Power, Scarcity, and Corruption

Education in India is generally in dire straits even though some people mistakenly believe that it is excellent from the successes of some ex-IIT non-resident Indians in the US who made piles of money. It is not hard to figure out what is the root cause of the distress of the educational system in India: the near-monopoly control of the system by the government.

Arguably, the elite institutions such as the IITs and the IIMS in India do produce some exceptional graduates who go on to achieve success outside India. That achievement loses much of its shine when one considers that these institutes admit about one percent of those who apply to them. The top one percent of any population could be expected to be above average anyway, never mind that in this case the population is itself comprised of very hard working motivated individuals. Severe competition for the scarce seats guarantees that the graduates of these institutions will be successful even if the actual training imparted by them is nothing remarkable.

India is a large country and Indians are definitely not slackers when it comes to ingenuity, hard work, and drive. The resources required for creating a large supply of quality educational institutions are well within the reach of the Indian population. There is ample evidence to suggest that whenever some sector of the Indian economy has been unshackled, the people and corporations in India have produced results. So how does one explain the state of affairs in the Indian educational system? Why does the government continue to maintain a stranglehold on the system even though it leads to such obvious failings? More importantly, why do the Indian leaders go around begging foreign nations for assistance with improving the education system when Indians themselves are fully capable of helping themselves with creating great educational institutions?

Consider this report in the Indian express of 21st August: “Help us build eight new IITs, with money and faculty, India tells Japan” (Hat tip: Ashish Asgekar.)

Within a week of the Prime Minister’s Independence Day announcement of eight new IITs, India today asked Japan for helping in building these institutions, sources told The Indian Express.

The government’s request comes in the wake of a massive infrastructure upgradation exercise in the higher-education sector being planned by the government, which includes seven new IIMs and 30 new Central universities.

India is not just looking for “financial assistance” but also “technical expertise” in building state-of-the-art infrastructure for these new institutions.

(See also a related report in the Times of India of 9th August: “Japan to help in setting up IIT”.)

So here’s the puzzle. The physical and human resources exist domestically to solve India’s educational problems; yet the Indian leaders go around begging other governments to help improve the system. Wouldn’t it be far more rational and exceedingly dignified to just unshackle the educational system from the clutches of the government and let the people of India work out their own educational system? So what gives? Why don’t they do that?

To address not just this question but a whole family of related questions, I propose a general theory of “Power, Scarcity, and Corruption.” Basically, the three form a nexus, with mutually reinforcing influences. Scarcity in general is not a chronic condition in any functioning economy; it has to be engineered. Given economic freedom, people work their way out of any transient scarcity. For persistent scarcity to exist, it has to be carefully nurtured. The motivation for engineering scarcity is that it allows the consolidation of power. This is Econ101 and even a superficial reading of the chapter on monopolies is sufficient to persuade one that monopolies do restrict quantities to maximize “profits.”

The relationship between power and scarcity is bi-directional. You have to have power to engineer scarcity, and through that engineered scarcity you gain power. Political power allows you to dictate policies that give you monopoly control and then you use that for gaining even more political power. Then of course, where there is scarcity, corruption cannot be far behind. Corruption is therefore a mechanism which allows the collection of rents that arise from the scarcity.

If scarcity were to vanish for some reason, both the corruption and the power to extract rents would disappear. For those in power, therefore, the primary objective is to somehow maintain an artificial scarcity both for maintaining power and for gaining from the corruption.

Now back to our educational system. The government has a monopoly control of the sector through many institutions such as the Ministry of Human Resources and Development, the University Grants Commission, etc. Licenses and other requirements force the private sector from fully and freely participating in providing education. The resulting scarcity gives the government a handy lever for manipulating voting blocks. Quotas and reservations are handed out to favored groups. And more directly, the bureaucrats and politicians extract rents from handing out the licenses and permits to those who have the deepest pockets.

So now it becomes clear why the government would not liberalize the educational sector and instead shamelessly go with a begging bowl to foreign government. The begging bowl into which the foreign government throws its money is in the hands of the government. This gives the bureaucrats and politicians even more power. If instead the government were to relinquish its monopoly control of the educational system, they would lose power as the private sector steps in and removes all scarcity. And with no scarcity, corruption also disappears. This, of all things, cannot be allowed to happen.

It is India’s misfortune that it is governed by a rapacious, stupid, narrow-minded, immoral, shameless bunch of politicians and bureaucrats. But then, it is hard to see how it could be otherwise given that we have a “democratic” system and the basic characteristic of a democratic system is that it reflects the wishes of the people. Democracy is a cruel joke when instituted among a population that is not informed.

It’s all karma, neh?

Author: Atanu Dey


14 thoughts on “Power, Scarcity, and Corruption”

  1. It is difficult to agree with your argument about education being in clutches of government. Let us start with the primary level. At this level if education is in clutches of any one, it is the private sector and private sector alone. The government is almost absent here. I would rather like here more participation of government than less.

    Move over to college education. Today as a private individual if you want to open an engineering college or a medical college, no one stops you from doing that. If you are concerned about licenses etc., rest assured that the number of approvals that you would need here in the US for setting up an engineering or a medical institute far far exceeds than anything that is required in India. A fairly significant portion of private medical colleges set up in India lack even a basic OPD ward. Here also, I would prefer to see greater role for IMA (a government watchdog), than less.

    I lived for some time in Varanasi. There are at least six private management institutes in that city. A great majority of faculty members do not even hold a basic MBA degree. Unlike engineering and medical colleges, management institutes are not yet on government radar for regulation. Therefore, they will however continue to award MBA degrees that even their faculty do not possess. I do not understand why they should be allowed a free-for-all without government intervention.

    Let us now come to Humanities. I am not aware if any private sector in India has ever tried to open a university level educational institute. It does not pay. But if you wanted to open one, no one will stop you; and you will be asked far fewer questions than anywhere else in the developed world.

    I completely disagree with your assessment that education in India is in government control. I would rather say that at least in higher education, government is the only institution that provides a reliable education. Private sector has much more autonomy in India to set up educational institutes. But wherever they have taken inititiative, they have largely misused this autonomy to create educational institutes of dubious value.


  2. “Rapacious government”
    Well said Atanu.

    India’s government merely exist for its own self perpetuation — not for the services of her (India’s) peoples.

    I have long believed that the success of the IITs has nothing to do with their teaching — it has everything to do with the brutality of their selection process.
    Anyone who makes it through that, can be expected to trump anything in life.

    Our IITs then, function as nothing more than a very high powered sieve!


  3. Putting together your own words, Indians have ingenuity, hard work, and drive, but they are, at the same time, rapacious, stupid, narrow-minded, immoral, and shameless, which leads them to democratically elect like-minded politicians and bureaucrats.


  4. The regulations only govern professional (tertiary) education and not primary or secondary education as long as your are affiliated to some board. In fact the regulations are lax if anything.The number of ‘private’ professional insitutions that are forced to close down by the AICTE or the IMA due to poor or non existant infrastructure is a matter of record. I can setup a primary school affiliated to any state or central board of education without too many issues.I dont even need a proper fire escape as tragic incidents in the past have proved. In fact all primary and secondary private schools are registered as non-profits though they are not. This in itself is a huge concession given to them. Methinks the issue has to do with the economic model more than governmental apathy. The real question is what will you do with so many educated and idle minds in a country that is notorious for huge unemployment. For the record the real reason why indians are ‘entrepreunarial’, ‘hard working’ etc is because the only way to earn a living for a vast majority is to be self employed. That said it is quite mysterious why the government should go to Japan for assistance. Japan has a shitty education system that is not worth emulating.


  5. Education in India (and elsewhere)

    There has been a lot of discussion lately about the quality of some higher education institutions in India such as the IITs and the IIMs, some of it from the US media. While it is true that some of these graduates have done well in the information technology sector and, to a lesser extent, in other parts of the corporate world, as well as in entrepreneurial activities, the key questions are whether they truly represent value in India’s growth equation, and whether they are truly the product of meritocracy. I would make the following observations:
    1. The biggest public gains from a public welfare standpoint to any society is in primary and secondary, rather than in higher education. Since there are more private gains for every additional year of higher education, this is best left to private capital to manage at market prices. Affordability and access to such higher education institutions should not be an issue as long as tax policy and access to private funding is encouraged (bank loans, etc.) since the key underwriting question will be the net present value of future earnings from such education; the “sheepskin effect”. I would venture to suggest that institutions such as the IITs should be sold to private entreprenuers (and even such institutions such as JNU whose current contribution to public welfare relative to tax spending is questionable) in order to release substantial efficiencies. The AICTE and other regulatory bodies, on the other hand, should be considerably strengthened in order to provide quality-control and oversight over privately funded institutions. Government expenditures in higher education should focus on niche areas relevant to economic growth such as biotechnology or alternative fuels research that may not attract short-term focused private funding, but even here, TATA (as in BP solar) or Suzlon and Biocon should be encouraged to fund their own future requirements in manpower and R&D (tax breaks). Also, fees in IITs should be increased substantially to reflect the true cost of education, mitigated appropriately by scholarships and loans to provide access to less-privileged students.
    2. Although there is a strong myth about the competitive nature of IIT and IIM entrance examinations, and the focus on meritocracy, there is a considerable skew towards prospects from urban, english-language schools. Go to any IIT campus, and you will see that the proportion of students from such schools is much higher than the underlying proportion of such schools in the overall geography of India. My point is not to argue that those schools have an unfair advantage since they offer better educational facilities and preparation for IIT entrance examinations, but to suggest that kids from rural schools or government schools in general have a disadvantage when it comes to understanding the real relevance of IITs and other elite institutions in their future lifetime earnings. When one looks at other publicly funded “institutions of national importance” such as the ISIs (Indian Statistical Institutes) the skew is even more pathological; why is there an overwhelming overrepresentation of Bengalis in the ISIs, is it because they are genetically predisposed to be statistical in their thinking, or is it because the ISI entrance examination notices appear next to tender notices in many national newspapers, and is more heavily advertised in Bengal newspapers? The answer is that fees (and scholarships) need to be raised in these insitutions and specific funds need to be applied to advertising and coaching for students in rural and vernacular schools. Then you will see a real meritocracy, not just meritocracy among the children of the Indian professional elite. Think of the quality of IIT graduates then!
    3. Despite the appearance of academic quality, there is a dearth of good faculty at these institutions and this is primarily due to the lack of pay but also due to the lack of quality control in faculty hiring and promotions. A lot of these issues are due to lack of autonomy and interference from government agencies, and the fact that the existing faculty and administrative bureaucracies at these institutions haave taken shelter under the pretense of lack of autonomy to subsidise large-scale inefficiencies. The lack of merit in teaching and research related income streams clearly will have downstream effects on the quality of graduates coming out of these institutions. These facts are often hidden from the taxpayers who fund these institutions, creating a classic “moral hazard” from a public welfare standpoint. The central universities, in particular, where an increasing share of taxpayer funding is diverted, are places where this kind of pathology is rampant — JNU, Jamia, AMU, Pondicherry are all excellent (!) examples.
    4. When it comes to primary and secondary education, there needs to be a sea-change in taxpayer funding, focussing large funds on rural schools, in teaching as well as in infrastructure, but also in the local control of these fund expenditures. Give local taxpayers control over schools and their governing bodies and you will see better visibility in their functioning.
    One little known fact is the skew in public tax-based funding of Kendriya Vidyalayas, which subsidise inefficiencies and restrict access to these “better” schools through the tariff barriers of admission criteria. Let me expalin this tax scandal which has been going on in India for the past half-century, which neither our media, nor tax-paying citizens have chose to make visible. Kendriya Vidyalayas are, like many other publicly funded institutions, primarily paid for by corporations and private-sector employees. However, the children of private-sector employees in effect have almost no access to these schools, who have a stated policy of discriminating in favor of government and public-sector employees as well as defence personnel. Why hasn’t someone moved the courts against such an obvious flouting of equal treatment constitutional principles? Again, taxpayers in private-sector jobs probably have written this off as yet another cess and in any case have access to other private-sector primary/secondary education options, but what about access and scholarships for children of day laborers in the unorganized sector???
    Perhaps the left leaning ideologues at JNU would wish to comment on this dictatorship of the proletariat! Why are there so many of these Vidyalayas in urban areas or in public industrial towns or in district headquarters towns rather than in far-flung rural areas?
    Enough said.
    By the way, educational access and skewness against the underprivileged is not just an Indian problem. Just see how asymmetries and inequalities are reinforced in other educational models; in the UK, how many Oxford and Cambridge graduates come from working Cockney families in relation to their proportion in the population? In the US, how are Harvard and Stanford admissions criteria different for children of alumni and donors, as opposed to the general population?
    India has a tremendous focus on education (I have benefitted) but I would argue much of it is familial and societal culture; the specific question to honestly answer is how much the government has done to unleash productive human potential through illiteracy eradication. How much of India’s education policies are simply a function of the need to provide quality education enclaves for the children of bureaucrats, the successors of the British collectors? Are we democratic in our education policies? Think about this the next time you vote.


  6. Who ever wrote that

    is either lying or does not know any facts.
    Either way its a bad situation for him.
    For any one to create an institution that can be called a university there are Babugiri requirements set forth.
    Gurucharan Das covered this a while ago

    And regarding teachers not having an MBA, its up to the student to go where they feel they are getting a proper education.
    Weather its from an MBAed lecturer or not.


  7. I dont know how to get blockquote working
    Who ever wrote that

    “But if you wanted to open one, no one will stop you; and you will be asked far fewer questions than anywhere else in the developed world”>

    is either lying or does not know any facts.
    Either way its a bad situation for him.
    For any one to create an institution that can be called a university there are Babugiri requirements set forth.
    Gurucharan Das covered this a while ago

    And regarding teachers not having an MBA, its up to the student to go where they feel they are getting a proper education.
    Weather its from an MBAed lecturer or not.


  8. I completely agree with first comment, there is no government monopoly in education, anyone can start elementary school to professional colleges. Travel down to south india, you can see many private schools some of them even affliated to european systems. There are hundreds and hundreds of low quality engineering and medical colleges also.
    The question then is how to start a world class institute without government funding. In US they get lot of funding from wealthy families, most of top univerisities were started by them. What is missing in India is that Reliance/Tata/Wipro/Infosys founders haven’t done anything like that.


  9. Dear Notsure:

    It is quite comforting to keep believing in cookie-cutter blame posts and cookie cutter solutions. It saves us the trouble of actually finding out the truth.

    I read Gurucharan Das’ anecdote with interest. Unfortunately, it does not mention the specifics of the university or the official and makes it difficult to comment. I would therefore give another anecdote with specifics to put the thing in perspective.

    I recently worked on a tie up between my alma mater, University of Maryland, USA and MDI, Gurgaon. We started our survey of possible collaborating schools in India in fall 2004. We completed our survey in about one and a half year. We applied through Government of India in Jan 2006 and got all the approvals in seven months flat. We are now offering joint degree with MDI, Gurgaon from 2007. We applied for a tie-up with a business school in Shanghai about one year earlier and got the approvals at about the same time. We also applied for a new campus at Shady Grove, USA in 2004. Approvals are still coming. Let me also add that the US case is not atypical. Getting approval for a new educational institute in the US takes twice the time India and China combined together.

    Let us now come to the actual approval process in India. We interacted with about half a dozen ministries of Government of India. The treatment given to us by GOI was royal. We were given access to the highest levels of bureaucracy without a fuss. At no stage anyone demanded any kind of bribe or any special favor. The much maligned babus were knowledgeable, professional and friendly. Blaming the bureaucracy has become just another excuse for our idleness.

    I would now cite another thing that might interest you. It is a common courtesy from the university to bear the expenses of visits of foreign officials when they come on university related business. In this case also a couple of visits were made by our babus to College Park. However, university did not have to pay a single dime on these visits. They came, stayed and visited on their own!

    I believe the process of setting up a new engineering or medical or management college in India is as simple as could be expected in a democratic country. You may continue to sulk that your good intentions and grandiose plans for reforming the education sector are being thwarted by obstructive bureaucracy. However, your criticism would carry more weight if you actually set foot outside your house and try to set up a college and see if it is true.

    That’s why I find Atanu’s current article quite superficial. Instead of real facts, it is based on just popular perceptions. Neither his analysis of cause nor his solution have any bearings to the ground situation.


  10. Shastry
    You did not point any evidence to counter the alleged anecdotal evidence.

    Regarding universities paying expenses for
    visiting officials/scholars is common every where. So whats the point there?
    If they have the funds its upto their directors/deans/governing institution to decide what they do with it.

    Incidentally you also suggest that I have grandiose plan, which I don’t.
    Again either you were lying about my grandiose plans or you don’t know any better and think in some screwed up way.


  11. Well, I don’t believe that the government has a monopoly on the education sector. At least in the field of professional education (the one I am familiar with), any Tom, Dick or Harry with enough money can start an `engineering’ or `medical’ college, charge astronomical fees, offer absolutely *horrible* quality and laugh their way to the bank. Please don’t believe that the private sector or the `corporations’ are better than the `government’ – they can be (and often are) far worse.


  12. Sorry to disagree. I think there should be more govt and less private when it comes to primary and secondary education. In India we have gotten used to equating govt with bad performance but that is not how it is supposed to be. Create a new education ministry and put in a young and dynamic person to control it and see the difference.


  13. So, sir, what do you suggest? I’m in favor of, to piss off James Fallows with one of his most-hated terms, frog-boiling the bureaucracy. Slow, incremental changes should be made, that gradually change the political landscape by introducing new powers. These should be, on the surface, amenable to the bureacratic class, but at their heart, should be destructive to the present powers. Sort of like the Ring Cycle as a metaphor for capitalism destroying the aristocracy. The European feudal aristocracy, according to this interpretation, bought into capitalism as a means of increasing their wealth, but in the long term, it destroyed the basis of their power.

    But how can one frog-boil?


  14. So, sir, what do you suggest? I’m in favor of, to piss off James Fallows with one of his most-hated terms, frog-boiling the bureaucracy. Slow, incremental changes should be made, that gradually change the political landscape by introducing new powers. These should be, on the surface, amenable to the bureacratic class, but at their heart, should be destructive to the present powers. Sort of like the Ring Cycle as a metaphor for capitalism destroying the aristocracy. The European feudal aristocracy, according to this interpretation, bought into capitalism as a means of increasing their wealth, but in the long term, it destroyed the basis of their power.

    But how can one frog-boil?


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