High-powered Incentives Can Reform Our Bureaucracy

Context: To inject India’s bureaucrats with enterprise and shake them out of lethargy, a radical re-evaluation of their incentives is overdue that would help India’s babudom achieve its ‘Weberian’ ideal.

Graham’s law effect in bureaucracy: With a well-designed financial incentives, ‘good’ bureaucrats will earn more, be more visible, and face high demand for their skills, thereby driving ‘bad’ bureaucrats into oblivion or forcing them to reform.

Need for incentivizing bureaucrats

• As an engine of growth:
  • For E.g. In Chinese xiahi model, bureaucrats joining state/private enterprises are incentivized to push the economic transformation of their regions and improve their employment prospects.
  • In How China Escaped the Poverty Trap, Yuen Yuen Ang argues that bureaucratic entrepreneurship can largely be attributed to paying reforms.
• Lack of motivation: A sense of professional duty is inadequate to motivate public servants, and other incentives such as plum postings are too weak to act as strong motivators.
  • This, coupled with no incentives for information generation, makes bureaucrats risk-averse and unproductive.
• Failure of monitoring/control-based measures: as these have the potential to foster corruption.

Advantages of incentivizing bureaucracy:

• Revamps motivational factor: Added economic incentives scores over present ineffective tools such as sense of professional duty, plum postings etc.
  • ‘Tournament’ like structure: Helps maintain motivation even in situations where outcomes are shaped by uncontrollable factors.
• System efficiency:
  • Well-designed financial incentives had a positive effect on project completion rates in the Nigerian Civil Service.
  • The bureaucracy of Singapore enjoys high supplemental pay that incentivizes performance.
• Potential to reduce corruption: Without increasing procedural complexity and processing frictions.
• Scope for flexibility: Targets and performance measures can be changed as per changing needs of the public/state.

Challenges

• Objectively defining and measuring performance: Clear link between effort and performance metrics will have to be established.
• Uncertainties and subjectivity: E.g. Accounting randomness of outcomes, risk aversion of bureaucrats.