Politics is often about grand gestures, and the Congress Party’s 37-year-old new general secretary, Rahul Gandhi, understands this perfectly. Shortly after landing his position last month, Mr. Gandhi demanded that Prime Minister Manmohan Singh extend a massive cash redistribution scheme, the National Rural Employment Guarantee Act (NREGA), to all 593 districts of the country…
As wth most political gestures, the goal of NREGA is certainly well intentioned. In many ways, it’s a more energetic / invasive version of the goal pursued by “living wage” advocates in the US. While our economic interventionalists wish to push incomes higher by raising the cost to employers (invisible unemployment be damned), Indian politicians go many steps further, take the nasty employers out of the question altogether, and directly (attempt to) provide 100 days of government employment a year.
The problem, as Varma dutifully notes, is that a nasty bureaucrat can be far worse than a nasty capitalist –
…As expected, NREGA has proved little more than a siphon for corrupt bureaucrats, not a boon to the poor. And now, there are numbers to back up that assertion…In the financial year beginning in April 2006, only 6% of the households registered under the scheme actually received their 100 days of employment.
…The CEFS study focused on the state of Orissa, and found that about 75% of the funds spent in Orissa had been “siphoned and pocketed by the government officials.” “We could not find a single case where entries in the job cards are correct and match with the actual number of workdays physically verified with the villagers,” the study noted. Out of a total $187 million in public monies spent in the state during the 2006-2007 fiscal year, around $127 million was effectively stolen.
And so, despite the fantastic progress being made in the upper echelons of the Indian economy, the bottom rungs appear mired in the same old licence-raj enforced, feel-good economic populism that’s haunted the country for nearly 50 years. One response is to criticize the implementors and “throw out the bums” to replace them, presumably, with better-intentioned bums.
The better response, however, is to dispel the notion that government make-work programs can ever provide the wealth so desparately needed in rural India. The problem is that the sorts of policies that can / will actually lift rural/poor incomes are anti-thetical to political grand-standing –
Instead of promising government jobs to agricultural workers, India’s government could do far greater good by stimulating competition–and investment–in rural India. As it is, government too often gets in the way. For example, one law limits the geographic area in which farmers can sell their produce, and some states require farmers to sell to monopolist distributors. Another law restricts produce shipments across state lines. Topping it all off, India is one of the biggest defenders of market-distorting agricultural tariffs in the World Trade Organization’s Doha Round negotiations.
It might be hard to believe but, in India the original goal of these trade-restrictive policies was to protect local farmers in the first place. Shielding from cross town competition coupled with state-sanctioned distribution channels was supposed to prevent “race to the bottom” price competition amongst supplier-farmers.
Interestingly, there are important analogues in the US where similar outcomes are being pursued by our own (well intentioned) “buy local” and “Fair Trade” advocates. Of course, the post-modern Western raisons du jour layer in pollution, oil consumption, hatred of middlemen, and the like in addition to farmer welfare as arguments for restrictive trade policy. Thankfully, in the US, these are still voluntary “movements” and our politicians haven’t attached the brute force of government to these memes (yet)…