1st June 2011
What Would I Do If I Became Indiaâ€™s Prime Minister? #6
Some First-Order Core Functions
A good government needs to deliver high quality outputs in at least three ‘first-order’ core areas, of defence, police and justice. These functions must be carried out outstandingly well and, if necessary, to the detriment of all other functions. If funds run short, a government can always provide incentives to citizens to take up relatively secondary things like infrastructure through a range of innovative ways by transferring property rights over roads, airports, or railways. I have outlined key elements of reform in these first-order core functions in the Online Notes.[i]
Second-Order Core Functions: Infrastructure and Equality of Opportunity
After performing these first-order core functions outstandingly well, a government must focus on providing infrastructure and equality of opportunity. Appropriate funds need to be deployed to deliver second-order core functions well. Given space constraints, I do not discuss infrastructure provision here. All I note is that where goods are excludable, i.e. wherever boundaries can be drawn around an infrastructure and therefore user-pays ticketing is feasible, such infrastructure will be sold in a systematic manner to the private sector. Where partial ownership or property can be given to the private sector, such as through toll-based highways or other public–private partnerships, that option will be explored. Finally, where it is not feasible to privatize infrastructure because of non-excludability, the government will directly provide the service wherever possible, outsourcing it and acting as an auditor rather than manager.
But moving to the very important issue of equality of opportunity, four key aspects are involved in its provision: (a) elimination of poverty, (b) provision of school education, (c) higher education and (d) basic health.
India should be able to eliminate poverty even after spending far more money than before on core functions. Subsidies and poverty alleviation programmes today barely reach a small proportion of the poor each year, being almost entirely absorbed in administrative expenses and corruption
. As such the poor can’t be lifted above poverty. My preliminary estimates made in year 2000 showed that if this money could be directlytransferredto the poor, it would be almost exactly sufficient to pull all of the poor above the poverty line each year.[ii]
Funds are therefore not a major issue here; it is a matter of the way they are directed. Even if my preliminary research is wrong, i.e. even if, upon further analysis, it is found that the money needed to eliminate poverty is not cost-neutral and that it would need additional resources, banishing poverty is essential and must be done. The mind-numbing poverty experienced by millions of our citizens has to be abolished. A liberal government’s key role is to ensure equal opportunity to each family.
As detailed in Chapter 2, a direct mechanism to transfer funds to millions of poor people in India will be put in place, based on annual income tax returns to be filed by each family. Instead of 1000 government programmes that deploy 40 lakh bureaucrats in the name of helping the poor, we will only have one programme, called the negative income tax (NIT). India’s largest IT companies will be invited to propose methodologies to implement this system. About half a dozen pilot projects will be rolled out by the end of the first year and the most effective (not cheapest) method will be selected for national implementation. These NIT payments will become fully operational in the fourth year across the country and, after a year of implementation and evaluation, all subsidies will be scrapped and the public distribution system shut down.
Over the subsequent years, the rapid growth of the market economy and improvements in education will make this policy mostly redundant as most people will rise above poverty on their own; indeed they would have become well-off. Nevertheless, some people would remain who can’t cope with the demands of the market; so the NIT will be a continuing program. The NIT will be linked to a requirement to work to ensure that able-bodied people do not get paid if they are found to have avoided going to work. This programme will be managed through the private sector. The poverty line will also be kept low so that very few people will deliberately choose to be poor. Elimination of poverty will also include the payment of premium for private health insurance for each person. How major health care will be provided to all is outlined in the section titled Health Care.