Earth to Mr Jaitley: socialism is not pro-poor, markets are not anti-poor

http://firstbiz.firstpost.com/budget/earth-to-mr-jaitley-socialism-is-not-pro-poor-markets-are-not-anti-poor-90604.html

So why did the Narendra Modi government, whose high-pitched pre-election rhetoric promised a decisive rightward shift in the management of the economy, debut with a budget that would have done the Congress proud? This is something both Congress president Sonia Gandhi and former finance minister P. Chidambaram have smugly pointed out.
This piece by M. K. Venu argues that the maiden budget was `socialist’ because Modi wanted to be seen as pro-poor. Venu quotes finance minister Arun Jaitley telling him in an interview done for Rajya Sabha TV that in a country with so many poor people, any economic philosophy which is totally market based will not work. Listen to the interview here.
That is the problem – the assumption that socialist policies are pro-poor and market-friendly policies are not.  This fairly widely-held assumption is itself based on two wrong assumptions, one about socialist policies and the other about pro-market policies.
That socialist policies are pro-poor flies in the face of evidence from India itself. India’s economic policies were overwhelmingly socialist before 1991. Indira Gandhi’s socialist agenda got an emotional anchor, as it were, with the Garibi Hatao slogan. Apart from the plethora of anti-poverty schemes, all economic policies supposedly had a pro-poor focus. And yet the pace of poverty reduction has been faster post-1991, once India embarked on pro-market policies!
All manner of subsidies have been rolled out in the name of the poor; any withdrawal is slammed as a move to abandon the poor to the vagaries of the market forces. But, barring a few, these subsidies really go to the better off. The poor are anyway left to the market forces. Take Delhi, where highly subsidised water and electricity supplied by the government go to the middle classes while the poor, who live in slums and unauthorised colonies, pay several times more for the same facilities supplied by the market. Yes, the rates are exploitative but the so-called pro-poor state is just not present in these areas peopled by the poor. Yes, the issue is that of governance, and that precisely is the point. Good governance is not about socialism or capitalism; it is about how efficiently the state goes about fulfilling its responsibilities.
Now for the other bogey that Jaitley seems to be mindlessly parroting – that a pro-markets approach necessarily neglects the poor. This stems from the trenchant criticism by the critics of socialism of the dole-centric approach to helping the poor, especially the rights-based entitlements legislations that the Congress initiated (and the BJP supported). But the question whether doles are more effective in helping the poor needs to be examined. This question came up last year when poverty figures released by the Planning Commission showed a sharp decline in poverty levels between 2009-10 and 2011-12 and also a decline in the absolute number of poor. The Congress party was quick to claim credit – not for the years of highest ever economic growth during UPA 1 (which they otherwise kept boasting about), but for welfare measures during its rule, especially the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). 
But economist Surjit Bhalla questioned this claim in this article. Using NSSO data, he pointed out that MGNREGA accounted for only 1 percentage point of the 13.1 percentage points decline in poverty between 2009-10 and 2011-12. In this second article, he gives a more direct link between growth and poverty reduction.
Now to the wrong impression about pro-market policies.
Venu’s article argues that Modi’s statements that government coffers are meant for the poor is `very socialist in its tenor and intent’. This reinforces the completely fallacious image of pro-markets ideologues as unfeeling cads who want the government to work for the well-off and the rich. Not even free market fundamentalists (except those in the loony fringe) argue against measures to help the poor. There will, they admit, always be disadvantaged people who will need the helping hand of the state. The point of divergence between socialist policies and pro-market policies is not about helping the poor; it is about how to help them.
The socialist approach is through price-distorting doles and welfare programmes (no matter how leaky and inefficient they are). The pro-markets approach is to get the state to stop meddling in, and micro-management of, the markets and to concentrate on providing public goods, thus ensuring high growth which will bring more people above the poverty line (no matter how high or low it is set).
Venu cites two new schemes in Jaitley’s budget - Deendayal Upadhyay Gram Jyoti Yojana and  Shyama Prasad Mukherjee Rurban Mission – as examples of BJP social sector schemes and calls this BJP’s own brand of socialism. But these are not welfarist schemes; these are schemes to provide physical infrastructure - clearly the role of the state even in a market economy – that will spur economic activity and growth. Socialist policies do not bring high growth; pro-market policies do. We have seen that in India.
High growth will not only help address the problem of poverty, it will, far more importantly, provide the resources for targeted interventions to help the poor and the needy. If there is no money in government coffers, even socialist states cannot help the poor. Such interventions should ideally be through income support and cash handout measures than inefficient welfare programmes that are liable to corruption and cornering by the better off, leaving the poor where they are. Even Amartya Sen has not argued against excessive state intervention in the markets; he too believes growth is necessary for poverty reduction. It is another matter that he prefers inefficient welfarism over more efficient income support measures.
The problem with the discourse on political economy in India is that words like socialism, pro-poor and market friendly are bandied about, especially by politicians, without adequate understanding of what they mean. Jaitley’s statements prove this.

Amartya Sen, jholawalas, and the wrongs of rights-based laws

http://www.firstpost.com/india/amartya-sen-jholawalas-and-the-wrongs-of-rights-based-laws-758731.html

That Nobel Laureate Amartya Sen has once again thrown his weight behind the Food Security Bill, lambasting the opposition for not allowing Parliament to pass the legislation, isn’t surprising. The venerable economist has been a champion of the rights-based entitlements approach for long.
This piece is not going to get into whether Sen is right or wrong about the National Food Security Bill 2011. This article, which links to other articles on the subject, effectively demolishes his argument.
The rights-based approach was discussed at the recent annual meeting of the Asian Development Bank (ADB) in Greater Noida, where an ADB policy report, Empowerment and Public Service Delivery in Developing Asia and the Pacific, was released. Sen was part of the panel that discussed this report, which admits that its basic foundation is his “influential work on freedom, participation and agency”.
The report makes the point that despite tremendous economic progress made by Asian countries, they haven’t done very much in reducing poverty, malnutrition, improving health and education indices, among other things. This, it says, is largely because of inefficient delivery of public services. There’s little to dispute in these purely factual statements.
So how is this to be addressed? Being heavily influenced by Sen’s work, the report naturally tends to lean towards the rights-based approach to empowering people to demand better public services. But it also discusses community participation in service delivery, participatory monitoring of service providers (social audits, citizen’s report cards, grievance redressal mechanisms etc) and public-private partnerships.
Fortunately, it also highlights the problem with a rights-based approach, which Sen and other defenders of this approach almost never seem to talk about.
One, there’s the problem of resources. Two, the lack of institutional channels to enable citizens to claim their rights. Indeed, there’s little point in saying I am entitled to 100 days of work, or education for my child, or a certain quantity of foodgrain, or basic housing (another right that’s in the works) without adequate systems to ensure that I get them. Saying that these are justiciable rights also doesn’t mean much when I don’t have the time or resources to knock on the doors of overcrowded courts manned by overburdened judges.
Take the flagship National Rural Employment Guarantee Act (NREGA). According to the latest Comptroller and Auditor General’s report on the scheme, employment was not provided to job seekers within 15 days of their requesting it. Yet, they were not paid an unemployment dole, which they should have been.
Or take the Right to Education Act, which has come into force since 2010. Can the government really claim that this has been a resounding success? Far from improving access of children to schools, the Act actually runs the danger of reducing access by laying down a slew of impractical stipulations that even low-cost private schools have to comply with or face closure.
That is the basic flaw in any rights-based approach to welfare entitlements – their implementation is hugely problematic.
Assuming, for argument’s sake, that this is a good approach, why not, then, use this to enforce existing Fundamental Rights in the Constitution? Why not ensure the right to “practise any profession, or to carry on any occupation, trade or business” as enshrined in Article 19 (g)?
Why are self-employed people like street vendors, hawkers, rickshaw pullers and the like subject to a plethora of restrictions that make it near-impossible for them to earn a decent living and perhaps move up beyond the poverty line?
A cap on the number of cycle-rickshaws in Delhi has made rickshaw-pullers (for whom there is great demand in the suburbs) vulnerable to not just rapacious owners of rickshaws but also policemen and transport department officials. Street vendors too have their goods being routinely confiscated. If these people are freed from the licence-permit raj, there would probably be no need for NREGA or a Food Security Act in their present form.  That will make for a truly inclusive growth model (unlike the cronyism that we are seeing currently, which merely benefit a few corporate fat cats).
Similarly, if low-cost private schools were allowed to function freely, the problem of access to schooling at least in urban areas will be solved to a large extent.
Why not also restore the right to property as a fundamental right? This will allow poor people who may have land to use it as an income generating resource in whatever way they deem fit.
Let us also concede, again for argument’s sake, that the state alone will – and can – provide essential services to the poor. The record of its doing so is, well, poor. Ration shops routinely claim they haven’t got supplies, making a mockery of the public distribution system. Government hospitals claim they don’t have medicines. Teacher absenteeism in government schools is high.
If, as the report says, the government has to be made accountable, legislating a right to education, or food, or health is not going to solve the problem. As the report itself concedes, this has to be accompanied by changes in the way the government machinery works. Only one right is necessary to ensure that – the Right to Information (RTI).
The RTI movement in India gathered steam after it was used in Madhya Pradesh and Rajasthan to successfully get details about the working of fair price shops. If a below poverty line ration card holder can use RTI to find out why he hasn’t been getting his monthly quota of rice, wheat and sugar, that will do far more to make the system accountable than any food security legislation can. Because as the working of the NREGA shows, the mere enactment of an Act will not ensure that a poor person does get 100 days of work or 25 kg of foodgrain. It is an RTI which will tell him why he hasn’t. The RTI Act is already in place, but its implementation is patchy and there are constant attempts to dilute it.
Sen and his band of jholawallas would be better advised to focus on ensuring that rights like those to livelihood or information are enforced and implemented properly, than insisting that a plethora of meaningless rights are legislated.