SOLVING PROBLEMS INDIRECTLY: the example of education

2nd August 2010, ECONOMIC TIMES

(The consumer demand for quality education is huge. The Indian education market is gargantuan at $ 80 billion per year, about the size of the Indian steel and automobile industries put together. It is highly regulated and under-governed.)

2nd August 2010, ECONOMIC TIMES

(The consumer demand for quality education is huge. The Indian education market is gargantuan at $ 80 billion per year, about the size of the Indian steel and automobile industries put together. It is highly regulated and under-governed.)

Oblique and indirect ways of solving complex problems abound in economic planning, infrastructure, agriculture, public health and education. Direct solutions do not always work. Oblique solutions often turn out to be remarkably effective. Our brain is wired to seek direct solutions, so such tangential solutions should not be pooh-poohed. But the tangent needs to be clearly articulated.

Yale University’s Charles Lindblom is one of the early advocates of incrementalism when he considered the role of ‘baby-steps’ or ‘muddling through’ in decision-making. Under most circumstances, policy change is evolutionary rather than revolutionary. Lindblom arrived at this view through his extensive study of welfare policies and trade unions across the industrialized world. In 1959, Lindblom wrote that there are two kinds of problems: those that are closed, determinate and with clear-cut objectives, which can be solved through a direct approach. Then there are those that have higher-level, ambiguous objectives which are best solved through an indirect approach.

Two examples of the former are a game of sudoku and the improvement/expansion of an ongoing business. Two examples of the latter are a start-up business and the solving of complex social/political issues. The former can be solved through the direct and rational single-minded focus, while the latter requires the indirect methods of experimentation and discovery.

John Kay has recently written a delightful book entitled Obliquity in which he comments on the tangential achievement of goals and indirect solving of problems. He quotes Jim Collins and Jerry Poras (1994) about how the most profitable companies do not sport direct profit-orientation. They simply do the right things and end up being nicely profitable.

ICI flourished for decades through renewing its interpretation of one consistent and tangential theme–responsible application of chemistry. After the Hanson Trust threat in 1991, the company revised its vision to a direct form, ‘industry leader in creating value for the customer and shareholder.’ Over the next 20 years, ICI declined and vanished.

Led by the visionary Bill Allen, Boeing delivered spectacular results through an oblique approach to profits. Phil Conduit changed the approach ten years ago by stating that ‘shareholder return is the measure to judge us.’ Boeing soon lost the plot.

Kay suggests that at both ICI and Boeing, shareholder value was best created when obliquely sought. He offers the same lesson through the examples of Marks and Spencer, Saint Gobain and Merck.

Two months ago, Unilever CEO Paul Polman sensibly said that he was focused on serving consumers, and that returns and profits would follow. Writers and analysts flayed him. In my view, Polman is right and he confirmed that he would ignore his critics when I queried him.

An even better everyday example concerns happiness. To quote John Kay, “Oblique approaches are the best route to happiness…..happiness is where you find it, not where you go in search of it.” His statement verges on the Vedantic and is very compelling!

Solving problems indirectly

Consider how indirect solutions might work through the example of education in India.

The Indian education is broke and requires urgent attention. If India is to reap the demographic dividend, the burgeoning youth need to be enabled and empowered through education and employability. Otherwise they will become unruly and anti-social.

Universally, citizens and policy makers do not regard education as a business which makes distributable profits. Surpluses can be made but to be ploughed back into infrastructure, curricula and research. Competent institutions abroad renew themselves and compete for excellence. Many nations design policies to achieve this and refer to this as ‘not for profit’ activity.

The Indian state has a different take on ‘not for profits.’ It wants to be involved in controlling the activity to
the point of throttling it. However in the 1980s, a new phenomenon of ‘self-financed institutions’ and of Shikshan Samrat (educational barons) began, if I may quote the Director of IIT Kanpur.

Government has a woolly approach to private participation and surplus. If any institution hires top faculty and delivers terrific pedagogy, it will generate a surplus. The system then officially restricts the surplus to a target level. It is basically a 1970s device, carrying all the woes of price control—corruption, mediocrity, lack of accountability and inefficiency. So entrepreneurs have found a way to get around it

Wherever there is a large and growing market, entrepreneurs will find a way to enter and prosper. Private equity money of $100 million has already been attracted into the Indian education market. There are 10 major players running international schools in the country, many of them in tier 2 and 3 cities. These are outside the purview of policy that restricts promoters from taking a profit. Apart from these, there are opaquely funded institutions that are mushrooming everywhere. The state pretends it does not know of any transgression and the entrepreneur pretends that his actions are acceptable!

The consumer demand for quality education is huge. The Indian education market is gargantuan at $ 80 billion per year, about the size of the Indian steel and automobile industries put together. It is highly regulated and under-governed. Government spend at 3.7 percent of GDP is lower than Malaysia and Brazil (4.5 to 6 percent) but higher than Pakistan and Bangladesh (2 percent). There needs to be more public expenditure and the efficiency/quality needs to improve. At the kindergarten to class 12 levels, 93 percent of schools are public but they account for only 60 percent of school enrolment.

Private expenditure in this market is growing at a sizzling 15 percent per year, an impressive number in one sense but is hopelessly inadequate in another because India has 20 percent of the world’s population but accounts for only 5 percent of the world’s education spending, that too in PPP dollars.

Although government’s intention is that education should be a non-profit activity, private sector edupreneurs (educational entrepreneurs) account for as much as two thirds of the $ 80 billion market.

How did the camel get into the tent?

HEIs can adopt one of several avatars: Trusts, Societies, or Section 25 companies. Irrespective of the avatar, they are allowed to make only a small surplus, which too they must use for the advancement of the HEI. HEIs are heavily and clumsily regulated by government bodies, which fix both students’ intake, college fees and have an influence on the teachers’ salaries.

To the lay person, it would appear that the selling price is fixed, the volume of production is fixed, the costs are subject to control, then where is the scope to earn profits? Enter Indian entrepreneurship: create two tier models so that the regulations can be adhered to by one without sacrificing profits, which are made in the other tier.

These players have come out with creative strategies and innovative structures to deliver value education, make money and grow in this highly regulated space. In the jargon of finance, these private players have dis-intermediated the market. In the process, many of them feel passionately that they are contributing to nation-building by making several Indian youth employable, while generating enough profits to sustain and scale up the spiral of growth.

The lesson here is that you cannot fetter an idea whose time has come. It is part of the middle class Indian ethos to spend on education till it hurts. If the state cannot do it, someone else will. One can gloss over all this as a desirable private-public partnership.

That government has inadequate funds for education is a source of long-standing discontent. In that case, a planned and calibrated liberalization in education should have begun long ago. Government should not set so many controls and hurdles. The nation can definitely adjust to indirect solutions to education issues but with a clear statement of the tangent. It is high time that fuzzy ideas and back door entry are replaced by active and pragmatic policy.

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