The resilience and efficiency trade-off in public policy

I blogged yesterday about the pursuit of efficiency in modern economic systems which has marginalised all other factors. But John Mauldin points out, Covid 19 has highlighted the importance of resilience as an equally important decision-making factor in public and private sectors,

“Resiliency” is suddenly a buzz word. We are seeing how ultra-optimized global supply chains are actually quite fragile when unexpected events occur. We pushed too far in trying to save the last penny. Now we’ll have to not just rebuild, but rebuild differently, and it’s the opposite of everything known to generations of engineers and consultants.

In recent decades, efficiency had come to occupy the primary factor in corporate decision-making, marginalising other considerations. But Covid 19 has exposed the limitations of this primacy of the pursuit of efficiency. Two earlier posts here and here in the context of internet companies pointed to how the relentless quest for efficiency to the exclusion of all else has exposed Amazon when faced with Covid 19.

Sample this from a recent article in The Economist that highlighted the importance of resilience with manufacturing supply chains which are now excessively concentrated on China,

That companies have been aflurry over their supply chains is not in doubt. From January to May supply-chain disruption was mentioned nearly 30,000 times in the earnings calls of the world’s 2,000 biggest listed firms, up from 23,000 in the same period last year. Mentions of “efficiency” declined from 8,100 to 6,700. Managers know that supply chains are good conduits of economic pain.

The fetish with efficiency is confined not just to businesses. Never mind its realisation being questionable, efficiency has emerged as a pre-eminent consideration in public policy.

The Thatcher-Reagan ideological turn of the eighties mainstreamed the New Public Management approach of using private sector practices in managing the public sector. A central feature of this approach was the elevation of efficiency as the primary consideration in public management over all other factors like fairness, equity, safety, workers rights, inclusiveness, access barriers, and, not to speak of, resilience. A complementary factor which assumed great significance was that of harmonisation or standardisation. 

Take the example of cash transfers or UBI and the contrast with in-kind transfers like food grains through India's public distribution system (PDS). The former is efficient and easy to administer. The latter is inefficient, prone to leakages, and challenging to administer.

But the Covid 19 has been a very good wake up call on the importance of other factors that must determine public policy on issues like food security in a continental sized country with recurrent episodes of natural and man-made disasters and vast numbers of ultra-poor. Sample this from a Dalberg Survey,

BPL Households that report they could access and use their respective benefits easily: Ration: 46%: Cash: 25%, Buying supplies: 41%. BPL Households that report difficulties: Ration: 17%: Cash: 36%, Buying supplies: 58%... 55% of households with BPL/AAY cards received free rations; 28% of households with JDY account received the Rs 500 cash transfer.

A Yale University study finds that 53% of poor women (below $2.50 per capita PPP per day) (176 million) did not have JDY account, and 21% (70 million) lacked even a ration card. It writes,

In order to reach the most vulnerable, universal distribution of food rations through systems such as PDS shops and community kitchens could be expanded in all states with the release of additional grain. 

A Chicago University study points to dire statistics and writes,

These figures suggest that the rapid distribution of in-kind or cash transfers is needed to prevent a sharp increase in malnutrition and severe deprivation. Such transfers will also likely promote a more robust recovery as the country is able to reopen. 

An LSE blog had this to say,

In India’s current crisis, the Public Distribution System (PDS) – the programme of distribution of subsidised goods that constitute the main food security net in the country – is of fundamental importance for the poor households that access it. Still operational during lockdown, the PDS ration shops will supply essential food items to households that, while already in poverty, will be bearing the severe economic impact of lockdown. The PDS provides subsidised goods to below-poverty-line (BPL) households throughout the country, as well as those classified as Antiyodaya Anna Yojana (AAY) – the poorest of the poor – who access enhanced rations. In the serious economic downturn of the lockdown, it is key that the national food security network works at its best capacity... The ongoing crisis requires a reshuffling of priorities: with the lockdown and its serious impact on the poor, the PDS has become an even more fundamental resource for subsistence.

It is safe to say that without the PDS, India would have witnessed starvation deaths now. Quite apart from citizens accessing the food grain benefits, local governments would have struggled to operate community kitchens. See this on PDS and NREGS.

A similar comparison exists between digital money and physical cash, and the unqualified embrace of  the former. It is important to keep in mind factors like exclusions and access barriers that bedevil digital money channels, a problem which people like Jean Dreze have demonstrated repeatedly over the years.

What about the respective reliability of NREGA and JDY payments? There have been significant issues (e.g. delayed, rejected, blocked or diverted payments) with NREGA payments, often related to Aadhaar. But then, numerous “direct benefit transfer” schemes (social security pensions, scholarships, maternity benefits, among others) have faced similar problems, also reflected in official transaction data. Both the Aadhaar Payment Bridge System(APBS) and the Aadhaar-enabled Payment system (AePS) are shot through with technical glitches, possibly exacerbated by the recent surge in transactions, and especially unkind to the powerless. Transfers to women’s JDY accounts are unlikely to be more reliable than transfers to job-card holders. 

In fact, as far as effective payment is concerned, there is a further argument in favour of the NREGA job-cards list: unlike JDY accounts, it lends itself to the “cash-in-hand” method (on-the-spot payment in cash, instead of bank payments) as a possible fallback. The reason is that the job-cards list is a transparent, recursive household list with village and gram panchayat identifiers, while the list of JDY accounts is an opaque list of individual bank accounts. Cash-in-hand may seem like the antithesis of JAM, but this option may become important in the near future if the banking system comes under further stress.

I blogged here highlighting the limitations of digital technologies in addressing problems of financial inclusion and targeting of social program beneficiaries.

Much the same logic applies to the debate on privatisation of services compared to public provisioning. Again the underlying theme is simple - efficiency over all other factors - and like with cash transfers, Covid 19 has exposed the limitations of the private sector focused approach.

In the context of shortages of PPE like face masks, Gillian Tett mused the unthinkable,

... a much bigger question for a country such as the US: how far should it rely on the free market to supply basic goods? And how far should it tolerate (or encourage) state intervention in a time of crisis?

... When coronavirus hit, America was tragically ill-prepared... at the start of the pandemic, the Department of Health and Human Services only had 42 million masks in its stockpile, of which 30 million were medical masks and a mere 12 million were the prized N95. That was a scant 1 per cent of what the department itself calculated would be needed in a bad pandemic. Worse still, it did not have any way to quickly produce more, since about 80 per cent of mask production has occurred in China in recent years and key materials in the supply chain, such as the gauze inside N95 masks, are made in countries such as Germany. All this has created a massive gap in the market. The result has been a wave of price gouging and quasi-piracy as institutions have scrambled to get hold of scarce supplies. That has left countless front-line workers dying needlessly because they have lacked proper PPE.

The Covid 19 pandemic has once again highlighted the importance of public systems.

A strong bipartisan consensus has emerged in the US around active industrial policy, especially to combat the threat from China,

And yet, with a wary eye on China and public nervousness about stretched global and domestic supply chains for food and medical products, Republicans are starting to join Democrats in advocating for a stronger government hand in directing America’s industrial resources. Republicans who just a few years ago regularly scorned any idea of Big Government’s intervening in business and picking “winners and losers” are now happily calling for a national strategy to identify key sectors to protect and promote. In both Congress and the White House they’re discussing tax incentives and other ways to spur businesses to bring manufacturing home from China. Progressives, centrists, and right-wing economic nationalists alike are threatening government strictures on a corporate America that’s spent decades building sprawling “just in time” supply chains around the world in the name of economic efficiency and expansion into new markets.

Closer home in India, take the example of private health care. An editorial in Indian Express highlighted the private sector's abdication of their role in the fight against the pandemic,

Private enterprise owns almost three out of every four hospital beds in India, and almost eight out of 10 ventilators, but they are handling less that 10 per cent of those critically ill with novel coronavirus. States like Bihar, where private capital owns about twice as many beds as government hospitals, have seen the private sector in complete rout. The reluctance to engage is so great that they have been turning away coronavirus patients and other patients in need of aid. In Delhi and Maharashtra, the state government has had to issue orders so that they do not turn any more away.

As a series of reports in this newspaper showed, numerous factors have been at play in this failure — pay cuts, employee reluctance, the fear of sealing, the future consequences to brand value of hospitals identified with the pandemic, the lack of established protocols and protective gear, and bureaucratic instructions, like those issued in Telangana, to refer viral patients to government facilities. Underlying all this is the economic reality of falling revenues and footfalls, accompanied by new expenses and risk. While the central and state governments should offer to underwrite the risk, the fact remains that a sector which has benefited hugely from government concessions and encouragements, and which has tried to take over healthcare in India, has abdicated its public responsibility and remains isolated from the national effort.

Instead, much neglected public health functionaries like ANMs, community health workers like ASHAs have been the saviours. Sample this,

The nearly 26,000 ASHAs across the state have... become the eyes and ears of the government on the ground, constantly flitting through their jurisdictional areas like a detective, scouring for people with infections and keeping a stern vigil on their quarantine. If someone coughs or sneezes, hers is the phone that rings first. If someone entered the ward after travelling from another district, she would be the first to know... Kerala’s health department is essentially banking on such interpersonal connections between ASHAs and the communities around them to help cast its surveillance net and keep close track of those who can potentially get infected with the coronavirus.

Similarly critical have been the roles of panchayat and local government institutions in combating the pandemic. In fact, as P Sainath says, several foot soldiers of the economy in general,

We have always had one standard for the poor, and one for others. Even though, when you list essential services, you are finding out that it is only the poor people who are essential, apart from doctors. Many of the nurses are not well-off. Besides them, there are sanitation workers, ASHA workers, aanganwadi workers, electricity workers, power sector workers, and factory workers. Suddenly you are finding how inessential the elite are to this country. 

The large scale transportation of internal migrants and Indians stranded abroad would not have been possible without Indian Railways and Air India. This is not to argue against private participation in these sectors nor even their privatisation. It is only to point out that these factors need to be kept in consideration alongside efficiency when we debate issues like privatisation in the context of a country like India.  

In the UK, it will turn out to be one of the biggest ironies that the Prime Minister who began his term with the intention of squeezing the NHS further will now end up being the leader who started the revival of NHS.

Update 1 (30.06.2020)

The impact of NREGA,

Person days of jobs provided under MGNREGA had reached an all-time high of 568 million in May 2020. This was 54 per cent higher than the level of May 2019. Data for June 2020 accessed on June 29 from the official site of the scheme at 348 million was 66 per cent higher than it was for the month exactly a week ago. This either implies a sharp increase during the week or substantial revisions for the month. Either ways it implies a continued increase in MGNREGA spending into June. Person days of jobs in June 2020 were already 8.4 per cent higher than they were a year ago. Kharif sowing till June 26 was more than twice it was a year ago. There is no overlap between MGNREGA work and sowing work. The two together therefore have evidently powered the rural employment surge in June.

Update 2 (03.09.2020)

On how NREGA's automatic stabilising role,

Around 24.2 million households have demanded work under the scheme in August 2020 as per MGNREGA website accessed on September 2 which is a staggering 66 per cent more than the same month in 2019 and the highest in last seven years for August.

Update 3 (06.09.2020)

Sunita Narain writes on NREGA,

In these darkest days of Covid-19 — when jobs and economies have collapsed — 56 million households got work in the past three months and these jobs provided relief. This was under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which perhaps is the largest social net scheme in the world. Down To Earth reporters, who travelled to different regions of the country, found there was a surge in employment and in many places, the most skilled and educated turned to this programme. It effectively put a floor to poverty — people got jobs, though unskilled and manual — but the jobs gave them money, albeit only a daily wage, and the money provided them the ability to buy food to feed their families... Between April and August, when Covid-19 had driven economies to the ground, under the MGNREGA 15.5 million individual works were done. This included everything — from making cattle-sheds and farm ponds to even fencing on lands. Poor people improved their ability to secure their futures and they were paid for this labour — which, in turn, gave them that critical safety net.

Update 4 (12.09.2020)

Good article on how NREGS and PDS saved India from hunger and starvation during the pandemic. More stats on the demand for the NREGS,

From April to August, over 83 lakh additional households or 1.6 crore persons joined the NREGA labour force by getting job cards, taking the number of families under the scheme to an all-time high of 14.36 crore... Data show 5.79 crore households availed NREGS between April 1 and September 10 during the current financial year — the highest since the scheme was launched on February 2, 2006.

And this on how PDS performed.