I4I Editor-in-Chief Ashok Kotwal speaks with Jean Drèze, visiting Professor at Ranchi University and an ‘economist-activist’ who has been working in India at the grassroots level for a long time. They discuss a range of issues including cash vs. in-kind transfers; combining academic research with on-the-ground action; improving governance; and the principles of a good society.

Ashok Kotwal (AK): First of all, Jean, congratulations for your new book ‘Sense and Solidarity: Jholawala Economics for everyone’. ‘Jholawala’ used to be a term which was considered sort of derogatory and with this book you have almost made it respectable!

Jean Drèze: Well, sometimes it has an affectionate connotation!

AK: The first thing I should say is that the introduction to the book is brilliant. I have in fact sent it to many of my students because it is so inspiring and compelling.

JD: Thank you.

AK: Right in the beginning, you lay out a very simple story: this picture of the koilawalas that you see from your office in Ranchi and the fact that their lives are mostly determined by the accident of their birth, which constrains their entire course. Several mainstream economists are completely in sync with this view, and this is exactly why redistribution, government intervention etc. are justified. At the same time, over the last few years, we have had some disagreements over specific policies. For example, a few years ago, when the National Food Security Act was about to be tabled in the Parliament, we had articles and a lot of back and forth about pros and cons of cash transfers, cash transfers versus the PDS (public distribution system), and so on. At that time, I felt that your values and economics are similar to those of mainstream economists; you too believe in evidence-based policy – then what was the source of disagreement?

JD: Before I answer that let me say that there is also a big area of agreement on these issues. For example, I do support certain kinds of cash transfers such as social security pensions and maternity entitlements. In fact, as you know, we all signed a joint letter last December addressed to the Finance Minister, asking for higher budgetary allocation for these cash transfer schemes. So it is not that I reject all cash transfers, by any means.

On the question of the PDS vs. cash transfers, I think there are at least two possible sources of differences in our perspective. One is that I have been very influenced by numerous conversations with poor people in states such as Jharkhand, Bihar, and Chhattisgarh. I have been influenced by their fear of kind being replaced with cash and I think they have some very valid arguments. For example, they don’t trust the government to index the cash transfers – not just before the elections but also afterwards. They are worried about what will happen to local food prices if the system of procurement and distribution is dismantled. They are worried that cash can be more easily misused than food, because food can only be consumed in small quantities over time while cash is easily spent in one go.

Another possible difference relates to where we place ourselves and who we are advising. Economists, to the extent that they get involved in policy debates, think of themselves largely as government advisors. So, for example, this point about inflation and whether the government is going to index the transfers, if you are positioning yourself as a government advisor it is not much of an issue because indexation can be part of your advice to start using cash transfers. But if you are advising poor people rather than the government, things might look quite different. If poor people ask me, after hearing that the government may introduce cash transfers, whether they can trust the government to index the transfers, I would have to say no, there is no guarantee of it at all.

For me the bottom line is that the poor are getting something very important from the PDS. It has improved a great deal in recent years and it is now a very substantial form of support for people who are on the margin of subsistence. They have no reason to go along with something else unless there is a real guarantee that it is something demonstrably better, and as of now I do not see that. In fact, recent cash transfer experiments, even in places like Puducherry and Chandigarh where the conditions are supposed to be ideal, have not been encouraging. So I would not say that I oppose cash transfers, but I do resist them in the context of the PDS, at least for now.

Practical difficulties are another concern. Poor people have a very sobering experience of cash transfers in the context of MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) wage payments and even social security pensions. The payments are often delayed, or irregular, or even rejected because of technical glitches such as spelling mistakes. The cash payment system is just not ready. Of course, you can say that this is a technical issue and that it can be resolved, but MNREGA wage payments have been made through banks for 10 years now and we are still waiting for a reliable and timely payment system.

AK: You mean the infrastructure to deliver cash isn’t quite there?

JD: Yes. In the poorer districts, especially, the banks are overstretched and overcrowded. This causes great hardships for the people. If a huge cash transfer scheme is added on top of what is already being delivered (pensions, wages, and so on), the system will not be able to cope.

AK: The argument for cash transfers was based on the fact that the existing system of PDS was not working very well in several states. Even payments to MNREGA workers through post offices had issues of coalitions between postmasters and panchayat members, and so on. So the existing system was not working and the thinking was that we can bypass this local cabal of corrupt officials through technological solutions. So in general it seems to me that those of us who are not actually working at the grassroots level but are only working with data may think that this seems theoretically possible. But what you are saying is that what is theoretically possible is not implementable given the inadequacy of the infrastructure, etc.?

JD: There is a basic economic argument, theoretically as you put it, that the cash transfer system has lower transaction costs – you cannot ignore that. It is easy to do a blackboard calculation showing that the government could save thousands of crores by replacing kind with cash. But there is a key difference in practice – the PDS is in place and the cash payment system is not. When you consider giving up something that is in place and means a lot to poor people, you really have to think hard about the practicalities of the transition. You may need guarantees – even legal guarantees – to ensure that transfers are indexed, technological guarantees, political assurances and all kinds of things that can take a long time to put in place.

I am not saying in-kind forever; obviously, a time will come for cash. In fact, even today, when I say that poor people are afraid of cash – it is not always true. If they live relatively close to the banks, banks are not too crowded, and they are not really exposed to food insecurity – some of them actually say they would prefer cash so that they can buy what they like. So a time will come, but I am very apprehensive that a premature move to cash transfers may actually deprive people of a functional PDS without anything better being in place

AK: Right. That is the one thing I wanted to know: are you opposed in principle, or on practical grounds?

JD: I have no reason to be opposed in principle. Cash is not bad thing, one can do all kinds of things with it. But there is a time for it.

AK: But the tension is always that this is an old system and at some point when the new system comes in, there will be a transitional problem – but you think that these transitional problems will really impose a huge cost on the most vulnerable. That is the argument.

JD: There are also political issues. The transition can be an opportunity for the government to undermine people’s entitlements. That is also something the poor are afraid of, and for good reasons. I think the Indian government will be quite happy to make a transition to cash transfers that are not indexed and let the real value fall over time. So it is one thing to do the blackboard research and quite another thing to give real-world policy advice – because real-world policy advice means taking part in a very charged political process. Then you have to start thinking about where you stand; what are the operational aspects; you have to take into account that the advice you give may lead to something else because the government may take what they like and ignore the rest. Say, they may ignore the recommendation of indexing transfers and just go for cash transfers defined in nominal terms. Policy advice is not just a question of evidence and values, it also requires thinking politically.

AK: In your introduction to the book, you bring out why it is really beneficial for academic research to be combined with action and you make a good case for it. Now, just to play devil’s advocate, one could say that when you are fired by idealism and you have certain goals – like you say, you learn about reality by talking to people, and so on – does it also not pose a moral hazard of some kind? The research you do may contradict your strongly held prior beliefs, and there is sufficient leeway in the methodologies to get you the results you want. Do you not worry about it sometimes?

JD: Both academics and activists face this issue. I have a pretty clear philosophy on this, which is that we should not be afraid of the facts if they contradict what we want to see. In the long term, it is much better to cultivate an attitude of objectivity and honesty, than to try to fiddle with the facts here and there to achieve some short-term gains. Very often, when the facts are not what you want to see, it actually makes the problem more interesting and it forces you to refine your arguments and to reconsider your position. So I think that wherever you are positioned – whether you are in the academic world or an activist or a consultant – you have certain biases and you see the world from a certain perspective. The way to deal with that is to try and engage with people who have different positions and different perspectives. That would apply to anybody.

AK: I can imagine because say I meet a widow who has almost no means of support; cannot walk to the PDS office; cannot get an Aadhaar card – it has such an emotional impact on me that I may want to do something because of it.

JD: Right, but conversely if you do not meet that person, you may not be aware of the hardships that people face. This is one reason why I would like to see more dialogue between economists and the so-called jholawalas because they both have important perspectives. Economists are obviously very important, their analyses and research can be very informative. They also have their own biases, professional prejudices, and so on – and the same applies to activist. There is great value in more interaction.

AK: I totally agree and in fact what you are saying is more than that – not just interaction with jholawalas but also interaction with those whom jholawalas interact with at the grassroots.

JD: I do not think economists would deny that, but the question is whether you give this enough importance. It takes some effort, and a little bit of a departure from the beaten track of academic research.

AK: That’s true.

Given the administrative structures and the influence of local elite on government processes, we thought about how we can change this by trying to find technological solutions. For example, bypassing the corrupt, bureaucratic structures by using cash transfers – that was the original appeal of Aadhaar to us. The idealised framework was to provide an identity to those who have to depend on the local sarpanch for accessing their entitlements each time; or someone who is not in the favour of the local bosses may be recommended by a local NGO for Aadhaar, which is then enough to receive government benefits. Now we are learning that due to the inadequacies of the technological infrastructure, costs may outweigh the benefits in many cases – the picture is yet to be fully revealed but it kind of seems that way. My question to you is: Do you think technological solutions can change these things, or that these things can never change without a complete cultural transformation?

JD: Coming back to the beginning of your question, you refer to the powerlessness of people, the hold of the local elite, corruption, and so on – I think there are a lot of ways of changing that and we do not have to necessarily depend on sophisticated technology like Aadhaar. These things are changing, more than a lot of people think. Local governance in India has improved substantially in the last 10-20 years. By and large, the government is now more responsive to people. A big factor, in my view, is that people are better educated, more aware of their rights, and more demanding – that has a huge impact on what government officials or the local sarpanch can get away with. So it is partly education, and generally, people’s empowerment that is changing things. Sometimes it is certain kinds of administrative reforms, better infrastructure, and better communication. In the old days, for instance, meeting the block development officer (BDO), let alone the district collector, was virtually impossible. Now their phone numbers are widely available and it is not a problem to get in touch with them.

I am in favour of mobilising technology for better governance, and for reducing corruption and exploitation, but the technology has to be appropriate. We have seen some examples such as computerisation, which is extensively used in the PDS with good effect, or for that matter in MNREGA. In the case of Aadhaar, there is a problem of over-sophistication and the technology becoming counterproductive. Aadhaar was projected as a magic bullet against corruption, when in fact it can only help to reduce certain kinds of corruption like identity fraud, and even that is largely contingent on using biometric technology because the card is far from tamper-proof. In fact, the card is easy to forge. What can help is biometric authentication, but that has serious problems of technological inappropriateness, especially in poorer states like Jharkhand. We have seen the damage it can do this year, very clearly, in the context of the PDS. This is a case where you have to accept that the system is inappropriate and look for something else, for example smartcards. I think that smartcards are a much better, more mature and reliable technology that could work in places like Jharkhand quite easily. Aadhaar-based biometric authentication can only work in areas where there is reliable connectivity; smartcards could work everywhere. In rural Jharkhand, this is a strong argument for smartcards.

AK: Smartcards – the way they were used in Andhra Pradesh?

JD: Well, not necessarily. They used biometric smartcards and I am not convinced that we need the biometrics part. Simple smartcards of the kind we use in the metro, milk booths, or ATMs could go a long way. This is a mature and reliable technology, why not use that. So I think it is a question of appropriateness, timing, and real effort to make the technology work for people. Frankly, with Aadhaar, I am not sure to what extent it was really an attempt to reform welfare schemes as opposed to using welfare schemes to persuade people to enrol with Aadhaar. That was perhaps the main factor. The welfare schemes were used to promote Aadhaar rather than the other way round – that is what it looks like to me.

AK: You work on all kinds of problems – the minute problems at the micro level – and at the same time everyone has the impression, and I certainly do, that you have a bigger philosophical base behind many of your decisions and the directions you take. So, what kind of organisation of society would you ideally like to see? Are you quite okay with the market capitalism as long as it is sort of well-regulated and the government works well? Or would you be much more comfortable with sort of this Gandhian type of village-based, highly decentralised society?

JD: I am not comfortable with either. It is very difficult to come up with some kind of a blueprint of what a good society would be like; what is easier and more productive is to think about the principles of a good society, and then work for these principles whenever possibilities arise. Today, there are so many things that strike me as just completely wrong like the caste system, patriarchy, nuclear weapons, capitalism, and concentration of corporate power or State power for that matter. So I can see vast possibilities of rolling these things back and trying to construct social institutions based on principles of cooperation, equality, and justice, including in the economic field. For example, promoting cooperative modes of economic organisation not dependent on wage labour, and of course, a big expansion of public services to ensure that most people have access to the basic requirements of dignified living. It is possible to see huge scope for change and improvement in the way things are organised without necessarily having a blueprint for the ideal society. I certainly do not see it as a kind of village-based society – I do not really see the value of that. I think that would be missing out on a lot of opportunities. Nor am I reconciled to capitalism, or capitalism as we see it today.

AK: What do you mean by capitalism?

JD: Well, that is a part of the problem. It is not entirely clear whether what we see today is capitalism. It has a big element of State intervention; in many countries, there is a big element of socialism as well. And then corporate power – that’s not the market; in many ways it is anti-market. So one also has to distinguish between capitalism and the market economy. What I do see in today’s economic system and strikes me as very objectionable is the concentration of power; economic inequality; huge corporations with workplace relations that violate basic principles of equality and freedom, and so on. I would like to think that these aberrations will disappear in due course. We are already seeing a substantial growth of all kinds of other modes of organisation. For instance, private non-profit activity – including what is often called social business, a term I do not like very much – has a huge potential, certainly in fields like health and education where market failures are pervasive, but also in many other fields. In some countries, a lot of people are getting involved in all kinds of issues like the environment, free software, organic farming, and so on – giving their time, energy, and passion. This is seen as a kind of hobby, but it is not a hobby, it is very much part of economic and social life. I would like to see these forms of association grow, and the more objectionable ones, based on wage labour, the concentration of power and so on, fade away.

AK: Somebody like Stiglitz would not disagree with any of what you said like concentration of power, but the only point where they may be some disagreement may be if production should be organised as cooperatives.

JD: I do not think all production can be organised in a cooperative mode. But a lot of things that are being done today on the basis of employer-employee relationships could be done differently. This may require new institutions and also a new work culture. I think that changes in work culture, including the growth of solidarity and public spirit, can be of great help in developing alternative economic and social institutions.

AK: The more I hear you the more it seems to me that there is hardly any distance between what you believe and what many mainstream economists on the left believe. It is sort of similar practical things like taking care of market failures – that is how mainstream economists talk too!

JD: It is not just market failures. The caste system, for instance, is not a market failure; it is a social failure. So there are a lot of things happening outside the market that also have to be dealt with.

AK: I would like to end with a personal question. Your personal history is fascinating to many people. You came from Belgium and you made India your home. You worked in these areas all your life. You took Indian citizenship. What was the spark? What was it that triggered your inspiration to do this? I do not know anyone else like this.

JD: I think there are a lot of committed people around. I certainly meet many of them all the time. It is very hard to say, ultimately, where our values come from, but I do know that when I see, for example, these koilawalas that I talk about at the beginning of the book – you have to make up your mind whether this is okay or not. And if it is not okay, then you have to do something. That’s all there is to it. Ultimately, I still lead a very privileged life. I do a lot of things that catch my imagination. I have no regrets at all.

AK: When did you first think of it?

JD: I think a lot of things go back to childhood, frankly. I had very caring parents with high values, and also many inspiring teachers at school. But it is very hard to trace the source of our core values and to account for them.

AK: Thank you so much, Jean. You are an inspiration.

This is an edited transcript of the conversation.