Headline on Kuensel, 19 May 2018

This headline might bring excitement in some people – and solace in others. A pay raise? Yes, of course, why not? It is about time. When was the last raise, anyway? With living standards increasing month by month – and not even by year-by-year, it is absolutely necessary. Right?

Well, think again.

Did the last pay revision leave us in a better position? I don’t think so. In fact, some of us might be in a worse situation than before. What guarantee is there then, that this time around, we would be able to solve our financial woes – once and for all? Are we not stuck in this vicious cycle of salary-increase-everything-increase zero sum game? Won’t it cause another increase in cost-push inflation of basic commodities in the market?

I say we, although I am no longer a civil servant now. But for much of my career spanning over 25 years I have been in the government or in a state-owned corporation. I won’t be surprised if the talk of pay raise in the government has already prompted some unscrupulous owners to increase the rent from next month. Jaigaon merchants would have acted on it for sure.

I started my career in 1986 in the civil service with Nu. 875 as my take-home salary. And with that, not only did I have a comfortable life, I used to also send money to help my parents educate my two younger siblings and my cousins. My last salary with allowances when I left the government in 2013 was Nu. 45,000. Honestly, let me say that I was relatively ‘poorer’ in 2013 than I used to be in 1986. Meaning, I had very little spare cash. I don’t deny that life now is more comfortable than it used to be in 1986. But the cost of living in Bhutan now is ridiculously high for the size of our economy that, at times, it can be very stressful for everyone. Hence, I am not sure if we are happier now.

Rich gets richer – and poor poorer

For some decades now, regardless of the pay revisions and promises of the so-called hydropower wealth, most of us are, in fact, stuck in the hand-to-mouth doldrums with no savings – and living under the illusion that we are better off than before, while in effect we are not. Instead, we unwittingly continue to fill the pockets of merchants and manufacturers from across the border – and the cash rooms of our banks. Offsetting the higher living cost through pay raise has, as a matter of fact, proven time and again, to be a complete failure.
Not only.

The gap between rich and poor is further widened with each raise. This is because of the flat-percentage pay raise, which sounds fair but is an illusion. Phrases like across-the-board are often used, which are a total eyewash. For example, 30% hike for a 5,000 basic salary is just 1,500. But a 30% of Nu. 50,000 comes to a whopping 15,000. The flat-percentage model is, therefore, seriously flawed. The new basic pay goes from 5,000 to 6,500 for lower rung, and from 50,000 to 65,000 for a dasho, thereby increasing the huge gap even further. Any surprises then that the rich are getting richer and the poor poorer? The grocery store will not, however, discriminate between the ‘servant’ and the ‘master’.

Furthermore, while the salary increase for many doesn’t even cover a week’s vegetable supply, for the high-income group it leaves a sizable disposable income. This additional liquidity triggers spending on imported goods and fuels massive foreign currency flights – especially on luxury items such as cars, iPhones, flatscreens and holidays and pilgrimage in foreign destinations. Ever heard of the Rupee crunch? Now you know one reason why it happened.

Meanwhile land prices in the urban areas of Thimphu has shot up by 10,000 times between 1986 and 2018.

A plot of land that I eyed in 1986 for Nu. 4,000 (which I didn’t have and so I didn’t buy) is now valued at 40 million or 4 crore (US$ 600,000). It is cheaper to buy an island off the coast of Fiji in the South Pacific than a plot in Norzin Lam. It is impossible for our salaried working-class to buy a house in Thimphu, or in any major urban areas with their monthly income. Hence, the mass exodus of educated Bhutanese people to Australia – especially from the teaching cadre.

Another point.

If the flat-percentage model creates disparity, a flat-sum-for-all, say Nu. 10,000 for everyone irrespective of grade, is not the solution either. It narrows the gap, no doubt. And if I have to advise, I would choose the flat-sum version. However, the cost-pull inflation will still be there, as traders and landlords will raise the prices anyway.

The solution

The answer to the rising cost of living is not another pay raise for civil servants.

The way to go about this is, first, to control inflation – especially the rents. Invest in a serious study to understand the root cause of high rents – and make adequate policies and enact stronger legislations. Start with a dialogue with the banks, building owners and builders. Experience from other countries have shown that if you control the housing rentals in an economy, everything will fall in place.

I am not a banker or a real estate dealer. But I did engineering in college and practised it for ten years, and dare I say that our construction techniques are outdated, and inefficient and the industry is ridden with wastes, thefts, corruption and arrogance. All these have huge bearing on the final cost of the buildings. It is not only the interest rates on the loans.

Second, is to subsidise some 10-12 essential items that people need to survive – fuel, electricity, rice, flour, milk, egg, oil, chilli, tea, soap, sugar etc. This way the basic needs for a decent life are secured for everyone – including the civil servants, and the benefits of the State resources are spread evenly across the whole nation – irrespective of whether you are a farmer, civil servant or a private sector employee. Once the prices of essential items are under control, the cost of other goods and services will stabilise on their own.
More importantly, a cheap, clean and reliable public transport system needs to be introduced so that people don’t have to own, or use, cars. Whether it is done in form of a state subsidy, tax breaks or through public-private partnerships, this ought to be done – lest the much-touted revenues from hydropower export are returned to the sender in entirety for the petroleum products that flow in from there.

Of course, such bold moves from the elected government will not necessarily translate into votes at the polling stations because it won’t be visible. Both the voters and politicians seek instant gratifications nowadays. Visibility is what we all care for – in this era of selfies and social media. Nonetheless, I have faith in my compatriots that there would be leaders someday who will dare to embrace this inclusive concept without caring much about polls or promotions – or for the civil servants caucus that determines whether your party wins or loses the general elections.

In proposing this, I am neither a genius nor crazy. The above ideas are tried-and-tested formulas in many countries. In the UK and France, milk is cheaper than bottled water. Farm products are highly subsidised there. In Italy, city buses and tram rides are almost free. In Macau every citizen receives an annual check from the government when there is a surplus budget or high inflation. Kuwait gives 75 litres of free petrol per month to every citizen.

Even in India, from where we get all our inspirations, the Food Corporation of India takes the role of providing essential food items at subsidised rates, while house rents there are strictly regulated by the Rental Act. Ever heard of the famous Ration Card?
Market controls won’t be a novelty in Bhutan either. Some of these were in place in the 1980s. Those days the Department of National Properties (DNP) would fix the rents of private houses after measuring the livable area. No private or government houses can be rented out without their approval. For instance, in 1987, my rent for a two-room hut in Kala Bazar was fixed at Nu. 120, which was one eighth of my gross salary. Yes, I lived in Kala Bazar.

Nowadays more than two third of your salary goes into house rent. What a sin? Why was the DNP system discontinued? Was it because the decision-makers were also the house owners?
Until the 1980s, our own FCB – Food Corporation of Bhutan, had below-the-MRP food and home items sold and advertised (see picture below). But again, I guess, somewhere along the way, someone must have come up with a brilliant idea that FCB should sustain on its own because it is a “corporation”. In Bhutan, there is no such thing as institutional memory. FCB was established to redistribute food and sell at subsidised rates – and not to compete with grocery stores or make profits. It is supposed to stock up food while buying surplus productions to stabilise the market prices – and release them during poor harvests or in case of natural or man-made calamities.

Recently I ran into the CEO of FCB and he did mention about reinstating those food schemes. Perhaps again, he must have lost out to the many cannot-do people that flood our government and bureaucracy.

Inequalities and consequences

The salary raise for 27,000 civil servants is funded mainly from the revenues of the hydro-power export. Firstly, isn’t the country’s wealth supposed to be distributed equitably as per the Constitution? How sustainable is it to spend 60% of our annual budget on 4% of our population? Is that not happening at the expense of other sectors such as culture or manufacturing? It is not enough for the government to fall back on free health and education while dishing out endless perks and privileges to a small section of the population, at the expense of the State funds. Little wonder then that there is a growing resentment against the system among the private sector.

The scarier thing is that values such as a sense of belonging to the nation, patriotism, ownership or social responsibility will decline once people don’t have physical place to call home. For Bhutanese, who are descendants of highlanders, farmers and forest dwellers, identity is a physical place. Distancing and alienation are already happening as more and more children of the Bhutanese diaspora make Australia and the US their home.

Secondly, our market is largely state-driven and hence the civil service, and whatever happens around it or in it, has huge bearing on the economy. This aspect is often underestimated, sidelined or not understood at all. We are then dismayed that the private sector is never taking off.

The thing to note is that human history has not been kind to large social inequalities, and glaring divisions between haves-and-have-nots.

This can be really dangerous for a nation. More so now when information and fake news travel from finger to finger without passing through the brain. That’s why in Japan, the ratio between the highest and the lowest salary is maintained at less than four. And that’s the reason you don’t hear about “poor Japanese people”. They don’t exist in a country of 130 million. So Japan will never face a social upheaval like in the UK with this Brexit thing – or like in the US with ongoing White Nationalism. Popular discontent will manifest in strange ways, mind you.

In Bhutan the salary ratio between the highest and the lowest salary used to be around 8 times in 1986 but has drastically gone up to 30 times with the last two salary hikes. As a consolation we are, of course, much better than the Americans whose top CEOs earn as high as 400 times compared to their lowest-earning employees. This is one single big reason why there is some much resentment in the US against the traditional political class.

The glaring social gap that I saw there (I was a visiting scholar in University of California at Berkeley in 2014) was the reason why I predicted that Donald Trump would win when he announced his nomination. Every polls and pundits were for Hillary Clinton.
In conclusion,

if we still decide to go ahead with the pay raise for civil servants, please do not forget to re-read this post after a decade (with few more raises by then) and ask yourself, if you are better off. I can bet anything that you won’t be – and lesser still will be those who are not in this rarefied and privileged world of civil service.
Conversely, how about that we all benefit equally? Maybe some of us will get lesser than anticipated but we can all be better. And above all, above all, the most important thing is that, we don’t have to take anybody’s drin (favour) as a nation.

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NB:

1. I have not mentioned the negative impact on the growth of the private sector by civil service pay rise each time. It might sound more as a sour grape but the fact is, the salary increase in the civil service has clipped the wings of the private sector. Ask anyone from BCCI.

2. Not to boast but when I handled the pay raise for BBS in the early 2000s (we had to do our own because we were SOE), we went for a flat rate and not on flat percentage. Low ranking staff in BBS, especially, still remember me for that even to this day. TA/DA for drivers were raised to the level of junior officers on the argument that drivers have the same human body and physiological needs.

FCB price list. They did their job back then. Where did they lose the plot? (Photo : Kuensel page, 1987)