The Indian education sector is in distress. How does one explain the lack of outrage among the population at something which affects them so forcefully? Could it be because they are not aware of how dysfunctional the system is? That must at least partly explain the apathy. Perhaps they know but accept it with the fatalistic resignation of the type that accepts corruption among public officials? Perhaps they mistakenly consider pervasive corruption as normal. But how can they not see that government control of education, the rampant corruption, and the crippled education system are all of a piece?

Here’s a news item which reports that medical post graduate studies involve bribes of up to Rs 2 crores (around $ 400,000.)



The TOI report on MBBS seats sold for between Rs 12 lakh and Rs 40 lakh by two private colleges in Chennai barely exposes the tip of the iceberg. The scam gets bigger, more brazen as medical graduates embark on specializations that are necessary for a successful career. The price this year for a post-graduate seat in radiology in most leading private colleges across the country is Rs 2 crore while in cardiology, gynaecology and orthopaedics are priced around Rs 1.5 crore.

It should be obvious why this sort of thing can happen. It is not quantum mechanics. It is a predictable consequence of what I call “engineered scarcity.” Briefly the problem can be stated as

To address not just this question but a whole family of related questions, I propose a general theory of “Power, Scarcity, and Corruption.” Basically, the three form a nexus, with mutually reinforcing influences. Scarcity in general is not a chronic condition in any functioning economy; it has to be engineered. Given economic freedom, people work their way out of any transient scarcity. For persistent scarcity to exist, it has to be carefully nurtured. The motivation for engineering scarcity is that it allows the consolidation of power. This is Econ101 and even a superficial reading of the chapter on monopolies is sufficient to persuade one that monopolies do restrict quantities to maximize “profits.” The relationship between power and scarcity is bi-directional. You have to have power to engineer scarcity, and through that engineered scarcity you gain power. Political power allows you to dictate policies that give you monopoly control and then you use that for gaining even more political power. Then of course, where there is scarcity, corruption cannot be far behind. Corruption is therefore a mechanism which allows the collection of rents that arise from the scarcity. If scarcity were to vanish for some reason, both the corruption and the power to extract rents would disappear. For those in power, therefore, the primary objective is to somehow maintain an artificial scarcity both for maintaining power and for gaining from the corruption. Now back to our educational system. The government has a monopoly control of the sector through many institutions such as the Ministry of Human Resources and Development, the University Grants Commission, etc. Licenses and other requirements force the private sector from fully and freely participating in providing education. The resulting scarcity gives the government a handy lever for manipulating voting blocks. Quotas and reservations are handed out to favored groups. And more directly, the bureaucrats and politicians extract rents from handing out the licenses and permits to those who have the deepest pockets. [“Power, Scarcity, and Corruption.” Sept 2007.]

How does the arithmetic of corruption in education work? I gave an illustrative hypothetical example in May 2007:

Some institution wants to start a medical college somewhere in India. It applies for a license and is told off the record that the price is Rs 20 lakhs (approximately US$ 50,000) per seat. For the 200-seat license applied for the price is Rs 4,000 lakhs, to be delivered in unmarked bills in a large plain brown envelope. That “fee” is routed through the licensing bureaucracy with appropriate payoffs to different people—the lion’s share ending up in the appropriate political hands. After all, securing top positions at the bureaucracy is not cheap; and running elections is a costly business. The firm having paid the whopping fee to operate a medical college, now has to recover its costs. Perhaps its actual cost of training a medical student is Rs 5 lakhs per year. It adds on a “special college entry fee” of say Rs 10 lakhs (remember to bring in unmarked bills in a plain brown envelope) to the normal tuition fees. The hapless students are forced to pay because seats are limited. The four year medical training which should have cost only Rs 20 lakhs if free entry were allowed into the field now has to pay Rs 30 lakhs, and perhaps gets substandard training. Further down the line, doctors are in short supply and therefore they command some market power and thus are able to recover their costs. The patients suffer but that is why they are patients—they suffer.

Engineering shortages is what the government does very effectively. Engineer scarcity in sufficient number of sectors, and you have engineered a very poor economy. India’s poverty is engineered by the government. There’s really no earthly (or even heavenly reason) for India to be a “third world” country. The decades of governance by the Congress has effectively destroyed India’s potential.

The government has done the most damage to India through its stranglehold on education. By destroying the education system, it has destroyed the capacity among the people to perceive the problem in the first place. It is like the human immunodeficiency virus which causes AIDS: HIV acts by attacking the immune system itself. Similarly, hitting the education system destroys the capacity among the people to ever understand what ails the education system and why.

Here’s an example of the lack of understanding of what’s wrong. The news item linked above ends with this:

Another senior expert, who has held prestigious posts at the national level, says he has urged the UGC to hold centralized examinations like JEE for admissions to both MBBS and PG courses. “It’s a national shame to commercialize education. Besides, death of merit affects the quality of medical education. When money is paid, these colleges ensure that the exit is definite. The students pass, qualified or not,” he said.

I have added the emphasis in the above quote. The “senior expert” does not even realize that it higher education and “commercialization” go together. That commercialization can be legal and in the open (as it is, say, in the US) or it can be part of the underground corrupt system. The latter is an inefficient system that arises out of the government monopoly control of the system. Of course, governments don’t do things without a reason. The reason in this case is that it allows the government to extract rents through bribes. The people in government gain at the expense of the economy.

Related post: Lynching is too good for some.

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