Systems thinking, state capacity and grassroots development

A learning session with Arun Maira, Harish Hande, Mekhala Krishnamurthy and M Rajshekhar

Founding Fuel

That there’s much that doesn’t work in India’s state machinery is a truism. But how do you juxtapose that with things that do work?

  • Why do they work?
  • What are the interests at play in the push and pull that we see all around us? The vested interest, the survival interests and even the adaptations.
  • What is the state—and what does it mean to increase state capacity? We are over-relying on electoral democracy; other institutions need to be stronger too.
  • Also, there’s been an elite capture of education—it’s the Excels and PowerPoints that get the funding, not those who speak the vernacular. So, who are the changemakers, how do you create champions of change, and how do you democratise solution-finding?

These were some thoughts that emerged through stories about cow cess in an electricity bill (and what that reveals about Punjab’s deindustrialisation); of the nari adalats; the farmers protests; and how a social entrepreneur found a solution for providing light to a rural area. 

The conversation, held on January 30 over Zoom, was driven largely by M Rajshekhar’s recent book, Despite the State: Why India Lets Its People Down and How They Cope (read an extract here). It is a culmination of about two-and-a-half years of intense reporting from six states, a project for Scroll magazine. It offers a very interesting tapestry of issues and understanding of different systems as they interact.

The conversation was led by Arun Maira, former chairman, BCG India and former member, Planning Commission. It included Mekhala Krishnamurthy, associate professor, Ashoka University, and senior fellow, Centre for Policy Research; Harish Hande, Magsaysay award winner and co-founder of Selco India; and award-winning journalist M Rajshekhar.

Here's a synopsis:

Promises not kept

“Our Constitution promised to all citizens justice—social, economic, and political justice; liberty of thought and faith; and equality of status and opportunity; as well as fraternity. Do we see this?” Arun Maira started the discussion with this reminder of how, during this time of Covid, it is clearly visible all around us, how India lets its people down and how they’re coping.

“The economic system is formed by a political system, and that political system is shaped by a social system. And it's the interplay on the ground that creates the realities in the lives of people. This is what Rajshekhar has done very well in his book. The stories bring out the interplay of systems.”

The cause – effect cycle

Like this story of Tamil Nadu that Maira pointed to.

Tamil Nadu has been running out of water while its GDP has been growing with urban construction. And in that story, you can see the interplay between the castes in the rural areas—how some need to take advantage of other opportunities. And so rural communities become diminished in their diversity. And divisions begin to arise, which the political system takes advantage of and perhaps needs to for the sake of winning its own votes. And that in turn, creates another vicious cycle, in terms of where the money flows, both for politics, as well as into the projects, and so on.

The undertow that’s pulling Punjab into deindustrialisation

With so many events demanding our attention, it is easy to miss the deeper undercurrents. Rajshekhar talks about William Shirer to make the point. The author of Rise and Fall of the Third Reich was in Nazi Berlin between the mid-30s and the early 40s. And the story he missed was the Holocaust.

“Journalism is blindsided by events,” Rajshekhar says. “It makes a lot of sense to focus not on the events playing out, but to focus on structures and processes shaping, revealing themselves as large changes.”

He illustrates this with an anecdote about a businessman he met in Ludhiana in 2015. “His machine tooling firm had lost all its overseas customers. Its top line had crashed by over half. And he wasn't the only one suffering… the entire state of Punjab was seeing deindustrialization. Large business groups like the Nahars, Hero Cycles, Birdi Cycles were starting to set up expansion units outside the state; smaller units unable to relocate were shedding staff and starting to shut down.”

And it wasn’t due to an inability to compete with cheaper Chinese imports. When Rajshekhar asked him why his business was shrinking, he “jabbed his finger on a paper and said ‘yeh kya hai?’ [What is this?]” It was an electricity bill and he was pointing to an item titled ‘octroi and cow cess’. Punjab was charging cow cess, octroi, infra cess etc on the power bill.

These additional insertions—five-six of them—had pushed up the cost of power in Punjab.

“It would be easy to say something snarky like ‘look Punjab has a cow cess’. But if you take a closer look, you will find a kind of rationality,” says Rajshekhar.

“Why does cow cess come into the power bill? It starts with militancy.”

Under militancy, tax collections collapsed, and were not later rehabilitated, because that makes for bad politics.

By 2015, the only bill the people in Punjab were paying was the electricity bill, so every time the state needed additional revenues, it added duties, cesses, surcharges.

As for the cow cess, Gau rakshaks were roaming freely, and farmers could not get rid of ageing cattle—they usually don't sell them directly to butchers; ageing cows are sold to a smaller farmer. Now, farmers could not transport cattle, and began abandoning them in the cities. To deal with the stray cattle, the municipality would ask people for donations for new cow shelters, but funds weren’t coming through.

“I also learned that Punjab was going to collect water charges through the electricity bill for the same set of reasons… water users are a very different constituency from industrial units. And this is cross-subsidization. It’s a market distortion. Deindustrialization is one outcome.”

And yet, this is the first layer of the proverbial onion.

“One really big reason,” says Rajshekhar, “is predatory extraction by the ruling party, the Badals [of the Shiromani Akali Dal]. At the time, the Badals were collecting 3-4% of net profit from private companies in the state… They had established a strikingly effective capture of the state economy. I saw how they had annexed cash generating businesses like liquor distribution, and stone crushing.” The state lost this revenue which was going directly to the Akali Dal.

Another dot that connects to this is that the entire public health machinery in the state had one cardiologist. And zero neurosurgeons. Because salaries are too low. Because the health budget is not large enough. Because of foregone revenues. “They were losing Rs 10,000 crores a year from stone crushing revenues that flew directly to the Akali Dal.”

We need other institutions too for a healthy democracy

“Every state that I went to—Mizoram, Manipur, Odisha, Punjab, Tamil Nadu, Bihar and Gujarat—I saw variants of these stories playing out,” Rajshekhar says. “The question that it leaves me with is that in all these maps of relative decay, the political party’s compulsion for funding for election expenditure is a very large factor. And yet, in a democracy, the primary problem-solving agent is the political party. So how does one bringing reform in a system where the key agent of governance is gaining from its kleptocratic capture of the country?”

But this is a universal problem around the world, Maira points out. “There's something about the design of a democratic system, which has put too much emphasis on the election systems, rather than other processes of democracies,” he says. “We've been relying too much on a model of democracy, which is an electoral democracy. We've got to think of other institutional arrangements, which will make democracy healthy.”  

The intimate relationship between state capacity and state capture

As Mekhala says, “You really wonder what it means to build state capacity… [and] the intimate relationship between state capacity and state capture.”  

So, what is government?

Her little daughter had asked her, is government a person or a thing? “It is also important to ask, is it a noun or a verb? Because so many things in the idea of the state and government are often a noun with the force of a verb.”

[Later in the conversation, Maira expands on this point: “The word institutions, and institutional reforms—we keep thinking about the ‘thing’, the design of the justice system that we want to reform, whereas institutions are processes. It’s how things work, how things move from point A to point B—that's institutions and we live life is the process.”]

“I went looking for things that seemed to be working,” Mekhala adds. “How does the state work when it does work?” She talks about Mahila Samakhya’s work to mobilize women in rural Gujarat, in creating nari adalats and the evolution of women’s courts; the extraordinary doctors in the Mumbai health system; and Odisha’s Kalila programme, a cash transfer programme that looks at inclusion of sharecroppers and tenant farmers.

“Whenever you see examples where the state or public systems work, we look at them as islands of success. Whenever we come across systemic state failure, we see it as generalized.” This is something we need to think about, she says. “Do we look at these [as] just the flip side of extraction? The things the state has to do to keep the population passive to keep them from revolting too much. So, is this a cohesive story where all that seems to be good is really not all that innocent?

“Or do you see them, as I have chosen to, as the beginnings of a different way of organizing things?”     

Mekhala explains why even a partial, imperfect working of public systems is important. “Because 1) sometimes material support, relief, aid did in fact reach. There were frontline workers who somehow against all the odds, did make systems work. 2) The fact that the state at least attempted to do it meant that citizens used it in different kinds of claim making, sometimes to the state, but sometimes outside the state as well.” Like the nari adalats. They knew that the court system was hostile to women—the Dalit and Adivasi women who ran these courts. But they always talked about the formal court, they incited the formal law, and put everything on stamp paper.

“It's very striking when farmers defend mandis,” she says. “These institutions have not worked as they should have worked for them. But the very fact that a mandi might exist, a publicly regulated market may come up where they can access good price discovery or fair payment, matters to them.”

[Maira later says, “We need this, we need to look for things that are working in spite of everything. How do they work? Why do they work? They would be the seeds of ideas for getting from here to there.”]

The informal economy, the interests it keeps alive, and reform

The formal and the informal are entangled. And that’s one reason why the informal economy persists at the scale that it does in India, Mekhala says. And you see this in partial regulation as well.

“The Indian system keeps many, many interests alive. But very few manage to accumulate. There is exploitation, extraction, and also dependence.

“Today, when farmers say that our peers provide us credit when we need it, this is not just a symbiotic relation, it’s also a relationship because of the failure of formal credit. But it's also extremely difficult to design formal credit systems that are as flexible as farmers require them to be. 

“What would happen if we stopped using the word ‘vested interest’ and just started with interests? And then see where they become vested, where they become survival strategies where they are actually adaptations?”

She quotes Bernard Schaffer, co-author of Room for Manoeuvre: There is no lack of political will, but a scatter and conflict of wills inconvenient for some, not for others.

But reform is not just a question of removing impediment. Reform means indicating just where the interests are grounded, where the lines of opposition are drawn, the pain and guilt felt and hidden.

Access and (absent) opportunities

A lot of things other than the state have also failed, says Hande. For instance, “Who gets the money in our country? It’s the PowerPoint, Word and Excel. The vernacular speaking crowd has absolutely no chance of getting failure money—that I would be able to raise to innovate or be an entrepreneur or get financing of the lowest interest rates.”

How do you break that casteism, the racism of our education system, he asks?

“I went to IIT Kharagpur purely because 300 million Indians did not write the exam,” he says.

The more educated we are, the less useful we are to society. “Practically all of us on this Zoom are experts of sugarcane; a farmer doing 45 years of sugarcane will never be called an expert. He or she will be sitting below and we will be on the panel telling him what to do.”

Intellectual poverty and the failure of our elite education system

Hande adds: The failure of the middle class and above—thinking that my maidservant’s kid has to be my kid’s maidservant—is a classic failure. [They] confuse between intellectual poverty and financial poverty. And that is the biggest failure of our education system.

With the lockdown, two tensions came in for Hande and Selco: the salary for 800 employees, and what will happen to the people and small companies, especially in rural areas, in the energy sector—whom they’d nurtured over the past 20-odd years. And how do you now save this renewable energy sector?

“We can keep saying nothing is happening, but who will put the alternate systems in place so that somebody else can then replicate and scale up?” He asks. That has to be done now. “It’s like when a disaster like floods happen. Lots of people rush in, but the crisis happens after two months. Once a person moves from poverty to abject poverty, it takes two more decades for them to move into poverty.”

He says that people from the IIMs and the IITs are “the most useless characters for advice”. Because “If I look at the collapse of our industry in the rural areas, rural businesses, none of them had the capability to help them, because they did not know what the ecosystem was like.” How do you collect receivables when that business has gone into poverty too? Or how do you recreate a business when the central supply chain has collapsed? They had no advice. “That showed me a classic failure of this whole education system that we all tout as elite.”

“We are so fascinated by scale that we forgot the basics of building society, building bricks.”

What Hande is trying instead is to tap into local knowledge and expertise—the rural journalists, the traditional bankers who have social as well as commercial capital, and those from vocational schools—because these youngsters are the “owners” of these problems.

He says, the beauty of India is that an ecosystem approach for a country like India is absolutely replicable in other countries.  

“So, India becomes a hotbed of systems thinking, a hotbed of solutions and linkages between health, education, energy—all the SDGs—that then becomes a superpower of solutions for other countries to replicate.”

For that we need to think of ourselves as solution providers—and not just a mechanical engineer or an electrical engineer.

For instance, a sewing machine running on solar power, which will increase a micro entrepreneur’s ability to make eight instead of two shirts, is not a ‘solution’. What are the market linkages and financial products that need to be plugged in? Because if she doesn’t have a market to sell those extra six shirts, her technology will be a debt.

“And it’s not only the state, it is every citizen who is responsible for creating that system.” Hande talks about how parents of young people joining his entity think of it as “social work” which you do after age 60. “We are defining what social responsibility is… The problem lies there, that Gandhiji has to be born in the neighbour’s house, not in my house.”

The two wars we are facing today are climate change and poverty. “And that has no boundaries,” Hande says. “For that we need systems thinking…. We need to look at conceptual thinking that we teach on how to solve problems—not as an expertise, but as pieces of a puzzle.” Take solar energy for rural areas. “They don’t need ‘solar energy’, they need four hours of lighting. We confuse between products and services.”

Their solution? “We put up solar panels on a school. And then we had the light and battery at home—the battery weighs less than a lunchbox. The kid comes to school, plugs it into the school's charging station. If she doesn't come to school, there's no light at home. The mother says, I don't care whether you study or not, go to school because I need light at home. Suddenly, solar panels become infrastructure on the education system.”  

Maira adds, there are many such examples in India, of people who have created the alternatives. But then we come to saying scale up. [But] that’s not it. Each community is going to be solving its problem, with people collaborating within the community, understanding the system and solving it. Our role from the outside is to enable the communities to solve their problems and then stand on their own feet, be self-reliant.  

But Mekhala cautions that when we let the state off the hook, we let ourselves off the hook because we let our state off the hook.

Decentralized solutions

“When we look at a state, we keep the political aside, we look at the bureaucratic, the district collector,” Harish says. “One of my colleague’s only job is to keep track of where the top 20 champion DCs are getting transferred to. Because a DC has two to three years of work at the district commission in that district. So, create champion teachers, bureaucrats, and bankers. Nothing is institutionalized in the world; it all depends on the people.”

He also says that democratization and decentralization of the end value is more critical. For example, large-scale manufacturing of solar panels will help lower the cost, and the end value of what the poor do with the solar panel is more important than manufacturing solar panels.

“The larger the system, the more complex the problem, the more you need decentralized capacity,” Adds Mekhala. And we also need to flip the system on ground level data. We collect tonnes of micro data, which the person at the top will never analyse and doesn’t know what to do with. “Who can tell you which anganwadi needs particular kinds of services? Or which well needs to be chlorinated? That data should be at the ground level. That’s where you need the densest data, where it’s most useful.” 

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Raghuraman P on Mar 05, 2021 12:15 p.m. said

Excellent and much deeper insights provided by speakers. In a nutshell, such of these amazing stories at the grassroots levels make India work from bottom-up than the reverse that is touted as Developmental policies. Looking forward to such conversations that are beyond the drawing room. Thanks for sharing and kudos to all the thought leaders.

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Founding Fuel

Founding Fuel aims to create the new playbook of entrepreneurship. Think of us as a hub for entrepreneurs- the go-to place for ideas, insights, practices and wisdom essential to build the enterprise of tomorrow. It is co-founded by veteran journalists Indrajit Gupta and Charles Assisi, along with CS Swaminathan, the former president of Pearson's online learning venture.

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