In yesterday’s musings on whether education promotes development, I had promised to outline a proposal for making India 100 percent literate within three years. Here is the modest proposal.

First, the government of India must credibly commit to paying every literate and numerate person Rs 5,000 (about US$100). Second, ensure that every person who wants to learn basic literacy and numeracy can do so without having to pay a single penny. Third, provide testing centers around the country (especially in rural areas) where a person can be certified to have achieved basic literacy and numeracy. Finally, sit back and let the free market grind out the outcome which is total literacy within three years.

The details of this proposal follow from elementary logic and basic common sense. First, the cost-benefit analysis. There is long term cost of having about 300 million illiterate citizens. Each year, a literate person must be at least 10 percent more productive than an illiterate person. Assuming a per capita annual product of the illiterate population to be $200 (which is about half the annual per capita GDP of India), a 10 percent increase in productivity would be an increase of $20 per year per capita. Over a working life of about 40 years, that is an $800 increase in productivity per capita. Assume that the average working life of the 300 million illiterates of India is a conservative 20 years. Then the increase in additional product due to the additional 300 million literates is a conservative $120 billion (300 million times $20 times 20 years) in net present value terms.

I am using very conservative estimates of the benefits to make the case that the cost of doing so is a very small compared to the benefits. Assume very liberal costs of delivering basic literacy, say, $100 per capita. I will argue elsewhere that this is a very liberal estimate. Add to it $100, the incentive amount paid to the person upon passing a standardized test, and you have a total cost of $200 per capita. For the total population, it is amounts to $60 billion. This is half the aggregate social benefit estimated above.

Now one may ask, how will the government, which is totally inept as evidenced by the fact that 300 million Indians are illiterate despite lofty goals of making education univerally available and has not been able to make a dent even after over 57 years of spending huge amounts, be able to do this? The answer is simple: the government must not be in the business of providing the means and method of primary education. The only job of the government should be to finance the education. Let the private sector do the actual provisioning of education.

Here is where mechanism design (thanks, Prof Richard Gilbert) comes in. Recall that anyone who passes a standardized test of basic literacy and numeracy (the exact level of literacy and numeracy I will outline later) gets to take home $100. There is another part to it: a person can be associated with a “New Deal School” (NDS) and when the person passes the test, the NDS of record gets $100.

So what exactly is a “NDS”? That is where the private sector comes in. Suppose that a private firm figures out that to make a person literate and numerate it costs $40. So it would have an incentive to recruit students and teach them as efficiently as it can. It could even happen that this firm will not only not charge tuition but indeed may go out and solicit students with upfront gifts. They may well spend $20 a student to entice them to enroll and learn because the cost to the firm will be $60 ($40 for the actual teaching and $20 as bribe to the student to enroll), and the firm will make $40 profit per student that graduates.

Here is the sweetest part of all. The fundamentals of a market economy will ensure that competition will develop among various NDSs. Firms will compete for students and they will end up competing on price: the firm that pays the most in bribes to students—that is, the firm which is the most efficient in delivering the needed education—will get more students. In the end, purely due to the logic of markets, the students will capture whatever is left over after costs from the $100 incentive to NDSs.

The mechanism I have outlined achieves one primary function: it ensures that the cost of providing the education is minimized through competition in the market, and it assures that firms do not make super-normal profits, and that the benefits of the competition in the market accrue to the students.

If one starts to explore the proposal, one is astonished by the richness and depth of this (even if I say so myself.) Consider the effect on the overall economy. Over a period of three years, about $60 billion worth of public spending takes place. Spending for some is income for some others. In this case, the income goes to the poorer sections of the population. They in turn can buy food, thus helping out the government distribute food to those who need it. When food gets sold, farmers benefit. Most of the money will end up in rural areas where it will be spent on various things, including manufactures. In short, the multiplier effect of this spending will be enormous.

It can be shown that the US benefitted fabulously from the construction of the interstate highway system. It was an infrastructure project the cost of which is miniscule compared to the benefits that it delivered. For India, the most important infrastructure project is the one that will build its human capital base.

Part 2:
Today I continue exploring my modest proposal for making India 100% literate. One may exclaim “How can a proposal which seeks to spend $60 billion be considered modest!?” It is a modest proposal considered in relation to the task at hand. We have around 400 million (give or take a hundred million) illiterate humans living in this day and age within the boundaries of India. It is not a small number. Educating one person at the cost of $200 is not an extravagent sum. What I am outlining is a way to use the modest amount efficiently and effectively so as to lay the foundation for a true transformation of India.

Let us put the $60 billion in perspective. India currently spend around1 percent of GDP in public primary education. That is about $6 billion. Assuming that on average $3 billion current dollars have been spent for the last 50 years, the total public expenditure on primary education has been around $150 billion. If after spending that humongous amount, we are still a largely illiterate country, a major rethinking is required.

Primary education is a fundamental prerequisite for any economy’s development. One doesn’t have the luxury of futzing around with it. You cannot do it in half measures. If you try to economize on resources for primary education, you are dooming yourself to a long impoverished future. You have to spend what it takes to deliver primary education to every citizen in the shortest possible time. If you don’t, the problem doesn’t get solved and only increases in magnitude the more you postpone addressing the problem aggressively.

The children of literate people end up being literate. Given the absense of very fortuitous circumstances, the children of illiterate poor people end up being illiterate. So if we take my big bang approach to fixing illiteracy today, we would have to spend on making 350 million literate today and we would solve the problem of illiteracy for perpetuity. Otherwise, if we just solve the problem for only 100 million of them, the 200 million illiterates would produce anonther 400 million in 20 years and you would have the problem of having 500 million illiterates in 20 years. You would be constantly falling behind. And the problem will be even more insurmountable then because you would be on the average poorer precisely because you have wasted precious human resources by having such a large illiterate population all these years.

Basic logic seems to have been a rare quality in the policy makers who were in charge of India’s destiny since its independence. Then there were about 200 million illiterates in the country. Now there are 350 million. After over half a century of independent existence, we have increased the absolute numbers of illiterates in India and after spending an estimated $150 billion.

{My arguments in this series do not depend critically on the exact numbers. So whether India spent $150 billion or only $100 billion over the last 50 odd years is not important. What is important is the order of magnitude of the numbers, not their exact values.}

Another way of thinking about this issue is this. Around 1950, India had about 200 million illiterates. Suppose India had taken a big bang approach and instead of spending $1 billion that year, it had allocated $10 billion each year for 3 years on primary education and make India completely literate. Then the total cost to the public would have been $30 billion and it would have solved the problem once and for all. On top of that, having a literate population from 1953 onwards, it would have developed more rapidly (if the country had not screwed up in other ways), and it would have had a lower population (population of developed nations grow less rapidly), and the aggregate wealth of the country would have been higher, and hundreds of millions of fewer people would have led mean, brutish, nasty, desperate and short lives. And we would not be having this discussion. We could have spent the time reading poetry or playing online games.

But that was not to be. The idiots that ruled India, and their progeny who rule India currently, have inflicted upon us a nation which has the highest number of illiterate people in the world.

Enough of bitching and moaning. The task at hand is to fix the problem once and for all. We have to put the required resources and we have to use those resources intelligently. The job cannot but be financed publicly but the public sector is not the right agency to undertake the job of actual execution. The private sector is the appropriate agency, and as I will argue later, it can do the job for the least cost. I will also detail out the immense side-effects (to use a computer science term) and positive externalities (to use an economics term) of implementing my modest proposal.

Throwing money at problems, it has been correctly pointed out, is not always the best way to solve a problem. But in some cases, you have to throw sufficient amounts of money and aim it very precisely to solve some problems. I believe that if we don’t solve this one, the country which is now terminally ill is doomed to a slow and painful death. Now is not the time to futz around with the same old socialistic policies. They brought us to this sorry state of affairs. We cannot afford to continue to go down this path any more.

Part 3:

I am a firm believer in the use of technology for development, including information and communications technologies (ICT). There is an urgent need for economic growth and development and unless we use the best possible tools available anywhere in the world, we are unlikely to solve the problems which confront us. But I am dismayed at the lack of understanding which accompanies the “ICT for Development” bandwagon. In the past I have waged a solitary war against the myths, misconceptions, misunderstandings, and misapprehensions rampant among those who mindlessly advocate the use of computers for every conceivable problem. These people loudly bemoan the so-called digital divide which in in my considered opinion is a bunch of hooey.

It is not the digital divide that is preventing the poor from benefiting from ICT. It is the fact that they are poor that is preventing them from benefitting from ICT. Not just benefitting from the use of ICT, the poor also are not benefitting from the advances in medical technology, in cosmetic surgery, in plasma tv technology, ad nauseum. It is not the digital divide, stupid, it is an income divide, it is a wealth divide, it is an opportunity divide.

If the poor had money, they would not be poor, and like all non-poor, would be able to buy all sorts of stuff—including, but not limited to—digital gizmos. They would buy education, clothes, food, houses, cell phones, cd players, dvd players, plasma tvs, and computers. There would not be a digital divide. It bears repeating: the digital divide is not the cause of poverty nor is it the cause of the persistence of poverty. The digital divide is a result—an effect, a consequence—of poverty.

The point is that everybody loves a digital divide because there is money to be made. You don’t see newpapers carrying articles in breathless prose decrying the literacy divide. You don’t get invited to scores of conferences on the primary education divide. No, siree. There is no money in there.

I cannot resist a personal aside here. Similar to about few billion other literate people in the history of the universe , I was on the other side of the digital divide. Digital to me, when I was growing up, meant things to do with fingers. Being an Indian, I had digital food—I ate with my fingers. Despite that astonishing handicap, I did manage to become somewhat literate. I did not know of the exitence of digital devices till I went to graduate school. End of aside.

It is my position that to develop, we have to use ICT domestically instead of merely building ICT tools for developed countries to use. I keep repeating the word tool because that is what it is. ICT is a means, not an end. Which means that we need to first figure out what we want to get done and only then seek the tools required for the job. If you go and first purchase an expensive hammer, you are out of luck if what you really need done is make a cup of tea.

I believe that we have a goal: stop being a backward overpopulated pathetically poor country. That goal requires we solve a whole bunch of inter-related problems, which ranges from the problem of mindless corrupt bureaucracy to immoral politicians to brainless communists to unemployment to illiteracy … ad nauseum. The problem of 350 million illiterate people is one which has complex backward and forward linkages. So solving that is crucial and needs to be done without any more waste of time. But it does not appear to be on anyone’s radar screen.

With that preamble, I am now ready to continue with where I left off the last time on my modest proposal to make India 100 percent literate.

So here’s the basic outline of my argument today. We have 350 million or so illiterate people who need to be made literate in as short a time as possible. That is a very very large number. If I had a dollar for every illiterate person in India, I would be fabulously rich. Heck, I would not mind having just a penny for every illiterate person in India—I would have $3.5 million to my name. See what I mean: the number of illiterates in India boggles the mind.

Given that, now I propose that we spend around $200 per capita, a modest amount, to make them literate. Defining what exactly I mean by “literacy” I will defer for now. For now, a quick definition would be someone who has had the equivalent of a primary school education. The government has to be the source of the funding but it must not be the agency to deliver the education considering that after about an estimated $100 billion, it has not delivered basic education to hundreds of millions of Indians. The private sector will undertake the task if the political will exists to provide funds for the job.

Pardon me if I repeat myself, but this is too important a job to be left to the public sector bureaucrats. The private sector, given the right incentives, will deliver because firms driven by the profit motive do astonishing things. Of course, oversight and regulation is essential for socially-optimal outcomes in market places. Around the world countless examples exist of institutions that oversee and regulate the private sector. In our case, the appropriate regulatory body needs to be constituted. We could have something like an Education Regulatory Authority of India—(ERAI).

As I proposed, allow $100 per as tuition fees that any private firm can get from government for every student they graduate. ERAI conducts standardized tests that certify whether the job has been done or not. Recall that for about 300 million, the total tuition revenues to private sector firms is about $30 billion. Let’s keep in mind that that is a truck-load of money on the aggregate but only $100 per student. So the profit-driven private sector firms will have to use it judiciously. Only those firms which can deliver the goods at the lowest costs will be able to survive. So what will they do?

My contention is that the private sector will find the most innovative method to do the job. What that means, in this day and age, is simply the use of ICT in some way, shape, or form. I do not know what it will be but I will bet my bottom dollar that ICT tools will be used to solve the problem. The firms will scour the world and figure out how to educate the masses at the least cost.

Remember a very large proportion of illiterates are in rural India. Given that ICT will have to be used, the private sector will bring ICT into the rural areas to make it easier for themselves. This is the punchline of this part of the argument: once you have defined the task, the means will be found to do the task. I argue that the means in this case is ICT, and so ICT will reach the rural areas. This is the “horse before the cart” strategy instead of the “cart before the horse” strategy that the government follows. The government follows the latter strategy with sickening regularity. First, they go and buy a few thousand PCs and put them in villages with no infrastructure—not even power. And then they wonder why after spending all that money, nothing appears to change.

Now we can talk about the side-effects or externalities that I had hinted at earlier. The funding of primary education at the appropriate level will induce the private sector to use ICT. In turn, this will induce a demand for more domestic use of ICT and therefore to more employment in the domestic ICT sector. This will grow the sector and it is a well-established fact that a large domestic market leads to efficiency gains that translate into comparative advantage. For India to truly become an IT superpower, we need to use IT intensively in areas where IT is appropriate. I submit that educating India’s 350 million illiterates is the most pressing task and that IT tools will make it possible.

Part 4:

Given half a chance, people cheat. Basic human nature. There is little gain in believing otherwise. Taking undue advantage of something to get ahead is part of the basic human DNA. (I admit to being an unabashed hardcore dyed in the wool cynic. Among my all-time heroes is Diogenes. More about him here.) So one has to plan ahead and design mechanisms that account for that fact. Ravikiran asked in connection with my proposal to make India 100 percent literate: What stops the NDS from colluding with the testing centre and making off with the money?.

Folk wisdom is a marvelous thing. In our case, let’s apply the “you cut, I choose” bit of folk wisdom to address Ravikiran’s concern.

If we had to ensure fairness in the division of a piece of cake in a two-person division, the person cutting the cake should not be the person who gets to decide who gets which piece. “You cut, I choose” ensures that the cake-cutter will take care to not cut unevenly. This mechanism guarantees that both parties will be happy with the outcome. (It is a trivial exercise to design a multi-party cake cutting algorithm, which is left as an exercise for the interested reader.)

The application of this fundamental principle in our case is a no-brainer. Let’s identify the two parties: (1) the government which is funding the primary education, and (2) the private sector “New Deal School” which is providing the training. Assume that both parties agree on what constitutes a fair test of successful training. Have a neutral body administer the test. As I already proposed, let the Education Regulatory Authority of India conduct the test and certify whether the training is successful or not.

The specific details of how to reduce collusion and cheating can be worked out without taxing the brain too much. Scores of examples exist around the world of impartial tests. I have, like millions of others, appeared for many such tests. Take for instance, GRE and TOEFL. The testing agency, ETS, has an incentive to make the system incorruptible.

Essentially, we just have to ensure that the school delivering training cannot be the one certifying whether it has been successful in the training.

Part 5:
For the past few weeks, I have been exploring what I call a modest proposal for making India 100% literate (parts 1, 2, 3, and 4). Here I will explore some aspects of my proposal.

I had proposed that for every person who is certified to have attained a certain level of literacy and numeracy (essentially, a primary education), the government should give them around $100. Here is the reasoning why this payment is necessary and why India will not attain 100 percent literacy without a payment of some sort.

Primary education has significant positive externalities. That is, the benefits of primary education are not limited to the person who is educated but extends to society as a whole. In other words, there are not just private benefits, but there are social benefits as well. In activities that have both private and social benefits, free markets may not be able to provide the socially optimal result. In the case of primary education, less than the socially optimal amount will be provided.

Here is a contrived numerical example. Suppose the private benefits of a primary education is $200 and the social benefits are an additional $200 computed over a relevant period. Furthermore, suppose the cost of providing primary education to a person is $250. Clearly, the total benefits of the education ($400) exceeds the cost ($250). Let’s call this difference of $150 social surplus. Therefore it is socially beneficial to have a person educated. But will a person have an incentive to get primary education if he is asked to pay the full price (which is equal to the $250 cost)? No, because the cost exceeds the private benefit of $200. Thus society loses $150 for every person who is unwilling or unable to get primary education because the benefits $400 never arise and the avoided cost is only $250. What should society do? It should pay a person part of that social surplus so that the total private benefit exceeds the private cost of education.

Time for a bit of a digression.

I have been pondering a question lately: what is a good compact concise definition of a “rich person”? I think I have it. A rich person is one who is not credit constrained. Pretty good, isn’t it? See I am not credit constrained. Most things that I wish to have, I can either pay cash for or have the means to get a loan. Similarly, Bill Gates is not credit constrained. This definition makes the important point that it is not the money that one has that makes one rich, but rather the ability of a person to have access to money on credit that makes the person rich. Donald Trump may have been broke at one time during his career but he was not poor because he could borrow billions of dollars.

Time for a digression within a digression. Sort of like a subroutine calling another subroutine. Nested loops, if youprefer. Or a story within a story within a story, like the Panchatantra.

Our present age is called the information age. What exactly is information? A good compact definition was what I was looking for. Hal Varian, dean of the School of Information Management and Systems of UC Berkeley, has one. Information is anything that is potentially digitizable. The operative word of course is potentially.

End of nested digression. Back to the original digression about how I define a rich person. Contrarywise, a poor person is one who is not a rich person. End of digression.

The Constitution of India set the goal of guaranteeing primary education to all children and to do so within 10 years. That was in 1950. A lot of water has passed underneath the bridge since that deadline passed and yet India has the highest number of illiterates in the world. No one appears to be bothered by the failure of the state to deliver what it had promised half a century ago. Aside from mouthing tired shibboleths and high campaign rhetoric, nothing gets done. The political will appears to be non-existent. Public funds are squandered in absolutely mindless endeavors. The fact is that unless resources are committed to solving the problem of illiteracy, India will continue to be an illiterate country no matter how pretty a speech one makes about India becoming a major economic powerhouse.

End of rant.

Now back to the specifics of my proposal. Why do I propose that people be paid for getting their children educated? Because poor people (as defined above, people who are credit constrained) don’t have the luxury of investing in the future. Their more immediate concerns occupy them fully. If you ask a poor person to send his children to school—even free school—the person is going to do a bit of rational calculation. If his children can earn half a dollar a day working at some menial job, the opportunity cost of going to school is going to be half a dollar a day. That is not a trivial sum to a person who is at or below subsistence level. Irrespective of how great it is for a person to be educated, there is no incentive for a person to send their children to school if that means their immediate income gets substantially reduced.

The hundreds of millions of illiterate people in India come from very very poor families. These families have to be helped to make the choice of sending their children to school. I have proposed a mere $100 per person. If that amounts to $30 billion, then that is what it amounts to. You cannot argue with arithmetic. If the country is unwilling to spend that money, there is no way the goal of having a literate population can be achieved. That is a fact of life and cannot be changed even if the President of the country makes very impassioned speeches about how India will be a super power in 2020.

URL - www.deeshaa.org/2004/09/30/a-modest-proposal-for-making-india-100-percent-literate-within-three-years/