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Before you listen to this episode of The Scene and the Unseen, I have a recommendation for
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Do check out Pullia Baazi, hosted by Saurabh Chandra and Pranay Kutasane, two really good
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Kickass podcast in Hindi.
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The biggest religion in India, I often say, is not Hinduism, but the religion of government.
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We reflexively behave as if government action is a solution to all our problems, even when
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the problem itself is too much government.
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And the reason we do this is that we think of government like we think of God, as if
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it is a benign, all-powerful, all-knowing entity that has a legitimate authority over
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But in truth, government consists of human beings like you and me, who respond to incentives
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and their own self-interest.
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Therefore, the sharpest way to study and understand government is to use economics.
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Because economics is, after all, the study of human behavior.
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And for a country like India, where the tentacles of a parasitic and predatory government are
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present everywhere, the most fascinating branch of economics to study is that which deals
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with government, public choice theory.
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Welcome to The Scene and the Unseen, our weekly podcast on economics, politics, and behavioral
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Please welcome your host, Amit Barma.
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Welcome to The Scene and the Unseen.
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I've been reading and writing about public choice theory for a while now and write a
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monthly column on it, linked in the show notes, for Bloomberg Quint.
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So when my friend Pawan Srinath, who hosts the show, the Pragati Podcast, asked me to
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come on his show as a guest to talk about public choice theory, I agreed, with the caveat
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that I was not an expert, but an enthusiast.
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Indeed, at some point in time, I plan to do a series of episodes on the subject for The
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Scene and the Unseen with my economist friend in New York, Shruti Rajagopalan.
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In fact, we may do a whole separate podcast on it, or maybe write a book together.
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But as of now, you have me.
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And I decided to run this episode of the Pragati Podcast as a special episode of The Scene
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Do note that this episode was recorded at the end of March, on the very day when I published
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my final editorial for Pragati, the online magazine at thinkpragati.com that I edited
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and Pawan contributed to, which shut down on that day.
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So that does come up in the conversation.
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But before we cut to that, let's take a quick commercial break.
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This episode of The Scene and the Unseen is brought to you by Storytel.
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The book I want to recommend today is a book called Dear Life by Alice Munro.
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Alice Munro is my favorite living writer.
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She's a short story writer based in Canada.
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Hi, Amit, it's such a pleasure to have you back here on the Pragati Podcast.
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It's a greater pleasure for me to be back on your show.
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Thank you for having me.
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Amit, first off, I want to say that the Pragati Podcast is here today.
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And I am in podcasting today primarily because of you.
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You told us that this was possible and you also showed us that it was possible with the
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And Hamsini and I both started and now between Hamsini and me, we have three podcasts that
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are currently active every week.
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It wasn't my intention to spark anything off.
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I mean, I was here at Pragati and we thought let's do more podcasts.
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And you guys were so amazing.
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Like fish to water, you just, you know, I struggled more when I started the seen and
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the unseen, but you guys were just naturals from day one.
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No, no, it was easier because you were here giving us lots of advice as well.
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But Amit, before we talk about conversation today, I also wanted to mention how now it's
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Pragati as the online magazine has come to a close as of the end of March.
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And so now we will be continuing as a primarily podcast and audio platform.
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So tell us a little bit about your journey sort of editing Pragati over the last two
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So Pragati, I must point out existed long before me.
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It was started in 2007 by Nitin Pai, a colleague who also started Daksheshila Institution then
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and it was, it started as a PDF magazine, then it became a print magazine and it focused
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on policy and went out to like policymakers everywhere.
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It was read in the PMO and the foreign office and very influential.
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And then 2016, they took a hiatus and around the end of 2016, Nitin got in touch with me
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and he'd known me from my blogging days.
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And he said that, why don't you come on board and let's relaunch it.
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And what we were driven by was that political discourse was so incredibly polarized.
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Everything was personalized.
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You know, you, you didn't focus on the argument anymore.
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You questioned the intent and parentage of the other person.
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And we thought we want something which is, we want to create a space which is not shrill,
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not shouty, where we will not focus on parties or people, but we will focus on policy and
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And obviously within Daksheshila itself, there were a bunch of really good writers and we
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decided we won't now position it only for like policymakers and the elite, so to say,
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but more to anyone, any thinking lay person who is curious about the world.
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It could be a 15 year old boy, it could be your grandmother.
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And that's kind of what we set out to do.
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And we did that successfully for a couple of years.
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And one of the things that worked among the many that I'm proud of on the site is that
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we got podcasts going and, and podcasts are just like unique to me because with everything
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else that you do, like if you're reading a piece on the screen or whatever, all the other
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distractions in the world apply.
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You can click on Netflix, you can get up and go and make a cup of coffee, you can look
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out of the window, you can do all kinds of other things.
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Podcasts are a unique use case in a sense because people listen to podcasts while doing
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one of three things mostly, which is commuting, exercising, or doing household errands, though
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it heard not so much in India because you know, how domestic help and all of that.
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But in though I do listen sometimes while cooking if it's automatic, but I listen while
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working out and commuting.
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Therefore you have an almost captive audience, a guy has decided to listen to the thing he
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is listening, the level of engagement that you can get on a long podcast, where you're
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not constrained by space is also wonderful because once you can make a guest relax and
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you know, then they can just go on and you can go into tangents, you can go into depths
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and nuances and all of that.
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So I think what I'm proud of at Prakriti is that we have, like at the time of leaving,
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we had like five podcasts which would come out every week, you know, you have a couple
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of podcasts, so Prakriti podcast, Thali Aratay in Kannada, Hamsini has Straits of Anarchy,
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Prani and Swarov have the Hindi podcast, Polyabhazi.
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And I'm proud that we created a culture of that and I'm looking forward with great excitement
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to how Takshashila takes that forward.
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And, you know, we're having this conversation on the eve of elections and honestly I'm
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hard-pressed to see where there are enough conversations where one person is not shouting.
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And I don't think it's a conversation if one person is shouting.
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So all of television is gone, either they're shouting or even if it's a more cogent discussion,
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people get three minutes to make a point, four minutes to rebut something, not really
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necessarily go into the depth that many of India's various challenges deserve.
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So I mean we are still small but I like the fact that we have the space, I love the fact
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that I have the space where I can just come and have a conversation with someone for an
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hour and, you know, other people actually want to listen to it.
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I think, you know, the key here is that I had an episode with Ashok Malik once on Indian
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television and his insight there was that television licenses and generally costs of
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just operating a station are so high that everyone who's paid those hundreds of crores
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or whatever to start a channel has no option then but to cater to the lowest common denominator
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to get their money back and therefore the shoutiness that you see on Republican times
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now and the nuance that is absent everywhere because you want to track the lowest common
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denominator and you have to, those are your imperatives, those are your incentives because
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you've put in so much money.
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That's also why for example FM radio is all so populist because FM licenses are so
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high that this, you can't do any issue, you have to cater to the lowest common denominator
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while if you look at New York they have, I think you guys had an episode on the Prakriti
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podcast with Amit Doshi where he made a similar point that New York has so many FM stations
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because it's not so expensive to get in there so you can try and target different niches
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and we are fortunate in the sense that look if you had to buy a podcast license for 10
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crores then everybody who did a podcast would have to put Bollywood music or cricket or
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So we are fortunate that the barriers to entry are practically nothing and we can go in there
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and then the thing is that everybody finds their niche, they can experiment for free
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and they find their space and they get their audience, you know my show has a certain audience,
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your show has a slightly different audience, it's wonderful and it's amazing and I think
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that's what gives me hope that fine the discourse is whatever it is but there are all kinds
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of quiet nooks and corners where people are having these kind of conversations.
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I'm amazed at some of the recent episodes you've had, you've touched for two hours
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now in an episode, it's incredible that's a podcast and now so many people are actually
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tuning in and listening to it.
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My pro tip here is always listen at double speed, I can't stand myself at normal speed,
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Same, 1.5, 1.6 for me minimum but okay so let's get on with our topic of the show and
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it's also relevant for us to have this conversation on the eve of the national elections in India.
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Amit, you've been talking about public choice and public choice theory for quite some time
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and how it can shed new light on you know why things are the way they are when it comes
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to the government in India and with other things so tell me a little about what public
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So public choice is really my favorite branch of economics and I keep saying that it's see
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economics to me you know it's not some arcane subject, economics is a subject of human behavior
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under conditions of scarcity but basically it's the study of human behavior and public
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choice is a branch of that which has incredible insights for the state of India today.
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If you want to understand the Indian state, the Indian government, why are people corrupt,
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why do politicians behave the way they do, all of those things and it helps and the central
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insight of public choice theory is that people in government whether they are politicians
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or bureaucrats are human beings who respond to incentives.
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So you know economists speak in terms of incentives and they're like okay this is how within this
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market different parties behave, these are the incentives they have and you must also
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think of government like that and when you look at government action everything becomes
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explicable if you look at it through the lens of interest.
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Now I write a monthly column for Bloomberg Quint which is called politics without romance
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which is a phrase by James Buchanan, the father of public choice theory in a sense because
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politics without romance is what public choice theory is, you look at politics without romance,
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you look at the incentives, how people really are and the first column of those in fact
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examined the question that people often ask a lot that back in the days of independence
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we had so many great leaders but today you look at all the politicians they're all we
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know corrupt guys, why and people bemoan it as if we had good people then we have bad
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Lots of nostalgia, gone are the great days of these stalwart leaders who could…
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Whether it's Nehru or Patel or whoever your favorite hero of choices but my point is that
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it's not that we had great leaders then and we had great leaders now, we had great incentives
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then and the incentives that we have now are guaranteed to produce us weenal crooks and
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the reason for that for example is that what animated the people who fought for India's
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freedom, they had no chance of getting to government, they had no chance of getting
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to power and making money from it so those sort of baser instincts were not there, people
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who wanted to make money or have power over others did other things, they did not fight
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for India's freedom because the risk reward ratio was way out of whack so all of these
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people were high minded people who were driven by principles and so on and so forth and
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therefore you have all these great leaders and if you look at that generation of leaders
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in the 30s and 40s and so on, the Nehru's and Patel's and even the Shama Prasad Mukherjee's
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and so on, it doesn't matter which side of the spectrum you are, they are animated by
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higher principles whether or not you specifically agree with those principles.
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What we have today is that you are animated by different things, the state is such a bloated
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beast and there is so much power that typically what are the incentives for a politician,
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the incentives for a politician is I want to win the next election and come to power
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so he needs two things for this, one is he needs money because elections in India are
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incredibly costly, the money comes to him from special interest groups and that means
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that they want a quid pro quo of some sort so it could be for example an association
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of small retailers who pays you money and in return for their funding you, you have
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to look after their interest maybe by banning FDI in retail so and this is a very concrete
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example because BJP until recently used to be against FDI in retail because there were
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a party funded by small retailers and the Aam Aadmi party in Delhi still is against
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FDI in retail and you have any kind of interventions in markets like that typically what they are
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doing is they are harming the consumer at large to the benefit of the small interest
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group in this case they are harming all the consumers who would benefit from a more competitive
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retail market and they are benefiting the small retailers in question and so people
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say for example Arvind Kejriwal isn't corrupt but hey you know what is this, corruption
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is an inbuilt part of the political, the electoral system but anyway I don't want to you know
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we shouldn't name specific politicians here.
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So the point is that this is one of the incentives politicians today are driven by, the interest
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groups at play on whose money they are dependent so it is not just that you know Prime Minister
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Modi people say is captured by Ambani Adani, it's like come on I mean every government
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was ever was captured by Ambani, you basically have you know different kinds of interest
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groups running the show and the second kind of pressure group is voters because India's
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politics is all identity politics, it's a first pass vote system, it's a very fractured
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electorate and therefore every election typically goes down to figuring out which are your vote
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banks, will this caste support me, will that particular class of people support me, what
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is your vote bank and then catering to that vote bank and using patronage to benefit that
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vote bank in some way so that you get their votes.
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So therefore all politicians are caught up in this endless cycle between power and money
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where they necessarily have to play these kind of games and sell themselves out completely
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to get to power which then ensures that the only kind of people that politics attracts
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are people like that, people who don't mind their principles being corroded and all of
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that who don't really care about the public service because where is the incentive now
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those kind of people you won't see in politics anymore, it's people like this.
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So in a sense when we are talking about public choice then basically you are saying that
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people in power or government itself and those who are taking decisions are also governed
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by the same kind of economic logic that governs markets and so on.
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So in that sense a politician here is a rational maximizer of some sort where they are sort
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of maximizing their interest which is if I am in power how do I stay in power and how
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do I get re-elected and so in this context I want to ask about this voting process.
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So you talked about identity politics a little but so we as voters if we are notionally rational
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people, why should we vote especially when there are corrupt politicians with other interests
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That's a rational question and that leads to let me first answer questions of why we
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should not vote and then I will come to why we should vote and I will have more reasons
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of the former kind but I think we should look at both sides of the case.
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There are three reasons why we should not bother about voting.
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One is what economists call rational ignorance.
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Now here is the thing you and I both know that it is likely that our single vote is
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not going to influence an election.
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We might go to vote anyway on the day of voting but we know that a single vote is very unlikely
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to influence an election.
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Therefore since the benefit of that single vote is so little it is rational also not
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that the cost should be little and that we don't spend too much on it.
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That means that voters don't spend enough time understanding the processes of government
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and what different policies different parties have and how the state works and so on.
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It doesn't make sense for them to spend too much time studying those things because the
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benefit is very little one vote is not going to do much.
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So it is rational for them to be ignorant that's called rational ignorance and in fact
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there is a philosopher Jason Brennan who will be on my show soon I have already recorded
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with him who in a book not the one I am talking about in my episode with him but in a separate
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book examines the ethics of voting Jason Brennan and he in fact makes the argument that it
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is immoral to vote if you don't know enough that if you are ignorant then your vote could
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do more harm than good and therefore that is a reason to not vote but I mean that's
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a normative argument for not voting but if we look at it in practical terms rational
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ignorance is why you will find that voters tend to be ignorant and that many of them
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because ignorant they decide what's the point and they just it's rational not to vote as
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Second reason which is kind of related and which has something to do with public choices
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if you look at all of politics it involves a redistribution of resources from the many
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So for example in the example that I had used earlier banning FDI in retail all the consumers
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at large lose a little value and all of that goes to certain interest groups and that's
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known as diffuse costs and concentrated benefits.
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The costs are diffused so if I have had like if I am getting two rupees a month taken away
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from my pocket I don't really give a damn but you take away you do that from 20 million
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people and then you give 40 million rupees to one interest group it matters a lot for
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that interest group so that interest group will then be very motivated and very incentivized
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to interfere in politics and do things but for me because I am you know it's only two
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rupees I may not even know it's the unseen effect as it were I may not even know I'm
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losing that two rupees I won't be that incentivized or motivated to actually go out and vote or
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to protest in other ways and because people very often don't know the harm that is being
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done to them because it's an unseen effect it's what does not happen you know they don't
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get that extra value from something they don't know they haven't got it that they might be
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apathetic about voting a third reason not just for not voting but for also not for participating
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in civic action is what is called the free rider problem which is that for example somewhere
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let us say a dam is coming up it will do a lot of damage so you will find you know the
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Medha Parker and those activists that they will be leading it and there'll be those normal
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NGO groups which will be leading it which have their own incentives but whatever but
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let us say that you know that the dam affects you adversely or the policy affects you adversely
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but you'll say it's affecting a million people adversely make you a job let them do the action
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in a similar way if there is like a bad politician or somebody who should be out of power it
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is tempting therefore to think that make you go my vote won't make a difference make you
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go let others vote the person out let others put in the effort and in a democracy the free
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rider problem is a bit of a problem a fourth reason for voting which is actually my reason
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for not voting and it only applies if all the options are equally unpalatable so I would
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consider it my duty to go out and vote if I found that one party was substantially better
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than the rest but if all the parties are equally bad perhaps unwise in the long run to choose
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the least evil option instead of not voting at all because think of the political marketplace
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as a marketplace let's say I want to buy a shirt I go to the mall all the shirts there
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are crap right so the best thing for me to do is to not settle for the worst shirt and
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to not buy a shirt at all and my not buying a shirt the absence of the activity sends
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a signal to the market that there is a gap in the marketplace and some entrepreneur will
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come and fill the gap similarly by not voting you know you can see the statistics that these
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many percentage of people don't vote and any political entrepreneur can then see that and
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say that there is so much apathy these people there's a gap in the market let us go in and
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try to fill the gap and this is especially valid in what is a fractured marketplace where
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you can get 25 percent of the vote and winner seat and if 25 percent of the people aren't
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voting then it makes sense for somebody to an entrepreneur to say that you have a gap
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I'm going in there and in a sense without necessarily parsing those numbers that is
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what Arvind Kejriwal did with the Aam Aadmi party he recognized that there was widespread
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apathy among voters and that there was widespread disillusionment with the existing political
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parties and he positioned himself quite perfectly and quite brilliantly as an alternative who
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was different from the rest and he went in and he occupied that space which in that limited
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political marketplace of Delhi at that time worked now whether you think much of Kejriwal
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or not as it happens I don't this illustrates a point that if there is a gap in the marketplace
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somebody may come and fill it and I think therefore it is my duty as a citizen to indicate
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my dissatisfaction with all of the choices available these are all arguments for not
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In a sense even the Trump came into power in a similar manner right one of the reasons
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why a lot of the polls went wrong a lot of the predictions went wrong was that Trump
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was able to mobilize people who would generally not vote and get them to the polling booths
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in much much larger numbers and tip the balance and again created a market and you can call
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it a perverse market but he created a space where he could get enough people to vote for
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whatever he claimed to stand for.
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That's spot on and also what even before you know the elections happened out there and
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I wrote a column sort of speculating on why Trump may get either more or may do better
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or worse than people anticipate and my speculation on why he may do much better than what the
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polls suggest is because of something called preference falsification which is that when
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a pollster asks you certain questions you tend to often go with the social consensus
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in terms of what you are stating and if you know if the people around you view Trump as
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whatever as a bigoted guy or as a complete whatever you don't own up to saying I'll
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vote for Trump but when the time comes you go out and you actually vote for Trump which
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is you know what economists call revealed preferences where your actions count more than your words
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and I think with a lot of people because of this sort of elite condescension of Trump
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voters so to say they wouldn't have said that we will vote for Trump but they went out and
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voted for him anyway and you might see less of that falsification in the 2020 elections
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because you know the both sides are now so polarized and its people are more open about
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saying that they support him and well he is the sitting president but that's again a case
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of how the incentives come into play where there is a factor of social desirability that
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you don't want to you know but at the same time you are doing what you want to do.
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You know this is funny because I have lost count of the number of nonprofits media houses
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and others who have done these pre-election voter surveys in India where they ask people
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in various constituencies you know what issue matters to you the most or is corruption important
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to you would you vote for a corrupt politician you are going to say yes corruption matters
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to me and no I will not vote for a corrupt politician because who will actually come
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out and say in a survey that yeah I don't care about corruption but then they will go
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and vote for exactly who they want to vote right but in this so you have given me a lot
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of good reasons why one shouldn't vote and the odd thing about India seems to be that
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a large number of people somehow still end up voting right I mean what 60 to 70 percent
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of Indian electorate votes that's a higher percentage than the United States and many
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other major reasonably well functioning democracies in the world and even here you know we see
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urban numbers being lower but from what I can sense even our election apparatus is of
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a sort where you know we're not able to capture mobility well so even the urban vote if they
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say oh it's only 45 percent that might be an undercount actually because you know 20
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percent no longer live in that city so given that there are so many people who are crazy
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enough to go out and vote why what are the reasons to go and vote I'll speculate on
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a why they do vote and b why they should vote because I am torn myself over this I can see
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both sides of the question one reason people have speculated why they do vote is that in
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a sense the act of voting for the party of your choice is almost like a tribal act similar
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to supporting your football team by going to the stadium and watching the match so let's
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say you are a Mumbai Indians fan or a Manchester United fan or whatever the case may be though
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I know many Indian Manchester United fans have never been to Manchester but leave that
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aside but it's like okay so you support this cricket team and it becomes like a tribal
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act of solidarity and kinship to actually go to the stadium and cheer for your team
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or even gather with your friends and you are all at beers and you punch the air and though
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I don't think real fans believe behave like that actually short the show on TV when fans
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are watching whatever a high five yeah who does a high five in real life and somebody
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hits a four or maybe I'm just old and jaded by now so that's that's kind of one reason
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that it's a signaling thing that they are signaling their membership and their kinship
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of these people that they feel solidarity with which might be also valid given how much
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of India's politics takes place along lines of identity one possible reasons among many
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others it would be absolutely simplistic to say this is the main reason anything like
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that I mean a lot of people no doubt do hope for change and so on and so forth but I think
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the reason why one should vote the normative reason is that look we are a democracy and
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the thing is that even if one vote doesn't make a difference it might still be considered
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you might still say that no it is still my duty even if it doesn't make a difference
#
to go out and vote because if everybody does this then you know there is in the end a difference
#
and if I make the effort of going out and voting then I because I am you know taking
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that cost upon myself I will then my might then make the effort to justify that cost
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of actually going and voting by actually being more of an informed citizens about things
#
that matter so I can make a good choice so in that sense I think you should for example
#
it's this and I'm just thinking aloud here and might not make sense but I think just
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in the same way that I think it makes sense for us to normatively follow certain rules
#
in our lives even if in a particular instance we might be able to breach it for example
#
you might have a rule that I will never lie and or for example you know I'll take a much
#
simpler example when I drive around if I'm turning left I always turn the indicator to
#
left now I do this even when there is only a left and everybody is going left and it's
#
one o'clock in the morning and there's no one on the road with me but I do it anyway
#
it's a normative act what this means is that a I am saving effort by automating this process
#
and B it means that at all times I will do this and there is never an occasion where
#
I need to do it where it so happens that I don't do it and you could say this applies
#
to ethical behavior as well how you treat other people with courtesy and so on for example
#
should you tip at a restaurant that you are never going to go to again if you're traveling
#
now I make it a point always to leave a tip and the thing is then the question comes up
#
is if I'm visiting a city and I'm never going to go to that restaurant again should I tip
#
and sometimes it's just a good thing to always tip and there might be different opinions
#
on this and you could say you could in a cold way say it's rational not to tip but you could
#
also in a similar way say that it is rational to tip every time because that is normatively
#
a good way to behave within society they are both rational so as far as just become a habit
#
now yeah it's a habit so in the sense what you talked about cheering a particular football
#
club or a political party the other is also to say that look I have done my duty yeah
#
right I'm a citizen I need to go vote in elections I've done my duty I've done my part now if
#
we get a good government or not at least I have done my job and what's more if you sort
#
of have a package of behavioral items which make you a good citizen and voting is one
#
of them then why isn't that package not something that you do normatively instead of making
#
case by case exceptions so that is a case that I would make for voting though I'll
#
be honest enough and tell you that I'm not going to vote this time because I am deeply
#
disappointed at all the choices and I want to send that signal to the marketplace that
#
come on some political entrepreneur come and give me something better than this or perhaps
#
I'm just rationalizing my natural half Bengali laziness and I don't have a voter ID card
#
so I'll have to jump through bureaucratic hoops to get one so maybe I'm rationalizing
#
that so I am hoping to go and vote in these elections and I'm not trying to do virtual
#
signaling right now and yeah to me personally it's it's not that expensive I don't value
#
my time that highly that I can't do this once every two three years where I go up to the
#
polls and vote and sometimes you feel good and sometimes you get to do it as a family
#
so that that there is that element of it as well and it's not terribly inconvenient anymore
#
it's I wouldn't know and let's quickly take a commercial break before we continue with
#
the conversation hi everybody welcome to another awesome week on the IVM podcast network if
#
you are not following us on social media please make sure you do wear IVM podcasts on Twitter
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Facebook and Instagram we'd like to thank our sponsors this month Savari Storytell and
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Paytm money also I just want to remind you that we do these audiograms on our social
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media audiograms are short snippets from episodes which are interesting to listen to check them
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out I think you'll enjoy them also guys we are doing a podcast with Ronnie Scruwala called
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the Ronnie Scruwala podcast and on that podcast on the last episode we're gonna have Ronnie
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answer a bunch of listener questions if you'd like to send us a question please send it
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to us at dreaming at IVM podcast com also do check out our YouTube page where we have
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Ronnie talking to Cyrus on Cyrus says we have a bunch of short clips there which I think
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you'll enjoy on Cyrus says best-selling author and columnist Chetan Bhagat talks to Cyrus
#
about his IIT days his new non-fiction book India positive and discusses how the 2019
#
election is different from the 2014 one on simplified shorties we dive into the world
#
of Wikileaks and the current news regarding Julian Assange on the TFG fantasy sports podcast
#
Vivek Krishnan and CP Thomas are giving our 11 pointers that will help you pick your fantasy
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sports team on gonna Tantra Alok and Surya are joined by Sanjay Kumar of the Center for
#
the Study of Developing Societies to make sense of exit polls and their accuracy and
#
transparency on football twaddle the boys are shortlisting their very own team of the
#
season since the EPL has ended on Puliyabazi Pranay and Saurabh are joined by Amit Verma
#
to discuss the liberal philosophy of Hayek and his relevance in today's India on Golgappa
#
Trupti is joined by makeup artist Shraddha Nayak she shares her experience of working
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with Shraddha Kapoor and other Bollywood celebrities on Echoes of India Anirudh talks about the
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origins of the Indian drama scene in the backdrop of the Huns invading the subcontinent
#
and with that let's get you on with your show.
#
Welcome back to the scene in the on scene let's get back to my conversation with Pawan
#
Srinath on public choice theory.
#
Amit we've been talking about public choice theory and we've talked about the rational
#
calculus of voting and the incentives that drive politicians to behave the way politicians
#
behave but what about people who are spending their careers working in government what about
#
bureaucrats in service what kind of incentives typically drive most bureaucracies?
#
Good question and you know typically the idealized view of bureaucrats is that these are career
#
civil servants who are chosen through a very tough process of selection they are going
#
to be efficient they're going to be highly intelligent well trained within this well
#
oiled system of government surely they will do the right thing but again you have to consider
#
their incentives and nothing you know sort of sums it up better than what is famously
#
known as Parkinson's law which was framed in this book called Parkinson's law by C
#
Northcote Parkinson and if I may quote from that Parkinson's law says quote work expands
#
so as to fill the time available for its completion stop quote which I think all of us know whenever
#
we have to do something and two of the necessary corollaries of this are quote an official
#
wants to multiply subordinates not rivals stop quote and quote officials make work
#
for each other stop quote and what it kind of tells you is that the natural tendency
#
for any bureaucrat is to want to increase his power to have a bigger department to have
#
bigger budgets to be more influential and to feel more relevant to justify their position
#
more so in fact there's a famous author called William A Niskanen who's written pioneering
#
books on this in the late 60s and 70s and so on including a famous book called bureaucracy
#
and public economics so he says that bureaucrats are motivated by quote salary, perks of the
#
office, public reputation, power, patronage and the ease of managing the bureau stop quote
#
and the result of this is that every bureaucrat will attempt to expand his power and you will
#
simply never have an occasion when a bureaucrat is giving up any power let me tell you a great
#
story of this have you ever heard of this government department that used to exist in
#
Tamil Nadu called CCA I've heard of it but let me tell you the story because it's a great
#
story and I love telling it so in about 1984 and I think Vivek Debraoi first told the story
#
in an old book of his so credit where that is due in 1984 the central government got
#
an application from a government department of that in the government of Tamil Nadu as
#
far as I recall and the department was called CCA and the department was applying for higher
#
budgets right so he decided let me look into what is this CCA and what do they need higher
#
budgets for so he looked into it and his investigation his forensic investigation into the origins
#
of CCA took him back to World War II now so what happened there was when World War II
#
was on Winston Churchill who used to smoke cigars used to get his cigars from Cuba so
#
the supply lines from Cuba dried up so instead what he decided to do is the second best cigars
#
in the world apparently were in a factory somewhere near what was then Madras right
#
so I think that the Trichinople cigars wherever I don't know where they're from but it was
#
somewhere in Tamil Nadu you had good cigars happening so Churchill started getting his
#
cigars from this place in Tamil Nadu and the imperial office and at that time of course
#
India was part of the British Empire so a department was set up which would get him
#
those cigars and the department was called CCA Churchill Cigar Assistant right so CCA
#
stands for Churchill Cigar Assistant the department was set up at the time of the Second World
#
War to send cigars to Churchill World War II has ended supply lines between Cuba and
#
England are open Winston Churchill is out of power Winston Churchill has died okay India
#
has become independent and we've come all the way to 1984 and that department called
#
the Churchill Cigar Assistant is still running still has a budget still has a Sunday Secretary
#
or whatever who has the gall to apply for a raise right a raise in the budget and what
#
this kind of illustrates is that once you add a little bit of responsibility or power
#
to government no one's given it up bro it's like so government never gets smaller it only
#
gets bigger and bigger in all these mad different directions and in this particular case of
#
course the department was abolished when the central secretary or whatever just send what
#
was what I suppose would have been bureaucraties equivalent of WTF bro what are you doing and
#
so the department went off but this kind of illustrates or bureaucrats are always going
#
to add to their power as far as possible and this is a process which is quite separate
#
from who the politician in power may be or what his incentives may be politicians doing
#
his own thing up on top with state exchequer bureaucrat meanwhile is quietly sitting expanding
#
his power and managing his risk to reward ratio and seeing that everything flows well
#
so this budget maximization drive is something that I've come across many times and there
#
are a few who have used it to their advantage so if you know that these are the interests
#
of someone in power like for example you know before the JNNURM started and the reason I
#
like that national urban renewal mission scheme is simply because it was the first time sort
#
of the government of India woke up and said hey cities are important to us not so much
#
about what happened with the scheme and that happened because the urban development ministry
#
was almost like a punishment posting you know it's a small department you know rural development
#
has always been gigantic so therefore the person in charge would not have a large budget
#
to command but supposing India started this national mission on urban renewal then it
#
is in the interest of that person in charge over there to bat for it because ultimately
#
he or she also gets a much larger budget at their disposal so this seems to happen at
#
all levels right so one is maximizing their budgets and then creating more work to meet
#
the budget yeah and this is why you know no matter what party comes into power saying
#
minimum government and maximum governance or whatever nonsense so I don't think prime
#
minister modiji even intended to carry out those promises of his but even had he intended
#
the pushback would have been enormous because the point is politicians are on a tangent
#
of their own bureaucrats are in a tangent of their own arguably bureaucrats are more
#
powerful in a sense because they hold all the levers of the state so supposing for example
#
you have the Ayush ministry which does homeopathy and ayurveda and you know all of that stuff
#
and you decide that no we need to abolish this department it's a waste of taxpayers
#
money we are inflicting violence on taxpayers for what not for this but the point is politician
#
gives the order it goes to bureaucrat he says yes sir we do it I set up a committee because
#
there are 8000 people who work here how do we fire them what do we do blah blah blah
#
blah blah what are the procedures we set up a committee committee will sit committee will
#
come back after 6 months then there will be this procedural problem then the ministry
#
of finance will get involved this ministry falana ministry dimkara ministry and before
#
you know it the politician is focused on the short term imperative of winning the next
#
election which is giving farm loan waiver or whatever it is and these structural reforms
#
are forgotten and shit never happens and everything grows and even that committee you set up in
#
the first place becomes a permanent committee and that's the nature of the beast it's like
#
it's mind blowing what do you do so in this one thing I feel is like you know yes minister
#
the show from the 80s pretty much talks about every one of these issues right I mean many
#
times when we are talking about lots of things happening in Indian politics we teach public
#
policy courses and as well honestly I think I can learn more from that show than most
#
of the courses that I attend but what I found interesting was that even that show was created
#
in the light of public choice theory and ideas coming to the fore right you know yes minister
#
is mind blowing and why is it that people loved that show and find it so funny because
#
like all great humor it has that ring of truth that they see what is happening and they're
#
like you know it's both real and it's funny like for example another great book that you
#
know captures the nature of the Indian state and was written in the late 1960s is Ragh
#
Darbari by Shri Lal Shukla now I can guarantee you that Shri Lal Shuklaji never read James
#
Buchanan or William Niskanen or any of these people Gordon Tullock but he had the artist's
#
eye for what is at the core of every situation and he captures the absurdity of the Indian
#
state and the Indian bureaucracy so beautifully that you know and that's why that book is
#
such a revered classic in India and it's just magnificent and you know what is art supposed
#
to do art is supposed to reveal the human condition which both yes minister and Ragh
#
Darbari do but also the human condition can be revealed by the social sciences public
#
choice economics can also then in a forensic way explain why is it that people behave in
#
these absurd ways and explain why something like Churchill cigar assistant exists till
#
1984 and why it is rational for that to be the case.
#
So given so all of this so the bureaucrat then so one work expands budgets expand there
#
is also risk aversion because playing it safe means that you don't get into trouble taking
#
a risk means maybe there is a reward but you know more if things go wrong then you're in
#
more trouble and the reward can't be that you get to double your salary or your position
#
or something right you're still in that same system with slowly escalating ladder that
#
goes upwards so given all of this can we also talk a little bit about how corruption can
#
be broken down into different things by public choice theory yeah I think you know the thing
#
is corruption is India's great big problem but it is a symptom it is not a root cause
#
of any specific disease right and I think you know most Indians all Indians would agree
#
that corruption is a huge problem but I don't think there's enough of an adequate appreciation
#
of what causes corruption corruption is not caused by bad people key a officer here you
#
put a good person there the good person won't take a bribe no that is not what causes corruption
#
is caused by power right you give one set of people power over another set of people
#
they will be corrupt because as Lord Acton said power corrupts absolute power corrupts
#
absolutely and I would sort of say something which seems extremist but I kind of believe
#
in it I am would say power always corrupts it is in the nature of power to corrupt because
#
your incentives change completely now what the problem with the Indian state is that
#
I often say the Indian state is both too large and too weak it's too weak because it doesn't
#
do the few things it ought to do properly like maintain rule of law or whatever the
#
few basic things reasonable people can all agree on doesn't have enough manpower doesn't
#
have straight capacity doesn't do them properly it is too large because it has too much procedure
#
it might have too few people in some places it has too much procedure in some other places
#
now what is that procedure that procedure is for example if you are starting a business
#
and you need 40 licenses and for each one somebody has a power to end your dreams so
#
you have to pay them right and you know like I did an episode on restaurant regulations
#
many months ago and one of the revelations in that episode was that restaurant regulations
#
at least in Karnataka they have these two conflicting regulations where the excise people
#
or rather the people who look after alcohol say that a restaurant should only have one
#
entrance so they can monitor the inflow and outflow of alcohol only one entrance that
#
is mandated the fire department mandates that for safety purposes you have to have more
#
than one entrance so you have multiple entrances now the point is you whatever you however
#
many entrances you do you are breaking the law if you have one entrance fire department
#
will come after you if you have two entrances the alcohol guys will come after you so you
#
have to bribe one of them and the truth of the matter is you don't have to bribe one
#
of them you have to bribe two of them and you have to bribe the other 30 authorities
#
involved which can this enough on the margins is enough to stop new businesses opening and
#
to drive many existing businesses which would otherwise be barely profitable out of business
#
and all of this is because you're giving discretion to government servants who have the power
#
to use this and if you think about it you know a lot of what people who should be looking
#
after the rule of law stopping violence investigating murders and rapes a lot of that effort instead
#
goes on into figuring out how can we make money on the side because of all these bad
#
laws like many years back I had written a column called the Matunga racket and what
#
the Matunga racket was at that time 377 was still on the cards which made homosexual sex
#
effectively illegal so what the Matunga racket would do is that these cops would go on these
#
online forums no grinder in those days were in 2007 2008 they would go on these online
#
forums and they would pretend to be gay men looking for other gay men and they would call
#
so and so to a spot near Matunga station and the poor chap would turn up expecting an exciting
#
rendezvous and three cops would surround him and they would say okay we'll file 377 or
#
we'll call your home and tell your parents or whatever unless matlab ki ATM jate hai
#
put the guy's card in take out whatever they feel like so on and so forth so I wrote about
#
it and it was a very common racket and now it can't take place why because the discretion
#
in the context of that law is gone that law is gone so you cannot anymore catch a gay
#
man at a railway station and extort money from him like this and a lot of what these
#
bad laws do a lot of what these bad regulations do is they amount to extortion and the people
#
who are supposed to protect your rights instead become the people who are extorting money
#
from you and so this has been a bit of a tangent but my central point is that to end corruption
#
the best way to do it is a two-fold thing one is you reduce the discretion of the government
#
in areas where the government has no business being with the government has no business
#
being in your bedroom as they were with 377 you remove laws like that and the government
#
has no business deciding which business should exist and go license a house corny license
#
it take it out of that you know have complete ease of business remove all of that rent seeking
#
that is one way and the other way is in areas where government does have to have power because
#
there has to be a rule of law in certain areas government will have power in those areas
#
you figure out ways and to change the incentives by making it more accountable and the key
#
to that is by having governance which is as local as possible like on the scene and the
#
unseen I had my guest Shruti Rajgopalan who's actually a much bigger expert in public choice
#
economics and I could ever claim to be I'm just an enthusiast and Shruti spoke about
#
urban governance from the point of the mismatch over power and governance that your local
#
legislator who you have control over you have power over doesn't actually he can't do anything
#
for you and the people who can do something for you are the state legislatures who depend
#
on the rural world they don't give a shit about you so if governance is as local as
#
possible if cities have strong empowered mayors village panchayats are empowered as they are
#
to some degree now and you fix all of those local governance problems then you make them
#
more accountable so dual solution reduce discretion where not required and where you need the
#
presence of the state make it more accountable by making government more local and figuring
#
out other ways for better incentives.
#
So in a way this is also bringing in many market principles into even governmental thinking
#
and so one along with discretion while I mean local can be a lot better one of the big challenges
#
happens when there are local monopolies right true so in one area somebody has complete
#
control so they have absolute power over a tiny geography which does not necessarily
#
lead to better outcome I agree you need competition and to me one of the really nice things I
#
saw happen in Karnataka over the last decade or so is you know there was a point in time
#
when say if I had to get a driving license and I lived in I don't know malayswaram in
#
Bangalore I had to go to the malayswaram regional transport office and then you know you have
#
the touts you have the driving schools you have that whole ecosystem they have the power
#
of the monopoly they use it to exploit and then you have to do all kinds of things even
#
to get a learner's license and then a driving license and then at one point the Karnataka
#
government I think just decided that you know they're just going to open this up the state
#
is giving you a license so if you're a resident of the state go to whichever rto you find
#
convenient and you can get it done so I can go to Koramangala I can go to Jainagar yes
#
the distance might be a little more but apart from that now citizens have the agency to
#
go and choose the slightly less corrupt rto where at least you know you could get things
#
done a little more quickly or you had a little more certainty where maybe you knew that you
#
had to wait a certain time but you knew that you would get it you know there have been
#
so many cases I think with a learner's license you have to do like a 15 multiple choice questions
#
right and you have to pass I think 13 or 12 and a lot of people would say would get 11
#
saying oh you've only got 11 come back next time and you can then pass the thing so that
#
kind of discretionary power simply because there was competition the equilibrium level
#
of corruption reduced and even today rto's are corrupt but I would argue that slightly
#
less than yeah I think that's a fantastic example and I think what that also illustrates
#
is that you should not think you know when you're thinking of solutions you should not
#
set utopian standards for them you should not let the perfect be the enemy of the good
#
like you said these rto's will still be corrupt but they'll be less corrupt because they're
#
competing with each other to attract customers who will pay bribes and that is an improvement
#
on the previous system where you had a monopolistic discretion and therefore you could be basically
#
as corrupt as you want to you could get away with in that term and the same when it comes
#
to laws right I mean you talked about badly framed laws and we have this IT act section
#
sixty six a which finally got taken down right I mean it had horrendous language on you know
#
just behavior online where you could drive a truck through something right oh if you're
#
hurting public sentiments or something vague and loose like that the government come after
#
you and file a case so which is why I think innocent people posting messages on Facebook
#
got arrested by the police which is not just the IT law it's even 295 a 153 a the laws
#
in the Indian penal code which again are imprecisely framed because they're like a threat to public
#
order or whatever you know offending religious sentiments and and which can't even be challenged
#
because the justification for them is in the exceptions laid out in I think article 19
#
1a in the Indian Constitution which basically though the first part of that guarantees a
#
right to free speech but then add so many caveats that is meaningless like public order
#
decency and you're giving the authorities the discretion to decide what is public order
#
and what is decency and so on so in this particular case I must say that the problem with these
#
laws is not that they're used for rent seeking or extortion to the best of my knowledge that
#
doesn't happen much but that they are misused by miscreants who file cases against you unnecessarily
#
when really we should have absolute free speech in this country.
#
Right so in a sense it empowers mobs and it also empowers errant governments who want
#
to crack down on dissent.
#
Exactly exactly so if a government wants to crack down on dissent this is a very powerful
#
tool to use and it has a chilling effect because you arrest one kid for putting up an anti-establishment
#
Facebook post and then you know 30 other kids who might have also done that will not do
#
that anymore and that harms democracy but that's of course a tangent but you know going
#
back to something you said earlier you know where you gave your insights on how competition
#
within the framework of government itself like in those giving driving licenses in Karnataka
#
can help reduce corruption and you refer to that as market principles.
#
I would say that you know market for a lot of people just a very term market based or
#
market principles seems to be a pejorative for some reason.
#
I have written articles I have colleagues who have written articles in newspapers where
#
they use the word market the entire article has been reprinted but the word market has
#
Yeah so I would I would actually call it and more accurately I would call it principles
#
of human behavior because it is you know you don't need economics or an understanding of
#
markets to realize that humans respond to incentives which kind of brings me to another
#
point that you know a lot of people will often say ki yaar this government is headed by an
#
authoritarian madman but you put the right people in charge everything will be okay and
#
my point to that always is that no the solution is not the right people in charge the solution
#
is a system where the incentives are such that whoever is in charge will do the right
#
things or will not be able to do damage.
#
You know I had an episode on the emergency with the historian Gyan Prakash and he pointed
#
out that even though you look at the emergency of Indira Gandhi as a monstrous act on her
#
part everything she did was legitimate according to the constitution the framers of the constitution
#
because they wrote the constitution at a time when the country was in much turmoil outside
#
gave a lot of power to the center which they may not have under other circumstances which
#
the center should not have in a democratic republic and Indira Gandhi managed to use
#
those powers to suspend democracy and but those were in the constitution they were out
#
there so the system was flawed it could have been some other demagogue and not her similarly
#
you know when a few months back Modi arrested a bunch of these activists like Arun Ferreira
#
and Gautam Navlakha and so on and there was much criticism correctly of those actions
#
but the issue there wasn't Modi per se all of these people were arrested under laws which
#
had been framed by the UPA before this all of these people or most of these people had
#
been arrested by the UPA before this Arun Ferreira had been arrested by the UPA and
#
spent two years in jail and I think wrote a book about it as well which I recommend
#
everyone should read so the thing is the problem is not this party or that party this guy is
#
a good person that guy is a bad person people respond to incentives you need to change the
#
incentives when you have a structure of government where people have so much power it will corrupt
#
them not in ways that you know financial corruption it will corrupt them in a moral and philosophical
#
So and that moral and philosophical corruption becomes equally important as much as financial
#
It's far worse you know you could argue that for example that there are so many procedures
#
and you know government makes it in so many areas so difficult to do things that that
#
kind of financial petty corruption is actually useful in making sure things happen otherwise
#
they would get stuck forever I so you know that is a sort of perverse way of looking
#
at corruption but petty corruption or even grand corruption when it comes to money is
#
not as bad as the moral corrosiveness that is a more dangerous form of corruption because
#
what does that do when the entire political system is like this it basically guarantees
#
that anyone who enters politics is only entering politics with the wrong intentions because
#
he is looking at the incentives in play you know he doesn't want to serve the people
#
per se he wants to or he doesn't want to you know make the world a better place and so
#
on and so forth all of those noble things he is driven by the lust for power he knows
#
what it will take to get there which is a lot of dubious activity and when he gets there
#
to stay in power he will have to you know pay back those favors that he's got along
#
the way or deliver on all those quid pro quos and that's the whole system.
#
So you are in this system where you have a citizenry that is held captive by the state
#
and this is the nature of the state and it is pretty depressing.
#
So given that this is pretty depressing what then gives us hope how does public choice
#
also gives us hope I mean is the field itself fairly depressing in that manner in how it
#
diagnoses problems or its speaking truth in the world is full of suffering if we go back
#
Well they do call economics as dismal science but I would say in this case it gives us hope
#
see what gives us hope is that what gives me hope is India against corruption movement
#
Now the movement was completely wrong minded because Anna Hazare and Kejriwal lost the
#
clue completely when they talk of solving corruption by creating more government right
#
Lokpal and more committees and more whatever and more oversight and you don't solve the
#
problem of too much government by creating more government they miss the fact of the
#
root causes of all of this that you need very limited government you need to remove discretion
#
you need to whatever but what it indicated is that people were animated by the problem
#
of corruption that they were willing to come out on the streets and they were willing to
#
fight about it and take things into their own hand.
#
Now it isn't that people are apathetic it isn't that people are giving up people care
#
people suffer from this in their daily lives it's just that they have an intuitive but
#
simplistic understanding of what the problem is the problem is not bad people the problem
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is not this party bad that party good the problem is the incentives in play and if there
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is a greater understanding of this then perhaps it will start asking for the right things
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like already for example you know and society does change like already we saw last year
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377 disappearing let me tell you when I wrote my piece Samatunga racket 10-12 years ago
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I never imagined the law will ever go I thought the subject of the law going comes up there
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will be all these traditionalist homophobes who will oppose the striking down of 377 but
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it has gone and it has gone to widespread acclaim and you find Bollywood and mainstream
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popular culture now treating homosexuality in a completely normal way like with the brilliant
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TV series made in heaven or other movies that are getting made and that is just brilliant
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it shows that society and culture can move in that positive direction towards freedom
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and if you think about it the strongest incentives in politics come from voters voters are indispensable
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in a democracy so if these ideas spread enough and things like yes minister and G Manthri
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G and Raghdar Bari do help in spreading these ideas across but if more of these ideas spread
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into the popular culture and people start understanding the importance of incentives
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and how to design systems then maybe there will be popular outcry which comes out with
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the right solutions and we can be a great nation again do I sound inspiring enough for
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you to vote for me maybe yeah if you're starting a liberal party a few years from now then
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I think you're on to something oh my god we have something here you heard it here first
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I was thank you so much for coming on the prakriti podcast it's always a pleasure to
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have you back here it's my privilege to be here Parvan thank you so much for having me
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if you enjoyed listening to the show you can follow me on twitter at Amit Varma A-M-I-T-B-A-R-M-A
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and you can follow Pawan at zeusisdead Z-E-U-S-I-S-D-E-A-D and do check out and subscribe to Pawan's
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show the prakriti podcast at ivmpodcast.com or thinkprakriti.com I had been on a previous
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episode of the prakriti podcast to speak about libertarianism which also ran as a special
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episode of the scene in the unseen and you can check out a link to that in our show notes
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you can view all our archives at sceneunseen.in and thinkprakriti.com the scene in the unseen
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is supported by the takshashila institution an independent center for research and education
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and public policy takshashila institution offers 12 week courses in public policy technology
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policy and strategic studies for both full-time students and working professionals visit takshashila.org.in
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for more details thank you for listening hey this is sridhar ditya and i'm ahmed doshi
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and we host shunya one it's a really fun podcast where we talk to some of the best entrepreneurs
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in the country yes talking about everything from their startup challenges to what they're
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building and all the future of technologies right here so catch us on the ivmpodcast website
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app or wherever you listen to your podcast from do you wish you were smarter well so
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do we but the next best thing we could make you sound smarter and to help you with this
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endeavor we are simplified a podcast that attempts to break down the complex world around
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you with a little knowledge a lot of poor jokes and a ton of random trivia episodes out every
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monday on the ivmpodcast app or wherever you get your podcasts see ya
