It’s coming up to that time of the year again when a very large group of completely self-absorbed people with very inflated egos gather to congratulate themselves on how astonishingly amazing they are and how they are the almighty’s gift to humanity, if not the entire creation.
The PanIIT 2008 site declares: “IIT Alumni 2008 Global Conference is being held at IIT Madras, from 19th to 21st December. With 3000 alumni participants from around the globe, a galaxy of eminent speakers, and selected sponsors who are leaders in their industry, the 2008 Global Conference will be the most impressive ever. The focus this year is to inspire IITians to innovate and transform India.” [Emphasis added.]
The Bright and the Beautiful
Really very impressive. Especially the globe and galaxy bits, and the eminent speakers. Shilpa Shetty and Hema Malini are eminent speakers. Not impressed, are you? Well, then consider this. Not only will Prof Amartya Sen be there, but the “Nobel Laureate has rescheduled his busy schedule to make time for us”.
Now are you impressed? Do you have any idea what it means when a NL flies in to attend even though it means major disruption of his other engagements? What on earth could be more important than the annual PanIIT circus?
Now that I am done with expressing my disgust with the organization and its c-j antics, it is time to move on to more substantial and important matters. It has to do with gratitude, credit constraints, education, fairness, development, and India.
As the above graphic from the PanIIT ad shows, around 300,000 have passed through “7 hallowed portals” (don’t you just love the hyperbole?) in 52 years and have gone on to bestow their benevolence in 100 nations. Very impressive. What the ad fails to mention is that every one of those 300,000 has been the receiver of a major transfer of resources from an extremely materially poor society.
The Unfair Deal
The full cost of a decent 4-year technical education today is around Rs 20 lakhs (or around US$ 45,000.) That’s a conservative estimate. So in today’s nominal rupees, the full cost of educating 300,000 engineers is Rs 6,000,000 lakhs (or US$ 13.5 billion.) The IITs do charge some fees but those fees have been a small fraction of the true cost of education. It is reasonable to peg the total subsidy to be of the order of the estimated Rs 6 million lakhs. The objective of this exercise is to get a feel for the total transfer of resources from the general public to reasonably well-to-do upper segment of society.
That subsidy is a pure transfer or a grant, not a loan. The beneficiary is not required to return, either directly or indirectly, the money spent. There’s only an expectation that the return will be indirect. Moreover, not everyone has an equal chance of getting the subsidy. To get into an IIT, you have to have an excellent school education, for otherwise you fail in the intense competition for admission. Therefore you must be from a family with means much above average. Therefore the subsidy is targeted at the already fortunate.
It is also important to explicitly state that the opportunity cost of the spending is the foregone opportunity to use the same resources for the education of the segment of the population which is too poor to even afford basic education. It can be argued that primary education is more of a public good than tertiary education. We will not go into that here as I have argued that case elsewhere on this blog. For now I will merely note that the spending on higher education when the lower levels are not adequately funded is regressive and harmful in the long run.
It is reasonable to argue that the public spending on elite technical education does have some positive returns on investment. The graduates of IITs have made a name for themselves in India and abroad. It is a respected “brand” and India gains in the reflected glory of those IITians who have made billions such as Vinod Khosla, Desh Deshpande, and others. Without the subsidy, many of these worthies would not have been as successful.
The counter-argument is also very simple. The benefits of any spending have to be considered not in isolation but relative to those conjectural benefits that would have accrued from alternative uses of the resources. What would have been the benefit of subsidizing three million technicians instead who would have gone on to become highly productive factory employees? Or subsidizing 30 million fully literate and numerate people whose 100 million descendants would also have been literate as a consequence?
There are reasonable arguments on both sides of the issue of subsidizing tertiary education. At one extreme is the pure neglect of tertiary education, and on the other, the pure neglect of primary and secondary education. I believe that it is possible to take the middle-wayed way that avoids the extremes. I propose a model of tertiary education which preserves the benefits of the subsidized system without having its obvious flaw of it being regressive. But before that, I will quickly take a detour and explore what it means to be poor and what the phrase “credit constrained” means. It is important for us to understand the model I propose.
The Poor and Credit Constraints
One way of defining a poor person is to say that the person does not have money (or other equivalents of money.) That is a natural definition but it is surprisingly not quite accurate. I define a poor person as one who is “credit constrained.” I could have no money at all and yet be not poor provided that I have the ability to borrow and be able to repay the loan at a later date. Note the three conditions necessary and sufficient to be really poor: (1) having no money, (2) inability to borrow, (3) inability to repay the required loan.
By my definition, a person can have a negative net worth and still not be poor. You can think up of examples of people who for some reason lost all their money and were in fact in deep debt. But they had the ability to borrow more and use the resources to rebuild their businesses and thus repay the loans and get out of debt. The moment that a person is unable to borrow — that is, the person faces a credit constraint — is the moment that you can term a person as poor.
Just a side note. The US is not poor not merely because it has a lot of accumulated capital (people, infrastructure, etc.) but also because it can borrow from the rest of the world and does borrow around US$ 700 billion a year currently. The US does not face a credit constraint, unlike many developing countries.
Back to the main argument. Person C with no money but the ability to borrow is clearly better off than person D with no money and facing a credit-constraint. Now consider person B, who has no money, has the ability to borrow, and has the ability to repay the loan at a later date. Finally, consider person A, who has no money, has the ability to borrow, but right now does not have the ability to repay the loan. However, person A can by using the loan appropriately become capable of returning the loan.
The Returns on Education
It is easy to see where I am going with this. It makes a lot of sense to lend money to A types provided the loans are made specifically to build their capacity to repay. I will use my personal example as a typical case. Being born in a middle-class family, I had the advantage of a good school education. That allowed me to compete and get a subsidized engineering education up to the postgraduate level. I could not have paid the full cost of my engineering and computer science education. But — and here’s the main point — after receiving the education, my earning capacity increased sufficiently that I became capable of repaying the education subsidy I benefited from.
Note a very important fact. The returns on education in a well-designed (appropriately defined) system is always positive. That is, the benefits are higher than the costs. If your productivity (and therefore, your lifetime income) does not go up by at least the total cost of the education, it does not make sense to acquire that education. This is an important argument against not doing full-cost pricing of all education. I will not go into this right now but will write a separate note. (That’s a true promise.)
My Address to the IITians
What holds true for me — that I can repay the subsidy that I received for my tertiary education — holds true for every one of the 300,000 IIT graduates. So here’s my short speech that I composed for delivery at the PanIIT 2008 conference:
Dear Fellow IITians:
A good morning to you and how are you all?
I see that you are all having a wonderful time. Isn’t Shilpa Shetty quite a bomb? I tell you, the stuff of dreams. Aren’t we just great? We must be. Otherwise why would such a stellar personality — a phoren star — come to strut her stuff here? Aside from the money we paid her, of course.
Not just good looking people, we are so important that India’s only living Nobel Laureate, Prof Amartya Sen, has changed his schedule just to fly in and deliver his usual spiel about inclusive growth. Wow! We’re the best. The cat’s whiskers, the loin’s (sic) roar, the cheery on top of the sundae, the crème de la crème. Isn’t that precious!
But I got some bad news for you, sunshine. We have all fed at the trough of public largesse. We’ve sucked at the teat of involuntary public generosity. We, the select, the few — our fancy education was funded by denying a very large number of the really poor the opportunity to even get a basic education.
So my precious sweeties, don’t you think that it is time that you actually paid the full cost of your education now that you can? Should we not today, now, here, at this very convention — and a very nice convention it is — decide that every one of the fortunate 300,000 should contribute at least the full amount spent on us for a fund which will do for others what was done for us?
Let me make the promise of paying Rs 20 lakhs today into this fund — the IIT Graduates’ Gift of Gratitude Fund (IITGGGF) — to be used for the future generations of IITians. I don’t have that cash lying around in my checking account but I am sure that I can get a bank loan today and pay back that amount I owe.
In other words, put up or shut up, my preciouses.
Thanks and may you all have a wonderful time congratulating each other on how wonderful you all are.
Now you know that the above is just a joke. I will never be invited to speak at the PanIIT 2008 in a million years. I attended the 2006 event in Mumbai and wrote about it. It did not go down too well with the organizers. They would like me to speak over there about as much as they would like a huge hole in their cranial cavity.
But seriously, what I propose should make sense to the meanest of intelligences. The IITians are mean but not unintelligent. OK, I take that back. Not all IITians are mean. Only some of them are self-absorbed and delusional.
This should have been done a long time ago. It could have been done but then of all sad words of pen or tongue, the saddest of all are “it might have been,” as the man said. They who made the rules were simply not smart enough, and it had to wait till I articulated it (he said modestly.)
Imagine this. Someone has demonstrated preparedness and aptitude for elite tertiary education. The full cost is Rs 20 lakhs. The person does not have the money. Give him a loan for the full cost of the 4-year education, with the understanding that the payback period start four years after graduation and lasts for four years. The payback will include the principal and the interest. (We neglect inflation in this exercise for now as it does not alter the basic argument.)
This means that the first payback occurs eight years after the loan is issued. So there have to be sufficient resources to give loans to the entire batch of students for the first eight years of the existence of the educational institution. The money required for Year 9 will be the money paid back by those who attended in Year 1.
Let’s do the arithmetic. Take, IITI. That is, IIT Imaginary. It teaches 1,000 students. Cost per year, Rs 5 lakhs per student. For eight years, total cost (8 x 5 x 1000=) Rs 40,000 lakhs. That’s the total investment required. From then on, each batch will receive a loan from the amount of the loan repaid from the batch eight years previous to it. The IITI is totally self-supporting.
If this scheme had been followed, the total money required to initiate the loan process for the 7 IITs would have been around Rs 200,000 lakhs. Compare that to the Rs 6,000,000 lakhs spent so far. In other words, the same resources would have made possible not 7 but 200 IITs. It would have meant that India would have been graduating 200,000 IIT graduates each year. The mind boggles, doesn’t it?
Not Too Late
It is never too late to do the right thing. Let’s assume that there are 200,000 living IITians today. Let each of them chip in Rs 10 lakhs in partial repayment of the cost of their IIT education. That would net Rs 2,000,000 lakhs (or US$ 4.5 billion). That’s a lot of money in the aggregate but is not an unreasonable amount for the average employed IITian. Remember, they are not credit constrained. They can take a loan, if needed.
With that money, you could pay for the educational loans of 400,000 student-years (at Rs 5 lakhs per student per year.) In other words, you could give educational loans to 50,000 students a year and do so for eight years. From Year 9 onwards, the loans recovered from the old students will keep the system going indefinitely.
In other words, you could fund the operational expenses for 50 new IITs (each of them with 1,000 students). What about the startup costs of infrastructure? That could be part of the public expenditure and could even be funded by high net worth individuals and institutions.
If we got started today with this scheme, one can imagine that the 50 new IITs can start operating in 2010, and from 2018 onwards, it would be totally self-financing, and graduating 50,000 graduates a year from year 2014 onwards.
India’s immense and young population can become its greatest asset provided that we can figure out a way of educating its population. India does need to have a large number of highly qualified engineers and technologists. It can be done provided there is political will and the smarts to properly allocate resources using good policies.
What I have outlined above is a very simple scheme. It appeals to the sense of fairness which we all have. IITians, despite their claims to the contrary, are not special either. They are neither better nor worse than the average. However, they have been more fortunate than the average Indian. It is time for them to think deeply about what it is that they owe to others. And it is important that they do a bit of collective introspection and ask what it is that they can do aside from the airy slogans of “Inspire, Innovate and Transform.”
Previous related posts:
1. Over three years ago I had a post on a new educational model. It is an “inter-generational transfer” model. I liked re-reading that post and the follow up to it.
The article “Who Actually Paid for My Education” is also quite popular.