Tuesday, October 5, 2010

Why wealth redistribution policies prevail?

I had blogged earlier about the dominance of wealth redistribution policies over wealth creation ones in India's poverty elimination strategies. Here is a possible political economy explanation for this skewness in priorities.

There are certain inherent characteristics of wealth re-distribution policies that endear them to the political establishment. Whereas economic growth oriented wealth creation policies are community-centric, wealth re-distribution policies are aimed at the individual citizen (and voter). The direct connect of the latter with the individual confers an immediacy and salience that rhymes with the dynamics of electoral politics.

Individual-centric wealth redistribution policies involve either direct disbursement of cash or other benefits, both of which are amenable to being pilfered or siphoned off to benefit local rent-seekers. More importantly, the diffuse nature of delivery of such benefits provide rent-seeking opportunities for functionaries at all levels of the political spectrum. In simple language, wealth re-distribution policies are more readily amenable to being populist, though it is possible to provide a populist spin to wealth creation policies.

Apart from the electoral politics line, the dynamics of rent-seeking chain provides another reason for the lack of focus on wealth-creation policies at the district-level. The state and central-level political establishment finds it convenient that decisions on the larger wealth creation policies are divorced from local politics. This is since the grass-roots level political establishment gets greased by the rents from wealth redistribution policies, the more distant wealth creation policies provide fodder for the higher level state and central political classes (commonly by way of extorted shares from construction contractors or project developers).

Unlike the diffuse nature of welfare benefits and consequent small size of possible rents, those from wealth creation interventions are concentrated and larger. Further, a balance sheet of the risks and transaction costs with the returns associated with capturing a share of the former may not look attractive for those at the top of the political pyramid. In the circumstances, preying on the concentrated and relatively risk-free returns from the wealth creation policies look attractive. And critical to this attractiveness is to keep it insulated or separate from district level political or bureaucratic entanglements.

In this respect, the rent-seeking food chain is no different from any other system. While in terms of numbers feeding the chain, the pyramid is regular, in respect of total amounts (rents) being fed upon, the pyramid is inverted (remember the food-chains in drugs trade and other criminal enterprises, made famous by Freakonomics!). In other words, the rent-seeking from wealth redistribution policies (like the various targeted welfare programs) is an example of large numbers feeding on a not-so-large pie at the bottom, whereas that from wealth creation policies is an example of small numbers at the top skimming off the major share from a large pie.

Our elections are fought mostly on competitive populism centered around individual benefits. Therefore it is natural that the delivery of these benefits assume center-stage of local administration and the major share of the work of the District Collectors revolve around them. In contrast, since wealth creation policies do not play a major role in electoral politics, the district administration is not immediately and closely involved in their implementation. Add in the need to keep wealth creation policies separated from district-level decisions, and the skewness in priorities may not be surprising.


Anonymous said...

couldn't get who are rent-seekers?

gulzar said...

in this case, politicians... at all levels - local, state and central

sai prasad said...

I think you are leaving out a good number of others..