A coun­try is not a com­pany

Ex­per­tise in man­ag­ing govern­ment can­not eas­ily be trans­ferred to a firm

Business Standard - - OPINION - AJAY SHAH

In In­dia, we know a lot about how to run a firm. But the trans­fer­abil­ity of knowl­edge from man­age­ment of firms into man­age­ment of govern­ment is quite lim­ited. Gov­ern­ments suf­fer from weak feed­back loops. The essence of govern­ment — the power to co­erce — is ab­sent in firms. The size and com­plex­ity of govern­ment is greater than what is found in the largest and most com­plex firms. The key in­gre­di­ents of govern­ment — pol­icy and ne­go­ti­a­tion — are not seen in firms. The world of pol­icy and pub­lic ad­min­is­tra­tion is fun­da­men­tally dif­fer­ent from the world of prof­its in firms.

Be­fore 1991, most firms in In­dia were man­aged poorly. We now have a large num­ber of ex­tremely well-run firms in In­dia. The key per­sons in these firms are le­git­i­mately proud of their abil­ity to run large com­plex or­gan­i­sa­tions. Along­side this, we see the sham­bolic In­dian state, which is un­able to get the ba­sics right. Can man­age­ment skills and tech­niques carry over from the In­dian pri­vate sec­tor into govern­ment?

The first prob­lem lies in feed­back loops. All big pri­vate firms are listed for trad­ing on the stock mar­ket and see a stock price. The vast ma­chin­ery of spec­u­la­tion in fi­nan­cial mar­kets pro­duces a real-time mea­sure of the per­for­mance of the firm. In­ter­nally, pri­vate firms see op­er­a­tional MIS state­ments, which are up­dated daily. Rev­enue and profit are sim­ple tools to dis­til the work­ing of the firm down into a numer­i­cal yard­stick.

These mea­sures are ab­sent when it comes to a coun­try. The ex­change rate is not a mea­sure of the suc­cess or fail­ure of the coun­try, and the stock mar­ket in­dex is a weak mea­sure. There is no daily mea­sure and feed­back loop from de­ci­sions to mea­sures of per­for­mance.

The prob­lem is worse in In­dia when com­pared to ad­vanced economies, as we ob­serve GDP in­ac­cu­rately. A rea­son­ably use­ful re­port card about the work­ings of the econ­omy can now be con­structed through the mea­sure­ment of ag­gre­gate firm per­for­mance, in­vest­ment projects and house­hold con­di­tions. But this will still in­duce weak feed­back loops for the con­duct of pol­icy.

The sec­ond big area of dif­fer­ence lies in the pow­ers of govern­ment. In a firm, the levers con­trolled by the man­age­ment cover prod­ucts, pro­duc­tion pro­cesses and the in­ter­nal or­gan­i­sa­tion of the firm. In govern­ment, there is de­ci­sion-mak­ing power about the in­ter­nal or­gan­i­sa­tion. But the sur­pass­ing fea­ture of govern­ment is the mo­nop­o­lis­tic power to co­erce.

The state has a mo­nop­oly on vi­o­lence. It is able to co­erce pri­vate per­sons, ei­ther to pay taxes or to change be­hav­iour. State agen­cies are gen­er­ally mo­nop­o­lies. The only place that you can get a driver’s li­cence is a govern­ment of­fice; the cus­tomer has no choice.

Pri­vate firms con­trol their in­ter­nal ac­tiv­i­ties, and can­not co­erce per­sons out­side the bound­ary of the firm. They look out­side anx­iously, won­der­ing how cus­tomers will take to their prod­ucts. Cus­tomers have all the power to re­ject the fruits of the labour of the firm. In con­trast, state agen­cies con­trol their in­ter­nal ac­tiv­i­ties, and co­erce the peo­ple out­side. To para­phrase Man­ish Sab­har­wal, the typ­i­cal state agency has hostages, not cus­tomers. There is a fun­da­men­tal ar­ro­gance about state or­gan­i­sa­tions that pri­vate or­gan­i­sa­tions do not suf­fer from. The puzzle of pub­lic pol­icy lies in rein­ing in em­ploy­ees who have the power to raid and im­prison.

The third area of non-com­pa­ra­bil­ity lies in size and com­plex­ity. A big firm in In­dia has 25,000 em­ploy­ees. Com­pared to this, state struc­tures are vast. In­dian Rail­ways has 1.3 mil­lion em­ploy­ees. Even if the ef­fi­cient staffing at In­dian Rail­ways is half this size, it is a vast and com­plex or­gan­i­sa­tion when com­pared to what we see in the pri­vate sec­tor.

The pub­lic pol­icy process plays out not just through em­ploy­ees but through ev­ery­one. This fur­ther in­creases the com­plex­ity of de­ci­sion mak­ing. Pol­icy de­ci­sions have to take into ac­count the in­ter­nal be­hav­iour of large com­plex govern­ment or­gan­i­sa­tions, and then the re­sponses of the gen­eral pub­lic, which in In­dia's case is above a bil­lion peo­ple. This is a scale of com­plex­ity that is just not found in pri­vate firms.

Fi­nally, we turn to the essence of the pol­icy process: Pol­icy think­ing and ne­go­ti­a­tion. What works in govern­ment is an ap­proach of getting a pol­icy right, and then let­ting it play out in a non-dis­cre­tionary non-tac­ti­cal fash­ion. A large num­ber of peo­ple will en­gage with a pol­icy and make their own choices, and a sen­si­ble govern­ment will not be­have in a tac­ti­cal way.

Govern­ment is the zone of gen­eral frame­works that give pretty good re­sults in the large. In con­trast, a pri­vate firm is a large num­ber of con­tracts with dif­fer­ent touch points, and po­ten­tially each con­tract can be dif­fer­ent. There is no equal treat­ment clause that binds a pri­vate firm.

The man­age­ment of a pri­vate firm is of­ten quite au­to­cratic, partly be­cause its in­ter­nal staff is all that it con­trols. In con­trast, pub­lic pol­icy re­quires dis­per­sion of power. Suc­cess­ful gov­ern­ments fea­ture an end­less process of ne­go­ti­a­tion and com­pro­mise, partly be­cause the essence of govern­ment is the co­er­cion of per­sons out­side govern­ment. The lead­er­ship in the world of pub­lic pol­icy has to have the traits of lis­ten­ing, re­spect­ing and ne­go­ti­at­ing mid­dle roads. This is a very dif­fer­ent or­gan­i­sa­tional cul­ture when com­pared with what is found in most pri­vate firms.

It is in­ter­est­ing to see that the or­gan­i­sa­tional DNA in some of the largest and most com­plex firms veers to­wards the strate­gies of govern­ment. The largest and most com­plex firms have re­duced the power of the chief ex­ec­u­tive of­fi­cer, dis­persed de­ci­sion-mak­ing struc­tures, and put a greater em­pha­sis on rules rather than dis­cre­tion. The chal­lenge of pub­lic ad­min­is­tra­tion lies in car­ry­ing this or­gan­i­sa­tional evo­lu­tion for­ward with a scale-up of 100 or 1,000 times.

We in In­dia re­vere suc­cess and wealth, and there is a lot of re­spect for busi­ness folk. We tend to as­sume (say) that sound HR prac­tices in TCS will work well in govern­ment. But we should be cau­tious when think­ing about trans­fer­ring ex­per­tise into the world of pub­lic pol­icy. A coun­try is not a com­pany.

The writer is a pro­fes­sor at Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy, New Delhi


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