A faulty incentive system

It is argued that the public service attracts too many incompetents and people with less than noble intentions because government salaries do not amply reward excellence and professionalism. As they say, if you pay peanuts, you’ll get monkeys. Look at our neighbors Singapore and Malaysia, for example.  Government employees and officials there earn salaries competitive with or even better than those in the private sector. Not surprisingly, the quality of the civil service is high, and corruption in the bureaucracy is not among their most prominent problem. Notice, by the way, how one would not easily find Singaporean or Malaysian bureaucrats in international agencies like in various UN bodies or World Bank. But dining in the cafeterias in these organizations’ offices abroad would make any Filipino feel right at home, with our language dominating the chatter all around. For obvious reasons, such institutions have been prime employment targets for our government people at all levels.

Sadly, our government has traditionally been a place where crime does pay. The raging pork barrel scandal is said to be only the tip of the iceberg. The culture of corruption has been so deeply rooted that clean and honest officials out to change the system often end up being the casualties—or eventually get corrupted themselves.  Our political and electoral system, where it seems the only way to get into elective office is to “invest” huge amounts of money in one’s campaign, breeds behavior geared toward recovering the large investment made. I have heard too many people in government, whether elected or appointed, rationalize their errant behavior with a flippant  “What are we in power for?” Ours is a system wherein integrity, excellence and professionalism don’t get amply recognized, much less rewarded. But one reaps handsome rewards if he is prepared to engage in opportunism and outright dishonesty.

It is not just in the public sector where the incentive system is flawed.  In business, many tend to operate in a culture of rent seeking, rather than one of competition and innovation. Rather than invest in improved efficiency and productivity, too many businessmen find it easier to spend money to lobby or bribe public officials and policymakers into providing them opportunities for making large, unearned profits. These opportunities could come in various forms: award of government contracts, a policy environment that eliminates competition (e.g., via high protective tariffs or import restrictions), or lax implementation of rules and standards that let firms get away with cutting costs at the expense of the welfare and safety of the general consumer.

How do we transform the whole incentive system to one that promotes honesty, integrity, creativity and excellence, rather than one that breeds corruption, incompetence, and inefficiency? A crucial underlying principle is competition, and not just in the context of the private enterprise sector. In government, there are various ways of applying this principle. First, government salaries could be made competitive with those outside of government, from the top officials down to the lowest rank and file. There has been some progress on this. As of 2008, the Civil Service Commission observed that government salaries at the lowest level already exceeded those of their private sector counterparts by around 20 percent. But public sector salaries at the middle and top levels were still 30 and 70 percent lower than private sector counterparts, respectively. Closer alignment must continue being the ultimate goal, but we must also find a way to rid the bureaucracy of misfits who don’t deserve to be rewarded with increased pay.

Another way is to organize work in the bureaucracy so that employees are led to compete, rather than collude. A Nobel Prize economist had long advanced the notion that front-line services, as in the issuance of certain clearances or licenses, must be done in a parallel rather than series arrangement. In the latter, which is typical of our government offices, every transaction goes through a series of employees, each one responsible for a step in a single process track. But there is merit in having each of them take charge of all (or most) steps of the required transaction in a parallel arrangement of several alternative (and competing) tracks. It wouldn’t take long for both their supervisors and the public to see who among those employees are less efficient, thus slower, than the others. With appropriate sanctions and rewards, efficiency is bound to improve. Furthermore, a true merit-based incentive bonus system must replace the common practice of giving “incentive allowances” across the board, making the name a misnomer.

In the private sector, economic reforms in the 1990s were mostly geared toward heightened competition by eliminating monopolies and cartels in key sectors (such as telecoms, shipping, domestic airlines, etc.) and liberalizing trade and investment.  The positive results, especially in terms of improved service and lower prices, have since been quite evident. There have long been calls for legislation for a comprehensive competition policy to unify all policy measures in this direction, as there remain many more sectors and industries in need of more active competition.

Finally, excellence and superior quality need to be prominently recognized and rewarded, whether in the public or private sector. The Lingkod Bayan Award in government, and the Philippine Quality Awards and Golden Shell Awards in the private sector are examples that have served this purpose.  We need more of such.

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