#142 The Games We Play 🎧

Game Theory in Afghanistan. Asset Monetisation. Indian Foreign Policy. Ehrlichian Mistakes. Defending The Engineering Mindset (maybe).

  
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Matsyanyaaya: Not So Great Game Theory in Afghanistan

Big fish eating small fish = Foreign Policy in action

— Guest Post by Ameya Naik

US intelligence agencies considered it likely that the Taliban would retake control of all or most of Afghanistan following US withdrawal. Their estimate, however, was that this would take weeks or even months; the idea that Kabul would fall in a matter of days was considered a worst-case scenario. Now that the worst case has played out, analysts are scrambling to explain why. 

One narrative thus has it that ANA was so poorly-trained - and its leadership so corrupt - that once U.S. military contractors left the field, Afghan forces had neither the motivation nor the acumen to resist the Taliban advance. As President Biden himself put it "...we could not provide them... the will to fight."

To test that claim, we can turn to Game Theory.

Game Theory stylises any decision involving two or more players as a "game". 

  • Each player can receive some "payoff" (or outcome) from the game. 

  • Payoffs are "contingent", i.e. the payoff a player receives depends partly on their own decisions, partly on the decisions of the other player or players. 

  • One assumes players will act rationally, making choices that maximise their payoffs. 

  • Thus, if we know the payoffs each player can receive, we can predict their choices, and thereby also the outcome of the game.

The most famous example of this is the Prisoner’s Dilemma: a game in which two people suspected of committing a crime are being questioned independently. If both deny committing any crime, the authorities will only be able to convict them of a minor offence (slightly bad outcome). However, if one of them bears witness against the other, the authority will let the snitch go free (best outcome) while convicting the other of a major offence (worst outcome). The textbook prediction is that both suspects will crack, and wind up with the worst combination of outcomes. 

However, the classical Prisoner's Dilemma is limited in one important way: it is a single-turn game. The players only make a choice once, at the same time, without knowledge of each others' choices - and then the game ends. A more realistic scenario is what is known as a repeated game. A repeated game has multiple turns: the same players interact, under the same rules, with knowledge of the choice made by the other players in the previous turn. 

Imagine that the suspects are schoolchildren and the authority is the Principal of the school. No one is going to jail; even if neither child knows what the other is saying to the Principal, they do know they will both interact on multiple occasions thereafter, both in class and outside it. 

Even with the same payoff structure, the outcome starts to look different: knowing that we have to meet the other person every day makes us far less likely to crack - or "defect", in game theory jargon - because they could punish our defection on the next turn. In a repeated game, players make decisions "in the shadow of the future".

The political scientist Robert Axelrod modelled a repeated game in The Evolution of Cooperation. He demonstrates that the optimal strategy for such games is what he calls "Nice Tit-for-Tat".

  • Start by complying (being nice to the other player)

  • If they comply, continue complying (happily ever after)

  • If they defect, punish them by defecting on your next turn.

  • If they respond to your defection by complying, they have accepted the punishment, so go back to complying again.

  • If they defect again, you should also defect again (Tit-for-Tat) - a downward spiral until and unless they switch to complying.

A key insight from Axelrod's work is that this strategy only works if the total number of turns is unknown. Why? 

  • If the number of turns is known, we can try to pull a fast one - complying until the penultimate turn, but then defecting on the very last one (turn N), when there is no possibility of punishment thereafter.

  • The other player is not a fool. They know we are likely to defect on the final turn, so they will take precautions: they will defect preemptively, on the penultimate turn (N-1). 

  • Since we know they will do this, we will defect on the turn before that (N-2). 

  • They know we will do this, so they will defect on the turn before that one (N-3) - and so on till the whole chain unravels.

The deterrence of future punishment only works if the number of turns is unknown. We can think of this as an infinite game or at least an indefinite one.

What does all this have to do with Afghanistan? When President Trump committed to pulling out U.S. troops by a specific date, and then when President Biden made clear he would uphold that commitment (even with a different date), they converted an infinite game into a finite one. 

An open-ended U.S. presence was a signal of potentially unending US involvement, complete with punishment for behaviour the US considered unacceptable - for instance, overthrowing the US-supported government in Kabul.

Afghan leaders broadly shared the assessment of the U.S. intelligence agencies: the Afghan government could not survive if US support was withdrawn. (Whether this is objectively true is beside the point; it seems to have been the mental model of the Afghan provincial governors, military leaders, and in all likelihood Afghan soldiers themselves.) With withdrawal confirmed, why bother resisting - especially given the Taliban's inhuman tactics, including targeting family members of soldiers, and threatening reprisal killings once they take power?

Once the average Afghan believed that a Taliban victory was inevitable, the finite game unravelled. Players chose to defect (surrender / retreat / literally defect to the Taliban) at every step, and the timeline towards the fall of Kabul accelerated dramatically.

Biden is precisely wrong. The US was providing Afghan leaders and forces with the will to fight, not by training and equipping them, but by making the prospect of a Taliban victory impossible. Given U.S. domestic sentiment favoured withdrawal, a better question might have been: even without a U.S. military presence on the ground, could the US establish deterrence against the Taliban?


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India Policy Watch #1: NMP, Another Gamechanger? 

Insights on burning policy issues in India

— RSJ

The Union government this week announced a National Monetisation Pipeline (NMP) with the aim to unlock value in existing infrastructure projects. The idea is simple and draws from the pioneering “Asset Recycling Initiative” done in Australia between 2013-16. Select assets that are already generating revenues (like roads, railway stations, power plants), lease them out to private sector bidders for a defined period, transfer the revenue rights to them, take an upfront payment for the lease, work out some revenue share arrangement on an ongoing basis, and have a few checks and balances to ensure the private sector doesn’t gouge the consumers on pricing or runs the asset to the ground over the years. That’s it.  

The government expects to raise ₹6 lakh crores in the next four years from this which it will use to fund greenfield infrastructure projects. To make sense of this number, the Union budget size this year was around ₹35 lakh crores. In the speech, the FM had reiterated the intent to spend ₹110 lakh crores over the next 4 years to create a National Infrastructure Pipeline. About 85% of that amount was to be raised through the traditional sources of capital (government borrowings) and the balance was to be taken up through innovative mechanisms. One such mechanism was the creation of a new Development Finance Institution (DFI) which would build a lending portfolio of ₹5 lakh crores in three years. The other mechanism is the NMP announced this week. 

So, what do I think of this? Let’s look at the reasons for doing this. 

  1. Our economic engine was slowing down even before the pandemic. Things have gotten worse since. The government can manage to keep its base in thrall with its favourite social and cultural issues for a while but the hard economic realities will eventually bite. This is true even for this government regardless of their narrative building skills. We have a yawning infrastructure deficit in the country. It is a prerequisite for growth. Investment in infrastructure has a tremendous multiplier effect and it has the potential to generate new jobs.  

  2. The government has to take the lead in starting the Capex cycle. The private sector has burnt its fingers in the last decade and huge NPAs in the banking system are proof of it. The private sector, for all its vociferous support to all government initiatives, has barely contributed to the gross capital formation in the last decade. 

  3. The interest rates globally are at an all-time low and there’s a capital glut everywhere. China is no longer a safe option with its crackdown on private capital. There’s no better time for India to raise capital. The government has limited fiscal space given the impact of the pandemic on its revenues. It is looking for ways to raise funds without widening the deficit further. India isn’t considered a great destination for launching greenfield projects. The state is capricious and the ease of doing business isn’t great. So, the best option is to offer brownfield projects for monetisation. They are less risky because they are already ‘live’ and, possibly under-utilised. The idea is to have the private sector come in with better quality resources and efficiencies to generate an incremental return over what these projects were already doing. The government receives its ‘fair share’ and the private sector ‘sweats’ the asset more efficiently to make its returns. Win-win for all. 

  4. An outright sale of these assets is out of the question. It will be politically untenable even within the BJP. A long term lease might be as good as a sale considering many of these assets won’t have that kind of a lifetime. But lease sounds politically more palatable than sale in a country that’s reflexively socialist. 

It is difficult to argue with the rationale above. This is not one of those instances in public policy where everyone is clamouring let’s do something; this looks like something; so, let’s do this. The solution arrived at fits the problem statement. That is not a bad start when you look at the history of ‘gamechanger’ moves of this government.  

But the usual arguments against it have been made in the past few days. Let me run through them: 

  1. “We are handing over our core national assets to the private sector or foreigners.” This is quite bizarre. This is a lease and the state, like we have repeated many times over, holds unbelievable powers in India to change the rules of the game midway. In fact, this is one of the reasons why we might have few takers for this programme. The history of raising the foreigner or private sector bogey has done us no good over the years. But this never goes out of fashion. 

  2. “This will lead to the monopoly of two industrial houses who are already entrenched in this ecosystem.” There is a real danger of this happening. It is likely that we won’t have too many bidders for these assets or the game is rigged to favour a few industrial houses. The nature of assets being monetised is such that monopolies are natural in them. You have only one 4 lane road to take between two cities, for instance. So, a couple of companies controlling many of these assets could mean exploitative pricing. My counter to this is a bit cynical. We have a problem with monopolies in many sectors regardless of NMP. This has to be countered through anti-trust laws, debates in parliament, litigation and public awareness. Scuppering NMP won’t change this truth. In fact, a well designed, transparent NMP auction process might allow better funded and more credible options to emerge. That should be the focus here. 

  3. “This is well-intentioned but implementation will be key.” This is true for everything. Of course, we will need to have more specific details of the assets and their current revenue streams, we will need to provide clarity on how regulatory actions in future don’t impact the financial projections of these assets, we will need safeguards on maintenance and development of these assets when they are under lease and on future pricing of the consumers. The track record of this government isn’t great on implementation after making a big announcement. But that doesn’t mean there should be no attempt to do anything new. My hope is they learn from the past and put a plan that works.  

  4. “There should have been consultations and debates in parliament on this.” This is a necessary condition for any initiative of this kind. The private sector bidders are looking for stability in their revenue stream for a long duration (25 years or more). They will be reassured if they were to see a broader consensus across the political spectrum on this. The ability of the state governments led by those in opposition to throw legal or regulatory spanners in the works in the future shouldn’t be underestimated. The Union government would have made it easier for everyone by at least making an effort to have a discussion with the states and other political parties. But that ship has unfortunately sailed a long time back. This isn’t a government that believes in such niceties and any attempt to start now isn’t going to take it anywhere. This is the great tragedy of our current times. We cannot agree on a good idea in good faith. The Union government holds the can on this one. 

The pessimist in me expects this ‘big idea’ to follow the same course as other such ideas of this government in the past. Demonetisation, GST, Make In India, Aatmanirbhar Bharat etc. We will have sporadic successes and we will soon forget it and get started on another new thing. That will be a pity. Because we really need a multi-year Capex cycle to get going for our future.


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India Policy Watch #2: Shivshankar Menon on India And Asian Geopolitics 

Insights on burning policy issues in India

— RSJ

What should be the primary objective of India’s foreign policy? 

I often ask this question to people who are well-read and have a view on world affairs and India’s place in it. The answers often disappoint me. This isn’t because they are wrong. I mean who can say what’s the right answer for such questions. It is because they don’t give an answer that I think is right. Heh! 

So, imagine my happiness in reading a book where the author and I are on the same page on this vital question. That the author happens to have been a Foreign Secretary and a National Security Advisor of India in the past makes this the newsletter equivalent of “chhota munh, badi baat” on my part.  

Anyway, I had written a couple of weeks on The Long Game by Vijay Gokhale and I had mentioned in passing about Shivshankar Menon’s India And Asian Geopolitics: The Past, Present. Menon’s book is a broader analysis of India’s choices in a century where Asia will play a bigger role in the world with the inevitable rise of China. It is a deeply insightful and richly argued book. Menon is an old school liberal with a keen intellect, a comprehensive understanding of geopolitics and a believer in the values on which the modern Indian state was founded. I have taken a few extracts from his book where he discusses the central objective that should guide India’s policy towards the world.  

To begin with – what should be the task of our foreign and security policy apparatus and how have we seen ourselves in the global order? Menon writes: 

“Since Indian independence, the primary function of Indian policy has been the great national task of transforming India into a prosperous, strong, and modern country. The task of the foreign and security policy apparatus is to identify, deter, and defeat threats to national security that could prevent that transformation and to create an enabling environment for India’s transformation. This will remain the nation’s purpose for a long time to come, so long as India has poor, illiterate people who live insecure lives threatened by disease and who cannot fulfil their potential. Why should many Indians live in what Juvenal called ‘a state of ambitious poverty’ which affects all Indian in so many ways? 

Until recently India has a vision of both its place in the world and of the order it preferred. That was of an order that was rule-based, democratic, and plural, that would assist in the transformation of India. To this end, India saw itself as a responsible stakeholder in the international system, was a willing contributor to international peacekeeping and to solidarity among developing countries, and was an active participant in the multilateral order. India was one of the greatest beneficiaries of globalisation decades.” 

Menon is no fan of our newfound desire to be a ‘’vishwaguru”. This isn’t because he doesn’t believe in our civilisational values. It is just that he is a realist. No ‘soft power’ of this nebulous kind is going to help us with our objectives. He argues: 

“For the last few years, however, India seems adrift in terms of a vision of India’s role and place in the world. There has been an obsession with India as “a leading power” and its standing in the international order. Spokespersons for the Modi government have spoken of statecraft as “a battle of civilisations, battle of cultures, basically the battle of minds.” They have also concentrated on India’s civilisational glory and spoke of regaining it, PM Modi has spoken since 2015 of India as a vishwaguru, or world teacher. 

The idea of vishwaguru probably plays well with Modi’s core Hindu constituency at home but is hardly a realistic goal when contemporary India is a net importer of knowledge, is not known for innovation, and must still do a great deal to spread primary education to its people and raise educational standards to acceptable levels in its institutions of learning. Nor is it clear how vishwaguru status would address the immediate problem of livelihood and security that the Indian people and nation face. Becoming a vishwaguru is hardly the answer to India’s security, economy, and development needs and what they require from the international system. In any case, the first Modi government saw precious little done to move India towards this nebulous goal, which may be just as well.  

India is and has been an important player on the world stage with its own interest and will continue to be so. And yet, the purpose of our participation in the international community is not to see how many people we can outdo or push down. It is to uplift our own people and to improve their condition…” 

And lastly, Menon might be among the last of the dying breed of Nehruvian but he is objective about Nehru’s foreign policy lapses: 

“The narrative about India as a great power seems driven more by a desire for status and recognition than by the outcomes the quest for great-power status is likely to produce for the Indian people, society, state, the subcontinent, and the world. What is missing is a vision of India’s place in the international system and its goals, as Nehru was able to articulate in his time, even though he was not always entirely in touch with the realities of power and therefore saw some of his policies fail.” 

The book is a wonderful history of our foreign policy written with insight and passion. You might occasionally disagree with his views but, in the end, you are left in no doubt this is a book written by a man who feels deeply for India. 


India Policy Watch #3: Today’s Ehrlichians

Insights on burning policy issues in India

— Pranay Kotashane

We consistently write here on why the oft-repeated narrative that India’s population is the root cause of its ills, is problematic. This week, I came across an excerpt in Jason Crawford’s delightful MIT Tech Review article discussing this narrative. He writes:

The 1968 book The Population Bomb, by Paul and Anne Ehrlich, opened with a call for surrender: “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate.” In 1970, Paul Ehrlich reinforced the defeatism, saying that in a few years “further efforts will be futile” and “you may as well look after yourself and your friends and enjoy what little time you have left.” Because they saw the situation as hopeless, the Ehrlichs supported a proposal to cut off aid to countries such as India that were seen as not doing enough to limit population growth.

This book went on to be a hit in the 1970s. The population alarm it amplified eventually led to the Indira Gandhi government’s draconic sterilisation programmes and China’s one-child policy.

Though Ehrlich’s alarmist prediction was falsified, the fear-mongering continues to resonate even today in our policy discourse. Today’s Ehrlichians argue, without batting an eyelid, that states having relatively higher population growth rates should be penalised financially and electorally. Financially, by making the Finance Commission transfers contingent on their population growth rates, just like Ehrlich argued for cutting off aid to India. And electorally, by stalling delimitation of constituencies.

Now, there are perfectly good reasons for making Finance Commission grants contingent on the states’ governance record. Similarly, there is a debate to be held whether another round of electoral delimitation might be of any use when our parliamentarians are shackled by the anti-defection law. And yet, it’s the Ehrlichian argument that often gets deployed.

At a philosophical level, by making “We, the people” itself a problem, it provides the Indian state with a ready excuse for its underperformance. At a factual level, it ignores that India’s population growth rates across states are on a decline. All states are at different points of the same journey.

We should shun these Ehrlichian notions. They became irrelevant a long time ago.

PS: It turns out that linking fiscal transfers to population control was also an Emergency creation. The National Population Policy of 1976, among other things, made 8% of the Union government’s assistance to state plans contingent on their performance in family planning.


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A Framework a Week: Public Policy Solutionism

Tools for thinking public policy

— Pranay Kotasthane

This week, instead of a framework I have a desirable “frame of mind” for participating in Indian public policy discourse. The inspiration comes from the same essay by Jasan Crawford I quoted above. Titled Why I’m a Proud Solutionist, the essay says:

“To embrace both the reality of problems and the possibility of overcoming them, we should be fundamentally neither optimists nor pessimists, but solutionists.”

..

The term “solutionism,” usually in the form of “technocratic solutionism,” has been used since the 1960s to mean the belief that every problem can be fixed with technology. This is wrong, and so “solutionism” has been a term of derision. But if we discard any assumptions about the form that solutions must take, we can reclaim it to mean simply the belief that problems are real, but solvable.

..

Solutionists may seem like optimists because solutionism is fundamentally positive. It advocates vigorously advancing against problems, neither retreating nor surrendering. But it is as far from a Panglossian, “all is for the best” optimism as it is from a fatalistic, doomsday pessimism. It is a third way that avoids both complacency and defeatism, and we should wear the term with pride.”

Wise words, these.

Given the daunting challenges that India faces, it is easy to fall into the traps of visceral pessimism or unreal optimism. Or to end with sterile conclusions such as problems are complex, “we don’t have enough data”, or “there’s a long historical chain that explains our current problems”. Academics might deride solutionism for its attempt to solve something layered and complicated, libertarians might mistake this mindset for centralisation, and bureaucrats might hate it because some solutions go beyond incrementalism.

Each of these criticisms has some merit but the public policy mindset must attempt to learn from them instead of discarding solutionism. Without this mindset, confronting tough trade-offs inherent in every policy alternative becomes impossible; every problem comes across as a wicked one.

Moreover, it is easy to find PolicyWTFs — there is no shortage in the Indian context. But a solutionist frame of mind can help us reflect on policy successes instead of limiting ourselves to lampooning policy failures.

Finally, a solutionist mindset makes for better stories. Given how stories are so central to human existence, it is important to give chance to the idea that even intractable problems — such as climate change — can be solved. It’s only this belief that can ward off cynicism.


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HomeWork

Reading and listening recommendations on public policy matters

  1. [Paper] A well-written review of India’s population control policies by Gabe T Wang

  2. [Article] A Smithsonian piece by Charles Mann on the book that incited a worldwide fear of overpopulation

  3. [Article] John Lloyd in Quillete on a brand of anti-racism in the UK that’s endangering individual liberty.

  4. [Article] Andy Mukherjee writing in The Print on Asset Monetisation: What is the best asset monetisation plan? Modi govt can learn important lessons from Australia


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