Fair Distribution of Economic Welfare: Science against Myth | Daily News

Fair Distribution of Economic Welfare: Science against Myth

Part 2

The supply of public services whether fiscal or monetary or market regulation themselves are subject to and have created large distributional disparities. Some of examples are listed below.

• Although school education is free and common to all, the disparity among the quality of school facilities country-wide causes disparities of skill, knowledge, higher education and employment opportunities of students finishing school education.

These labourers trying to make a living inspite of adverse conditions.

• Licensing of businesses helps those parties to monopolize and accumulate wealth. Although the concept of fair market is applied, it helps those parties to monopolize and accumulate wealth.

• Despite the concept applied for market regulations, various mechanisms of insider dealings are driving markets to accumulate wealth to those parties.

• Although the distribution of law and order is free to all citizens, the system generated cost and processes prevent its fair distribution while causing wealth to system operators.

• Price controls that are intended to benefit consumers of low-income brackets lead to black-markets due to failure of the state to provide adequate supplies and create wealth accumulation to those marketeers.

• Tax concessions given to entrepreneurs to supply products at low cost/price to the public end up in wealth accumulation to those parties as there is no mechanism to ensure the fair distribution of those products.

• Various state policies on protection of natural resources and environment divided among various strata of bureaucracy without aligning them with underlying economic activities push many folks to poverty due to conflicts of bureaucracy.

The list can go on long pages to understand the brutality of disparities prevailing due to distributional issues of public services. President’s discussions with villages programme reveal numerous examples for detrimental effects of distribution disparity of public services country-wide.

Governments as the cause for Distributional Disparities

The review of the history of economic governance systems in the world shows the origin of economic disparities throughout the history of human being is the governments. In primitive human stage, people lived in groups on natural resources without owning them by any individuals. In later civilizations, areal tribes emerged with leaders with the power to control people, resources and economic activities in the respective areas where the leaders started assigning or distributing land to their supporters and to tax people to fund the government.

Such control and distribution of land or resources and taxes have continued in systems of monarchy and present democratic governments around the world. That power is the prize available to those who attempt to win the governments. Therefore, human civilization has caused emergence of governments with the ownership of resources and the powers to distribute resources at their discretion which has caused present distributional disparities everywhere. Meantime, while continuing with similar distribution, governments themselves attempt to reduce disparities (caused by them) through another set of public services causing further disparities. This is true for all socialistic and capitalistic governments. Nobody has any practical solution for this.

Broad concerns over Distributional Policy results

The distribution of fair share and promotion of fair markets to ensure the fair distribution of production are fashionable concepts quoted in economic and political analyses where political slogans are played, especially at times of elections, on further policy actions to improve them. However, the reality is the continuity of all disparities without any material reduction whereas various shocks such as financial crises, natural calamities, geo-political conflicts and health hazards result in pushing people to new facets of disparities. This is the outcome of several factors.

First, there are no definitions and yardsticks to measure the level of fairness desirable, given the world of disparities. Therefore, disparities are analysed under different hypotheses, mostly on political grounds. Second, although state policies are implemented, the list of policies that target the reduction of disparities and their performance or outcome are not assessed, other than conceptual speeches.

Third, the tendency of the bureaucracy to control markets in pursuit of lowering disparities limits competition and opportunities for innovations and access to productive resources that cause detrimental effects on the prevailing disparities. Intra-bureaucratic conflicts are so merciless and brutal on the disparities. However, their favourism provided through regulatory approvals and information sharing to some entrepreneurs to accumulate wealth from time to time is well-known. No wealthy persons can emerge without such favouritism of the bureaucracy, given the large number of economic regulations. For example, Mr. Jack Ma in China who created the Chinese e-commerce and IT business empire during the last two decades and entered the world billionaires’ list has disappeared since last November where state investigations into his business empire, Ant Group, have suddenly commenced on the charge of creation of a business monopoly. Everybody knows that monopolies in Chinese governance system cannot emerge easily outside the eyes of the Chinese authorities although monopolies also are fair market outcomes in market Economics.

Distribution Policy Scenario proposed for Sri Lanka

There is no debate over the duty bound on the government to ensure fair distribution of economic benefits among its citizens, given its public mandate. Under the Directive Principles of State Policy and Fundamental Duties of the Sri Lankan Constitution (Chapter VI), Articles 27(2) (c)-(f), 27(7), 27(8), 27(13)-(15) assign the government with specific duties on fair distribution. These Directive Principles (although not enforceable in judiciary) are to guide the Parliament, President and Cabinet in the enactment of laws and the governance of Sri Lanka for the establishment of just and free society. There are various state institutions that have legal objectives, duties, mandates and discretionary powers directly and indirectly connected with distributional duties. Therefore, no new legal provisions are required to address distributional aspects of the country.

Policies required for fair distribution are neither rocket science nor economic models. Therefore, all are hypotheses-based tools. Their efficiency depends on the implementation efficacy. Therefore, the implementation strategy and the process matter. This can have various dimensions. Some thoughts are given below, given the complexities of the prevailing bureaucracy of the state.

• Identification of Disparities

It is necessary to assess the levels of key distributional disparities as defined and decide whether their levels and directions are unfair because disparities naturally prevail due to differences in human skill and access to productive resources. Further, specific policies may not be required even if the disparities are unfair if they are in the direction of gradual fall whereas disparities may in fact be hypotheses of some political analysts while the public may not be much concerned. Therefore, a careful assessment/investigation is necessary to decide whether disparities are alarming and require public policies to fix them in the public interest. The key hurdle here is the collection of ground data. The conduct of new sample surveys island-wide by statisticians based on questionnaires will not work. Therefore, data from existing sources such as IRD, Banks, Financial Institutions, RMV, Land Registry, Employers, Stock Exchange, EPF and EFT could be used to assess proxy variables to gage some items of distributions. In this regard, time series of information classified on households/persons are required. National aggregates are not relevant as they do not show the status of distribution. If such data are not compilable or investigation is not feasible, there is no basis for concerns over disparities or policies just on the basis of political hypotheses or slogans.

(The writer is a former Deputy Governor of the Central Bank of Sri Lanka)

To be continued