What if you can’t be the ‘very best’? Why, of course, you must try hard to be better at ‘being better’. Whether it is contestants in beauty pageants, educational institutions seeking to go up some notches in university/business-school rankings, or even countries which seek to attract investors by pitching themselves as ‘better’ and more attractive investment destinations, the game seems to be one of ticking the right boxes and catering to external perceptions of what matters, so as to win the game.
Take the case of the now-disgraced ‘Doing Business’ report, which was recently junked by the World Bank. The report, for the past 17 years, was followed by policymakers, corporate honchos and politicians, besides academics, and taught in business-school classrooms as a way of assessing a country’s business environment.
The junking of it has been framed as an issue related to ethical concerns, linked to data irregularities, especially in the survey’s treatment of countries such as China, Azerbaijan, the United Arab Emirates and Saudi Arabia and their being bumped up a few notches in the likely expectation of quid pro quo deals for the Bank. However, there are deeper concerns with the whole business of ratings and rankings.
Students in classrooms and media (both local and global) revel in reports of India doing better and improving its rank on the ‘Ease of Doing Business’ indicator.
India, undoubtedly, has done better, climbing a cool 79 positions in the five years between 2014 and 2019 to finally reach 63rd place (out of 190 economies) in the World Bank’s (WB) 2020 ‘Doing Business’ Report.
The obsession with ratings and rankings, in line with the predilection of Indians for tangible success metrics, results in our celebrating such ‘improvements’ without quite understanding the methodology or impact of such rankings on the larger goals affecting the lives of a larger group of stakeholders.
India’s ‘Ease of Doing Business’ is based on such ease improving in just two Indian cities, Mumbai and Delhi. Clearly, there is no reason to celebrate when only two cities do better at ‘being better’.
Of course, inspired by the ‘Doing Business’ rankings, the Indian government has initiated improvements at the level of Indian states and Union territories (UTs) as well.
In 2014, based on the 10 business topics tracked and monitored by the World Bank’s report, the Centre came up with a Business Reform Action Plan (BRAP) for Indian states and UTs.
The implementation of these rankings and the Ease of Doing reforms by those administrative units has been linked to additional borrowing permissions for states, apart from other bounties, even if these reforms may merely mean a ‘race to the bottom’.
A perusal of the ‘Business Reforms’ on the WB website indicates a high value placed on such pauperizing ‘reforms’ as the US reducing its corporate income tax rate from 34% to 21% in 2018, and Hungary cutting the social tax rate paid by its employers from 22% to 19.5% in January 2018. Should India or other emerging economies pursue such policies? This remains a moot question.
The strategies used by countries or states trying to do better for maximum pay-offs may be analysed using game theory.
Consider the Prisoner’s Dilemma, which reveals why a ‘limited’ player game, involving 190 countries and/or 29 Indian states and seven UTs, would result in predictable dominant strategies.
A dominant strategy, by definition, is superior for it promises the maximum possible pay-off irrespective of what competitors do. Pursuing ‘Doing Business’ reforms appears to be a dominant strategy for emerging countries and backward states, with larger pay-offs envisaged in terms of greater foreign investment, larger central funding, etc.
However, in doing so, they may simply act as ‘prisoners’ of a Western paradigm of development and success, choosing sub-optimal (even if dominant) strategies, with their inferior fiscal and welfare implications for India. These are strategies that devote little attention to improving social equity and addressing ecological concerns.
Ratings and rankings, in general, promote a certain homogeneous paradigm of success, one which may not be in line with the specific needs of individual countries or even institutions.
The case of the Doing Business report being abandoned holds lessons for business schools and educational institutions trying to chase sub-optimal global standards as well.
The success-fetish of management education has made it fashionable to speak of “learning from failure”, even as we prostrate at the altar of global ratings and rankings and try hard to be part of an elite club of successes.
Changing the narrative will require a concerted effort on the part of Indian business schools to cooperate, challenge and set out a set of goals that are more relevant for us.
Or else, we run the risk of being trapped in similar Prisoner’s Dilemma situations that countries participating in the WB rankings found themselves in.
The WB has resolved the dilemma for participating countries for now by dumping that report. Countries may find themselves free to pursue different goals. Can Indian educational institutions now solve the Educator’s Dilemma for themselves?
https://www.livemint.com/opinion/online-views/the-doing-better-syndrome-and-our-prisoner-s-dilemma-11632247006971.html
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.