Real poverty and those who fight it

Hint: It would include no one advocating a greater role for government in the life of the poor. Those types may be well-intentioned, but the goal of eliminating poverty is fundamentally at odds with the need to establish constituencies — i.e. folks to be ‘saved.’ To date, tobacco is the only industry which knowingly attempts to kill off their clientele.

A recent NYT article highlights the efforts of Chandra Bhan Prasad, a former Maoist revolutionary who was born into a Hindu caste system in India, and his advice to his fellow untouchables:

Get rid of your cattle, because the care of animals demands children’s labor. Invest in your children’s education instead of in jewelry or land. Cities are good for Dalit outcastes like us, and so is India’s new capitalism.

Gary Becker gives us the economic rationale which explains why Prasad’s belief — that competitive and open markets is the only hope for his caste [the poor] — is valid:

The Indian government early after it became independent in 1947 officially abolished the caste system, and especially the horrible position of the 160 million untouchables. Nevertheless, this caste experienced limited progress during the 40 years of socialism and slow economic growth that followed independence. Prasad became an economic liberal after seeing what he interpreted as the dramatic effects of 15 years of economic reform on the economic opportunities of the untouchables.

The economic theory of discrimination adds analytical support to Prasad’s observations. An employer discriminates against untouchables, women, or other minority members when he refuses to hire them even though they are cheaper relative to their productivity than the persons he does hire. Discrimination in this way raises his costs and lowers his profits. This puts him at a competitive disadvantage relative to employers who maximize their profits, and hire only on the basis of productivity per dollar of cost. Strongly discriminating employers, therefore, tend to lose out to other employers in competitive industries that have easy entry of new firms.

The rapid growth of world trade during the past several decades, and the increasing market orientation of different economies, sometimes raise rather than lower income inequality, as least for a while. However, trade and competition has made this inequality more dependent on differences in human and other capital, and less directly on skin color, gender, religion, caste, and other roots of discrimination. This is an unsung but major consequence of greater trade and globalization.

Not coincidentally, that belief strongly correlates with the work being done by Muhammad Yunus, of neighboring Bangladesh, founder of the Grameen Bank and pioneer of the the micro-lending movement.

See the complete article and post referenced above, below.

———————————————————————————-

August 30, 2008
Crusader Sees Wealth as Cure for Caste Bias
By SOMINI SENGUPTA

AZAMGARH DISTRICT, India — When Chandra Bhan Prasad visits his ancestral village in these feudal badlands of northern India, he dispenses the following advice to his fellow untouchables: Get rid of your cattle, because the care of animals demands children’s labor. Invest in your children’s education instead of in jewelry or land. Cities are good for Dalit outcastes like us, and so is India’s new capitalism.

Mr. Prasad was born into the Pasi community, once considered untouchable on the ancient Hindu caste order. Today, a chain-smoking, irrepressible didact, he is the rare outcaste columnist in the English language press and a professional provocateur. His latest crusade is to argue that India’s economic liberalization is about to do the unthinkable: destroy the caste system. The last 17 years of new capitalism have already allowed his people, or Dalits, as they call themselves, to “escape hunger and humiliation,” he says, if not residual prejudice.

At a time of tremendous upheaval in India, Mr. Prasad is a lightning rod for one of the country’s most wrenching debates: Has India’s embrace of economic reforms really uplifted those who were consigned for centuries to the bottom of the social ladder? Mr. Prasad, who guesses himself to be in his late 40s because his birthday was never recorded, is an anomaly, often the lone Dalit in Delhi gatherings of high-born intelligentsia.

He has the zeal of an ideological convert: he used to be a Maoist revolutionary who, by his own admission, dressed badly, carried a pistol and recruited his people to kill their upper-caste landlords. He claims to have failed in that mission.

Mr. Prasad is a contrarian. He calls government welfare programs patronizing. He dismisses the countryside as a cesspool. Affirmative action is fine, in his view, but only to advance a small slice into the middle class, who can then act as role models. He calls English “the Dalit goddess,” able to liberate Dalits.

Along with India’s economic policies, once grounded in socialist ideals, Mr. Prasad has moved to the right. He is openly and mischievously contemptuous of leftists. “They have a hatred for those who are happy,” he said.

There are about 200 million Dalits, or members of the Scheduled Castes, as they are known officially, in India. They remain socially scorned in city and country, and they are over-represented among India’s uneducated, malnourished and poor.

The debate over caste in the New India is more than academic. India’s leaders are under growing pressure to alleviate poverty and inequality. Now, all kinds of groups are clamoring for what Dalits have had for 50 years — quotas in university seats, government jobs and elected office — making caste one of the country’s most divisive political issues. Moreover, there are growing demands for caste quotas in the private sector.

Mr. Prasad’s latest mission is sure to stir the debate. He is conducting a qualitative survey of nearly 20,000 households here in northern state of Uttar Pradesh to measure how everyday life has changed for Dalits since economic liberalization began in 1991. The preliminary findings, though far from generalizable, reveal subtle shifts.

The survey, financed by the Center for the Advanced Study of India at the University of Pennsylvania, finds that Dalits are far less likely to be engaged in their traditional caste occupations — for instance, the skinning of animals, considered ritually unclean — than they used to be and more likely to enjoy social perks once denied them. In rural Azamgarh District, for instance, nearly all Dalit households said their bridegrooms now rode in cars to their weddings, compared with 27 percent in 1990. In the past, Dalits would not have been allowed to ride even horses to meet their brides; that was considered an upper-caste privilege.

Mr. Prasad credits the changes to a booming economy. “It has pulled them out of the acute poverty they were in and the day-to-day humiliation of working for a landlord,” he said.

To prove his point, Mr. Prasad recently brought journalists here to his home district. In one village, Gaddopur, his theory was borne out in the tale of a gaunt, reticent man named Mahesh Kumar, who went to work in a factory 300 miles away so his family would no longer have to live as serfs, tending the animals of the upper caste.

When he was a child, Dalits like him had to address their upper-caste landlords as “babu-saab,” close to “master.” Now it is acceptable to call them “uncle” or “brother,” just as people would members of their own castes.

Today, Mr. Kumar, 61 and uneducated, owns an airless one-room factory on the outskirts of Delhi, with a basic gas-fired machine to press bolts of fabric for garment manufacturers. With money earned there, he and his sons have built a proper brick and cement house in their village.

Similar tales are echoed in many other villages across India. But here is the problem with Mr. Prasad’s survey. Even if it chronicles progress, the survey cannot tie it to any one cause, least of all economic changes. In fact, other empirical studies in this budding area of inquiry show that in parts of India where economic liberalization has had the greatest impact, neither rural poverty nor the plight of Dalits has consistently improved.

Abhijit Banerjee, an economist at M.I.T. who studies poverty in India, says that the reform years coincide with the rise of Dalit politicians, and that both factors may have contributed to a rise in confidence among Dalits.

Moreover, Old India’s caste prohibitions have made sure that some can prosper more easily than others. India’s new knowledge-based economy rewards the well-educated and highly skilled, and education for centuries was the preserve of the upper castes.

Today, discrimination continues, with some studies suggesting that those with familiar lower-caste names fare worse in job interviews, even with similar qualifications. The Indian elite, whether corporate heads, filmmakers, even journalists, is still dominated by the upper castes.

From across India still come reports of brutality against untouchables trying to transcend their destiny.

It is a measure of the hardships of rural India that so many Dalits in recent years are migrating to cities for back-breaking, often unregulated jobs, and that those who remain in their villages consider sharecropping a step up from day labor.

On a journey across these villages with Mr. Prasad, it is difficult to square the utter destitution of his people with Dalit empowerment. In one village, the government health center has collapsed into a pile of bricks. Few homes have toilets. Children run barefoot. In Gaddopur, the Dalit neighborhood still sits on the edge of the village — so as not to pollute the others, the thinking goes — and in the monsoon, when the fields are flooded, the only way to reach the Dalits’ homes is to tramp ankle deep in mud. The land that leads to the Dalit enclave is owned by intermediate castes, and they have not allowed for it to be used to build a proper brick lane.

Indu Jaiswal, 21, intends to be the first Dalit woman of Gaddopur to get a salaried job. She has persuaded her family to let her defer her marriage by a few years, an audacious demand here, so she could finish college and get a stable government job. “With education comes change,” Ms. Jaiswal said. “You learn how to talk. You learn how to work. And you get more respect.”

Without education, the migrants from Gaddopur also know, they can go only so far in the big cities that Mr. Prasad so ardently praises. Their fabric-pressing factories in and around Delhi have been losing business lately, as the big textile factories acquire computerized machines far more efficient than their own crude contraptions. One man with knowledge of computers can do the work of 10 of their men, they say. Neither Mr. Kumar, nor the two sons who work with him, can afford to buy these new machines. Even if they could, they know nothing about computers.

The village Dalits do not challenge Mr. Prasad with such contradictions as he travels among them preaching the virtues of economic liberalization. He is a big man, a success story that makes them proud.

Among the broad generalizations he favors, he says that Dalits aspire to marry upper-caste Brahmins to step up the ladder. He married a woman from his own caste, who, he proudly points out, is light-skinned. Across the caste ladder, fair complexion is still preferred over dark.

“Economic expansion is going to neutralize caste in 50 years,” he predicted. “It will not end caste.”
—————————————————————————————
September 07, 2008
Competitive Markets and Discrimination Against Minorities – Gary Becker

An eye-opening article in the New York Times on August 29th discusses the effects of India’s economic reforms and subsequent economic growth on the poverty and progress of the untouchables. This is India’s lowest and poorest caste whose members have been shunned by the other castes for centuries. They have been confined to the dirtiest and least desirables jobs. The article is built around the views of a successful untouchable, Chandra Bhan Prasad, a former Maoist revolutionary who is married to another untouchable. His observations and interpretation of the effects of India’s economic liberalization that started in 1991 on progress of some untouchables converted him to the belief that competitive and open markets is the only hope for his caste.

The Indian government early after it became independent in 1947 officially abolished the caste system, and especially the horrible position of the 160 million untouchables. Nevertheless, this caste experienced limited progress during the 40 years of socialism and slow economic growth that followed independence. Prasad became an economic liberal after seeing what he interpreted as the dramatic effects of 15 years of economic reform on the economic opportunities of the untouchables.

The economic theory of discrimination adds analytical support to Prasad’s observations (see my The Economics of Discrimination, 2nd. ed., 1973). An employer discriminates against untouchables, women, or other minority members when he refuses to hire them even though they are cheaper relative to their productivity than the persons he does hire. Discrimination in this way raises his costs and lowers his profits. This puts him at a competitive disadvantage relative to employers who maximize their profits, and hire only on the basis of productivity per dollar of cost. Strongly discriminating employers, therefore, tend to lose out to other employers in competitive industries that have easy entry of new firms.

This is why minorities typically do better in new industries with young and initially smaller firms. Both Jews and American blacks were accepted more readily in Hollywood in its early days than in other established industries, like steel making and banking, although blacks were limited primarily to entertainment roles. Contrast this with American baseball, where the major league owners had a virtual monopoly of the industry. They did not accept any black players until Branch Rickey broke the color bar in 1947 by promoting Jackie Robinson from the minor leagues to the Brooklyn Dodgers. This long delay in accepting blacks by the baseball monopoly occurred despite the fact that for decades many outstanding black players could be observed playing in segregated Negro leagues.

Employee discrimination against minority fellow workers-such as a male worker who does not want to work for a female boss- cannot be so easily competed away by non-discriminating employers. For they have to pay discriminating employees more, perhaps a lot more, to work with minority members. A similar argument applies to consumers who do not want to be served by particular minorities. Yet in these cases too, competition can blunt the impact of prejudice. For profit-maximizing employers will attempt to avoid the cost of discriminating employers by segregating minorities into separate companies. For example, women bosses may have mainly women employees, or untouchable foremen will supervise untouchable workers.

Segregated minority workers in competitive markets may get paid just as much relative to their productivity as do majority workers in these markets. In a fundamental way, segregation can serve as a way to bypass the prejudices of other workers, consumers, and employers. When Jews could not get work in the banking industry at the turn of 20th century, they began to open their own banks that hired mainly other Jews. African -American doctors and dentists in the old South catered to other blacks as their patients.

Globalization and the growth of world trade have added another competitive force against discrimination, one that is surely helping Indian untouchables and other minorities. As I mentioned earlier, costs of production are raised when employers discriminate against various minorities in their country. Employers in other countries not burdened with costs of discrimination will be able to undersell discriminating employers in the international market for goods. This too acts as a force lowering the impact of discriminating employers, and reduces the international competitiveness of countries where discrimination in employment is dominant.

The slow growth of the old American South is a good illustration of the effects of international and interregional competition. Discrimination against former slaves was rampant in most parts of the South. Private desires to discriminate were supported and often enforced by discrimination by state and local governments. Blacks were denied access to schools of equal quality, and local governments sometimes retaliated against local companies that promoted blacks to higher-level positions. As a result, Southern manufacturing companies were at a disadvantage relative to companies from the North and West, and also to those from other countries. In good measure because of this systematic government discrimination, and private discrimination enforced often by government pressures, the South performed poorly for a century after the end of the Civil War.

The rapid growth of world trade during the past several decades, and the increasing market orientation of different economies, sometimes raise rather than lower income inequality, as least for a while. However, trade and competition has made this inequality more dependent on differences in human and other capital, and less directly on skin color, gender, religion, caste, and other roots of discrimination. This is an unsung but major consequence of greater trade and globalization.
—————————————————————————————-
September 07, 2008
Competition, Discrimination, and Law — Richard Posner’s Comment

Becker points to India as an example of a society in which competition has been more effective than law in reducing discrimination in employment. As with most analyses of historical phenomena, determining causation is rife with uncertainty. Had the Indian government not abolished the caste system, would discrimination against untouchables have declined as much as it has?

The question is of more than academic interest from an American standpoint because we have laws against so many forms of employment discrimination–discrimination on racial grounds, of course, but also on grounds of ethnicity, religion, sex, disability, and age. We also had a caste system in the South until relatively recently. So do we need discrimination laws, or can competition be relied on to eliminate discrimination?

The answer I would give is that competition cannot be relied upon to eliminate discrimination (nor has Becker ever argued that it can be), but that, even so, laws against discrimination may not be desirable on balance, at least from the standpoint of economic efficiency, as distinct from making a political or moral statement. They may also not be very effective. I will confine my analysis largely to employment discrimination.

If an important class of customers does not want to be served by, say, black employees, or if an important class of workers does not want to work with black employees, then the tendency in the absence of a discrimination law, as Becker explains, will be segregation of the workforce: the market will be served by a combination of all-white and all-black firms. If, however, segregation raises employers’ costs by more than the increase in wages that they would have to pay their white employees to induce them to work side by side with blacks, plus the loss of net revenues from white customers who do not want to be served by black employees, there will be competitive pressure on the employers to integrate their work forces. The pressure will depend in part on how strong the whites’ aversion to working with or dealing with blacks is. There is no reason for competition to affect that aversion, other than by bringing the costs of it home to employers and through them to their white workers and customers.

Although law can try to eliminate employment discrimination, it is unlikely to be very effective and if it is effective it may not be efficient. Take the second point first. Suppose white employees have a strong aversion to working with blacks. Then forbidding discrimination will impose a heavy cost on the white employees. If there are more of them than there are blacks, the cost to the white employees may exceed the benefits to the black employees. Of course, an antidiscrimination law may rest on a political or moral judgment that costs imposed by thwarting a taste for discrimination should not count in the social calculus, but that is a judgment outside of economics.

Now as to the efficacy of such laws: it is bound to be limited unless enforced by savage penalties, which our discrimination laws are not. There are three reasons for their limited efficacy. The first is that an employer who wants to continue discriminating against blacks can (within limits) reconfigure his work force to reduce his demand for skills likely to be possessed by black applicants for employment, can substitute capital for labor, and can relocate to areas in which the applicant pool contains few blacks. Second, felt legal pressure to hire blacks results in “affirmative action,” which both creates resentment among whites and casts some doubt on the average quality of black employees and so in effect stigmatizes the entire class. And third, because a discrimination law makes it more difficult to fire a member of the class protected by the law, it increases the cost of hiring members of the class and so increases the incentive to discriminate in hiring. There is some evidence that the passage of the Americans with Disabilities Act, forbidding discrimination against the disabled, led to an actual decline in the number of disabled persons employed.

Although an employment discrimination law is thus apt to be of limited (though not zero) efficacy, other bodies of law can play a large role—larger even than market forces—in reducing employment discrimination. Much employment is public, and public bodies can decide to incur the costs of eliminating discrimination in their work forces and hire many blacks. In addition, laws that reinforce a caste system, such as the Jim Crow laws in the southern states that persisted into the 1950s, can reduce employment opportunities for blacks beyond what private discrimination would do, for example by limiting their educational opportunities. The repeal or invalidation of such laws can thus indirectly increase black employment opportunities.

Deregulation is a minor but interesting legal change that tends to reduce discrimination. A regulated monopoly is constrained in the amount of monetary profit that it can obtain, but unconstrained in nonmonetary perks, including indulging a taste for discrimination.

Neither legal nor market forces have brought employment parity between whites and blacks in the United States. Parallel with the struggle of blacks for parity, Jews, East Asians, and immigrants generally, have made rapid economic progress and indeed (at least in the case of Jews and East Asians) largely overcome discrimination, yet without significant help from the law. An open economy provides opportunities even to victims of discrimination, especially if the victim group is large enough to achieve economies of scale in trade within the group. As members of the group grow modestly affluent and thus achieve a standard of living that enables them to assimilate to the larger culture, as by consuming similar goods and services and sending their children to good schools, discrimination against them declines because they cease to seem “different” from the majority. When members of a minority group talk and think and act like the majority and have the same tastes and in short share the same culture, the fact that they may have a different physical appearance ceases to count greatly against them, as indicated by high rates of intermarriage in the groups I have mentioned. Assimilation to the dominant culture, as yet incomplete for a great many blacks, may thus be the major force in reducing discrimination, with competition and law playing lesser roles.
———————————————————————–

Advertisements

About Jorge Costales

- Cuban Exile [veni] - Raised in Miami [vidi] - American Citizen [vici]
This entry was posted in Business & Economics and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s