Only Trickle-Down Won't Do

MAHBUB ul Haq, who died a couple of months ago, could hardly be called a bleeding heart economist. I can't think of any of today's economists who would advocate the mantra of growth, growth and more growth than he. But with a significant difference. Being a Pakistani and a South Asian, Haq knew that he belonged to a region that has had the worst record of human deprivation. In the last decade, South Asia has slipped behind all regions of the world—including the once infamous sub-Saharan Africa—in terms of all indices of human development. As a sensible economist, Haq realised that while growth reduces the extent of deprivation, the possibility of achieving long-term growth of the kind seen in East Asia would remain a distant dream unless some of the glaring deficiencies were tackled head-on. To him, overall economic growth was a necessary condition for reducing poverty; but it was not sufficient. It would be impossible for India, Pakistan and Bangladesh to sustain a growth process at an annual rate of 7-8 per cent for over a decade and more without waging direct war on illiteracy and gender bias in education.

Let's begin with a few facts selected from Haq's last major work, Human Development in South Asia 1998. There are over 50 million primary school children in South Asia who haven't seen the inside of a school—and that's roughly equal to the population of Great Britain. Over 40 per cent of the 150 million South Asian children who are presently enrolled in primary schools will drop out before completing primary schooling. Two-thirds of the adult female population of South Asia—or 243 million women—don't know how to read or write. The region's female illiteracy rate is a shameful 64 per cent, and it is by far the worst in the world. Over 45 per cent of the world's illiterate female population reside in South Asia. A year-and-a-half ago, the then finance minister P. Chidambaram said that India needs seven per cent growth for at least 15 years to eliminate mass poverty of the kind that we are accustomed to. At one level, he was right. If we use the poorest East Asian country, Indonesia, as our benchmark, it would take us 15 years of seven per cent growth to reach the per capita income level enjoyed by Indonesia today.

That, however, is a mindless application of the compound interest formula. If Mahbub ul Haq were alive, he would immediately question this arithmetic, and argue that relatively large countries can't hope to achieve long-term economic growth of 7-8 per cent without significant improvements in the quality of human capital. A country like India might obtain seven per cent for five to six years—itself a very creditable feat. But, replicating such growth for 15 years at a trot, as East Asia did from the late 1970s and early 1980s up to the recent crash, would require quantum leaps in the quality of the labour force. Haq would claim that in the post-World War II era, no sizeable country has achieved 7-8 per cent growth for 15 years when 48 per cent of its adult population is illiterate.

The argument about the quality of human capital becomes even more powerful in the context of the 21st century, where economic growth will be driven by the increasingly rapid use of information technology. On the one hand, India has emerged as the second largest exporter of computer software in the world. On the other, 37 per cent of all primary schoolchildren drop out before reaching the fifth class. India's tertiary enrolment is only 6 per cent, and we produce no more than one R&D scientist per 10,000 people. With statistics like these, how can one expect to grow at 7-8 per cent for 15 years?

There lies the rub. Although total government expenditure on education has risen from 0.7 per cent of national income in 1951-52 to almost 5 per cent in 1996-97, it is wholly insufficient. However, neither the fiscally constrained central government nor the cash-strapped states have the resources to finance a big push in primary and secondary education and vocational training. Moreover, the worst off states—Bihar, Madhya Pradesh, Rajasthan, eastern Uttar Pradesh and Orissa—couldn't care less. School teachers in Bihar haven't been paid for months on end. Not surprisingly, most rural primary schools are permanently shut while the teachers do other business. Haq's report estimates that India alone needs 1.5 million additional primary school teachers between 1999 and 2003. Given the penury of state exchequers, that target will be impossible to achieve.

Is there a way out? Yes, but it can't be achieved through annual tinkering, and requires a radically new vision of the state. First, the central government needs to recognise that it cannot support a huge public sector and still have the funds necessary to finance a massive education programme. Therefore, the government needs to sell its public enterprises left, right and centre, and earmark two-thirds of the funds for targeted primary, secondary and vocational education programmes. Some say that privati-sation receipts should only be used to reduce public debt. To them I'd ask: What is more important? Reducing public debt, or investing in tomorrow's human capital?

Second, the funds thus allotted to the state governments have to be publicised and carefully monitored, so that they don't end up financing wage increments to bloated bureaucracies or make their way to private kitties. Third, panchayats should be given total control over primary education. Any village panchayat knows whether the school is operative or not, and whether the masterji is a habitual absentee. Any panchayat worth the name can ensure that the local school runs properly. Unfortunately, it can do nothing of the sort under the present system, where everything is 'monitored' by a distant state government. Finally, as in Indonesia and Malaysia, industry must take a lead in providing technically relevant vocational training, and get the benefit of significant tax breaks for doing so. Because both government and industry should realise that—like roads, railway, ports, electricity and telecom—education is nothing other than infrastructure. Perhaps more important.