Public Sector Reforms in BRICS Countries

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Table of Contents

Introduction
Background Information: BRICS Countries
Public Sector Reforms
Analysis
Conclusion
Reference List

Introduction

When planning public reforms, the government usually wants to accomplish a range of changes in the governance forms of public sector activities. Public reforms signify a push towards regulation or deregulation, centralization or decentralization, privatization or nationalization (Lane, 2011). While the developed countries often pioneer in adopting social sector reforms, less developed nations often mimic them in pursuit of achieving similar results (Lane, 2011).

However, the models of reforms cannot be borrowed entirely as they need to be adapted to accommodate the local peculiarities in less developed countries. The present aims at reviewing public sector reforms in three BRICS countries, including Brazil, India, and Russia. The central goal of the present paper is to critically evaluate public sector reforms in these countries and understand how the ideal models were modified to meet the unique needs of countries.

Background Information: BRICS Countries

BRIC is an acronym for the association between five countries, which are Brazil, Russia, India, China, and South Africa. Even though these five countries are referred to as developing, they are expected to become leading suppliers of manufactured goods, services, and raw materials in the world (Majaski, 2020). Even though these countries are often referred to as a group, they have not established coherent trade unions (Majaski, 2020).

The critique of the organization is that it ignores the finite nature of natural resources, such as fossil fuels, uranium, and metals (Majaski, 2020). However, the economies of the countries continue to grow, and, in 2014, 30% of the global gross domestic product (GDP) was accounted for by BRICS countries (Majaski, 2020). However, economic development is impossible without equitable growth (Smorgunov, 2018). This implies that countries need to adopt public policies based on citizen participation, which will improve their quality of life (Smorgunov, 2018). However, there are no universal public policy models that can be adapted to meet the unique needs of each BRICS country.

Public Sector Reforms

Brazil

Brazil is one of the largest federal states in terms of population and territory. It has homogeneous from linguistic, cultural, and religious viewpoints; however, the country experiences significant disparities in terms of the distribution of land and population among its 27 states (Jha, 2007). Moreover, the distribution of income is also uneven, which leads to the emergence of social problems (Jha, 2007). Brazil has experienced a series of public sector reforms since 1985 when the military dictatorship regime fell, and the country began to move towards a federal presidential republic (Ter-Minassian, 2012). The country enacted a constitution in 1988, which signified a push towards decentralization (Jha, 2007). Since then, the country has become one of the most decentralized federations, which had positive and negative implications.

After decentralization started, it became unclear how the resources of the country should be distributed to address the economic disparities of Brazilian states, which was evident when looking at the public center. Brazil is a regionally uneven country, which implies that some regions are more economically prosperous than others are (Jha, 2007). Decentralization allowed local governments to set public sector policies, which had a mixed effect on society.

On the one hand, decentralization had a negative impact on the economic development of the country since it made resource-rich regions even more prosperous, while other states became more disadvantaged (Jha, 2007). Even though the government is trying to address the problem from different angles, it has failed to achieve any measurable success (Jha, 2007). On the other hand, decentralization helped to develop local education and healthcare facilities, as municipalities are more aware of local needs and could distribute resources adequately (Jha, 2007). Therefore, it can be stated that decentralization was successful only partially.

Brazil had limited success in terms of deregulation due to increased bureaucracy and unstable monitory policies in the country. World Bank Group (2019) puts Brazil only in 109th place out of 190 nations in terms of attractiveness of doing business in the country. Currently, Chile, Colombia, and Peru outperform Brazil, even though their economies are significantly weaker (World Bank Group, 2019). The central problem is that small local business struggle to operate and open, as they need to go through multiple institutions and acquire different certifications (Nino, 2019). Therefore, in August 2019, the government introduced a package of deregulation reforms that aim at helping small businesses (Nino, 2019). However, the measures have met limited success, as it will require time to feel the change.

As for privatization, it can be said that Brazil was successful in the matter, as it managed to maintain a stable privatization discourse since the fall of the dictatorship. In 1985, the country was left with a public sector, which was laggard in performance (Ter-Minassian, 2012). In 1990, President Collor made privatization a central discourse in his policies, allowing private entities to purchase enterprises in mining, electrical, telecommunication, and other sectors (Ter-Minassian, 2012).

As a result, the government generated more than US$73 billion in revenues from selling 52 federal and 28 state enterprises, which allowed the companies to prosper under private management (Ter-Minassian, 2012). The endeavor was successful because several consecutive administrations agreed that privatization was the key to the successful development of the country (Ter-Minassian, 2012). In summary, privatization had a positive impact on the growth of the Brazilian economy.

Russia

Post-Soviet Russia needed to restructure its public sector entirely due to the fall of the authoritative regime in the 1990s. As a result of the disintegration of the Soviet Union, Russia began to rapidly decentralize the public sector to improve its efficiency (Andreeva and Golovanova, 2006). The idea behind decentralization was that local authorities could make budget spending more rational when it comes to the provision of public services because local public authorities are closer to the population (Andreeva and Golovanova, 2006).

However, decentralization reforms were somewhat chaotic during the first decade after the collapse of the Soviet Union, which led to increased corruption and lacked positive outcomes (Andreeva and Golovanova, 2006). However, in the early 2000s, the process stabilized and decentralization began to positively influence the public sector (Andreeva and Golovanova, 2006). In particular, local authorities received more power in terms of distributing revenues, which resulted in improvements in education and healthcare. However, the decentralization trend did not last long in Russia.

After Putin came to power, several consistent steps were made towards the centralization of power. One of the most significant steps to centralization was the reform of 2004, which banned the election of regional governors (Busygina, Filippov, and Taukebaeva, 2018). Instead, they were nominated by the central government, which drew the local power away from the population (Busygina, Filippov, and Taukebaeva, 2018).

Even though the practice of elections of local governors was reintroduced in 2012, the candidates had to be approved by the president (Busygina, Filippov, and Taukebaeva, 2018). As a result, the public sector became mostly dependent on federal financial help, which could be acquired if the governor implemented all the policies promoted by Kremlin (Busygina, Filippov, and Taukebaeva, 2018). Therefore, even though reforms in the public sector were formally initiated by the local government, they were dictated by the cabinet of the President.

Russia also made some attempts to privatization, the majority of which failed. After the collapse of the Soviet Union, the new government of the Russian Federation needed to manage and control the overgrown and inefficient public sector of the Soviet Union (McFaul, 1995). As a result, the government wanted to sell the majority of its assets in the oil industry, banking, and other large-scale industries to private owners to improve their efficiency and decrease their dependency on subsidies (McFaul, 1995). However, the combination of an undisciplined Central Bank and a soft Congress resulted in an explosion of state transfers to ailing enterprise (McFaul, 1995, 235). As a result, enterprise debt increased from 37 billion to 3.2 trillion roubles from January to July 1992 (McFaul, 1995). Therefore, early privatization attempts can be considered a failure as they failed to achieve the goals, and new reforms needed to be introduced.

After Putin came to power, he was somewhat inconsistent with his policies concerning privatization. The overall trend was the increase in emphasis on strategic nationalization in the energy sector (Russia Business Today, 2019). As a result, such companies as Sibneft, TNK-BP, Yukos, Avtovaz, and United Machinery were nationalized (Russia Business Today, 2019). This led to the increased presence of the government in the Russian economy, which was estimated to be 46% in 2016 (Russia Business Today, 2019).

Even though nationalization was made to improve the efficiency of the Russian economy, it also failed to achieve its target as the economy became less flexible and could not integrate efficiently into global business (Russia Business Today, 2019). However, Kremlin made several attempts to privatization after the economic crisis of 2008. In 2009, the Russian Finance Ministry hoped to make 1 trillion roubles (around $15.5 billion) to replenish these diminishing reserves by selling shares of banks as well as oil and transportation companies (Gaaze, 2016). However, the course towards privatization ceased its existence after the Ukrainian crisis in 2014, when Putin banned the selling of stocks abroad and returned to the idea of strategic centralization.

India

Decentralization in India had different incentives in comparison with Brazil and Russia. Since acquiring independence from England, the central goal of the Indian government was to reduce the poverty rate (Johnson, 2003). Indeed, in the 1950s, the poverty rate was almost 50% and reached 65% in the 1970s (Datt, Ravallion, and Murgai, 2016). If implemented carefully, decentralization leads to increased efficiency of the public sector, which is expected to improve financial performance and decrease poverty (Johnson, 2003). Therefore, the Indian government made several crucial steps to provide local authorities with enough power to address the needs of citizens.

In 1957, Balwantrai Mehta Commission started the reformation process by establishing the Panchayat structure at district and block (Samithi) levels (Johnson, 2003). However, the early Panchyati Raj system was non-productive, as local authorities became another bureaucratic institution that implemented the policy dictated by the centralized government (Sheikh, 2014). There were several attempts to reform the structure until 1990, which all failed when considering large-scale results (Johnson, 2003). However, in the early 1990s, India started a reform that improved the situation considerably.

In 1993, the 73^rd Amendment was introduced into the Indian constitution, which provided village, block and district level bodies a constitutional status under Indian law (Johnson, 2003, p. 17). The reform introduced three tiers of Panchayati Raj institutions with elected bodies at the village, block, and district levels (Johnson, 2003). The representatives were elected for five years, and three-thirds of the places were reserved for women (Johnson, 2003).

These institutions are monitored by the state financial commission, which assesses their efficiency and effectiveness (Johnson, 2003). The results of the introduction of the Amendment were outstanding, as the decentralization gained momentum. The World Bank rates India among the top performers in the world in terms of decentralization (Sheikh, 2014). The reformation had a positive impact on the public sector, as it became more motivated and accountable for the results (Johnson, 2003). In summary, it can be stated that Indias decentralization attempts can be considered a success.

India had less success with privatization in comparison with decentralization. According to Gupta (2001), the government of India did not support the full privatization of the public sector and allowed selling only minor shares of enterprises. The process had little impact on corporate behavior, and the efficiency of the public sector did not see a rise (Gupta, 2001). India introduced a privatization policy in 1991, and since then the process was slow with an average of 16 percent of the equity in 44 of 258 centrally-owned firms sold in the ten years (Gupta, 2001, p. 2). However, even partial privatization had a positive impact on the performance of the companies that are partially privately owned (Gupta, 2001).

The changes in performance attributed to improved management, as the companies had to bear responsibility before their private owners (Gupta, 2001). Stock trade also had a positive impact on the financial performance of the public sector (Gupta, 2001). However, the reforms stay unfinished and greater privatization seems to be needed for India to integrate into the global economy.

The recent news show that privatization may be revitalized in India due to the attempts of Prime Minister Modi. In 2019, Mr. Modi announced that four large government-controlled enterprises would be put on sale in the nearest future (Aiyar, 2019). The companies include Bharat Petroleum, the Container Corporation of India, the Shipping Corporation of India, and Air India (Aiyar, 2019).

Such announcements were made after a confident victory of Mr. Modi in the election in 2019, which left the opposition disorganized and devastated (Aiyar, 2019). Changes towards democratization are expected to improve the performance of the public sector and the financial well-being of the country (Gupta, 2001). In particular, the revenues from selling the shares were expected to close the budget deficit of 4 percent (Aiyar, 2019). With a course to privatization, India will make it more attractive for the investors and invite international actors to participate in the Indian economy, which will help its revitalization.

Analysis

Decentralization

In terms of decentralization, the three countries had different successes. The most successful was India as it arrived at the most balanced solution among the three countries under analysis. The central reason for the favorable outcome was that India was able to address the regional peculiarities and adapt the models that were implemented in western countries to meet the needs of Indian citizens. The 73^rd Amendment ensured that women could participate in the creation of policies, which is vital for India due to the high level of gender discrimination. At the same time, the reformation process created the State Election Commission, which ensured that all elections were democratic (Johnson, 2001).

This was crucial as local candidates had to ensure the support of the poor, which meant that addressing the needs of the financially disadvantaged population became the key to winning the elections. Thus, decentralization addressed the problem of poverty as the poverty rate went down from a shocking 65% in the 1970s to 17% in the 2010s (Datt, Ravallion, and Murgai, 2016). At the same time, the reform ensured that economically disadvantaged regions received financial help from the central government (Johnson, 2001). This is also vital, as India is a diverse country with varying economic prosperity levels in different areas.

Disparities in terms of the distribution of financial wealth were the central issue for all the three countries under analysis. While India succeeded in finding a balance between decentralization and financial support to economically disadvantaged regions, Russia decided to return to centralization. The central reason for that is the will of President Putin and the current government to hold to its position. Giving more power to local authorities could threaten the security of United Russia as the governing party (Russia Business Today, 2019). At the same time, Russia is known to be the largest country in terms of land, which implies that the central governing body is geographically distant from some of the regions. Therefore, the reforms did address local peculiarities and were unsuccessful for the public sector.

Even though Russian reformations were unsuccessful, the resources are evenly distributed inside the country, which is a positive outcome, as the economically disadvantaged regions do not suffer from the lack of help from the central government. This allows slow but stable development of the economy and the public sector. The situation is significantly worse in Brazil, where the public sector suffers from an unequal distribution of resources.

As mentioned in the overview of the country, Brazil is one of the most decentralized countries in the world. Decartelisation can be a positive development only if all the elements of the society actively participate in political life, the central government provides fiscal and political support, and the country has competitive political parties (Johnson, 2001). However, none of the mentioned above is present in Brazil, which implies that rapid decentralization was not the correct path for the country. At the same time, it is worth noticing that India has been working on decentralization since the 1950s, while Russia and Brazil had significantly less time to adapt decentralization strategies to meet the local needs.

Privatization

Brazil was the leader in terms of privatization among the three countries under analysis. The country realized its need to integrate into the global economy, which would help it to improve the efficiency of the public sector. As a result, Brazil attracted international investors to help the economy survive through times of reconstruction. Russia had less success due to inconsistencies in policies concerning privatization. However, such inconsistencies were due to the initial failure to structure the privatization process. Therefore, it can be said that the reformation in the public sector addressed local peculiarities of the country, as President Putin needed to mitigate the negative impact of the first wave of privatization that led to unfavorable outcomes in the late 1990s.

At the same time, Indias policies were inconsistent with the characteristics of Indias economy. According to Majaski (2020), India aims at becoming the world leader in the provision of services due to cheap labor. The massive public sector does not support the rapid development of the service sector, as it depends on infrastructure and transportation. Therefore, recent reforms introduced by Mr. Modi can be seen as potentially beneficial for the development of the Indian economy. However, the results will be seen only when time passes. Until 2019, India failed to grasp the opportunity to improve the performance of the public sector by selling the shares to private entities.

Conclusion

Every country needs to introduce public sector reforms to improve the efficiency and performance of the economy. Emerging economies, such as BRICS countries, often try to mimic the models of their more developed partners. However, the success of reforms largely depends on how well the processes are adapted to local peculiarities. The analysis of three countries, including Brazil, Russia, and India, demonstrates how well can countries adopt public sector reforms.

The ability to adapt the borrowed models requires time and commitment, as unstructured reforms can damage the economic and political structure of countries, as in the case with Russia that managed to survive through uncertainties only due to high oil prices. In conclusion, all three countries under analysis had limited success in public sector reforms, and further steps are required for the development of their economies.

Reference List

Aiyar, S. (2019) A burst of privatisation looks imminent in India. The Financial Times. Web.

Andreeva, E. and Golovanova, N. (2006) Decentralization in the Russian Federation. CAEI Working Papers 19.

Busygina, I., Filippov, M. and Taukebaeva, E. (2018) To decentralize or to continue on the centralization track: The cases of authoritarian regimes in Russia and Kazakhstan. Journal of Eurasian Studies, 9(1), pp.61-71.

Datt, G., Ravallion, M., and Murgai, R. (2016) Poverty reduction in India: Revisiting past debates with 60 years of data. VOX. Web.

Gaaze, K. (2016) How the battle for Russian privatization was fought and lost. The Moscow Times. Web.

Gupta, N. (2001) Partial privatization and firm performance: Evidence from India. Web.

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Nino, J. (2019) Brazils senate approves deregulation measures. Advocates for Self-Government. Web.

Russia Business Today (2019) Putins nationalization to strengthen state role in Russian economy, analysts say.. Web.

Sheikh, Y. A. (2014) Democratic decentralisation in India: An overview. International Journal of Social Science & Interdisciplinary Research, 3(7), pp. 196-203.

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Ter-Minassian, T. (2012) Structural reforms in Brazil: Progress and unfinished agenda. Web.

Timoshenko, K. (2008) Russian public sector reform: the impact on university accounting. Journal of Business Economics and Management, 9(2), pp. 133-144.

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