Farsightedness In Policy Making

Demonetisation has caused disruption in the lives of a majority of the citizens, corporates and institutions of India, leading to unimaginable suffering to the most vulnerable of the society. For the past 65 years, policies have been drafted by well-fed, urban leaders and bureaucrats who have not seen much hardship, while a majority of Indians still have difficulty in putting two meals together. It is a fault line that has never been course corrected since independence. This dichotomy in the society has been a major reason of economic disequilibrium, unresolved till date. In VUCA (volatility, uncertainty, complexity and ambiguity) times, people can never tell what new problems will hit them next after demonetisation.

The biggest impact of the demonetisation policy, however, has been on agriculture and SMEs. In the export sector, between November and April maximum shipments for fresh fruits and vegetables go out; this time, shipments have fallen by 50-60 per cent.

The decision for demonetisation is fraught with many assumptions: it will result in curbing black money and counterfeit currency; while there will be short-run losses, in the long run people will benefit through a move towards a cashless economy; higher investment through cheap credit, etc. Even in the US, 40 per cent of all transactions of consumers take place through cash, according to Federal Reserve Bank data. So to imagine that India can be converted to a cashless society, where only 53 per cent have a bank account, will be a challenge.

In hindsight, could the government have foreseen such massive disruption and anticipated some steps to take, to mitigate the suffering? Is there any lesson for the future of governance, as the business of government is to take big decisions, whether monetary or fiscal under uncertainty and volatile economic conditions?

The economic downturn of 2008 exposed the limits of economic thinking, especially the use of econometric models to visualise the future. Looking at past events, which could not be foretold by extrapolating the past, several governments such as US, Canada, Finland and Australia started thinking of alternate means of looking at the future. So far, analysing the past and foretelling the future had mostly been fooled by randomness.

At Shell Oil where pioneering work in scenario planning took place, the exercise has never really been about predicting the future. Scenario planning aids in challenging deeply held assumptions. It exposes and questions the existing and long-held version of the future. The aim is not to predict the future, but to understand the implications of various scenarios its agencies might reasonably face over a long time. India is confronted by a new range of complex, fast-moving unforeseen challenges that are cross-cutting: they simultaneously engage not only traditional national security systems but our social, economic and political fabric. “Legacy” methods of organisation and operation cannot meet this kind of challenge. The government needs to organise itself to build an advanced reconnaissance system to improve coordination and promote agility.

In 2011, political scientist Alan Jacobs published a landmark book titled Governing for the Long Term: Democracy and the Politics of Investment, in which he gave three main factors that explain the choices of policy makers in democracies. First, the degree of electoral safety they enjoy; second, the expected long-term social returns against short-term social costs; and third, the institutional capacity at their disposal, both bureaucratic and party organisation. If one or more of these conditions is not met, long-term policy investments are less likely to occur resulting in net losses to society in the future. All these three conditions were apparently favourable to Modi government at the time of demonetisation.

Demonetisation comes in the category of disruptive-but-predictable changes, for which the government, in spite of being secretive, can plan ahead in great detail. One of the most important factors to consider is whether our democratic political institutions and the processes of decision-making can be designed in ways that increase the prospects of wise long-term ‘policy investments’, that is, policy interventions which help create a better future either by generating long-term social gains or by reducing long-term harm, risk and vulnerability. Demonetisation too, has been heralded by the government as a move that will usher in a corruption-free nation, bringing more resources into its kitty to help create a more equitable society. Put differently, are there ways to encourage policy farsightedness in democratic systems and, if so, what particular strategies, institutional reforms, policy changes or conceptual innovations are most likely to achieve such a goal?

Scenario planning as a foresight tool could have anticipated the consequences of demonetisation.

In a VUCA world, it is time for government to move towards anticipatory governance, which takes the results of scenario planning to its next level. This is a system of governing made up of processes and institutions that rely on foresight and predictions to decrease risk and develop efficient methods to address events in their early stages. It is a system-based approach for enabling governance to cope with accelerating, complex forms of change.

Researching and developing systems and tools for governance require investment in a strong network of non-governmental future-oriented organisations and foresight units in various government agencies. The policy makers cannot rely indefinitely on crisis management, no matter how competent or capable they are. They must get ahead of events or risk being overtaken by them. That will only be possible by upgrading our legacy systems of government management to meet today’s unique brand of accelerating and complex challenges. Let us be prepared for volatility, uncertainty, complexity and ambiguity.