Tag: bureaucracy

How to improve regulation of utilities – comparing Delhi and DC

The Business Standard reports that the Delhi government has rejected the license applications of Uber, Ola and TaxiForSure. The snippet doesn’t say much more.

Contrast this with Washington D.C. which has passed a law that Uber has hailed as “model”. So what gives between the two capitals?

The answer is simple – it is the privileges accorded to the politicians. As a result of colonial hangover, Indian politicians have been mollycoddled with all kinds of perks such as houses in prime localities, chauffeured cars and the like. Thanks to such perks, bureaucrats are cut off from the market in general, and thus fail to understand any market failures.

The solution is simple in theory but hard to implement – basically cut the perks for government officers and instead compensate them further in cash, with the market value of the facilities that are now being provided for them. Clever structuring can make this cash-neutral. On the one hand, the bureaucrat now has a choice with respect to the kind of facilities he requires, leading to a more efficient allocation of resources.

More importantly, the bureaucrat is now part of the broader market, and thus exposed to the same market failures that plague the common man. If the transport commissioner of Delhi had to catch an auto rickshaw to get to work every day, we might have seen a completely different response in the Uber case.

The problem with precedence

One common bureaucratic practice across bureaucracies and across countries is that of “precedence”. If a certain action has “precedence” and the results of that preceding actions have been broadly good, that action immediately becomes kosher. However, from the point of view of logical consistency, there are several problems with this procedure.

The first issue is that of small samples – if there is a small number of times a certain action has been tried in the past, the degree of randomness associated with the result of that action is significant. Thus, relying on the result of a handful of instances of prior action is not likely to be reliable.

The second, and related, issue is that of correlation and causation. That the particular action in the past was associated with a particular result doesn’t necessarily mean that the result, whether good or bad, was a consequence of the action. The question we need to ask in this case is whether the result was because of or in spite of the action. It is well possible that a lousy policy in the past led to good results thanks to a favourable market environment. It is also equally possible that a fantastic policy led to lousy results because of a lousy environment.

Thus, when we evaluate precedence, we should evaluate the process and methodology, rather than result. We should accept that the action alone can never fully explain the result of the action, and thus evaluate the action in light of the prevailing conditions, etc. rather than just by the result.

It is going to take significant bureaucratic rethinking to accept this, but unless this happens it is unlikely that a bureaucracy can function effectively.