#18 Bindings of The Noble Profession
Implementation Deficit, the US-Taliban Deal, Karnataka State Budget, and lots of readings
This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
PolicyWTF: Legal Restrictions in the Legal Profession
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
It was an aha! moment for me when I read this in Mint last week:
Law firms are not in a position to accept foreign direct investment or domestic capital from non-lawyers because of regulatory restrictions and thus have to find capital from own resources for expansion.
It’s fascinating because this restriction can at least partially explain why our legal system is so costly, inefficient, and ineffective. Turns out that due to a misguided notion that sees ‘legal service as a noble profession’, infusion of capital from non-lawyers is seen as degrading professional independence. So, India-qualified lawyers are only allowed to partner with other India-qualified lawyers ruling out any merger or other financial partnerships with foreign lawyers or law firms.
Such a high entry barrier makes it really difficult for a new law firm to raise money. One can easily anticipate the unintended consequences: incumbent law firms are likely to recoup high charges from their clients, have cases running on over many sittings, and remain small because of lack of capital.
After reading this, I dug deeper and found out that the legal profession is in a dire need of liberalisation. An Economic Reforms 2.0 package must include measures to break the walls built around itself by a powerful interest group - Bar Council of India. More on the entry barriers in legal services in these two excellent articles:
Liberalisation of Legal Services in India, Nitesh Mishra, Law Times Journal
Liberalisation of the Indian legal sector: An imperative need of the day, Sarthak Sarin, India Law Journal
I’ll end this section with these lines from the first paper. PolicyWTF indeed!
It was held that liberalisation of this noble profession would increase the competition which the Indian Law firms will not be able to face. Thus, the Indian lawyers and law firms will lose their business to foreign nationals. Besides this, another hanging fear was based on the history of India and it was thought that if the foreign law firms are allowed it would lead to pseud-colonialism in India. It was believed if the foreign nationals are allowed to practice law in India it would hinder India’s sovereignty and force the Indian citizens to depend on them. These fears led to the continuous opposition against the liberalising of the Indian legal profession.
A Framework a Week: Policies, Programmes, and Practices
Tools for thinking public policy
In the last edition, the HomeWork section had a paper by Pritchett and Woolcock on public service delivery. This week’s framework comes from the same paper.
The Indian state is often characterised by an implementation deficit. Yet, the Indian state is better off at doing some things such as elections, Kumbh Mela, Polio eradication etc. To make sense of this paradox, I found this analytical framework quite helpful.
The key insight here is that in any sector, say health or education, there are four kinds of decision-making modes: practices, programmes, policies, and procedures. A state with implementation deficit can often make good policies, programmes, and procedures but its weakness gets exposed in tasks involving high discretion and high transaction-intensity. In other words, practices are a really tough nut to crack.
More from the paper:
We call discretionary but not transaction intensive activities policies. The clearest policy examples are in macroeconomics––lowering (or raising) the interest rate, devaluing (or not) the currency, setting a fiscal deficit target. These are all actions that intrinsically involve assessing the state of the world and taking an appropriate action, but implementation itself is not transaction intensive. The politics of policy reform may (or may not) require mass support politically, but ‘‘10 smart people’’ can handle the actual decisions and mechanics of policy reform. Their decisions require considerable professional training and judgment, and thus cannot be automated. Alan Greenspan is a maestro, not a machine.
In contrast, programs require thousands or millions of individual transactions and hence thousands or tens of thousands of ‘‘providers,’’ but each transaction can be (reasonably) carried out with relatively little discretion on the part of the agent responsible for implementation. In financial matters, an example is retail banking transactions, many of which can be carried out by a junior clerk (or for the most routine transactions, a machine). To implement a ‘‘program’’ the agents of the organization need only to stick to a relatively fixed ‘‘script’’, in which the choices are few and judging the choice appropriate to the situation rela- tively easy. The primary problems with programs are technical (finding an effective and least cost solution) and logistical (carrying out the mandated actions reliably).
The provision of those elements of services which are (more or less) discretionary and transaction intensive––‘‘practices’’––provide the biggest headache for even the most astute and well-intentioned practitioner, because they are intrinsically incompatible with the logic and imperatives of large-scale, routinized, administrative control. An analogy from private sector production is the difference between activities that can be either carried out in a large bureaucratic setting (e.g., manufacturing production) or via a franchise (e.g., fast food restaurants) versus those activities that are not amenable to large-scale routinization–– witness the generally small size (relative to the national market) of most law firms, physician practices, universities, household contractors, counselors, fine restaurants, and coaches.
The paper also has a nifty table classifying programmes, policies, and practices in a few key public services:
This framework is not prescriptive yet but this description of the implementation deficit itself is quite enlightening.
Matsyanyaaya: The US-Taliban deal
Big fish eating small fish = Foreign Policy in action
My take on the US-Taliban deal in a set of tweets is here:
Essentially, the US has committed to a full-withdrawal over 14 months. But the Taliban has not conceded much at all. I do appreciate that a withdrawal was inevitable but the way in which this has happened, it seems to be another humiliating moment for the US.
As for India, the Pakistani military-jihadi complex (MJC) will be celebrating this victory. There’s one view in the Indian strategic community that this is a pyrrhic victory for the MJC — Pakistan will be mired into the internal strife in Afghanistan and spend lesser energy on its eastern border.
However, this analysis misses two points. One, the cost of maintaining jihadi resources is very low. Pakistan can hold up on both fronts with this instrument. And two, it is now possible for the MJC to use areas along the Durand Line for training assorted jihadis and yet claim that Pakistan is free of terrorism.
For more on the US-Taliban deal, hear our conversation on the topic:
India Policy Watch: The Karnataka State Budget
Insights on burning policy issues in India
Some of us have been going on like a broken record that state budgets matter as much if not more as the union budget. Let me put that in perspective with just this one stat: the Karnataka government, for instance, will spend ~40K per resident this year while the Union government plans to spend ~22K per Indian.
Another important point about Indian fiscal federalism to keep in mind:
nearly 60% of all govt spending happens through state budgets. In fact, most of the social infrastructure (health, education, electricity etc.) is the primary domain of states and not the Union.
So it shouldn’t come as a surprise that we analysed the Karnataka state budget this year too.
Here are some articles for those interested:
Karnataka Budget could have done more to spur growth, my piece for Deccan Herald. I look at four drivers of economic growth for the state: Bengaluru, industry & services, agriculture, and underexplored sources of government revenue.
How long do we have to wait for Karnataka’s dream budget, Pavan Srinath’s article in the Hindu which makes the point that Karnataka will soon be a quarter- trillion dollar economy. A time-bound goal of 1 trillion dollars is a good target for aligning governance reforms.
How much does the state really spend on Bengaluru, another one from Pavan highlighting the underspending on India’s most globalised city.
HomeWork
Reading and listening recommendations on public policy matters
[Paper] Why Does the Indian State Both Fail and Succeed? by Devesh Kapur is a must-read for anyone trying to make sense of why the Indian state is better at doing certain activities but is terrible at most others.
[Paper] Tanvi Madan’s paper on Managing China: Competitive engagement, with Indian characteristics, outlines a few approaches for India in dealing with China.
[Blog post] Alex Tabarrok compiles results from several papers and says: to ensure that everyone has access to high-quality electricity, the government must credibly commit that electricity is not a right.
[Blog post] Dibyendu Mishra and Joyojeet Pal have some interesting data points on Indian politicians and the journalists they prefer.
[Podcast] Rahul Matthan and Justice Sri Krishna’s Ex Machina episode on data privacy in India is an illustration of public choice theory playing out in this domain.
That’s all for the week. If you like this newsletter, please do read and share.