The Indian Economy Blog

September 12, 2005

Perpetuating Poverty

Filed under: Politics,Regulatory reforms — Amit Varma @ 9:14 am

In a superb post, Primary Red of Secular-Right India writes:

[W]elfare states create dependency, not wealth. They sustain poverty, not eliminate it. In effect, they pay people to remain poor.

[...]

When the Great Society debate was raging in the 60s, Daniel Patrick Moynihan (an early neo-conservative and later Ambassador to India) pointed out the difference between a poverty of means and a poverty of spirit.

People can find themselves in poverty for reasons beyond their control, but as long as their spirit is not broken, they get up each morning and go out there to work harder than they did yesterday. They may be poor, but their poverty is resolvable.

Then, there are people with a poverty of spirit. They are dependent on the state for survival, and when the state fails (as it frequently does), they are left marooned. Such poverty is not resolvable.

The key is to make sure that we don’t end up with poverty of the spirit. In India, many millions are poor, but they work just as hard as all of us slightly more privileged. They are heroes who build India’s wealth every day with their sweat — it must be India’s objective to resolve their structural poverty.

Instead, what India has been doing since independence, alas, is creating a dependency society — with poverty of the spirit — where all manner of reservations and subsidies and artificial jobs guarantees ensure a perpetuation of poverty for many.

Dead right. It is a pity that so many people go by intent and ignore outcome when they support the concept of a welfare state. When will we learn?

13 Comments »

  1. Forty years ago in California, I was a child of the middle class. Simple home. Simple car. Not much more. The so-called poor today have possessions beyond our dreams in the 1960s. Poverty is relative. Would it be wise to give every student the same grades, every athlete a gold medal? Outcomes in life cannot be controlled, but opportunity can. Why is common sense so uncommon?

    Comment by David Govett — September 12, 2005 @ 2:38 pm

  2. Excellent quote. It is not only applicable for India but also if late Moynihan’s mother country takes out a second to ponder on these thoughts, it might help her.

    Comment by Umesh Patil — September 12, 2005 @ 4:12 pm

  3. The socialist europe and even the USA is more welfare state that India. Why is that there is less poverty in these countries? The reason I think is, these countries are good at producing wealth and distributing it. In India, we try to ‘distribute’ without producing wealth. Obviously this results in distribution of poverty.

    Comment by sv — September 13, 2005 @ 4:47 pm

  4. I’m sorry, but this is simply platitudinous rubbish.

    What, pray is the evidence for the claim that welfare states produce dependency, not wealth? Most of the claims in favor of welfare reform in the U.S starting from Reagan’s welfare moms have turned out to be exaggerated or simply false (I could cite many examples, but its preferable simply to read The field guide to the U.S Economy by Folbre and Heintz). Meanwhile, welfare states have increased education levels, health, reduced uncertainty for the elderly and increased support to vulnerable children.

    Its offensive and meaningless to speak about people with a ‘poverty of spirit’. A nice, unquantifiable epithet if ever there was one. IIT is subsidized by the Indian state. Does that make their graduates poor spirits?

    Reservations and subsidies can be debated case by case (yes or no for agricultural input subsidies, yes or no for a margin of reservations)- but surely you need something less puerile than the analysis presented here

    Arjun

    Comment by Arjun — September 14, 2005 @ 2:44 pm

  5. What more proof do you want that welfare states create dependency?

    You only need take a look at European and American rates of unemployment and find out for yourself.

    The US is far less of a welfare state than Europe (France, Germany…) and has half the unemployment rates, and a better standard of living. Even the UK is better in that respect.

    In an Indian context, with our bankrupt state and diverse demographics, welfare state policies are sure ways to cultivate corruption.

    A welfare society makes far more sense than a welfare state.

    Comment by Abhi — September 15, 2005 @ 9:39 am

  6. Abhi,

    i’m not sure you have any idea what you are talking about. Since you want to speak about European welfare states, What is Sweden’s average unemployment rate over the last fifty years? Compare this with the performance of the U.S. I suggest you look it up. What happened to poverty rates and unemployment after the great depression and the coming of the welfare state in the U.S? What was the average unemployment rate in the U.S in the 1960s vs. the 1980s? And this is only the tip of the iceberg.

    What on earth is a welfare society as opposed to a welfare state?

    Arjun

    Arjun

    Comment by Arjun — September 15, 2005 @ 12:18 pm

  7. Here you go:
    http://www.indexmundi.com/g/g.aspx?c=sw&v=74

    Read this: http://www.cia.gov/cia/publications/factbook/rankorder/2004rank.html

    (although real income would put the US far above the rest)

    We can go on showing each other examples and counter-examples and it wouldn’t matter a bit, since too many factors play here which confound any theories. Again I don’t think a comparison between a diverse 300m country and a 9m country does any justice to your assertion. I admit though, that comparing with 60 & 80m also might be inaccurate, but should be closer.

    In any case, employment figures in a ‘make-work’ welfare state shouldn’t be counted for employment figures. Especially more in the case of a weak economy like India’s, what with the NREG bill and all.

    Before you start running the numbers keep in mind that the government is just like a middleman. The more you entrust it with your goodies, the more you lose (not just corruption-wise but also in overheads).

    The US welfare is in no good shape anyway, don’t you know what’s happening to the social security scheme?

    Comment by Abhi — September 15, 2005 @ 2:15 pm

  8. Arjun:

    Verbal violence seldom smothers common sense. Regretfully, that’s seemingly the only way the left tends to debate these days.

    You propose that issues like subsidies and reservations ought to be taken up on a case-by-case basis. OK. Why don’t we do this? Take any such issue where you disagree with the “welfare” they imply and explain to us why you disagree with it. In this way, we’d find an issue where all of us agree, then compare our respective analytical frameworks. Since you term ours “platitudinous rubbish”, hopefully you can offer a quite dissimilar framework.

    Alternatively, if you do not disagree with the implied “welfare” on any such issue, then your suggestion that these be taken up case-by-case is without substance — in this case, your affinity for welfare programs is quite generalized and, as Abhi has shown, lacking much merit.

    Best regards.

    Comment by primaryred — September 15, 2005 @ 5:26 pm

  9. Absolutist articles such as the above are not useful I think.

    Concepts such as capitalism and socialism are ideals that only exist in textbooks. In the real world we have mixed economies with a little bit of capitalism and a little bit of socialism (welfare).

    Democracies have been debating (and will continue to debate) the correct balance of capitalism and socialism. The issues are complex and the solutions are often based on the dominant culture of the country.

    There is no one-size-fits-all economic theory to govern a country.

    The USA tends to capitalism and has a higher per-capita income than European countries.
    European countries tend towards socialism and have lower rates of poverty.

    Who has the right to say which is the correct approach?

    Comment by Cyrus Patel — September 15, 2005 @ 11:02 pm

  10. Abhi wrote:

    “The US is far less of a welfare state than Europe (France, Germany…) and has half the unemployment rates, and a better standard of living.”

    Are you so sure the USA has a better standard of living Abhi?

    According to the 2005 United Nations Human Development Indices (HDI), the USA is ranked 10th in the world in human development rankings.

    The countries with a higher ranking than the USA (including my adopted country Australia – ranked 3rd best in the world) all tend to be more socialistic than the USA.

    Ofcourse, the HDI values between the top 20 countries are so marginal that we can assume that they all have a very high standard of living (irrespective of whether they tend towards capitalism or socialism)..

    In any case their standards of living are much much higher than India…

    Comment by Cyrus Patel — September 16, 2005 @ 12:35 am

  11. Abhi and Primary Red,

    you, of course, make my point. You chose (rather selectively) two other european countries whose unemployment record is worse than the U.S to show that the welfare state creates dependency and presumably unemployment. If you take a look at Sweden (the quintessential textbook welfare state), which, in fact you did, you find that average unemployment rates over the last five or fifty years is lower than the U.S. What is your conclusion? I too agree that cross country comparisons are difficult, and there is no question that the U.S is richer, but to make the comparison valid, shouldnt you ask if they started off in the same place? Within country variation needs to be looked at more carefully. Within the U.S (as I’ve pointed out) there is little to no evidence to suggest that the welfare state has created dependency. In any case, it appears from what you say you are not interested in data or facts (“we could show each other examples and counterexamples, but it would not matter a bit”).

    As for social security- please read the book by Slemrod and Makija and look at the alternative scenarios for the 2023, 2036 and 2040 dates. You will find that SS could be extended much further with a primary surplus. In either case, most people are not speaking about getting rid of social security, but replacing a part of the pay as you go system.

    Primary Red. I’m sorry, but it is you who are engaged in verbal violence-to the extent that your opinion matters and has effects, you are suggesting that those who use social expenditures have a ‘poverty of spirit’ (as I made clear in the previous post, this is an indiscriminate, unclear and therefore platidinous concept). Its an insulting term with zero substance-you include in one broad brushstroke farmers, the corrupt and individuals from publicly subsidized insttituions such as IIT. Its a stunning thing that after this untargeted generalization that you ask me to come up with examples for you and then acccuse me of generalization.

    I dont understand the following sentence onwards, btw: “OK. Why don’t we do this? Take any such issue where you disagree with the “welfare” they imply and explain to us why you disagree with it.”

    I dont understand this because you seem to imply that I dont think that certain schemes are welfare policies or welfare enhancing. I take the opposite tack, in fact- I think that there are schemes which should be called welfare policies, and that are welfare enhancing. I would include, among these- public education, public healthcare, some sorts of agricultural subsidies, school meals and so on. It is lumping all of these under the ‘poverty of spirit’ banner that is without merit, and , yes, platidunious rubbish.

    Arjun

    Comment by Arjun — September 16, 2005 @ 7:30 am

  12. “You chose (rather selectively) two other european countries whose unemployment record is worse than the U.S”

    Selectively??? Germany and France happen to be only the 2 largest economies in Europe and the 3rd and the 5th largest in the world, resp.

    I do care about facts & data, and what I in fact meant was that, without being presented in the correct context, they would be meaningless. For eg. I don’t agree about using Sweden’s absolute unemployment figures, since it is a make-work environment, opposed to a make-money like in the US. There has been a lot of interesting research on Sweden’s real prosperity and I wouldn’t be too happy about a country that has fallen from 4th to 14th place in GDP per capita within 30 years. Shows a lot about your welfare state doesnt it?

    Also keep in mind that the ‘real’ unemployment in Sweden might be closer to 25%,

    Here are the links:

    http://www.washingtontimes.com/commentary/20040425-102740-9436r.htm

    http://www.guardster.com/modules.php?op=modload&name=News&file=article&sid=210
    http://www.thelocal.se/article.php?ID=1477&date=20050522
    http://www.findarticles.com/p/articles/mi_qa4014/is_200407/ai_n9467221
    http://www.uvt.nl/kameleon/egpa2004/abstract/vamstad.doc

    As for SS reform, there doesn’t seem to be much that seems to work except for privatizing the accounts. If that’s the way to go, who needs the government in it? And why call it social security anyway, let’s call it social investment…

    to address something that was brought up, I do believe public expenditure in the IITs is for the most part a waste of public money. no wonder many are exploiting the system every year. as a product of the biggest one, I speak from my own experience. there are plenty of our alumni who beleive they should be privatized.

    Comment by Abhi — September 21, 2005 @ 10:20 am

  13. Abhi,

    You chose Germany and France which ‘happened’ to conform to your hypothesis that the welfare state results in more unemployment. The plural of anecdote is data, as my counterexample might suggest, and selecting two countries to ‘prove’ is precisely that, selective.

    Let’s not use absolute unemployment figures, all right, since its a loser for you. I’d like to know where the figure 25% of ‘real unemployment’ is from- of course lets remind oneself that including the prison population and discouraged workers increases unemployment levels in the U.S to European levels, so be careful about employment comparisons. How about, then, life expectancy under 5 mortality rates and other such variables we may care for? Remember, mean income is skewed by inequality- i’d be interested to see figures like median income.

    There were some interesting articles in the list you provided, especially by LO, and that is something I am going to read through. Others (the Cato institute- an impartial arbiter, I’m sure) and the Student from mid -sweden university were less so. Even so, I take it as a good faith effort.

    As for S.S reform, there are other solutions to the (perhaps) non-problem which can be got from the perusal of the EPI website, or by several others (Slemrod and Makija, Delong et al). You can call it social investment or social security, as long as it involves redistribution or forced savings, it would involve the goverment.

    While I am not sure that the IITs should be privatized, I do think that money saved on these should go to primary education programs. But that again is a welfare scheme.

    Arjun

    Comment by Arjun — September 21, 2005 @ 1:22 pm

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