Economic policy governance: Listen to sane voices before it heads for disaster

Citizens should make a noise

The Central Bank’s former Assistant Governor and its long-time Director of Statistics, Dr. Anila Dias Bandaranaike, at a recently held exporters’ forum, expressed the view that the business community should make it their business to discuss, debate and deliver their views on economic policies being formulated by the country’s policy authorities.

As reported by this paper in its edition on 29 February 2012, the veteran Central Banker has elaborated her point as follows:

“On the macro side from a business perspective, we really need to be aware of the big picture. We can no longer afford to just look at our own areas only. We cannot just look at the exchange rate only; we need to instead look at credit growth, import growth, reserve decline, key price increases such as fuel price increases, inflation and see what is happening in all fronts to round up on what will happen next.”

Bandaranaike then advised the exporters: Monitor the movements and make a noise when necessary since if everyone keeps mum policy makers will go on a course heading for disaster. But then, to make that noise, access to correct and timely information by everyone is a must. Bandaranaike in her presentation emphasised on this vital requirement too. She said that: “Right to information is something that needs to be pushed. Consistent information is needed to make informed decisions. As citizens of the country, you are entitled to know these numbers to make business decisions.”

The good economic policy governance practices

Bandaranaike’s call for ‘making a noise based on timely and correct information’ is indeed a part of a broad subject which I would like to term ‘Economic Policy Governance’. In modern representative democracies, the elected governments and their policy authorities are mandated to make economic policies for the benefit of the citizens of the countries concerned.

These policies have wide repercussions on the respective economies: in the short run as well as in the long run; on the people who are directly targeted by the policies as well as those who are not; on the domestic economy as well as the global economic partners and so on. Hence, when these policies are made, it is of utmost importance to consider all these aspects to minimise their harmful effects and maximise the benefits to the society.

The policy authorities are expected to follow a course of action that ensures this vital goal of a policy. For that, they should make the policy known to everyone, give the public an opportunity to discuss and debate it, revise the policy on the basis of public’s views and implement the policy accordingly. Thus, a public policy is not something implemented by policy authorities at their discretion but a policy which receives a consensual approval from the society.

However, such a governance system requires deep and wide public consultation, toleration and accommodation of opposing views, transparency in decision making as well as in implementation and assigning clearly defined accountability for the action taken. These are subjects that come within the purview of economic policy governance.

If good economic policy governance practices are not adopted by policy authorities, as warned by Bandaranaike, the policy authorities may set themselves on a course heading for disaster and once that disaster has hit a country, the costs of the failed economic policies have to be borne by everybody. It is therefore in the interest of people themselves to close all possibilities of the occurrence of such undesired outcomes. Making a loud noise as advised by Bandaranaike is one such preventive course of action which the business community as more knowledgeable society leaders could take.

Kautilya’s advice to king: listen to people’s voices

Fostering public dialogues on any matter affecting the public and the environment they live in is a sign of a healthy and growing society. Kautilya, the 4th century BCE Indian Philosopher and Statesman, advised his king to spend one and a half hours every morning to hear the voices of people who would do so in an audience with him, personally submitting their petitions to seek justice against wrongful decisions of the king himself or his officials.

In ‘The Arthashastra,’ to make such public hearing effective, Kautilya further advises the king as follows: “When in court, he shall not make petitioners wait at the door, but attend to them promptly himself. When a king makes himself inaccessible to his people and he is seen only by those near him, wrong decisions are bound to be made; the people will become angry and may go over to the enemy”. So, according to Kautilya, listening to public voice is a way to avoid making wrong decisions. It, therefore, allows a king to examine all aspects of a policy being formulated by his officials before it is implemented.

Self-interest may distort the public voice

Public voice is important, but there are some prerequisites for making such voice effective and good for social development. It is quite natural for individuals, guided by their self-interest, to raise the public voice to promote their personal causes. There is nothing wrong in voicing one’s views for his own self-interest as long as such satisfaction of self-interest leads to a greater public benefit as well.

Apart from this, those who make public voices can also be motivated by fake or false propaganda that has been lavishly thrown upon them by some interested individuals or parties. On such occasions, the voice loses its true value because its objective has been to bring about an outcome that satisfies a narrow objective of some crafty individual or a group of individuals. They can also be guided by ignorance or misrepresentation of facts. If a public dialogue is marred by these deficiencies, it is more harmful to the wellbeing of people than not having a dialogue at all.

Reason to guide the public voice

The key to a productive public voice is that the ensuing public dialogues should be guided by reason, free of self-interest and toleration of opposing views so that one could amend his views later based on more factually correct information. ‘Reason’ is nothing but sanity in behaviour. The sane behaviour requires those who engage themselves in public dialogue to be objective, impartial and unbiased. In other words, views expressed by anyone on a public policy should be based on evidence and not on emotions, prejudices or biases.

When there are two or more groups critical of each other, then, the ensuing dialogue becomes a debate and debates are again a healthy sign of a growing society as long as their objective is to seek the truth. However, when conducting a debate, one may be tempted to win the debate by crafty methods thereby denying everyone the opportunity for ascertaining the truth. Hence, it is necessary that debaters are guided by some ethical rules of conducting debates for resolving disputations. Fortunately, there have been many wise men in human history who have pronounced such ethical rules for debaters to follow.

The Buddha’s advice: do not meet a charge with a counter charge

The Buddha for instance in the 6th century BCE has laid down the ethical principles of debate when one bhikku is accused by another bhikku which eventually becomes a debate to ascertain the truth. In the Anumana Sutra in the Majjima Nikaya, the Buddha has preached that one should not try to cover up the charges against him by making counter charges or diverting the debate to some other irrelevant aspect or expressing anger, hatred or displeasure or insulting the character of the debater opposed to him.

In other words, when a public debate takes place on a public policy, the motive should be to ascertain the truth and not to win the debate by any means. It would help all those who participate in the debate and those who watch it end up wiser. Four hundred years after the Buddha, Emperor Ashoka who later became a Buddhist disciple codified these principles to laws in Ashoka inscriptions and one such principle he has laid down is that ‘the opponent in a debate should be duly honoured in every way on all occasions’.

The Nobel Laureate Amartya Sen in his 2009 book ‘The Idea of Justice’ has explained how the Mughal Emperor Akbar approached public policy through the promotion of free public dialogue that relied on ‘reason’ or objective knowledge and not ‘the marshy land of tradition’ or fragile and prejudiced whims and fancies of people.

Emperor Akbar’s love for ‘reason’

According to Sen, Akbar insisted that even customs should be examined by using reason only. By following this principle, he abolished all special taxes that had been imposed by custom by previous Mughal rulers on non-Muslims because those taxes were discriminatory and did not treat all citizens as equal. He also decided to release all imperial slaves because it was beyond justice and good conduct to benefit from work obtained through force. This was in the late 16th century CE and at that time slavery was a thriving business in other parts of the world.

But Akbar was a pragmatist too. He did not approve of religious rituals and neither did he participate in them personally. But when his second son, Murad, suggested to him that all religious rituals should be banned, he immediately disapproved of it on the ground that “preventing that insensitive simpleton who considers body exercise to be divine worship would amount to preventing him from remembering God at all”.

What it meant was that society should begin to tolerate even the bizarre practices of the uneducated and the insanely devoted because it did some good for such persons. Akbar, believing that reason to be supreme, argued that even in disputing reason one should use reasons. When he was attacked by those who believed that unquestioning and instinctive faith in the Islamic traditions should be the best, Akbar is said to have confessed to his friend Abul Fazl, as reported by Sen, that the pursuit of reason and the rejection of traditionalism are so brilliantly patent or clearly obvious as to be above the need of the argument. Accordingly, Akbar having equated the ‘path of reason’ to the ‘rule of the intellectual’ has concluded that reason must be the basic determinant of good and just behaviour.

Akbar’s worship of reason as the guiding principle of conducting public debates is valid even for today.

Make a noise but be objective and impartial

Hence, the public has a right and should exercise that right to discuss and debate public issues with a view to making a noise about the public policies. Making such a noise is indeed helpful to policy authorities too to practise and foster good economic policy governance in a country. It enables people to feel that they are a part of the economic policy making and share the ownership of economic policies implemented in a country. Therefore, it is in the interest of the policy authorities to promote free discussion of the economic policies pursued by them so that they could avoid, as Bandaranaike has warned, heading for disaster.

While those who make the noise about the economic policies should guide themselves by ‘reason’ or ‘sanity’, the policy authorities too have the obligation of making available consistent and accurate information to the public and then listening to those sane voices. This means that when policy authorities make decisions on economic policies, projects and other economic plans, all the details of such activities should be disclosed to the public to facilitate them to discuss and debate the same in a fruitful and constructive manner.

Hiding true facts or giving misleading or fabricated information on economic policies by policy authorities is a serious crime committed by them against the society. When the public demands accurate information or challenges the accuracy of information released by policy authorities, it should not be viewed as a hostile act on the part of those who raise their voice. The policy authorities should cultivate modesty and humbleness even when the critics are harsh and curt.

Two cases from the recent history where policy authorities have failed to listen to sane voices are worth being quoted.

The first is the bankruptcy and the subsequent liquidation of the Central Bank of the Philippines in 1993. The second case is the charges made against the incumbent Governor of the Bank of Thailand at the time of the East Asian financial crisis in 1997 for criminal negligence by way of losing the valuable foreign exchange reserves of the country. In both cases, it ended up in disaster and it could have been avoided had the policy authorities took some time to listen to the sane voices of the critics.

The liquidation of the Central Bank of the Philippines

The Central Bank of the Philippines throughout 1980s had maintained an overvalued Peso to please the political authorities, despite the high domestic inflation, widening trade and current account deficits and the pressure for the Peso to depreciate in the market. To support the Peso, the Central Bank first used its foreign reserves and when those reserves fell to a zero level, started borrowing from abroad and selling in the domestic markets.

Pretty soon, the Central Bank’s foreign reserves became negative, it could not pay interest on the dollars borrowed from abroad and its net assets became negative. So the Bank became bankrupt and with the support of the US Treasury, Japanese Government and IMF, the Bank was liquidated in 1993 and a new central bank under the name of Bangko Sentral ng Pilipinas or BSP was established. The Filipino government was permitted by the international creditors to pay the previous Central Bank’s liabilities in 25 years meaning that the government would be paying that debt till 2018.

Thai Central Bank Governor could have avoided disaster had he listened to sane public voices

The second case relating to the Bank of Thailand is more pathetic because it triggered the 1997 East Asian financial crisis dragging many other countries in the region to disaster. The Bank of Thailand Governor Rerngchai Marakanond, despite the advice given to him by many both within and outside the Central Bank, stubbornly tried to maintain a fixed value for the Thai currency, Baht, at 25 Bahts to a Dollar. When there were no Dollars in the market to sustain the value of Baht at that level, he sold Dollars from the Central Bank’s foreign reserves. But the market’s demand for Dollars was much more and when the Central Bank lost about $ 30 billion, it could not go along the vain practice anymore and had to allow the Baht to find its own value in the market. In 2005, Rerngchai was found guilty by the Civil Court of Bangkok for criminal negligence by way of losing the country’s valuable reserves and was ordered to pay a fine of Baht 180 billion or $ 4.61 billion plus interest. Six years after that original judgment, on appeal, he was cleared by the Appeal Court in 2011; but by that time as he had told the Bangkok Post, his mental and emotional well-being had been shattered needing him to seek refuge of Dhamma meaning that it was Buddha’s preaching that rescued him at last. Hence, to avoid future disasters, the adherence to good economic policy practices is a must. In terms of these practices, the public should make it their business to raise sane voices on economic policies. The policy authorities should also make it their business to listen to such sane voices.

(W.A. Wijewardena can be reached at [email protected].)