Kambhampati S. Sastry, Equality, Basic Needs and Democratic Constitution
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”, 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 “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:
- “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,”
- “The effective range of political decision should not be extended too far,”
- “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
- “Electorates and parliaments must be on 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.
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:
- It should be part of a well thought-out and comprehensive political reform, not an isolated, or administrative experiment,
- 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
- 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)
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. 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 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 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.
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.
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:
- Sovereign people constituted the state and appointed the king (the latter not enjoying any divine right to rule);
- 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);
- The king’s duty is to ensure both the security and the well-being of his subjects; and,
- 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.
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 firstname.lastname@example.org. 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.)
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)
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.
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)
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.
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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