Jumpstarting Is Essential

13. February 2012 Rahul indian economy (0)
I consider myself a die-hard capitalist and an advocate of free markets and meritocracies. I am against the welfare state and I think enforced equality creates mediocrity and is antithetical to a meritocracy.

However, I find myself supporting the Rural Employment Guarantee Scheme in India, I support Affirmative Action (Reservation) in education for the most under-priviliged in India and I support the yet to be tabled National Food Security bill in India.

This puzzles a lot of people who know me. The employment guarantee scheme has been accused of igniting wage inflation and labor shortages. Affirmative Action has been accused of diluting the quality of talent produced by Indian universities and the National Food Security bill has been opposed by the most brilliant economists from India and around the world as a potential fiscal disaster.

The overarching theme of a lot of capitalist and free market thinkers is that social schemes rob Peter to pay Paul and kill individual initiative. All social schemes are prone to excessive corruption. The Public Distribution Scheme (PDS) which is highlighted as a mini pre-cursor to the Food Security bill is one of the large disasters in India's history of social schemes. They point out that the fiscal deficits which these schemes create can have disastrous economic consequences for the country.

I will argue the exact opposite. Just because social schemes are prone to corruption does not mean that the schemes are bad or are not needed. This is akin to saying that, since flying can be potentially dangerous, mankind should give up trying to build airplanes. The better statement would be that flying is essential for the progress of mankind and no effort should be spared in trying to make it safe.

I agree that India's social schemes have been rife with corruption. It was Rajiv Gandhi (former Prime Minister of India) who said that only 15 cents of every dollar spent on social schemes reaches the common man. My contention is that large scale administrative reforms are needed in India. Implementation of schemes has to be checked and accountability has to be brought in at each level. Information Technology and e-governance initiatives can play a big role in these reforms. The government has already started taking baby steps in this direction. However, the conclusion should not be that these schemes should be abandoned.

Jumpstarting is essential. The only way one can understand the term hunger poverty is through empathy. Hunger poverty is when an individual is not able to afford two full meals a day. Read this column about fellow University of Pennsylvania grad Tushar Vashisht's experiement with hunger poverty.

We talk about level playing fields for businesses and meritocracies for individuals, we talk about avoiding market distortions for companies and individuals, however, hunger poverty is a big market distortion. There is no level playing field for a malnourished child or for an individual who thinks about food all day. Just because an individual loses the ovarian lottery (to borrow from Warren Buffett) does not mean that the individual is not talented or does not have potential. The figures are statistically significant. To say that there is no potential or talent in 700 million people (10% of the planet) and that they are not moving ahead in life because they are lazy or are from an unfit darwinian gene pool that should not survive is a gigantic fallacy.

I've heard Professor Ashok Jhunjhunwala, head of the Rural Business Incubator at the Indian Institue of Technology, Madras, speak on a few ocassions. Most recently I heard him speak at VALUEx India in Mumbai. He described the need for a trigger or jumpstart for people in destitution. For unemployed and hungry people in rural India a trigger or jumpstart is essential to get them out of their survival mode and push them into the path of upward mobility.

The proposed and existing schemes dole out such nominal amounts that they don't provide anything more than a trigger or jumpstart to individuals. It is not like welfare in Ireland, Spain or the United Kingdom where an individual can live comfortably the rest of their lives on dole without having to work.

Speaking in economic terms, India's GDP is at an extremely low base and completely misrepresentative of the potential of its people. To measure deficits as percentages of this low GDP and to compare it to percentage deficits in the US or Europe is absolutely criminal. If the jumpstart or trigger can be successfully administered (I am willing to give the authorities the benefit of the doubt because no one else can do it) then the potential unleashing of human talent and future GDP will more than compensate for any deficits in the near term.

Obvisouly, a lot of things need to be done in parallel. If the Food Security Act has to be successful, India needs to double, triple and quadruple its food output. A second green revolution is needed parallely with the act. In order to enable a second green revolution, India needs to invest in irrigation, soil, research and mechanization. Otherwise the money allocated to the scheme will only lead to a scramble for food and will fuel inflation.

Information technology, satellite television and social media have empowered the individual Indian. The Indian juggernaut is in motion and I am optimistic that its potential will be unleashed.

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