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
(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.)