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Stealing from the ultra-poor: Combined assault on morality and economics

Very soon, we will be implementing our own evaluation of the government livelihood programs in the three states of Bihar, Chattisgarh, and Tamil Nadu. As experienced researchers in the field, its never a bad thing to read about the programs that have been implemented in the past to see what are some interesting questions that stimulate further research ideas. The writer in this opinion piece explores the possibility of government enacted guaranteed employment program causing higher inflationary pressures. The logic is that because rural poor are getting paid INR 120 per day for practically doing very less, this has created shortage in agricultural labor supply as work-seekers are getting attracted towards NREGA. They are moving out of farms where the work is supposedly more physically demanding. As a result, NREGA has actually forced agricultural land owners to buy labor at higher prices which has lead to the increase in the cost of supplying food products; thus hiking up food prices. 

The counter-argument is that why shouldn't agricultural landowners and rural firms who want to hire these laborers pay higher prices than what is offered by NREGA? What kind of productive business are they doing when they can't even pay laborers wages that are below the market rates. In fact, they should be getting more for their work. Aren't the rich farm and business owners just playing the status-quo card, favoring top-down economics and insisting on paying lower wages to laborers such that they can maintain their hierarchy and extend the perpetual inequality of the society? Aren't these outcries a clear support to continue the extractive institutions that have hampered development (read some of the posts in Why Nations Fail) for centuries? The author cites Tyler Cowen of the blog marginal revolutionan advocate of the government policy of providing stable unemployment benefits to its citizens through social security and food stamps in the first world so that it forces firm owners to be more productive and hire workers without exploiting the status quo. Obviously, these are strictly first world viewpoints for a country that has yet to go a long way in terms of properly identifying all of its citizens, leave alone devising social security plans for them.

The larger issue, as the writer correctly points out, is the channeling of funds in NREGA. The layers of bureaucracy that endowments go through for programs like NREGA attracts many rent-seekers. Sandip Sukhtankar, assistant professor at Dartmouth University, writes in his article that the Planning Commission's estimate for government transfers actually reaching the poor is dismal at 27%. Further, he writes, the two methods applied by rent-seekers to embezzle funds are through under-paying workers and over-quoting the number of hours worked. While the first can be tackled by directly asking the workers to quote their salaries, the second one requires seeing records that the rent-seekers or their supervisors are in charge of, and a possible collusion with an incentive to channel funds illegally just makes it hard to find where exactly the funds were lost.

Measuring corruption is one of the toughest problems faced by economists because the information required is often in hands of the rent-seekers themselves. A comprehensive review of the academic literature to study corruption can be found in this article, written by Olken and Pande. In light of this information, I would welcome comments from readers on what they think are some of the possible ways in which corruption could be measured in government livelihood programs? Would a more active community involvement through awareness programs be enough? Can funds directly be channeled into a third party's bank account (most rural workers are unbanked) from which workers can withdraw their payment? What can be done to increase the opportunity cost of rent-seeking behavior (described as the "outside option" by Becker and Stigler in their paper)? 

Thoughts are welcome!


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