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.

About

Shalini Randeria

Shalini Randeria is Professor of Social Anthropology and Sociology at the Graduate Institute Geneva, and Rector of the Institute of Human Sciences (IWM) in Vienna. She has published widely on the anthropology of globalisation, law, the state and social movements. Her empirical research on India also addresses issues of post-coloniality and multiple modernities.

Deval Desai

Deval Desai is Lecturer in International Economic Law at the University of Edinburgh, and Research Associate at the Albert Hirschman Centre on Democracy, Graduate Institute, Geneva. He researches law and the administrative state in the Global South, and has published on this in leading journals in law, political science, sociology, and public policy.

Christine Lutringer

Christine Lutringer is Executive Director and Senior Researcher at the Albert Hirschman Centre on Democracy, Graduate Institute of International and Development Studies, Geneva. Her work explores democratic practices in the context of the mobilisation of new social and political actors. She is a member of the SNF Sinergia project “Reversing the Gaze: Towards Post-Comparative Area Studies”.