Debating distributional dimension of budget
Kathmandu, May 17:
he distributional role of a budget has been debated since long, even by the neo-liberals and market anarchists. The state intervention to enhance allocative efficiency of resources within the Pareto optimality was justified for promoting economic welfare. In the era of Keynesianism in the post depression period, some proactive state led revenue, expenditure and other policies linked to somewhat welfare-oriented capitalist development received prominence. After the introduction of the free market policies from the early 1970s, even the allocative efficiency-led distribution principles were interpreted differently. It was argued that the free-market policies enhancing efficiency in resource allocation and uses would ensure net benefits to a society as a result of more gains to some, compared to losses for others.
Structural Adjustment Program (SAP) and agenda under the Washington Consensus were based on the above premises which focused on liberalization, privatization, deregulation and open-up policies. But, backfiring of market-led allocative efficiency and automatic trickle-down of benefits reached its climax in the late 1990s. It was during this period that the importance of political economy in understanding and/or assessing probable impact of policies and programs came to the forefront again. Many development thinkers, even if narrowing down the Marxist political economy approach, stressed on the need of at least examining in priory the likely gainers and losers of any policies and programs proposed.
Against such a background, formulating Poverty Reduction Strategy Papers (PRSP) through, unlike the SAP period, internal stakeholder’s participatory process was prescribed by the multilateral donors. In that, emphasis was given on the need to focus on social development, poverty and governance through, among others, more decentralized developmental approaches and institutional reforms.
The financial crisis of 2008 and subsequent steps taken as a compulsion by the developed and developing countries alike to rescue the economies from the collapse have given some far-reaching policy and/or budgetary implications. The message of the crisis is such that neo-liberalism led bubble type economic course of arbitrarily raising the prices of property and market shares, amidst continued negligence to the stagnated real sector, leading to increasing wealth concentration is bound to generate grave crisis that will need strong state intervention. It also evidently proves that the resilience of those economies, which are driven mainly by hugely expanded internal market,through policies which, among others, strengthen egalitarian social structure and enhance purchasing capacity of the downtrodden, to cope with the crisis stands high.
The predominance of unproductive investment, too much income inequality, deprivation-based poverty at 65 per cent, and deepening economic crisis clearly indicate that in Nepal the premises of neo-liberalism-led allocative efficiency and trickle-down effect have dismally failed. This demands a debate on redefining the role of the state and the market among others. It is an irony that the debate is being dragged in different directions.Today, less than 20 per cent of the budget is allocated to the local level programs. Despite this, if increased resources to the local level programs are advocated, it is termed as distributive. Now the time has come to give highest priority to the production related programs at the grassroots, besides emphasis on market promoting infrastructure development. Similarly, in our highly unjust society, without diversion of more resources to the programs related to social development, food and social security in tandem, not only equity-based but also self-sustainable development is unthinkable. This is deliberately ignored.
The focus must be more prominently on preventing the tendencies that attempt to distribute funds by decree or discretionary means. This will be most devastating with very weak transparency, accountability and monitoring system both at the both central and local levels. This may destroy the fiscal balance and macro-economic stability. Therefore, allocation of resources without proper institutional arrangements cannot be justified in any way, be it related to social justice, resource diversion to the grass roots or private sector encouragement. It backfires sooner than later.
There are increased attempts at by-passing the programs prioritized at the local level, based on participatory processes of various stakeholders. That tendency must be corrected. The reckless funding practices not only create mess for the present, but also create resource drain for the future, making sustainable development a mirage. Therefore, the focus should be on how to institutionalize improved allocation, effective, transparent and accountable system for efficiency in resource use and better outcomes. Simply negation of distributional dimension of budget is an attempt to overlook long term sustainable development amidst prosperity to a few at the cost of misery to the downtrodden.
Source: THT
he distributional role of a budget has been debated since long, even by the neo-liberals and market anarchists. The state intervention to enhance allocative efficiency of resources within the Pareto optimality was justified for promoting economic welfare. In the era of Keynesianism in the post depression period, some proactive state led revenue, expenditure and other policies linked to somewhat welfare-oriented capitalist development received prominence. After the introduction of the free market policies from the early 1970s, even the allocative efficiency-led distribution principles were interpreted differently. It was argued that the free-market policies enhancing efficiency in resource allocation and uses would ensure net benefits to a society as a result of more gains to some, compared to losses for others.
Structural Adjustment Program (SAP) and agenda under the Washington Consensus were based on the above premises which focused on liberalization, privatization, deregulation and open-up policies. But, backfiring of market-led allocative efficiency and automatic trickle-down of benefits reached its climax in the late 1990s. It was during this period that the importance of political economy in understanding and/or assessing probable impact of policies and programs came to the forefront again. Many development thinkers, even if narrowing down the Marxist political economy approach, stressed on the need of at least examining in priory the likely gainers and losers of any policies and programs proposed.
Against such a background, formulating Poverty Reduction Strategy Papers (PRSP) through, unlike the SAP period, internal stakeholder’s participatory process was prescribed by the multilateral donors. In that, emphasis was given on the need to focus on social development, poverty and governance through, among others, more decentralized developmental approaches and institutional reforms.
The financial crisis of 2008 and subsequent steps taken as a compulsion by the developed and developing countries alike to rescue the economies from the collapse have given some far-reaching policy and/or budgetary implications. The message of the crisis is such that neo-liberalism led bubble type economic course of arbitrarily raising the prices of property and market shares, amidst continued negligence to the stagnated real sector, leading to increasing wealth concentration is bound to generate grave crisis that will need strong state intervention. It also evidently proves that the resilience of those economies, which are driven mainly by hugely expanded internal market,through policies which, among others, strengthen egalitarian social structure and enhance purchasing capacity of the downtrodden, to cope with the crisis stands high.
The predominance of unproductive investment, too much income inequality, deprivation-based poverty at 65 per cent, and deepening economic crisis clearly indicate that in Nepal the premises of neo-liberalism-led allocative efficiency and trickle-down effect have dismally failed. This demands a debate on redefining the role of the state and the market among others. It is an irony that the debate is being dragged in different directions.Today, less than 20 per cent of the budget is allocated to the local level programs. Despite this, if increased resources to the local level programs are advocated, it is termed as distributive. Now the time has come to give highest priority to the production related programs at the grassroots, besides emphasis on market promoting infrastructure development. Similarly, in our highly unjust society, without diversion of more resources to the programs related to social development, food and social security in tandem, not only equity-based but also self-sustainable development is unthinkable. This is deliberately ignored.
The focus must be more prominently on preventing the tendencies that attempt to distribute funds by decree or discretionary means. This will be most devastating with very weak transparency, accountability and monitoring system both at the both central and local levels. This may destroy the fiscal balance and macro-economic stability. Therefore, allocation of resources without proper institutional arrangements cannot be justified in any way, be it related to social justice, resource diversion to the grass roots or private sector encouragement. It backfires sooner than later.
There are increased attempts at by-passing the programs prioritized at the local level, based on participatory processes of various stakeholders. That tendency must be corrected. The reckless funding practices not only create mess for the present, but also create resource drain for the future, making sustainable development a mirage. Therefore, the focus should be on how to institutionalize improved allocation, effective, transparent and accountable system for efficiency in resource use and better outcomes. Simply negation of distributional dimension of budget is an attempt to overlook long term sustainable development amidst prosperity to a few at the cost of misery to the downtrodden.
Source: THT
