Home > Uncategorized > Why #Aadhar was spiked: DCT as a disruptive innovation

Why #Aadhar was spiked: DCT as a disruptive innovation

This was written in November, 2012 but got spiked.



DCT as a disruptive innovation

Imagine yourself as a 20s something, male or female, who has graduated out of the local college in a northern cowbelt town of some 2 to 5 lac inhabitants, with a degree in arts, science or commerce. How do you find a job?

A lot of people will at this point cite competitive exams for entry into some kind of government service. These jobs, much preferred for their cradle to grave job security with no professional risks, account for barely 3 to 4% of all jobs available. Assume our lad or lass is a median student and hasn’t had much luck with such exams. What then? How are 96% of the jobs that our economy creates parceled out to the youth? What is the recruitment process here? How does our young 20s something himself or herself a job in real life under such a setting?

Barring a handful of private sector jobs in the top 1000 or so corporations in the country, that account perhaps for another 5% of the total jobs apart from government, we have no formal process of recruitment for the balance 90% of jobs open to a young person starting out in life. Our employment exchanges are in shambles and of little use here; most don’t exist in small towns. There is perhaps a rice processing mill or two in the town I have in mind as I write this, a soybean processing plant that’s doing very well, 20 odd small scale industries that make equipment for farming, dozens of motor bike & truck repair shops, kirana shops, mandis, half a dozen hotels catering to tourists, bus & truck operators, a stone processing quarry and an army of babus that “runs” the district. How do you find a career in this small world, especially as the 4 colleges churn out some 3000 students like you every year looking for the same jobs?

Apply, apply and wait for reply? It doesn’t work. In such a setting the only way to get a job, admit it or not, is to work through the family network. Word goes out that you are looking for a job. Your dad will be very grateful to who-so-ever in his circle of relatives, friends, associates can offer one or route you to one. These networks of contacts work within a community of contacts. They may spill across caste, religion, income and other dividers but, by and large, they are local, community based and closely observes the general “biradri” barriers. As shorthand, you may call these the patronage networks, and these are pervasive. They help organize your social, economic, and political life. They broadly determine where you will work, what you will earn and whom you will marry. The only way to escape the clutches of this system is to either drop out of society or to excel at school & find a job via a competitive exam. Barely 10% of the young can do so. The rest have no option but to opt in – willy-nilly.

You just cannot overstate the power of these local patronage networks. They aren’t monolithic. In fact many compete with each other. Most, if not all, are organized around a caste, or an alliance of castes. Each has community leaders, usually established businessmen in various trades; wealth & income marks out the true leaders. Members are expected to observe the unwritten rules, be it priority in hiring members or marrying members. There is considerable leeway in specifics but broadly the discipline is enforced through the threat of social ostracization. Sure you can hire somebody from another caste but if there is an objection you may have difficulty finding the right groom for your daughter years later. It is not easy to break ranks, which is why we outsiders in metros fail to appreciate the strong ties of caste groupings that bind small town communities. We are lucky to have escaped them.

Throw in the subsidies by Direct Cash Transfers into this milieu and you disrupt an age-old system that ruled life howsoever iniquitously. The social and political power of the leaders of this parsonage system is grounded in economics. They own the most valuable income generating assets; they control access to jobs and your share in that income and you cannot survive for very long if you are cutoff from that income. DCT gives the poor breathing space independent of the patronage network. That is critical to the bargaining power of job seekers because you don’t have to jump at the first job available or sell yourself cheap. It is this loss of power over the young, and through them over the poor, which will begin the end of these caste based patronage networks even more quickly than the spread of education has so far.

DCT subsides should not be in perpetuity. These should have a time limit – say 2 years per family after which they should be discontinued to avoid permanent dependence on dole. Subsidies to the poor are necessary for two reasons. Firstly, subsidies to the utterly poor rekindle hope and initiative in them. A man scrounging for food cannot lift his head to upgrade his skills or even look for a job. Subsidies give him or her the luxury of time to find an income-generating slot in the ecosystem. Such people do exist but are very few in number.

The second, and more pervasive, effect of subsidies to raise wages for all, not just those targeted for subsidies. Now I am not aware of any study that has examined the impact of this aspect in the Indian milieu. To the extent government thinks wages at the bottom of the pyramid are too low, DCT subsidies will help raise the wage levels for all of labor at the lower rungs of the social ladder. But a bout of wage inflation is inevitable and the government must have a strategy in place to counter that deleterious side effect.

The big untested assumption here is that wages at the bottom of the pyramid are too low. To the best of my knowledge, this assumption hasn’t been validated and we have admixture of two things here. One very poor people unable or incapable of participating in a market economy without help and people who need support during a bad period in order to find a job or other source of income. Government will have to segregate the two groups and devise measures to deal with them separately.

The other group of very powerful people who will keenly feel the disruption in established power structures is the local bureaucracy. This class is pretty used to intercepting a portion of any subsidy aimed at the poor. Not only will they be disintermediated but will also lose their hold on the patronage system. Babudom in general works very closely with the trader or merchant class in small towns and these very people are generally the community leaders of their caste groups. The potential for active collaboration between lower reaches of the bureaucracy and the patronage network leaders is pretty high and the government will have to work out counter strategies.

All in all, subsidies by DCT will alter the power equations in villages and small towns significantly. If the effect of such disruption is benign and benefits the poor, the Congress can expect a rich harvest of votes. But the potential and incentive for sabotaging the new system is very high. Efficacy in local implementation will make or mar this disruptive innovation. If the Congress plans to make it the game-changer for 2014, it will need a highly effective political campaign at the local level to ensure implementation is fair, inclusive and effective without intermediation by the very people who seek to defeat it.

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