Book review: A dozen problems with the economy and about as many solutions

I have picked up few books with greater anticipation. The list of editors and authors would roughly match a list of My Favourite Economists. This book is hugely comprehensive: in 200 smallish, and generously spaced pages and font, it can be read in three hours, and ranges across every subject from healthcare, education, welfare reform, exports, banking reform and the financial sector, to land, energy, female-workforce participation and the environment. This wide coverage gives one a good sense of the challenges facing any reform-minded government. But its comprehensiveness is also its main fault. Many chapters range so widely in five pages that they end up being little more than a list of sub-headings (indeed, two chapters do not pretend otherwise and are a list of subheadings!). A book full of tasters leaves one longing for substance.

Some chapters — Abhijit Banerjee on healthcare or Raghuram Rajan on banking reform — combine brevity with insight and offer direction for an incoming government. Banerjee points out that the Pradhan Mantri Jan Arogya Yojana, the flagship health insurance scheme launched last year, could address the economic consequences of serious illness. But it also points out that it will not solve the main health challenges we face as a country, such as the largest number of malnourished people in the world and a surge in diseases such as diabetes and cancer. Rajan points out that the National Company Law Tribunal process should be reserved for larger cases, with a separate simple out-of-court process for the bulk of (smaller) cases. He also addresses reform in public sector banks, proposing changes in their governance and suggesting some mid-sized public sector banks be privatised as an experiment to learn from for the larger ones.

By far the best chapter in the book is “Fixing Schools” by Karthik Muralidharan. Also the longest chapter, this offers fresh insight and direction for any incoming government. There is actionable material aplenty, with analysis followed by clarity on what we must do, and how to go about it. He provides admirable focus: “The single most important outcome that education policy needs to deliver on for the future of the country is to ensure, by 2022, universal functional literacy and numeracy for all schoolchildren by the end of grade three.” He then discusses how: By investing in three things: “universal pre-school education, ... supplemental instructional support to children who are falling behind... and independent measurement and monitoring of the achievement of these goals”. If our government did nothing else than this, in whatever field, it would leave the country in significantly better shape. The book is worth reading in its entirety for this chapter alone.

What the Economy Needs Now, Authors: Abhijit Banerjee, Gita Gopinath, Raghuram Rajan and Mihir S Sharma (Eds) Publisher: Juggernaut, Pages: 224, Price: Rs 599

So how could this be a better book, even an indispensable guide for any concerned citizen and the new government that will take office later this month? We must address three issues.

First, the Indian state has limited bandwidth to deliver. This is not news: Arvind Subramanian has pointed this out in his Economic Surveys, and this book states this as a major impediment to progress on various issues. So if the state wishes to get anything done, it should try to do less, not more — in other words, focus. And one might simultaneously attempt to build state capability to deliver by bringing in talent from outside the civil service.  (And if there is widespread protest at bringing in 12 joint secretaries from the outside, one should respond by hiring 12 secretaries from the outside.) This book would also be better with focus. If each of the 14 chapters picked ONE key issue to address, instead of six or 14 (agriculture) or 19 (energy) and covered that issue in depth, as is clearly within the grasp of each of these great authors, we would have been much enlightened. Even better would be if we had six chapters instead of 14, and covered each in as much depth as the one on primary education.

Second, given that we must try and do just a few things at a time, whatever we do should be instructed by international best practice. My interaction with ministers and senior civil servants says they are intelligent, committed and hard-working. They seem, however, to have neither the time nor interest in arriving at the best-practice solution, and there is an overwhelming reliance on what the great and the good think. Quick choices end up being sub-optimal solutions that grind to a halt for reasons that any good academic (like the 20-odd collected for this volume) could have predicted. Here again, the chapter on fixing schools brings in what we can learn from best practice worldwide. Banerjee and Rajan, who appear to live best practice as easily as they brush their teeth each morning, manage to do so too in their five pages.  

Third, and most importantly, any solution needs to focus on the “How”. What’s feasible? This book lists dozens of well-known problems, with almost as many well-known solutions. If problem and solution are known, the “How” of implementation is critical. This book offers a useful list of what should be done in each of the 14 areas it covers. But rarely does it say how. Again and again, we are told that the report of some recent government committee should be implemented. Agreed. But the book is largely silent on why the report has not been implemented to date, and how it should be.

“Fixing Schools” illustrates the potential in this approach: it focuses on the one key deliverable we must achieve — children’s literacy by grade three. It brings in international best practice on how to achieve this. And it says how we can bring about this change so clearly, that I for one came away convinced of how we could implement this in our own firm for the CSR work we do with various schools in and around Pune.  

To sum up, if we wish to offer sage advice over drinks some evening that we need to “fix PPP” or “improve domestic firm competitiveness to enhance exports”, this book provides plenty of help. It is a clear statement of What the Economy Needs Now. But what the economy really needs now, is How.

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(The reviewer is co-chairman of Forbes Marshall, past president of CII, and chairman of the Centre for Technology, Innovation and Economic Research)