Thursday, September 08, 2005

Employment guarantee and its discontents


Even before the (recently enacted) Rural Employment Guarantee Scheme has started creating jobs in the rural areas of this country, it has already succeeded in generating quite a bit of employment among the punditry.

Thanks to Dilip and Anand, whose recent posts triggered some thoughts on REGS.

First, let me point to Jean Dreze, one of the key people behind REGS. He has written two pieces in the Times of India. The first discusses a serious problem with REGS's forerunner program called Food for Work scheme, and identifies a solution as well. The second elaborates on the theme of how to make REGS work well -- through another law that was recently enacted: the Right to Information Act, 2005. [Update (9.9.2005): D.R. Mehta, former Chairman of SEBI, has an op-ed in yesterday's ToI; he supports REGS.]

The critics, on the other hand, have been saying one thing, and they have been rather persuasive. Their point is: "this is all just loot! Don't trust the politicians; they will just steal the money". At 40,000 crore -- 400 billion -- rupees, it is much more than a pocket or a bag or a Samsonite suitcase (remember Harshad Mehta and his suitcases?) can hold. Some of the critics are real heavyweights: Surjit Bhalla (here, here), T.N. Ninan, and Omkar Goswami. Given the long and sad history of corruption in our country, one has to just agree with the critics of REGS on this point.

The debate, at this point, is between two sides that have dug their heels in. Advocates just want to get on with REGS, while the critics, using the 'corruption' plank, are waiting for an opportunity to say 'I told you so'.

However, there is another debate, if it does take place, that will be really worthwhile. Let me, in my own sort of rambling way, pose the issues.

Clearly, no one would want to dispute that abject poverty is a reality for a significant fraction of our rural population. For example, Goswami describes a rural district in Bihar:

Located on the left bank of the river Sone, Jehanabad in Bihar surely ranks among the worst 50 rural districts in the country. According to the 2001 Census, 66 per cent of its 221,000-odd households lived in kutcha houses; and only 1.5 percent of the households could boast of an electricity connection which, knowing Bihar’s administration, probably didn’t have electricity for more than two hours a day.

Jehanabad is a desperately poor district with no roads or infrastructure worth the name; schools exist merely on paper, and medical facilities are non-existent. [...]

Given this, I am sure many people would say "yeah, the rural poor need help". By 'help', I don't mean dole. Help, safety net, social security, "keeping them going till they are able to make use of the opportunities a liberalized India will offer them ... er, eventually", that sort of stuff.

Now, how should this 'help' be provided? In other words, what does economics have to say about the best way of giving the rural poor a helping hand?

I don't want to hear 'growth is the best way, particularly in the long run'. Just as the critics of REGS have pointed to past failures about corruption in government schemes, others may -- rightly -- point to how the higher growth rates in the last 15 years haven't led to significant job creation; apparently, there indeed is such an animal called 'jobless growth'. Moreover, a 'long run' may not exist for many of the rural poor if their poverty is not addressed.

A second issue may be posed as follows: Assume (this is a BIG assumption!) that corruption is not an issue, and that social security is a worthwhile goal. Now, is REGS the best way to provide social security to poor rural folks? If not, why not? Also, if not, what are the alternatives?

All of the criticism that I have seen of REGS so far has only harped on the 'corruption' theme, and ignored the other issues (I have outlined two that I can think of; there probably are more). I am sure the economists argue about them all the time. I am also sure, many people would like to know about the options available for tackling poverty (in the short run, if you insist), and their relative pros and cons. Sadly, our punditry has not done a good job of infoming the public about such important debates.

14 Comments:

  1. plus ultra said...

    Abi, it is my firm belief that rural prosperity ( note that I am not using the expression poverty alleviation) can be brought about, by :

    - encouraging farmers to grow commercial crops. We don't need them to produce paddy anymore. As a nation ,we are already self-sufficient.

    - ensuring electricity supply in villages. Here I am talking about 24 x 7 supply and not seasonal/ sporadic supply through solar lamps and windmills.

    - a combination of the two, viz growing commercial crops and ensuring power supply can be found in the idea mooted by your colleague, Dr Udupi Shrinivas of IISc. Grow plants like jatropha and produce bio-oil for power generation.

    - Instead of doling out cash, use the rural guarantee scheme corpus to earmark marginal lands for jatropha cultivation, supply seeds, fertilisers, etc. Make the farmers pay for the electricity. No free lunches.

    - when reliable power supply is available, some enterprising vilagers will move up the value chain and be emboldened to set up some industry, like food processing. Cold storage systems will further increase the efficiency.

    - create these conducive conditions for people to stay back in rural areas and not migrate to cities.

    Only by creating such virtuous cycles, can we hope to be rid of the problem. Cash and other forms of charity will serve no purpose except to enrich the already-rich.

  2. Abi said...

    Plus Ultra, thanks for sharing your thoughts. You have thought long and hard about possible long term (and hopefully permanent) solutions.

    My question, however, is different: it is about the kind of short term help (please don't think 'dole', think 'social security') that can be provided to the rural poor. Is REGS the best there is, even theoretically?

    If this question sounds academic, let me make it really stark. What if the rural poverty and the associated starvation are killing large numbers of people? Then I am sure people would agree that some short term measure is needed. The question is: what should it be?

  3. plus ultra said...

    Abi, I am sorry I went off on a tangent, missing the main point you were trying to make.

    I agree with you that when someone is searching for his next meal,all these long-term solutions have no appeal. It is like saying, "Let him eat cake in a year or two", when he is desperate for bread today.

    Considering the track-record of the predecessors of the REGS, ( only 13p out of every 1 Rupee earmarked, reaches the intended beneficiary), the scepticism about the efficacy of such schemes is not misplaced.

    However, as the REGS is the only mechanism available now and blessed by all the political parties,we will have to simply believe that this is our only remedy and move ahead.

    Maybe it can be administered through several short-term, pay-for-work initiatives, even if these result in pile-up of commercially-useless products or services. The idea is to send a clear message to the recepients of the aid that they need to "earn" their money, by honest work.

    Growing commercial crops for power generation can be a quickly-implementable idea and one can see immediate spin-offs.

  4. Anonymous said...

    The best way to provide social security to "poor rural folks" is to enable them to connect with a global marketplace for their services and products. This is an empirically proven method, and a choice increasingly taken the world over.

    A mechanism that promises to take money away from such enabling ventures (primary education, primary health care, power and transport related infrastructure) is bound to be counterproductive in the long and the short run.

    Note that this argument is not along the lines of - "growth shall create jobs" - rather the best agency to create jobs is private enterprise or community based self help action and not the state or central governments.

    A second unanswered question is the economic value of assets created by the EGS scheme. Can we trust governments that cant build decent airports right under their own noses to build a decent drainage system hundreds of miles away from the seats of power ? (If the economic value of the assets created is under question, then lets not pretend that EGS is not a dole)

    What are the exit clauses or the end goals of this act ? Or is this going to become yet another temporary feature/act/law that no one can dare touch ?

    In the ToI artcile by Jean Dreze, he asserts >> The premise of the EGA is that every adult has a right to basic employment opportunities at the statutory minimum wage.

    This is a dangerously naive premise. The state can not create an economic rationale out of thin air. With this statement what Jean Dreze is saying is "Be you however unskilled, however Gaanwaar, however Jaahil - you have a right to be employed at a minimum wage, and that at public expense".

    Good luck with eradicating poverty with this approach ?

    Sudeep

  5. Vulturo said...

    An Aye to Sudeep, personally

  6. plus ultra said...

    Sudeep, you say that "rather the best agency to create jobs is private enterprise or community based self help action and not the state or central governments. I agree that decentralised solutions will work better. But, the caveat again is that it would take time to instill the "community" mindset and get people to take ownership of their own development. REGS, even if the trickle-down is only 25%, will kickstart the process. If it gathers momentum, hopefully, we will be able to withdraw the life-support system gradually.

    Private agencies and NGOs should help publicise the fact of the existence and charter of REGS , so that the villagers are aware of their rights and don't let the Govt and middlemen siphon off the funds. I know it is easier said than done.

  7. Anonymous said...

    >> I agree that decentralised solutions will work better. But, the caveat again is that it would take time to instill the "community" mindset and get people to take ownership of their own development.

    I did not say that community based developoment was the only way for rural upliftment. Community based devp. can not take the place of healthy economic activity. Besides, community based development schemes are also a prerequisite for REGS to work.

    >>>> REGS, even if the trickle-down is only 25%, will kickstart the process.

    OK.. please give me your tax dollars or Rs as the case may be, I guarantee that Ill channel at least 50% into rural ecomonies. I am known to be scruplous in my dishonest deaalings - kind of like, honor among thieves - I am willing to open my books to you to ensure that I steal a maximum of 50% of your money.

    Does the above proposal seem ridiculous to you ? Then why, a 15-25% "trickle down" rate does not ? You are prepared to accept a 25% utilization rate of your (and others) hard earned cash but not a 50% utlization rate promised by me !! Why ? inertia ? habit ? a kind of fundametalism that believes in big government ?

    On a more serious note, how much time did it take for the Indian economy to take off after liberalization ? (2-3-4 years ?) Is it a mistake to belive that there will be a similar time lag for rural economies to take off once measures comparable to the 91 liberalization are put in place for rural economies [* see end of post]

    What is the pressing urgency of passig a flawed bill ? What have Indias poor not endured for so long that they cant endure for 2-3 more years ?

    >>> If it gathers momentum, hopefully, we will be able to withdraw the life-support system gradually.

    I am willing to bet Rs 5000 right here right now, that in 10-20-30 years time, REGS will still be here. (And so will poverty). Like reservations, like different personal laws, like so many other flawed laws.

    As an aside, who is this Jean Dreze ? What stakes does he have in India ? Why do these hairbrained ideas always come from corrupt politicians and stupid academia - esp from people who havent produced anything of value in ages and not from, people who have actually achieved something in their lives ? Perhaps, thats the big hidden idea behind univercities and parliaments - lock up all the stupid and corrupt people in one place so they can't do much damange to the rest of us.. but when the stupid and the corrupt get togther !! Watch OUT !!

    sudeep

    PS: I am serious about the bet. Any takers ?

    *
    (1) Easier access to credit
    (2) More decision making power and finances handed over to the lower rungs of government.
    (3) More electricity, More roads. (4) Information technology in the form of rural oriented/based television and radio stations.
    (5) Reduction and simplification of govt. rules and regulations.
    (6) Investment in rural based human capital.

    Sudeep

  8. Anonymous said...

    Sudeep,

    I just thought of addressing the validity of your belief here, which i guess forms the foundation of your arguments. If I am not wrong, you believe that rural economy would 'take off' in 2-3 years if the following ('91-like) measures are implemented:
    (1) Easier access to credit
    (2) More decision making power and finances handed over to the lower rungs of government.
    (3) More electricity, More roads.
    (4) Information technology in the form of rural oriented/based television and radio stations.
    (5) Reduction and simplification of govt. rules and regulations.
    (6) Investment in rural based human capital.
    And the assumption is that this 'taking off' is going to result in prosperity / poverty alleviation / a zillion other terms that are going to be floated by all and sundry, to denote the desired result.

    Let me also clarify the profile of the beneficiaries here: people who are starving to death, or consuming pesticides to end their misery. Now to your '91-like measures:

    #1: Given the above profile, do you believe that this audience would be geared to make use of the 'capital' and kick-off a 'commerical activity'? I expect the only 'commercial activity' they would take up is to go buy food for the next meal, and be caught in a debt-trap forever. And dont we all know what became of the farm loans and how many times our govts had to waive them? If your 'credit' also meets with the same fate, then how different is it from a dole?

    #2: Ok, now how are these 'lower-rungs' trust-worthy enough not to siphon off the famous 50% or 75% that supposedly land in the politicians' pocket? You only seem to be recommending a different set of middlemen.

    #3: I guess these would be 'essential' for the 'commercial activity' you mentioned, and the roads would also come handy when the 'empowered' get to buy their own cars.

    #4: Yes, IT / television would be a good diversion, to take away their focus from their hungry selves. Actually, I would recommend broadband connectivity too.

    #5: Too many barriers to investment aint it? How could the rural poor indulge in commercial activities / free trade, with all these stifling rules and regulations of the govt? Give them air to breathe, I say.

    #6: How about accent neutralization training? Or Cisco certification?

    I would like to bet the 5K that these 'six steps to success' aren't going to make an iota of difference in 2-3 years or even after 20-30 years, for our rural poor.

    Coming to the question in hand, I would say, trust the postman and mail the money. If EGS ensures that it is done without loss of dignity for the beneficiaries, then let EGS be.

    Ravi

  9. Abi said...

    Sudeep, Vulturo, Ravi: Thanks for your comments.

    Ravi, and Plus Ultra have addressed Sudeep's plan and other substantive parts of his post. I guess it is better to just let his diatribe against Jean Dreze pass.

    Sudeep: your own estimate for your plan to start producing results is 2-3 years. I wonder what the poor are supposed to do during this intervening period. [Ravi has pointed out that many of the intended beneficiaries of REGS are extremely poor; most of them are also landless labourers -- another reason why it is unrealistic to expect them to benefit from Sudeep's plan.]

    You also seem to have some misconceptions about REGS. The public works under this scheme are to be selected and implemented by the panchayats. New Delhi's role is to vet the projects and fund them. Further, REGS is a social security measure that mitigates economic risks faced by the poor; it is *not* some devious plan to write big fat cheques to members of the rural poor. Promising sub-minimal wages of Rs.60 per person per day, and a guaranteed 'employment' of 100 days (probably of hard labour) in a year, the scheme is, in economists' dry words, "self-selecting".

    Like you, I too will feel terrible if this scheme remains operative some 30 years from now. However, my reasons for feeling terrible will, however, be very different from yours.

  10. Anonymous said...

    Ravi,

    >>> Let me also clarify the profile of the beneficiaries here: people who are starving to death, or consuming pesticides to end their misery. Now to your '91-like measures:

    The goal of this scheme is not to prevent people from starving to death or to prevent suicides. It is very specific: To create jobs via legislation, based on the premise that the government and public at large owe a job (at a certain minimum wage) to everyone who wants a job. Do not confuse issues.

    >>> #1: Given the above profile, do you believe that this audience would be geared to make use of the 'capital' and kick-off a 'commerical activity'? I expect the only 'commercial activity' they would take up is to go buy food for the next meal, and be caught in a debt-trap forever. And dont we all know what became of the farm loans and how many times our govts had to waive them? If your 'credit' also meets with the same fate, then how different is it from a dole?

    One word answer: Grameen bank, Bangladesh. Please google it up.

    >>> #2: Ok, now how are these 'lower-rungs' trust-worthy enough not to siphon off the famous 50% or 75% that supposedly land in the politicians' pocket? You only seem to be recommending a different set of middlemen.

    They are not, otoh REGS is vulnerable to the same set of people.

    >>> #3: I guess these would be 'essential' for the 'commercial activity' you mentioned, and the roads would also come handy when the 'empowered' get to buy their own cars.

    So I suppose you are a city boy who takes electricity and roads for granted. 4 hours of electricity at the right time in the day can enhance the workday by anywhere from 15-30%. And roads are essential to connect these people to better markets, and as for cars: Why not ?

    >>> #4: Yes, IT / television would be a good diversion, to take away their focus from their hungry selves. Actually, I would recommend broadband connectivity too.

    Ever heard of 'Television as a medium of social change' ? And yes, Televisions/Radios are the cheapest and the least maintenance intensive medium to get benefits of IT to rural masses at large. But what would I know, I am just a BTech+MS in CS.

    >>> I would like to bet the 5K that these 'six steps to success' aren't going to make an iota of difference in 2-3 years or even after 20-30 years, for our rural poor.

    Oh I would too, but guess what, we cant :-) cause these steps are nowhere being taken in the near future.

    Ravi, I know you can write english, but can you read and more importantly understand ? There was not even a single response to the fundamental problems starting from the basic premise of the scheme as stated by Dreze himself. Instead I get treated to a bunch of smartass comments about cisco certifications and accent neutralization. Well guess what, people know best !! You'll find english speaking courses in every little nook and cranny of India.

    Sudeep

  11. Anonymous said...

    >> Sudeep: your own estimate for your plan to start producing results is 2-3 years.

    It may sound cynical, but if the 'landless poor' have survived for so long without REGS whats the tearing hurry to allocate 40,000 crores ? Can't 2-3K crores be set aside for hunger relief in this period while the reforms kick in ?

    >> [Ravi has pointed out that many of the intended beneficiaries of REGS are extremely poor; most of them are also landless labourers -- another reason why it is unrealistic to expect them to benefit from Sudeep's plan.]

    Why ? I guess electricity wont help (cause thats just to watch television), I guess roads wont help cause thats just to drive cars on, I guess micro credit wont help - cause they would just eat up the credit you see.

    >>> Further, REGS is a social security measure that mitigates economic risks faced by the poor;

    You have been drawing this distinction between dole and social security. Please elaborate.

    >>> it is *not* some devious plan to write big fat cheques to members of the rural poor. Promising sub-minimal wages of Rs.60 per person per day, and a guaranteed 'employment' of 100 days (probably of hard labour) in a year, the scheme is, in economists' dry words, "self-selecting".

    Except that this minimal plan will cost, may be Rs. 4,00,00,00,00,000 in the first year of its implementation. Definitely more in the subsequent years.

    Why just a *guaranteed employment* promising 60Rs for 100 days an year ? We know everyone wants the rural landless poor to drive cars and watch color television (everyone except ravi perhaps) - so why just create jobs via legislation ? Why not follow through with the whole absurd idea and decree by a special act of parliament (called Rural Millionaire Generation programme) - every rural poor person, will be guranteed to a million rupees without consideration to skill levels, govt. finances or other pressing concerns such as health care, primary/secondary/tertiary education, roads, electricity and so on. If jobs can be "created" by legislation, so can millionairs, no ? :-P

    >> Like you, I too will feel terrible if this scheme remains operative some 30 years from now. However, my reasons for feeling terrible will, however, be very different from yours.

    Oh please. Cut the self righteous *favorite expletive*. You dont know anything about me or what I feel.

    Sudeep

    PS: That "diatribe" about Dreze had an important truth: His stakes in this are at max to win or loose an argument. I consider mine to be much higher.

  12. Anonymous said...

    Sudeep, i'll save myself the trouble of searching in Google for 'Grameen Bank' coz i'm already aware of what they do. If Bangladesh is the answer to India's poverty, why is Bangladesh poorer than India? Let me explain: A bank is a bank is bank, and whether macro or micro, it is investing money and is going to do its due diligence before investing in whom it believes are 'enterprising individuals' (women, if i'm not wrong). I'm not denying the thousands of families it might have helped move up the ladder and above the poverty line. But EGS is about benefiting much larger numbers (crores of people), and it is not feasible for a bank to invest in such large numbers, and recover the debt.
    Btw, my criticism was about your plan which i felt wasnt strong enough to stand on its legs. Retorts about my background, credentials, language skills etc. (based on impressions) are a bit out of context here.

    Abi, it would indeed be dissappointing to see this EGS continue even after 30yrs. But I guess you would appreciate that the '91-like policies have resulted in more people getting left behind by a great extent, which has prompted this emergency response in the form of EGS. This should give us an opportunity to critically review those very '91-like policies which necessitated the EGS in the first place, and apply corrections where necessary. That may in fact obviate the EGS with time, as people become self-sufficient and can aspire for better things.

  13. Anonymous said...

    Ravi is a fucking idiot.
    Dear Fucking idiot, of course, roads are only for rich people. The next time one of those poor people suffers a medical problem in his/her village, you find a way to get an ambulance from the nearest hospital to that poor person's house/slum/shack/pavement. How will it get there? By the REGS? By the poor-starving villager's helicopter. You stupid fucking shit. The next time the poor person tries to sell his vegetables, you tell him that his crop got lost because the truck that ships his vegetables got stuck on the dirt trak that connects his village to the market, vecause goddam smart motherfucking idiots like Ravi decided that roads only benefit people who drive cars, you son of a bitch.

  14. TTG said...

    Thanks.

    http://25worldcountry.blogspot.com/2005/09/censored.html