I.
Introduction
The "reforms"
in the direction of free markets and democracy are being spearheaded
by institutions like the World Bank as well as the "electronic
herd"[1], which exercise unprecedented and
pervasive power and influence over the affairs of all governments. Few
would dispute that centralized management of the economy by the state
has proved to be disastrous almost everywhere. While markets are certainly
one way of decentralization, decentralized governance by the state with
effective participation by the citizens could be more efficient in certain
areas. Economic reforms should not, therefore, be fixated on "marketization"
and "privatization."
In addition,
only the kind of "reforms" rooted in the "psyche"
of the respective people can have a chance of success. Modern scholars
from the West as well as the East draw inspiration from the concepts
of "liberty, equality, fraternity," the rallying cry of the
French Revolution. However, when a Western scholar refers to them, he
or she probably means: "liberty; fraternity subject to liberty;
equality subject to liberty and fraternity." On the other hand,
an Eastern scholar is likely to say: "equality; fraternity subject
to equality; liberty subject to equality and fraternity."
The equality
we are talking about is not a state of absolute homogeneity among all
the citizens (which is impossible, anyway) but a condition in which
the extent of inequality among citizens is not such that individual
liberty is compromised (Scott, 1994). As Rousseau said, "no citizen
should be so opulent that he can buy another, and none so poor that
he is constrained to sell himself." Equality should aim at "self-actualizing
individualism that encourages the individual to make the best of himself
or herself." (Glassman, 1989, pp.199)
We are
also not talking about "equality of outcome" which can come
about, if ever, only through the efforts of a leviathan state that would
surely interfere with individual liberty. The cutting edge of political,
social or economic equality is "equality of opportunity,"
which is not mere absence of discrimination but a set of institutions
and processes of governance which would ensure that "equality of
opportunity is not merely formal but in some serious degree realizable."
(Green, 1998)
The question
is how to achieve such constructive equality in a democratic context
without jeopardizing the prospects of improving the aggregate welfare
of all the citizens in the long run. We may make some progress if we
start with two principles of "ethical individualism", one
emphasizing the "equal importance" of all the citizens, and
the other stressing that the "final responsibility" for shaping
one's future must rest with the individual citizen. (Dworkin, 2001)
Paternalism needs to be eschewed, whether by the state or by any social,
political or religious organization.
II.
Democratic Governance
The earliest
formulators of a political theory of modern democracy were Thomas Hobbes
and John Locke. For Hobbes, the people (whom he termed as "commonwealth")
held the sovereign power. His definition of commonwealth "is one
person, of whose acts a great multitude, by mutual covenants with one
another, have made everyone the other, to the end he may use the strength
and means of them all, as he shall think expedient, for their peace
and common defense." Locke also recognized that the people had
the sovereign right to govern themselves but that systemic arrangements
were necessary to enable them to do so. Accordingly, he became the formulator
of constitutional law and the democratic process. Thus, both Hobbes
and Locke were concerned with providing constitutional stability through
consent.
After
Hobbes and Locke, another significant contribution to the theory of
modern democracy came from Jean Jacques Rousseau. The Declaration of
the Rights of Man in the wake of the French Revolution was based on
Rousseau's Social Contract, which maintains with passion that all governments
must rest upon the universal participation and the consent of the governed.
The unanimous consent of the citizens and their implicit equality were
at the center of Rousseau's conception of the state. He said: "…
as there is hardly any inequality in the state of nature, all the inequality
which now prevails owes its strength and growth to the development of
our faculties and the advance of human mind. ... It follows that moral
inequality…is plainly contrary to the law of nature." (Rousseau,
1978)
A contemporary
of Rousseau, Thomas Jefferson expressed similar views. He stated: "I
know of no safe depository of the ultimate powers of society but the
people themselves; and if we think them not enlightened enough to exercise
their control with a wholesome discretion, the remedy is not to take
it from them, but to inform their discretion." Jefferson thought
that citizens must be prepared and educated for exercising power; this
was not only a responsibility but also a necessity if democracy were
to work and not to degenerate into some kind of oligarchy. (Gilreath,
1999)
Seven
decades later, John Stuart Mill articulated the modern concept of social
and political freedom. In his On Liberty, he said that "[t]he only
freedom which deserves the name" was "that of pursuing our
own good in our own way, so long as we do not attempt to deprive others
of theirs, or impede their efforts to obtain it". (Mill, 1848)
According to Glassman (1989, pp.170), "if liberal theory had followed
the lead of Jefferson and Mill, socialism, as a counter-ideology, opposed
to and disgusted with liberalism, might never have gained the credence
it did."
Definition
of democracy
It was
left to Abraham Lincoln, a contemporary of Mill, to give a pithy definition
of democracy as "government of the people, by the people, and for
the people." It will be no exaggeration to say that the succeeding
generations of people, in the West as well as the East, have grown up
with this definition in mind.
The way
some modern scholars define democracy, however, is at variance with
the spirit of the original concept. It is defined "as a system
involving effective competition between political parties for positions
of power." (Giddens, 2000) This follows the logic of Schumpeter,
who is the one to suggest, in the first half of the twentieth century,
that "government by the people" be substituted by "government
approved by the people". His reasoning is simple. "In small
and primitive communities with a simple social structure in which there
is not much to disagree on, it is conceivable that all individuals who
form the people as defined by the constitution actually participate
in all the duties of legislation and administration." In all other
cases, it is inevitable that elected representatives should govern the
people. His own definition of democracy is: "The democratic method
is that institutional arrangement for arriving at political decisions
in which individuals acquire the power to decide by means of a competitive
struggle for people's vote." (Schumpeter, 1950, pp.245)
The first
point to be noted is that, to the extent people can organize themselves
into small communities, where direct or almost direct interaction is
possible, there would be no need for "representative democracy"
to decide on matters where there exist little divergence in opinion.
The second
issue is the satisfaction of the conditions for the success of the democratic
method suggested. Schumpeter's four prerequisites are: 1. "The
human material of politics - the people who man the party machines,
are elected to serve in parliament, rise to cabinet office - should
be of sufficiently high quality," 2. "The effective range
of political decision should not be extended too far," 3. "Government
must be able to command … the services of a well-trained bureaucracy
of good standing and tradition, endowed with a strong sense of duty
and a no less strong esprit de corps," and 4. "Electorates
and parliaments must be on [high] intellectual and moral level."
(Schumpeter, 1950, pp.290)
It does not seem likely that these conditions would be reasonably satisfied
in Third World countries. Schumpeter foresees this dilemma and therefore
confines the application of his theory to "the great industrial
nations of the modern type," which is in line with Marx's response
to his own critics. Furthermore, Schumpeter adds that "propositions
about the working of democracy are meaningless without reference to
given times, places and situations." (Schumpeter, 1950, pp. 243)
In the current context of changed times, his definition of democracy
needs to be revisited not only in the East but also in the West, to
reflect a deeper commitment to the idea of sovereignty resting with
the people.
Representative
democracy
In recent
decades, democracy has degenerated into a mere "power game."
Schumpeter's elitist definition may not be the culprit, but unchecked
"representative" democracy surely is. Over time, as Jefferson
feared, "the guardians have become the despots." (Dahl, 1998)
Political representatives have become a separate "class."
(Manin, 1997) It is not just that democratic values are undermined,
the quality of governance suffers as well. (Kent, 1997)
Representative
democracy came about partly "because of the scale and the distance
between an event and the time people find out about it - the information
float."(Naisbitt, 1994) Technological developments have changed
the context. Since the same information is now available to the representatives
as well as the represented almost at the same time, it is no longer
necessary to rely exclusively on representative democracy.
If communication
and information technologies are increasingly transforming ordinary
workers into "knowledge workers," the electronic and print
media are transforming ordinary citizens into "knowledge citizens."
One scholar predicts: "the combination of television connectedness
to events, and leaders, candidates, and issues, interactive talk-back
by viewers, instant referenda on local and national issues, may produce
a new form of democracy ('mass-mediated direct democracy'), very different
in structure and process from parliamentary democracy." (Glassman,
1997)
The current
models of representative democracy have been developed with the following
considerations:
" Not every citizen is competent to deliberate and decide on all
matters of governance.
" Not every citizen can spare the time required to attend to all
matters of governance.
" The representatives not only can devote more time but also can
acquire greater expertise in dealing with the complexities of governance.
" The representatives are expected to bring to bear a certain wider
perspective on issues that affect larger groups than their electors;
in this sense, they are not, and should not be, mere agents of their
electors.
While
the latter two considerations continue to be valid, the assumption regarding
competence becomes a self-fulfilling prophecy. Citizens are ignorant
because the state does not make adequate efforts to educate them. Ignorant
citizens cannot but function through the representatives. Since the
latter assume the responsibility (and the wisdom) to decide on all matters,
the citizens have little incentive to acquire the skills and competence
necessary for governance. To break this logjam, every citizen should
receive at least that much education as is necessary for him or her
to function as a responsible citizen, as Jefferson envisaged.
As regards
to the time a citizen should devote to matters of governance, it is
a function of the relevance of the issues under debate to his or her
own life and occupation. If the issues were relevant, such as, for example,
education of their children, he or she would find the time. Thus, representative
democracy need not be resorted to in matters of immediate concern to
the citizens.
However,
one must contend with "a legacy of failure" of the past efforts
to "localize" democracy. An in-depth study of some serious
attempts in the United States at "neighborhood democracy"
concludes that they would have a chance to succeed under three conditions:
1. It should be part of a well thought-out and comprehensive political
reform, not an isolated, or administrative experiment, 2. A strategy
must be developed to counter the attempts (to thwart the devolution)
that would surely be made by the bureaucratic and political vested interests
in the current system, and 3. The local jurisdictions must have the
exclusive responsibility for whatever tasks are assigned to them. (Thomson,
2001)
It should be possible to devise structures of decentralized governance
for certain well-defined functions, where the citizens would, by and
large, govern themselves and, if need be, act through elected representatives
who would be accessible to them and act strictly as their agents. It
is high time we revisited Jefferson's concept of "ward republics"
which was not so much direct democracy as citizen democracy. (Morse,
1999)
Thus,
we need to finesse the contentious issue of representative versus direct
democracy and proceed to delimit those areas where direct or near direct
participation of the citizens is both feasible and desirable. In the
final analysis, democracy is not merely an aggregation of preferences;
it is also a question of the synergies it creates. Decision-making is
not only a process of choosing among given alternatives, but also a
process of generating new alternatives. It "draws citizens out
of their parochial interests, instilling community-mindedness, and increasing
the amount and variety of data that inform collective decisions."
(Elster, 1998)
Constitutional
democracy
Democracy
should thus be redefined as -- a system of government based on equal
and effective participation of all the citizens in
" setting the agenda for, and the formulation of, public policy;
" electing representatives to implement the policy so formulated;
and
" ensuring that the policy yields the intended results.
It should
be possible to frame a "constitution" incorporating the proposed
definition of democracy, among other matters, so that democratic institutions
and processes that do not facilitate such participation become justiciable.
There is no contradiction between the "democratic principle"
which prescribes that the government should implement the will of the
people, as expressed through periodic elections, and the "constitutional
principle" which circumscribes or defines the role of the government
so as to secure the more lasting values and wishes of the citizens --
what James Madison called "the permanent and aggregate interests
of the community." (Madison, 1987)
A constitution
would prohibit the government of the day from imposing restrictions
on the freedoms and rights of the citizens that they consider fundamental
to their existence, as most constitutions already do. But a constitution
should also make it mandatory for the government of the day to take
actions that are necessary to fulfill the fundamental aspirations of
the citizens.
Viewed
from this perspective, constitution making and electoral democracy are
two stages of the continuum of political process. In the first stage,
citizens determine, say, once in fifty or hundred years, adopting the
Rousseauvian principle of unanimous consent, what their fundamental
values and wishes are and proceed to lay down the structures, rules
and processes of governance. In the second stage, subject to the structures,
rules and processes so laid down, they agree to abide by the policies
endorsed by a majority of them in periodic elections. [2]
Compliance with the constitutional provisions by the government of the
day would be secured through a scheme of checks and balances, notably
including an independent and competent judiciary, incorporated in the
constitution itself.
Framing
of such a constitution does not imply a surrender of the rights of the
citizens; rather, it is a reaffirmation of their sovereignty. A constitution
thus framed can provide for different layers of government, the lowest
tier enjoining the highest degree of participation by the people, which
can then be run by elected representatives on the basis of a clear policy
mandate they obtain in the process of election.
III.
Economic Management
Democratic
theory is based on the initial condition of equality among the citizens.
"Neo-classical" economic theory, on the other hand, makes
no such assumption. It takes the initial distribution of incomes among
them, however unequal, as exogenous to its analysis. "Economic
efficiency" is defined, in a limiting manner and in a static framework,
as the optimum utilization of given resources to achieve given ends.
(Blaug, 1968) Thus, even if it is assumed that unfettered market forces
would ensure "economic efficiency," there is no getting away
from taking a position on the initial distribution of incomes on the
one hand and specifying the ends of economic management on the other.
It is impermissible to start debating "efficiency-equity tradeoff"
within the neo-classical framework without addressing these threshold
questions.
If the initial distribution of incomes is deemed unsatisfactory, it
would be possible to set it right through lump sum taxes on the better
off [3] and lump sum transfers to the worse off
so that, thereafter, the free market system could deliver. This would
be a neat solution but has not found favor with most economists. (Stiglitz,
1996)
The real
question in redistribution is not so much the extent of inequalities
but how low in the economic ladder we would allow the poor citizens
to go down, given that in a democratic society all citizens are equal
and free. "The man who is hungry, who cannot find work or educate
his children, who is bowed by want -- that man is not fully free."
(Sandel, 1996) The diehard "libertarians" argue, "persons
have [only] one fundamental right -- the right to be free." However,
even they accept that "the objective needs of all citizens should
be met," but through voluntary efforts instead of public provisions.
(Pollock, 1996)
Objectives
of economic management
In exploring
a constitutional framework incorporating the goals of economic management
by the state, the first objective that would receive everyone's ready
approval is that the state shall ensure that every citizen is enabled
to develop his or her full potential and to give off his or her best.
It goes without saying that it is possible to secure this objective
only if their basic needs are met subject, of course, to their making
corresponding and due efforts to "deserve" them.
There
would be similar unanimity if we suggest that the state shall so manage
the economy as to secure the maximum well-being of all the citizens.
However, citizens dissatisfied with the extant distribution of incomes
might suggest that, while increasing the aggregate well-being, inter
se distribution of incomes should be simultaneously improved. It may
be that such possibilities exist. (Basu, 1995) If they do, they must
be exhausted first before considering other policy options.
It follows,
logically, that there would be unanimity in enjoining the state to take
all possible measures that have the potential of either (a) increasing
the aggregate well-being of all the citizens without worsening the relative
distribution thereof among the individual citizens, or (b) improving
the relative distribution among the individual citizens without decreasing
the aggregate well-being. There is a good chance that such possibilities
exist in every country. As a corollary, the state would be prohibited
from taking actions that have the effect of reducing the aggregate economic
well-being, and also of adversely affecting the income distribution.
Unfortunately, such actions are not rare.
It is
next necessary to seek the agreement of the citizens on another important
dimension of securing the maximum well-being of all the citizens, namely,
that it should be accomplished without compromising the well-being of
the future generations. This concern has been very succinctly expressed
as follows: "Sustainable development is that development which
meets the needs of the present without compromising the ability of future
generations to meet their own needs. … This means avoiding the
accumulation of environmental debts (by polluting or exhausting natural
resources) as well as financial debts (through unsustainable borrowings),
social debts (by neglecting to invest in human development) and demographic
debts (by permitting unchecked population growth or urbanization). …
Human development must allow each generation to balance its budget in
each of these four areas." (Haq, 1999) These are not easy commitments
to make but all far-sighted citizens would support them.
Constitutional
provision
Against
this background, the prevalent view of constitutional jurisprudence
in the United States, and implicitly elsewhere, that "a constitution
is not intended to embody a particular economic theory" (Holmes,
1904), is somewhat untenable. Political theories could be as controversial
as economic theories. If political propositions could be broadly reflected
in the constitution, there is no reason why broad economic propositions
should be left out, provided that the unanimous or near unanimous consent
of the people is secured for so specifying in the constitution.
The Universal Declaration of Human Rights adopted by the United Nations
in 1948 incorporates not only traditional civil and political rights,
but also social and economic rights. Unfortunately, while almost every
nation has encompassed civil and political rights in its constitution,
sometimes as "fundamental rights", the social and economic
rights have been taken for granted in their formalization as well as
implementation.
Human rights have undergone a historical evolution. Initially, the focus
was on civil rights -- freedom of speech, religion, movement, etc. Around
the late nineteenth and early twentieth century, attention shifted to
political rights -- voting and participation in elected government.
Further advancement led to the modern welfare state with the poor and
disadvantaged becoming "entitled" to certain benefits. (Doyal,
1991) The time is ripe for the next stage of evolution, so that the
citizens can achieve their full potential taking advantage of the explosion
of knowledge brought about by the media and the Internet.
Social
and economic rights cannot be divorced from civil and political rights
as some of the social and economic rights, like, for example, the right
to subsistence and the right to information, are required for the exercise
of civil and political rights. (Gould, 1988) A recent critique of economic
theories has also argued that all members of a community have the right
to an equal share of a part of the national income and that such a right
needs to be specified in the constitution. (Zucker, 2001)
The reasons
for not incorporating social and economic rights in the constitution
are often stated as follows: 1. The rights cannot be specified in such
a way as to provide guidance to the government and to the institution
in charge of protecting them, 2. The judges would not be able to assess
governmental policies on the basis of individual cases that reflect
such policies only in a very piecemeal way, and 3. The judges are not
equipped with the necessary expertise to adjudicate the cases. The suggested
solution is that the level of resources required to meet the social
and economic rights should be specified in the constitution. (Fabre,
2000)
In the
context of the new South African constitution, which incorporates rights
to education and healthcare in the "bill of rights" and a
judicial decision pertaining thereto, it has been argued that the courts
can play a constructive role in the materialization of social and economic
rights. (Sunstein, 2000)
The distinguished
political philosopher John Rawls has had his reservations on the subject
over the years. In a recent exposition, however, he has laid down two
criteria the satisfaction of which would permit inclusion of provisions
reflecting distributive justice in the constitution: "1. Principles
specifying fair distribution must, so far as possible, be stated in
terms that allow us publicly to verify whether they are satisfied. 2.
Principles should be reasonably simple whose basis can be explained
in ways citizens may be assumed to understand in the light of ideas
available in the public political culture." Rawls goes on to suggest
that the provision of basic minimum needs to all the citizens is a "constitutional
essential." (Rawls, 2001)
The objectives
of economic management discussed above clearly fit the bill of Rawls'
"constitutional essential". For example, the requirement that
the government of the day must ensure that the relative distribution
of income must be improved to the extent feasible would oblige it to
come up with "incidence analysis" of the fiscal changes it
is proposing. At the same time, any citizen can draw the attention of
the courts to the omissions and commissions of the government in improving
the relative distribution. Not including such a provision in the constitution
would give the government of the day too much leeway to play with the
economic lives of the citizens and allow it to take actions that might
exacerbate rather than reduce inequalities.
IV.
Basic Needs
The Universal
Declaration of Human Rights adopted by the UN included:
Article 22 "Everyone, as a member of society, has the right to
social security and is entitled to realization, though national effort
and international co-operation and in accordance with the organization
and resources of each State, of the economic, social and cultural rights
indispensable for his dignity and the free development of his personality."
Article 25 (1) "Everyone has the right to a standard of living
adequate for the health and well-being of himself and of his family,
including food, clothing, housing and medical care and necessary social
services, and the right to security in the event of unemployment, sickness,
disability, widowhood, old age or other lack of livelihood in circumstances
beyond his control;" and,
Article 26 (1) "Everyone has the right to education. Education
shall be free, at least in the elementary and fundamental stages. Elementary
education shall be compulsory."
Genuine
equality of opportunity in a democracy amounts to equal opportunity
to get on in life in every sense of the term, that is, equal opportunity
to participate in the democratic process, to participate in the economic
activities, to have social interactions, to receive education and so
on. In addition, the quest for equality of opportunity must examine
the backward linkages, since inequalities at successive stages have
a cascading effect. For instance, children born with lower birth weight
due to inadequate nutrition of the mother would suffer a permanent handicap
in their physical and intellectual attainments.
The sense
of equality of opportunity is best conveyed by the expression "level
playing field." Continuing with the metaphor, equality of opportunity
can be truly guaranteed only if the field is leveled before the game
starts. For instance, if the voting age is 18, the democratic game starts
at that age; hence, the voter's ability to participate in the democratic
process should be nurtured before that date. Consequently, all citizens
must have equal opportunity to acquire the skills relevant to such participation.
The exercise of informed and free choices by the individuals is at the
heart of the related economic and political theories. To equip and enable
the individual citizens to make the choices is thus a fundamental obligation
of the state.
Since
education builds human capital that, in turn, increases productivity,
the existing inequalities between individuals would tend to persist
or grow in the absence of corrective measures. Merely enabling the markets
to function freely without building up the human capabilities would
lead to an increasing gap between the more fortunate individuals and
the less fortunate as, indeed, between the developed economies and the
less developed. (Rogowski, 2000) Thus, a basket of goods for which public
provision needs to be made should be identified as part of the constitution-making
process. [4]
Income
transfer or provision of basic needs?
Once specific
basic needs are identified, the issue that arises is whether the provision
should be in the form of transfer of income to individual citizens or
in the form of provision for services for specified needs. Amartya Sen
says: "Economists have focused attention on a very narrow domain
of inequality, namely, income inequality. This narrowness has the effect
of contributing to the neglect of other ways of seeing inequality and
equity, which has far-reaching bearing on the making of economic policy.
Poverty debates have indeed been distorted by overemphasis on income
poverty and income inequality, to the neglect of deprivations that relate
to other variables such as unemployment, ill health, lack of education,
and social education." (Sen, 1999)
Since
it is of vital importance for both democracy and economic efficiency
that the citizens acquire certain essential "capabilities",
it seems desirable to adopt the specific provision approach. With an
income approach, ensuring satisfactory outcomes in the sense of building
the capabilities in all the citizens might need extensive monitoring.
Moreover, the income approach presupposes that supply responses to the
demands for services related to the basic needs, would be uniformly
adequate everywhere in terms of quality, quantity, and price. Finally,
since what is desired is equality of opportunity to acquire the capabilities,
the income approach would require income transfers differentiated by
the recipients. This would involve enormous costs of implementation.
The provision approach is also preferable for the reason that "income
approach does not necessarily lead to the choice of appropriate products
produced by appropriate techniques that could give rise to more jobs,
and even improve income distribution." (Streeten, 1977)
Financing
the basic needs
The basic
premise of our framework is that democracy should function on the basis
of equal and effective participation by all the citizens. To be so empowered,
citizens must accept the reciprocal obligation to pay for the primary
services that comprise the nourishing, nurturing and educating their
own children. Every citizen could contribute a proportion; say 10%,
of his or her income for the purpose. This would ensure that 10% of
the GNP is devoted to providing the basic needs to citizens. Not many
countries devote such a high proportion of their GNP to these basic
services today.
The suggestion
draws inspiration from the Indian tradition alluded to by Kautilya (around
300 B.C.). He explained the origin of the state as: "People overwhelmed
by the law of fishes, made Manu, the son of Vivasvat, their king, assigned
one-sixth of the grains and one-tenth of the commodities and money as
his share; maintained by that, kings bring about the well-being and
security of their subjects." (Kautilya, 1972) The noteworthy points
in this are: 1. Sovereign people constituted the state and appointed
the king (the latter not enjoying any divine right to rule); 2. The
raison d'être of the state is to prevent exploitation of man by
man ('law of fishes' meaning that the big fish swallows the small fish);
3. The king's duty is to ensure both the security and the well-being
of his subjects; and, 4. All the citizens assumed the reciprocal obligation
of paying a proportion of their income for the upkeep of the state.
The suggestion
also draws inspiration from Thomas Paine, an eighteenth century philosopher.
Paine said: "all accumulation of personal property, beyond what
a man's own hands produce, is derived to him by living in society; and
he owes on every principle of justice, of gratitude, and of civilization,
a part of that accumulation back again to society from whence the whole
came." He went on to formulate a scheme of creating a "national
fund" to be distributed equally to all citizens, rich or poor,
adding that it "will benefit all, without injuring any. It will
consolidate the interest of the Republic with that of the individual."
(Paine, 1967)
A uniform
rate of contribution on all income, without exception and without exemption,
would promote voluntary compliance. Though there is direct quid pro
quo in the form of services, it might be advisable to classify the contributions
as "income tax". This has certain advantages in that the contributions
could go to reduce the citizens' liabilities for income tax or other
taxes, a practice already prevalent in the U.S., and that the monitoring
and enforcement of collection would be facilitated.
The proportionate
contribution to finance the basic needs would have to be incorporated
in the constitution with the unanimous or near unanimous consent of
the people. This would in no way preclude the imposition of other taxes,
including some "progressive" or maybe "regressive"
taxes (like Margaret Thatcher's "poll" tax), to finance other
public services as part of the normal democratic process not subject
to the unanimity rule. Secondly, in most countries, state and local
governments currently finance education and other basic needs from revenues
collected through "regressive" sales tax and other levies.
The proposed "proportional" tax effectively replaces those
regressive taxes. [5]
Since the incomes of citizens vary, often very considerably, the amounts
of contributions also would vary. However, since the whole purpose of
providing for the basic needs of all citizens is to secure equality
of opportunity, the actual provision of basic needs should not be dependent
on the respective contributions. The contributions from all the citizens
should, therefore, flow into a national fund to be distributed entirely
on equal per capita basis.
The requirement
of the contributions flowing into the national pool and disbursed on
equal per capita basis would ensure that all the citizens in the nation
are treated equally. There would be automatic redistribution of incomes
from the richer regions to the poorer regions and from richer individuals
to the poorer individuals. This would foster the national spirit far
more effectively than any other measure of public policy.
There is near unanimity among experts in public finance, economists
and political scientists that from the efficiency and efficacy points
of view there are definite advantages in making local provision of these
services. The disagreement invariably is over the method of financing.
The proposed arrangement would finesse several thorny problems of decentralization
in a federal or multi-layer system of government and the related problems
of centralized taxation and devolution of the proceeds thereof to local
jurisdictions. The proposal is a scheme of redistribution par excellence;
it hurts none but benefits everyone. Through equal per capita provision,
we would have countered the main argument against local provision that
it might fall afoul of the principle of "horizontal equity,"
that all the citizens across the nation ought to be treated the same
regardless of their place of residence.
(The author
Kambhampati S. Sastry is an expert in public finance and an independent
researcher based in Hyderabad, India. He can be reached at kssastry@ureach.com.
This paper is the summarized version of a paper presented in the Columbia
University Seminar on Political Economy and Contemporary Social Issues.
The author is grateful to Jeffrey Nugent, Ira Gang and Ross Zucker for
comments on the earlier version.)
Notes:
[1] Electronic herd is "made up of all those faceless stock, bond
and currency traders sitting behind computer screens all over the globe,
moving their money around or trading on the Internet from their basements."
(Friedman 2000)
[2] This view is somewhat different from that taken by "public
choice" economists (Mueller 1996, Buchanan 1998, Buchanan 1999).
The latter is distrustful of "majoritarian" politics and,
hence, skeptical about the normal democratic process securing public
welfare. The position taken herein is based on the premise of a benign
relationship between the citizen and the state and, hence, the legitimacy
of decision-making by the majority arising from the normal democratic
process, as the Founding Fathers of the American constitution believed.
However, the "permanent and aggregate interests" of the citizens
must find their place in the constitution. These "interests"
would include the fullest possible scope for self-governance by the
citizens. Secondly, in the context of the overwhelming influence of
the "neo-classical" economic theories on governance in the
modern states, the "interests" would also include a financial
and administrative framework for educating the citizens to enable them
to participate in the political and economic life of the nation. In
a dynamic world, both the constitution and the normal democratic process
have their respective roles.
[3] James Tobin called it "economist's dream tax - the lump sum
tax that no one can avoid or diminish by altering his own behavior."
(Tobin 1970)
[4] The approach adopted in delineating the role of the government in
meeting the basic needs of the citizens is similar to the one adopted
by Page and Simmons (2000). However, the measures suggested by them
are in the specific context of on-going tax and welfare programs in
the U.S., while what is proposed here is set in a wider and more universal
context.
[5] See note 2 above. "Public choice" economists would possibly
stop with the "proportional" tax, and the equal distribution
of the proceeds thereof, precluding any further tax measure by the elected
government of the day.
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