Arvind Subramanian: An alternative to reservations

OVERVIEW

Graduated education vouchers could be an answer to the rising discord over reservations.

Bertolt Brecht famously said, "Food first, then morality." The Lalu-Mayawati formula has been "dignity and self-respect first, then..." Then what? Lalu and Mayawati deserve great credit for securing self-respect for the backward classes, which centuries of oppression have denied them. But can they take the appropriate next step, can they respond to the "then what" question?

One problem is that electoral arithmetic continues to favour parties that play the politics of identity and self-respect, making reservations an issue that now commands support across the political spectrum. Even the BJP, whose rise to power owed in part to its anti-reservations position, is embracing reservations, or at least not repudiating them publicly.

Fundamental economic change has made the problem worse. The turnaround in India's growth has commensurately increased the returns to, or rather the rents from, very scarce education. Reservations, which act as a gateway to education, have acquired greater political resonance because they are now an instrument for allocating large and rapidly rising economic rents.

But this economic change has simultaneously unleashed another, healthier dynamic in the private realm which works to dissipating economic rents. Economic growth has set off a mad scramble to acquire education. Even, and especially, the poorest have internalised the imperative of acquiring education to survive in the new knowledge-based economy. And supply has, albeit to a limited extent, responded.

The choice facing politicians such as Mayawati is this: should they focus their efforts on allocating these rents, jockeying""through reservations""to transfer more of them towards their constituencies; or should they try and dissipate these rents by providing more widespread and better education for the backward classes?

Tempting as it might be to play the allocation game, especially since the stakes are so much greater, the costs could prove prohibitive. The clamour to be legally downgraded to benefit from reservations will proliferate, and it is not inconceivable that we go from aggregate quotas to sub-quotas and sub-sub-quotas for specific castes and groups. Down this path awaits bitter and divisive social conflict that can help no group. A wiser course of action, especially if the benefits are to be widely spread to the backward classes and not restricted to a favoured few, would be to opt for the dissipation of rents by spreading education.

But how might this be done? India's past record on basic education has been so dismal""as the recent ASER reports by Pratham, and the work of Karthik Muralidharan and his colleagues, have shown (see his piece in Seminar, issue no. 565)""that new approaches to the spread of education need to be tried.

Luckily, there is an attractive policy option: graduated education vouchers (GEVs). In essence, all parents would get a voucher that would cover most of the cost of educating their children. But for the poor, the value of this voucher would be augmented, perhaps even significantly, depending upon the state and circumstances. Ideally, poverty or the level of income should determine the augmentation, but it might prove politically necessary or expedient to use social categories such as caste as the determining variable.

Why vouchers? Parents, more so than in the past, want education for their children. The public sector is unable to meet this demand, while the private sector is increasingly able to fill in for the dysfunctional public sector. Even the poorest are willing to forego free but useless public education for costly but (slightly) better private education.

Yet, the fact that the poorest are paying for education and foregoing other necessities is unfair and unjust. India is therefore ripe for a voucher system that would combine public financing with the private provision of basic education. A voucher scheme would simply accelerate an ongoing market-driven trend towards the spread of basic education. A successful voucher scheme will require deregulation to allow the private sector to meet demand, but the government will have an important role in ensuring quality through effective certification and accreditation procedures.

Why graduated vouchers? First and foremost, by providing more money for children from backward groups, it would appease the clamour for equity. Politicians will be seen as doing more for the downtrodden. Second, bigger vouchers might even be necessary to overcome any discrimination by private providers against enrolling children from backward castes; in other words, the cost of educating these children might be greater, requiring greater public financing.

Graduated vouchers could be politically appealing. Bad policy choices often stem from an attribution problem: voters can more easily credit politicians for targeted favours such as reservations than for diffuse benefits, such as better economic policies. Ironically, with vouchers, like for other handouts, identifying the benefactor would be easy.

A general concern with voucher schemes""their potentially negative impact on public education, as students flee to private competitors""would be less relevant because public education, particularly in the poorest states like Uttar Pradesh and Bihar, is difficult, if not impossible, to repair. That makes private provision a viable, even unavoidable, long-term alternative.

What about the opposition to and costs of GEVs? The opposition to voucher schemes will come mostly from public teachers with their close links to local politicians who will be threatened by the competition and potential loss of livelihood. But the populism inherent in the voucher scheme""handouts which increase with backwardness""could gain a lot of resonance and help soften some of the opposition. Moreover, the constituency that benefits from vouchers would be very large""all those parents who are now incurring financial costs to educate their children. Mobilising this constituency should prove feasible.

To be sure, GEVs will require additional increases in government expenditures. Luckily, estimates suggest that these might be much less than running public schools. In practice, the government will probably have to finance vouchers and continue paying teachers in the public system. But the payoffs would justify the additional costs.

"Dignity and self-respect first, and then more dignity and self-respect" is a worthy sequence of objectives for politicians such as Lalu and Mayawati to pursue. But in the new knowledge-based India, the three keys to economic advancement, and hence to securing the enduring self-respect that the backward classes rightly seek and deserve, are education, education, and more education. We are battling over the rents that reservations and limited educational opportunities have created. If we extended these opportunities, there would be less to fight about.

The author is Senior Fellow, Peterson Institute of International Economics, Washington D.C. His website is https://bsmedia.business-standard.comwww.iie.com/publications/author_bio.cfm?author_id=488#, where papers related to previous columns on India's institutions and exchange rates, and to other topics, can be found