Notes on In Service of the Republic, by Vijay Kelkar and Ajay Shah

A book that I have recommended unhesitatingly to students who ask me about how to go about learning public policy is “In The Service of the Republic” by Vijay Kelkar and Ajay Shah.

In this Monday post, I plan to write my observations from having read the book.

The book is divided into six sections:

  1. Foundations
  2. Diagnosing the Indian Experience
  3. The Science
  4. The Art
  5. The Public Policy Process
  6. Applying These Ideas: Some Examples

Part V and VI are the meat of the book, and that’s a good thing! If you are a student reading this book, it will be really helpful to have many, many examples of what the actual applications of the theoretical parts are.

What follows below are my highlights from having read the book, divided into four sections, with some commentary below each excerpt. The book is, it goes without saying, much much richer – and you should definitely read it, especially if you are interested in the field of public policy!


The Big Introductory Idea

The first question in the field of public policy is: What objectives of public policy are appropriate?

And for whom? For the government, for the people in society, for the elected representatives or somebody else? These questions need to be asked (and answered), for that changes the answers to the question in quotation marks above!

While the state is often seen as benign or benevolent, almost like an uncle or a parent, we have to remember that at the heart of the state, there is violence. The state acquires a monopoly upon violence. States establish conditions where nobody is permitted to engage in violence, but the state is able to inflict violence.

If this definition of the state strikes you as unusual, you should read, at the very least, this Wikipedia article.

The big idea of liberal democracy is to limit state violence into a controlled, predictable and just form.

That’s the plan, at any rate.



 

 

 

On State Intervention and Market Failure

The free market tends to overproduce things which induce negative externalities and underproduce things that induce positive externalities.

The price mechanism matters!

Markets work, but nothing ever works perfectly. People can (and should!) always debate how perfectly markets work, but it is simply an unavoidable reality that they sometimes fail.

Now, when they fail, it is usually because of one of the following four reasons:

Market failures come in four kinds: Externalities, Asymmetric information, Market power and Public goods.

When such a market failure occurs, a state intervention may be necessary. Without one or more of these factors being present, it absolutely isn’t necessary. But even with their presence, we’re on thin ice when we recommend that the state intervene:

When faced with a proposed state intervention, our first question should be: What is the market failure that this seeks to address? When market failure is not present, we should be sceptical about state intervention.

The state can intervene in three ways:

In many fields, we see three pillars of intervention: production (e.g., government running schools), regulating (e.g., government regulating private schools) and financing (e.g., government paying kids to attend private schools).

But the state can also intervene when there isn’t a market failure:

Forcing companies to spend 2 per cent of their profit on ‘corporate social responsibility’ is a use of the coercive power of the state that is not connected with market failure. Companies are rational economic actors, and if there is a problem with non-compliance, monetary penalties would suffice. When the law threatens to put individuals in jail for violating the rule, this is an excessive use of force.

And, pleasingly enough as an economist, every now and then, externality problems can be solved by the market itself:

In Maharashtra, there are professional beekeepers now charging farmers anywhere from Rs 1000 to Rs 3000 for renting out boxes for a month. 2 This presence of a private market for pollination services shows that this contractual solution is a feasible one. Through these private contracts, we have solved the externality problem, without a requirement for state intervention.


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Management is Hard!

It’s hard for anybody, anywhere. It is much harder for government:

There is quite a management challenge in identifying the 0.1 billion poorest people, and accurately delivering Rs 100 to them every day.

It is made harder for the following reasons (each of which is discussed in detail in the book):

Public policy failures are born of: (1) The information constraint; (2) The knowledge constraint; (3) The resource constraint; (4) The administrative constraint; and (5) The voter rationality constraint.

And “democratic decision making” is often problematic (also see Garett Jones‘ book about this):

Direct democracy also suffers from majoritarianism, the idea that policy should be made based on the views of 51 per cent of the population. We must question the extent to which ‘the voice of the people’ is the oracle that must be followed. There is much more to liberal democracy than winning elections.

Incentives matter, and policies have unseen, unintended consequences. The entire book is about this, but the following was my favorite passage by far:

In 1902 in Hanoi, under French rule, there was a rat problem. A bounty was set—one cent per rat—which could be claimed by submitting a rat’s tail to the municipal office. But for each individual who caught a rat, it was optimal to amputate the tail of a rat, and set the rat free, so as to bolster the rat population and make it easier to catch rats in the future. In addition, on the outskirts of Hanoi, farms came up, dedicated to breeding rats. In 1906, there was an outbreak of bubonic plague that killed over 250 people.

Update: Aadisht sends in this, from Discworld:

Shortly before the Patrician came to power there was a terrible plague of rats. The city council countered it by offering twenty pence for every rat tail. This did, for a week or two, reduce the number of rats—and then people were suddenly queueing up with tails, the city treasury was being drained, and no one seemed to be doing much work. And there still seemed to be a lot of rats around. Lord Vetinari had listened carefully while the problem was explained, and had solved the thing with one memorable phrase which said a lot about him, about the folly of bounty offers, and about the natural instinct of Ankh-Morporkians in any situation involving money: “Tax the rat farms.”

The Tinbergen Rule is really and truly important, and not just in public policy:

Public choice theory predicts that public organizations will favour multiple objectives as this gives reduced accountability. Clarity of purpose is efficient for the principal and not the agent.


Thinking about how government functions:

The five pillars of checks and balances—data, intellectuals, media, legislature, judiciary—all work poorly upon state governments.

As it turns out, not only is management hard, but management at the state level is even harder.

Why is there such a dearth of research when it comes to public policy?

At present in India, there is no community which systematically looks for fully articulated solutions. Academic journals do not publish policy proposals, hence academic researchers are not keen to invent policy proposals.

Or to use the jargon of public policy, we are missing incentive compatibility.

As Isher Ahluwalia says, nothing gets done by writing it in a government committee report, but nothing ever got done without it being repeatedly written into multiple government committee reports.

Public policy proceeds along the margins, and then very slowly!

Don’t fix the pipes; fix the institutions that fix the pipes. Old saying in the field of drinking water

The public policy equivalent of give a man a fish versus teach a man to fish

 


All this apart, the authors of the book also outline the “full pipeline”  of the policy process:

Stage 1: Collect data

Stage 2: Descriptive and Causal Research

Stage 3: Inventing and Proposing New Policy Solutions

Stage 4: Competing Policy Proposals are debated

Stage 5: Internal Governmental Debates, and Choice

Stage 6: Translate Decisions into Legal Instruments

Stage 7: Construction of State Capacity, Enforcement

I would personally add a stage 8: Monitoring, Evaluation, Feedback Loops.

But that quibble apart, the book is quite an education for anybody who hopes to learn more about the art and the science of public policy. If you are such a person, this book is certainly for you.

 

 

 

 

 

 

 

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