The Hindu Business Line : Aid, rewards or returns?

Aid programmes provide lucrative careers to bureaucrats and benefits to the organisers but offer little to the poor. It would be better to have a system of performance-based rewards. The best would be to guarantee the poor assured returns, so that they start investing in education. They will then also demand better services from their political representatives, disciplining the latter in a way neither the Centre nor aid agencies can, says P. V. Indiresan.

THE RICH are interesting; the poor are boring. There is a new cult that literally worships what are known as Page 3 people who are lionised by some newspapers. When it comes to the poor, the same newspapers substitute high moral tone for extensive coverage.

Advertisements flood the pages that talk of the rich but rare on the pages that highlight the miseries of the poor. We, the people, are responsible if newspapers and others glorify the trivial activities of the rich and ignore the problems of the poor. More than lack of interest, helplessness could be the reason for this apathy. We see no way of alleviating the misery of the poor. We see poverty every day, everywhere. As familiarity is known to breed contempt, familiarity with poverty dulls compassion; it makes us blind and deaf.

In his book The End of Poverty, Prof Jeffrey Sachs explains how aid given to Sub-Saharan countries (where the poorest of the world live) gets frittered: Of the $30 per capita aid, only $12 reaches the person. American aid performs worse: Of the $3 aid per sub-Saharan person the US donates, only 5 cents reaches the poor. The story in India is not very different: Grants the Centre gives hardly reaches the intended beneficiaries. Poorer the state, poorer the community the less the benefit that ultimately reaches the people. As richer states, and richer communities among them, utilise the funds better, the disparity between the rich and the poor worsens.

In this situation, many aid programmes provide lucrative careers to bureaucrats and solid benefit to the organisers but offer little to the poor. Poor reputation of many poverty abatement programmes breeds disillusionment. Another reason why we, the people, lose heart, lose interest.

Of late, many of us have started believing in the Invisible Hand, of Adam Smith. We are getting convinced that the Invisible Hand will transform universal selfishness into maximum prosperity for all. However, experience shows that the Invisible Hand raises average prosperity only but not the prosperity of the poor. The Invisible Hand helps overall growth but is not good at minimising disparity.

"The poor will always be with us" is an age-old saying. Nevertheless, some countries have managed to abolish poverty. Unfortunately, that success has often been temporary. Several of those countries have reverted back and the rich-poor disparity has erupted again. Can we, in India, emulate their success and, in addition, make it long lasting? What should the government do and what can private enterprise do?

Why should every one bother about poverty? We should because poverty is contagious. If the poor contract disease, they pass it on to the rich also. If they are hungry, and forced to steal, they will steal from the rich. If they have no shelter, they will squat on or in front of the land o hem rich and their slums make mansions hideous. The rich should strive to eliminate poverty as much because it is the human thing to do as also it is in their self-interest to do so.

In September 2000, the United Nations organised the Millennium Summit in New York and vowed to halve poverty by 2025. The Millennium Development Goals (MDG) set at that conference is of particular interest to India because half of the world's poor are here.

The MDG for India are: (a) reduction of infant mortality to 27 per thousand births; (b) halving underweight children to 27.4 per cent; (c) raising net enrolment in schools from 52.5 per cent to 100 per cent; (d) eliminating gender disparity in education and (e) reducing hunger by cutting down the number of calorie deficient persons by half to 31.1 per cent. Interestingly, even among the top 20 per cent of the population, one-third of the children are underweight.

On the face of it, these goals are far from ideal; India will still have much poverty even after these goals are reached. The problem is particularly bad in the Hindi heartland and in Orissa. If these backward States are raised to the non-poor level, the desired goals would be approached at least two-thirds of the way. In other words, well-run States are nearly there at the goal but the others are dragging the country down.

The finding of the World Bank that a-third of the children among the top quintile of the population indicates that the problem is not entirely economic, nor political, but cultural too. In Karnataka, there is a saying hottege hittu illade idaroo, juttige mallige hoovu (though there is no food for the stomach, there are flowers for the hair): Apparently, our middle-class is so keen to keep up with the Joneses that they are more interested in ostentatious consumption than about health.

In the backward States, many poor voters can be bought for no more than one bottle of liquor gifted once in five years. Apparently, when the voters are poor, their votes can be bought cheap. Hence, politicians have a self-interest in keeping the poor as poor as possible. Thus, democracy perpetuates the poverty of the wretchedly poor.

The World Bank has postulated that the remedy for India lies in: (a) schooling of mothers, (b) selective increases in health spending, (c) making the government's Integrated Child development Scheme more reliable, (d) spending more money on education, in particular, increasing the teacher-pupil ratio, (e) increasing electric consumption, (f) raising economic growth rate, and (g) providing more irrigated land. For obvious reasons, the World Bank refrains from highlighting the corruption aspect.

The World Bank's prescriptions concentrate on inputs and assume that more input will produce more output. Increasing inputs in backward areas is like using a more powerful car to drive faster in crowded bazars. No matter how powerful the vehicle, it will crawl at the speed set by the crowds. In bazars, pedestrians limit the speed. In poor localities, vested political interests limit growth.

We know already that States like Bihar are unable to absorb even current level of inputs. In their case, however much inputs may be increased the result will be no better.

More of the same will not help them; we need a new remedy not more of the old. I suggest a system of rewards given out for achieving better outcomes is likely to succeed better than giving more aid in the expectation better outcomes will result automatically.

Then, the Centre (and the aid agencies too) should replace the existing system of grants by rewards and performance-based vouchers. For example, consider a scheme by which children at each class level are tested with pre-announced questions. The tests include measuring the heights and weights of the children so that not merely their academic accomplishments but their health status too is valued. The tests are held in public where all parents and neighbours are welcome to watch. That is, the tests are transparent in every possible way, and little is left to chance or to manipulation. Let the child, the family of the child (and the neighbours too) get coveted rewards in proportion to each child's performance.

In the prevailing system of Central grants and external aid, the onus is on the state apparatus to achieve set goals. Neither the individual nor the community has a responsibility to reciprocate. Success or failure, the reward is the same (often, rewards are higher for failure than for success). Change the system to performance-related rewards (rewards selected by the recipients themselves), the onus shifts.

The Centre is unable to enforce discipline. Nor can outside agencies ; only the local population can. At present the local population does not bother; it is satisfied by a bottle of liquor once in five years. When the system changes from aid to rewards, once, the child, the child's family and the community realise there are useful rewards for pursuing better education and better health practises, the local population will almost definitely demand better schools, better healthcare. They will start disciplining both local leaders and officials.

If the poor are not demanding better education and healthcare, they are not being foolish. Our system of schooling does not add to employable skills; it provides no vocational training. The poor know that, in India, unemployment increases as educational qualification increases. Indian education increases rewards for those who secure jobs but decreases the chances of getting any job.

The poor cannot speculate; they cannot afford risks. Without a reasonable guarantee of a better job at the end of education, the poor will not invest in education. That is where policymakers are in error; for the poor, unlike in the case of the rich, the crucial factor is not the size of the reward, not even its average value but the certainty of reward. Guarantee the poor assured returns, they will start investing in education; they will demand better services; they will not be satisfied by a bottle of liquor once in five years. They will discipline local politicians the way neither the Centre nor aid agencies can.

(To be continued)

(The author is a former Director of IIT Madras. Response may be sent to indresan@vsnl.com)

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