This is not the first time I discuss this theme in a newspaper article. But it is a subject that needs to be highlighted again and again due to its wide ranging social and economic implications. The issue has become even more relevant today due to the present fiscal crisis in the country, though policy makers do not readily recognize the connection between the two.
What is rationalization of public spending? In simple language, it is an attempt to allocate public finances on a rational basis in order to achieve priority national goals, both short term and long term. When public finances are extremely limited, due to whatever the circumstances, this becomes even a necessity.
As is well known, both domestic and international debts accumulated over time exert enormous pressure on public finances and therefore, public funds cannot be allocated in a haphazard manner for diverse sectors, no matter how important all these sectors might be. Often due to lack of rigorous policy analysis, very important areas like health, education and other social infrastructures remain grossly underfunded. What we observe over the years is that the available funds are not allocated rationally on a priority basis. To understand this, you only have to study several government budgets over the last several years. Since such an exercise is beyond the scope of the present article, I wish to offer some general observations here on the broad parameters that should guide the allocation of public finances at the present time.
National wealth
In the present liberal economic environment, the government controls only a small part of the GNP. In other words, private hands, both individuals and corporates, control much of the national wealth. The multitude of decisions they make on a daily basis with respect to private expenditure determine where the private funds controlled by them go. Look at the construction boom that we have witnessed over the last several decades despite the three decades long war. These are hotels, luxury housing complexes, commercial buildings, multi-story houses, few international schools, etc. How many public parks, children's playgrounds, low income housing projects, mass transit projects, railway stations and public bus stations, schools, etc. these entrepreneurs have built even in and around Colombo, let alone in the rest of the country. It is obvious that the private sector people know where their money (often borrowed from banks ) should go. In other words, those who control public funds should also know where such funds need to be invested.
Wealth creation is not the only important function in a modern society. Extraction and investment of a major part of the social surplus for collective purposes are equally important and this is a key function of the State. The state is supposed to do so in a good governance framework because this is the only way to ensure that it is done in a socially and morally responsible way.
Political leaders
We have seen over the years how dictatorial regimes in many countries around the world including our own abused public funds for nefarious purposes with little consideration given to their larger social purpose. Here we are not talking about rational allocation of public funds but almost total lack of sanity and social responsibility with respect to the use of funds belonging to the wider public. Though such corruption can vary in magnitude, it seems near impossible to totally eliminate misuse of public funds by politicians and public officials as we hear even from countries like France and the United Kingdom. This is also true in this country today though the innocent people did everything they could to elect a government committed to good governance.
So, let me return to the main theme again. The key question we need to find an answer to is whether we have a government that allocates public funds rationally? Given the widely known definition of politics, namely, it is the art of the possible, many people leave some space for political leaders to use their discretionary power. But, we need various checks and balances to ensure that they do not deviate too much from the overall guidelines that we agree on through policy debates and public discussions.
These guidelines deal with the nature and rates of taxation applicable to income earners and corporates, priorities for social investments, sectoral distribution of resources, etc.
These guidelines are developed and accepted on the basis of the experience in other countries, our own values and circumstances. Let me in the remainder of this article, discuss the last three points in brief.
The most successful countries in the rest of the world with respect to development, peace and social justice appear to be the ones that have followed a social democratic or social market model of development. Notable examples are in the Nordic world and a few others in Asia and elsewhere. In these countries, governments control a large share of the national wealth derived from direct taxes, maintain a high level of social sector investment, ensure a low level of income inequality and keep the defense expenditures to a minimum.
The biggest beneficiaries of a such a scheme of things are the lower income groups including vulnerable segments of society. So, the latter do not have to beg on the streets, sleep on the pavements, knock on your front door to ask for food or break into houses to rob from the rich. Higher level of social expenditure ensures that different groups in society have equality of opportunity, have access to quality education and other services and witness the value of social solidarity so that they do not perceive the members of other communities as enemies but as fellow citizens with whom they have a great deal in common.
Political and bureaucratic hierarchy
It is no wonder that almost all these countries have very low levels violence, social unrest, crime and, a result, a very low level of defense expenditure and the funds so saved are allocated to socially more useful purposes. But, sadly, despite the end of the war about eight years ago, we still have to maintain a very high level of defense expenditure, due to a perceived threat to national security from within and this is naturally done at the cost of social sectors.
Low levels of social expenditure in turn result in all kinds of deprivation, leading to persisting inter-community competition and conflict. Moreover, despite the fiscal crisis, wasteful public expenditure is maintained at a high level largely due to a misplaced idea of a pecking order of the political and bureaucratic hierarchy as is evident from the silly arguments they make to justify the type of cars public figures are entitled to. Ironically, this is determined by the type of cars produced in Germany and this is done in a country where there is not much an industrial sector to talk about.
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