#253 A Puzzle Called Regulation

No Masala Magic, A Book Recommendation, Democratic Dyads, and Compassion vs Empathy

India Policy Watch #1: Asli Masale Sach Sach??

Policy issues relevant to India

— RSJ

I’m sure you would have heard by now of the heat generated in the global export markets about Indian packaged spices, specifically, the products from two of our leading spice makers, MDH and Everest. CFS, the Hong Kong food safety regulator, said:

“samples of several kinds of prepackaged spice mix products were found to contain a pesticide, ethylene oxide.”

“Members of the public should not consume the affected products. The trade should also stop using or selling the affected products immediately if they possess any of them,” it advised. Soon, the Singapore regulator, SFA, followed suit.

Ethylene Oxide (ETO) is considered a Group 1 carcinogen by the International Agency for Research on Cancer. In a separate report, the Indian Express also reported about the actions taken by the US customer authorities over the past six months on spices from India. Its report stated that the United States customs authorities refused 31 per cent of all spice-related shipments exported by MDH Pvt Ltd over salmonella contamination in the last six months. The refusal rate since October 2023 has doubled from 15 per cent for all shipments sent in the year prior. The FDA had physically inspected MDH’s manufacturing plant in January 2022, during which it noted that the “plant did not have adequate sanitary facilities and accommodations”. It also observed that the plant’s “equipment and utensils were not designed and constructed to be adequately cleaned or maintained to protect against contamination”.

Lastly, just last week the EU too got into action. According to the report published by the European Food Safety Authority on 23 April 2024, Ethylene oxide (RD) is a substance that is not approved at the EU level. “However, out of 2026 samples where ethylene oxide was analysed, in 47 samples, the MRL (Maximum Residue Level) was exceeded (2.3%). Of those, six samples were of Curcuma coming from India, five samples were of chilli peppers from India and Uganda, five samples of peppercorn from India, Vietnam, and Lebanon, and four samples of dried beans from India.”

The response to these reports in India has been quite predictable. MDH and Everest have flat-out denied that their products contain any carcinogens and claimed all their export consignments are assessed and certified on quality by the Spice Board of India. Predictably, they have also invoked subtle nationalism to paint themselves as victims in some kind of global conspiracy against our spices. The FSSAI, the food regulator in India, has conveniently washed its hands off the exercise by claiming they don’t check export consignments. No one is wiser on whether the domestic spice packets have the same level of ETO that HK and Singapore authorities have found or are salmonella infested like the consignments sent to the USA. The Spice Board of India has sought detailed reports from the regulators in HK and Singapore before they can arrive at their conclusions. Separately, they have promised to strengthen quality checks of exports from here on. Lastly, the government has urged the WTO to set global standards for residue levels in various food items that are then followed by all member countries rather than have differing standards around the world. After all, letting each nation define its own standards can mean they can use this to impose a non-tariff barrier on products coming into their country which goes against the idea of arbitrary tariffs imposed by member countries. 

This is all fine but it still doesn’t answer the question that should be important for all Indian consumers. Do the packaged spices they buy from stores in India contain carcinogens beyond permissible limits? How safe are these spices for our children? There is no urgency to answer this question considering it's been more than 2 weeks since the news first broke. More if you consider the FDA’s reports on the hygiene standards of MDH plants that came out almost a year back.

India has a regulator for everything because the government likes the idea of control even if the market can act as a self-regulator in many areas. However, food is one area where the information asymmetry between consumers and producers is wide, and only a regulating and certifying entity can assure consumers about what they are putting into their bodies. However, different regulators have different views on when they should act and the extent to which their actions should go to penalise an errant player.

Take, for instance, the banking regulator. Over the past 6 months, it has banned multiple entities from undertaking key business activities in the interest of the customers or the financial stability of the banking system. The latest action was against a large private bank which, from the outside, looked well run with satisfied customers. This bank has been stopped from using its digital property to onboard new customers and prohibited from issuing new credit cards till it gets its IT systems in order. Now, it is important for customers to know how financially sound their bank is, and a lot of regulations in the sector are to make sure that this information asymmetry is addressed for customers by the action of the regulator. However, the regulatory actions in stopping a bank from doing business because of IT deficiencies are different from this. Customers can experience the technology capabilities of a bank through the various interfaces that a bank provides, like mobile banking apps or Internet banking. You would then expect that a regulatory action on account of IT deficiencies would mean there would have been significant and recurrent outages and inconvenience for customers on a regular basis. But that’s not obvious in this case or in some of the previous actions that have been based on this reasoning. So, we have a scenario where, on one hand, we have the spices we consume on a daily basis being pulled up around the world for being unsafe, but we have no immediate action from our multiple regulators in this sector. On the other hand, we have very strict action being taken by a regulator in another sector without significant customer grievances only in anticipation of things that could possibly go wrong. It’s weird. 

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Book Review: Essential Reading

— RSJ

Talking about regulators, state capacity and market, let me whole-heartedly recommend Accelerating India's Development: A State-Led Roadmap for Effective Governance by Karthik Muralidharan

Coming in at about 800 pages, this is a comprehensive analysis of the issues that impact the effectiveness of the state and provides a roadmap for how we can get better at governance. I have been dipping in and out of the book, picking areas that interest me. The book is structured in a way that allows for this though I don’t think Prof. Muralidharan would like you to follow my suit. The book makes a case for the importance of state capacity and how we can get better at building an effective state and then uses that framework to pick 6 key areas where state capacity can be used more effectively to improve outcomes. It follows this up with a chapter on reimagining institutions and bringing the state, citizens and society together to make it happen. 

I have picked up a couple of passages from the early sections of the book to give you a sense of the core theme of the book and the quality of Prof Muralidharan’s writing. I will post a few more passages as I go further into it.

“A core argument of this book is that India’s weaknesses in basic service delivery reflect inadequate investments in the capacity of the Indian state to deliver these goals. However, investing in state capacity does not imply that we just need to increase public spending on health, education, law, or the police. As shown throughout this book, a large body of research evidence has documented the very poor quality of expenditure under the status quo. In other words, the translation of public spending into desired outcomes is highly inefficient. In addition, our tight fiscal situation and relatively low tax-to-GDP ratio imply that large increases in public expenditure are often just not feasible.

Thus, what we need is not just higher public spending to solve our massive social and developmental problems. Rather, what we need is to reimagine governance to focus on improving the effectiveness of the Indian state, and to do this in a way that reflects data and evidence, and pays much more attention to efficiency and cost-effectiveness. Such a reimagination will require us to not just do ‘more of the same’, but to redesign, rebuild and reinvest in key structures of the Indian state.

One way to characterise our situation is to imagine the Indian state as a vehicle in which we are all travelling towards a higher-quality life. Unfortunately, at present, the vehicle is like a slow-moving, overworked car from the 1950s. Political parties compete to determine who gets to drive the car and where to steer to it. But the car can barely move.”

On the key issue of how the government should see its role vis-à-vis the private sector, Prof Muralidharan provides a simple conceptual framework:

“(on private sector)… governments and civil society often hold mixed or even negative views towards them. This ambivalence often contributes to unpredictable and arbitrary government actions towards private providers, which creates an uncertain policy and regulatory environment for both providers and consumers.

To optimise the government’s interface with the private sector it is essential to have conceptual clarity on its three distinct roles in shaping the service delivery ecosystem: policymaking, regulations, and direct provision. As policymakers, governments enact laws regarding private participation in a sector, make commitments on public service delivery, and allocate budgets to meet them. As regulators, they set and enforce rules for providers covering parameters such as safety, quality standards, transparency, and pricing. Lastly, as providers they directly run public systems to deliver services.

Distinguishing between these three roles is crucial because the government’s approach towards the private sector should vary in each role. As policymakers, governments should view the private sector as an ally, because they contribute to service delivery, and policymakers should aim to ensure that citizens obtain high-quality services regardless of whether they use public or private providers. As regulators, governments should treat the private sector as an equal, applying regulations uniformly to all providers, regardless of public or private status. Finally, as providers, governments may see the private sector as a competitor since they compete for users.

In practice, the majority of government personnel and budgets are allocated to its role as a provider. So, the default pattern of thinking within government often focuses on its direct provision role. As a result, the policymaking function ends up focusing more on the interests of the department as a ‘provider’ rather than the interests of citizens.”

As I said before, it is a book densely packed with ideas and provides a practical guide on how to implement them. It is a tremendous addition to public policy literature, and I suggest you buy it today. 

P.S.: There’s also a Puliyabaazi with the author on the core reform ideas from the book. Listen in.

भारत के विकास की चाबी। Accelerating India’s Development with Karthik Muralidharan

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Matsyanyaaya: How do Democratic States Perceive Each Other?

Big fish eating small fish = Foreign Policy in action

— Pranay Kotasthane

Indo-US relations have encountered a few speedbumps over the past couple of weeks. First, the POTUS offhandedly called India and Japan ‘xenophobic’ countries. His team later clarified that the context was domestic—speaking at a fundraising event, Biden meant that the US is far more welcoming to immigrants than these countries. Strictly speaking, India has an estimated 5 million immigrants (2015 figure), while the US had nearly 45 million in 2022. So, Biden is true in a narrow sense. Nevertheless, being clubbed with countries such as China and Russia on this count obviously rankled many Indians. The External Affairs Minister responded that India has always been an open society and that the Citizenship Amendment Act is precisely meant to “open up doors for people who are in trouble”.

Second, the US’ “toolkit” controversy got some Indians smirking. “Didn’t the US cry hoarse about the declining academic freedom the last time something similar happened in India? The US is getting a taste of its own medicine finally” they say.

Frankly speaking, the NYPD Deputy Commissioner holding up an innocuous book titled “Terrorism: A Very Short Introduction” on TV as proof of “radicalisation” was quite reminiscent of the “threats” that Indian agencies saw in the shared Google Docs students were using for organising protests.

These two instances indicate something deeper about the structure of the India-US relationship, and perhaps about the structure of all bilateral relationships. Let me explain.

In edition #165, I proposed that any bilateral relationship has three pillars: state-to-state relations, state-to-people relations, and people-to-people relations. The illustration below shows how these pillars look in the India-US case.

Back then, I made the point that the people-to-people relationship in the India-US dyad has always been the driving force, while the state-to-state relationship has improved significantly over the past decade. But the people-to-state pillar has always been the weak link.

The two instances that I discussed at the beginning of this post further strengthen this point. Many Indians continue to hold a negative view of the American State while many Americans hold a low opinion of the Indian State. My wish was that the two sides should work on this pillar if they aim to collaborate on more fronts.

However, I now feel that the people-to-state pillar is highly unlikely to improve. In the Information Age, every issue is global by default, and the cross-cutting narratives end up amplifying the negative aspects of one State to the other State’s citizens. For instance, the narrative that India is a failing, oppressive democracy gets a lot of mileage in the American media (and is a predominant narrative on social media chatter about India). On the other hand, the narrative that the American State is a hypocritical, unreliable partner that will drag India into its meaningless wars has always enjoyed a lot of support in India.

The corollary is that for the partnership to be sustained, the improvements on the state-to-state and people-to-people pillars should collectively exceed the downward trends in the people-to-state pillar. The US government forewarning the Indian government that the Washington Post was going to publish new details about the alleged assassination plot illustrates the value of strengthening the other two pillars.

I wonder if this assertion can be generalised to all dyads where the two partners are both democracies. When either partner is an authoritarian regime, one half of the people-to-state pillar doesn’t matter. For example, what the Saudi Arabian citizens think of the American state is less relevant because they cannot influence the foreign policy of an authoritarian regime in most situations. Authoritarian states can also control—to a limited extent—how they are perceived by citizens of a partner country through tighter control over the domestic information environment by suppressing failures and amplifying successes. This explains why the Chinese state continued to enjoy a favourable disposition in the eyes of the American people through the naughties.

While it may be true that two democracies are less likely to go to war, it is also far tougher to grow a budding partnership between two democracies in today’s open information environment.

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India Policy Watch #2: Compassion, not Empathy

Policy issues relevant to India

— Pranay Kotasthane

It is a cliché to say that policy analysts should be more empathetic. And like many other such pronouncements, it is wrong. What good policy analysis needs is compassion, not empathy. Here’s why.

Empathy is the ability to understand and share the feelings of another person. It involves stepping into someone else's shoes and experiencing their emotional state as if it were one's own. Perhaps, this ability is of great importance to active citizens and activists.

However, empathy can become a bane for policy analysis as it leads analysts to become overly invested in the plight of a specific individual or group, distorting their perspective and causing them to overlook broader systemic implications. This myopic view can result in proposing emotive, simplistic solutions that fail to address the root causes of complex societal issues. For instance, empathising with small farmers who are unable to pay loans might cause a well-meaning analyst to recommend a simple solution such as loan waivers. But the prospect of a future waiver creates a moral hazard—more people end up taking unsustainable loans, and in cases when these loans aren’t waived off, some might even take the extreme step of committing suicide.

Dutch historian Rutger Bregman makes a similar point in Humankind: A Hopeful History:

“I began to see that empathy resembles the… news. Just as empathy misleads us by zooming in on the specific, the news deceives us by zooming in on the exceptional.

One thing is certain: a better world doesn’t start with more empathy. If anything, empathy makes us less forgiving, because the more we identify with victims, the more we generalise about our enemies. The bright spotlight we shine on our chosen few makes us blind to the perspectives of our adversaries, because everybody else falls outside our view.”

[Humankind: A Hopeful History, page 215]

These dangers are amplified in public policy analysis. An analyst may inadvertently favour the struggles of individuals or groups they can relate to more easily and undervalue the needs of other stakeholders. Moved by emotion, such an analyst is likely to ignore the unintended consequences of government action, which may often make the situation worse than it currently is.

So, what’s a better lens for policy analysis? It could perhaps be compassion. Compassion represents a more detached and rational concern for the general well-being of all people. It is rooted in a desire to alleviate suffering on a broader scale. Compassion allows policy analysts to maintain a degree of emotional distance while still recognising the inherent dignity and worth of every individual affected by their decisions.

With compassion as a guiding principle, policy analysts can weigh trade-offs, consider unintended consequences, and think of solutions that promote the greatest good for the greatest number of people. Compassion encourages analysts to look beyond individual narratives and examine systemic factors, the general equilibrium, and long-term implications, ultimately leading to fairer policy recommendations.

So while empathy can be a powerful motivator for activists and advocates, it is a poor fit in public policy. Policy analysts should instead strive for compassion.

I’ll leave you with (once again) Bertrand Russell’s powerful observation about the empathetic Marx:

“Marx pretended that he wanted the happiness of the proletariat, what he really wanted was the unhappiness of the Bourgeois. And it was because of that negative element, because of that hate element, that his philosophy produced disaster. A philosophy which aims to go good must be one inspired by kindly feeling, and not by unkindly feeling.”

Compassion, not empathy.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Post] This post on what goes into building a semiconductor fab on the Construction Physics substack is marvellous.

2. [Review] PRS' Monthly Policy Review series is a fantastic compilation of headline policy developments.

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