IITs are considered one of the
showpieces of Indian quest for excellence. Graduates from IITs have excelled in
a variety of fields and have brought laurels to the country. It has become the dream for lakhs of teenagers across the
country - the definition of achievement. Wasn’t it a stroke of genius on the
part of those who came up with the idea of creating IITs ? Let’s analyze the
IIT model a bit in detail.
IITs are one of the most misdirected subsidies.
Lakhs of teenagers across the country, toil for months, to
get into these IITs. What exactly are these
teenagers toiling for ? These teenagers are fighting among themselves for the
right over government subsidies at the cost of all other citizens in the country.
What kind of teenagers generally
make it to these IITs ? Duly considering the seats officially split among
various communities, these primarily fall into two kinds, among their
communities. Either they are those who are relatively better skilled at
physical sciences than others. Or they are those whose parents are capable of
spending huge sums of money ( by Indian middle class standards) to get them
coached into IITs.
Did the first group need subsidies
for education ? No . These were teenagers who were already better skilled than
others in their community and in most cases would anyways earn way more than
the rest, in future. Rather they would be among
the topmost earners in the country. But the system by design chooses
such people over others for these subsidies. These are the people who can most
easily secure loans from banks to pay the full cost of their education .
But the system precisely forces the others to pay higher rates to other private educational
institutions and to depend on loans to pay that . Is this a good subsidy ? Answer
for yourself !
The second group is those whose
parents were among the richer in the middle class and could afford expensive
coaching courses . Did these students needs subsidies at the cost of all other
taxpayers ? This is an ultimate no-brainer.
IIT model is just snatching from poor and giving to the
rich. IITs increase economic inequality.
We just saw the microeconomic
effect on individuals of the IIT subsidy. What are the macroeconomic effects of
the IIT model ? ( or more generally –highly subsidized government education
with entry determined by competitive exams) . Tax money which could have been
used for helping the poor in the country (through time bound income independent cash
transfers) is being handed on a platter to the relatively better
off. If you are worried that young poor kids in the
country don’t have access to basic schooling, blame these misdirected subsidies
. Even if the government had let the market distribute education and waived off
the taxes they are spending in the name of IITs, these poor people would have
been in a better state with more tax-waived private money getting invested in
the education sector.
The Indian middle class is up in
arms whenever the government proposes any kind of subsidies on food grains ,
healthcare and similar stuff. All of them are wrong, no doubt, but even worse is
this subsidy given predominantly to the middle class against which nobody seems
to be complaining. The Indian middle class though believing they don’t support
communism, more or less are unable to identify communist ideas when they are properly
marketed to them.
This socialism in the form of
IIT subsidies, does nothing more than exaggerating the economic inequalities in
the country. The better off become even better off and the poor stay where they
are.
But isn’t it good to promote education ? Will you also speak against scholarships for meritorious
students ?
Yes its good, if it isn’t the
government. Yes I will, if it’s the government.
Its wrong for the government to
promote education , or anything for that matter . Why ? Because government does
not produce any goods or services, private individuals do. The only way for the
government to give something to somebody is to snatch from somebody else.
Whenever any government says that it will promote education, it must pull money
through the tax mechanism from private individuals, money(capital) which would
have otherwise been distributed by the market in sectors with the highest demand.
And if you think education is very important, even the market , by reacting to
the price signal, will move money to those sectors which are important, and
much more efficiently than the government.
So does that mean we should not
promote educations ? No. Private individuals should be free to spend their
money the way they want. And if they want to promote education then they may
freely do so. The only thing I am saying is if you want to promote educations,
do it with your own money. I cannot support you in snatching money from other
people to spend the way you want.
For the same reasons, government
providing scholarships to meritorious students is a bad idea. Being meritorious
is an incentive in itself. If you are actually useful for the society, you will
earn more. Government artificially increasing the incentive for merit over and
above the market is a bad idea coz this must be done by the government by
taxing someone else higher than otherwise – money which would have been
invested much more efficiently by the market. Private charities planning merit
scholarships are perfectly fine coz its their personal money and they should be
free to spend the way they want.
But the private sector only
cares about profits! We need the government to invest in sectors beneficial
to the society as a whole.
Who is the right person to
determine what is and what is not beneficial for the society as a whole ? It is the individual who is finally benefited. If an individual thinks something
benefits him, he will generally be ready to spend more money on it compared to
other things he can spend it on. Taking the aggregate for the whole society the
total money offered for a service in the market will depend on how beneficial
the society considers that service for the society. The price signal will
propel the ‘evil’ capitalist to invest his money in producing this service .
This is the market mechanism.
What is the government
mechanism? This starts with first rejecting the knowledge and experience of
millions of individuals in the society who are deemed incapable by the
socialist of knowing what is good for them. It is then assumed that a set of
bureaucrats and elected ministers will be able to make better calculations on
how much to invest in each sector , than the sum total of all individuals in
the society exercising their will through the market. The next step is granting
monopoly powers to these bureaucrats and ministers and exclusive rights to
collect(tax) and spend other people’s money. Ironically this is the same
socialist gang which came to power citing research on how bad monopoly is and
how monopolies lead to inefficient outcomes!
The above just talks about the
theoretical reasons on why the government mechanism is worse . I don’t think I
need to cite empirical evidence to support this. The Indian experience with
socialism is not something which needs to be cited again and again.
IITians have brought laurels to the country. Even US
presidents have named IITs in their speeches!
IITians send foreign currency back to the country !
Yes, US presidents have named
IITs in their speeches! What do you make if it ? If Coca Cola praises some
policy of Pepsi, what do you make of it ?
Of course US Presidents will
praise IITs. IITs provide USA with cheap labor at the Indian taxpayer’s expense
. To elaborate, IIT model takes money which should have gone to the
poorest Indians , gives them as subsidies to better off Indians to improve
their skills which increases the supply of technological labor
for American companies. A win-win for USA.
Yes they do send foreign
currency back to India . They benefit from government subsidies at the cost to
other Indians and send back money to ‘their own’ bank accounts. Now will
the real socialist , please stand up ! If this is a good outcome, it is a
justification for a policy where the government goes a step further and
subsidizes meritorious Indian students to be sent to private American
universities . This will give you more of the above outcome . What do u
think now ?
IITs have led to much technological progress in the country
There is a very apt depiction of existing
governments. Government is what breaks your legs, uses tax money to provide you
a subsidized wheelchair, uses tax money to build accessible infrastructure and
then points out to you that you are moving around so well due to the
government.
Similar is the case with this uni-dimensional simplistic argument. Yes
there is no doubt IITs have contributed to technological progress. At what cost
? What would have happened if there were no IITs. Would there have been
technological progress ? What would have been the extent of technological
progress ? Would the Internet have existed if the US government had not done something
about it?
Where did the government get the money from,
which it used as funds for IITs? As
taxes from the private individuals.
What would these private individuals have
done if the government would not have had taken this money from them? Most of
them would have done anything to make more money out of it.
What is the mechanism to make money in a
free market ? Provide something in the market which society values .
What is the final purpose of technological
progress ? To provide something which society values .
What would the private individuals have
done to produce something of value for the society ? Invested in technology where it is required to fulfil society’s needs.
What is the right amount of investment in
technology ( mind it any money spent on technology must reduce money spent on
something else) ? To that extent which maximizes value for the society considering
everything this investment gives society and what it snatches.
Which model would tend to move towards this
optimal level of investment ? Take thousands of examples from the history of
human civilization (or just from India) and answer for yourself.
Which model would have been more efficient
in terms of Return on Investment ? Take thousands of examples from the history
of human civilization (or just from India) and answer for yourself.
This idea is not specific to IITs. This is
a feature common to any governmental investment . Just ask these questions .
What is the right amount of investment in Sector X? Which model tends to go
closer to this ‘right amount’ and is efficient?
The primary reason why governments go wrong
in estimating the ‘right amount’ is because they are not looking at profits
which means they are not looking at value provided to society. They say they are looking for value provided to society,
to get your votes, but they are not and they can’t. If they were they would have
sold off Air India.
If a group of ministers and bureaucrats could
fathom all the decisions the millions of humans in the market are making every
moment, depending on their subjective emotions, objective calculations and things you cannot even imagine, they could as well have been
supermen. And we know there are no
supermen around !
Your stand is hypocritical, you have yourself benefited
from this subsidy!
What should you do when you know some
policy is wrong? ( I am not implying that I understood that the policy is wrong
when I took the decision more than a decade ago, I am just considering the case
if I did)
If you are in a position to change the
policy, change it.
If you are not in such a position, consider
two cases , one in which you take the undue benefit of the policy and a case
you don’t.
If you do, there is someone else who
suffers. It is easier for you to
convince this one person that the policy is wrong! (convincing other people is
as easy or as difficult as otherwise) . Yes, you do run the risk of being
labelled a hypocrite.
If you don’t take the undue benefit,
somebody else does . It becomes more difficult for you to convince this person
that the policy is wrong. Along with that, people question your motive and call
it jealousy against those who actually
benefited.
The first case of being labelled a
hypocrite is better. At least they don’t
reject the idea as being motivated by personal greed and jealousy, though they
may reject for other reasons ( but that can as well happen in the other case)
IIT model is socialism of the
worst kind
Socialist goals
are commendable. But real world socialism generally produces results contrary to
the goals.
The right model
to move in the direction of the socialist goal of reducing inequality from the
current state in India is the free market. The right way to reduce inequality
even further than what the free market provides is the ‘right kind’ of socialism:
redistribution of wealth through time bound income independent cash transfers.
Coming back to
real world socialism , even they can be classified under various categories. All
are bad but some are less worse than others. Some actually do help some poor at
the cost of other poor, while increase inefficiency and corruption. These are the governmental actions in the field
of food, health and stuff.
IIT
model is socialism of the worst kind. It benefits the better off at the cost of
the worse off. It is very important to clearly differentiate socialism from
free markets cause most politicians try to sell socialism to the poor or
uneducated as socialism and socialism to
the rich and educated as capitalism cause they know its finally socialism which
gives them the opportunity to make money out of government . It is no wonder
that people who say/think they support free markets also get into this trap
that governmental intervention over and above its job of creating a free market, is somehow necessary to make markets work.
The
Government's job is to protect private property, enforce private contracts and
manage stuff where you cannot define ownership and do the ‘right’ socialism if
required. Limited powers for the
government is what will move us in the direction of an equitable and efficient society.
