Some Thoughts on Rural Development


One of the greatest challenge that India faces is that of rural development. Successfully solving any problem requires a proper formulation of the problem. Fundamental questions arise when the matter of rural underdevelopment is considered in depth. Is rural development the development of rural areas, or is it about development of rural populations? They are not the same thing and require entirely different approaches. Is it possible that the antidote to rural under-development lies in urban development?


Those questions allows us to consider the possibility of addressing the problem of rural under-development by allowing a migration path for the rural populations to areas which have the same characteristics as urban areas. That is, we have 600 million people dispersed over 600,000 villages. Clearly, developing 600,000 locations to become urbanized is not feasible. Transferring the current rural populations into a much smaller number of larger aggregation of people – in effect, urbanizing them – must be the goal because urbanization is both a cause and consequence of development. The problem is then not of developing 600,000 small villages but rather catalyzing the growth of say 6,000 mini-towns of about 100,000 populations each. These mini-towns can then obtain the aggregation and scale economies normally associated with urban areas.


From Development of Areas to Development of People


The contention is that the focus has to change from the development of rural areas to the development of rural people. The development of rural people can be broadly considered as urbanizing them. Since migration of 600 million people into the present set of cities and towns is unfeasible, new aggregations have to be “seeded.” This is the primary role of the government because the seeding implies coordinating the building of infrastructure which will support the rural people.


The problem of rural under-development is then formulated as one which involves the development of urban areas[1]. In other words, for the development of rural people to occur, the focus has to shift from development of rural areas to the development of urban areas. The solution to the development of rural people then is not developed rural areas, but rather developed urban areas.


That is paradoxical at first glance. But the alternative of developing 600,000 villages is an impossibility, as evidenced by the fact that despite enormous resources, rural areas continue to be under-developed. Urban development is a well-understood process and is less costly to the public purse[2] than the alternative of rural development.


There is an instructive example in the development of the US. The US was largely an agricultural – and therefore rural – economy in the turn of the last century. Providing higher education to the children of the rural families was the need. So did they start very little colleges in the tens of thousands of little rural communities? No. They started large universities for the children of farmers to go to. The idea was that these trained people would then go back to the farms and increase the farm productivity. But what was the actual outcome? The children of the farmers got urbanized and did not want to go back to the rural areas. As luck would have it, technologies developed in urban areas were successful in raising farm productivity which meant that so many were not needed in the farms anyway. And who developed the technologies and labored in all those urban areas? Those children of rural farmers who went to the colleges were the people who supplied all the necessary bits that the rural farmers required.


The point is that it was not rural development that made the difference in the rural areas. It was what happened in the urban areas that changed the rural areas.


Role of the Government: Infrastructure Investment


The role of the government is critical in rural people development through urbanization. Public investment in infrastructure “crowds-in” private investment in infrastructure and other services. The government has to play the role of the “lead investor” that signals to the market that investment in the projects will be profitable.


Infrastructure services require high fixed costs and have long pay-back periods. The role of the government is then one of financing the infrastructure, and leaving their provisioning to the private sector.


NOTES:

  1. RISC (Rural Infrastructure and Services Commons) is a model which achieves rural development through urbanization. In the RISC model we call it “in-situ” urbanization. Sure, these “urban centers” are located in the rural area. But it does not transform villages at all directly. It creates a mini-city. It is not kiosks in every village but rather villagers in cities that will transform the people. The focus is on the services available to the people rather than attempting to locate the services in villages.
  2. It is less costly to the public purse because private sector firms would invest in the infrastructure to serve a dense concentration of people (as in any urban area) more readily than they would in sparsely populated rural areas.

On Kiosks, Super Kiosks, and RISC


Bringing the benefits of ICT to rural populations is
a commendable goal. The use of kiosks with connected
PCs for bringing services to villages is a model worth
considering among various means. The advantages of
kiosks are many. Primary advantage is that of proximity.
Villagers do not have to incur any travel cost to obtain
the services delivered. Next, the investment required
is relatively small and so a start can be made with
limited resources. Finally, rural entrepreneurship can
be motivated by giving over the management of the kiosk
to a person from the village itself.


Disadvantages of Kiosks


The primary disadvantage of kioks is that they are
not economically viable. Economic viability is related
to economies of scale, both on the supply side and
the demand side. Scale economies depend on the quantity
of services supplied and demanded. Rural populations
have a low ability to pay for services. Given the average
village population of about 1,000, the aggregate demand
for services is low. The quantity of services that need
to be supplied is commensurately low. This makes the
average cost of per unit of any service delivered high
and the break-even price is therefore high. Sometimes
the price is sufficiently high that the service cannot
be provided at all at full cost.


The High Cost of Providing Services at the Village Level


Rural India is highly fragmented with around 600,000
villages with an aggregate 600 million people. The lack
of basic infrastructure such as power, roads, and
connectivity increase the cost of providing services
to villages. For instance, while the cost of a PC in
a village is the same as that in an urban area (around
Rs 20,000), the total cost of ownership of a PC in
rural areas is far higher compared to that in an urban
area because providing for uninterrupted power for the
PC is about Rs 30,000.


The essential point is that high technology sophisticated
equipment require deep back-end infrastructure and
creating this deep back-end infrastructure at the 600,000
villages is prohibitively expensive.


Subsidies are one way around the problem of pricing at
full cost. If a kiosk requires only a modest subsidy of
Rs 10,000 per year for it to be economically viable, the
aggregate annual subsidy required for kiosks in 600,000
villages is around Rs 6 billion (about US$ 136 million).
Clearly, this level of annual subsidy is not sustainable.


Obtaining Scale Economies


To bring down the average cost of delivering services,
and consequently reduce the full-cost price of the services,
economies of scale have to be obtained. That is, a much
smaller number — something of the order of 10,000 rather
than 600,000 — of significantly large-sized kiosks have
to be considered. Let’s call these “Super Kiosks”. If a
typical village-level kiosk has two PCs, a Super Kiosk would
have 10 PCs and deliver a much wider range of services and
to a greater aggregate population. Imagine that a Super
Kiosk (SK) is located in a largish village and serves the
populations of the neighboring 10 villages for an aggregate
population of about 10,000.


To fully saturate rural India, only 70,000 Super Kiosks would
be required instead of 600,000 kiosks. Further, it can be
argued that the economics of SKs will eliminate the need for
subsidies because of aggregation economies on the supply side
and the demand side.


Disadvantages of Super Kiosks


The primary disadvantage of a SK is that it is not available
at each village. The majority of the villages will not have
an SK. Some travel cost will have to be incurred by the majority
of villagers to obtain the services of an SK. However, this cost
is relatively minor because the average distance to an SK will
be about 2 kilometers which can be easily covered within a half
hour by foot.


Advantage of Super Kiosks


It can be argued that Super Kiosks have the advantage of scale
economies and that is why they are better than kiosks in
villages. But there is an even more fundamental reason for
them. Rural India is dispersed among 600,000 villages. No
economy can develop with such a large number of very small
aggregation of people. For India to develop, the dispersal
of rural populations has to reduce to something like 60,000
“Super Village” (SV) with an average of 10,000 population.
SV must be in the future of rural India in the medium term
of five to 10 years. I see the progression of rural India
from 600,000 villages of 1,000 population average, to
60,000 SV of 10,000 population, to 6,000 “Mini Towns” (MT) of
100,000 average population in the long term.


The transition of rural India from villages to SVs to MTs
has to be helped along. The introduction of SKs in specific
villages will be the first step. That is where the game
will be in the future and that is where we must aim to be.
(When asked what was the secret of his success, Wayne
Gretsky, the hockey legend said that he plays for not where
the puck is, but where the puck is going to be.)


RISC: Rural Infrastructure and Services Commons

I proposed a model for rural economic development which
some have described as a kiosk on steroids.
The concept paper for RISC (which is co-authored with
Vinod Khosla) is available
here. You can consider RISC to be a Mega Kiosk
and I hope that one of these days it will be implemented.


Like they say, one lives on hope and dies of despair.

The Evils of Competition

The principle that exposure to economics should convey is that of the spontaneous coordination which the market achieves. — James M. Buchanan

The last time I was out having lunch with my economics guru, I pondered the question that is foremost in the minds of most Indians. “What,” I asked the great guru, “explains the shoddy quality of goods and services that one finds in India generally?”

“That I can tell you in one word: competition.”

“How so?” I said. “Isn’t competition supposed to ensure lowest prices, and highest quality instead?”

“Certainly. But you have to remember that a market has two sides to it. There is the supply side. And then there is the demand side. It is the competition in the supply side that ensures high quality and low prices. But if for some reason, there are barriers to entry in the supply side of the market, then you have a problem.

“Here is how it works. Suppose you restrict the entry of firms into the market by decree such as done in the “License Permit Quota Control Raj.” Suppose this leads to low quantities supplied relative to the demand. Then on the demand side, there is competition for the limited quantity supplied. So the quality goes to hell in a hand basket and the price goes up.”

I sort of realized the problem. But I needed a ‘fer-instance.’ “For instance?” I asked.

“Competition in the demand side is what drives out quality and pushes up the price. You do recall that not too long ago, the telephone system was the sole preserve of the government. No private sector firm could enter the market. What was the result? If you wanted a phone, you had to wait for years on end, sometimes as long as eight or ten years. Given the enormous waiting lines, the public sector firms supplying telephony were assured customers who would be willing to put up with shoddy phone service because the demand far exceeded the supply even at the exorbitant prices being charged.

“In those bad old days, you had competition on the demand side. Compare that to today. The competition has shifted to the supply side of the telecommunications market. Now private firms compete with each other to provide phone service. The years of waiting time has been entirely eliminated and now you can get phone service in a matter of hours.”

“Are there any other examples?” I asked.

“Lots and lots. Whenever you see shoddy services or crappy goods, ask yourself where the competition is. You will invariably notice that the competition is on the demand side. Train service? Government monopoly and therefore poor quality. Air transportation? Used to be shoddy but now it is much better because there is at least limited competition.

“Excess supply of goods and services is rarely a problem in over-populated underdeveloped economies; it is always excess demand.”

“So what was the reason for not allowing entry into the markets? Why restrict entry on the supply side in the first place?” I said.

“Greed. If you restrict entry, you have monopoly power. That allows you to collect monopoly rents. Here is how it works. Suppose you want to collect the monopoly rents from, say, the two-wheeler market. You decree that for a firm to manufacture two-wheelers, it has to obtain a license. How much will a manufacturer of two-wheelers be willing to pay for a license to produce and sell them? Almost as much as they will make by charging a high price in a non-competitive marketplace.”

“Who gets these monopoly-like rents? I have not heard of any rule that seeks a hugh license fees from manufacturing licenses,” I said.

“Well, you don’t have to have an explicit rule. You just have discretionary powers as to who you hand them out to. For instance, as the Minister for Two-wheelers (assume there is one), you will hand it out to the firm that pays you a lot of black money and also fills up the coffers of your political party. Corruption of the political process is a handy by-product of the license quota permit control raj.”

“Damn,” I said. “That explains to things in one shot. First, why we have lousy quality high price goods and services. Next it explains why it is so hard to get rid of the license permit quota control raj. Is there a way out?”

“Yes, there is. But it won’t happen till the last politician is strangled with the entrails of the last bureaucrat.”

Seeking Causes

… Professional publicists know there is always a good living to be
made by catering to the public’s craving for optimistic reports. Such
behaviour finds no justification in the attitude of the Buddha,
expressed five centuries before Christ: “I teach only two things: the
cause of human sorrow and the way to become free of it.” The present
work, though written by a non-Buddhist, proceeds along the Buddhist
path — first to reveal the causes of human sorrow in population
matters and then to uncover promising ways to free ourselves of the
sorrow.


Hearing the Buddha’s statement today many people think, “How
depressing! Why accept such a pessimistic outlook on life?” But they
are wrong: it is not a pessimistic view if we reword it in terms that
are more familiar to our science-based society. Reworded: “Here is
something that isn’t working right. I want to fix it, but before I
can do that I have to know exactly why it doesn’t work right.” One
who looks for causes before seeking remedies should not be condemned
as a pessimist. In general, a great deal of looking for causes must
precede the finding of remedies.


 ‘Living Within Limits’ by Garrett Hardin – Prof Emeritus UCSB.

The Missionary Vultures Descend

Natural disasters bring in their wake a feast for scavengers who find the victims easy pickings. Here is a story about Christian missionaries feasting among the vulnerable victims of the tsunami.

The Hunger Banquet (or How to Fix the System for Good)

Imagine you get invited to a feast and when you arrive, at the door they hand you a ticket randomly drawn out of a hat. That ticket determines which of three different meals you will receive at this feast. You, like 15% of the invitees, could get a top-class ticket. You would have a lavish meal with meats, fruits, and desserts seated at a nice table and be served the food.

Continue reading “The Hunger Banquet (or How to Fix the System for Good)”

Scribble, scribble, scribble

“Another damned, thick, square, book! Always scribble, scribble, scribble! Eh! Mr. Gibbon?

– William Henry, Duke of Gloucester, upon receiving the second volume of The Decline and Fall of the Roman Empire from the author, 1781.

Well, what do you know!

This blog won the Best Indiblog Award. To be more specific, of those who cared to vote (around 600), this blog got around 38 percent of the votes. Thanks to each of you who considered my modest attempt worth noting. My sincere appreciation for that vote.

I admit that I am not surprised that some people actually find my writing acceptable. Nor I do not find it entirely surprising that 62 percent who voted did not vote for this blog. I don’t expect to be popular. More about that later. The topic that I concentrate on largely is not a happy one. One does not like to be reminded that one’s country is in dire straits. We see the evidence all around us if we care to just see.

Some people have criticized my point of view. I don’t like criticism. I don’t want to be told that I am wrong. But I need to be told my faults. While I like to be told that I am right, I need to be told even more where I am wrong. I am a pretty smart cookie but I am not so smart as to know all by myself where I screwed up.

Back to the topic of being popular. I think that if one is totally honest, one is not likely to be popular. Which may partly account for the fact that politicians are inveterate liars. They seek popularity and they lie. They lie because they know that people are gullible and that they can get away with transparent lies and blatant falsehoods. People would rather believe in some feel-good fiction than in hard facts.

Given the gullibility of people at large and their need to believe in happy fiction, democracy has a near-fatal flaw built into it. A person who states it like it is is going to be at a disadvantage when it comes to unpleasant truths. And most of the time, a society or an economy confronts hard facts, irrespective of how rich or powerful it is. I recall Walter Mondale telling the hard truth to Americans that taxes will have to be raised, and George Bush, the Elder, said, “Read my lips: No New Taxes.” Later, after having won, Bush went on to raise taxes like nobody’s business.

The poorer the country is, the more its politicians lie. The most adept at lieing win. They have to — because the truth is too awful to bear. Farmers are suffering? Promise them free stuff. Can the country afford it and will it actually make them better off? No and no, but do it all the same because that is what guarantees winning at elections.

India is caught in a trap. Venal politicians lie and the gullible public votes them to power because they would rather hear a pleasant lie than hear the unpalatable truth. Anyone with any sense in their heads would reject them outright but then when were the good and the holy in majority anyway? Democracy assures the rule of the venal over the gullible.

In any event, I will go on scribbling and only time will tell if I am correct in my assessment that we are doomed unless we face some rather harsh reality.

Goodnight, goodbye, and may your god go with you.

PS: I have loads of emails. Please bear with me if you have written and haven’t heard back from me yet. I am going to reply to all my emails.

Notice of Suspension


I will be traveling till the 25th and will not have access to the web. That is why I will maintain web silence and not because I am done with the topic at hand.


I stand corrected by TTG on the point about the entire khandaan of Nehru-Gandhi family not having one single solitary degree. It appears that Cha-Chaji was not entirely untutored. Thanks to TTG I actually came to learn another fact about another hero of mine — Mother Teresa, the Merciless — she had supported Indira Gandhi’s dictatorship. I had known that Teresa the Merciless used to hobnob with dictators, but that she was in the thick with Mrs Gandhi is news to me.


I will have to devote a few keystrokes to the devastation of Teresa the Merciless one of these days and I expect the usual deluge of hate-mail. But all that hate mail is worth it because in the end I get to change a few people’s opinion about the true nature of Teresa the Merciless.


Please do visit the archives if you are new to this blog. Recommendations: Agriculture and Development from Jan 2004. Or from Feb 2004, Why don’t they feel the pain. The part 2 of Agriculture and Development is also worth a read.


One final point: Please do include an email address if you post a comment. If you don’t wish to post the email address (because of possible spam), please do send me a copy of the comments to atanudey at gmail dot com.

Nehru and the Indian Economy (…Why is India Poor? )

The last posting, Why is India Poor?, has drawn sufficient attention that there needs to be a follow-up addressing some of the points raised in the comments.

It is interesting to note that the arguments against my view of Nehru and his failed economic policies are generic. I will repeat them and my counter-arguments here.

My argument. Economic policies matter. If you have sound economic policies, you get commensurate economic performance. India’s economic performance sucks. It performs dismally in any sort of ranking of human development and economic performance tests. Half the illiterates of the world call India their home. A third of all global poverty is in India. All things considered, India has been a colossal failure so far.

Why has India been a failure? Are Indians collectively stupid? Unlikely.

Did GOD decree it? I asked him and he categorically denied it.

Did nations around the world gang up and rape India for the last 60 years? Not that I know of.

I am left with the hypothesis that perhaps India’s economic policies sucked chrome off a bumper of a pickup truck parked at 400 yards.

Who makes economic policies? You? I? No, economic policy is made by the so-called leaders and visionaries of this sainted land. Who were the most powerful leaders of this land since its independence from Britain? Nehru and his descendants. He dictated policy—economic, foreign, domestic, you name it. The most charitable way of putting the matter is to say that Nehru was clueless.

He wasn’t just clueless about this or that. His cluelessness was all encompassing. He was clueless about foreign policy, military strategy, domestic development &#151 you name it and he is the greatest screw-up that India has ever produced.

Then come the rebuttals which often start with the admission that Nehru was clueless but . . .

. . . but during his time, many others–including a few people one cannot dismiss as being clueless thought that Central planning was beneficial for countries like India. These included Nobel winner Gunnar Myrdal (Asian Drama, an Inquiry into the Poverty of Nations) and Mahalanobis.

The argument above says that it wasn’t the man, it was the circumstances. By that logic, everything is justifiable. Every crime can be explained away as the result of compelling circumstances and hence there can be no accountability.

Take, for instance, the WorldCom and Enron cases where executives committed theft on unprecedented and unimaginable scale. One could point to the fact that other companies were also doing shady accounting, that the internet boom was going strong, that the economy was very strong, that the GAAP was being followed. All those explanations would also paper over the fact that the crime arose out of the greed of the perpetrator. Given all the circumstances but absent the greed of the executives, the grand theft would not have taken place.

Now back to Nehru: even if one were to grant all the circumstances that you cite above (but only for the sake of argument), the fact remains that central planning was personally very convenient for the Cha-cha.

The children of Imperialism are not weaned on the milk of humility; they are brought up on heady diet of hubris. Nehru was an imperialist who believed that his destiny was to rule the brown masses and he continually rejected sane advice. Look deeply into any problem that India faces and you will see Nehru’s finger-prints all over it.

Take Kashmir. Who was it who let the matter get out of hand? Nehru with his idiotic insistence that the UN be called to mediate the dispute. Talking of the UN, who was it who rejected the proposal that India take a seat in the permanent security council? Nehru. There is not enough space here to go into all the horrendous mistakes.

Then there is the argument that says, “Don’t blame Nehru for the screw-up that India is. We, Indians, are to blame.” That line is similar to the one Niket made in the comments in the last post.

Yes, in fact, we are to blame. Indians are basically collectively a bunch of clueless retards. They collectively elect leaders who are clueless retards and these clueless retards choose policies that keep the country of hundreds of millions of people in abject poverty. No argument there. A country deserves the leaders it gets, especially so in a so-called democracy. I agree that Bihar deserves and gets Rabri Devi and Laloo Prasad Yadav.

So if the collective is to blame, why is Nehru elevated to the position of a demi-god? Not just that, anyone associated with his family is elevated as well. With very rare exceptions, everything in India which has a personal name associated with it is named after the Nehru-Gandhi family. The Borivali National Park close to my abode is named “Sanjay Gandhi National Park”. All sorts of educational institutions are named after the members of a family that collectively have fewer educational achievements than yours truly.

Allow me to repeat that: The entire Nehru-Gandhi family — Cha-chaji, Indira, Rajiv, Sonia, Sanjay, Rahul, Prianka – collectively haver fewer educational qualifications than I (an average person) do. If I am not mistaken, they don’t have one solitary single college degree among the whole lot of them.

{To be continued.}

Why is India Poor? (Note #382)

What India is today is to a large extent the result of policy choices made by its leaders — especially post India’s independence. Prior to 1947, India’s fortunes were dictated by the British. The British were in India for — not to put too fine a point on it — looting the place. That is totally understandable. Every institution they created was directed towards the final goal of enriching themselves. Colonizers don’t go about colonizing foreign lands out of a sense of altruism. They do it for the moolah.

After independence, however, Indian policy was in the hands of Indians. What were the objectives of these Indians who stood at the helm? I really don’t know. What motivated them? I don’t know for sure. What were their declared motives? I believe it was to lead India to prosperity. Cha-cha Nehru said as much in his famous Tryst with Destiny speech. Talk is cheap. Especially pretty talk. Talk about scaling commanding heights is pretty as a picture, and as cheap as a picture. I have written critically about Cha-cha Nehru and his talk elsewhere. (See Nehru, the Nabob of Cluelessness, for instance.)

Justice Louis Brandeis wrote (Olmstead v US, 1928):

Experience should teach us to be most on our guard to protect liberty when the government’s purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.

I remind myself that the British were the evil minded rulers that all were naturally wary of. What Indians did not realize is the danger of men like Nehru and his descendents.

Despite all Nehru’s pretty speeches, I believe he was motivated by a deep megalomanical zeal to command and control.

Shakespeare’s Mark Anothony says at Ceasar’s funeral, “The evil that men do, lives after them; The good is oft interred with their bones.” Well, we do have the evil they did living after them. My wish is that their pretty speeches were also interred with their bones.