Politics of Cash Tranfers

Anyone who believes that all economists are dull never met Joan Robinson (1903 – 1983), who, along with Edward Chamberlin, developed the theory of imperfect competition in the 1930s. Called ‘the magnificent Joan’ by some, and less printable names by others, Robinson – a professor at Cambridge, England – was justly renowned for taking controversial positions. She made her first mark in 1933 with the publication of ‘The Economics of Imperfect Competition’, which broke away from the assumption of perfect competition that had dominated the economics profession. Later, as one of the earliest and most visible proponents of Keynesian macroeconomics, Robinson engaged in vehement disputes with several prominent American economists on the meaning of capital and the viability of capitalism. Toward the end of her career she increasingly worried about the distribution of income and the instability of the capitalist system and avoided use of the mathematical methods that had become common in economics. Some believe that she paid a high professional price for her iconoclasm for the Nobel Prize committee never recognized her rich and varied contributions to economic science. (emphasis supplied) 
Source:  ECONOMICS, Fifteenth Edition (Pg. 151) by  Paul A. Samuelson and William D. Nordhaus
The above quote from a market economics textbook would make a lot clear about my intention in writing this article. Herein, I am attempting to argue against any intervention of markets in deciding the food prices. But, before that, let me state the definitions of a few economic terms quoted again from the same book.
Economic Good: A good that is scarce relative to the total amount of it that is desired.
Perfect Competition: Refers to market in which no firm or consumer is large enough to affect the market price. This situation arises where (1) The numbers of sellers and buyers is very large and (2) the products offered by sellers are homogenous (or indistinguishable).
Price elasticity of demand: A measure of the extent to which quantity demanded responds to a price change.
Price-inelastic demand: The situation in which price elasticity of demand is below 1 in absolute value. In this case, when price declines, total revenue declines, and when price is increased, total revenue goes up.      
Before going any further, let me clearly state that I am the proponent of a situation where there is no scarcity of food, or, in other words, food ceases to be an economic good; and I am sure any right thinking person should have the same beliefs because there is no reason why the satisfaction of the most basic physiological need be an economic good. The question: Can it happen under a market economics based system, which assumes perfect competition, or, in other words, can it happen under capitalism? My answer is a big no; not only because the perfect competition is impossible but also because, even when it is achieved in theory, it doesn’t guarantee the non-accumulation of scarce resources by a few.
Let me first tackle the problem of imperfect competition. There can be no resource scarcer than food if it is manipulated to be so. Food items have highly price-inelastic demand; i.e., if some manipulators want, they can very easily increase the prices of the food items to whatever levels without affecting the demand for the food items and can keep churning high revenues for themselves. This would obviously happen in the case of imperfect competition, i.e. under monopoly or oligopoly or monopolistic competition. It is widely believed that agricultural products can be sold as commodities in commodity exchanges, therefore the perfect competition is possible. However, without much knowledge of economics, I am intuitively inclined to believe that this is an illusion. Perfect competition is impossible even when the conditions mentioned above in the definition of perfect competition are satisfied; the reason being all theories of perfect competition assume rational decision-making, which is itself a scarce resource among humans; and there are umpteen examples when the supposedly perfectly competitive markets, i.e. the financial markets, have been completely butchered by the actions of a few. The irony is that even after the biggest failure of capitalism, i.e. the US Financial Crisis, the very same capitalists have been successful in making complete fool of the people, not only in the US but across the globe including India, where the PM is the most faithful supporter/follower of the classical economics and is almost single-handedly forcing his stupid beliefs on the country especially the poor, who are ignorant of everything else except for their most immediate need of securing square meals a day. So, my conclusion: There is no possibility of a perfect competition in any kind of market or situation, and all capitalism is crony capitalism; i.e., the only possibility is an imperfect competition. Unfortunately, I have not read “The Economics of Imperfect Competition”, but, I think, my first proposition that there can be no resource scarcer than food if it is manipulated to be so, stands valid, whatever.
Coming to the second problem of unequal distribution assuming there is perfect competition. After Keynes, even the most ardent supporters of market economics have come to terms with the fact that the dollar/rupee votes per se don’t guarantee equal distribution of economic goods; i.e., one’s ability to buy economic goods, which is dependent upon one’s earnings, is not in alignment with the equality of opportunity; i.e., a person dying of hunger may die if he doesn’t have money to buy food, whereas some fat asses shall promote fine dining irrespective of their inability to enjoy the same because of the presence of incidental fissures in their fat arses. When the economists realized this problem of unequal distribution, they also realized the necessity of redistributive systems like progressive taxation, transfer payments (CASH TRANSFERS) and subsidies.
India has a well laid out public distribution system (PDS), which provides subsidized food items to the poor. However, the present government is trying to replace it with the cash transfer system (CTS) for the reason that the fruits of the PDS system are not reaching the people for whom they are meant, but, to the middlemen, and it is believed that the technology driven cash transfers system will check corruption — the infringement of privacy of the poor via the use of technology is a prison, which the existing prisoners of poverty are in no position to debate. In Delhi, to start with, a sum of Rs 600/month is proposed to be transferred directly to the bank accounts of the senior most female members of those poor families who don’t have BPL cards. The basic difference between the two systems, i.e. the PDS and the CTS, is that the PDS system is theoretically a non-market based system and is a remnant of the command economy, whereas the CTS fits into the market based capitalist system as the cash is used to buy goods in the open markets. I personally prefer the PDS to the CTS because I am a strong believer that capitalism per se is a flawed ideology — I believe it is rather necessary to not to be on the production possibility frontier (PPF) to be socially efficient. However, when it comes to food, I have no doubts whatsoever that food has to cease to be an economic good if the humanity has to prosper or even survive, which means there should be no economic value attached to food like none is attached to the air we breathe. Unfortunately, we have attached economic value to every natural resource, whether land or water. Where it was not possible to attach the value directly, as in the case of water, we created differentiation first by polluting the natural water by industrial and urban waste and then by attaching value to the bottled potable water. I wonder if economic value will some day will also be attached to the fresh air we breathe by selling fresh air in cylinders. But the question: Why should the poor be made to pay for the ill-deeds of the rich? just because they are ignorant? or just because they don’t have a lobby? The politicians are the worst animals that exist on this planet: They first misappropriate the democratic votes of the poor by deceit and then transfer them to the rich by converting them into their dollar/rupee votes, which the rich use to build mansions and, in return, finance the Swiss bank accounts of the politicians. If it wasn’t so, it doesn’t take the mind of a rocket scientist to realize that the best way to help a hungry poor man is by feeding him with cooked food, not by giving him cash to buy food items in the open markets, where the manipulators already have or will, sooner rather later, increase the food prices taking advantage of the highly price-inelastic demand of the food items. These manipulators/crony capitalists/capitalists will, obviously, never ever recognize the contribution of economists like Joan Robinson but, it seems, will willingly give a Noble prize to the Indian a………
© 2012 Ankur Mutreja

About the Author

Ankur Mutreja
Ankur Mutreja is an advocate-cum-writer, and his blogs are amongst his modes of expression. He has also authored number of books, which can be downloaded from the links on the top menu.

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