Monetary Realism

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Mass Corruption Threatens India’s Job Guarantee…

It looks like many of my concerns over the job guarantee were not unfounded after all (via Tom Hickey and IPS):

“Yet, in spite of its massive public spending budget, NREGA has come under withering criticism, starting with allegations of corruption in several states.

In northern Uttar Pradesh, massive siphoning of NREGA funds by officials and local administration, including village panchayat heads, has now led to the minister for rural development, Jairam Ramesh, calling for an official inquiry.

The largest of the NREGA scams in Uttar Pradesh emerged from the constituency of Sonia Gandhi, the leader of the ruling Congress party. Not surprisingly, the Congress party fared badly in provincial elections held in the state, India’s largest, in March 2012.

Critics say NREGA’s massive public expenditure is a drain on India’s economy, besides affecting industry by pulling away its labour force and promoting a ‘welfare ethic’. “





Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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13 Responses

  1. Jason says

    Corruption is even more serious when it involves politics because parties use corruption to establish power, not to get things done. For instance, a bribe to an official to expedite something that would be approved anyway is corruption that should be rooted out but is not wildly dangerous. Corruption used to funnel money to a political campaign or enrich political supporters strengthens a party’s hold on power which is dangerous as it leads to even more corruption and human rights abuses.

  2. anonymous says

    My favorite part is … “We are happy with the National Rural Employment Guarantee Act (NREGA) which gives us an assured income, but we want more work.”

    I heart the Job Guarantee, it will awaken man and the dynamic and synergistic processes by which an economy grows; for one of the questions it advances is what causes productive forces to spring up so as to produce the wealth of nations?

    • Cullen Roche says

      I’m sure those taking advantage of the program via corruption are also happy with the assured income! :-)

      • Cullen Roche says

        Here’s another recent piece about the programs inflation effects. Apparently the “price anchor” turns out to be a price buoy just as I described.

        • AK says

          Food inflation has been widely reported and exhibited across the world, not just in India. It’s rather hazy logic to pin it on a government jobs programme.

          Besides, the programme has been in place since ~2005 and India’s inflation has not been any worse than it has been in past decades, and has actually been trending down over the last couple of years even while the programme has ramped up.

        • geerussell says

          So far I’m left with more confusion and questions than answers on NREGA.

          I had trouble figuring out what the wage setting logic is. The NREGA wage seems to vary quite a bit from state to state and it also varies in its relationship to the minimum wage from one state to another.

          It also looks like the wages are indexed to inflation, which would make the program an ongoing contributor to inflation beyond just a one-off adjustment at introduction.

          Is it really as small as it looks? $5 billion/year in a country with $1.7 trillion GDP, limited to a maximum of 100 days of work a year (or equivalent payment if no job is provided) and one job per household? Given what was indicated about funds siphoned off through corruption and poor implementation leading to actual days work and wages received on average falling well below the maximum, how much impact could it be having one way or the other?

        • Cullen Roche says

          A lot of that is local politics. It’s not surprising that their JG is attached to inflation. A living wage doesn’t stand a chance staying at that rate for long when you have special interests involved in lobbying the program left and right. Remember, in the USA this thing would be much larger so the politics involved would be even more substantial. I’m not saying it can’t work in the USA. But I am very skeptical. As I’ve repeatedly said, I would not be against starting it small and building out. But what I think is extremely misguided is building the JG around the idea of the state theory and the monopolist myth so as to make it part of the whole macro theory. I just don’t agree with that approach at all.

  3. FDO15 says

    I think Ramanan has posted about the mass corruption before. It’s a legitimate concern and it would be in the USA as well. Unfortunately for JG supporters it’s one of many worries about the way a JG would operate.

  4. wh10 says

    Curious to hear Ramanan’s thoughts on this, and I would like to see a more thorough analysis of the costs and benefits of this program so far. In general though, let’s not forget there is also “mass” corruption in India’s government more generally (from my understanding). I also wonder what evidence supports the quote that the program is promoting a ‘welfare ethic.’ I don’t think evidence from emerging markets should be disregarded, and I don’t think Cullen’s concerns are unfounded at all, but I think it should be understood in the proper economic and political context.

    • Ramanan says

      I like government employing people. This scheme was proposed as early as 1976 in the state of Maharashtra in India. It’s true that the Indian government is full of corrupt people (except of course a few good ones on top) but it will be true of any political party which comes to power. All parties are equally corrupt. I’d prefer a Prime Minister whose favourite economists are Joan Robinson and Nicholas Kaldor. (And he is beyond corruption but an exception.). Anyway other political parties are a bunch of religious zealots and they have had huge corruption too when in power. It’s surprising the Indian middle class generally supports these parties.

      But it finally comes to implementation. Had the implementation been good, corruption would have been low as well. The fact that corruption is so high says speaks not only of corruption itself but the implementation itself. We can have an ideal society where the government does a lot more but we don’t live in that world.

      But anyway the corruption is so high that once the late PM Rajiv Gandhi said:

      “If Central government releases one rupee for poor, only 10 paisa reaches them.”

      That was 20 years back but it’s still true – considering that corruption has become worse.

      • beowulf says

        “That was 20 years back but it’s still true – considering that corruption has become worse.”
        And that’s what young Ramanan realized that the path towards justice required him to transcend the law. So he became one of the Lords of Dharmaraja (no not really, he’s actually a banker. I just like the name of that hacking group). :o)

        In the US context, I’m less worried about corruption per se than if even if managed with perfect honesty, there’s so many labor and environmental rules involved with federally funded projects that I don’t think a JG program could be be started, stopped or adjusted on a timely basis (and good luck thinking labor unions or environmentalists will let Congress waive those rules).

        The most recent federal jobs program was the weatherization program established in Obama’s stimulus law. That wasn’t very reassuring. Compare and contrast— a federal tax credit for new hires that can kick in immediately after signing vs a small federal program for new hires (“small” in that a JG would be 50 to 100 times larger in terms of funding):
        “A $5 billion federal weatherization program intended to save energy and create jobs has done little of either, according to a new report obtained by ABC News on the one-year anniversary of President Obama’s American Reinvestment and Recovery Act…
        The problem is red tape, according to the GAO. Local governments and contractors have to jump through several hoops before getting full funding… The Department of Labor spent most of the past year trying to determine the prevailing wage for weatherization work, a determination that had to be made for each of the more than 3,000 counties in the United States, according to the GAO report.”

        • Michael Sankowski says

          1. The prevailing wage laws are a huge problem. I am dealing with them myself right now in the family business.

          2. Is corruption all that bad? I’d say…yes and no. corruption is part of what we do. putting it to zero is probably not a worthwhile goal. Moving from India levels to roughly German levels is probably a worthwhile goal (Germany is surprisingly corrupt). I’ll put the size of the black market economy as a rough gauge of the level of corruption in the economy.

          3 Ramanan, have you seen/heard anything about these zero rupee notes?

        • Ramanan says


          Have just heard of the zero rupee notes in papers and the internet. Haven’t seen anyone carrying them or talking about them. But it’s a good idea.