Tale of two towns

Creation of wealth..

Once upon a time there were two villages. Rampur and Sitapur. These were about 25 kms from each other. The people of these villages were poor. They mostly confined their lives to their own village. A local lad of Rampur called Ram fell in love with Sita of the same village. They belonged to different castes and the families did not see eye to eye. They knew that they could not think about a family in Rampur. So both of them ran away to Sitapur and lived happily ever after.
The parents were initially very upset so they decided not to think about the kids. Little by little Ram’s parents melted. One day they set out searching for their son and reached Sitapur. It was an adventurous trip. They managed to trace Ram and family. When they came back they had a lot of stories about the life in Sitapur. Especially about the beautiful waterfall outside the village and the dramas that the local kids organize during weekends. Next time they went as a group. Ram’s father who was a cobbler took some nice chappals he made and found that there were many keen to buy. Eventually the people figured out that travel between the villages was fun and brought some opportunities for business too.

The people were mostly poor and the commute was on foot. The village panchayats got together to build a road to connect both these villages. This road had nice trees on the side to provide shades. Some people set up small coffee and juice shops along the way, to add to the comfort the commuters. Some enterprising people set up regular service of bullock carts to connect the villages. Suddenly the travel time between the villages dropped drastically.

More people were travelling. Now we have more bullock carts out in the road. Some even have nice cushions to relax. In one bullock cart the driver would sing nice kavali songs all along the way. There are more shops along the streets. Nice jain vegetarian restaurants, and excellent kabab joints. Shops to fit all pockets.

Inter village trade flourished. Ram’s father, the cobbler in Rampur decided to set up a shoe factory and he built a big shed. He got youngsters who were normally wasting times at the street to stitch shoes. He started selling these shoes Sitapur too. Eventually every month one bullock cart load of shoes was being sold in Sitapur. The cobbler now set up training school to teach how to make shoes.

In Sitapur the kirana wala opened a showroom for shoes branded with the name of his daughter with Ram’s father supplying him the shoes.

The local chemist at Sitapur sent his son to the homeopathy college and now he is back running a small clinic.

Utopia in making…

These villages are now small towns and are getting noticed as people are getting richer. These towns were situated in a great country where the government had vouched that it will work to touch the lives of every citizen. Their long caring arms stretched out to these two towns.
A bus service was introduced between the Rampur and Sitapur which was run by the government transport corporation from the capital. Wow, the trip takes even shorter time. The bus company issued season tickets to the regular travelers.

The government ruled that only restaurants with permits will be allowed to be operational along the road so that they could control the price and the quality of food. They fixed the price for each food item and the government food inspectors regularly inspected the quality of food.

The government concluded that Ram’s father was exploiting the workers and the Shoe factory was nationalized. The government guaranteed minimum wages for each factory worker. Further, it prescribed very strict approval processes in place that it was practically impossible for anybody else to put up a shoe factory.

The benevolent government frowned upon commercializing education and shoe training school was taken over by education department and now there is no fee for any students.

Homeopath doctor was arrested as he could not show the certificate he got from the college and the government established a dispensary where every patient was treated free.

Now that the government has started regular bus service it banned the bullock cart service which was exploiting the poor travelers.

Truly an utopia

Reality Hits…

The capacity of the buses was not enough to meet the growing demand. Some enterprising bullock cart owners were running services on the sly. They were able get along with this so long as they paid a hafta regularly to the police from the capital.

The regular travelers set up an association to strengthen their rights. They were able to get a ruling from the government that only the association members could get season tickets in future and only they could travel by bus. With the strength of the union many of them stopped paying for the travel and some of them even pulled out seats as sofas for home. In spite of the increase in cost of running these buses, the government was so kind and they did not increase the bus charge at all.

With ticket sales so poor and spiraling operating cost, the government transport company did not have enough money to buy new buses or even repair the ones on the road.

Capacity so limited, there was a trouble brewing from various quarters. The government came out with policies reserving seats for each of the dominant groups. Naturally the impact these groups had in the annual elections was one of the main qualifying criteria. With each new party vying with each other to increase the reservation, at the end of it there were very few who were left without reservation.

To ensure that the reservation policy was not mis-used by un-deserving candidates, the government established a department to issue eligibility certificates. In fact this department was headed by member of the civil service. This department also helped creation of many government jobs and spawned entrepreneurs who acted as agents who helped you to get any certificate at a price.

The new shoe factory managing director who was on deputation from the civil service from the centre had no idea of running a shoe business or rather any business. But he had variety of specialized knowledge honed by his wide ranging experience. He developed a wonderful five year plans for the progress of the company. He identified export opportunities in production of Ski boots. He immediately arranged to import machines from Italy to make these ski boots. The knowledge that he acquired for this project by visiting many European countries has been an asset for the ambitious growth plans for this shoe factory. To avoid distraction during the study tour, he had taken his whole family with him. Even the local MP who is also in the board of the company accompanied the MD.

He established procurement division for hide and got the government to issue an order that hide can be sold only to this authorized procurement agency. He got his wife’s brother who is also member of the elite civil service (trained to collect revenue for the government) to head this procurement agency. Being a revenue service officer he could really understand cost and revenue. As the hide could not be sold to any other agency, the shoe factory could ensure that they got the hide at the price they preferred and get special favors for just having bought it.
The unions ensured that the wages kept up with rising inflation. With shoe making nationalized, there was no competition for shoe supply. The managing director allotted chain of shoe distribution shops. These were allotted to the relatives of the union leaders and the political masters.

As the shoes were used by common men, the government shoe factory sold them at prices below the cost price. But with production far lower than the demand, they fetched a very high premium in the market and the distributers made mother loads of profits. But they also cared for the interest of the country and made sure that they made monthly contribution for all the party funds.

Naturally the shoe factory was making losses. But it is supposed to make loss. Profit making is for the profiteers and government cannot be in profiteering.

The shoe training institutes set up with generous grants from the central government failed only in one thing. To teach how to make shoes. All the directors of the institute have now gone for a tour to North America for inputs on how to better this institute. Mind you, the whole study tour is funded by World Bank. In fact the World Bank is also assigning an international consulting company to undertake a worldwide study and develop a rehabilitation package. However with no fee, no research projects and no corporate funding the sustenance was critically dependent on government support. With changing priorities this was not a sustainable model.

Those who wanted to learn how to make shoes now had to go for private tuition. The rich among them sent their children abroad for studies. Of course these were set up by the teachers from the government training institute. These teachers had lots of time for such private tuitions as they had to visit the institute only once a month to collect the salary.

But it was important for each aspiring student to get admission in the institute as they were the only one authorized to give a certificate which was acceptable. With many children queuing up to get admission, the school could not cope up with the demand. Here again the government came in with policies of reservation which now had now a mass appeal.

The government dispensary has everything except the doctors. There are doctors posted here. But they seldom come here. They are busy with their private practice.

I narrated this story about the challenges of Governance to my little daughter. She looked up at me innocently and exclaimed. “Dad, the government seems to be doing what you do with me. Interfering and doing many things that you are not supposed to do. Your guidance is great and helpful. As I always tell you, if you stop this un-necessary interference, you will see wonders. Don’t you think the villages were doing better when the interference was limited and that the local people managed their affairs better?”

I say could not disagree with her on this. This problem is not just in Rampur and Sitapur. It is the problem of the whole country. The recipe for the public policy often appears to be as follows. First policies that lead to scarcity are made. Then you make policies to manage this scarcity. The policies that buy you votes and provide opportunities for rent seeking.

The controversy on reservation is a case in point. The real issue behind reservation is not about affirmative action. It is about scarcity. There are about 100 to 150 thousand new recruitments for both central and state government. We declare reservation for this. Instead make the environment conducive for employment creation (not in government). Instead of trying to make policies those create more schools and better schools we end up trying restrict schools and reduce the standard of the schools.

We see the same pattern in a variety of areas. From health, to education to labor policies. In summary what we we need is a shift in focus to policy that remove scarcity and enable access.