Thirsty Cities: Social Contracts and Public Goods Provision in China and India 1108427820, 9781108427821

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Thirsty Cities

Why does authoritarian China provide a higher level of public goods than democratic India? Studies based on regime type have shown that the level of public goods provision is higher in democratic systems than in authoritarian forms of government. However, the provision of public goods in China and India contradicts these findings. Whether in terms of access to education, healthcare, public transportation, and basic necessities, such as drinking water and electricity, China does consistently better than India. This book argues that regime type does not determine public goods outcomes. Using empirical evidence from the Chinese and Indian municipal water sectors, the study explains and demonstrates how a social contract, an informal institution, influences formal institutional design, which in turn accounts for the variations in public goods provision. selina ho is Assistant Professor of International Affairs at the Lee Kuan Yew School of Public Policy, National University of Singapore. She researches and teaches Chinese politics and foreign policy, and the international relations of Asia. She has published several peer-reviewed journal articles and book chapters on China’s relations with its neighbors in South, Southeast, and Central Asia on the politics of water and infrastructure development. Selina completed her doctorate at Johns Hopkins University, Paul H. Nitze School of International Studies (SAIS), where she also received a Master in International Public Policy (Honors). She was appointed a Global Futures Council Fellow (Regional Governance) with the World Economic Forum.

Thirsty Cities Social Contracts and Public Goods Provision in China and India

selina ho National University of Singapore

University Printing House, Cambridge CB2 8BS, United Kingdom One Liberty Plaza, 20th Floor, New York, NY 10006, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia 314–321, 3rd Floor, Plot 3, Splendor Forum, Jasola District Centre, New Delhi – 110025, India 79 Anson Road, #06–04/06, Singapore 079906 Cambridge University Press is part of the University of Cambridge. It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence. www.cambridge.org Information on this title: www.cambridge.org/9781108427821 DOI: 10.1017/9781108580373 © Selina Ho 2019 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2019 Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A. A catalogue record for this publication is available from the British Library. ISBN 978-1-108-42782-1 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

To my parents, Ho Seow Hwi and Lim Hui Meng

Contents

List of Figures

page viii

List of Tables

ix

List of Abbreviations

x

Acknowledgments 1

Public Goods Provision in China and India Part I

2

Social Contracts

xiii 1 29

Social Contracts, Institutional Design, and Public Goods Provision

31

3

The Chinese Social Contract

60

4

The Indian Social Contract

92

5 6 7

8

Part II Comparing Urban Water Management in China and India

119

Comparing China’s and India’s Water Institutional Frameworks

121

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing

159

Water Constraints in India’s Megacities: New Delhi and Hyderabad

198

Conclusion: Types of Social Contracts and Can Social Contracts Change?

235

References

260

Index

284

vii

List of Figures

1.1 China’s and India’s Human Development Index, 1980–2013 2.1 Conceptual Framework of Social Contract and Public Goods Provision 3.1 China’s Social Contract and Public Goods Provision 3.2 Total Investments in the Production and Supply of Water (2013) 4.1 India’s Social Contract and Public Goods Provision 5.1 Administrative Structure of China’s Water Management System 5.2 Legal Framework for Water Management 6.1 Proportion of Water Loss

viii

page 2 43 79 87 108 125 131 166

List of Tables

1.1 Water Service Level Benchmarks (SLBs) in Indian Cities, 2009 and 2011 1.2 Performance of China’s Urban Water Sector 5.1 Functions of Government Agencies Involved in Water Management 5.2 Selected Laws and Regulations on Water Pricing in China 5.3 Selected Market Opening Policies for Public Utilities 5.4 Division of Responsibility among Central, State, and Local Governments 5.5 Central Government Institutions in the Water Supply and Sanitation Sector 5.6 Administrative Fragmentation of Water Management 5.7 Varieties of Institutional Arrangements in the Urban WSS Sector 6.1 Shenzhen Municipal Government’s Investment in Water Infrastructures (RMB 10,000) 6.2 Selected Water Policies and Regulations in Shenzhen 6.3 Beijing’s Per Capita Water Resources (in cubic meters), 2006–2014 6.4 Residential Water Price in Beijing, 1995–2012 (RMB per cubic meter) 6.5 Beijing Municipal Government Investment in Drinking Water Infrastructure

page 5 6 126 134 140 143 144 146 147 175 178 183 189 191

ix

List of Abbreviations

74th CAA AAP ADB BDRC BJP BOOT BOT BWA BWWG CCF CCP CEO CPHEEO CPSU DDA DJB DRC DVB DW&PS FYP GDP GHMC HDI HMDA HMWSSB IAS IBT x

74th Amendment Act of the Constitution Aam Aadmi Party Asian Development Bank Beijing Development and Reform Commission Bharatiya Janata Party Build–Own–Operate–Transfer Build–Operate–Transfer Beijing Water Authority Beijing Water Works Group City Challenge Fund Chinese Communist Party Chief Executive Officer Central Public Health and Environmental Engineering Organization Communist Party of the Soviet Union Delhi Development Authority Delhi Jal Board Development and Reform Commission Delhi Vidyut Dow Water and Process Solutions Five-Year Plan Gross Domestic Product Greater Hyderabad Municipal Corporation Human Development Index Hyderabad Metropolitan Development Authority Hyderabad Metropolitan Water Supply and Sewerage Board Indian Administrative Service Increasing Block Tariff

List of Abbreviations

JnNURM MLA MC MCC MCD MCH MEP MGD MNC MOEP MOHURD MoUD MOWR MSA NCRPB NCTD NDRC NGO O&M PAP PFDS PHED PPP PRC PUB PwC RWA SAIC SEZ SME SMU SOE SWC SZDRC

Jawaharlal Nehru National Urban Renewal Mission Member of the Legislative Assembly Municipal Corporation Metro Customer Care Municipal Corporation of Delhi Municipal Corporation of Hyderabad Ministry of Electric Power Million Gallons of Water per Day Multinational Corporation Ministry of Environmental Protection Ministry of Housing and Urban-Rural Development Ministry of Urban Development Ministry of Water Resources Metropolitan-Level Specialist Agency National Capital Region Planning Board National Capital Territory of Delhi National Development and Reform Commission Nongovernmental Organization Operation and Maintenance People’s Action Party Pooled Finance Development Scheme Public Health Engineering Department Public–Private Partnership People’s Republic of China Public Utilities Board, Singapore Pricewaterhouse Coopers Residents’ Welfare Association Shenzhen SEZ Administration for Industry and Commerce Special Economic Zone Small- and Medium-Sized Enterprise Specialist Municipal Undertaking State-Owned Enterprise Single Window Cell Shenzhen Development and Reform Commission

xi

xii

SZPB SZREC SZSASAC SZWAB SZWG TDP UDN ULB UMCT UNDP UNICEF URIF WA WHO WRB WWA

List of Abbreviations

Shenzhen Price Bureau Shenzhen Residential Environmental Committee Shenzhen State-Owned Assets Supervision and Administration Commission Shenzhen Municipal Water Affairs Bureau Shenzhen Water Group Telugu Desam Party União Democrática Nacional Urban Local Body Urban Maintenance and Construction Tax United Nations Development Program United Nations Children’s Fund Urban Reform Incentive Fund Water Authority World Health Organization Water Resource Bureau Water Workers Alliance

Acknowledgments

This book combines two lifelong fascinations: China, the land of my forefathers, and water, a valuable commodity for Singaporeans. India is a newer interest but no less fascinating for its deep contrasts and vibrancy, a natural puzzle for scholars and researchers. For the completion of this book, I am grateful to many. In these short paragraphs, I acknowledge those who helped me in this project from its gestation to its completion. To those I inadvertently missed – my sincere thanks and apologies. I owe an intellectual debt to my teachers: David M. Lampton, Francis Fukuyama, Bo Kong, Jennifer Turner, Carla Freeman, and Pieter Bottelier. Their patient guidance, helpful suggestions and criticisms, and most importantly, the intellectual space they gave me to pursue my interests, were significant in laying the foundations for this book. Mike is my mentor and role model who has given me invaluable professional advice that I now pass on to my students. His integrity and deep knowledge of China – based on years of field work – set the standards I constantly strive to achieve. I credit Frank, teacher and friend, for the research question in this book, which is based on a suggestion he made during my dissertation defense. He gave me my intellectual grounding in comparative politics, and his work on institutions and development continues to inspire me. Over a meal, Bo planted in my mind the idea of water as a possible dissertation topic. Jennifer and Carla, experts on China and water, showed me the ropes in the water world. Pieter brought a practitioner’s view to my research. I also remember my undergraduate professors at the National University of Singapore. My honors thesis supervisor, Ng Chin Keong, a scholar of Chinese economic and social history, shaped my interest in Chinese political economy and society. I am also grateful for the scholarship and grants I received from Johns Hopkins University, Paul H. Nitze School of Advanced International Studies (SAIS). The librarians at SAIS were phenomenal. xiii

xiv

Acknowledgments

Linda Carlson, who is now retired, deserves special mention for going out of her way for me. SAIS was my home for five years – I love its nooks and crannies, the vibrant mix of scholars and policymakers, the memorable lectures when I get to sit at the feet of giants, and the Friday happy hours. My time as a postdoctoral fellow at New York University Shanghai, with Jeffrey Lehman and Joanna Waley-Cohen, contributed to the evolution of this book. Teaching a class on the Great Books led to a deeper appreciation for the works of Rousseau, Locke, and Hobbes, as well as Confucius and Gandhi. Joanna introduced me to Tansen Sen, who took me under his wings and indirectly paved the way for my return to Singapore. During my time in Shanghai, I was part of a large Hopkins community that regularly held forums on China, with both local speakers and those from abroad. I am thankful for the friendships as well as the firsthand knowledge I gained of the informal intellectual environment in Shanghai. My colleagues at the National University of Singapore supported me during the completion of the manuscript. My field work in India was funded by the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy. Former Dean Kishore Mahbubani was an advocate for my work on comparative studies of China and India, and China–India relations. Kanti Bajpai, Khong Yuen Foong, and Dean Danny Quah are my mentors at the school; we share cake and prosecco as well as intellectual debates. I consulted Kanti extensively on India. They, together with Asit Biswas, Cecilia Tortajada, Eduardo Araral, Olivia Jensen, and Bob Wasson, provided useful feedback during the presentations I made on my book. I thank Terence Lee for his friendship, and for generously sharing his time and insights that helped sharpened my theoretical argument. A team of research associates assisted my research: Jing Bo-jiun, Varigonda Kesava Chandra, and Toh Wei Zheng. I wish them the best as they pursue doctoral studies and other endeavors. Other colleagues who may not have directly contributed to my book are nevertheless a source of cheer when we commiserate over coffee, martinis, and durians. I am greatly indebted to the experts and officials in China and India who generously took time out from their busy schedules and granted me interviews for my case studies. I thank friends and colleagues who helped arrange these meetings or pointed me to the right people to meet. I am grateful to Peking University and the Hopkins-Nanjing

Acknowledgments

xv

Center in Nanjing University for hosting me when I was a doctoral student doing field work. Special thanks also to the publishing committee of Cambridge University Press, the anonymous reviewers of this book, and my editor, Joe Ng, for his advice and guidance. Vicki Low is an indexer par excellence. The friends I made during graduate school have greatly enriched and nourished me. The fun, laughter, and tears are unforgettable – Susana Moreira, Tabitha Mallory, Amanda Kerrigan, Constantino Xavier, Khalid Nadiri, David Bulman, Anit Mukherjee, Kuik Cheng-Chwee, David Song, Andrea Kwong, Sandy Yu, Jane Kim, Momoko Sato, Loo Ping Ping, Toh Hui Min, Zhu Dan, Chu Yibin, Alex Lok, Jacky Ly, Lim Lee, Nat Kretchun, and many others whom I do not have the space here to name. The ties that bind us transcend time, space, and distance, and I am lucky to be able to see most of them ever so often. My family keeps me grounded on the important things in life. I dedicate this book to my parents, Seow Hwi and Hui Meng, for their unconditional love and sacrifices. My siblings – Sharon, Serene, and Edmund – are my pillars and my teammates, working together to raise children and care for elderly parents. In completing this book and in this journey called life, I am privileged to be able to stand on “The Rock that is higher than I,” my refuge and my strength.

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Public Goods Provision in China and India

Nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst: and the case of land and water, where there is enough of both, is perfectly the same. John Locke, Two Treatises of Government (1689)

All governments need to provide for their people in order to stay in power. But why do some governments produce a higher level of public goods and services than others? Under what conditions do governments provide a high level of public goods? Studies have attributed the variation in public goods provision to regime type. Most of these studies show that democratic systems perform better than authoritarian ones in producing public goods. They explain that democracies produce more public goods because democratic political processes aggregate citizen preferences whereas authoritarian governments need only cater to the small group in power. According to Amartya Sen, the nature of political systems determines the incentives and interests of governments in formulating and implementing public policies. He reasons that democratic leaders have stronger incentives than authoritarian rulers to put in place public goods, such as disaster-prevention measures, because democratic leaders have to win elections and deal with public criticisms.1 As a result, “It is not surprising that no famine has ever taken place in the history of the world in a functioning democracy – be it economically rich . . . or relatively poor . . .”2 Comparing China and India, Sen points out that India has not suffered famine since independence in 1946 while China has undergone periods of 1

2

Amartya Sen, Development as Freedom (Oxford: Oxford University Press, 1999), p. 16. Ibid.

1

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Public Goods Provision in China and India

0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 1980

1990

2000

2005 China

2008

2010

2011

2012

2013

India

Figure 1.1 China’s and India’s Human Development Index, 1980–20133

massive starvation and deaths since 1949, in particular during the Great Leap Forward from 1958 to 1961.4 However, contrary to the predictions of theories based on regime type, authoritarian China produces a higher level of public goods than India, the largest democracy in the world. The empirical evidence indicates that Chinese citizens enjoy a significantly higher level of government services than Indian citizens. According to the United Nations Development Program (UNDP), China’s Human Development Index (HDI) in 2014 was 0.719 while India’s was 0.586, ranking 91 (categorized as high HDI) and 135 (medium HDI), respectively.5 From 1980 to 2013, China’s ranking on the HDI jumped ten places, while India’s only moved up one place. Figure 1.1 traces China’s and India’s HDI from 1980 to 2013. It shows that China’s HDI has been consistently higher than India’s, and the gap between them has grown substantially, even though they were almost at the same level in 1980. 3

4 5

United Nations Development Programme (UNDP), “The 2014 Human Development Reports: China”; UNDP, “The 2014 Human Development Reports: India,” available from http://hdr.undp.org/en/data# (accessed May 23, 2015). The HDI comprises the following components: life expectancy at birth; mean years of schooling; expected years of schooling; and gross national income per capita. Sen, Development, p. 16. UNDP, “2014 Human Development Reports: China” and “2014 Human Development Reports: India.”

Public Goods Provision in China and India

3

Across a series of measures of well-being, such as health and education, China consistently performs better than India.6 In terms of the health index, measured as life expectancy at birth, China stands at 75.33 years while India stands at 66.41 years. Total expenditure in health [as a percentage of gross domestic product (GDP)] steadily increased in China from 4.6 percent in 2000 to 5.2 percent in 2011.7 The reverse has happened in India – total expenditure in health (as a percentage of GDP) decreased from 4.3 percent in 2000 to 3.9 percent in 2011.8 In terms of the education index, which measures mean years of schooling, China stands at 7.54 years while India stands at 4.43 years. The adult literacy rate in 2012, measured as percentage of the population aged 15 years and older, was 95.1 percent and 62.8 percent in China and India, respectively.9 This broad comparison between China and India10 does not in any way suggest that China is a redistributive state or a welfare state in the Northern European sense. Inadequate social services and large inequalities continue to be serious challenges for the Chinese state. Rather, the question is why does authoritarian China produce relatively more public goods than democratic India?

The Empirical Puzzle This study examines one aspect of public goods provision – the supply of drinking water to urban residents. Why do most Chinese urban residents have uninterrupted access to drinking water while only a little more than half of Indian urban residents have access to two to three hours of piped water supply per day? Data from the United Nations Children’s Fund (UNICEF) and World Health Organization (WHO) show that total improved drinking water sources in urban areas are similar for both China and India: 6 7 8 9 10

Ibid. Ibid. Ibid. Ibid. The data in this section broadly compare China’s and India’s public goods provision on a national level. There are of course regional, provincial, and statelevel differences. For work on subnational differences, see, for example, Prerna Singh, How Solidarity Works for Welfare: Subnationalism and Social Development in India (New York: Cambridge University Press, 2015). Singh’s study provides a cross-national level analysis of welfare provision across India.

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Public Goods Provision in China and India

access of population to improved drinking water sources in urban areas is 98 percent and 97 percent in 2012 for China and India, respectively.11 However, there is a marked difference in terms of access to improved piped water. In China, the proportion of the urban population with access to improved piped water was 95 percent, while in India, only 51 percent of the urban population had access to improved piped water.12 India’s urban population does not have continuous access to piped water (Table 1.1). In 2011, urban residents in India had access to piped water for only two hours per day. Coverage of water supply connections is only 66.6 percent and 53.5 percent in 2009 and 2011, respectively. According to the World Bank, “No Indian piped water supply serving either megacities or smaller towns distributes water more than a few hours per day; this occurs regardless of the quantity of water available for distribution.”13 As a result of these deficiencies, Indian urban residents resort to private solutions to their water problems, such as installing water storage units at home, buying water from water tankers, and drilling borewells. By every performance indicator in Table 1.1, it is clear that India has been performing below the service benchmark set by the Indian Ministry of Urban Development. The high proportion of nonrevenue water, 44.1 percent and 30 percent in 2009 and 2011, respectively, is the result of physical losses, commercial/apparent losses, unbilled consumption, and unauthorized consumption.14 What is even more significant is that the performance of India’s urban water sector has deteriorated from 2009 to 2011; of the eight indicators in Table 1.1, India’s performance has slid across seven categories. China performs better than India in the urban water sector. Water coverage in urban areas is nearly 98 percent while the national average of proportion of water loss is relatively low at 13.09 percent (Table 1.2). Water production, water metering, and payment collection rate are relatively high. According to a citizen satisfaction survey, the 11

12

13

14

United Nations Children’s Fund, “Water and Sanitation,” available from http:// data.unicef.org/topic/water-and-sanitation/drinking-water/ (accessed May 23, 2015). Ibid. This means that in India there are substantial portions of the population that are dependent on borewells and tankers for their water supply. The World Bank, India: Water Supply and Sanitation – Bridging the Gap between Infrastructure and Service (Washington, DC: The World Bank, 2006), p. 15. Ibid., p. 18.

Public Goods Provision in China and India

5

Table 1.1 Water Service Level Benchmarks (SLBs) in Indian Cities, 2009 a and 2011b

Performance Indicator Coverage of water supply connections Per capita supply of water

2009 2011 Government of India (GOI) SLBsc Actual SLBs Actual SLBs 100%

66.6%

53.3%

135 liters/capitaday

70.0 liters/ capita-day 2.0 hours per day Not available 20.0%

Continuity of water supply

24 hours per day

Quality of water supplied Extent of metering of water connections Extent of nonrevenue water Cost-recovery in water supply services Efficiency in collection of water supply related charges

100% 100%

126.4 liters/ capitaday 3.3 hours per day 67.2% 49.8%

20% 100%

44.1% 67.2%

30.0% 33.0%

90%

78.8%

65.0%

a

Survey of service benchmarks conducted by the Ministry of Urban Development in 2009 from 28 cities, spread across 14 states and different city sizes. Arslan Aziz and Saloni Ketan Shah, Public Private Partnerships in Urban Water Supply: Potential and Strategies (Athena Infonomics, May 2012), available from https://assets .publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 186992/PublicPrivatePartnershipsUrbanWaterSupply.pdf (accessed May 16, 2016), p. 13. b Data reported in March 2011 by 1,493 cities across 14 states. The World Bank, India: Improving Urban Water Supply and Sanitation Services – Lessons from Business Plans for Maharashtra, Rajasthan, Haryana and International Good Practices (Washington, DC: The World Bank, 2012), p. 51; The World Bank, Running Water in India’s Cities: A Review of Five Recent Public-Private Partnership Initiatives (Washington, DC: The World Bank, 2014), pp. 6–7. c These SLBs were introduced in 2008 by the Ministry of Urban Development followed by a mandatory requirement by the 13th Finance Commission that current performance levels and annual improvement targets were to be reported by different categories of cities in order to access performance grants from the Finance Commission.

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Table 1.2 Performance of China’s Urban Water Sectora Performance Indicators

Current Performanceb

Water coverage in urban areas Water production (liters per capita per day)c Total urban water supply (cubic meters)

97.6% (2014) 344.3 liters/capita-day (2014) 54.67 billion cubic meters (2014) 173.7 liters/capita-day (2014) 13.09% (2014) 90% (2004)

Water consumption (liters per capita per day) Proportion of water lossd Water metering (% of connected population metered) Payment collection rate (%)

85% (2004)

a

Data from PRC Ministry of Housing and Urban-Rural Development, China UrbanRural Construction Statistical Yearbook 2014 (Beijing: China Statistics Press, 2015); Greg J. Browder, Shiqing Xie, Yoonhee Kim, Lixin Gu, Mingyuan Fan, and David Ehrhardt, Stepping Up: Improving the Performance of China’s Urban Water Utilities (Washington, DC: The World Bank, 2007), p. 12. b Wherever possible, 2014 data are used. Some data, namely water metering and payment collection rate, are based on 2004 data derived from Browder et al., Stepping Up, p. 12, as 2014 data are not available. c Water production (per capita per day) is calculated from dividing total urban water supply by urban population of 435 million and 365 days, and converted to liters. Data from China Urban-Rural Construction Statistical Yearbook 2014. d Percentage of water loss is calculated from total water loss divided by total quantity of water supply. Data from China Urban-Rural Construction Statistical Yearbook 2014.

satisfaction of Chinese citizens is highest with the provision of physical infrastructures among all categories of public goods.15 Such physical infrastructures include water and drainage systems, roads, railways, electricity, and gas. While public–private partnerships (PPPs) have had difficulty catching on in India, there has been a remarkable increase in PPPs in China. From 2001 to 2012, there were 237 PPPs in water and sanitation in China, accounting for 40 percent of the total number of PPP projects globally; the Chinese population served by private water companies increased from only 8 percent in 1989 to 38 percent in 2008.16 15

16

Cited in Tony Saich, Providing Public Goods in Transitional China (New York: Palgrave Macmillan, 2008), p. 191. Eduardo Araral and Wu Xun, “Comparing Water Resource Management in China and India: Policy Design, Institutional Structure and Governance,” Water Policy 18:S1 (December 2016), pp. 1–13, at p. 10.

Public Goods Provision in China and India

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China’s urban water management framework is not problem-free: water scarcity and pollution remain serious problems. However, China’s performance in delivering drinking water to its urban population is relatively better than India’s and it is at least ahead of India in solving some of its water problems. Why is this the case?

The Argument I argue that the different types of social contracts (independent variable) that exist in China and India explain the different levels of public goods provision (dependent variable) in the two countries. A social contract encapsulates a certain set of ideas, principles, and precepts that guide and inform the actions of state actors and ordinary citizens of a country, helping to explain the different outcomes in public goods provision. The types of goods that a government prioritizes and provides depend on which set of principles and precepts the government – whether authoritarian or democratic – bases its legitimacy, and whether they accord with the expectations of its citizens. A social contract is therefore based on reciprocity; it is not merely about the basis of legitimacy of a state, which is top-down, but also consists of a corresponding bottom-up set of expectations from the people. Unlike formal institutions, which are explicit and legally constituted, a social contract is an informal institution as it is often implicit and unwritten. It is nevertheless binding because it acts as a constraint on governments. There are consequences, sanctions, or punishments if a government deviates from the terms of the contract. Although the contract is unwritten, it is possible to infer its presence from a country’s constitution, laws, and policies, government statements, political discourses and debates, as well as the narratives that governments create. Based on the types of social contracts, governments create, design, and establish a corresponding set of formal institutions to help them govern and run the country with the goal of fulfilling their obligations to their people and hence ensuring their legitimacy and survival. They build the requisite formal institutions based on the priorities that are spelled out in their social contracts. Adapting Weberian definitions of an ideal bureaucracy,17 I argue that both high capacity and autonomy 17

Max Weber (1922), Economy and Society , eds. Guenther Roth and Claus Wittich (Berkeley: University of California Press, 2013), pp. 956–968. Weber’s

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Public Goods Provision in China and India

are critical to the effectiveness of formal institutions in delivering public goods. Social contracts affect institutional capacity by determining how governments allocate resources across different institutions and priority areas. They affect institutional autonomy by circumscribing the space between state institutions, and societal and political interests. In China, the Chinese Communist Party’s (CCP) ability to deliver fast-paced economic growth, improve living standards, ensure that basic necessities are met, and maintain social stability accords with the expectations of the Chinese people, thus bolstering its legitimacy and enabling it to stay in power. China’s performance-based social contract is, however, not merely about economic performance. There is a moral element in the Chinese social contract that can be traced to the traditional concept of the “mandate of heaven” that is rooted in Chinese history. The presence of a unitary state, albeit with brief periods of fragmentation, has allowed the Chinese concept of performance based on the “mandate of heaven” to perpetuate from the imperial period till today. In this concept of performance, the moral behavior of Chinese officials underpins the delivery of public goods. Chinese officials are deemed to have performed morally when they are benevolent and bring about benefits to the people. Hence, performance in the Chinese context has both material and normative dimensions. Unlike China’s social contract, which can be traced to the dynastic period, India’s social contract was formed only when a unitary state was established after independence. Two key tenets underpin the Indian social contract. The first tenet is socialism, with emphasis on state ownership and a welfare state. Even though China and India regard themselves as socialist states, “socialism with Chinese characteristics” connotes a flexible and pragmatic approach, suggesting that China’s social contract is better described as based on a concept of performance that has its roots in Chinese history and tradition. India’s brand of socialism does not have the kind of flexibility that China’s definition of an ideal bureaucracy includes a clearly defined hierarchical structure; a mission defined by top officials; fixed areas of jurisdiction; management by rules, management by written documents; candidates who are chosen based on technical qualifications; impersonal and clear separation of the public and the private; the holding office as a vocation; and a fixed income for officeholders. These features of a well-functioning bureaucracy help ensure that institutions are strong and autonomous.

Public Goods Provision in China and India

9

has: it has not been able to carry out large-scale reforms of state-owned enterprises as China has done to promote economic growth. Socialist principles bind the hands of political leaders who are not able to deviate from the principle of state ownership by introducing private sector participation. This points to the “stickiness” of socialism as a key tenet of the Indian social contract. The second tenet is populism, which grew from how democratic participation evolved in India. Building a democratic system on top of a largely rural society led to the growth of populism. Universal franchise was granted in India before an industrial revolution has occurred; as a result, competitive politics led to traditional patronage networks (previously confined to the local rural areas) rising to the state and national levels of government.18 More often than not, Indian politicians who wish to win elections and stay in power need to implement populist policies that are at odds with genuine economic reforms. They rely on personal power and charisma to rule. Intuitively, a social contract that is based on socialism and democratic principles should result in higher levels of public goods provision. After all, governments run the risk of getting voted out of power if they do not mobilize resources, both financial and manpower, to ensure basic standards of living and the well-being of their people. However, India’s experience shows that socialism and populism, by reducing institutional autonomy and capacity, could be hindrances to public goods provision. India has been more successful in implementing the principle of state ownership than in becoming a welfare state. This is where the contradictions between socialism and populism within the Indian social contract become apparent. In order to create a welfare state and implement redistributive polices, strong and autonomous institutions are needed. However, populist leaders, in amassing power for themselves and their personal network, bypass and weaken institutions. With the Indian state unable to keep its socialist promises of delivering a welfare state, populist policies become useful stopgap measures to stave off popular discontent, acting as substitutes for the welfare aspects of the social contract. These populist measures have a profoundly negative impact on long-term economic development and the 18

For in-depth discussion, see Atul Kohli, Democracy and Development in India: From Socialism to Pro-Business (New Delhi: Oxford University Press, 2009).

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Public Goods Provision in China and India

delivery of public goods: “. . . populism limits long-term economic growth . . . leads to repeated crises and market gyrations, which in turn reduce spending on infrastructure, education, and health care – the building blocks of prosperity.”19 Specifically in this study, the New Delhi and Hyderabad state governments were constrained by the populist mandate to give in to demands and protests from a coalition of vested interests that prevented the water utilities in both cities from carrying out unpopular but critical reforms that would help strengthen capacity and autonomy. In addition, socialism, with its emphasis on state ownership, prevents government leaders from tapping into private investments and expertise in reforming public utilities.20 By contrast, the emphasis on performance in China’s social contract demands that the government creates the necessary institutions, and carries out policies and reforms that ensure a strong capacity for delivering public goods. Chinese institutions also have autonomy from societal influence and operational autonomy. To help fulfill the mandate of performance in the social contract, Deng Xiaoping began a process of administrative and financial decentralization when he came into power. Decentralization has substantially empowered city governments, which are responsible for the delivery of public goods and services. Unlike the difficulties that the local governments in New Delhi and Hyderabad face in carrying out reforms to their respective water utilities, the case studies on Beijing and Shenzhen demonstrate the capacity and autonomy that both the Beijing and Shenzhen municipal governments have in creating dedicated agencies for managing and coordinating their urban water systems, which helped improve the performance of public utilities. In fact, the Shenzhen Water Affairs 19

20

Shannon K. O’Neil, “Latin America’s Populist Hangover: What to Do When the People’s Party Ends,” Foreign Affairs 95:6 (November/December 2016), pp. 31–38, at p. 38. The references to private sector participation in reforming water utilities in this book do not suggest that privatization or PPPs is a panacea to the woes of the urban water sector. Rather, the emphasis is on whether reforms, including PPPs, can be instituted. PPPs have been controversial. Even in China, there are widespread concerns among the public that the involvement of multinational companies, such as Veolia and Suez, could lead to water tariff hikes and loss of government control over the vital water industry. However, proponents of PPPs argue that if implemented correctly with strong government oversight, PPPs bring substantial benefits to the public sector by providing an important source of investments, technologies, and management skills that could increase the capacity and autonomy of public utilities.

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Bureau, created in 1993 and the first such body in China, was praised by the Asian Development Bank as a model of reform for urban water management.21 Shenzhen was also able to draw on private investments in order to boost the capacity of its existing water supply network. The social contract that the Chinese state established with Chinese society enabled the Shenzhen government and gave it a free hand to deal with Shenzhen’s water issues. In addition, while India’s social contract requires the Indian government to use its limited resources to cater to the demands of a variety of interests in both the rural and urban sectors, China’s social contract is urban-biased. Jeremy Wallace has shown that cities are critical to the survival of the CCP regime, and hence the CCP’s focus on channeling resources to ensure the well-being of urban workers.22 Chinese policies that favor urbanites explain why physical infrastructures and access to basic amenities in Chinese cities are relatively well developed. China does not have the squalid slums that dot the city landscape of many developing countries, including India. Under the terms of China’s social contract, the Chinese government guarantees the daily basic needs of the urban population; the majority of urban residents have job security and access to basic amenities.23 A social contract explanation of public goods provision is not unique to China and India. Performance-based social contracts exist, for instance, in East Asian developmental states, including Hong Kong and Singapore, where the legitimacy of governments depends on strong economic growth and delivery of public goods. Populist social contracts can be found in a number of Latin American countries. It is possible to identify other types of social contracts, including those that are liberal in the Lockean sense (the United States), elite-based (neopatrimonial African countries), class-based (the Soviet Union in the Brezhnev era), ideology-based (China under Mao Zedong, especially during the Cultural Revolution), and ritual-based (Bali, Indonesia). 21

22

23

Asian Development Bank, Every Drop Counts: Learning from Good Practices in Eight Asian Cities (Mandaluyong: ADB, 2010), available from www.adb.org/ sites/default/files/publication/27998/every-drop-counts.pdf (accessed January 12, 2012), p. 17. Jeremy Wallace, Cities and Stability: Urbanization, Redistribution, and Regime Survival in China (New York: Oxford University Press, 2014). Lin You Su, “Migration and Urbanization in China,” in Urbanization in Large Developing Countries: China, Indonesia, Brazil, and India, eds. Gavin W. Jones and Pravin Visaria (New York: Oxford University Press, 1997), p. 84.

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Each of these social contracts carries different implications for the government’s ability to provide public goods, with some social contracts inhibiting rather than facilitating the provision of public goods. These other types of social contracts are, however, not the focus of this book, although the concluding chapter will point to them as avenues for future research.

Theories of Public Goods Provision Regime Type Scholars who contend that democratic governments deliver a higher level of public goods than authoritarian ones have generally followed two broad lines of argument: rational choice and power distribution. Based on large statistical studies of democracies and autocracies, rational choice theorists premise their arguments on the incentives that drive leaders and the contexts that constrain leaders to produce more public goods. Martin McGuire and Mancur Olson Jr. assume leaders to be selfinterested, utility-maximizing, and incentive-driven individuals who are led by the “invisible hand” in the market place of politics to provide or not provide public goods.24 In comparing the effects of the “invisible hand,” McGuire and Olson show that a secure self-interested autocrat who has a long-term horizon, unlike an autocrat whose immediate goal is to redistribute rents to himself in the shortest time frame possible, is incentivized to transform himself from a “roving bandit” into a “public-good-providing king.”25 However, according to McGuire and Olson, a majority-rule government whose members have a “more encompassing interest than an autocrat” generates better outcomes in providing essential goods and services than an autocracy.26 While McGuire and Olson focus on time horizons, the selectorate theory of Bruce Bueno de Mesquita et al. focuses on the size of the elites to explain public goods outcomes.27 According to the selectorate theory, the goal of politicians is to remain in power. To do so, leaders 24

25 26 27

Martin C. McGuire and Mancur Olson Jr., “The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force,” Journal of Economic Literature 34:1 (March 1996), pp. 72–96. Ibid., p. 73. Ibid., p. 90. Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow, The Logic of Political Survival (Cambridge, MA: MIT Press, 2003).

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must maintain their winning coalitions. They are therefore agents of electors, and policy choices under all forms of governments are made to promote the interests of an elite group. The crux of the argument of de Mesquita et al. is that the distinction between a dictatorship and a democracy is the size of the elite group relative to the general population. They predict that a government that is controlled by a small elite group is likely to underprovide public goods as opposed to a democratic government, which must be more broad-based.28 Apart from incentives, rational choice theorists also examine the context that constrains governments. David Lake and Matthew Baum compare states to “firms that produce public services in exchange for revenue,” stating that “producing services that mitigate market failure is the core of their business.”29 Unlike McGuire and Olson’s argument, which sees government leaders in democracies and autocracies as having different objectives and interests depending on time horizons and size of their constituencies, Lake and Baum assume state actors in all forms of governments to have the same goal – the maximizing of rents is the “universal motivation of politicians.”30 The only difference between a democratic leader and an autocrat is that the autocrat is able to earn greater rents than a democrat.31 Instead of looking at differences in incentives, Lake and Baum emphasize the context in which leaders operate; that is, leaders are assumed to be the same utilitymaximizing individuals who are only constrained in rent-seeking by their environment. Democracies, unlike autocracies, have institutions in the form of elections that constrain a state’s monopoly power. The essence of their argument can be summarized as follows: When barriers to exit and costs of participation are low, as in a democracy, the state will produce as a regulated monopoly, provide larger quantities of goods at relatively lower prices, and thereby earn few supernormal profits or monopoly rents. When barriers to exit and costs of political participation are high, as in an autocracy, the state will exercise its monopoly power, provide few public services, and earn greater rents.32

28 29

30 31 32

Ibid. David A. Lake and Matthew A. Baum, “The Invisible Hand of Democracy: Political Control and the Provision of Public Services,” Comparative Political Studies 34:6 (August 2001), pp. 587–621, at p. 590. Ibid., p. 589. Ibid. Ibid., p. 590.

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There are four key problems with rational choice arguments. First, rational choice theorists do not take into account the possibility that the resources at the disposal of a government can alter its incentives. Monarchies in Gulf countries are able to provide a high level of public goods because abundant oil resources make it possible for them to distribute wealth across a wide spectrum of society. Resources alone, however, do not mean that public goods provision will be high; the “resource curse” argument demonstrates that the elites of a resourcerich country could accumulate wealth for themselves at the expense of economic and social redistribution. The key difference between these exploitative regimes and the resource-rich autocracies that do deliver a high level of public goods is that the latter are often ruled by traditional monarchs who see themselves as providers and caretakers of their subjects, roles that, at the same time, help them retain the support of their subjects. Hence, in addition to resources, the ethos of a government is a key condition for public goods provision. I will explain in Chapter 3 how China’s social contract, which combines traditional ideas of a benevolent government with the resource capacity of local city governments, results in a relatively high level of public goods provided to Chinese urban residents. Second, rational choice theorists – in particular the selectorate theory of de Mesquita et al. – assume that the size of the winning coalitions must be broader and bigger in democracies than in dictatorships. In democracies, however, politicians may have to face multiple constituencies and therefore cannot be expected to represent all constituencies. Barbara Geddes’s study on Latin American countries amply demonstrates this point.33 In other words, contrary to the findings of de Mesquita et al., the size of the winning coalition could be as small in a democracy as it is in an authoritarian system. Conversely, authoritarian governments may also face large constituencies. In this book, I show that the Chinese and Indian governments need the support of large populations in order to stay in power. The Chinese government needs to cater to the welfare of a large working class in the cities, while India’s limited resources are split between urban and rural areas.

33

Barbara Geddes, Politician’s Dilemma: Building State Capacity in Latin America (Berkeley, CA: University of California Press, 1994), pp. 40–41.

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The third shortcoming of rational choice arguments is related to McGuire and Olson’s assumption about time horizons. Both authors assume that majority-rule governments, that is, democracies, have a longer time horizon than autocrats who want to accumulate rents for themselves. This is erroneous as all leaders or political parties would want to remain in power for as long as possible, whether autocratic or democratic. At times, in a democracy, political parties may have a short time horizon when they know that they can be voted out of power in the next election. While Chinese leaders may fit into McGuire and Olson’s description of autocrats with long time horizons, that is, the “public-good-providing king,” their conclusion that a majorityrule government or a democracy will provide higher level of services does not fit into the realities of Indian politics. Indian politicians are often motivated by short time horizons to seek reelection. As a result, the implementation of public policy – which requires a longer time horizon to bear fruit – often falls by the wayside. Fourth, Lake and Baum assume that elections are the only form of institutions that constrain governments. Institutions that constrain governments are in reality varied and can be formal or informal. For instance, Lily Tsai has shown that informal rules and norms created by solidary groups of high moral standing in rural China are able to constrain government officials into producing public goods.34 In my study, I will show that a country’s social contract is a powerful informal institutional constraint on formal institutions and the behavior of political and government leaders. The second approach to explain the better performance of democracies is to examine the power distribution among political players. According to Robert Deacon, the more even distribution of power among groups in a democracy results in spending on broad-based public goods, while the concentration of power in the hands of a few in a dictatorship favors the transfer of resources to powerful groups.35 It makes sense in a democracy to provide broad-based public goods because there are economies of scale to be gained from supplying to a larger population in a system where the government needs to satisfy a 34

35

Lily L. Tsai, Accountability without Democracy: Solidary Groups and Public Goods Provision in Rural China (Cambridge, UK: Cambridge University Press, 2007). Robert T. Deacon, “Public Good Provision under Dictatorship and Democracy,” Public Choice 139 (2009), pp. 241–262, at p. 241.

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large portion of the population.36 Deacon’s findings show that democracies exceed dictatorships in public goods provision by about 100 percent for environmental protection, more than 100 percent for roads, and approximately 25–50 percent for safe water, sanitation, and education.37 The tendency to provide less public goods when power is concentrated in the hands of a few or a single political party certainly makes sense. However, the assumption that only democracies cater to a large population is flawed because certain types of authoritarian systems, like democracies, depend on a large base for political support and legitimacy. This is particularly true of socialist and communist systems; socialist and communist parties often come into power with working class support and rely on a large working population for legitimacy. China and the former Soviet Union are examples of these authoritarian systems. There are thus considerable flaws to the arguments that link regime types with government performance in the provision of public goods. Large statistical studies paint broad strokes of regimes and tend to be reductionist. Democratic political systems are not all the same, as extensive studies on democracies have shown.38 Likewise, not all autocracies or authoritarian states are the same; their ability to penetrate society and their levers of control vary. It therefore behooves us to unpack the black box of the state. As Joel Migdal succinctly puts it: . . . actual states show amazing diversity, straining the idea of a unitary image and making comparison of them a messy business. They vary tremendously in the way they interact with the societies they purport to govern and represent – and in the degree to which they actually do govern and represent. Although state institutions – their executives, bureaus, legislatures, judiciaries, schools, prisons, armies, and the like – may, at first blush, look astonishingly similar. . .on closer examination these institutions act in myriad different ways. Comparison may privilege form over function.39 36 37 38

39

Ibid., p. 242. Ibid., p. 260. See, for example, Barbara Geddes, “What Do We Know about Democratization After Twenty Years?” Annual Review of Political Science 2:1 (1999), pp. 115–144; David Collier and Steven Levitsky, “Democracy with Adjectives: Conceptual Innovation in Comparative Research,” World Politics 49:3 (April 1997), pp. 430–451. Joel S. Migdal, “Researching the State,” in Comparative Politics: Rationality, Culture, and Structure, eds. Mark Irving Lichbach and Alan S. Zuckerman (New York: Cambridge University Press, 2009), p. 168.

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Contrary to claims that democracies perform better than autocracies, Geddes has shown that democracies do not “routinize the provision of public goods . . . instead, the achievements of these goods will depend on the specific incentives that face political leaders in different political systems.”40 She argues: In order to maintain their electoral machines, politicians need to be able to “pay” their local party leaders, ward heelers, precinct workers, and campaign contributors with jobs, contracts, licenses, and other favors . . . politicians’ interest in reelection gives them an interest in responding to the demands of this limited clientele even when it means undermining the goals of the aggregate principal, the citizenry . . . although a democratic political system should ideally provide politicians with good reasons for supplying public goods desired by citizens whose votes they need to stay in office, in reality the combination of the information asymmetry and the influence of asymmetry between members of internal and external constituencies gives politicians an incentive to respond to the particular interests of some politically useful citizens rather than to the general interests of the public as a whole.41

Indeed, there are studies that show that autocracies can do a better job in certain types of redistributive policies. One study by Michael Albertus on land reform in Latin America demonstrates that dictatorships are more effective in land redistribution than democracies.42 Hence, the focus on regime type has yielded many anomalies, including the cases of China and India. While regime type may influence performance outcomes, it is not deterministic. Focusing solely on formal constraints loses sight of the informal variables that impact government performance. The conditions for governments to provide greater amounts of goods and services have to go beyond political structures and formal institutions to look at the criticality of agency and the role of informal institutions. Informal constraints are important because even when formal institutions are unstable and weak, informal norms and rules can still act as constraints on government officials to provide public goods.43

40 41 42

43

Geddes, Politician’s Dilemma, p. 41. Ibid., pp. 40–41. Michael Albertus, Autocracy and Redistribution: The Politics of Land Reform (New York: Cambridge University Press, 2015). Tsai, Accountability without Democracy.

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There is an important and expanding field of literature that examines how informal constraints and institutions such as markets, businesses, social groups, grassroots affiliates, nongovernmental organizations, collective identity, norms, and rituals affect the provision of public goods regardless of the type of regime. Prerna Singh, for instance, demonstrates that the emergence of subnational solidarity or subnationalism in some Indian states, such as Kerala and Tamil Nadu, is more likely to lead to the implementation of a more progressive social policy in education and health with better developmental outcomes.44 An increasing number of scholars are also looking at the role of markets in promoting development. Ang Yuen Yuen’s work on how China escaped the poverty trap uses a coevolutionary approach based on the interactions between markets and weak institutions to explain China’s economic development.45 In essence, she argues that China first builds markets with weak institutions and then crafts environments that facilitate improvisation among local agents. Kellee Tsai also underscores the role private entrepreneurs play in collaboration with local government officials in employing adaptive informal institutions that helped shape the formal political and regulatory institutions governing China’s political economy.46

Other Explanations for Variations in Public Goods Provision Apart from theories that focus on regime type, scholars have pointed to higher levels of economic development, state capacity, and ethnicity to explain variations in public goods provision. The level of prosperity or economic development is often cited by scholars to account for why some countries produce more public goods than others. Such theories provide an economic rationale to redistribution policies, unlike those that emphasize political systems. Dorothy J. Solinger and Hu Yiyang argue that officials in wealthier cities in China are incentivized differently from those in poorer cities when making decisions to disburse the minimum livelihood guarantee (MLG) funds (dibao), which are social assistance funds aimed at subsidizing households whose average per 44 45

46

Singh, Solidarity, pp. 112–147. Ang Yuen Yuen, How China Escaped the Poverty Trap (Ithaca, NY: Cornell University Press, 2016), pp. 16–17. Kellee S. Tsai, Capitalism without Democracy: The Private Sector in Contemporary China (Ithaca, NY: Cornell University Press, 2007).

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capita income falls below what is necessary for purchasing basic necessities.47 In studies comparing China and India, scholars have argued that China’s higher level of economic development and the fact that China had started liberalizing its economy more than a decade before India have contributed to China being able to produce a higher level of public goods. The argument is that the faster growth of China’s capital stock and the freer flow of labor from the agricultural to the industrial sector in China have enabled China to outpace India,48 and thus the concomitant effect on public goods. Some scholars have also attributed the differences in development between China and India to India’s colonial legacy, which has led to India suffering from a lower resource base.49 The wealth of a country has an impact on whether its government is able to deliver public goods – a high level of GDP facilitates a government’s efforts to increase spending on public goods. However, there is no direct causal relationship between economic wealth and redistribution policies; greater wealth does not necessarily lead to redistribution policies, as redistribution may not be the priority of governments even if they have the resources. Greater wealth could lead to higher inequalities if the wealth is concentrated in the hands of a few instead of being redistributed to society. The elites of a country may 47

48

49

Dorothy J. Solinger and Hu Yiyang, “Welfare, Wealth and Poverty in Urban China: The Dibao and Its Differential Disbursement,” The China Quarterly 211 (September 2012), pp. 741–764. M. C. Madhavan, “Can India Catch Up with China?” The Hindu, January 6, 2015, available from www.thehindu.com/opinion/op-ed/comment-can-indiacatch-up-with-china/article6757519.ece (accessed August 28, 2017). Karen Bakkar argues that the water pipe system in Jakarta inherited from the Dutch contributed to Jakarta’s current urban water supply problem. During the colonial era, the water supply network excluded native residents as it was intended only for European residents living within a small area of the city. Based on the Indonesian experience, it has been suggested that India performs poorly in the delivery of drinking water due to the impact of colonialism on its water supply system, while China has never been colonized. However, Beijing is an old city with old leaky pipes and outdated water systems, problems not dissimilar to those affecting water pipe systems in Delhi. Beijing has nevertheless been able to refurbish these pipes and reduce leakage whereas India has had little success in doing so. Moreover, Bakkar describes the inability of the postcolonial government in Indonesia to improve Jakarta’s water system as “state failure.” Hence, while the water pipe system in Delhi may be a colonial legacy, the fact remains that postcolonial India is not able to fix it. Karen Bakkar, Privatizing Water: Governance Failure and the World’s Urban Water Crisis (Ithaca, NY: Cornell University Press, 2010).

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accumulate resources for themselves while the rest of the population remains in poverty. In a system like China’s, in which Chinese officials are not constrained by elections to produce more public goods, why should higher levels of economic development translate into higher levels of public goods? Significantly, scholars have pointed out that in the pre-reform period, the Chinese government had provided a wide range and quantity of urban welfare services that were unusual for a country as poor as China; the achievements in redistribution during this period were made in spite of sluggish economic growth.50 China’s provision of public goods is thus not necessarily dependent on high growth rates. Whether public goods are provided goes beyond an economic rationale, as there are political and social ethos, as well as ideational and normative principles involved when governments formulate and implement redistribution policies. Moreover, wealth alone is not sufficient for the successful implementation of redistribution policies. Bruce J. Dickson et al. point out that while higher levels of prosperity have provided resources for local governments in China to tap into, it is their state capacity or how effective local governments are in extracting tax revenues that determines the level of spending on pubic goods.51 Some scholars have in fact argued that state capacity is essential for providing public goods. In their study on the implementation of the New Deal in the United States in the 1930s, Theda Skocpol and Kenneth Finegold found that state capacity to carry through interventionist policies explains why redistribution policies can be effectively implemented.52 Scholars have also focused particularly on the capacity of local governments. Daniel Ziblatt argues that instead of the demand side or social preferences shaping public goods provision, it is the capacity or the “infrastructural power” of German city governments

50

51

52

See, for example, Gordon White, “Social Security Reforms in China: Towards an East Asian model?” in The East Asian Welfare Model: Welfare Orientalism and the State, eds. Roger Goodman, Gordon White, and Kwon Huck-ju (London: Routledge, 1998), pp. 177–178. Bruce J. Dickson, Pierre F. Landry, Shen Mingming, and Yan Jie, “Public Goods and Regime Support in Urban China,” The China Quarterly 228 (December 2016), pp. 859–880. Theda Skocpol and Kenneth Finegold, “State Capacity and Economic Intervention in the Early New Deal,” Political Science Quarterly 97:2 (Summer 1982), pp. 255–278.

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to supply public goods that determines the level of public goods provided.53 In the case of China and India, a common argument for China’s higher level of public goods is that not only does China have greater resources to spend because it is economically more prosperous, but also that it has greater state capacity to do so. There are two problems with arguments that focus on state capacity. First, there is no guarantee that states with high capacity will provide more public goods; predatory states, for instance, have high extractive capacity.54 Second, states with high capacity may not necessarily prioritize the production of public goods. In cultures that traditionally rely on family support or promote self-help, governments may allocate resources and capacity to other priorities while placing less emphasis on the development of a social safety net. My book argues that what determines the prioritization and production of public goods is the terms of the social contract between the ruler and the ruled. States with higher capacity will channel its capacity and resources to producing more public goods if it adheres to the tenets and principles of the social contract. Arguments based on ethnicity suggest that governments produce more public goods in areas where there is greater ethnic uniformity compared to ethnically heterogeneous areas. For instance, Alberto Alesina et al. found that politicians in cities with an ethnically diverse population spend less on public goods.55 This is because voters choose lower public goods when a significant portion of taxes collected from one particular ethnic group is used to provide public goods shared with other ethnic groups. Such an explanation seems plausible in the case of China and India since China is majority Han with a very small ethnic minority, while India is ethnically, linguistically, and religiously diverse. Prerna Singh’s work on subnational solidarity in India certainly falls in line with the ethnic argument. In her study of Kerala, she shows, historically, how the dominance of the Malayali people led to 53

54 55

Daniel Ziblatt, “Why Some Cities Provide More Public Goods Than Others: A Subnational Comparison of the Provision of Public Goods in German Cities in 1912,” Studies in Comparative International Development 43 (2008), pp. 273–289. Dickson et al., “Pubic Goods,” p. 866. Alberto Alesina, Reza Baqir, and William Easterly, “Public Goods and Ethnic Divisions,” The Quarterly Journal of Economics 114:4 (November 1999), pp. 1243–1284.

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the emergence of Malayali identity and subnationalism, which in turn triggered public support for the state to prioritize social welfare.56 There are, however, flaws in theories based on ethnicity. In Andhra Pradesh, the Telugu people is the dominant ethnic group, comprising approximately 83.9 percent (2001 census) of the population.57 It is of comparable proportion to the 96.7 percent of Malayali that make up the Kerala population.58 However, a cohesive Telugu subnationalism in Andhra Pradesh did not emerge to push the state to prioritize social welfare. In terms of percentage of government capital outlay in education, and health and family welfare from 2000 to 2008, the average in Andhra Pradesh is 11.51 percent and 3.76 percent, respectively, compared to 17.55 percent and 4.86 percent, respectively, in Kerala.59 This begs the question: what is the threshold or tipping point in terms of ethnic composition that would likely lead to the emergence of a subnational solidarity, which would, in turn, push the state to devote more resources to public goods? Also, why is subnational identity cohesive in some instances but divisive in others?

Contributions to the Literature This study makes four contributions to the extant literature. First, it seeks to address the gaps in the existing theories of public goods provision – in particular the deficiencies in regime type theories – by examining a more fundamental layer of state–society relations in the form of a social contract. Even though the book’s argument focuses on incentives and constraints, these incentives and constraints are not seen 56 57

58 59

Singh, Solidarity, pp. 129–146. Commissioner for Linguistic Minorities, India, 50th Report of the Commissioner for Linguistic Minorities in India (July 2012–June 2013), p. 144, available from https://pdfsecret.com/download/50th-report-of-thecommissioner-for-linguistic-minorities-in-india_59f75424d64ab20a75179f24_ pdf (accessed September 19, 2017). Raw data from Office of the Registrar General & Census Commissioner, India, “Statement 3 – Distribution of 10,000 Persons by Language – India, States and Union Territories, 2001 Census of India,” available from www.censusindia.gov.in/Census_Data_2001/Census_ Data_Online/Language/Statement3.htm (accessed September 9, 2017). Singh, Solidarity, p. 146. S. Narayan, “Development Trends in Selected Indian States – Issues of Governance and Management,” ISAS Insights 29 (Singapore: Institute of South Asian Studies, April 2008), pp. 1–6, at pp. 3–4, available from www.files.ethz.ch/isn/55902/30.pdf (accessed September 19, 2017).

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from the perspective of political systems but rather from the perspective of an informal institution. In addition, as shown in the previous section, levels of wealth, state capacity, and ethnicity do not provide adequate explanations as to why some governments produce more public goods than others. The social contract theory I propose takes into account the political, social, institutional, economic, and normative aspects of public goods provision, thus providing a holistic explanation for variations in the delivery of public goods. Second, I add to the expanding literature that emphasizes the importance of informal institutions. One can think of a social contract as a large category of informal rules. It provides an overarching framework that binds and undergirds the relationship between state and society. The idea of a social contract has been defined and theorized by John Locke, Thomas Hobbes, and Jean-Jacques Rousseau. My book makes a novel distinction from these classic works by defining a social contract as an informal institution, thereby bringing together the fields of comparative politics and political theory. By applying the concept of social contract to public goods, my study is also relevant to the field of political economy and public policy. Politicians and scholars have often referred to a contract between state and society, but such references are general, and the concept of a social contract has been undertheorized. For instance, Linda Cook’s book on the Soviet social contract references the social policies of the Brezhnev and Gorbachev eras.60 However, Cook’s book does not place the social contract thesis in a larger theoretical framework or flesh out its components. My book fills an important gap in the literature on what social contracts are and their impact on public goods provision. Third, my study theorizes the impact of informal institutions on the design of formal institutions that are involved in the delivery of public goods. It examines how the ideational in the form of a social contract shapes and modifies formal structures, leading to different outcomes in the provision of public goods. Formal institutions do not appear or exist on their own; a social contract is the antecedent to formal institutions. Focusing either on formal institutions or informal institutions alone does not provide a holistic and adequate explanation for a complex 60

Linda J. Cook, The Soviet Social Contract and Why It Failed: Welfare Policy and Workers’ Politics from Brezhnev to Yeltsin (Cambridge, MA: Harvard University Press, 1993).

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and difficult issue like public goods provision. My study thus seeks to combine the effects of informal and formal institutions in explaining public goods provision, as opposed to the literature that looks solely at either formal or informal institutions to explain redistribution policies. The causal mechanisms that lead to higher delivery of public goods are demonstrated using rich empirical case studies. Finally, my study contributes to the growing literature that compares China and India. Studies in this area have focused on the two countries’ developmental models, economic growth, market liberalization reforms, financing, labor, education, environmental, agricultural and industrial policies, growing inequalities, and demographic and migration issues.61 Differences in their HDI and economic performance have most often been attributed to differences in their political systems, and higher investment and savings rates in China compared to India, rural–urban migration laws, and investments in education and health. Some scholars have also focused on the development of civil society in China and India to explain differences in levels of prosperity between the two countries, for instance, arguing that the CCP has greater control over civil society and a more compliant labor force than India.62 Still others have attributed the differences between them to India’s colonial history and the exploitation of its resources that went with it, as well as the existence of a wealthy diaspora in China’s case.63 While these studies are important and illuminating, they often do not go beyond a structural and formal institutional account of the differences and similarities between the two countries, and, as a result, are 61

62

63

See, for example, Delia Davin and Barbara Harriss-White, eds., China–India: Pathways of Economic and Social Development (Oxford: Oxford University Press, 2014); Barry Bosworth and Susan M. Collins, “Accounting for Growth: Comparing China and India,” The Journal of Economic Perspectives 22:1 (Winter 2008), pp. 45–66; Kellee S. Tsai, “Imperfect Substitute: The Local Political Economy of Informal Finance and Microfinance in Rural China and India,” World Development 32:9 (September 2004), pp. 1487–1507; and Manmohan Aggarwal and Dipankar Sengupta, “Comparing Transition Economies: China and India,” China Report 36:1 (2000), pp. 1–28. Kaushik Basu, “China and India: Idiosyncratic Paths to High Growth,” Economic & Political Weekly 44:38 (September 19–25, 2009), pp. 43–49. Sachin Pavithran and Jaheer Mukthar, “A Comparative Study on the Emerging Economies of the World: India or China,” International Journal of Economic Issues 4:1 (2011), pp. 123–131; Ye Min, Diasporas and Foreign Direct Investment in China and India (New York: Cambridge University Press, 2014).

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not completely satisfying explanations. In the area of public goods, for example, studies on urbanization in China and India, and the differing outcomes in urban infrastructure and public goods attribute these differences to the role of local financing and governance structures.64 My study addresses a more fundamental and deeper issue: what accounts for the differences in their governance structures and formal institutions? It gives a fresh and holistic account of how the differences in their formal institutions come about and offers a theoretical framework for understanding state–society relations and how they relate to public goods provision in the two countries. For instance, the differences in their social contracts explain why decentralization policies work in China but not in India, and why local government institutions in China have more autonomy and capacity to produce public goods compared to similar institutions in India. In addition, by focusing on cities in the two countries, I offer insights into an aspect of development in the two countries that is less often discussed in the comparative literature65 but which has significant implications for the development of their economies.

Plan of the Book The book is organized into two parts. Following the introductory chapter, Part I develops the conceptual framework of my argument. Chapter 2 defines key concepts, and details how and why social contracts are an informal institution. It then examines the impact of social contracts on the design of formal institutions, which in turn affects the government’s ability to produce public goods. It also explains my case selection and methodology for testing my theory. Chapters 3 and 4 apply the conceptual framework to China and India. Chapter 3 fleshes out the key characteristics of the Chinese social contract by examining the basis of legitimacy for the Chinese state and how it is congruent with popular expectations of the role of the 64

65

See, for example, Arthur Acoca, Shahana Chattaraj, and Susan Wachter, “Urban Governance and the Development of Informality in China and India,” [working paper], April 18, 2014, pp. 1–37, available from http://realestate .wharton.upenn.edu/wp-content/uploads/2017/03/773.pdf (accessed September 6, 2017). Daniel Biau, “Chinese Cities, Indian Cities: A Telling Contrast,” Economic & Political Weekly 42:33 (August 18–24, 2007), pp. 3369–3372, at p. 3369.

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government. It then demonstrates how the Chinese social contract leads to institutions with strong capacity and autonomy, particularly at the local government level, to ensure that urbanites have access to essential public services. Chapter 4 applies the framework to India, and traces how socialism and populism became the basis of legitimacy and popular expectations. The chapter shows how the Indian social contract constrains the ability of institutions and actors to deliver a high level of basic urban infrastructure. Part II provides the empirical evidence that supports my argument. Chapter 5 examines the complex water institutional frameworks in China and India to provide the background to the case studies as well as to demonstrate to readers the difficulties and problems that both the Chinese and Indian governments face in delivering water to urban residents. It compares and contrasts the water institutional frameworks in China and India in terms of bureaucratic structures, laws, policies, and regulations that govern the urban water sectors. The impact of their respective social contracts on their water institutional frameworks is discernible, particularly in the extent of the power and autonomy that is granted to lower levels of government to manage the urban water supply. Chapter 6 examines how the Chinese social contract enabled institutional capacity and autonomy in Shenzhen and Beijing, which led to the reform of their urban water management frameworks and the restructuring of their urban water industries. As a result of these reforms, Shenzhen and Beijing are able to increase water production, cut down on water losses, achieve better coordination, reduce fragmentation of authority, strengthen regulation of the urban water sector, and improve the performance of their water companies. Chapter 7 examines how the Indian social contract constrains politicians in New Delhi and Hyderabad from being able to pursue reforms of their water utilities. Institutions have little protection from societal and political pressures. They also do not have sufficient financial and human resource capacity to push through reforms. Such constraints led to state leaders of both cities to backtrack on reforms that could have improved basic goods and services in the longer term. In order to stay in power, state leaders retreated to populist promises of free water and electricity. The concluding chapter relates the social contract argument to recent world events and summarizes the key arguments of the book.

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It also examines the applicability of the Chinese and Indian social contracts to other countries, and lists a tentative typology of social contracts. The chapter also argues that while social contracts are persistent and enduring, there are conditions under which they could evolve over time. Lastly, the chapter looks at how the Chinese and Indian social contracts can change in the future.

part i

Social Contracts

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2

Social Contracts, Institutional Design, and Public Goods Provision

On Christmas Day 1989, in a military trial that barely lasted an hour, Romanian dictator Nicolae Ceaușescu and his wife Elena were summarily executed. His execution by his own generals was videotaped and made available via YouTube for the world to see. Under Ceaușescu’s rule, Romanians suffered not only violent and oppressive rule but also a standard of living that was almost at the bottom of the former Soviet bloc.1 In order to pay off Romania’s large foreign debt that had accrued from his overambitious industrial and infrastructure projects, Ceaușescu started exporting the country’s agricultural and industrial products. This led to chronic shortages of food, energy, and other basic necessities, which caused widespread economic hardships and intensified unrest among Romanians. Finally, in order to stop widespread chaos in the country, Ceaușescu’s generals rounded up Ceaușescu and his wife, and executed them. Ceaușescu’s ignominious fate is an extreme example, but the story of his demise offers us evidence of the existence of a contract between state and society. During an interview marking the twenty-fifth anniversary of Ceaușescu’s execution in December 2014, Andrei Kemenici, one of Ceaușescu’s former generals, said, “I, like the rest of the army, was sick of him. He was always taking from the Romanian people and wouldn’t offer anything in return.”2 Kemenici’s statement points to a reciprocal relationship between governments and their people. In this reciprocal relationship, citizens consent to be ruled and confer legitimacy on a particular government in return that their expectations, whether in material or normative forms, will be met. Kemenici’s

1

2

Soraya Sarhaddi Nelson, “25 Years After Death: A Dictator Still Casts a Shadow in Romania,” National Public Radio, December 24, 2014, available from www.npr.org/sections/parallels/2014/12/24/369593135/25-years-after-deatha-dictator-still-casts-a-shadow-in-romania (accessed June 8, 2015). Ibid.

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statement did not point to regime type per se, but rather to Ceaușescu’s failure to observe his contract with his people to explain his brutal end. A contract exists between a government and its people, and a violation of that contractual relationship carries serious consequences for the government, ranging from losing seats in parliament, being voted out of power, facing riots and unrests, to being overthrown by military coups, revolutions, or other violent means. Governments would therefore need to uphold their end of the contract – the roles and responsibilities that are expected of them – in order to maintain regime legitimacy and survival. In this chapter, I explicate more fully what social contracts are and explain why social contracts should be considered an informal institution. I then offer a theoretical framework that examines the impact of social contracts on the design of formal institutions, which in turn affects governments’ ability to provide public goods. I will also explain my methodology and selection of cases to test my theory, and point to some of the limitations of my study.

Defining a Social Contract A social contract has been used synonymously to refer to a “social safety net.”3 It is, however, more than a social safety net. In this study, I define it as an agreement between state and society, in which citizens consent to give up certain rights to their governments so that they can rule in exchange for the governments’ obligation to provide for the people, whether in material or normative forms. When the basis of legitimacy of a government and the expectations of its people are aligned, an agreement or contract is struck between state and society. Rulers are obliged to conduct government according to the terms of the contract and provide for their people’s needs. They are constrained by the terms of the contract, which sets limits to their authority. This contract is, however, not a contract in the legal sense. Instead, it is based on reciprocity, conditional promises, and obligations. A principal–agent relationship exists between the ruler and the people in which people “hire” the ruler by giving him obedience and 3

See, for example, Nancy Birdsall and Stephen Haggard, “After the Crisis: The Social Contract and the Middle Class in East Asia,” in When Markets Fail: Social Policy and Economic Reform, eds. Ethan B. Kapstein and Branko Milanovic (New York: The Russell Sage Foundation, 2002).

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empowering him with authority for as long as he uses his power to further their interests and aims.4 Governments consistently provide certain policy and allocation outcomes, while societies, in turn, give political consent and compliance. This pattern of behavior on the part of governments and societies is repeated over time, testifying to the existence and persistence of social contracts. Compliance from society is conditional upon governments fulfilling their promises and therefore can be withdrawn. The conditionality of consent and compliance from the people explains the “stickiness” of social contracts; while the terms of social contracts may change over an extended period of time, they are fairly resistant to change in the short run. Leaders find it difficult to abandon their obligations or ignore the expectations that are generated by social contracts. Because social contracts are “sticky” once they are established, leaders are constrained in the types of policies that they can implement. Even leaders in authoritarian systems face political costs and damage to their positions if they try to change the terms of their social contracts. For instance, scholars have argued that in the former Soviet Union, Mikhail Gorbachev tried but failed to change the terms of the social contract that were established between his predecessor, Leonid Brezhnev, and the Soviet working class, which subsequently undermined his attempts to bring about market reforms, eventually leading to the collapse of the Soviet Union.5 The next two chapters on the social contracts in China and India show how attempts by leaders of both countries to alter the parameters of their respective social contracts and carry out policies that go against the grain of their social contracts are often resisted, resulting in these leaders having to backtrack on their policies or suffer the consequences.

Traditional Social Contract Theorists and Varieties of Social Contracts The idea of a social contract is most famously associated with the works of Thomas Hobbes (1588–1679), John Locke (1632–1704), and Jean-Jacques Rousseau (1712–1778). All three political 4

5

Jean Hampton, Hobbes and the Social Contract Tradition (Cambridge, UK: Cambridge University Press, 1986), p. 270. See, for example, Cook, The Soviet Social Contract.

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philosophers focused on the ideas of consent and obligation in formulating a social contract, but they differ in their views on the state of nature, as well as the roles and responsibilities of government in response to the state of nature. Hobbes’s social contract rests on the premise that the natural state of man is a “war of every man, against every man.”6 It is an anarchical view of the world where a man lives in constant fear of his life and property. Locke disagrees with Hobbes that the state of nature is a state of war. To Locke, what defines the state of nature is that men live together without a “common judge with authority” over them, but this state is a state of “peace, goodwill, mutual assistance and preservation.”7 However, given the lack of a common judge, “the state of war once begun continues” and that escaping from “this state of war . . . is one good reason of men’s putting themselves into society and quitting from the state of nature.”8 Rousseau offers a third view of the state of nature that differs from Hobbes’s anarchical worldview and Locke’s view of a cooperative community. To Rousseau, the state of nature is one where the earliest man was neither good nor bad. He agrees with Hobbes that men are motivated by self-interest and may occasionally quarrel but without “very bloody consequences” because their natural self-love is mitigated by an equally natural compassion for their fellows.9 However, because men have the ability to learn and improve their well-being with material goods, a corrupting influence results, whereby the desire for glory is born. Rousseau therefore sees human evolution as a slow process of moral corruption and decay, resulting in perpetual conflicts and bloodshed. It is this corrupt state of affairs that makes government necessary. As a result of these different perspectives on the state of nature among these three traditional social contract theorists, the solutions they propose are also different; specifically, their view on the extent and limits of government differ. To Hobbes, an anarchical world 6

7 8

9

Thomas Hobbes (1651), Leviathan (Adelaide: ebooks@Adelaide, 2016), available from https://ebooks.adelaide.edu.au/h/hobbes/thomas/h68l/ chapter13.html (accessed October 14, 2016). Michael H. Lessnoff, Social Contract (London: Macmillan, 1986), p. 60. John Locke (1689), Second Treatise of Civil Government, available from www.constitution.org/jl/2ndtr03.htm (accessed October 14, 2016), Chapter 3. A. John Simmons, “Political Consent,” in The Social Contract Theorists: Critical Essays on Hobbes, Locke, and Rousseau, ed. Christopher W. Morris (Lanham, MD: Rowman & Littlefield Publishers, 1999), pp. 126–129.

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necessitates an absolutist form of government, the “leviathan.” Because humans lack security over life and property, and live in constant fear, they are willing to give up their natural rights and consent to subject themselves to an absolute sovereign in exchange for the sovereign’s obligation to ensure protection, security, and peace for all. The sovereign would use his coercive power to mandate those actions that individuals find themselves rationally unable to take on their own. Hobbes’s “leviathan” is a sharp contrast to Locke’s limited view of political authority. Locke proposed the idea of inalienable rights to limit political authority. To Locke, all men are by nature free and independent “till, by their own consents, they make themselves members of some politic society.”10 Locke’s law of nature arises from the mutual recognition among men that they are all God’s creatures and hence, “no one ought to harm another in his life, health, liberty or possessions.” Given that men’s natural rights are limited by this important principle, the Lockean natural right of freedom coexists with other natural rights – life, liberty, and estate, collectively known as Locke’s right of property. A political authority that is created to defend this limited transfer of individual rights must therefore itself be strictly limited. The only role this political authority has is to defend the natural rights of individuals and the public good. The process by which governments can secure rights from free persons is through the fully voluntary alienation of their rights via consent, contract, and trust. This is achieved in two steps: first, society is created by a contract among all those who wish to be part of it; and second, the government formed by society granting a separate trust, which gives to government the political power formerly vested in society by its members.11 Rousseau’s solution to the corrupt state of man and society differs from both Hobbes’s and Locke’s. He is interested in what government is to be established rather than how it was actually established. In Rousseau’s conception, the ideal state represents the “general will.”12 In this ideal state, each person will become a member of a collective body, to which he will surrender all his rights. The collective will act through an assembly of associates, which would exercise political 10 11 12

Locke, Second Treatise. Simmons, “Political Consent,” pp. 126–129. David L. Williams, Rousseau’s “Social Contract”: An Introduction. (Cambridge, UK: Cambridge University Press, 2014).

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authority and the right to make laws governing the state. This sovereign lawmaking body will consist of all citizens equally and will make laws that apply to all citizens equally. At first glance, Rousseau’s solution looks like a liberal one but what Rousseau proposed is a sovereign political authority that is supreme, absolute, and unlimited. Individuals no longer have any of their natural rights; Rousseau’s argument is that everyone has become freer because in exchange for “natural liberty,” individuals can now enjoy “civil liberty.” Rousseau conceives of rulers not as people’s masters, but their officers, as the duty of princes is to carry out the will of sovereign people. Traditional social contract theorists thus focus on the state of nature, and the power and limits of government. However, they disagree on what form this social contract should take, what rights should be given up, and how much power governments should have. These disagreements suggest that different forms of social contract exist and it may not be possible to conceive of a universal social contract that can be applied across different time frames, cultures, and context. Some contracts are more liberal, while others are more conservative. For example, a liberal Lockean social contract is encapsulated in the US Constitution. In exchange for the protection of life, liberty, and property, Americans give up a limited amount of their rights and confer the right to rule on an elected government. There are also social contracts that are made with only a specific segment of society, leaving out large swaths of citizens. In some countries, for instance, the social contract is between the leader and his immediate ring of supporters, resulting in nepotism, cronyism, corruption, and “systematic clientalism.”13

Social Contracts as an Informal Institution Douglass North defined institutions as “the rules of the game in a society or, more formally, the humanly devised constraints that shape human interaction.”14 They can be either formal or informal; formal institutions include constitutions, laws, and property rights, while

13

14

Michael Bratton and Nicolas Van De Walle, Democratic Experiments in Africa: Regime Transitions in Comparative Perspective (Cambridge, UK: Cambridge University Press, 1997), p. 65. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge, UK: Cambridge University Press, 1990), p. 3.

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informal ones are customs, traditions, taboos, norms or codes of behavior.15 Informal constraints, rules, and institutions are socially transmitted and are part of our heritage and culture.16 Four aspects of informal institutions make them distinctive.17 First, informal institutions are distinct from weak institutions. Institutions are weak or ineffective when they are widely circumvented or ignored but do not necessarily imply the presence of informal institutions. Informal institutions may or may not exist when formal institutions are weak. Second, informal institutions are distinct from other informal behavioral regularity. In order to be considered an informal institution and not a mere behavioral regularity, sanctions, or punishment must ensue when an informal rule or expectation is violated. Third, informal institutions are not the same as informal organizations, such as clans, kinship associations, mafias, etc. Informal organizations refer to the actors while informal institutions refer to the rules that actors follow. Lastly, informal institutions are distinct from the broader concept of culture even though culture may help shape informal institutions. Informal institutions are shared expectations while culture is shared values. Shared expectations may or may not be rooted in broader shared values. A social contract embodies many of the characteristics of an informal institution. It is unwritten, often implicit, not legally binding, and does not require ratification by congress or parliament or any other legislative body. Its existence is typically inferred from formal institutions and rules, such as a country’s constitution, laws, and policies, official statements, political discourses, and the narratives that governments construct. In a socialist country, five-year economic plans are also explicit manifestations of the social contract. A social contract shapes state–society interactions by prescribing what legitimate state behavior (consent) is and what society expects from the state (obligation). It acts as a constraint on state–society interactions, by limiting governments and their representatives from carrying out actions or policies that violate the terms of the agreement or contract. Instead, actions or policies that abide by the terms of the social contract are 15 16 17

Ibid. Ibid., p. 37. Gretchen Helmke and Steven Levitsky, “Informal Institutions and Comparative Politics: A Research Agenda,” Perspectives on Politics 2:4 (December 2004), pp. 725–740, at pp. 727–728.

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formulated or implemented. As a result of these interactions, it is possible to observe repeated patterns of behavior between governments and the people that prove the existence of the social contract. A social contract constrains because there are punishments or sanctions that result from a violation or noncompliance of the agreement. In other words, there is a price to pay for not sticking to the terms of a social contract. For example, governments can be voted out of power or overthrown by a revolt or military coup if they violate the social contract and are, therefore, deemed to be illegitimate. Because it is not easy to deviate from the terms of the contract without consequences, a social contract is “sticky”;18 that is, it is stable, enduring, and resistant to change. It sets parameters on the types of policies that governments can implement. Because the compliance of the people is contingent upon governments fulfilling the terms of the contract and can be withdrawn if governments fail to live to up their obligations, governments find it difficult to abandon their obligations or ignore the expectations generated by the social contract, even when reforms or changes in policies are needed for governments to produce better economic and social outcomes. There are different types and categories of informal institutions. Norms, customs, and beliefs point to specific informal rules. A social contract should, however, be conceived as a large and broad category of informal rules. It is necessarily broad so as to encompass the diverse groups and interests in state and society. A social contract is an informal institution that is constructed during the process of nation-building; it is a broad consensus or agreement that is forged after a period of struggle, debates, and negotiations among different groups of stakeholders. This is akin to the due process that goes into writing a country’s constitution and laws. Because a social contract represents a broad bargain, there will be critical junctures in a country’s history and development where new debates and negotiations will occur to define, redefine, and reinterpret the terms of the contract. The terms of the contract can be fine-tuned to adjust to new 18

“Stickiness” here is adapted from the economic concept of “price stickiness” to refer to a situation whereby prices do not change immediately or readily to shifts in market demand and supply. The “stickiness” of social contracts means that the terms of social contracts are rigid and resistant to change. While the terms of social contracts can be changed, they only do so very slowly, over a prolonged period of time.

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realities, even though a complete overhaul will be difficult to achieve, given the stickiness of social contracts.19 Having defined social contracts as an informal institution, the next step is to delve deeper into what constitutes a social contract. The components of a social contract are basis of regime legitimacy, which forms the consent portion of the contract, and expectations of the people, which spell out the obligations of the government to the people. These shape the shared norms, codes of behavior, and traditions between a state and its society, giving a social contract its key characteristics.

Legitimacy For any regime – whether democratic or autocratic – a tool of governance that is essential for the survival and functioning of a regime is the need to legitimize its dominance over society. Legitimacy can be defined as “the capacity of the system to engender and maintain the belief that the existing political institutions are the most appropriate ones for the society.”20 What gives a certain ruler or government the right or authority to set laws, arbitrate, and establish rules that govern society, economy, and political interactions? Max Weber wrote that states could legitimize themselves in three ways: traditional, based on long-established customs and history; charisma, based on the personal authority of the leader or ruler; and rational-legal, which is procedural authority.21 Most modern nationstates, particularly democracies, rely on the third form of legitimacy established through competitive elections. In India’s case, as I argue in Chapter 4, the basis of legitimacy for Indian governments is a combination of all three – rational-legal in the form of competitive elections; the charisma of populist and personalistic leaders; and traditional in the form of traditional patronage systems. Weber’s list is, of course, not exhaustive. In addition, it is possible to identify at least four other forms of legitimacy – economic development, ideological, symbolic, and international recognition. Economic performance is often a key legitimating tool for the East Asian 19 20

21

In-depth discussion of these points in Chapter 8. Seymour Martin Lipset, Political Man: The Social Bases of Politics (Baltimore: Johns Hopkins University Press, 1981), p. 77. Max Weber, The Three Types of Legitimate Rule (1922).

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developmental states of Japan and South Korea, as well as Singapore and Hong Kong. Delivering economic goods is certainly critical to the legitimacy of the Chinese Communist Party (CCP) in China. Performance, based on the traditional concept of “mandate of heaven,” forms the basis of legitimacy for the Chinese state. Ideology is also an important basis of legitimacy. For instance, democracy and socialist principles are part of the legitimating ideology of India. Maoist China relies on communist revolutionary ideology, Mao’s idea of “continuing revolution,” and the narrative of its founding as sources of legitimacy. Fascist Italy and Nazi Germany also relied on adherence to a set of ideologies to justify many of the regimes’ actions. Symbolic legitimacy refers to the symbols of statehood, such as flags, national anthems and pledges, state ceremonies, and other emblems of state. It is used to different degrees in various forms of governments; traditional monarchies would rely more on symbols, ceremony, and pomp than modern nation-states. International recognition as a form of legitimacy refers to a government being recognized as legitimate by other states – for instance, getting a seat in the United Nations confers legitimacy on states. International recognition of a country’s achievements can also increase a government’s standing and boosts its credibility domestically.

Expectations The legitimacy of the state is closely related to the expectations that citizens have of the role of the state and the type of public goods that the state provides: “What a society expects of power determines in large degree what it gets from its political system.”22 Popular expectations determine the basis of regime legitimacy to a large extent and are, at the same time, shaped by it. Governments often conduct opinion polls as a method of gauging popular expectations of government performance, and attitudes toward a wide range of political, economic, and social issues. The World Values Survey and Gallup Poll, for instance, are conducted regularly to study the aspirations and expectations of citizens of countries around the world. Some governments 22

Lucian W. Pye with Mary W. Pye, Asian Power and Politics: The Cultural Dimensions of Authority (Cambridge, MA: Harvard University Press, 1985), p. xi.

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conduct focus groups in place of polls or in tandem with polls to assess the attitudes of citizens toward a particular policy or set of policies. Some countries, such as Switzerland, conduct frequent referenda to attain three political objectives: to reflect popular sentiments or expectations; align government policies with these expectations; and garner popular support to increase the legitimacy of a policy decision. What forms popular expectations? Expectations can be defined as strong beliefs of what will happen or will likely happen in the future. The field of economics has dealt extensively with the issue of expectations. Rational choice models, for example, emphasize the importance of information in forming expectations; it assumes that actors use the best current available information to form expectations and forecasts of the future. Game theory seeks to model behavior based on actors’ expectations of how other actors will respond and whether they will cooperate, for instance. These expectations are based on a set of information that the actors have at a certain point in time. Expectations are also formed as a result of the interaction of political culture, ideas, and interests. Gabriel Almond and Sidney Verba define political culture as a pattern of cognitive (knowledge and beliefs), affective (feelings), and evaluational (judgments and opinions) orientation toward political objects and relationships among members of a group.23 Political culture is transmitted over time, from one generation to the next, through a political socialization process in families, work places, schools, mass media, etc. How we conceive of the role of government, whether government should be big or small, and what we expect of government outcomes are often the result of this socialization process. Ideas, defined as “shared causal beliefs,”24 arise from actors’ experiences with their environment and interactions with other actors. When ideas are shared across certain sectors of society or among political actors, they form expectations of what the deliverables of government should be. Ideas of Keynesian economics, for instance, in the aftermath of the Great Depression and during the post-World War II period, led to a historically unprecedented, activist role for government in the 23

24

Gabriel A. Almond and Sidney Verba, The Civic Culture: Political Attitudes and Democracy in Five Nations (California: Sage Publications, 1989), pp. 13–14. Kathleen R. McNamara, The Currency of Ideas: Monetary Politics in the European Union (Ithaca, NY: Cornell University Press, 1998), p. 4.

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economy. This in turn led to widespread expectations that the government would intervene to bail out companies, provide public goods when markets fail to do so, and use fiscal and monetary policies to stabilize output in a recession. In addition, ideas are particularly important for forming expectations – they are “road maps”25 – when there is uncertainty. When information is incomplete, people are uncertain about the outcomes of their actions. In such a situation, it is the expected effects of actions that inform the actions. Thus, under conditions of uncertainty, such as when a crisis arises, expectations depend on ideas for decision-making and policymaking.26 Interests also help shape expectations. Interests themselves are constructed by social interactions, and shaped by norms and values. They can be material, such as wealth, or more intangible such as the acquisition of status. Individuals and groups often expect governments to promulgate policies or act in their interest or advantage. Lobby groups and interest groups are a major part of democratic politics to influence the policy process in their favor. In authoritarian systems as well, factions are often formed to advocate and protect a set of interests. Often, these groups will work toward placing people who will advocate for them in places of power, whether through the electoral system or through political maneuvering. In return, once the individual gets into power, he will be expected to act in the interests of these groups. Societal or popular expectations can also be shaped by the state. Although cultural values and beliefs are highly persistent and enduring, governments nevertheless have the capacity to change expectations and attitudes through the use of policies and other governmental tools. An example would be Singapore’s “Stop at Two Campaign” that was instituted in 1970 as a measure of population control. Prior to the 1970s, families in Singapore were typically large; for instance, in 1960, the birth rate was 5.76 births per woman.27 Through material

25

26 27

Judith Goldstein and Robert O. Keohane, “Ideas and Foreign Policy: An Analytical Framework,” in Ideas and Foreign Policy: Beliefs, Institutions, and Political Change, eds. Judith Goldstein and Robert O. Keohane (Ithaca, NY: Cornell University Press, 1993), p. 13. Ibid. “Singapore Fertility Rate,” Index Mundi, available from www.indexmundi .com/facts/singapore/fertility-rate (accessed October 13, 2015).

Social Contracts, Institutional Design, and Public Goods Provision

Social Contract

(a)

Institutional Design

(b)

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Figure 2.1 Conceptual Framework of Social Contract and Public Goods Provision

incentives and disincentives that included subsidies and taxes as well as the legalization of abortion and sterilization, Singaporean families were encouraged to stop at two children. The campaign was highly successful, such that the norm or expectation is that most families with children born in the 1970s and 1980s have only two children. Having three or more children is often unexpected. In fact, the policy was so successful in changing societal expectations of family size that Singapore’s birth rate has remained below replacement rate despite subsequent attempts made by the government to reverse the trend of a declining birth rate.28

Impact of Social Contracts on Institutional Design and Public Goods Delivery In order to meet popular expectations, retain legitimacy, and stay in power, a government, whether democratic or nondemocratic, will build and design formal institutions that will help it keep the terms of the social contract. Institutions do not appear on their own: they flow from the social contract and need to be congruent with the priorities of the social contract. Formal institutions are therefore a function of the social contract (independent variable); formal institutions often arise from or are created by the social contract. This is the first causal mechanism depicted in Figure 2.1(a). Social contracts impact institutional design in two ways: (1) by circumscribing the space between state institutions and society, and between formal institutions and political interests (autonomy of formal institutions) and (2) by determining the allocation of government resources across institutions and policy areas (capacity of formal institutions). 28

In 2014, Singapore’s birth rate was 1.25. Available from http://population .sg/population-in-brief/files/population-in-brief-2015.pdf (accessed 13 October 2015).

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First, by circumscribing the space between state and society, and between formal institutions and vested political interests, social contracts determine how much autonomy formal institutions of the state have, that is, how much insulation they have from political and societal interference. When the citizens of a country give their consent for a particular government to rule, the extent of their consent depends on what is agreed in the social contract. The greater the consent, the greater the extent to which government institutions can act independently without undue or excessive influence or pressure from interest and lobby groups. The space in which government institutions are able to maneuver and act with less constraints from society is therefore larger. This gives government institutions higher levels of autonomy to act on behalf of citizens. Social contracts also determine the space between formal institutions, and politicians and their interests. A social contract that deems it necessary to provide buffers between politicians and formal institutions is likely to prioritize safeguards against abuses of power by political leaders. For instance, the creation of an independent judiciary is often seen as an essential safeguard against abuses of power by the executive and the legislature. Government institutions need to be insulated from excessive political interference, so as to prevent capture by the vested interests of politicians, and the formation of personal and clientelistic relationships, which will have a negative impact on the production of public goods. Institutions in kleptocracies and rentseeking regimes, for instance, have little autonomy and tend to serve only the interest of those in power and their inner circle of supporters and clients. Second, by determining how governments allocate resources across institutions and policy areas, social contracts affect the capacity of formal institutions. Given the list of priorities set by the social contract, it therefore follows that not all institutions are created equal. There is a hierarchy among institutions that is in line with the list of government priorities, and governments will allocate resources accordingly. Governments will deploy resources to those formal institutions that help them preserve the social contract they have with their people. These allocation decisions determine the scope and strength of formal institutions. For instance, governments that prioritize strong economic growth in their social contracts are likely to allocate manpower and funds to economic institutions. During Japan’s economic takeoff in the

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1970s, the Japanese Ministry of International Trade and Industry was given tremendous power and autonomy to mobilize state resources for economic growth.29 Likewise, the now defunct Economic Planning Board in South Korea had the resources to mobilize chaebols to implement the South Korean government’s industrial policy.30 In China today, the National Development and Reform Commission under the State Council has extensive administrative and planning control over the Chinese economy given the priority that China places on economic growth. The second causal mechanism, Figure 2.1(b), explains how institutional design affects government performance in delivering public goods (dependent variable). Adapting Max Weber’s definition of an ideal bureaucracy, I argue that to produce a high level of public goods, formal institutions need to have both high autonomy and strong capacity. This is because “next to making war, redistributive reform is probably the most difficult task a state can undertake.”31 For governments to successfully pursue a redistribution program and produce high quantities of public goods, institutions need to overcome powerful entrenched societal and political forces (autonomy), and reach deeply and extensively into the economy and society to implement redistribution policies (capacity). Institutions with low autonomy and weak capacity will have limited ability to deliver public goods. Autonomy or insulation from societal and political interference is critical for institutions to carry out their roles and responsibilities; capture by political and societal groups prevents institutions from making the most efficient allocation decisions. At the same time, institutions need to have sufficient capacity, specifically in terms of funds and personnel, to fulfill their mandates.

Autonomy Institutional autonomy refers to the ability of government institutions to “formulate and pursue goals that are not simply reflective of the

29

30

31

See Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982). See Alice H. Amsden, Asia’s Next Giant: South Korea and Late Industrialization (New York: Oxford University Press, 1989). Kohli, Democracy and Development, p. 35.

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demands or interests of social groups.”32 Institutions are autonomous if “they have their own interests and values distinguishable from those of other institutions and social forces.”33 Autonomous institutions are therefore “insulated” from societal and political interference, and are independent of societal and political groups. Corporate coherence, in the Weberian sense of a highly selective meritocratic recruitment process and long-term career rewards, gives government institutions autonomy. Autonomous institutions have the ability to determine their own administrative and organizational structures, decide on their priorities, manage their own budgets, and hire personnel. Insulation, however, does not mean that institutions are nonresponsive to popular demands; rather, it means protection from particularistic political and social interests in order to respond effectively to broader popular demands. Institutions may be autonomous in one of two ways. First, the government and the people may agree that autonomy is an important quality to endow a particular institution. For instance, in welldeveloped democracies, election commissions are insulated from political and societal interference. Courts are also often guaranteed autonomy because an independent judiciary is considered to be essential for checking the executive and legislative arms of government. Second, institutions may be autonomous just because they are less important. Given the plethora of issues facing a country, it is inadvertent that institutions that do not exercise core functions will likely receive less political and societal attention, and therefore have more independence in performing their roles. The first form of autonomy is by design, the second by neglect. In this book, I am primarily interested in the first form of autonomy, that is, there is a deliberate effort to strengthen institutions by granting them autonomous power. Scholars have pointed out that autonomy alone is not a sufficient condition for ensuring good performance outcomes.34 To be effective, a state needs to have “embedded autonomy,” which refers to a state having a strong set of relations with groups in a society, but still 32

33

34

Theda Skocpol, “Bringing the State Back In: Strategies of Current Research,” in Bringing the State Back In, eds. Peter B. Evans, Dietrich Rueschemeyer, and Theda Skocpol (Cambridge, UK: Cambridge University Press, 1985), p. 9. Samuel P. Huntington, Political Order in Changing Society (New Haven, CT: Yale University Press, 1968), p. 20. Peter B. Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995), Kindle, chapter 1.

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remaining independent from undue influences that will cause its goals to be captured by these groups.35 This refers to the ability of the state to retain autonomy while penetrating into different levels of society. These relationships are not personal or clientelistic, but rather between the state as an organization and business communities. The close ties between the former Economic Planning Board of the South Korean government and the chaebols is an example of “embedded autonomy.” Another example would be Japan’s Ministry of International Trade and Industry leveraging the “old boy network” of Tokyo University to direct Japanese business communities to invest according to the Japanese government’s development strategy.

Capacity The autonomy of an institution is also linked to its capacity. An institution with more resources at its disposal is more likely to have the ability to make decisions that are independent from societal and political interference. It may have independent sources of revenue; for instance, in a federal system, where the collection of taxes is distributed across different levels of government, state governments may have their own sources of tax revenue and would, therefore, be less dependent on the federal government for financial handouts and grants. An institution with more capacity in terms of skilled personnel, and thus reputed for its professionalism, may enjoy greater trust from political leaders, such that those leaders do not interfere in the institution’s dayto-day operations, allowing it to make decisions independently. Conversely, greater insulation from politicians and societal groups can also help increase institutional capacity. When bureaucrats are protected from clientelistic networks, they are able to achieve a more efficient distribution of resources and goods. Their human resources, namely, competence, expertise, efficiency, morale, and integrity, would be preserved, and their material resources safeguarded.36 Strong capacity allows institutions to extract from society, redistribute resources, enforce laws, and make and implement policies and reforms. In particular, the delivery of public goods is closely linked to governments’ ability to extract and redistribute resources. Gabriel 35 36

Ibid. Geddes, Politician’s Dilemma, p. 79.

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Almond et al. defines state capacity as having four essential elements: extractive, distributive, regulative, and symbolic capacity.37 Extractive capacity refers to the state’s ability to extract resources, such as money, goods, persons, and services, from the domestic and international environments. The most commonly used measurement of a state’s extractive capacity is its taxation capacity, whether it is able to efficiently and effectively collect revenues from society. Distributive capacity refers to the state’s ability to allocate money, goods, services, and opportunities to individuals and groups in society. Government spending on public goods as a percentage of gross domestic product (GDP) is indicative of its distributive capacity. Regulative capacity refers to the state’s ability to use compulsion and inducement to enforce extractive and distributive compliance or otherwise bring about desired behavior; it is the exercise of political control over the behavior of individuals and groups in society.38 There are a number of ways that governments regulate – legal coercion, material incentives, or moral persuasion. Symbolic capacity refers to the government’s ability to use speeches, rites, national emblems, monuments, and ideologies among others to exhort citizens to desired forms of conduct. State capacity can also refer to the scope and strength of the state. The scope of the state refers to the range of government functions and the services it provides, while the strength of the state refers to its ability to enforce legislation and laws, and force compliance.39 China is a typical example of a state with both scope and strength. Its onechild policy40 demonstrates the scope of state functions and the level of penetration into the private lives of its citizens. The ability of government institutions to enforce population control policies points to the strength of government agencies both at the central and local levels. In Michael Mann’s conception of state power, China has both despotic (scope) and infrastructural power (strength). Despotic power is defined as “the range of actions which the elite is empowered to undertake 37

38 39

40

Gabriel A. Almond, G. Bingham Powell, Kaare Strom, and Russel J. Dalton, Comparative Politics Today: A World View, 7th ed. (New York: Longman, 2003), p. 137. Ibid., pp. 137, 144. Francis Fukuyama, State-Building: Governance and World Order in the 21st Century (Ithaca, NY: Cornell University Press, 2004). On January 1, 2016, the Chinese government officially ended the one-child policy, allowing each family in the cities to have two children.

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without routine, institutionalized negotiation with civil society groups,” while infrastructural power is “the capacity of the state to actually penetrate civil society, and to implement logistically political decisions throughout the realm.”41 India, by contrast, is often described as having a strong society, but a weak state. The Indian state lacks sufficient funding and personnel to help it enforce laws, and implement policies and reforms. Vested bureaucratic and political interests often mobilize popular support to force central and local governments to back down from unpopular but necessary policies and reforms. However, the Indian state can be efficient and effective when it wants to be. This is particularly true of the Indian Election Commission, which has both the autonomy and capacity to regularly conduct free and fair elections at both the central and local levels. For instance, in 1997, the Election Commission brought to light India’s problem with criminals in politics, releasing evidence that 40 out of 543 members of parliament and 700 out of 4,072 members of state assemblies had criminal records.42 Both autonomy and capacity are essential for generating high levels of public goods; if formal institutions lack either or both qualities, their ability to produce public goods is likely to be compromised. For instance, institutions that have strong capacity but little autonomy will likely be unable to ensure an optimal distribution of resources to the public. In such a scenario, institutions will likely produce goods for specific interest groups, that is, private goods that are excludable and rivalrous, instead of public goods. Similarly, institutions with high autonomy but weak capacity will not have the ability and resources to make decisions, enforce laws, and implement policies for public goods distribution despite minimal interference from societal groups. In such a situation, it is highly likely that neither a high level of public nor private goods will be produced. A social contract does not always lead to the development of autonomous and high-capacity institutions for generating economic 41

42

Michael Mann, “The Autonomous Power of the State: Its Origins, Mechanisms and Results,” European Journal of Sociology 25:2 (1984), pp. 185–213, at pp. 188–189. “Discussion Document” of the National Commission to Review the Workings of the Constitution, September 2000, 17, cited in Steven Wilkinson, “Elections in India: Behind the Congress Comeback,” Journal of Democracy 16:1 (January 2005), pp. 153–167, at p. 158.

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public goods. Certain types of social contracts lead to the creation of institutions that inhibit the government’s ability to produce public goods. Faced with limited resources and unlimited demands, a government is likely to allocate resources to priority policy areas as spelled out in the social contract, while neglecting others. For instance, a government may choose to allocate resources to the military and its institutions if the social contract prioritizes security and border defense above economic development. In this case, the social contract is usually made between the government and the military, which in more extreme form, can result in praetorianism.43 The military is strengthened while economic development and the production of public goods take a backseat. Pakistan is an example of a country with such a social contract.44

Theory Testing and Case Selection To test my theory, I focus on two top-tier cities each in China and India: Beijing and Shenzhen in the former, and New Delhi and Hyderabad in the latter. In these cities, I examine a specific category of public goods: the provision of drinking water to urban residents.

Cities Cities and local governments occupy the center stage in the empirical portion of this study. With the rapid growth of urbanization in the past century, cities have become the focus of research for scholars interested in developmental issues. They present unique challenges to governance because they concentrate populations, thus requiring substantial investments and spending on infrastructure to support dense populations, and they are engines of economic growth and centers of political action by citizenry and non-state actors. Because of the growth of cities, local governments have assumed increasingly important roles vis-à-vis central governments, which explains the rapidly increasing

43 44

See Huntington, Political Order, pp. 192–263. See, for example, T.V. Paul, The Warrior State: Pakistan in the Contemporary World (New York: Oxford University Press, 2014). Paul discusses the negative effect of “war-making” on Pakistan’s development.

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number of studies that focus on cities and local governments.45 Benjamin R. Barber, for instance, argues that as the world’s problems become increasingly complex and perilous, city mayors offer the best chance at good governance because the nation-state has become dysfunctional and obsolete.46 The study of local governments thus illuminates in great detail the processes and outcomes of governance because they are the face of government to most citizens and are responsible for the day-to-day implementation of government policies. The provision of public goods and welfare services does not necessarily involve the central government, as many are provided by local governments; the contributions of local expenditures on public goods have historically exceeded those of the central government.47 Hence, to understand why and how the state provides public goods, it is necessary to examine the role of cities and local governments. I selected four first-tier cities – Beijing and Shenzhen in China and New Delhi and Hyderabad in India – to illuminate my findings. These cities have large populations and higher than average GDP per capita in their respective countries. The focus is on large cities because they have significant incidents of collective action,48 and thus the success or failure to provide sufficient public goods will have significant implications on regime legitimacy and stability. Moreover, the functioning and effects of the social contract are most visible and observable in these political and economic centers, as government legitimacy and popular expectations would be more salient in these areas compared to lower-tier cities, towns, and villages. Two capital cities, Beijing and New Delhi, are chosen given how important capital cities are in this regard. In addition, first-tier cities are more likely than lower-tier cities to get it right on public goods provision; that Chinese first-tier cities are able to supply relatively adequate public goods while Indian first-tier 45

46 47

48

See, for example, Saskia Sassen, The Global City: New York, London, Tokyo, 2nd ed. (Princeton, NJ: Princeton University Press, 2001); Benjamin R. Barber, If Mayors Ruled the World (New Haven, CT: Yale University Press, 2013); and Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier (New York: Penguin Books, 2012). Barber, If Mayors Ruled the World. See Charles M. Tiebout, “A Pure Theory of Local Expenditures,” The Journal of Political Economy 64:5 (October 1956), pp. 416–424. Wallace, Cities and Stability, pp. 20–25.

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cities cannot makes the contrast between them even more acute and increases the significance of this study. The method for choosing these cases is based on “casing,” which is to define the topic of interest, specify the hypothesis that explains the outcome, and give the set of cases that offer relevant information to support the hypotheses.49 The cases are chosen on the “most similar case” basis to facilitate controlled comparisons in terms of city size and population, and rainfall endowment. Selecting cases across different tiered cities – for example, a first-tier city in China and a third-tier city in India would not allow for control of population sizes and different stages of economic growth. Moreover, Beijing and New Delhi have comparable population sizes; the population sizes of Shenzhen and Hyderabad are also comparable. The cases are also chosen because of geographical location and rainfall endowment; in both countries, the north is relatively drier than the south. Beijing and New Delhi are water-scarce and in the north, while Hyderabad and Shenzhen are water-scarce and to the south. Shenzhen is classified as one of the most water-scarce cities in China despite abundant rainfall because of a lack of catchment area and water pollution. To control for time variation, the case studies focus on the events that unfolded in the urban water sectors in both countries in the 1990s and early to mid-2000s. This was an interesting time for the two countries: the cities in both countries witnessed the greatest changes in terms of growth and reforms, which make for good comparison and help provide materials for my study. The Beijing and Shenzhen cases are examples of relatively successful government efforts to reform the urban water management system so as to improve the delivery of drinking water to urban residents. The New Delhi and Hyderabad cases are high-profile instances where wellknown and powerful political leaders failed to bring about reforms to their water utilities. The choice of these four cities demonstrates how different types of social contracts can lead to different government performance outcomes. These cases are not meant to suggest that all Chinese cities are equally successful in providing public goods or that the performance of Indian cities is equally dismal. There are, of course, variations across cities and states in China and India. Prerna Singh has shown that 49

Charles C. Ragin, “‘Casing’ and the Process of Social Inquiry,” in What Is a Case? Exploring the Foundations of Social Inquiry, eds. Charles C. Ragin and Howard S. Becker (Cambridge, UK: Cambridge University Press, 1992).

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Kerala and Tamil Nadu provide better social welfare than the rest of India. In China, there have been incidents where water safety standards were compromised. For instance, in 2014, corroded water pipes led to the leakage of benzene into the water supply system of Lanzhou, capital city of Gansu province, causing widespread unhappiness with the Lanzhou government and the water supply firm, which is a joint venture between the Lanzhou government and Veolia, a French multinational company. However, as the national data in Chapter 1 indicate, Chinese cities by and large enjoy more public goods relative to Indian ones. While variations exist, they are not extreme. It is beyond the scope of this study to try to explain the differences across all cities in both countries. The focus is on first-tier cities in China and India, given their importance as political and economic centers. The choice of a small-N study as my methodology is explained later in this chapter.

Urban Water Supply The study of public goods is important because it is often viewed as one key reason why governments are instituted, and there are often problems or conflicts that arise over their provisions.50 Public goods is defined as goods that “could not be divided among individuals, owing to non-rivalry of benefits and non-excludability problems.”51 As a result, some form of government intervention is usually needed to overcome free ridership and the collective action problem. When a good is nonrivalrous, the consumption or use of the good by one person does not reduce the availability of that good to another person. Nonexcludability applies to a good that no one can be prevented from accessing because of nonpayment. Scholars have recognized that few pure public goods exist, as public goods often exist on a spectrum of nonrivalry and nonexcludability.52 Even air, which is close to a pure public good, can be canned and sold for a price in highly polluted cities, such as Beijing. 50

51

52

Allan Drazen, Political Economy in Macroeconomics (Princeton, NJ: Princeton University Press, 2000), p. 401. Richard Cornes and Todd Sandler, The Theory of Externalities, Public Goods, and Club Goods, 2nd ed., (Cambridge, UK: Cambridge University Press, 1996), p. 3. See, for example, Mancur Olson, Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965) and James A. Buchanan, “An Economic Theory of Clubs,” Economica, 32:125 (February 1965), pp. 1–14.

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Bearing in mind that pure public goods do not really exist, scholars have generally divided public goods into three categories according to how rivalrous and excludable they are: access to amenities, foodstuffs, and benefits.53 The first category is basic amenities and essential services. Access to amenities, such as water, gas, electricity, buses, garbage collection, and sewerage are the most difficult to restrict, and usage by free riders consequently the hardest to monitor.54 These amenities are usually basic to survival or deemed as essential infrastructure to provide a minimum standard of living. The second category, foodstuffs, rationed on an individual basis, is more excludable but not completely, as it is possible to secure extra rations through barter and bribery.55 The third category comprises benefits, such as medical care, education, housing, job security, and pensions. These are the most excludable since socioeconomic status will impact access to these goods. In terms of rivalrousness, the three categories stand in the same ascending order.56 Beyond these three categories of public goods, there are other types of public goods that do not necessarily appear in the form of material goods but which also fulfill the criterion of nonexcludability and nonrivalry. Examples include civil service reforms, national defense, police services and public safety, and even rituals and ideological beliefs. The focus of this book is, however, on the material forms of public goods. My study does not attempt to compare the performance of the Chinese and Indian governments in all three categories of public goods. Instead, it focuses on a specific set of public goods: the supply of drinking water or tap water to urban households, which falls under the first category of least rivalrous and least excludable basic amenities and essential services. The decision to focus on the provision of drinking water to urbanites is based on two key reasons. First, the largely nonrivalrous and nonexcludable nature of drinking water supply facilitates empirical precision as government intervention is expected to be high and thus more easily observable. Drinking water is rarely excludable even in cases of nonpayment. It would be politically and humanely 53

54 55 56

Dorothy J. Solinger, “China’s Urban Transients in the Transition from Socialism and the Collapse of the Communist Urban Public Goods Regime,” Comparative Politics 27:2 (January 1995), pp. 127–146, at p. 138. Ibid. Ibid. Ibid.

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difficult for governments to switch off the tap when someone is not able to pay, since water is needed for basic survival. It is largely nonrivalrous in the sense that water is a renewable resource, although pollution and natural disasters such as drought could limit its supply in the short term. Given low rivalry and excludability, government intervention in the urban water sector should thus be relatively high, such that the actions of various government bodies during critical junctures can be clearly illuminated in my case studies. Furthermore, the provision of basic amenities is often the responsibility of local governments, unlike social welfare or benefits, which are often the result of policymaking at the national level. This allows for close observation of local government activities, which is the focus of this book. For these reasons, the use of empirical evidence from the drinking water sectors in both China and India is particularly well-suited for my book, as it will help facilitate observation of state–society interaction, particularly at the local level, to a high degree. Second, water is a critical issue to both China and India. For China, control over water resources, particularly flood control, is historically associated with political control and social stability, and continues to be an important indicator of the CCP’s ability to govern. For India, water carries political, spiritual, and cultural significance. For instance, the Ganges River, one of the most sacred rivers in India, is the center of Indian civilization and the site of several historical capitals. Water is also economically vital for both countries. They are water-scarce and at the same time, rapidly developing. As a result, water, a resource crucial for survival and development, will become even more salient to their futures. It is estimated that China’s water crisis is already costing China about 2.3 percent of GDP, of which 1.3 percentage points is due to water scarcity and 1 percentage point to the direct impact of water pollution.57 China’s water availability per capita is only 2,200 cubic meters, which is only one-quarter the world average, while India is even worse off with only 1,545 cubic meters.58 By 2030, China is

57

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Jian Xie et al., Addressing China’s Water Scarcity: Recommendations for Selected Water Resource Management Issues (Washington, DC: The World Bank, 2008), p. xxi. Website of the PRC Ministry of Water Resources, “Safe Drinking Water,” available from www.mwr.gov.cn/english/cpws.html (accessed January 12, 2014); and Press Information Bureau, Government of India, “Per Capita Water

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expected to experience a water shortage of about 25 percent.59 Also by 2030, India will likely face a severe water deficit as demand is expected to grow to almost 1.5 trillion cubic meters; it will be impossible for supply to catch up given that the current water supply is only approximately 740 billion cubic meters.60 Apart from water shortages, both countries also suffer from severe water pollution problems. Rapid industrialization in China has led to pollution in China’s water sources; in 2004, the World Bank estimated that of all 745 monitored river basins in China, only 29 percent met standards that are safe for human consumption.61 As for India, it is estimated that 80 percent of India’s surface water is polluted.62 Poor sanitation management and wastewater treatment are the chief causes of water pollution in India. In addition, China and India, like many other parts of the world, suffer from a fragmented urban water management system. There are multiple agencies involved in urban water management; as a result, the lines of authority are unclear, and rivalry among bureaucracies hamper policy implementation. There is no clear oversight and not one particular agency has a holistic view of the water sector. The difference between China and India, however, is that China has achieved relative success in reforming its urban water management system, while India has made little progress. This is not to say that China’s urban water management has no problems; problems persist, but China has managed to take steps to improve its urban water services as compared to India. The purpose of this book is to understand why China has made

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61 62

Availability,” Ministry of Water Resources, available from http://pib.nic.in/ newsite/erelease.aspx?relid=82676 (accessed January 12, 2014). Andrea Hart, “Water Demand-Supply Gap Rising at Alarming Rate, Report Shows,” Circle of Blue, December 2, 2009, available from www.circleofblue.org/waternews/2009/world/news-water-demand-supply-gaprising-at-alarming-rate-report-shows/ (accessed September 14, 2011). 2030 Water Resources Group, Charting Our Water Future: Economic Frameworks to Inform Decision-Making: Executive Summary (2009), p. 16, available from www.mckinsey.com/~/media/McKinsey/Business%20Functions/ Sustainability%20and%20Resource%20Productivity/Our%20Insights/ Charting%20our%20water%20future/Charting%20our%20water%20future %20Exec%20Summary.ashx (accessed January 25, 2015). Xie et al., Addressing China’s Water Scarcity, p. xxi. Sushmi Dey, “80% of India’s water surface may be polluted, report by international body says,” The Times of India, June 25, 2015, available from http://timesofindia.indiatimes.com/home/environment/pollution/80-of-Indiassurface-water-may-be-polluted-report-by-international-body-says/articleshow/ 47848532.cms (accessed October 10, 2015).

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progress in solving some of its urban water problems but India has not. China’s and India’s urban water management frameworks will be discussed in detail in Chapter 5.

Some Limitations Case studies are useful for “addressing qualitative variables, individual actors, decision-making processes, historical and social contexts, and path dependence”63 – all of which are highlighted in this study. Furthermore, as my study examines the interaction between ideational and material variables, the case study method is apt because case studies “are useful for theory development . . . [and] can incorporate both material and ideational variables.”64 However, by focusing only on one category of public goods and four cases within two countries, there are obvious limitations. Because this book is a small-N study, it lacks generalizability, and therefore only provides a plausible explanation of the effects of social contracts on public goods provision. Further research into more cases is needed to strengthen the external validity of my typology. I try to address this by showing in the conclusion that the two types of social contracts in this book can be extended with small variations to other countries, such as Singapore, Japan, South Korea, and Latin American countries, although more extensive research is needed. Studying only one category of public goods also leads to the question whether the observations I have made in this book can be applied to other categories of public goods. However, as I have discussed in the previous section, drinking water supply is well-suited as a case for this study, providing rich empirical details that I will not be able to furnish if more categories of public goods are examined. As a small-N study, my book is only the starting point for theory generation rather than theory testing. It is difficult to devise a program of falsification the first time a new theory is proposed. Nevertheless, small-N studies have powerful advantages in identifying new variables and hypotheses.65 Many important works in the social sciences began with a new and interesting idea that would then be subjected to further 63

64 65

Alexander L. George and Andrew Bennett, Case Studies and Theory Development in the Social Sciences (Cambridge, MA: MIT Press, 2005), p. 9. Ibid. Ibid., pp. 20–21.

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rigorous testing. It is in this spirit that that this book is written to generate interest and future research into an idea that could help explain some of the issues that governments face today, and through such explanations, I am hopeful that appropriate policy solutions can be found. Moreover, the method should follow the puzzle. The aim of this book is to address a specific puzzle and is not intended to address the entire gamut of democracies and authoritarian systems that provide public goods. My hypothesis that the performance of governments follows from the underlying relationship between a government and its people encapsulated in the form of a social contract is based on the need to look at the role of agency and informal institutions. Studying agency and informal institutions require in-depth cases rather than broad sweeps of countries that may miss out pertinent evidence, which could have been the case if large statistical studies were used. Using process tracing, which allows for sequential processes within a particular case, causality is attained through detailed empirical study of cases. The operation of causal mechanisms is examined in great detail.66 There is, therefore, strong internal validity to the cases. The small-N cases thus have distinct advantages because they combine deductive inference and robust empirical illustration to explore an interesting puzzle of real-world consequence. The case studies have a clear narrative, from beginning to end, which allows me to intricately examine the critical aspects of the interactions between local governments, public utilities, ordinary citizens, and non-state actors (in the case of New Delhi and Hyderabad). A key assumption that I have made at the beginning of this study is that society is monolithic. Obviously, this is seldom the case – there are many voices within a single society with different interpretations, preferences, and definitions of a social contract. In my study, I have taken a social contract as having been forged over time when a unitary state is formed. This means that there is a process involved in creating a social contract and in most cases there will be a struggle – between state and society, within a society, and among state actors. From these debates and struggles, a consensus is finally arrived at, and this takes the form of a social contract. A social contract is therefore a bargain. It represents a broad consensus between state and society, and within a 66

Ibid., p. 21.

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society. This book does not aim to trace the origins and process of creating a social contract, but instead takes it as an end product of this process. The focus is on understanding its impact on formal institutions and consequently, the provision of public goods. Future research could examine how social contracts are created and the process by which a consensus or a bargain is arrived at. In the case studies, the social contract may not be explicitly mentioned by the stakeholders. I have inferred the existence of a social contract from documents, statements, and discussions I was able to access. Thus, I have to rely on my professional judgment to interpret a statement or decision. Wherever possible, I have tried to supplement and confirm my judgment with available documentary research in scholarly journals, government reports, and news media. I also rely on interviews with experts and government officials to corroborate my findings.

Conclusion In this chapter, I laid out the impact of social contracts on institutional design, and defined autonomy and capacity as two essential qualities for formal institutions to produce high quantities of public goods. Different types of social contracts exist. The characteristics of a social contract depend on what governments base their legitimacy, and what societies expect from governments; a social contract is formed when a government’s legitimacy is aligned with the expectations of its citizens. In order to preserve the social contract and maximize its chances of staying in power, a government needs to build formal institutions to carry out the mandate of the social contract. Social contracts precede formal institutions. They impact institutional design by circumscribing how much space government institutions can freely maneuver without societal and political interference, and by determining how resources are allocated across government institutions and policy areas. In designing institutions, governments will endow institutions with different capacities and different levels of autonomy since it is both impossible and inefficient for governments to pay equal attention to all issues and allocate limited resources uniformly across various sectors. In the next two chapters, I apply this framework to China and India.

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The Chinese Social Contract

I have heard that a nation or a family does not worry that it has little but that that little is unevenly apportioned, does not worry that it is poor but that it is unstable. Because with equitable distribution there is no real poverty, with harmony, no real scarcity, with stability, no real peril. The Analects of Confucius, Book 16, Chapter 1

At the time of Nicolae Ceaușescu’s execution, Chinese leaders in Beijing were keeping a close watch on the events unfolding in Romania. They had “taken great comfort” in what they thought was Romania’s “impregnability,”1 given the turmoil in the communist world as regime after regime collapsed in Eastern Europe and China’s own domestic troubles in the spring and summer of 1989. Hence, the shockwaves created by the fall of Ceaușescu in late 1989, perhaps even more than the collapse of the other communist regimes, reverberated throughout Zhongnanhai, the seat of political power in Beijing; then US National Security Advisor Brent Scowcroft, who was in Beijing at that time, said, “I believe the Chinese leaders panicked.”2 Indeed, the lessons drawn from the uprising in Bucharest and the subsequent execution of Ceaușescu were not lost on Chinese leaders at that time. Deng Xiaoping told senior party leaders at a meeting to discuss the fall of the communist regime in Romania: “We’ll be like this, if we don’t carry out reforms and bring about benefits to the people.”3 Deng’s warning suggests that there is an agreement or a contract between the Chinese Communist Party (CCP) and the people 1

2 3

Christopher Marsh, Unparalleled Reforms: China’s Rise, Russia’s Fall, and the Interdependence of Transition (Lanham, MD: Lexington Books, 2005), p. 105. Cited in Marsh, Unparalleled Reforms. Cited in Marsh, Unparalleled Reforms, p. 106. See David Shambaugh, The Chinese Communist Party: Atrophy and Adaptation (California: University of California Press, 2008) for Chinese reaction to the fall of communism and the studies they have done to avoid making the same mistakes.

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that is premised on the Chinese government’s ability to deliver economic development and social progress. Previously, in the immediate aftermath of the Tiananmen Square incident in June 1989, Deng had said to the CCP leadership: “We should do some things to satisfy the people. There are chiefly two things: one is to carry out the reform and opening to the outside world with greater daring, and the other is to move swiftly to punish corruption.”4 Deng’s speech points to both the material and normative aspects of the Chinese social contract. Economic development and social stability are the two key mandates encapsulated in China’s social contract. These two mandates have been consistent themes since historical times, becoming more salient during Communist rule, particularly in the reform era. Both mandates are interlinked: economic development helps ensure social stability and vice versa. The Chinese state premises its legitimacy on the delivery of economic and public goods to the Chinese people, as well as on maintaining a harmonious and stable society. This is in line with the expectation of the Chinese people that their economic and social wellbeing will be ensured by the Chinese state; rulers of the Chinese state are considered to be morally upright when the economy is prospering, people’s livelihoods are taken care of, and there is social harmony and stability. In return for Chinese rulers fulfilling their responsibilities, the people give them political compliance. Conversely, Chinese rulers lose the “mandate of heaven” – that is, the moral right to rule – when they fail to look after the people and when there are social upheavals. Studies have found that Chinese city-level officials are incentivized to spend more on public goods, even in the absence of electoral institutions, because better governance is rewarded with political quiescence, which impacts on local officials’ performance evaluations.5 The priority given to delivering economic goods and ensuring social stability leads to an urban bias in China’s social contract, which means that the delivery of economic and public goods is mainly to Chinese cities and urbanites in exchange for urbanites’ compliance. This urban bias is necessary because nondemocratic regimes or authoritarian regimes are particularly vulnerable to collective action in cities since 4

5

Deng Xiaoping, “Urgent Tasks of China’s Third Generation of Collective Leadership,” June 16, 1989, available from https://archive.org/stream/ SelectedWorksOfDengXiaopingVol.3/Deng03_djvu.txt (accessed January 3, 2017). Dickson et al., “Public Goods,” p. 873.

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cities concentrate large numbers of people into a shared space.6 Since the establishment of the People’s Republic of China (PRC) in 1949, this social contract with Chinese urbanites, primarily Chinese workers, is manifested in the form of the household registration or hukou system, and the provision of social welfare through work units or danwei, which are mainly state-owned enterprises (SOEs).7

The Chinese Social Contract Basis of Legitimacy “The mandate of heaven” and the Chinese concept of performance China’s social contract with its strong emphasis on ensuring the wellbeing of the Chinese people is rooted in historical and traditional concepts of authority. The “mandate of heaven” formed the basis of legitimacy for dynastic rule in Imperial China and continues to be relevant to Chinese mindset today. The concept of the “mandate of heaven” was the main narrative employed by imperial dynasties to justify and legitimize rule as well as the right of the people to rebel. According to the “mandate of heaven,” the Chinese emperor, as the supreme ruler, derived his legitimacy and mandate to rule from heaven. The Shang dynasty was the first to invoke the “mandate of heaven” when it overthrew the Xia dynasty.8 The concept was further developed by the Zhou dynasty when the Zhou rulers rebelled against the Shang dynasty. The founders of the Zhou dynasty argued that heaven had once bestowed the mandate to rule to the rulers of the Shang dynasty, but had taken away the mandate and passed it to the Zhou because of the bad rule of the last Shang king and the virtues of the Zhou rulers.9 6 7

8

9

Wallace, Cities and Stability, p. 17. See, for example, Joe C. B. Leung and Richard C. Nann, Authority and Benevolence: Social Welfare in China (Hong Kong: Chinese University Press, 1995). Since SOE reforms were launched in the 1990s, the role of the work unit in providing for social welfare has been reduced. China is still in the process of setting up a viable social security system. Tong Yanqi, “Morality, Benevolence, and Responsibility: Regime Legitimacy in China from Past to the Present,” Journal of Chinese Political Science 16:2 (June 2011), pp. 141–159, at p. 145. Zhao Dingxin, “The Mandate of Heaven and Performance Legitimation in Historical and Contemporary China,” American Behavioral Scientist 53:3 (November 2009), pp. 416–433, at p. 419.

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The “mandate of heaven” had lasting influence because it justified all successful overthrows just as it justified all dynasties that clung to power.10 New dynasties, like the Zhou dynasty, used the mandate to justify their overthrow of another dynasty after the fact; a dynasty could only lose the mandate if another took it to establish a new government.11 If, however, a ruler managed to suppress opposition and cling to power, then he could retain the mandate, despite signs – such as natural or man-made disasters – that his rule might end. Apart from propaganda purposes, however, rulers also saw value in the “mandate of heaven” as a warning and to remind themselves of the consequences of misrule.12 In an early Western Zhou document, the Duke of Zhou wrote: Heaven had ripped off the mandate from the Shang state and passed it us . . . but I cannot count on the mandate resting with us and will respect the heavenly mandate and our people forever. It is all contingent upon human conduct whether or not mistakes and evils will occur . . . Heaven will not take away the mandate that King Wen had received only if we carry on his virtuous conduct.13

In other words, the Duke of Zhou recognized the practical aspects of good governance and the need to ensure the well-being of his people, and he knew that failing to do so could lead to a loss of power and legitimacy. Even though the “mandate of heaven” no longer serves as a formal legitimating tool for the Chinese state, informally, it still influences the thinking and behavior of the Chinese people and CCP leaders. CCP leaders worry about losing legitimacy in the eyes of the people and in ways similar to dynastic rulers, aim to ensure social stability by providing for the well-being of the people. The importance of adhering to the “mandate of heaven” is underscored whenever the occurrence of natural or man-made disasters incite talk that the CCP had lost this mandate. For instance, on top of the political and social upheavals wreaked by the Cultural Revolution, the Tangshan earthquake in 1976 was seen by some Chinese people as a sign that the CCP no 10

11 12 13

Valerie Hansen, The Open Empire: A History of China to 1800, 2nd ed., (New York: W.W. Norton & Company, 2015), p. 44. Ibid. Zhao, “Mandate of Heaven,” p. 419. Book of Documents, 1980, “Junshi” chapters, cited in Zhao, “Mandate of Heaven,” p. 420.

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longer had the mandate to rule. During the Tiananmen Square incident of 1989, various commentators took the student protests as an indication that the CCP regime had lost the “mandate of heaven.” And as recently as the Sichuan earthquake in 2008, there was again speculation that the CCP had lost the mandate. The need for Chinese rulers to function and perform for the benefit of the people is, however, not merely about economic progress and material well-being. There is a moral and normative value assigned to the behavior of Chinese rulers that is intertwined with their ability to produce economic and public goods for their people. Chinese rulers, both historically and the current CCP regime, are considered to be moral when their people have a decent standard of living, when there are no major disasters, and when society is harmonious and stable. Benevolence is a key requirement of Chinese rulers – they must bring benefits to the people to be considered of good moral standing and as a sign that they have the “mandate of heaven.” Scholars have pointed to the normative aspects of the Chinese concept of performance. Tong Yanqi wrote: Contrary to the popular view that the Chinese Communist regime relies primarily on economic performance to sustain its legitimacy, the current regime legitimacy is maintained because of the historically rooted moral bond between the state and society and the societal expectation that the state would be responsible for the wellbeing of the population. The regime legitimacy in China has three overlapping layers: The basic layer is the morality of political elite. The crucial part of the morality is benevolent governance which specifies that the government has to be compassionate to the people. The central component of a benevolent government is the state responsibility to the welfare of the people. All together, these layers created a moral bond between the state and society.14

Likewise, Vivienne Shue argues that CCP state legitimation is made up of three normative components: truth – knowledge of the universe; benevolence – taking responsibility for the welfare of the people and showing compassionate care for them; and glory – pride in a secure, wealthy, and rising power.15 “Rule of virtue” (dezhi) is a narrative used by Chinese officials, giving governance a moralistic tone. That the 14 15

Tong, “Morality,” p. 141. Vivienne Shue, “Legitimacy Crisis in China?” in Chinese Politics: State, Society and the Market, eds. Peter Hays Gries and Stanley Rosen (London: Routledge, 2010).

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CCP considers benevolence a key requirement of government demonstrates the influence of traditional conceptions of performance revolving around the idea of the “mandate of heaven.” The CCP leaders have consistently constructed narratives and visions to support the duality of performance in the Chinese context. Deng said in a speech: In a socialist country, a genuinely Marxist ruling party must devote itself to developing the productive forces and, on that basis, gradually raise the people’s living standards. This means building a society with high material standards . . . At the same time, we are building a socialist society with high cultural and ethical standards, which essentially means that our people should have communist ideals, moral integrity, a good education and a strong sense of discipline. Internationalism and patriotism also belong to this realm.16

Former Chinese President Hu Jintao’s “harmonious society” and current President Xi Jinping’s “Chinese Dream,” a vision of Chinese prosperity and national glory, also point to the relevance and existence of a social contract based on normative and material notions of performance. During his speech at the opening of the 19th CCP Congress in October 2017, Xi further fleshed out his vision when he promised to build a “moderately prosperous society” by eradicating poverty by 2021, and to turn China into a “fully developed nation” by 2049. Xi also promised to forge ahead with enacting legislation and building institutions to root out corruption. In addition, the duality of the Chinese concept of performance can be seen in two key institutions that the CCP relies on to govern – the first stresses material performance and the second normative performance. The importance of material performance is highlighted by the appointment and promotion system of government officials. Chinese party and government officials are appointed and promoted based on their ability to maintain high rates of economic growth, and ensure political and social stability in areas under their charge.17 This is 16

17

Deng Xiaoping, “We Are Building a Socialist Society with Both High Material Standards and High Cultural and Ethical Standards,” April 29, 1983, available from https://archive.org/stream/SelectedWorksOfDengXiaopingVol.3/Deng03_ djvu.txt (accessed January 3, 2017). See, for example, Thomas P. Bernstein and Lu Xiaobo, Taxation without Representation in Contemporary Rural China (Cambridge, UK: Cambridge University Press, 2003); and Fan Yongmao, “The Centre Decides and the Local Pays: Mandates and Politics in Local Government Financial Management in

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particularly true of provincial- and city-level governments; the growth rates of provinces and cities have direct impact on the promotion prospects of city mayors and provincial governors. The emphasis on normative performance is illustrated by the various anti-corruption campaigns that have been launched by the Chinese government since the reform era. These anti-corruption campaigns, the most extended and comprehensive being the current one carried out by Xi Jinping, are aimed at boosting the legitimacy and credibility of the CCP. Top Chinese leaders frequently stress the importance of the anti-corruption campaigns to the legitimacy and survival of the regime. During a speech made at the Second Plenary Session of the 18th CCP Central Commission for Discipline Inspection in January 2013, Xi said, “Only if we remain clean and upright in governance and exercise power in a fair way can we win public trust and support.”18 He also described misconduct, if uncorrected, as “an invisible wall between our Party and the people.”19 In an indication that the concept of morality of Chinese rulers in dynastic times continues to influence Chinese leaders today, Xi said: China’s history of combating corruption and its ancient anti-corruption culture offer enlightenment, as do the failures and successes of the past. This historical wisdom can help us do a better job in combating corruption and upholding integrity today. Through a thorough review of history in China and elsewhere, our Party has realized that improving Party conduct, upholding integrity and combating corruption are vital for the survival of the Party and the state.20

Urban bias The need to preserve social stability by governing cities well and looking after the livelihoods of Chinese urbanites is particularly salient to the legitimacy of the government, compared to the countryside, which traditionally relies on families, clans, and associations to provide welfare services. State-provided welfare services for the rural population are relatively marginal, involving small amounts of relief

18

19 20

China,” Local Government Studies 41:4 (November 2015), pp. 516–533, at p. 518. Xi Jinping, The Governance of China (Beijing: Foreign Languages Press, 2014), p. 425. Ibid., p. 427. Ibid., p. 432.

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for impoverished households and natural disasters.21 Such policies point to a key factor that has shaped the contours of China’s social contract – the threats that cities pose to stability and the regime’s grip on power, resulting in what scholars have described as an “urban bias” and an “urban public goods regime” in the CCP’s policies. Jeremy Wallace defines “urban bias” as a redistributive policy in favor of cities aimed at reducing the levels of urban grievances and improving the living situations of urban residents.22 He links the survival of the CCP regime to urbanization and redistribution, arguing that cities have particular effects on the stability and survival of nondemocracies; as a result, there is a natural inclination for nondemocracies to devote resources to cities and urban workers at the expense of farmers and the rural areas.23 According to Jean Oi, the CCP’s “urbanbiased policies are the insurance policies the regime buys to ensure that those in the urban areas, most importantly the workers, will refrain from political activity that will endanger the stability of the regime.”24 Dorothy Solinger defines “urban public goods regime” as “a structure of essentially free (or very low price) supply that has been obtained for holders of urban residence registration, but from which residents of the rural areas have been excluded since the late 1950s even if they leave the countryside and begin to reside in the cities.”25 This urban bias predates the modern era even though Imperial China was primarily agrarian and peasant rebellions were a constant threat to imperial rule. For instance, relief efforts for rice shortages were “concentrated in urban areas” in Zhejiang province’s Shaoxing in the late Qing period.26 It is also noted that “Chinese governments have relied on agricultural taxes to fund their operations for millennia . . . These taxes built China’s historical cities and paid for the luxurious palaces and playgrounds of the emperors.”27 Under the CCP, the urban bias was developed even more fully: “Social policy was closely tied to a development strategy that keeps the rural and the urban separate and granted privileged provision to 21 22 23 24

25 26 27

White, “Social Security Reforms in China,” p. 176. Wallace, Cities and Stability, p. 30. Ibid., p. 5. Jean C. Oi, “Reform and Urban Bias in China,” in Beyond Urban Bias, ed. Ashutosh Varshney (Portland, OR: Frank Cass, 1993), p. 145. Solinger, “China’s Urban Transients,” p. 134. Wallace, Cities and Stability, p. 124. Ibid., p. 123.

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the urban and industrial sectors over the rural and agricultural sectors.”28 Even before the Communists’ victory in 1949, it is clear that the welfare of urban workers was the first priority – the first soviet established by the CCP, the Jiangxi Soviet (1931–1934), stated in its founding constitution that the purpose of the soviet regime is to improve the “living conditions of the working-class.”29 The urban bias in the Chinese social contract is similar to the Soviet social contract in the post-Stalin and pre-Gorbachev era. Soviet specialists30 have argued that in the post-Stalin era, the Soviet government and industrial workers had made a social contract to trade social security for political compliance. The aim was to create a socialist state in line with the ideals of a planned economy and state ownership of the means of production. Ultimately, the urban bias was to bolster the legitimacy and survival of the post-Stalin regime. This social contract constrained the Brezhnev government (1964–1982), and the subsequent Gorbachev government to carry out policies that benefit workers at the expense of more efficient allocation options and reforms.31 When the CCP came into power in 1949, Mao made the decision to model China’s economic development along Soviet lines, which emphasized industrialization and urban growth. Soviet planners and advisers played critical roles in shaping China’s first five-year plan with its emphasis on heavy industry. In accordance with its social contract, the modern Chinese state’s priority was to build infrastructure for economic development: “The series of five-year plans that were a feature of China’s form of Soviet development provided for major programs to control the supply of water and to build the basic road and rail infrastructure.”32 The emphasis on industrialization elevated the status of Chinese workers. In commemoration of the twenty-eighth anniversary of the CCP, Mao made a speech on June 30, 1949, called “On the People’s Democratic Dictatorship,” which established the leadership of the working class or the Chinese proletariat in Chinese society. Industrial 28 29 30

31 32

Saich, Public Goods, p. 29. Ibid., p. 31. Peter Hauslohner, “Gorbachev’s Social Contract,” Soviet Economy 3:1 (1987), pp. 54–89; Edward A. Hewett, Reforming the Soviet Economy: Equality versus Efficiency (Washington, DC: The Brookings Institution, 1988); Gail Warshofsky Lapidus, “Social Trends,” in After Brezhnev: Sources of Soviet Conduct in the 1980s, ed. Robert F. Byrnes (Bloomington, IN: Indiana University Press, 1983). Cook, The Soviet Social Contract. Saich, Public Goods, p. 23.

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workers were seen as the core of a future communist and socialist state.33 The CCP regime gave urban SOE workers an “iron rice bowl”; the cradle-to-grave benefits of lifetime employment, housing, health care, pension, and post-retirement benefits – in essence, a social welfare system – were tied to the work place. In addition, the CCP accepted the responsibility of feeding the urban unemployed.34 In a 1950 speech to the CCP Central Committee, Mao said, “We should set aside two billion catties of grain to solve the problem of feeding the unemployed workers . . .”35 The aim was to neutralize the urban unemployed as a threat to the regime. Solinger notes that a decision was reached in the 1950s to supply urban amenities either free or at very low cost in Chinese cities, “chiefly to realize the goal of establishing a socialist society whose population was dependent on the state.”36 Local governments in the cities not only provided classic public goods such as policing and physical infrastructure such as sewage and transportation, but also jobs, housing, food, water, schools, etc., for city dwellers.37 Solinger cites an essay on industrialization and urbanization: To secure high rates of profit for industrial enterprises, urban infrastructure is provided free, and public services are priced low . . . housing, water, and gas have become welfare goods. Capital for urban infrastructure development and public services should have been appropriated from the industrial enterprise profit: but the strategy of forced industrialization assumed that there would be enough for everyone given the prosperity that would result from the rapid establishment of the industrial system.38

A clear manifestation of this urban social contract is the hukou system or the household registration system, which privileges China’s urban society over the rural areas. The hukou system was formally instituted on June 22, 1955, when the State Council passed “The 33 34

35 36 37 38

Wallace, Cities and Stability, p. 84. Cheng Tiejun and Mark Selden, “The Origins and Social Consequences of China’s Hukou System,” The China Quarterly 139 (September 1994), pp. 644–668, at p. 646. Ibid., pp. 646–647. Solinger, “China’s Urban Transients,” p. 137. Wallace, Cities and Stability, p. 81. Cheng Xuan, “Problems of Urbanization under China’s Traditional Economic System,” Chinese Urban Reform: What Model Now? eds. R. Yin-wang Kwok, William L. Parish, and Anthony Gar-on Yeh with Xu Xueqiang (Armonk, NY: M.E. Sharpe, 1990), p. 72, cited in Solinger, “China’s Urban Transient,” p. 137.

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Directive Concerning the Establishment of a Permanent System of Household Registration”39 and which became law on January 9, 1958. It gives the Chinese urban population access to a range of amenities such as health care and education, while preventing the rural population from enjoying the same privileges. The hukou system and other urbanization policies also prevent migrant workers (from the rural areas) and their families from gaining access to public services in the cities.40 According to Cheng Tiejun and Mark Selden: The hukou system decisively shaped China’s collectivist socialism by creating a spatial hierarchy of urban places and prioritizing the city over the countryside; by controlling population movement up and down the spatially defined status hierarchy, preventing population flow to the largest cities, enforcing the permanent exile of urban residents to the countryside, and binding people to the village or city of their birth; and by transferring the locus of decision-making with respect to population mobility and work from the transformed household to the work unit or danwei, specifically, in the countryside, to the lowest unit of the collective.41

While steps have been taken to relax the hukou system since reform and opening up, “in metropolises and large cities, hukou systems remain basically exclusive.”42 In cities where residence permit systems have been instituted, the criteria for rural migrants to register as urban residents and gain access to services are set so high that most rural migrants cannot qualify.43 China’s urban bias is also manifested in how the state allocates resources between urban and rural areas. In 2014, for instance, total national expenditure in urban areas (urban maintenance and construction fund) was RMB 1065.9 billion (excluding Beijing municipality) for 653 cities, while total national expenditure in counties (county seat maintenance and construction fund) was only RMB 298 billion for 1,596 counties.44 In the same year, total national fixed asset investment 39 40

41 42 43 44

Cheng and Selden, “China’s Hukou System,” p. 655. See, for example, Wang Yiming, “Urbanization in China since Reform and Opening-Up: An Analysis of Institutional and Policy Factors,” in Challenges in the Process of China’s Urbanization, eds. Karen Eggleston, Jean C. Oi, and Wang Yiming (Stanford, CA: The Walter H. Shorenstein Asia-Pacific Research Center, 2017). Cheng and Selden, “China’s Hukou System,” p. 655. Wang, “Urbanization in China,” p. 22. Ibid. China Urban-Rural Construction Statistical Yearbook 2014.

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in urban municipal service facilities was RMB 1624.5 billion, which is 3.17 percent of the country’s total fixed assets investment, while total national fixed assets investment in county municipal utilities was only RMB 357.29 billion.45 City residents also enjoy state subsidies, which are provided by the government to ensure that essential goods and services are kept affordable in the urban areas. China’s social contract is thus a bargain or an agreement primarily made with its urban population – in return for high-speed economic growth and ensuring the well-being of urban workers, urban workers will be quiescent and support the CCP regime.46 Although scholars have noted the strain on the “urban public goods regime” as a result of the large presence of migrant workers in the cities,47 the urban bias remains intact. Moreover, the effort to close the gap between the urban and rural areas in recent years should not be regarded as “permanent shifts to a rural bias.”48 The CCP has initiated these policies to improve the lives of rural residents and reduce inequalities in order to maintain social stability, but government expenditures and policy orientation show that cities remain the CCP’s priority. The reform of SOEs that led to the shift away from the danwei provision of welfare services did not in reality result in significant differences from past practices: “Access to public goods is still dependent on where people are registered, where they reside and where they work.”49 Furthermore, the reforms that the CCP has made to the hukou system in recent years have not only tightened migration to the largest cities but also made it harder for peasants to permanently migrate to the cities, which enhances the divide between China’s rural and urban population.50 The ideological interregnum China’s performance-based and urban-biased social contract was briefly interrupted when Mao sought to change the underpinnings of 45 46 47 48 49 50

Ibid. Tang and Parish, The Changing Social Contract, p. 34. See, for example, Solinger, “China’s Urban Transients.” Oi, “Reform and Urban Bias,” p. 131. Dickson et al., “Public Goods,” p. 865. See, for example, Kam Wing Chan and Will Buckingham, “Is China Abolishing the Hukou System?” The China Quarterly 195 (2008), pp. 582–606; and Bingqin Li, “China Going Nowhere on Hukou Reform,” East Asia Forum, May 19, 2017, available from www.eastasiaforum.org/2017/05/19/china-goingnowhere-on-hukou-reform/ (accessed October 20, 2017).

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the Chinese social contract, revolutionize Chinese society, remove institutions, and put ideology in the front and center of state–society relations through a series of mass mobilization campaigns. This was particularly true in the Cultural Revolution period (1966–1976), during which Mao’s destructive campaigns nearly derailed China’s development. It destroyed governmental and societal institutions, and the Chinese bureaucracy. Mao also sought to shift China’s industrialization efforts and emphasis on urbanization modeled after the Soviet Union in the early days of the PRC to focusing on the countryside by initiating a campaign to create a “New Socialist Countryside.” The “Up to the Mountains and Down to the Countryside” program sent some 1.2 million youths to the countryside between 1956 and 1966, and another 12 million between 1968 and 1975.51 Thus, during Mao’s rule, he attempted to “ideologize” China’s social contract where mass campaigns and continuous revolutions provided the foundations of state–society relations. However, social contracts are “sticky,” and Mao’s attempts to reformulate China’s social contract were an aberration. Soon after taking over power, Deng Xiaoping set out to restore the terms of China’s performance-focused social contract (elaborated on in the next section). This proves that social contracts are “sticky” and resistant to change. Leaders are constrained by the terms of the social contract, and there are repercussions when leaders do not abide by these terms. The repercussions of Mao’s actions include the disastrous effects on the Chinese nation, the legitimacy of the CCP, and Mao’s own personal position. For the Chinese nation as a whole, the Cultural Revolution led to large-scale economic upheavals and social violence. Agricultural production stagnated, but it was the cities that suffered the most: during the peak of the Cultural Revolution in 1967, industrial production declined by 14 percent.52 Political upheavals during the Cultural 51

52

Elizabeth J. Perry, “From Mass Campaigns to Managed Campaigns: ‘Constructing a New Socialist Countryside,’” in Mao’s Invisible Hand: The Political Foundations of Adaptive Governance in China, eds. Sebastian Heilmann and Elizabeth J. Perry (Cambridge, MA: Harvard University Asia Center, 2011), p. 32. Robert L. Worden, Andrea Matles Savada, and Ronald E. Dolan, eds., China: A Country Study (Washington, DC: GPO for the Library of Congress, 1987), available from http://countrystudies.us/china/90.htm (accessed June 20, 2016).

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Revolution also prevented those who were more reform-minded – like Deng Xiaoping – from implementing modernization programs. The violence and chaos that permeated society as a result of the political purges and actions of the Red Guards “shattered China’s educational system, placed immense strains on the army, and crucially weakened the CCP’s efficiency and morale.”53 Mao’s attempt to make a new social contract based on ideology, mass campaigns, and revolutions, and the concomitant attacks on the party and the political system also affected the legitimacy of the CCP. His actions produced an outcome opposite of what he intended, and made many Chinese lose faith in the CCP. Ezra Vogel wrote: Belief in Mao had provided a secular form of faith that had given hope to many, and their disillusionment extended beyond individual leaders to the system they represented, including the Communist Party and the socialist system. Some Party leaders escaped the brunt of public anger, for they too had been victims. But because Communist cadres had been in charge and had led China through disastrous Great Leap Forward to the Cultural Revolution, at the very least the Party had lost the aura it had once enjoyed. Even the excitement of economic progress could not fully restore the faith or fill the spiritual void.54

And finally, although Mao remained the paramount leader until his death in 1976, he was isolated politically and the institutions that he had built were destroyed. Mao had to rely solely on his personality cult to rule when the institutions that previously undergirded his position and the procedures he had earlier helped built collapsed. According to Huang Jing: . . . his (Mao’s) cult reached the climax in his final days; only through his cult could he maintain his power, which appeared so absolute yet so fragile that it could not tolerate the slightest differences in policy making. The most significant impact of the CR (Cultural Revolution), however, was the loss of the Party’s coherence and the comradeship among the CCP leaders. As a result, personal relations overruled due procedures in decision making, and factional interests prevailed over principle in political affairs.55 53

54

55

Jonathan D. Spence, The Search for Modern China (NewYork: W. W. Norton & Company, 1990), p. 612. Ezra Vogel, One Step Ahead in China: Guangdong under Reform (Cambridge, MA: Harvard University Press, 1989), pp. 39–40. Huang Jing, Factionalism in Chinese Politics, (Cambridge, UK: Cambridge University Press, 2000), p. 268.

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Restoring the performance-based social contract When Deng Xiaoping came back into power in 1978, he set out to restore the people’s faith in the CCP by renewing the emphasis on performance in China’s social contract. He began by reestablishing the Chinese bureaucracy and building new institutions aimed at raising living standards. He understood the national fatigue with mass campaigns and upheavals, and answered the people’s call for a better life – “to be rich is glorious” became one of his key slogans. Deng downplayed the importance of ideology and instead stressed pragmatism: “It doesn’t matter whether the cat is black or white, as long as it catches mice.” In essence, he promoted “socialism with Chinese characteristics,” which connotes a flexible and pragmatic approach to development, incorporating Marxist theory into Chinese reality. He said: The modernization we are striving for is modernization of a Chinese type. The socialism we are building is a socialism with Chinese characteristics. This is because we are acting according to our concrete realities and conditions and mainly relying on ourselves.56

In a speech in 1983 that reveals Deng’s view of the role of the government and what he perceived as people’s expectations of the CCP, Deng listed six areas that clearly reflected the material and normative aspects, as well as the urban bias, of China’s social contract. They are: (1) Adequate food, clothing, and other consumer goods for the people; (2) sufficient housing; (3) full employment in cities and towns; (4) the absence of large flows of rural people flowing into cities; (5) universal primary and secondary education, as well as the availability of funds for education, culture, sports, public welfare, etc.; and (6) raising people’s ethical standards and a lowering of the crime rate.57 Deng encountered serious problems when he took over power – there was high urban unemployment, deteriorating urban housing

56

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Deng Xiaoping, “We Are on the Right Track and our Policies Will Not Change,” June 18, 1983, available from https://archive.org/stream/ SelectedWorksOfDengXiaopingVol.3/Deng03_djvu.txt (accessed January 3, 2017). Deng Xiaoping, “Remarks after an Inspection Tour of Jiangsu Province and Other Places,” March 2, 1983, available from https://archive.org/stream/ SelectedWorksOfDengXiaopingVol.3/Deng03_djvu.txt (accessed January 3, 2017).

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conditions, falling real wages, and a sluggish economy.58 One of Deng’s first tasks was to restore morale and incentives to the Chinese system. He dismantled the People’s Communes in the countryside, and promoted the household responsibility system and township and village enterprises to incentivize production. He also laid the foundations of strong economic growth by building infrastructures. In order to promote local initiative, Deng began a period of decentralization that devolved political and economic power to the provinces and cities. Deng’s efforts to restore China’s performance-based social contract by building infrastructures, institutional reforms, and empowering local governments have enabled the Chinese government to provide a high level of public goods to the people. Deng’s decentralization program will be discussed in greater detail later in this chapter.

Popular Expectations For a social contract to be formed, the basis of legitimacy for the government in power needs to be congruent with popular expectations of the role of government. In the Chinese social contract, the emphasis on the government’s material and normative performance – which is judged based on its ability to provide for the Chinese people – aligns with people’s expectations of a paternalistic Chinese state. Dickson et al. found that “the public sees solutions to most problems as the responsibility of the state . . . Local officials say that society holds them responsible for these issues and believe that more investment in these areas is necessary to meet society’s expectations.”59 Chinese expectations of a paternalistic state are rooted in the Confucian ideal of paternalistic authority. Confucianism is based on an intricate web of relationships, with the family as the building block. Duties toward the family naturally extend to duties toward the state, which according to Confucianism’s hierarchical social organization is a larger household with the Chinese emperor as the head of the household and the father of the Chinese nation. Chinese officials are known as “father–mother” officials (fumu guan) while the Chinese people are “children–citizen” (zimin). This relationship comes with its rights and reciprocal obligations. The Chinese state is obliged to 58 59

Leung and Nann, Authority and Benevolence, p. 27. Dickson et al., “Public Goods,” p. 873.

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provide for the material well-being of its people. In return, filial piety and submission to the elder is the duty of the subordinate. The Analects of Confucius explains that government exists for the benefit of the governed: “The requisites of government are that there be sufficiency of food, sufficiency of military equipment, and the confidence of the people in their ruler.”60 The supreme political authority in China is expected to guarantee peace and harmony among all his subjects. He rules by example. The well-being of everyone depends upon the performance of the top political ruler.61 Rulers are therefore judged and assessed by the people according to their performance, both in their moral conduct as well as ability to ensure the well-being of their people. On the various roles of Chinese rulers, Zhao Dingxin found that: The many duties that an emperor needed to fulfill vary to a certain degree across Chinese dynasties, but in general, a good emperor needed to act according to moral principles prescribed in the Confucian teachings, maintain the functioning of the government administration and public order, lead the defense of the state in times of foreign attacks, and take responsibilities for the people’s welfare and associated public works, including but not limited to flood control and irrigation projects, road construction, and famine relief during natural disasters. The premodern Chinese state assumed responsibility for providing many public goods that were not supplied by most other premodern states.62

Because the Chinese construct of the world and society emphasizes relations rather than actors or individuals,63 the concept of individual rights or citizenship rights does not exist in traditional Chinese culture and psyche: “The Chinese considered that the individual’s status as a citizen derived from the state and therefore, the concept of individual considerations delimiting the power of the state is very alien.”64 These traditional cultural attitudes explain to a large degree why the Chinese state historically and currently has tremendous powers, and is able to function autonomously. 60

61

62 63

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The Analects of Confucius, translated by Burton Watson (New York: Columbia University Press, 2007), book 12, chapter 7. Pye, Asian Power, p. 76. See Zhao, “Mandate of Heaven,” pp. 416–433 for an extensive discussion on the long history of performance legitimacy in China. Zhao, “The Mandate of Heaven,” p. 421. See Qin Yaqing, “A Relational Theory of World Politics,” International Studies Review 18:1 (2016), pp. 1–15. Leung and Nann, Authority and Benevolence, p. 32.

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It therefore follows that where public goods and welfare goods are concerned, making demands on the state to provide these goods is not seen as legitimate. Chinese citizens cannot exert a legal and formal claim on the government to fulfill their welfare needs. In addition, the concept of benevolence suggests that benefits are bestowed by the state on the people, and it is not the right of the people to demand and expect benefits from the state. The state’s provision of public goods is thus a gift from the state rather than a right.65 However, just as there are obligations on the part of the Chinese people to serve and contribute towards society, there are obligations on the part of the state that it must fulfill if it wishes to maintain legitimacy and “keep up its end of the bargain” in the social contract. There are expectations on the part of the people that authorities would provide basic services even if these expectations are not based on legal rights and cannot be demanded as such: “rights to welfare are not based on legal entitlement; rather, it was the moral obligation of the collectives that ensured a paternalistic protection of its members.”66 CCP rule further extended the paternalistic authority of the state. When the CCP came into power, it promised equality and egalitarianism, and improvements in the livelihoods of the people. By constructing a social welfare system based on the work unit, . . . the CCP created an occupational welfare system that represented an unprecedented level of intervention by a Chinese government into the lives of its people, and brought into being a welfare institution previously unknown in traditional China. This development also served the new government’s need to secure the support of urban employees for a Communist regime and its nationalization program during a period of economic recovery and nation building.67

By implementing these policies and providing Chinese workers with cradle-to-grave benefits, the CCP has introduced socialist principles on top of the traditions of a paternalistic state. Such policies further engrave in the mindset of the Chinese people the expectation that it is the duty of the state to deliver public goods and provide for their material well-being. Although SOE reforms have gradually dismantled

65 66 67

Ibid. Ibid., p. 159. Ibid., p. 55.

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the extensive social welfare system tied to the workplace,68 expectations remain that the state will continue to provide basic amenities and services such as drinking water, electricity, roads, and transportation. The CCP is also putting in place a social welfare system to replace the system that is tied to the work unit, including the minimum livelihood guarantee (dibao) scheme, which aims to lift the urban poor out of poverty.69 While the transition to a new social welfare system has created some upheavals in the lives of Chinese workers,70 the overall improvement in the lives of ordinary people as a result of economic growth and government delivery of public goods suggests that the Chinese social contract remains intact.

Impact of the Chinese Social Contract on Public Goods Provision China's urban-biased and performance-centric social contract leads to formal institutions with the autonomy and capacity to generate high quantities of public goods (Figure 3.1). In Chapter 2, I pointed out that social contracts delineate the space between state and society (autonomy) as well as determine the allocation of resources across institutions and policy areas (capacity). China’s social contract grants the Chinese

68

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70

See Mark Frazier, Socialist Insecurity: Pensions and the Politics of Uneven Development in China (Ithaca, NY: Cornell University Press, 2010). Frazier provides an excellent account of how local governments worked with enterprise managers to shape pension reform following the dismantling of the danwei welfare system. See Chen Shaohua, Martin Ravallion, and Wang Youjuan, “Dibao: A Guaranteed Minimum Income in China’s Cities?” World Bank Policy Research Working Paper 3805 (January 2006), available from https:// openknowledge.worldbank.org/bitstream/handle/10986/8831/wps3805.pdf? sequence=1&isAllowed=y (accessed October 23, 2017). There are difficulties involved in implementing dibao, such as assessing which households qualify for the scheme. Disbursement of funds have been slow, and there have been charges of corruption as well. Nevertheless, the scheme is a starting point for a basic universal income in China. Saich, Public Goods, pp. 5–6. Tony Saich argues that there have been tremendous strains on China’s urban and rural social welfare system, particularly in pensions and rural health care. Despite the many weaknesses, however, Saich nevertheless sees definite progress in the lives of the Chinese people as China’s HDI rose at a respectably high- to middle-level rate from the mid-1970s onwards.

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China’s performancebased social contract

(a)

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Strong institutional capacity and autonomy

(b)

High level of public goods

Figure 3.1 China’s Social Contract and Public Goods Provision

state extensive political rights, and considerable authority and autonomy in policymaking and implementation vis-à-vis society, as long as it fulfills the people’s expectations that their basic welfare will be taken care of [Figure 3.1(a)]. Because institutions have autonomy, they are not easily captured or manipulated by societal groups that could intervene in the allocation of public resources. Autonomy thus leads to institutions that carry out reforms and implement policies that serve the public interest rather than the interests of private groups [Figure 3.1 (b)]. At the same time, the emphasis on economic growth in China’s social contract necessitates that public works infrastructure is adequate for the development of Chinese industries and for ensuring that the urban populace has access to basic amenities. This results in the allocation of resources to government institutions involved in the production of urban public goods [Figure 3.1(a)]. With financial capacity and manpower, these institutions are better equipped to generate public goods [Figure 3.1(b)]. The autonomy and capacity of government institutions in producing public goods are most evident at the local government level: drinking water is the purview of city governments. Deng Xiaoping’s decentralization efforts resulted in highly autonomous local governments with a strong capacity to deliver public goods. Decentralization empowers local governments to adapt national policies to suit local conditions and independently formulate and implement policies aimed at improving the lives of the people [Figure 3.1(b)]. For instance, the Shenzhen municipal government was given the right to formulate independent legislation in 1993 so as to enable Shenzhen, as a special economic zone, to carry out market liberalization and speed up economic growth. Municipal governments also have the capacity to seek out independent sources of income in the form of extra-budgetary or offbudgetary revenues to fund the construction of public infrastructures and deliver public goods to urban residents [Figure 3.1(b)].

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In the process of policy implementation, local governments encounter relatively limited societal interference because in the Chinese social contract, the people agree to give substantial compliance to the government so long as the government continues to ensure their wellbeing, thus insulating government institutions from societal forces. By and large, municipal governments have been able to set water tariffs, which is important in the long run for the provision of drinking water as sufficient water tariffs enable public utilities and water companies to recover costs and ensure maintenance of water systems [Figure 3.1(b)]. Public hearings are conducted when public utilities want to raise water tariffs, but these are pro forma and water tariff increases are usually passed, as the state appoints representatives who sit in these hearings.71 In addition, while there have been a number of cases of public opposition to water tariff increases, these incidents have been isolated and few and far in between compared to the protest incidents in India.72 The insulation from excessive societal interference also means that municipal governments could tap into private investments to finance public utilities with minimal opposition, thus bolstering the ability of public utilities to generate higher quantities of public goods [Figure 3.1(b)].

“Chinese-style” Autonomy Traditional Chinese concepts of authority give the Chinese state and rulers substantial autonomy from Chinese society. Chinese society is built on a web of relationships that comes with reciprocal obligations rather than individual or citizen rights. That access to public goods is seen as a gift bestowed by a benevolent state rather than as a legal right means that Chinese civil society has limited legal recourse to make legal 71

72

Yan Wei, Regulating Municipal Water Supply Concessions: Accountability in Transitional China (Berlin: Springer-Verlag, 2014), p. 95. An example would be the controversy that resulted from Veolia, a French multinational company, bidding at a high premium to acquire a 45 percent stake in Lanzhou Water Group Company in 2007. There was public speculation that the high premium would translate into large price increases for the residents of Lanzhou. Subsequent price increases were blamed on Veolia’s high premium acquisition, provoking public opposition. See Fang Rong, Governing Water in China: Implications from Four Case Studies (San Diego, CA: Laboratory on International Law and Regulation, 2001), pp. 67–69, available from http:// ilar.ucsd.edu/_files/publications/working-papers/working-paper-4.pdf (accessed July 4, 2016).

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demands on the state. Given this, the Chinese government is protected to a large degree from societal interference in public policymaking.73 In addition, China’s social contract and its emphasis on the “mandate of heaven” grants considerable authority and autonomy to Chinese rulers [Figure 3.1(a)]. As the “Son of Heaven,” the Chinese emperor was all-powerful in the daily lives of the Chinese people. He “owned” all of China, including its territories and resources. He had despotic power in that he could make decisions over civil society.74 The Chinese emperor was, at the same time, a remote figure from the Chinese people. Their form of contact with the emperor was through local officials appointed and sent by the emperor to govern on his behalf in the localities. Given that the emperor was all-powerful and at the same time remote from the daily lives of his subjects, the space between state and society in Imperial China was therefore relatively large [Figure 3.1(a)]. In traditional Chinese society, individuals had little contact with the state in their day-to-day lives. The Chinese state was thus able to make decisions and implement directives with minimal challenges from Chinese society. The modern Chinese state is even more powerful than the prerevolutionary Chinese state: “The Chinese government, responsible for administrative functions, and the party, responsible for policymaking, coordination, and supervision, constituted separate but closely intertwined organizational hierarchies stretching from Beijing through multiple intermediate levels down into each village, factory, school, and neighborhood.”75 From its very beginning, the CCP party-state was much larger in size than the mere 40,000 offices that existed during the nineteenth-century imperial system, and also much larger than the 2 million functionaries of the Kuomintang government.76 The CCP regime extended the reach of central power to an unprecedented 73

74 75

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Public opinion is increasingly important in China in that nationalism has become a significant force in Chinese society. However, given that China is not a democracy and rule of law is still in the nascent stage, the Chinese government has substantial leeway before it needs to respond to public opinion. Public opinion as a factor in decision-making is also dependent on the issues – public opinion is more salient in foreign policymaking, particularly in terms of relations with the United States and Japan. Mann, “Autonomous Power of the State,” p. 188. Theda Skocpol, States and Social Revolutions: A Comparative Analysis of France, Russia, and China (Cambridge, UK: Cambridge University Press, 1979), p. 23. Ibid.

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degree: “The new political system expanded its activities into functional areas, such as the direction of economic production and the provision of social and educational services.”77 That the state can now penetrate into the daily lives of its people narrows the space between state and society. However, through the enlargement of state functions and scope in accordance with the performance mandate of the Chinese social contract, the Chinese state’s infrastructural power, defined as the state’s ability to deeply penetrate society,78 has increased. The strengthening of state power has a positive impact on institutional autonomy [Figure 3.1(a)] because it increases societal reliance on state provisions and increases the state’s oversight of the lives of the people, thus allowing the state greater maneuvering space vis-à-vis society. Even in the area of citizen action, the Chinese state remains “in the driver’s seat.” For instance, popular protests through petitioning in China mainly occurs within the realm of state control as the party-state takes a proactive role in facilitating popular contention.79 Although such protests may achieve some success and exert some influence on public policy, the gap between these pressure groups and the elite remains significant.80 The term “responsive authoritarianism” has been used to describe China as a regime that actively seeks feedback from society and selectively responds with policy changes as a safety valve to release societal tension and prevent widespread opposition to itself.81 That it can selectively choose to respond to societal demands is an indication of the autonomy that the Chinese state and its institutions have in relation to society. Strictly speaking, however, the Chinese state does not have a politically autonomous bureaucracy because it operates as a party-state. For

77 78 79

80 81

Ibid., p. 264. Mann, “Autonomous Power,” p. 188. Chen Xi, Social Protest and Contentious Authoritarianism in China (New York: Cambridge University Press, 2012). Ibid., p. 198. See, for example, Robert P. Weller, “Responsive Authoritarianism and Blind-eye Governance in China,” in Socialism Vanquished, Socialism Challenged: Eastern Europe and China 1989–2009, eds. Nina Bandelj and Dorothy J. Solinger (New York; Oxford: Oxford University Press, 2012), and Christopher Heurlin, Responsive Authoritarianism in China: Land, Protests and Policy Making (New York: Cambridge University Press, 2016).

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instance, the membership of the party Central Military Commission is the same as the membership of the state Central Military Commission. In fact, the party is considered to be higher in rank than the State Council. Likewise, in the provinces and lower levels of government, the party is ranked higher than state institutions; party secretaries are higher in rank than governors and mayors. Theda Skocpol describes the Chinese bureaucracy as a “politicized bureaucracy.”82 Nevertheless, state institutions enjoy operational autonomy, defined as autonomy in making day-to-day decisions and implementing decisions on operational issues. By and large, Chinese bureaucratic institutions have the authority and independence to act without consulting the party on operational issues.83 Substantial power has been devolved to lower levels of government in order to make governance more effective and efficient [Figure 3.1(a)]. Operational autonomy on the ground translates into a considerable amount of de facto independence from political control: “In the Reform Era, many public agencies have begun to seek a somewhat independent identity and are acquiring distinct institutional interests.”84 State institutions, specifically SOEs, enjoy substantial autonomy even though the Chinese government appoints their top management. In a study on China’s petroleum industry, Bo Kong shows that the Chinese government no longer completely controls state-owned oil companies, which are increasingly competitors for power and influence in a complex political environment.85 The interests of these companies are not always aligned with the political and foreign policy interests of the Chinese government. Similarly, Erica Downs and Michael Meidan have pointed out: Ownership, however, does not always equal control, and this is true for China’s NOCs [National Oil Companies]. The companies’ political power, financial clout and technical expertise provide them with considerable influence over energy projects and policies in China. Not only do the NOCs and their CEOs have higher bureaucratic ranks than some of the government and official bodies responsible for the energy sector, the NOCs are also some of 82 83

84 85

Skocpol, Social Revolutions, p. 265. Author’s notes, interview with the chief executive officer of a state-owned enterprise in the water industry, August 30, 2012. Chen, Social Protest, p. 16. Bo Kong, China’s International Petroleum Policy (Santa Barbara, CA: Praeger Security International, 2010).

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the most profitable state-owned enterprises in China. Moreover, the NOCs have the expertise required to discover, develop, produce and transport the oil and natural gas China needs to help fuel its continued economic rise. Finally, the combination of technical know-how and a unique position within the political system gives the NOCs a strong say in policy debates and in the subsequent policy choices.86

The above examples suggest that formal institutions in China have substantial operational autonomy and autonomy from societal interference, and some degree of political independence. While such high levels of autonomy could lead to low accountability, corruption, and abuses of power, Chinese institutions, to a large degree, have thus far used their autonomy to implement policies that benefit the Chinese populace [Figure 3.1(b)]. Francis Fukuyama points out: Chinese-style autonomy frees the state of many of the interest group pressures, lobbyists and formal procedural constraints that prevent liberal democracies from acting quickly and weaken the quality of decisions ultimately made. In the hands of a competent leadership that wants to serve public purposes, such autonomy allows the government to move much more quickly and dramatically on policy issues than its democratic counterparts.87

Patronage networks remain a core component of the Chinese system. Top Chinese leaders, for instance, tend to promote and put in place their loyalists, and hence, there is no real political autonomy. But the agreement between the center and the localities that public goods provision is a key priority of the Chinese social contract guards against rampant appropriation of state resources by any particular political faction or societal group. The numerous anti-corruption campaigns that have been carried out in the reform era also limit predatory rent-seeking behavior and help instill public accountability.

Decentralization and Empowering Local Governments The policy of decentralization begun under Deng Xiaoping is a key manifestation of China’s performance-based social contract. Deng saw 86

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Erica Downs and Michael Meidan, “Business and Politics in China: The Oil Executive Reshuffle of 2011,” China Security 19 (2011), pp. 3–21, at p. 5. Francis Fukuyama, Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy (New York: Farrar, Straus, and Giroux, 2014), p. 376.

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decentralization and empowerment of lower levels of government as essential for promoting growth and social stability so as to uphold the CCP’s end of the social contract. Decentralization and reforms under Deng played a critical role in enhancing the autonomy and capacity of local governments [Figure 3.1(a)], which explains why the Chinese government through its city governments is able to do a relatively good job in delivering public goods to urban residents [Figure 3.1(b)]. According to Franz Schurmann, a provincial government in China is not simply an offshoot of the central government, “It has a considerable range of operational autonomy, made possible by the great strength of the Party at the provincial level.”88 The devolution of authority does not stop at the level of provincial governments, but is also extended to city and county governments. City governments, which are directly responsible for public goods provision in urban areas, therefore have substantial autonomy from society, operational autonomy, and a degree of autonomy from central political control. Schurmann argues that the decentralization process in China is distinct from the decentralization process in the Soviet Union; in the Soviet Union, decentralization was ineffective because the entrenched interests of central agencies made it impossible for regional economic agencies to exercise real powers.89 By contrast, in China, the authority that is given to provinces and municipalities in the reform era often trump the line ministries of the central government. Decentralization was aimed at encouraging local initiative so as to facilitate rapid economic growth. Provinces were given the mandate to adapt central policies to local conditions and to develop economically according to local policies, as it had become impossible for all projects to be planned and controlled according to blueprints and procedures handed down from central ministries. Instead, much responsibility for initiating and managing non-large-scale industries, social services, and agricultural development was delegated to lower level local or regional leaders. However, when decentralization devolved too much power to the localities, there were attempts by the central government to gain back some control, although the overall trend of decentralization persists. 88

89

Franz Schurmann, Ideology and Organization in Communist China, 2nd ed. (Berkeley, CA: University of California Press, 1968), p. 176. Ibid.

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The most obvious attempt at recentralization was the 1994 tax revenue sharing reform that sought to increase the central government’s share of tax revenue. As a result, the central government received the lion’s share of tax revenues, particularly the value-added tax, which was put under central administration. Andrew Mertha also noted the center’s attempt at “soft centralization,” which is to centralize a number of regulatory bureaucracies up to the provincial level.90 In more recent years, as localities become increasingly more powerful relative to the central government, the Chinese leadership made moves to reconsolidate its power. An example of this is the attempt to rein in the “shadow banking system,” which sees a coalition of local government and banking interests providing unofficial and unsupervised loans to financial markets. Xi Jinping is also seeking to recentralize power by strengthening central control over the economy, the provinces, and SOEs. Nevertheless, the overall decentralization trend is unmistakable and inexorable. The central government will have to continuously maintain a fine balance between the power of the center and local autonomy. It will be difficult to put a lid on local initiative and autonomy, and extensively strengthen central control without causing considerable economic and social upheavals. Although China has a centralized political system, local governments have substantial power and autonomy, particularly in economic decision-making. This autonomy is critical, for it gives local governments the mandate to implement policies that will help raise the production of economic and social goods [Figure 3.1(b)].

Financial Capacity of Local Governments The Chinese social contract, through the decentralization process, also substantially empowers local governments by enhancing their extractive and distributive capacities [Figure 3.1(a)]. Governments allocate resources to priority areas as stipulated in their social contracts. In the Chinese case, resources are devoted to cities so as to enable municipal governments to deliver public goods to urban residents [Figure 3.1(b)]. As previously shown, the central government spends more in urban than rural areas in accordance with the urban 90

Andrew C. Mertha, “China’s ‘Soft Centralization’: Shifting Tiao/Kuai Authority Relations,” The China Quarterly 184:1 (December 2005), pp. 791–810.

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Local government investment

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Central government investment

Figure 3.2 Total Investments in the Production and Supply of Water (2013)91

bias in the Chinese social contract. However, central government investments in public utilities are only a small portion of total investments made by the Chinese government. Figure 3.2 shows that local governments provide the lion’s share of investments in the water sector. The central government’s contribution typically makes up only about 1 percent of the total investments in the production and supply of water. So how does the central government ensure that local governments have the financial capacity to produce and supply public goods? It does so by strengthening the extractive and distributive capabilities of local governments so that they can raise funds for fulfilling their mandates. Compared to city governments in India, local governments in China have substantial extractive capacity. They are able to impose taxes and charges on local enterprises, some legal and some not, which are retained by local departments and used for specific purposes. A systemic source of urban infrastructure financing is the urban maintenance and construction tax (UMCT), which was launched nationwide in 1985.92 The full proceeds of this tax are retained by the municipal governments for local infrastructure development. It has become a stable source of funding for local governments. However, over time, the importance of the UMCT as a source for infrastructure funding has lessened. Another tax, called the public utility surcharge, is also a source of funds for local governments. The tax rates are set by the central government.

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National Bureau of Statistics of China, China Statistical Yearbook 2014 (Beijing: China Statistic Press, 2014). Darshini Mahadevia, “Urban Infrastructure Financing and Delivery in India and China,” China & World Economy 14:2 (2006), pp. 105–120, at p. 109.

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Since 2001, nontax methods of financing urban infrastructure have increased. Local governments have the legal right to raise funds by tapping foreign investment. Foreign investment – including direct investment – is an important source of financing for urban infrastructure but is largely confined to coastal cities. Local governments also raise funds through local investment companies. To enhance the capacity of local governments in raising funds for public works projects through investment, local governments are given a certain amount of authority to approve investment projects related to public works. The Decision of the State Council on Reforming the Investment System, issued by the State Council on July 24, 2004, clarifies the approval process for investment projects. Urban water sector projects, which are critical to public welfare, are categorized as restricted projects. This means that government agencies have to examine and approve them. The Catalogue of Investment Projects Requiring Government Verification and Approval, issued in 2004, listed the authorities that were authorized to approve urban water supply projects: “Apart from projects with 500,000 tons of water transfer or more per day across provinces (districts, cities) that need to be verified and approved by the investment administration of the State Council, the investment administration departments of local governments have the authority to verify and approve the rest of urban water supply projects.”93 Such provisions strengthened the authority of local governments in raising funds through investment in urban water projects. The Chinese central government also granted local governments the right to raise funds through the bonds market. In the past, Chinese local governments were not legally allowed to issue municipal bonds to raise capital for infrastructure construction. However, this began to change as China focused on constructing its capital market. In late 2011, steps were taken to loosen the restrictions on local governments raising funds by issuing municipal bonds. Four cities and provinces (Shanghai city, Shenzhen city, Zhejiang province, and Guangdong province) were chosen to participate in a pilot program to issue municipal bonds.94 The Ministry of Finance agreed to guarantee 93

94

Fu Tao, Chang Miao, and Zhong Lijing, Reform of China’s Urban Water Sector (London: IWA Publishing, 2008), p. 225. “Muni Bonds Set to Complement Chinese Water Spending,” Global Water Intelligence, October 27, 2011, available from www.globalwaterintel.com/ news/2011/43/muni-bonds-set-complement-chinese-water-spending.html (accessed January 13, 2012).

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repayments on the bonds, which raised their creditworthiness and hence the attractiveness of the bonds to investors. The China Insurance Regulatory Commission also issued the Pilot Administrative Measures on Investment by Insurance Funds in Infrastructure Projects, making it possible to indirectly invest life insurance funds in infrastructure projects. Nevertheless, official sources of revenue for sustaining the role of local governments in financing urban water infrastructure projects are still insufficient to ensure a high standard of water service delivery. The 1994 tax reforms had significant repercussions on the financial capacity of local governments. Local governments had no solid or constant tax bases as a result of the reforms, thus impacting their fiscal autonomy as they became more reliant on central government fiscal transfers (earmarked, lump sum, and tax rebates) and had less discretion over the use of fiscal resources.95 This, coupled with the fact that local governments continued to bear substantial responsibilities for welfare and social services, resulted in “unfunded mandates” – the central government made policies that require spending at the lower levels of government to implement without providing for the necessary financial resources.96 Without adequate central government funds and subsidies, and with increasing governance demands placed on them, local governments have to seek alternative sources of revenue. To this end, the central government has either explicitly or tacitly permitted local governments to carry out measures to soften the budget constraints on “unfunded mandates.” Local government agencies participate in market activities in order to earn revenue. The central government permits local governments to retain these earnings and surplus revenue to use them for their own purposes. Extra-budgetary and off-budgetary revenues97

95 96 97

Fan Yongmao, “The Centre Decides and the Local Pays,” p. 517. Ibid. Extra-budgetary revenue refers to legitimate budget-excluded incomes collected and utilized by government representatives, including state organs, public institutions, and social organizations, mainly composed of charges for administrative and institutional units. Off-budgetary revenue derives mainly from the fees collected from land transfers. Bonai Fan, Ming Zhang, Chen Fang, Jing Wang, “Government Waste in China: Situation, Causes and Countermeasures,” Asian Survey 50:4 (July/August 2010), pp. 684–708, at p. 691.

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have become important for sustaining local expenditure. According to Bonai Fan et al., extra-budgetary and off-budgetary revenues are estimated to at least equal, if not surpass, budgetary revenue.98 The extra-budgetary revenues include water use surcharges, domestic loans, foreign capital, enterprise self-raised funds, and proceeds from land lease, among others.99 The off-budgetary revenues are revenues that local governments do not report to higher levels of government. They include earnings of SOEs, and taxes and charges on local enterprises.100 These provide important sources of funds for municipal infrastructure development. By contrast, local government bodies in India are not empowered and do not have the capacity to independently raise funds to finance municipal projects. Even though “unfunded mandates” remain a problem for local governments in China, they, unlike their Indian counterparts, at least have a set of financial tools at their disposal to finance basic services.

Conclusion The concept of a social contract explains how and why the CCP regime chooses to allocate resources to some areas but not others. For instance, scholars have noted that China has weak institutions in the rule of law, social organizations, and electoral systems.101 These institutions are weak precisely because the development of democratic institutions in the Western sense is not a priority in the Chinese social contract. However, institutions involved in the production of economic and social goods are strong because allocating resources to these institutions is in line with the terms of the social contract. Institutions in this area are therefore more likely to be responsive to the people’s needs and will implement policies and undertake reforms accordingly to satisfy their expectations. The Chinese social contract thus results in autonomous and powerful formal institutions involved in the production and delivery of public goods. Deng’s decentralization program was a key manifestation of the 98 99 100 101

Ibid. Mahadevia, “Urban Infrastructure Financing and Delivery,” p. 109. Ibid. See, for example, Tang Wenfang, Populist Authoritarianism: Chinese Political Culture and Regime Sustainability (New York: Oxford University Press, 2016).

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CCP’s social contract with the Chinese people. As specifically detailed in this book, the financial tools of local governments and the governments’ ability to have a free hand to run public utilities and set water tariffs without significant societal interference facilitate the delivery of drinking water to urban residents. The case studies on Beijing and Shenzhen will illuminate in greater detail the autonomy and capacity of powerful municipal governments.

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The Indian Social Contract

I see no way of ending the poverty, the vast unemployment, the degradation, and the subjection of the Indian people except through socialism. Jawaharlal Nehru, Presidential Address to the Indian National Congress (1936)

Both India and China are avowed socialist countries. In China’s case, “socialism with Chinese characteristics” – which aims to adapt socialist theory to Chinese realities – connotes a certain amount of pragmatism. That the Chinese leadership has successfully used “socialism with Chinese characteristics” to justify private sector participation1 and launch reforms since the 1990s to get rid of poor performing stateowned enterprises (SOEs) points to the flexibility of China’s brand of socialism. This pragmatic and flexible approach suggests that performance rather than socialism per se is the basis of legitimacy in China’s social contract. In India’s case, attempts to liberalize its economy since the 1980s have been slow, and state ownership, especially of public utilities, remains a pillar of the economy. Two key tenets form the basis of legitimacy in India’s social contract: (1) socialism, which emphasizes state ownership of the means of production, egalitarianism, and a welfare state and (2) populism, which originates from how democratic participation in India has developed, champions the interest of the common people against elitist interests.2 Since independence, India has been successful to a large extent in fulfilling the aim of state ownership of strategic industries and 1

2

The Chinese prefer the term, “marketization” (shichanghua), as it is deemed to be more politically acceptable. In essence, populism stresses the sovereignty of the people, challenges the current “unjust” order, and promises the reconstruction of a truly democratic order. Francisco Panizza and Romina Miorelli, “Populism and Democracy in Latin America,” Ethics and International Affairs 23:1 (April 2009), pp. 39–46, at p. 40.

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mineral resources but has been far less successful in the welfare aims of socialism. At the same time, as democratic values took hold in India, the tensions that resulted from building a democratic system on top of a preindustrial society led to the emergence of populism; the expansion of traditional patronage systems and identity politics from the rural areas to the highest levels of politics; and a rural bias in government policies. As politicians find it harder to fulfill the welfare promises of socialism, populist policies become useful stopgap measures in lieu of a truly socialist welfare system. In exchange for votes, politicians must seem to champion the rights of the underclass and the rural population, give handouts to the poor, and eschew policies that appear to harm the interests of the lower stratum of society even though they may be economically beneficial in the long run. As seen particularly during her reign, in order to strengthen her political position Indira Gandhi adopted a populist posture, established direct links with the masses, and centralized and personalized power. She popularized the phrase “roti, kapda aur makaan ” (“food, clothing, and shelter”) as her campaign slogan during the 1967 election. Other national leaders and politicians at the state and local levels further entrenched populism by employing pro-poor rhetoric and promises of “free water, free electricity.” These slogans form a popular narrative that is centered on the populist and socialist tenets of India’s social contract. The stickiness of social contracts helps explain why India has had difficulties reforming its economy and public utilities. Indian politicians run the risk of losing power if they promote policies that seem to contradict India’s social contract. They fear being branded as “antipoor” and therefore frequently revoke policies that are pro-growth but which threaten socialist tenets, and adopt populist measures instead in order to appeal to the people. National and state leaders often camouflage pro-growth policies while maintaining their populist image. The Indian people expect the government to provide for their basic needs and services such as water and electricity, but at the same time, they are strongly opposed to the introduction of foreign investment and private capital into public utilities because such policies contravene socialist principles. They view water as a basic right and fear that such reforms would raise water tariffs and further worsen the plight of the urban poor.

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The Indian Social Contract Postindependence Origins The differences between the historical evolution of the Indian state and the Chinese state have an impact on how social contracts are conceived in the two countries. The presence of a unitary state in China since historical times has resulted in a social contract in which the themes of performance and “mandate of heaven” as the basis of legitimacy have been consistent throughout history and continue to be relevant to Chinese leaders today. Because of India’s fragmented history, however, it is only meaningful to speak of a social contract that governs state– society relations when a centralized state was formed. This means that India’s social contract was shaped by the arrival of a modern bureaucracy under British direct rule from 1858, the struggle for independence in the subsequent years, and eventually, independence in 1947. The Indian state had a late start. The Maurya Empire (ca. 322–185 BC) was the first empire to unify India under one administration. Following the disintegration of Maurya Emperor Ashoka’s empire, India underwent almost continual fragmentation, warfare, and dissolution until the Moghul dynasty swept into northern India from Central Asia in the early sixteenth century. It was only when Emperor Akbar, one of the greatest Moghul rulers, took the throne in the 1550s that most of what is present-day India was again united under one dynasty covering approximately the same territory Ashoka had ruled. The contrast with China, which has been governed from the center for most of its history, with relatively brief interludes of fragmentation and civil war, is stark. There was also a sharp contrast between the Indian and Chinese systems of bureaucracy. Imperial China had a nationwide system of examinations, which drew talent from across the country to serve in the bureaucracy on a meritocratic basis. Prior to the the British colonization of India, administrative positions were almost all hereditary and mostly held by upper caste Brahmins. Compared to the civil service of Qing China, for instance, Akbar’s civil service was relatively primitive and haphazard, particularly in recruitment and promotion.3

3

Edward Luce, In Spite of the Gods: The Strange Rise of Modern India (New York: Doubleday, 2007), pp. 71–72.

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The postindependence Indian state was built on top of the colonial state. It inherited a British-style bureaucracy, with the Indian Administrative Service (IAS) as the premier service. In the struggle for independence, the liberal values of the West such as democracy and socialism were used by Indian intellectuals and politicians to challenge British rule.4 When India became independent, socialism was the guiding vision of leaders like Jawaharlal Nehru. Political developments after Nehru’s death led to the growth of patronage politics as politicians increasingly resorted to populist policies to win votes. Socialism and populism, both of which are political positions that claim to represent the interests of common folk and the lower stratum of society, thus became entrenched in the Indian social contract. That the key tenets of the Indian social contract were mostly formed by the struggle for independence and the postindependence state is not to say that all traditional practices and conceptions of authority have been erased. Populism, for instance, is closely tied to traditional patronage systems. Caste, ethnicity, language, and religion continue to be integral to postindependence Indian society, particularly in the rural areas. Identity politics influence how benefits are distributed across different sectors and groups. Traditional rural values, formerly confined to the local level, became an important force in state- and national-level politics from the 1960s, enabling traditional patronage systems and clientelism to rise to national levels.5 Voting patterns in national, state, and local elections tend to follow caste, ethnic, linguistic, and religious lines. In return for supporting a particular candidate, voters expect to receive benefits once their candidate gets into power. As a result of the breakdown of the boundaries between society and political institutions, identity politics is apparent at all levels of government.

Basis of Legitimacy Socialism Socialism in India encompasses a set of redistributive economic and social policies, including state ownership, central planning, and a 4

5

See Christopher A. Bayly, Recovering Liberties: Indian Thought in the Age of Liberalism and Empire (Cambridge, UK: Cambridge University Press, 2011). For an in-depth analysis of the rise of rural power, see Ashutosh Varshney, Democracy, Development, and the Countryside: Urban-Rural Struggles in India (New York: Cambridge University Press, 1998).

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welfare state. These ideas are deeply ingrained in the Indian Constitution and laws. The Directive Principles of State Policy incorporated in Part IV of the Indian Constitution is aimed at establishing a socialist state by emphasizing the responsibility of the state in providing for the welfare of the people and ensuring an egalitarian economic and social order, and the nationalization of key resources and public utilities. Although not legally enforceable, the Directive Principles acts as a check on the state and obliges the state to apply them when framing laws and policies. The word “socialist’ was added to the preamble of the Indian Constitution by the Forty-Second Amendment Act in 1976. In addition, since 1989, socialism has been included in the platforms of all political parties.6 Indian socialism had its beginnings during the independence movement against British rule. In its Karachi session in 1931, the Indian National Congress Party (hereafter the Congress Party), the most wellorganized and broad-based party at that time, passed a resolution to adopt fundamental rights: “In order to end the exploitation of the masses, political freedom must include real economic freedom of the starving millions.”7 The first economic and social program of the Congress Party, also adopted at Karachi, proclaimed that the state would own or control key industries and services, such as mineral resources, railways, waterways, shipping, and other means of public transport.8 Of all the leaders of the independence movement, Nehru was the “most outspoken champion of socialism in India.”9 Heavily influenced by the October Revolution in Russia, the Kisan Sabha movement in India, and Marxist ideology in general, Nehru declared himself a socialist and expressed his commitment to socialism: I am only convinced that the only key to the solution of the world’s problems and of India’s problems lies in socialism. . . I see no way of ending the poverty, the vast unemployment, the degradation, and the subjection of the Indian people except through socialism. That involves vast and revolutionary changes in our political and social structure. . . That means 6

7

8

9

Shruti Rajagopalan, “India’s Socialist Constitution,” The Wall Street Journal, January 22, 2008. Cited in Anuradha Trivedi, “Democratic Socialism in India,” The Indian Journal of Political Science 26:4 (1965), p. 118–123, at p. 118. Ashok Lahiri, “Socialism with Indian Characteristics,” Business Standard, February 3, 2015. Sohail Jawaid, Socialism in India (New Delhi: Radiant Publishers, 1986), p. 39.

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ending of private property, except in a restricted sense, and the replacement of the present profit system by a higher ideal of cooperative service.10

When India became independent in 1947, the Indian government under Nehru oversaw land reform, and the nationalization of major industries and the banking sector. A mixed economy was envisioned but the emphasis was on the public sector. In 1950, the Planning Commission, which reported directly to the prime minister, was set up (it was dissolved in 2014 when Narendra Modi became prime minister). A key purpose of the Planning Commission was to direct India’s economic development by formulating five-year plans (FYPs). The first five FYPs (from 1951 to 1979) stressed the public sector and massive investments in basic and heavy industries.11 From the outset of economic planning, “the government believed that the development of infrastructure such as roads, railways, telecommunications, bridges, power, water supply, irrigation, etc., could be properly developed only when the state steps in.”12 The private sector was heavily regulated through the Industries Act of 1951, commonly known as the “License Raj,” which required all businesses to get a license from the government before they could launch, expand, or change their products. It was an elaborate system of central controls regulating entry and production activities in the manufacturing sector; manufacturers were only allowed to produce quantities of goods as determined by their licenses. Until 1991, the Indian economy was based on import substitution industrialization. The government imposed tariffs to discourage foreign trade, and domestic companies were not allowed to open foreign offices. It was only in 1991, when a foreign exchange crisis precipitated major shifts in public policy thinking, that an economic liberalization program was officially launched.13 Faced with persistent budget deficits, the government began to bring spending in line with revenues. It also moved away from fixed exchange rates, opened the door to 10

11

12 13

Cited in Ghanshyam Shah, “The Prime Minister and the ‘Weaker Sections of Society,’” in Nehru to the Nineties: The Changing Office of Prime Minister of India, ed. James Manor (London: Hurst and Company, 1994), p. 232. OECD, “SOEs in India’s Economic Development,” in State-Owned Enterprises in the Development Process (Paris: OECD Publishing, 2015), p. 107. Ibid., p. 109. For a detailed account of why the Indian government was able to openly launch wide-ranging economic reforms in the 1990s, see Kohli, Democracy and Development, pp. 164–185.

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foreign investment, and allowed Indian companies to borrow in foreign capital markets and invest abroad. However, in reality, the changes were incremental. The dismantling of “License Raj” took place slowly over a number of years. According to a 2009 OECD report, SOEs in India remain widespread at all levels of government: “They continue to act as ‘nerve centers’ of large sections of the Indian economy . . . ongoing processes of liberalization, globalization and privatization have not caused a material difference in their position.”14 Divestments of SOEs since the early 1990s have focused only on nonstrategic sectors. SOEs continue to dominate in the strategic public utility sectors such as electricity, gas, and water supply. The pace of opening up to foreign investments has been extremely slow as well. It was only in 2014, for instance, that the Indian Parliament raised the limit on foreign direct investment in the defense sector to 49 percent and removed limits for certain types of infrastructure projects.15 Although reforms since the mid-1980s have significantly reduced regulation, Indian labor laws still made it difficult for manufacturers to retrench workers. The actual steps toward economic liberalization had taken place prior to the official launch of the program in 1991. Following the end of Emergency Rule (1975–1977), Indira Gandhi introduced a set of reforms aimed at liberalization: growth was prioritized while redistributive concerns took second place; the importance of economic planning and the Planning Commission declined; and a pro-business and anti-labor stance was adopted.16 However, the shift from a statist model of development to a state–business alliance for economic growth “was not heralded loudly” and instead, Gandhi played up her “poverty alleviation” (garibi hatao) program.17 The shifts toward greater economic openness were camouflaged so that Indira Gandhi could maintain her image as a leader of the masses. There is constant 14

15

16 17

OECD Working Group on Privatisation and Corporate Governance of State Owned Assets, “Occasional Paper: State Owned Enterprises in India: Reviewing the Evidence,” January 26, 2009, p. 1, available from www.oecd.org/daf/ca/ corporategovernanceofstate-ownedenterprises/42095406.pdf (accessed January 16, 2016). “FDI raised to 100% for Railways, 49% for defence projects,” Business Standard, August 7, 2014, available from www.business-standard.com/article/ economy-policy/modi-cabinet-may-liberalise-fdi-regime-for-defence-railwayprojects-114080600341_1.html (accessed July 12, 2016). Kohli, Democracy and Development, p. 152. Ibid, p. 39.

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pressure on Indian leaders and politicians to keep up the appearance of abiding by socialist promises. When Indira Gandhi’s son, Rajiv Gandhi, swept into power in 1984 with a popular mandate following his mother’s assassination, he likewise strove to do away with socialist policies so as to promote economic growth. However, he often had to backtrack from the policies he tried to institute. For example, he had to roll back his attempts to reduce public expenditures on poverty programs when they encountered strong opposition.18 Rajiv Gandhi also backtracked when his plans to remove subsidies on prices of essential goods, such as kerosene, were opposed.19 Similarly, he had to put aside plans to introduce foreign investments into India’s automobile industry when he came under pressure from business interests.20 The difficulties that Indian leaders face in doing away with socialist tenets so as to move in a direction to promote economic growth demonstrate the stickiness of social contracts. Rajiv Gandhi’s numerous attempts to liberalize the economy during the years 1985–1986 helped contribute to his electoral loss in the 1989 elections,21 which underscores the point that attempts by leaders to change the tenets of a social contract often result in punishments or sanctions. Indira Gandhi tried to push through pro-growth policies but she did so under the veil of populism. Even in the years after economic liberalization was officially launched in 1991, progress on dismantling the centrally planned economy was slow. Politicians and government leaders could not openly carry out pro-business, pro-growth, and pro-urban policies without suffering a popular backlash. The case studies of New Delhi and Hyderabad show how public unrest blocked attempts by chief ministers of both states to reform their public utilities. The case studies also demonstrate the extent to which socialism is ingrained in India’s social contract – both chief ministers often have to quietly carry out probusiness and pro-growth policies while openly pursuing populist ones. Democratic participation and populism As a democracy, the source of legitimacy for the Indian state lies in Weber’s procedural or rational-legal authority, whereby competitive elections confer legitimacy on the winning party. In upholding its end 18 19 20 21

Ibid. Ibid. Ibid. Ibid.

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of the social contract, the Indian government has channeled resources to building formal institutions that ensure free and fair elections; for instance, the Indian Election Commission is well-reputed, well-run, autonomous, and relatively corruption-free. It is often upheld as an example that if the Indian government chooses to, it can be efficient and effective, contrary to its cumbersome and lethargic image as a whole. The strength of the Election Commission substantiates this book’s argument that governments will build and strengthen institutions that help them fulfill their end of the contract, while paying less attention to other institutions and policy areas that are less critical to their bargain with society. However, India’s form of democratic participation, defined as widespread participation of the people in institutionalized processes, significantly differs from other advanced democratic countries. These differences have significantly shaped the social contract between the Indian state and its people. Unlike Western democracies, which had undergone an industrial revolution before universal franchise was instituted, India was still a largely agrarian economy and society when democratic principles were enshrined in its founding Constitution in 1950. Scholars have predicted that the spread of democratic politics in a preindustrial society is likely to lead to the emergence of leaders who rule by personal and populist appeal.22 This is because competitive politics and democratic participation have the effect of allowing contestations of power between traditional elites – who rely on personal power and charisma – and the lower stratum of society to emerge from local, traditional social arenas into the national political sphere.23 Scholars have attributed the beginnings of populism to Indira Gandhi. According to Sunil Khilani, Nehru had envisaged Indian democracy as an exemplary form of government, with parliamentary and party procedures “priggishly followed,” while containing religious and caste interests at the local levels.24 However, when Gandhi came into power in the 1960s, she transformed Indian politics into “Jacobin notions of popular sovereignty” that became entrenched such that succeeding generations of political leaders often stoke emotions and

22 23 24

Ibid., p. 24. Ibid. Sunil Khilani, The Idea of India (London: Penguin Books, 2012), pp. 40–41.

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invoke the “immediate, volatile authority of electoral majorities.”25 In order to accumulate power for herself, mobilize electoral support, and get around regional power brokerages, Gandhi appealed directly to the Indian people; as a result, the party itself “degenerated into an unaudited company for winning elections.”26 She also used her popular electoral base as a power resource to make political appointments; an increasing number of individuals, both within the party and the government, were appointed rather than elected into positions.27 Personal loyalties and favoritism replaced rules and procedures as a result. Other leaders have also contributed to entrenching centralized and populist rule as part of India’s social contract. For instance, Rajiv Gandhi, after the failure of his attempts to do away with socialist programs, returned to a personalized and elitist form of leadership that relied on populist appeal. Other examples include non-Congress leaders, such as N. T. Rama Rao in Andhra Pradesh and M. G. Ramachandran in Tamil Nadu. In 2014, the Aam Aadmi Party, led by Arvind Kejriwal, won the New Delhi state elections with its anticorruption platform and promises of “free water, free electricity.”28 As a result of populism, patronage politics expanded from local and regional levels onto the national stage. Myron Weiner argues that the Indian party system is not built around ideology or policy-oriented parties, but a system of identity-based patronage politics.29 Traditional identity politics enter the national arena as voting in India took on caste, class, ethnic, and religious lines, rather than voting according to policy issues. New entrants in national politics who are already active in local politics are now able to increase their share of rent control by assisting farmers and businessmen in obtaining permits and licenses, and other services from the administration. Thus, through the use of patronage, party leaders serve as the link between the people and the administrative and government machinery. Local politicians often use their position to benefit their own ethnic groups or political supporters. 25 26 27 28

29

Ibid., pp. 15–60. Ibid., p. 44. Kohli, Democracy and Development, p. 26. Sadanand Dhume, “India is Stuck in the Socialist Seventies,” The Wall Street Journal, May 12, 2016, available from www.wsj.com/articles/india-is-stuck-inthe-socialist-seventies-1463072921 (accessed June 7, 2016). Myron Weiner, Party Building in a New Nation: The Indian National Congress (Chicago, IL: University of Chicago Press, 1967), p. 173.

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Although Prerna Singh has shown that identity politics or the emergence of a shared subnational solidarity in Tamil Nadu and Kerala has had a positive impact on welfare and development, by and large, identity politics in most Indian states has had a divisive effect and has been a major hindrance to welfare and development. In her study, Singh identified as essential the condition that the development of subnational identity must be cohesive and shared. In Kerala, for instance, it was the emergence of a cohesive Malayali subnationalism that encouraged the recognition of the concept of equal rights for all and an equal distribution of educational and health facilities to all Malayalis irrespective of religion, class, or caste.30 It is difficult for such cohesiveness and consensus to develop in a state, and even more so for the entire Indian nation, given the diversity of communities, ethnicities, and religions in India. Singh acknowledges that even in Tamil Nadu and Kerala, where a causal relationship exists between subnational identity and welfare provision, serious developmental challenges remain.31 Rural bias The granting of universal franchise to a largely agrarian society means that India’s rural population represents a powerful political force. The Indian government has to be evenhanded in allocating resources between the rural and urban sectors as a result. Indian scholars have even noted the anti-urban bias in India’s development agenda in the postindependence period: “Until recently ‘the urban’ was marginalized in the imagination of modern India as it was the village that was seen as its authentic heart.”32 In contrast to China, where demographic shifts have occurred from rural to urban areas, India remains predominantly rural today; in the 2011 census, the rural/urban population distribution was approximately 69 percent and 31 percent, respectively, even though for the first time since 1947, the increase in urban population was higher than the increase in rural population.33 It is thus in the countryside that elections 30 31 32

33

Singh, Solidarity, p. 133. Ibid., p. 147. Gyan Prakash (2002) cited in Urbanizing Citizenship: Contested Spaces in Indian Cities, eds. Renu Desai and Romola Sanyal (New Delhi: Sage Publications, 2012), p. 2. C. Chandramouli, “Census of India 2011: Rural Urban Distribution of Population,” July 15, 2011, available from http://censusindia.gov.in/2011-provresults/paper2/data_files/india/Rural_Urban_2011.pdf (accessed July 27, 2016).

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are won or lost; rural voters determine the outcome of elections. India’s rural-based politicians became increasingly powerful from the 1970s, and by the 1980s, they carried substantial political weight at nationallevel politics. The Indian social contract thus encompasses a large section of the population, spread across a variety of interests. In keeping with this contract, the Indian government has to ensure a more equitable distribution of its limited resources between the urban and rural sectors, and at times, policies have favored the rural sector at the expense of the cities. Government subsidies, for instance, played an important role in India’s Green Revolution.34 As Ashutosh Varshney explains: The historical paradox of rural power can thus be stated as follows: although in the process of economic development the populous countryside loses power, the combination of a democratic polity and an industrialized economy later seems to empower it. India defies this historically derived paradox. It is a low-income country, with over 65 percent of the population still dependent on agriculture; yet the rural sector has acquired substantial power in the polity. By now, over 40 percent of India’s parliament has a rural background, as opposed to about 20 percent in the 1950s. Rural mobilization on prices, subsidies, and loans flourished in the 1980s. All political parties support the rural demand for more “remunerative” agricultural prices and for higher investment of public resources in the countryside. A considerable fraction of outstanding agricultural loans was waived in 1989–90. Finally, some of the key bureaucratic bodies involved in policy making in New Delhi are by now substantially rural in social origins.35

With the entrance of rural politicians into national politics, traditional rural political loyalties based on status relationships, caste, language, and religion became mixed with the modern Indian nation-state.

Popular Expectations Popular expectations of government leaders and politicians are based on traditional concepts of authority because of the largely rural nature of the electorate and the elevation of traditional patronage networks to

34

35

Subratra Kumar Mitra, Power, Protest and Participation: Local Elites and the Politics of Development in India (London: Routledge, 1992), p. 26. Varshney, Democracy, Development, and the Countryside, p. 3.

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the state and central levels. Unlike China, where the “mandate of heaven” confers legitimacy to a strong centralized state, the traditional Indian conception of authority circumscribed the role of the king. The Indian ruler has limited powers, as the concept of dharma36 puts the Brahmins above the king, who belongs to the warrior caste, hence effectively placing restraints on the authority of the king. The Indian king does not own the Indian kingdom. Instead, he has a share, a bhaga, of the kingdom, which allows the king possession and use but not ownership. This stands in contrast with the Chinese emperor, who is the locus of all power, bestowed by the “mandate of heaven”; he owns the land, sea, and all resources of the Chinese kingdom. Given the limited powers of the Indian king, the state’s role is to protect and uphold a social order with minimal state regulation, where groups exist in “discrete communities,” unlike the case in Europe where social groups participate in a single civil society.37 At the same time, however, even though the Indian king has limited powers, he is expected to provide for his people. On the role of the king, Kautilya said, “In the happiness of his subjects lies his happiness; in their welfare his welfare. He shall not consider as good only that which pleases him but treat as beneficial to him whatever pleases his subjects.”38 The king is also expected to actively engage in the management of the economy so as not to bring about “material distress.”39 Hence, even though the power of the Indian king is less pervasive than that of the Chinese emperor, he is also expected to ensure the economic and social well-being of his people. The addition of socialist principles on top of these traditional values in postindependence India further increases the expectations of the people that the state would provide for their basic needs. Such expectations of the ruler are paradoxical. On the one hand, the ruler is expected to look after the well-being of his people. On the other hand, he has to do so with a limited set of powers that constrains his ability to deliver. To resolve this contradiction, governments and 36

37 38

39

Dharma can mean many things – duty, virtue, righteousness – but it is chiefly concerned with doing the right thing. Gurcharan Das, India Grows at Night: A Liberal Case for a Strong State (New Delhi: Penguin Books, 2012), p. 11. Ibid. Kautilya, The Arthashastra, edited, rearranged, translated and introduced by L. N. Rangarajan (New Delhi: Penguin Books, 1992), p. 125. Ibid.

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political parties in the modern Indian state have to rely on non-state affiliates to provide public goods. The Bharatiya Janata Party (BJP), for instance, relies on its grassroots affiliate, the Hindu nationalist Sangh Parivar (family of organizations) to cater to the needs of lower caste Hindu groups.40 Ordinary people also look to their “discrete communities” to meet their needs for amenities and services. In traditional Indian society, one’s caste and one’s village are the source of help for those in need. Service provision by local groups and party grassroots affiliates further entrenches the patronage system in traditional Indian society. These groups and affiliates, as Tariq Thachil argues, have become important electoral machinery for mobilizing voters in support of specific political parties even if these political parties, such as the BJP, are traditionally identified as an elitist party representing India’s privileged upper castes.41 Voters expect those they vote into power to cater to their interests. These interests are often divided along identity, ethnicity, religious, and class lines, and groups formed along these lines are known as “vote banks.” With the rise of “vote banks” to the national level, India’s traditional patronage system was also elevated to the national level. Such patronage politics explains what Lucian Pye has described as the high tolerance for ambiguity among the Indian electorate.42 The Indian citizenry tolerates poor government performance because of the set of bargains it has with the government: [R]ank and file politicians can expect to receive generous material rewards in exchange for disregarding their leaders’ failures in implementing policies; common citizens can accept the inadequacies of governmental performance in return for being left alone by government and for being periodically entertained at theatricals and ceremonies; and intellectuals are given research grants and freedom to carry on their work in return for withholding criticism of the government.”43

Tolerance for the gap between politicians’ rhetoric and actual policy outcomes results in “policy drift,” as the “atmosphere for action 40

41 42 43

For details see Tariq Thachil, “Embedded Mobilization: Nonstate Service Provision as Electoral Strategy in India,” World Politics 63:23 (July 2011), pp. 434–469. Ibid. Pye, Asian Power, p. 134. Ibid., p. 147.

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became a substitute for action”; politicians are “long on talk and short on accomplishments.”44 The advent of democracy and the fact that democracy in India has survived while other developing countries have taken an authoritarian turn have led to a strong sense of pride among the Indians. Democratic institutions are highly valued and in this sense, popular expectations and the basis of legitimacy in the Indian social contract are aligned as the Indian state pours resources into building strong and autonomous electoral institutions. Indians treasure their right to vote out those who fail to carry out their promises. Besides voting and elections, the value that is placed on giving voice to the common folk is demonstrated in the active participation of ordinary citizens in political affairs, namely in protests and other forms of civil disobedience.45 The growth of traditional patronage, on top of the normative expectation of democratic rights, further strengthened citizen participation. Popular expectations of benefits that would accrue from supporting their patrons resulted in an increase in the level of popular participation in local, state, and national politics. Ordinary people realized that there were benefits to be reaped and their interests could be served by participating in lobbying and civil disobedience movements. Pressure politics became a regular form of interaction between state and society: “Protest action and movements, constituting a grey area of Indian politics, are an important source of legitimation of the authority of the state.”46 The frequency and vitality of protest movements stem from two factors: opposition parties use civil disobedience as a means of strengthening their bargaining power by eliciting mass support; large numbers of people often support such movements when other channels for influencing public policy are closed. Political mobilization and organized resistance groups proliferated as groups recognize the viability and benefits of political agitation. Partha Chatterjee, for instance, has identified the presence of a “political society” in India, which are 44

45

46

Barrington Moore, Social Origins of Dictatorships and Democracy: Lord and Peasant in the Making of the Modern World (Boston, MA: Beacon Press, 1993), p. 407. The tradition of civil disobedience in modern India can be traced to the struggle for independence when Mahatma Gandhi led the resistance against the British using the concept of satyagraha, which embodies passive nonviolent resistance. Mitra, Power, Protest and Participation, p. 10.

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subaltern groups and associations that agitate for security and welfare rights but which are not part of elite politics or legitimate members of civil society.47 The government often backs down and reverses policies in the face of popular pressure, as we shall see later in the New Delhi and Hyderabad case studies. Government responsiveness to protest movements has led many organized groups to view these movements as a legitimate method to influence public policy. In particular, attempts to privatize public utilities have been a target of protest movements. In these protests against privatization, public utility employees often play a key role as they fear losing their jobs and the benefits that accrue from these jobs. In fact, employees from the public sector have benefited most from political mobilization because they are relatively better organized – political mobilization and interest articulation tend to favor well-organized movements.48

Impact of the Indian Social Contract on Public Goods Provision Populism has a negative effect on the autonomy and capacity of institutions involved in long-term economic and social planning [Figure 4.1(a)].49 It reduces the space between state and society, and between formal institutions and politicians [Figure 4.1(a)]. Because populist leaders make direct promises to the people, the people’s consent to these leaders to rule is limited to delivery of their promises, failure of which could get them booted out of power in an electoral 47

48 49

Partha Chatterjee, The Politics of the Governed: Reflections on Popular Politics in Most of the World (New York: Columbia University Press, 2004). Kohli, Democracy and Development, p. 218. Populism and its effects on democratic institutions have been a topic of debate among scholars, particularly those who study populist politics in Latin America. Populist leaders are often thought of as having a negative impact on institutions as the reliance on personal charisma and direct appeal to the masses has a tendency to weaken institutions and open them up to political and societal influence. Others have, however, challenged this view, saying “direct democracy” is true democracy because it gives voice to those who have been left out by the established order. See, for example, Francisco Panizza and Romina Miorelli, “Populism and Democracy in Latin America,” Ethics and International Affairs 23:1, (April 2009), pp. 39–46, and Margaret Canovan, “Trust the People! Populism and the Two Faces of Democracy,” Political Studies 47:1 (March 1999), pp. 2–16.

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India’s populist and socialist social contract

Social Contracts

(a)

Weak institutional capacity and autonomy

(b)

Low level of public goods

Figure 4.1 India’s Social Contract and Public Goods Provision

cycle. Societal groups have substantial leverage over politicians as a result. Populist and personalistic rule also reduces the autonomy of state institutions, as personal loyalties and favors – rather than procedures and institutions – govern the interaction between top political leaders and government officials. The rise of “demand groups,”50 with its emphasis on popular sovereignty and political mobilization, infringes on state sovereignty and the autonomy of state institutions.51 As a result, Indian institutions have little insulation from political and societal demands; government institutions, instead of having their own distinct set of values and interests, tend to reflect the interests of powerful politicians, interest groups, and businesses. Coalitions of politicians, business groups, and even government employees can mobilize the public to assert pressure on government leaders and institutions not to implement reforms and policies that are unpopular but which may benefit the people in the long run (detailed in Chapter 7). Capture by societal and political groups prevents an efficient allocation of resources for economic and social development. The tendency is to allocate resources to a section of society for the production of private goods and short-term benefits instead of serving long-term economic and social objectives for the collective good [Figure 4.1(b)]. Populist rule also weakens the capacity of institutions to produce public goods [Figure 4.1(a)]. Leaders whose power rests on a populist support base rather than a well-organized party and bureaucracy are less likely to succeed in implementing developmental policies.52 Populism weakens institutions, as power and resources are amassed in the hands of the populist leader and his patronage networks. Resources are 50

51 52

Demand groups rely on ad hoc rather than bureaucratic organization, and use mass mobilization rather than expert knowledge and technical bargaining. Lloyd I. Rudolph and Susanne Hoeber Rudolph, In Pursuit of Lakshmi: The Political Economy of the Indian State (Chicago, IL: The University of Chicago Press, 1987), p. 247. Ibid., pp. 211–212. Kohli, Democracy and Development, p. 34.

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not distributed to strengthen the capacity of institutions in the production of public goods. Instead, institutions and procedures tend to be bypassed, which over time, has a negative impact on their authority and credibility. Populist and socialist policies also have a tendency to strain state coffers. If public utilities cannot recover their costs because of huge subsidies and politicians’ electoral promises of “free water, free electricity,” they will have insufficient financial capacity to improve their performance and produce higher quantities of public goods. In addition, because socialism stresses state ownership, the state is constrained from tapping into the private sector, and foreign sources of funding and technical expertise that can help increase the capacity of public utilities [Figure 4.1(a)]. State ownership in India also reduces the operational autonomy of firms; public sector firms are under the charge of government officials who interfere in their day-to-day management.53 This is in contrast to China, where SOEs are fairly autonomous in their daily operations. As a result of political and societal interference, and even interference in everyday operational issues, as well as a lack of capacity, Indian institutions involved in the production of public goods are not able to perform efficiently and effectively, thus accounting for the low quantities of public goods produced [Figure 4.1(b)].

Low Autonomy When India achieved independence, it inherited a fairly autonomous bureaucracy from the British. During the Nehru government in the 1950s and early 1960s, the bureaucracy was relatively sheltered from challenges and attacks.54 The state was not dominated by society, and organized interests or classes did not appropriate state authority and resources. Nehru envisioned a strong welfare state that would be able to penetrate into every layer of society. Under Nehru, India’s ideological consensus and Constitution featured socialism along with secularism and democracy. The socialist state would serve society by providing public and collective goods. The power of the private 53

54

Lloyd I. Rudolph and Susanne Hoeber Rudolph, Explaining Indian Democracy: A Fifty-Year Perspective, 1956–2006: Volume 2: The Realm of Institutions: State Formation and Institutional Change (New Delhi: Oxford University Press, 2008), p. 73. Ibid., p. 64.

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economy was to be eliminated or controlled so that it could not unduly influence the formulation and implementation of policies. However, Nehru’s death in 1964 prevented his vision from coming to fruition. When Indira Gandhi came into power after Nehru’s death, she faced strong political opposition. In order to consolidate power, she mobilized and politicized Indian society based on her personal charisma. By resorting to populist tactics, Gandhi reduced the space between institutions, and political and societal interests [Figure 4.1(a)]. During the election of 1967, opposition coalitions took over half of India’s sixteen large states, and this became more pronounced in the elections of 1977 and the 1980s, when the central government itself changed hands. The Congress Party was very much weakened with the transition from power, hence Gandhi’s calls for a “committed” bureaucracy, which meant personal loyalty to herself.55 Such an act dissolved the neutrality and impartiality of the civil service that had acted as restraints on the behavior of civil servants. Speaking to the Congress Party in 1972, she referred to the administrative machinery as a stumbling block, adding that the “country would be in a rut,” if it followed the British system, in which civil servants were not supposed to be concerned with which political party was in power.56 In 1972, the Gandhi government, in the name of equality, abolished by amendment the constitutional rights of the Indian civil service.57 The rise of personal loyalty as the test of commitment threatened the value of career services and a government based on law. According to Lloyd and Susanne Rudolph: Indira wasn’t satisfied when civil servants and public figures argued that neutrality meant giving one’s best to the government of the day, from policy advice to ministers to program implementation. For her, commitment went beyond active support for Congress programs to belief that she, as party leader, carried a personal mandate from the people. She wanted a style of commitment more suited to a bureaucracy serving a single party and its leader than to one serving alternating-party governments.58

Indira Gandhi’s machinations led to a cascade of actions by other political parties that had serious consequences for the bureaucracy. An example of this was when the Janata Party came into power in 1977, 55 56 57 58

Ibid., p. 70. Cited in Rudolph and Rudolph, Realm of Institutions, p. 69. Ibid. Ibid.

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replacing the Congress Party emergency regime led by Gandhi.59 In its attempts to restore neutrality to the civil service, it put Congress Party loyalists in the civil service on trial for abuses and crimes related to the Emergency, although these attempts were largely unsuccessful.60 When Gandhi returned to power in 1980, her government restored to office and favor those whom the Janata Party had persecuted. As a result of these developments, by the 1980s, the commitment and loyalty of the Indian bureaucracy were not interpreted in professional and policy terms.61 Populism and patronage networks had become firmly entrenched in India’s social contract, resulting in a civil service that is weak and lacking autonomy. Ministers and civil servants pay lip service to policy concerns and are more interested in gains from patronage networks. Politicians often capture the bureaucracy by using the system to create jobs and rents for their allies and supporters. In his in-depth study of the land tenure reform policy in India, Ronald Herring described the Indian bureaucracy as an “embedded bureaucracy,” by which he meant that Indian government officials were not neutral players in implementing policy; they were part of the elite that had been “captured” by local landowners and the bourgeoisie.62 Moreover, the ways in which civil servants were posted had enabled local politicians to appropriate administration for partisan and personal ends. Civil servants in the premier IAS, in particular, were appointed and replaced with each change of government. Frequent transfers, which were disruptive for both the professional and personal lives of civil servants, had been exploited by powerful politicians to discipline or oust government officials who did not do their bidding or who resisted inappropriate demands for resource allocation.63 These actions had an accumulative and long-lasting impact on the ability of institutions to provide public goods. Populist politics led to reduced autonomy for the Indian bureaucracy. Institutions were

59

60 61 62

63

Indira Gandhi unilaterally imposed a state of emergency across the country from June 25, 1975 to March 21, 1977. The order gave the prime minister the authority to rule by decree, elections to be suspended, and civil liberties curbed. Most of Gandhi’s political opponents were imprisoned during this period. Rudolph and Rudolph, Realm of Institutions, p. 70. Ibid., p. 71. Ronald Herring, Land to the Tiller: The Political Economy of Agrarian Reform in South Asia (New Haven, CT: Yale University Press, 1983). Rudolph and Rudolph, Realm of Institutions, p. 71.

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circumvented when power was transferred from administrative to political bodies. Elected officials, instead of civil servants, made decisions on the location of schools, roads, irrigation, and loan allocations.64 These decisions are often made to benefit their own respective constituencies instead of the collective good. The lack of state autonomy therefore led to the production of private instead of public goods [Figure 4.1(b)].

Limited Capacity The Indian social contract also curtails the capacity of Indian institutions because resources are diverted from institutions involved in generating public goods into the hands of populist leaders and their patronage networks [Figure 4.1(a)]. Comparing the policy outcomes of a “demand polity” (popular sovereignty) versus a “command polity” (state sovereignty), Rudolph and Rudolph said: The demand polity is oriented toward short-term goals; toward competitive processes for determining policies and the public interest (e.g., voting, deliberation, and bargaining); and toward the provision of private goods. It is constrained and directed by the imperatives of electoral victory and by pluralist and class influence on public choice . . . The command polity is oriented toward state-determined long-term goals and formulations of public interest and the provision of collective goods. Rationality in command polities derives from comprehensive and detailed calculations that relate social objectives to available resources.65

In other words, the rise of the “demand polity” in India as a result of populist politics orients the allocation of resources toward short-term goals for the production of private goods, thus reducing the capacity of the state to make long-term rational allocation of resources for the production of public goods [Figures 4.1(a) and 4.1(b)]. Furthermore, a comprehensive redistribution campaign that can deliver socialist welfare goals requires the support of a well-organized party and bureaucratic organization. However, as noted earlier, populism in India tends to deinstitutionalize and weaken party and institutional organizations; politicians sidestep institutions, and resources are not allocated to build up well-organized institutions 64 65

Ibid., p. 68. Rudolph and Rudolph, In Pursuit of Lakshmi, p. 212.

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for the delivery of economic and public goods [Figure 4.1(a)]. The centralization of power at the top reduces the ability of lower-rank bureaucrats, who are directly in charge of implementing policies, to carry out their tasks.66 For instance, in the case of land reforms, local bureaucrats are usually not strong enough to fight powerful landowners and instead end up establishing “cozy working relationships” with the landowners such that redistribution policies are not implemented.67 In addition, the need to cater to a variety of interests as encapsulated in the Indian social contract has the effect of reducing the capacity of institutions to deliver public goods [Figure 4.1(b)]. Rational choice theorists predict that democracies are more likely provide a higher level of public services primarily because of the broader spectrum of voters they have to cater to. In India, however, the wide spectrum of voters has the opposite effect on the provision of public goods. India’s diversity and limited resources make it difficult for the state to efficiently allocate resources to sectors that could generate higher growth: “The authority of the state was based on the accommodation of a wide variety of interests . . . the implications for capital accumulation were bleak.”68 This means that the Indian state’s ability to provide public goods is constrained by limited resources distributed across various segments of society [Figure 4.1(b)]. Whereas China’s social contract with the urban populace has allowed the Chinese government to focus resources on developing the physical infrastructure and basic amenities of Chinese cities, India’s social contract has constrained the Indian government’s ability to adequately provide basic services in Indian cities. India’s procedural legitimacy mandates an equitable distribution of resources between the rural and urban sectors, with a strong rural bias.

Weak Local Governments In theory, India’s federal system entails the sharing of power across different levels of government. In practice, however, resources are concentrated in the center although internal affairs is under the purview of state governments. Scholars generally agree that most state and 66 67 68

Kohli, Democracy and Development, p. 35. Ibid. Mitra, Power, Protest and Participation, p. 25.

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local governments in India do not govern effectively.69 Subnational and local bureaucrats lack public purpose and professionalism.70 The failures can be seen in a variety of outcomes, including the inability to collect taxes in the countryside, distorted priorities for public expenditures, corruption, politicization of the bureaucracy, ineffective education and health policies, and the lack of capacity to provide and maintain infrastructure [Figure 4.1(b)]. The weakness of local governments in India can be explained by the Indian social contract. Apart from the effects of populism on institutional autonomy and capacity, it is possible to trace the weakness of local governments to the other key attribute of the Indian social contract: socialism. Socialism, with its emphasis on central planning, results in a strong central government as compared to local governments. In order to fulfil long-term economic and social objectives, socialism requires a model of government that has a strong center able to exercise authority over local governments in implementing policies. Resources are therefore concentrated in the center. Such emphasis on the power of the central government as a result of socialism in the Indian social contract is manifested in the Indian Constitution. The Indian Constitution prescribes the distribution of power among the three levels of government, and it is clear that the authority of the central government overrides the other two layers of government. It describes the powers of the central and state governments through central, state, and concurrent lists, but there is no description of the power of local level governments. Moreover, if there is a difference between central and state governments over the interpretation of the provisions in the concurrent list, the central government has the authority to override the state governments. A strong center means that resources, in terms of manpower and funding, are concentrated in the central government. Thus, while local governments are responsible for directly implementing public policies, they are not given the resources to do so. Recognizing this problem, the 74th Amendment Act of the Constitution (74th CAA) was meant to grant greater authority and resources to local governments. However, 69

70

See Kohli, Democracy and Development, p. 11. Kohli acknowledges that there are important exceptions of good governance at the state and local levels, but he concludes that the generalization that most state and local governments do not govern well still holds. Ibid.

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central government agencies have been reluctant to give up power and this has reduced the effectiveness of the 74th CAA in strengthening local governments. The absence of a devolution of power to lower levels of government goes hand in hand with a lack of fiscal decentralization. In a study comparing urban infrastructure financing and delivery in India and China, Darshini Mahadevia attributes the higher level of urban infrastructure development in China compared to India to the public finance and urban responsibility allocation systems of the two countries.71 According to Mahadevia, “The most important difference between the two countries is that there is a very high order of fiscal decentralization in China, associated with administrative decentralization, whereas in India, there is still somewhat centralization of the entire fiscal system.”72 The lack of fiscal decentralization is evident in the taxation system, which assigns tax bases exclusively either to the center or the states. Among the various taxes assigned to the states, taxes on the sale and purchase of goods give substantial income to the state governments. However, there is a situation of “vertical fiscal imbalance” in the Indian public finance system – the major share of taxes goes to the central government, but the state governments have to foot most of the expenditure.73 For example, in the 1991–1992 budget, the central government received 62.4 percent of all taxes collected and contributed 46.4 percent of all expenditures, while the states received 37.6 percent of taxes and were responsible for 53.6 percent of all expenditures.74 As a result of the imbalance, state governments end up borrowing to meet their obligations, which explains why most states in India have mounting deficits and debt. State governments do not have sufficient capacity to finance urban infrastructure development projects as a result. Their lack of resources often leads to urban–rural tussles over resource allocation. Government units below the state level have even less power. In China, city governments, with assistance from provincial governments, are empowered to raise funds for infrastructure projects. That the city governments in China are not reliant on provincial governments and 71 72 73 74

Mahadevia, “Urban Infrastructure Financing,” p. 105. Ibid., p. 119. Ibid. Ibid.

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the central government to fund local infrastructure projects also allows them to function autonomously. In India, however, power revolves around a balance between the center and the states, rarely flowing down to the municipal level. City governments in India are not autonomous because they have limited taxation power and are reliant on funds from both the federal and state governments. In the area of drinking water, the Indian federal government – like China – is not in charge of providing potable water to urban residents. Urban development and infrastructure, including the delivery of water services, are the sole responsibility of state governments, which may in turn pass responsibility to municipal governments or urban local bodies (ULBs) through municipal legislation. The state governments (equivalent to provincial governments in China) set up parastatals (public sector corporations) to perform certain functions in urban areas, such as water supply and sewage boards, and public transport corporations.75 However, city governments and ULBs are often dominated by state governments, which compromises their autonomy and accountability. For instance, state governments often use the metropolitan development authorities to control urban development and interfere in municipal affairs under ULBs in charge of urban services such as transport and water.76 The asymmetrical relationship between city and state governments is particularly evident in terms of budget allocation. City governments and ULBs are compelled to rely on state governments for grants-in-aid and loans, central government schemes, and, occasionally, funds from international organizations.77 Existing studies demonstrate that neither the center nor the states wish to empower city governments and ULBs financially.78 The financial capacity of city governments and ULBs is extremely limited. The finance commissions at the state level devolve state finances to the city government and ULBs, as city governments and ULBs have few independent sources of income. Property taxes, and in some states, the octroi tax (tax on goods coming into the city) are major sources of revenue for city governments and ULBs.79 The other 75 76 77 78 79

Ibid., p. 111. Ibid. Ibid. Ibid. Ibid., p. 112.

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revenue sources are miniscule. While large cities are able to draw loans from both public and private sector financial institutions, the smaller cities solely depend on state government grants and soft loans.80 ULBs are also often poorly compensated, if at all, when a state government takes over an area of local taxation or grants exemptions from municipal taxes.81 That city governments and ULBs in India cannot raise extra-budgetary or off-budgetary revenues to supplement the allocations from state governments further constrains their capacity. Capital expenditures from city governments in India are therefore low compared to investments and expenditures of city governments in China. For instance, in 2002, Beijing invested 13.8 times more on city infrastructure than Mumbai.82

Conclusion The Indian state is often a puzzle to scholars. On the one hand, it is strong enough to secure its borders, preserve its democratic institutions, and maintain the integrity of the union despite the strong centrifugal forces that threaten to rip it apart. On the other hand, however, it appears weak in promoting economic and social development.83 India’s social contract provides some explanations for these contradictions. Democratic participation provides the basis of legitimacy for the Indian state, and hence the Indian state allocates resources to building a strong and autonomous election commission so as to ensure relatively free and fair elections. Socialist welfare aims are comparatively harder to achieve as they require a comprehensive redistribution program backed by strong institutions. As socialist promises are harder to fulfill and require long-term planning and organization, politicians focused on shortterm electoral gains tend to resort to populist measures as a substitute for delivering socialist goods in order to stave off popular discontent. 80 81

82 83

Ibid. Christine Kessides, Cities in Transition: World Bank Urban and Local Government Strategy (Washington, DC: The World Bank, 2000), p. 132, available from http://siteresources.worldbank.org/INTINFNETWORK/ Resources/urban.pdf (accessed February 12, 2017). Ibid., p. 119. Govind Gopakumar, Transforming Urban Water Supplies in India: The Role of Reform and Partnerships in Globalization (Abingdon: Routledge, 2012), p. 14.

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These populist policies are not based on rational calculations for the benefit of the collective. Instead, they tend to lead to the production of private goods. However, it is precisely the growth of populism that holds back the development of strong and autonomous institutions that are usually seen as prerequisites for the successful implementation of redistribution policies. Socialism and populism in India’s social contract are thus caught in a vicious cycle. At the same time that the resort to populist politics has prevented institutions from delivering on socialist welfare promises, another socialist principle – state ownership of key industries – prevents the state from moving in a pro-growth direction, which would in turn have helped generate resources for the production of public goods. Despite years of economic liberalization, the public sector remains dominant in strategic industries. Foreign investments and private sector participation are strongly resisted by a coalition of vested interests adept at mobilizing the public. Together, these social and political groups prevent Indian leaders and institutions from devising policies that could have helped improve the performance of public utilities, as the case studies on New Delhi and Hyderabad illustrate.

part ii

Comparing Urban Water Management in China and India

|

5

Comparing China’s and India’s Water Institutional Frameworks

Water institutions are defined as “rules that together describe action situations, delineate action sets, provide incentives and determine outcomes both in individual and collective decisions related to water development, allocation use, and management.”1 In this book, they include institutional and bureaucratic structures, laws, policies, and regulations that govern the urban water sector. This chapter discusses and compares the national-level water institutional frameworks in China and India across these dimensions. The impact of China’s and India’s respective social contracts on their water institutional frameworks is visible. In China’s case, the Chinese social contract dictates that the state accords substantial power and autonomy to local governments so as to facilitate growth and ensure social stability. In the management of the urban water sector, this is manifested in the central government, which maintains tight control over policy frameworks and administrative decisions, but gives the provinces and, in particular, the municipalities significant power and independence to manage water utilities and the urban water industry. As a result of the empowerment of lower levels of government, municipalities are able to undertake reforms to streamline and reduce fragmentation of the water institutional framework. The rules and regulations governing the urban water sector also point to the urban bias, and both the material and normative aspects of performance in China’s social contract. For instance, the priority given to urban consumers and the mindset of water service provision as a social responsibility are highlighted in many of the laws and regulations. In India, water management is the responsibility of state governments and the federal government steps in only to mediate interstate disputes. However, municipal governments and urban local bodies 1

R. Maria Saleth and Ariel Dinar, “Water Institutional Reforms: Theory and Practice,” Water Policy 7:1 (February 2005), pp. 1–19, at p. 2.

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(ULBs) are responsible for policy implementation. In most instances, these lower-level governments are not given sufficient authority and resources to perform their duties in accordance with the predictions of the Indian social contract. In Chapter 4, I argued that socialism results in a strong center vis-à-vis lower levels of government, while populism weakens state institutions. Studies have shown that while China’s urban water management is not problem-free, it nevertheless has a more effective institutional framework for governing its urban water sector compared to India’s. According to a study by Eduardo Araral and Shivani Ratra comparing water policy, law, and administration between the two countries, water governance across 17 indicators is consistently stronger in China than in India.2 Based on a survey of 182 water sector experts,3 the authors found that there are systematic and significant differences in water governance between the two countries. In terms of legal accountability of water sector officials, level of centralization of water law, integration of water laws with other laws, and legal scope for private and user participation, China is perceived to perform better than India.4 Likewise, in terms of water administration, China scores consistently higher than India in functional capacity, independent water pricing, water apex body, and accountability and regulatory mechanisms.5 The principle of cost recovery has also been practiced by Chinese water utilities in the past twenty years, as compared to India, where urban water is still highly subsidized: “In India, water tariff is a highly politicized subject in contrast to China” and “In China, water agencies in cities/counties have considerable autonomy and authority to impose water tariff.”6 China is also better at utilizing private sector participation in its water projects, as reflected by the number of policies and regulations to promote private investment. This is in line with the performance orientation of China’s social contract. The Chinese government continues to maintain strong oversight while opening up the urban water 2

3

4 5 6

Eduardo Araral and Shivani Ratra, “Water Governance in India and China: Comparison of Water Law, Policy and Administration,” Water Policy 18:S1 (December 2016), pp. 14–31. Ibid. The term “water experts” refers to legal experts, academics, economists, and bureaucrats. Ninety-three of these experts came from China and eighty-nine from India. Ibid., p. 17. Ibid., pp. 21–22. Ibid., pp. 19 and 22.

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sector to private investments and technologies to help improve the service quality of water utilities. India’s legal and regulatory framework for private sector participation in the water sector is comparatively less well-developed. The populist and socialist aspects of India’s social contract constrain Indian leaders and state institutions from thoroughly reforming the urban water management framework and introducing private investments into public utilities. Both of these policies run up against a coalition of vested interests and are unpopular with the public who view both measures as precursors to higher water tariffs. As a result of Chinese efforts to open up its urban water sector to the private sector, private sector participation in the drinking water industry has grown much faster in China than in India. According to the World Bank, the share of public–private partnerships (PPPs) in the water sector in East Asia and the Pacific had increased threefold, from 25 percent in 1995 to 73 percent in 2007, with the vast majority of projects situated in China.7 In 2012, there were fifteen new PPP projects in the water sector in East Asia and the Pacific, with fourteen projects in China alone.8 By contrast, PPPs in all infrastructure projects in South Asia dropped by 20 percent to pre-global financial crisis levels. In the water sector, only one new concession deal was made, in Nagpur, India.9 While PPPs are controversial in many parts of the world and have in some instances resulted in greater problems than solutions for managing water resources, proponents of PPPs argue that they nevertheless are a critical source of investment, technology, and management skills that if properly utilized, and with strong government oversight and regulation, can yield substantial benefits for consumers.10

7

8

9

10

The World Bank, “Private Participation in Infrastructure (PPI) Project Database,” available from https://ppi.worldbank.org/ (accessed May 20, 2016). The World Bank, “2012 East Asia and Pacific PPI Data Update,” Note 91, October 2013, available from http://ppi.worldbank.org/~/media/GIAWB/PPI/ Documents/Regional%20Overviews/2012-EAP-Regional-Note.pdf (accessed May 20, 2016). The World Bank, “2012 South Asia PPI Data Update,” Note 95, October 2013, available from http://ppi.worldbank.org/~/media/GIAWB/PPI/Documents/ Regional%20Overviews/2012-SA-Update-Note.pdf (accessed May 20, 2016). See Ching Leong, “Persistently Biased: The Devil Shift in Water Privatization in Jakarta,” Review of Policy Research 32:5 (2015), pp. 600–621. Leong investigates how beliefs and narratives in policy coalitions account for the negative perception of privatization.

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Institutional Framework of the Chinese Urban Water Sector Prior to the establishment of the People’s Republic of China (PRC) in 1949, just nine million people in seventy-two cities across China were connected to a water supply service.11 When the Chinese Communist Party (CCP) came into power, it started initiating water supply projects across the country. During this period, the construction of water supply infrastructure was slow because of the low level of urbanization. Water was provided to the population as a social welfare measure and was nominally priced as a result. With the growth of the economy after 1978, the Chinese government devoted substantial efforts to develop the urban water supply.

Administrative Structure The Ministry of Water Resources (MOWR) forms the core of the national water administration. The seven water conservancy commissions under the MOWR manage interprovincial river and lake basins, while the corresponding administrative organizations at the provincial, prefectural, and county and city levels manage water resources at the local levels. However, the MOWR needs to share power with eight other government departments under the State Council, forming what is known as “nine dragons administering water” (jiulongzhishui).12 These eight other government bodies are the National Development and Reform Commission (NDRC), the State Forestry Bureau, State Electricity Regulatory Commission, and the ministries of Housing and Urban-Rural Development (MOHURD), Environmental Protection (MOEP), Agriculture, Communications, and Health (see Figure 5.1 and Table 5.1). The multiplicity of agencies has led to a fragmented institutional framework, marked by competition for resources and influence in the policy process. The MOWR performs multiple and often conflicting roles. Its most important function is flood control, given that floods have the potential to wreak widespread and highly visible devastation. Failure to minimize flood damage makes the MOWR vulnerable to criticism and may 11 12

Fu et al., Urban Water, p. 19. Peng Shugang, “China’s Legal System for Water Management: Basic Challenges and Policy Recommendations,” International Journal of Water Resources Development 26:1 (March 2010), pp. 3–22, at p. 6.

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State Council Ministry of Water Resources

Seven River Basin Commissions

Ministry of Environmental Protection NDRC, MOHURD, Ministries of Agriculture, Communications, Health, State Forestry Bureau and State Electricity Regulation Commission

Provincial Governments Water Affairs Bureau

Environment Protection Bureau

Corresponding government authorities City and County Governments

Water Affairs Bureau

Environment Protection Bureau Corresponding government authorities

Figure 5.1 Administrative Structure of China’s Water Management System13

even lead to the downfall of its leadership. For instance, former Minister of Water Resources Niu Maosheng was forced to step down to take responsibility for the devastating floods in 1998 and, on a broader level, for the widespread corruption involved in managing flood control projects. The MOWR is also responsible for providing a steady supply of water, drought relief, improving and developing major rivers, planning water resources for urban use, constructing water conservation programs, the production of hydropower, and irrigation. Its policy role in ensuring the supply of water is to create and implement national price and allocation policies, and to oversee water 13

Adapted from Peng, “Legal System,” p. 8; Lee Seungho, China’s Water Policy Challenges (Nottingham: China Policy Institute, University of Nottingham, 2006), available from https://wenku.baidu.com/view/ 453673a4f524ccbff1218435### (accessed March 27, 2018); Zhang Hailun, Zhongguo shui guanli zhanlue yanjiu [Strategic Study for Water Management in China] (Nanjing: Southeast University Press, 2005).

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Table 5.1 Functions of Government Agencies Involved in Water Management a

Agency Ministry of Water Resources

Ministry of Environmental Protection

Ministry of Housing and Urban-Rural Development Ministry of Agriculture

State Forestry Bureau

State Electricity Regulatory Commission

Scope of Water Administration Responsibilities

Major Functions

Surface and ground water The planning of water development and management; river conservation, flood basin management; control, water and soil flood control; water and conservation, designation soil conservation of water function regionalization, unified water administration Prevention and treatment Water environmental of water pollution protection, water environmental function regionalization/zoning, to establish national water quality standards and national pollutant discharge standards Planning, construction and Urban and industrial management of water water use; urban water supply projects, and supply and drainage drainage and sewage disposal projects Irrigation; fishery aqueous Nonpoint source pollution environment protection control, protection of fishery water environment and aquatic environmental conservation Water resources Forest protection and conservation management for protecting watershed ecology and water resources Hydropower development Construction and management of large- and mid-scale hydropower projects

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Table 5.1 (cont.)

Agency

Scope of Water Administration Responsibilities

Major Functions

Planning of water resource Planning of water resource development, allocation of development and production force and ecosystem building ecological environment construction, coordinating the planning and policy of agriculture, forest and water resources, allocating budget for water projects, approve water infrastructure projects above US $30 million, set and approve water prices Ministry of Navigation of ships on Formulate inland navigation Communications rivers plans, policies, regulations, and standards Supervise drinking water Ministry of Health Supervision and standards and standards management of of water borne disease environmental health control National Development and Reform Commission

a

Compiled from Shen Dajun and Liu Bin, “Integrated Urban and Rural Water Affairs Management Reform in China: Affecting Factors,” Physics and Chemistry of the Earth 33:5 (2008), pp. 364–375, at pp. 367–368; and Feng Yan, He Daming, and Beth Kinne, “Water Resources Administration Institution in China,” Water Policy 8:4 (August 2006), pp. 291–301, at p. 293.

conservancy investment by providing technical guidance and drawing up laws and regulations. With top Chinese leaders now placing increased emphasis on alleviating water shortages, this function of the MOWR has assumed greater importance. Historically, the MOWR merged with the former Ministry of Electric Power (MEP) twice: 1958–1979 and 1982–1988. However, unlike the former MEP, which exerted strong operational control over the vast majority of electricity production and produced revenue for the state, the MOWR concerns itself with only broad policy while leaving

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operational responsibilities to local units.14 The MOWR exercises its authority through the seven river basin commissions as well as water resource bureaus (WRBs) at each level of the government. The geographical identification of the river basin commissions and WRBs means that authority often resides outside the MOWR; river basin commissions and WRBs often identify more with local governments in their areas of jurisdiction. Administrative power is therefore highly decentralized. Moreover, as noted earlier, the MOWR is not the only body responsible for water-related policies. For instance, it shares duties with the Ministry of Agriculture in developing local water delivery plans and promoting water-saving technology in the rural areas.15 This dilutes the MOWR’s influence and reduces its ability to formulate and implement coherent water policies. It has to rely on creating ad hoc cross-ministerial and cross-jurisdictional bodies in order to undertake large-scale projects.16 The MOEP was formerly the State Environment Protection Agency, which was below ministerial level because its director was not a full member of the State Council. It was elevated to full ministerial status and reorganized as the MOEP during the 2008 State Council reform. The MOEP is responsible for the full range of environmental protection activities, including drafting laws, monitoring, enforcement, and assessing environmental impact and research. In terms of curbing water pollution, it is in charge of maintaining water resources, wastewater treatment, and enforcing laws regarding industrial and urban water pollution. Like the MOWR, the MOEP also has offices at the local level, known as environmental protection bureaus. In order to reduce fragmentation of authority in the water administrative structure, local water authorities (WAs) at the provincial, prefectural, city, and county levels were established to integrate the management of urban water resources. The WAs are responsible for a whole range of functions that were previously spread out among 14

15

16

Kenneth Lieberthal and Michel Oksenberg, Bureaucratic Politics and Chinese Energy Development (Washington, DC: US Government Printing Office, August 1986), p. 76. Bryan Lohmar, Wang Jinxia, Scott Rozelle, Huang Jikun, and David Dawe, “China’s Agricultural Water Policy Reforms: Increasing Investment, Resolving Conflicts, and Revising Incentives,” Agriculture Bulletin 782 (March 2003), p. 5, available from www.ers.usda.gov/webdocs/publications/aib782/30867_ aib782_002.pdf (accessed March 12, 2011). Lieberthal and Oksenberg, Bureaucratic Politics, p. 86.

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various local bodies, including water resources management, water supply, urban water conservation, flood control and management, and wastewater treatment.17 The first WA was set up in Shenzhen in 1993, following a serious and apparently avoidable water crisis in that city.18 The WA model caught on, and by the end of October 2004, there were 1,251 administrative regions setting up WAs or implementing integrated urban and rural water affairs management by WRBs, which accounted for 53 percent of total administrative regions above county level; there were 950 WAs (40 percent of the total administrative regions above the county level), and 301 WRBs with functions of urban and rural water affairs management.19 There is a fair amount of variation in integrating water management in the WA model and differences in the mandates of WAs. According to the data based on 1,097 regions that set up WAs or WRBs, 100 percent of these agencies included functions of water resources management, 96 percent included urban flood control, 68 percent included water supply management, 37 percent included drainage functions, 80 percent included urban water-saving management, and 28 percent included urban wastewater treatment management.20 These differences are the result of adapting policies to different local conditions in the implementation process. Apart from creating WAs, there are other mechanisms that the Chinese government relies on to reduce the fragmentation of authority. It is common practice to “kick up” problems or conflicts between equal-ranked agencies to the next higher level of authority. For instance, at the municipal level, when two departments of equal rank are not able to agree on how a particular issue should be resolved or dealt with, they will usually bring up the problem to a vice mayor for conflict resolution.21

17

18

19 20 21

Liu Bin and Robert Speed, “Water Resources Management in the People’s Republic of China,” Journal of Water Resources Development 25:2 (June 2009), pp. 193–208, at p. 200. Tushaar Shah, Mark Giordano, and Wang Jinxia, “Irrigation Institutions in a Dynamic Economy: What Is China Doing Differently from India?” Economic and Political Weekly (July 31-August 6, 2004), pp. 3452–3461. Shen and Liu, “Integrated Urban and Rural Water,” p. 364. Ibid., p. 365. Author’s notes, interview with a researcher and a government official of the Shanghai Municipal Government, August 28, 2012.

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Another mechanism for coordination and/or conflict resolution is the creation of cross-system integrators. These often take the form of leading small groups. There are six functional sectors at the national level that control and run the political system: military, legal, administrative, propaganda, united front, and mass organizations.22 A member of the Politburo Standing Committee directs each of these sectors through an institutionalized body in the form of a committee or through a non-standing ad hoc body such as a leading small group. For managing water resources, which falls under the administrative sector (responsible for industrial and agricultural production, finance, and commerce among others), a vice premier heads the National Leading Small Group for Water Resources and Water and Soil Conservation Works, which promotes interagency coordination and resolves sectoral water conflicts among regions.23 These leading small groups are at times replicated throughout the lower levels of government. For instance, in 1999, the Beijing government issued the Measures for Ensuring the Sustainability of Beijing Water Resources in the 21st Century, which provided for the formation of a leading small group under then Vice Mayor Yue Fuhong to formulate plans for the sustainable development of Beijing’s water resources.24

Water Policies and Legal Framework China’s legal framework is divided into several vertical layers: constitutional law, which stipulates that the state owns all water resources; national laws promulgated by the National People’s Congress; administrative regulations; departmental rules; local regulations; and local rules (Figure 5.2). As of 2011, the water sector is governed by four

22

23

24

Lu Ning, “The Central Leadership, Supraministry Coordinating Bodies, State Council Ministries, and Party Departments,” in The Making of Chinese Foreign and Security Policy in the Era of Reform , ed. David M. Lampton (Stanford, CA: Stanford University Press, 2001), p. 40. R. Maria Saleth and Ariel Dinar, “Institutional Changes in Global Water Sector: Trends, Patterns and Implications,” Water Policy 2:3 (July 2000), pp. 175–199, at p. 189. Wan Yusheng and Jin Ding, “Qiantan Beijing shuiziyuan wenti yingji duice” [A Survey of Beijing’s Water Resources Problems and Solutions], Zhongguo Shuili [China Water Resources] 7 (2001), pp. 56–57.

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Constitution of the PRC National People’s Congress

State Council

State ownership of water resources

National Laws

Administrative Regulations Local Regulations

Admin Department

Departmental Rules

Local Rules

Figure 5.2 Legal Framework for Water Management25

national water laws, 17 administrative regulations, 54 department rules and about 800 local regulations.26 The urban water sector itself is governed by a series of laws, regulations and plans on water resource allocation, water abstraction, urban water pricing, water quality, urban planning, water use, saving, development and delivery, and wastewater discharge.27 National laws and policies on urban water resource management are also often intertwined with laws on economic growth, urban planning and environmental management. The following discussion focuses on the most significant laws and regulations pertaining to the urban water sector.28 Water allocation and abstraction The 2002 Water Law requires the preparation of water resource allocation plans to determine the water that is available for different consumption purposes within a river basin and within administrative regions in that basin. Water abstraction by different users is governed by a water abstraction permit system, provided for by the 2002 Water Law and the 2006 Regulations on the Administration of Water Abstraction Licensing and Collection of Water Resources Charges. Permits are regulated on an annual basis through annual water 25 26

27

28

Modified from Liu and Speed, “Water Resources Management,” p. 199. Liang Chao, “China Launches National Water Week Campaign,” China Daily, March 22, 2011, available from www.chinadaily.com.cn/china/2011-03/22/ content_12211532.htm (accessed October 14, 2011). Martin Cosier and Shen Dajun, “Urban Water Management in China,” International Journal of Water Resources Development 25:2 (2009), pp. 249–268, at p. 254. Most of the section on laws and regulations are drawn from Fu et al., Urban Water.

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abstraction plans, which must be consistent with relevant annual water resources regulation plans. During periods of extreme drought, drought contingency plans take precedence over other plans and require amendments to annual water abstraction plans. This is aimed at ensuring the availability of water for urban users, particularly for essential domestic needs, which are given priority under the 2002 Water Law. Such a provision is clearly in accordance with the urban bias in China’s social contract. Water usage and sustainable development Water usage in China’s cities is subject to a planned water use and water saving system under the national 1988 Regulations on Urban Water Saving Management, which is designed to minimize wastage of water and to increase water use efficiency. This system requires the preparation of annual water use plans for the city as a whole, as well as for individual nonresidential users. Municipal annual water use plans define the way that water available to the municipality each year is to be used. The 2002 Water Law also requires local municipal governments to improve domestic water efficiency by, for example, promoting the use of water-efficient appliances within households, reducing leakage from supply networks, and increasing the use of recycled water. In addition, under the 1989 Urban Planning Law, municipal comprehensive plans approved by the State Council are required for significant expansion of existing urban areas or new economic development zones. In line with these plans and under the 1994 Urban Water Supply Regulations, municipalities are required to prepare medium- to long-term plans for the development of water sources to meet the growth in urban demand. While these urban water supply development and use plans are concerned with meeting future urban water needs, their preparation needs to be coordinated with the water allocation planning framework to ensure the sustainable use of available resources. Obligations of water suppliers A number of rules govern the obligations of water suppliers to users. These obligations are mandated by the 1994 Urban Water Supply Regulations, the 1989 Urban Planning Law, the 1999 Contract Law, the 2006 Regulations on the Administration of Water Abstraction

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Licensing and Collection of Water Resources Charges, and the 2007 Urban Water Supply Quality Regulations. The rights and responsibilities of the suppliers and users are governed both by water supply and use contracts between these parties and by the suppliers’ water supply plans. These plans and contracts cover matters such as water prices, the rate and pressure of the water supply, metering obligations and standards for meters, and the quality of water supplied. Such provisions protect the rights of consumers and ensure that there is government oversight over public utilities and PPPs in the urban water industry. Water pricing policies One of the chief concerns of private firms in the water industry is the revenue risks that are associated with low water tariffs. In his report to the National People’s Congress in March 2009, then Premier Wen Jiabao promised to undertake a comprehensive reform of the pricing structure of resources, including water, to incorporate the cost of environmental damage. Prior to this, the Chinese government has promulgated a series of laws and regulations aimed at reforming the water pricing system (see Table 5.2). While these laws are set at the central government, in particular by the NDRC, which is the overarching body in charge of water pricing, urban water prices are determined at the local level, by provincial governments, autonomous regions, and municipalities directly administered by the central government. Specifically, the process begins with water companies initiating price adjustments. The local price bureau or local Development and Reform Commission (DRC) (if there is a local DRC, the price bureau comes under it) will then evaluate the requests, weed out the unreasonable costs, come up with an average for the price adjustment formula that takes into account residents’ ability to bear costs, and consult with the local construction bureau or water authority if there is one.29 This will be followed by a public hearing, after which the price bureau or the price bureau within the local DRC, together with the municipal government, will give the final approval. This locally driven water price adjustment process means that water prices in China vary across regions, and water is priced according to their usage – residential, 29

Author’s notes, interview with two officials from the National Development Reform Commission, August 30, 2012.

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Table 5.2 Selected Laws and Regulations on Water Pricing in Chinaa Date

Laws/Regulations

1994 1998 2002 2003

    

2004

 

2005 2006

  

2007



2009



2010

 

Regulations on Urban Water Supply Measures for the Administration of Urban Water Supply Pricing Notice of Furthering Price Reform of Urban Water Supply Regulation on Collection and Usage of Pollutant Discharge Fees Measures for the Administration of the Charging Rates for Pollutant Discharge Fees Notice on Promoting Water Price Reform, Promoting Water-Saving and Protecting Water Resources Measures for the Administration of the Pricing of Water Supplied by Hydraulic Engineering Price Law of the People’s Republic of China Measures for the Supervision and Examination of the Pricing Costs of Water Measures for the Supervision and Examination of the Pricing Costs of Water Supplied by Hydraulic Engineering General Technological Standards for the Supervision and Examination of Pricing Costs Notice of Several Problems on the Administration of Urban Water Supply Pricing Guidance on Municipal Water Pricing Adjustment and Water Cost Disclosure Measures on Municipal Water Supply Pricing Cost Review

a

Author’s compilation, adapted from Yang Mu and Weng Cuifen, “Reforming China’s Water Industry,” EAI Background Brief 578 (November 12, 2010), p. 13; and Fu et al., Urban Water, pp. 231–235.

commercial, industrial, or agricultural. Typically, water for agricultural use is priced lowest, followed by residential, industrial, and then commercial uses. In April 2004, the State Council issued the Notice on Promoting Water Pricing Reforms, Promoting Water-Saving and Protecting Water Prices, which clarified the four components of the urban water price: (1) the water resource fee, (2) water development fee, (3) the urban water supply price, and (4) the wastewater treatment fee. Various regulations also provided for the gradual adoption of a two-part tariff, consisting of a fixed demand charge and a volumetric charge to ensure social equity and affordability to lower income groups. Block pricing

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proves to be a challenge in implementation as it requires metering. In the past, water companies used bulk meters that measured the flow into apartment buildings, and the building management was responsible for paying the water bills. China now has a policy of universal household metering, and water companies are rapidly installing meters. Some cities are also experimenting with prepaid debit cards that residents must put into their meters in order to continue to receive service. However, there are obstacles in implementation – meters are installed for single family, commercial and industrial users, and apartment buildings, but seldom for individual apartments within buildings, where only bulk meters are used.30 While installing individual meters in new buildings in China’s major cities is increasingly the norm, it is harder to convert bulk meters in old apartment buildings to individual meters because of the investment costs in meters, and the associated meter reading and billing costs. In fact, block pricing has been postponed time and again because of metering complexities in residential areas. For instance, Beijing proposed block pricing in 2005, but this was postponed due to metering problems.31 The public hearing process mentioned previously is aimed at introducing transparency in water pricing and to garner public support for adjustments in water tariffs. While the authenticity of these public hearings are often doubted as these hearings have rarely rejected or modified proposals for water pricing adjustments, more steps have been taken since to increase transparency in the water pricing process. In 2010, the NDRC issued the Guidance on Municipal Water Pricing Adjustment and Water Cost Disclosure, and Measures on Municipal Water Supply Pricing Cost Review. The two regulations clarified both water cost composition and cost review. They also disclosed water costs and improved the transparency of water pricing adjustments in pilot cities from January 1, 2011.32 30

31

32

The World Bank, Water Supply Pricing in China: Economic Efficiency, Environment and Social Affordability (Washington, DC: World Bank, 2007), available from http://siteresources.worldbank.org/INTEAPREGTO PENVIRONMENT/Resources/PolicyNoteWaterpricingandaffordability FINALEN.pdf (accessed April 2, 2011). James E. Nickum and Yok-Shiu Lee, “Same Longitude, Different Latitudes: Institutional Change in Urban Water in China, North and South,” in Environmental Governance in China, eds. Neil Carter and Arthur J. P. Mol (London: Routledge, 2007), p. 93. Yan, Regulating, p. 93.

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Financing The responsibility for financing water infrastructures lies with city governments rather than the provincial or central governments. In 2010, for instance, subnational expenditures accounted for 80 percent of all public expenditures in China.33 China’s tax system mandates local governments collect taxes, which are then transferred to the central government. The central government then returns a negotiated portion of these tax revenues to provincial and other subnational-level governments.34 When tax reforms were instituted in 1994, more revenues were shifted to the central government while more expenditure responsibilities were shifted to local governments, resulting in “unfunded mandates.” As a result of these “unfunded mandates,” local governments rely on extra-budgetary and off-budgetary revenues to fulfill development needs (as explained in Chapter 3). Apart from these extra-budgetary and off-budgetary revenues, land reforms in 1988 generated revenue for local governments to invest in infrastructures.35 Private investments have also become a critical source for funding public utilities. “Unfunded mandates” and the budget constraints faced by local governments are a major motivating force for them to privatize small- and medium-sized SOEs, which not only reduces the burden of loss-making SOEs on the budgets of local governments but also facilitates an injection of new investment that could make these SOEs profitable.36

Private sector participation in China’s urban water sector Three key sets of policies and regulations were promulgated to guide the opening up of the urban water industry to private sector participation: (1) market opening policies, (2) regulatory policies, and (3) property rights transfer policies. The Chinese government continues to oversee and regulate the industry to ensure that the ethos of public service is maintained, a key factor essential for successful PPPs – the 33 34 35 36

Acoca et al., “Urban Governance,” p. 19. Dickson et al., “Public Goods,” p. 866. Acoca et al., “Urban Governance,” p. 19. Yuanzheng Cao, Yingyi Qian, and Barry R. Weingast, “From Federalism, Chinese Style, to Privatization, Chinese Style,” Economics of Transition 7:1 (1999), pp. 103–131.

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focus is not on profits but on improving public goods and services as a “social responsibility” (shehui zeren).37 This public service mindset highlights both the material and normative aspects of performance in China’s social contract. Opening up policies In 1995, to meet the burgeoning demand for water that resulted from rapid urbanization, the government started looking to the private sector for much needed capital to build water infrastructures. In that year, the Chinese government introduced the build–operate–transfer (BOT) approach into the field of urban infrastructure. The former Ministry of Foreign Trade and Economic Cooperation promulgated the Circular on Attracting Foreign Investment through BOT Approach and the Circular on Major Issues of Approved Administration of the Franchise Pilot Projects with Foreign Investment. The circulars standardized the investment and approval processes for BOT projects. As a result, 1995 saw a boom in urban water infrastructure construction, and by the end of that year, there were 4,000 water plants in 666 cities across China. The total water supply capacity was almost 200 million cubic meters per day, water supply coverage reached 95 percent of the population, and the per capita water consumption was 208 liters per day.38 In 2000, the then Ministry of Construction issued the Temporary Provisions on Utilizing Foreign Capital in Municipal Public Utilities to guide and standardize the use of foreign capital in municipal public utilities and to expand the use of foreign capital. Until 2001, the emphasis of government policies was on guiding and standardizing procedures for foreign capital investment in municipal public utilities. The next major push for opening up the public utility sector came in 2002, with the issuance of the Circular on Accelerating the Marketization of Public Utilities. As the emphasis shifted to diversifying sources of investments, the Chinese government began to promote both foreign and domestic private sector involvement in water and other public utilities by allowing multifinancing approaches, granting concession rights, establishing price mechanisms, and reducing government monopolies. Standardized investment protocols and approval 37

38

Qi Guizhen, Lun Zhongguo de dazhengfu yu qiangzhengfu [Debating China’s “Big Government” versus “Strong Government] (Beijing: Social Sciences Academic Press, 2011), p. 35. Fu et al., Urban Water, p. 19.

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procedures for foreign investors were applied to domestic businesses as well. Foreign investors also started to take limited ownership of water treatment plant concessions. They became an increasingly important source of capital and technology, resulting in milestone joint-venture projects in Shanghai and Shenzhen. However, to safeguard China’s strategic industries, Chinese law prohibits foreign ownership and management of water and power distribution networks. Additional measures were implemented during this period to further facilitate private sector involvement, including the Measures on Public Utilities Concession, and Opinions on Encouragement of Supporting and Directing Non-Public Ownership Economy, which were issued in 2004 and 2005, respectively. Governments at various levels also took measures to reform water tariffs, investment and financing systems, and the management of urban water supply. By the end of 2005, the total urban water production was 49.03 billion cubic meters; there was a total of 358,400 kilometers of water supply pipeline, and the population supplied was slightly more than 303 million.39 This represents significant strides in China’s water supply capacity – in 1980, China produced only 8.83 billion cubic meters and the population supplied was about 73 million.40 China’s reasons for introducing private sector participation into public utilities are similar to the rationale that drives privatization worldwide – public utilities are incurring heavy losses, and hence the need to attract much-needed investment for building water infrastructure and to improve the efficiency of water services. With rapid economic growth and urbanization, the demand for clean water began to exceed supply. In 2003, Zhao Haohui, then vice minister of Water Resources, revealed that more than 400 of China’s cities suffered from insufficient water supply and the total annual urban water shortage was about six billion cubic meters.41 Government resources alone cannot satisfy the demand created by rapid urbanization. Across the different levels of government, city governments are more concerned with attracting investment than the central and provincial governments because city governments are the main financiers of local water

39 40 41

Ibid., p.20. Ibid., p.19. China Internet Information Center (china.org.cn), “Water Supply and Demand Imbalance Sharpens in China,” September 26, 2003, available from http:// china.org.cn/english/2003/Sep/76069.htm (accessed March 12, 2011).

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infrastructure.42 The two key landmark government documents aimed at promoting private capital are the Circular on Accelerating the Marketization of Public Utilities, and the Opinions on Encouragement of Supporting and Directing Non-Public Ownership Economy. The former is significant in that it ended the debate about whether municipal public utilities can be “marketized.” The latter further deepened private sector participation by (1) allowing nonpublic capital to enter public utilities and infrastructure; (2) speeding up improvement of the concession system; (3) standardizing the tendering and bidding processes; (4) allowing ownership and operation rights to be transferred to nonpublic enterprises; and (5) encouraging nonpublic enterprises to participate in reforming the ownership system and operations of municipal public corporations.43 The second rationale for private sector participation in the urban water industry is to improve the operational efficiency and service level of the water industry. This appears to be a secondary motivation compared to the priority aim of attracting private capital. However, since 2005, the Chinese government has moved to place greater emphasis on improving regulation so as to raise the quality of water service provision. In that year, the Ministry of Construction issued the Opinions on Strengthening Regulation of Municipal Public Utilities. Instead of focusing on the construction of individual components of water infrastructure, the focus is on optimization of the entire water system. Table 5.3 summarizes the key policies for opening up the urban water sector. The global financial crisis of 2008 triggered another round of reforms to further privatize urban utilities. In 2009, the State Council approved the Opinions on Deepening the Economic Reform issued by the NDRC, which states that the MOHURD and MOWR should accelerate the reform of public utilities, and expand the scope of concessions in water supply, heat supply, sewage treatment, and waste disposal.44 In 2010, the State Council issued Opinions on Encouraging and Guiding the Development of Private Investment in which private investment in municipal utilities is encouraged. The Opinions facilitates private participation in restructuring municipal public utilities and emphasizes that private capital can gain ownership or operating rights in selected municipal projects.45 42 43 44 45

Fu et al., Urban Water, p. 34. Ibid., p. 36. Yan, Regulating, p. 30. Ibid.

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Table 5.3 Selected Market Opening Policies for Public Utilitiesa Year

Policy/Regulation

Issued By

1995

Circular on Attracting Foreign Investment through BOT Approach and Circular on Major Issues of Approved Administration of the Franchise Pilot Projects with Foreign Investment Circular on Accelerating the Marketization of Public Utilities Decision of the Central Committee of the Communist Party of China to Improve the Socialist Market Economy System Management Measures on Concessions of Municipal Public Utilities Opinions on Encouragement of Supporting and Directing NonPublic Ownership Economy Opinions on Facilitating Economic System Reform Opinions on Deepening Economic Reform Opinions on Encouraging and Guiding the Development of Private Investment

Ministry of Foreign Trade and Economic Cooperation

2002 2003

2004

2005

2005 2008 2010

a

Ministry of Construction Third Plenary Session of the 16th Central Committee of the Party Ministry of Construction

State Council

State Council NDRC State Council

Author’s compilation.

Regulatory policies The Opinions on Strengthening Regulation of Municipal Public Utilities sets out the main content of municipal public utility regulation and gives detailed rules and explanations of the approval process, service quality, cost, and safety issues.46 It emphasizes the importance of contracts in regulating concession projects, and provides detailed explanations of the bidding process. The bidding criteria are based on costs, price, quality and service guarantees, and emergency measures among others. The 46

Fu et al., Urban Water, p. 243.

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Opinions also signifies an important breakthrough on cost regulation, providing for price reforms in profitable municipal public utilities such as water, gas and heat supply, and making a distinction between these profitable utilities and nonprofitable ones such as wastewater and garbage treatment. It also suggests that cost comparison and performance evaluation in the same industry in a region should be carried out so as to provide direction for the setting up of a cost regulation evaluation system. In addition, the Opinions emphasizes the importance of public participation in regulating municipal public utilities. It provides for the establishment of an information channel, and public consultation and supervisory mechanisms. The Opinions also provides for the establishment of an integrated regulatory body. It states that the “municipal public utilities are an inseparable entity, the municipal public utility market is an integrated market,” and that “an integrated municipal public utility regulation organization will be established step by step.”47 Even more significantly, the Opinions makes clear that despite marketization, the government continues to play a critical role in the provision of public utilities, because municipal public utilities, even with the introduction of market mechanisms, continue to perform public service. It thus enshrines the government’s role as regulator of municipal public services responsible for the proper and efficient functioning of municipal public utilities. Property rights transfer policies In tandem with policies that opened up the water industry to private capital, the government also promulgated policies that governed the transition from the public to the private sectors. In 2002, the 16th CCP Congress made significant adjustments to the management system of state-owned properties by assigning the role of investor to local governments.48 This meant that, together with the central government, local governments now assumed the rights and interests of the proprietor on behalf of the state. Local governments therefore enjoyed all the rights and interests of the investor, and could independently decide to auction or transfer their properties based on local resource allocation. This helped speed up reform of central and local SOEs. The 2002 Opinions on Accelerating the Marketization of Public Utilities also helped facilitate the reform of public utility enterprises and property rights transfer 47 48

Ibid. Ibid., p. 228.

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system. Apart from encouraging private domestic and foreign capital into the construction of municipal public utilities, transregional and cross-industrial enterprise participation were also allowed in the management of municipal public utilities. This further enhanced market competition in the water sector as enterprises from various regions and industries were now allowed to manage public utilities. The government also issued additional measures to standardize enterprise property rights transfers. These included the Notice on the Relevant Issues Concerning the Transfer of State-owned Shares and Corporate Shares of Listed Companies to Foreign Investors, which was issued in November 2002; the Interim Provisions on Providing Foreign Investment to Reorganize SOEs, issued in November 2002; the Interim Measures for the Supervision and Administration of State-owned Assets of the Enterprises in May 2003; and the Interim Measures for the Management of the Transfer of the State-owned Property Rights of Enterprises in February 2004.49

Institutional Framework of the Indian Urban Water Sector Administrative Structure Responsibility for managing the Indian water sector is divided among the three levels of government as shown in Table 5.4. Just as in China, there are a myriad of bodies involved at each level of the Indian government with different responsibilities in managing India’s urban water sector. Legislative power, technical capabilities, planning skills, and operational responsibilities are dispersed across various government layers. As a result, water institutions in India remain “functionally disjointed, sectorally biased, and regionally uncoordinated.”50 Although the management of water is the purview of state governments, the central government has some indirect but powerful leverage because of its role in project approvals and interstate dispute resolution, as well as its control over planning and technical organizations at the national level.51 At the level of the central government, there are at least seven institutions involved in the management of the urban water sector (see Table 5.5).52 At the highest level, the Planning Commission is in charge of the planning and allocation of central government funds through 49 50 51 52

Ibid., pp. 229–230. Saleth and Dinar, “Institutional Changes,” p. 190. Ibid. The World Bank, Bridging the Gap, p. 8.

Table 5.4 Division of Responsibility among Central, State, and Local Governmentsa Features

Central Government

State Government

 Department of Water Resources (state)  State-level water regulatory authorities (e.g., Maharashtra Water Resources Regulatory Authority and Uttar Pradesh Water Management and Regulatory Commission) Statutory bodies of the state Funding Jawaharlal Nehru National Urban government, such as the Renewal Mission (JnNURM) and infrastructure development urban infrastructure development corporations, e.g., Tamil Nadu scheme in small and medium towns; Urban Finance and Infrastructure schemes under the Ministry of Development Corporation Urban Development Capital works Not applicable Public Health Engineering Department/Public Works Department (state government) Operations and Not applicable State-level specialist agencies/ maintenance metropolitan-level specialist agencies Policy and regulation

143

a

 Ministry of Water Resources  Central Public Health Environmental and Engineering under the Ministry of Urban Development

Urban Local Bodies Not applicable

Metropolitan-level specialist agency/specialist municipal undertaking

Metropolitan-level specialist agency Specialist municipal undertaking

Nirmala Rao, Cities in Transition: Growth, Change and Governance in Six Metropolitan Areas (Abingdon: Routledge, 2007), p. 132.

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Table 5.5 Central Government Institutions in the Water Supply and Sanitation Sectora Ministries

Institutions

Planning Commission

Planning Commission

Responsibilities

Planning and allocation of central government funds through five-year plans Central Water Commission Central policymaking Ministry of Central Ground Water Regulatory activities of Water Board groundwater concerning Resources quality and overexploitation National Rivers Responsible for river bodies Ministry of Conservation Directorate Environment and Forests Central Pollution Control Monitor pollution Board Setting standards and Central Public Health Ministry of coordinating between states Environmental and Urban Engineering Development Organization National Institute of Research and advocacy, Ministry of Communicable Diseases particularly with civil society Health and Family Welfare Funding for housing and other Others Housing and Urban infrastructure sectors Development Corporation Life Insurance Corporation Development funding a

Asthana, Water Policy Processes, p. 49.

five-year plans. The Ministry of Water Resources (MoWR) is responsible for the coordination, development, conservation, and management of water as a natural resource. It was established as late as 1985 and only because water issues had become more complex and diverse.53 The MoWR sets the general policy on water resource development and management, manages technical and external assistance to the states for irrigation, multipurpose projects, groundwater exploration and exploitation, command area development, drainage, flood control, water logging, sea erosion problems, dam safety, and 53

Vandana Asthana, Water Policy Processes in India: Discourses of Power and Resistance (Abingdon: Routledge, 2009), pp. 48–49.

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hydraulic structures for navigation and hydropower.54 Specifically, two bodies under the MoWR – the Central Water Commission and Central Ground Water Board – are involved in central policymaking and regulating the activities of groundwater in terms of quality and overexploitation, respectively.55 However, apart from the regulation of groundwater, the MoWR does not play a significant role in urban water sector management. The lead agency that coordinates the urban water supply sector is the Ministry of Urban Development (MoUD). The Central Public Health and Environmental Engineering Organization (CPHEEO) is the technical arm within MoUD that sets standards and coordinates urban water management among states. The National Institute of Communicable Diseases, under the Ministry of Health and Family Welfare, is also involved with research and advocacy. The National Rivers Conservation Directorate and Central Pollution Control Board under the Ministry of Environment and Forests are responsible for river bodies and water pollution, respectively. Other central-level bodies include the Housing and Urban Development Corporation and the Life Insurance Corporation, which are involved in funding. In terms of overall water management, the number of ministries involved is even larger (see Table 5.6). In addition, there are also mechanisms such as the National Water Resource Council and National Development Council to promote center–state coordination in the water sector.56 Apart from these roles ascribed to various bodies under the central government, all matters relating to the urban water sector are the responsibility of state governments. Water is constitutionally a state subject, listed under Entry 17 of the State List, although the central government has the right to intervene in the management of interstate rivers or when public interest is involved under Entry 56 of the Union List.57 State governments are responsible for making laws and laying down policies for the allocation of water, and establishing institutional systems for their development and management. Institutional arrangements, however, vary from state to state and could take one of these forms: state-level public health engineering departments 54 55 56 57

Ibid., p. 49. Ibid. Saleth and Dinar, “Institutional Changes,” p. 190. Asthana, Water Policy Processes, p. 48.

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Table 5.6 Administrative Fragmentation of Water Management a Water Sector

Ministry/Department

Irrigation, flood control, CAD, minor irrigation, watershed programs

Ministry of Water Resources Department of Agriculture Department of Land Resources Planning Commission Investment clearance for irrigation projects, Planning Commission allocation of funds Hydropower Ministry of Power Drinking water and sanitation Department of Drinking Water Supply Department of Urban Development Navigation Ministry of Shipping Desalination technology Department of Atomic Energy Department of Science and Technology River Conservation Ministry of Environment and Forests a

A. Sekhar, “Development and Management Policies: Perspective of the Planning Commission,” in Oxford Handbook of Water Resources in India: Development, Management, and Strategies, eds. John Briscoe and R. P. S. Malik (New Delhi: Oxford University Press, 2007), p. 67.

(PHEDs), specialized state-level water supply and sanitation boards, specialized city-level boards, and municipal corporations (MCs) and urban local bodies (ULBs)58 (see Table 5.7). Power to manage the urban water supply is often devolved to these local bodies via state legislation. Because of the weak powers of municipal governments and ULBs as compared to the federal and state governments, the 74th CAA was enacted in 1992 to facilitate decentralization and strengthen governance at the municipal level.59 The amendment provides a basis for state

58 59

The World Bank, Bridging the Gap, pp. 8–9. Parliament of India, “74th Constitutional Amendment Act, 1992,” available from http://indiacode.nic.in/coiweb/amend/amend74.htm (accessed May 26, 2016).

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Table 5.7 Varieties of Institutional Arrangements in the Urban WSS Sectora Responsibilities Agency Type

Jurisdiction

Entire state State-level Large cities specialist agency (SSA) Small cities

O&M

Capital Works

SSA SSA City-level specialist agency Local SSA government

Examples Kerala Uttar Pradesh

Karnataka Maharashtra Tamil Nadu Uttar Pradesh Delhi Entire state PHED Rajasthan Public health Local PHED Andhra engineering Small cities government Pradesh departments Municipal Large municipal Municipal Municipal Gujarat departments corporations department department Tamil Nadu Andhra Pradesh MSA MSA Bangalore Metropolitan- Metropolitan centers Chennai level Hyderabad specialist agency (MSA) Metropolitan SMU SMU Mumbai Specialist centers municipal undertaking (SMU) a

The World Bank, Bridging the Gap, p. 9.

governments to devolve responsibility for electricity, water, and other amenities to ULBs, in order to make government more responsive to local needs. The aim is to work toward the implementation of a decentralized and self-sufficient governance system “to ensure local cultural and political autonomy by diffusing social and political

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tensions at different scales and levels of government.”60 The Jawaharlal Nehru National Urban Renewal Mission (JnNURM) also stipulates reforms for the ULBs to carry out core municipal functions including water supply, drainage and sewage, and solid waste management.61 The ULBs are held politically accountable for these functions. According to the World Bank, however, the decentralization process has been very slow, leaving the main responsibility for planning and implementing urban water supply and services programs in cities that do not have their own water utility boards to the state-level water boards and PHEDs.62 Several metropolitan cities, such as New Delhi, Chennai, Hyderabad, and Bangalore have semiautonomous water supply and sanitation boards, which are nominated boards with limited functional autonomy.63 Separate departments of the Calcutta and Mumbai MCs handle water supply and sanitation operations. However, most of the more than 5,000 MCs and ULBs have not taken up responsibility of the water supply and sanitation or have merged it with other municipal services.64 In addition, while the responsibility of operation and maintainenance is supposed to be passed on to ULBs upon the complete construction of the works, ULBs often leave it to state-level agencies to carry out these functions because of a lack of capacity and incentives.65 That the federal and state governments continue to control funding is a key factor in the ULBs’ lack of financial capacity, as mentioned previously. ULBs also have outdated concepts in the planning and design of water supply, sewage, and wastewater treatment.66 The institutional design adopted for line agencies in the urban water sector does not provide incentives for better performance.67 Moreover, despite the 74th CAA, state governments continue to dominate ULBs. While metropolitan authorities prepare and enforce 60

61 62 63 64 65 66

67

Maryam Nastar, “What Drives the Urban Water Regime? An Analysis of Water Governance Arrangements in Hyderabad, India,” Ecology and Society 19:2:57 (2014), available from www.ecologyandsociety.org/vol19/iss2/art57/ (accessed May 16, 2016). Aziz and Shah, Public Private Partnerships, p. 4. The World Bank, Bridging the Gap, p. 9. Aziz and Shah, Public Private Partnerships, p. 4. Ibid. The World Bank, Bridging the Gap, p. 9. Dinesh Kumar, Thirsty Cities: How Indian Cities Can Meet Their Water Needs (New Delhi: Oxford University Press, 2014), p. xv. Ibid.

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urban planning master plans, it is state governments that approve them.68 State governments also exercise extensive administrative control over municipal bodies through inspection, calling for records, and giving directions for performing civic functions. As the resources of ULBs are often limited, their ability to address problems is also circumscribed, allowing state governments to dominate. In addition, land – which is the most vital resource in urban planning – is a state-listed subject.69 State governments often carry out urban land planning without consulting ULBs on electricity and water supplies. The authority of state departments over ULBs and the lack of communication between different departments often result in poor planning and inefficiency in urban planning, including in the urban water sector.

Water Laws and Regulations At the national level, the National Water Policy provides the overarching framework for managing water supplies. Over the past two decades, the concept of water supply management has evolved, as reflected in the various national water policies that were formulated in 1987, 2002, and 2012. The National Water Resource Council was set up under then Prime Minister Rajiv Gandhi to formulate the National Water Policy, which was adopted in 1987. The 1987 policy took a holistic view of water management – advocating for the development of integrated information systems, conservation of water resources, emphasis on multipurpose projects, and periodic groundwater assessment.70 It also prioritized drinking water above other water uses and stated the principle of cost recovery. The National Water Policy was updated in 2002 as the government strove to adopt new progressive approaches to water management. It emphasized protecting water quality, increasing awareness of conservation measures, and limiting groundwater extraction. Significantly, the 2002 policy emphasized the role of the private sector in the water industry and access to commercial borrowing.71 The National Water Policy was further revised in 2012. Notable additions to the policy include the emphasis on a national legal framework for suitable water 68 69 70 71

Rao, Cities in Transition, p. 132. Ibid. The World Bank, Bridging the Gap, p. 10. Ibid.

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laws, regulations, and policies at the state level; the proposal that each state should have a water regulatory authority to fix and regulate water tariffs, monitor operations, review performance, and suggest policy changes; reforms to water pricing; and an even stronger emphasis on the promotion of private sector participation.72 On water pricing policies, the 2012 National Water Policy marks the first time that the Indian government recognized water as an economic good, and thus might be priced to promote efficient use and value maximization.73 State governments were instructed to establish a water tariff system and fix the criteria for water charges, which should reflect the full cost of administration, and operation and maintenance (O&M) of water resource projects, taking into account any crosssubsidies.74 Capital costs are not included in water tariffs, which means that the burden of investing in water infrastructures belong to state governments. Despite these provisions, however, enforcement is an issue; O&M cost recovery, the provisions for capital costs recovery, and volumetric pricing beyond basic needs are seldom implemented.75 India’s five-year plans also play an important role in managing its urban water supply. The first five-year plan launched the National Water Supply and Sanitation Program in 1954.76 Increasingly larger allocations were made for the water sectors in succeeding five-year plans. During the fifth five-year plan (1975–1980), the importance of providing safe water and sanitation as a basic requirement was reiterated. The sixth five-year plan (1980–1985) reflected increasing national and international concerns for safe drinking water supplies and sanitation. Since the 1970s, several schemes have been launched in urban areas for the development and upgrading of basic water supply and sanitation.77 For example, the following schemes were implemented in the tenth five-year plan (2002–2007): Integrated Development of Small and Medium Towns; Low Cost Sanitation Program; Shelter and Sanitation for Pavement Dwellers; Mega-City Project; and Accelerated Urban Water Supply Program.78 72 73

74 75 76 77 78

Aziz and Shah, Public Private Partnerships, pp. 6–7. Shen Dajun and V. Ratna Reddy, “Water Pricing in China and India: A Comparative Analysis,” Water Policy 18:S2 (December 2016), pp. 103–121, at p. 108. Ibid., pp. 108–109. Ibid., p. 113. The World Bank, Bridging the Gap, p. 60. Gopakumar, Transforming Urban Water Supplies, p. 22. Ibid.

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In a major change, the five-year plans since the late 1990s began to focus on the role of ULBs and cities in improving the water supply and sanitation sector.79 The ninth (1997–2002), tenth (2002–2007), and eleventh (2007–2012) five-year plans reflected this change. This is in line with the 74th CAA, which enhanced and legally enshrined ULBs and other local government bodies as a formal level of government. In particular, the tenth five-year plan launched a series of city-level schemes offering incentives and financial means for states and cities to embark on water infrastructure reforms: the Urban Reform Incentive Fund (URIF), the City Challenge Fund (CCF), and the Pooled Finance Development Scheme (PFDS).80 The eleventh five-year plan enables a more thorough application of the effort to reform urban infrastructures through the launch of the JnNURM; many existing schemes such as the URIF, CCF, and Mega-Cities Program were subsumed under the JnNURM.81 The JnNURM is a significant landmark in reforming urban infrastructure. It proposes a broad framework for renewing the physical infrastructure and governance aspects of cities. Enhancing the development of water supply infrastructure is a primary focus of the JnNURM. The major goals are to create modern financial management systems adapted to urban service and governance; offer all residents basic access to urban services; increase transparency in urban services; and establish a functional, citywide framework of effective governance.82 These measures at the national level are aimed at exerting pressure on the states to reform their urban water supply. At the state level, many state governments have formulated water policies along the lines of the National Water Policy.83 Priority is also given to drinking water above other uses. State governments have drawn up a range of legislation pertaining to drinking water supplies, water tariffs, groundwater management, pollution control, water conservation, irrigation, and floods, among others, according to local conditions.84 There is also a multiplicity of written or unwritten 79 80 81 82 83

84

Ibid., p. 24. Ibid., p. 26. Ibid. Ibid. Anil D. Mohile, “Government Policies and Programmes,” in Oxford Handbook, eds. Briscoe and Malik, p. 22. For a fuller examination of water regulations and rules at the state level, see Philippe Cullet and Joyeeta Gupta, “Evolution of Water Law and Policy in India,” in The Evolution of the Law and Politics of Water,

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arrangements that regulate access to and use of water for domestic purposes or irrigation. Some of these run along caste lines. These informal rules often run parallel to formal water rules and regulations.85 A key weakness in India’s water institutional framework is that it lacks an overarching framework that could bring together the bewildering range of legislation, policies, guidelines, and informal rules governing water management.86

Financing The central government is responsible for providing funds for urban infrastructure development through various schemes and programs (see Table 5.4). The JnNURM, for instance, is a central governmentsponsored urban modernization program with an allocation of over INR 1 trillion spread over a period of seven years for 700 cities and towns.87 The JnNURM was introduced in 2005–2006 and aimed to provide grants-in-aid to ULBs to increase people’s access to urban infrastructure and improve the quality of the services delivered, with a special focus on improving the livelihoods of the urban poor. Under the mission, 50 percent of the funds were to come from the central government and the other 50 percent was to be shared between beneficiary states and the ULBs. In subsequent years, the central government increased its share by over INR 160 billion to avoid any shortage of funds.88 Apart from the JnNURM, external support agencies have also contributed funds for project development and capacity building in this sector. The World Bank has been playing a critical role in India’s water sector. During 1993–2004, the bank provided loans for 124 projects in India, which constituted 3.5 percent of the total number of projects to which the bank provided loans worldwide.89 The Asian Development Bank (ADB) has also been working with the central and state

85

86 87 88 89

eds. Joseph W. Dellapenna and Joyeeta Gupta (Dordrecht: Springer Academic Publishers, 2009). Philippe Cullet, “Water Law in India: Overview of Existing Framework and Proposed Reforms,” International Environmental Law Research Centre Working Paper (January 2007), pp. 1–13, at p. 5, available from www.ielrc.org/ content/w0701.pdf (accessed February 11, 2017). Ibid. Aziz and Shah, Public Private Partnerships, p. 1. Ibid. R. P. S. Malik, “World Bank Policies and Lending Assistance,” in Oxford Handbook, eds. Briscoe and Malik, pp. 88–89.

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governments to fund the development of PPP toolkits and guidebooks, and to conduct capacity building workshops for ULBs and state government officials involved in drafting PPP contracts. However, these funds are insufficient for subnational governments and ULBs to adequately develop urban infrastructure and other forms of public goods. The 74th CAA did not result in any significant fiscal decentralization or the devolution of funds to lower levels of government.90 As noted earlier in Chapter 4, property taxes and the octroi tax in some states are the only key sources of revenue for city governments. Unlike Chinese municipal governments, city governments and ULBs in India are not empowered and do not have the capacity to raise funds to finance infrastructure projects and other municipal expenditures.

Private Sector Participation in India’s Urban Water Sector In terms of private sector participation, the evolution of the private sector in water provision is in line with national-level policies on economic liberalization. In postcolonial India, five-year plans were floated along the lines of Soviet development that gave primacy to addressing food and water security in agriculture and water distribution.91 The public sector dominated the urban water supply, management, and distribution systems. However, when the Narasimha Rao government launched economic liberalization in 1991, the privatization of infrastructure was considered a significant requirement for upgrading infrastructure in the cities. A few cities experimented with private sector investment in the urban water sector. Prior to these privatization moves, the involvement of the private sector in the urban water industry was limited to the supply of materials and equipment, and construction either on item rate basis or within turnkey engineering contracting frameworks.92 There was also a private industry in place to make up for the shortfall in water supplied to households, comprising the water tanks of the water mafia, boreholes, tube wells, and private in-house storage tanks and filtration systems.

90

91 92

Nivikar Singh, “Fiscal Decentralization in China and India: Competitive, Cooperative or Market Preserving Federalism,” Working Papers 633 (UC Santa Cruz Economics Department, 2007), pp. 1–23, at p. 13. Asthana, Water Policy Processes, pp. 47–48. The World Bank, Running Water, p. 8.

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The reforms launched in the 1990s created space for experimentation, with ideas that aimed to transfer decision-making rights on ownership, pricing, use, and preservation of natural resources such as water.93 The goal was to involve the private sector in policymaking, although the idea was not to replace the role of the public sector. In 1996, a high-powered committee released a report titled Indian Infrastructure Project: Policy Imperatives for Growth and Welfare, which focused on water supply and sanitation.94 The report identified key problems, including low water tariffs, high costs of production, high water losses, poor demand management, and low cost recovery. It also pointed out that while informal private players had taken over water supplies, they had not significantly dented the monopoly position of the public sector. Cost and recovery could not improve because of the public sector’s monopoly. The report advocated unbundling urban water services and advocated PPPs. However, the report was released during a period of political uncertainty, which was characterized by minority governments and unstable coalitions that affected the reform agenda.95 Policies were ambiguous and inconsistent, which had an effect on the quality of investment in the water sector. In the 1990s, several PPP projects were planned based on long-term concession agreements that focused on bulk water supply.96 These were based on the BOT or the build–own–operate–transfer (BOOT) models and were funded by private sources. Such projects were implemented in Pune, Bangalore, and Goa. However, these projects were abandoned over time because of a lack of government commitment, commercial nonviability, and objections from the local population.97 Failure rates for privatization were high because of poor support frameworks for private sector investment, poor project preparation, and opposition from vested interests in the bureaucracy, government, and trade unions.98 However, the momentum picked up as the government began preparing to revise the National Water Policy. The draft of the 2002 revisions began in 1998. It emphasized the socioeconomic aspects of water 93 94 95 96 97 98

Asthana, Water Policy Processes, p. 51. Ibid. Ibid., p. 52. Aziz and Shah, Public Private Partnerships, p. 8. Ibid. The World Bank, Running Water, p. 8.

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policy planning and the needs of the individual states.99 Influenced by the neoliberalist trend in public goods reforms internationally, the revised National Water Policy envisaged a greater role for the private sector. With the 2002 National Water Policy in place, the MoUD issued major policy changes to allow 100 percent foreign direct investment in urban infrastructure projects, including development of water supply sources, water distribution, billing, sewage reclamation and reuse, management of unaccounted-for water, manufacture of water supply equipment, etc.100 Incentives in the form of exemptions from customs and excise duties on imported machinery, and exemptions from all taxes for the first five years of water and sewage projects were introduced.101 Amendments were also made to municipal acts to enable ULBs to partner with the private sector.102 The private sector also showed significant interest in the water industry at this time. For instance, in 2005, the Indian Business Alliance on Water was launched to facilitate the development of PPPs in water projects.103 In the early 2000s, the primary form of PPPs were management contracts for the rehabilitation of existing water distribution systems and/or their operations and maintenance.104 Financing mechanisms were also changed during this period – from private financing to financial assistance from the central and state governments or international agencies, which reduced the costs of PPP projects. The emphasis during this period was on increasing private sector participation in the delivery of services and introducing technological innovations, rather than on financing projects. During the period of the eleventh five-year plan, PPPs encountered greater success, as a number of BOT and management contracts were awarded to the private sector. PPPs during this period were adopted across the entire value chain, including bulk water supply, improvement of distribution systems, and operations and maintenance.105 However, the government and external agencies remained the main financiers. The primary sources for funding during this period came from the central 99 100 101 102 103 104 105

Asthana, Water Policy Processes, p. 58. Ibid., p. 61. Ibid. Ibid. Ibid., p. 63. Aziz and Shah, Public Private Partnerships, p. 9. Ibid., p. 10.

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government (54 percent) and the state governments (27 percent), with the private sector accounting for only 3.27 percent.106 Unlike the earlier PPP projects, which saw mostly multinational corporations (MNCs) involved in projects, an increasing number of domestic national and provincial companies started bidding on projects.107 Of the 15 projects contracted between 2005 and end of 2011, twelve are at various stages of construction or operation; three are nonoperational.108 Two projects in particular have had a positive impact on the perception of PPPs in India: the Karnataka Urban Water Supply Improvement Project, a demonstration project for 24/7 water supply; and the Latur Project, which helped increase domestic operator interest.109 A total of ten projects have also been awarded since 2005, which involves distributing water to urban residents.110 However, it is difficult for PPPs to flourish in India. As was noted earlier, the number of water PPPs in India remains insignificant. As the cases of New Delhi and Hyderabad will illustrate, there are apprehensions about large-scale privatization of the urban water supply. Two main concerns stand out – first, that PPPs would lead to steep hikes in water tariffs, and second, that the urban poor residing in slums would be excluded from access to drinking water.

Conclusion Both China and India suffer from institutional fragmentation in the urban water sector. Fragmentation of authority is a prevalent phenomenon both horizontally (geographically) and vertically (functionally) in the water institutional structure. In China, the MOWR has to share authority over the water sector with a myriad of commissions and ministries, the most powerful of which are the NDRC and the MOHURD. Likewise, in India, there are at least seven institutions at the national level involved in managing the water sector. There is a fair amount of policy variation across localities, and at times, policies contradict each other. Implementation of policies tends to be slow and uneven. 106 107 108 109 110

Ibid., p. 11. The World Bank, Running Water, p. 9. Ibid. Ibid. Ibid.

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However, comparatively, China has achieved greater success in streamlining and coordinating water functions. To reduce fragmentation, various levels of local governments have set up water authorities to improve coordination and integration. In my study, the Shenzhen Water Affairs Bureau and the Beijing Water Authority are relatively successful in integrating the various functions of urban water management. Chinese success in carrying out these reforms contrasts with India’s attempts to reform its municipal water utilities. In India, reforms were met with strong opposition from political and societal forces. The Chinese social contract, by contrast, gives the Chinese government greater insulation from societal influence. China’s performance-based social contract enables formal institutions in charge of the urban water sector to undertake reforms, which is essential for economic growth and to ensure basic services for urban residents. There is a substantial devolution of administrative responsibilities and authority from the central government to local governments. For instance, the central government promulgated a series of measures intended to improve the economic incentives of local governments and shift more responsibility to them in such matters as approving capital construction projects and foreign joint ventures, planning and material supply, retention of foreign exchange earnings, devolution of nomenklatura authority to provinces and ministries in 1984, among others.111 While broad water planning and development functions as well as legislative and regulatory powers are within the domain of the national government, the management, implementation and maintenance functions are with lower-level governments. According to the World Bank, “The policies and practices of the municipal government set many of the parameters in which the utility operates, including tariff and subsidy policy, appointing utility management, determining the extent of utility transparency and accountability, and defining the scale, scope, and authority of urban water utilities.”112 In terms of policies and legislation, Chinese water laws and policies are also more comprehensive and substantive, especially in promoting private sector participation.

111

112

Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley, CA: The University of California Press, 1993), pp. 178–179. Browder et al., Stepping Up, p. 5.

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By contrast, the Indian social contract does not prioritize the strengthening of formal institutions involved in providing urban water services. Whereas decentralization of water functions took place in the 1980s in China, in India, decentralization of responsibility for water from state governments to local- or city-level government bodies was introduced later, in 1992, with the promulgation of the 74th CAA. The 74th CAA recognized ULBs as a legitimate level of government, facilitating the devolution of responsibility to ULBs for providing public amenities to city residents. However, decentralization has had limited efficacy. State governments continue to have significant powers over the management of urban water infrastructures and supplies. Not only do they provide funding to the ULBs, they are also the approving authority for city-level urban planning master plans. ULBs often lack the capacity and incentive to manage municipal services.

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6

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing

Both Shenzhen and Beijing face serious water shortage and water pollution problems. However, while these challenges remain, they have succeeded in (1) reforming their urban water management frameworks by setting up a centralized water authority to improve coordination among government agencies involved in the water sector and (2) restructuring their urban water industries to improve the performance of water companies. As a result, there is better governance and coordination, strengthened regulation, and separation of government and enterprises, all of which in turn have helped elevate both cities’ performance in providing drinking water to urban residents. The motivation for these reforms stems from China’s social contract. At the lower levels of the government, the presence of the Chinese social contract can be inferred from the policies and regulations that give municipalities the authority and capacity to improve economic performance and provide public goods. Deng Xiaoping’s efforts to restore performance as the Chinese Communist Party’s (CCP) source of legitimacy and ensure the well-being of the Chinese people led to a process of decentralization where administrative and fiscal power were devolved to the provinces and cities. The decentralization process enlarges the space between the central government, and provinces and cities (autonomy), and increases the allocation of resources (capacity) to the lower levels of governments. Policies and laws were enacted and implemented to provide for the autonomy and authority of local governments, which were substantially enhanced as a result. For instance, the awarding of special economic zone (SEZ) status to Shenzhen gave it significant latitude in setting legislation and policies to promote high-speed growth. Decentralization also led to the greater allocation of resources to lower levels of government. The financial and human resource capacities of local governments were strengthened by (1) devolving fiscal authority to localities so that they were able to build up their own sources of 159

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revenue and (2) by deploying up-and-coming talented CCP cadres to provincies and municipalities, which act as a training ground, before these individuals move up to higher government positions. The decentralization of administrative and fiscal functions has the effect of empowering the mayors of China’s most important cities. The rank of these city mayors is equivalent to that of provincial governors and ministers at the central level. At times, mayors concurrently serve as party secretaries, which is the highest ranking position at the local level of government. The party secretaries of key provinces and municipalities such as Beijing, Guangdong, Shanghai, and Chongqing are appointed to the Politburo, the CCP’s highest decision-making body. Party secretaries and city mayors also often have strong links to the central leadership, which enhances their power and ensures a direct channel of communication between the cities and the central government. At the municipal level, mayors and party secretaries use their enhanced status and power to create new formal institutions or reform existing ones, in order to improve the infrastructure of their cities, promote economic development, and raise living standards. Like the central leadership, they are also driven by the mandate of performance to institute changes to their cities’ urban water management framework. While the precise impetuses differ from city to city, as Shenzhen’s and Beijing’s cases demonstrate, the end goal is the same, which is to improve the urban water management system and deliver a high level of public goods so as to ensure that the CCP keeps up its bargain with the Chinese people. Shenzhen and Beijing were chosen as case studies because they are first-tier cities based on population size and above-average gross domestic product (GDP) per capita. They are comparable to the megacities of New Delhi and Hyderabad, my case studies in India. By comparing first-tier cities in both countries, I can control for variations in population size and GDP per capita leading to different levels of public goods produced. Both Beijing and Shenzhen are political and economic centers critical to regime stability and CCP legitimacy. As both cities are water scarce, municipal governments face significant challenges in ensuring a steady supply of water to urban residents, which in Beijing’s case would include top CCP leaders. Taken together, these attributes of Beijing and Shenzhen would mean that both municipal governments have to take active measures to solve their water problems. As a result,

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 161

their actions would be highly visible and observable, which allows me to rigorously trace the impact of the Chinese social contract on the provision of drinking water to residents of both cities.

Shenzhen Shenzhen was one of the four SEZs designated in 1979. It was promoted to prefecture-level city, directly administered by Guangdong province. The SEZs are economically open areas where special and flexible economic policies are carried out primarily to promote foreign investment, technology transfers, and exports. These SEZs were chosen by the Chinese government to experiment with market reforms because their proximity to Hong Kong, Macao, and Taiwan made them desirable sites for investors from these areas. The Chinese government also hoped that their integration to these three economies would help facilitate political reunification. As a result of these central government-directed policies, Shenzhen swiftly transformed from rural counties and small fishing villages into modernized investment zones. The Shenzhen municipal government governs six districts and fifty-one subdistrict offices. Of these, Luohu, Futian, Nanshan, and Yantian districts are within the SEZ, while Bao’an and Longgang districts are outside it. In 2014, Shenzhen’s population was 10.78 million, of which 3.32 million were registered residents while 7.46 million were not registered.1 Shenzhen’s economy has experienced a remarkable boom since 1979; in 1979, GDP per capita was only RMB 606, but by 2014, GDP per capita had grown to RMB 149,495.2 In 2014, Shenzhen’s overall GDP was RMB 1.6 trillion.3

Shenzhen’s Water Problems Shenzhen faces Daya Bay to the east and Dapeng Bay to the south, and the Shenzhen River connects to Hong Kong. The total surface area of Shenzhen is approximately 1,996.78 square kilometers.4 Shenzhen has 1

2 3 4

Shenzhen Bureau of Statistics, Shenzhen Statistical Yearbook 2015 (Beijing: China Statistics Press, 2015). Ibid. Ibid. Shenzhen Bureau of Statistics, Shenzhen Statistical Yearbook 2014 (Beijing: China Statistics Press, 2014).

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a subtropical climate and relatively heavy rainfalls, which is on average 2,100 mm per year.5 It has about 310 rivers and streams linked to the Dongjiang River, sea bays, and the mouth of the Pearl River. Five of these rivers have drainage areas of more than 100 square kilometers each. There are 12 medium-sized reservoirs and 160 small reservoirs, with a total storage capacity of 0.61 billion cubic meters.6 Shenzhen Reservoir in the east of the urban district has a total volume of more than 40 million cubic meters. It is the main water source for Shenzhen and Hong Kong. The water sources for Shenzhen and Hong Kong are closely linked. Hong Kong’s main water supply is from the Dongjiang (about 83 percent in 19987); it has been purchasing water from Guangdong province since 1960, supplied through the Dongshen (Dongjiang-Shenzhen) Water Supply System. Despite its abundant rainfall, Shenzhen is one of seven water-scarce cities in China with a per capita water resource availability of about 199.6 cubic meters in 2014, less than 10 percent of the national average.8 This is because its spatial and temporal distribution is uneven, and Shenzhen has a small catchment area. Underground fresh water resources are also scarce. Heavy industrial pollution is another cause of Shenzhen’s water shortage. Although the drinking water

5

6

7

8

Shenzhen Municipal Government, Shenzhenshi Chengshi Zhongti Guihua [Shenzhen City Comprehensive Development Plan], 1996–2010, available from www.szpl.gov.cn/ywzy/ghzs/ztgh/index.htm (accessed April 18, 2018). Chang Miao, Tian Xin, and Li Dongwei, “Shenzhen, People’s Republic of China,” in Good Practice in Urban Management: Decoding Good Practices for a Successful Future, eds. Anand Chiplunkar, Kallidaikurichi Seetharam, and Tan Cheon Kheong (Mandaluyong: Asian Development Bank, 2012), p. 238; and Liu Yunhua and Zheng Li, “Shenzhenshi shuijia gaige xianzhuang ji duice ” [“Reform of Shenzhen City Water Price”], Shuili Jingji [Journal of Economics of Water Resources] 26:3 (May 2008), pp. 30–32. Eva Liu, Yue Sin-yui, and Walter Kwong, Water Quality Control Measures in Overseas Places (Hong Kong: Legislative Council Secretariat, April 28, 2000), available from www.legco.gov.hk/yr99-00/english/sec/library/990rp11.pdf (accessed August 10, 2012). “Shenzhen renjun shuiziyuanliang buzu 200 lifangmi jinwei Guangdong shifenzhiyi ” [“Shenzhen’s Per Capita Water Resource Is Below 200 Cubic Meter, One-Tenth of Guangdong’s”], Shenzhen Special Economic Zone Daily, December 14, 2015, available from http://sz.people.com.cn/n/2015/1214/ c202846–27308207.html (accessed December 20, 2016); and data from 2014 Shenzhenshi shuiziyuan gongbao [Shenzhen’s Water Resource Report 2014] (Shenzhen: Shenzhen Water Affairs Bureau, 2015). Per capita water resource availability is calculated by dividing total resource of 2.151 billion cubic meters by the population of 10.79 million, which equals 199.6 per capita water resource.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 163

quality within Shenzhen meets the required standards, the water flowing into Shenzhen does not. On World Water Day, March 21, 2012, the Guangdong Environmental Protection Bureau set the end of the year as a deadline for the city governments of Shenzhen, Dongguan, and Huizhou to improve the water quality in the Danshui and Shima rivers to grade 5, which is the minimum usable standard.9 The Bureau has raised the alarm on the quality of these two rivers since 2008. The Shenzhen River is also heavily polluted; according to a Guangdong environmental report dated March 22, 2012, the water quality of the Shenzhen River falls below grade 5.10 Most of the rivers flowing into Shenzhen are highly polluted; because they are short and have a lower volume of water, their ability to self-purify is limited. The large amount of domestic and industrial sewage further compounds the problem. Shenzhen’s Longgang and Bao’an districts, as well as the upper reaches of the Danshui and Shima rivers, are highly industrialized, which results in huge amounts of sewage. Shenzhen has achieved some improvement in water quality in recent years. Since 2009, 100 percent of its drinking water sources reached national water quality standard, although its main rivers were rated inferior.11 By 2014, 96.5 percent of domestic wastewater was treated, up from about 43 percent in 1997.12 As a result of the uneven spatial and temporal distribution of rainfall, water pollution, and the small catchment areas of its rivers, Shenzhen relies on external transfers of water for its water supply. At present, about 70 percent of its water supply is transferred from the Dongjiang River.13 By 2020, it is estimated that Shenzhen would need 2.8 billion cubic meters of water, 800 million cubic meters of which still needed to be sourced.14 9

10 11 12 13 14

“Cities to Receive River Deadlines,” Xinhua, March 24, 2012, available from http://news.xinhuanet.com/english/china/2012–03/24/c_131486909.htm (accessed July 12, 2012). China uses a six-grade classification scheme for water quality. Grade 1 is the best, water no worse than grade 3 can be used for drinking, but sometimes requires treatment; grades 4 and 5 are water that is safe for industrial and irrigation uses; and water worse than grade 5 (5+) refers to water that is unsafe for any use, including landscaping. Ibid. Shenzhen Statistical Yearbook 2015. Ibid. “Shenzhen renjun,” Shenzhen Special Economic Zone Daily. “Water Scarce While Waste Continues in Shenzhen,” Shenzhen Daily, November 17, 2004, available from http://english.people.com.cn/200411/17/ eng20041117_164216.html (accessed July 1, 2012).

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Impact of China’s Social Contract on Urban Water Management in Shenzhen Notwithstanding the water problems it continues to face, Shenzhen has been relatively successful in reforming its urban water management system. Its success can be attributed to the impact of the Chinese social contract on the design of formal institutions in Shenzhen. The municipality’s SEZ status, which resulted from Deng’s efforts to keep the CCP government’s contract with the people, greatly empowered the Shenzhen municipal government to create new institutions and reform existing ones so as to improve the efficiency of the Shenzhen urban water management sector. These new and reformed institutions led to better governance, strengthened regulation, and improved performance of the water companies in Shenzhen, specifically the Shenzhen Water Group. The Shenzhen municipal government was able to achieve three major breakthroughs in the institutional design of the urban water management system: 1. An autonomous water authority, the Shenzhen Municipal Water Affairs Bureau (SZWAB), was established in 1993, with the capacity to coordinate and centralize water-related functions among various government agencies. 2. A complete legal framework was also established to maintain oversight and regulate the urban water sector. 3. The Shenzhen Water Group (SZWG) was transformed from a stateowned enterprise (SOE) into a joint venture with foreign and private investments in 2004. These achievements led to the Asian Development Bank (ADB) praising Shenzhen as a model of urban water management: The Shenzhen Municipal Water Affairs Bureau was the first authority to be established in the PRC to take charge of all water management affairs of a city. As an SEZ, Shenzhen is entitled to enact local laws and regulations, thus permitting a relatively complete legal system needed for water management to be established. Meanwhile, water sector reform in Shenzhen resulted in a high degree of separation between the government and enterprises. The Shenzhen Water Group, which is a major provider of water supply and wastewater services and has an excellent reputation in the PRC’s water

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 165 sector, completed a reform of its system in 2004. It became a large, joint venture among the government, Veolia Water, and Beijing Capital Group.15

The performance of Shenzhen’s municipal water sector greatly improved as a result of these reforms. When the Shenzhen SEZ was first established in 1979, there was only one water plant that supplied 5,000 cubic meters of water daily in Shenzhen. The length of the water pipelines was less than ten kilometers, and the areas supplied less than ten square kilometers.16 Water production per day rose quickly after the SZWAB was established, from only 622,000 cubic meters in 1991 to 2.58 million cubic meters in 1995.17 The transformation of the SZWG from an SOE into a joint venture led to increased water production; water production per day jumped from 4.2 million cubic meters in 2003, before the separation of government and enterprise, to 5.91 million cubic meters in 2006.18 These increases in production helped meet Shenzhen’s growing water needs. Water supply per capita per day in Shenzhen is also higher than the national average, while water loss is generally below the national average (see Figure 6.1). Water coverage rate in Shenzhen is 100 percent.19 Institutional autonomy and capacity (a) Shenzhen’s status as a special economic zone The emphasis on performance and cities in the Chinese social contract provided the impetus for the Chinese leadership led by Deng post-1978 to come up with strategies to improve the livelihoods of the Chinese people, particularly in the urban areas. One of the key strategies was to designate certain cities on China’s east coast as areas for carrying out market reforms before these reforms could be replicated in other parts of China. Shenzhen and other SEZs were created as a result. Not only were they used to promote foreign investment and technology transfer, they were also experimental grounds for Chinese officials to adopt selected features of a market system into the socialist system. The designation of Shenzhen as one of the SEZs in 1979 can thus be seen 15 16 17

18 19

Chang et al., “Shenzhen,” p. 225. Ibid., p. 238. PRC Ministry of Housing and Urban-Rural Development, China Urban-Rural Construction Statistical Yearbooks 1991–2014 (Beijing: China Statistics Press, 2014). Ibid. Ibid.

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Percentage

16 14 12 10 8 6 4 2 0

2007

2008

2009

2010

Beijing

Figure 6.1 Proportion of Water Loss

2011

National

2012

2013

2014

Shenzhen

20

as a product of the Chinese leadership’s effort to fulfill the mandate of performance in the Chinese social contract. Substantial autonomy and resources were devolved to Shenzhen as a result. In particular, the authority to plan for economic development zones, approve plans for infrastructure investment, and negotiate and decide on foreign investments was delegated to local officials in Shenzhen and other SEZs. Three major work conferences were organized to formulate and adjust development strategies for Shenzhen in 1981, 1985, and 1990. These conferences helped shape the SEZ’s policies and legalized its special status. The central government also took on the direct supervision of policymaking and personnel appointments in Shenzhen. An Office of Special Economic Zones was established within the State Council to develop and draft SEZ policies. Unlike the top officials in other cities in China, who were named by their provincial governments, those in Shenzhen and other SEZs were appointed by the central government. The SEZs thus had direct access to the central government, often bypassing the provincial governments. This gave SEZs substantial leverage and shortened the decision-making and approval processes. Many top leaders took turns touring Shenzhen as well, using these visits as a tool to push for further reforms at various junctures. Each of the major reformist leaders, including Deng, Hu Yaobang, and Zhao Ziyang made official visits to Shenzhen in 20

Ibid. Proportion of water loss is calculated based on water loss divided by water supply.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 167

1984 and 1992, 1983 and 1984, and 1988, respectively.21 Shenzhen benefited enormously from the attention of China’s top leadership as a result. However, at the same time that the authority and resources were given to Shenzhen to promote economic development and market reforms, Shenzhen’s SEZ status was challenged by conservatives in the CCP led by the late party elder Chen Yun, who preferred a slower rate of growth and reforms, and greater central control and planning. The 1980s was a period of great flux in China during which there was a struggle to define and interpret the Chinese social contract. Top Chinese leaders competed with one another to push forward their own vision of what the government should do to uphold its end of the contract. While there was broad agreement among the post-1978 leadership that the performance-based social contract needed to be restored and people’s well-being ensured, there was little consensus on the path to reach this goal. A power struggle between the conservative and reformist factions ensued, driven by different visions of how the Chinese nation could become an economic powerhouse and restore its former glory. Shenzhen, as the largest and most successful of the SEZs, was politically significant in the reformist versus conservative tussle. Its success or failure in the early 1980s impacted the fate of reforms in China. Because of these factional struggles in the central government, Shenzhen came under attack from the conservatives. Some of these occasions included mid-1985, when the Hainan automobile smuggling scandal endangered the SEZs’ special status22; early 1987, when the anti-bourgeois liberalization campaign roiled Shenzhen; and mid1989, when student demonstrations for democracy shook the entire leadership circle. The conservatives attempted to use these occasions to curb the development of the SEZs. Shenzhen often experienced policy 21

22

Wu Weiping, Pioneering Economic Reform in China’s Special Economic Zones: The Promotion of Foreign Investment and Technology Transfer in Shenzhen (Aldershot: Ashgate, 1999), p. 14. This case involved corruption and illegal acts that implicated nearly the entire top Hainan leadership. Huge amounts of foreign exchange and bank loans to finance the importation of 89,000 automobiles, television sets, VCRs, and motorcycles were acquired by key Hainan officials in order to resell them to other parts of China. Hsi-Sheng Chi, The Politics of Disillusionment: The Chinese Communist Party under Deng Xiaoping, 1978–1989 (Armonk, NY: M. E. Sharpe, 1991), p. 215.

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swings as a result, depending on whether the reformists or conservatives had the upper hand. The debate over SEZ policy was also fueled by fluctuations in Shenzhen’s overall performance, particularly in the early 1980s. In addition to high development costs and foreign exchange deficits, serious social and political problems arose as well, in the form of increasing cases of smuggling and corruption, and the overall erosion of socialist values. The debate was most heated between 1984 and 1986, as the economic and social costs of the SEZs became apparent. The Hainan automobile scandal exacerbated the doubts of some central government leaders, who began to reconsider the extent of the SEZs’ openness to foreign investment and the effectiveness of the special policies. As a result, in late 1985 and early 1986, when central leaders agreed to cut back on state investment in SEZs, Shenzhen was ordered to undergo a period of adjustment to try to improve its overall performance. Stricter controls on loans were enforced, Shenzhen’s budget for infrastructure development was reduced by a third, and new regulations were instituted to limit the power of municipal officials and trading companies to reduce corruption and smuggling. The first audit of all SEZs was conducted to deal with fraud and tax evasion. Despite the political maneuverings of the conservatives, debates on the efficacy of SEZs, and various scandals, the reformist faction eventually gained the upper hand. The 1990 SEZ Work Conference announced that the SEZs would remain the foundation of the coastal development strategy. The aim of the SEZ policy was left unchanged: to establish an export-oriented economy based on foreign investment, industry, and imported advanced technology that would function as gateways between China and the outside world. Deng Xiaoping’s 1992 southern tour of Shenzhen and Zhuhai further sealed the SEZs’ special status. It was common practice in those days for Chinese leaders to use the southern provinces as a stage to unveil policy initiatives and to rally support among provincial leaders against political opponents in the central government.23 Deng’s southern tour in January and February 1992 was probably the most well-known 23

Susan Shirk, “Playing to the Provinces: Deng Xiaoping’s Political Strategy of Economic Reform,” Studies in Comparative Communism 23:3 (Autumn/Winter 1990), pp. 227–258.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 169

example of how top leaders involve the southern provinces in their power struggles. In order to restart market reforms that were put on hold following the Tiananmen incident, Deng appealed directly to the masses to overcome the strong opposition from the conservative faction. Deng’s success in instituting market reforms proved to be a tremendous boon to Shenzhen’s efforts to improve its infrastructure for economic development. (b) Autonomy in setting laws and regulations One of the privileges Shenzhen enjoys as an SEZ is the ability to make its own laws and regulations. The 15th Session of the Standing Committee of the 5th National People’s Congress in 1980 ratified the Regulations on Special Economic Zones in Guangdong province, which gave the SEZs legal guarantees for development and clarified their nature, role, and goals. The Regulations allowed the SEZs to give foreign investors preferential treatment in order to promote foreign investment and technology transfer, and defined the legal status and incentives available to foreign investors, as well as their obligations and responsibilities. Another critical development was the central government’s decision in 1981 to give Guangdong and Fujian the power to make laws or regulations on the SEZs in order to accelerate their development. As a result, the Shenzhen government formulated more than thirty regulations on foreign investment, most of which were approved by the Guangdong Provincial People’s Congress. These regulations involved such issues as land control, business registration, personnel entry and exit, labor and wage issues, foreign participation in real estate, technology transfer, and foreign contracts. In addition, on July 1, 1992, Shenzhen became the first city in China to be granted autonomous legislative power by the Standing Committee of the National People’s Congress. This move further enabled Shenzhen to make its own rules and regulations to cope with the needs of its growing economy. The Shenzhen municipal government thus enjoys substantial autonomy in setting policies for its economy and development. Such autonomy made Shenzhen the forerunner of critical economic legislation in China. In particular, Shenzhen was given a relatively free hand to attract private and foreign investments. Compared to the rest of the country, administrative procedures for contract approval were reduced substantially in Shenzhen. The line of authority and responsibilities were also

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relatively better defined. The municipal government was given direct access to provincial and central government officials for approval of special contracts, without having to go through central ministries. It was permitted to approve contracts up to US $30 million for light industry, US $50 million for heavy industry, and US $100 million for other sectors, a power not enjoyed by most other cities. Only projects with higher levels of investment, or with special purposes such as the transfer of advanced technology or the production of import substitutes had to be approved by the central government. A new “one-stop” contract approval process was instituted in 1993. The Shenzhen SEZ Administration for Industry and Commerce (SAIC) became the most powerful organization handling foreign investment. In accordance with China’s regulations, contracts could be altered or dissolved only with the consent of the approval unit. This power was given to the SAIC, which also had the authority to supervise contract fulfillment, mediate disputes arising from a breach of contract, rectify illegal conduct, and impose fines. Another organization, the Shenzhen Municipal Investment Promoting Center, was also given an important role in promoting foreign investment. Established by the municipal government to facilitate the investment process, it was an investment service organization that provided foreign investors with a variety of services, such as finding a Chinese partner, preparing contract documents, facilitating communications among enterprises, and providing legal consultation.24 As a result of these policies, foreign investment accounted for a large proportion of industrial production in Shenzhen. In 2014, foreignfunded enterprises (including in Hong Kong, Macao, and Taiwan) accounted for 48.7 percent of the gross output value of industry, while domestic investment enterprises accounted for 51.3 percent.25 Of the 51.3 percent, it is significant that the private sector share of gross output value at 18.2 percentage points is higher than the state-owned share of 0.1 percentage points (the rest was divided between various forms of ownership such as collective-owned and cooperative enterprises). Shenzhen also adopted policies to promote privately owned small- and medium-sized enterprises (SMEs). SMEs outnumber large

24 25

Wu, Pioneering, pp. 20–22. Shenzhen Statistical Yearbook 2015.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 171

enterprises in Shenzhen. For instance, in 2014, the number of SMEs was 5,968 versus 387 large enterprises.26 (c) Creation of the Shenzhen Municipal Water Affairs Bureau Shenzhen’s SEZ status and autonomous legislative power gave its officials the latitude to create institutions to meet local needs, and laid the foundation for reforming Shenzhen’s urban water sector. The decision to do so was prompted by the twin problems of drought and flooding that hit the city particularly hard during the early 1990s. In 1991, the volume of daily water supply was sharply reduced by 30 percent as a consequence of a partial shutdown of the city’s water supply plants for maintenance purposes, causing major disruptions to economic and social lives, and resulting in an estimated total loss of RMB 1.2 billion.27 In 1993, Shenzhen lost another RMB 1.4 billion to damages caused by two major floods. To avert further economic damages and damages to the well-being of the Shenzhen populace, the Shenzhen municipal government decided in 1993 to transform the city’s Water Resource Bureau into China’s first integrated water authority – the SZWAB. As Shenzhen mayor (1992–1995) cum party secretary (1993–1997) at the time when the SZWAB was formed, Li Youwei was primarily concerned with developing Shenzhen’s economy. One of his key tasks was to promote urbanization and ensure that Shenzhen had the infrastructural foundations for growth.28 Li was a well-known reformist leader who supported Deng’s reformist vision for China’s coastal cities. He was part of the entourage that accompanied Deng on the latter’s southern tour in 1992. Li was also identified as being close to then President Jiang Zemin.29 To ensure that Shenzhen did not experience water-related disasters like the ones in the early 1990s, the newly created SZWAB was given a boost in power and autonomy. It differs from the Shenzhen Water 26 27 28

29

Ibid. Nickum and Lee, “Same Longitude, Different Latitudes,” p. 94. See Li Youwei’s speech “Urban Construction and Management under the Conditions of a Socialist Market Economy,” People’s Daily, April 20, 1995, cited by “Urban Problems Outlined; Two-Thirds of Shenzhen Population Floating,” BBC, June 27, 1995. “Moves Influence of ‘Shanghai Faction,’” South China Morning Post, November 1, 1996.

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Resource Bureau (SZWRB), which is a local branch of the Ministry of Water Resources, in two major ways. First, the SZWAB was accorded a higher level of bureaucratic status in the city’s hierarchical structure than the SZWRB, with a commensurately higher level of authority to redistribute and manage water resources effectively across the urban and rural sectors throughout the city’s entire jurisdiction.30 Second, unlike the rural-oriented SZWRB, the SZWAB was charged with accomplishing two urban-centered tasks: (1) establishing a modern, reliable urban-based water supply system and (2) building an effective urban flood control mechanism. Of these two objectives, the integration of the urban and rural water supply systems into one single network was credited as the first step toward building an integrated water management structure for the city. It appears, however, that this particular aspect of reform in 1993 was not thoroughgoing enough because sewage and wastewater treatment were still managed separately from the tap water supply.31 Hence, a further reform was carried out in 2004 to integrate the functions of providing tap water supply and wastewater treatment in the SZWAB. In September 2004, the Shenzhen government transferred the drainage management and water pollution control functions to SZWAB, and fully implemented integrated water management. This removed the boundaries among different areas and departments, and made possible the unified management of all water-related matters. (d) Separation of government and enterprise A key prong of the national effort to improve the performance of the economy was the campaign to reform moribund SOEs that was launched in 1998. The aims were to remove government interference from the daily operations of enterprises and allow enterprises the capacity to raise capital from the private sector. Shenzhen began reforming its public utilities in 2002, with international tenders conducted to introduce strategic investors into the 30 31

Nickum and Lee, “Same Longitude, Different Latitudes,” pp. 94–95. See Cheng Dailin, “Zhengfu zai shuizhiyuan – tongyi guanli zhong de iiaose dingwei – Shenzhen shuizhiyuan guanli ruogan wenti tantao ” [“Role of the Government in Water Resource Management – Problem of Shenzhen Water Resource Management”], Zhongguo Shuili [China Water Resources] 5 (2004), pp. 77–79; and Li Changxin, “Qianlun Shenzhenshi heliu zhili ” [“Brief Discussion of Shenzhen City River Governance”], Zhongguo Shuili [China Water Resources] 1 (2004), pp. 44–45.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 173

water, gas, public transportation, electricity, and other utilities sectors. To lay the groundwork for reforming water utilities, in 1998, the Shenzhen municipal government determined that the city’s tap water investment system would be changed from a government-oriented investment to an enterprise-oriented one, and that a transregional operation strategy should be implemented.32 At the end of 2004, five pilot state-owned public utility enterprises, including the Shenzhen Water Group, had attracted investors. These five enterprises obtained RMB 7 billion in equity transfers from local authorities and raised additional capital by floating shares. Prior to 2001, the Shenzhen Tap Water Supply Company, a subsidiary company of the municipal government, was mainly responsible for the provision of water supply in Shenzhen. In 2001, the Shenzhen Water Group (SZWG), with RMB 6 billion in assets, was established by merging the Shenzhen Tap Water Supply Company with the Shenzhen Drainage Management Department of the Shenzhen Urban Management Bureau.33 The first Ordinance on Municipal Water Supply was promulgated at the same time to clearly define a legitimate rate of return for water supply enterprises. The Shenzhen government also issued an Ordinance on Public Utilities Concessions in Shenzhen in 2005, which offers institutional guarantees for successful operations of public utility concessions. The Ordinance was the first of its kind in China, and hence set the model for subsequent similar legislation at the national level and for other localities.34 The Shenzhen State-Owned Assets Supervision and Administration Commission (SZSASAC) took over the management of water service assets and began to play a leading role in their reform. Taken together, these series of steps addressed the scope, form, grant procedure, rights and responsibilities, termination, and government authority in urban utility concessions. In 2004, the SZWG was transformed from an SOE into a Chinese foreign equity joint venture of the SZSASAC, Beijing Capital-Veolia Water Investment Company (a joint venture between Beijing Capital Company and Veolia), and Veolia Water Company, a French multinational company. Beijing Capital-Veolia Water Investment took 40 percent of the SZWG, Veolia Water Company 5 percent, while the SZSASAC took the remaining 55 percent. The SZWG was the first 32 33 34

Chang et al., “Shenzhen,” p. 254. Ibid., p. 237. Fu et al., Urban Water, p. 107.

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enterprise in China to combine urban water supply with wastewater service. It was the largest merger and acquisition in China’s water sector and the second largest in the world at that time.35 In accordance with the 2005 Ordinance on Public Utilities Concessions in Shenzhen, the SZWAB conferred concession rights to the SZWG. Under the concessions requirements, the SZWG was to ensure that the wastewater treatment rate in the Shenzhen SEZ reached 80 percent in 2005, while strictly controlling costs and improving management expertise. The SZWG was also charged with making tap water directly drinkable by 2010.36 By 2008, the SZWG had total assets of RMB 11 billion, net assets of RMB 8.1 billion, and supplied 97 percent of Shenzhen SEZ’s water supply.37 The equity transfer of the SZWG diversified its ownership structure and led to progress in the transformation of the government’s role. The success in separating government intervention from business operations, and government functions from asset management was conducive for improving the regulatory system. A clearer relationship between regulatory departments and enterprises emerged, making the government a more effective regulator. This separation of roles allowed the SZWAB to regulate the industry without interfering with the daily operations of the SZWG.38 Substantial resources were also devoted to transform the SZWG into a multinational company with the ability to compete internationally. To facilitate this, an investment company was set up for external investment; in June 2004, the Shenzhen Water Service Investment Company, created by the Shenzhen Tianjin Company and the SZWG, was set up with a registered capital of RMB 300 million.39 The SZWG provided 70 percent of the funds. (e) Resource allocation In Chapter 2, I argued that governments will allocate resources to institutions and policy areas according to the priorities of the social contract. Given the emphasis placed on SEZ development, substantial resources 35 36 37 38

39

Ibid., p. 104. Ibid. Yan, Regulating, p. 57. Asian Development Bank, Every Drop Counts: Learning from Good Practices in Eight Asian Cities (Mandaluyong: ADB, 2010), available from www.adb.org/ sites/default/files/publication/27998/every-drop-counts.pdf (accessed January 12, 2012), p. 13. Fu et al., Urban Water, p. 108.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 175 Table 6.1 Shenzhen Municipal Government’s Investment in Water Infrastructures (RMB 10,000)a Year

2005

2006

2007

2008

2009

Investment 48,421 61,925.88 91,998.82 159,560.24 242,429 a

Shenzhen Statistical Yearbook 2015. The statistics for the years 2008 and 2009 are from the website of the Shenzhen Water Affairs Bureau, available from www.szwrb.gov.cn/cn/zwgk_show.asp?id=19742 and www.szwrb .gov.cn/cn/zwgk_show.asp?id=18761 (accessed September 1, 2012).

were devoted to the development of infrastructure in Shenzhen. See Table 6.1 for the Shenzhen municipal government’s investment in water infrastructure from 2005 to 2009. As the table shows, the Shenzhen government’s investment more than quadrupled from 2005 to 2009, and the government’s various efforts to improve the city’s water supply led to an exponential increase in its volume of tap water supply, from 523 million tons in 1994 to 1.64 billion tons in 2014.40 Impact of institutional autonomy and capacity on Shenzhen’s urban water supply system In the previous section, I have a demonstrated that as a result of the Chinese social contract, Shenzhen was given substantial institutional autonomy and capacity to help propel forward its economic development. This autonomy and capacity enabled Shenzhen to create institutions that substantially improved the performance of its urban water management system. (a) Greater efficiency and better coordination Shenzhen became the first city in China to combine water-related operations into one government agency – the SZWAB in July 1993. The SZWAB streamlined water functions within the Shenzhen government and is responsible for all planning associated with water resources, water supply, drainage, flood control and reclaimed water. Prior to 1993, responsibility for Shenzhen’s water supply was split among the Shenzhen Municipal Water Conservancy Bureau; Office of Urban Management, Planning and Land Bureau; and Construction Bureau. The Shenzhen Municipal Water Conservancy Bureau was closed, and the water resource management functions of the Water Conservancy 40

Shenzhen Statistical Yearbook 2015.

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Bureau; Office of Urban Management, Planning and Land Bureau; and Construction Bureau were combined into the SZWAB. Apart from the SZWAB, there are other major municipal institutions that are involved in specialized and specific aspects of the urban water sector, although the management of water is not their main function. These include the SZSASAC, Shenzhen Price Bureau (SZPB), Shenzhen Development and Reform Commission (SZDRC), and Shenzhen Residential Environmental Committee (SZREC).41 The SZSASAC is responsible for the reform and restructuring of SOEs and the supervision of state-owned assets; hence, restructured water SOEs fall under its charge. The SZPB sets, manages, and controls water tariffs. The SZDRC maintains records of water projects and determines which projects in the water sector will receive government investment. The SZREC, which was formerly the Shenzhen Environmental Protection Bureau, oversees the quality of effluents of wastewater treatment plants and collects effluent charges. How the agencies work together is illustrated by the setting of the water tariff structure and charges during the April 2011 water price adjustment exercise.42 To propose the revision of water tariffs in Shenzhen, the SZWG first submitted a water tariff adjustment program to the SZWAB in December 2009, citing increasing operating costs as the reason for the adjustment.43 The SZWAB, SZDRC, and SZPB jointly checked the water tariff adjustment proposal. The SZPB held several public hearings on the proposed water hikes and finally published the tariff adjustment program. The Guangdong provincial government did not intervene in the tariff decision-making process but was responsible for keeping records of the tariff reform program approved by the SZPB. The Shenzhen government’s approach to integrated water management has been largely successful and seamless. There is substantial interaction among the different bodies in charge of water issues, which helps improve coordination.44 The SZWAB plays a critical coordinating role in this regard. According to a 2012 ADB Report: 41 42 43

44

Chang et al., “Shenzhen,” p. 230. Ibid. “Household Water Price Up 0.4 Yuan,” Shenzhen Daily, April 4, 2011, available from http://szdaily.sznews.com/html/2011-04/04/content_ 1509833.htm (accessed September 12, 2012). Author’s notes, telephone interview with a senior research fellow of an international water institute, September 5, 2012.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 177 Shenzhen is one of the first cities in the PRC to combine all water-related government functions into one government agency – the Shenzhen Water Affairs Bureau. This has helped the city avoid possible conflicts among government agencies due to overlapping functions and made the responsibilities of each bureau clear. Although some government departments retain several functions related to water management, the functions are unambiguous, and the coordinating mechanism is good enough to allow them to resolve water management problems cooperatively and quickly.45

(b) Strengthened regulation and oversight One of Shenzhen’s key achievements in reforming its urban water management framework is the establishment of a relatively complete legal framework for water management. Its ability to develop a robust legal framework for water management is largely due to its status as an SEZ, which allows it to have independent legislative rights. This has benefited the management of its water sector. As mentioned previously, legislative rights were delegated to the Shenzhen SEZ by the National People’s Congress in 1992. Since then, Shenzhen has always been in a leading position in the People’s Republic of China (PRC) in market-oriented reforms and legislative development. More than 20 local water policies and regulations have been issued, covering urban water resource management, water supply management, drainage management, marketization reform of the water sector, and water pollution control. Of these, the Regulations of the Special Economic Zone on Urban Water Supply and Use, approved in 1995 and revised in 2003 by the Shenzhen Municipal People’s Congress, provides the overarching framework for governing Shenzhen’s water supply.46 The Regulations explicitly defines the responsibilities, rights, and legal liabilities of water utilities, city government, and consumers. It also provides a clear basis for regulating water prices, setting the profit of water supply facilities from water pricing to a range of 8 to 10 percent of their net assets. See Table 6.2 for a selected list of water policies and regulations in Shenzhen.

45 46

Chang et al., “Shenzhen,” p. 234. Asian Legal Information Institute, Regulations of the Shenzhen Special Economic Zone on Urban Water Supply and Use, available from www.asianlii.org/cn/legis/gd/laws/rossezouwsau724/ (accessed September 12, 2012).

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Table 6.2 Selected Water Policies and Regulations in Shenzhena Type

Policy and Regulation

Water Resource Management

Ordinance on Drinking Water Resource Protection in Shenzhen SEZ

Water Supply Management

Drainage Management

Marketization Reform

Year Issued

1994 (modified in 2001) Ordinance on Water Resource Management 1994 in Shenzhen SEZ Measures for Collecting Water Resource Fee 1996 in Shenzhen Ordinance on Maintaining Water and Soil 1997 in Shenzhen SEZ Measures for Municipal Drainage 1999 Management in Shenzhen SEZ 1992 Provisional Measures on Construction and Management of Secondary Treated Wastewater Facilities in Shenzhen SEZ Ordinance on Urban Water Supply and 1995 Water Consumption in Shenzhen SEZ (modified in 2003) Provision on Management of Secondary 1997 Drinking Water Supply in Shenzhen SEZ (modified in 2004) Regulations on Water Conservation in 2005 Shenzhen Measures of Shenzhen City on Planned 2007 Water Consumption 2008 Measures on Management of Water Consumption and Water Conservation in Construction Projects in Shenzhen 2006 Measures on Collecting, Using and Managing Wastewater Treatment Fees in Shenzhen Ordinance on Drainage in Shenzhen 2007 Ordinance on Municipal Water Supply 2001 Ordinance on Public Utilities Concessions in 2005 Shenzhen Ordinance on Management of Wastewater 2008 Treatment Plant BOT Projects

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 179 Table 6.2 (cont.) Type

Policy and Regulation

Year Issued

Water Pollution Control

Ordinance on Environmental Protection in Shenzhen SEZ

1994 (modified in 2000) 1999

Measures on Management of Pollutant Emission Permits in Shenzhen SEZ Measures on the Management of Online Monitoring and Control System for Pollutant Sources in Shenzhen

2004

a Adapted from Chang et al., “Shenzhen,” pp. 232–234; and Shenzhen Water Affairs Bureau website, available from www.szwrb.gov.cn (accessed September 12, 2012).

(c) Improved performance of Shenzhen Water Group The transformation of the SZWG into a multinational company has contributed to its stellar performance record. The SZWG seldom experience losses, debts, or aging facilities. Moreover, as Shenzhen is an emerging city with many privileges from the central government, municipal funds are robust, and facilities and technology in water are quite advanced. Since the 1980s, the former Shenzhen Tap Water Group maintained the pricing principle of “break even and lowprofit,”47 which is different from the principles that are adopted by water utilities in most countries, including India. Cost recovery with a small profit has been the guideline. Article 56 of the Shenzhen SEZ Urban Water Supply Ordinance issued by the Standing Committee of the Shenzhen Municipal People’s Congress in 1995 stipulates that the “urban water supply tariff shall be based on the principle of cost plus tax plus reasonable profits,” and Article 57 indicates that the rate of return or profit margin on net assets of water supply enterprise shall not exceed 8 percent.48 Up to 1998, a similar provision in which “the average level of reasonable profit margin on net assets of water supply enterprise should be 8–10 percent” was jointly issued by the National People’s Congress and the Ministry of Construction.49 All in all, Shenzhen was leading the country in water legislation and practices in cost recovery with a small profit. 47 48 49

Yan, Regulating, p. 159. Ibid. Ibid.

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The SZWG is also able to extend its operations outside Shenzhen. For example, in December 2004, the SZWG signed a deal with the Yangzhou Water Supply Company in Jiangsu province to buy US $70 million worth of assets, which gave the SZWG full management control of the utility.50 The Yangzhou Water Supply Company has three wastewater treatment plants with a production capacity of 405,000 cubic meters per day. In early 2012, the SZWG signed an agreement with Dow Chemical Company in which Dow Water and Process Solutions (DW&PS) agreed to supply a municipal water treatment system to provide drinking water for residents of Shatoujiao, Shenzhen. The water treatment system will be able to provide 40,000 tons of high-quality drinking water per day to meet local needs. As part of the project, DW&PS will provide expertise in design engineering through core technologies such as FilmtecTM elements and ultrafiltration modules. It will also be responsible for equipment fabrication, installation, and commissioning. The SZWG will be responsible for the planning and construction of water plants, and for the management and operation of these water plants after they have started operating commercially. In total, the SZWG has invested in seven provinces across China and operates seventeen water projects.51 It is ranked number one in the industry in terms of water supply scale, sewage treatment rate, and per capita amount of water treatment.52

Beijing Beijing Municipality is the seat of political power in China. It covers an area of 16,410.54 square kilometers.53 Under its jurisdiction are four core city districts of 92 square kilometers, four “near suburbs” (jinjiaoqu) of 1,289 square kilometers, eight “outer suburbs” (yuanjiaoqu) of 12,407 square kilometers, and two rural counties of 4,316 square kilometers.54 In terms of economic development and urban 50

51 52 53 54

“Chinese Business,” Global Water Intelligence 6:1 (January 2005), available from www.globalwaterintel.com/archive/6/1/need-to-know/chinesebusiness.html (accessed September 2, 2012). Yan, Regulating, p. 57. Ibid. Beijing Statistical Yearbook 2015. Probe International Beijing Group, Beijing’s Water Crisis, 1949–2008 Olympics (Beijing: Probe International Group, June 2008), p. 1, available from www.scribd.com/ProbeInternational/d/36065545-Beijing-Water-ReportUpdate-2010 (accessed April 23, 2012).

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 181

construction, Beijing ranks among the first tier of Chinese cities, on par with Shanghai. It is the second largest economy in China, after Shanghai. In 2014, Beijing’s GDP per capita was US $16,278.55 It ranks only after Shanghai in industrialization, with highly developed machinery, textile, and petrochemical sectors. It also has a rapidly growing service sector, with most of China’s state and commercial banks headquartered in Beijing. Unlike Shenzhen, Beijing’s economic development is focused on the state sector – it is home to some of China’s largest SOEs, including the Shougang Group and the Yanshan Petrochemical Company. In order for Beijing to compete with the vibrant markets of the south, local leaders launched the North China Economic Region in the mid-1980s and the Bohai Rim Development Strategy in the early 1990s, with Beijing and Tianjin designated to play core roles analogous to those of Guangzhou in the Pearl River Delta and Shanghai in the Yangtze River Delta.

Beijing’s Water Problems Rapid economic growth, industrialization, and a burgeoning population since the 1950s have exacerbated Beijing’s water problems. In particular, Beijing’s economic development during the Maoist period, with its emphasis on heavy industry and SOEs, has exerted tremendous costs on Beijing’s already limited water resources. This was made worse by a string of dry years after 1964, culminating in a major drought in 1972. It was at this time that Beijing began to utilize ground water. Pump wells tapped the aquifers underneath the extensive littoral plain. It became clear that urban Beijing was stressing its water sources – in 1972, the city began to show signs of a “maturing water economy.”56 A rapid drop in the water table, in some places over a meter a year, with a citywide average of 0.5 meters per year in the early 1980s, indicated that pumping had exceeded long-term replacement levels, while flows into Guanting Reservoir from the upstream areas dwindled rapidly.57 With the rise in urban population, living standards and industrial production, the quality of wastewater flowing out of

55 56

57

Beijing Statistical Yearbook 2015. James E. Nickum, “Beijing’s Maturing Socialist Water Economy,” in Metropolitan Water Use Conflicts in Asia and the Pacific, eds. James E. Nickum and K. William Easter (Boulder, CO: Westview Press, 1994), p. 87. Ibid.

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urban Beijing declined as well. Total wastewater discharge, almost all untreated, increased from 397 million cubic meters in 1970 to a peak of 728 million cubic meters in 1980.58 Domestic wastewater increased from 37 percent to 48 percent of the total discharge.59 In the reform period, Beijing’s economic boom brought about tremendous stress on its urban spaces. The significance of Beijing can be seen in the extraordinary lengths by which the Beijing hukou system is protected and coveted – for instance, transferring one’s hukou to Beijing following marriage to a local Beijinger is allowed only after ten years of marriage to prove that the marriage is a true one.60 Nevertheless, as its economy grew, Beijing began to attract large numbers of migrants from other provinces. Privatization of housing and a real estate boom brought about a sea change in the capital from the early 1990s. Beijing began to extend horizontally. By end 2010, Beijing’s total registered population hit 19.6 million, which was an increase of 44.5 percent from ten years earlier.61 More than 7 million of the 19.6 million registered individuals are migrant workers who have lived in the city for more than half a year.62 This number excludes the unregistered migrant workers and People’s Liberation Army (PLA) soldiers stationed in Beijing. Beijing’s average rainfall is about 585 millimeters, but there is great variation from year to year, and within the year; 85 percent of the annual precipitation takes place from June to September.63 In 2014, Beijing’s total water resources stood at 2.03 billion cubic meters.64 The available water resources per individual are extremely low, way below the world “severe water shortage” standard of 1,000 cubic meters per capita. See Table 6.3 for per capita water resources availability in Beijing from 2006 to 2014. Beijing has suffered droughts 58 59 60 61

62 63

64

Ibid., p. 42. Ibid. Wallace, Cities and Stability, p. 107. “Beijing’s Population Nears 20 million,” China Daily, May 5, 2011, available from www.chinadaily.com.cn/china/2011-05/05/content_12451856.htm (accessed August 7, 2018). Ibid. Zhang Shiqiu, Deng Liangchun, Yue Peng, and Cui Huishan, Study on Water Tariff Reform and Income: Impacts in China’s Metropolitan Areas: The Case of Beijing (Washington, DC: The World Bank, 2007), p. 1, available from http:// siteresources.worldbank.org/INTEAPREGTOPENVIRONMENT/Resources/ ReportWaterpricingBeijingENFinal.pdf (accessed April 23, 2012). Beijing Statistical Yearbook 2015.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 183 Table 6.3 Beijing’s Per Capita Water Resources (in cubic meters), 2006–2014 a Year

2006 2007 2008 2009 2010 2011 2012 2013 2014

140.6 145.3 198.5 120.3 120.8 134.7 193.3 118.6 94.9 Per Capita Water Resources Availability a

Beijing Statistical Yearbook 2015.

consecutively since 2000, which have greatly affected its per capita available water resources. Beijing is traditionally reliant on surface water from its five major river systems: Yongding River, Chaobai River, Beiyun River, Daqing River, and Jiyun River, with the Yongding and Chaobai rivers being the two most significant sources. About 90 percent of its surface water originates from outside Beijing.65 However, surface water runoff has been greatly reduced as a result of higher upstream demands, which has resulted in Beijing’s increased reliance on groundwater.66 About 68 percent of Beijing’s total water supply is from groundwater.67 This increased abstraction, together with flood control and water diversion projects, reduced groundwater recharge; the average water table sank from 12 meters in 1999 to 24 meters in 2010.68 All in all, Beijing has a water deficit of 400 million cubic meters.69 Beijing’s water shortage is further compounded by water pollution problems. According to a 2006 report released by the Beijing Municipal Environmental Protection Bureau, the water quality in half of Beijing’s lakes failed to meet the minimum grade 5 standard, which is

65 66

67 68

69

Nickum and Lee, “Same Longitude, Different Latitude,” p. 87. Christoph Peisert and Eva Sternfeld, “Quenching Beijing’s Thirst: The Need for Integrated Management for the Endangered Miyun Reservoir,” China Environment Series 7 (2005), p. 33. Beijing Statistical Yearbook 2015. Su Jie, “Beijing Continues to Wrestle with Water Scarcity,” Ecns.cn, February 2, 2012, available from www.ecns.cn/2012/02-02/7373.shtml (accessed April 23, 2012). “Beijing to Adopt Tough Water Conservation Measures,” Xinhua, January 17, 2011.

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water considered safe for agriculture and landscaping.70 Only 2 of the city’s 16 major lakes reached grade 2, which is the level suitable for drinking. Although the quality of most of the city’s 21 local reservoirs met the grade 2 standard, 4 of them have already dried up. In the run-up to the 2008 Olympics, Beijing devoted substantial resources to cleaning up its water supply. These efforts continued after the Olympics. Beijing had allocated RMB 118 million by end of 2012 to improve the quality of drinking water drawn from wells.71 In December 2011, the Beijing Health Inspection Institute also announced intentions to build twenty water quality monitoring centers in the city. By end of 2012, Beijing residents were able to check the quality of their drinking water at home by accessing an online monitoring website.72

Impact of China’s Social Contract on Urban Water Management in Beijing The emphasis in the Chinese social contract on providing for urbanites is particularly salient in Beijing. Beijing is the seat of political and administrative power. Therefore, ensuring a high level of urban services in Beijing is critical for social and political stability. Beijing is also a showcase of the CCP’s governance capacity to the rest of the country and internationally. For these reasons, the Beijing government has devoted substantial resources to ensuring that all urban residents have access to water despite the fact that the city suffers from both severe water shortages and water quality problems. For instance, water loss has been consistently below the national average, as well as below Shenzhen’s (see Figure 6.1). This is unusual for a historic city like Beijing and made possible only because substantial resources have been devoted to repairing or refurbishing old leaky pipes. The water 70

71

72

Xie Chuanjiao, “Beijing Gets Poor Grades for Water Quality,” China Daily, November 29, 2006, available from www.chinadaily.com.cn/china/2006-11/29/ content_745415.htm (accessed April 23, 2012). “Beijing to Spend 118 m Yuan to Improve Water Quality,” CNTV, May 23, 2012, available from http://english.cntv.cn/20120523/120936.shtml (accessed June 12, 2012). “Beijing to Get Online Water Quality Index,” Global Times, December 7, 2011, available from http://english.peopledaily.com.cn/90882/7667945.html (accessed June 12, 2012).

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 185

coverage rate is also 100 percent.73 Water supply per capita per day has also been consistently slightly above the average, despite the lack of water resources.74 In 2004, Beijing reformed its urban water management framework by creating the Beijing Water Authority (BWA). The immediate impetus establishing the BWA was to improve public services in the city in preparation for hosting the Olympics in 2008. Prior to the creation of the BWA, in 2003, water production per day was 12.65 million cubic meters. By 2006, water production per day doubled to 26.35 million cubic meters.75 Beijing’s motivation differs from Shenzhen’s when it created the SZWAB (which was to lay the infrastructural foundations for fastspeed growth in accordance with its SEZ status). Nevertheless, both goals adhere to the performance mandate. Prior to the Olympics, the state of Beijing’s air and water quality was a subject of criticism, both internationally and domestically. Hence, in the run-up to the Olympics, one of the major tasks for the Beijing municipal government was to improve urban services so as to ensure a successful Olympics to instill national pride and showcase China’s achievements to the rest of the world.76 In terms of restructuring the urban water utilities, Beijing’s experience differs from Shenzhen’s as well. While Shenzhen’s special economic status and promotion of private sector participation resulted in the establishment of the SZWG, Beijing’s urban water industry, by contrast, is dominated by a wholly Beijing municipal governmentowned SOE, the Beijing Water Works Group (BWWG). This is because political and security needs take precedence in the Chinese capital. It is one of four municipalities directly under the administration of the State Council. The central government often plays a key role in the development and politics of the city, as evidenced by the 1995 sacking of Beijing Mayor Chen Xitong, a rival of former President Jiang Zemin, over corruption charges. Central government offices and the residences of China’s top leaders are situated in the heart of Beijing city, and this 73 74 75 76

China Urban Construction Statistical Yearbook 2014. Data calculated from China Urban Construction Statistical Yearbook 2014. China Urban Construction Statistical Yearbook 2007. See, for example, “China’s Beijing Announces Preparations for 2008 Olympic Games,” BBC, March 28, 2002; and “Beijing Olympics Stresses Environmental Protection,” China Business Daily News, September 20, 2004.

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makes state control over the city’s water supply networks a national security necessity. The city urban water supply is thus seen as a strategic industry of which the state needs to maintain control so that foreign companies and governments cannot use it as leverage to threaten China’s national security. Given the political considerations and national security concerns that surround the water sector in Beijing, supplying potable water to Beijing residences and offices is treated as a top policy priority. The Beijing municipal government has to maintain a reasonably high standard of urban water services. Beijing’s water needs also come before those of its neighboring provinces; the central government has time and again approved projects that divert water from its neighbors Tianjin and Hebei, to make up for Beijing’s shortfall. Notwithstanding the central government’s role in the city, however, the Beijing municipal government is highly autonomous in setting policies and managing the city. As a powerful city directly administered by the State Council, the Beijing municipal government has tremendous political authority. It has the same status as national-level ministries, and Beijing municipal leaders rank among China’s most powerful. In addition, the Beijing municipal government has significant resources at its disposal. As is the case for the Shenzhen government, the Beijing municipal govenment is responsible for funding the city’s water infrastructure. Institutional autonomy and capacity (a) Creation of the Beijing Water Authority Although there had been long-term plans to reform Beijing’s urban water management framework, the immediate impetus for Beijing officials to carry out much more extensive reforms and set up a coordinating agency (the BWA) in 2004 was to prepare the city and ensure that its infrastructure could support hosting the 2008 Olympics. To Chinese leaders, the Olympics was an important event that would signal Beijing’s arrival on the world’s stage. A successful Olympics would boost the legitimacy of the CCP and burnish national pride in China’s achievements since 1978. Prior to 2004, Beijing’s urban water management framework suffered from fragmentation and lack of coordination among various agencies involved in water management. The idea of establishing an autonomous water authority that integrated the broad range of water

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 187

functions and services was first mooted as early as 1985, when a group of Beijing officials visited the United Kingdom to study its water governance structure. The issue was raised again in 1991 and 1995. In 2000, the initial steps for establishing an integrated body were taken: in that year, during a restructuring of the Beijing municipal government, the Beijing Water Resources Bureau was given authority over wells in the urban area and water conservation in the suburbs, although water supply, wastewater treatment and water conservation in the core urban area remained under the charge of the Beijing Municipal Administration Commission.77 In 2001, Beijing won the bid to host the Olympics. Liu Qi, one of Jiang Zemin’s confidantes, was then Beijing’s mayor (1999–2003) and party secretary (2002–2012). He was instrumental in winning the bid for Beijing to host the Olympics, which was expected to bring much prestige to the city and showcase China’s achievements. After stepping down as the mayor of Beijing and taking over the position of Beijing party secretary, Liu went on to head Beijing’s Olympics Organizing Committee in 2007. The fact that Liu was entrusted with the task of overseeing an important international event that was set to boost China’s prestige indicates that he was trusted by top Chinese leaders. One of the greatest concerns facing the Chinese leadership when China won the Olympics bid was how to prepare the city such that the event would successfully reflect China’s status as a great power. In this regard, Beijing air and water quality was a major concern and priority for the Beijing leadership. The creation of a centralized water authority to manage water and wastewater management in the city thus took on greater urgency. In 2002, immediately after Beijing won the Olympics bid in 2001, the proposal for an integrated water authority reached the highest levels of the Beijing government; the Beijing People’s Congress raised the topic of reforming Beijing’s urban water management and specifically suggested the formation of a water authority.78 Two years later, in 2004, the Beijing Water Resources Bureau was made defunct, and the BWA was formed as a stronger and more powerful integrated agency in charge of water matters. That the setting up of the BWA was integrally linked to the preparation for the Olympics is demonstrated 77

78

Cheng Jing, “Beijing shuiwu: Zai gaige yu chuangxinzhong shixian dafazhan” [“Beijing Water: Progress in Reform and Development”], Zhongguo Shuili [China Water Resources] 24 (2008), p. 77–79, at p. 77. Ibid.

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by the fact that the BWA was directly responsible for improving Beijing’s water environment ahead of the Olympics.79 Setting up the BWA in 2004 was geared toward ensuring better coordination among various agencies and bodies involved in improving Beijing’s water supply and wastewater management.80 The timeline of the various steps taken toward reforming the water system and the eventual push provided by the Olympics suggest that the task of fulfilling the mandate of performance in China’s social contract, defined here as showcasing China’s achievements, was the key driving force for reforms. (b) Autonomy in setting water tariffs Even before the establishment of an independent water authority, a sign of the autonomy that the Beijing municipal government enjoyed was its authority to set water tariffs at will. In fact, pricing water correctly is an important water conservation policy, and this has been written into policies and legislation. On the national level, documents such as Agenda 21 and the 2002 Water Law establish the need to conserve water through water fees. Agenda 21 requires the use of water pricing to encourage conservation and sustainable development. It also requires the adjustment of existing economic measures and financial incentives to meet the objectives of sustainable development. The Water Law stipulates that all levels of government have to draw up plans for water conservation through the adoption of water savings technology, reduced water consumption, and increased water reuse. At the Beijing municipal level, the Beijing ninth five-year plan (1996–2001) specifically calls for price reform to promote the reduction of waste and the reasonable use of resources. Prior to the launch of reforms and opening up, self-extracted water in Beijing was free. There was a charge for tap water, but the rates were very low. However, this began to change with economic reforms and opening up. Since the late 1970s, water has been priced volumetrically in Beijing. Prior to 1997, the pricing policy in Beijing did not embrace the concept of full cost recovery, that is, recovery of capital, operation and maintenance 79

80

“Water Environment Boost Ahead of 2008 Olympic Games,” China Daily, February 10, 2006. “Clean Air and Water Guaranteed for Beijing Olympics,” CCTV, April 29, 2008, available from www.cctv.com/program/bizchina/20080428/102336.shtml (accessed April 16, 2016).

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 189 Table 6.4 Residential Water Price in Beijing, 1995–2012 (RMB per cubic meter) a Year

1995

1998

2002

2004

2009

2012

Price

0.30

0.80

2.50

3.70

4.00

4.20

a

Zhang et al., Water Tariff Reform, p. 11; and “Beijing Hikes Water Price to Ease Shortage,” Xinhua, December 22, 2009, available from http://en .people.cn/90001/90776/90882/6848816.html (accessed April 23, 2012).

(O&M) costs, and wastewater treatment. After 1997, however, the real price of water in Beijing increased sharply. Furthermore, in 1998, an additional volumetric tariff for wastewater treatment was added. The price of water in Beijing reflects a number of different cost items. For example, the tariff in 2003 was RMB 2.9 per cubic meter. This consisted of a water resource fee (for both surface and groundwater) of RMB 0.6 per cubic meter, a sewage treatment fee of RMB 0.6 per cubic meter, a tap water fee of RMB 1.7 per cubic meter to cover the fixed and variable (capital and O&M) costs of the water supply company, and a tax of RMB 0.33 per cubic meter paid to the Beijing municipality.81 At present, the price of water in Beijing is among the highest in Chinese cities, which is a reflection of Beijing’s water shortage problem. Recent price adjustments for the residential sector have focused on the sewage treatment fee and water resource charge, rather than the tap water tariff. Despite these reforms, including a further increase in the residential water tariff to RMB 3.7 per cubic meter in 2004, water and sewage in Beijing remain subsidized. In 2009, a public hearing was held during which twenty-two out of twenty-five representatives voted for a government-proposed water price hike by RMB 0.9 or 24.3 percent, spread over three years. See Table 6.4 for residential water tariffs from 1995 to 2012. The hike is aimed at boosting water-use efficiency, increasing the use of recycled water, and encouraging water conservation. The Beijing municipal government (the Price Bureau in the Beijing Development and Reform Commission is in charge of setting water price) was also working on a tier pricing system, in which the price would increase with each higher level of consumption. Pilot schemes were implemented in some 81

Zhang et al., Water Tariff Reform, p. 57.

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residential communities in 2010.82 A tier pricing system was eventually implemented in 2014; the first tier is priced at RMB 4.95, the second tier RMB 7, and the third tier RMB 9 per cubic meter.83 (c) Financial capacity As a powerful city directly administered by the State Council, the Beijing municipal government has significant financial and economic resources. The local bodies of national-level ministries are dependent on the Beijing municipal government rather than their respective parent ministries. All local bureaus must seek funding and ultimate approval for plans and policies from the Beijing municipal government. They are also reliant on the local government rather than their parent ministries for funding. For instance, the Beijing Environmental Protection Bureau’s operating budget is based 20 percent on collected effluent fees and 80 percent on local government funding.84 Moreover, administrative personnel at the subnational level are more dependent on state and party officials at the subnational levels for career advancement than their counterparts at the national level. In addition, subnational offices of national bureaucracies must rely on local authorities, rather than the central government for implementing or enforcing policies. In the urban water sector, most, if not all, of the funding for provision and distribution of Beijing’s water supply is financed by the local government. This gives the Beijing municipal government greater autonomy in managing its urban water sector. Table 6.5 shows the amount of local government investment in drinking water infrastructure from 2005 to 2014. (d) Operational autonomy Beijing’s tap water industry is dominated by the BWWG, an SOE wholly owned by the Beijing municipal government. In total, there 82 83

84

“Beijing Hikes Water Price,” Xinhua. “Neidi duodi shuijia shangzhang zhuigaoda 70% ” [“Water Tariff Increases in Many Places, with the Highest Increase at 70%”], Wenweipao, April 22, 2015, available from http://news.wenweipo.com/2015/04/22/IN1504220012.htm (accessed January 22, 2016). Anonymous, Nine Dragons, One River (Centre for Human Settlement, University of British Columbia, undated), available from www.chs.ubc.ca/china/ part2.pdf (accessed April 23, 2012).

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 191 Table 6.5 Beijing Municipal Government Investment in Drinking Water Infrastructure a Year

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

RMB 810 (million) a

1090 2500 2170 2580 1870 3880 3350 4480 10090

Beijing Statistical Yearbook 2015.

are four tap water companies in Beijing, the largest by far being the BWWG. There are a total of thirty-seven tap water plants in Beijing’s city center, district, and counties. Of the thirty-seven tap water plants, twenty-one are owned by the BWWG, two by Shijingshan Distrct Tap Water Company, nine by Shunyi District Water Company, and five by Changping District Tap Water Company.85 The predecessor of the BWWG was the Jingshi Tap Water Company, founded in April 1908. It marked the beginning of the potable water industry in Beijing. There was just one water treatment plant and twenty-nine wells until 1949, with a daily supply capacity of 50,000 cubic meters and 364 kilometers of pipeline.86 After the establishment of the PRC, funds were allocated to build potable water facilities, and Beijing’s water supply system made great headway. In 2014, the total production capacity of Beijing’s tap water industry was 5.03 million cubic meters per day, up from 1.34 million cubic meters per day in 1978.87 The length of water pipelines increased from 2,926 kilometers in 1978 to 14,994 kilometers in 2014.88 In April 1999, with the approval of the Beijing municipal government, the Beijing water industry was restructured, and the BWWG was formally established. The BWWG is responsible for supplying water to the city center and seven suburbs. It also sells reclaimed water and is involved in water supply engineering design, construction, installation and repair of the pipe network, pipe equipment, water meter manufacturing, and water supply materials trade business.89 85

86 87 88 89

China Urban Water Supply Statistical Yearbook 2010 (China Urban Water Supply Association, 2010). Fu et al., Urban Water, p. 208. Beijing Statistical Yearbook 2015. Ibid. Information from the BWWG website, available from www.bjwatergroup.com.cn/ (accessed May 1, 2012).

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Although the state retains a strong presence in Beijing’s urban water industry because of the security and political concerns surrounding the city’s water supply networks, the urban water industry nevertheless enjoys autonomy in its daily functions. According to a high-level executive of a Beijing state-owned water company, the BWA regulates, maintains oversight, and sets service standards and quality requirements on water companies.90 The BWA would instruct local water companies to restructure and refurbish its wastewater plants if it were deemed necessary. However, in day-to-day operations, the high-level executive said that politicians and bureaucrats do not interfere in daily operations, and company decisions are made independently of political considerations.91 Impact of institutional autonomy and capacity on Beijing’s urban water supply system (a) Improved coordination and reduced fragmentation Prior to the establishment of the BWA, there was little coordination among the various agencies in the urban water system. The Beijing Municipal Administration Commission was the main supervisory authority in charge of the urban water supply, water conservation, drainage, and wastewater treatment.92 In April 2004, it took control of concession operations in the wastewater treatment sector, and the granting of concession operations and rights in the wastewater treatment sector. It was also the local-level agency that monitored prices in Beijing and gave approval for price changes, including water prices. The Beijing Water Resources Bureau, as the local-level branch of the Ministry of Water Resources (MOWR), was responsible for the unified management of Beijing’s water resources. Although it acted as the local representative of the MOWR, it reported directly to the Beijing municipal government, and its manpower and budget were derived from the Beijing municipal government. The local branch of the former Ministry of Construction [currently the Ministry of Housing and Urban-Rural Development (MOHURD)], the Beijing Construction Bureau, was in charge of the BWWG and the Beijing Water Conservation Office. The BWWG supplied and operated Beijing’s tap water system. It was also 90

91 92

Author’s notes, interview with a high-level official of Beijing Jingcheng Water Company on August 30, 2012. Ibid. Fu et al., Urban Water, p. 216.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 193

responsible for overall urban water supply planning and issuance of licenses for water abstraction by major users. The Beijing Water Conservation Office was in charge of improving urban water conservation and protecting river water resources. The Beijing Hygiene Bureau worked closely with the BWWG to ensure that Beijing’s tap water met drinking water quality standards. Its duties included issuing hygiene licenses, and inspecting and improving expansion or reconstruction of existing supply systems. The Beijing Environmental Protection Bureau was responsible for preventing water pollution and protecting the water environment, and hence was one of the supervisory departments for water quality in the wastewater sector, supervising and managing the quality of discharges from wastewater treatment plants. The multiplicity of agencies involved in the water management system resulted in fragmentation and there was little coordination among the different bureaus. In May 2004, the BWA was set up at a time when Beijing embarked on a mission to undertake a major reform of its urban water system. Both the BWWG and the Beijing Drainage Group were subsumed under the BWA. The BWA’s job was to unify the fragmented water management system and resolve some of the coordination problems. Based on the former Beijing Water Resources Bureau but combining the functions of the BWWG and the Beijing Drainage Group (BDG), its responsibilities included managing water resources, water supply, drainage, and water conservation. The managerial function for the wastewater treatment sector was transferred from the Beijing Municipal Administration Commission to the BWA. It reports directly to the Beijing municipal government and indirectly to MOHURD, MOWR, and the Ministry of Environmental Protection (MOEP). Although the BWA has, to a large extent, succeeded in consolidating the various functions of water management, it nevertheless still needs to share oversight of water management with other government agencies. At the highest level of the local government, the Beijing Development and Reform Commission (BDRC) determines the city’s economic and social development strategies, which include overseeing water charges and giving the final approval to BOT projects. The BDRC, not the BWA, is the lead agency in charge of market regulation of municipal public utility concessions.93 The bewildering array of 93

Ibid., p. 304.

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legislation issued by various government bodies – the BWA, Beijing Municipal Administration Commission, and the Urban Water Authority under MOHURD – also suggests that a certain level of fragmentation remains. Another indication of this fragmentation is that the BWWG, despite being institutionally placed under the BWA, still maintains substantial links to the Beijing Municipal Administration Commission, which is responsible for the urban and environmental development of Beijing, including urban infrastructure construction and public utilities. As an SOE that has undergone reform, the BWWG also reports to the Beijing Municipal State-Owned Assets Supervision and Administration, the local government body in charge of SOE reforms. Despite these remaining problems, however, the crowning achievement of the BWA has been to integrate both the water supply and drainage systems, which significantly raised efficiency in the urban water system. It comprises a number of departments in charge of specific water management functions, the most significant of which are the Water Resources Division, the Water Supply Management Division, the Drainage Management Division, and the Water Savings Office.94 Various affiliated agencies that are not part of the government, such as the Beijing Water Savings Management Center, support specific aspects of the BWA’s functions. Responsibility for implementing the planned water use system and water savings system in Beijing are theoretically split between the Water Savings Office and the Beijing Water Savings Management Center, with the former responsible for setting policy directions to be implemented by the latter. In practice, however, there is some overlap and reassignment of the work of these two bodies.95 The Water Resources Division in the BWA is responsible for the management of water abstraction permits and licenses, collection of the water resource fee (part of the water tariff ) as well as drawing up the city’s water supply plan. The Water Supply Management Division is in charge of developing and managing the city’s water supply industry, water utilities, and monitoring the service standards of the water supply industry. The Drainage Management Division oversees Beijing’s drainage and recycled water 94

95

Information from the Beijing Water Authority website, Shouye, available from www.bjwater.gov.cn/tabid/66/Default.aspx (accessed May 2, 2012). Cosier and Shen, “Urban Water Management,” p. 255.

Quenching Thirst in China’s First-Tier Cities: Shenzhen and Beijing 195

industries, develops and implements policies and plans for these industries, and collects the wastewater treatment fee component of Beijing’s water tariff. (b) Improved performance of water companies When the BWWG was formed, one of the first things it did was to list on the stock market in the same year. This increased the financial autonomy and capacity of the BWWG, which led to a higher level of performance. By 2016, the BWWG had a production capacity of 4.18 million cubic meters per day, supplying 3.7 million cubic meters per day to the local population.96 The length of the BWWG’s water pipelines increased from 3,400 kilometers in 1978 to 12,600 kilometers in 2016.97 The BWWG has several branch corporations, as well as multiple water treatment plants. The largest is the No. 9 Waterworks, which supplies about 50 to 60 percent of the municipality’s total urban water demand from the Miyun and Huairou reservoirs.98 It has a daily water supply capacity of 1.5 million cubic meters. Smaller volumes of surface water from the Miyun Reservoir are treated by another branch corporation, the Tiancunshan Water Treatment Plant. The No. 3, No. 4, and No. 8 Waterworks supply other parts of Beijing’s urban areas with groundwater.99 By the start of the 2008 Olympics, these water treatment plants produced water that met both the World Health Organization’s standards and the Chinese national standards for drinking water quality. Between 2005 and 2007, more than 150 kilometers of old water pipelines were refurbished in an attempt to reduce contamination of the water supply en route to consumers.100

96

97 98 99 100

Information from BWWG website, available from www.bjwatergroup.com.cn/ 221/index.htm (accessed February 10, 2017). Ibid. Cosier and Shen, “Urban Water Management,” p. 255. Ibid. “Beijingshi: Gaotoulu quebao shoudu gongshui nengli wuyou” [“Beijing: High Input to Guarantee the Water Supply of Our Capital”], Beijing Daily, January 29, 2007, available from http://info.water.hc360.com/2007/01/ 29085378140–3.shtml (accessed May 3, 2012).

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Conclusion The management of the urban water supply in Beijing and Shenzhen highlights how China’s social contract, with its emphasis on economic growth and social stability particularly in the urban areas, facilitates and empowers local governments to channel resources and give priority to developing city infrastructure. It also insulates local governments from societal interference such that they are able to make decisions without the kinds of challenges that Indian local governments face. Local governments in China, for instance, are able to adjust water tariffs at will. Officeholders in local governments hold high ranks and are often in the driver’s seat in formulating and implementing reforms at the local level. The purposes of these two case studies is not to illustrate that the Chinese urban water management system is perfect. Fragmentation in various forms exists; in institutional authority, the BWA is less successful than the SZWAB in consolidating water management functions. The Chinese government continues to subsidize many of its water SOEs (it has continued to grant preferential loans and subsidies to its SOEs in general). While the SZWG has been successful in leveraging foreign MNCs and in generating a healthy profit, the BWWG has been suffering losses and is heavily subsidized by the Beijing government. After 1994, with the beginning of the operation of phase two of the No. 9 Waterworks, the BWWG recorded losses as high as RMB 100 million annually.101 There are several reasons for the losses: an aggressive expansion of water supply services to achieve near-universal service by the late 1990s, increasing costs, and reduction in state subsidies. Calculations show that without government subsidies, the BWWG would have been recording losses as early as 1988. In 2009, the BWWG recorded hefty losses of RMB 462.26 million.102 Two out of the other three smaller water companies in Beijing are making profits. Overall, however, the entire water industry in Beijing is losing money, which stood at RMB 459.84 million in 2009.103 This is in sharp contrast to Tianjin, Beijing’s largest neighbor in the north; its water supply sector recorded profits of RMB 67.8 million in 2009.104 101 102 103 104

Anonymous, Nine Dragons. China Urban Water Supply Statistical Yearbook 2010. Ibid. Ibid.

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That the Beijing municipal government and the central government view state control over Beijing’s water sector as critical explains why the local government is willing to heavily subsidize and bear the huge losses of the BWWG. Despite these problems, however, it is undeniable from the performance indicators that Beijing and Shenzhen are providing better water services to their residents than Delhi and Hyderabad. This chapter has carefully traced how the Chinese social contract has enabled both the Beijing and Shenzhen municipal governments to successfully carry out reforms of their water systems, leading to the creation of integrated water authorities that promote greater efficiency, separation of government and enterprise, enhanced oversight and regulation, higher volumes of tap water produced, and water losses that are below the national average.

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7

Water Constraints in India’s Megacities: New Delhi and Hyderabad

Both New Delhi and Hyderabad were at the forefront of municipal reforms introduced in the late 1990s and early 2000s.1 Chief ministers Sheila Dikshit (1998–2013) and Chandrababu Naidu (1995–2004), of New Delhi and Andhra Pradesh, respectively, were high-profile state leaders attempting to implement tough and controversial reforms to transform their cities, establish good governance, and attract investments and funds from private investors and international donors. Reforming the urban water sectors of the two cities was intricately linked to Dikshit’s and Naidu’s wider reform efforts: improved basic infrastructure that would not only provide a more conducive environment for businesses and investments but also better the lives of their cities’ residents. Reforms in the water supplies of both cities were primarily aimed at reorganizing water utilities to give them greater financial and operational autonomy. There were also attempts to inject private capital and management expertise into water utilities in a bid to raise their efficiency and performance levels. However, both Dikshit and Naidu failed to push through reforms of the Delhi Jal Board (DJB) and Hyderabad Metropolitan Water Supply and Sewerage Board (HMWSSB), respectively. Their reforms ran up against populist politics and the rise of “demand groups” mentioned in Chapter 4 – an amalgamation of political and societal forces comprising politicians, bureaucrats, labor unions, environmentalists, civil society groups, and water mafias, which mobilized urban residents to protest against the privatization of public utilities. Organizational reforms also failed to insulate water utilities from political influence. 1

Archana Ghosh, Loraine Kennedy, Joel Ruet, Stephanie Tawa Lama-Rewal, and Marie-Helene Zerah, “Comparative Overview of Urban Governance in Delhi, Hyderabad, Kolkata, and Mumbai,” in Governing India’s Metropolises, eds. Joel Ruet and Stephanie Tawa Lama-Rewal (New Delhi: Routledge, 2009), p. 27.

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Water Constraints in India’s Megacities: New Delhi and Hyderabad 199

Populism in India’s social contract reduces the space between state and society, circumscribing the autonomy of state institutions. In addition, socialist principles in India’s social contract hinder the efforts to introduce private sector participation into the water utilities sector, hence preventing the utilities from leveraging a valuable source of capital and technology. The opponents of reforms used an “antiprivatization” and “anti-World Bank” narrative to gain popular support against the reforms. Such a narrative is particularly effective as it portrayed the leaders of both states as acting against the grain of India’s social contract. Hence, because institutions in New Delhi and Hyderabad lack autonomy and capacity, the reforms failed, and there was little improvement in the performance of their water utilities as a result. Both cities continue to suffer from a lack of a reliable supply of tap water. The two case studies demonstrate the effects of the social contract in restraining and modifying the behavior and policies of politicians. Politicians cannot afford to go against the socialist and populist tenets of India’s social contract without facing the possibility of losing power. Social contracts are sticky, and there are sanctions and punishments for violating the terms of the contract. In order to mitigate against the risk of losing power, Indian politicians often balance reforms that do not strictly adhere to the terms of the Indian social contract by attempting to lower the profile of these reforms or cloaking them with a populist veneer. New Delhi and Hyderabad are chosen as cases as they are first-tier cities in terms of gross domestic product (GDP) per capita and population size. They are also water scarce. Such similarities are to ensure comparability across the cases both in India and China, and to control for levels of economic development, population size, and rainfall. Like Beijing, New Delhi is the political and administrative center of India, but the difference in public goods outcome is stark. Hyderabad is chosen because of its reputation as a test bed for innovation, particularly under the Naidu government. In this sense, there are similarities to Shenzhen’s development as an experimental ground for special economic zone (SEZ) policies. But again, there is a significant gap in the amount of public goods they produce – Shenzhen was able to push through reforms and became a model for urban water management, while Naidu only succeeded in partially reforming the HMWSSB.

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New Delhi The Delhi Metropolitan Area, with a population of 25 million in 2014, is the world’s second most populous city after Tokyo.2 New Delhi’s population has grown rapidly in the past thirty years; during the period 1981–1991, 1991–2001, and 2001–2011, New Delhi’s population grew by 51.4 percent, 47 percent, and 21 percent, respectively, compared to the national growth rate of 36.5 percent, 31.3 percent, and 31.8 percent in the corresponding decades.3 At about 1,484 square kilometers, it is the largest city in India. New Delhi is highly urbanized – 97.5 percent of New Delhi’s population lives in urban areas, with the number of villages shrinking from 165 in 2001 to 112 in 2011.4 About 14.7 percent of the population of New Delhi city (the Municipal Corporation of Delhi) lives in slums.5 In financial year 2014–2015, Dehli’s GDP per capita was INR 241,000, which was highest of all states and territories in India. Statutorily, New Delhi is distinct from the rest of India because it is the seat of the federal government. There are three levels of government in New Delhi: the federal government, the government of the National Capital Territory of Delhi (NCTD), which is a quasi-state government endowed with its own Assembly and Council of Ministers, and the Municipal Corporation of Delhi (MCD). The MCD itself governs eight out of the eleven districts in New Delhi, and had an estimated population of more than 11 million in 2011.6 It has been trifurcated into three MCDs – the North MCD, South MCD, and East 2

3

4

5

6

“World’s Population Increasingly Urban with More than Half Living in Urban Areas,” The United Nations website, July 10, 2014, available from www.un.org/ en/development/desa/news/population/world-urbanization-prospects-2014.html (accessed January 16, 2016). Sanjay Kumar, Changing Electoral Politics in Delhi: From Caste to Class (New Delhi: Sage Publications, 2013), pp. 12–13. “At Rs 2.41 Lakh, Delhi’s Per Capita Income Highest in India,” Business Standard, June 25, 2015, available from www.business-standard.com/article/ economy-policy/at-rs-2-41-lakh-delhi-s-per-capita-income-highest-in-india115062500048_1.html (accessed January 16, 2016). Office of the Registrar General & Census Commissioner, India, “Delhi City Census 2011 Data,” Census 2011 website, available from www.census2011 .co.in/census/city/49-delhi.html (accessed January 16, 2016). Office of the Registrar General & Census Commissioner, India, “Delhi Metropolitan,” Census 2011 website, available from www.census2011.co.in/ census/metropolitan/50-delhi.html (accessed January 16, 2016).

Water Constraints in India’s Megacities: New Delhi and Hyderabad 201

MCD. There are other urban local bodies (ULBs) under the NCTD: the New Delhi Municipal Council and Delhi Cantonment Board, which are in charge of small territories and specific constituencies. Unlike in other states, however, the NCTD has no control over land acquisition and development, as these fall under the management of the Delhi Development Authority (DDA), a parastatal accountable only to the Ministry of Urban Development (MoUD) that was set up in 1957 to formulate a master plan for the city.7 This multiplicity of agencies results in a lack of coordination and cooperation between various government bodies, often leading to incoherent policies. The 74th Amendment Act of the Constitution (74th CAA) was not widely implemented in New Delhi; it has no Metropolitan Planning Committee and the devolution of functions is not complete.8 The MCD remains superseded by the federal and state governments. In addition, the title of mayor of the MCD is largely honorific with little real powers. There is a limit on how much mayors can do since they are elected for only a one-year term from among councilors. Thus, instead of the mayor, the NCTD and chief ministers are primarily responsible for governing New Delhi. This is unlike China, where mayors exercise considerable power and autonomy. My focus in this case study is the period during which attempts were made to reform the DJB under Dikshit. The critical years were from 2001, when the attempts to privatize the DJB began, to 2005, when the privatization efforts were abandoned. Dikshit, a relative unknown from the Congress Party, was first elected in 1998 and then reelected in 2003 and 2008, until she lost to Arvind Kejriwal of the Aam Aadmi Party in December 2013. Dikshit was reelected twice based on perceived achievements in “good governance,” notably for the construction of physical infrastructure during the 15 years that she was in power. However, she was eventually voted out following alleged corruption scandals. Significantly, she was accused of not looking after the welfare of the New Delhi people and criticized for her “anti-poor” policies. Her opponent, Kejriwal, came into power on an anti-corruption platform, and promised free water and electricity.

7 8

Gosh et al., “Comparative Overview,” p. 32. Ibid., p. 39.

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The Delhi Jal Board and New Delhi’s Water Problems New Delhi is situated on the banks of the Yamuna River, one of the largest North Indian Rivers. Despite this, however, New Delhi suffers from severe water shortages and water pollution problems. These problems have not shown any significant improvements over the years. As of 2016, the DJB supplies 830 million gallons of water per day (MGD) to about 18 million people in New Delhi (46 gallons per capita per day). This is insufficient; the Master Plan of New Delhi 2001 prepared by the Central Public Health and Environmental Engineering Organization (CPHEEO), and which guides policymakers in New Delhi, prescribes a norm of 60 gallons per capita per day.9 Moreover, although the DJB stated that about 81.9 percent of households in New Delhi have access to piped water supply,10 water is only supplied for a few hours per day. The DJB was established on April 6, 1998, by an act of the Government of New Delhi, replacing the former Delhi Water Supply and Sewage Disposal Undertaking. As a state-level specialist agency, it directly reports to the New Delhi state government, the NCTD. The chief executive officer (CEO) of the DJB is usually an Indian Administrative Service (IAS) officer appointed by the New Delhi chief minister. The Delhi Water Board Act gives the DJB extended power and greater autonomy. For instance, the DJB is given the right to call for private sector participation. It is responsible for the production and distribution of drinking water after treating raw water from various sources, such as the Yamuna River, Bhahkra Storage, Upper Ganga Canal, and groundwater; treatment and disposal of wastewater; and water quality control and water pollution monitoring in the MCD. The DJB also sells water to the New Delhi Municipal Council and the Delhi Cantonment Board. It has 1.6 million customer accounts, which includes bulk connections, and covers about 82 percent of the city’s residents.11 9

10 11

P. Praveen Siddharth and Shriya Mohan, Crisis at Delhi Jal Board (Singapore: Lee Kuan Yew School of Public Policy, 2011), p. 2, available from https:// lkyspp.nus.edu.sg/wp-content/uploads/2013/07/LKYSPPCaseStudy11–02_ Crisis_at_the_Delhi_Jal_Board.pdf (accessed January 16, 2016). “About Us,” Delhi Jal Board website. “Delhi Jal Board Focuses on Its Finances,” Global Water Intelligence 14:10 (October 2013), available from www.globalwaterintel.com/global-waterintelligence-magazine/14/10/general/delhi-jal-board-focuses-its-finances (accessed January 16, 2016).

Water Constraints in India’s Megacities: New Delhi and Hyderabad 203

For the distribution of water, New Delhi is divided into 21 water zones. Each zone is headed by a chief engineer, and provided with a fixed amount of water and financial budget. Lack of autonomy and capacity Although the Delhi Water Board Act gives the DJB autonomy and power to introduce private sector participation and decide on water tariff rates, in reality, the DJB’s autonomy and power are much more limited. The DJB is made up of current and former government officials and elected representatives, and hence is not insulated from political pressure. The chairman of the DJB is the chief minister of New Delhi. Moreover, the DJB, like all municipal bodies, is financially dependent on the central and state governments. It is not able to make major decisions, for instance, in water tariff restructuring, without the approval of the state assembly.12 This contrasts with Beijing, which has one of the highest water tariffs in China to reflect the scarcity of its water supply, and where the Beijing municipal government can raise water tariffs without major political hurdles. As a result of the constraints it faces, the DJB is not able to make significant headway in solving New Delhi’s water problems. The DJB has low financial capacity. It operates at a loss as it has difficulties achieving cost recovery, given the low tariffs and low payment collection rate. Low water charges not only discourages conservation, it also benefits only the rich and the middle class since the poor are the ones who usually lack a connection to a piped water source and therefore are not metered. Before the formation of the DJB in 1998, the level of subsidies in New Delhi was very high, and the water tariffs in New Delhi were among the lowest in the country. Tariffs were in fact frozen until 1997, when water tariffs rose from INR 0.46 to INR 0.53 per kiloliter for the first 10 kiloliters.13 Following the establishment of the DJB, the rates increased for most users except those whose consumption remained below 10 kiloliters per month. For nonmetered 12

13

Joel Ruet, V. S. Saravanan, Marie-Helene Zerah, “CSJ Occasional Paper No. 6: The Water and Sanitation Scenario in Indian Metropolitan Cities: Resources and Management in Delhi, Calcutta, Chennai, Mumbai” (French Research Institutes in India, 2002), p. 31, available from https://ideas.repec.org/p/ess/ wpaper/id2026.html (accessed January 17, 2016). David McKenzie and Isha Ray, “Urban Water Supply in India: Status, Reform Options and Possible Lessons,” Water Policy 11 (2009), pp. 442–460, at p. 456.

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households, which are usually low-income households, the rate is fixed on a monthly basis of INR 30 regardless the level of consumption.14 The lack of metering is also a problem in payment collection. As of late 2013, only 55 percent of meters in New Delhi were functioning.15 Between 1998 and 2004, the water tariff rate in New Delhi remained constant, at rates much lower than other cities and far below operating costs.16 In December 2004, water tariffs were increased and a two-part increasing block tariff (IBT) was introduced. In the IBT, the first 6 kiloliters per month were free, while the next 7–20 kiloliters rose to INR 3; 21–30 kiloliters to INR 10.5; and more than 30 kiloliters were charged at INR 15.17 The flat rate for unmetered connections rose to INR 40.18 The DJB justified the tariff increase by citing rising costs of production and highlighted that water tariffs in New Delhi were much lower than in other cities. In 2010, the DJB increased water tariffs by 400 percent; subsequently after that, an annual 10 percent water tariff increase became the norm.19 These water tariff increases helped ease the DJB’s financial troubles but were not sufficient to help it recover costs. In addition, these increases came at a substantial political cost to the DJB, as it regularly faced popular protests against these price hikes. A 2013 audit found that New Delhi loses 60 percent of its water supply to leakages, theft, and a failure to collect revenue.20 The DJB recovers only 40 percent of its operating costs through billing.21 Its losses due to lack of cost recovery are currently in millions of rupees, and the DJB itself is marred by inefficiency, corruption, and lack of accountability. In recent years, the DJB under former CEO Debashree Mukherjee was able to reduce some of its debt.22 The DJB’s weak financial capacity impacts its ability to deliver clean water to residents. 14 15 16 17 18 19

20

21 22

Ibid. Global Water Intelligence, “Dehli Jal Board.” McKenzie and Ray, “Urban Water Supply in India,” p. 455. Ibid., p. 456. Ibid. Onkar Mittal, “Reforming the Delhi Jal Board as the Public Water Utility and Protecting the Right to Water,” Revolutionary Democracy 20:1, available from www.revolutionarydemocracy.org/rdv20n1/water.htm (accessed January 20, 2016). Aman Sethi, “At the Mercy of the Water Mafia,” Foreign Policy, July 17, 2015, available from http://foreignpolicy.com/2015/07/17/at-the-mercy-of-the-watermafia-india-delhi-tanker-gang-scarcity/ (accessed January 16, 2016). Ibid. Global Water Intelligence, “Delhi Jal Board.”

Water Constraints in India’s Megacities: New Delhi and Hyderabad 205

Treated water that runs through old water pipelines often gets recontaminated on the way to households because the DJB does not have the funds to refurbish or replace these old pipelines. Sharing power and resources Even though the DJB is the main agency in charge of the production and supply of water and ensuring its quality, it has to share power and resources with other powerful government agencies. Such an arrangement further reduces the authority and capacity of the DJB. The DDA, for instance, is in charge of urban planning, prepares the Delhi Master Plan, and implements the development of new housing projects in New Delhi. It is also responsible for building new infrastructure, but the management responsibility is transferred to the MCD after a period of time. In addition, the Slum Wing Authority, which has been part of the DDA since 2010, is in charge of defining policies for slums even though basic amenities are to be supplied by the DJB. The high-profile tussle involving the housing projects in Dwarka in southwest Delhi highlighted the inadequate planning and coordination between the DDA and DJB. The DDA constructed the highly publicized housing projects with the capacity to accommodate 1.4 million people without properly consulting the DJB; as a result, there is almost no water supplied to that area.23 The matter was only resolved in March 2015 when a memorandum of understanding (MOU) was signed between the DDA and DJB in which the DDA agreed to transfer INR 500 million to the DJB to operate and maintain the water supply in the Dwarka housing projects.24 While the DDA is in charge of planning for New Delhi, another government agency, the National Capital Region Planning Board (NCRPB), is responsible for developing a comprehensive approach for the overall development of the National Capital Region, which includes not only New Delhi, but also the urban areas surrounding Delhi in the neighboring states of Rajasthan, Uttar Pradesh, and 23

24

“Water Crunch May Hit DDA’s New Houses,” The Times of India, October 23, 2014, available from http://timesofindia.indiatimes.com/city/delhi/Watercrunch-may-hit-DDAs-new-houses/articleshow/44913178.cms (accessed June 25, 2015). “DJB Sets Out to Solve Dwarka’s Water Problems,” Daily Mail Online, March 14, 2015, available from www.dailymail.co.uk/indiahome/indianews/ article-2994992/DJB-sets-solve-Dwarka-s-water-problems.html (accessed June 25, 2015).

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Haryana. One of the NCRPB’s goal is to provide adequate infrastructure to the urban areas outside Delhi in order to reduce the influx of migrants. It is therefore critical that both the DDA and NCRPB coordinate their developments. However, the DDA and the NCRPB publish separate master plans, and there is little coordination, communication, and information sharing between them.25 The other agencies that the DJB has to work with include the Central Groundwater Board and the Delhi Pollution Board, both of which report directly to central government ministries. The Central Groundwater Board, which reports directly to the MoWR, is responsible for the registration of private boreholes and for the conduct of surveys on the groundwater situation in New Delhi. Together with the DJB, it also promotes the use of rainwater harvesting. The Delhi Pollution Board, which reports directly to the Ministry of Environment and Forests, is responsible for controlling wastewater disposal from industries and the development of the Common Effluent Treatment Plants in the industrial areas. Water mafia The DJB supplies about 830 MGD to the New Delhi population. A gap exists between what the DJB actually produces and what it eventually supplies to households. Apart from leakages from old water pipelines, this gap is largely due to the presence of a large and powerful water mafia at work in New Delhi. The water mafia comprises “a powerful nexus of politicians, officials and water traders”26 who siphon off water from public water pipelines and sell it to high-water-consumption sectors like industries and hotels in New Delhi at a huge premium. The stolen water is also sold to New Delhi’s middle- to rich-income households. As most households lack access to a reliable supply of water, residents have come to rely on private truck owners who source millions of gallons of water each day from illegal boreholes as well as the city’s leaky pipe network, and sell the siphoned-off water for profit. The origins of the water mafia can be traced to the failure of urban planning in New Delhi dating back to the 1960s.27 At that time, urban planners underestimated population growth in Delhi’s first master 25 26

27

Ruet et al., Indian Metropolitan Cities, p. 31. Sandeep Yadav, “The Tale of Delhi’s Water Mafia,” Hardnews, October 16, 2007, available from www.hardnewsmedia.com/2007/10/1457 (accessed January 17, 2016). Sethi, “Water Mafia.”

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plan. Within 20 years, New Delhi’s population exploded from 2.6 million to 6.2 million, but there was only sufficient housing for 90 percent of that population. About half a million people ended up in squatter settlements or slums as a result. The residents of these settlements do not have access to public amenities. Public services in New Delhi are thus not able to keep up with population growth in the city, a problem that is compounded by unregulated rural–urban migration. With the government unable to provide for their water needs, residents began to take matters in their own hands by installing hand-operated pumps to draw groundwater. The DJB tried to resolve these issues by drilling a series of boreholes around the city and hiring a fleet of private tankers to deliver drinking water at specified times. But the DJB’s tanker plan quickly fell apart as drivers began selling water, originally intended to be free, to middle-class Delhi residents who could afford to pay. The water tankers, originally created by the DJB to help the poor, became a source of water for the middle and upper classes. The 2013 government audit found that the settlements or colonies received, on average, 1 gallon of water per person per day, while in central New Delhi, where the politicians, judges, and other elites resided, the amount was 116 gallons of water per person per day.28 The problems created as a result of the water mafia remain unresolved. In late 2013, when the Aam Aadmi Party (AAP) took power, it announced its intentions to dismantle the water mafia. However, local legislators of the AAP encountered strong resistance from local residents.29 As a result, the legislators took a different tack and set up water-user associations to oversee private operators of specific government wells. The goal was to regulate the illicit water industry. In Sangam Vihar, more than 100 such associations exist.30 These wateruser associations, however, worsened the problems created by the water mafia: what was essentially an illegal mafia became legitimized by the government as a result of these associations.31 Efforts are still ongoing to rein in the water mafia; the DJB, for instance, has started installing GPS sensors onto its tankers in an effort to stop the water mafia from stealing its water.32 28 29 30 31 32

Ibid. Ibid. Ibid. Ibid. Author’s notes, interview with a former chief engineer of the Delhi Jal Board, March 16, 2015.

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Attempted Reforms of the Delhi Jal Board The DJB has been described as a “fiefdom of politicians and its 20,000 employees.”33 DJB officials showed little interest in improving the water infrastructure under their charge.34 The realization that the DJB’s problems were not only the result of water shortages but also due to poor management and lack of coordination, plus the collusion of DJB officials with the water mafia, motivated the New Delhi government to embark on a path to reform the agency. In 2001, the New Delhi government announced its intention to reform the water sector. Prior to this announcement, Sheila Dikshit had approached the World Bank in 1998 for a loan. The World Bank suggested that the DJB hire a consultant to look into basic reforms to be carried out and supplied US $2.5 million for the study. Dikshit accepted the proposals put up by a consortium of consultants – Pricewaterhouse Coopers (PwC), DHV Consultants, and Tata Consulting Engineers. Some of these proposals include plans to insulate the DJB from politicians and to issue a call for tender for two separate six-year management contracts for the continuous supply of potable water in two central areas of New Delhi (out of twenty-one zones) which represented around 12 percent of its total customer base.35 These two projects were to be pilot schemes for the city. The aim was to award the management contracts by December 2005, and include in each area, zoning, metering, leak reduction, water distribution, and customer relations management.36 The cost of this “restructuring” to the DJB was estimated to be US $246 million, out of which US $140 million would be financed by the World Bank.37 The objective of the reform was to ensure the smooth and efficient functioning of New Delhi’s water infrastructure, and the delivery of a continuous (“24/7”) supply of water to residents of two of the twenty-one zones in New Delhi. Following these two management contracts, the longer-term objectives spelled out in the Delhi Water Supply and Sewerage Sector Reform Project, released in 2004, proposed the following:38

33 34 35 36 37 38

Das, India Grows at Night, p. 243. Ibid. Siddarth and Mohan, Crisis, p. 4. Ibid. Ibid. Cited in Asthana, Water Policy Processes, p. 91.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 209

1. Management of each of the twenty-one zones of the DJB would be handed over to private companies. 2. The companies would not invest any money; they would simply manage a zone, which included distribution of water, billing collection, grievance redressal, and maintenance, among others. 3. All DJB employees in the zones would report to the managing company. 4. Water companies would receive a fixed management fee. 5. Companies would be assigned annual targets, which would include ensuring uninterrupted water supply at a specified pressure to the zone under its control. 6. If companies failed to meet their targets, penalties would be imposed; bonuses, if they succeeded. 7. Water companies were to supervise implementation of all capital works. In addition, based on the recommendations of PwC, the Delhi government announced a seven- to tenfold increase in water tariffs on November 30, 2004.39 As the Delhi government prepared to carry out reforms, voices of dissent arose. Environmental nongovernmental organizations (NGOs) voiced the first objection, specifically Vandana Shiva, a prominent environmentalist, and her organization, Navdanya. Shiva wrote a letter to Congress President Sonia Gandhi accusing the Dikshit government of succumbing to pressure from the World Bank and multinational corporations (MNCs).40 Other groups began to join in the protests. A well-organized NGO, Parivartan, which targeted corruption and was, at the time, headed by Arvind Kejriwal (the current Delhi chief minister), claimed that the process of hiring consultants had been manipulated by the World Bank.41 Using right-to-information laws, Parivartan obtained documents on the award of a contract in 2001 to help design the project. According to Parivartan, the project was detrimental to the residents of New Delhi as it would lead to an exponential increase in the price of water – for an average middle-class family, a 39 40

41

Ibid., p. 93. Sujay Mehdudia, “Opposition to Water Privatization Snowballs,” The Hindu, April 7, 2005, available from www.thehindu.com/2005/04/07/stories/ 2005040707380400.htm (accessed January 20, 2016). See Amit Bhaduri and Arvind Kejriwal, “Reforming the Reformers,” Economic and Political Weekly 40:53 (December 2005/January 2006), pp. 5543–5545.

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monthly water bill of INR 192 would immediately jump to INR 990.42 Even more critically, Parivartan leveled corruption charges against the DJB and the World Bank. Kejriwal accused the World Bank of manipulating the bidding process to favor PwC and went on to accuse the World Bank of “arm-twisting” the DJB to call for fresh bids when PwC had been initially rejected. Following the lead of Navdanya and Parivartan, an alliance of women’s organizations, environmental organizations, resident welfare associations, water workers, religious groups, student unions, farmers’ organizations, consumer groups, and health organizations came together to form the Citizens Front for Water Democracy, which held a meeting on December 1, 2004.43 It opposed the price hike that would come with privatization, and among other measures to mobilize New Delhi’s urban residents against the hike, demanded a revision of tariffs, defended people’s right to water, called on citizens to not pay bills at the higher tariff, and initiated a referendum on water tariffs.44 The idea of “privatization” also came under attack. Earlier, the DJB had faced similar protests when Ondeo Degremont, a subsidiary of French MNC Suez, built the Sonia Vihar water treatment plant. Environmental groups had launched strong protests against the project on grounds of environmental sustainability.45 Given the unpopularity of public–private partnership (PPP) contracts, three pilot projects – Vasant Vihar-Mehrauli (SPML Infrastructure-led consortium), Nangloi (Veolia), and Malviya Nagar (Suez Environnement) – were unlikely to be renewed.46 As a result of the strong opposition forces, the attempt to reform the DJB failed. In September 2005, the Delhi government wrote to the World Bank stating that it had decided to put the 24/7 project on hold. In November the same year, the Delhi government informed the central government that it would withdraw its loan application from the World Bank. 42

43 44 45

46

“Another Setback for Reform of India’s Water Utilities: The Water Industry in India,” The Economist, August 11, 2005, available from www.economist .com/node/4285210 (accessed January 20, 2016). Asthana, Water Policy Processes, p. 93. Ibid. See Vandana Shiva, “Resisting Water Privatisation: Building Water Democracy.” Paper presented at the World Water Forum, Mexico City, March 2006, pp. 1–22, available from www.globalternative.org/downloads/shivawater.pdf (accessed February 5, 2016). Author’s notes, interview with a former chief engineer of Delhi Jal Board, March 16, 2015.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 211

Impact of India’s Social Contract: Why Reforms of the Delhi Jal Board Failed The reforms of the DJB were aimed at increasing its autonomy and capacity, by making it more independent from government control and by allowing it to tap into private expertise and capital. Private sector participation does not always solve water problems and has, in some cases, worsened them. But if implemented properly, private sector participation is a critical source of expertise, capital, and technology for poor-performing utilities that will enhance their operational and financial autonomy. Whether the reforms, if successfully implemented, would have achieved their goals is unknown. What is certain, however, is that the populace of New Delhi still does not have access to a continuous supply of piped water, and there has been little improvement in the DJB’s water delivery service to urban residents. Why did the reforms fail? Socialism and the “anti-privatization” narrative Dikshit’s attempts to reform the DJB failed because it went against the grain of India’s socialist and populist social contract. The societal groups, politicians, and DJB officials responsible for organizing mass protests and mobilizing the New Delhi population against the DJB reforms relied on an “anti-privatization” narrative that resonated with the bargain or contract between the Indian state and its people. Privatization contradicts the socialist and welfare promises of the Indian social contract. Opponents of DJB reforms were riding on an antiprivatization sentiment prevalent in New Delhi – nearly one-third of Delhi residents were completely opposed to privatization.47 An “anti-privatization” narrative therefore legitimized the opponents of the reforms and won them popular support. These groups criticized the lack of transparency in the processes behind the building of the Sonia Vihar Water Treatment Plant, and accused the Delhi government of being in cahoots with foreign MNCs and the World Bank to sell off government assets at an undervalued rate.48 Using such “anti-privatization” and “anti-World Bank” narratives, the organizers of protests were able to mobilize large sections of the New Delhi

47 48

Kumar, Changing Electoral Politics, p. 121. Asthana, Water Policy Processes, pp. 113 and 119.

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populace. For instance, a “Jal Swaraj Yatra” (“Journey in Support of Water Democracy”) was organized on World Water Day in March 2004, during which a million people were involved and 150,000 signed a 100-meter “river” of cloth to protest privatization of water in New Delhi.49 These strong anti-privatization sentiments were also fueled in part by Dikshit’s lack of transparency when she privatized New Delhi’s power sector previously. In fact, the momentum against the privatization of the DJB was built on the widespread opposition to privatization of the power sector. On July 1, 2002, the NCTD privatized the Delhi Vidyut (DVB), a state-owned enterprise (SOE), through the sale of 51 percent of the equity in three distribution companies. The three distribution companies created at the time of privatization were sold to two privately owned Indian power companies, BSES and Tata Power. The lack of transparency in the privatization of the power sector, as well as the attempts to privatize the DJB, stirred up charges of corruption against the Dehli government. The CEO of DJB at that time, Rakesh Mohan, who was handpicked in August 2004 to oversee the privatization, was charged with corruption when two NGOs, Rashtriya Mukti Morcha and the All India Crime Prevention Society, filed a complaint with the Central Bureau of Investigation in February 2005, accusing him of valuing the fixed assets of the DJB at below the original value.50 The anti-privatization sentiments also explain why Arvind Kejriwal was voted into power. The poor and middle classes, who are mostly against privatization,51 are traditionally the power base of the Congress Party. Dikshit’s attempt at privatization thus alienated Congress’s traditional class base in New Delhi. Kejriwal came into power with the support of poor and middle-class voters who were attracted to his promise of 700 liters of free water daily to each household along with a 50 percent reduction in power tariffs.

49 50

51

Ibid. Gaurav Vivek Bhatnagar, “Ex-CEO’s Term Marked by Controversies,” The Hindu, April 25, 2007, available from www.thehindu.com/todays-paper/tpnational/tp-newdelhi/Ex-CEOs-term-marked-by-controversies/ article14754807.ece (accessed February 2, 2016). Ibid.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 213

Populism and lack of insulation from political and societal pressure The emphasis on populism in India’s social contract makes the Delhi government vulnerable to capture by political and societal groups, constraining its efforts to reform the DJB and introduce private sector participation in the urban water sector. When asked for his views on why the DJB reforms failed to take off, an Indian scholar in New Delhi quipped, “Electoral politics get in the way of policies.”52 The efforts to reform the DJB and transform the management of water supply in the city failed as interest groups exerted considerable influence. According to Gucharan Das, the coalition of the vested interests of local politicians, bureaucrats, and DJB employees manipulated Parivartan.53 The coalition of forces against DJB reforms was able to mobilize popular opposition against the reforms. In this regard, by legitimizing popular protests and civil disobedience as a form of civic participation and as part of the agreement between the Indian state and society, India’s social contract facilitated the efforts of this coalition of opposition forces in mobilizing popular support against the reforms. Opponents of the development vision of the New Delhi government included the Water Workers Alliance (WWA), which is made up of a few politicians and engineers and bureaucrats at the middle and lower levels of the DJB, resident welfare associations, environmentalists, and consumer organizations.54 Together, they formed the Water Liberation Campaign and the Citizens Front for Water Democracy alliances, which successfully blocked reforms at the DJB. The involvement of DJB employees in these alliances shows that the DJB is not politically neutral. DJB employees claimed that they were not consulted in the water tariff hike and privatization of the agency.55 According to Edward Luce, the DJB has 15 times as many employees as per kilometer of water pipes than the average of a city in an industrialized country, and these employees form “a powerful vested interest against change.”56 Privatization went against their interests as they faced the possibility of losing their jobs if reforms led to a reduction in the DJB’s workforce. 52

53 54 55 56

Author’s notes, interview with a senior scholar from the Institute for Defence Studies and Strategic Analyses, March 17, 2016. Das, India Grows at Night, p. 243. Vasthana, Water Policy Processes, p. 112. “A New Twist to Water Controversy,” The Hindu, November 8, 2005. Luce, In Spite of the Gods, p. 213.

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The water mafia was also against DJB reforms, specifically the reform of tanker management in the DJB, but not so much against the plan to ensure continuous supply.57 The water mafia was against reforms that would have organized the tanker sector, GPS systems to be installed on DJB tankers to monitor movement, and the bidding system that would award contracts to private tankers.58 According to a retired engineer of the DJB, 30 percent of New Delhi is supplied by about 1100 to 1200 tankers per day; half are owned by the DJB and the other half are privately owned.59 Opposition parties are also part of the group that protested the privatization efforts. The Bharatiya Janata Party (BJP) accused the Dikshit government of “misleading the people.”60 Dikshit also suffered from opposition within her own party. A large number of the Congress Party’s members of the legislative assembly (MLAs) signed a joint memorandum addressed to Sonia Gandhi pointing out that the various “anti-people and anti-poor” policies of the Delhi government was having a negative impact on the image of the Congress Party.61 Moreover, under Dikshit, the politicization of society and the involvement of the electorate in public affairs increased. Dikshit came into power in 1998 promising a responsive and participative government. She went on to implement policies and schemes that were designed to appeal to the people. A key example was the introduction in 2000 of the Bhagidari scheme of participatory governance. The scheme involved and trained a large cross-section of society, such as resident welfare associations (RWAs) and market and traders associations, on how to manage public services. For instance, RWAs work together with the DJB to collect water tariffs and in rainwater harvesting.62 The Bhagidari scheme did so well that it won the UN Public Service Award in 2005. The scheme, which is aimed at empowering 57

58 59

60

61 62

Author’s notes, interview with the former CEO of the Delhi Jal Board, March 18, 2015. Ibid. Author’s notes, interview with a former chief engineer of Delhi Jal Board, March 16, 2015. “A Watered-Down Version on Water Front: Vardhan,” The Hindu, August 4, 2005, available at www.thehindu.com/2005/08/04/stories/ 2005080405650400.htm (accessed November 1, 2016). “Opposition to Water Privatization,” The Hindu. “Bhagidari,” Delhi Government website, available from http://delhigovt.nic.in/ newdelhi/bhagi.asp#6 (accessed November 1, 2016).

Water Constraints in India’s Megacities: New Delhi and Hyderabad 215

citizens and societal groups, has the effect of increasing people’s representation and participation at the local level.63 While the scheme contributed to a large extent in empowering ordinary citizens, it was also a populist move by Dikshit, which worked against her in the end when the scheme makes it easier for Dikshit’s opponents to mobilize societal groups against her policies. Resource allocation and lack of capacity The Indian social contract also limits the capacity of the New Delhi government to carry out reforms in the DJB. As pointed out in Chapter 4, populist policies strain state coffers and weaken state institutions such that those institutions are not able to resist and overcome the opposition to reform. Socialism also prevents the government from tapping into private and foreign sources of investments. Because of the World Bank’s advocacy of private sector participation in state-owned utilities, the World Bank suffers from a negative image among the poor and middle classes in India. Socialist tenets in India make it difficult for the government to draw on World Bank loans. Moreover, there is no decentralization of power to lower levels of government to boost performance, as has been the case for China. Local governments and state-owned utilities in India lack political, social, and operational autonomy. In addition, the lack of an urban bias means that resources are not devoted to cities but are spread more evenly between urban and rural areas. Indian politicians who fail to protect the interests of the rural sector risk being voted out of power. Taken together, these factors reduce the capacity of city and state governments to provide for basic goods and services. ULBs and city governments do not have independent sources of income, mostly relying on funds and grants from the NCTD and the central government. For instance, for fiscal year 2004–2005, the DJB’s two main sources of funds were grants and loans from the New Delhi government and the national government.64 The NCTD in turn allocated 15 percent of its total budget to the water supply and sanitation sector, which was the

63 64

Ghosh et al., “Comparative Overview,” p. 39. “Annual Balance Sheet 2004–2005,” Delhi Jal Board website, available from www.delhi.gov.in/wps/wcm/connect/doit_djb/DJB/Home/Customer+Section/ Anual+Balance+Sheet+and+MLA+Fund/ (accessed June 26, 2016).

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second largest budget outlay for the NCTD after the transportation sector.65 Fifteen percent of the FY 2004–2005 budget is approximately INR 6.99 billion (estimated US $105 million at the May 2018 exchange rate). The New Delhi government had to rely on the World Bank in its efforts to restructure the water sector – the US $2.5 million loan to commission the study by PwC, and more than half (US $140 million) out of the estimated US $246 million needed to implement reforms proposed by the PwC report. This means that without the World Bank loan of US $140 million, the NCTD did not have the financial capacity to carry out reforms.

Hyderabad Previously the official capital of Andhra Pradesh, Hyderabad was made the capital of the southern state of Telangana when Andhra Pradesh was bifurcated in June 2014.66 Hyderabad is also currently the de jure capital of Andhra Pradesh and will be for a period not exceeding ten years under the Andhra Pradesh Reorganization Act of 2014. In the 2011 census, Hyderabad city (governed by a municipal corporation) has a population of approximately 6.7 million, which is almost double the city’s population in 2001, making it the fourth largest city in India.67 A large chunk of its population live in slums – 32.7 percent according to the 2011 census,68 which makes it harder for the government to deal with basic amenities issues. The Hyderabad Metropolitan Area’s (urban agglomeration) population is close to 7.7 million, which makes it the sixth largest urban agglomeration.69 Along with New Delhi, Hyderabad is one of six metropolitan cities, the others being Bangalore, Chennai, Kolkata, and Mumbai. A metropolitan city 65

66

67

68 69

“Sectoral Outlay under Annual Plan 2004–2005,” Delhi Government website, available from http://delhi.gov.in/wps/wcm/connect/DoIT_Planning/planning/ budget+of+delhi/budget+at+a+glance2/sectoral+outlay+under+annual+plan +2004–05 (accessed June 26, 2016). Andhra Pradesh is divided into three regions: Telangana in the north, Rayalseema in the south, and coastal Andhra. Bifurcation led to the carving out of Telangana, where Hyderabad is located, into a separate state. Office of the Registrar General & Census Commissioner, India, “Hyderabad (Greater Hyderabad) City Census 2011 Data,” Census 2011 website, available from www.census2011.co.in/census/city/392-hyderabad.html (accessed July 2, 2016). Ibid. Ibid.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 217

or urban agglomeration consists of a core city, contiguous municipalities, and urban outgrowths.70 The Greater Hyderabad Municipal Corporation (GHMC) was amalgamated in 2007, expanding the area of the city from 170 square kilometers to 650 square kilometers. The GHMC today comprises 12 municipalities, divided into 5 zones and 18 circles. The main argument put forward by the proponents of the integration is that it will help optimize the city’s planning and development. Moreover, Hyderabad is better managed and its institutions function better than those under the purview of the municipalities in the outlying areas.71 Hyderabad is described as a “hi-tech hub in a rural state.”72 In the 2011 census, the level of urbanization in Andhra Pradesh was 33.49 percent.73 In the period we are studying, Hyderabad was still part of Andhra Pradesh. As is the case with New Delhi, the Municipal Corporation of Hyderabad (MCH), before it became the GHMC in 2007, remains superseded by the metropolitan/state government. Although the Hyderabad Municipal Act of 1995 provided for a directly elected mayor, it did not substantively empower the position. The mayor remains a titular or ceremonial figure. When former Mayor Teegala Krishna Reddy, who is from the Telugu Desam Party (TDP), was elected in 2002, the state government was ruled by the same party. The advantages enjoyed by Reddy reportedly came to a sudden halt when the Congress Party took over power at the state level in 2004.74 The city government is clearly dominated by the state government. Moreover, the state-appointed chief commissioner of the MCH remains the locus of power. The Standing Committee of the Legislature and the chief commissioner are the two main entities of the 70

71 72 73

74

K. C. Sivaramakrishnan and Arundhati Malti, Metropolitan Governance in India: An Overview of Selected Cities (Delhi: Centre for Policy Research, January 2009), available from www.eastwestcenter.org/fileadmin/resources/ seminars/Urbanization_Seminar/Paper_for_EWC_KMC_Workshop_by_K.C._ Sivaramakrishnan__for_web_.pdf (accessed February 1, 2016). Ruet et al., Governing India’s Metropolises, p. 195. Rao, Cities in Transition, p. 117. Office of the Registrar General & Census Commissioner, India, “Chapter IV: Trends in Urbanization,” Census 2011 website, available from www .censusindia.gov.in/2011-prov-results/paper2-vol2/data_files/AP/Chapter_ IV.pdf (accessed July 2, 2016). Cited in Ghosh et al., “Comparative Overview,” p. 43.

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government, representing the legislative and executive branches of government, respectively.75 The Standing Committee consists of the chairpersons of ten ward committees who elect among themselves a chairperson to preside over the Standing Committee.76 The Standing Committee can approve projects up to a limit of INR 500,000. According to Ghosh et al., “[Municipal] departments themselves can undertake projects only on the demand of politicians in the state government and are dependent on their sanction . . . most of the (ward) councilors interviewed expressed frustration and a sense of powerlessness.”77 In this case study, the focus is on the TDP’s tenure in the state government, when Chandrababu Naidu served as chief minister of Andhra Pradesh for two terms, from 1995 to 2004. During this period, the state government’s economic policies had a direct impact on Hyderabad city, which was a showcase for Naidu’s pet projects. One of the key components of the growth strategy was to promote the hightech sector, and Hyderabad was chosen to be the high-tech hub, particularly in information technologies, in open competition with Bangalore. To facilitate the transformation of Hyderabad into a world-class city, investments were poured into building infrastructure, including basic amenities such as roads, water supply, drainage, and electricity.

The Hyderabad Metropolitan Water Supply and Sewerage Board and Hyderabad’s Water Problems The HMWSSB was formed in 1989 as a semiautonomous organization when the state legislative assembly passed the Hyderabad Metropolitan Water Supply and Sewerage Act. This is a significant achievement as “it had taken seven years, two acts of the state legislative assembly, and three changes in state government.”78 It is Hyderabad’s preeminent metropolitan parastatal body that is key to keeping water services 75 76

77 78

Ibid., p. 38. Ibid. In 2002, ward boundaries were redrawn, resulting in the formation of 100 wards that were regrouped into 10 ward committees. Ibid. Jonathan Caseley, “Multiple Accountability Relationships and Improved Service Delivery Performance in Hyderabad City, Southern India,” International Review of Administrative Sciences 72:4 (2006), pp. 531–546, at p. 533.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 219

in the hands of the state government. It is headed by a managing director who is responsible to a board of directors established by the Act. The HMWSSB combined the functions of two existing government departments – the state-level public health engineering department (PHED) and the MCH – which had been in charge of water supply and sewerage services, respectively. Covering a service area of approximately 688.24 square kilometers, the HMWSSB is entrusted with the control of all infrastructure related to the city’s water supply and sewerage system in the MCH/GHMC, including ten peripheral municipalities and the core city area.79 The World Bank encouraged the reorganization of the HMWSSB as a means of establishing a water and sewerage authority with greater financial and operational autonomy, as well as a higher level of accountability to customers. In fact, the HMWSSB was rewarded with a US $89 million loan from the World Bank in 1990, which helped support a range of organizational reforms.80 The HMWSSB is required to be financially self-sufficient through the collection of user fees. Financial autonomy is seen as a means to entrust the HMWSSB with greater operational and decision-making independence in an effort to insulate it from political interferences. However, as I will elaborate later, the reorganization of the HMWSSB did not achieve any of these objectives. In reality, the HMWSSB has neither operational and financial autonomy nor insulation from political forces. Living on the brink of thirst Hyderabad is severely water-constrained. In part, this is the result of water resources management decisions by the state government: given Andhra Pradesh’s predominantly rural population, agricultural interests near Hyderabad exert control over a substantial proportion of the region’s surface water. Ninety-three percent of the water in Andhra Pradesh is reportedly taken up for irrigation purposes.81 This reflects the rural bias in India’s social contract. In addition, whereas many other parts of India experience heavy regional precipitation during the 79

80 81

“Citizen Charter of HMWSSB,” HMWSSB website, May 2013, available from www.hyderabadwater.gov.in/en/files/4514/3201/7192/citizencharter.pdf (accessed July 2, 2016). Cited in Nastar, “What Drives the Urban Water Regime?” N. Vamsi Srinivas, “Nation Debates If Water Is an Economic Good,” Deccan Chronicle, April 22, 2013.

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monsoon months (June–September and December–January), Hyderabad receives comparatively little monsoon rainfall. The Hyderabad population is accustomed to living on the brink of thirst. The average daily supply to households is below two hours. In 2014, Hyderabad’s water demand was approximately 480–500 MGD, but the HMWSSB is only able to supply 330–340 MGD at full capacity.82 This is approximately a shortage of 150 MGD. To meet the additional demand, the HMWSSB had about 525 water tankers (in 2014) available.83 Most of the population relies on private water vendors – the water mafia – who deliver water in tankers that has been pumped from agricultural lands outside of the city. As residents face increasing water shortages, the water mafia, or private tankers, have grown, particularly in the areas of Nampally, Nizampet, Trimulgherry, and Amberpet.84 These private tankers sell water to residents at exorbitant prices. The city’s slum dwellers are the most seriously affected by the lack of water and sanitation services. Most middle- and upper-class households have installed borewells that provide low-quality groundwater for bathing and washing, but slum dwellers cannot afford this investment. For many decades, Hyderabad relied on two small reservoirs for its water needs: Osman Sagar, built in 1920, supplies 25 MGD to the city, and Himayat Sagar, built in 1927, supplies an additional 15 MGD.85 In order to augment the shortage in supply, Hyderabad relies on water sources outside the city, including the Manjira River and Krishna River. After years of severe water shortages, the city finally managed to build a series of dams on the Manjira River, which increased the city’s water supply by an additional 120 MGD.86 The Krishna Water Project was finally approved by the state government and launched in 82

83 84

85

86

S. Bachan Jeet Singh, “Water Woes: Rising Demand, Poor Water Supply Plague Hyderabad,” The Indian Express, March 2, 2014, available from www.newindianexpress.com/states/andhra_pradesh/Water-Woes-RisingDemand-Poor-Supply-Plague-Hyderabad/2014/03/03/article2087706.ece (accessed June 26, 2015). Ibid. Sribaala Vadlapatla, “Nizampet at the Mercy of ‘Water Mafia,’” The Times of India, February 28, 2012, available from http://timesofindia.indiatimes.com/ city/hyderabad/Nizampet-at-the-mercy-of-water-mafia/articleshow/ 12062744.cms (accessed June 26, 2015). “Source,” HMWSSB website, available from www.hyderabadwater.gov .in/en/index.php/about/source (accessed June 26, 2015). Ibid.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 221

2003 after being delayed for years.87 Hyderabad almost experienced a water collapse that year when the Singur reservoir, which is the city’s main source at that time, nearly dried up, prompting the state government’s decision to implement the Krishna Drinking Water Project. Phase I and II of the Krishna project brought about 180 MGD to the city. When Phase III is completed, it will bring in another 90 MGD; currently, it supplies 45 MGD.88 In 2008, the Godavari Project was launched to further augment the city’s water supplies.89 It is expected to supply about 170 MGD to the city.90 Hyderabad is becoming increasingly reliant on water from the Krishna and Godavari rivers, which are at distances of 110 kilometers and 200 kilometers, respectively, from the city. About 70 percent of the MCH population has access to a piped water supply while only 42 percent of the people in the surrounding municipalities do.91 Tap water is available once every two days for two hours, when households fill their water storage units to serve them for the time that there is no tap water. Households are charged INR 6 per cubic meter for the first 30 cubic meters of consumption, with modest increments in subsequent blocks. About 90 percent of households with connections are metered, but only about 40 percent of meters are working.92

87

88

89

90

91

92

Mattia Celio, “More Drops for Hyderabad City, Less Crops for Farmers: Institutions, Policies and Intersectoral Water Reallocations in Andhra Pradesh, South India,” Paper prepared for the Workshop on Legal Aspects of Water Sector Reforms (Geneva, April 20–21, 2007), pp. 1–15, at pp. 5–6, available from www.ielrc.org/activities/workshop_0704/content/d0708.pdf (accessed February 2, 2016). “Augmentation of Water Supply to Hyderabad Metropolitan Area from River Krishna, Nagarjuna Sagar,” HMWSSB website, available from www.hyderabadwater.gov.in/en/index.php/more/projects/krishna-watersupply-project/ (accessed July 2, 2016). “Godavari Drinking Water Supply Project Phase-I,” HMWSSB website, available from www.hyderabadwater.gov.in/en/index.php/projects_view? projectid=1604 (accessed July 2, 2016). Yunus Y. Lasania, “More Krishna Water for the City,” The Hindu, October 7, 2015, available from www.hyderabadwater.gov.in/en/index.php/about/source (accessed July 2, 2017). Laura Echternacht, Pricing Urban Water: Evaluation of Economics in the Water Sector of Hyderabad and Varanasi (India) (Cham: Springer, 2014), p. 41. Dale Whittington, “Municipal Water Pricing and Tariff Design in South Asia,” Water Policy 5 (2003), pp. 61–76, at p. 66.

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Limited autonomy and capacity Despite the clear mandates for financial and operational autonomy written into the HMWSSB’s charter, it neither enjoys budgetary nor personnel management autonomy. It is highly dependent on and controlled by the state government. When the board of directors was formed in 1989, the Government of Andhra Pradesh retained ownership of the HMWSSB’s assets. The chief minister serves as chairman of the HMWSSB’s board of directors, and virtually all members of the board of directors are political appointees. The chief minister as chairman oversees all important and politically sensitive policy decisions, such as tariff rates, and leaves operations to the managing director, who is an IAS officer. Only a minority of the staff officially became employees of the HMWSSB; the rest are still staff of the state-level PHED and are therefore still subject to the PHED’s personnel management policies for matters of promotion, transfer, and benefits. The HMWSSB often comes under pressure from politicians. As a result, the HMWSSB is unable to carry out reforms to improve water services. For instance, Hyderabad’s politicians obstruct efforts to dismantle illegal connections and to disconnect households that have not paid their water bills. HMWSSB staff who attempt to enforce such penalties have found themselves transferred to a “penalty post” in an undesirable department. In some cases, local leaders have even organized residents to confront and threaten HMWSSB staff attempting to enforce disconnection rules. In addition, tariffs have been kept low in response to pressure from elected officials who view water as a social good that should be provided at low or no cost to residents, particularly the poor.93 However, low water tariffs prevent cost recovery, and hence reduce the capacity of the HMWSSB to improve service delivery to the Hyderabad population. Given the HMWSSB’s difficulties both in setting tariffs and enforcing payment from users, its service level has declined over the years. For instance, there are significant obstacles to reducing the high level of water that is unaccounted for. The infrastructure that the HMWSSB inherited from the PHED in 1989 was in poor condition, especially in the older parts of the city. Rehabilitating the pipe

93

Jennifer Davis and Sunil Tankha, The Hyderabad Metropolitan Water Supply and Sewerage Board (Cambridge, MA: Kennedy School of Government, 2006), pp, 1–23, at p. 4.

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network will require a sizable investment, but given the low water tariffs, the HMWSSB is not able to make these improvements. Furthermore, low tariffs restrict the HMWSSB’s ability to expand its infrastructure to low-income settlements where poor residents live. Middleand upper-class households with individual piped water connections benefit from this subsidized service, while poor households are often forced to rely on public standposts or water vendors.94 Water fees and connection charges were raised by 17 percent in 1993, by another 25 percent in 1997, and again by a sizable 64 percent in 2002.95 It was estimated that if all the water users in Hyderabad paid their water bills, the 2002 tariff structure would cover the operations and management costs of the urban water supply system. In reality, however, only around 50 percent of metered users pay for the water they use, and most of those who receive water from the HMWSSB pay flat rates since they have not installed a meter. In 2004, the water tariff was rationalized to introduce different consumption slabs for below 200 kiloliters consumption. There were no tariff increases from 2002 onward, however, until 2011. Attempts by the HMWSSB to increase water tariffs between those years were rejected by the board of directors. One key reason is the high level of unaccounted-for water. Estimates range from 40 to 55 percent of supply, with roughly 40 percent thought to be physical losses and 60 percent administrative losses.96 Without an improvement in water services, the board of directors, politicians, and residents could not see how an increase in water tariffs could be justified. In 2011, the HMWSSB finally managed to raise water prices, justifying revisions to the water tariff by citing the large capital investments made in the Krishna and Godavari projects between 2002 and 2010, as well as the fact that there had been no tariff increases for almost ten years.97 User fees are now expected to cover operations and maintenance costs. However, depreciation, system rehabilitation, and new investments are not covered.98 Each year, the state government provides support in terms of grants-in-aid to the HMWSSB.

94 95 96 97

98

Ibid. Ibid. Ibid., p. 5. “Abstract,” HMWSSB website, available from www.hyderabadwater.gov .in/en/themes/HMWS/downloads/TariffContent.pdf (accessed July 2, 2016). Davis and Tankha, Hyderabad, p. 4.

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Sharing power and resources The HMWSSB has to share power with several other government agencies, which, like the DJB, reduces its authority and resources for improving service delivery. One powerful agency that the HMWSSB has to work closely with is the Hyderabad Metropolitan Development Authority (HMDA). It was formed in 2008 by an Act of the Andhra Pradesh legislature and covers an area of 7,257 square kilometers. It is the third largest metropolitan body, after the National Capital Region (Delhi) and the Bangalore Metropolitan Region Development Authority.99 The HMDA was formed by the merging of the Hyderabad Urban Development Authority, Hyderabad Airport Development Authority, Cyberabad Development Authority, and Buddha Poornima Project Authority, following the decision to create the GHMC. The main purpose of the HMDA is to ensure comprehensive planning of the GHMC, as well as to plan, coordinate, supervise, promote, and secure the development of the Hyderabad Metropolitan Area. It also coordinates the development activities of the municipal corporations, municipalities and other local authorities, such as the HMWSSB, the Telangana Transmission Corporation, the Telangana Industrial Infrastructure Corporation, and the Telangana State Road Transport Corporation, among others.100 The GHMC is the ULB that the HMWSSB has to work with, as the GHMC is in charge of Hyderabad’s city development plan, installing and maintaining public city infrastructure including water and sewer networks, and improving water services in low-income areas including slums.101 The Andhra Pradesh Irrigation Department also has substantial influence on Hyderabad’s water supply, since Andhra Pradesh is largely rural. It is in charge of the operation of the two major sources of the city’s water supply: the Nagarjunasagar Dam on the Krishna River and the Singur Dam on the Manjira River.102 This setup puts the Irrigation Department in competition with the HMWSSB over control of the city’s water supply. For instance, releases of water from the Singur Dam for irrigation purposes have to be jointly agreed by the principal secretary for Irrigation and the managing director of the HMWSSB.103 99

100 101 102 103

“Welcome to HMDA,” Hyderabad Metropolitan Development Authority website, available from www.hmda.gov.in/ (accessed July 2, 2016). Ibid. Nastar, “What Drives the Urban Water Regime?” Celio, “More Drops,” p. 7. Ibid.

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Theoretically, the dam operation rules provide clear guidance on their decision, but in reality, the rules are not well-designed and do not provide an objective tool for water sharing: “Whether or not to release water for crop production became a matter of political consideration.”104

Reforming the Hyderabad Metropolitan Water Supply and Sewerage Board When Naidu became chief minister of Andhra Pradesh in 1995, his primary aim was to overhaul and streamline government structures and processes. In particular, the use of information technology was seen as the key to Andhra Pradesh’s economic growth and reform of government institutions. Naidu’s first target was to reform public services, given the widespread complaints of inefficiencies, delays, and corruption in government services.105 To this end, he used technology and e-governance to introduce transparency, reduce corruption, and ensure faster service. Computerization was introduced into the state government’s accounting and taxation, and registration systems. In 2002, eSeva centers were set up across Hyderabad and later extended to the rest of Andhra Pradesh. The eSeva centers provide the primary point of contact between the government and the people, enabling payments to be made to various government agencies, such as water and electricity bills, telephone bills, and property taxes, among others, through a single agency. Naidu’s agenda was “to make good governance and IT-enabled services the central planks of his new regime with gains in employment generation, employability training and the attraction of foreign direct investment.”106 Getting loans and aid from international organizations such as the World Bank was another of Naidu’s attempts to spur economic development in Hyderabad and Andhra Pradesh. During his tenure, therefore, Andhra Pradesh developed a close relationship with the World Bank. The attempts to reform the HMWSSB must be understood against this backdrop of larger reform initiatives by the Naidu government. The HMWSSB has been the subject of numerous administrative reforms and schemes introduced by the World Bank and the Naidu 104 105 106

Ibid. Rao, Cities in Transition, p. 134. Ibid.

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government to rationalize its services through more efficient division of work, providing greater customer satisfaction, and utilizing technology for better management and greater transparency. In 1997, with L. V. Subrahmanyam as managing director, the HMWSSB launched a series of initiatives designed to improve customer service. The initiatives that unfolded from November 1998 to December 2000 included Metro Customer Care (MCC), Single Window Cell (SWC), and Metro Water’s Citizen’s Charter, which aimed to empower citizens, and spell out the rights and responsibilities of the HMWSSB and its customers. The MCC established a 24/7 hotline that allowed customers to lodge their complaints, while the SWC consolidated procedures for the application of new water supply and sewerage connections.107 These reforms were carried out at that time to improve the image of the HMWSSB and win the public’s support. Improving customer service was the only way to improve the HMWSSB’s image that did not require huge financial outlays. In 1998, the HMWSSB was on the verge of getting a loan of US $300 million from the World Bank to invest in improving Hyderabad’s water supply and sanitation infrastructure. These plans were dashed when the World Bank suspended its programs with India following the Indian government’s nuclear test. Without any funds for improving Hyderabad’s water infrastructure, the HMWSSB was not able to deal with the key issue of an inadequate water supply. Hence, the HMWSSB focused on providing better customer service instead to win public trust and support. Nevertheless, while these reforms in customer service had raised the HMWSSB’s service delivery performance and enhanced the accountability relationships between HMWSSB employees and Indian citizens,108 there were criticisms that the reforms had left out large sections of the poor who had little access to telephone and online services.109 For instance, only about 10 percent of calls to MCC were made by slum residents.110 Following the internal reforms to improve customer service, Naidu set about to privatize the HMWSSB. When he was reelected in 1999, he took it as a mandate for economic reforms.111 He hoped to make 107 108 109 110 111

Naster, “What Drives the Urban Water Regime?” Caseley, “Multiple Accountability,” p. 542. Davis and Tankha, Hyderabad, p. 12. Ibid. This narrative overlooked the fact that TDP’s victory actually depended on an eleventh-hour deal with the BJP that ensured Naidu’s victory. In addition,

Water Constraints in India’s Megacities: New Delhi and Hyderabad 227

the HMWSSB the first water utility to be privatized in India. To this end, he sought the help of the World Bank in developing a concessionaire for the HMWSSB’s operations. This is, in part, a revival of the earlier project that was aborted as a result of India’s 1998 nuclear test. The goal of the project was to develop the HMWSSB into “a sound commercially oriented utility . . . to have sufficient autonomy to conduct its business efficiently including the ability to raise tariffs for full cost recovery.”112 In order to achieve his objectives, Naidu appointed M. G. Gopal, an up-and-coming IAS officer, as managing director of the HMWSSB to carry out this next stage of reforms.113 However, the World Bank would support the privatization effort with a loan only if the needs of the poor were taken into account.114 The Andhra Pradesh government went ahead with a study of privatization experiences across the globe.115 The study proposed that privatization could move in phases, including the setting up a water regulatory authority, outsourcing bill collection to private agencies,116 and privatizing the water distribution system.117 Naidu’s attempts at privatization of the HMWSSB failed in the early stages. His inability to push through privatization of the HMWSSB must take into account the context of the increasing opposition that he

112

113 114 115

116

117

Naidu’s reform policies were sweetened with populist policies. He did not marshal the broad consensus needed behind his reform policies. Jason A. Kirk, India and the World Bank: The Politics of Aid and Influence (London: Anthem Press, 2010), p. 67. The World Bank, India - Second Hyderabad Water Supply and Sanitation Project (Washington, DC: World Bank, 1997), available from http:// documents.worldbank.org/curated/en/1997/10/694018/india-secondhyderabad-water-supply-sanitation-project (accessed August 10, 2016). Davis and Tankha, Hyderabad, p. 2. Ibid. G. Srinivasa Rao, “HMWS&SB Privatisation Put Off,” The Times of India, June 3, 2002, available from http://timesofindia.indiatimes.com/city/ hyderabad/HMWSSB-privatisation-put-off/articleshow/11808464.cms (accessed August 10, 2016). From August 2006, about 50 percent of the job of distributing bills had been outsourced to four agencies, viz., AP Online Services, Excel Computers, Sri Rami Reddy & Co., and Bhavani. Samanta Sahu. 2009. “Politics of Access to Drinking Water in Urban Areas in India: State and Market Interventions – A Case Study of Hyderabad.” PhD thesis, Department of Political Science, University of Hyderabad, p. 164, available from http://shodhganga .inflibnet.ac.in/bitstream/10603/4070/12/12_chapter%205.pdf (accessed August 10, 2016). “CPI(M) Opposes Move to Privatize Water Supply,” The Hindu, November 24, 2001.

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faced in his second term in office. Prior to attempts at privatizing the HMWSSB, Naidu, in his first term, had pressed ahead with a bill to reform the power sector. The State Assembly, which was two-thirds TDP majority, passed the bill in April 1998. The bill proposed to split the State Electricity Board into separate agencies for generation and transmission, and to establish an independent regulatory authority for the power sector.118 The passing of the electricity reform act in 1998, despite a boycott from the Congress Party and sharp criticisms from Naidu’s other political opponents, set the stage for an intense confrontation between them when Naidu was reelected in 1999. Weeks of protests led by opposition parties and trade unions that occasionally erupted into violence forced the Naidu government to roll back the decision to increase power tariffs. Against this volatile background, a series of strikes were staged in 2001 and 2002 against the privatization of the HMWSSB. Apart from opposition political parties, Naidu also faced a string of protests from HMWSSB employees and NGOs. For instance, the HMWSSB staff, organized by labor unions such as the Water Works Employees Union, launched a strike on August 28, 2001, to protest the privatization of the HMWSSB. Civil society groups such as the Forum for a Better Hyderabad and the Federation of Association of Colonies and Apartments also opposed the HMWSSB’s privatization moves. Hyderabad is noted for its vibrant NGOs and active citizen participation: “Scores of NGOS are involved in development-related activities in mobilizing the people around social and political issues.”119 In the face of popular protests, Naidu managed to push through the water tariff hike in 2002. However, he had to step back from privatizing the water board – in June 2002, the HMWSSB officially decided to put off its privatization efforts.120

India’s Social Contract and Its Impact on Reforms of the Hyderabad Metropolitan Water Supply and Sewerage Board Why did Naidu’s attempts to improve customer service succeed, while the attempts to privatize the HMWSSB fail? The case of the HMWSSB 118 119 120

Kirk, India and the World Bank, p. 66. Ghosh et al., “Comparative Overview,” p. 34. “HMWS&SB Privatisation Put Off,” The Times of India.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 229

illustrates not only the constraining effects of India’s social contract but also its enabling effects. Naidu successfully undertook measures to improve the HMWSSB’s customer service through the implementation of Metro Customer Care and Single Cell Window. These measures spruce up the image of the HMWSSB as being responsive to the needs of its customers. Naidu received popular support for these measures as they entailed benefits for customers without exacting costs. These reforms were thus in line with the populist aspects of the social contract. By contrast, the privatization of the HMWSSB not only went against the socialist aspects of the social contract but also would have meant an increase in water tariffs, and some HMWSSB employees would have lost their jobs, resultant effects that go against the welfare principles of India’s social contract. Populism, because it reduces the autonomy of state institutions, made the Hyderabad government vulnerable to pressure from those who would lose out from privatization. Naidu was thus unable to achieve the aim of reforming the HMWSSB into an institution with sufficient autonomy and capacity to ensure a continuous supply of water to Hyderabad residents. Populism Even though Naidu was focused on economic reforms after he took office in 1995, he was well aware that his ticket to electoral victory required him to deliver welfare goods, such as subsidies and free public goods. Many of his policies were thus clothed in populist rhetoric in line with the expectations of the people. Jason A. Kirk wrote: Naidu so thoroughly coated his reform policies with “sweetening doses of populism” that he earned a censure from India’s Election Commission, which took issue with his announcement of new spending programs in the run-up to the polls. If anything, when speaking to voters, Naidu reinforced the NTR (N.T. Rama Rao, Naidu’s father-in-law and former Chairman of the TDP) concept of state-as-provider, even similarly giving the impression that benefits flowed directly from the chief minister – and raising expectation that they would continue to do so.121

While he carried on with programs to try to reduce the deficit in state coffers, such as cutting food subsidies in his first term, Naidu was at the 121

Kirk, India and the World Bank, p. 67.

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same time promising social programs that would ease the plight of villagers and the poor. A survey conducted by the New Delhi-based Centre for the Study of Developing Societies at that time found that five out of six prospective voters in Andhra Pradesh had never heard of the state government’s economic reforms program.122 In other words, in order to secure popular support, Naidu downplayed his economic reforms program and emphasized popular social welfare policies instead. When Naidu decided to reform the HMWSSB’s image, he was able to get buy in from the HMWSSB’s employees through the “Customer Meets Campaign.” This was underscored in an article written by a retired IAS officer from Andhra Pradesh: In a move initiated by the Managing Director (L.V. Subrahmanyam) during the first fortnight of November 1998, there were a series of face-to-face meetings between the officers of HMWSSB with the public, public representatives and the media to understand the difficulties faced by the people and elicit their views on improved service delivery. This initiative was called Customer Meets Campaign. In attending these meetings, senior officials of the HMWSSB were completely unprepared for the diversity and number of people who turned up. . .; the directness with which grievances were addressed and above all, the gratitude expressed by the people to staff undertaking the campaign. This led to a greater willingness among staff and senior officials of HMWSSB to do something about the problems citizens faced daily. . .Hence, when decisions were made to undertake reforms, there was far less opportunity for protest among HMWSSB staff. HMWSSB was under considerable pressure from citizens, politicians and the media to respond to citizen articulated concerns and improve service delivery. Public expectations for change combined with support for service delivery among managers, led to the implementation of three innovative service.123

The reforms to provide better customer service entailed minimal financial outlay, put pressure on HMWSSB employees to carry out reform, and received widespread support from Hyderabad citizens. While they 122

123

Celia W. Dugger, “Even the Poor Pay Heed to the Esoterica of India’s Riches,” The New York Times, September 10, 1999, cited in Kirk, India and the World Bank, p. 68. C. R. Kamalanathan, “Improving Urban Water Supply and Sewerage Services: The Hyderabad Experiment,” United Nations Public Administration Network website, available from http://unpan1.un.org/intradoc/groups/public/ documents/cgg/unpan045230.pdf (accessed August 22, 2016).

Water Constraints in India’s Megacities: New Delhi and Hyderabad 231

made the HMWSSB appear more responsive to the public, they were populist in essence and did not represent a thorough overhaul of the HMWSSB. Improving customer service of the HMWSSB entailed little cost to the state and society. Socialism and the “anti-privatization” narrative By contrast, privatization of the board required both HMWSSB employees and the Hyderabad populace to bear substantial pain at least in the short term. Vested interests were affected as HMWSSB employees could lose their jobs as the HMWSSB shifted from being state-operated to the hands of private operators. In addition, privatization would most likely lead to increased water tariffs, which was the main source of resistance from Hyderabad residents. Socialism in India’s social contract binds the hands of government officials from pursuing privatization. Similar to the tactics of the opposition forces in New Delhi, Naidu’s opponents employed an “anti-privatization” narrative against him, and stoked up popular anger and protests to block his attempts to privatize the HMWSSB. Eventually, even some within his party turned against him. Then the deputy speaker of the TDP, Kalvakuntla Chandrashekar Rao (K.C.R.), wrote to Naidu imploring him to “allow the common man to at least retain his underwear.”124 The rhetoric K.C.R. used was both populist and socialist at the same time, designed to appeal to the people. K.C.R. eventually left to form his own party and became chief minister of the newly formed Telangana State in 2014. Naidu’s opponents also built up a narrative that accused Naidu of selling out Andhra Pradesh to the World Bank. In Naidu’s second term, his close relationship with the World Bank became a target for his opponents, who used pro-poor and anti-World Bank rhetoric to undermine him. The Congress Party, for instance, accused Naidu of surrendering Andhra Pradesh’s “economic sovereignty” to the World Bank.125 News reports in The Hindu and The Times of India in 2001 and 2002 painted an unsavory picture of the Naidu government’s relationship with the World Bank. For instance, the Communist Party of India (Marxist), one of the political parties that opposed the 2002 water tariff hike and privatization of the HMWSSB, was quoted by The Times of India as saying, “The state government has 124 125

Kirk, India and the World Bank, p. 70. Ibid., p. 69.

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succumbed to the pressures from the World Bank and was acting on its instructions. . .the government has initiated schemes to privatize the board and in future, the poorest of the society would be deprived of drinking water.”126 Rural bias and resource allocation Given Andhra Pradesh’s mostly rural population, the rural bias in India’s social contract is significant in helping to explain the demise of the privatization attempt. Naidu’s larger reform program of making Hyderabad the urban high-tech center of India faced opposition from large swaths of rural politicians in Andhra Pradesh. India’s social contract, which emphasizes a more equitable allocation of resources between the rural and urban sectors with a pro-rural bias at times, thus worked against devoting more resources to improving basic amenities in Hyderabad. This reduced the capacity of public utilities in Hyderabad city to provide basic goods. Naidu’s failure to observe the rural bias in the Indian social contract was a contributing factor to his electoral defeat in the 2004 state elections. As the opposition against Naidu mounted both from within and without his party, Andhra Pradesh suffered a series of severe droughts from 2001 to 2003. This led to an explosion in farmer suicides, ranging from 3000 to 7000 through mid-2004.127 Naidu’s socioeconomic program was seen to have benefited the urban areas at the expense of the rural sector, thus contradicting India’s social contract. By contrast, his opponent in the 2004 election, Congress Party’s Y. S. Rajasekhara Reddy launched a state-wide campaign that promised free power supply to farmers and pledged not to raise electrical tariffs for at least three years. India’s social contract, which requires politicians and government leaders to pay heed to the rural sector, thus contributed to Naidu’s electoral loss and forced him to backpedal on attempts to build institutions that would improve services in the urban areas. In 2014, Naidu returned to power in a bifurcated Andhra Pradesh, promising a series of pro-rural populist policies. The Indian press wrote: The most important thing that the years in opposition taught Naidu was you could not get by only with urbanization. You needed to have farmers on 126 127

“Water Board Gets Flooded by Protests,” The Times of India, May 31, 2002. Ibid.

Water Constraints in India’s Megacities: New Delhi and Hyderabad 233 your side. What brought farmers back to the TDP was Naidu’s promise that he would waive farm loans.128

Conclusion The popular narratives of a nation point to the existence of a social contract and the terms and conditions of that contract. Governments build narratives around social contracts so as to legitimize their rule, while opponents try to tear down these narratives by offering counternarratives of the incumbent government’s actions. In China’s case, the Chinese Communist Party government has built a narrative around performance, both its moral and substantive aspects, with its “mandate of heaven,” “rule of virtue,” “harmonious society,” “socialism with Chinese Characteristics,” “Chinese Dream,” and its anti-corruption struggle. As for India, the narratives that politicians use reflect socialism and populism – “poverty alleviation,” “free water and electricity,” “roti, kapda aur makaan.” Opponents of reforms use an “anti-privatization” and “anti-poor” narrative to attack the incumbent government’s actions so as to delegitimize its actions and its right to rule. The strong opposition and these counternarratives tie the hands of those who favor hard-hitting reforms, which could have helped improve urban water services. Indian institutions are not sufficiently protected from societal and political pressure, nor do they have the resources necessary to deliver high quantities of public goods. Political leaders cannot sustain programs and reforms that do not conform to the social contract without losing power. The stickiness of social contracts makes it untenable for the Indian government to push through policies that run counter to the terms and conditions of the social contract. In Delhi, Sheila Dikshit carried out her privatization plans under a shroud of secrecy such that when her plans were eventually found out by the Indian media and public, her government was severely criticized for lacking transparency and accountability, devaluing state assets, and for being corrupt. She also tried to balance her reformist policies with 128

Aditi Phadnis, “Chandrababu Naidu Now Knows What to Do, and What Not to Do,” Business Standard, May 24, 2014, available from www.rediff .com/news/report/chandrababu-naidu-now-knows-what-to-do-and-what-notto-do/20140524.htm (accessed July 22, 2016).

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policies that were designed to appeal to the people, including instituting the Bhagidari scheme of participatory governance to help residents deal with water shortages, power outages, and waste disposal. As for Chandrababu Naidu, he was described as having “Janusfaced tendencies”129 because he kept the tougher aspects of his economic policies from public eye while trumpeting his welfare policies. Hence, among Andhra Pradesh’s largely rural population: [T]he Naidu encountered by the state’s voters bore little resemblance to the one in the narrative favored by some in the elite media. On the stump, the “CEO” never really rejected the paternalist welfarism of NTR. Nor did he marshal the broad consensus behind reform that he claimed to believe was necessary. Rather, he tried – and failed – to hold in balance the overall reduction of the state’s budget deficits with the creation of new welfare programs targeted to elicit support from key groups: free cooking gas cylinders for one million rural women, toolkits for “backward caste” tradesmen, and so on.130

The fear of losing popular support eventually compelled both Dikshit and Naidu to roll back reforms that went against socialist and welfare principles. Both of them subsequently lost power in state elections. Although the attempts to privatize their water utilities were not directly responsible for their electoral losses, the fact that they had lost to candidates who promised free water and electricity shows that there are costs and consequences for not sticking to the terms of the social contract. 129 130

Kirk, India and the World Bank, p. 68. Ibid., p. 67.

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8

Conclusion: Types of Social Contracts and Can Social Contracts Change?

The US-led liberal international order is facing challenges from many fronts, both domestically and internationally. Democracy, internationalism, and liberalism appear to be on the retreat, while authoritarianism and populism seem to be gaining ground worldwide. The vote for Brexit in the United Kingdom in June 2016 and the election of Donald Trump as president of the United States in November the same year suggest that the bastions of liberal democracy in the West are experiencing an inward turn. In Europe, populist parties now control the largest share of parliamentary seats in six countries while sharing government in three others.1 They are represented in the parliaments of most European countries, the majority of which are right wing. Populism has also strengthened in Asia, with the emergence of Narendra Modi in India and Rodrigo Duterte in the Philippines. While populism in these countries is not new, both men enjoyed levels of popularity that have not been seen in their respective nations for quite some time. Increasing popular anger over the failure of governments to adequately provide for the welfare of those who have been left behind by globalization are primarily responsible for the emergence of these trends: “Demagogues are still emerging, in the West and outside it, as the promise of prosperity collides with massive disparities of wealth, power, education, and status.”2 The number of highly personalized authoritarian regimes have also surged in recent years,3 for instance, Vladimir Putin in Russia, Recep Tayyip Erdoğan in Turkey, Viktor Orbán in Hungary, and Xi Jinping 1

2

3

Cas Mudde, “Europe’s Populist Surge: A Long Time in the Making,” Foreign Affairs 95:6 (November/December 2016), pp. 25–30, at p. 26. Pankaj Mishra, “The Globalization of Rage: Why Today’s Extremism Looks Familiar,” Foreign Affairs 95:6 (November/December 2016), pp. 46–54, at p. 54. See Andrea Kendall-Taylor, Erica Frantz, and Joseph Wright, “The New Dictators: Why Personalism Rules,” Foreign Affairs, September 26, 2016. Personalism is the concentration of power in the hands of one person.

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in China, among others. What made the rise of these authoritarian leaders and personalistic rule possible is the widespread support they receive from their people. They are regarded as leaders who will restore national pride, rule decisively, and place the interests of their people ahead of other priorities, at a time when there is growing public insecurity and anxiety over increasing violence, economic hardships and disparity, and political and social polarization. What is the connection between these astounding developments, and the main argument of this book? First, these developments point to the existence of social contracts between the ruler and the ruled, and that, increasingly, there is a sense that traditional political establishments have failed to keep up their end of the bargain. The government promises to ensure the well-being of the people in exchange for the right and legitimacy to rule. A social contract is formed when the basis of legitimacy of the government accords with the expectations of the people. Failure to meet the expectations of the people has consequences, as Brexit and the election of Trump shows; popular support for incumbent governments and their policies can be withdrawn if these expectations are not met. What matters to the survival and longevity of governments are the kind of policies that leaders institute at home, less so the policies instituted abroad, and whether these policies are seen as contributing to the welfare of the people. The welfare of the people is defined broadly but the outcome is the same – that the people believe and feel that their needs are met. Welfare in essence means a basic standard of living, and the provision of public goods and services. However, public goods could mean a variety of things in different countries that goes beyond the traditional definition of public goods as the provision of water, electricity, transportation, defense, education, health, unemployment benefits, retirement benefits, etc. Public goods in certain countries could mean the protection of property rights, adherence to certain beliefs and ideologies, and the provision of ceremony and theater (elaborated in the next section). Second, social contracts are distinct from regime types. Regime types deal with political systems and formal institutions. Social contracts encapsulate the key principles and values that underpin state–society relations. They address a more fundamental layer of relationship between a state and its people than regime types. The commonality of all forms of social contracts is that the government must be perceived to promote the welfare and interests of the people, in whichever

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way these interests are defined. Regardless of regime type, the rise of populist leaders, strong men, and political parties is in reaction to widespread unhappiness that the welfare of people is not being taken care of. For instance, the United States, the Philippines, and India are democratic systems, while China and Russia are authoritarian systems. Theories based on regime type point to proclivities but do not determine public goods outcome. Democracies do not necessarily lead to good government and effective institutions, as good governance requires preexisting conditions.4 This book argues that a key preexisting condition is the social contract between the ruler and the ruled. The type of social contract that is forged in the process of nation-building predicts whether the state will be able to create effective institutions that guarantee citizens access to basic amenities and services. Social contracts are a type of informal institution. They are unwritten and not legally binding, but we know they exist because governments construct popular narratives around the tenets of the contracts by making speeches, declarations, and statements that refer to these contracts. Social contracts are also manifested in formal institutions such as constitutions, laws, policies, and regulations. It is possible to observe recurring patterns of behavior between the state and society that points to the presence of social contracts as an informal institution; in return for the right to rule, governments consistently strive to produce a certain set of government outputs that satisfy popular expectations. Social contracts impose constraints on leaders, as there are punishments and sanctions when governments deviate from them. They are sticky, meaning that they are enduring, and it is difficult to change the terms of the contract. The case studies in India show that there is a price to pay when leaders surreptitiously try to go against the terms of the contract. In China, Mao’s attempt to change the performance-based social contract carried significant negative consequences for the Chinese state as a whole, for the Chinese Communist Party (CCP), as well as for Mao personally. Social contracts affect the provision of public goods through the impact they exert on the autonomy and capacity of formal institutions. They affect autonomy by defining the space between state institutions and society, and between formal institutions and political interests. 4

See John Dunn, Breaking Democracy’s Spell (New Haven, CT: Yale University Press, 2014).

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Social contracts affect capacity by determining the allocation of government resources across institutions and policy areas. In China’s case, the social contract is based on a moral and material definition of performance and has an urban bias. This leads to government policies that allow formal institutions, particularly at the local level, to function relatively independently of political and societal interference, and which are sufficiently equipped with extractive and distribution capacities. Local governments, for instance, have the capacity to raise funds for the purpose of providing public goods. The case studies on Shenzhen’s and Beijing’s urban water sectors show how through a process of reforms – such as setting up an independent water authority or water bureau, establishing policies and regulations, and introducing private sector participation into the Shenzhen Water Group – the two cities are able to better coordinate and reduce fragmentation of their urban water sectors and improve the performance of water companies. These reforms have led to increases in water production and lower proportions of water loss. The municipal authorities in Shenzhen and Beijing are able to carry out these reforms because China’s performance-based social contract resulted in a process of decentralization that greatly empowered municipal governments, increased their capacity, and ensured their autonomy from societal and political interference. By contrast, the populist and socialist tenets of the Indian social contract constrain institutional autonomy and capacity. Populism has the effect of weakening and circumventing formal institutions: political leaders amass power for themselves, while leaving institutions vulnerable to societal and political pressure, which reduces the ability of institutions to produce public goods. The space between formal institutions and political interests is narrowed because politicians directly interfere in appointments of civil service positions and in the day-today running of the bureaucracy. By directly appealing to the masses, populist leaders reduce the space between state and society. Socialism, with its emphasis on public ownership, diminishes the capacity of public utilities because it prevents public utilities from gaining access to private capital and expertise. As a result of low institutional capacity and autonomy, public goods provision remains at a dismal level. The two case studies on New Delhi and Hyderabad demonstrate the constraints that state leaders, Sheila Dikshit and Chandrababu Naidu, respectively, faced when they tried to reform their public utilities. They

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were opposed by political, societal, and bureaucratic interests that leveraged the socialist and populist tenets of India’s social contract to construct a narrative that questions the legitimacy of Dikshit’s and Naidu’s actions. By using anti-privatization and pro-poor rhetoric, Dikshit’s and Naidu’s opponents were able to put a stop to privatization plans aimed at giving greater autonomy and capacity to public utilities in the two cities. As a result, there were few changes made to the urban water sectors in New Delhi and Hyderabad, and the delivery of water services in the two cities did not improve. The New Delhi and Hyderabad cases also illustrate the stickiness of social contracts. Both Dikshit’s and Naidu’s attempts at reforms were shrouded in secrecy because they contradicted socialist and populist tenets even though they were aimed at bettering the lot of the common people through infrastructure and economic development. In the end, both abandoned reforms as the opposition was too strong, and their privatization attempts eventually contributed in part to their losses in subsequent state elections. In this book, I have taken a social contract as a given and did not specify the process by which it was forged and the influences that shaped it. I have to some degree tried to trace the historical origins of both the Chinese and Indian social contracts, but it is not the focus of my study to understand how a contract or bargain is arrived at – a more comprehensive and detailed study of how a social contract is formed is needed. Forging a social contract usually involves a period of struggle between groups of stakeholders. For instance, in Chapter 3, I have pointed to the power struggle between the reformists and conservatives to define and interpret the Chinese social contract in the 1980s. How did a consensus or bargain emerge between different stakeholders with different ideas and interests? How did one group win over the other? These questions are relevant to the trends that I have pointed to at the beginning of this chapter. The terms of a social contract are usually broad in order to accommodate disparate groups. Because the terms are broad, there will be occasions when struggles emerge between different groups to interpret or define the terms of the contract. Such struggles appear to be ongoing worldwide. In the United States, for instance, there is a tussle between traditionalists and progressives, and their respective interpretations of what constitutes the American social contract. These differences have existed for a while but have sharpened

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in recent years, as Americans’ sense of social and economic vulnerability rises to new levels. Traditional elements of American society feel that the social contract has been broken by the liberals and vice versa. Both sides are competing to legitimize their differing narratives of the political and social tenets that underpin American society.

Types of Social Contracts The arguments I have set forth in this book are geographically bound to the two largest countries in Asia. Are there similar types of social contracts in other countries? If so, do they produce the same outcome in terms of public goods provision? If not, why not? Do other types of social contracts exist? Although it is not within the scope of this book to examine these questions in detail, I will nevertheless attempt to furnish some preliminary answers. Further research is needed to test the generalizability and external validity of my conceptual framework.

Performance-Based Social Contracts A performance-based social contract is often associated with the developmental states of East Asia, namely Japan, South Korea, Taiwan, and Singapore. These states typically intervene in the economy to direct industrial policies, emphasizing a high rate of economic growth. There is also emphasis on building public infrastructure so as to facilitate growth and ensure that urban populations have ready access to basic amenities and services. In addition, the agreement that the developmental state has with its people is that in exchange for higher standards of living for everyone, the state has the authority and legitimacy to intervene extensively in the economy and society. Take, for example, the case of Singapore. Since the establishment of the Republic of Singapore in 1965 by the ruling party, the People’s Action Party (PAP), there has been a strong commitment to economic and social development. Both are seen as intrinsically linked. In official discourse, it is clear that a social contract has been forged from the beginning that is premised on these two concepts. The National Pledge that was written in 1966 by S. Rajaratnam, Singapore’s first foreign minister, stated that all Singaporeans were committed “to build a democratic society, based on justice and equality, so as to achieve happiness, prosperity and progress for our nation.” To paraphrase

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the words of the Pledge, the social contract between the PAP and Singaporeans is based on the delivery of social public goods (“justice and equality”) and economic public goods (“prosperity and progress for our nation”). Many amenities and public services, like health, education, and housing, are heavily subsidized even though the PAP does not embrace the idea of a welfare state. There is recognition that provision of such public goods is essential for economic growth and political stability.5 There is also a moral imperative to the performance ethos in Singapore’s social contract. Lee Kuan Yew, Singapore’s founding prime minister, wrote in his memoirs: We had a deep sense of mission to establish a clean and effective government. When we took the oath of office at the ceremony in the city council chamber in June 1959 (self-rule, prior to independence from the Federation of Malaya in 1965), we all wore white shirts and white slacks to symbolize purity and honesty in our personal behavior and our public life. The people expected this of us, and we were determined to live up to their expectations (author’s italics).6

To ensure a corruption-free bureaucracy, the Corrupt Practices Investigation Bureau was given extensive powers. In 1960, the 1937 anticorruption law was updated. The amendments gave wide powers to investigators and the courts. Lee wrote: We made sure from the day we took office in June 1959 that every dollar in revenue would be properly accounted for and would reach the beneficiaries at the grassroots as one dollar, without being siphoned off along the way. So from the very beginning we gave special attention to the areas where discretionary powers had been exploited for personal gain and sharpened the instruments that could prevent, detect or deter such practices.7

In addition to anti-corruption, the normative aspects of Singapore’s social contract can be seen in the government’s promotion of “Asian values” or “Confucian values” since the 1980s. Singapore’s performance-based social contract has persisted over time. During the National Day Rally in August 2015 celebrating the 5

6 7

See Lee Kuan Yew, From Third to First World: The Singapore Story, 1965–2000 (Singapore: The Straits Times Press, 2000), pp. 116–130. Ibid., p. 183. Ibid., p. 184.

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fiftieth anniversary of Singapore’s founding, Prime Minister Lee Hsien Loong attributed Singapore’s success to three factors, one of which is [W]e have kept faith between the Government and the people (author’s italics). We have built up this bond between the Government and the people over the past 50 years. The Government has kept its promises, what we said we would do, we did do. We have kept our politics honest, we insisted on high standards of integrity in public life, no corruption, no dishonesty. We are also honest when it comes to policies and when it comes to the choices that we have to make. . .We do right by Singaporeans. In turn, our people expect the Government to perform, trust the Government to have their interests at heart and support the Government and its decisions to work for the common good (author’s italics).8

Such statements indicate a reciprocal relationship between state and society, pointing to the existence of a social contract between the ruling party and Singaporeans. Lee’s speech also points to the moral and material aspects of performance in Singapore’s social contract, as well as the significant political and economic authority that is vested in the Singapore government. The impact of Singapore’s performance-based social contract, with its focus on economic and social development as well as the emphasis on the moral behavior of government officials, is clearly seen in its ability to deliver public services. For instance, Singapore’s urban water sector delivers potable drinking water to every household in Singapore.9 The proportion of water loss is also very low. The Singapore Public Utilities Board (PUB) is able to set water tariffs at will and tap capital markets for funds. It is able to recover costs, which helps to ensure that pipelines are well-maintained. A corruption-free civil service and the emphasis on economic and social development mean that the PUB enjoys institutional autonomy and capacity to ensure a high level of urban water services to Singaporeans.

8

9

“National Day Rally 2015 Speech,” Prime Minister’s Office, Republic of Singapore, August 23, 2015, available from www.pmo.gov.sg/newsroom/primeminister-lee-hsien-loong-national-day-rally-2015-speech-english (accessed December 30, 2016). See Selina Ho, Growing Singapore’s Water Industry: From Water Scarcity to Global Hydrohub (Stanford, CA: Center on Democracy, Development, and the Rule of Law, Stanford University, 2011), available from http://cddrl.fsi .stanford.edu/publication/growing-singapores-water-industry-water-scarcityglobal-hydrohub (accessed November 20, 2016).

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Populist and Socialist Social Contracts Besides India, populist socialist contracts can be found in Latin American countries. The populist surge that began two decades ago has hurt Latin American countries economically, with government largesse leading to huge fiscal deficits that plunged their economies into recession. These countries typically have weak institutions given that populist leaders tend to personalize power and bypass legislatures, judiciaries, and other state institutions. Little attention is devoted to building and reinforcing institutions. Policies tend to be less consistent, prone to gyrations as demand groups seek to influence the policymaking and policy implementation process. Unpredictable policies create economic crises, which in turn reduce spending on infrastructure, education, and health care, all of which are building blocks of prosperity.10 Hence, while populist policies may lead to short-term benefits for the underclass, in the long term, as the cases of Latin American countries and India have shown, populism negatively impacts economic growth. Here I would like to briefly discuss the populist social contracts in two countries: Venezuela and Brazil. In 1998, Hugo Chávez won the Venezuelan presidency with overwhelming support from the poor and was subsequently reelected several times until his death in 2013. During his long tenure, he introduced populist measures in line with the social contract he had with the Venezuelan people. Using the high oil revenues of the 2000s, he embarked on nationalizing key industries, launched several social programs – including expanded access to food, housing, and basic goods; free medical clinics for the poor; and land redistribution schemes.11 He promoted “socialism of the 21st century.” While increasing political participation, many of Chávez’s reforms undermined democratic institutions. For instance, he rewrote the constitution, which strengthened the executive at the expense of the legislature; undercut the autonomy of the National Electoral Council and the military; packed the Supreme Court with loyalists; politicized the state bureaucracy; and restricted the free press.12 Populist economic and social policies worked in the short term with Venezuela’s high oil revenues. However, toward the end of Chávez’s 10 11 12

O’Neil, “Populist Hangover,” p. 38. Ibid., p. 33. Ibid., p. 34.

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reign, the economy was faltering under huge government deficits and unsustainable price controls. High inflation, poverty, and shortages of basic necessities and food resulted. Populism had reduced the independence and capacity of state institutions. Socialism in the form of nationalization of key industries and price controls severely damaged the capacity of the state to deliver public goods in the long term. Water shortages were prevalent and many Venezuelans did not have direct access to water, mandating the government to ration water. Protests over severe water shortages occurred regularly and theft of water from public swimming pools, buildings, and water tankers increased.13 In the case of Brazil, I draw from Barbara Geddes’s discussion on the efforts by a Brazilian party, the União Democrática Nacional (UDN), to initiate reforms to promote competence and honesty in government.14 Geddes shows that efforts by the UDN to promote clean and honest government as a public good met with little success. The UDN was not able to turn “latent interests” in administrative reforms into electoral currency.15 It remained the least successful of Brazil’s three major parties until the military coup in 1964. Moreover, in its daily activities, it became increasingly difficult to distinguish the UDN from other parties. Geddes used a game theoretic model to explain individual politician’s incentives or disincentives for reform. Here, I would like to offer a different perspective from Geddes on UDN’s struggles based on the social contract argument laid out in this book. Brazil’s populist social contract provides an explanation that emphasizes the role of informal institutions, in addition to Geddes’s individual-level explanation for Brazil’s inability to bring about administrative reform. Brazil’s social contract is based on populism and an extensive redistribution program, such as the socialist and welfare policies that were instituted by President Getúlio Vargas, who was popularly known as the “Father of the Poor.” These populist policies made it difficult for the UDN to advocate for reforms in administration because these reforms undercut patronage networks. Administrative reforms would have brought about collective gains for the population in the long term, but in the short term, these benefits were not clear while the benefits of populist policies were evident and immediate. 13

14 15

Anatoly Kurmanaev and John Otis, “Water Shortage Cripples Venezuela,” The Wall Street Journal, April 3, 2016. Geddes, Politician’s Dilemma, pp. 83–94. Ibid., p. 85.

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While Geddes argues that there are “latent interests” in administrative reforms, my argument is that these “latent interests” are not as important as welfare and redistribution policies in the priority list of Brazil’s social contract and hence are not translated into compelling political demands. Incumbent parties that continue to promote populist policies do so in accordance with the expectation of the people. Clean and honest government, however important, is only secondary to populist welfare policies in maintaining the Brazilian social contract. Hence, the UDN’s attempts to push forward administrative reform were not in accordance with the priorities of Brazil’s social contract. As a result, the UDN never really gained an electoral majority.

Other Types of Social Contracts Apart from the performance-based and populist-socialist social contracts, it is possible to identify at least five other types of social contracts, although more extensive research is necessary to make explicit the effects these contracts have on public goods provision. The list here is not exhaustive and warrants further study. Lockean social contract A Lockean social contract is one that is, as the name suggests, based on John Locke’s ideas on the role of a government and its contract with its people. The American social contract represents the best example of a Lockean social contract. Locke’s theory is most clearly manifested in the US Constitution and Declaration of Independence. For instance, the idea of natural or inalienable rights, such as life and property, is upheld in the US Constitution and Declaration of Independence, which states that “all men are created equal, that they are endowed by their Creator with certain unalienable Rights that among these are Life, Liberty and the Pursuit of Happiness.” Locke’s ideas provided for the separation of power, and checks and balances in government so that no one particular branch of government can commit tyranny over the others. This helps explain the creation of formal institutions reflecting the three branches of executive, legislative, and judicial power in the US political system. Institutional autonomy is thus guaranteed. Such checks and balances also ensure that while public opinion and lobby groups play a key role in policymaking in the United States, American institutions are not overwhelmed by political and societal pressure. Locke’s treatises on

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property and rights guarantee the right to private property – “the labor that was mine, removing them out of that common state they were in, has fixed my property in them”16 – but also ensure that public goods are provided for – “nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst: and the case of land and water, where there is enough of both, is perfectly the same.”17 In this social contract, the government’s main role is the protection of private property and liberty as enshrined in the Fifth Amendment of the Constitution, and extensive laws and regulations that guarantee these rights. The provision of public goods and services should also be high since Locke provided for it. However, Locke also advocated for a limited government, which meant that government involvement in public goods provision is likely to be restricted. Redistribution is more difficult without government intervention and regulation. The United States ranked tenth in the human development index (HDI) in 2015, with a value of 0.920, behind much smaller economies like Singapore.18 If economic wealth were the key determinant of public goods provision, the United States, being the largest economy, should be ranked highest or at least among the highest in terms of HDI. The election of Donald Trump as president and the reasons behind his electoral success suggest that a significant proportion of Americans feel or believe that some of their traditional rights as encapsulated in the Lockean social contract are being violated by the political and economic elites. In particular, there is an increasing sense of insecurity in employment and protection of property rights, as well as physical insecurities. Job insecurities have risen because of the loss of jobs, particularly in the manufacturing, automobile, and coal sectors. Physical infrastructure is also in a decrepit state. There is a nationwide water crisis, with the crisis over contaminated water in Flint, Michigan, in 2015 being symptomatic of a larger malaise. At the same time, the subprime mortgage crisis in 2008 challenged the right to property. The attempts to tighten gun control regulations have also led to a portion of 16

17 18

John Locke, Two Treatises of Government (1689), Second Treatise, chapter Five, Section 28. Ibid., Section 33. Data from United Nations Development Programme (UNDP), “Human Development Report 2016: United States,” available from http://hdr.undp.org/ sites/all/themes/hdr_theme/country-notes/USA.pdf (accessed April 21, 2018).

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Americans feeling that their civil rights, and the right to protect themselves and their property, are being violated. Americans are also feeling threatened physically because of terrorism and the large influx of immigrants. The political, economic, and social developments in the United States thus indicate that a proportion of Americans perceive the political establishment as not having kept up its end of the bargain, failing to meet the expectations of the people and violating the terms of America’s Lockean social contract. Trump’s electoral promises of jobs, physical protection in the form of walls and the deportation of illegal immigrants, and the rebuilding of physical infrastructure, among others, appeal to a substantial proportion of the American population as they are in line with some of the traditional ideals and values set out in the American social contract. Trump is seen by his supporters as “American at heart” despite his vagaries. While his campaign speeches and “America First” inauguration address on January 20, 2017, were populist in nature, they nevertheless emphasized certain aspects of the American social contract that relates to the need for protection in a world that many Americans feel increasingly insecure about – “the forgotten men and women” that Trump referred to his inauguration speech.19 The language of protection was prevalent throughout his speech: for instance, “Protection will lead to great prosperity and strength”; “We will bring back our borders”; “We are protected, and we will always be protected”; “We will make America safe again,” etc.20 By using such rhetoric, Trump has created a narrative that resonates in part, but which only stresses certain components of the Lockean social contract – in particular, the Fifth Amendment, which guarantees the rights of persons to “life, liberty, and property.” Elite-based social contract An elite-based social contract is most closely associated with dictatorships, oligarchies, and neopatrimonialism. The literature on dictatorships shows that an overwhelming majority of dictators lose power to

19

20

“Full Text: President Donald Trump’s Inauguration Speech,” ABC News, January 20, 2017, available from http://abcnews.go.com/Politics/full-textpresident-donald-trumps-inauguration-speech/story?id=44915821 (accessed January 23, 2017). Ibid.

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those inside the gates of presidential palaces rather than to the masses outside.21 To stay in power, dictators need to share power with a ruling elite and regime insiders. The social contract is exclusive rather than broad-based, made with an elite group essential for the dictator’s survival. The state tends to be a rent-seeking or predatory state. In an elite-based social contract, institutional autonomy and capacity are expected to be low. Bureaucratic institutions tend to lack political insulation from dictators and his cronies, and state capacity, in terms of state coffers and manpower, is focused on producing private rather than public goods. According to Michael Bratton and Nicolas Van De Walle, neopatrimonial regimes in Africa were distinctive from all other types of political regimes in the extent to which systematic clientalism was prevalent; it was more widely practiced in Africa than elsewhere.22 Within many African states, favors to the inner circle of elites typically take the form of public sector jobs and public resources being distributed to this group through licenses, contracts, and projects. In return, these elites or “clients” of the ruler support the ruler and mobilize political support for him. In such a social contract, the state actively intervenes in the economy. Unlike the performance-based social contract, however, the intervention is aimed at creating monopolies and economic rents rather than redistribution and a more equitable allocation of resources. In other words, “public resources were privatized to the benefit of the coterie of presidential loyalists.”23 Typically, public infrastructure is poorly maintained, public goods provision is low, and state institutions lack both autonomy and capacity to function properly. The consequences of such a social contract are obvious: dysfunctional state bureaucracies and the plundering of state resources are common. Class-based social contract A class-based social contract is most closely associated with Marxist and communist systems. In particular, Linda Cook argues that in the former Soviet Union under Leonid Brezhnev, a social contract with Soviet workers was established in which the workers promised political compliance in exchange for welfare-oriented labor and social 21

22 23

See, for example, Milan W. Svolik, The Politics of Authoritarian Rule (New York: Cambridge University Press, 2012). Bratton and Van De Walle, Democratic Experiments in Africa. Ibid., p. 66.

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policies: “The social contract . . . holds that the state pacifies workers with collective goods distributed on egalitarian principles.”24 The Soviet leadership established a contract with the workers because the latter’s size and concentration in the urban areas posed a threat to political order and stability. Nikita Khrushchev has laid the groundwork for such a contract; for instance, the 22nd Congress of the Communist Party of the Soviet Union (CPSU) in November 1961, when Khrushchev was still in power, declared social welfare improvements and distributive equality to be the central goals of the CPSU.25 The Congress also promulgated the Third Party Program, which promised an expansion of state-funded social services and benefits in education, housing, health care, child care, and social security.26 It also promised full employment, price reductions, and increases in income. Under Brezhnev, who came into power in 1964, these social and redistributive policies were implemented. Even before these programs were instituted, the promise of full employment under Soviet socialism had been in existence for 30 years, proving that the social contract was forged from the beginning of communist rule between the communist leadership and the working class, which is the bastion of the Marxist revolution. The Soviet Union’s economic development focused on industries and the working class, for both economic and political reasons. Economically, the development of heavy industries was aimed at catching up with the Western European countries. Politically and ideologically, the focus on the working class was in accordance with Marxist–Leninist teachings, which undergirded the social contract in the Soviet Union. Such a social contract guaranteed a minimum standard of living for Soviet workers. It also ensured that the cities in particular were supplied with social services and basic goods. The Soviet case, however, also proves the stickiness of social contracts. Toward the end of the Brezhnev era, the Soviet economy began to suffer from serious performance problems, as the effects of increasing social consumption funds and full employment were felt, leading to lower levels of efficiency and quality in the economy. When Gorbachev came into power, he sought to revert the policies of his predecessor, “denying the socialist state’s responsibility for comprehensive provision and universal 24 25 26

Cook, Soviet Social Contract, p. 12. Ibid., p. 19. Ibid., p. 20.

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well-being.”27 However, as Cook recounted, “Each time the Gorbachev leadership confronted real, significant social costs or negative political responses to reform policies, it retreated.”28 These retreats from layoffs, bankruptcies, price and wage reforms, and privatization of medical care, among others, indicate that social contracts are sticky, and leaders who seek to revise their terms often have to backtrack because of the sanctions and punishments that result from breaking them. It took a sudden, dramatic, and disruptive event to break the Soviet social contract. The collapse of the Soviet Union and communism provided the first opportunity for a new social contract to be forged. Ideology-based social contract Ideology is defined as a “unified or systematic set of ideas and values which govern a given society (or dominant group within that society) such that they shape the way in which people behave and perceive events around them.”29 An example of an ideology-based social contract is the social contract that Mao Zedong sought to establish during his time in power. To reconstruct the CCP’s contract with the people, Mao promoted his version of Marxism–Leninism and the idea of a continuous revolution, which was deemed necessary in order for CCP leaders to keep in touch with the people and get rid of feudal elements. Mao sought to disseminate ideology, and created an entire party and state machinery to fulfill the task of unifying society’s value system around his ideas. The ruling party was presented as the sole bearer of “truth,” with Mao as the leading ideologue. Mao never fully succeeded in enshrining an ideology-driven social contract in China, given the endurance of China’s performance-based social contract and the negative consequences of his actions on the Chinese state, the CCP, and Mao himself. His actions resulted in the Great Leap Forward and the Cultural Revolution, which were calamitous for the Chinese nation as millions perished in these ideologically driven movements. Public goods – for instance, education – were suspended for a whole generation of Chinese students who participated as Red Guards and were sent to the countryside during the 27 28 29

Ibid., p. 93. Ibid. Robert Weatherley, Politics in China since 1949: Legitimizing Authoritarian Rule (New York: Routledge, 2006), p. 10.

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Cultural Revolution while their teachers were persecuted. Institutions had no autonomy and capacity to produce public goods as ideology was the driving force in politics and society. The Chinese bureaucracy was politicized, and the bureaucrats’ chief tasks were to focus on promoting revolutionary ideals. Experts, technocrats, and intellectuals were purged and discarded from public service, greatly reducing the capacity of public institutions. Resources were also channeled to setting up a system of police surveillance and repression of any deviance from Mao’s ideology. Ritual-based social contract Rituals and ceremonies are part and parcel of governance. In traditional societies, however, rituals, symbols, and ceremonies acquire greater significance and play key roles in legitimizing kings and monarchs, more so than in modern states. There are, however, some traditional societies where rituals, ceremonies, and theater are ends in themselves; that is, they are the public goods that the people expect from their rulers. Clifford Geertz’s depiction of the Negara state in Bali is an example of how state rituals play a critical role in cementing state–society interactions.30 I refer to the Balinese state–society relationship of the nineteenth century, as described by Geertz, as a ritualbased social contract between the Balinese king and the royal family, and the Balinese people. In return for the right to exist and rule, the Balinese state is expected to execute rituals as ends to themselves. The legitimacy of the Balinese king is based on his claim to being a direct descendant of gods who reigned as the Majapahit rulers who conquered the island. They represented order at a time when chaos and demons reigned. The expectation from the people was theater and ceremony. According to Geertz: The stupendous cremations, tooth fillings, temple dedications, pilgrimages, and blood sacrifices, mobilizing hundreds and even thousands of people and great quantities of wealth, were not means to political ends: they were the ends themselves, they were what the state was for. Court ceremonialism was the driving force of court politics; and mass ritual was not a device to shore

30

Clifford Geertz, Negara: The Theatre State in Nineteenth-Century Bali (Princeton, New Jersey: Princeton University Press, 1980).

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up the state, but rather the state, even in its final gasp, was a device for the enactment of mass ritual.31

The Balinese state was not competent in government in the Weberian sense. The public good that is produced in this instance was not material, but spiritual, consisting of ceremony, theater, pomp, and spectacle. In this sense, the traditional Balinese state was effective in maintaining its social contract with the people, producing normative goods according to popular expectations.

Can Social Contracts Change? One of the recurring questions that I have as I write this book is whether social contracts can be changed. Can existing social contracts be revised or new social contracts constructed? If the answer is no to these questions, then I run into a problem similar to that of “cultural determinism,” dooming certain countries to poverty, low standards of living, and low provisions of public goods because of the type of social contract they have. For countries with social contracts that are not targeted at high delivery of material public goods, there must be cause for optimism that social contracts can be adjusted for economic and social development. While social contracts, like other informal institutions, are sticky, persistent, and difficult to change, change is, nevertheless, possible: under what conditions can social contracts change? To answer this question, it is essential to keep in mind that social contracts are a type of informal institution, in many ways similar to a norm, although it is more useful to think of social contracts as an institution.32 There are certain conditions under which norms and informal institutions can change, and these can be applied to social

31 32

Ibid., p. 13. Martha Finnemore and Kathryn Sikkink point out that norms and institutions are essentially referring to the same thing except that constructivists refer to a language of norms while sociologists or institutionalists speak of “institutions” to refer to the same behavioral rules. The key difference between them is aggregation: norms refer to a single standard of behavior while institutions emphasize a collection of rules and practices. Martha Finnermore and Kathryn Sikkink, “International Norm Dynamics and Political Change,” International Organization 52:4 (Autumn 1998), pp. 887–917, at p. 891.

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contracts as well. The first condition is time. Douglass North wrote that “while the formal rules can be changed overnight, the informal norms change only gradually . . . evolving norms of behavior that will support and legitimize new rules is a lengthy process and in the absence of such reinforcing norms polities will tend to be unstable.”33 Time is therefore a critical ingredient for social contracts to change and for new principles and values in the social contract to take root. A complex informal institution like a social contract is probably more resistant to change than most informal rules and norms, and hence change can only take place slowly and incrementally. Nevertheless, there are instances where norms can change suddenly. But this is usually brought about by a traumatic event that serves as a historical break from the past. An example would be the intolerance toward colonial rule that took hold after World War II, following centuries of exploitation of colonies by the Western powers, which were considered legitimate and rightful.34 The sudden collapse of communism is another example, although communism’s downfall had roots that were much longer in the making. Communist ideology can be seen as a social contract between the government and the people that premises on an extensive welfare and ideological system. In this case, the collapse was swift because it was discredited and had put society under great strain, leading to a paradigm shift in the expectations of the people as well as the government.35 Changes to a social contract also require actors and champions, in the form of norm or policy entrepreneurs, to facilitate the emergence of new rules and principles.36 Human agency and leadership are important because “human beings and their organizations are purposeful actors whose actions help reproduce or transform the society in which

33

34

35

36

Douglass C. North, “The New Institutional Economics and Development,” p. 7, available from https://dlc.dlib.indiana.edu/dlc/bitstream/handle/10535/4397/ 9309002.pdf?sequence=1&isAllowed=y (accessed September 15, 2016). Robert Axelrod, “An Evolutionary Approach to Norms,” American Political Science Review 80:4 (December 1986), pp. 1095–1111, at p. 1096. Thomas U. Berger, “Norms, Identity, and National Security in Germany and Japan,” in The Culture of National Security: Norms and Identity in World Politics, ed. Peter Katzenstein (New York: Columbia University Press, 1996), pp. 317–356, at p. 318. Finnemore and Sikkink, “International Norm Dynamics,” p. 895.

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they live.”37 The role of human agents are critical in shaping social structures.38 Hence, in the case of a social contract – which binds leaders and society – changes need to be brought about by human agency. Political will is a necessary ingredient. To change India’s social contract, for instance, there needs to be consensus among a strong national leader and prominent leading members of the community acting collectively to overcome opposition and persuade the people that populist goods are not necessarily to their benefit and that reforms need to be carried out. This consensus can only be forged after intense debate, and the process is often messy and destabilizing. However, leaders need to create a narrative that favors strong delivery of public goods and “frame” them appropriately to convince the largest number of stakeholders. Once a consensus has been forged, a process of socialization or “norm cascades”39 follows, including leveraging the educational system, the media, government campaigns, and punishment and sanctions for deviant behavior. The aim is to achieve a “tipping point” or threshold for normative change that will eventually be internalized by the rulers and the ruled.40 The “tipping point” usually comes about when a critical mass in support of a change is achieved. However, as the literature on norms or informal rules shows, not all norms reach the tipping point. Gorbachev’s attempt to change the former Soviet Union’s social contract with its working class failed. Mao’s attempt to change China’s historically rooted performancebased social contract was also overturned when he died and Deng came into power. What accounts for these failures? While leaders and political will are important, they are not sufficient for ensuring success in changing the terms of a social contract. In order for the terms of a social contract to change, other conditions endogenous to the new values and principles that are being promoted in the social contract need to be present. Time, norm entrepreneurs, and political will are exogenous conditions for change. Endogenous factors include fit and universal appeal, that is, how well the new 37

38 39 40

Alexander E. Wendt, “The Agent-Structure Problem in International Relations Theory,” International Organization 41:3 (Summer 1987), pp. 335–370, at pp. 337–338. Ibid., p. 338. See Finnemore and Sikkink, “International Norm Dynamics.” Ibid., p. 895.

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values and principles fit existing norms, and whether they appeal to most people. Gorbachev’s attempt to change the class-based social contract and promote a transition to a market-based economy failed because it was not a good fit in a socialist and communist system. Similarly, when Mao attempted to transit to an ideology-based social contract, the economic disasters and institutional destruction that came about did not fit into Chinese historical and cultural preference for well-established institutions and the universal appeal of order; as a result, his ideology-based social contract was eventually overturned. Another way to think about the conditions that promote change in a social contract is to think in terms of punishments or sanctions rather than incentives. Just as breaking a social contract results in consequences in the form of punishments and sanctions, it is possible to create new principles in a social contract by threatening punishments for refusal to comply.41 Such threats also serve to deter those tempted to violate the new terms of the social contract by altering their payoffs. For example, Mao was able to establish an ideology-based social contract for a short period of time because of the punishments he inflicted on those who challenged his revolutionary ideology, including bureaucrats, intellectuals, and other political leaders. Top leaders who questioned his authority were purged. Campaigns such as the AntiRightist Campaign were used to get rid of intellectuals who disagreed with him. Likewise, during the Cultural Revolution, Red Guards were used to destroy institutions, Mao’s political enemies, and those who opposed his revolutionary ideals and methods. Mao’s reign is an extreme example, but the key point is that governments have a whole range of tools to shape behavior in support of the new terms and principles of a social contract.

Looking Forward Despite the strong state–society bargain that has been struck between the Chinese government and its people, and which offers a plausible explanation as to why the Chinese government has consistently provided a relatively high level of public goods, there are nevertheless dangers that could imperil the stability of this consensus. Public goods provision and improving living standards in China are made possible 41

See Axelrod, “An Evolutionary Approach.”

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by strong institutional autonomy and capacity. Up till now, President Xi Jinping has more or less carried on with the performance-based social contract by promising the “Chinese Dream” of improving standards of living and the restoration of national greatness. He has also ensured that the moral aspects of the social contract is maintained by embarking on the most extensive anti-corruption drive to date. However, there are indications that Xi’s actions could be destabilizing to some degree. His economic policies, which saw a turn toward strengthening the state sector, an aggressive foreign policy, and the accumulation of power around himself threaten the performancebased social contract. Economically, Chinese debt has been accumulating. In foreign policy as well, Xi has pursued a much more aggressive foreign policy than his predecessors so as to give China a stronger voice in regional and global affairs that is commensurate with China’s status today. Such a foreign policy has, however, resulted in increasing instability along its borders. While Xi’s aims are probably congruent with maintaining the Chinese social contract with the people, his methods may have unintended consequences. The accumulation of power and the reduced reliance on experts and professionals with diverse views are perhaps the most dangerous threats to the performance-based social contract. In numerous aspects, China’s performance-based social contract has required a collective leadership style that was established by Deng Xiaoping, where institutions and a group of leaders, both at the central and provincial levels, work together for the well-being of the people. However, Xi’s accumulation of power means that institutions are often being bypassed. Xi and his inner group have sidelined the other members of the Politburo Standing Committee and have taken chairmanships of the most important seven of the twenty-two leading small groups that guide policies.42 The creation of a National Security Commission and the Central Leading Group for Deepening Reforms to coordinate internal security affairs and carry out multifaceted reforms, respectively, extends Xi’s personal grasp on the bureaucratic apparatus. When Xi creates new institutions, he does so primarily to ensure that these institutions and the personnel he places in positions of power 42

Christopher Whalen, “Xi Struggles to Reform China’s Politics – and Its Economy, Too,” The National Interest, June 19, 2016, available from http:// nationalinterest.org/feature/xi-struggles-reform-chinas-politics%E2%80%94its-economy-too-16632 (accessed January 16, 2017).

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more accurately reflect his will.43 Even more significantly, Xi is likely to continue to rule indefinitely. The 19th CCP Congress held in October 2017 further consolidated his position, when no clear successor was designated. During the 13th National People’s Congress in March 2018, term limits for the president and vice president in the Chinese Constitution were abolished. The succession system and the institution of term limits were meant as critical checks on unbridled power. The fate of these two key institutions under Xi is an ominous sign for the future of institutions in China. The centralization of power and personalistic rule under Xi has the effect of weakening state institutions, making them more vulnerable to political pressure. Decentralization, which is a manifestation of the performance-based social contract and which has helped engender Chinese economic growth and the provision of public goods by strengthening institutional autonomy and capacity, is witnessing a reversal as Xi tightens control over the provinces and recentralizes power to the central government in the name of reducing bureaucratic fragmentation. He has also reinstated many of the dangerous features of Mao’s rule, primarily, “personal dictatorship, enforced ideological conformity, and arbitrary persecution.”44 Under Xi, China’s performance-based social contract could potentially be disrupted. In thinking about India and how its social contract can be reconstituted to promote a higher level of public goods, it is imperative to emphasize that Indian democracy has shown remarkable strength and resilience despite India’s low levels of economic development and public goods provision. This is even more remarkable given the rollback on democracy and the transition back to authoritarian rule in many parts of the developing world, and the erosion of democratic values in developed Western countries. For norm entrepreneurs in India, it is essential to frame a narrative that emphasizes the value of economic growth and public goods provision – rather than a free amenities and an anti-privatization narrative – as being in line with democracy. The universal appeal of and fit between democracy and the provision of public goods should be highlighted. Political leaders and political will need to be present to promote such a narrative. Political 43

44

David M. Lampton, “Xi Jinping and the National Security Commission,” Journal of Contemporary China 24:95 (March 2015), pp. 759–777, at p. 761. Andrew Nathan cited in Whalen, “Xi Struggles to Reform China’s Politics.”

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and community leaders must be consistent and persistent in advocating changes to the social contract despite the hurdles, thus increasing the possibility that change can occur over a period of time. In practical terms, formal rules should be established to assess politicians seeking election or reelection on how well they perform in improving the basic standards of living of the people in their states through infrastructure construction and economic development. Likewise, the criteria for promoting bureaucrats should be based on their performance in engendering economic growth and improving the performance of public utilities. Narendra Modi promised tough reforms when he came into power in 2014. His record thus far is mixed. Modi has boldly opened up public sectors such as railways and defense, which helped draw recordhigh foreign direct investment in 2015. Red tape has also been cut, which improves the environment for doing business in India. His drive to turn India into a global manufacturing hub has also met with some success. However, in other aspects his reforms have been less successful. He has shied away from a promise to make it easier to acquire land and a goods-and-service tax has failed to pass through legislation. Exports remain weak and bad loans have risen.45 His attempts to eradicate corruption and promote a cashless society by demonetizing have so far not borne fruit and have instead caused hardships for the poor. Whether Modi succeeds in transforming the performance of the Indian government and whether his policies will have impact long after he steps down from power remain to be seen. But his speeches indicate that there are attempts to adjust India’s social contract that links democracy to the performance of the Indian government. In his Mann Ki Baat speech on June 26, 2016, Modi said: I always stress that Democracy doesn’t merely mean that people vote for you and give you the contract to run this country for five years. Certainly Not! Voting is certainly an important component but there are many other facets of democracy. And the biggest dimension is that of people’s participation, their attitude, their thinking . . . now is the time, when people make their 45

Enda Curran and Unni Krishnan, “Indian Paradox: As Economy Soars Modi Reforms Face Big Headwinds,” Bloomberg, March 28, 2016, available from www.bloomberg.com/news/articles/2016-03-27/indian-paradox-as-economysoars-modi-reforms-face-big-headwinds (accessed January 2, 2017).

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decisions, they judge whether their government is doing the right thing or not, is performing well or poorly. This is the real power of democracy.46

Indian leaders and society must be willing to bear the consequences of breaking the old social contract, so as to construct a new narrative in India’s social contract and forge a consensus that prioritizes longterm economic gains over short-term welfarism. Shannon K. O’Neil sounded an optimistic note when she notes recent developments in Latin America that suggest that populism is in decline, although the threats are always present: History shows that populism polarizes society, weakens economies, and undermines representative democracy. But Latin America’s experience also demonstrates that democratic decline is not inevitable, that citizens’ movements can reform institutions and defend them against would-be populists, and that the disenfranchised will not tolerate empty promises forever.47

In Latin America, economic problems have caused voters to turn away from populists toward moderates. Governments are now trying to immunize themselves against future populist bouts by implementing institutional reforms, such as codifying the independence of central banks, passing balanced budget laws, limiting the ability of executives to rule by decree, and carrying out judicial reforms.48 Indian leaders should seek opportunities to similarly bring about institutional change to guard against populism. The strength of India’s civil society and the value of Indian democracy are India’s greatest assets, and offer hope that its social contract could be redefined in ways that would lead to a strengthening of public institutions to ensure the efficient allocation of public goods. 46

47 48

Narendra Modi, “Democracy Is Our Strength and Together We Will Make Our Democratic Fabric Stronger: PM Narendra Modi,” June 26, 2016, available from www.narendramodi.in/pm-modi-s-mann-ki-baat-june-2016-488360 (accessed January 7, 2017). O’Neil, “Populist Hangover,” p. 31. Ibid., p. 38.

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Index

Aam Aadmi Party, 101, 201, 207 Accelerated Urban Water Supply Program (India), 150 Africa, 11, 248 Akbar I, Emperor of Moghul Dynasty, 94 Albertus, Michael, 17 Alesina, Alberto, 21 All India Crime Prevention Society, 212 Almond, Gabriel, 41, 47–8 Amberpet, 220 Andhra Pradesh. See also Hyderabad bifurcation, 216, 232–3 dominance of Telugu people in, 22 Hyderabad as capital of, 216 institutional arrangement of water sector, 147 predominantly rural character, 219, 224 study of privatization, 227 urbanization in, 217 and World Bank, 225 Andhra Pradesh Irrigation Department, 224 Ang Yuen Yuen, 18 AP Online Services, 227n.116 Araral, Eduardo, 122 Ashoka, Emperor of Maurya Dynasty, 94 Asian Development Bank (ADB), 10–11, 152, 164, 176 authoritarian states factions within, 42 power distribution in, 14, 16 public goods provision in, 1 and public opinion, 82 recent rise of, 235–6 social contracts in, 33 urban bias in, 67

284

Bakkar, Karen, 19n.49 Bali, 11, 251–2 Bangalore, 147–8, 154, 216, 218 Bangalore Metropolitan Region Development Authority, 224 Bao’an district, Shenzhen, 161, 163 Barber, Benjamin R., 51 Baum, Matthew, 13, 15 Beijing. See also Beijing Water Authority (BWA); Beijing Water Works Group (BWWG) air and water pollution in, 53, 183–4, 187 as case study city, 51–2, 160–1, 199, 238 and Chinese Communist Party, 160, 184 economy, 180–1 institutional capacity and autonomy, 10, 186, 188, 190–5 investments in urban infrastructure, 117 population, 182 strategic importance, 185–6, 197 2008 Olympics, 184–8 upgrading of water infrastructure, 19n.49, 184 water management planning, 130, 186–92 water pricing and tariffs, 135, 188–90, 203 water problems, 181–4 Beijing Capital Group, 165, 173 Beijing Capital-Veolia Water Investment Company, 173 Beijing Construction Bureau, 192 Beijing Development and Reform Commission (BDRC), 189, 193 Beijing Drainage Group (BDG), 193

Index Beijing Environmental Protection Bureau, 183, 190, 193 Beijing Health Inspection Institute, 184 Beijing Hygiene Bureau, 193 Beijing Local People’s Congress, 187 Beijing Municipal Administration Commission, 187, 192–4 Beijing Municipal State-owned Assets Supervision and Administration, 194 Beijing Water Authority (BWA) degree of success, 196 establishment, 185–8 role in water management, 157, 192–5 Beijing Water Conservation Office, 192–3 Beijing Water Resources Bureau, 187, 192 Beijing Water Savings Management Center, 194 Beijing Water Works Group (BWWG) and Beijing Water Authority, 193 establishment and function, 191–3 financial losses, 196 as a state-owned enterprise, 185 tap water plants, 190–1, 195 water production and coverage, 184–5, 191, 195 Beiyun River, 183 Bhagidari System, 214–15 Bhahkra Storage, 202 Bharatiya Janata Party (BJP), 12, 105, 110–11, 226n.111 Bhavani, 227n.116 Bohai Rim Development Strategy, 181 Bo Kong, 83 Bratton, Michael, 248 Brazil, 244–5 Brexit, 235–6 Brezhnev, Leonid, 33, 68, 248 BSES power company, 212 Buddha Poornima Project Authority, 224 Bueno de Mesquita, Bruce, 12–14 bureaucracies, ideal, 8n.17, 45, 252 Calcutta, 148, 216 Ceauşescu, Elena, 31 Ceauşescu, Nicolae, 31–2, 60

285 Central Ground Water Board (India), 144–5, 206 Central Pollution Control Board (India), 144 Central Public Health Environmental and Engineering Organization (CPHEEO; India), 143–4, 202 Central Water Commission (India), 144–5 Centre for the Study of Developing Societies, 230 chaebols, 45, 47 Changping District Tap Water Company, 191 Chaobai River, 183 Chatterjee, Partha, 106 Chavez, Hugo, 243–4 Chennai, 147–8, 216 Chen Xitong, 185 Chen Yun, 167 China. See also Chinese Communist Party (CCP); Chinese local governments; Chinese social contract; Chinese water provision citizen satisfaction surveys, 4–6 economic development, 18–19, 45 education index, 3 famine in, 1–2 health index, 3 Human Development Index (HDI), 2, 78n.70 informal variables in, 15 literacy rate, 3 nature of bureaucracy in, 82–3, 94 one-child policy, 48 overseas diaspora, 24 personalized politics in, 235–7, 257 population distribution, 102 pre-reform period, 20 public–private partnerships (PPPs) in, 6, 18, 123, 136–7 taxation system, 136 urban vs. rural expenditures, 70–1 China Insurance Regulatory Commission, 89 Chinese Communist Party (CCP). See also Deng Xiaoping; Mao Zedong basis of legitimacy, 8, 40, 55, 60–1, 64–5, 73

286 Chinese Communist Party (CCP). (cont.) control over civil society, 24, 80 expansion of water infrastructure, 124 and Mao’s attempt to change social contract, 237 party hierarchy, 160 and public opinion, 81n.73, 82 size and power, 81–2 and traditional paternalism, 77–8 training system for cadres, 160 urban base of, 11, 66–71 Chinese local governments and Chinese social contract, 86–7, 159, 196, 238 and decentralization policy, 79, 84–6, 159–60, 238, 257 incentives towards public goods provision, 61 and public opinion, 80 sources of revenue, 79, 87–90, 115–16, 136, 138–9 in water administrative structure, 128 Chinese social contract. See also social contracts concept of performance in, 8, 10, 64–6, 137, 165, 238 and Confucianism, 75–6 Deng Xiaoping’s restoration of, 74–5, 254 and institutional autonomy and capacity, 78–80, 84, 90, 238 key premises, 61 "mandate of heaven" in, 8, 61–4, 81, 104 and Mao Zedong, 11, 71–3, 237, 250–1, 254–5 popular expectations of, 75–8 post-Mao struggle to define, 167 public accountability in, 84 reciprocal obligations vs. individual rights in, 76, 80 Soviet influence on, 68 threats to, 255–7 urban bias, 11, 61–2, 66–71, 132, 184, 196

Index Chinese water provision. See also Beijing Water Authority (BWA); Beijing Water Works Group (BWWG); Shenzhen Water Affairs Bureau (SZWAB); Shenzhen Water Group (SZWG) administrative structure, 124–30 and Chinese social contract, 121, 157–8 coverage, 3–6, 124, 137–8 financing, 136 management systems, 56, 122 policies and legal framework, 130–5 and pollution, 56, 162–3, 183–4 private sector participation in, 122–3, 136–42 shortages, 55–6, 138, 163, 182–3 tariffs and pricing, 80, 122, 133–5 water quality classification scheme, 163n.9 Chongqing, 160 Citizens Front for Water Democracy, 210, 213 City Challenge Fund (CCF), 151 civil disobedience in China, 64, 82 in India, 106–7, 198, 209–13, 228 in Venezuela, 244 civil society, 24, 48–9 colonialism, 19n.49, 253 communism, 60, 253 Communist Party of India (Marxist), 231 Communist Party of the Soviet Union (CPSU), 249 Confucianism, 75–6 Congress Party. See Indian National Congress Party Construction Bureau (Shenzhen), 175–6 Cook, Linda J., 23, 248, 250 Corrupt Practices Investigation Bureau (Singapore), 241 Cultural Revolution, 11, 72–3, 250–1, 255 Cyberabad Development Authority, 224 Danshui River, 163 Daqing River, 183

Index Das, Gucharan, 213 Deacon, Robert, 15–16 Delhi Cantonment Board, 201–2 Delhi Development Authority (DDA), 201, 205 Delhi Jal Board (DJB) attempted reforms of, 198, 201, 208–10, 213 corruption scandal, 212 employees’ resistance to reform of, 213 establishment and structure, 202–3 lack of autonomy and capacity, 203–6 sources of funds, 215 supply and coverage, 202, 206–7 tanker plan, 207, 214 water tariffs and pricing, 203–4, 209 Delhi Pollution Board, 206 Delhi Vidyut (DVB), 212 democracies basis of legitimacy, 39 checks on executive and legislative powers in, 46 lobbyists and interest groups, 42 public goods provision in, 1, 12–17, 113, 237, 257 relative lack of autonomy, 84 in retreat, 235, 237, 257 Deng Xiaoping. See also Chinese Communist Party (CCP); politicians on the Chinese social contract, 60–1, 65 decentralization policy, 10, 74–5, 79, 84–5 leadership style, 256 visits to Shenzhen and the South, 166, 168, 171 Department of Agriculture (India), 146 Department of Atomic Energy (India), 146 Department of Drinking Water Supply (India), 146 Department of Land Resources (India), 146 Department of Science and Technology (India), 146

287 Department of Urban Development (India), 146 DHV Consultants, 208 Dickson, Bruce J., 20, 75 Dikshit, Sheila. See also New Delhi; politicians attempts at reform, 198, 208, 212 as chief minister of New Delhi, 201 and Congress Party, 201, 212, 214 and Indian social contract, 211, 233–4, 238–9 populist moves, 214–15 Dongguan, 163 Dongjiang River, 162–3 Dongshen Water Supply System, 162 Dow Chemical Company, 180 Downs, Erica, 83 Dow Water and Process Solutions (DW&PS), 180 Duterte, Rodrigo, 235 Dwarka, 205 Economic Planning Board (South Korea), 45, 47 Erdogan, Recep Tayyip, 235 Excel Computers, 227n.116 Fan, Bonai, 90 Federation of Association of Colonies and Apartments, 228 Finegold, Kenneth, 20 Finnemore, Martha, 252n.32 Flint, Michigan, 246 Forum for a Better Hyderabad, 228 Fujian province, 169 Fukuyama, Francis, 84 Futian district, Shenzhen, 161 Gallup Poll, 40 game theory, 41, 244 Gandhi, Indira, 93, 98–101, 110–11 Gandhi, Mahatma, 106n.45 Gandhi, Rajiv, 99, 101, 149 Gandhi, Sonia, 209, 214 Gansu province, 53 Geddes, Barbara, 14, 17, 244–5 Geertz, Clifford, 251–2 Germany, 20–1, 40 Ghosh, Archana, 218

288 Global Financial Crisis (2008), 139 Goa, 154 Godavari Project, 221, 223 Godavari River, 221 Gopal, M.G., 227 Gorbachev, Mikhail, 33, 68, 249–50, 254–5 Greater Hyderabad Municipal Corporation (GHMC), 217, 224 Great Leap Forward, 250 Guangdong Environmental Protection Bureau, 163, 176 Guangdong province, 88, 160–2, 169 Guangzhou, 181 Guanting Reservoir, 181 Gujarat, 147 Gulf states, 14 Hainan automobile scandal, 167–8 Haryana, 205–6 Hebei, 186 Herring, Ronald, 111 Himayat Sagar reservoir, 220 The Hindu (newspaper), 231 Hobbes, Thomas, 23, 33–6 Hong Kong, 11, 40, 161–2, 170 household registration (hukou) system, 62, 69–71, 182 Housing and Urban Development Corporation (India), 144–5 Huairou Reservoir, 195 Huang Jing, 73 Huizhou, 163 Hu Jintao, 65 Hungary, 235 Hu Yaobang, 166 Hu Yiyang, 18–19 Hyderabad. See also Andhra Pradesh; Hyderabad Metropolitan Water Supply and Sewerage Board (HMWSSB) administrative structure, 217–18 as case study city, 51–2, 199, 238–9 growth strategy, 218, 232 population, 216 populist constraints on, 10, 229–31 water access, 221 water administrative structure, 147–8 water mafia, 220 water problems, 219–21

Index Hyderabad Airport Development Authority, 224 Hyderabad Metropolitan Development Authority (HMDA), 224 Hyderabad Metropolitan Water Supply and Sewerage Board (HMWSSB) attempts to reform, 198, 225–33 customer service reforms, 226, 229 employees, 230 establishment and role, 218–19 and the GHMC, 224 lack of autonomy, 219, 222, 224–5 tariffs and pricing, 222–3 Hyderabad Urban Development Authority, 224 ideology, defined, 250 India. See also Indian local governments; Indian social contract; Indian water provision colonial legacy, 19, 24 Constitution, 96, 114–15 as a democracy, 93, 99–100, 106, 257–9 economic development, 97–9 education index, 3 health index, 3 Human Development Index (HDI), 2 identity politics in, 95, 101–2, 105 independence struggle, 95–6 literacy rate, 3 nature of bureaucracy in, 94–5, 109–11 1998 nuclear test, 226 populist turn, 235, 237 private sector regulation, 97 protest movements, 106–7, 198, 209–13, 228 regime legitimacy in, 39, 95–103, 117 role of water in culture of, 55 urban-rural population distribution, 102 Indian Administrative Service (IAS), 95 Indian Business Alliance on Water, 155 Indian Election Commission, 100, 117 Indian Infrastructure Project: Policy Imperatives for Growth and Welfare (1996), 154

Index Indian local governments and decentralization policy, 146–8, 153, 158, 201, 215 financial capacity, 115–17, 152–3, 215–16 and Indian social contract, 113–17 Indian National Congress Party and Chandrababu Naidu, 228, 231 embrace of socialism, 96 and Indian civil service, 110 and reform attempts in Hyderabad, 217 and Sheila Dikshit, 201, 212, 214 traditional power base, 212 Indian social contract. See also social contracts and attempts at institutional reform, 211, 215 bringing about change in, 257–9 civil disobedience and, 213 concept of dharma in, 104 and Indian politicians, 199, 238–9 and institutional autonomy and capacity, 107–13, 117–18 popular expectations of, 93, 103–7 populist and socialist tenets, 8–10, 92, 95, 238 post-Independence origins, 94–5 rural bias, 102–3, 113, 215, 219, 232–3 traditional notions of kingship in, 104 Indian water provision. See also Delhi Jal Board (DJB); Hyderabad Metropolitan Water Supply and Sewerage Board (HMWSSB) administrative structure, 142–9 financing, 152–3 and Indian social contract, 121–3, 157–8, 199 laws and regulations, 149–52 management systems, 56, 122 and pollution, 56 private sector participation, 123, 153–6 tariffs and pricing, 122, 150 urban access, 3–4 Indonesia, 11, 19n.49

289 institutions, formal. See also Chinese local governments; Indian local governments autonomy and capacity of, 45–9 in China, 78–80, 83–4, 90, 157, 238 explicit, legally constituted nature, 7 in India, 99–100, 107–13, 157–8, 238 and informal norms, 17, 36–7 and regime type, 236 social contracts’ influence on, 7–8, 15, 23–4, 43–5, 49–50, 59, 237–8 in the United States, 245 institutions, informal. See also social contracts and case study design, 58 described, 37 influence on formal institutions, 15, 17–18, 23–4 and public goods provision, 22–3 social contracts as, 7, 23, 36–9, 237, 252–3 Integrated Development of Small and Medium Towns (India), 150 Italy, 40 Jakarta, 19n.49 Japan, 44–5, 47, 81n.73, 240 Jawaharlal Nehru National Urban Renewal Mission (JnNURM), 143, 148, 151–2 Jiangxi soviet, 68 Jiang Zemin, 171, 185, 187 Jingshi Tap Water Company, 191 Jiyun River, 183 Karnataka, 147 Karnataka Urban Water Supply Improvement Project, 156 Kautilya, 104 Kejriwal, Arvind, 101, 201, 209–10, 212 Kemenici, Andrei, 31–2 Kerala, 18, 21–2, 52–3, 102, 147 Khilani, Sunil, 100 Khrushchev, Nikita, 249 Kirk, Jason A., 229 Kisan Sabha movement, 96 Kohli, Atul, 114n.69 Kolkata, 148, 216

290 Krishna Drinking Water Project, 220–1, 223 Krishna River, 220, 224 Lake, David, 13, 15 Lanzhou, 53, 80n.72 Latin America, 11, 14, 17, 243–5, 259 Latur Project, 156 Lee Hsien Loong, 242 Lee Kuan Yew, 241 Life Insurance Corporation (India), 144–5 Liu Qi, 187 Li Youwei, 171 Locke, John, 23, 33–6, 245–6 Longgang district, Shenzhen, 161, 163 Low Cost Sanitation Program (India), 150 Luce, Edward, 213 Luohu district, Shenzhen, 161 Macao, 161, 170 Mahadevia, Darshini, 115 Maharashtra, 147 Malayali people, 21–2, 102 Malviya Nagar project, 210 mandate of heaven. See under Chinese social contract Manjira River, 220, 224 Mann, Michael, 48 Mao Zedong. See also Chinese Communist Party (CCP); politicians failure to change Chinese social contract, 237, 254–5 ideology-based social contract, 40, 250–1, 255 Soviet-influenced economic plan, 68–9 and Xi Jinping, 257 Maurya Empire, 94 McGuire, Martin, 12, 15 Mega-city Project (India), 150–1 Meidan, Michael, 83 Mertha, Andrew, 86 Migdal, Joel, 16 Minimum Livelihood Guarantee (dibao), 18, 78 Ministry of Agriculture (China), 124, 126, 128

Index Ministry of Communications (China), 124, 127 Ministry of Construction (China), 137, 139, 192 Ministry of Electric Power (MEP; China), 127 Ministry of Environmental Protection (MOEP; China), 124, 126, 128, 193 Ministry of Environment and Forests (India), 144, 146, 206 Ministry of Finance (China), 88 Ministry of Foreign Trade and Economic Cooperation (China), 137 Ministry of Health (China), 124, 127 Ministry of Health and Family Welfare (India), 144 Ministry of Housing and Urban-Rural Development (MOHURD; China) and Beijing water, 192–3 reform initiatives, 139 responsibilities, 126 and water administration, 124, 156 Ministry of International Trade and Industry (Japan), 44–5, 47 Ministry of Power (India), 4, 146 Ministry of Shipping (India), 146 Ministry of Urban Development (MoUD; India) reform initiatives, 155, 201 responsibilities, 143–4 Ministry of Water Resources (MOWR; China) and Beijing water management, 192–3 place in water administrative structure, 124, 156 reform initiatives, 139 responsibilities and functions, 124–8 Ministry of Water Resources (MoWR; India), 143–6 Miyun Reservoir, 195 Modi, Narendra, 97, 235, 258–9 Moghul Empire, 94 Mohan, Rakesh, 212 monarchies, 14 Mukherjee, Debashree, 204 Mumbai, 117, 147–8, 216

Index Municipal Corporation of Delhi (MCD), 200–1, 205 Municipal Corporation of Hyderabad (MCH), 217 Nagarjunasagar Dam, 224 Nagpur, 123 Naidu, Chandrababu. See also Andhra Pradesh; politicians attempts at reform, 198, 225–30, 234 as chief minister of Andhra Pradesh, 218 and Indian social contract, 232–3, 238–9 Nampally, 220 Nangloi project, 210 Nanshan district, Shenzhen, 161 National Capital Region (NCR), 224 National Capital Region Planning Board (NCRPB), 205–6 National Capital Territory of Delhi (NCTD), 200–2, 212, 215–16 National Development and Reform Commission (NDRC; China) place in water administration, 124, 156 reform initiatives, 135, 139 responsibilities, 45, 127, 133 National Development Council (India), 145 National Institute of Communicable Diseases (India), 144 National People’s Congress (China), 130, 169 National Rivers Conservation Directorate (India), 144 National Water Policy (India), 149–51, 154–5 National Water Resource Council (India), 145, 149 National Water Supply and Sanitation Program (India), 150 Navdanya, 209 Nehru, Jawaharlal, 95–7, 109–10 neopatrimonialism, 248 New Delhi. See also Delhi Jal Board (DJB) administrative structure, 200–1 as case study city, 51–2, 199, 238–9 population and GDP, 200, 206–7

291 populist constraints on, 10 water administrative structure, 148 water mafia, 206–7, 214 New Delhi Municipal Council, 201–2 Niu Maosheng, 125 Nizampet, 220 North, Douglass, 36, 253 North China Economic Region, 181 Office of Urban Management (Shenzhen), 175–6 Oi, Jean, 67 Olson, Mancur, Jr., 12, 14–15 Ondeo Degremont, 210 O’Neil, Shannon K., 259 Orban, Viktor, 235 Osman Sagar reservoir, 220 Pakistan, 50 Parivartan, 213 Paul, T.V., 50n.44 Pearl River, 162 People’s Action Party (PAP), 240–1 Philippines, 235, 237 Planning and Land Bureau (Shenzhen), 175–6 Planning Commission (India), 142–51 politicians and the concept of performance, 8 with criminal records, 49 in democracies, 12–15, 17 and personal charisma, 100, 235–6 and populism, 9, 93, 107–8 and re-election imperatives, 15, 117 role in changing social contracts, 253–4, 257–8 and rural-urban divide, 103, 215, 232 safeguards against abuse by, 44 and the stickiness of social contracts, 93, 98–9, 233–4 universal motivation of, 13 Pooled Finance Development Scheme (PFDS), 151 population control policies, 42–3, 48 populism impact on formal institutions, 107–8, 118 in India, 9–10, 93, 95, 100–1, 213–15, 229–31

292 populism (cont.) in Latin America, 11, 107n.49, 243–5, 259 and the rise of "demand groups,"108 praetorianism, 50 Pricewaterhouse Coopers (PwC), 208–9, 216 protest movements. See civil disobedience public goods clean and honest government as, 244 defined, 53–4, 236 protection of private property and liberty as, 246 ritual and ceremony as, 251–2 public goods provision. See also Chinese water provision; Indian water provision case studies of, 57–8 in command vs. demand polities, 112 and ethnicity, 21–2 formal vs. informal institutions in, 17–18, 23–4 and local governments, 50–1 and populism, 9–10, 107–13, 118 and power distribution, 15–16 rational choice theories of, 12–15 and regime type, 1, 12–18 selectorate theory of, 12–14 and social contracts, 9–12, 22–5, 59, 237–8 and state capacity, 20–1 and wealth, 19–20 public–private partnerships (PPPs) Asian Development Bank’s promotion of, 152–3 in China, 6, 18, 123, 136–7 in India, 123, 154–6, 210 in public goods provision, 10n.20, 123, 211 Public Utilities Board (PUB; Singapore), 242 Pune, 154 Putin, Vladimir, 235 Pye, Lucian, 105 Qing Dynasty, 67 Rajaratnam, S., 240 Rajasthan, 147, 205

Index Ramachandran, M.G., 101 Rama Rao, N.T., 101, 229 Rao, Kalvakuntla Chandrasekhar, 231 Rao, Narasimha, 153 rational choice theory, 12–15, 41, 113 Ratra, Shivani, 122 Reddy, Teegala Krishna, 217 Reddy, Y.S. Rajasekhara, 232 resource economies, 14 Romania, 31–2, 60 Rousseau, Jean-Jacques, 23, 33–6 Rshtriya Mukti Morcha, 212 Rudolph, Lloyd I., 110, 112 Rudolph, Susanne Hoeber, 110, 112 Russia, 235, 237 Saich, Tony, 78n.70 Sangam Vihar, 207 Sangh Parivar, 105 Schurmann, Franz, 85 Scowcroft, Brent, 60 Sen, Amartya, 1 Shambaugh, David, 60n.3 Shang Dynasty, 62–3 Shanghai, 88, 138, 160, 181 Shatoujiao subdistrict, Shenzhen, 180 Shelter and Sanitation for Pavement Dwellers (India), 150 Shenzhen. See also Shenzhen Water Affairs Bureau (SZWAB); Shenzhen Water Group (SZWG) as case study city, 51–2, 160–1, 199, 238 institutional capacity, 10–11, 164–5, 171–2, 175–7 issuance of municipal bonds, 88 legislative and regulatory autonomy, 79, 169–71, 177–9 population and GDP, 161 private sector participation in, 138, 173–4 resource allocation, 174–5 as a Special Economic Zone (SEZ), 159, 161, 164–9, 177 water problems, 161–3, 171–80 water supply and coverage, 165, 175 water tariffs and pricing, 176–7, 179 Shenzhen Development and Reform Commission (SZDRC), 176

Index Shenzhen Drainage Management Department, 173 Shenzhen Municipal Investment Promoting Center, 170 Shenzhen Municipal Water Conservancy Bureau, 175–6 Shenzhen Price Bureau (SZPB), 176 Shenzhen Reservoir, 162 Shenzhen Residential Environmental Committee (SZREC), 176 Shenzhen River, 161, 163 Shenzhen SEZ Administration for Industry and Commerce (SAIC), 170 Shenzhen State-Owned Assets Supervision and Administration Commission (SZSASAC), 173, 176 Shenzhen Tap Water Supply Company, 173, 179 Shenzhen Tianjin Company, 174 Shenzhen Urban Management Bureau, 173 Shenzhen Water Affairs Bureau (SZWAB) and Shenzhen Water Group, 174 compared to Beijing Water Authority, 196 impacts on water supply, 165 impetus for creation, 129, 171–80 praised by Asian Development Bank, 10–11, 164–5 role in water management, 157, 164, 171–2, 175–7 Shenzhen Water Group (SZWG) and institutional reform, 164 as a joint venture, 164, 173–4, 238 as a multinational company, 179–80 success of, 196 tariffs and pricing, 176 Shenzhen Water Resource Bureau (SZWRB), 171–2 Shenzhen Water Service Investment Company, 174 Shijingshan District Tap Water Company, 191 Shima River, 163 Shiva, Vandana, 209 Shougang Group, 181 Shue, Vivienne, 64 Shunyi District Water Company, 191

293 Sichuan earthquake (2008), 64 Sikkink, Kathryn, 252n.32 Singapore, 11, 40, 42–3, 240–2 Singh, Prerna, 1–18, 21–2, 52–3, 102 Singur Dam, 224 Singur reservoir, 221 Skocpol, Theda, 20, 83 social contracts. See also Chinese social contract; Indian social contract and citizen expectations, 40–3, 236, 241–2 class-based, 11, 248–50 classical theories of, 33–6 conditions for change in, 252–5 as consensual bargains, 58–9, 239 defining, 32–3 elite-based, 11, 247–8 and formal institutions, 7–8, 10, 43–50, 237–8 ideology-based, 11, 250–1, 253 as informal institutions, 7, 23, 36–9, 237, 252–3 Lockean, 11, 245–7 performance-based, 240–2 populist and socialist, 243–5 and public goods provision, 11–12, 237–8 and regime legitimacy, 39–40, 233, 236 vs. regime type, 236–7 ritual-based, 11, 251–2 "stickiness,"33, 38, 72, 237, 252 socialism "with Chinese characteristics,"8, 74, 92 in India, 95–9, 109, 114, 211–12, 231–2 in Latin America, 243–5 and paternalism, 77 and private sector participation, 8–9 Solinger, Dorothy J., 18–19, 67, 69 Sonia Vihar water treatment plant, 210–11 South Korea, 45, 47, 240 Soviet Union decentralization, 85 social contract, 11, 23, 33, 68, 248–50 Special Economic Zones (SEZs), 161, 165–9

294 SPML Infrastructure, 210 Sri Rami Reddy & Co., 227n.116 State Council (China) and Beijing, 185, 190 and household registration system, 69 and investment approval process, 88 and Ministry of Environmental Protection, 128 and National Development and Reform Commission, 45, 139 and party hierarchy, 83 role in water administration, 124 and Special Economic Zones, 166 and urban planning, 132 and water pricing, 134 State Electricity Regulatory Commission (China), 124, 126 State Forestry Bureau (China), 124, 126 state-owned enterprises (SOEs) autonomy in China, 83–4, 109 lack of autonomy in India, 109 and local government budgets, 90, 136 as "nerve centers" in India, 98 reform in China, 141, 172, 176, 194 and social welfare in China, 62, 69, 71, 77 subsidies in China for, 196 subnationalism, 18, 21–2, 102 Subrahmanywam, L.V., 226, 230 Suez Environnement, 210 Suez S.A., 210 Switzerland, 41 Taiwan, 161, 170, 240 Tamil Nadu, 18, 52–3, 102, 147 Tangshan earthquake (1976), 63 Tata Consulting Engineers, 208 Tata Power, 212 Telangana, 216, 231 Telangana Industrial Infrastructure Corporation, 224 Telangana State Road Transport Corporation, 224 Telangana Transmission Corporation, 224 Telugu Desam Party (TDP), 217–18, 226n.111, 228, 233

Index Telugu people, 22 Thachil, Tariq, 105 Tiananmen Incident, 60–1, 64, 167, 169 Tiancunshan Water Treatment Plant, 195 Tianjin, 181, 186, 196 Times of India (newspaper), 231 Tokyo, 200 Tokyo University, 47 Tong Yanqi, 64 Trimulgherry, 220 Trump, Donald, 235–6, 246–7 Tsai, Kellee, 18 Tsai, Lily, 15 Turkey, 235 Uniao Democratica Nacional (UDN), 244–5 United Kingdom, 187, 235 United Nations Children’s Fund (UNICEF), 3 United Nations Development Program (UNDP), 2 United States election of Donald Trump in, 235 Human Development Index (HDI), 246 Lockean social contract, 11, 36, 239–40, 245–7 the New Deal, 20 regime type, 237 relations with China, 81n.73 Upper Ganga Canal, 202 urbanization, 50–1 Urban Maintenance and Construction Tax (UMCT), 87 Urban Reform Incentive Fund (URIF; India), 151 Uttar Pradesh, 147, 205 Van de Walle, Nicolas, 248 Vargas, Getulio, 244 Varshney, Ashutosh, 103 Vasant Vihar-Mehrauli project, 210 Venezuela, 243–4 Veolia Water Company, 53, 80n.72, 165, 210 Verba, Sidney, 41 Vogel, Ezra, 73

Index Wallace, Jeremy, 11, 67 wastewater treatment in China, 129 in India, 56 in Shenzhen, 163, 172–4 and water tariffs, 134 water institutions, defined, 121 Water Liberation Campaign, 213 Water Workers Alliance (WWA), 213 Weber, Max, 7, 39, 45, 99 Weiner, Myron, 101 Wen Jiabao, 133 World Bank and Andhra Pradesh, 225–6, 231–2 on decentralization in China, 157 on decentralization in India, 148 and Hyderabad water sector, 219, 226–7 and Indian water sector, 152 negative image in India, 215 and New Delhi water sector, 208–11, 216 on public–private partnerships in water sector, 123

295 World Health Organization (WHO), 3, 195 World Values Survey, 40 Xia Dynasty, 62 Xi Jinping, 65–6, 86, 235–6, 256–7 Yamuna River, 202 Yangzhou Water Supply Company, 180 Yanshan Petrochemical Company, 181 Yantian district, Shenzhen, 161 Yongding River, 183 Yue Fuhong, 130 Zhao Dingxin, 76 Zhao Haohui, 138 Zhao Ziyang, 166 Zhejiang province, 67, 88 Zhou Dynasty, 62–3 Zhuhai, 168 Ziblatt, Daniel, 20–1