IN this column, we conclude the discussion on Civil Service reforms initiated in my previous column (‘Need for Civil Service reforms’, Sept 30).

The nature of our economic development was such that even the middle class was not the product of a dynamic independent process of growth but was created through public-sector employment. Hence, society cannot seem to visualise economic growth without state patronage, viewing the state as an all-powerful paternal entity protecting against all risk and providing for all occasions. And hence, governments continue to be large and unaccountable and rule rather than serve.

Our regulatory system focuses on the inputs as opposed to outputs and outcomes. Moreover, many regulations are conflicting and irrelevant to current needs; standards and criteria are outdated and either not clearly prescribed or the bar set high and difficult to cross as the market has limited capacity to bear the associated costs.

The cumbersome procedures and immeasurable criteria provide an extortionary handle to government functionaries who prefer such arrangements not only because these help them acquire rent-extraction powers but also because it gives them certainty of command, since they understand little about the subtlety of induced behaviour. By reducing their regulatory role their excesses can be curbed, raising the efficiency and productivity of the private sector, as businessmen will get more time to focus on their operations.

Our regulatory system focuses on the inputs as opposed to outputs and outcomes.

Unfortunately, donors also provide uniform advice, persuading borrowers to set up the same institutions in all countries regardless of size and local cultures — in which apart from other issues appointments are not merit-based.

The discussion here has attempted to demonstrate the need to rethink and redefine the role of government, since this will determine the size, skill mix, compensation and training of the Civil Service to be paid from the public purse.

The best way to explain this is in terms of what the government a) should neither do nor pay for (eg running retail outlets for articles of daily use, banks, airlines, etc.); b) should do and pay for (only defence, foreign policy, fiscal and monetary policy, justice, law and order and certain categories of physical and social infrastructure that the market and the private sector cannot provide); and c) those that the government should pay for but not necessarily do itself.

Identifying areas and services that the government should pay for but not do, produce or provide itself, is relatively more difficult. However, the following example should be able to illustrate this point.

It is the moral duty of the state to ensure that the population gets free, good-quality, elementary-level education. Which only means that the government must pay for this education. It does not mean that the government should produce or provide the service itself.

This writer had shown in these columns before that better-quality education can be provided through private schools than being delivered by government schools by providing funding at the rate of Rs400 per child (at less than half the cost incurred to educate a child in the public schooling system), making this financial assistance conditional on the child’s performance.

As argued, a large part of the regulatory framework exists because of lack of clarity on the role of the government, thereby providing employment opportunities for skills that the market neither demands nor produces. New products and instruments are better replacements and more effective mechanisms for achieving the objectives underlying the rules and institutional arrangements for enforcement. For instance, the provincial boiler acts of 1923 expect Grade-11 boiler inspectors to certify boilers manufactured by multinationals such as Siemens. While the technology for manufacturing boilers has taken a leap these professionally ill-equipped inspectors are tasked to perform a regulatory function.

Similarly, the government has building and electricity inspectors to ensure the safety of private buildings used for public purposes, eg cinema houses. These regulatory functions can be better achieved by boilers and such buildings being comprehensively covered by insurance. The owners can then be spared the frequent visits of these government employees. The insurance companies will ensure the security and safety of the public using these boilers and buildings.

Such examples question the justification of a regulatory apparatus to achieve objectives that other market-based institutional arrangements and instruments can provide much more efficiently and effectively. In other words, to bring greater focus to the government’s activities, there is a need to redefine its role and the way it carries out its business.

Similarly, it would be a cheaper proposition to outsource several services. Examples include the daily cleaning operations of government offices instead of the government employing an army of cleaners, and computerised CAD services, available in abundance in the private sector.

The right-sizing of government (following the 18th Amendment) will also improve government effici­ency, simply through a reduction in the number of layers of processing. Further gains can be realised through elimination of unnecessary tasks and by closely aligning functions, resources and responsibilities.

To conclude, government has to be reinvented to bring it in harmony with the demands of a modern globalised economy in which the private sector adopts internationally recognised technologies, production techniques and management practices to remain competitive. Regrettably, the government, which is supposed to facilitate private-sector operations and expects it to become modern in its outlook, sees nothing amiss with its own skills and work processes being antiquated and outmoded.

This huge contradiction is obviously unsustainable, being an important contributory factor to the poor quality of input provided by the bureaucracy for decision-making. Modernisation of the institutional structures and processes is being ignored at a great risk to the much-needed acceleration of economic growth. This would not be possible without adjustments in the size and skill base of the bureaucracy, 45pc of its membership comprising those who are functionally illiterate and ill-suited to the changing skill requirements of a competitive world.

The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, October 14th, 2014