Maligned 19th Amendment: Are Critics Aware Of Its Value For Sustained Prosperity?

By W A Wijewardena –AUGUST 24, 2020

Dr. W.A Wijewardena

Society that has become clueless

It has become fashionable for many to criticise the 19th Amendment to the Constitution after the sweeping victory of Gotabaya Rajapaksa at the last Presidential and his party at the recent Parliamentary elections.

Charging that the 19th Amendment has stood in the way for Sri Lanka to attain prosperity for its people, they want it out as fast as possible. Instead, the system of governance that prevailed in Sri Lanka prior to this amendment is being hailed by them as the way out for it to break the vicious cycle of festering economic stagnation. When repealed fully or amended substantially, it would put a full stop to Sri Lanka’s maiden attempt at establishing good governance, albeit in a very small measure. It appears that those who argue for this case, politicians, academics, religious and civil society leaders and also the ordinary people, are unmindful of the value of good governance for sustained prosperity of a nation.

Good governance is for sustained growth 

The presence of good governance at both the public and private sectors in a country has been viewed as a positive contributor to sustained economic growth. At the private sector level, practising good governance principles will enable the stakeholders of a private venture to get the best out of their deals with such ventures. If not, the deals are unequal and substandard meaning a forced resource transfer from stakeholders to such ventures. The economy-wide presence of such substandard deals will reduce the welfare of a nation, though it may have attained high economic growth for a number of years. A good example is the recent power outage in which the whole country was dragged into darkness due to ‘an unintended mistake by a senior engineer at CEB’, clearly an instance of the non-observance of good governance.

Governance gives confidence to people

Since economic development entails the use of scarce resources of a society to get the maximum out of the least, governmental organisations should practice good governance by observing both the spirit and the letter of the principles of good governance. It gives confidence to investors that the moneys they invest are safe from improper expropriation which is a necessary condition for a society to ensure sustained economic growth. Empirical studies have shown that countries which have established good governance regimes have been able to attain a faster economic growth and sustain it in the long run. Countries with poor governance have not only been laggards in the race but also failures to sustain high economic growth continuously.

Governance is needed because politicians are not angels

Governance means how an individual, an organisation or a government would relate itself to its stakeholders in a responsible manner in delivering its promises to them. In politics, it relates to the manner in which elected politicians would perform their duties toward citizens who have elected them to power. In ancient times, kings and rulers of countries are said to have performed these duties by observing Ten Royal Qualities or Dasaraaja Dharma consisting of the qualities of gifting, sacrifice, virtue, austerity, uprightness, softness, non-harmfulness, having non-ill will, forbearance and non-conflict. These ancient ten principles are so comprehensive that if any political leader follows them today, then, there is no need for enforcing governance on them externally. But, as remarked by James Madison, the fourth President of USA, ‘if men were angels, no government would be necessary’. This quote could be extended to governance as well: ‘since political leaders are not angels, enforcement of governance from outside is necessary’.

Economic actions are a choice among alternatives

Actions taken by a government do not necessarily benefit all. Some in society are made better off by government action, while some others are made worse off. Hence, the practice of governance by political leaders is necessary in order to avoid harms and enhance the benefits to citizens. For instance, in the case of a government, trying to attain the highest growth, while damaging the environment by a nation is not considered a good governance practice. Similarly, in the case of a company, it is not good governance if it seeks to maximise profits, while displeasing employees or cheating customers.

Governance matters to everyone

Governance is, therefore, a matter that is concerned with every area of human relationships, though in most cases, reference is made only to political governance or corporate governance. Within the system of political governance, there are sub-governance aspects concerning economic policy governance, monetary policy governance and so on. The proper observation of all these aspects of governance is necessary for a political cum economic system to function properly.

Matters that give rise to governance issues

Issues relating to governance arise due to two reasons, both connected to each other. The first is the division of labour which we have seen in the modern economies. Accordingly, to do things better, people have to depend on a large number of others whom they engage as servants. For instance, since not everyone is competent to teach his or her own children, he or she has to depend on a profession called teachers. Similarly, since each one of them cannot treat his or her own illnesses, once again he or she has to depend on another profession called physicians. Economists have branded those servants as agents and those who hire them as principals. That is at an individual level. At a company level, owners of a company hire managers to do the job and at the national level, citizens hand over the task of governing to elected politicians.

Selfish man and the need for governance

The second reason relates to the normal human nature. Man is by nature a selfish creature and, therefore, bent on satisfying his own self-interest over anything else. According to the evolutionary biologist, Richard Dawkins, who wrote the book, The Selfish Gene, the selfish nature is embodied in the very genetic constitution of species. This was noted by the 18th century British economist, Adam Smith, in relation to economic relationships more than two centuries ago when he argued that one should expect his dinner not from the benevolence of brewers, bakers or butchers, but from their regard to their own interest.

Thus, according to economists, the selfish servant or agent does not always act in the best of interest of the master or the principal for whom he works. Since the master has only two eyes and not ‘four eyes’, he cannot effectively control or see what the servant actually does. This has given rise to what is now known as the ‘Principal-Agent Problem’ or PAP in economics and it is this problem that has contributed to the governance issues in society.

Agents cheat principals

PAP is simply the existence of conflicting objectives between the principal and the agent whom he hires. The principal wants to gain the best for himself and that is why he pays the agent to do the job. But the agent, acting in his own interest may do things which are injurious to the principal. Thus, professionals whom an individual hires or the managers whom the shareholders engage or the politicians whom the citizens elect will not satisfy the needs of their respective principals, but try to satisfy their own desires which are different from those of the principals.

Kautilya: Don’t place honey at the tongue of agents

PAP had been known quite for some time and even measures to alleviate its harmful effects have been suggested. Kautilya, the Indian Economist in the 3rd century BCE, wrote in his economic text, The Arthashastra, that just like a person with honey or poison on the tip of his tongue cannot resist tasting some of it, public servants too cannot resist misappropriating the funds entrusted to them. Worse, the king cannot see it just like he cannot say whether a fish in the water is drinking water or not. Kautilya prescribed both the carrot and the stick to minimise its occurrence.

Politicians and bureaucrats want to maximise their benefits

In the modern era, William A. Niskanen, formerly an official of the US Budget Management Office and later an economist attached to the University of California, Los Angeles, in a path breaking publication titled ‘Bureaucracy and Representative Government’ in 1971, talked about PAP between the community represented by the government and its civil servants represented by public bureaus. Drawing on the previous studies on the subject by economists like Ludwig von Mises and Gordon Tullock, Niskanen presented a new theory called ‘Economic Theory of Bureaucracy’ in which the community as the principal tries to maximise welfare of the members through public expenditure programs and the civil servants as agents try to maximise their salaries and perks. Accordingly, government expenditure programs tend to be overestimated and the community has to bear bigger and bigger burdens as taxpayers if tax rates are raised or as victims of inflation if new money is printed to fund such programs.

Good governance in politics leads to improvements in quality of life

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