The Telegraph
Since 1st March, 1999
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- In a market society, the government had best stick to governance

There are at least two reasons why the government is viewed as ideally suited to the task of infrastructure-creation in developing economies. First, more often than not, infrastructure is bulky in nature and involves lengthy periods to be produced and made operational. Expected profits from infrastructure projects arrive with delays that are unbearably long for entrepreneurs in developing economies. In other words, the size of capital required to build mass infrastructure is considerably bigger than funds available to capitalists in these societies. Large capital owners in developed economies can afford to wait longer for their returns from infrastructural investments to flow in, since they would be reaping incomes in the interim period from capital sunk elsewhere.

The government, however, even if caught in a financial tangle on account of limited tax revenues, has greater credibility as a market borrower (in the domestic economy as well as abroad with progressive deregulation). So it has better command over resources needed to build infrastructure. The rapid expansion of infrastructure creates a congenial environment for a private sector-led growth of the economy, since infrastructural facilities are a sine qua non for business.

The second, and possibly more important, reason underlying the private sector’s reluctance to build infrastructure is that the services it generates are fundamentally different from those emanating from run- of-the-mill commodities. To appreciate this fact, consider a pair of shoes, which can serve a single individual at any point of time. On the other hand, the services of roadways, airports or space programmes, all examples of public infrastructure, are simultaneously available to multiple users. More than one pedestrian or car may travel along the same road, but a pair of shoes cannot be worn by two individuals together. Similarly, an entire nation can, in principle, access the information beamed in by a satellite, or thousands of people can be logged on to the internet through a broadband server during any day.

This special property of infrastructural services, however, lies at the root of a propensity on the part of their beneficiaries to engage in free riding — consuming the service without paying for it. The availability of the service to any one person can often ensure that others enjoy it too. Who then would be willing to pay for the benefit of others' On account of free riding, sales revenue and profits are at stake, thus making infrastructure-production unattractive. Since the government is not driven by profit motives and is also in a position to police over misconduct, it is unlikely to be affected by the problems that put off private business. Hence, one argues that it is better placed to ensure infrastructure-accumulation.

The idea, however, is more easily proposed than implemented in a democracy. A major advantage with the profit motive is that it ensures respect for productive efficiency. And efficiency amounts to a reduction of cost without sacrificing product quality. The government, though, is by assumption unconcerned with profits and hence not particularly worried about efficiency. And there exactly is the rub.

To exemplify this, consider the state government turning a blind eye to the congestion caused by hawkers occupying pavements. It is an example of a class of people being encouraged by the state to free ride on the rest of society. A facility created with the help of tax- payers’ money is freely handed over to petty traders even as serious business initiatives are inconvenienced.

Despite its nuisance value, the government encourages it, because the government is more concerned with votes than profits. The example shows that the government could be ill-suited for infrastructure-development in a democratic society, precisely because it is unconcerned with financial profits.

A second example too is linked to the absence of profit motives, but is not related to elections. It is the story of my personal experience with the much-advertised BSNL broadband service. Amongst the many attractive features of the service this government organization advertises, one allows users to access the BSNL server regularly to check the extent of their use of the uploading and downloading facility. Since there is a cap on free use in this context, subscribers benefit by keeping track of their accounts.

In my case, however, I discovered soon after the service was set up for me that I was refused access to the server and had no way of viewing my account. It was an uphill task to contact the BSNL officers to lodge a complaint. Phone calls remained unanswered. And the few times that I did manage to speak to anyone at all, I was either told to speak to someone else (who would invariably be untraceable), or advised that there could be a problem with my computer. It was beyond their call of duty, they informed me, to send someone over to look into the matter. In my desperation, I landed finally in their office near Lansdowne Market to speak to concerned persons. One is allowed such visits only around 4 pm in the afternoon, which means, amongst other things, that one cannot attend to one’s regular pursuits on the chosen day.

I requested the officer I saw that I should at least be allowed to change my password, since the one they assign initially to all customers (“xyz 123”) was obviously not safe to hold on to. The officer, fortunately, allowed me to access their server from his office and do the needful, but had no clue as to why I should not be able to perform the same task sitting at home. And things remained that way for almost two years.

Recently, I tried to install a wireless router at home, but the device failed to function. This time, however, I was dealing with a private organization and was easily able to call up their toll-free service centre. The person at the other end proved to be both helpful as well as knowledgeable, a pleasant contrast to my BSNL experience. She gave me instructions for more than an hour over the phone around midnight and helped me not only install the router but also reinstall the original BSNL modem. As soon as this was done, I gleefully discovered that I was able to access their server. Quite obviously, the BSNL personnel had not installed their modem correctly when I had initially subscribed to their service.

One does not require too much intelligence to figure out that the absence of a profit motive is what is ultimately responsible for BSNL’s lackadaisical attitude towards its customers. Their staff members are neither competent nor responsible. They have a competitor now in Airtel, which, as I am given to understand by its clientele, provides acceptable back-up service. Clearly, there is no reason for BSNL to survive, except for the fact that it is government-owned. It exists by decree as it were, not on account of the government playing a useful role in infrastructure-development.

The examples question the wisdom underlying a government’s participation in any productive activity in a democratic society, leave alone infrastructure-development. A better course of action could lie in its helping private organizations raise funds to start large-scale business. Some subsidization too could be necessary, for public transport and related infrastructure. The associated pressures on the government’s budget would be nominal compared to the costs of inefficiency in the existing system.

Instead of taking direct charge of production, the government should restrict itself to governance, by offering police support to the private sector to prevent free riding and by improving the legal system to protect the public from victimization by corrupt businessmen.

Needless to say, few politicians in power are known to advocate such policies.

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