Out: politicos; in: technocrats

What do nation states do when their politicians ruin their economies by serial lying to the voters, running up huge domestic and international financial deficits, uncontrolled corruption, cannot keep interest rates at reasonable rates, cannot control inflation nor hold the exchange rate steady and run the country on an unsustainable basis, depending on what has euphemistically called ‘ borrowed assets’?

An asset which is ‘borrowed’ is in reality a debt, which has to be repaid. There is no getting behind that plain truth. If there is a democratic political cycle, and elections are due to be held at the time the economy crashes, holding a general election and electing a more responsible government would be an option.

In a non democracy, which has a dominant military, military coups are a possibility. The military takes power itself or puts in a civilian technocratic non political government which will hopefully restore economic stability and reintroduce a democratic process within a reasonable time.

Where extra national regional or international institutions play a role, such institutions may support the introduction of a technocratic administration as an interim measure to get the economy back on track and restore democracy alter.

A politician’s primary concern

Fundamentally elected politicians do not have the capacity to take the tough measures necessary to remedy decades of economic profligacy. They indulge in what they think is popular. A politician’s primary concern is sustainability in power electability by hook or by crook.

They do not wish to be remembered as the persons who imposed harsh economic cut backs on their voters, even though it is the economic policies which they sold to the same voters and thereby got themselves elected, which were unaffordable and ‘pie in the sky’, which brought about the resultant economic collapse.

Technocrats take on the challenge and impose the harsh limitations on public expenditure, etc., to enable a national economy to live within its means, take all the blame and then hopefully, move on to allow the democratic process to re-establish itself and allow the politicians to run riot again!

Or the technocrats may be able to impose to such limitations and conditionality on unbridled power, such as fiscal responsibility, an independent judiciary, an independent administrative mechanism, to control and mitigate future economic misadventures.

However, the past experience is that politicians, as soon as they are back in the saddle, dismantle all such limitations on absolute power and revert to their bad old economically wayward and corrupt ways.

CEOs in government

Decades ago Franco of Spain brought a number of CEOs into government to liberalise the economy and reintegrate its economy with Western Europe. Some nations have found a way of blending the democratic demands of elected representation with the need for technocratic management of the national economy.

The American Constitution is a classic example. The popularly elected president appoints a cabinet of technocrats to manage his policy. Robert McNamara brought into the Defence Department by President Kennedy from the Ford Motor Company is the classic example.

The policy is one which the president has to get the support of Congress by having a national budget approved. But no serving congressman or senator can serve on the cabinet.

Singapore is another example of politicians who are also technocrats running the national economy. Singapore’s leaders have over the years made it an art of enticing top civil servants and businessmen to enter politics and serve on the cabinet in a parliamentary democracy, where all ministers have to be members of parliament.

Of course it helps that the ruling People’s Action Party, led for decades by the redoubtable Lee Kuan Yew, now retired, virtually won every seat at successive Parliamentary elections!

Hong Kong, before becoming a Special Administrative Zone of China, as a British Colony was run by a technocratic team of British civil servants and businessmen. Currently India is another example, but this is probably a temporary aberration, from the traditional South Asian chaos of political misrule, with an economist former technocrat Manmohan Singh as Prime Minister and his protégé Montek Ahluwalia running the Planning Commission and intellectuals like Palaniappa Chiddambaram and Pranab Mukhergee being members of parliament and serving in the cabinet. But it is predictable that India will go back to domination by populist politicians, just as night inevitably follows the day.

Through history people have yearned for clever, dispassionate and principled government, whereas in the general run of things rulers have proved to be cowardly, indecisive and discredited.

Where the proletariat ruled, it was claimed since it was a dictatorship by the people, competent technocratic managers could be enthroned.

Witness the engineers who manage the People’s Republic of China. All but one of the nine members of the Politburo Standing Committee of the Communist Party of China are professionally qualified engineers. This is quite a contrast with Mao’s original veterans of the Long March, most of whom had no higher education at all. Prime Minister Wen Jiabao’s successor is likely to be a double graduate in law and economics.

Relevance to Sri Lanka

Readers may wonder how this is relevant to Sri Lanka. To my mind there is a clear analogy to a situation where a group of politicians run a national economy in to the ground are ousted and a group of technocrats are asked to turn the national economy around, with the legal regime which we Sri Lankans have put in place with the recent ‘Expropriate, Revive and Dispose of’ law to expropriate and revive three dozen plus enterprises, which our Parliament enacted as an urgent bill in the recent past.

Ministers have gone public with the fact that there are investors already queuing up to invest in the expropriated ventures after revival. If it is justifiable for a corporate entity can be taken away from its owners/managers and given to a ‘competent authority’ to turn around and make viable and subsequently dispose to private owners, then the same principle should be eminently applicable to a national economy, take away the management from the politicians, hand over the management of the national economy to a team of technocrats and put the economy on the right track and hand it back to the voters and through them to their political representatives.

Greece and Italy

In fact Greece and Italy have just done so. Pakistan has tried it before. Myanmar (Burma) seems also to trying to go along this same track, by a rather complicated route, post military coup military officers have shed their uniforms and have disguised themselves in civilian clothes or ‘mufti’ ( a slang phrase used in the colonial British Indian army for plain clothes) and claim theirs is a new technocratic management!

The issue in Myanmar’s case is further complicated by the fact that this convoluted manoeuvre is motivated by the enticement of the chairmanship of the regional grouping ASEAN in 2014, which the military dictators have been told is not possible if Myanmar does not democratise.

This is the intangible limitation on Myanmar’s military dictatorship which seems to have caused a change of heart and sudden attraction to democratic values. US Secretary of State Hilary Clinton recently visited to encourage the process.

When a people get deeply disillusioned with the country’s political class, where they see only a self-serving kleptocratic state, teetering on the edge of anarchy and serving only a ruling cabal of politicians, bureaucrats and/or military men, they may get desperate enough to give a team of technocrats a chance.

Monti and his team of technocrats

In Italy’s case following Prime Minister Berlusconi’s resignation, a former European Commissioner, Mario Monti, was sworn in. Berlusconi notorious for his buffoonery, scandalous private life and iffy business methods was forced to give way to a sober former academic.

Monti’s cabinet consists of 17 sombre and unelected technocrats. There are no political figures at all. The defence minister is the former Chairman of NATO’s military committee, the minister for economic development is former head of Italy’s biggest retail bank, and altogether there are no fewer than seven professors in the cabinet.

The Italian politicians are more than happy to allow Monti and his team of technocrats to take responsibility for the unpalatable reforms and deficit cutting measures demanded of Italy by the European Union and the European Central Bank. Rarely has the intellectual firepower of so many technocrats been trained on a country’s problems.

Papademos’ financial expertise

Similarly, Greece after some hiccoughs, has finally decided on Lucas Papademos, a former Vice President of the European Central bank, as Prime Minister to replace the third generation Prime Minister George Papandreou.

Papademos, an academic economist and member of no political party, has the reputation to reassure Greece’s bailout partners.

Further his financial expertise should come in useful when it comes to implementing the complexities of the looming 50% haircut private holders of Greece’s bonds must suffer, in terms of a deal that Greece made with the European Union.

Insurmountable democratic deficit

There are critics of both new Prime Ministers of Greece and Italy. They belong to the same class of bankers and economists who got Europe into the current mess in the first place, say their detractors.

Both occupied commanding positions in the European Union institutions which turned almost a blind eye at a decade of Greek and Italian lies about the reality of their public finances. If this is really so, why have both Italy and Greece turned to former Eurocrat technocrats as their saviours?

The simple answer is there is simply no one else, who has the credibility and authority required, available. The public perception is that these technocrats are ‘above’ the venal and banal behaviour of the political class, whose, corrupt, irresponsible and self-centred behaviour got Greece and Italy into the mess in the first place.

The technocrats have an insurmountable democratic deficit. The tough reforms they introduce are not what the majority of people want. Populist politicians offer people the good life at virtually no cost, and people love it, until the crash!

Dean Acheson, the US Secretary of State, once said: “If you truly had a democracy and did only what the people wanted, you’d go wrong every time!” Winston Churchill said: “Only a few minutes in serious conversation with the average voter – the man on the Clapham bus – will make you understand what a perilous journey a popular democracy entails!”

But Churchill also said: “It has been said that democracy is the worst form of government, except those other forms that have been tried from time to time!”

Therein lies the problem. Governance requires rules and compliance, a populist democracy requires political support.

Political crises

For, truth be told, the problem at hand, is not one of economics, nor is it a technocratic one. Both the crisis in Italy and the one in Greece are in essence political.

The administration has to regain control of public finances, kick-start consumer demand, make their economies competitive again, get a obstructive bureaucracy to reform itself, get populist parliamentarians to vote for higher taxes, and convince the much-trod-upon common man that if they make the sacrifices required now, there will indeed be a light at the end of the tunnel.

Both the Italian and Greek peoples have to accept that the austerity measures being imposed on them by their technocratic rulers are unavoidable and fair. Voters have clearly indicated that they will not accept such assurances from their political class.

Neither Monti nor Papademos have a political constituency. They have been brought in to do just what the political class has no credibility among the public to get done. Their lack of a formal electoral mandate is made up by their personal stature and the stature of their apolitical technocratic team. It is the lesson of history that technocrats do best when they are tasked to clear up the mess made by incompetent and squabbling politicians.

In 1994 when Italy was once before brought to near collapse by a Berlusconi’s first government, Lamberto Dini was brought in from the Bank of Italy and ran a technocratic administration for 15 months which is credited with effective reforms, including the much-needed pension reform. The world will be watching what steps Monti and Papademos take. The future of the global financial system may be at stake.

Pakistani experience

The experience of Pakistan is illuminating in this regard. Ghulam Ishaq Khan joined the British Indian Civil Service as a bureaucrat, and when the Raj split he joined the Civil Service of Pakistan. He was Chairman of Water and Power Development Authority of Pakistan under Field Marshal Ayub Khan.

Prime Minister Zulfikar Ali Bhutto appointed Kahn as the Secretary Defence in 1977. The Commander of the Pakistan Army General Zia ul Haq seized power in a military coup and made Khan Secretary to the Ministry of Finance, after the General assumed power as Chief Marshall Law Administrator and later became President.

Khan later contested and entered the Pakistan Senate and was elected as its Chairman.

In 1988, General Zia was returning to Islamabad in Pakistani Air Force C-130 Hercules aircraft, from a desert base of the Pakistani Armored Corps, he had visited the base to watch a demonstration of the new American Abrams battle tank, which Pakistan was considering procuring.

General Zia had also invited the US Ambassador, who was at the demonstration, to accompany him in the C-130 Presidential Flight. Although the Ambassador had arrived in a US Air Force aircraft, he accepted the invitation.

Just as the flight was about to take off, after the security checks had been completed and the VIPs had boarded, a Pakistani aviator handed what he said was a small box of General Zia’s favorite Alphonso mangoes as a gift for the General from the local Corps Commander.

General Zia’s personal pilot, well knowing the General’s love of Alphonsos, accepted the gift and kept it in the cockpit to unload in Islamabad. The aircraft took off for the return flight and a few hours out of Islamabad the Hercules exploded in mid air. There were no survivors.

Chairman of the Senate, Ghulam Ishaq Khan assumed duties as the acting head of state. This was Pakistan’s first experiment with a technocratic administration. Khan tried his hand at reform while he was President until 1993.

Unfortunately the combustibility of a number of factors, international and regional politics, Pakistan’s internal politics, and the dominating and overwhelming role of the military thwarted his efforts.

After Khan resigned, Pakistan had a second shot at a technocratic administration. Moeen Qureshi, a former civil servant and senior World Bank official was appointed as care taker prime minister. Qureshi undertook a series of political and economic reforms which were supported by an IMF stand-by arrangement and significant World Bank lending.

Among the reforms was, for the first time, a tax on land holdings, a particularly Pakistani sacred cow, as wealthy landowning politicians in Pakistan had for years protected their extensive agricultural holdings. A number of highly-regarded Pakistani technocrats were brought into high office. But Qureshi fell to the same forces which thwarted Khan.

So the South Asian somewhat limited experience with technocratic administrations is not positive. Let us hope the European experience is better. As is with the current analogous step we are taking, in expropriating underperforming and underutilised assets away from the owners and handing them over to competent authorities.

The Government has appointed two lawyers, a retired management executive and some district secretaries to run the three dozen plus entities taken over under the recent expropriate, revive and dispose of law. Whether they are in the technocratic mode of the Italian Monti or the Greek Papademos is the issue. We will soon know.



(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)