#48 "You Are Strictly Advised To Read This. Non-compliance Will Be Viewed Seriously"

Patanjali's COVID-19 cure claim, ICMR's vaccine deadline, A Rule of Three for analysing public policies, and more

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?


PolicyWTFs: The Aatmnirbhar Way to Cure COVID-19

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

— Raghu Sanjaylal Jaitley

It has been a remarkable week for Indian medical science. First, Patanjali Ayurved claimed their Ayurvedic drug Coronil could cure COVID-19 based on trials on mild to moderately ill patients. Some outrage followed. Patanjali backtracked and later released a Corona kit (including Coronil), calling it a product for COVID-19 management. Well, what can’t be cured must be endured. No sooner had we stopped throwing confetti in the air in celebrations than came the letter from DG, ICMR indicating we will have a vaccine ready for public health use by, wait for it, August 15.

What a coincidence! That set me thinking. Had we won our independence in the month of July, ICMR might have got us the vaccine earlier and saved more lives. But Nehru and Mountbatten took their own time in 1947 and we are still paying for their laxity.

How Not To Follow Ayurveda

Media has covered both the stories extensively. This is last update on Coronil where Baba Ramdev of Patanjali declared there’s no difference of opinion between them and the AYUSH Ministry. The ministry must be so relieved to hear that. Anyway, we aren’t scientists or medical professionals here. So, it is difficult to have a technical opinion on these issues. But applying tools of economic reasoning, we offer three points to consider.

First, Ayurveda or any traditional healing method works based on empiricism. Over many generations, traditional healers observe certain natural products help in healing common ailments. A meticulous record of these ingredients and their healing properties is formalised. These cures are then used over the centuries to treat people. A study of these ingredients and the chemicals contained within them using modern knowledge of biochemistry often reveal these are effective cures. Two, these traditional techniques are tried over time on a population with a common ethnicity or a similar gene pool and factoring in the local climate, food and lifestyles. These healing techniques, therefore, are endogenous to a specific ecosystem. Three, if you consider the two points above, it is clear Ayurveda or any traditional healing technique follows what modern medical science refers to as ‘trials’ over generations before formalising it. Therefore, any cure for a new ailment or a new virus should follow a similar process and timeline before it can be considered a legitimate Ayurvedic formulation. Sure Ayurveda can cure coronavirus, but we are possibly 200-300 years of ‘trials’ away from it if we were to respect the science behind it.

Modern medicine and biochemistry emerged because we couldn’t wait for this long with a low probability of success at the end of it. Also, the ‘germ theory’ was a clean break from the three dosha belief of Ayurveda on why we fell ill. But the idea that ingredients within herbs, flowers or other natural substances could heal wasn’t discarded. Instead, this knowledge, along with development of disease science and synthesis of new chemicals was used to develop medicines. Patanjali isn’t just ignoring the Ayurveda code for new products but circumventing the accelerated mechanism of trials for modern medicines using tradition as a fig leaf. This is unfortunate in a country where people trust Ayurveda and traditional methods based on their empirical experience. This is opportunism or, worse, plain quackery.

How Not To Develop A Vaccine

The ICMR vaccine story is remarkable. We have written about vaccines and their timelines in a previous edition. Vaccines need extensive trials for a simple reason. They are given to healthy people who could contract the disease or have other side effects because of the vaccine. The founding principle of medical science is the Latin phrase “primum non nocere” which translates to “first, do no harm”. Vaccines take time because they have to satisfy both the conditions – prove they prevent the disease and that they do no harm. This piece in the Indian Express highlights the near incredulity in the scientific community about the August 15 claim.

AIIMS Director Randeep Guleria, the head of the clinical research group of the national task force on COVID-19 was at his diplomatic best with this quote:

“It will be a very challenging and difficult task, considering that we have to look at both efficacy and safety of any vaccine that is introduced. Also, if we get the desired results, the other challenge is the process of mass production of the vaccine,”

Update: As expected, clarification has arrived.

“ICMR clarified that the purpose of the letter was to expedite trials so that results could be available by August 15, the vaccine would need more time for public use.”

The letter from the DG, ICMR to the 12 institutes that have been chosen as clinical trial sites is a fine example of government communication. As long-time connoisseurs, we have analysed the letter to draw our inferences.

“…. (is) one of the top priority projects which is being monitored at the topmost level of the Government(emphasis not ours)

One arm of the state suspects the other won’t cooperate unless it is made clear the topmost level of the government is reviewing it. The usual matrix of roles and responsibilities of each institution isn’t adequate to get work done. The implicit threat of the topmost level has to be spelt out.

….you are strictly advised to fast track all approvals…. no later than 7th July 2020.

The government can take a course on how to write passive-aggressive statements. Who doesn’t want to be ‘strictly advised’ in life? I could do with some of that early on in my career. Also, this suggests approvals can be fast-tracked if there’s intent. Why that speed can’t be the usual way of working is an old puzzle while dealing with the state.

Kindly note that non-compliance will be viewed very seriously

The timelines are impossible and lack scientific basis but that doesn’t mean the state won’t coerce you to meet them.  

Back To the State

Both these news items are helpful to appreciate the nature of the Indian state. We never tire of highlighting them (nor will we ever):

  1. Institutional maturity: Our political, economic and administrative institutions were set up to be inclusive as Acemoglu and Robinson would define in Why Nations Fail. This meant their charter was replete with noble intentions – share power with responsibility, focus on growth, technical excellence, independence and well-being of the society. Unfortunately, in the 70 years of being a republic, we have weakened our institutions and made it subservient to the political regime. The allegiance of those at the helm in the institutions isn’t to their constitutional mandate but to those who control their destiny. In effect, the institutions have turned extractive – privileging certain sections of society, overriding rules and using their power for rent-seeking.

  2. Rule of law: The guidelines and laws can be bent to expedite the process for some or place constraints in the path of others. This arbitrary use of power is common where the state capacity is low, and the rules are complex and often contradictory. Our economic performance is hobbled by this unpredictability of our regulatory environment

  3. Accountability: There is no transparent mechanism to measure the performance of our institutions. The political parties are held accountable for their work but institutional accountability is random. Minor mistakes that hurt the image of the government is punished severely while incompetence, in the shape of ridiculous announcements followed by clarifications, is tolerated. There is no long-term view, only immediate self-interest, that guide the functioning of the institutions   

The COVID-19 cases continue to rise steadily in India. Our health and medical institutions need to be at the forefront of this fight using scientific knowledge and research capabilities at their disposal. These fast-track solutions or remedies only serve to distract them.


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A Framework a Week: How to Anticipate the Unintended?

Tools for thinking public policy

— Pranay Kotasthane

Edition #2 of this newsletter discussed a framework to distinguish between the unintended and unanticipated consequences of public policies.

The key insight was:

This differentiation is important because policies that don’t work as intended are often spared serious critique under the excuse that some effects were unintended and hence unanticipated; the intention was good after all. Think demonetisation and the reasons that were used to justify it.

This framework argues that sound policy design can, in fact, anticipate some unintended consequences in advance. These anticipated-unintended consequences must be taken into account in the policy design process itself.

What this means is that any policy analyst, while projecting the outcomes of their favourite solution, must attempt to anticipate the ways in which the policy could go wrong. Eugene Bardach’s A Practical Guide to Policy Analysis has a useful list of three common undesirable yet foreseeable side effects of public policies:

  1. Moral hazard increases. That is, your policy has the effect of insulating people from the consequences of their actions. For example, increasing the size of unemployment benefits has the side effect of blunting the incentives to search for a replacement job.

  2. Reasonable regulation drifts toward overregulation, especially if the costs of overregulation are not perceptible to those who bear them. One possible adverse result of setting health or safety standards “too high” and enforcing them “too uniformly” is that you increase private-sector costs beyond some optimal level. For instance, given most people’s preferences for safety, imposing auto bumper standards that cost some $25 per vehicle, but have only trivial effects on improving vehicle crashworthiness, would not pass a conventional benefit-cost test. A second adverse result of overregulation might be that you inadvertently cause a shift away from the regulated activity into some other activity that—perversely—is less safe or less healthful. For instance, some observers argue that overregulating the safety features of nuclear power production has caused a shift toward coal, which they argue is much more hazardous than nuclear power.

  3. Rent-seekers—that is, interests looking out for profitable niches protected from full competition—distort the program to serve their own interests. It is not inevitable that suppliers of goods and services to the government, including civil servants, will find ways to capture “rents,” but it often happens (e.g., with many defense contractors). Rent-seeking also occurs in less obvious ways—as when some regulated firms successfully lobby for regulations that impose much higher compliance costs on their competitors than on themselves.

Overregulation. Rent-seeking. Moral Hazard. This is a useful rule of three that any policy analyst must parse a policy solution through before putting it into action. What you’ll realise is that most of the “policy was good; implementation was bad” excuses prop up precisely because a policy failed to look at these three ‘anticipable’ but unintended consequences.


India Policy Watch: Ideology and Pragmatism

Insights on burning policy issues in India

— Raghu Sanjaylal Jaitley

In the last edition, we argued China is like a supercharged USSR. It has all of its malevolent instincts while avoiding its mistakes. This makes it a formidable power that sees the liberal world order with its emphasis on freedom and liberty with the same degree of disdain as the erstwhile USSR. We made a case for India, along with other frontline states, to sustain a permanent campaign to highlight the threat of China in the wake of the economic balance of power it wields with the principals of the liberal world order. China has been helping this cause with its premature and ill-advised overreach for power. Specifically, we had suggested India lead a new cold war framing vis-à-vis China.  

The term cold war is believed to have been coined by Bernard Baruch, an advisor to several U.S. Presidents including Harry S. Truman. In a speech on April 16, 1947, he said: “Let us not be deceived—we are today in the midst of a cold war.” I sense we might hear a similar line in the run-up to US elections this year.

Over the next four decades, the United States and the Soviet Union were pitted against each other in a civilisational battle. The conflict was all-encompassing – political, economic, social, scientific and military – and threatened to blow up into a war on multiple occasions. One theory about the cold war is that it was a battle between pragmatism and ideology. Communism as an ideology underpinned every affair of the Soviet state. Every success of the state was a success of the ideology. Conversely, every failure was its failure. This made the ideology difficult to sustain. It was impossible to succeed at everything. The state overextended itself in trying to do so. As it started failing in some areas, it focused more of its efforts in covering them up than getting better at them. But this wasn’t easy. People talked and word spread around. This inevitably led to a surveillance state which spent enormous time and resources in monitoring its own citizens and trying to suppress a problem instead of solving it. This soon went into the Orwellian territory. The state turned paranoid and depended on propaganda to keep its legitimacy. The citizens had no option but to toe the line. After a while, the whole charade became difficult to sustain.

What won the cold war, therefore, wasn’t a competing ideology against communism. It was just the ability to be better at a few things than the Soviet Union by just not being a communist state. For instance, barring the initial hiccup, the US led in the space programme for most of 60s and 70s. There was no real geopolitical significance to this race except some fanciful notions of star-wars. But an ideology-driven USSR kept pumping in money that it couldn’t afford to keep the space race on. That hurt it grievously but the Soviet state or its apparatchiks couldn’t face up to the truth that they weren’t good enough. That would have hurt their legitimacy. In their minds, that would be the start of a slippery slope of loss of control. The anti-communist bloc didn’t have to coalesce around a coherent ideology which drove all their decisions. Just being an anti-communist state was enough. Eventually, US pragmatism won the cold war. The US pragmatism was best summed up in that Kissinger quote – “America has no permanent friends or enemies, only interests.”    

The collapse of USSR was an epochal event for China too. It set about researching the causes for its failure. It studied it as a cautionary tale. Broadly, its research drew three conclusions which China put into practice in quick time:

  • The party should have a greater, not reduced role, in running the state. It should transform itself into a nimbler, dynamic and more resilient organisation whose regional leaders are accountable for their performance. It should be seen as effective, not corrupt.

  • Greater centralisation of power and subjugation of the ethnic minorities. This means not being shy or apologetic about the domination of the Han majority and turning the screws further on ethnic minorities and their demands for autonomy. This also placed a high premium on territorial integrity, linguistic uniformity, and more active pursuit of One China strategy.

  • Economic prosperity through economic reforms should be a greater priority than political reforms. Soviet Union collapsed because its economic system couldn’t sustain itself anymore and it went too fast into political reforms and glasnost. China concluded political freedom should be kept in abeyance for as long as possible.

This meant strengthening of its ideology in political and national security spheres while adopting a pragmatic approach on the economy. It has managed this difficult balancing act during the Xi Jinping era. In effect, the preservation and perpetuation of the CCP is the only ideology that drives China now.

But the central flaw that led to the collapse of USSR still persists. As the party grows stronger and overarching, every failure will be seen as its failure. The economic prosperity that has come about through pragmatism has also been appropriated by the party as socialism with Chinese characteristics. So, a slowdown in the economy because of extraneous factors will still be laid at its doors. This is not lost on the CCP. Much as they would like to keep a distance from their failures, the nature of the state is such they can’t avoid being blamed for them. One way to understand China’s recent behaviour is it never factored a pandemic like event that brought the possibility of multiple failures together.

This is the sum of all its fears. It’s forcing it to lash out indiscriminately all around.  


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Matsyanyaaya: SemiconPolitics

Big fish eating small fish = Foreign Policy in action

— Pranay Kotasthane

In June last year, I had written a post on how the semiconductor industry will become one of the clash points for the US-China Trech War (Trade + Tech). One year later, there is enough evidence to suggest that this is indeed the case. So here’s the old post.

The Economist has an excellent take on the TrechWar between the US and China.

For one it highlights the not-so-apparent fragility of the semiconductor industry. As a complex network with nodes spread all across the world the supply chain works seamlessly at most times hiding the underlying absence of redundancy.

Image by Dan Williams from Pixabay

William Shih of HBS has a beautiful analogy to describe this system:

This structure is best thought of as a transcontinental relay race with hidden hurdles

The Economist chart illustrates these hurdles. For several narrowly defined markets in the semiconductor manufacturing process, there is just one dominant player.

Source: The Economist

What this shows is that just like the chip design process, the semiconductor supply chain also has several layers of abstraction. As a chip designer, you don’t need to know the intricate details of a transistor; abstracting it out as a switch can work as well. Similarly, downstream firms in the supply chain may only know their direct suppliers and need not worry about the upstream interactions at all. That is so until something goes wrong.

Like it has now when the US has chosen to use these choke points to constrain China. Given that this conflict is strategic and not economic, any concessions China agrees to are unlikely to change the US stance. The policy instruments might change but the goal will stay.

Which brings me to the next point: what are some of the choke points that the US can exploit in the future? I have always thought of Taiwan, particularly TSMC, as one such critical chokepoint because of its commanding dominance in cutting-edge chip fabrication. Some figures to illustrate this:

Within individual industry segments, Taiwan leads in IC packaging and testing with 50 percent of the global market, and in foundry manufacturing it has a commanding 70 percent market share. Further, Taiwan accounts for 20 percent of the world’s IC design value and is the number-four memory chip maker with 10 percent of the market. [TheNewsLens, 2018]

For now, TSMC’s exports to Huawei haven’t been affected as its supplies are below the American intellectual property threshold for the ban to become applicable. But this could well change if the US wants to ratchet up the pressure or if relations between Taiwan and China go downhill.

For the semiconductor ecosystem itself, this friction will translate into significant deadweight losses. The chip fabrication market has been consolidating for quite some time now:

from 2002 to 2016, the number of semiconductor manufacturers with a leading-edge fab has fallen from 25 to just 4: Intel, TSMC , Samsung and GlobalFoundries. And GlobalFoundries announced in 2018 that they would not pursue development of the next node. [Thompson and Spanuth, SSRN]

It might well be that the ongoing geopolitics rather than technological limitations will halt the development of faster and smaller chips. Political friction will put further strains on this already consolidated industry and the development of leading-edge nodes (below 1nm) will slow down.

SemiconPolitics is here.

For a COVID-19 follow-up on the semiconductor industry, I have a co-authored piece in the South China Morning Post.


Trivia: US Long-run Economic Growth

Interesting facts and stats relevant to public policy

From CI Jones’ The Facts of Economic Growth:

“For nearly 150 years, GDP per person in the US economy has grown at a remarkably steady average rate of around 2% per year. Starting at around $3,000 in 1870, per capita GDP rose to more than $50,000 by 2014, a nearly 17-fold increase.”

2% growth per person compounded over 150 years! That really is an achievement.

For contrast, see India and China’s GDP growth rate per capita over the last 60 years and derive your own conclusions.

Graph and Data: World Bank


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HomeWork

Reading and listening recommendations on public policy matters

  1. [Article] Michael C. Davis and Victoria Tin-bor Hui write in The Diplomat about the implication of the National Security Law for Hong Kong and the world.

  2. [Article] Megan McArdle in The Washington Post on why American corporate pressure may be more effective in disciplining China. Strong arguments in line with our opinions on waking up to the risk of China’s rise

  3. [Research Paper] A mathematical model to predict the risk of outbreak if Cornell begins the fall semester in full developed by PhD students of the university. In summary, the risk is low if students are tested regularly.

  4. [Book] The exchange between Tagore and Gandhi has a lot to teach us even today. Sabyasachi Bhattacharya’s compilation of the debates is a must-read.


That’s all for this weekend. Read and share.

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