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View | Doctor Faustus, Economists and Public Policy

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View | Doctor Faustus, Economists and Public Policy

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Academician economists have always held a privileged position in shaping and formulating public policy in India. The scholarly rigour of the discipline, data and empirically driven, has helped it command widespread respect in councils of influence and power. Many advances have been made, and much knowledge has been gained, but like Faust, there is much illusionary magic too.

View | Doctor Faustus, Economists and Public Policy
Doctor Faustus, or simply Faust, is a story that has been written and rewritten for centuries. From an English play by Christopher Marlowe (a contemporary of Shakespeare) in 1592 to the more famous one by Goethe in the mid-19th century, the storyline is simple and holds true appeal across ages.
In Marlowe’s play, Faust is a well-respected German scholar who grows dissatisfied with the limits of traditional forms of knowledge - logic, medicine, law etc. - and decides he wants to learn magic. Going against advice and his better instincts, he enters into a pact whereby, in return for Faust’s soul, Mephistopheles offers him magical powers and twenty-four years of unquestioned service. Faust uses these powers to travel across the courts of Europe to impress royalty and obtain favours.
Those who seek to question or criticise Faust are ridiculed by conjuring antler horns on their head. In the process, many illusionary tricks are played, including magical horses sold that turn to straw when ridden into a river. Even Faust’s assistants –Wagner and Robin, learn a few tricks and summon Mephistopheles to perform some tasks for them. As twenty-four years come to a close, Mephistopheles comes to claim Faust’s soul. Faust repents, is overcome by remorse, and tells other scholars of his pact. They are horror-stricken and resolve to pray for him. But it is too late.
Academician economists have always held a privileged position in shaping and formulating public policy in India. The scholarly rigour of the discipline, data and empirically driven, has helped it command widespread respect in councils of influence and power.
In fact, the story of India’s liberalisation story between 1991 and 2014 has been one that has been primarily driven by scholarly practitioners of the dismal science, who rose to governance power and were given the opportunity of translating their principles of theory to the magic of realpolitik practice. How, then, does that story of an era of reforms, and subsequently, hold up to scrutiny? Many advances have been made, and much knowledge has been gained, but like Faust, there is much illusionary magic too.
An evident example is the power sector, a crisis which has become almost a weekly occurrence in the current heatwave sweeping the country. Power reforms began in Andhra Pradesh in 2000, with the unbundling of the erstwhile State Electricity Board into a Genco (generating company), a Transco (transmission company), and a Discom (distribution company). It was a template for power sector reforms across the country, and the first two - like Faustus’s illusions - were relatively easily achieved.
The third was however the political elephant in the room that was left largely untouched. All three being joined at the hip like Siamese triplets, the growing losses and unsustainability of the discoms were ignored, with the required hard decisions being neglected for political gains. The consequences of the resultant severe distortions, and hybrid mess, in the power sector have now come home to roost.
Compulsions of coalition politics, lack of real political power, “art of the possible”, harvesting low hanging fruit to set the tone of reforms, and the reasons of political economists who were in a position to make choices, are many. It is left to chroniclers of history to debate those arguments, the genesis of which lies in that lost opportunity of power distribution reforms. What is perhaps more pertinent in the present is to call out the selective vision of public reforms that continue to be offered by this constituency.
The New Pension Scheme was announced in the Budget 2003-04, as a part of the reform process, whereby a new pension system was announced based on defined contribution. To be shared equally in the case of Government employees between the Government and the employees, this was a shift from the unlimited lifelong and inflation-adjusted pensions funded by the State for its ever-growing base of government retirees. It was a long-pending reform meant to relieve the increasing burden on the strained fiscal resources of the State, freeing up funds necessary for the development and public welfare programs.
Two states, Rajasthan and Chhattisgarh, have however recently written to this new Pension Fund Authority asking for a refund of its contribution over the years and informed their intent to revert to the old pension system. It is a potentially ruinous decision that is grounded in little, if any, economic principles or fiscal logic. Its intent and timing would also appear to suggest political arithmetic for impending elections. But politicians do what politicians do.
The silence of politically inclined economists, otherwise visible and articulate and keen to offer academic legitimacy or otherwise on public policy, on this retrograde step has however been noticeable and deafening.
This raises the question of the Faustian bargain of public credibility.
Public economists are, and ought to speak for, the public good.
“If we say that we have no sin, we deceive ourselves, and there is no truth in us. Why, then belike, we must sin, and so consequently die. Ay, we must die an everlasting death. What doctrine call you this?” Faust abandoned principles for the realpolitik magic of power and influence by rationalising a self-dealing cynicism.
Academics and scholars need to vigilantly guard the only currency they have in the public domain - of objectivity, logic and credibility. And speak up, without fear or favour, in calling out policies that endanger the long term reform processes required for the growth of the economy and the nation.
Running with hares and hunting with hounds selectively is not a principled option
—Sandeep Hasurkar is an ex-investment banker, and author of Never Too Big to Fail: The Collapse of IL&FS and its trillion rupee maze. The views expressed in the article are his own.
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