Distributive policy

Doctor Faustus, economists and public policies

Doctor Faustus, or simply Faust, has been a story written and rewritten for centuries. From an English play by Christopher Marlowe (a contemporary of Shakespeare) in 1592 to Goethe’s most famous one in the mid-19th century, the script is simple and retains genuine appeal through the ages.

In Marlowe’s play, Faust is a highly respected German scholar who becomes dissatisfied with the limitations of traditional forms of knowledge – logic, medicine, law, etc. – and decides he wants to learn magic. Going against advice and his best instincts, he concludes a pact by which, in exchange for Faust’s soul, Mephistopheles offers him magical powers and twenty-four years of undisputed service. Faust uses these powers to travel through the courts of Europe to impress royalty and gain favors.

Those who seek to question or criticize Faust are ridiculed by conjuring wooden horns on their heads. In the process, many illusory tricks are performed, including sold magical horses that turn to straw when ridden in a river. Even Faust’s assistants, Wagner and Robin, learn a few tricks and summon Mephistopheles to perform certain tasks for them. As twenty-four years come to an end, Mephistopheles comes to claim the soul of Faust. Faust repents, is remorseful and tells his pact to the other scholars. They are seized with horror and decide to pray for him. But it’s too late.

Academic economists have always held a privileged position in shaping and formulating public policy in India. The discipline’s scientific, data-driven and empirically-driven rigor has helped it garner widespread respect in the councils of influence and power.

In fact, the story of India’s liberalization story between 1991 and 2014 was mostly driven by academic practitioners of dismal science, who rose to governance power and had the opportunity to translate their theoretical principles in the magic of realpolitik. practice. How, then, does this story of an era of reform, and afterward, stand up to scrutiny? A lot of progress has been made and a lot of knowledge has been gained, but like Faust there is also a lot of illusory magic.

An obvious example is the electricity sector, a crisis that has become almost a weekly occurrence in the current heatwave sweeping the country. Energy reforms began in Andhra Pradesh in 2000, with the unbundling of the former State Electricity Board into a Genco (generation company), a Transco (transmission company) and a Discom (distribution company). It was a model for power sector reforms across the country, and the first two – like Faustus’ illusions – were achieved relatively easily.

The third, however, was the political elephant in the room that was left largely untouched. With all three joined at the hip like Siamese triplets, the mounting losses and unsustainability of the discoms were ignored, with the tough decisions required overlooked for political gain. The consequences of the resulting severe distortions and hybrid disorder in the electricity sector have now been felt.

The constraints of coalition politics, the absence of real political power, the “art of the possible”, picking the fruits at hand to set the tone for reforms, and the reasons of political economists who were able to make choices, are many. It is for the chroniclers of history to debate these arguments, the genesis of which lies in this lost opportunity of the reforms of the distribution of power. What is perhaps more relevant today is to recall the selective vision of public reforms that continues to be proposed by this constituency.

The new pension scheme was announced in the 2003-2004 budget, as part of the reform process, whereby a new pension system was announced on a defined contribution basis. To be shared equally in the case of state employees between government and employees, this was a change from state-funded unlimited lifelong and inflation-adjusted pensions for its ever-increasing base state pensioners. It was a long-standing reform intended to ease the growing burden on the state’s limited fiscal resources, freeing up needed funds for development and social welfare programs.

Two states, Rajasthan and Chhattisgarh, however, have recently written to this new pension fund authority asking for a refund of its contribution over the years and informed it of their intention to revert to the old pension system. This is a potentially ruinous decision based on little, if any, economics or tax logic. Its intent and timing would also seem to suggest political arithmetic for an impending election. But politicians do what politicians do.

The silence of politically minded economists, otherwise visible and articulate and keen to offer academic or other legitimacy on public policy, on this step backwards, however, has been noticeable and deafening.

This raises the question of the Faustian market for public credibility.

Public economists are, and must speak for, the public good.

“If we say we have no sin, we are deceiving ourselves and there is no truth in us. Why, then, do we have to sin, and so therefore die. Yes, we must die an eternal death. What doctrine calls you that? Faust abandoned the principles of realpolitik magic of power and influence by rationalizing an egocentric cynicism.

Scholars and scholars must vigilantly guard the only currency they have in the public domain – objectivity, logic, and credibility. And speak out, without fear or favor, calling for policies that endanger the long-term reform processes necessary for the growth of the economy and the nation.

Running with hares and hunting with dogs selectively is not a principled option

—Sandeep Hasurkar is a former investment banker and author of Never Too Big to Fail: The Collapse of IL&FS and its billion rupee labyrinth. The opinions expressed in the article are his own.