Recovering and Restructuring of Sick Economies - Are Business Management Models Relevant? - Part-II
Part
II of the Article on same title posted on 18 September 2021
Recovery and Restructuring of Sick Economies
Sick Economies are in two categories. Fist category contains economies that lack investments required for utilization and enhancement of productive resources or capacity of production. Therefore, production level in these economies is not adequate to provide employment and income for the people to have a decent living standard.
Most of these economies are highly controlled or intervened by the government and, therefore, the contribution of the market mechanism to drive the economies for production, employment and distribution is subdued. The state dominance in the economy is reflected by high degree of fiscal operations and debt where even the activity of the private sector depends on the fiscal deficit. Low growth, high unemployment, low per capita income, high inflation and low living standards are salient features of these economies.
In modern
economic thinking, these economies require significant restructuring to build
business confidence, develop markets and attract foreign investments. Some
economies are sick and disarray due to political conflicts and civil wars
prevailing in decades, despite rich base of productive resources. These
economies first require the resolution of those conflicts and economic resolution
becomes secondary.
The second category contains economies that are sick due to various shocks to demand side and supply side. The best example is the economies suffering from global coronavirus since the beginning of 2020. Such shocks hit all economies from time to time despite their development and soundness. Financial and currency crises are popular shocks in many economies. Geopolitical shocks also destabilise and devastate economies.
Uncertainties created by such risks lead
to market disruptions and significant imbalances in demand side and supply side
of the economies. These economies require urgent policy measures to restore
confidence and activate markets for the recovery. The impact of the shocks and
the required policy mix will vary across the structure and development stage of
the economies. In the case shocks hit the countries in the first category, the
recovery will be a daunting task, given structural problems already prevailing.
Policy
Interventions in the Economy and Public
Unlike
in business companies by business management experts, recovery and
restructuring of economies require policy interventions in the public as
provided for in various statutes and the Constitution. Such policy actions are
to intervene in economic and social lives of the various categories of the
public relating to their behaviours in economic activities such as businesses,
consumption, savings, borrowing and payment of taxes. These policy actions
while accruing benefits to some segments of the public cause disadvantages to
some other segments of the public.
Therefore,
in making decisions on suitable policy actions, relevant authorities are
required to adhere to a clear process to ensure that the policy actions are
reasonable and justifiable in the interest of the general public under relevant
provisions of the statutes because statutory mandates require the authorities
to comply with the public trust entrusted with them under the respective
statutes when intervening in the public life. The public trust is the principle
that requires public officials to act and make decisions within their mandate
in the best interest of the public in time because the public would be worse
off without such decision. Therefore, decision-making and implementation by the
public authorities requires to adopt a justifiable internal control system in
order to justify the compliance with the public trust principle.
Internal
Controls in Public Policy Interventions
Adoption
of internal control systems to make public decisions to intervene in the public
activities is a good public governance practice in the interest of both the
public and decision-making authority. In my view, an internal control system
underlying public policy decision-making should comply with following elements.
- First, the decision-making
should be carried out by the authority or officials who have been
specifically mandated to do so under the relevant statutes. Any
suggestions, instructions and recommendations from teams of experts or
political leaders or any other influential groups have no role to play
unless the decision-making authority accepts them as beneficial to the
public within the public mandate given to the authority. Therefore, any
decision made by the relevant authority on the basis of prevailing
conditions and factors is a lawful act of intervention in the public and
such authority stays responsible for the decision. Therefore, the teamwork
and leadership concepts used in private business management are not
relevant in public decision-making.
- Second, any internal
assessment committees or delegated officials appointed by the
decision-making authority to assist him by making recommendations are
considered as a part of good governance in exercising the public
authority. However, these committees and officials can make only views and
recommendations which do not have any binding on the decision-making
authority to accept them. However, any attempt made by the decision-making
authority to influence such committees and officials to make
recommendations that the decision-making authority considers appropriate
for him to make the decisions is a serious breach of internal control
mechanism that could lead to frame charges of criminal breach of public
trust when the outcomes of such decisions are questionable. In this regard, formation of policy-making committees to be chaired by the decision-making authority himself is a gross breach of the principle of internal controls and serves no purpose in the event such decisions are challenged, because subordinates are not expected to be independent at meetings chaired by the decision-making authority.
- Third, staffing based on the principle of division of labour to gather and assess information and implement the public policy decision is part and parcel of the internal control system. The performance of respective staff members of different ranks is the fulfilment of work delignated or allocated them on individual basis within the prescribed remuneration and supervisory system. As they are not decision-makers within the relevant statuary provisions, they are not expected to perform beyond fulfillment of assigned duties. Reshuffle of staff to create teams with fringe benefits to support the decision-making authority at the ad-hoc discretion and views of the authority outside routine transfer and remuneration system is a breach of the internal control system. The fact of the matter is that the decision-making authority is singularly responsible for his public policy decisions as the supporting staff have no specific mandates. Therefore, such reshuffles and offer of additional remunerations to selected staff members are a serious breach of the internal control system that can infringe the rights of public officials. Further, in the case of some public policy-making institutions, there are several layers of public officials authorized to make decision under the relevant statutes. In such instances, the Head of the institution creating reporting lines as part of the institution's internal control system to seek his concurrence for such policy decision is a breach of both the relevant statutory provisions and internal control system behind the authorised decision-making. in that respect, authorised officials are responsible for such public policy decisions despite the intervention of the Head of the institution.
- Fourth, decision-making
should be justified with appropriate information supporting the benefits
to the targeted category of the public. As such decisions have potential
to affect some other categories of the public, the justification based on
the fair assessment of beneficial outcomes and adverse outcomes expected
from the decisions is necessary to uphold the public trust underlying the
public authority. This is especially required in the case of decisions to
change existing public policies as various parties who already benefit
from such policies and stand to lose tend to raise various allegations
over the new policy. As public policies are highly exposed to allegations
in the context of democratic politics, public authorities are required to
make new policy decisions only after a careful assessment. Therefore, the
justification with supporting information and views should be recorded in
the form of minutes that contain in the relevant policy files with orderly
numbered folios. This will prevent post-policy fabrication of minutes in
the event of public concerns over the policy. Such fabrication of minutes
is a breach of internal control and public trust.
- Fifth, policy
instruments, the strength and the phase required in implementing the
policy decisions must be well defined and quantified. Otherwise, public
confusions can cause unexpected outcomes in relevant markets.
- Sixth, certain public
policies require concurrence from several supervisory layers before
implementing them. Therefore, such policies should not be implemented
prior to obtaining the concurrence as such decisions are unlawful.
However, the decision-making authorities should not seek such concurrences
unless it is mandated in the relevant statutory provisions because such
undue concurrences have no force in law and the decision-making authority
is legally responsible for the decisions it makes.
- Seventh, the
transparency in decisions made, conditions that required such decisions
and public benefits envisaged from such decisions is in good democracy.
The decision-making authority does not have to worry on allegations if
such decisions have been made genuinely in the public interest within his
mandate. Allegations are common because public decisions cause
unfavourable effects to some segments of the public. In the present
context of political disputes, public authorities should expect
allegations if they are to perform their public duties.
- Eighth, the public
authority should stay ready to amend or finetune the policy decisions
periodically depending on the periodical assessment of outcomes reported.
Further, such policies should be withdrawn, if necessary, at the
appropriate time without delay. This is generally lacking in public
policies. Otherwise, markets will adjust to invalidate the policy actions.
- Ninth, the
decision-making authority should ensure that it has the necessary
resources to make and implement public decisions. As the public decisions
have implications on the state budget, budgetary constraints will limit
the resources and the ability to implement public decisions. Many public
decisions stay inoperative due to budgetary constraints.
- Tenth, internal control
system should not be amended or bypassed abruptly to make certain
decisions due to whatever reasons because it invariably causes allegations
over such policy decisions. Such instances cause legal risks to the
decision-making authority as public decisions are subject to judicial
review if applications are made in that respect. Therefore, it is
necessary that public decisions are made within the internal control
system upon the justification of public benefits supported by the
prevailing information and ground factors within the mandate.
- Eleventh, the internal
control system should be examined and reviewed for its effectiveness periodically
by the three layers, external audit, internal audit and compliance.
External audit being the Auditor General is a statutory requirement under
the Constitution. Internal audit and compliance are the two agents within
the internal control system itself. In this review, the governance and
specific internal controls behind the flow of information including
various numerical estimations used to make the public decision is of
utmost importance as misgoverned information could result in decisions
detrimental to the general public. Therefore, internal control systems
operating without such external assessments and reviews are not considered
as reasonable and trustworthy.
However,
private business management experts are not accustomed to such public trust
environment and transparency in making decisions. Their decision-making culture
is singularly dominant by the view or the direction of the CEO/Chairman on the
resources provided at a cost to shareholders of the company. In the case of a
family-owned company, the family stays ready to bear the consequences of
business decisions.
Unlike
the public-wide impact of public decisions which is not measurable in monetary terms, the effectiveness of business decisions is measured on the business
expansion and profit limited to stakeholders. Therefore, when these business
management experts are appointed to the high-profile posts of the public sector
institutions, they tend to make arbitrary decisions outside the existing
internal control systems. Such behaviours invariably destabilize present operating
systems and cause routes to explicit fraud and conflicts of interest. Further,
no new progress is reported from any instances of such appointments in the
past.
When
private management experts take charge of high-profile public posts, they
always tend to seek or quote remuneration packages they enjoyed in the private
business management. This is because they are always inclined to evaluate
everything in monetary terms. Therefore, they do not understand the value of
the public power they receive with such posts to intervene in the affairs of
the public and the public recognition locally and globally that they are never
able to earn from private business positions unless they reach the position of
rare global business leaders/creators such as Bill Gates, Steve Jobs and Mark
Zuckerberg.
Their appointments to high-profile public posts pave the routes to destabilase and destroy public institutional cultures and trust in numerous channels as a result of business community around such business management experts getting into the the institutional management. The inauguration of the first day of the post is celebrated with such business leaders who later become informally influential in decision-making processes of the public institutions. They are appointed to various public consultative committees to represent their business lines and become closer and friendly to public officials. Therefore, knowingly or unknowingly, internal controls and cultures become gradually irrelevant to facilitate their businesses.
As they know that this is the opportunity remaining for limited time attached to public posts of their friends, they get maximum use of the term to augment their businesses and profit. This is the source leading to various irregularities taking place in public institutions. As a result, the public trust underlying operations of public officials and institutions is changed to business community trust. This incidence has nothing to do with the promotion of markets, but the promotion of conflict of interests and vested business interests. Therefore, restoring the public trust in such public institutions and officials will be a daunting task.
To
be continued.
(Views
in this article are those of the author based on his hands-on experience in
public decision-making on economic management subjects.)
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