Frameworks
I once took a policy-related exam. Most of the questions were multiple-choice, except one. In this one question, it was asked to explain a policy that according to us was well-designed.
I picked the mid-day meal scheme. At the time, I didn't know much about the scheme, and I didn't know anything about good policy design. I spoke at length about the qualities of the scheme. The brilliance in the design of this policy, I explained, was the fact that it achieved multiple outcomes. Through this one policy, we could improve student attendance, reduce malnutrition, fortify food to target health outcomes, improve grain procurement from farms, etc. Well, to my luck, the examiner probably didn’t know much about policy design either, or he/she appreciated my attempt. I aced the exam. From then on, for any policy-related exam or interview, the mid-day meal scheme became my go-to example with guaranteed impressing powers.
But this was years before I had met Mr. Jan Tinbergen (No, I didn’t meet him in person, it’s just an expression!). Tinbergen rule is for those good-hearted, yet ignorant, policymakers or aspiring policymakers like me, who wants to do everything through one policy.
This is what the rule says: at least 'n' independent policy instruments are required to successfully achieve 'n' independent policy targets.
Shooting multiple targets with one arrow is impossible. (Image generated in Nightcafe)
Policy targets are those indicators that policy makers want to achieve for their economy (country). GDP, employment level, greater production, improved competitiveness are all examples of targets. Policy instruments are those tools available at the behest of policymakers to achieve these targets.
According to Tinbergen rule, one of the reasons why policies fail is because they are laden with many policy objectives. For example, the mid-day meal scheme is a policy instrument used to achieve multiple objectives/targets. Improving school attendance and improving nutrition are two objectives to name a few. Providing mid-day meals to students is the policy instrument in this case.
All systems become complex when the design constraints are increased. This is due to the fact that objectives frequently clash, and attempting to optimize for one results in a decline in the other. For example, in the case of the mid-day meal scheme, school attendance is under the ambit of the ministry of education, while nutritional outcomes are managed by the ministry of health. Complexity level 1: inter-departmental coordination. Complexity level 2: clash of objectives. One possible way in which mid-day meal scheme objectives could clash with each other is this: Even the kids who don’t come to school need to be given nutritious food. So the focus on mid-day meals could take away attention from kids who are genuinely not able to attend school.
Another area where policies are laden with several objectives in India is in taxation. Our tax structure tries to achieve multiple policies and ends up achieving none effectively. Dr M. Govinda Rao summarises this condition best when he says:
Although many countries’ tax policy is used as an instrument to accelerate investment, encourage savings, increase exports and pursue some other objectives, Indian’s obsession is perhaps unique. In addition to the above, India’s tax policy is loaded with objectives such as industrialisation of backward regions, encouraging infrastructure ventures, promotion of small scale industries, generation of employment, encouragement to charitable activities and scientific research, and promotion of enclave-type development through Special Economic Zones (SEZs). These objectives are pursued through various exemptions, differentiation in rates and preferences which enormously complicate the tax structure and open up avenues for evasion and avoidance of tax and create rent-seeking opportunities.
To adhere to the Tinbergen rule in policy space, policymakers must make institutions and policies that attempt to address only focused and specific objectives. Moreover, there must be an understanding among policymakers that not all objectives can be achieved through government policy, and hence, some of them are best left for the markets and society to handle.
Thumb Rule: Design separate policy instruments to achieve each independent policy target/objective.