Bites from the classroom: Part 1

Girisha Shankar reflects on some concepts in the policy space.

International trade: going beyond “win-win”

A very commonly held view is that trading is good and makes everyone involved better off. However, it can also be argued that this kind of trading is good for countries or entities that are on equal footing or for those who produce commodities that are similarly valued. It may not hold good in cases where the two entities (or countries) involved in trade produce goods that are dissimilar in value. For example suppose country A is specialised in growing mangoes while country B is specialised in making cell phones. If the two countries are trading on these, invariably country B stands to gain compared to country A – since the cost of a cell phone is disproportionately higher than that of a mango.

One can argue that apart from the monetary benefits, both countries are actually better off – Country A gets to enjoy cell phones while country B enjoys taste of mangoes. But assuming an extreme case of country A being only specialized in growing mangoes, it would have to work harder and produce more to be able to equal B in value.

One answer to this could be that there is a higher incentive for country A in investing in its competency building for producing something that can match or better the value of a cell phone.

In practice however, this may not always work out this way. Country A may not really be successful in reinventing itself to create something that is comparable in value of a cell phone. Let me take a real life example of the Indian software industry. Most of Indian software houses are engaged in providing services, though these houses know very well that the software products would perhaps fetch far higher income. Even after a quarter century of being in business, there hasn’t been a big success software product story from Indian shores. On the other hand, some of the other countries quickly turned around – e.g. Israel, Cambridge in UK, Dublin in Ireland etc.

In summary, trading can increase the incomes for both countries involved in trading, but the gains may not be similar. So for the countries involved in trading, the outcome may not be exactly win-win, but rather “small win-huge win”.

 

In defense of an incremental approach to policy making

Nandan Nilekani has talked about need for minimalist policy programs, mentioning that they could be helpful in building much needed consensus in formulating the policy. In R V Vaidynathan Ayyar’s book, Public Policymaking in India, Lindlom’s incrementalism talks about a similar approach for policy – taking short steps at a time.

This method is often questioned because it is slow in achieving the desired benefits. Here I would like to introduce an analogy from the software development process that is commonly used. This model is called the iterative development model. It is typically used in times of uncertainty when the customer’s requirements are not very clear. The model essentially builds the software incrementally – at each step producing something that can be demonstrated to the customer to seek feedback. The feedback can be used in the subsequent increments (also known as iterations) for course corrections. This model is very effective in ensuring that the final product converges to what the customer needs. However, this also has an overhead in the multiple iterations involved and multiple consultations with customers – in this case, citizens – which is not always easy.

The environment where the policy gets formulated and finally gets implemented is far more uncertain than a typical software development environment. A comprehensive analysis of the policy problem is unrealistic in such a case. At best, only a part of the problem might be figured out. Secondly, a policy would certainly build on top of something existing already – seldom on a clean slate (Ref: pg 142, Ayyar).

It is also worth noting also that the Government machinery (especially the executive) is quite risk averse such that it has no incentive in introducing something bold rather than attempting to introduce something smaller that is satisficing (Ref: pg 129, 130, Ayyar).

In such cases, the incrementalism referred above is quite useful. Each iteration resulting in a small incremental policy that can be introduced for implementation, feedback taken and suitable corrections made.

Girisha Shankar is an alumnus of Takshashila’s Graduate Certificate in Public Policy. This post is part of a series of opinion snippets. The views expressed here are the author’s.

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