Pro-poor policies work

Pro-industrial policies promote industry, pro-health policy promote health, pro-education policies promote education. So it is natural that India’s pro-poor policies — and let’s be very clear that every single one of India’s economic policies have been pro-poor — work and promote poverty and the number of poor keeps on going up. The absolute number keeps growing. What about the percentage? It does keep improving.

So what’s the latest on poverty in India from the World Bank? It is reported that the WB released some study which talks about the changes in the recent past. Good news or bad new? Depends on who is reporting the study. Sort of like assessing beauty — which we all know lies in the eyes of the beholder. Rediff says “India has fewer poor people: World Bank“. IBNLive reads the same report and says “Number of poor in India has gone up: World Bank.” (Thanks Dr A for the links.)

How’s that for objective reporting?

Global Poverty and the Cell Phone

A magazine article in the New York Times of April 13th has the rather mistaken and misleading title “Can the Cell Phone End Global Poverty?” (Hat tip: Abhishek Sarda). The article title is misleading because it doesn’t even remotely attempt to answer that question. It is instead about what is called a “human-behavior researcher” or “user anthropologist,” in this case someone who works for Nokia and essentially tries to figure out how people actually use their phones and thus how phone companies should design phones for greater usability.

Reality Disconnect

There appears to be a thriving cottage industry which is primarily engaged in churning out shallow pieces of journalistic garbage. The pieces detail a particular person’s or family’s struggles and then juxtapose it in some dramatic way with perceived overall prosperity. The implicit argument is that there is an immense injustice being perpetrated against the poor, that it is all the fault of those who are not poor, and that the poor have absolutely no responsibility for the miserable state of affairs. These articles reveal a lot without intending to. They plainly state that the author did not quite learn the lesson that stared them in the face when they were investigating the story.

The Sustaining of Poverty

The Oxfam America site asks In a World of Abundance, Why Hunger? (July 8, 2002)

Poverty and hunger are the world’s greatest challenges

• 1.2 billion people–one out of five–live on less than $1 a day.
• More than 800 million people are hungry, including 31 million in the United States.
• Every day, 24,000 people die from hunger and other preventable causes. One billion people do not have adequate shelter, and 2.4 billion people do not have access to proper sanitation. More than 1 billion people in developing countries lack access to safe water.
• Yet enough food is produced in the world to feed everyone.
• Overpopulation is not the main cause of hunger. In Japan, a densely populated country with 125 million people, hunger is rare compared to other countries. Many larger countries with fewer people, like Peru and Sudan, have much higher rates of hunger.
• The problem is inequality in access to education, resources, and power.

I have a slightly different take on the question of poverty and hunger. I think that ultimately, without the active participation of the world’s poor, poverty cannot be sustained. I believe that we have been looking for the solution to poverty everywhere else except at the source of poverty. The source of poverty is the poor. The poor sustain poverty.

I am not absolving anyone of blame by locating the source of sustained poverty among the poor. On the contrary, the non-poor also actively participate in helping the poor sustain poverty. But in the ultimate analysis, the poor have the power to kill poverty. How to awaken them to that realization is the challenge that those who wish to see poverty eradicated face.

The National Rural Employment Guarantee Scheme

In a land where reportedly every generalization is trivially true, one generalization holds non-trivially and with overwhelming force. It is this: Indian governments are pro-poor. Every policy that any government ever espouses, fundamentally it always is pro-poor, irrespective of any minor variations such as pro-market or pro-planning or pro-industrialization or pro-globalization or pro-self sufficiency or whathaveyou.

My claim is that this pro-poor policy is not mere rhetoric. The policy works and how. I argue that all other policies have not yielded their expected results but the pro-poor policies have delivered as could be reasonably expected.

Pro-industrialization policies are expected to lead to an increase in industrialization. If India ever had such policies, they have had only marginal success because India is arguably not an industrial economy. Pro-poor policies are expected to promote the number of the poor, and there has been a monotonic increase in the number of poor in India.

The percentage of people below the poverty line is estimated to be around 25. That is, India has about 250 million people who are so unimaginably poor that they can’t cross the poverty line that is set way below what can be considered necessary for a human existence. Around 33 million were added to that role in 2001-02 alone For comparison, that is more than the entire population of Canada in 2001 (30 million).

Let’s put the number of the abjectly poor in perspective. Consider the number of people below the poverty line at the time of India’s independence. We had about 350 million people then. Assuming that 50 percent of them were below the poverty line then, there were 175 million abjectly poor people then. Now, about 57 years later, we have 250 million abjectly poor people. There has been an increase of 75 million in the ranks of the abjectly poor in the nearly six decades of pro-poor policies..

India’s pro-poor policies have succeeded in increasing the number of poor in the past and while past performance is not a guarantee of future results, the most probable outcome of current pro-poor policies can be expected to lead to increase in the number of the poor. The “Employment Guarantee Scheme” (introduced by the National Rural Employment Guarantee Bill) is pro-poor and the result will be as before.

Culture Matters

Economists conventionally list land, labor and capital as the three factors of production. If combined appropriately using the right technology, stuff is produced. This produced stuff is then the total income. Productive efficiency is important of course for a society to be economically secure. Then there is the matter of equity. You have to distribute the stuff produced equitably. Productive efficiency and distributive equity must be part of a healthy economy. But then if sufficient factors of production exist and the technology is also available, then how does one account for the failure of some societies in overcoming poverty?

I believe that the choices that society makes depends on the cultural and institutional capital of the society. As much as land, labor, capital, and technology matter, the social capital — that is the cultural norms and values and institutions — matter fundamentally.

This line of thought was prompted by a report in the New York Times. It was the story of Shazia Khalid who was raped and then persecuted by all and sundry for her “sin.” This happened in Pakistan. The culture of that place is such that the victim is blamed. Rape is seen as a insult to the family honor which can only be restored by killing the woman who was violated.

The values of the society matter more than the availability of PCs and the ability to surf the internet and get neat stuff off the world wide web. Third world under-developed societies need a change of values desperately if they are to get out of the cycle of poverty. Unfortunately, values are endogenous and they can only change with great difficulty. They cannot be imposed externally any more than “democracy” be imposed externally as the US is ostensibly attempting to do in Iraq.

The sense of fairness and justice is, in my opinion, the major determinant of how developed a society is. And in some sense, development is the basis for economic development. Until a society has justice and fairness as its core values, it cannot get beyond a Hobbesian existence.

The Poor as a Fertile Source of Slave Labor

I have never been able to shake off the conviction that there must be a very good economic reason for why there are so many poor people around the world. You may say that I am crazy to connect what apparently are totally distinct facts about the world but bear with me for a bit while I lay out my argument.

I argue that the large pool of poor people serve as a reservoir of extremely cheap labor which helps the rich. The rich have control and are powerful. They could choose to bring about the end of poverty. But they don’t because absent grinding poverty, the cheap labor will dry up and lead to less favorable outcomes for the rich and powerful. I hasten to add that the rich and the powerful cannot be distinguished by the color of their skin, racial origin, or nationality. The rich and the powerful exist in rich and poor countries alike. Their interests are aligned irrespective of which part of the world they live in.

Thus the rich in India would advocate policies that will ensure that the reservoir of poor Indians never run dry. Empirical evidence is plenty. There were only about 150 million abjectly poor people in India around 1950. Today, about 50 years later, India has about 300 million abjectly poor people. Mind you, this is after implementing every conceivable form of “pro-poor” policies. Not a single policy maker would ever claim that their policies were anti-poor. They all are for the benefit of the poor. And yet, the numbers of the poor continually increase. I claim that the policies are “more-poor” rather than “pro-poor”.

One such policy now making the rounds is the so-called “Employment Guarantee Scheme” which I mentioned here last time. In my considered opinion, this would raise the level of poverty in India and increase the number of poor. How this will come about, I will address later. For now, I will move to the utility of the poor. They are good for slave labor.

Slavery is an ancient institution. Mention slavery and you conjure up images of Africa. In the past, Africa paid the price and the benefits went to Europeans, both in the Old World as well as the New World. The rich and powerful, both in Africa and in Europe (and their American colonies), gained immensely. Let’s not forget that African slavery was not an entirely European-driven phenomenon. Africans were involved in it as much as anyone else. Africans managed the supply-side while Europeans the demand-side.

For guns and other European manufactures, powerful Africans would conduct raiding parties with guns and cavalry. Here is a heart-breaking account by James Richardson writing about it around 1850:

A cry was raised early this morning: “The Sarkee is coming!” … It turned out that a string of captives, fruits of the razzia, was coming in. There cannot be in the world … a more appalling spectacle than this. My head swam as I gazed. A single horseman rode first … and the wretched captives followed him as if they had been used to this condition all their lives. Here were naked little boys, running alone, perhaps thinking themselves upon a holiday; near at hand dragged mothers with babes at their breasts; girls of various ages, some almost ripened into womanhood, others still infantile; old men bent two-double with age, their trembling chins verging towards the ground, their poor old heads covered with white wool; aged women tottering along, leaning upon long staffs, mere living skeletons … then followed the stout young men, ironed neck to neck! This was the first installment of the black bullion of Central Africa; and as the wretched procession huddled through the gateways … the creditors of the Sarkee looked gloatingly on through lazy eyes, and calculated on speedy payment.

Only humans are capable of inhumanity. It is part of human nature and I don’t think that it can be eradicated. It takes different forms and shapes depending on the fashion of the era and the compulsions of the age. The compulsions range from monotheistic madness (the Crusades, the Islamic hordes destroying peaceful non-Muslims) to nationalism (the Nazis slaughtering Jews, the Americans carpet-bombing countries, the Belgians killing millions in the Congo, the Pakistani army slaughtering between 3 and 6 million other Pakistanis, … the list goes on) to natural resources (too many to mention but Iraq is the lastest example.)

{To be concluded tomorrow.}

Hunger in India

According to UN estimates, India has the largest number of hungry people. Over 200 million, or about one-fifth of India’s population, is chronically hungry. This is an apparent paradox in a country which is food-surplus on the aggregate. The Wall Street Journal of June 25th 2004 reports that according to Indian government sources, by 2001 India had a national stockpile of around 60 million tons of rice and wheat. It goes on to say:

But with inefficiency and local mismanagement plaguing distribution, it couldn’t move the grain fast enough through the system. Some even spoiled in warehouses. A 2002 government survey concluded that 48% of children under five years old are malnourished. That’s an improvement from three decades ago and even today, given rapid population growth, the proportion of chronically hungry Indians continues to fall. But in a sign that there are limits to the Green Revolution, the absolute number of hungry people in India began to rise again in the late 1990s, according to the U.N.

The paradox is easy to resolve if one understands one basic principle: that economic policies matter. The Indian economy has been chronically mismanaged by the Congress ever since India’s independence. And now the new Congress government could continue on the same failed path of socialism that led us to this sorry state. Vote-bank politics and the command and control license-permit-quota raj is responsible. Paul Samuelson could have been speaking about India when he wrote in April 2002 (HOW TO PROSPER IN THE TWENTY-FIRST CENTURY):

The good life does not come from dramatic speeches or boisterous parades. Where economics is concerned, so far, there is nothing in sight more promising than the limited welfare democracy where public laws harness and monitor the energies and efficiencies of the somewhat free marketplace.

It is a good time to review Amartya Sen’s book of 1982, Poverty and Famines: An Essay on Entitlement and Deprivation. Here is an excerpt from Ken Arrow’s review of the book:

In a free-enterprise economy every good or service has a price, and each economic agent starts out by owning some goods or services. The rice farmer owns some land, used for producing rice, which can then be sold on the market at the going price or reserved for use by the farmer and his family. The receipts from sales can be spent on other goods—different foods, spices, clothing, and so forth. The agricultural laborer has only his or her labor to sell; the proceeds can be spent on rice or other goods. Similarly the cities contain workers who sell labor for money to buy food, shelter, and clothing, and entrepreneurs who buy goods and labor, produce other goods, sell them, and have the proceeds for personal consumption and investment in business expansion.

People will starve, then, when their entitlement is not sufficient to buy the food necessary to keep them alive. The food available to them, in short, is a question of income distribution and, more fundamentally, of their ability to provide services that others in the economy are willing to pay for.

This, of course, does not mean that the supply of food is irrelevant. A decrease in the supply of food will usually increase its price, as people compete for the scarcer quantity. This will in turn decrease their ability to buy food by using their entitlement and, if they start close enough to the margin of hunger, may drive them to the point of starvation. Further, the entitlement approach, simple as it is, enables the analyst to say something about the distribution of the burden of starvation. Farm owners and, to a lesser extent, sharecroppers, should be less affected than others because the reduction in the amount they sell is at least partly offset by the higher prices. If the reduction in supply is caused by some factor, like flood, that reduces the amount to be harvested, farm laborers are thereby more likely to be seriously affected.

I am reminded of Oliver Goldsmith’s words from his poem The Deserted Village:

Ill fares the land, to hastening ills a prey
Where wealth accumulates and men decay

There is something rotten about India that so many people are so unconcerned about the true state of affairs. The communists are solely concerned with protecting a handful of jobs, the larger interests of the nation be damned. The government is concerned with blocking the liberalization of the economy and dragging it back to its insular autarkic pre-reform paralysis. The idiotic hype about India Shining and IT superpower crap has addled the brains of the already marginally stupid. One wonders where this is all going to lead to.

It is all karma, neh?

The Persistence of Poverty

Economic analysis can be broadly categorized as either ‘positive’ or ‘normative.’ Positive analysis refers to the investigation of how things are, whereas normative analysis is concerned with how things should be. The former is supposed to be value-neutral whereas the latter is necessarily an expression of one’s values. A study by the UN determined that about a billion people around the world live in absolute squalor in the world’s cities and that every third person will be slum dweller within 30 years. That is a positive statement. The Guardian reports:

One in every three people in the world will live in slums within 30 years unless governments control unprecedented urban growth, according to a UN report. The largest study ever made of global urban conditions has found that 940 million people – almost one-sixth of the world’s population – already live in squalid, unhealthy areas, mostly without water, sanitation, public services or legal security.

The report, from the UN human settlements programme, UN-habitat, based in Nairobi, found that urban slums were growing faster than expected, and that the balance of global poverty was shifting rapidly from the countryside to cities.

Africa now has 20% of the world’s slum dwellers and Latin America 14%, but the worst urban conditions are in Asia, where more than 550 million people live in what the UN calls unacceptable conditions.

The emphasis on the word ‘unacceptable’ is mine. The UN in labeling something unacceptable is making a normative statement, not a positive statement. Meaning, the UN is saying that so many people living in slums should be unacceptable. Normative statements arise only in cases where the normative and the positive diverge. That is, when what is is not what should be. Here I argue that the reason that the reason so many people do live in squalid conditions is precisely because it is acceptable by all parties concerned.

Before you reject this seemingly idiotic stance, consider what it means for something to be unacceptable. If I accept something, I clearly cannot find it unacceptable. If I don’t totally and unconditionally reject it and somehow reluctantly accept it, it means that I don’t find it unacceptable. It is not ideal but it is not unacceptable either. If something were truly unacceptable, I would not accept it. So now consider the statement “550 million people living in unacceptable conditions.” They not only find it not unacceptable, but given that their numbers grow, they thrive in there. So slum dwellers find the slums acceptable in the strict sense of the word. So also, the rest of world which does not live in slums finds the existence of slums acceptable as well. If it were not acceptable, then they would have done something about it. There are ample resources in the world which if it were equitabley distributed would have resulted in a different outcome. The fact that this alternative distribution is feasible but not chosen reveals that the world as a whole prefers the unequal distribution. Therefore it is acceptable in the strict sense of the word.

I have just used what is called a revealed preference argument. If you really want to know what the preferences of an economic agent is, just note what they do rather than what they say. I don’t need to ask you whether you prefer tea or coffee at a particular time if I can simply observe you choosing tea over coffee when both were available to you. You would have revealed that you prefer tea over coffee by your choosing tea. The world has a billion people living in slums. The people of the world could choose an alternate state of being in which no one is forced to live in slums. The world chooses the former over the latter and therefore reveals its preference for the current setup.

The point I would like to stress is this: if poverty were truly unacceptable, then it would not exist given the technology and resources at the disposal of the global community. Both the poor and the rich are implied in this global community. The poor tolerate poverty as much as the rich do. I think I can explain why the poor accept poverty. I believe it has something to do with biology. The urge is for survival and therefore we adjust to unimaginably difficult conditions. People in concentration camps survive horrible deprivation. Slums are economic concentration camps. People survive. Life is Hobbesian (nasty, petty, mean, brutal, and short) but sufficiently large numbers survive so as to produce the next generation of slum dwellers. The poor breed poverty.

The rich and the powerful also tolerate poverty. If they did not, they would have mobilized against it and eradicated it. Poverty is not seen as unacceptable the way terrorism is seen as unacceptable. The US moves rapidly to spend hundreds of billions of dollars at real or imagined areas of terrorism. But it does fancy little for eradicating global poverty. A few hundred billion dollars every year would totally eradicate global poverty. But the US does not choose to wage a war against global poverty like it does against global terrorism. The rich are apparently quite comfortable with the idea of poverty. How else would one explain the persistence of poverty?

The Convent and Cloyne Court

As a graduate student, I decided to spend my first term at UC Berkeley at the University Students’ Cooperative Association (USCA). The USCA is the largest student housing cooperative in North America modeled after the Rochdale Principles. The USCA is student run and student owned. In all we had about 20 houses and 4 apartment complexes housing about 2,000 students.

The house that I lived in is called Cloyne Court. It used to be a hotel and is even listed as a national historical monument. Cloyne Court housed about 150 students in about 80 single-, double-, and triple-occupancy rooms.

All household tasks such as cooking, cleaning, washing, and maintenance was done by the residents. In addition to our rent, we had to do five hours of ‘workshift’ every week. Like all other houses of the USCA, Cloyne Court had one common kitchen and one dinning hall for the 150 residents. Food was stocked in a huge pantry and in a walk-in freezer the size of a small apartment.

Under the best of circumstances, cooking is not an easy job. But for college students who can barely cook for themselves, the task of cooking for 150 people is well-near impossible. So dinner time was a real challenge. Around 6 pm, the dining hall would be crowded with students waiting for the food to show up from the kitchen.

The word may go around that there wasn’t much food that got cooked on some day. Perhaps the cooks weren’t very good and burnt half the stuff. Suddenly, there would be rush for the food as it was being brought out. All pretense of waiting for your turn would be dropped and pushing and shoving to get at the food would be so violent that half the food would end up on the floor.

If you were not quick, you were dead. If not dead, at least you’d have to order pizza to avoid starving.

During my one year at Cloyne Court, I learnt more economics than I could have imagined. I saw the tragedy of the commons revealed in all its stark reality. I understood why the Soviet Union collapsed. I learnt the common property problem and the problem of free-ridership.

I moved to a smaller house the next year. It was called the Convent because it used to be one before the USCA bought it. The Convent had 20 people and was restricted to graduate students. It was pretty well organized. Those who volunteered to cook were really into cooking. For 20 people, it was easy to cook enough that there was little chance of food running out. We all sat very calmly at the table while the food was passed around very politely. We had intelligent stimulating conversation at dinner. We had self-imposed rules: not taking any more than what we could eat, and cleaning up after ourselves.

The contrast between Cloyne Court and the Convent was stark and revealing.