Economics and good intentions

Here’s a problem: If economics is a science, then intentions, good or bad, must not be a part of it. If, on the other hand, and at the very least, good intentions simply must underlie it, it cannot be a science. Indeed, it ceases to be economics even. 

This, to my mind, is the main problem with randomised controlled trials (RCT) in development economics — though not in the other branches of the subject like, say, mechanism design. In fact, I have never understood what development economics is other than being an atonement for a bad conscience.

As a result of it, many good economists have become preachers and many preachers have become bad economists. Some of them have arrived on Indian shores, in a manner reminiscent of the representatives of the Anglican Church after 1870. 

Governments loved them then, and they love them now because they bring intellectual respectability to comforting ideas. So, it appears, do the World Bank and the Nobel Committee, not to mention many philanthropists. 

There are two major questions that such economists refuse even to acknowledge. One, why is your good intention better than mine? Two, is the state the best institution to give effect to good intentions? Religious institutions do a far better job. 

Such economists, I think, start with an inadequate understanding of what the state actually is — a collection of randomly chosen agents who can’t reveal anything like a conscience while acting on behalf of their employer. Those that do become NGOs. 

The economists then get very surprised when the state reveals its true colours. The phenomenon was best summed up by Arthur Koestler in his 1949 classic, The God That Failed.

What is not understandable, however, is how development economists deliberately ignore all the thought that has gone into preventing economics from becoming a vehicle for competitive politics. This willingness to be an intellectual fig leaf for sheer Robin Hoodism, with its forcible income transfers in return for votes, is what is so distressing, at least to me because unlike many of these guys, I pay taxes in India. 

Not new

Sorry for that long preamble, but RCTs in development efforts are not new. It’s just that no one thought of giving them that name. 

Ask any IAS officer, of any batch, since 1948, who has held a district, and he or she will tell you how they have had to initiate or run such experiments. One of the first was in 1952 when the then minister for community development, Sudhir Ghosh, started his experiment in Faridabad. It didn’t quite work. 

V T Krishnamachari, the then deputy chairman of the now defunct Planning Commission, was blamed for it. But VTK foresaw the political dangers. Nehru agreed. 

There have been thousands of other development experiments since then. Indeed, pretty much every single one of what governments call ‘schemes’ are RCTs. In fact, MNREGA is the mother of all such schemes: Give money to some on some arbitrary criterion and not to others and see if the beneficiaries vote for you in perpetuity. We know the answer now: They don’t. 

This suggests that the experimental method that works in science doesn’t quite work in development economics. RCTs are useless beyond a point. Again, ask any IAS officer after he has left the district, and he or she will tell you how things went to pieces after his or her term. But it’s got nothing to do with them. It’s how it is if you rule out force and rely on incentives alone. People are not Pavlov’s dogs. 

The moral

Good intentions are best left to political parties, governments and religious establishments. Attempts to weave them into in a formal way into economics helps neither the intentions nor the discipline. Both become suspect. 

Let me end by quoting a much derided economist, P T Bauer of the LSE: “Those who propose replacing the market system by political decisions rarely address themselves to such crucial matters as the concentration of economic power in political hands, the implications of restriction of choice, the objectives of politicians and administrators, and the quality and extent of knowledge in a society and its methods of transmission." 

He wrote that in 1982 but it was the essence of his life’s work since 1955. 

The series of Indian experiments since 1952 suggest Bauer should have got the Nobel long, long ago.