ThoughtfulChaos

I read lot of stuff on the Net everyday, some technical some not so technical, some useful and some totally frivolous. However I very rarely comment on them in the blog. If you are interested in what interested me on a paritcular day just go and visit my StumbleUpon page (RSS feed) and you will find sites/pages/articles that I liked. Sites that I liked and want to remember more permanently I bookmark. You will find my bookmarks on my del.icio.us page (RSS feed).

I just read something that I think all of us should read. The author explains a very current topic, the National Rural Employment Guarantee Scheme (commonly abbreviated to NREGS or just REGS) in very simple but accurate terms. By far this is the best non-technical analysis of REGS I have ever read. A must read for all those interested in what it is.

One of the best things about the essay is the manner in which it thrashes out the differences between income, employment and poverty. We usually have very muddled up definitions for these things and this essay is an eye-opener.

Enough said. Go read the essay now...
The REGS Guarantees Poverty

Some excerpts (actually many) that I found especially enlightening:

Poverty is lack of income, fundamentally and essentially. Income is real and is not to be confused with money which is nominal. The confusion between income and money happens because income is denominated in money terms. One can have income without having money. For instance in a Robinson Crusoe economy, Robinson’s income is what he gathers from the forest and the sea, farms and manufactures through his labor. Income is the real stuff that he can eat, and wear, and save. The seeds he saves for the next season’s plantings are his investments. Whether Robinson is poverty stricken or not depends entirely upon how much stuff he produces through his labor, and what he gets without having to exert any labor such as coconuts falling of their own on his head.

Robinson could be fabulously wealthy without ever lifting a finger if nature provided all the goods he needed. That is, he would be totally unemployed and still not be poor because he would have an income without so much as moving out of his hammock. On the other hand, he could be toiling day and night and be fully employed 24/7 and yet produce so little stuff that he lives in dire poverty. You could be unemployed and rich if you get gifts, or you could be employed and yet be poor if you produce too little. To conclude this bit, poverty is lack of income, and income is stuff that you get to consume – whether it was produced by your labor or not.

So here is absolute bottom line: people are poor when their incomes are below a certain level, irrespective of whether they are employed or not, whether they have money or not. Now the reason that a person’s income is low could be because the economy as a whole produces too little relative to the number of people among whom the production has to be distributed (the production-population imbalance), or it could be that the economy produces a huge amount of stuff but the person for some reason is unable to receive his fair share of the production (the production-distribution imbalance.) Of course, you could have combinations of the above two to get inadequate production coupled with poor distribution.

Just to underline one point that we need to keep in mind: no one, including me, wants employment; we want an income. Employment is a means to the end—the income—and not an end in itself.

India has a poverty problem because some people have incomes far below what is considered adequate for a decent human existence. It is not an employment problem, it is an income problem. Guaranteeing employment when the actual guarantee should be income is asininity of degree one.

The REGS aims to increase employment alone and is not aimed at increasing either production or production capacity. The REGS terms state that laborers cannot use any labor saving devices if they are being paid under the scheme. Basically, if a large hole needs to be dug, you could employ one person to use a mechanical shovel and do the job. Or you could have 100 people use hand-held shovels and do it. Or you could employ 1000 with tablespoons, or 10,000 people with toothpicks to do the job. In the end only one hole gets dug but you employ more people. If by digging the hole we increase our aggregate production of stuff by Rs 1000, then the income from the employment per capita is Rs 10 per shovel-wielding worker, Rs 1 per person with a tablespoon, etc.

If the REGS does not increase the amount of stuff produced, then it essentially is an income transfer scheme. If the economy was already producing what it needed to produce, and all it needed was proper distribution of the production, then an income transfer scheme is great. Otherwise, it is better to use the labor to increase production and use the increased production to raise the incomes of those who are poor.

There are other insidious effects of the REGS. First, it makes the people dependent on the government. Everyone cannot live on handouts – someone has to produce stuff. Handouts depress initiative and drive. Second, it increases the opportunities for bureaucratic and political corruption. Third, sets a precedent for political parties to continue to make irresponsible promises to people to win elections. Fourth, it will compound the population problem because increased incomes at the subsistence level increases fertility.