#36 Price Ceilings Have the Floor

Not one but 3 policyWTFs, Social Failures in the Migrant Crisis, Keepin' it Real with China, and lots more

May 24, 2020

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: Thoda Market Try Karo

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Raghu Sanjaylal Jaitley

Just the perfect flight fare

The Indian government announced this week that fares on domestic flights will be capped with both an upper and lower limit set for different routes. The minister for civil aviation was economic reason personified while announcing this. The upper limit will ensure airlines don’t gouge their customers who have been waiting to fly during the lockdown while the lower limit will prevent predatory pricing by hungrier or better-capitalised airlines, thereby, ensuring the financial viability of all airlines. Further, the minister added (I hope with a mischievous glint in his eyes), 40 per cent of all seats on one flight must be sold at a price less than the midpoint of the band. The whole thing left me breathless in its ambition.

First, the price list across seven bands that has been divined by the bureaucrats in the ministry. The prices are neither too hot, nor too cold. Just perfect. And, that 40 per cent thing was a clincher. Were the airlines thinking they could get away pricing all their tickets at the upper cap? Sneaky little flying tin boxes. This isn’t a government you can fool. What a clever little addition by a shrewd babu thinking two moves ahead! Also, no one knows whether it is 40 per cent of total capacity or utilised capacity. Or, what happens if five passengers, who were in the 40 per cent category, cancel their flights? We will tackle them as the situation evolves like our FM likes to say.

Anyway, what you will have now is the airlines will price all their tickets at the midpoint of the band till they sell 40 per cent of the tickets. Then, they will try selling the remaining 60 per cent at the upper end of the band. The net result will be the customers will end up paying more than what they usually paid in these sectors. Once they start doing that, the government will arrive at a new formula and we will have an endless cat-and-mouse game for our merriment.

My only disappointment was the timing. If the government knew this Goldilocks zone of pricing all along, why did they have to wait for the pandemic to show us the light? Also, why have they restricted this to just 3 months? After all, who doesn’t want just the right price that will help airlines make just the right profit while the customers spend just the right amount for a flight? In fact, why have we restricted this to airfares? What about cars, phones, slim-fit shirts, haircuts, pedicures, condoms and fish? There’s pent up demand there as well. Who is to say the companies won’t go all Shylockian on us now that we are ready to buy them? What are other ministries doing? No one is thinking about us like the civil aviation ministry. A comprehensive national price list (upper and lower caps included) for every item of consumption is the least the government can do for all of us at this stage. Plus, that 40 per cent rule. We can incorporate this into the Aarogya Setu app with a nice UI and an e-commerce plug-in. The government will then join Zuckerberg in being able to track our locations and our purchases through a single app.

Only what we think will be left untracked.

Schooling in profits

Meanwhile, in Karnataka, the education department has ‘slapped’ show-cause notices to 164 schools for increasing fees for the upcoming academic year. In a circular issued on April 28, the Department of Public Instruction (DPI) had prohibited private school managements from increasing tuition fees by the usual 15 per cent because of the financial crisis faced by families in the lockdown. My question is why prohibit price hikes only at schools? Why not on Imam Pasand? Its price has gone up by 15% in the past week. Why shouldn’t families get to eat their Imam Pasands secure in the knowledge their prices won’t go up this season?

Let’s unpack the school example a bit. In the past 2 months, the schools must have saved a bit on electricity, water and some consumables (chalks, markers, chemicals, lab instruments, housekeeping etc). Based on the spends that a large corporate office has on utilities and housekeeping, it’s difficult to see them saving anything more than 5-7 per cent on these items. In the past 2 months, the school has most likely digitised a lot of their content, bought licenses of a learning management platform, linked it to a videoconferencing platform and trained all their teachers on online teaching. These things, unfortunately, cost a bit. Moreover, when the schools open for next session, they will have to reconfigure classes to adhere to social distancing guidelines, sanitise the school more often, possibly hire more teachers (because the class size has shrunk) and spend more on any snacks or drinks they give at school.
Should the schools compromise on these areas because the fees are capped now? Or, are we bringing up that familiar Indian argument – they should make less profits? Who determines what’s the right level of profit? The ministry or the market? And, please look at the price of Imam Pasand, for god’s sake.

Getting migrant workers back

What do we do with the migrant labourers who have gone back home? There’s some temporary relief through the additional allocation of funds to the MGNREGA programme. But there are other suggestions being thrown around for the government to intervene. These include asking companies to build plants in those source states to absorb this labour, increasing the daily wage rate in MGNREGA plan further and raising the minimum wage rates in the destination states to attract the workers back.

These are interventions with good intentions that will only distort markets further. The unintended consequences will be higher unemployment and an increase in the size of the unorganised labour market. Left to itself, the demand for labour in cities will steadily rise as the lockdown is lifted fully. The workers who have gone back aren’t going to be immediately employed in their villages. They had left their homes because there weren’t any jobs there. Any supply shortage in city will reflect in the wages of workers and in their ability to demand better terms of employment. As the wages rise and transportation restored, the workers will find reasons to come back.

This isn’t magic. It is market mechanism. We should give it a try sometime.

Share Anticipating The Unintended

India Policy Watch: Migrants and Our Social Failure

Insights on burning policy issues in India

— Raghu Sanjaylal Jaitley

Why is India the only country in the world that’s seeing its daily wage workers risking their lives to go back home from the cities they were trapped in during lockdown? Over the past couple of weeks, I have searched for similar news items from elsewhere in the world. I have drawn a blank. Surely there have been lockdowns in other countries too. They also had workers who flock to their cities to earn a living. They too must have lost their livelihoods during the lockdown.

As I scan through the numerous op-eds that have addressed this issue, the usual unconvincing answers emerge. We are a heartless society with a self-absorbed middle class is one favoured line of reasoning. If the almost universal trends of baking banana bread, home grooming and staying glued to streaming platforms is to go by, there isn’t a middle class anywhere in the world that’s not self-absorbed. Then there are others who blame a weak state and a strong PM with his desire to shock and awe the nation through a hasty lockdown without anticipating its consequences. There’s some truth to this. But are we the only country hobbled by emaciated state capacity or to be run by populists who like to be seen as decisive more than thoughtful and considered? Lastly, there are the usual suspects in the employers of these labourers, or their contractors, who used the cheap, unorganised labour without a care for their safety and social security and dumped them the moment lockdown was announced. This is clearly evident to all. However, are our capitalists somewhat more insidious than others? That there are over 30 million workers (mostly temp staff) who have filed for unemployment in the U.S. since April despite the PPP (payroll protection program) and other bailout measures for businesses by the Fed and Treasury doesn’t seem to support this.

All Varna Vyavastha?

So, why do only we have this dubious distinction? In previous newsletters, we have discussed and analysed the multiple failures of the state and the market beyond what seemed obvious that led to this. But as a lot of analysts have pointed out, this is a colossal social failure too. There’s no getting away from this. This tragedy was played out live for the urban society which took it in its stride as another one of those ‘original’ series with its cast of rough-hewn characters from the heartland who can’t put a sentence together without a gaali or two. We shrugged off these reports and continued watching Paatal Lok. This indifference among the more fortunate urban Indians is a strawman that’s dragged out for every failure – from low voting percentage, pollution, traffic and now this. It is conveniently linked to a fatalistic faith that doesn’t place any premium on individual agency to change their destiny. The usual commentary on how our society remains shackled within the varna vyavastha then follows with the daily wage labourers seen as the urban dalits and those living in gated communities, the modern savarnas.

Fatalism and identity. Our oldest social companions. We believed an urban society with a fluid functional structure that rewarded competence was going to obliterate them. It couldn’t. Is that all to it?

The unmoored’s last sigh

The unorganised workforce in our cities isn’t a monolith. It’s constantly changing its shape, size and address. The workers are always on the move – from one construction site to the other, picking up another delivery, starting out in a new outlet in another mall, completing another ride or finding another house to cook or mop. The nature of the work, their treatment by their employers or disdain of the people they serve doesn’t matter. There’s an occasional hop back to the villages they came from during the harvest season or to another city if that’s closer home. There is nothing – address, neighbours, friends, worksite, colleagues, employers – that is fixed. They are forever mobile; permanently temporary. The other forces of social cohesion, religion, community or language, are either too localised or too exclusionary to glue them to the society. The only solace is the phone that links them back to where they came from which further reinforces their alienation in the city. The sense of dislocation of the Indian migrant worker in a city is unique. It is complete; there’s hardly anything that’s moored.

Those among the unorganised workforce who had a semblance of permanence in their lives – an employer of many years, a fixed worksite or the knowledge of the local language – have mostly stayed back despite the lack of earnings or social security. But for the millions without any anchor in the city, the walk back to their homes was just another manifestation of being forever mobile. Middle-class navel gazing had nothing to do with it.

The yawning gap between the self and the nation

There are two middle classes in any Indian city. Those who call the city ‘home’ (usually over two generations) and those who don’t. The former has a sense of loss about their city before the boom, the migrants and unplanned urbanisation ruined it all. They still retain a sense of community but that’s restricted to people like them in parts of their ‘old’ city. Often, they refuse to recognise the newer settlements and localities as part of the city. There isn’t any love lost for migrants (rich or poor) who do not belong here.

The other middle class is that of migrants in formal employment. There’s some permanence in their lives with a fixed address, employer, neighbours and colleagues. But this can be overstated. There are changes in roles, jobs, search for a better address or a lack of time to appreciate the permanence. There’s no real association or an engagement with the local community or the society to forge common interests and develop a collective conscience. There’s a deeply embedded mindset of scarcity – good fortune won’t last long – that holds back generosity or giving back to the society. There’s hardly any real instance of shared sacrifice that reaffirms a sense of belonging to the immediate world around. Each day is like the next. Social media fills up the ennui. The focus is on self and, of late, in a warped sense of nationalism that springs from social media. There is family that’s real and there’s a nation that’s imagined. And, a huge chasm in between. That’s what the migrants fell into.

The answer within

There’s no shortage of solutions and masterplans to make our urban clusters better. The latest instance of this is to make a national database of migrant workers complete with unique identity, bank accounts and some kind of social security net. However, social failures need more than mere technocratic solutions. The formation of community-based collectives, the support for local causes and a shared sense of community goals need a more participative society. There’s a role for the local administration, philanthropic organisations, resident associations and religious groups to activate grassroots-level social leadership. The community can provide the migrants in their vicinity their right to the city – access to water supply and sanitation, subsidized food through PDS, exercising their voting rights and mainstream them by involving them in decision making and problem resolution efforts. A common understanding of problems that afflict a locality, bringing complementary skills and resources from across economic groups to solve it, using a platform for citizens to network and to foster a sense of belonging, and distributing agency among people to take up social issues are the challenges of social entrepreneurship in India. There are large problems to solve at scale here – the kinds that attract social venture funding. Continuing to hold caste and karma responsible for every social failure might be partly right but it won’t lead the urban society to change from within. There’s much more to do.

Addendum

— Pranay Kotasthane

As Raghu said, the current humanitarian crisis says a lot about our society as well. As I have argued earlier, the instincts of the Indian State are shaped by the intuitions of our society. And it is this social failure that we need to reflect on as well.

Workers who spend years working in another part of their own country still remain suspended in a trishanku mode — too foreign to be assimilated back at their place of residence and too different to be accepted at their place of employment.

That label “migrant” itself connotes a strong sense of othering, a permanent social distancing of sorts.

For the well-to-do migrant, that’s not much of a problem. Elites can afford to form cocoons of “them-like-people” anywhere in the world, let alone an Indian city. Moreover, the State will also respond to them, even if they are seen as ‘outsiders’ because the middle-income groups have a disproportionate impact on what gets discussed on the news channels, on social media, and newspapers.

The problem is a real one for the not-so-well-to-do migrants. Even some well-meaning people will throw the ball back in the migrant’s court — it’s the migrants who should feel and display signs of assimilation, starting with the ability to speak the local language. Only then will the local community accept them.

There are two problems with this line of thinking — one, the opportunity costs for a low-income earner to learn another language might just be too high. And two, it’s not as if learning the local language is a passport that converts an outsider into an insider in the eyes of the local community. The goalposts for qualifying as an outsider keep shifting — first speak the local language, then dress the way we do here, speak in a dignified way that we do here, celebrate the festivals we do ... the list is endless. The result: the transition from the outsider to the insider takes place only over generations.

So, apart from the familiar failures of the State, we need to ask: did our long-standing insecurities of linguistic or cultural invasion by the ‘outsider’ prepare the ground for the current humanitarian crisis? It’s easy to blame the State and its well-known inadequacies, it’s quite difficult to break down the walls that separate the “us” from “them”.

A Framework a Week: Online Activism Through the Exit, Voice, and Loyalty Framework

Tools for thinking public policy

— Pranay Kotasthane

WhatsApp and Facebook action groups, change.org petitions, and online grievance reporting are now commonplace manifestations of citizens demanding better public services, particularly in the urban areas of India. Related questions arise: what are the motivations that lead to formations of such groups? And how effective in reality are such groups in resolving the key issue of under-provision of public goods?

These are questions that demand an in-depth study by themselves. However, we get a few clues about analysing such questions from a framework by economist Albert Hirschman in his 1970 treatise “Exit, Voice, and Loyalty”. The main argument that the framework makes is:

members of an organisation, whether a business, a nation or any other form of human grouping, have essentially two possible responses when they perceive that the organization is demonstrating a decrease in quality or benefit to the member: they can exit (withdraw from the relationship); or, they can voice (attempt to repair or improve the relationship through communication of the complaint, grievance or proposal for change).

In the urban context, this framework simply means the following: faced with a decline in the quality of living in a particular urban area, citizens can choose one of the two responses: either exit (move to a new city or another area within the same city) or voice (demand better services in the current areas through complaints and protests). The key question then is: what impact does online activism have on the choice between voice and exit?

Online activism makes it easy for people to choose voice over exit. This is because, as Hirschman says:

success in advocacy groups is uncertain. So, participation in a movement to bring about a desirable policy is the next best thing to having that policy.

This means that the act of getting involved in a public interest problem is seen as an end in itself by a few people because getting the desired outcome is anyways so uncertain. This further means that the costs of getting people to come together on an issue are actually seen as benefits by a few people. Thus, people move away from apathy, towards activism to voice their grievances. With online activism a practical possibility, the costs of organising people over an issue become even lower, making it easier for people to rally around new causes.

Thus it is not surprising to find online petitions and action groups mushrooming to resolve urban issues. However, the key question remains: are such groups successful in bringing positive changes in the living standards that they sought to bring? As Hirschman points, since the act of getting together is itself seen as an end, people often see activism as a goal in itself. This is seen amply in the case of online action groups: groups die after getting initial ‘successes’ in the form of assurances from public officials or merely recognition in terms of ‘petition sign-ups’ or ‘Facebook likes’. Converting this online voice into successful on the ground changes requires mobilising online groups into committed volunteers to chase the root-cause and follow up until the change is delivered. Not an easy matter.

Mancur Olson’s The Logic of Collective Action provides some answers. We’ll discuss that in another edition.

Matsyanyaaya: Keepin’ it Real with China

Big fish eating small fish = Foreign Policy in action