I can title this article either way. I cal call it "What we can learn about economics from the Maharashtra's Shivaji statue controversy?" or "Why I am not against the Shivaji statue". My aim is to attempt to write the former, but I will choose the latter title as it sounds more clickbaitish and TRP worthy ! I have come to believe that a lot of people who do a lot of huffing and puffing about the statue have absolutely no idea what they are talking about.
The most common line of objection goes like this: They could have spent 4000 Crore Rs on <Insert your favorite noble cause here> instead of spending it on a statue.
They could have started a micro-irrigation programme, paid for new rural roads,electricity projects, built hospitals, constructed houses for slum dwellers, could have handled malnutrition and what not and what not. Of course inspite of being an evil person even I would want these things to be implemented,no arguments there, my only point however is that you do not have to scrap the statue project to do all of these. I will try to explain why I think so. You are free to disagree but what we want is an informed discussion.
Let us start with a joke that I received in Whatsapp:
Woman: Do you drink beer?
Man: Yes
Woman: How many beers a day?
Man: Usually about 3
Woman: How much do you pay per beer?
Man: $5.00 which includes a tip
Woman: And how long have you been drinking?
Man: About 20 years, I suppose
Woman: So a beer costs $5 and you have 3 beers a day which puts your
spending each month at $450. In one year, it would be approximately $5,400. correct?
Man: Correct
Woman:If in 1 year you spend $5400, not accounting for inflation, the past 20 years puts your spending at $108,000, correct?
Man: Correct
Woman: Do you know that if you didn't drink so much beer, that money could have been put in a step-up interest savings account and after accounting for compound
interest for the past 20 years, you could have now bought a Ferrari?
Man: Do you drink beer?
Woman: No
Man: Where's your Ferrari?
Karnataka Govt. for instance is not building a tall statue of any king, yet why we don't have massive micro irrigation or drinking water related programs? Why is north karnataka still crippled by famine? Since we did not spend 4000 Crore on a statue we should have had surplus electricity or Zero slum dwellers. That is not at all the case. Where's our Ferrari? In this example the Karnataka Govt has all the money that it did not spend on any project like the statue project. Why do we still have all these problems? One major misconception we have is that we think that money is the solution to all our problems. We think that we have all these problems
because we do not have money. What if I tell you that money is not the problem?
Let us start with individuals. People often mistakenly think that poverty and richness is all about money. Being rich actually is all about producing things of value.
An example will drive this point home. If I say that Amir Khan is far richer than my friend Vijay who is a bus driver, not many people would object to that. But the question you should ask is, why Amir is richer than Vijay? Is it because he has more money? To answer that, we will perform a thought experiment. Let us create a level playing field, let us sntach all the money that Amir and Vijay have from them. Now both of them have 0 money. Let us give 1 lakh Rs each to them. Now they are equals. All good so far.
What do you think will be their status after an year? I am willing to bet that within one year, Amir will again be 1000 times richer than Vijay in one year. Why is that? That is because Amir produces something(entertainment) that crores of people want to buy. He produces things of value. My friend Vijay does not produce anything that crores of people are willing to buy. We can repeat the same experiment with Lakshmi Mittal and Amir Khan. If we snatch all the money from Mittal and Amir, all it will take is one year for Mittal to become 1000 times richer than Amir. That is because Mittal produces Steel which is far more valuable than what Amir produces.
In terms of Govt, A Govt that has lots of money is always not the solution. What we need is a system that works, a system that is efficient. To understand this point better,let us take a look at some very poor countries. Countries like Democratic republic of Congo or Central African republic(CAR). These countries are rotting in abject poverty. Your first instinct would be to say that they are poor becuase they have no money.
As we have seen in the Amir Khan example above, the problem is not money. In fact, most African countries do receive truckloads of money from IMF, World bank and the West in the form of Foreign aid. Billions and trillions of dollars
get pumped into these countries through various charity organisations and other Govts. Problem is that this money never reaches the common man. There is rampant and
massively systematic corruption that the rulers simply steal most of the money or they spend it on inefficient projects. The money never gets spent on anything good in
an efficient manner. The system simply does not work. There are no property rights, there is no law and order, nothing works.
Let us take an example, say you start a hotel in CAR. Firstly, the bureaucracy is so painful that you need 50 different licenses, meaning you have to bribe 50 different people just to start something. Even if you manage to do it, Since there are no property rights, any thug can come with a rifle tomorrow and claim that the hotel belongs to him. Since there is no law and order you can not do anything about it. All you can do is use some Kannada or Hindi swear words to vent out the frustration.
Who would want to start a hotel in a place like that? Nobody would start a business there. If nobody is running any business, how will the economy function? How will the jobs be created? The Govt(if we can call it that) gets millions of dollars from foreign nations but the system is dysfunctional. it just does not work. Money is not the problem.
All of this might sound a little familiar because even we face the same problem, only consolation is that we have a milder version of the same problem. Back in the 90s, we had what was called as License Raj. That is a nice way of saying that we also needed 50 different licenses to start a company or something. When you need 50 different licenses from Govt. officials, being an Indian you know how that generally goes! PV Narasimha Rao's Govt. eliminated all that in one masterstroke. Did that make a difference? Hell, yeah!
In 1990, close to 50% of our population did not have access to electricity, close to 50% lived below the poverty line. In the last 25+ years, we have halved these numbers. That's magical. Narasimha Rao's Govt did not do this by distributing free money. They did it by building a much better system. The problem as you might have guessed, was not the money, hence the solution also was not related to having lots of money. Same thing happened in China. Back in the 70s CHina was desperately poor, Mao's ridiculous policies had killed lakhs/crores of people. Deng Xiaoping changed all that by changing the system. Singapore did not become so rich because it had shitloads of money, Lee Kuan Yew made them rich by creating a system that works.
Another piece of statistics from Karnataka will make this point clear. Since 2013-14, Karnataka Govt has provided Rs. 5606 crore for the Bruhath Bengaluru Mahanagara Palike. Another 4222.73 crore was given last year. That makes it 10,000 crores! Much more than the proposed budget for the statue in question. As a concerned citizen, you might want to ask, what happened to this 10,000 crore? In what way has our life improved in bengalooru? Was poverty reduced? Did the number of slum dwellers reduce drastically? Did the traffic situation improve in any way? This year, our Govt. has allocated 6000 Crores for Agriculture. 6000 fucking crores! I am willing to bet that our farmers will still be complaining about the same old things by this time next year. Another 14,000 crores are allocated for water resources, that is 4 times the budget of the statue. If you notice any improvement in anything related to water, do let me know!
Similarly, if the sum of 13,000 crores meant for Rural development actually ends up developing the rural areas in any possible way I will start believing in the power
of miracles! Our annual budget every year has figures close to 1.5 lakh crores. You read it right! It is 1.5 lakh crores. If the Govt is spending such massive amounts of money, why do we still have so many problems? Forget noble ideas like eliminating poverty, why don't we even have half decent roads? why there is such acute shortage of electricity every year? The problem is not money.
Even in case of Maha Rashtra which has a massive 2.7 lakh crore budget per annum, if I were you, I would worry a lot about what happens to the other 2.66 lakh crore instead of creating a ruckus about the 4000 crores. Our problem is not that the Maha rashtra Govt does not have money, the problem is that these budgets have not solved most of our problems, in simple terms, we have the same problems that Africa has: corruption,kleptocracy, bureaucracy, a system that does not work. We already have hundreds of schemes and subsidies meant to solve all these problems. Problem is that they never reach the people in any meaningful way.
Another objection that people have posed is about the return of investment. All sorts of calculations were made to show that it will take 200 years or something to recover the money spent on the statue. The answer to this is that it is a wrong way to look at Govt spending. In a business if you invest X Rs you would want to recover X Rs in Y years.
Govt. spending is not like that. As we saw earlier, Karnataka is supposed to spend 4222.73 crores on BBMP. What will be the return on this investment? In 2016-17, a total amount of Rs.507 Crore was allocated to Tourism Department in Karnataka. Was this cost recovered? Govt spending is meant to give services to people, build infrastructure or boost economy in some way. When US had recession, Obama Govt had announced a trillion dollar stimulus package. The purpose was not to recover trillion dollars, the purpose of the package was just to boost the faltering economy. Govts do things like that all the time.
Lastly, the question of Debts. Say, I want 1 lakh to run a business, what I can do is borrow 1 lakh from Ajay, promise to pay 5% interest. Next year I can borrow from Bharath, use that to pay Ajay, the year after that I can borrow from Chetan and use that money to pay Bharath. Govts do something similar all the time. When the income is not enough to start a project, Govts borrow money by issuing bonds. Even rich countries like US borrow heavily. Govts don't have to clear the debts, they will always be in debt, all they do is use B's money to pay A and use C's money to pay B and so on. Central Govts can even create money out of nowhere by simply printing more money!
That leads us to the concept of Zero Sum game. In game theory, there is this idea of Zero sum games. If someone has to lose something in order for someone else to win something we call it a zero sum game. For instance, if Federer has to win Nadal has to lose. If I earn 10K, and if I spend it on buying a phone, I can not spend it on other things. To buy the phone I have to sacrifice other things. It is a zero sum game when it comes to many things. But Govt spending is not a zero sum game, not always.
If a Govt wants to spend 4000 crores on something, it can simply increase the revenue by increasing the tax or borrow money by issuing bonds. To build a statue it does
not have to sacrifice the irrigation project. Let us say that it was spending 10000 crores on Rural development. This year it wants to spend 5000 crores on tourism. We don't have to boost tourism at the cost of rural development. What we can do instead is, borrow the extra 5000 crores. This way, we continue to spend 10,000 K on rural development and spend the extra 5000 borrowed money on tourism. It does not have to be a zero sum game. To spend money on one thing we don't have to sacrifice other things.
Any money spent on building a tourist attraction is money well spent. I would want our Govts to spend even more on tourism, the catch however is that I don't want this to happen at the cost of development. Let us work on eliminating poverty, malnutrition, water problem and all that. But to do that we don't really have to cut our tourism budget.
By Sharath Bhat Seraje
