FOCUS ON THE PEOPLE
Development Planning cannot fail entirely. Money that flows cannot get lost in the wrong pockets all the time. But development is also not all about transfer of money or food. On the contrary it is mainly about capacity building. At the centre of this capacity building exercise lie health and education. Throughout the Developing World a lot needs to be done on preventive and curative medicine to combat diseases like dysentery, malaria, and AIDS, not all of which are life threatening but take lives anyway by millions. Universalizing primary education is nowhere near a finished job. There is also a crucial need to make the upper tiers of education effective in generating productive employment and expanding the frontiers of research and innovation. Together, health and education take a nation a long way in the direction of inclusive growth. Infrastructure development, setting sectoral priorities and choice of appropriate technology are all important strategic considerations in the planning process, but answers to all these strategic questions must be sought with reference to the people, and since transfer of money and goods is not the main objective, the people must be involved in the development process, as planners, supervisors, workers, evaluators, as well as beneficiaries. Role of the people as development agents presumes some degree of human capital in them. Health and education are the two basic forms of human capital as well as being objects of value themselves, which makes them twice desirable – as means to an end, and as ends in themselves. Bringing the people to the centre-stage of the development story also opens up the possibility of creating a vital input of production free of any material cost, namely the social capital.
All these look smart as a roadmap of development. But the actual journey is made complicated by the fact that we have to deal with real people and real communities. We are to encounter diversity both at the level of the individual and the community, and the interface between the two often leads individuals to make choice which beats text-book concept of rationality. The task is made even more complicated by the fact that people may respond to our queries in anticipation of gain or loss, and we may end up either overestimating or underestimating their needs at the very outset.
At the heart of development planning, therefore, lies the primacy of understanding people as agents and beneficiaries of development. The following may be a sample checklist that we may prepare when we try to draw a development plan for a given community.
1. Are the people aware of the opportunities they are not utilizing, or the dangers that different aspects of their lifestyle pose to them?
2. What may be the best method to convince them that a better alternative exists?
3. Is awareness of a better alternative sufficient for them to adopt the alternative practice? If the answer is no, does free/subsidized provision of the alternative make any difference? If the answer is still no, we may wonder whether the provision might have entailed some non-monetized cost to the users, or got rejected by some social norm.
4. Who should be in charge of the support programmes? If economies of scale or calibration of efforts across communities is not an issue, decentralization is the favoured word. This follows a flawed analogy of a community with an individual. An informed individual is supposed to know her wants the best, know her resources the best, and therefore if she is made in charge of herself, with required supplementary resources made available to her, the result is expected to be the best. The community, on the other hand, is composed of many individuals in a hierarchical power structure. Interests of individuals are often conflicting, and left to itself, the ‘community’ may manage a support programme in a way that reflects the existing power relation more than the requirement of development. What kind of vigil and remedial measures are called for?
5. Development projects entails outside funds and services of employees who may not be the direct beneficiaries of the projects. What may be done to ensure that the money is not embezzled and the employees do their work?
Answers to the above questions may vary from community to community and country to country. Answers for villages may be different from answers for cities. Design of development projects must, therefore, be custom made, unlike one-size-fits-all approach that is a favourite among armchair planners.
INCENTIVES – AT THE LEVEL OF THE INDIVIDUAL
Diversity in project designing does not, however, mean diversity in economic logic. On the contrary, unity in economic logic demands diversity in designing. The economic principle that holds the key is a single word, incentive.
When we try to make an individual act in a particular way, our success depends on the incentives we offer him. There is no fixed formula to identify the incentive. A mother of two who wants to send one of her sons on an errand may have to declare to her timid older son that there will be no T20 cricket on television today if he does not bring the pack of salt now. However, she would probably try a different method with her headstrong younger son. She will most probably tell him she has a nice little younger son who would stop at nothing to help his mom out. This mother will bear us out that to get a job done by someone we need to know that someone, and work out an incentive plan accordingly. There is no such thing as the incentive.
How an agent will respond to an incentive does not depend only on the nature of the agent (timidity or temerity, greediness or saintliness, die-hard optimist or doubting Tom), but also on the relevant information he is endowed with. Someone who does not know that a preventive vaccine is ineffective if all the shots are not taken may not care to bring her child to the free clinic for the third shot when it falls due after three years.Having said that, there is no guarantee that the child will get the first shot in the first place, even when the parents know that it is good to have the child immunized. They may very well reason that though immunization is a good idea it is not good enough an idea to merit taking the child to a health clinic 3 kilometers away under the scorching sun, and forgoing half-a-day’s wage income in the process. Even if the clinic is in the village, the parents may still decide not to go there, because they may know from their experience that the doctor is most likely to be absent. Clearly, for an immunization program to succeed, it is not enough to have free clinics. The beneficiaries need to know that their time will not be wasted on futile visits to the clinic. This is important, because poor people are extremely sensitive to the cost of time. Any factor that adversely affects their assessment of benefit, like the doctor’s absenteeism or lack of supplies, is as detrimental to the project as lack of any awareness about the benefits from the project.
This brings us to the supply side of the incentive story. Why is the doctor absent most of the days? Is she a habitual shirker? If she is, replacing her may be a solution. If she is not a habitual shirker, we should better try to know why she absents herself. If the alternatives are lucrative for the doctor and she is likely to relinquish her job if government makes her life difficult through monitoring, it is perhaps a better idea to look for paramedics who can handle preventive medicines satisfactorily. But the paramedic too may not turn up for duty if the duty schedule is made too exacting for her. Sometimes, being a little realistic and flexible in duty assignment can solve a major problem of project implementation.
The above example demonstrates that information, opportunity cost and feasibility are three major factors that need to be factored in while designing a development project.There is another aspect of the incentive problem that may be teased out from the above story. The preventive vaccine may not be taken even if the family understands that the long run benefit from immunization is worth a visit to the clinic (let us keep the positive visit related cost to the minimum so that the irrationality look starker). This seemingly irrational decision is not uncommon among many of us who just do not want to take the trouble now to get a larger benefit in future. Psychological discount factor for future returns is often much larger than what an objective assessment may suggest. This is known as the time inconsistency problem. The logical solution is to wipe out the ‘trouble now’ element completely, so that there are only benefits to get. Let the paramedic visit each household with her medical kit. Let a simple devise be placed on the outlets of tube-wells so that water gets automatically chlorinated without the user having to do anything extra. Let future benefits flow through default actions today as far as practicable.
INCENTIVES – AT THE LEVEL OF THE COLLECTIVE
There is a different kind of incentive problem when collective action is needed to provide a public good. In one set of cases it is non-excludability of consumption coupled with insignificance of individual contribution that explains why nobody may contribute. In another set of cases non-excludability is not an issue as your non-cooperation by itself takes the fruit beyond your reach. You do not cooperate because you do not believe that others will, and you know that in that event to go alone is to bleed profusely. Both of the above two sets of cases betray a lack of trust among the community members who, therefore, engage in strategic maneuvering. The essence of these dilemmas may be captured in the following two non-cooperative games: a Prisoners’ Dilemma game and a Coordination game.
Game-I: Prisoners’ Dilemma
I
|
you
| Cooperate | Don’t cooperate |
Cooperate | (10,10) | (-5,20) |
Don’t cooperate | (20,-5) | (0,0) |
In Game-I there is only one pure-strategy Nash equilibrium, which is non-cooperative – (don’t cooperate, don’t cooperate). The equilibrium outcome is also Pareto-inefficient. This is a scenario presented by the first set of cases above. If everyone else in my locality dumps garbage on the street and in the pond, it will be stupid on my part to cart the garbage of my home to a corporation vat. Evidently, this extra effort of mine will also not make my locality garbage free. On the other hand, if everyone else keeps the locality clean, there is no reason why I should also join them. The garbage I dump on the street will be taken care of by my neighbors, and I can enjoy the non-excludable consumption of clean environment without contributing any effort to collective pool. I am the quintessential free-rider. Since rationality is a common knowledge, everybody tries to free ride, and, therefore, there will be nothing to free ride on. The Pareto-optimal outcome (10,10) is always there for the asking, but remains an incentive-incompatible disequilibrium outcome. Solution here seems to lie in public provisioning. Efficient public provisioning involves making not dumping the default action – a bin in front of every dwelling, a bin on every approach road to the pond, emptied twice a day. Public provisioning is called for many more public goods -- building village roads, digging ponds, watershed development, social forestry --- where people ask to be paid to build assets for themselves, kind of things that NREGS can be tasked to do.
Game-II: Coordination Game
I
|
you
| Cooperate | Don’t cooperate |
Cooperate | (10,10) | (-10,0) |
Don’t cooperate | (0,-10) | (0,0) |
This game has two pure-strategy Nash equilibria, namely (cooperate, cooperate) and (don’t cooperate, don’t cooperate). Clearly, the cooperative equilibrium is Pareto optimal. The non-cooperative equilibrium is Pareto inefficient – we may call it a low level equilibrium. The incentive problem is, if the system is caught in a low level equilibrium nobody has any incentive to make any unilateral effort to change the outcome, which is (0,0). Players’ strategies, as a game theorist would describe, are best against each other. This game, however, has one crucial difference with the Prisoners’ Dilemma. This game has another equilibrium which gives a Pareto-optimal outcome– (10,10). Whether the system can attain this outcome depends on whether there is adequate coordination among players. If coordination exists, the resultant outcome is incentive-compatible. If you and I cultivate paddy on contiguous plots of land and the plants are affected by a highly infectious disease every season, both of us incur heavy loss in the field. If both of us spray a costly insecticide on the sprouting plants, both of us can avoid the loss. However, if only I spray the medicine and you don’t, your stricken plants will infect my plants and I will lose my crops as heavily as you will, but I will lose an extra amount, because I have spent on the medicine. I will have, therefore, no incentive to invest in medicine if there is no prior investment history for both you and me. But since my rationality is known to you and you yourself are rational, you will act exactly like me and both of us will continue to lose crop. Suppose a Third Party comes with an offer to both of us: If you buy medicine and spray it on your plants, but you lose money on medicine because the other one has not used medicine on plants, you will be more than compensated. Now it pays to buy medicine and spray it on plants irrespective of what the neighbour does. Introduction of a Third Party with a clever offer can solve the coordination problem once and for all without the Third Party having to actually spend any money on compensation! Trust, like physical capital, can be manufactured and used to raise production. But social capital, unlike physical capital, tends to accumulate on its own. Cash starved governments in the Third World can do a world of good to their economy, environment, and above all their poor people by fostering social capital by assuming the role of the Third Party. THIRD PARTY – THE PRODUCER OF INCENTIVES
Finally, let us consider the incentives that drive the people’s representatives themselves. Since people are not a homogeneous mass, “people’s representative” is an oxymoron. There is a remarkable degree of convergence of views on this among intellectuals from Rousseau to Kenneth Arrow. People’s representatives, therefore, are only expected to look after the interests of, apart from themselves, the dominant section of the society. Given this premise a Panchayat is likely to discriminate against the weaker sections much the same way as the State or the Federal government does. Proponents of Political Economy argue that this creates a hopeless closure in which incentives so fervently propounded in this paper will not be forthcoming. The Third Party -- governments at different tiers -- which is in charge of providing incentives doesn’t itself have the incentive to provide them. The Press, social activists or NGOs can act as the Third Party but prospects are not too bright because, as the Political Economy school argues, entrenched interest groups will have the final say or may even masquerade as NGOs. Nothing of significance can be done without an institutional overhaul.
Not quite. First, the local elite may be oppressive to the local have-nots, but these disadvantaged people may get sympathetic treatment from the distant elite higher up in the political rung. Thus if the rules of decentralized decision making or rules of representation in decentralized bodies are set centrally so that the local elite cannot ride roughshod over the weaker stakeholders, the results of the decentralized planning and implementation are likely to be more equitable. For example, a small change in the rule of as routine a practice as convening meetings may have dramatic effect on the level of participation by the marginalized people. In a randomized control test in Indonesia, it was observed that when people were formally invited to meetings through letters, attendance increased markedly and so did participation in the deliberations (Banerjee & Duflo 2011, p.249).
Secondly, propagating an ideology may act as an incentive for the powerful elite to bring in a right kind of change in the economy. The Indonesian despot Suharto in a bid to popularize his regime set up an efficient network of elementary education which in turn raised the wage earning capacity of an entire generation.
Thirdly, in many cases it is not any interest group but corruption or reluctance of functionaries that holds up development process. When a survey in 1996 reported that only 13% of the discretionary government grant had actually reached the schools in Uganda, it was evident that the district officers had gobbled up the money. When this fact was exposed the higher administration sat up and took note and the target beneficiaries – the school authorities -- started to put pressure for their entitlement. Government started to supply data on district-wise disbursements to the Press. By 2001, schools were getting 80% of the discretionary money (Reinikka & Svensson 2004)! Public exposure of corruption and inefficiency is a potent incentive for the functionaries to act nice. The Press, the competitive politics and the civil society can be very effective Third Parties even under an institutional fabric which is not particularly pro-developmental.
References
1. Banerjee, Abhijit V. and Duflo, Esther (2011), Poor Economics, Random House India
2. Reinikka, Ritva and Svensson, Jakob (2004), “The Power of Information: Evidence from a Newspaper Campaign to Reduce Capture”, working paper, IIES, Stockholm University (2004).
written for the students of Vidyasagar College, Kolkata.
