Nagraj
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By Rupa Subramanya
Should India become a welfare state? Should there be a "right to everything"?
Krishnendu Halder/Reuters
The food security bill would complete a UPA hat-trick for major welfare programs at a time when India isn't prepared.
Evidently, the government and the National Advisory Council, which has become its de facto think tank, seem to believe so. This past week, the Cabinet approved the National Food Security Bill and the government hopes that the bill will become law in the dying days of the winter session of Parliament.
The food security bill is the third in a trio of large entitlement-based welfare programs with intellectual roots in the National Common Minimum Program on which the Congress-led United Progressive Alliance swept to power in 2004. The first, the National Rural Employment Guarantee Act became law in August 2005. The second, the Right of Children to Free and Compulsory Education Act, became law in April 2010. If the food security bill passes this year, it'll represent a hat-trick of sorts for the UPA government, and they'll legitimately be able to claim that they're keeping their campaign promises.
Populist politics aside, there does seem to be a genuine conviction that turning India into even more of a welfare state is the right development model for the country. Writing recently, Jean Dreze, economist and former member of the NAC, articulated the case for the food security bill by saying, "Hunger must go." He also suggested that the government would be able to foot the bill.
Such a position is emotionally appealing, given how many hungry people there are in India — and may also make good political sense — but is it good economics?
Definitely not.
As R. Jagannathan persuasively argues here, the food security bill is unlikely to eradicate malnutrition and hunger, and is more likely to create yet another new bureaucracy with its own vested interests and drain on the exchequer.
The more basic problem is that redistribution alone cannot solve hunger and other social ills in a country that still has the majority of its population living in poverty, however the poverty line is defined.
To put it bluntly: A poor country cannot afford rich country-style social welfare.
Let's not forget that the modern welfare state was born in the depths of the Great Depression, with programs like the New Deal in the U.S. and the subsequent development of the welfare state among the rich countries of the West after the Second World War. In all of these cases, generous welfare programs were introduced in already-rich countries that had a poor underclass, but a thriving and productive middle class that worked, ran businesses and paid the taxes that kept the system going.
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It's inconceivable that Britain and the U.S. would have tried to implement such welfare programs at a stage of development comparable to where we are in India, even if those ideas had existed. The fact is, a welfare state rose out of a prosperous economy, and not the other way around.
The reason that people go hungry in India is not because there's no food available but because they're too poor to afford it or that the state-sponsored provision of that food is so corrupted as to effectively deny access. And the same can be said for lack of access to health care, education, housing, and just about everything else. A much more direct approach to tackling hunger and malnutrition is to raise income levels to the point where even the poorest segments of society are at least able to afford to feed themselves.
Raising income levels of the poor will require ongoing rapid rates of economic growth. Critics on the Left worry, legitimately, that increased growth also brings increased inequality. That may be the case but what is relevant for hunger is not relative deprivation as measured by inequality but absolute deprivation as measured by poverty. In other words, economic growth may worsen inequality but at the same time reduce poverty. This is indeed broadly the pattern that India has seen since the liberalization of 1991, just as in every other fast-growing emerging economy.
On the flip side, large welfare programs, whether in rich or poor countries, provide strong disincentives for work and productivity. After all, if someone is offering to give you free food, why would you bother to get a job and earn income so that you can feed yourself? Economists recognize this problem as "moral hazard" in which a welfare program leads to perverse incentives which perpetuate its existence.
That is why even many rich countries have scaled back their welfare states, driven not just by a Right-wing ideology but a pragmatic realization that if a social safety net turns into a hammock, incentives to work and be productive are stymied.
Has anyone in the Indian government been watching the news lately? The current crisis in the euro zone reflects in part fiscal imbalances and disincentives for productivity created by bloated welfare states in places like Greece and Italy. Germany and the Scandinavian countries which recalibrated their welfare states in the past decade have weathered the storm. France, which has not done so, may become the next European country to head into a crisis.
Perhaps a large and rich country like France can afford to sacrifice some growth and productivity because it prefers a more generous state – although the euro crisis suggests even that is questionable— but a poor country such as India simply cannot afford such a folly.
To actually make cheap and wholesome food available for the majority of poor Indians, the government ought to have stuck to its resolve of allowing foreign direct investment in multi-brand retail rather than quickly shelving it and pushing the food security bill instead.
And if anyone doubted that these twin dynamics were driven by craven politics rather than good economics, consider the stance of the Bharatiya Janata Party, too: It was bitterly opposed to allowing Wal-Mart but we have heard nary a peep in opposition to the expansion of welfare-ism because who wants to tell a voter that you don't support his right to eat.
But the result is dreadful for the nation. Now, at best, we'll have a right to rotting food, inefficiently delivered.
Rupa Subramanya writes Economics Journal for India Real Time. You can follow her on Twitter @RupaSubramanya.
Sad but i actually agree with her
Should India become a welfare state? Should there be a "right to everything"?
Krishnendu Halder/Reuters
The food security bill would complete a UPA hat-trick for major welfare programs at a time when India isn't prepared.
Evidently, the government and the National Advisory Council, which has become its de facto think tank, seem to believe so. This past week, the Cabinet approved the National Food Security Bill and the government hopes that the bill will become law in the dying days of the winter session of Parliament.
The food security bill is the third in a trio of large entitlement-based welfare programs with intellectual roots in the National Common Minimum Program on which the Congress-led United Progressive Alliance swept to power in 2004. The first, the National Rural Employment Guarantee Act became law in August 2005. The second, the Right of Children to Free and Compulsory Education Act, became law in April 2010. If the food security bill passes this year, it'll represent a hat-trick of sorts for the UPA government, and they'll legitimately be able to claim that they're keeping their campaign promises.
Populist politics aside, there does seem to be a genuine conviction that turning India into even more of a welfare state is the right development model for the country. Writing recently, Jean Dreze, economist and former member of the NAC, articulated the case for the food security bill by saying, "Hunger must go." He also suggested that the government would be able to foot the bill.
Such a position is emotionally appealing, given how many hungry people there are in India — and may also make good political sense — but is it good economics?
Definitely not.
As R. Jagannathan persuasively argues here, the food security bill is unlikely to eradicate malnutrition and hunger, and is more likely to create yet another new bureaucracy with its own vested interests and drain on the exchequer.
The more basic problem is that redistribution alone cannot solve hunger and other social ills in a country that still has the majority of its population living in poverty, however the poverty line is defined.
To put it bluntly: A poor country cannot afford rich country-style social welfare.
Let's not forget that the modern welfare state was born in the depths of the Great Depression, with programs like the New Deal in the U.S. and the subsequent development of the welfare state among the rich countries of the West after the Second World War. In all of these cases, generous welfare programs were introduced in already-rich countries that had a poor underclass, but a thriving and productive middle class that worked, ran businesses and paid the taxes that kept the system going.
More In Economics-Journal
Economics Journal: Who's to Blame for India's Illicit Liquor?
Economics Journal: Why Did Indian Retailers U-Turn on FDI?
Economics Journal: Who's Afraid of Wal-Mart?
Economics Journal: Are India's Poorest Catching Up?
Economics Journal: What Is a Fair Wage?
It's inconceivable that Britain and the U.S. would have tried to implement such welfare programs at a stage of development comparable to where we are in India, even if those ideas had existed. The fact is, a welfare state rose out of a prosperous economy, and not the other way around.
The reason that people go hungry in India is not because there's no food available but because they're too poor to afford it or that the state-sponsored provision of that food is so corrupted as to effectively deny access. And the same can be said for lack of access to health care, education, housing, and just about everything else. A much more direct approach to tackling hunger and malnutrition is to raise income levels to the point where even the poorest segments of society are at least able to afford to feed themselves.
Raising income levels of the poor will require ongoing rapid rates of economic growth. Critics on the Left worry, legitimately, that increased growth also brings increased inequality. That may be the case but what is relevant for hunger is not relative deprivation as measured by inequality but absolute deprivation as measured by poverty. In other words, economic growth may worsen inequality but at the same time reduce poverty. This is indeed broadly the pattern that India has seen since the liberalization of 1991, just as in every other fast-growing emerging economy.
On the flip side, large welfare programs, whether in rich or poor countries, provide strong disincentives for work and productivity. After all, if someone is offering to give you free food, why would you bother to get a job and earn income so that you can feed yourself? Economists recognize this problem as "moral hazard" in which a welfare program leads to perverse incentives which perpetuate its existence.
That is why even many rich countries have scaled back their welfare states, driven not just by a Right-wing ideology but a pragmatic realization that if a social safety net turns into a hammock, incentives to work and be productive are stymied.
Has anyone in the Indian government been watching the news lately? The current crisis in the euro zone reflects in part fiscal imbalances and disincentives for productivity created by bloated welfare states in places like Greece and Italy. Germany and the Scandinavian countries which recalibrated their welfare states in the past decade have weathered the storm. France, which has not done so, may become the next European country to head into a crisis.
Perhaps a large and rich country like France can afford to sacrifice some growth and productivity because it prefers a more generous state – although the euro crisis suggests even that is questionable— but a poor country such as India simply cannot afford such a folly.
To actually make cheap and wholesome food available for the majority of poor Indians, the government ought to have stuck to its resolve of allowing foreign direct investment in multi-brand retail rather than quickly shelving it and pushing the food security bill instead.
And if anyone doubted that these twin dynamics were driven by craven politics rather than good economics, consider the stance of the Bharatiya Janata Party, too: It was bitterly opposed to allowing Wal-Mart but we have heard nary a peep in opposition to the expansion of welfare-ism because who wants to tell a voter that you don't support his right to eat.
But the result is dreadful for the nation. Now, at best, we'll have a right to rotting food, inefficiently delivered.
Rupa Subramanya writes Economics Journal for India Real Time. You can follow her on Twitter @RupaSubramanya.
Sad but i actually agree with her
