One of the most persistent themes in politics around the world is a perceived lack of trust in government. And in many nations, government accountability can mean the difference between progress and impoverishment for millions of people.
There is a powerful tool that allows citizens to see how their governments pay benefits, handle taxes, and carry out all kinds of basic transactions. By connecting a basic mobile phone with new technologies provided by digital financial services — also known as DFS — we can empower nations with tools to track government benefits and tax payments with up-to-the-second precision.
The current state of government-to-person payments
Inadequate government transparency and accountability hinders progress in the fight against global poverty in fundamental ways:
1. It diverts funds that might otherwise go to the poor. Each year, billions of dollars are misdirected and misplaced as a result of fraud, corruption, clerical errors, and inefficient government-to-person, or G2P, payments.
2. It creates a vicious anti-development cycle. When citizens believe that government agencies are unresponsive and unaccountable, they are less inclined to cooperate with them, engage with them, or seek improvements in the way those agencies function. As a result, corruption and black markets flourish. Public services wither. And the poorest suffer the most.
3. It hinders the emergence of the “responsive state.” In what I call a “responsive state,” a virtuous cycle takes hold. Agencies demonstrate their efficacy and openness. Citizens feel empowered not only to trust these institutions, but also to offer constructive criticism and ideas for improvement. They feel invested in the proper functioning of government, both as taxpayers and as citizens. Under this scenario, public services improve over time — and the poor benefit from more robust, better funded development programs.
Digital technology and pro-transparency strategies
In addition to adding some 2 billion people to the formal economy, mobile phones and the digitization of financial services can save the government money, boost transparency, and cut leakages to unintended beneficiaries. In fact, a McKinsey Global Institute study found that by deploying digital products and services for public expenditures and tax collection, governments could save at least $110 billion yearly through reduced leakage in public expenditures and tax collection.
We are already seeing early signs of progress at a national level. The Mexican government’s shift to digital payments has reduced its spending on wages, pensions and social welfare by 3.3 percent annually, or nearly $1.3 billion each year. In Brazil, the national Bolsa Família program reduced its transaction costs from 14.7 percent of total payments to 2.6 percent when it consolidated several benefits onto a single e-payment card.
Transparency technologies: Electronic tax card
By combining digital cash transfers with emerging pro-transparency technologies, governments can build trust among their citizens. Todd Moss and Stephanie Majerowicz at the Center for Global Development argue that one way to improve transparency is to send out a digital tax card to government beneficiaries via an SMS text message or a similar digital channel.
The electronic card would clearly capture the amount of the government transfer, along with any taxes attached to it. By creating a record for each beneficiary, the card can become a powerful tool for enhancing government transparency and giving citizens a greater sense of trust in public services. Even with taxes, the transfer would be perceived as a net gain to the recipient, consequentially encouraging informal workers outside the tax net to enter the formal system and receive benefits.
The tax-card prototype below combines Moss and Majerowicz’s concept with two “transparency technologies” promoted by Stanford’s Vivek Srinivasan, who suggests that governments can promote mutual accountability among their citizens by sending a breakdown of how taxes are spent in their village, along with prompts for citizens to report if they received their payment in full or were asked to pay a bribe.
Sent and received by mobile phone, this message would provide both the citizen and the government with valuable information. It’s exactly the kind of simple, user-friendly measure that governments can adopt right now to enhance transparency, public acceptance and fiscal efficiency.
This and other digital services may take some time to implement, but the moment for governments to employ them is now. By enhancing government transparency and accountability, digital G2P systems can save money, improve the quality of services, and provide a powerful weapon against extreme poverty.
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Dan is a deputy director in the Bill & Melinda Gates Foundation’s Financial Services for the Poor initiative where he works to increase the poor’s access to digital payment systems. Dan is currently based in Seattle where he manages the FSP team’s Research & Emerging Technologies portfolio. He is a graduate from the Harvard Kennedy School’s Master in Public Administration in International Development program. Dan has worked on financial inclusion with the Centre for Micro Finance in Chennai, India and the Consultative Group to Assist the Poor in Washington D.C. Prior to his work in financial inclusion, Dan was as a venture capital analyst in the Silicon Valley.
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