Stalwarts Unscramble Knotty Secrets of Economic Policy
Book Review: In Service of the Republic The Art and Science of Economic Policy
 
Authors: Vijay Kelkar and Ajay Shah
 
This book could well have been titled ‘In the Service of the Public’ since it helps the lay reader understand what has gone wrong with the economic policy process and how economic governance should take place. An objective scrutiny of the journey of the economic policy over the 70-odd years since independence leaves one befuddled, if not disappointed. While the government has become increasingly intrusive, governance has ceded space to arbitrary policies and patchwork solutions. 
 
Of late, there has been a spate of books on economic policy and prescriptions which list failures and make recommendations without really saying why well-intentioned initiatives failed or how the process can be improved.
 
Given the formidable credentials of the authors, one could have expected a heavy tome laden with statistics or arcane solutions. The author duo has, instead, chosen to address the reasons for policy failures and has done this in a way that is easy on the reader. 
 
The book covers a broad sweep of the policy-making process particularly in the economic arena, which is backed up by real-life examples. The narrative is crisp and focused, despite being spread over 400+ pages. Ideas and concepts are presented neatly bundled under catchy chapter headings containing succinct case studies. Take, for example, the chapter titled ‘Why things go wrong?’
 
Because we are flying blind. How? The policy-making and execution suffer from information constraint and knowledge constraint amongst others. A key concept explained very simply is marginal cost of public funds (MCPF). MCPF tells us the cost to the society of every rupee of public spending. As taxpayers—and all of us pay taxes, such as GST—this should concern everybody. The authors go on to show that, as a thumb rule, the cost to society for every rupee of public spending is around three rupees. It follows that we should only spend one rupee when we are sure that the gains to society exceed three rupees. Most importantly, this book highlights the systemic shortcomings that lead to policy failure and presents realistic ways of bridging the gap between intention and outcome.  The book does this by explaining the art and science of policy-making and then goes on to describe the public policy process.
 
What also makes the book an engrossing read is that the authors have given real-life examples under each heading, which have the readability and distilled wisdom of Aesop’s fables! The narrative is liberally sprinkled with quotes and aphorisms: “Democracy is the system where wicked people lie to stupid people”: being an example of the latter.
 
The science of economic policy-making revolves around understanding human behaviour. In our ecosystem, lofty ideals fall prey to commonplace weaknesses. We tend to think that once we have put a law or a rule in place, people will fall in line. Market failures are approached the same way—make yet another rule! The book quotes time-tested truths: from Rahim’s exhortation “don’t use a sword when a needle will suffice” to Rajagopalachari’s warning about how the management of policy affairs gets ceded to untrained bureaucracy which is interested only its own survival. This explains the increasing regulatory creep in various sectors. We have set up regulators without a clear roadmap or the requisite regulatory capacity and more importantly, have placed in charge career bureaucrats lacking domain expertise.
 
A very aptly titled chapter is ‘Common Sense on Taxes’. The authors demonstrate why raising tax/GDP ratio is the wrong way to think about tax policy. Naturally, GST gets a special mention—an entire chapter is devoted to it. Another important revelation is the capacity constraint confronting the policy-makers. In most situations, there is a paucity of intellectual capacity in the country. We lack data, knowledge, experts and teams that know how to work with each other. In this context, the authors also draw upon international examples ranging from the one child policy in China to clean-up of Rhine River in Europe. 
 
The narrative is informed by authors’ belief in a liberal ethos and the wisdom of the markets: “A good society is one in which individuals plan and live on their own terms, in a state of confidence over long time horizons.” 
 
 
The purpose of public policy is to create the enabling conditions for such a life. The best framework of public policy is one in which the state impinges upon the lives of individuals as little as possible. In a liberal democracy, the relationship between the policymaker and the individual is not the relationship between the ruler and a subject. The policy process is a process of negotiation. Confident policymakers work in the open. Working in the open signals capability.  One sentence would especially resonate with all “…the most harmful events are those where a policy announcement shows up on a website in the evening without any prior warning and is effective next morning.”
 
As the book traces the history of various reform measures and regulatory initiatives over the years, it makes for scary reading! The overarching prescription is that policy-makers should put a high priority upon the reforms that clarify property rights and reforms that improve the working of the judiciary. It is difficult to see any signs of this happening.
 
This book should be made compulsory reading for civil servants at all levels, the need for which is neatly summed up in the phrase “we should prioritise the good night’s sleep of the populace but not of civil servants”. It is easy to see that while the book ostensibly concerns itself with economic policy making, it can as well be applied to understanding the governance issues that the country is facing today.
 
In Service of the Republic 
 
The Art and Science of Economic Policy 
Hardback 448 Pages | ISBN13 9780670093328 
Rs699.00 
 
 
(Shrirang Samant has worked in senior leadership roles in the General Insurance Industry, both in public and private sectors, in India and abroad. He has been privy to the transition of this industry from public to private sector in the country and was the founding CEO of a multinational insurance joint venture- JV in India.)
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Ramesh Poapt

    3 months ago

    good one!

    Bottle of Lies: What’s behind the Pharmacy of the World
    Millions of lives all over the world have been saved by the innovation of Indian generic pharma companies. With a majority of pills consumed around the globe being manufactured in India, global healthcare depends on Indian pharma manufacturers for its very existence. As a result, India is widely regarded as the ‘pharmacy of the world’. Companies like Cipla revolutionised global healthcare by ensuring that everyone, not just the rich, have access to medicines. Fire in the Blood, a movie by Dylan Mohan Gray, documents the story of how Cipla innovated to ensure that HIV AIDS can be successfully combated all over the world, starting with in the developing world and now globally. In the book, Dr RA Mashelkar describes this as “Gandhian Innovation”—frugal in cost but efficient and progressive. 
     
    The book describes that development of the regulatory framework of USFDA (US Food and Drug Administration) over the past century and the various tragic events that resulted in the USFDA gaining more and more authority to regulate medicines to ensure that they worked to cure patients. However, it was the Hatch—Waxman Act that opened the floodgates for generic competition to branded drugs in the United States. As a result, generic drugs are often 90% cheaper than the patented branded drugs in the United States and now account for about 90% of drug sales (by volume). When US doctors prescribing generic drugs realised that they were not seeing patients respond to treatment in the same way as they did to branded (i.e., patented) drugs, they and patient advocacy groups realised that something was wrong, but the USFDA assured them that generic drugs were chemically the same as branded drugs. This explanation did not make sense to them and was the cue for the author to investigate the generic pharma industry.
     
    Katherine Eban (Bottle of Lies; Harper Collins; Rs1,500) investigates the rise and growth of generics, especially the dominance of Indian and Chinese generic pharma companies and finds some bitter truths. She find a culture of jugaad with not even a remote connection to anything either Gandhian or innovative. Her extensive research, review of regulatory materials from the USFDA and interviews with FDA inspectors, regulators, doctors and employees of pharma companies paints a scary picture for all of us. She describes the terrible conditions in many factories which manufacture our medicines, the poor employee training, lack of quality standards and worst of all, the reckless attitude of pharma companies towards patient safety. There are several examples of dirty manufacturing plants with insects, birds, vermin and even a monkey living there, poor employee hygiene, unsafe manufacturing and quality control practices, unacceptable storage conditions and falsification of data—all pointing to a massive concerted cover up at the highest levels of pharma companies—to try to hide all these from drug regulators. She describes, in vivid detail, almost like a movie script, the various events—corporate meetings where major issues were highlighted and cover-ups planned, FDA inspectors experiences of visiting Indian factories, the working of the USFDA and at the heart of it all, the life of Dinesh Thakur, the most famous whistleblower whose testimony and evidence led to the eventual demise of Ranbaxy and the highlighting of the underbelly of Indian pharma companies. 
     
    If the story is about the USFDA and generic drugs in the United States, why should this bother Indians? The story of manufacturing for India and other 'third world' markets is even more shocking, if that is possible. The quality of raw materials used, the manufacturing processes and lower standards, and the resulting drugs for the Indian and third world markets are even worse than those for the US markets. Doctors in India and Africa are sceptical about unbranded generic drugs in the same way as the doctors in the United States are and now we know why! 'Export quality' still retains its significance—it is reverse racism and it is shameful! If the USFDA is described as 'weak kneed, incompetent and corrupt', there are not enough words to describe the state of the Indian regulator. There are several instances of powerful executives in large pharma companies being able to ignore with impunity the little regulation that there is in India and even take pride in being able to get away with it.
     
    Over the past few decades, as Indian pharma companies have risen up the value chain, they have been importing raw materials that they were previously manufacturing, from China. As the author investigates these suppliers, she finds that the situation in China is much worse than in India! This should worry us too for two reasons: however good the manufacturing process, it cannot make good products with poor quality raw materials and the Indian pharma industry is entirely dependent on China for its raw materials. Although the government is aware of this issue, very little has been done to address it. One only has to travel to the pharma clusters like Dahej, Ankleshwar, Baddi and Pitampur to get a sense of what the ‘rust belt’ would have looked like in the United States. Poor infrastructure and the lack of civic amenities is shocking. One really can’t expect a global business to be able to function in this environment which forces the culture of jugaad which is anathema to GMP (good manufacturing practices), the foundation of drug regulation. 
     
    Indian pharma companies are essential to global healthcare but, unless they address all the issues that the book identifies, there is a real risk to lives around the world. At the heart of it is the corporate culture of non-compliance, built on unquestionable hierarchy and personalities rather than strict rules that are non-negotiable. If India is to play a major role in world affairs and be relevant in this millennium, healthcare is a great opportunity – it’s an opportunity that has been developed over the past three decades but could easily be its greatest weakness if it does not honestly face up to its issues. It is in the interest of all stakeholders to do this but will they? Will the government wake up and do more than issue meaningless policy statements? Is there is a strategy for India to be relevant in global affairs and does it include healthcare? These are some questions for the new government and the timing of the book couldn’t be better.
     
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    atul naik

    10 months ago

    Propaganda book to put Indian pharma companies in bad light.Trying to scare away patients from buying economical generic medicines.

    Anil Kumar

    10 months ago

    Thanks. Great summary and information.

    AMIT KUMAR

    10 months ago

    Indian Pharma sector has been in doldrums for at least last 3-4 years. But not much has changed in the sector. Can you really expect anything worthwhile from this new-old govt? All they know is to run election campaigns.

    For a Few Dollars More…
    Bad Blood is a story that has been be told, thanks to the courage, persistence and methods of John Carreyrou, a twice Pulitzer Prize-winning journalist of The Wall Street Journal
     
    It took him over three years of intense follow-up, standing up to the pressures from law firms, surveillance and the fact that the owner of the firm was a personal investor in the fraud that he exposed. 
     
    The book tells us that money is the greatest invention of man and is beyond the realm of right and wrong, when it comes to lawmakers.
     
    John unveils the story of a bio-tech start-up named Theranos headed by a charismatic Ivy League dropout whose ambitions were, perhaps, surpassed only by her deviousness and viciousness in trying to keep the fraud going. 
     
    Elizabeth Holmes, charmed potential investors with a story about her technological capabilities that would bring affordable and miniaturised diagnostics in the area of blood testing. Her skill and strategy can be inferred from the fact that she started the story in 2003, at the age of 19, and succeeded in raising nearly a billion dollars from investors and got a ‘valuation’ that was close to 20 billion dollars!
     
    The book is a page-turner. With each page, the greed and desperation of Elizabeth Holmes keeps getting firmer and the methods used to suppress staff and disbelievers is nothing short of ‘mafiaesque’. Using the legal system to threaten dissenting employees, using greed to make the partner of a hotshot law firm a director and attorney after giving him stocks, using outright subterfuge and threats to cover her tracks, the story is thriller.
     
    The charm and deviousness of the lady is evident from the marquee names that were persuaded to join her board—Henry Kissinger, George Schulz (former US Secretary of State), William Perry (former US Secretary of Defence) as well as a former senator, a retired admiral from the US Navy, a retired general from the US Army, the former CEO of Bechtel, ex-chairman of Wells Fargo and, last but not the least, David Boies, founder and chairman of Boies Schiller & Flexner, a top notch corporate law firm. 
     
    Most board members were given stock options and their greed kicked in to ensure that they worked to protect her from attack. The lawyer was used to silence employees who figured out what was happening and left, taking heed of the voice of their conscience.
     
    Another important player in the story is her boyfriend, Ramesh Balwani, 20 years her senior, who joins the executive management to help keep mouths shut through terror and threats. 
     
    Apart from the story of greed and fear, what is amazing is that the con game went on for nearly 15 years. 
     
    The big takeaway, for me, is not in the storyline. This book is calls for serious introspection by venture capitalists (VCs) and private equity investment managers and investors. 
     
    In May 2018, John Carreyrou reported that American business and government leaders lost more than $600 million of private investments in Theranos. Major investments had been made by the Walton family ($150 million), Rupert Murdoch ($121 million), Betsy DeVos ($100 million) and the Cox family (of Cox media group - $100 million). The final liquidation of the company in September 2018 rendered these investments completely worthless.
     
    Venture capital is essentially an adventure in action. They back an idea that has potential and can be scaled up big time. Often, VCs end up seeing stories where there is none because their focus, often, is on the promoter and his/her passion. A charismatic promoter can sidestep all due diligence, as happened in the case in Theranos. 
     
    Law firms drafted reports; accountants must have seen the numbers; and not one of them showed an iota of common sense. Of course, no law touches these intermediary enablers who seem to sign on the dotted line, provided the fee is right. VC investment managers seem to have been overcome by their fear of being ‘left out’ and eschewed asking tough questions. Some of the marquee investors took big calls based on their ‘gut feel’ and were probably swayed by the charisma of Elizabeth Holmes. What is truly surprising is that most of them seem to have just invested on the basis of a storyboard; and, even after putting money in, never bothered to find out what was happening. So long as new money was coming in at higher valuations, the party went on. Human greed has no boundaries. 
     
    The term ‘Wild West’ refers to America in the late-19th and early-20th century, a time when rules did not apply and scores were settled with guns. The period from 2000 onwards is a kind of ‘Wild West’ for the financial sector. There is no punishment for the perpetrator. Globally, countries seem to be competing with each other to attract and retain capital, with no questions asked. The punishment that was meted out to Ms Holmes—a two-year ban on participating in the blood-testing business—is absolutely laughable. Clearly, the odds are in favour of Bernie Madoff, Elizabeth Holmes, Enrons, World Coms and the VC industry that rolls the dice with other peoples’ money.  
     
    In our childhood, when we played cricket, the boy who owned the bat, ball and stumps made the batting rules. It is the same with capitalism, where the high priests of finance write the rules. I doubt if the Theranos story offers a lesson for anyone. There will be others like it and investors will pile on to them again. We see the foolishness of money managers from the fact that, even after the fraud was discovered, a distressed fund invested in Theranos in the hope of making a killing. The eminent board got away without any prosecution. The two main characters, Elizabeth and Ramesh Balwani, could get 20 years in prison, IF they are convicted. The firm of David Boies continues with its high-profile representation of the rich and the famous (https://en.wikipedia.org/wiki/Boies_Schiller_Flexner_LLP). 
     
    The book is being made into a movie and I suspect, rather sadly, that the character of Elizabeth Holmes will be an inspiration for many.  
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    AAR

    1 year ago

    Jews are an "entrepreneurial" lot. They monopolize the wall street. The Jewish investor group know their clan and how to support them.

    All major tech companies had support from their own investor group - Apple, Microsoft, Paypal, Ebay, Facebook, Amazon, Oracle, Google, Whatsapp....

    Bernie Madoff another Jew cleaned up Wall Street for decades. So is Elizabeth Holmes. If you see her board of directors most of them are Jews.

    My point is its not that nobody other than Madoff/Holmes are not aware of ponzi scheme. Every one knows. They keep supporting their own kind until it becomes so huge that they couldn't handle it anymore.

    Aditya G

    1 year ago

    It's a good book, but it could have been better. The second half felt rushed, IMO.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone