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Wednesday, April 2, 2014
Corruption Not Healthy For Indian Economy
Corruption not healthy for Indian economy: James Joseph Heckman
Q&A with Nobel Prize winner and Professor of Economics, University of Chicago
Somesh Jha | New Delhi
April 2, 2014
James Joseph Heckman, a 2000 Nobel Prize winner for his work in econometrics and microeconomics and Henry Schultz Distinguished Service Professor of Economics at the University of Chicago, was in India recently to deliver a lecture on “the Economics and Econometrics of Human Development” at the Institute of Economic Growth in Delhi. The economist, known for devising "Heckman correction", tells Somesh Jha that corruption is a serious issue in India which needs to be addressed to reduce inefficiency. Amid the Bharatiya Janata Party and the Congress sparring over employment numbers, he favours absolute numbers and rather broader measure of welfare to gauge the scenario.
You talked about the "underground" economy in your lecture. One important development that India has witnessed is that corruption is taking the centre stage in the political discourse. How do you view it? Corruption creates a sense that it's not a fair game. In corruption, some people get benefit over the others and that creates inequality. Some people get very rich because of this, and others don't. So, it's a contributing factor to inequality. If you have a social system which is corrupted this way, it is not healthy for a democracy like India.
With this perspective, what is your outlook on the Indian economy five years from now? I have not done any macroeconomic projections for India but I strongly believe if reforms continue and especially if corruption is got rid of, moving forward, the robust economic growth will continue. But, if corruption continues, in effect, if degree of regulation is pretty high for private sector that would be very negative.
I would strongly encourage all political parties to think about reforming and making sure that proper incentives work. If you give people capabilities and the person cannot use that, it is not worthwhile. I think curbing corruption as I understand is a very serious issue in India. I was talking to a group of people at the Chicago Affair and looking at some of the books on India and it seems that corruption in India is a serious matter. Anything that reduces efficiency and promotes inequality is never a good thing. Two major political parties, the BJP and the Congress, are debating on the assessment of employment numbers in India. While the former says that it should be measured in absolute numbers, the latter insists more on ratios. How would you assess this? I don’t rely on ratios. Usually, unemployment statistics by themselves are not very good. The point is you have to see if people have become better off. In US, it happens that the unemployment ratio goes down because people drop out of the work force and that’s not a very good measure.
So you mean one has to look at the absolute numbers? Well, you have to actually see the welfare and look at how many people are working in economy, what their earnings are and what their relative benefits would be. I would think of a bigger measure.
According to a survey by the National Sample Survey Office (NSSO), the labour force participation rate among women declined by around seven percentage points to 22.5 per cent between 2004-05 and 2011-12 in India. During this period, average economic expansion was more than 8 per cent. Why do we get this contrasting picture? In a lot of families there are two earners, male and female. I do not know the Indian data in this case. One explanation could be that their (female) earning could be playing a less important role as the male incomes could have gone up and hence, she can spend more time with children or in valuable household production at home. The declining participation rate could also mean a great boom because many women are working today because of extreme poverty in family. Maybe, they are working in less menial jobs and even going to school more now. In US and other countries, as a result of economic expansion, the work rates decline. So you have to be careful in assessing (as there could be many reasons).
What do you think should be the prime agenda for the political parties in India especially when it's an election year? I would suggest that both parties (the Congress and the BJP) should look at creating opportunities by giving the whole society a greater opportunity to succeed.
In India, official estimates have shown that whereas poverty went down sharply between 2004-05 and 2011-12, inequality increased marginally. Do you find any contradiction in these numbers? This happened in China and Brazil as well. One has to be careful (in assessing this) as inequality is a relative measure. Suppose, at one point of time, population distribution is poor and it increased with time and if the poorest person is earning more than what he earned 20 years ago, what could be happening is that you have more inequality measured by the Gini coefficient but people are relatively better off.
That's what happened in China. There is a difference between relative dispersion and absolute dispersion (poverty). In many cases, the real incomes are worse than they were before. So, I would separate the two (poverty and inequality).
So, what measures do you suggest to get people out of the state of poverty? We should probably think more of pre-distribution rather than re-distribution. I would want to supplement the former with the latter. In pre-distribution, before people enter the market, you give them skills so that they can compete more evenly in the market. Also, you might want to focus on very young people. Some of the policies are efficient and economically fair.
When one gives facilities to improve health care and pension to very old people that can, at times, not have much of an effect on the rest of the society. But if one makes millions of children more productive, that is going to benefit everybody. They are going to earn more, support a better social security system and even their parents. There is going to be less burden on health aspects then.
Do you think that cash transfers could be one of the measures? No, I would think about policies that create more capabilities and focus on the early years, particularly for the section which is neglected.