Deluded Government

Very young children in Christian households (especially in the US) are led to believe that if they are good, Santa Claus will bring them gifts during Christmas. It is rather cute to see their eyes light up with eager anticipation of the stuff that Santa would deliver. By the time these kids are teenagers, most realize that it is a just a harmless story and Santa does not really exist. While it would be sad to see a grown up believing in Santa, what would be really pathetic is if a grown up starts believing he is Santa. That fellow would be in serious need of professional psychiatric help.

I sometimes wonder if a large number of Indians are sufficiently clueless that they think that the government is some sort of a Santa Claus. More worryingly, I wonder if Indian policymakers are suffering from the delusion that they are Santa. My fears are confirmed when I read that the government is giving something away for “free.” A news item of April 26th reports that the “Government Proposes To Offer Free, High-Speed Internet Connectivity To All Citizens Through BSNL & MTNL.”

Let me first address the commonly held misconception that there are “free” things in this world. The fact is that nothing is free, including lunches. While the universe may be the ultimate free lunch (arising out of a quantum fluctuation), nothing that is the product of human enterprise within it is really free. You may get handed something gratis to you but that something did not arise magically out of a quantum fluctuation in a false vacuum. Someone somewhere sometime actually paid for it even if you got it free. What you gained was to some measurable extent someone else’s loss.

Next, the government does not produce anything. That’s not its job. It’s job is to ensure the conditions necessary for people to produce goods and services (which I refer to by the sophisticated economics term ‘stuff’). People produce stuff and the government takes part of the stuff produced and consumes it to survive. Good governments strictly do what only the government is supposed to do, and therefore are small and don’t need to consume much of the stuff produced by the people.

Bad governments are greedy and want to expand their powers and grow. Therefore it takes huge amount of the stuff that people produce (leaving less for the people who did the actual production), part of which it consumes and part it gives away to some people it favors. It is stuff consumption and redistribution that the government does, not stuff production. It is easy to understand why the government steals from Peter to give stuff to Paul: because Paul is favorably inclined towards the government’s continued plunder of Peter’s stuff.

There are cases where one can justify the redistribution of some of Peter’s stuff to Paul. But these are very few. In general, robbing Peter to give “free” stuff to Paul has adverse effects. Peter feels unfairly treated and becomes unhappy. Disheartened, Peter refuses to produce as much stuff as he could because he realizes that it would be stolen from him. The group of Peters starts dwindling and the group of Pauls start increasing. Soon, there is sufficiently little produced that the economy becomes impoverished, all thanks to the government which wanted to do provide more “free” stuff.

Back to our “free” broadband for everyone in India by 2009. If you think that indeed there will be free broadband throughout India in 2009 or whenever, I would like to sell you a rust-colored bridge I own in the San Francisco Bay area, very low maintenance, high re-sale value, and very attractively located.

But you could see a new “Universal FREE Broadband Fund Cess” of 3 percent tacked on to everything that you buy or earn. This will be like the USOF (universal service obligation fund) which is now around Rs 9,000 crores (around US$2 billion) and basically just sits there.

[I actually know a bit about the USOF and what it does to the telecommunications sector in India. My UC Berkeley PhD thesis title was “The USO Induced Cross-subsidy: The effect on Telecommunciations Demand in India.”]

So why is this “free” broadband such a bad stupid insanely brain-dead idiotic silly moronic idea? I was coming to that. Next time.

Author: Atanu Dey

Economist.

14 thoughts on “Deluded Government”

  1. I’d like to add that the 2mb free broadband initiative might or might not take off as 2009 is election year and a policy such will depend on how the winds blow at such time. Second, the 2mb free broadband will have limits of a few GB(at the moment 2GB is what is being said.)

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  2. Nice article, there is only one dis-agreement though- by definition government is “supposed to do nothing!! If it does that job fine, it is a good government”. I think, there’s pretty interesting stuff out here to read, would be a regular visitor!!

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  3. The real cost of 1GB broadband bandwidth is about $0.18 (Rs 8). Even if the Government were to provide 1GB free to everyone who owns a PC and a BSNL phone line, it will work out to (30 million PC’s x Rs8) = 24 crore rupees per month.Not that huge an amount and it might be money better spent than the countless amount that goes down the drain otherwise.

    It is mostly the salaried class (who value education) who buys PC’s.This might be the case of Peter (who pays taxes and gets nothing in return) actually getting something.

    Agreed, the money could have been better spent on primary education etc. But that needs good administrative/governance systems which India lacks at the moment.

    The real motive perhaps is to keep BSNL going. People are returning landlines in droves and it is facing stiff competition from private mobile players. So the real cost of providing broadband may not be just 24 crore rupees but the cost of all the BSNL salaries and this is an indirect tax on Indian citizens. So the real problem is that the Government wants to keep failing public sector industries at the cost of the taxpayer. But this has been a problem for many years and is unlikely to go away soon.

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  4. Well If i recall correctly the indian governments 5yr plans have had sheikhchilliyan
    Plans for availability of X KWH per indian per year as well as
    declaring Telephone a necesity and it was only the aadhi-gand deregulation that let cellular phones in (which were categorized as an luxury)
    The government needs a big overhaul
    More decentralization for every aspect except defense and environment
    and they can get rid of rajya sabha (a piss poor cargo cult emulation of house of lords which was itself a piss poor emulation of US senate)

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  5. Internet is already very cheap like you can get unlimitied broadband in rs. 500 per month. and in 2009 prices are going to fall more . so dont think its a big issue .

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  6. Let the Jokers who are running Administration, provide free Primary Education and Food first… There are a zillion companies dying to provide broadband for throw away prices…by 2009 there will be more.

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  7. Unfortunately, the “free” stuff – “air” that too came out as a result of “quantum fluctuation” is soon going to be not free.

    That is when we are going to make this planet a truly commercial place, thanks to the visionary capitalists out there.

    -Mike

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  8. Unfortunately, the “free” stuff – “air” that too came out as a result of “quantum fluctuation” is soon going to be not free.

    That is when we are going to make this planet a truly commercial place, thanks to the visionary capitalists out there.

    -Mike

    My Dear Mike,

    You must be grateful not just thankful to those who’d supplying air for you for a price, otherwise you’d die miserably. But the hard to hide fact is that governments around the world are the reason for the air to get polluted.

    Joe Capitalist

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  9. Atanu:

    Rather late to comment.

    Australia is considering building a next generation broadband plan. The debate here is whether it should be public-private partnership; whether granted to the erstwhile public monopoly without a competitive bid or take a competitive bid from a Singapore telecom owned company leading the consortium.

    The only condition is that the rural parts of Australia (the bushland) should get their share. There are problems in the discussions here and mostly political; but it is atleast not talking about a free lunch.

    And I cannot believe how India can even consider providing a free broadband plan. The debate is without a hint of economics.

    About Singapore; it is totally different for a rich country to provide broadband for 3 million or so citizens.

    Cheers,
    Suhit

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