Tuesday, July 26, 2016

The challenge with development - the curse of standards

There are very few development challenges that do not come with trade-offs. And on most first-order determinants of development, the trade-offs raise disturbing and difficult questions. This is so even when the change is morally, socially, and economically desirable. But trade-offs invariably mean acceptance of second-best standards. 

Accordingly, the imposition of a rigorous patent regime in a least developed country runs the risk of curtailing local enterprise. In countries without any alternatives, outright bans on market intermediaries like money lenders and agriculture middle-men, howsoever fleecing they are, adversely affects the vast majority. In all these cases of regulatory reforms, the costs of formality often outweigh its benefits, leaving the system as a whole worse off than without the reform. I had blogged earlier about how the high cost of regulation and standards that accompany manufacturing for export markets prices such manufacturers out from India's domestic markets. 

Consider four examples of such trade-offs that India is currently grappling with. The first two involve the pursuit of formulating standards, while the last two involves the problems associated with enforcing laid down standards. 

The Employees Provident Fund Organization (EPFO), a public sector entity that manages the gratuity and pension of India's central government employees, is apparently considering the enrollment of unorganized sector workers into EPFO. For a start, this is a contradiction in terms since the unorganized sector workers are not in EPFO precisely because they are not part of any formal network. And they prefer to stay informal because the costs of formality are prohibitive. For example, the total salary deductions for an employee with monthly income below Rs 15,000, ones who form the overwhelming share of the informal sector, is about 32%, with EPFO alone claiming 25%. Such massive deductions alone are enough to deter employees. For employees, apart from the costs, there are the compliance requirements and inspections, all of which would leave them commercially unviable. 

In fact, the growing demand for globally harmonized labor standards may have far-reaching effects on the economic growth trajectories of developing countries. Consider the example of domestic and construction workers, two categories who suffer badly from extremely poor working conditions. It is therefore the natural response of well-intentioned people to demand regulation of working conditions and higher standards. Most often, if not always, they advocate state-of-art labor protections for these workers. But in an extremely price-sensitive markets where the margins are very small (the layers of sub-contracting in construction dissipates margins are all levels), the cumulative cost of these protections almost always make them non-starters. In such circumstances, the result of higher standards is almost always regressive - workers forced out of the market, more informality, more harassment, and more corruption. 

The second example is the recently promulgated real estate regulation legislation. It introduces many consumer protection standards, including complete transparency in transactions and escrowing of the amounts collected from buyers. While undoubtedly laudable, they are likely to increase the cost of development for developers, who are most certain to pass on the costs to the buyers, thereby forcing up an already prohibitive real estate market. Its impact on the government's objective of making housing affordable may be less than benign.  

The third example comes from the field of medical education regulation. The Medical Council of India (MCI), responsible for the accreditation of medical colleges across the country, has just denied permissions for the establishment of 83 new medical colleges, expansion of MBBS seats in 47 existing medical colleges, and starting super-specialty courses in 39 medical colleges. The MCI's argument is that these colleges do not have the requisite qualified personnel and physical infrastructure to run such courses or offer more degrees. Who can fault the MCI for adhering to minimum standards? After all who in their right mind would want less than qualified medical doctors roaming around and killing people?

But what if the standards are too high given the context. We need to keep in mind that India is a country with 0.7 doctors per 1000 of population, one-fourth of that in UK. It surely needs a few times more than the 381 existing medical colleges and 63,800 MBBS seats each year, enough to meet just 1% of the demand among aspiring medical students. 

Staying on in the field of medical care, India proudly declaring that it adheres to the World Health Organization (WHO) standards on primary care. It has sanctioned a Primary Health Center (PHC) for each 25000 population and have an Auxiliary Nurse Midwife (ANM) for each 5000 population. But current standards need the heavily over-burdened (just for illustration, in rural areas, just imagine visualizing the distances that need to be covered in field visits to scattered households) ANMs to keep elaborate and state-of-art documentation of each ante-natal case, irrespective of the nature of the case. This forces her to maintain more or less the same standards of monitoring for normal and high-risk ante-natal cases, though the latter with just 10% of all cases contribute 80-85% of all maternal and child morbidity and mortality.  

At some level, there is also a need to question the prevailing standards on even more mundane things like blood pressure and diabetes in a culture where people are used to taking far higher quantities of salt, spice, and oil even in their staple diets when compared to those for whom the standards were originally formulated.  

The final example is that of primary education where it is now well acknowledged that learning outcomes are extremely poor. Here too, the obsession with standards may have done more harm than good. The National Council for Education Research and Training (NCERT), which lays down the grade and subject specific competency standards, in its politically correct wisdom has laid down minimum national learning standards which are comparable to global benchmarks. But for a country with massive antecedent learning gaps and numerous other capacity constraints, such standardize-and-pretend approach does enormous harm.  

I can already hear people mumbling their discontent at this. I understand their concerns. But they need to appreciate that development rarely ever happens in a straight and neat path. These are real world trade-offs that need to be acknowledged and policy design should accommodate them. Most often, this would necessitate decidedly second-best choices and unsatisfactory compromises. Development is always a process of gradual transition where multiple states of being necessarily co-exist, rarely one of abrupt shift from one condition to another. 

So here is my simple smell test. If we stand a far higher chance of saving the lives of a significant number among the 90% of those at risk, but at the cost of, maybe, increasing the risks for 10% of the cases, by revising ante-natal care standards, then so be it. I am willing to accept that trade-off any day. 

3 comments:

Manu said...

Excellently written.

prabhat singh said...

Your comments make a lot of sense, though there is evidence to the contrary.

In the 1970s, when UK decided to enforce equal pay for men and women. Commentators, including FT, praised the idea but feared it would price women out of the market. That didn't happen, and this piece chronicles that:
https://www.ft.com/content/e577a01a-d3f6-11e4-b041-00144feab7de

prabhat singh said...

Your comments make a lot of sense, though there is evidence to the contrary.

In the 1970s, when UK decided to enforce equal pay for men and women. Commentators, including FT, praised the idea but feared it would price women out of the market. That didn't happen, and this piece chronicles that:
https://www.ft.com/content/e577a01a-d3f6-11e4-b041-00144feab7de