by Ajay Shah.
In the world of public policy, there are two dimensions to thinking about performance.
How hard is a problem? “High load problems” are those where there is more discretion, a large number of transactions, and the stakes are high.
Are there easy mechanisms for accountability? Performance is greater when measurement of outcomes is more feasible. As an example, it’s relatively easy to get performance from a central bank which is tasked with delivering a 4% inflation target and nothing else, as success/failure are highly visible. Performance is measured every month. If the central bank performs poorly, within a few years, this becomes visible, and that would kick off remedial actions.
Feedback into superficial change or deeper change? When institutions are weak, a government agency is personified into a few individuals at the top. When failure is visible, the response is to seek staffing changes. As an example, the 1962 war led to the sacking of V. K. Krishna Menon; the scandal of 1991/1992 led to the sacking of S. Venkitaramanan. These were relatively superficial changes. For a display of better institutional capability, the Indian inflation crisis of 2006-2013 helped trigger off fundamental reform of RBI.
The best feedback loops are those where measurement is frequent, and reports of low performance kick off small steps that address the problem. When measurement is infrequent, the feedback loop is much less effective.
A small number of actions, and thus a weak feedback loop, is something that we’ve seen in another domain: consumer finance. In the field of consumer protection in finance, there has long been a sense about why consumers do badly when buying certain financial products like home loans or pensions: the transactions are so infrequent. When a consumer engages with toothpaste, there are many transactions through life, and a feedback loop is in place through which performance is improved. In contrast, many consumers buy only one or two home loans or pension products in their life. There isn’t enough experience with small course corrections through which the feedback loops kick in. This leads to big mistakes by consumers. While this is an example about consumers and finance, the principle is general: infrequent actions hamper feedback loops.
The armed forces pose a difficult challenge for public administration as it’s hard to know whether they are working properly. Using vast public resources, an organisation is built for the purpose of waging war. In peace time, it’s hard to know whether the organisation has the advertised capabilities. Wars often have a decisive win/lose outcome, but wars are infrequent, and there also, there are extraneous factors that limit accountability.
With the armed forces, we face the Principal-Agent problem where the Principal (the political and civilian authorities) want to get a target level of capability at the minimum cost, and the Agent wants to pursue self-interest. In this Principal-Agent problem:
In advanced countries, there is a considerable extent of the rule of law, and review of the armed forces, in times of peace and war. For example, see the 19 occurrences of the word `lawyer’ in Ghost Wars by Steve Coll, and the long history of the political leadership sacking military leaders. But this is complex institutional machinery which is hard to build. A recurring feature of underdevelopment is that civilian authorities have limited power over the top leadership of the armed forces. When the generals claim excellence, it is hard for civilian authorities to be intrusive, impose management and staffing changes, etc. Weak oversight by the Principal is then the breeding ground for failure by the Agent. Claims of the greatness of the Agent increasingly diffuse through society, unchallenged.
War is an expensive way to resolve a dispute; it seems like a shame that ordinary processes of bargaining are not able to avert more wars. Why do wars take place as much as they do?
Nobody would go to war if they did not expect to win. Yet, half the time, one party has gone to war with the mistaken notion that he was going to win. Why does the Principal make this mistake?
Some ingredients of this excessive willingness to mistakenly wage war may be as follows. In each country, the Agent claims I’m doing a great job of using your money, we’re very capable, we’re ready for a war, we will win it. Exaggerated respect for capabilities of the armed forces would arise when these claims are not challenged widely in society. There is a toxic interplay between places with high nationalism (which would tend to glorify the armed forces) and low institutional capability (which would tend to leave the Agent free to do as he likes). Under these conditions, the Principal may be prone to inefficiently continue politics by other means.
I thank Shekhar Hari Kumar, Ila Patnaik, Kaushik Krishnan, Renuka Sane and Susan Thomas for useful discussions on this.