Democracy is the rule of the people. So, in theory, their wishes and demands should be met, and representatives who are unresponsive voted out. So how is it that when survey after survey shows that citizens demand basic infrastructure, bijli, sadak and paani (electricity, roads and water), they don’t get it?
Empirical evidence shows this mismatch between what citizens want and what governments provide to be true. Governments of major states spend, on average, little money on infrastructure. In contrast, the money splurged on administration—in creating unproductive government jobs, school education (mostly on permanent teachers’ salaries)—and on various subsidies often exhausts all revenue.
The standard explanation is that vote-maximizing politicians spend money on populist projects because they give the maximum political returns. Infrastructure projects have low electoral returns. Ergo little money for roads and water works.
Matters are a bit more complex than this simple, and intuitive, explanation. In many states, politicians have tried to break with this logic and gone all out to spend money on roads, electricity networks, flyovers and dams at the cost of usual populist projects. They’ve paid for it: N. Chandrababu Naidu lost in Andhra Pradesh in 2004, Om Prakash Chautala was defeated in Haryana in 2005.
So what explains the gap between what people demand and what governments deliver? The explanation is bound to be complicated. A recent World Bank paper by Stuti Khemani provides some hints. Often, infrastructure spending is high in states where politicians can easily extract “rents” (read: kickback and illegal shares) from big projects. This usually happens in states where institutions to check corruption are weak.
But this is only half the story: Often, expenditures shift from infrastructure to populist ends when politicians have to seek re-election. In post-election years, spending on futile, but financially lucrative, projects rises, and close to elections, it goes down. Overall, the effect is that citizens don’t get what they want and government finances get worse, poor states get poorer and growth vanishes.
There is no simple way out of such logjams. At the root of the problem is the divergence between private and social returns to public investment. Money poured into infrastructure has large social payoffs, but little in individual terms. When a poor person is offered a choice between a better road and a government job, one can easily guess what he will choose. So, to be fair, politicians only react to perverse incentives created by this situation. A combination of better governance and a strong private sector that can create jobs is the answer. The question is how to go about doing that.
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