SWARAJ  

You can be deist, atheist, agnostic, theist, pantheist, monotheist, polytheist – anything while being a true-blue Hindu. This openness to multiple views – and hence an acceptance of change – has what made Hinduism the most enduring religion in the world.

That is why it greatly pains me, when I see our right-wing politicians trying to copy the western conservatives on socio-religious obscurantism.

To take the example of the American democracy, there are indeed wedge issues in Christianity as followed there – like gay marriage and abortion. But these or other such issues are not present in Hinduism. More generally, some monotheist religions might prescribe limiting individual rights – of women, of homosexuals, of religious minorities.

Now of course I am aware that the Manusmriti and other Hindu texts also have some illiberal views. But that is the beauty of Hinduism – we can selectively adopt, or indeed fully reject, ancient texts without becoming un-Hindu.

For example, if we consider the debate about the rights of homosexuals. Mr. B P Singhal – brother of VHP’s Ashok Singhal, and a BJP member, was all over TV debates shouting curses at gays and lesbians along with some Christian and Muslim extremist leaders. Now of course, Mr. Singhal has been considered an extremist even within the BJP, and the pseudo-liberal mainstream media is more than happy to find an extremist to caricature the Indian right.

Yet, what did his rants achieve?

He presented an ossified face of the BJP, and to some extent indeed Hinduism. The true Hindu view – based on non-violence – would never condone coercion against somebody who they may or may not agree with. Indeed, S Gurumurthy hinted that Hindus who feel that homosexuality is wrong would socially ostracize them, not imprison them. While I may not agree with the ostracizing bit in this case, this way is a million times better than the criminalization of consensual sex between adults. Indeed, once again it takes us to the fundamental distinction between state and society that must never be forgotten.

Therefore, every time “Hindu” groups – no matter how fringe – use violence against M F Hussain’s paintings, or against women drinking, or against couples celebrating Valentine’s Day – they to impose one view of Hindu culture and society, which is something intrinsically un-Hindu. Hence, if you think some behavior is unacceptable protest against it. Isolate it. Refuse to patronize with your pockets anything connected with it. Let us see who wins in the free market of protest and patronage.

It is often mentioned that a free society is not really free unless it offers individuals the right to offend, and I completely agree. After all, if everything that you say and do is all amiable to everybody, you do not really need the state to enforce your free speech rights. But what is often not mentioned, is that a free society should also give you the right to be non-violently intolerant.

If MF Hussain has the right to draw Hindu goddesses copulating with animals (and I do believe he has the right, or at least should have had the right as an Indian citizen), I should have the full right to organize campaigns against any past or present sponsors of Hussain’s art without being denounced as “illiberal”. You cannot call the right to offend liberal and then denounce the right to be intolerant as illiberal – intolerance after all is, at least in the eyes of some, nothing but counter-offence.

Liberality then, although it might seem otherwise, is not really a state of mind, but a state of the state. It depends on whether the government gives you full freedom short of violence, threats and fraud which subtracts from somebody else’s freedom.

Now I understand that many BJP supporters would agree with all this – but what really angers some of them, including me, is the double standards followed. Tasleema, Da Vinci movie being banned and many other example come to mind.

But the question for the young conservatives, nationalists and true liberals of India is do we want to get stuck in a politics stuck on identity where even if we win, the nation loses. Or do we want to start defusing it, to move to more important debates about economy, development and national defence. Nandan Nilekani’s writings come to mind here – what do we want to concentrate on – our horizontal identity divisions or our vertical development issues?

For all those who feel strongly about how to make India a great nation – they must realize that every move by any politician to bring in religious or caste issues is nothing but to mask his own incompetence and to prevent a fundamental policy debate about the future of our country. We should not fall for that trap.

- Clean energy cess of Rs.50 per tonne on coal
- Concessional duty of 4 percent for solar power rickshaw developed by CSIR (Council of Scientific and Industrial Research)
- Taxes on large cars/SUVs increased from 2 percent to 22 percent

This has environmental excuses written all over it.

Barun Mitra of the Liberty Institute made a very good point to me the other day that taxing big cars/SUVs ends up hurting farmers and small-town businessman who do not have access to good roads and need to haul a lot of heavy stuff.

They end up making “jugaad” vehicles out of kerosene pump engines - reinventing the wheel essentially and undoing the division of labor - and these vehicles are more polluting!

How can any government create jobs on a sustainable basis is a question that is rarely asked.

If the government spends Rs. X to create jobs in one sector, it must be asked from where does it get that amount?

Only three options are possible – taxing money, printing money, borrowing money. (Technically there could be another option – earning money through government ownership of lands and natural resources or through profitable PSUs, but we know that is hardly the case – the government when it runs enterprises generally loses money, and India does not have government owned natural resources as a significant part of our economic output)

Therefore, if you tax money or borrow money – you take away cash people would have otherwise chosen to keep (taxation through coercion, borrowing through paying more than the risk-adjusted market interest rate). Now, in the case of taxation one could say – spinning the expectations hypothesis – that the government would spend money so efficiently that you would expect your future purchasing power to be higher. This may be theoretically true in some very rare cases – providing public goods (beyond defense) like roads (or more accurately the coordination problems around road construction like land acquisition) But in most cases, as in India’s where just the central government’s spending is between a fourth and a  third of the economy, we are far far past that stage.

Now about borrowing, if the government borrows any consequential amount, it effectively charges future tax-payers (those who are not the bondholders) an additional amount as a result of the marginal crowding out of private borrowing. While the person lending to the government might feel richer, the average consumer and taxpayer will feel richer overall only if he thinks the government will spend this money more efficiently than the private sector after taking into amount the above-mentioned additional interest. And again, we are way past the stage. Even apologists for stimuli and bailouts argue on the principle of ameliorating current pain (lets avoid a depression!) rather than any kind of future-present cost-benefits analysis.

So there is a strong a priori case that taxing or borrowing by the government actually makes the average customer or taxpayer feel poorer over his lifetime.

What about when the government prints money? While prices may or may not be fixed in the short run (thereby I conveniently avoid the debate between neo-Keynesians and Austrians, although I have weighed on it here) no body denies that in the long run that any printing money or seigniorage results in higher prices in the longer run – and customers, taxholders, bondholders all have come to expect this in the form of guessing, on average, their future purchasing power or the bond yields that they demand.

(Note, I am using customers and taxpayers interchangeably. This can be done because anybody who buys almost anything in the modern economy pays taxes – direct or indirect taxes every fiscal year, plus the inflationary taxes over the years. Sure different groups might be taxed differently might cause different consumption decisions – but jobs in the private sector are caused not just by consumption, but by investment also. Any stock that you buy supports some factory or research and hence jobs)

Therefore, to cut to the chase, government spending decreases the purchasing power of the average citizen.

That is, when the government spends money on NREGA (instead of efficiently and effectively spending money on areas with potentially significant positive externalities like primary education, vaccination, rural roads and communications infrastructure) – the state is reducing the society’s overall spending power.

Programs like NREGA are welfare programs – and it is a perfectly fine normative position to support generous welfare, though it would be very much preferable to make them more efficient – but to call NREGA a program that “creates jobs” is absolute nonsense. It may create jobs for the poor people in villages, but that does not mean that on the net it is creating jobs for poor throughout the country.

That is, jobs for people at the margins of unemployment – inevitably the poor – might be created in the villages, but only at the cost of a similar group of people in the cities. And, if some scheme is launched for the latter – it can only be at the expense of some other group – maybe the rest of the urban poor not covered by this scheme (think – government unions), or indeed the rural poor (think farmers subsidizing food consumption).

This is because every paisa spent by the government on a make-work scheme takes that paisa from the private sector creating some other job(s). For every villager actually getting NREGA funds, there is some security guard who was not hired in some tier-II Indian city.

Of course, if the aim of the scheme is not to end poverty, but to end migration to cities – then a true implementation of NREGA  as it is right now would lead to just that. We can still reform this program (and no I am not just talking about technocratic solutions, useful as they could be) and perhaps combine any future urban poverty program with it so that the program remains migration-agnostic, amongst other things.

Yet all this boils down to employing the chisel – and this process will go on.

But if you want to create jobs for the poor, use the hammer.

End NREGA.

Parked on a rocky cliff 400 feet above Jodhpur’s skyline is the magnificent 15th century Meherangarh Fort, the city’s crowning glory and the biggest tourist attraction. Perhaps because it is managed by a private museum trust in the hands of professionals, Meherangarh is a model of cleanliness, efficiency and judicious restoration. There is plenty of organised parking for tourist coaches, no lurking touts and vendors, orderly queues at the ticket counters, clean toilets, a pleasant cafe and excellent museum shop.

On a recent morning, the polite, uniformed staff at the information counter suggested that I try out their audio guide — available in eight languages, including Gujarati and Chinese — and for Rs 200, this turned out to be the best bargain I have had in a historic monument in India. The hand-held console was uncomplicated and one could easily pace one’s walk through some 20 locations of the fort’s many-tiered gateways, courtyards, palaces, temples and display galleries filed with splendid treasures. The commentary was lucidly written and narrated with just the right number of dramatic flourishes and quotes; if one wished for more information, there were enough resting points to listen to more advanced narratives on subjects as varied as Mughal-Rajput alliances, the uses of opium and the art of miniature painting.

Rest here

Rajeev Mantri and I make the case that the STT prevents the Indian market from becoming deeper and more efficient:

STT doesn’t really reduce market speculation. It merely hinders arbitrage and high-frequency quantitative trading, neutering the profitability of those strategies. Arbitrage is the risk-free capture of pricing differentials for the same underlying asset, and high-frequency quantitative traders incorporate highly dynamic prices, news and data in their algorithmic models. Both arbitrageurs and quantitative traders provide market liquidity and enable efficient price discovery.

The complete piece is here

US gas price per gallon – 2.6 USD (approx, as of today)

1 USD = 46 INR (approx, as of today)

Unleaded Petrol:  (approx Kolkata price, as of today)

46.80 Rs/L

American gas price in Indian terms is therefore (2.6*46/3.78) =

31.64 Rs/L

That is, the Indian price is almost double much higher than the American price – and America does not subsidize gasoline.

There must be flexible petrol and diesel pricing in India, but astronomically high taxes must also be removed. And let us stop talking about “under-recoveries” from Indian Oil PSUs. As if these companies can act on their volition.

Flexible pricing with lower taxes – while still calling the remaining taxes as “road construction fees and green taxes” – is politically viable too.

(But where does that leave the deficit? And that is the true problem after all – high central government spending across the board.)

It is easy, at least for me, to get lost in wonky economic debates about taxes, regulations and vouchers. I write some pro-free-market articles, send them to my friends, but most of them are not interested in policy debates. They are interested in real life-and-blood people. Maybe, one needs to be less technical and write even more from the heart. Therefore let me do exactly that with regards to a point of view which I initially thought would be too sensationalist.

So much emotion against sectarianism, hardly any against socialism?

There should be no ambiguity about one thing – sectarianism is wrong, sectarianism is dangerous. Killing a baby for a religion or caste her parents have bequeathed her (indeed for a religion or caste she does not even know has been bequeathed to her) can never be justified. It cannot even be justified as avenging the murder of another baby which was killed precisely because of the same passions – albeit the other baby had a different last name.

But can it then be justified when a nation’s leaders followed – and to a not insignificant extent, continue to follow – economic policies that they know will help them politically in the short run, but in the long run result in lower development and consequently, amongst other things, higher infant mortality? To put it more starkly, is it justified for a politician to kill babies in the future for votes in the present? A recent paper by Swaminthan Aiyar concludes:

What would the impact on social indicators have been had India commenced economic reform one decade earlier, and enjoyed correspondingly faster economic growth and improvements in human development indicators? This paper seeks to estimate the number of “missing children,” “missing literates,” and “missing non-poor” resulting from delayed reform, slower economic growth, and hence, slower improvement of social indicators. It finds that with earlier reform, 14.5 million more children would have survived, 261 million more Indians would have become literate, and 109 million more people would have risen above the poverty line. The delay in economic reform represents an enormous social tragedy. It drives home the point that India’s socialist era, which claimed it would deliver growth with social justice, delivered neither.

Imagine that – 14,500,000 children would not have died if the Rao-Singh-Vajpayee reforms had been ushered in a decade earlier.

14.5 million is about 10,000 times worse than the number of people who were killed in the post-Godhra riots

That is more than the total population of Jews worldwide. That is easily more than the population of Sweden. That is, the casualty figure of Indian children due to just one more decade of socialism exceeds the populations of entire communities, entire nationalities.

Where is the anger? Again, a million is a thousand thousands.

The murder of hundreds, at most thousands of, Kashmiri Pandits, Delhi Sikhs, Gujarati Muslims, Orissa’s Christians, Bihar’s “lower” castes, Nagaland’s natives, Jharkhand’s tribals – either by fanatics or terrorists or the state itself led to so much anger, as it absolutely must have.

But what about the many more Indians who were killed – slowly but surely – by the state’s economic policies? Now, a careful understanding of India’s political economy will reveal that there is no choice between attacking sectarianism or socialism – indeed they are often joined at the hip. Yet, only sectarianism gets attacked, not socialism.

Of course, the 14.5 million figure is not exact – it could be conservative, it could be an overestimate.

In any case, we are not counting many more millions.

What about those who died in their fifties because central planning and industrial licencing kept them poor and malnourished, and state hospitals ended up being nothing more than death registration centers.

What about those who died because narrow state “highways” did not have a clear demarcation between the two lanes, or because the pathetic condition of sanitation in slums and villages spread diseases faster and further than in most countries?

The vast majority of deaths in India are because Indians are poor, not because of communal or casteist hatred.

And Indians are poor, because the government still regulates businesses too much, taxes high-earners too much, and even after that fails to redistribute to the genuine needy. It stifles the very private sector that creates jobs and prosperity, and then feeds completely inefficient public sector unions.

All this in the name of inclusive development. In the name of the common man. What a sham.

But there will be another attack on some community in some locality and the mainstream media will shout about that for the next one week or more, until there is another attack somewhere else. Our country’s high taxes and regulations, our country’s crony capitalism, our country’s decaying government schools and hospitals – all these are rarely discussed, and never with any purpose or passion. Yet these too lead to early deaths and devastated families – and at a much larger scale.

But one Godhra is a tragedy.

Ten thousand Godhras is a statistic.

Arvind Singhal writes in WSJ that Indian retail companies face significant regulatory challenges:

Yet once such a company, Indian or foreign, manages to set up shop, the regulatory challenges are just beginning. Whereas back home Tesco or Carrefour might build relationships directly with farmers or middlemen of the retailers’ choice, in India farmers are allowed to sell their produce only to government-appointed Agricultural Produce Marketing Committees. Regulators have discouraged the development of agricultural futures markets, so retailers are forced to manage their purchases through spot buying.

Shipping produce across state lines is a nightmare—not only is physical infrastructure bad, but states impose their own tariffs and regulations. Stocking up on nonperishables to manage inventory can run afoul of antiquated “anti-hoarding” laws. And every state and district has the power to impose its own retail regulations, including trading hours, employment of female workers, weekly days off and a range of other licensing rules. The absurdity can be seen in the National Capital Region of Delhi itself. Delhi now allows seven-day operation of retail stores with prior regulatory permission, yet in the neighboring suburb of Gurgaon, even shopping malls have to observe a weekly day off.

My previous posts on addressing food security in India are here and here

The politically astute Retributions has argued that primaries to elect the BJP leader – in which BJP workers, members and long time sympathizers vote – might lead to the election of ideological pure but politically infeasible candidate. I agree, but I think there are two separate things to consider here – primaries for BJP MP candidature, and primaries for BJP’s internal organizational posts (including party president).

I think Retribution’s points apply to the latter – that is, if the BJP’s president and general secretaries at the national/state levels are elected through ballots, there will be a tendency to go for ideological purity – after all, the BJP internal post-holders do not necessarily have to face elections. Therefore, the hardcore supporters have no real cost to bear here. After all, in India the BJP’s elected president will not have a presidential campaign against a Congress candidate – elected or nominated.

But, primaries for who is going to be the next BJP candidate from say South Delhi or Amethi is much more likely to incentivize BJP supporters and donors to support a winnable candidate – even if he/she is deemed a tad too moderate. Not to mention that true blue BJP types – that is, those who are seriously funded and still have the ideological CV – will probably not run in a seat never won by the BJP.

Now since primaries are an American phenomenon – it will not be out of place to mention Scot Brown, the Republican who recently won a Senate seat in deeply leftist Massachusetts. Brown is not a strong social conservative and has previously supported left-liberal economic hobbyhorses like cap-and-trade – yet he was strongly supported by the very libertarian/conservative “Tea party” supporters – who are anything but political moderates. This was probably so, because a true Tea Party guy would not have been able to win Massachusetts – even principled ideologues will often concede more than a few points to win power

But obviously all this, leaves out the even bigger question of why do we need a strongly institutionalized party leadership in the first place (that is, if the individual legislators were not hobbled, as they currently are in India, by anti-defection and campaign finance laws). In America, no one person can claim to be the Republican opposition’s leader – not John McCain, not Sarah Palin, not Rush Limbaugh. Yet despite having lost the Presidency and the House, and almost the filibuster capability in the Senate, they stopped Obama’s cap-and-trade and healthcare nationalization in its tracks. That is, because what matters is not party leadership at the end of the day – but whether the movement to which the party is tied can produce ideas popular with the people.

One of the proposed solutions for funding green technology, including in developing countries, has been to (further) tax international airfares.

The logic goes like this, and on the face of it is reasonable – planes cause a lot of pollution, but the companies do not pay for that pollution. Make sure that their private costs are the same as the public costs they impose – hence an extra tax for this negative externality.

Except, what about the benefits of flying? About people of different places meeting and talking. About different cultures being exposed to each other. About the ameliorative effects of trade and travel on the militaristic impulse in people. While these are inherently too  subjective to accurately quantify, so too were the polluting costs.

Externalities are one of the beautiful, subtle parts of economics – but they too have been co-opted by the big government discourse.

When taxes are need, discount the positive externalities. When you must subsidize, discount the negative externalities.

For example, contrary to conventional wisdom, there could be many negative externalities of higher education. Read this from Econlog “If the higher income that you get from education is due to its signaling effects, then that is a classic negative externality. The investment in the signal is wasteful, and your investment forces others to make a wasteful invetsment” Also, this “Yet maybe college has “negative externalites” as well. For example, maybe the celebration of multi-culturalisim in universities has reduced social cohesiveness that binds diverse persons together in a nation. Maybe universities preach a moral relativism that ultimately leads to more crime, greater corruption, etc.”

Not to mention that almost all activities have externalities. While local security and convenience externalities can be internalized through zoning laws, but what about one’s food habits (some literature shows obesity to be “contagious), what about my reading habits (would I not be an amplifier of literature – good or bad?). And of course, to quantify these externalities is even more tough.

What then happens is that externalities (again, the concept itself is correct and indeed beuatiful) end up as an excuse for government regulation and taxation. Political economy considerations do not move the policies towards lower government, but bigger. Newt Gingrich, Republican politician-cum-intellectual,  for example, has been proposing that all non-carbon energy sources be given a tax break – rather than slap another “Pigouvian” tax on carbon. Get the same pricing signal, and reduce taxes! But of course this idea is not popular with the big-government left.

Similarly, with respect to food habits – we are already seeing different taxation in western countries between, say, soda and fruits. The difference is because of an increase in soda tax, not decrease in non-soda food tax, although the same relative signal would have been achieved.

Not to mention that government welfare programs create their own externalities – create a socialized health plan, and then call my lack of meditation an externality for other taxpayers down the road! And then tax/mandate me!

Externalities – aaah……………..

Anne Jolis of the WSJ documents how the IPCC conveniently forgets to properly document the possible benefits of any future global warming.

According to a 2004 paper by British geographer and climatologist Nigel Arnell, global warming would likely reduce the world’s total number of people living in “water-stressed watersheds”—that is, areas with less than 1,000 cubic meters of water resources per capita, per year—even though many regions would see increased water shortages. Using multiple models, Mr. Arnell predicted that if temperatures rise, between 867 million and 4.5 billion people around the world could see increased “water stress” by 2085. But Mr. Arnell also found that “water stress” coulddecrease for between 1.7 billion and 6 billion people. Taking the average of the two ranges, that means that with global warming, nearly 2.7 billion people could see greater water shortages—but 3.85 billion could see fewer of them.

Mr. Arnell’s paper, funded by the U.K. government, was duly cited in the U.N. Intergovernmental Panel on Climate Change’s supposedly authoritative 2007 assessment report. But the IPCC uses Mr. Arnell’s research to give the opposite impression, by a form of single-entry book-keeping. While it dutifully tallies the numbers of people he predicts will be left with less water access, it largely ignores the greater number likely to see more water courtesy of climate change

In any climate debate, the alarmists must first reasonably show that warming is real. Then they must show that the costs of warming are more than the benefits of warming (If its the other way round, should we be subsidizing global warming….you know externalities?). Then if global warming is real and net bad, then the costs of preventing/mitigating must be lower than its net bad effects.

Only then, one can begin to make a case for something like Kyoto or Copenhagen. Even then, if the difference between the net benefits of policy action and net costs of policy action are not too high, it might still make sense to do nothing because globally coordinated regulations and taxes (needed to fight warming, and to prevent protectionist wars in the name of green-ism) will create a dangerous precedent for global government.

Therefore, the alarmists have to do a lot of explaining. The onus of proof lies on their side.

Since October 2009, I have been working on a NREGA-Panchayati Raj project of MIT Poverty Action Lab. I have been fortunate to see rural Rajasthan first hand, and observe on-the-ground reality about many government run programs and schemes.

In the kasba of Chhonkarwara (Bharatpur), as well as in most Rajasthani revenue villages/smaller villages and even some hamlets (“dhaanis”) I went to, I found a private school. This one – Shubh Laxmi School – was till Class 10 (but the school gates showed till Class 8 – presumably they have not been changed), although some schools were till Class 5 only. A few were till Class 12, but that seemed rarer. Barun Mitra of Liberty Institute and my fellow blogger, Pragmatic Euphony had been encouraging me to document this.

So, this is what I got after interviews with the staff there:

(Full disclosure: Having received free chais from one of the teachers, I might not be fully objective)

Fees (Books costs are separate)

Class 1-2 – Rs. 550 per year (not per month)

Class 3-5 – Rs. 601/year

Class 6-7 – Rs. 671/year

Class 8    - Rs. 1500/year

Class 9    - Rs. 2500/year

Class 10  - Rs. 3500/year

Teacher salaries - Rs. 2500 per month + performance bonuses.

School Timings – 10 Am – 4:30 PM, Monday to Friday (Saturday depends)

No holidays for teachers for election duty etc. In govt schools, Diwali holidays are for 15 days. In Shubh Laxmi, it is for 3 days. In Shubh Laxmi, winter holidays are for 7 days. In Shubh Laxmi, it is 2 days.

25-30 students are taught by a teacher at a time (There are 7-8 periods in a day)

Around 450 students total. They come from as far as 2-5 km, after rejecting the “free” government schooling option because teachers there do not show up often – and when they do, they take no real interest in teaching (with honourable exceptions of course)

Last year’s Class X Topper – 85.5% (Vijay Singh Meena). Three other students got in the mid-70s (which is considered good for Rajasthan state board)

Shubh Laxmi wants to become Shubh Laxmi High – it wants to start Class 11 and Class 12 in the coming years

Owner details – Prem Singh, MEcon, BEd.

Ten other teachers – some BEd, some not.

Mr. Singh’s credo – “Kaam he to daam hai. Yeh degrees bekaar hai” (Private schools have performance/merit pay unlike public schools. Teaching degrees are not really useful)

Any problems he faces – “Kuch teachers sarkari teaching ke liye try karte rehte hai” (Public schools crowd out private schools at the margin because teachers at the latter keep looking for jobs in the former due to artificially inflated salaries and reduced work expectations)

Any help he wants – “Kuch sarkari anudaan taaki hum library aur lab laga sake” (Government subsidies to get libraries/laboratories – that is, something like vouchers)

—

My previous posts on education -

http://swaraj.nationalinterest.in/2008/09/05/school-choice-fat-unions-vs-poor-parents/

http://swaraj.nationalinterest.in/2009/01/13/open-letter-to-mr-advani-on-education/

http://swaraj.nationalinterest.in/2009/05/28/the-freedom-of-unaided-schools/

http://swaraj.nationalinterest.in/2008/10/31/right-to-education-bill-is-flawed/

http://swaraj.nationalinterest.in/2009/06/14/sc-again-oks-nationalisation-of-pvt-medical-seats/

The World Bank proposes zero rupee notes to be given to corrupt officials asking for bribes

As an angry young libertarian, I get pissed at many stupid public policy positions, but this one takes the cake. The idea is of course that of an Indian physics professor (who I am sure, like Nehru’s central planner Mahalanobis believes that being a genius at mathematics and its derivatives means that he will be awesome with men and their incentives too). I can just imagine his eureka moment induced smug smile when he came up with the idea of how to end corruption in his motherland!

Anyway, coming back to zero rupee notes, this is meant to shame the corrupt and enlighten the corrupting. It will do nothing of the sort although it may have some impact on the cool, urban, educated youth (like those Tata Tea ads which at least led to a high turnout in South Mumbai after 26/11. Oh wait…)

But debating about fixing corruption is missing the real point. Is corruption a symptom of something deeper? What causes corruption? Sure, there is a societal inertia as far as tolerance (or not) towards corruption is concerned. But do public policies designed without giving two hoots about human incentives not have a role either?

So, what is corruption? Corruption is using cash or connections to get a public official to do or not do something, which he or she is not supposed to. That sounds like perhaps the most serious problem facing our society and polity.

Now, corruption when used to buy state secrets, help dangerous criminals, grease the hands of judges etc is almost certainly bad, but petty corruption in most government provided services can often be better than no corruption. The abstract of a 2005 UChicago paper (“Bad Corruption, Good Corruption and Growth”) is:

“This paper analyzes the effect of corruption on economic growth in 141 countries from 1996 to 2004. In accordance with previous research, I find that bad corruption, or corruption which is associated with poor institutions, has a negative effect on GDP growth. However, residual corruption, or corruption which is uncorrelated with other governance characteristics is positively related to GDP growth in countries with poor institutions. …An analysis of financial data from more than 9000 companies in 51 countries delivers similar results: residual corruption is positively correlated withcapital accumulation and productivity growth in developing countries. These empirical findings areconsistent with the theory that corruption helps in overcoming inefficient barriers.”

Let us take simple examples to understand this – yesterday, I traveled from a small town in Eastern Rajasthan to Jaipur on a government bus (the private buses have been mostly MIA of late as Panchayati elections are around, and they could be seized for election duty – did I mention the angry young libertarian stuff?).

Yeah, so the bus conductor was apparently not supposed to seat more people than the number of seats, and he was not supposed to stop the bus at more than a couple of stops. But he got in way more people than was allowed, and stopped at many more places. He obviously made money doing this. But the bus ran on time, and reached on time too. I wonder that if he would not have this “corrupt” monetary incentive of getting more passengers, would he be happy in running the bus on time and with as much hard work as he did yesterday? Heck, I am sure there would be days when the bus would not run at all. He has a secure unionized government job, just collect the salary – why work? It is corruption that makes him work. It is corruption that reduces these inefficient barriers of state-run buses. (Slightly unrelated, some people argue that private buses could be unsafe because they compete crazily with each other to get passengers – but we can have both hardworking and safe buses if private companies were also allowed to own and brand a group of buses – their reputation would then be at stake).

Therefore, beyond a point there is no use punishing or shaming government bus conductors. They are just responding to their monetary incentives -developing countries like India will find it tough to give them such a high salary that not only do they work, but also remain honest (that is, if there is a salary at which it will happen). Much better to allow Indian companies and MNCs to run intra-city and inter-city bus fleets.

The same thing could be said for bribing public school and hospital staff (better pay a little and get something than nothing), or for bribing police to save yourself from victimless crimes. It would obviously be much better to have private schools/hospitals where possible and have direct subsidies in the form of scholarships/medical vouchers/tax credits, and similarly not to criminalize gambling etc in the first place. But if that is not happening, bribing does not hurt anyone, and helps all parties involved compared to the alternative of no bribes. Sure, theoretically, if everybody started to show zero-rupee notes in some cases, corruption will stop and performance by bureaucrats will increase without any extra pay. But this will not happen – and this is not a cynical, but a realistic view. The reason iscoordination problems and free riding – something which many of the same anti-all-corruption intellectuals are quick, often too quick, to point out as  reasons for government interventions in the first place.

The same logic of petty corruption overcoming artificial policy inefficiencies could be made in the case of black markets also, amongst other cases. A black market in, say, cooking gas would mean only those who really want gas would pay more for it, else there would be lines in which luck (no corruption case) or connections (in-kind corruption case) would result in rationing based on attributes other than need.  (Of course there is a non-egalitarian result in this, but that is the result of this public policy which can be solved through vouchers or a better overall welfare approach)

Therefore, while I would still officially discourage you from bribing but if you think you must, then you must (But I, of course, have never bribed in my life. Ever. On second thoughts, I might have. On third thoughts, my second thoughts were wrong….) And the zero rupee notes – it is yet another self-righteous fad. It might help you strike a conversation with the hot girl in the PSU bank line, but beyond that it is useless.

Note: Some people argue that corruption is good because it stimulates the economy – as (most of) the money remains in the country, and is spent. This is wrong (clue – the broken window fallacy). Corruption is beneficial (that is, when it is beneficial) only and only because it removes inefficient and artificial state barriers to peaceful and voluntary economic exchanges.

Update: The zero rupee note idea was, as mentioned, that of a physics professor. But it has been popularized by Vijay Anand, President of 5th Pillar organization. 5th Pillar has been doing commendable work raising awareness against corruption. Therefore, while I still think the idea will not work – and possibly might even hurt by diverting the attention of other bright idealists – I cannot help but admire the spirit of people like Mr. Anand. May we combine that spirit with a tough-headed policy realism.

This is how it looks like

Barack Obama, a Democratic president with a Democratic majority in the House and a Democratic supermajority in the Senate, cannot get socialization of healthcare passed! At least not easily.

Because the American people do not like it, or at least some Democrat congressmen think so.

Now there must be more debate. There must be compromises. There must be, gasp, democracy. Not just a threadbare majoritarian democracy, but democratic changes based on substantial consensus.

And you know what, the Representatives and the Senators cannot be just expelled by the President and his pliant Speakers.

Meanwhile in India, the high command reigns supreme