismatches between jobs and willing workers are.

Emphatically, these are not the jobs to accommodate the misfits.

Rather, they provide guidance as to where the priority on public-private partnerships should be as well as an input into future hiring strategies (preferably on a new contractual basis).

Where does the issue of corruption enter the picture? Everywhere, and it makes the whole scenario enormously more complicated.

But, without meaning to underestimate the importance of corruption in deteriorating public service quality, the essential point of my argument is this.

Completely honest systems can also suffer crises of delivery because of wrong incentives. This is a problem that has to be dealt with in and of itself, regardless of corruption.

Civil service reform strategy should recognise incentives and corruption as two distinct (even if interrelated) problems and find specific ways to deal with each of them.

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