Land-barred Economics of Bengal

When the Singur land acquisition debate and agitation was at its height, I had pleaded with many economics intellectuals that at the heart of the political problem in this subject lie in the reluctance to apply the knowledge of economic principles and quantitative economic empiricisms (http://sensarticles.blogspot.com/2009/07/3.html). I had argued that land has to be valued interns of the present value of the time stream of net benefits the land is expected to generate from its alternative use. A smart young economist pointed out that present value method involves use of discounting factors and the choice of the discount factor is a debatable issue itself. My friend probably was not aware that his pint was well known all over the world of applied economics and finance and yet they knew how best to use Present Value method for decision making and valuation. Or, he was aware but like me was not very enthusiastic about the work effort involved in estimating the time stream of net benefits form land as a productive asset in alternative uses. Bengalis do not like hard work any way.

Recently another of my expert economist friend appeared to be of the view that available economic principles have so far not been able to provide any guidance on the type of cases like the acquisition of land from unwilling farmers in Singur. It was a great shock to me that I am fast forgetting what economics is all about. I had thought that the standard economic principles only suggest that offer and bid prices could be an effective mechanism of convert unwillingness to willingness. At sufficiently high enough price, unwilling sellers would enter the market. If the price was high enough there would have been hardly anyone in Singur unwilling to sell land to the Tatas or the Government.
I inquired if the issue is not merely one of determining that price in the absence of a free, completive market in land as a productive capital asset. And, I thought so far that the opportunity cost was a rough guide: the present value of net cash flows from land as an asset for agricultural activity is estimated easily to provide a guide and the present value of the net cash flows of the alternative land use for the Nano car project would have provide another guide. Yes, Bengali communists may not be adequately educated in quantitative economics and finance to be conversant with present value estimation and its application in a Marx-consistent manner.

Pardon the communists. During the last four years, no Bengal economist has attempted such valuation of Singur land or has explored whether the Nano car project economics could have afforded to compete land away from Singur farmers by offering a land price high enough to make all farmers willing to sell land. The notion that the industry needs to be given land at concessional rate for industry to be set up is a Nehruvian-kind of socialist prejudice that seems to keeps Indian economists away from applying simple, ideology-neutral economic principle: land should be attracted to the highest possible returns activity in the normal course. The politicians would never agree to this because they would want to dictate the allocation of assets among alternative uses based on their preferences and in the case of any communist user of State power, based on a childish, and of course fallacious, notion of democratic principle that if owners of 600 acres are willing to sale, the owners of 400 acres must be forced to sale.

The communists’ government in West Bengal has fallen. And the new Trinamool government seems to be arguing that each owner should have the right to decide whether to sell his land or not. If that is so then each land owner must first be the present value of his earnings stream over time from his asset and then get bidders to offer him attractive enough price to win over his unwillingness to sell at what the State considers as the fair price. But the Trinamool Congress government has not commissioned investigations into these economic issues that would have made it more educated and informed as a party to deal with economic problems of the State. Political parties cannot be expected to know that there is need for knowledge of economics truth and facts to arrive at proper policies.
Maybe economics is not a subject for study for emotionally argumentative Bengali intellectuals and politicians alike.
My friend pointed out to me that one basic problem of applying conventional present value method to find the value of land is that private valuations are heterogeneous and
often greater than market valuations. So, if someone is unwilling to sell land just because his personal valuation is greater than the compensation that is being offered based on the market price of similar land, should we force him?, my friend asked. He also asked, more important was whether should we force him to sell his land because most others have agreed to sell their land? He believed more firmly in the sanctity of private property. He is now convinced that we cannot ethically force anyone to sell his land or any other property for that matter.
I was amazed that both of were in agreement on the ethical issue that we should not force a landowner to sell his land under any circumstances that we both did not agree with the communists’ definition of majority rule of democracy being applicable here (the communists of Bengal seem to be more advanced in knowledge than I can compete with for I had thought there is only a single vote cast for each piece of land and hence the question of majority does not apply as the decision to sell or not is in relation to each piece of land: had all land been commonly owned the question of majority rule could apply).

Yet, I thought that I needed to clarify the economics point. My surmise was that if the present value of cash flows to the land owners from his land would be say X and the present value of the same land, if used by an Industrialist is Y and what the so-called market price used by
Government and political parties in the current distorted market is Z, Z is much less than X and Y is much higher than X. In the absence of the information on X and Y, the farmer is not able to make a real choice. It is quite possible that the industrialist buyer would be willing to offer a price Y1 that is below Y but much higher than X and therefore still much higher than Z. Thus my contention was that by not disseminating information relating to Z and X, we are not allowing the farmers to make an informed choice whether he / she would remain an unwilling seller at al prices, however high. If there exists some Y1 > X but Y1 X, there is a scope for settling down at a price
in between which will benefit both parties. But since X is unknown,
heterogeneous and often subjective, it would be better if we leave the
transaction to the market, that is, let the industrialist buy his own
land. The state's role here would be to ensure that no coercion takes
place.” I was happy that at least one of my friends agreed with me (perhaps because we were both influenced by free, competitive market economics logic).

But then, as always, I would still have something to add. To enhance proper functioning of the market, besides the State, apolitical economists could contribute to enable small farmers to get adequate information on the probable range of values of X and Y so that they can better negotiate. Various Kolkata based economics research institutes could have done some empirical studies in this area for reducing the information asymmetry between buyers and sellers in a free, competitive market for land. And, this is not difficult now for researchers to do such analysis on farm economics and industrial project economics. Banks have lot of information in their appraisal notes on numerous cases of farm and industrial finance. Even 4 decades ago, the journal of Agricultural Refinance/ Finance Corporation had been publishing empirical studies on the economics of agricultural operations by farmers owning and of various sizes in different locations of India. Late Prof. Ashok Rudra also did some work at that time. I wish researchers in applied economics did some empirical work on farm economics to improve our knowledge.

Another of my young economist friend gave me the following information:
1) In Grossman Hart's Bell Journal paper on freeriding, they gave some examples of contracts that are designed to handle situations like this--e.g., an offer would be valid if all sellers agree to sell at a certain price.
2) Govt. routinely takes lands for public works projects. Forming private industries by forcibly acquiring lands is dangerous. Several years back, the U.S. supreme court ruled in a landmark decision that lands can be acquired even for building of private industries. This caused much anguish and gnashing of teeth. One of the supporters of this view was now-retired associate justice David Souter, a mild mannered gentleman from New England. Agitators threatened that they will take Souter's home and build a mall and see how he would feel.

In the dissenting note in a case, the disentinmg judge had observed that the land acquisition by the Government could be supported if there was public necessity of extreme sort, continuing accountability to the public and selection of land according to facts of independent public significance.

On July,2004 the Michigan Supreme Court reversed an earlier decision and ruled that for forceful acquisition of by government, it is not enough to argue that an entity’s profit maximization would contribute to the health of the general economy.
There are so many different ways to look at the same issue!!

Note: http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
Kelo v. City of New London, 545 U.S. 469 (2005) was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another to further economic development. The case arose from the condemnation by New London, Connecticut, of privately owned real property so that it could be used as part of a comprehensive redevelopment plan which promised 3,169 new jobs and $1.2 million a year in tax revenues. The Court held in a 5–4 decision that the general benefits a community enjoyed from economic growth qualified such redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.
There are so different ways of looking at the same issue depending on the context of time, location and envirnment.

Market for & Externalities in Consumption of Education Equality/ Equity Products

God, according to a simplistic interpretation of Adyavat of Santana (now referred to as Hindu) Dharma philosophical scriptures of ancient origin, is all prevalent, exits in everything - infinitely large or infinitesimal - that is there in the Creation that we know, discover and imagine, and is container of everything. It follows that each and everything is nothing but God and each and everything is equal and there is nothing iniquitous in this Creation or the Creator, irrespective of whatever we believe in as the origin of God.


Yet, physically each infinitesimal entity is not necessarily the one and the same thing as the other entity as we perceive from our senses: many things look different, tastes different, behave differently and interact with each other differently. This applies to human beings as well. But human beings urge for equality and injustice, especially if one happens to perceive that one is unjustifiably handicapped compared with others. So, there is demand from the God to make every thing identically equal. God has not cared to listen to these prayers and different things continue to maintain their different identities in terms of length, width, area, volume, force, capabilities, attitudes, mentality, tastes and preferences, etc.

This is a great problem. The religious leaders and spiritual leaders have tried to promote the concept of universal love to remove all perception of differences, inequality, inequity and distinctions: ignore the formal difference and love everything as being equal and part of the same identity of God. This makes people to believe and practice the knowledge of Unique Singularity in everything and forget formal differences. But these preaching have failed to ensure equality and equity in the world of individuals, groups, societies and nations. The scientists have not given the humans a technology that would ensure that from a specified date in future all human beings will be born as identical human beings in all respects and remain so throughout their uniform life: that would have ensured that after a later future date there would not be any scope for distinction between men and women, between higher and lower IQ, between tall and short, fair or dark skin, and so on. Because a single compulsory dose of medicine served at birth will ensure that the child could produce during its life time only x number of children without any need for sexual cooperation and all children produced by the medicated children at birth will be of identical configuration without any influence of parentage and genes. So, the medical solution to equality and equity in human race is not yet available.

But the cleverest of the human race, the politicians have found a great and sustainable business of distributing equality and equity. For they understood clearly that the demand for equality and equity will be the only permanent and perpetual: the want for equality and equity is essentially insatiable. If one gets to eat a sweet, delicious fruit, one will demand for another and after consuming the second will demand yet another. But the law of diminishing marginal utility will set in at some stage when the person will stop demanding another fruit to eat. Rather, the person will demand different item of consumption. Unlike this, the utility from consumption of the item called equality and equity is not afflicted by the law of diminishing returns. It is rather under increasing marginal utility rule.

Let us consider a recent example. The Government of a State made education from primary to higher secondary to college and university education completely free for students from poor families with income below a minimum cut-off level. People were all happy - a great decision by the Government, unlike the unchangeable, rigid God. This government produced good of equality and equity in education has a positive external effect: more educated people is expected to provide a better social and cultural environment besides contributing to economic growth by supplying more productive educated labour for industry, agriculture, trade and industry as also creating in the process a greater demand for all other goods and services in the country. Unlike the other method of generating equality/equity product through reservation of seats in education or jobs that reduces the supply of school/ college/ university education seats to the non-poor students and thereby leading to an external negative effect on consumption of equality/equity goods produced by the State, the direct supply of equality/equity goods through what some economists called entitlement / endowment/ empowerment approach is liked by both the direct consumers of the goods (the beneficiary students and the poor families they come from) as well as the others who has to procure the same education good at a cost besides giving taxes to the Government to fund the free distribution of education equality/ equity goods to students from poor families. Everyone is happy.

But the consumers of education equality/ equity goods demand more such goods because the consumption of these goods exhibit increasing marginal utility. Even after primary education was made free, many students from poor families did not regularly turn up at the school. So, free mid-day meals for students attending the school improved the quality of the education equality/ equity product and consumption of this product increased.

As soon as some students from poor families were promised free education at the university / college level because they scored very high marks in the Higher Secondary Examination, it was not only welcomed by all but some demanded an up gradation of this new education equality/ equity products. It was pointed out that these students are essentially of quality of students from rich families but will still suffer a handicap of lower nutrition food intake: so they need to be provided with the same food as the students of rich families get from their parents. Financial grants to such students would help improve the quality of the education equality/ equity product in university education.

But soon it would be realised that these poor student scholars with free university tuition and financial aid would still suffer a handicap in that they would have to face the consequences of family problems related to illiteracy and inadequate awareness of their parents as compared to the educational and financial strength of students coming from rich families in the cities and towns. For example, the richer students could afford special coaching by paid private tutors, personal computers and Internet connection at home and air-conditioned rooms at home along with more knowledgeable parents' help. So, the demand would be for free supply of computers, Internet broadband service and special coaching facility as part of the education equality/ education product. Problems would still remain to be solved: the poor students need to be supplied with knowledgeable parent-like loving guardians at the university and hostels so that they have a level playing field to compete with brilliant students from rich families in cities and towns.

Extending the same kind of logic, there would be demand for school children from poor families in rural areas to be supplied with rich pairs of adopted parents with proper educational backgrounds. The equality/ equity product improvement will have to be extended to parental gene levels. All engineering colleges have to become of equal standard Indian Institutes of Technology, all MBA schools have to be of the same quality Indian Institutes of Management, and so on.

The demand for improving the educational equality/ equity product will be never ending as the marginal utility from consumption of these products are characterised by the law of increasing utility. Governments, especially democratic ones, will have continuous growing business in selling these products at the cost of the tax payers. Equality and equity will improve as a result: but will the quality of education outputs improve?

Recently, I heard a few learned people discussing about international equality/ equity in teachers' promotion system in universities. A former Indian bureaucrat currently teaching in government funded private management institute complained that Indian teachers in Indian centers of higher education with record of publication in international / foreign journals get higher scores than those Indian teachers who publish their articles in Indian journals. This according to him and some others was discrimination against one's own country and probably reflected the mentality of slavery to the foreigners. Everyone knows that Indian research journals have not been able to get international recognition of their quality simply because international scholars do not find it worthwhile to publish articles in Indian journals. But the State has not been able to figure out how Indian scientific research journals can become accepted by the international community of researchers. So, there could be a demand for education/research equality/equity product that would remove the handicap the large section of Indian teachers who cannot get their papers accepted by internationally recognized research publications vis-à-vis the small section of teachers who can. What could be the essential design features of such a product by the government? One product could be like this: a special financial reward for each publication of any teacher/researcher in internationally recognised journal if that article is followed up by another publication in internationally recognised journal, which is co-authored by an Indian teacher employed in an Indian education/research centre who had not earlier been able to publish any article in an internationally recognised journal. The provider of the education / research equality/equity products, namely the Governments of poor countries surely should be highly innovative in designing such products, given the immensely high business potential in these countries for these products. But will the quality of the talent pool of Indian teachers and researchers improve as a result to bring India to the frontiers of education and research in at least some fields of knowledge that the World is pursuing?