IN Why Nations Fail: The Origins of Power, Prosperity and Poverty, Daron Acemoglu and James Robinson begin quite dramatically with a description of the entirely different situation of the two halves of the town of Nogales portioned by a fence to be part of the United States and Mexico. The Nogales in Arizona thrives, while the Nogales in Sonora languishes. The climate is alike. The lay of the land is no different. The populations too are similar. So why the difference?

‘The answer to this lies in the way the two different societies formed during the early colonial period. An institutional divergence took place then, with the implications lasting into the present day.’ In other words, the difference can be traced to the fact that the US and Mexico evolved differently with very different systems. One system evolved to milk the land for its colonial masters in Europe, while the other evolved due to colonization by the settlers and for their benefit, suggesting that if the US had not freed itself in 1783, it might have evolved differently. Like India, perhaps?

Some states are structured around ‘extractive political institutions’ where the institutions serve to satisfy the aspirations of a narrow elite alone. Colonialism was clearly an extractive political system. But does India still have an extractive political system? Many an economist will argue that the data suggests just that. When we see the evolving politics through this prism we have an answer for the growth of family or clan dominated political parties on one side, and the notable expansion of the upper classes and the growing power of family owned businesses. Like many large and hugely unequal societies, India too has a wide spectrum banded into its class stratification. Much of India’s middle class is actually poor, just as a good part of the middle class is actually quite wealthy. And the truly wealthy can compare favourably with their counterparts anywhere in the world.

 

Clearly the nature of the regime determines the nature of the outcome. Regimes dominated by elites tend to be extractive, while regimes based on popular participation tend to be more inclusive and where the fruits of development are more equitably shared. Make no mistake, whatever be the system of government, there will always be elites. The difference lies in the nature of the elites. An imposed and self-perpetuating elite is by its very nature prone to be extractive and the fruits of growth are inevitably cornered by a few, while in a participatory system growth is more likely to be inclusive.

There are many systems of government. The one we are most familiar with is democracy. There are many kinds of democracies in vogue, but their common foundation is that they all strive to reconcile needs, aspirations, demands and rights of the people, and consider all people equal. We, therefore, call them reconciliatory systems.

Then we have regimes which are controlled by elites. These typically include all kinds of monarchies, theocracies, dictatorships, colonial and random despotic regimes. Since power is vested in the hands of a small number of people, we call them bureaucratic systems.

The last kind are the communist and post-revolutionary systems that depend on a very high degree of mobilization. To be a mobilized system, one invariably needs a common goal or enemy, and usually a charismatic leader. Mobilized systems come into being at times of great distress or following an upheaval. Russia and Germany after WW-I, or post-revolutionary China are typical of this. But the problem with reconciliatory and mobilized states is that sooner than later elites take them over too. Often, these elites are hereditary, as in very diverse nations like India and North Korea, or bureaucratic elites from internally competitive and politicized structures, like the Chinese Communist Party.

 

Political leaders as diverse as Jayaprakash Narayan and Leon Trotsky warned against this tendency. JP called for a complete decentralization of g overnment, with the higher tiers of government vested with very restricted power and authority. Trotsky advocated Permanent Revolution to prevent vested interests from getting entrenched and taking over the system. Napoleon, who inherited the French Revolution anticipated this by replacing revolutionary terror or permanent revolution with permanent war.

According to Mark 6:4, Jesus said, ‘A prophet is not without honour except in his own town, among his relatives and in his own home.’ JP never quite received the honour and respect due to him in his own country. Paradoxically, this is not true for Gandhi who championed an even more idealistic state of democratic decentralization, advocating self-sustaining and self-reliant village republics.

When India became independent, Jawaharlal Nehru favoured disbanding the British inherited civil service and wanted a new system of public administration that would not just preserve order to facilitate extraction, but drive change and equitable development. But Sardar Patel was dead set against such a radical transformation of government, and instead preferred India to be administered by an elite civil service such as the ICS. Nehru abhorred the ICS for its role during the British occupation of India and, as a compromise, a new broad-based civil service system, drawing more on merit and less on class, was created with development administration as one of its key goals. Whatever the dynamics between the two leaders, together they enabled the entrenchment of a highly centralized regime, and India sixty-seven years later is still paying a heavy price for it. Thus we now have a system of governance that still remains as distant from the people as was the case in the British, and possibly even earlier feudal periods. To confirm this thesis all we need is to study the wage bills at the three tiers of government – the central, state and local.

 

The UPA government had announced the Seventh Pay Commission just ahead of the 2014 Lok Sabha elections, hoping to garner support from officialdom. Soon we will have to suffer its consequences. The Finance Ministry has now readied its recommendations for the Seventh Pay Commission and is proposing an across the board pay rise of 16%. In effect this will mean a 23.55% raise, as while the basic salaries of 47 lakh employees will go up by 16%, the allowances will rise by 63%. This hike is, however, lower than the 35% awarded by the Sixth Pay Commission. In addition, the pension of 52 lakh retired babus will go up by 24%. There is clearly a virtual One Rank One Pay for civilians now.

The new total monthly salaries of government servants are expected to be in a band of Rs 18,000 to 250,000. In addition there will be a house rent allowance or free housing, dearness allowance, free utilities, full and free healthcare and lifetime pensions. Government jobs are easily the best in the country and entry into the government is like getting a pass into a golden world of privilege and lifetime prosperity. As it is, salaries currently exceed the total capital expenditure of the central and state governments. Government has become very expensive, not because of numbers but because of what it doesn’t do. As much as Rs 30 lakh crore goes uncollected as rightful revenues to the state. Even if half of that is collected, India can be transformed with a hugely expanded infrastructure that will potentially take the economy into a different growth and development orbit.

 

In the last three years the Union government’s expenditure on salary, allowances and travel has seen a steady rise – from Rs 1.21 lakh crore in 2013-14 to Rs 1.5 lakh crore in 2014-15 – an increase of 14%. For the current year, the salary bill is likely to go up by about nine per cent to about Rs 1.75 lakh crore. Taken together with the combined wage burden of close to Rs 5 lakh crore for all states, the total wage bill to be impacted by the Seventh Central Pay Commission is estimated at over Rs 6.5 lakh crore – close to 5% of GDP.

There is more to government than just this. The three levels of government together employ about 185 lakh persons. The central government now employs 34 lakh people, all the state governments together employ another 72.18 lakh, quasi-government agencies account for a further 58.14 lakh, and at the local government level, a tier with the most interface with the common citizens, we have a mere 20.53 lakh employees. A sum of Rs 1,74,081 crore has been provisioned in the current budget to pay central government employees – about 10.45% of its overall expenditure. The estimated wage bill of government at all tiers is around Rs 10.42 lakh crore or about 10% of the GDP.

Prime Minister Narendra Modi promised us ‘less government and better governance.’ But do we have too much government? Not really. Consider this: India has 1,622.8 government servants for every 100,000 citizens. In stark contrast, the U.S. has 7,681. The central government, with 3.1 million employees, thus has 257 serving every 100,000 population, as against the U.S. federal government’s 840. Now look at the next tier at the state level. Bihar has just 457.60 per 100,000, Madhya Pradesh 826.47, Uttar Pradesh has 801.67, Orissa 1,191.97 and Chhattisgarh 1,174.62. This is not to suggest there is a causal link between poverty and low levels of public servants: Gujarat has just 826.47 per 100,000 and Punjab 1,263.34.

 

The troubled states or really speaking the troublesome states actually fare far better on this score. Thus, Mizoram has 3,950.27 public servants per 100,000 population, Nagaland 3,920.62 and Jammu and Kashmir 3,585.96. Bar Sikkim, with 6,394.89 public servants per 100,000, no state comes close to international levels. Very clearly, for the most part, India’s relatively backward states have low numbers of public servants. This means staff is not available for the provision of education, health and social services needed to address poverty.

In vast swathes of territory, the government is barely visible. No sooner does one get off the tarmac roads and highways, all signs of government disappear. Even the government primary schools, when not locked, function mostly to provide mid-day meals than any worthwhile education. There are few signs of the police, irrigation, power and PWD departments. In most of the adivasi homelands, the only presence of modern India is often the arrack contractor or the forest guard. It’s as if we exist in a vast stateless nation.

Even in urban areas, the prime minister’s call for a Swachch Bharat goes unheeded because the systems to collect and dispose trash just does not exist. Does anybody wonder why Indians defecate everywhere? It’s such a commonplace sight that it doesn’t even repel us anymore. The PM’s call is timely, but to put it into effect we need the public systems that can carry away waste.

 

This is why the reform of government is critical. The central and state governments must cede most of their authority and powers to a vastly expanded local government tier which will give us both better governance and better value for money. Merely heaping bounties on an already lethargic and highly corrupt bureaucracy without altering the terms of employment and restructuring public administration is only to pour more money down the tube, making less government even more expensive.

Friedrich Engels had prophesied that as societies develop ‘the interference of state power in social relations becomes superfluous in one sphere after another, and then ceases of itself. The state is not "abolished", it withers away.’ It would seem that the state has withered away in India without achieving any worthwhile social and economic transformation. Instead, we have evolved into multiple nations. We have a stated nation as envisaged by the founding fathers and a stateless country ruled by a gated nation of the national elite. And we await with trepidation the next nation of twelve million Indians who enter the workforce every year.