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Economic governance and budget accountability

Budgets do not operate in a political or economic vacuum. They reflect the dynamics of power within an economy, and highlight the policy and political choices of those who are in government, writes John Samuel.

A country’s budget reflects the policy and political priorities of those who control and manage the government machinery at any given time. Budgets do not operate in a political or economic vacuum. They reflect the dynamics of power within an economy, and highlight the policy and political choices of those who are in government. The budget constitutes part of a country’s economic and political governance.

Economic governance goes beyond the conventional confines of government finance or public finance. It is a process of managing the power dynamics within the larger economy of a society or country through institutional arrangements, fiscal policies, laws, process and management of natural, social and economic resources.

The ongoing economic crisis and prolonged recessions in major economies around the world raise serious questions about the dynamics of economic governance and those who control the economic governance of a country. It is becoming increasingly clear that the ‘free-market’ economy is hardly ‘free’, controlled instead by big corporate interests in the finance market as well as in the larger markets of goods and services. Governments everywhere are being called upon to play an important role in ensuring greater accountability and transparency. And, to decrease growing inequalities (economic, social, political) within society.

There is also widespread concern about the links between sustainable environment and sustainable economies. The dogma of economic growth at the cost of environmental sustainability is being questioned within government, the market, and civil society. The world today is witness to unprecedented levels of economic and social inequality that pose a huge challenge to the future of democracy itself.

Within a democratic context, budgets are expected to be formulated and passed in a consultative process, through discussions in the legislature or parliament. Revenue for the budget directly or indirectly comes from the people themselves; in this sense they belong to the taxpayer. The sovereignty of a democratic state is derived from the sovereignty of its people. The legitimacy of any government depends on the approval of people who elect representatives to represent their interests in parliament and assembly. It is in this context that accountability of government to its people, and transparency of the governance process are cardinal to the functioning of a democratic government.

However, there is a significant gap between the real normative and value framework of democracy and the actual functioning of governments. In spite of the principles of a representative democracy, governments are often run by an entrenched nexus of bureaucratic and political elites. In theory, a cabinet selected from among an elected majority in the democratic process is the political executive. In practice, however, the executive is run largely by bureaucratic elites with the support of government staff who command and control the process of governance through control of information, processes and delivery of services on the ground.

A government operates and exerts power through ‘law’ (and ‘order’), and the money it controls through the budgetary process. Though laws are developed through the legislative process, their implementation is in the hands of the government bureaucracy. It is the same with the budgetary process. Though the budget is expected to be discussed, debated and passed through a legislative process, in reality its implementation is in the hands of the government bureaucracy.

While right to information and a vigilant fourth estate play an important role in lifting the ‘veil of secrecy’ from bureaucratic structures of government, there is growing concern about the effectiveness and efficiency of budget management, and an entrenched corrupt nexus that drains resources from the government and its people. In this context budget transparency and accountability become an important means to truly democratise governments and the governance process.

Budget accountability and economic governance

Political economy of budgets

Accountability denotes the rights, responsibilities and duties that exist between people and the various institutions that affect their lives. Accountability and legitimacy are two sides of the same coin. Lack of accountability results in lack of political legitimacy. Lack of legitimacy results in democratic deficit and the consequent abuse of power by decision-makers and those in power. From the perspective of democratic governance, people as citizens are the owners and shapers of the state; the state’s sovereignty is derived from the sovereignty of its citizenry. Hence, all institutions of state and government are bound by duty to be accountable to citizens.

Power is no longer the monopoly of the state or government, however. Today it is big transnational corporations, the media, various public and private institutions, political parties, civil society formations and NGOs that control resources and take decisions that affect the lives, choices and livelihoods of people. Therefore the need for a broader understanding, politics and ethics of accountability. 

Big players in the markets like transnational corporations, large financial operators including banks and big media corporations shape the boundaries of the state and the lives of its people. These powerful actors could pose a huge threat to just and democratic governance in their quest for profits, an unbridled free market, and accumulation of wealth and information.

Democratic accountability is both political and ethical

Accountability also has legal, social, economic and managerial aspects; it is about answerability and enforceability. Answerability is the right to receive information and a clear response from any institution or authority, and their obligation to provide such information to stakeholders. Enforceability is the ability to ensure redressal and action to correct a wrong. The empowerment of people in terms of information, knowledge and mobilisation is a prerequisite for demanding effective accountability.

Budget accountability is the responsibility of government to be answerable to people/taxpayers about how and why their money is being spent, and the kind of difference budget priorities and implementation will make on the ground and in their lives. While most governments tout promises and proposals in their budgets, very little exists about actual performance. Most budgets ignore the long-term or even short-term needs of people, though there is no dearth of popular promises. The increasing gap between budget proposals and performance on the one hand and performance and impact on the other raises questions about budget accountability. Likewise, the increasing gap between budget estimates and revised estimates and the relative lack of transparency on how such revisions are done raises questions about budget integrity.

Though efforts have been made by states like Kerala to assess the views of civil society organisations, social movements, citizens groups and associations of marginalised people whilst formalising budgets, the general tendency in India is to consult only the rich and powerful like FICCI, CII and other vested interest lobbies. Within the Indian context there is also concern about links between election and political party funding by big corporate companies and a consequent reduction in taxes in areas that affect particular corporate houses. The nexus between corporate companies and bureaucratic and political elites, often with the connivance of media companies controlled by big business interests, raises serious doubts about budget integrity and democratic deficit.

It is in this context that the ‘economic governance’ of a country becomes crucial. Economic governance is a much broader concept than public finance. In a democratic context, there is the need to extend the accountability narrative to all institutional arenas within a given society. Economic governance will have implications for how inflation is managed, how prices of commodities and goods are managed, how natural and human resources are managed. In a democratic context, democratisation of the economy is as important as democratisation of politics. Governance is deeply political as it is also about the negotiation of power within and beyond institutional arenas of state, market and civil society.

One of the key concerns in a democratic discourse is that while there is increasing emphasis on democratisation of political governance, there is the tendency to leave economic governance to ‘market forces’, which here could mean multinational corporations or big corporate houses that dominate power dynamics and growth in the economy. Big players in the stock market, finance/currency markets and the banking sector can often create the semblance of a ‘vibrant market’ through speculative practices and artificial growth.

The issue of multi-dimensional inequality and lack of accountability in economic and political governance has taken centre-stage in political and policy discourse around the world. People in over 90 countries protested the increasing lack of accountability in governance, particularly economic governance. Movements like Occupy Wall Street and protests in different parts of the Arab world were not only about lack of government accountability but also the nexus of political and economic elites that control the economy and state. Almost all recent studies on economics and politics point to the grave and growing dangers of inequality in countries across the world, and new links between economic, social and political inequalities.

States must play a more proactive role in ensuring greater transparency and accountability not only in aspects of government but also among the major actors that control the dynamics of economy and market. This also means steps to decrease inequalities within a given country and society.

Infochange News & Features, February 2015