V. Anantha Nageswaran

THIS article is based on two separate and very contrasting stories and the thoughts derived therefrom. The first story is this: A good friend in Singapore who is wealthy, influential and with property interests in many countries told me that a tenant in one of his properties worldwide, met his son and offered him a job in his (the tenant's) company. The tenant was working for a multinational corporation.

The second story is that of the family of our personal housekeeper in Singapore that lives in Sri Lanka. She is the sole breadwinner of her family as her husband is a heart patient and cannot work.

Her daughter, living in Sri Lanka, recently came down with an illness that might be serious and require a prolonged treatment. Our housekeeper is heartbroken.

What is the moral of these two contrasting stories? The wealthy friend would have, in any case, managed to land his son a good job or offered him one in his own family business. Yet, his wealth enabled him to acquire properties globally landing him with well-connected tenants who, in turn, offered a career break for his son. Wealth begot more of it. Opportunities arise unexpectedly because of it. Wealth traps itself for the wealthy.

Our housekeeper is forced to work away from homeland and her children grow up without the physical and emotional nourishment of having a mother by their side. That automatically means greater risks of illiteracy, lack of good health and nourishment even if the mother is able to sustain the family comfortably with her overseas income. It is the poverty trap. Poverty traps and perpetuates itself. It takes far greater efforts to get out of its grip.

Doubtless, there are scores of other examples that mirror both the stories above. It may be obvious once stated but poverty trap is perceived solely in economic terms. That is both wrong and incomplete. In the example above, the mother was able to fill the material income gap by working abroad. However, that opened up gaps in other areas.

What does a responsible government do or even responsible citizens do? The example, in my view, makes it clear that poverty is not going to be eliminated by non-governmental organisations (NGO) and socially conscious citizens doing their bit. Indeed, if NGOs could eliminate poverty, India, with the world's largest concentration of such organisations, would be a developed state by now. Their work, at best, provides patchwork solutions and palliatives.

NGOs would serve the cause of the country and the poor far better if they were to abandon their individual social initiatives and simply work to ensure that governments provide better and responsive governance at all levels.

East Asian governments in the three decades up to the mid-1990s provided education, health care, raised national savings, invested and thus grew. In less than a single generation, they transformed themselves from developing country status to middle and developed country status. NGOs did not bring about the transformation. Governments did.

The government commands the machinery and the resources to wreak economic transformation on a national scale. It is also relatively easier for governments to replicate successful experiments on a national scale than it is for NGOs to do. They operate mostly in silos and in localised context. They usually do not communicate with each other and hence, there is avoidable duplication and lack of scale.

What should governments do? Governments help the poor the most by facilitating legitimate economic activity and by getting out of the way. Governments usually perpetuate rather than eliminate poverty through social transfers. It requires enormous work, thinking, intelligent planning and execution for governments to provide meaningful subsidies. Governments in poorer nations have failed more often than delivered on this task.

In India, fortunately, the 73rd Constitutional amendment has created the mechanism for governments to operate closest to the population at the village panchayat level. The task for the Federal and the State governments is to empower them with financial resources to discharge their responsibilities.

Even if they are no more responsive to the expectations of the public than higher levels of government, there is greater scope for the public to hold them accountable than the State governments or the Central government. Very simply, the transaction costs involved in pursuing remedies against the government are bound to be lower for the public with village administrations.

New Delhi should, therefore, have a single-point agenda if it is to deliver governance with a human face. It should privatise massively, raise resources through a non-extortionist and simpler tax regime and devolve them on the village administrations.

Once done, it should empower the public to hold itself accountable in the above tasks and the village administrations in their task of delivering social goods by making information available.

The most important right that is denied to the public in poorer nations is the denial of information. It enables politicians and bureaucrats to operate successfully behind a veil of secrecy.

The recipe for poverty elimination within a generation is relatively straightforward. To use it requires entrenched mindsets to change.

With the foreign passports of consultants at the Planning Commission the uppermost issue in the minds of our Communists and their apologists, the signs are not encouraging. Are they ready for the challenge of making governments deliver? Or, are they trapped too?

(The author is founder-director, Libran Asset Management Pte Ltd., based in Singapore. The views are personal. Address feedback to van@libranfund.com)

© Copyright 2000 - 2009 The Hindu Business Line