I found an interesting story from
Bloomberg.
I think there are several lessons that can be learned from this story beyond the obvious. It goes to show you that with any government program, the devil is in the details! It's not enough just to say you're going to create a program to help feed the poor. HOW to do that is very very important.
Poor in India Starve as Politicians Steal $14.5 Billion of Food
Ram Kishen, 52, half-blind and half- starved, holds in his gnarled hands the reason for his hunger: a tattered card entitling him to subsidized rations that now serves as a symbol of India’s biggest food heist.
Kishen has had nothing from the village shop for 15 months. Yet 20 minutes’ drive from Satnapur, past bone-dry fields and tiny hamlets where children with distended bellies play, a government storage facility five football fields long bulges with wheat and rice. By law, those 57,000 tons of food are meant for Kishen and the 105 other households in Satnapur with ration books. They’re meant for some of the 350 million families living below India’s poverty line of 50 cents a day.
Instead, as much as $14.5 billion in food was looted by corrupt politicians and their criminal syndicates over the past decade in Kishen’s home state of Uttar Pradesh alone, according to data compiled by Bloomberg. The theft blunted the country’s only weapon against widespread starvation -- a five-decade-old public distribution system that has failed to deliver record harvests to the plates of India’s hungriest.
“This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society,” said Naresh Saxena, who, as a commissioner to the nation’s Supreme Court, monitors hunger-based programs across the country. “What I find even more shocking is the lack of willingness in trying to stop it.”
Let's go into the details to see how this program works.
From the government warehouses, millions of tons are dispatched monthly to states including Uttar Pradesh, which are supposed to distribute them at subsidized prices to the poor. About 10 percent of India’s food rots or is lost before it can be distributed, while some 3 million tons of wheat in buffer stocks is more than two years old, according to the government.
The CBI’s indictment of Gupta provides a glimpse of how the operation was run. Food purchased by the central government is trucked to districts like Sitapur, where Kishen’s home of Satnapur is located, and stored until marketing managers in the food distribution system sign off on its dispatch to the Fair Price Shops.
The owners of those shops, called kothedars in Hindi, bring cashier’s checks for the subsidized price of the supplies. A kilogram of rice, for instance, costs as little as 2 rupees, or about 3.6 cents, in most states. The market price for similar quality rice is about 10 times higher.
The shop owners are supposed to sell the food to villagers without making a profit.
People respond to incentives, they will try to better themselves, the way incentives are set up make the difference. If there is incentive to better themselves through profits then they will do that, but if the incentive is towards stealing or some scam, they will consider if they can get caught and steal if the rewards outweigh the risks. Programs should be made in a way to minimize "bad" incentives while maximizing "good" incentives. Look at how the Indian system works vs. the US food stamp program. The Indian program gives subsidies to the sellers of food and expects them to pass along the savings to poor people. If shop owners are supposed to sell the food without making a profit, where is the incentive for them to get the food, make sure it arrives on time and unspoiled, and service the poor? Now look at the US program which gives subsidies directly to the poor through food stamps. The poor then go and buy food at full price from their choice of merchants. The merchants make profits so they have every incentive to make sure they have food in stock to sell and to make sure food arrives at markets without spoilage since people won't buy spoiled food. Yes the poor can sell their food stamps for money, just goes to show you that not all "bad" incentives can be eliminated, the goal is to eliminate as many as possible.
The US system uses the market system more than the Indian system. The poor are forced to buy food at market prices and supermarkets get to make profit off of this government program. At first glance, this sounds worse than the Indian system in which there are no profits to markets so that every penny of the money the government spends goes towards helping the poor. Yet in practice, the Indian system is much much more corrupt and much much more wasteful.
From the government warehouses, millions of tons are dispatched monthly to states including Uttar Pradesh, which are supposed to distribute them at subsidized prices to the poor. About 10 percent of India’s food rots or is lost before it can be distributed, while some 3 million tons of wheat in buffer stocks is more than two years old, according to the government.
Even after accounting for the wastage, only 41 percent of the food set aside for feeding the poor reached households nationwide in 2005, according to a World Bank study commissioned by the government and released last year.
So 10% is lost to rot and only 41% of the 90% left over ever reaches the poor! What that really means is that nearly 70% of the food purchased by the government for the poor never reaches the recipient! There is absolutely no incentive for efficient distribution or to make sure the poor get the food. Under the US system, the poor are responsible for figuring out how to get their food and where to go for the best prices (not hard, go to the supermarket and look at the weekly ads they send out). The lesson is that people respond to incentives and if there isn't any, they will be lax over their responsibilities. Profits give people an incentive to act. In a different world, we wouldn't need incentives and profits to supermarkets could be eliminated so that the poor get 100% of the subsidies, but in the world we live in, the real world, that's just not possible. Conservatives understand the limitations and work within the boundaries of the real world. Liberals do not understand the limitations and so craft programs that have the best intentions, but fail spectacularly in the real world.
