Coronavirus: Turning a crisis into a policy opportunity

Working on the assumption that the COVID-19 crisis by itself will spur economic reforms is being foolishly hopeful

Barring the ultra-pessimist, many public policy opinion pieces are likely to advance one narrative over the next few months: The economic and humanitarian crisis unleashed by COVID-19 is also an opportunity to undertake long-pending reforms in <insert one’s favourite research area/sector>.

Inherent in this view is a deep-seated belief that it’s only a crisis that can jolt India to resolve its political economy constraints while in normal times such issues aren’t to be touched with a barge pole. Come crisis and we can somehow convince key stakeholders about deeper reform. In this perspective, incremental reforms are for the faint-hearted. The route to real change is to first stumble into a crisis and then turn it around.

If this sounds like an Indian masala movie, that’s because it is one fairy tale. The reality is that crises are no guarantee for reforms either – there are in fact several other requirements as well.

Key idea behind the intuition that crisis leads to reform

Nevertheless, this intuition needs further investigation. John W Kingdon’s public policy classic, Agendas, Alternatives and Public Policies, can help us understand the crisis-opportunity paradox better. Kingdon concurs that just a crisis does not ensure reform. Instead, his schema says that an issue surfaces at the top of the decision-making agenda of the government only at the opportune moment when three distinct streams converge – the problem stream, the solution stream, and the politics stream.

Look at the problem stream first. Without an acknowledgement at the highest political levels that a problem really exists, the issue won’t even be considered by the government. A crisis often turns out to be a type of problem that forces the government to acknowledge the issue. But it cannot, by itself, cause change. For that to happen, two other streams need to converge simultaneously.

In comes the solution stream. This refers to the entire solution set available to the decision-maker. The government is unlikely to pick up a policy problem for decision-making during a crisis unless there is a range of pre-existing solutions in place already. Climate change, for example, is an issue where the problem itself is now well acknowledged. However, given that the solutions are still heavily contested, it is not one of the highest policy priorities for governments.

For the solution stream to be in place, it needs the availability of data and the presence of a policy community which systematically converts ideas into solutions, weighing the costs and benefits of each action. Then comes the expert committee process. Though often seen in derisive terms, expert committees perform the key task of thinking through various policy solutions and string them together into a coherent whole. This entire process needs to have been in place even before the problem becomes urgent and important.

The third stream is the political stream which comprises of the public mood, dominant societal narratives, election results, and global trends. Change in government is often interpreted as a go-ahead for the incoming government’s manifesto. It isn’t surprising therefore that the most challenging reforms are often picked up earlier in the terms of governments.

The idea of ‘political will’ is relevant to the alignment of the political stream. Well regarded political actors can change dominant societal narratives. In fact, major crises can even make it easier for them to convince their constituents about reform. This was the idea put forward by Robert Putnam in his seminal paper Diplomacy and Domestic Games. He argued that the politics of many international negotiations can be thought of as a two-level game. At Level 1, the national governments negotiate with international players such as the IMF, World Bank, or the US. At Level 2, the national governments negotiate with domestic groups which pursue their interests by pressuring the government to adopt favourable policies.

The key insight here is that dynamics of negotiations at one level can be used as points of leverage on the other. Take the case of the 1991 Indian economic reforms. Narsimha Rao and Manmohan Singh were able to use the rationale of external pressure at Level 1 (conditionalities imposed by the World Bank) to water down opposition in Level 2 (domestic actors benefiting from the status-quo). The economic reforms were good for India in and of themselves, but the balance of payment crisis provided a political opportunity to execute them using the excuse of World Bank conditionalities.

What does this say about the current situation?

The situation in the current crisis is different in that there is no international agency at the other end of the negotiating table. Instead, it’s a global pandemic which has crippled livelihoods. The world is heading towards a recession which will hurt low-income economies disproportionately, reducing their chances of playing catchup with the rest of the world.

In that sense, an entrepreneurial leadership can still use this moment to convince their own Level 2 constituents about reforms which we anyways needed. For instance, global manufacturing supply chains are likely to get reordered away from China as a result of COVID-19. The conditions required for relocating these global manufacturing to India can be used as a point of leverage to drive in at least some domestic economic reforms.

Luckily, on the economic front, both the problem and solution streams are already aligned. The problems have been well-known over the last two decades. The solutions – reforms 2.0 comprising the liberalisation of land, labour, and capital – too are well-known. Whether the current government, led by a charismatic personality, has the will to align the political stream needs to be seen.

Finally, hope can never be a policy. Similarly, expecting a crisis by itself to spur reforms is also being foolishly hopeful. It’s like saying that Team India should always put itself in a follow-on situation in a Test match so that we can replicate the heroics of the 2001 Kolkata Test. Don’t forget that moment also needed a VVS Laxman, a Rahul Dravid, a Harbhajan Singh, massive public support, and lots of luck.

(Pranay Kotasthane is a Fellow at the Takshashila Institution)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.