The Primary Moral Hazard

The lack of basic competence among those who hold political power is very likely one of the primary reasons that some nations suffer needless poverty. The recent cabinet reshuffle (is it a deck of cards in a game of chance that it needs periodic reshuffling, I wonder) in the Modi government prompted this line of thought.

I wondered whether, for example, the defense minister knows anything at all about defense. Would the person be able to hold a job requiring any degree of competence or training in the defense establishment at any level other than that of a lowly clerk? Does he or she know anything about military history or military strategy, about geography, about international relations, about the art of war, about . . . the list is long and intimidating . . . anything at all related to the absolutely critical matter of national defense?

This is a general observation. What I mean is, do any of the political appointees have any competence in any field of human endeavor — the liberal arts, sciences, technology, medicine, farming, teaching, administration, engineering, . . ., anything at all — other than their demonstrated ability to win some degree of popular support in “democratic” elections? Would they be able to earn even an average income if they had to work for an honest living in a job that requires any skill or competency?

One day someone is a political leader. The next day they are appointed as the “Minister of Industries.” After a while, following a reshuffle, the person becomes “Minister for Urban Development” or “Minister of Human Development” or “Minister of Industries”. Is this person in any sense even remotely qualified to make, or even judge, what policies are right in that domain? No. They are appointed for political expediency and that’s that.

Economists identify the basic problem here as “moral hazard”. In essence, the idea is that when people don’t bear the full cost of their actions, they are liable to act in ways that benefit themselves while imposing costs on others.

Imagine that the prime minister had to make a decision on who the “Minister for Civil Aviation” has to be. He could choose some moron who perhaps would not be able to define what civil aviation even means, and by doing so impose enormous costs on the country. Those costs are paid for by the hundreds of millions of citizens, not the PM. The PM is only concerned with the calculus of votes, not the calculus of wealth creation and destruction.

But imagine the PM had to choose who is going to pilot the Boeing 747 that will fly him to his next foreign destination. In that case, his criteria would be competence, reliability, knowledge, demonstrated skill, past performance, training, and a dozen other things that would ensure that the person knows his job and would not fly the plane into the ground. To put it crudely, when your ass is on the line, you don’t futz around. In other words, the PM would not be subject to moral hazard because his own life is on the line, not the lives of his fellow citizens.

Some years ago, I attended a meeting on rural development in Delhi. In attendance were rural development ministry bureaucrats and the minister for rural development. I state all this in vague terms because I don’t wish to identify the supremely incompetent. The minister knew as much about rural development as about the quantum physical effects of relativistic mechanics on gauge symmetric quasi-dimensional topological dynamics. (I just made that complicated sounding subject up.) But there was the minister and there were the equally ignorant bureaucrats, talking about things that they not only did not know much about but they were ignorant of their own ignorance.

Like in fish, the rot in nations starts at the head. With supreme incompetence at the top, it is not at all surprising that the rest of the structure is so rotten. The solution is to replace the structure, starting of course with the top. Or at least get someone at the top who at least knows enough to know that he is ignorant.

It’s all karma, neh?

Author: Atanu Dey

Economist. View all posts by Atanu Dey