The Economics of a Girl Child

After Amir Khan talked about it on his show Satyamev Jayate the issue of saving the girl child caught the public imagination. The government machinery swung into action and within no time numerous advertisements were issued by the governments in newspapers. An example of such advertisements is shown below.

Many facebook pages came up like this using particularly touching pictographic material.

What do we infer from such advertisements / initiatives apart from the fact that obviously the girl child is in danger? These advertisements / initiatives seek to ‘increase the awareness’. They want to make people aware of how important the girl child is. However, the point to be noted here is that they depict the importance of the girl child to the society in general and not to the particular parent. It is this dynamics of the importance of the girl child to the society vis a vis the parent which we will explore in greater detail here. Then the government initiatives largely end here i.e. with the advertisements. True there are many schemes seeking to incentivise the birth of a girl child and laws penalising foeticide, but these are simply haphazard in planning and lax in implementation. Is this sufficient or is there an inherent drawback in this strategy?

Let us examine this issue in greater detail.

The Society versus the Individual

The girl child in current context is clearly a valuable asset to the society. Its simple, we need more girls to restore the gender balance. The other reasons – I needn’t even go into them as they are so well known.

Anyways, the point however is that to a parent, a girl child is a cost. She has to be fed (and hopefully educated) through her childhood and when the time comes to reap the benefits of this investment, she has to be married off and sent away. Her benefits flow to some other family. And not to mention the steep costs of the marriage. Thus to an individual parent couple, a girl child is a loss making proposition.

In other words, the girl child has large positive externalities. (A positive externality is a situation when the benefits of a commodity overflow to the society and can’t be limited to the buyer only. So the buyer derives less benefits and hence pays less. So the production will always be less than the socially desirable level.) In such a condition, left to its own, the society will never produce enough girl children (because producing a girl child is a loss making proposition for the parents so why should they produce a girl child). This is a classic case of market failure and hence we need the government to step in.

Returning to the spreading awareness initiatives, we can now question the effectiveness of this strategy. Are girls being killed really because people don’t know how important they are to the society? No sir no, even if all of us are educated to the highest levels, we will still never produce girl children to the socially needed level. Because the economics of a girl child simply doesn’t make any sense.

Then will reducing the expenses of marriage and dowry address the problem? Well it will certainly increase the number of girls (because the costs of a girl child are now less) but it will never produce the socially needed number of girls.

Will increasing penalties for pre natal sex determination tests help? Certainly it has the potential to correct the imbalance. But that will require a very high level of surveillance. Its biggest weakness is that it is a coercive method and tries to solve the problem without correcting the underlying market economics which gives birth to the problem in the first place.

This brings us to the question that what will work… The economics of the girl child is wrong and clearly we must correct the economics if we are to make any headway. In case of a girl child, marriage and subsequent migration is inevitable. So either we try to change the culture where traditionally the parents can’t live on the daughter’s earnings and daughters start to live with their parents only instead of migrating like the sons or we try to enhance the ‘earning power’ of the girls before they get married.

Changing the former may be a very slow process.. So the government must intervene to enhance the pre-marriage earning power of the girls instead of merely try to ‘spread awareness’. A very good case here is that of Bangladesh where each school attending girl is allowed to carry a bag of rice home every month. And believe it or not, Bangladesh performs better than India on almost all gender related indices. So enough of talk or giving fifty rupees as incentive to BPL citizens on each girl born. We need to correct the economics here.

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A Funny Chutukla …

Click here to download pdf

***
Let me tell you a short ‘chutukla’ a dear friend once told me.

***

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. 

If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing. 
The fifth would pay $1. 
The sixth would pay $3. 
The seventh would pay $7.
The eighth would pay $12. 
The ninth would pay $18. 
The tenth man (the richest) would pay $59. 


So, that’s what they decided to do.. 

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner offered “Since you are all such good customers, I’m will reduce the charge of your daily beer by $20″. Drinks for the ten men would now cost just $80. 

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?


They realized that $20 divided by 6 is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving). 
The sixth now paid $2 instead of $3 (33% saving). 
The seventh now paid $5 instead of $7 (28% saving). 
The eighth now paid $9 instead of $12 (25% saving). 
The ninth now paid $14 instead of $18 (22% saving). 
The tenth now paid $49 instead of $59 (16% saving). 



Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
”I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man,”but he got $10!” 

”Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” 

”That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!” 

”Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”


The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill! 



(Never mind all the math, the gist of the chutukla is that rich are overburdened with taxation in our taxation system which suffers from a ‘socialist’ mindset.)

***
And that is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is friendlier.

But does this tell us the complete story when applied to the real life? Let me tell you another chutukla…

***

To save the argument of the chutukla, let me reframe it. Let 1 beer every day be essential for a man to survive. Now obviously poor are poor. They can’t afford even 1 beer. Let us now add weight to the argument of the chutukla. Lets say there is only 1 rich man, 2 middle class men and rest 7 are poor. The rich man has the money to pay for 10 beers, middle class to pay for 1 beer each and the poor have zero money.

Lets say richest man goes in a bar alone and drinks his beer there from his own money. Now when he comes out, our other 7 poor guys and the 2 middle class men ask him to go back in and pay for their beer as well. Now in this second visit the richest man doesn’t drink, only the 7 poor and 2 middle class drink and the rich man pays the entire bill (for all 9) happily. Let this be our initial taxation system (even more unfair to the rich man than the initial chutukla, ain’t it?).

Now enter the real life. In real life, the rich man is never happy paying the bill for the other 9 men’s beers. So he goes and tells the government, “I ll pay you 1 beer (for your election spending or whatever purposes) so that you give me an exemption from paying for say 2 beers.” Now both the middle class men will have to buy their own beers (in best case)… less equity but still acceptable. But it doesn’t stop here. Our rich man now goes and tells the government, “I ll pay you 2 beers so that u exempt me from paying for 4 beers.”… Now what? In the best possible case also, 2 poor men will have to die (or be deprived of ‘minimum needed’ economic resources).

***

In real life, it is obvious that the rich man has all the incentive in the world (except should he be otherwise persuaded by a dissenting conscience) to bribe the government to save his taxes… and the government will have all the incentives in the world to accept the bribe since its overriding objective is to win elections. So in all likelihood the second chutukla is going to prevail. At least 2 poor are going to die, the rich man will invest the saved beer in a say beer refinery and produce 5 more beers tomorrow. GDP will grow and we will call this development. Funny…

The poor are worse off in the system. But they are in majority. So how does the system survive in a democracy like ours? Consider this…
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Lets multiply everything by 2 now and let us assume that 1 beer is essential for physical survival and 1 for other basic needs like education, health, environment etc. which are otherwise essential to lead a minimum “meaningful” life. Now lets eliminate the middle class and club them with poor so that there are 9 poor. Say our rich fellow now bribes the government 4.5 beers so as to save on 9 beers in tax. Now every poor will have his 1 beer of physical survival but thats it. Election time comes and government distributes the 4 beers among the poor (read “populist” fiscal sops or alcohol, cash, mixers etc.), the poor are happy and vote for the government.
***

The rich are happy (they got to save 4.5 beers), the government is happy (it got reelected and also saved 0.5 beers), the poor are happy (they got election time sops). But the poor are still the losers for now they have been condemned to poverty in perpetuity. The poor – they never knew they had a chance of a better life… think of that child who has no future in our society now and yet he finds unparalleled joy in laying his hands upon a kite or playing with dustbin in a park riding it as if it were a horse….

The question we must then ask ourselves is whether in a civilized society (which we claim to be) can we condemn the unfortunate to live lives in perpetual “unfreedoms” (borrowing the term from Sen) given that they may find joy in small things (but which in no way can enable them to overcome their unfreedoms)? Lets not forget that men (and of course women) are human beings and not just a factor called labor used in the process of producing economic goods and services and its only the “accident of birth” which determines whether a man will be poor or rich in an overwhelming majority of cases in a real world society like India. (If you are considering of negating this then I implore you to impartially consider the probability of you being what you are today had you suffered from the “accident” of taking birth in any poor household. In fact at the risk of diverging from the current discussion, I would go to the extent of saying that the only difference between a feudal society and what we have today is that while in a feudal society there was legal sanction to the discrimination based on the accident of birth whereas now we have no such legal sanction but in 90-95% cases, our social and economic construct ensures such a discrimination prevails.)

So what can we do? The most compelling way I think is to “awaken” and “empower” people. Think of this… for 60 years since our independence the state had been providing all social goods to the poor (at least that was the declared aim). I am sure 450 years ago, Akbar would have been doing the same and some 2300 years ago, Asoka would have tried the same… yet none of it worked (or let me claim “could have” worked)… this is because the truth of all such efforts, however praiseworthy was that they were “acts of generosity by the state”. If you are a poor and the state is providing you with food, health and education, it was state’s “generosity”. It wasn’t your right… So if you happened to get nothing there was nothing which you could possibly do to redress the situation. However, if we are to really eliminate deprivation, it should be a matter of “right” for the poor to claim such benefits. Just because they happen to exist, they should have the right to have proper food, proper education and proper health… and if they don’t get it they could take action against the state…

MGNREGA (the national employment guarantee scheme) was implemented on this philosophy by making employment a right and not an act of generosity and dare I say it has been one of the most meaningful and successful schemes ever (true, there are defects but dude, we don’t live in a bookish world. In real world everything has defects).

P.S. A good read on MGNREGS here… http://www.indiawaterportal.org/sites/indiawaterportal.org/files/mgnrega_sameeksha.pdf