Having looked at one example of rent seeking, in an unusual format, in the field of education, I came across another that was also quite illuminating about the way in which we allow ourselves to be exploited. This, also startling, case of abuse came to my notice when I went through the documents sent by the National Lotteries Board, after they had been examined by the Committee on Public Enterprises, and been found wanting.
What I read seemed to suggest appalling waste, and I hope very much that COPE will include strong strictures in its Report and recommend strongly that better systems be put in place. Though the aberrations that came to my notice had occurred a decade ago, and I don’t suppose there is any way in which the money wasted by government can be recovered, there are lessons to be learnt.
In particular it seems clear that there should be measures to ensure more careful assessments by Cabinet or any Committee it appoints about proposals made in Cabinet papers. As far as I can make out, what happened then was that the Minister of Economic Reform, Science and Technology had a discussion with ‘Norwegian Authorities’, who were not specified, and then put a paper to Cabinet to ‘set up a scholarship fund to provide scholarships to needy students in the country through an innovative lottery project’. Why the Minister of Economic Reform, Science and Technology should have been concerned with lotteries or with scholarship funds is not clear, but it seems that the question did not occur to Cabinet. Perhaps the word Norwegian was seen then as a sign sent from God, or the Prime Minister, so the Cabinet then approved setting up a Committee to ‘negotiate suitable terms & conditions with NORSE TIPPING Norwegian Lottery and make suitable recommendations’.
The President seems to have had a different view, and made some shrewd observations about the whole business, but still said she had no objection to the composition of the Negotiating Committee nor, in principle, to setting up an on-line lottery. I thought in her defence that she was probably under so much pressure at the time that she did not want to seem a stumbling block on what might have been thought a comparatively minor matter. But I fear that she was also affected by the general culture of not rocking the boat, and felt one should not interfere with the proposals of other individuals, even when they dealt with matters that were not within their purview.
The Committee, which was chaired by a Public Servant I have always thought a capable and decent man, made a report which recommended favourably the deal suggested by the Minister. In that report it was taken for granted that the rate of return on the investment would be 30.75%. There were no arguments to substantiate this, and perhaps it was simply assumed to be the case since the Norwegian consultants who had initiated the project said it was. A later report, which is not dated, but seems to have been written when the project had begun to run into trouble, notes that no feasibility study was undertaken to ascertain social impact, impact on other lotteries or ‘impact on dependent on other lotteries’ (whatever that means). The report notes that ‘the prices of the ticket at Rs 10 is three times higher than other lotteries’ but there is no sign that a market survey was undertaken before any contract was signed to see if sales would be satisfactory and the investment likely to be profitable.
Needless to say, the investment collapsed, aided perhaps by the fact that some equipment for the lottery lay in the harbor for some time because the Telecom Regulatory Authority had not issued a licence. Demurrage was paid on this. In addition there were disputes with the Inland Revenue since, though the Cabinet Paper approving the project had noted that the net earnings of the Lottery were to be exempt from all taxes, evidently the Inland Revenue Department was not been informed.
By 2006, when it was decided that the Online Lottery Company should be liquidated, it had made just over Rs 7 million over 8 months, whereas its fixed overheads were around Rs 2 million a month. Amongst the costs were payments for five cars, including four Mitsubishi Lancers, which had been leased since February 2004.
In 2009 the Cabinet was asked to approve writing off the lost, which amounted to Rs 982 million. Assets worth Rs 213 million had been disposed of, but only Rs 36 million had been received for these. The paper noted that Online Lotteries were more suited to countries which had greater knowledge of Information Technology, but this had not been taken into account when Cabinet approved the project.
I am strongly of the view that misjudgments – or abuses – of this sort should be publicized further and mechanisms put in place to ensure that official committees have clear terms of reference and that Cabinet establishes guidelines according to which sudden proposals of this sort are examined. But in addition there should be mechanisms to penalize both politicians who advance such proposals without proper care, and officials who recommend them without proper study.
One of the problems that both these elements face is the habit of relying on the other. Ministers can claim that it is up to officials to check on details and provide comprehensive reports with well argued recommendations. Officials on the other hand claim that they have to fall in line with what Ministers want, and for them to produce reports that give a contrary view would be dangerous.
Both these arguments are specious. Officials should realize that, if they function with the transparency that the public deserves, they will be safe from undue pressures. And Ministers must realize that it is up to them to read the reports officials produce and reject them if they are inadequate.