Let's not slide back to Licence Raj, we must not stifle the economy

Our economy reflects a slide back to the Licence Raj. Realising our potential requires that we squash bureaucratic control

In August 1971, Stanford Psychology Professor Philip Zimbardo organised an experiment. Two dozen Stanford students were divided on the flip of a coin half each into prisoners and wardens. A “prison” was set up in the basement of the Psychology building. The purpose was to assess whether roles of authority lead to exploitative use of power.  The experiment was to last two weeks, but was abandoned after six days, ostensibly because the bright middle-class students who had become wardens began to humiliate and abuse their bright middle-class fellow students who had become prisoners.

This experiment acquired the status of legend — and notoriety.  It was already part of student lore when my brother and I were undergraduates in the late 1970s, and resurfaced with renewed fame after the mistreatment of prisoners at Abu Ghraib by American forces in Iraq. In 2015, the Stanford Prison Experiment was duly canonised, when Hollywood made it into a film.

The essence of science is that results are validated by repetition. Attempts to replicate the findings of the Stanford Prison Experiment have failed. In 2001, the BBC filmed a repeat, with different results. As Maria Konnikova wrote perceptively in The New Yorker, “Taken together, these two studies don’t suggest that we all have an innate capacity for tyranny or victimhood. Instead, they suggest that our behaviour largely conforms to our preconceived expectations. All else being equal, we act as we think we’re expected to act — especially if that expectation comes from above.”  

Now what has all this to do with our dreadful Covid times, and a locked-down economy? My back-of-the-envelope estimate is that April saw a fall in gross domestic product (GDP) of over 40 per cent — the largest ever in our history.  We have been struggling to restart our economy in bits and pieces — restoring essential services such as food processing here and classifying non-banking financial companies as essential services there. The home secretary has issued repeated notifications that all goods, essential and non-essential, are free to move anywhere in the country — but they still don’t. At best, things are whimpering back to a mediocre level. A Confederation of Indian Industry poll carried out earlier this month found that 60 per cent of the firms that had restarted operations were running at under 25 per cent capacity —not because they didn’t have demand, but because of logistics. To illustrate from our own organisation’s experience in the last two weeks:

• We need passes for everything. We need a pass to bring people to work. A pass to source packing material. A pass to get the logistics providers in. Another pass to get a truck in and on its way to the customer. A pass even to take letter of credit documents to a bank, or product certificates to a boiler inspector. Each takes time, and is variably interpreted by each individual policeman.
• For couriers, we track each one through each checkpost as they transit every district along the way. We even hired a vehicle for the courier to deliver documents on a milk-run around various metros. 
• We’ve been working to get about half our shop-floor members back from other parts of the state. We were first told they needed passes issued by the destination district, then by their original district, then that they didn’t need passes at all but needed a medical certificate to pass through districts that lie in between, and now that even if they come, they will be quarantined on arrival. 
• The net effect of all this is delay, wastage of time th­at could be used productively, and unnecessary cost.

My point is not that the end district official or policeman is doing the wrong thing. A dynamic economy demands that no official has the discretion to stop legal activity. In our zeal to control, we have rediscovered what Abhijit Banerjee and Esther Duflo call “the kind of total government chokehold on private enterprise India had in the 1970s”. The net effect is a stalled economy that refuses to restart even when ordered to do so.

Illustration by Binay Sinha

 

So what should we do?  Let us start with the evidence — what is factually proven is that three things work in preventing the spread of the virus: Frequent washing of hands and sanitisation of public spaces, social distancing between people of at least 2 metres, and wearing a three-ply mask in public when strangers meet. So we should treat these three principles as absolutes, and that’s what we must enforce everywhere. In our factories, in our shops, and on our streets. If we must, let us also attempt to wall-off micro-containment areas in our worst-affected cities (while guaranteeing that people in those areas have adequate access to essentials to survive). But everywhere else, let us enforce only these three principles and remove the scope of the Disaster Management Act throughout all green and amber districts and all areas beyond the micro-containment zones in red districts.  The last 50 years have taught us that controls stifle the economy.  We must sharply limit bureaucratic discretion to just the micro-containment areas.  

Consider a recent example — liquor shops. For some reason — perhaps the high morals of the Union government official concerned — liquor shops were closed for 40 days. When the Punjab government permitted them to open, the Union government issued them with a notice and forced them to close. Less than a week later, they were permitted to reopen everywhere in the country outside containment areas. But only 20 per cent of shops were allowed to reopen at a time, for limited hours, and with the threat they might be made to close again. The long queues and chaos that resulted would have come as a surprise only to the bureaucrat who formulated the policy.

  

India in the 1970s was a miserable place.  My favourite commentator on the times, the genius cartoonist R K Laxman, captured matters best. In one cartoon, an industrialist is showing a visitor round his large unit:  “Typing department for licences there, copying in triplicate here, department to collect C-forms there. And [pointing to a small engine operating in a corner] this, by the way, is our factory”.

Returning to that comment on the Stanford Prison Experiment: “All else being equal, we act as we think we’re expected to act— especially if that expectation comes from above.”  If our officials are given the power to intervene and control, and a message that that’s expected, they will intervene and control. The net effect is an economy tied up in knots.

Let’s not go back to the Licence Raj.  Only Laxman’s successors will benefit. 

ndforbes@forbesmarshall.com . The writer is co-chairman Forbes Marshall, past president CII, chairman of Centre for Technology Innovation and Economic Research and Ananta Aspen Centre