In yesterday’s musings on whether education promotes development, I had promised to outline a proposal for making India 100 percent literate within three years. Here is the modest proposal.
First, the government of India must credibly commit to paying every literate and numerate person Rs 5,000 (about US$100). Second, ensure that every person who wants to learn basic literacy and numeracy can do so without having to pay a single penny. Third, provide testing centers around the country (especially in rural areas) where a person can be certified to have achieved basic literacy and numeracy. Finally, sit back and let the free market grind out the outcome which is total literacy within three years.
The details of this proposal follow from elementary logic and basic common sense. First, the cost-benefit analysis. There is long term cost of having about 300 million illiterate citizens. Each year, a literate person must be at least 10 percent more productive than an illiterate person. Assuming a per capita annual product of the illiterate population to be $200 (which is about half the annual per capita GDP of India), a 10 percent increase in productivity would be an increase of $20 per year per capita. Over a working life of about 40 years, that is an $800 increase in productivity per capita. Assume that the average working life of the 300 million illiterates of India is a conservative 20 years. Then the increase in additional product due to the additional 300 million literates is a conservative $120 billion (300 million times $20 times 20 years) in net present value terms.
I am using very conservative estimates of the benefits to make the case that the cost of doing so is a very small compared to the benefits. Assume very liberal costs of delivering basic literacy, say, $100 per capita. I will argue elsewhere that this is a very liberal estimate. Add to it $100, the incentive amount paid to the person upon passing a standardized test, and you have a total cost of $200 per capita. For the total population, it is amounts to $60 billion. This is half the aggregate social benefit estimated above.
Now one may ask, how will the government, which is totally inept as evidenced by the fact that 300 million Indians are illiterate despite lofty goals of making education univerally available and has not been able to make a dent even after over 57 years of spending huge amounts, be able to do this? The answer is simple: the government must not be in the business of providing the means and method of primary education. The only job of the government should be to finance the education. Let the private sector do the actual provisioning of education.
New Deal School
Here is where mechanism design comes in. Recall that anyone who passes a standardized test of basic literacy and numeracy (the exact level of literacy and numeracy I will outline later) gets to take home $100. There is another part to it: a person can be associated with a “New Deal School” (NDS) and when the person passes the test, the NDS of record gets $100.
So what exactly is a “NDS”? That is where the private sector comes in. Suppose that a private firm figures out that to make a person literate and numerate costs $40. So it would have an incentive to recruit students and teach them as efficiently as it can. It could even happen that this firm will not only not charge tuition but indeed may go out and solicit students with upfront gifts. They may well spend $20 a student to entice them to enroll and learn because the cost to the firm will be $60 ($40 for the actual teaching and $20 as bribe to the student to enroll), and the firm will make $40 profit per student that graduates.
Here is the sweetest part of all. The fundamentals of a market economy will ensure that competition will develop among various NDSs. Firms will compete for students and they will end up competing on price: the firm that pays the most in bribes to students — that is, the firm which is the most efficient in delivering the needed education — will get more students. In the end, purely due to the logic of markets, the students will capture whatever is left over after costs from the $100 incentive to NDSs.
The mechanism I have outlined achieves one primary function: it ensures that the cost of providing the education is minimized through competition in the market, and it assures that firms do not make super-normal profits, and that the benefits of the competition in the market accrue to the students.
If one starts to explore the proposal, one is astonished by the richness and depth of this scheme. Consider the effect on the overall economy. Over a period of three years, about $60 billion worth of public spending takes place. Spending for some is income for some others. In this case, the income goes to the poorer sections of the population. They in turn can buy food, thus helping out the government distribute food to those who need it. When food gets sold, farmers benefit. Most of the money will end up in rural areas where it will be spent on various things, including manufactures. In short, the multiplier effect of this spending will be enormous.
It can be shown that the US benefited fabulously from the construction of the interstate highway system. It was an infrastructure project the cost of which is minuscule compared to the benefits that it delivered. For India, the most important infrastructure project is the one that will build its human capital base.
{Continued in Modest Proposal Part 2.}
Atanu Dey : Life is a Random Draw 
What stops the NDS from colluding with the testing centre and making off with the money?
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Ravi,
I expect Atanu to address the issue of implementation and ensuring appropriate checks and balances without getting into the quagmire of red-tapism, soon.
[BEGIN devil’s advocate]
Is some magic involved in ROI of 100% by increasing literacy. For is it learning ka-kha-ga/1-2-3 alone that would transform the country. Think necessary, not a sufficient condition.
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Niket, I suppose you have not concluded your devil’s advocacy since you have a BEGIN but not an END construct. Run time error, I believe.
Atanu
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Total agreement with Atanu’s remark about incompetent government officials. I have been trying to promote notions for bamboo products that could provide rural artisans with more income for about three years and discovered there isn’t any way to reach artisans without going through bureacrats that are too busy writing papers and attending conferences to attend to business. I always thought the US had the most incompetent government officials, but have decided I was wrong, they are only second worst, or perhaps third worst if Afghanistan’s warlords are included in the comparison. Best wishes, Frank
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great trend followed in development of education to deprived sections
arun nayak
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I completely agree with your costs versus benefits analysis. I also agree with this line: “The only job of the government should be to finance the education” — The goverment doesn’t necessarily know the needs of the public. However, I completely disagree with your plan.
By giving away money to private institutions and letting it trickle to the illiterates who need it most, you’re only inviting corruption. Let’s take a poor family that sends its kids out to work to earn enough money for the family everyday. Let’s say you start this NDS and start giving away money in return for getting the kids educated.
1. Does that money make up for the loss incurred by not sending the kids to work? If not, why will the parents send the kids to NDS?
2. If it does in Q1, what guarantees that the kids will be interested in learning? What if they just attend NDS for the money? That might result in the NDS using violent means to achieve its ends.
3. What prevents NDS from publishing false statistics and claiming more government money? The police ofcourse- A huge extra maintanance cost, not to mention another layer of corruption.
4. What prevents the NDS from using unfair means to draw students and somehow prove that they were educated? Let’s say there’s this NDS in a small village. It issue threats to the village as a whole unless it gets the kids in the village to study there. By forcing the creation of the NDS by financing it, you’re not necessarily inviting those people who want to make an honest living out of running an educational instituion.
Minds are twisted out of shape when money comes into the picture. I think what’s more important is for the family to be just educated enough to REALISE that education is very very important and send their kids to school without any additional incentives. The kids must also be internally motivated to learn. What’s the solution? I don’t have one, sorry.
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How different is this scheme from the school voucher system? Arent the challenges that one faces in the voucher system not the same? I think you are missing out one critical component – teachers. You can build a million schools but if you dont have good teachers, its as good as not having a school. Probably worse.
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Hello sir,
we appreciate your concern about education in india. A secure child hood today shall reap a sensible adult tomorrow. In furtherance of this ideology we formed The Child Welfare Society of India as a non profit making, non governmental, voluntary organization to help the needy, deserving orphan, physically challenged and under privileged children of the weaker section of the society regardless any caste, creed and religion. The operational area of the society is NCT of Delhi, Uttar Pradesh, Haryana, Maharashtra and Gujrat. The society engaged to organize programme on Health, education, HIV/AID awareness, and adolescents’ awareness on reproductive health, Promotion of Girl Child and environment awareness. Having had extension it wants to extend the development partnership with your organization to work for the common goal of community development.
I would appreciate to have a nice collaborative initiative from your side in this regard to strengthen the process of social/ economic change in the life of poor people.
We hope that that our efforts are in line with your priorities and shall receive your valuable support. We look forward the pleasure of hearing from you at an early date. Solicited your cooperation, guidance and support in the matter looking forward for your positive response thanking you
(Mrs. Meenakshi Singh)
General Secretary
The Child Welfare Society of India
C-127, FF, Savitri Nagar, Malaviya Nagar,
New Delhi-17
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