-Sanjeev Sabhlok- At the request of Sh. Prajapati Trivedi, Secretary, Government of India, I prepared this article for the Cabinet Secretariat newsletter more than a year ago. Given that signifiant time has elapsed, I’m now publishing it here for wider dissemination. This does not prevent the Cabinet Secretariat from publishing it, as appropriate.
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Even the best people underperform in a badly designed system. The fact that India’s policy development and programme management, led by IAS officers, is often lacklustre is best explained by the poor systems in which they operate. For this I know: that the calibre of IAS officers is second to none.
The bureaucracy is one of three key governance sub-systems that closely interact with each other. The other two are the electoral system and economic policy frameworks. In the past, India’s economic policy, divorced from market signals, explained its systemic governance failures. But India’s economic policies are better now. Residual governance failures can now be attributed largely to continuing weaknesses in the design of India’s bureaucracy.
In this paper I outline how the bureaucratic system of Victoria delivers world-class governance, and discuss the implications for India.
India’s “steel frame” no longer the best
By 1880, British India’s civil service was the world’s best. Incentive structures introduced by Lord Cornwallis were not foreign to India’s existing models of governance. India’s great economist and systems thinker: Chanakya, wrote inArthashastra that senior advisers should be paid 800 times more than lowest functionaries. (Of course, he also had many other brilliant insights into what we today call incentive compatible contracts and public choice analysis.)
The UK gladly copied Indian public service innovations. But after independence, India’s bureaucracy went backwards. The West, however, kept improving by adopting the findings of the theories of public choice, rent seeking and regulatory capture. Western politicians introduced a regulatory impact assessment process to test public policies for net benefit, and a senior executive service as part of which departmental heads employ the staff. By mid-1990s, Australia had established a sophisticated policy development process managed by contractual senior executives who also delivered government programmes.[1]
By the time (in March 2001) I began working in the office of its largest regulator, Victoria had a truly modern bureaucracy with market competitiveness of remuneration, open market recruitment by application for each position, flexible arrangements for retirement savings and many other improvements over its earlier tenured civil service system.
Victoria has continued to improve through its 2004 Public Administration Act and amendments. In my 2008 book[2] I have compared nine key features of the Victorian and Indian bureaucracies. It is clear that Victoria’s system of civil service accountability, along with its electoral system (which includes state funding) and world-class economic policies, explains the outstanding governance experienced by its citizens.
The Cabinet is Victoria’s Board of Directors
The best way to think about Victoria is to imagine its Government (Cabinet) as Victoria’s Board of Directors, with the Premier as its Chair. Reporting to this Board are eleven departmental Secretaries who can be imagined as its non-voting Managing Directors.
The Victorian Premier is given four years by its citizens to deliver election promises. To get re-elected, he needs to deliver his promises effectively without charging citizens too much for this privilege. He begins by deciding his “machinery” (number and type of departments) and selects and appoints departmental Secretaries on individually negotiated contracts of up to five years. These contracts can be terminated:
- at any time without showing cause (subject to four months’ notice or pay in lieu); or
- at any time if the Premier believes that the Secretary has significantly failed to fulfil contractual obligations (subject to four weeks’ notice or pay in lieu); or
- immediately, without notice, for reasons of serious misconduct (summary dismissal).
Termination provisions focus the minds of Secretaries. Also (compared with Indian State Governments where Secretaries are frequently transferred) having a clear contractual duration ensures stability and continuity in departments, provided the Secretary performs to expectations.
The Premier selects oHowSecretaries through a head-hunting process from amongst outstanding mangers in the private and public sector, and academic leaders. While all public servants are paid private-sector-comparable salaries, Victoria’s head of the civil service earns a robust $600,000 per year[3] (with a component at risk subject to performance). This reward, coupled with the stringent termination conditions, guarantees total integrity. The slightest question regarding a Secretary’s integrity will lead to instant termination. (Lok Pal type solutions are not needed since incentive compatible contracts preclude the possibility of corruption.)
Performance goals and resources
The Premier then writes priority (“charter”) letters to his Ministers outlining his expectations. These priorities flow into specific quantified output targets for Secretaries. But Secretaries can’t possibly deliver targets without appropriate resourcing. So the Premier ‘purchases’ outputs through detailed departmental output statements published in budget papers. These statements include measures with clear link between purpose of funding and the measure, controllability, timeliness, and so on.
With this, the Secretaries are fully equipped. With the right incentives, necessary authority and necessary resources, they are charged with delivering results. There is no excuse for failure.
Departments operate like private companies
Secretaries operate like business chief executives. They hire the best senior executives they can find through open advertisement and build a team that works for them. It is not uncommon for many existing senior executives to be terminated when a new Secretary joins a department. There is no political interference in such decisions. The Secretary is given a free hand so he can’t later make excuses for his non-performance. His other senior officers then employ the best people to report to them, all the way down the line. Competitive salaries are paid to everyone within a broad framework established by the Government. It is well understood by everyone that if you pay peanuts you will get monkeys.
Ministers are the Secretaries’ key customers. To guide their daily activity, Secretaries create strategic plans in consultation with Ministers. They also actively seek feedback from Ministers to fine-tune departmental priorities, strategies and resources. Secretaries are expected to provide fearless, professional, apolitical advice to Minsters, who can either accept it or ask their own (Ministerial) advisers.
Secretaries also often establish a departmental Board that include non-departmental Board members with capability for strategic focus and oversight. Boards use a committee structure (e.g. risk governance, knowledge management, audit, finance). Separately, Secretaries commission departmental capability assessments to guide optimal resource use. In brief, every management benchmark and standard is used to motivate a culture of innovative (‘blue-sky’) performance.
The crunch time: Performance review
Annual reviews against contractual performance targets are the main vehicle for assessing Secretaries’ performance. Secretaries begin the process by providing self-assessments to the Chair of the Victorian State Services Authority and to Secretaries of the Premier’s department and Treasury. These claims are carefully validated by expert teams and the results (and recommendations) reported to the Premier.
As their employer, the Premier may choose to pay a performance bonus to Secretaries who meet his expectations. He may also agree to any average performance bonus for other departmental executives. The Secretary can then pay a bonus to his executives on the basis of their individual performance, within the average established by the Premier.
How are Secretaries prevented from overcharging?
It is a basic implication of public choice theory that bureaucrats will over-charge for their services, particularly since they operate monopolies. Corruption can be stopped, but excess ‘fat’ and inefficiency is harder to remove.
To ensure that Victoria is not overcharged, a number of processes are used to monitor the costs that Secretaries bill the Government. Detailed price reviews by the Treasury determine the appropriateness of prices quoted by Secretaries. All output targets and prices are also reviewed during the budgetary process. Variances can flag cost control issues, prompting detailed investigation. Secretaries are also required to deliver ongoing efficiencies and a productivity dividend. The cost of each widget produced by Secretaries should fall over time through innovation and better technology.
Finally, Victoria’s Auditor General provides the Parliament with detailed performance audits of departmental effectiveness and efficiency, and his recommendations often prompt systemic improvements. These measures, taken together, ensure that Victorian citizens receive world-class governance at the lowest possible cost.
Possible improvements
No human system is perfect. Contrary to what is expected of them, Secretaries sometimes tailor their advice to suit the expectations of Ministers. After all, they are their pay masters. The pendulum has perhaps) swung too far in the direction of political masters. The Victorian system can be improved through:
a) an even more merit-based environment: inclusion of independent voices in recruitment decisions to reduce managers’ (sometimes significant) biases;
b) even greater openness to new ideas: consciously engaging oppositional voices at the decision making table to reduce group think;
c) even greater transparency: departments should be authorised (in moderation) to potentially contest political masters’ policy positions by publishing independent working papers; and
d) even bolder policy analysis: Victoria definitely requires more innovative policies if it is to prosper in the increasingly competitive global environment.
Implications for India
What does all this mean for India? Can India adopt these systemic features and improvements?
Well, it goes without saying that the imperative for doing so is self-evident. The prize (benefits to a billion Indians) is huge. But introducing such reforms will be challenging. The detailed reform pathway outlined in my 2008 book can offer some clues on overcoming these challenges. But in the end this will require a vision, a dream. Every starry eyed young recruit to the IAS has the dream of making India the world’s best place. There are perhaps no greater well-wishers of India than members of the IAS. In any case, few work harder. Maybe it is time to work smarter.
If the shared goal of India’s leaders of the political system and bureaucracy is to improve India’s governance and unleash India’s massive potential, then a way forward can be found. It must be found.