Courtesy: Rajatrade.com
Courtesy: Rajatrade.com

While we may endeavour to solve minor and apparent problems in our everyday lives, there is a general consensus that the more complex and critical issues should be left to the experts. After all, experts have domain-specific knowledge and are best suited, through training and research, to do a particular job. Experts statistically have a higher chance of doing a better job within their field. An electrician, for example, is a specialist at repairing and maintaining the electrical systems. So, when our wiring is faulty, we call upon this expert. The same is the case with doctors, managers, counsellors, consultants and the like.

This terminology is often used in another sphere of human society – governance and administration. During arguments advocating decentralisation of power, or giving communities more autonomy to make crucial decisions, the counter-argument is made that these decisions and their enforcement should be left to the experts – public officials, technocrats, and others.

Let us examine the basis of this assumption. In the Indian administrative system, bureaucrats are selected through a series of intensive examinations and interviews. They are required to demonstrate extensive knowledge in several disciplines. Once they clear the screening process, they are subjected to further specialised training. Compared to the average Indian, the bureaucrats and the technocrats have arguably more in-depth knowledge about specific fields or at least a more profound formal education in their field.

When it comes to important administrative decisions like fund allocation, building roads and so on, the bureaucrats could be more efficient in making these decisions. Of course, there could be exceptions but leaving that aside, and conceding for a moment that bureaucrats are equipped to make these decisions if we press forward, we notice another glaring problem. We take for granted that experts will use their expertise and produce socially optimal results. This is mostly true in the private sector since the incentives to perform are stronger. But what about the government?

In the private sector, experts are structurally driven to use their expertise. The business of doctors, electricians, counsellors etc. depends on their reputation, which increases or decreases based on the quality of service they provide. In short, if you provide excellent service by using your expertise, you will have a more extensive clientele, and your business will bloom. Competition and profits are major incentives for better performance. However, the same is not true in the bureaucratic environment. Government employees are paid fixed salaries regardless of their work. Even the incentive of promotions is not linked to results. In most cases, one is promoted due to seniority or connections. 

Public and private choice processes are different, not because the motivations of actors are different, but because of differences in the incentives and constraints that exist in the pursuit of self-interest in the two settings. 

Budget maximisation seems to be the primary goal of bureaucrats because more funding for their departments translates into broader administrative discretion, more opportunities for promotion; basically, more power. But the primary incentive here should not be to gain more power; it should be to use expertise for societal development.  It is not that bureaucrats do not have incentives, just that they are not well-aligned with the aspirations of the society. After all, who wants bigger budgets and more powers for government officials?

Bureaucrats have autonomy in making administrative decisions, but they do not have the right incentives to do a good job and outperform in fulfilment of their duties. This is very dangerous and needs to be critiqued because bureaucrats spend large sums of taxpayer money. They take decisions about your and my life, and if their incentives are misaligned, development cannot happen.

The concept of incentives becomes more critical in the government than in the private sector, since the government is supposed to exist for the welfare of the people. There is minimal competition among bureaucrats which reduces incentives to perform well. Such a structure kills initiatives, inhibits societal progress, and it needs to be checked. 

It’s well known that performance-based incentives motivate behaviours better than anything else. To limit political influence over salaries of bureaucrats or civil servants, they are typically based on rigid pay scales with very less room for using financial incentives to reward performance. Nonetheless, it is possible to develop creative schemes to motivate bureaucrats to perform better based on outcomes achieved. Multiple governments have done it. A 2017 report by the International Growth Centre titled “Rewarding bureaucrats: Can incentives improve public sector performance?” mentions research findings in different spheres of the public sector, where well-designed incentives have worked.

India has a considerably large bureaucracy, so it might not be possible to conduct a largescale restructuring of government salary structures. However, leveraging even just a small portion of the wage bill toward merit-based incentives may yield surprising results, particularly when performance is accurately measured.

As Thomas Sowell rightly pointed out – “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

Read more: Five Reform ideas for ‘Minimum Government, Maximum Governance’