Like most people and, sadly, many economists as well, The Economist (March 8, 2008), too, seems to have swallowed, hook line and sinker the ‘Congress-led government’s own estimate (that) most development spending fails to reach its intended recipients’.
This sentence wafted me back to the time, long years ago, when, while working on my doctoral thesis it suddenly struck me that if someone persists in doing something in some way which he himself regards as inefficient, it is absurd to imagine that the ‘inefficiency’ is unintended.
Nor can this ‘unintended’ efficiency reasonably be attributed to the difference between a politician’s definition of an efficient programme (namely the one that gets him the most votes) and the definition of a welfare economist (namely programmes that yield the highest social rate of return). After all, only a fool would try to win the votes of the poor by spending huge sums of money that, according to his own admission, never reached the people for whom it was intended.
The puzzle had me foxed until one fine day when, while reading a newspaper with one hand and frying myself an egg with the other, I came across a report quoting Prime Minister Rajiv Gandhi as having told a large gathering at Rae Bareilly that ‘85 per cent of the money meant for the poor never reached them’.
Why, I wondered, was this man, then up for re-election, going out of his way to not only highlight his failings, but exaggerate them as well: even the most skeptical heart-on-the-sleeve (but nevertheless strictly non-anecdotal) estimates doing the rounds at the time had put a 15 to 20 per cent cap on transmission losses.
The answer quite took my breath away. The poor already know how much money actually reaches them; they do not need or use official or non-official estimates for this purpose. For them the only use of such estimates is that they can be reverse engineered to discover how much their beloved amma or ayya had tried so hard to do for them.
Later, after the elections results were in, and Rajiv out, one of his former Minister’s wryly remarked that their leader had once again managed to ‘snatch defeat from the jaws of victory’. This, of course, was only too true. But it did not in any way require me to alter my conclusion. I only needed to add one more loop: namely, leakages in the transmission of power are a great deal higher than leakages in the transfer of money.