Thoughts on economics and liberty

Why is our bureaucracy so inept? #2

Continuing from #1:

Are We Weak in Policy Design or in Implementation?

While bureaucratic leadership is obviously an issue, how does it impact performance? Does the poor performance of the Indian bureaucracy lie in bad policy or in poor implementation? Some commentators such as Paul Appleby and Gurcharan Das have suggested that poor implementation is a problem peculiar to India, and has allegedly arisen from a uniquely Indian trait of lack of action-mindedness. This view believes poor project management is the primary weaknesses of the Indian bureaucracy.
 
However, I don’t think there is some uniquely Indian trait we face. When Indians do decide upon something, they act effectively, as with India’s independence movement. Indian private sector performance, which is world class in many ways, also leads us to discount such notions, as does the outstanding performance of Indians who settle abroad. When faced with an improved system, the same ineffective Indians respond well and perform brilliantly. I agree that Indians haven’t displayed the action-mindedness needed in demanding freedom for their country and fixing the systemic problems discussed in this book, but that is because these issues have perhaps not been clearly explained to them earlier. Having said that, one can agree that poor project management is a major weakness in the Indian bureaucracy.
 
But the malaise starts elsewhere. I believe it stars with lack of systems thinking. Indians seem to be able to fit in beautifully into good systems designed by others, but rarely design good systems on their own. At least part of the blame for poor thinking skills must fall on our rote-based educational system which does not develop critical thinking. As a result the Indian bureaucracy fails most in policy conceptualization.
 
What kind of policy skills am I talking about? Both high level and operational. We elect our political representatives on the basis of their election commitments. These commitments, along with other policy choices that our political representatives make, can be said to constitute a nation’s ‘big P’ Policy. Given these Policies, a bureaucrat’s job is to design ‘small p’ policy, e.g. to:
  • design the drafting instructions for relevant laws and regulations;
  • examine the advantages and disadvantages of relevant options to implement the policies. This includes pointing out the risks of ‘big P’ policies. For instance, the design of import tariffs should specify the significant costs to the economy of having tariffs. The political representative is not obliged to agree with a bureaucrat’s advice. If the political representative insists on continuing with bad Policy, then the bureaucrat’s task is to design the least cost method of implementing bad Policy;
  • translate Policy innovatively into manageable strategic chunks (programmes), and design measurable deliverables and performance indicators; and
  • design the actual process to deliver these programmes, including tactical management through policies for building leadership and tactical skills.
In doing this work, policy skills of a very high order are required. Good policy is seamlessly deliverable as it takes into account all aspects of the delivery process. Through it, political decision-making and bureaucratic management skills align the political or strategic intent with tactical expertise. Good policy design mitigates most potential problems with implementation. In the end we don’t have bad implementation; we only have bad policy.Lack of project management is, in the end, merely a policy gap, needing appropriate policies to ensure such skills are properly developed and sourced.
 
We have seen how India’s ‘big P’ socialist Policy has been a total disaster. Since our socialist agenda was initiated by Nehru and his fellow-leaders, not by bureaucrats, we perhaps should not blame them for our bigger policy failures. In India’s case, though, bureaucrats have played a much greater role in determining ‘big P’ Policy than is played by bureaucrats in developed countries, given that most of our politicians barely have any interest in policy, or at most the haziest idea of what they want to achieve. Therefore the failures of India’s socialism have been considerably magnified by bad policy input from inept bureaucrats. In the end, policy which rolls out from New Delhi or state headquarters is, as a rule, not implementable.
 
Bad policy is policy that is unable to pierce the veil of incentives and predict, and therefore control, what will happen during implementation. Similarly, policy that believes that issuing an order or issuing a manual will get the job done is simply bad policy. The design of good policy maximizes the freedom of citizens while overcoming all reasonably foreseeable barriers to implementation.
 
Our ‘small p’ policies also fail to anticipate that lurking below each public servant – the person who will finally deliver the policy – is a full-fledged human being with predictable self-interested behaviour. Most of these self-interested behaviours are not, by any means, unethical – merely different from the public interest. While the self-interest of private citizens in the market leads to the amazing outcomes of coordination and efficiency discussed in Chapter 2, bureaucratic self-interest leads to the opposite results, of blocking freedom, of ineffectiveness, of needless paper work. The following reasons show why there is no natural method available to ensure effective outcomes inside a bureaucracy:
  • The market creates incentives for private manufactures to produce the greatest possible quantity of goods and services, of the highest possible quality, at the cheapest possible cost. This means, among other things, using the least number of people to get a job done. On the other hand, it is in a bureaucrat’s interest to produce the least amount of products, of the lowest product quality, at the greatest possible cost. This generally means using the largest possible number of people.
  • A producer makes the greatest profit by keeping his costs down, whereas the bureaucrat receives the most profit (salary) by increasing the number of people that report to him. Ineffective process design easily leads to more people being employed for each task, which, in turn, leads to a larger ‘empire’ for the bureaucrat, and to greater prestige.
  • The bureaucrat faces almost no constraint of funds. A seemingly infinite pile of money is always to be found inside governments – money which is best attracted not by creating a small and efficient organization, but by creating a mammoth, inefficient one. It is in a bureaucrat’s self-interest to complicate and confuse things so that more funds are always needed than are available. Bureaucrats complain, no matter how much money is poured into their organizations, that their ineffectiveness arises not from poor design but from inadequate funding; hence they need even more funding.
  • The bottom-line (salary) of the bureaucrat does not depend on his performance being assessed by the ‘market’, in this case citizens. No matter how a bureaucrat performs, his salary is assured. A business will go bankrupt instantaneously if it fails to perform, but governments don’t go bankrupt: they merely raise taxes or print more money. As a lifelong bureaucrat I know this strange feeling – of a huge amount of taxpayers’ money waiting to be spent at the ‘end of the year’ without any direct feedback from the citizens on whether this money should be spent or returned to them. No producer can even dream of this strange feeling, because every rupee he spends returns with instantaneous feedback from the market.
  • The producer’s interest is to master his discipline and to keep acquiring knowledge, since that knowledge will convert into profits. The bureaucrat’s interest, on the other hand, is to not undertake personal hard work or acquire knowledge. Instead, it in his interest to delegate every possible task to others, including to ‘consultants’. A producer therefore becomes smarter over time while a bureaucrat becomes shrewd, but also very ignorant and arrogant.
  • If we want a bureaucrat to remove a particular evil, such as poverty, the bureaucrat is reluctant to do so because if the problem is removed, then his job becomes redundant. So he creates complexities, writes abstruse papers for conferences and generally confounds matters.
  • While we pay the bureaucrat to advance our interests, it is quite likely that he is advancing sectarian interests on the sly; for instance, by hiring people only from his community. The complexity of the Indian economic, social and political environment creates a particularly high risk of bureaucrats serving interests different from the public interest.
  • A range of local factors also impinge on a bureaucrat’s incentives. Public servants working in remote small towns, development blocks or villages in India face very strong local pressures; even risks to their life. Being generally ill-paid, their financial privations play into the hands of corrupt local politicians and feudal interests. The bureaucrat can be readily ‘bought’ or pressurized.
A bureaucrat’s self-interest therefore sits in complete opposition to the public interest in most instances. This must be factored into good policy design. In particular, far greater effort must be put on systems of internal competition and accountability in India than is necessary in developed countries. Large private companies have similar problems in keeping their managers in check, but they have learnt to minimize this problem through the use of modern agency theory. Similar models must be applied to the design of our bureaucracy so that policy design becomes effective.
 
[Note: This is an extract from my book, Breaking Free of Nehru]

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