Emer­gency Use of Pub­lic Funds: Impli­ca­tions for Demo­c­ra­t­ic Governance

This arti­cle was orig­i­nal­ly writ­ten for Glob­al Chal­lenges and pub­lished in the jour­nal Spe­cial Issue 1 “Pol­i­tics of the Coro­n­avirus Pan­dem­ic” (June 2020).

Around the world, unspent pub­lic funds are being repur­posed on a very large scale in response to the Covid-19 emer­gency. Often intend­ed ini­tial­ly for the poor or mar­gin­alised, these funds are now being dis­bursed as pan­dem­ic-relat­ed emer­gency aid. This redis­tri­b­u­tion brings with it a set of unin­tend­ed polit­i­cal and insti­tu­tion­al effects, ulti­mate­ly imply­ing changes to the accept­ed mean­ing of both “social” and “wel­fare”.

The response to Covid-19 has entailed the largest peace­time expan­sion in fis­cal deficits in his­to­ry, requir­ing new finan­cial instru­ments, a repur­pos­ing of exist­ing ones and a search for liq­uid­i­ty in gen­er­al. States have been forced to use inno­v­a­tive means both to gath­er funds, such as mobil­is­ing defence bud­gets, and to dis­burse them, such as man­u­fac­tur­ing and procur­ing ven­ti­la­tors or tem­porar­i­ly guar­an­tee­ing a basic income for all work­ers. The way demo­c­ra­t­ic states have designed, fund­ed and deliv­ered wel­fare dur­ing the pan­dem­ic is illus­tra­tive of how ties between states and cit­i­zens are cur­rent­ly being reconfigured.

A series of states and pub­lic author­i­ties includ­ing, promi­nent­ly, India and the Euro­pean Union, have reap­pro­pri­at­ed mas­sive amounts of unspent wel­fare funds. Putting mon­ey to pro­duc­tive use in an unprece­dent­ed emer­gency is to be wel­comed. Yet it begs two key ques­tions: first, why were these funds not spent in the first place? Sec­ond, how does their emer­gency reap­pro­pri­a­tion affect demo­c­ra­t­ic safe­guards designed to ensure the account­abil­i­ty of their allo­ca­tion and use?

THE EU CASE: RECAST­ING THE ROLE OF NATION­AL-LEV­EL BODIES

EU insti­tu­tions sought to “respond swift­ly and flex­i­bly” to the con­cur­rent health and socio-eco­nom­ic emer­gen­cies. In mid-March, the Euro­pean Com­mis­sion pre­sent­ed the first ele­ments of the Coro­n­avirus Response Invest­ment Ini­tia­tive (CRII), direct­ed in par­tic­u­lar at health care, SMEs and labour mar­kets. It imme­di­ate­ly released to mem­ber states unspent or unal­lo­cat­ed funds, includ­ing EUR 28 bil­lion of unspent Euro­pean Struc­tur­al and Invest­ment Funds (ESIF) and EUR 8 bil­lion of unspent pump-prim­ing funds for social wel­fare projects from the EU’s cohe­sion bud­get. The pre-cri­sis pur­pose of these funds was to mit­i­gate wel­fare dis­par­i­ties between Euro­pean regions. Under the CRII, the EU adapt­ed its rules, allow­ing mem­ber states to use these funds for expen­di­tures usu­al­ly not sup­port­ed by the Euro­pean cohe­sion pol­i­cy, such as income sup­port, work­ing cap­i­tal in SMEs and mea­sures to sup­port and strength­en health systems.

A fur­ther round of rule­mak­ing, CRII+, intro­duced even more flex­i­bil­i­ty: mem­ber states are now able to real­lo­cate exist­ing and future resources between pro­grammes, regions and even between pri­or­i­ties. The Euro­pean Com­mis­sion also abol­ished the oblig­a­tion of nation­al co-fund­ing, for­mer­ly a key con­di­tion for the use of struc­tur­al resources. More­over, even though ESIF are aimed at the least devel­oped regions of the EU, mem­ber states can now move resources for the fis­cal year 2020–21 to rich­er regions that have been hit hard­est by the cri­sis. Mem­ber states thus now have more liq­uid­i­ty and greater dis­cre­tion to allo­cate funds meant for EU wel­fare and cohe­sion as they see fit.

Mem­ber states thus now have more liq­uid­i­ty and greater dis­cre­tion to allo­cate funds meant for EU wel­fare and cohe­sion as they see fit.

THE INDI­AN CASE: REPUR­POS­ING OF SPE­CIAL PUR­POSE FUNDS

In India, Covid-19 is exert­ing a dis­pro­por­tion­ate impact on the poor and on migrant work­ers. Four hun­dred and fifty mil­lion labour­ers in the infor­mal sec­tor, con­sti­tut­ing almost 90% of the work­force, have nei­ther secu­ri­ty of employ­ment nor social pro­tec­tion. Entire fam­i­lies lost their liveli­hoods dur­ing the lock­down. On 26 March, 2020, the Indi­an gov­ern­ment was com­pelled under pub­lic pres­sure to deploy USD 22.6 bil­lion (INR 1.7 tril­lion) as emer­gency finan­cial sup­port for some of these poor and mar­gin­alised pop­u­la­tions. At least one-third of this amount – USD 6.8 bil­lion (INR 520 bil­lion) – came from par­tic­u­lar unspent wel­fare funds ringfenced for the ben­e­fit of con­struc­tion work­ers. This mon­ey had been accu­mu­lat­ing through a spe­cif­ic tax on con­struc­tion projects passed into law in 1996. This was enact­ed fol­low­ing the post-1970s boom in the Indi­an con­struc­tion sec­tor, and the con­comi­tant rise in con­struc­tion work­ers who remain out­side the purview of weak de jure and even poor­er de fac­to labour pro­tec­tion. The Indi­an Supreme Court and Audi­tor Gen­er­al have con­sis­tent­ly rep­ri­mand­ed the gov­ern­ment for fail­ing to spend the mon­ey col­lect­ed for this pur­pose and for its lim­it­ed polit­i­cal will to do so. Indi­an region­al gov­ern­ments have now been direct­ed to use these monies – often used to pro­vide long-term pen­sions and health­care – for imme­di­ate and direct cash trans­fers to all reg­is­tered con­struc­tion work­ers, chang­ing the time hori­zon of the fund.

The cen­tral gov­ern­ment also announced the free­ing up of anoth­er USD 1–1.4 bil­lion (INR 75–105 bil­lion) from a dif­fer­ent set of funds col­lect­ed from min­ing com­pa­nies for the ben­e­fit of com­mu­ni­ties adverse­ly affect­ed by large-scale min­ing, which had sim­i­lar­ly been accu­mu­lat­ing as a result of a 2015 law. The Act was a result of the mas­sive expan­sion of min­ing activ­i­ty, fol­low­ing lib­er­al­i­sa­tion of the sec­tor in the 1990s, which led to huge socio-eco­nom­ic dis­lo­ca­tions and envi­ron­men­tal dam­age. The state used its emer­gency pow­ers to repur­pose the monies away from mit­i­gat­ing the impacts of min­ing on local com­mu­ni­ties, and towards empow­er­ing local admin­is­tra­tors to spend it on health­care in any Covid-19-affect­ed dis­trict. As in the EU, spe­cif­ic and reg­u­lat­ed social wel­fare funds have been repur­posed to sup­port the gen­er­al good, to be spent at the dis­cre­tion of nation­al and local administrators.

UNPACK­ING UNSPENT FUNDS: REFRAM­ING STATE-SOCI­ETY RELA­TIONS AND DEMO­C­RA­T­IC ACCOUNTABILITY

In response to the pan­dem­ic, gov­ern­ments have direct­ed unspent social wel­fare funds for pur­pos­es or pop­u­la­tions they were not orig­i­nal­ly meant to ben­e­fit. Inter­est­ing­ly, this redi­rec­tion has unex­pect­ed­ly revealed why these funds have remained unspent in the first place. It has con­firmed the ambit of bureau­crat­ic obsta­cles like low insti­tu­tion­al capac­i­ty to man­age a high vol­ume of funds, offi­cials keen to avoid respon­si­bil­i­ty for mis­al­lo­ca­tion or chal­lenges in iden­ti­fy­ing ben­e­fi­cia­ries. Anoth­er key rea­son for funds remain­ing unspent is the insti­tu­tion­al frag­men­ta­tion and com­plex­i­ty that marks both our cas­es, whether between supra­na­tion­al, nation­al and sub­na­tion­al bod­ies in the EU; or between fed­er­al bod­ies, region­al lev­el insti­tu­tions and local dis­tricts in India.

The emer­gency mobil­i­sa­tion of these funds can thus be under­stood as a way to sus­pend or bypass the cum­ber­some mech­a­nisms reg­u­lat­ing their distribution

With every­thing from ben­e­fi­cia­ry iden­ti­fi­ca­tion, to anti­cor­rup­tion mech­a­nisms, to mon­i­tor­ing and eval­u­a­tion, to the funds them­selves hav­ing to run through a com­plex con­stel­la­tion of insti­tu­tions, tar­get­ed social wel­fare funds often fail to be dis­bursed to their designed ben­e­fi­cia­ries. The emer­gency mobil­i­sa­tion of these funds can thus be under­stood as a way to sus­pend or bypass the cum­ber­some mech­a­nisms reg­u­lat­ing their dis­tri­b­u­tion. Yet these mech­a­nisms, for all their faults, are enshrined in law and tied to path­ways for account­abil­i­ty and demo­c­ra­t­ic con­trol of pub­lic expen­di­ture. Bypass­ing or weak­en­ing them thus comes at a price to key pil­lars of func­tion­ing democ­ra­cies such as par­tic­i­pa­to­ry deci­sion mak­ing, trans­paren­cy and answerability.

In the case of the EU, the flex­i­bil­i­ty afford­ed to mem­ber states in spend­ing ESIF makes them less account­able to the Euro­pean Com­mis­sion and recon­fig­ures prac­tices and loci of account­abil­i­ty. As mem­ber state pol­i­cy agen­das become more impor­tant to their allo­ca­tion, ESIF are less like­ly to enact forms of trans-Euro­pean cit­i­zen­ship through path­ways of account­abil­i­ty between EU insti­tu­tions and cit­i­zens. As ESIF now fil­ter through nation­al modes of cit­i­zen­ship, account­abil­i­ty is frac­tured through a wide range of dif­fer­ing state-soci­ety rela­tions, which are them­selves made frag­ile by the state’s emer­gency exec­u­tive pow­er. In India, changes in admin­is­tra­tors’ dis­cre­tion in spend­ing these funds is also redescrib­ing state-cit­i­zen rela­tions. They are fil­ter­ing away forms of cit­i­zen­ship premised on the state’s care for par­tic­u­lar vul­ner­a­bil­i­ties – as well as the state’s account­abil­i­ty to vul­ner­a­ble groups for rem­e­dy­ing them.

Our cas­es demon­strate a set of unin­tend­ed polit­i­cal and insti­tu­tion­al effects of the emer­gency mobil­i­sa­tion of unspent social wel­fare funds under Covid-19. Polit­i­cal­ly, it changes what both “wel­fare” and “social” might mean. In the case of Indi­an con­struc­tion work­ers, “wel­fare” is trans­formed from a long-term to a short-term phe­nom­e­non as monies meant for pen­sions are hasti­ly dis­bursed as cash trans­fers. With respect to the min­ing sec­tor, “social” is trans­formed from a con­cern with the vul­ner­a­bil­i­ty of a min­ing-affect­ed social group, to a con­cern for the health of the gen­er­al pub­lic. And in the EU, “wel­fare” is trans­formed from a set of social ben­e­fits to health­care ones; while “social” is rede­fined from a geo­graph­i­cal­ly dif­fer­en­ti­at­ed phe­nom­e­non of poor­er and rich­er areas to one that is at once pan-Euro­pean (since ESIF can be trans­ferred to rich­er regions also) and nation­al (as mem­ber states take on more pol­i­cy-mak­ing con­trol). The emer­gency mobil­i­sa­tion of these funds is thus a vehi­cle by which the state par­tic­i­pates in defin­ing “soci­ety” and the kinds of wel­fare it deserves and should pri­ori­tise, with­out any pub­lic debate or scrutiny.

Insti­tu­tion­al­ly, this not only reshapes state-cit­i­zen rela­tions, but does so in ways that recast the demo­c­ra­t­ic account­abil­i­ty of the state more broadly 

Insti­tu­tion­al­ly, this not only reshapes state-cit­i­zen rela­tions, but does so in ways that recast the demo­c­ra­t­ic account­abil­i­ty of the state more broad­ly. Emer­gency appro­pri­a­tion of funds is, of course, lim­it­ed by the gen­er­al account­abil­i­ty deficit of excep­tion­al exec­u­tive action. But this deficit is ampli­fied as the appro­pri­a­tion of these funds recon­fig­ures the iden­ti­ty of legit­i­mate or rel­e­vant stake­hold­ers, their modes of par­tic­i­pa­tion (de jure and/​or de fac­to) in the allo­ca­tion of the funds and their stand­ing to hold deci­sion-mak­ers to account for that allo­ca­tion. Par­tic­i­pa­to­ry mech­a­nisms of deci­sion-mak­ing may become a casu­al­ty of such emer­gency redi­rec­tion of mas­sive unspent funds, as may mon­i­tor­ing by civ­il soci­ety. States may, in turn, rein­force their exec­u­tive pow­er in a sus­tained fash­ion – not only through legal and con­sti­tu­tion­al means, but also by fis­cal means.