This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
PolicyWTF: Muft, Muft, Muft
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
— Raghu Sanjaylal Jaitley
Suppose you wake up one morning and find the formula for the novel Coronavirus vaccine tucked under your pillow. You bring together the chemicals, reagents and whatever else is written on the paper and make a shot of the vaccine. Each shot of vaccine costs you Rs. 2000 to make including your time spent on administering it. You call up Arnab Goswami with the news. There are tests done on your vaccine and they prove successful. You are the superhero India was waiting for.
But superheroes also bow to the great Indian state. The SC takes suo moto cognisance of this news and asks you to provide the vaccine for free to everyone in India because ‘you have a role to play in containing the virus by extending philanthropic services in this hour of crisis’. There are millions lining up for your vaccine. But you will be bankrupt by the time you give vaccines to 5000 people.
What will you do? I guess you have two options. One is to give the 5000 vaccines to the neediest spread over a period of time. Then declare bankruptcy and retire to the forest (or to the Mallya home near London). The other option is to lock your home and disappear with whatever savings you have to start a new life as a social media influencer.
Umm, now read this – Make private Covid-19 tests free, says Supreme Court
One view on the long-term exit strategy from the lockdown is to do rapid testing like Germany or South Korea. This means the government should make sure every facility or lab that can do the test is enabled to the fullest extent. The private labs approved to do the tests in India aren’t huge enterprises. They are part of a hospital, diagnostic chain or a standalone lab. Each of them have been impacted because of the lockdown. The revenues have fallen, employee costs and other expenses aren’t easy to reduce and the cash situation is getting tighter. Most of them will struggle to stay afloat if the lockdown continues for another 4-6 weeks.
Now they have to do free COVID-19 tests each of which could cost them about Rs. 2000 (at a minimum) for the testing kits, sample collection materials and other equipment costs. With overheads and other expenses, it will be safe to assume a lab will lose Rs. 2500 for every test. For every 4000 tests, the clinic will lose Rs. 1 Cr. There’s no support so far from the government to share or reimburse this cost. You have to extend the philanthropic services at this hour of crisis. Period.
If you run such a private lab, what will you do? You will probably do just the minimum number of tests that fulfils your contribution to the national effort without bankrupting you. Or, you will give any excuse to opt out of doing the tests at all. It is very difficult to see a scenario where you will go all out to do as many tests when you don’t have enough cash and you lose Rs. 2500 for every test. Unless, of course, Softbank is your investor but even that ship has sailed.
It is frustrating how when we need private clinics to be fully geared to do as many tests, we are doing our best to make sure they don’t do many. We first had the government putting a price cap of Rs. 4000 per test. That was bad enough. And, now this. Like we have mentioned here, the Indian state is reflexively socialist. We view anyone who runs a private enterprise as an Ambani (super rich who has money to lose) or a Pinchoo Kapoor from a 70s flick (devoid of any morals and intent on profiteering). Our collective imagination struggles with the notion of a hardworking entrepreneur serving his market and making a profit.
It’s sad how this has led to so many poor policy decisions over the years. It’s sadder we don’t learn our lessons from them.
It shouldn’t take an economics genius to figure this truth – at price zero, there will be zero supply.
Read the full edition here.