republicans or democrats?

Notice I did not ask “Republicans or Democrats”, I asked “republicans or democrats”. This post is about political philosophy and its applications to India, not about the American political parties (though they do seem to be named correctly, at least on economic issues)

Now the Indian Constitution says that we are amongst other things a “democratic republic”. I have always found it telling that we are a “democratic republic” and not a “republican democracy”. The main word seems to be republic and democracy is but the adjective. (Ignore for a moment the constant description of our country just as a “democracy”, and also ignore the later addition of the word “socialist” to our Constitution by Indira Gandhi)

You might say I am splitting hairs. But this is extremely important. 

A republic believes in the rule of law, and not the rule of men – the republican philosophy is against the rule of dictators or kings, but also against the rule of momentary majorities. A democracy too is against tyrants, but it by definition supports the rule of the majority. 

Now the majority decision-making is absolutely necessary and correct when we must select say the president of our country, or enter some international agreement, and even use force to protect life and property or quell communal secession.  This represents the idea not of a pure unrestrained democracy, but of a democratic republic or a liberal democracy where “liberal” refers to supprting individual rights. (see Nitin’s Liberal Nationalism, and my op-ed in Pragati about liberal soultions to Kashmir).

In other words, democracy seems to be the best way of operating the republic. But the idea of democracy becomes counter-productive when it used against republicanism itself. If a republic is against the rule of men, and it represents the actualization of an implicit social contract which assumes pre-existing individual liberties – then not all majority decisions carry legitimacy.

Now that is obvious in some cases – if say half or two-thirds of people voted that X must be executed just because he drew cartoons against some religion,  the rest of us would be rather horrified at such a prospect. We would say that is not the kind of democracy we believe in, that is naked majoritarianism – implicitly admitting that what we really believe in is a Lockean republic which does not believe in prosecuting someone unless he has violated Mill’s Harm principle and hurt some one else’s life, liberty or property.

But how is voting to prevent someone from drawing cartoons any different in principle from voting to prevent you from voluntarily transacting with foreign businessmen, or voting to prevent you from having sex with somebody of the same gender, or voting to prevent you from selling kidneys, or voting to prevent you from starting a school which does not have a playground

Now you might say you never voted for these laws and regulations, your representatives did. True. And that is why despite our constitutional proclamations, we are no longer a real republic but a partially constrained semi-majoritarian democracy. That is why we need to remove the word “socialism” from our constitution, reinstate private property as a fundamental right and more broadly speaking understand that too much of everything is bad – including democracy.

Constitutional weaknesses show over time. Today the UK can be described as a benevolent totalitarian state, whereas the US can even today, depite all slidebacks, said to have lived up to Benjamin Franklin’s challenge in response to an American’s question regarding what kind of government did their Constitution beget: “A Republic, if you can keep it”

“How much” vs. “how to” – Part 2

In my previous post on this topic, I had tried to explain that we should separate the debate on the aim of a policy, and the mechanism of that policy. With this approach it is difficult for the left to attack the right that its support for deregulation and direct subsidies is anti-poor, and it is equally difficult for the right to argue that because the present welfare system is so inefficient let us get rid of it completely.

A good illustration of my approach would be the debate over minimum wage. In September 2007, the Indian minimum wage was set at Rs. 80 per day for all scheduled employments. The concept of minimum wage is also implicitly behind NREGA.

Now, politicians across the world say that raising the minimum wage will help the poor, even though economic theory is very clear that in fact the poor will be adversely affected by a minimum wage because higher forced wages will force them to either automate, offshore or simply downsize. (There was one – only one – partial academic exception to this argument, and it has been strongly rebutted here)

That is why you would often find union leaders – who are already in the formal labor market – strongly supporting a higher minimum wage because that not only gets them more money, but it also prevents competition from the unorganized work force (which unfortuantely remains underemployed and out of the formal market as a result)

But even if minimum wage could somehow help the genuinely poor by jacking up their incomes without causing any unemployment – there are still much better ways to help them more or less equally.

Because with binding minimum wages around, price signals for factor inputs (in the form of artificially increased wages) get distorted and hence productivity and competitiveness suffers. My suggestion is: if one genuinely wants the poor to have a better standard of living, let us increase direct transfers (cash, kind, or some kind of negative tax to make sure that the work incentives are not hurt at all) Although even these measures have second-order effects, they are distinctly better than minimum wage measures.

Moreover, then the government's welfare decisions will show up in the budget which helps transparency and accountability in government. As of now, the government is playing sugar daddy on the shoulders of businesses while not owning up to consequent unemployment and higher prices.

So why not let the free markets run and increase such direct welfare, rather than through convoluted wage controls. Moreover, as competitiveness and hence tax revenues increase, either tax rates can be moderated and/or benefits can be made even more generous. That would be a "how much" decision, not a "how to" Although I being a small-government and pro-growth guy, I would prefer the former – so that the economic engine keeps on going great guns, the poor finally get boots to pull themselves up by their bootstraps, and so that the businesses are not counterproductively fleeced in a majoritarian polity.

Minimum wage arguments are nothing but political posturing. But political posturing works because there is a captive audience. And there is a captive audience because the masses have not yet heard the message of individual rights, of free markets and yes, of smart welfare yet.

School choice: fat unions vs. poor parents

Right now poor parents in India's slums and villages do not have a palatable choice when it comes to the education of their children. Either send them to free but failing government schools, or pay for private schools. Because by and large the government does not pay for your kids' private schooling –  it will only allow your children into government-run schools.

Before seeing the extent of government failure in primary education, let us admit – and appreciate – that the situation is thankfully not as bad as it used to be just a few years ago. "For boys and girls in 7 to 10 year old age group, the percentage of out of school children in 2007 stands at below 3% for rural India.", declares the well-known Pratham report. But it is also revealing that how low the bar is set when mere enrollment in primary schooling has us cheering from the stands.

So what data do we have against the government schools?

1. Some direct evidence: Nationally, only 58.3 % children in Std 5 can read – in any language – Std 2 level text. By Std 5 only 27.9 % of children can read easy sentences in English (Pratham 2007) – and English is important in this age of globalization.

2. Some indirect evidence: Even today, in villages about a fifth of the parents send their kids to private schools (Pratham). Also, A 2005 study (Tooley, Dixon) showed that 59.8% of schoolchildren in Hyderabad’s slums choose to attend tuition-charging private unaided schools rather than a free government alternative.

3. (added later) We also find that private schools spend less per student than government schools (only considering the schools relevant to low-income parents, that is not considering the prestigious urban schools)

In Hyderabad (2005) “average monthly fees in recognized private unaided schools are Rs. 95.60 ($2.20) per month, compared with Rs. 68.32 ($1.57) per month in the unrecognized schools”. That is at most Rs. 1,200 per student. In Delhi 2003-04 by comparison which is the most similar (urban and almost same year) comparison that I found, the actual per student expenditure on state government schools was Rs. 8,700 That is more than seven times greater!

And we all know by our own/anecdotal experience that many urban middle-class kids either go to  private schools or the few good government schools like Kendriya Vidyalayas which the bureaucrats, army etc. have created for their own children.

This shows that not only government schools are terribly inefficient and that the rich/influential have already seceded from the system, but that in many cases the poor parents also have voted with their admittedly shallow pockets and have said no to a "free" government option, because they know that private schools give a better education. Then should we not help the poor by giving them vouchers/scholarships/refundable tax credits. (We could also start funding all schools – private and public – on a more or less equal per-student basis to get the same result of more competition. Some private schools are aided in India, but it is rather discretionary)

The school choice debate has been done to death in America – although choice has been adopted in Sweden, New Zealand, some American cities, partially in England and other European countries. The international evidence in favor is mounting and tide seems to be turning against the opponents of choice – primarily the unions who do not want to be held accountable like any other bureaucracy.

But we in India must realize that we do not have the luxury for that debate. Most American public schools spend upwards of 10,000 dollars per student per year (whereas private schools there, such as Catholic schools spend a fraction of it and as expected have better results) Even adjusting for India's purchasing power advantage, we in India cannot even dream of spending 2,500 dollars or 1 lakh rupees per student per year! Therefore, for India the cost concerns are real.

We in India have to aim beyond literacy. If we want to help the parents in the slums and villages of India get their children get a good quality education, which includes a good English and science education, then we have to start standing up to the unions and the bureaucracy (even an activist judiciary: for example the Delhi HC ruled which defended silly regulations and ruled that having no schools is better than having private unrecognized schools without, say, a playground!)

Many parents in India migh have low incomes, but they have high aspirations for their children. We all are agreed that quality schooling should be available to one and all, then why only in a school run by government teachers? What we do not need are Right-to-Education acts which tries to temporarily alleviate the problem by forcing private unaided schools to admit children at subsidized rates, or acts which only promise more funding without any reform.

Its time for choice and for competition. It is time for the education subsidies to go directly to the parents.

“How much” vs. “How to” – Part 1

When it comes to economic policy, the average leftie thinks that righties are selfish and the average rightie thinks that lefties are stupid. Each group thinks that it speaks coherently, but to the other side it is just noise.

Yet I do not think that stupidity is the monopoly of the lefties, or selfishness the exclusive attribute of the righties. I think we are all more or less imperfect to the same extent.

(Full, though unnecessary, disclosure: I am center-right).

So instead of speaking about right and left, let us now speak about centrists, moderates, independents and undecided folk. This is not a small category – especially in India where many people are politically apathetic and the ideological divide is far less pronounced compared to some other democracies. So what is the centrist consensus? We should not be selfish and we must help the poor somewhat, but without being stupid and inefficient about it.

And you would agree with me when I say that how to achieve that is the gazillion rupee question in public policy.

My humble attempt at answering that question is this – we must separate, whenever we can, two questions: "how much help" should be separated from "how to help".

The normative question regarding egalitarianism (how much) and the scientific question regarding efficiency (how to) need to be separated and then answered in a modular fashion.

For example, the Third Front might want full free education up to and including post-graduate college for everyone, but the BJP and the Congress might say we can only do that by cutting defense spending etc., so why not till middle school as of now? Let us a consensus is reached – free education till completion of high school.  Now that was the political debate. The economic debate should focus entirely on getting the biggest bang for the taxpayer's buck – in my opinion, that would be using vouchers for schools and allowing private/foreign investment for colleges (with some regulatory oversight, of course).

Similarly the political consensus (say) is that the bottom 25 percent of Indians by income should get subsidized food. Fine. I might have thought 20 percent was more appropriate (because I think too much welfare can decrease the pie for everyone in the long run) and you might have thought 30 percent (because you believe that we are all dead in the long run anyways). But now that we have made the political decision, let us implement it with maximum results and least corruption. The solution in my opinion would be food stamps or smart cards.

One more example – if you want to help the poor with fuel costs, give them direct cash subsidies. Do not subsidize the product itself because in the process you end up helping the upper-middle class disproportionately and make a big hole in the budget (courtesy: Pragmatic)

And so on. Obviously this bifurcation method is highly stylized and even a little simplistic. But most public policy problems can be made easier to solve by treating this approach as a first approximation.

Second part here

The meaning of freedom

Compare this enunciation of free speech

Constitution of India, Article 19. Protection of certain rights regarding freedom of speech, etc.-
(1) All citizens shall have the right-
(a) to freedom of speech and expression;
….
_15[(2) Nothing in sub-clause (a) of clause (1) shall affect the
operation of any existing law, or prevent the State from making any
law, in so far as such law imposes reasonable restrictions on the
exercise of the right conferred by the said sub-clause in the
interests of _16[the sovereignty and integrity of India,] the security
of the State, friendly relations with foreign States, public order,
decency or morality, or in relation

with this:

American Constitution, Amendment 1- Congress shall make no law … abridging the freedom of speech, or of the press… (no further caveats)

In the first case the constitution hands out "rights" and "freedoms" to individuals. In the second case the constitution assumes pre-existing rights and freedoms, and places limitations on the government instead.

In the first case, the state is supreme with practically no constitutional limits because of all the myriad caveats and exceptions. In the second case, the state is but a constitutionally restricted agent of the individual.

In the first case the onus is on the individual to show that he is within his "rights" to do something; in the second case the onus is on the government to show that it has constitutional authority to regulate something.

That is the difference between lip-service to freedom, and true freedom.

I mean when the Brits left India, what or who gave Nehru and co., the prerogative to "give" Indians their rights? If we got free – if we truly attained Swaraj and were not replaced by a new master – we should have certain inalienable rights consistent with a minimum level of law and order. Now in practice America also does not have complete free speech and the the Indian free speech situation need not necessarily be a lot inferior (although it is – mostly because of the differences in the constitutions as noted), but the question is one about the principle?

Ask yourself – who gave the government the right to give you rights?

And if you think about it, that is a question which also explains why we are still a poor country.

CNN-IBN – Support Obama, else you are a racist!

Sagarika Ghosh asks this amazing question on her show Face the Nation.

The point about change and hope… Is America ready for that message or will at the end of the day … discomfort about his race and his background come in the way of this great message?

(transcribed, emphasis mine)

Wow! The concerns of India about the Democrats who have strong nonproliferation and anti-outsourcing impulses were dealt with rather perfunctorily. Heck, the concerns of many arguably non-racist Americans about America moving from a free markets economy to a European welfare-state are very real and relevant to the future of that country – but they were not discussed.

After all the panelists were from the center-left Time magazine and the significantly leftist Hindu newspaper. No concerns were expressed about how higher taxes, lack of support for future free trade agreements, and global warming fundamentalism in America could slow down not just America's economy, but the global economy as well – and by extension India's too.

Somehow Obama's background and race made him a new kind of politician. Now there is no doubt that Obama can be a very compelling and inspiring person, and history is certainly being made with his nomination. But to somehow insinuate that people who do not agree with his political philosophy, his policy platform and his worldview are racist is, well, beyond the pale.

But this shows how the leftists and the "progressives" think. They cannot think of a person as his or her own individual – they always think of individuals as part of a larger group or collective – as just a cog in the wheel who cannot have an independent voice. The larger group can be anything. Race in this case. Religion and caste in India. And yes, the nation in formerly fascist states.

If I am Hindu and I am voting for the BJP, I am obviously communal. If you are a white American and voting for John McCain, you are obviously a racist. Because how can you, you little insignificant you, come to your own conclusions about the world without either having gone through group-think (talk about projection) or without they – the "progressive" elite – telling you what to do.

Unbelievable. When will the Indian media shed off this progressive intellectual snobbery, respect the political choice of individuals, and actually learn some basic economics because almost all major political debates end up being about economics to some extent. We have made a start with the Mint newspaper, now we need a TV-equivalent.

Note: This post is not about the debates over the harm of protectionism, higher taxes, and emission targets on the global economy, although I think the point is self-evident. This post was just to highlight the thinking of the smug progressive elite that inhabits our media.

Hungry Kya – Part 2

In my last post, I wrote about the not-so-new idea of replacing a system of ration shops with a system of food stamps.

The argument was that if the government really wants to help the poor, then why does it simply not give them the means to do so, rather than dictate to them that they must buy their subsidized food only from government sanctioned (and btw, completely decrepit and corrupt) shops. The argument was that if the poor can then take that subsidy, that purchasing power to a Big Bazaar, a not-so-big bazaar or even their old ration shop then there will be more competition, more accountability and ultimately more welfare for lower subsidies.

But there are critics, and obviously they are being patronized by the Hindu. A certain S. Murlidharan’s argument against food stamps comes down to two points:

a) we will still have corruption with these food stamps if we just print and distribute them, and

b) what if a black market arises and the poor sell these stamps for cash.

The first argument certainly has some merit. Paper stamps will not completely eliminate corruption and fraud, though I suspect they will be better than the status quo because the private shops taking these food stamps would then have an incentive to check them else they would not be reimbursed.

And regarding his second criticism, well it might actually be an unexpected benefit to have a black market which effectively converts the food subsidy to a cash transfer. Too often the government goes for rather intrusive and paternalistic subsidies and as Rithwik commented on my last post, decides for us that it is “Better to die a fat spinster than be married, no?”. But let us keep in mind the extreme cases and assume that there might be some drunk fathers who would waste these stamps on alcohol rather than get food for their children, and therefore a black market is a problem.

So how do we respond to these criticisms? By combining the idea of food stamps with Electronic Benefits Transfer (EBT). That is instead of handing out paper food stamps, we should give out to those BPL families smart cards (or electronic food stamps, if you will) that has their identities and photos on it. This would substantially take care of both the corruption and the black market problem. And this solution is being used in the US for years which has further reduced fraud, though not completely.

But the problem is not about convincing the technocrats – they are already convinced. The “dream team” (God save us from another one) had recognized the benefits of targeting PDS and finally introduced (after recognizing the need 4 years ago) a “pilot” project in Haryana and Chandigarh this year. But I would say don’t hold your breath. Arun Shourie takes the UPA to task on this issue here.

No the problem is not to win the argument with the technocrats, but with the people. Because only then sustained pressure can be put on these corrupt and inept politicians. As Venkat commented on my last post “If PDS is replaced by Cash vouchers or food stamps, how do you think our netas and babus can make money out of it?”.

So sad, but true. Hopefully a new India will demand a new polity before more children have to unnecessarily suffer through malnutrition.

—————

Part 3 coming soon.

Obama@DNC: Populists 1, Rationalists 0

Barack Obama on basic education at the Democratic National Convention:

I’ll invest in early childhood education. I’ll recruit an army of new teachers, and pay them higher salaries and give them more support. And in exchange, I’ll ask for higher standards and more accountability. And we will keep our promise to every young American – if you commit to serving your community or your country, we will make sure you can afford a college education.

Well, government preschool doesn’t help. More and better-paid teachers? Without merit pay that won’t either. Did he actually mention “accountability”? Let me not even comment on that one. And his last one is just a “peace draft” – if it is genuine service why get paid for it, and if it is the government getting some job done why not contract it out in a competitive market.  No, all these proposals are just to fatten the teacher unions, except the last one which might be there to prod his young naive supporters to actually vote – and not just shout.

But the take-away point for center-right guys is this: Populists and socialists throughout the world will always have an advantage because they are selling promises, even though repackaged ones as the last ones were a failure. The rationalists and the real compassionate people would just have to work harder to make their case.

And we will yes we will.

Do we “steel” don’t get it?

That the Congress "young turks" had no new ideas was known. But just in case you missed it, Jitin Prasada proves it again by saying this gem of a statement:

I request all the steel makers present here and those who are not here to keep prices under check.

(emphasis mine)

Obviously without our dear Jitin's prodding, our evil steel makers would have chosen the prices to set by reading slot machines while they gulped their martinis!

And then our dear Jitin goes on to advocate eliminating middle men, helping with new technologies (I kid you not) and in general act as a mediator and import-helper too! Welcome to the GoI branch of McKinsey.

Of course this is socialist baloney which wont help, but will definitely hurt future investments.  And dont forget in a hurry the equally harmful and bogus anti-trust threats issued by Chidambaram and Paswan earlier.

Steel prices do feed downstream but all this high-handedness is being used just so that the headline inflation number can be contained because it is often – though, mistakenly – held as a meter for rising food prices. Obviously we can solve that problem separately and far more effectively (see my last post), but why think in a modular fashion?

Actually scratch that. With dynastic politics still in vogue – why think, period.

Hungry Kya? – Part 1

47.5 percent of India’s children are malnourished. 21 percent of the entire population is calorie-deficient. The numbers might be a couple of years old, there might be some measurement error and so on. And yes, we can continue to keep quite about it but this elephant in the room can not be hidden away – no matter what the spin.

Such continuing deprivation within our country is something which should shame us all as fellow humans and fellow Indians. If you did not get schooling as a child, you might still learn later – though it is certainly difficult. But if you did not develop to your fullest potential mentally and physically as a child because of malnutrition, all the riches of the future that we Indians dream about might not be of much help.

But equally seriously, such deprivation in front of our eyes further undermines India’s future because it prove to be the Achilles’ Heel for liberalization’s advocates. It should obviously not be so because what does a BSNL privatization have to do with malnutrition? But if the discourse of liberalization has to travel from Nariman Point to the aam aadmi then we must have  a concrete solution to this problem.

The reds just scream – universalize PDS, increase ration shops. And all it results in is more corruption. The solution that will work is, you guessed it, the opposite. Slowly but surely we must replace the PDS with food stamps (or vouchers). They have been used in the US for years, and with great success.

Food stamps can only be spent on food, but at any private shop. The shop then redeems those stamps for money from the government. Simple. Out goes corruption and in comes competition.

This will not solve our food problem all by itself,  but this reform is a no-brainer (Although there are obviously critics who shall be addressed in future posts)

When upscaled, it can perceptibly improve the future of literally hundreds of millions of young Indians. And the UPA government – which is ostensibly for the aam aadmi – has failed to push it. It still has some time, but this idea will hardly go beyond the Planning Commission’s brain trust.

So much for the “reformist” Dr. Singh. It shows that being a technocrat is different from being a leader.

UPDATE: Part 2 here.