In rural India, people will vote for cash transfer: Tyler Cowen

Interview with Professor of economics, George Mason University

Business Standard, 31 December 2012

Tyler Cowen is a professor of economics at George Mason University. He was among the "Top 100 Global Thinkers" of the Foreign Policy magazine in 2011. Bloomberg Businessweek named him America's "hottest economist". He leads, an online educational platform, which has many courses on India's history, economics, politics and culture. Cowen was recently in India for a talk hosted by Centre for Civil Society, a think-tank based in Delhi. In a conversation with Shanu Athiparambath, he speaks on the role of the market and government policy in eradicating poverty. Edited excerpts:

You had said voters respond better to a food crisis in states where the newspaper readership is high. But many economists argue that much of the food grains that the government distributes are wasted.

I would agree to these arguments in the sense that I would not give the poor ‘food aid', but when there is a crisis, I would increase the cash transfer. Food aid is not efficient, but it might be better than doing nothing. The marginal utility of extra food is quite high even if half of it is wasted.

What are the biggest roadblocks in front of the cash-transfer scheme?

Getting people registered will be very hard. Getting people into the banking system will be very difficult. Banking is still a product, and the banking sector has many regulations at different levels. This makes it difficult to set up accounts at low costs. You cannot make it easier by simply passing a law. The government can tell the banks to take in customers, but banks might not be willing to do it. But my biggest worry is that in rural India, people would vote for cash. I think it is a good idea, but politically, it can be dangerous. When you make transfers very easy, it is also very easy to manipulate.

Do you think policies like MGNREGA (rural job scheme) are also politically dangerous?

Those programmes in my opinion do not cure poverty or unemployment. But you cannot abolish them immediately. That would throw many people out of their jobs. They should be abolished gradually, making it easier for people to adjust when they are thrown out of their jobs.

You think that an artist is as much a trader as businessman, and that the making of a Bollywood movie demands as much talent as that of a Satyajit Ray movie. Many would disagree with that.

They should try making a good Bollywood movie. When you make a Bollywood movie, a lot of coordination is required. In my view, it's not less of an art than a Satyajit Ray movie. It's harder to make a commercial movie, because the audience has less patience with you. You really have to grab their attention somehow.

Why do you think that Amartya Sen has done good work in economics, despite the fact that he underestimates the importance of corporations and capitalism in eradicating poverty?

I think that he grossly underestimates the importance of corporations and capitalism, but he has done a lot of good work. His work on missing women is important. His work on development and capabilities is very important. But when it comes to policy, I think he is often wrong.

Recently, there was a paper by Anderson and Ray which argues that much of the missing women in India can be found at the age of pregnancy or after. Typically, the life expectancy of women in India is higher than that of men. So is there anything missing in this argument?

I understand what you are saying. Some of these might be disease effects. But it could be that those women either die after pregnancy or that they live very long. There might be more women dying at the age 25, but fewer women dying at a later age, and this perhaps results in higher life expectancy overall. I would say that we do not know, but I do not think that it is actually a contradiction in their accounting.

That is a great paper, and I think that they are right. Still Sen was the first person to identify the problem, though he stated the problem in a wrong way. Others could not have done it without Sen.

You once said that Kerala is one of the states which have achieved high levels of development despite the low income levels because of larger investment in education and healthcare. Why is the development model of Kerala considered a paradox?

If you look at wealth, you will see that Kerala is a lot wealthier than other Indian states. Wealth is harder to measure than income. Kerala does not happen to be such a poor state. But it's not an economically important state. The problem of unemployment is very extreme when compared to other states. In Kerala, you have a good mix of conditions you do not find somewhere else. You will find that Sri Lanka is another place where the development indicators are very high, relative to their income. I think it is a bit of a paradox. The early rulers in Kerala did a lot that helped the population in Kerala. Many things are difficult to trace. But some parts of the paradox make sense. It's not all about social spending. The causes are more deeply rooted.

You had said that even private schools in the slums of poor countries perform better than public schools. But there are some recent studies which suggest the difference can largely be traced to the differences in their family background.

Private schools are more responsive to consumers. There are positive gains from private schooling, but they are not very huge. One thing we know for sure is that parental satisfaction is much higher in private schools. That is not disputed. But we really do not have any hard knowledge on how large the gains from private schooling are. Policy alone cannot change things. There should be a change in family norms. If parents did different things, they could have more influence on children. Parents who really work with the kid, and really believe in that kid have a lot of influence.

Do you think farmers will have a better deal when Wal-Mart enters India?

The wages in agriculture are very low in India. The productivity is very low. When the Wal-Mart enters, the distribution will be better, and the productivity will go up. The wages will go up. If the farmers earn very little from their products now, it's only because retailing is not that competitive, and because it's not that efficient. More FDI (foreign direct investment) will only help everyone.

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