What the Government Says and What it Means

Ritwik says:

Your argument is essentially that regulations will ensure that only those who see a profit motive in education and are able to lobby with regulators will survive and the true educationists/ philanthropists will move out due to overburdening and ever increasing regulations. Isn’t this in contradiction to the usual lament that one of reasons why education lags in India is the fact that one can’t open schools for the profit motive? In such a case, a law that disallows the provisioning of education for the profit motive should keep these people out, right?

Ritwik is obviously not married and has never attended the Art of Living course.  If he had done either, he would have learnt that the words of your wife or of Sri Sri Ravi Shankar are never to be understood at the superficial level. There are always deeper levels of meaning to it. So it is with the words of the government.

When the government says that you cannot make a profit running a school, what it obviously means is that you cannot show  a profit by running a school.  Nothing stops you from collecting “donations” from students in cash, except the inspector babu who will naturally need to be paid off.  Likewise, nothing stops you from forming a trust with yourself and your wife as trustees, and paying yourself handsome honoraria.  Salaries of teachers are fixed – on paper. Nothing stops you from paying them a lower amount and pocketing the difference. (If they complain, they lose their jobs and you need to pay off folks once again.) 

So, when the government says that you cannot do something, what it is actually saying is that it will deploy its resources to check if you are doing that thing – and you have to deploy your resources to get around those checks. These resources increase your cost of doing business and keep out entrants. The cost is not just in terms of money – you need people with special “skills” and “connections” to get around these regulations – and if you have such people, you can use them to buy other regulations that make it harder for entrants to compete with you.

So the choice between a profit-making school and a “philanthropic” institution is a false dichotomy.  The current private schools tend to be registered as educational societies or whatever. Do you think that they are not making profits right now? The real dichotomy is between the current set of schools and schools that want to openly and honestly make a profit. You cannot legally run a low cost school. You cannot be a corporation with public accounts and run schools. The cost of this regulation is transparency.  

20 thoughts on “What the Government Says and What it Means

  1. This is a very easy rebuttal I would think.. Good point though…

    But still… the blog analogy is a very bad one. There is no way people can do trial-error routines with schools and colleges like it is done with blogs.

    Though the point that – many regulations hinder the entry of “good players” – can be accepted in theory, I don’t know how it can be extended to assert that simply removing the regulations will ensure [a substantial] entry of good ones.

    And in India, there have been quite a few cases where removal of regulation and introduction of free-market concepts have not delivered the expected improvement in quality/service. They have only enabled division of the market pie among more crooks.

    The criticism on regulations is valid. But the removal of them is just a wash with respect to overall impact.

    Something more will need to be done. And that, I think, was the point of the original discussion in Nanopolitan.

  2. Swami, can you give me an example where deregulation has not helped? Not challenging you, but just that specific examples will help us understand better why something didn’t work out.

  3. Ravi,

    the example of failed privatization and deregulation most often cited is British Rail. American airline deregulation has also been a bad experience for airlines and passengers, but it’s difficult to separate out the efforts of airline deregulation from increasing oil prices, competition with other industries, increased airport security, etc.

  4. I’d like to keep this discussion focused on India to make life easy for me for two reasons:
    1) I know more about India.
    2) India was so heavily and badly regulated that if things went worse after deregulation, it is a lot more surprising than things going badly after US airline deregulation.

  5. Ravi,
    I did not say things got worse after deregulation. Please read my comment carefully.

    Just that it has introduced newer evils and the overall situation is a wash. It is not bringing in the “expected” or “promised” or “dreamed of” improvements.

    Tamil Nadu TV media is a good example of that. But again, this can be debated at length and I am not expecting to carry on with this argument.

    My point is:
    To the question, what can we do to regulate and make higher ed system better in India?, you answered “First deregulate”. Then we can talk.

    I think that is trivializing the whole issue. And very frankly, you were the one who started being “snarky”.

    I am sure you would have read Nanopolitan’s response also [which I just read]. I think there are some good points there.

    Frankly, I think taking the libertarian idealogue’s position in this fashion – in this issue is a waste of time.

    [The problem is compounded by the fact that you get comments like “Ravi – what a great post. Please write more”].

  6. Swami,
    I think a part of you’re question can be answered here – http://www.livemint.com/Articles/2007/11/19000339/Business-Case–How-AICTE-stym.html
    especially – ‘In 1992, the institute applied to AICTE for a student intake of 120, for which they had necessary infrastructure, but received approval for only 45.’
    Now, its a little difficult to believe that an institute like SP Jain which was already considered good and had every incentive to keep that name going, would actually not have the financial/other resources necessary to fail to get approval for another 75 students.
    What Ravi is trying to mean is that the supply side issue (or the lack of quality schools/collges) question can be majorly explained by this kind of strangulation.
    If it had not been so, the industrial groups like Birlas/Tatas/SP Jain (others like Reliance etc) and others would have expanded at a much faster rate – i cannot think of a single reason why the birlas wouldn’t want to open a few more universities on the lines of BITS Pilani/Ranchi/Goa other than the fact that there were too many hurdles and it was difficult to run it as a legitimate business; the loss at the end of the day is for folks like us who have to compete for 0.001% marks to get into one of these few institutes. If the corporate houses to get into the business, at the very least we can see 10-15 institutes come up in a space of 5 years or so, but i dont think they have too much of an incentive for that now. Yes, to give you the complete picture there are corporates getting into education like the DAIICT by reliance, but these are stray cases and only in the last 5 or so years; this could have been kick started much earlier, in the 60s and 70s, but our previous generation was denied these opportunities.
    Ravi – as an aside, your posts do invoke thought and they’re pretty good. (the sleeveless-blouse-sari one was arbit though!)

  7. Vivek – Just so we are clear on what we are talking about, don’t you think the SP Jain issue is due to corruption, rather than any regulation?

    Are you arguing for abolishing AICTE? If yes, do you think abolishing the AICTE will ensure Birlas and Tatas to participate more?

    If so, how?

  8. Swami, in the real world corruption and regulation go hand in hand. Are you talking of an unrealistic ideal world by some chance? Because if you are, you are doing what you consistently accuse us libertarians of doing.

    Second, why not abolish the AICTE? What good is it doing now?

    And do you really need an an explanation of how abolishing restrictions on doing something will lead to more of that thing being done?

  9. I think my first comment for this post is the only point I am making.

    Deregulation makes entry easier for everyone – sure. And, I’ve given examples where crooks get to it first, introduce new evils [polarized media where every news item is a political propaganda], sometimes essentially preventing any good player’s entry.

    Yes, some regulations may need to be relaxed/removed if they specifically harm fair-play. Some new regulations may be in order if that would aid entry of “good” players.

    In your comment above you say “…do you really need an an explanation of how abolishing restrictions on doing something will lead to more of that thing being done?”

    Isn’t the gap in your argument evident? Doing what thing? Opening up of new ed institutes, right? Like blogs, right? By everyone, right? And who will take advantage of this? Jeppiar types [who has an ed empire in TN] or Abdul Kalam types?

    Where do you place your bets?

  10. “In the real world corruption and regulation go hand in hand”

    They may. But what’s causing the problem? And what’s your solution? Deregulate? Would that be the solution always?

    Think.

  11. But Swamy, right now it is Jeppiar who has an educational empire and Abdul Kalam who doesn’t. Right now it is one-room engineering colleges who get AICTE permissions while S P Jain doesn’t. So what exactly is the apocalypse you are fearing if we just do away with the AICTE?

  12. As I’ve said numerous times before in this argument, I am not claiming things will get worse [they may, in fact].

    I am saying there won’t be significant positive impact.

    And – as a result – deregulation is not just inadequate. Its a little irrelevant.

  13. That is a fairly astonishing statement. You keep accusing libertarians of being extremist. Now, you have staked out a fairly extreme position. It is one thing to argue that an unregulated system is worse than a well-functioning regulated system with functional democratic oversight. But you distrust the market system so much that you think that a dysfunctional, corrupt system that is in the pocket of the Jeppiars and politicians is still an improvement over a system where S P Jain can increase seats and set up colleges without asking permission and paying bribes to AICTE. That, to repeat myself, is an extremist position, not to say quite inconsistent.

  14. Ravi,
    I am not sure where the disconnect is. But we are not making progress.

    I am very clear about what I am saying and am saying it after a lot of thought. May be we can talk it over sometime.

    And definitely, I don’t think I am taking an extremist position here. Extremist positions have always been the domain of ideologues.

    My initial position remains about your rather shocking blog analogy to education systems.

    Later…

  15. Ravi,
    thanks for the good post, visiting your blog after a long time.

    swami, please grow up.

  16. De-regulation in itself cannot make huge differences. Quality education could be obtained only if people demand. If people are ignorant of how to obtain quality education and what quality education is, changing systems can do very little.

    Destination Infinity.

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