The economics of false philanthropy

The economics of false philanthropy by Sauvik Chakraverti  

03 January, 1998  The Indian Express 

Watched some dhotiwallahs and topiwallahs arguing on TV as to which party was most `pro-poor'. They all seem to want to help our unfortunate fellow-citizens. But what do they give the poor, and what do the poor really need?

When I studied economics in Delhi University in the '70s, they taught us something called `The Theory of the Vicious Circle of Poverty'. This stated that, because the poor had low income, they had less to save and invest, and so were stuck in poverty. The only way out: statal subsidies.

Lord Peter Bauer says that if this theory was true, the world would be still in the Stone Age. The world is a closed economic system: no resources have come in from Mars. Every country that is `developed' today started off underdeveloped. Impoverished migrants built America -- and Hong Kong. What is poverty then?

Poverty is nothing but the absence of economic achievement. If you seriously want to tackle mass poverty, you must vastly expand the opportunities for poor people to make these achievements. How?

Economic achievements are made in markets. Here, you can sell something: your labour, some guavas, or perhaps a ripe pumpkin. If you're lazy, and people are charitable, you can hang around in some corner and beg. Many do. Observe any Indian market and you'll see them all: the big shops, the small shops, the hawkers and peddlers - and the beggars. Certain principles emerge.First, that markets are urban. Therefore, poor people will flock to urban centres to look for economic opportunities. If you truly want to help poor people you must nurture and expand the urban economy. Singapore had 250,000 hawkers in its Central Business District in 1965. They created special hawkers' markets in newly built outlying residential areas. Today, the very same people are part of Singapore's tax paying middle class. Here, a `pro-poor' communist government simply chucks out Calcutta's teeming hawkers and calls it Operation Sunshine! South Asia's `informal' economy is growing two times faster than its formal counterpart. Here, a `pro-poor' politico-bureaucratic set-up eats up subsidy money, completely neglects urban areas and allows petty municipal and police functionaries to prey on the surpluses of the informal sector. You don't have to look very far: huftha money is collected from ice-cream vendors on Rajpath, right under the President of India's nose, because they stay open till very late at night. In Singapore, they pay great attention to `nightlife'. Cities shouldn't sleep. Our urban economies, unfortunately, shut down every evening.So, all that statist economics with its vicious circle of poverty does is divert scarce resources to finance a politics of false philanthropy. By teaching this ridiculous theory in universities, the state creates `economists' who view poverty to be something incurable without direct statal subsidy. These economists study poverty intensely. Many JNU dons have written weighty tomes on poverty.

Real economists study prosperity, and prescribe means my which prosperity is attained. Adam Smith looked into the `wealth of nations' - and prescribed free markets. Statists don't believe in markets. They believe the poor need the state - not the market. How can they ever make this country prosperous?So what is all this `pro-poor' talk really? Just this: false love. Thesedhotiwallahs and topiwallahs just talk of how their hearts bleed for the poor and the downtrodden. They espouse high socialistic ideals. In reality - and this is fairly obvious today after 50 years of false love - they simply milk away our economic surpluses, from both formal as well as informal sectors, and fund expensive `schemes' based on nonsense economics.

What the poor really need is urbanisation with an eye on the urban economy. This is a country with 10 mega-cities, 100 cities, 5,000 big towns and innumerable small towns. The STD index still doesn't list them all. Highways and inter-city rail connections are horrible. The poor have no chance to make economic achievements because the state has not enabled them to do so. We must do away with this subsidy-culture fast, and invest in an infrastructure that generates prosperity.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.

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