Pathology of Prescription

We all love templates. Templates make life simpler. For your project, you would rather prefer editing an existing template than to developing a fresh one. You are not sure whether a new template would be worth it. You want zero risk. You better use an already developed template and close the assignment at the earliest. You have to finish many assignments within a short time span. Then you fall in love with a template....

Part I: Falling in love with a template

Template is just not the way the header, footer or the margin look like. It is not the color scheme of the document. It is an idea or thought process. If there is already an idea/thought process on a particular topic, better not to touch the core part and do a little bit of editing here and there to give it a fresh appearance. You have done that and obtained a good score. You have handed over it to your junior. Your juniors are going to pass it to their juniors. Hold on, they may pass it to some of their friends in other colleges too. It would go viral. The truth would be established – on Topic A, we have reached the end of history in the words of Francis Fukuyama.

A template got a life of its own. So, what’s the issue? There is no issue as long as it is a classroom exercise. It is an issue if you are trying to solve a real-world problem. Templatized version of solution disregards complexities. It disregards the dynamism of society. It disregards the spatial and temporal variations. It disregards the human ingenuity and adaptive nature. It disregards the very nature of the living being. Does that mean every time you have to reinvent the wheel? Maybe or may not be. It depends upon the forces that are working upon at any point in time. But what I am going to discuss is not on how to disregard a template, but it is more on how to figure out which template you would pick up and if you find there is no template exists, then what you can possibly do.

Let’s take an example.

Before joining the public policy course, you were an engineer. You were asked to design a bridge to cross a river. You have done a detailed assessment of soil quality, thickness and composition of soil layers and other geo technical parameters. You have also collected statistics on depth and width of the river, likely load to pass the river per hour, likely congestion etc. Taking all these factors into account, you have arrived at an optimal design and constructed the bridge.

Your colleague has been assigned to build a bridge in another place. Technical parameters remain the same. He just took your optimal design and built that bridge. So much effort and time saved. A classic case of templatized version. You are again assigned to build another bridge after five years where the technical specifications remain identical to your first bridge. You simply handed over the optimal design to your junior and he did that job really well. This template would remain useful as long as the technical specifications remain valid. The water, sand, salinity, moisture would not revolt against you or would not conspire to make your plan a failure.

Now you think about the economy. I am picking up economy as it is much simpler to tell a story through economy than society.

A mixture of fiscal and monetary policy has produced a particular combination of output, employment, and inflation. Let’s say this is a desirable outcome. You have been out of action for a few years as you are in a different assignment. You came back and joined the role after 5 years. You want the same outcome.

Would the same policy mix of fiscal and monetary produce the identical outcome? Unlikely. Why? In the case of a bridge, we are dealing with time invariant phenomenon. Moreover, when you find identical physical conditions, then it is also spatially invariant.

When you are dealing with economy, you are dealing with lives. Living being have hopes, aspirations, expectations. They are quite adaptive. They do learn from past mistakes and recalibrate the actions as much as possible. They know what you did five years ago and what those actions meant for them. Possibly if you take similar action, it may not yield the previous outcome. Human beings are not a bridge operating in a constant world.

Does it mean that we need to completely throw the template? No. Start working on the template, but not by mere tinkering. If the situation demands, by completely overhauling it.

Part-II: A Trivia

Six years ago, I was at Bhubaneswar shuttling between Cuttack and Bhubaneswar. One fine evening, I felt a little bit feverish. By night, my body temperature was high. I was feeling very cold, and my body was shivering. There was severe body ache. Away from the comfort of your home, you know you have to take control of things. You also know how much information you can share with your family.

Next morning, I went to a hospital, consulted a doctor. There was test after test after test. A thick bundle of papers was produced by evening. Yes, there was no malaria. There were no other major symptoms. Doctor gave some medicines. I shallowed it as quickly as possible. As the night progressed, my pain increased. By next morning, I was almost bedridden. I didn’t want to be admitted in a hospital especially when my family is not near me. I called a friend and went to another famous doctor. More test and new prescription. I took those medicines as well. Nothing happened. Five days passed. I was getting worried. Is it some serious disease? Didn’t know what to do.

Finally, I received some advice to visit a doctor in Cuttack Buxi bazar. He is a retired Medicine Specialist from one of the prominent hospitals in Cuttack. His age would be 75+. He was sitting in semi-darkness in a small place built in an alleyway. There was no patient, no que. He was also not in a hurry. He spent with me more than one hour. Asked me numerous questions – where I am staying? Which all places I have visited, what all I had eaten, my family history, my past and present medications etc. A lot many questions. I was getting irritated, but I have cooperated assuming these are all data points for him to suggest the medicine.

At the end of the conversation, he took out a small plastic kit and took a drop a blood and sprinkled over it. There was an exclamation mark in his face when he saw the readings – “Stupid, you can’t cheat me”. He was talking to that test kit. He announced – “Man, I was suspecting Malaria after hearing you. But your past test result as well as this quick test confirmed that you are not having malaria. I have retired as a Medicine professor and head of the department after serving for more than three decades. I don’t care what these test readings are telling me. I am giving you high power malaria doses. Please take it. I am also writing my landline phone number. If you feel more discomfort, do give me a call. Meet me after 5 days. You will be alright.”

I didn’t question him. I purchased those medicines from the nearby store. I would not have spent more than Rs. 250 including the doctor’s consultation fee. I came back to my resting place, took those medicines after my dinner. I had a good sleep that night. Temperature started receding, next day I felt a little better. I was nearly healed in the very next day. I booked my flight ticket and came back to Delhi after a day.

I still do not know what the ailment was. Why nothing came out in the test? Why so many good doctors could not diagnose it? Why a doctor in his twilight of career could go against all the evidence and prescribe something? As a student of economics, I was thinking – how much I can trust evidence? Do we have all the tools and techniques to gather all sorts of evidence? What if the economy is going through a disease beyond diagnosis by our simple tools and techniques? Will the medicine work? How much we should lean on experience vis-à-vis evidence? No clear answer yet. But I have understood something very profound. Do admit the limit of cognitive ability. Do recognize the limitations of tools/techniques/methods. Do admit there are forces beyond your reckoning. Respect experience.

Part-III: Do diagnose before prescribing

I put this trivia first before writing this part as I want to begin with a caveat. The power of diagnosis is also limited. Still, we must diagnose before prescribing.

Dani Rodrik, the great Harvard economist, a broad-minded thinker of our time had written an article in Journal of Economic perspectives in its summer issue of 2010. The title of that article was – Diagnostics before prescription. Rodrik is a prolific writer. He writes Op-Eds, technical papers and also delivers lecturers across the globe. He can write serious technical stuff in very easy-going language to be understood by one and all.

It is very difficult to summarize this paper. There are many intricacies.

He started questioning – if we have produced so much knowledge and research, why then we failed to completely alleviate poverty? If China has produced the maximum reduction of poverty, how much the research papers contributed to those policies? Same for South Korea, Malaysia, and Vietnam.

He argues –

In none of these Asian cases did economic research, at least as conventionally understood, play a significant role in shaping development policy. The same is true of other long-term successes elsewhere, such as Botswana and Mauritius.

Many may disagree with him.

He goes on arguing “I think many of these paradoxes arise when applied economists and policy advisors mistake models and arguments that are valid only in specific circumstances for universal remedies.”

He continues – “Once nuanced, fine-grained, contextual research gets transformed into simple rules of thumb, two things tend to happen. First, the research loses relevance and effectiveness. Second, the research develops in its “vulgar” form the potential of doing actual damage by being applied in inappropriate circumstances.”

Well, he is not dismissive of the human progress made through research. He does acknowledge the value of research and the benefits it accrued to the humanity. His specific criticism is towards templatizing the developmental discourse.

He concedes that “Raul Prebisch, Anne Krueger, and Jeffrey Sachs are all correct—at different times and under specific circumstances.”

His moot point comes in this paragraph when he says:

The message is that development economists should stop acting as categorical advocates (or detractors) for specific approaches to development. They should instead be diagnosticians, helping decisionmakers choose the right model (and remedy) for their specific realities, among many contending models (and remedies).

Do you agree with him? Agreeing with him would come with a huge cost. You have to throw away all the templates you have preserved in your folder in various names. Well, if not shredding, do store in it in an archive.

To be honest, this is reductionist approach to his core argument. His simple suggestion is that – Do learn from history and past knowledge. However, do not base your current judgement on the basis of what worked at a particular point in time in a particular context. Keep a fresh eye. Be open minded and be curious in what you do. Stay invested in the problem if you want to genuinely understand the issue.

How to do that?

Rodrik and his co-authors (Hausman and Velasco) have come out with something which they call- Growth Diagnostics framework. Harvard University runs a growth lab. You will find the framework, research papers, empirical evidence, and a lot many ‘how to do note’ in that portal. Asian Development Bank (ADB) has a page where they put all country diagnostic studies. The page says – “Country diagnostic studies attempt to diagnose the most critical constraints that the country faces to achieving these goals. Critical constraints are those whose removal could yield the highest welfare gains.” It has a nice paper which explains the growth diagnostics and try to answer a few basic questions. The World Bank and IMF has many publications using growth diagnostic framework. There are at least 54,000 hits when I searched for “growth diagnostics” in google.

Rodrik provides a few suggestions saying what a successful growth diagnostics exercise should look like. He has also provided a few citations on what constitutes a good growth diagnostics study.

I will just briefly mention what a growth diagnostics is and close this post. Look at this figure taken from the article. 

The objective of growth diagnostics is to identify the most binding constraint that may be holding up the economy to reach its full potential. Growth diagnostics suggest to sequentially identify the most binding constraint and start removing them with ‘locally suited’ solution. Get rid of ‘best practice’ mind set. What maybe the best practice in one context may not be the best practice in another country and in another context. Do learn from everything but rely on pragmatism, possibility, and locally suited solutions. There could be a laundry list of problems. Make a tree diagram and examine each nod. While examining, just try to study the signals those problems may be throwing up. For example – if the country is facing a supply side issue on the capital, then cost of capital would be high. Sectors that are mostly capital intensive may be growing at the slowest pace.

Similarly, if there is problem from demand side of the investment, it would be reflected in poor profitability. Lower private return would lead to weak demand for investment. It could be due to various failures. You may refer to this mind book to conduct a growth diagnostics study.

Once you identify the most binding constraint, start identifying the remedies for relaxing the constraint. If excessive inward orientation is the problem, start reducing the barriers (tariff and non-tariff), subsidize exports etc.

Rodrik notes –

“The appropriate choice of remedies may well make the difference between success and failure. Yet the importance of this step, and the ingenuity involved, are often obscured by a tendency to rely on textbook solutions or “best-practices” (Rodrik, 2008) …. Successful countries are those that have implemented these two steps in an ongoing manner: identify sequentially the most binding constraints and remove them with locally suited remedies. Diagnostics requires pragmatism and eclecticism, in the use of both theory and evidence. It has no room for dogmatism, imported blueprints, or empirical purism.”

Sum and substance of growth diagnostics is to identify the most binding constraints (not easy at all) and once you identify the barriers, try relaxing it sequentially from the most binding constraint to least binding constraint with locally suited solutions.

Rodrik was against the templatized version of the solutions. However, one wonders whether Rodrik and his colleagues have left another template as he laments what is being currently done is “often the rhetoric and not the substance”.

In his own words:

… I sometimes wonder whether we have not unleashed something out to the real world before its time. The trouble is that what I see being implemented in practice is often the rhetoric and not the substance…. That is because the framework cannot be applied mechanically and requires an inquisitive, detective's mind-set. You need to use economic theory and evidence judiciously to look for a series of clues that will identify the most likely suspect. So, while the approach comes with a decision tree (reproduced below), which probably accounts for its good reception in policy circles, it is different from just checking a series of boxes--which is what is often done. There is an element of craft in doing the diagnostics right, but it is a craft solidly based on economic science.

Would you pay heed to his argument?