Self-interest and Common Good in America of the 21st Century
by: Surendra K. Kaushik
The Great Recession of 2007-2009 is fundamentally blamed on the utility (greed) maximization behavior of financial leaders in banking, investment banking, securities industries, insurance and wealth management activities. It is this super rich group that “earned” much of the 23.5 percent of income going to 1 percent of the population in America in 2007. The government, business and investors remembered only the pleasure and not the pain side of Jeremy Bentham’s utilitarian philosophy (1780) and its liberalizing practice. Since there is no saturation point on the individual and enterprise utility path, when does the pleasure principle reach a point of negative return for the group pursuing pleasure of earning millions and billions more dollars? When did such a point reach? Did it reach before or after the fall of Bear Stearns, and subsequently Lehman Brothers? What can be done to stay on the pleasure (positive) side of the utility for the whole society in the future? The GDP growth following the recession of 1980-81 and the liberalization of financial laws, regulations, institutional oversight, and the general acceptance of philosophical foundations of utilitarianism in Reagan, Bush, Clinton, and Bush administrations from 1982 to 2008 gave a false sense of continuing ascendance of the aggregate utility curve. Even independent agencies like the Fed cheered on while invoking irrational exuberance. The result was, as we now know, a great pyramiding of risk by the major financial players spreading a wider net to the global saver-investor. Perhaps the tipping point of aggregate pleasure and pain was reached when (i) American banks were allowed to become universal banks when the distinction between commercial and investment bank was abolished (ii) the derivatives were not required to keep any reserves for the rainy day (iii) banks could give out sub-prime mortgages without income verification (iv) and insurance companies could write policies that they thought would never be claimed and they could invest the entire premium in high return assets. Unfortunately trillions of dollars of income is lost, millions are homeless, workless and in pain, billionaires have become mere millionaires or less. Because a small number earned very high incomes inequality is at a point where some two-thirds of the increase in income has gone only to 1 percent of the population in recent years. Financial reforms such as adequate capital requirements, measurement and management of risk, protection of consumers and debtors, real truth-in-lending and borrowing, compensation limits to stay on the pleasure side of risk on the part of financial managers would possibly prevent future crises. But they will also limit income growth. Societal pain-minimizing measures such as mortgage refinancing to avoid foreclosures and growing homelessness, stimulus packages to create jobs and income both in the public and private sectors, and availability of universal health care would create more equality in the quality of life. The proposed reforms recognize that the utilitarian liberalization had swung too far on the side which assumed that more risk taking would always bring reward and pleasure and not loss and pain. One possible way to resolve the extreme distribution of income on the one hand and the budget deficit of the federal government on the other is to not tax the rich more (currently thought to be anyone above $250,000 of annual income) but to require the rich to give back all except a reasonable portion a rich person needs for himself/herself and his/her family, to community investment in education, health, nonprofit service organizations, entrepreneurship incubators, schools, colleges, educating, feeding and housing the poor and lower income in America and other worthy causes around the globe. This follows the great examples of Andrew Carnegie, Warren Buffett, Bill and Melinda Gates, the Ford family, the Rockefeller family, etc. This way we keep the self-interest working in a positive way, like Warren Buffet continues to maximize income, learned from childhood to MBA at Columbia, but then donates it back to society and take the tax-deduction as well which avoids the necessity but possibly negative consequences of high tax rates on the successful and rich. Self-interest as the driving force in a market economy foresaw the need for good governance and morals of market participants otherwise they would tend to collude and monopolize in the analysis of Adam Smith (1776). If competition was not adequate the government had to see to it that self-interest did not turn into greed. Clearly the government failed in managing the societal pleasure-pain trade-off by allowing self-interest to become greed of the smartest and the most knowledgeable in finance, management, accounting and auditing, and in statistics and mathematics as applied to economic and financial models and forecasting. Is there the capacity and willingness to take on the task of figuring out the tipping point of societal pleasure and pain continuum? Do we know enough to reset economic behavior of benefiting from self-interest without destroying the economic system all over again?
It would be far more desirable to keep the income and wealth maximization as a goal with incentives like lowest possible tax on all incomes, albeit at graduated rates, and then to give further incentive of tax-deductibility to donate an increasing percentage beyond a taxable income of, say, $500,000. For example, require giving away 20 percent from $500,000 to $1 million, 30 percent from $1 to $2 million, 40 percent from $2 to $5 million, 50 percent from $5 to 10 million, 60 percent from $10 to 20 million, and 70 percent from $20 million and above of annual taxable income. Donors will continue to give to the community cause of their choice within the federal tax system. Those who decide not to give would be taxed at the proposed rates.
The main idea is to maximize production of income in society and then use it fairly through private, community, and government spending. This may solve the recurring problem of super success of capitalism followed great unequal distribution of income and wealth in turn followed by revolutions, violent or peaceful, through history so accurately analyzed and predicted by Karl Marx including the latest example of the financial crisis of 2007-2008 and the resulting Great Recession of 2007-…
Warren Buffett and Bill Gates should not only round up the rich to give but impress the public and the Congress to create laws to institutionalize this new system of income and wealth distribution while preserving the unfettered pursuit of income, wealth and pleasure.
Surendra Kaushik is a professor of finance in the Lubin School of Business of Pace University in New York and Westchester.
Sunday, November 14, 2010
Thursday, September 30, 2010
Principal Reduction and Refinancing of Mortgages for Economic Recovery in the U.S.
Principal Reduction and Refinancing of Mortgages for Economic Recovery in the U.S.
One major failure of economic and financial policies since the onset of the sub-prime mortgage problems in 2005 has been to let the most important part of the economy deteriorate while trillions of dollars have been injected into the financial system to save it. The argument is that it has allowed us to prevent a depression. Yet real estate has continued to experience a downward cycle of high unemployment leading to lower incomes, mortgage delinquencies, foreclosures, more delinquencies, more foreclosures, lower housing and real estate values, plus a growing stock of unoccupied properties.
Actual foreclosures, as reported in the press, grew from 268,532 in 2006, to 2.8 million in 2009, totaling about 4.5 million from 2006 to 2009. Another 5 to 6 million are expected in 2010 and 2011. There is no end in sight.
Many remedies have been attempted including a variety of loan modification programs, mortgages purchases by the Federal Reserve, Fannie Mae and Freddie Mac, FHA insured mortgages, and refinancing under the Home Affordable Modification Program. Unfortunately these have not prevented delinquencies and foreclosures from rising.
One solution completely missing from public policy until now is the modification in the principal value of the mortgage balance. This remedy would serve the home owner, the neighborhood, the financial institution, the state, and the national economy, and must be pursued aggressively by Congress before the economy is allowed to slip into another downward spiral.Some 29 percent of mortgaged properties are valued below the mortgage balance, about the same number are behind in payments facing foreclosures. Unemployment is expected to remain in the 9 to 10 percent range leading to more problems in mortgage payments and more foreclosures.
We could avoid a further drop in sales and prices by providing massive refinancing to homeowners and commercial property owners similar in scale to the help given to the financial industry in 2008 and 2009: refinance all houses and commercial real estate in foreclosure or default as of a certain date. Federal funds should be used to nationalize the loss of value between the mortgage balance and the estimated current market value. For example if a home is $50,000 below mortgage value then the Federal government and banks could take the loss in 50-50 ratio or $25,000 each. The homeowner would pay a special annual capital gains tax at a rate of 20 percent on any increase in equity value after refinancing for a period of five years or pay this special capital gains tax if the house is sold by the owner with any gain above the normal capital gains tax applicable. This will help recapture the federal subsidy and reduce costs to the taxpayer as property values improve.
Refinancing of the market value at FHA insured mortgage rates like 4% for 30 years and 3 percent for 15 years will keep the owner in the property. This is even better than the new short sale program which requires homeowners to sell and further depress home values and increases homelessness. The lender would receive 50% liquidity of the loss. They would be required to use these proceeds to make new loans for autos, home and energy efficiency improvements by individuals, homeowners and commercial real estate owners. The homeowner gets an estimate of the market value annually and pays capital gains taxes on the build-up of the equity above the refinanced value. The estimated funds required initially to refinance and to re-liquefy the financial system may be as little as $50,000 per property--for 5 million units that equals $250 billion ($125 billion cost to the tax payer and $125 billion to the banking system). This is much cheaper for everyone than the loss of property values in trillions, and the loss of jobs and foreclosures in millions.
No new funds are needed to implement the proposal made here. The proposal can be funded easily by expanding the Home Affordable Modification Program (HAMP) to include a permanent principal reduction in a refinancing. A temporary lowering of monthly payment and short sale proposals currently suggested by the Treasury and the White House are unlikely to stem the tide of foreclosures.
One major failure of economic and financial policies since the onset of the sub-prime mortgage problems in 2005 has been to let the most important part of the economy deteriorate while trillions of dollars have been injected into the financial system to save it. The argument is that it has allowed us to prevent a depression. Yet real estate has continued to experience a downward cycle of high unemployment leading to lower incomes, mortgage delinquencies, foreclosures, more delinquencies, more foreclosures, lower housing and real estate values, plus a growing stock of unoccupied properties.
Actual foreclosures, as reported in the press, grew from 268,532 in 2006, to 2.8 million in 2009, totaling about 4.5 million from 2006 to 2009. Another 5 to 6 million are expected in 2010 and 2011. There is no end in sight.
Many remedies have been attempted including a variety of loan modification programs, mortgages purchases by the Federal Reserve, Fannie Mae and Freddie Mac, FHA insured mortgages, and refinancing under the Home Affordable Modification Program. Unfortunately these have not prevented delinquencies and foreclosures from rising.
One solution completely missing from public policy until now is the modification in the principal value of the mortgage balance. This remedy would serve the home owner, the neighborhood, the financial institution, the state, and the national economy, and must be pursued aggressively by Congress before the economy is allowed to slip into another downward spiral.Some 29 percent of mortgaged properties are valued below the mortgage balance, about the same number are behind in payments facing foreclosures. Unemployment is expected to remain in the 9 to 10 percent range leading to more problems in mortgage payments and more foreclosures.
We could avoid a further drop in sales and prices by providing massive refinancing to homeowners and commercial property owners similar in scale to the help given to the financial industry in 2008 and 2009: refinance all houses and commercial real estate in foreclosure or default as of a certain date. Federal funds should be used to nationalize the loss of value between the mortgage balance and the estimated current market value. For example if a home is $50,000 below mortgage value then the Federal government and banks could take the loss in 50-50 ratio or $25,000 each. The homeowner would pay a special annual capital gains tax at a rate of 20 percent on any increase in equity value after refinancing for a period of five years or pay this special capital gains tax if the house is sold by the owner with any gain above the normal capital gains tax applicable. This will help recapture the federal subsidy and reduce costs to the taxpayer as property values improve.
Refinancing of the market value at FHA insured mortgage rates like 4% for 30 years and 3 percent for 15 years will keep the owner in the property. This is even better than the new short sale program which requires homeowners to sell and further depress home values and increases homelessness. The lender would receive 50% liquidity of the loss. They would be required to use these proceeds to make new loans for autos, home and energy efficiency improvements by individuals, homeowners and commercial real estate owners. The homeowner gets an estimate of the market value annually and pays capital gains taxes on the build-up of the equity above the refinanced value. The estimated funds required initially to refinance and to re-liquefy the financial system may be as little as $50,000 per property--for 5 million units that equals $250 billion ($125 billion cost to the tax payer and $125 billion to the banking system). This is much cheaper for everyone than the loss of property values in trillions, and the loss of jobs and foreclosures in millions.
No new funds are needed to implement the proposal made here. The proposal can be funded easily by expanding the Home Affordable Modification Program (HAMP) to include a permanent principal reduction in a refinancing. A temporary lowering of monthly payment and short sale proposals currently suggested by the Treasury and the White House are unlikely to stem the tide of foreclosures.
Saturday, September 25, 2010
Quality of Education in India
Quality of Education in India
Quality is the third aspect of the education policy under the leadership of HRD Minister of India Kapil Sibal. He is paying a lot of attention and importance to the quality the Indian education system, particularly at the higher education level. The goal of the policy is to improve quality of knowledge held, used, created disseminated by teachers and professors at school, college and university levels; quality of knowledge gained by students; quality of institutions, processes, equipment and labs in schools, colleges and universities; so that the average quality of the stock of human capital is the highest possible at a point in time, and the maximum possible increase in the average as a dynamic process.
This is important because the quality dimension along with the quantity of human capital determines a nation’s level of human achievement and progress in social, economic and financial, political, governance, scientific, and industrial aspects of a society. We know this from empirical evidence available from all countries and the cause and effect between the quantity and quality of education on the one hand and the level of economic and human development on the other. For example, the richer OECD countries are the top group of countries in terms of the overall standard living and the poor sub-Saharan and South Asian countries are at the bottom as measured by the Human Development index and other similar indices prepared by the UN and other organizations and research groups.
Quality in education is measurable in many ways: percentage marks of incoming and graduating students; content of courses from academic and application aspects; relevance of courses in current and future application and practical use; quantity and quality of facilities of libraries, the Internet, labs; activities in social life and networking on and off campus; number and quality of academic and non-academic leaders in all walks of life; joint programs with other schools, colleges and universities; and the qualifications and quality of teachers and professors in terms of their knowledge, teaching ability, research capability in terms of furthering knowledge and its applications, and input in educational content, curriculum and policy as well as evaluation of the inputs, the process and the outcomes.
There is also the external measurement of quality in terms of market salaries and positions offered to graduates, success in competitive exams in private and public sectors, advisory roles and general leadership positions offered to graduates and faculty, innovations created by the person or the institution.
How does the Indian education system stand up on all the above variables today, where has it come from since 1947 and how does it compete in terms of domestic and international dimensions of India’s progress in the future are the questions relevant to a policy on the quality aspect of an education policy. Much research needs to be done to measure the above mentioned variables. It would be reasonable to say that the quality of the system is good and that it has been improving over the last 60 years. This observation is based just on one variable: the success of Indians educated in India before and after Independence in the vastly expanded system of primary, secondary and higher education in India since 1947.
From the writers of Rig Veda to historical giants and modern Indian names like (in alphabetical order) Ambani, Ambedkar, Aryabhata, Aurobindo, Bhabha, Bhaskara, Bhagwati, Brahmagupta, Gandhi, Gokhale, Kautilya, Khurana, Madhava, Malviya, Menon, Mittal, Murthy, Nehru, Radhakrishnan, Ramanujam, Rao, Sen, Manmohan Singh, Somayaji, Swaminathan, Tagore, Tata, Tilak, Varahamihiva represent the best in Indian science, business, education, and politics. Indians educated in India, whether from IITs, IIMs or any of the Indian universities like Agra, Calcutta, Delhi, Madras, Mumbai, Patna, Rajasthan, etc., are excelling in all fields around the globe in the most advanced richest industrial to the poorest agrarian societies.
Two of the most important countries in world-United States and United Kingdom- have Indian professionals in nearly all colleges and universities, hospitals, all types of business firms including IT, entertainment, manufacturing and space. Graduates of all Indian universities, set up by the British or Indians, are found to be successful and in high positions in all fields in advanced societies. This is becoming so throughout the world. Therefore one can say that the Indian education system has a strong base of quality which should be strengthened.
One way to improve quality is to allow a more competitive knowledge production, dissemination and consumption system by increasing the role of the private sector, the non-profit sector, the government sector as well as private-public partnerships and partnerships of all kinds between Indian schools, colleges, universities, pure research centers and organizations and their foreign counterparts in all three sectors in all fields.
A small women’s college like Barnard (Columbia University), Wellesley, Bryn Mawr, Radcliff (Harvard University), Smith, Mt. Holyoke to large state systems like CUNY, SUNY, UC system, Ohio State, Michigan State, Penn State all could be encouraged to connect to the Indian institutions beyond the most prestigious names like Columbia, Cornell, Duke, Harvard, MIT, Princeton, U Penn in the US, and Cambridge and Oxford in the UK.
Policy should be accommodating and flexible to give to more opportunities to Indian students and faculties to interact with and learn from foreign knowledge systems in Europe, North America, South America, Africa and Asia. Open and transparent educational links are needed to improve quality whether based on government budget or private budget. Return, surplus, profit, value added are desirable outcomes as they signify high value of the graduate of the Indian education system within India and abroad, in any sector or industry they are employed, become entrepreneurs and industrialists or civil servants and politicians.
We commend the HRD Minister Kapil Sibal for highlighting all three aspects-access, equity and quality-in his evolving new education policy of India as India connects more and more with the rest of the world and competes with it.
Quality is the third aspect of the education policy under the leadership of HRD Minister of India Kapil Sibal. He is paying a lot of attention and importance to the quality the Indian education system, particularly at the higher education level. The goal of the policy is to improve quality of knowledge held, used, created disseminated by teachers and professors at school, college and university levels; quality of knowledge gained by students; quality of institutions, processes, equipment and labs in schools, colleges and universities; so that the average quality of the stock of human capital is the highest possible at a point in time, and the maximum possible increase in the average as a dynamic process.
This is important because the quality dimension along with the quantity of human capital determines a nation’s level of human achievement and progress in social, economic and financial, political, governance, scientific, and industrial aspects of a society. We know this from empirical evidence available from all countries and the cause and effect between the quantity and quality of education on the one hand and the level of economic and human development on the other. For example, the richer OECD countries are the top group of countries in terms of the overall standard living and the poor sub-Saharan and South Asian countries are at the bottom as measured by the Human Development index and other similar indices prepared by the UN and other organizations and research groups.
Quality in education is measurable in many ways: percentage marks of incoming and graduating students; content of courses from academic and application aspects; relevance of courses in current and future application and practical use; quantity and quality of facilities of libraries, the Internet, labs; activities in social life and networking on and off campus; number and quality of academic and non-academic leaders in all walks of life; joint programs with other schools, colleges and universities; and the qualifications and quality of teachers and professors in terms of their knowledge, teaching ability, research capability in terms of furthering knowledge and its applications, and input in educational content, curriculum and policy as well as evaluation of the inputs, the process and the outcomes.
There is also the external measurement of quality in terms of market salaries and positions offered to graduates, success in competitive exams in private and public sectors, advisory roles and general leadership positions offered to graduates and faculty, innovations created by the person or the institution.
How does the Indian education system stand up on all the above variables today, where has it come from since 1947 and how does it compete in terms of domestic and international dimensions of India’s progress in the future are the questions relevant to a policy on the quality aspect of an education policy. Much research needs to be done to measure the above mentioned variables. It would be reasonable to say that the quality of the system is good and that it has been improving over the last 60 years. This observation is based just on one variable: the success of Indians educated in India before and after Independence in the vastly expanded system of primary, secondary and higher education in India since 1947.
From the writers of Rig Veda to historical giants and modern Indian names like (in alphabetical order) Ambani, Ambedkar, Aryabhata, Aurobindo, Bhabha, Bhaskara, Bhagwati, Brahmagupta, Gandhi, Gokhale, Kautilya, Khurana, Madhava, Malviya, Menon, Mittal, Murthy, Nehru, Radhakrishnan, Ramanujam, Rao, Sen, Manmohan Singh, Somayaji, Swaminathan, Tagore, Tata, Tilak, Varahamihiva represent the best in Indian science, business, education, and politics. Indians educated in India, whether from IITs, IIMs or any of the Indian universities like Agra, Calcutta, Delhi, Madras, Mumbai, Patna, Rajasthan, etc., are excelling in all fields around the globe in the most advanced richest industrial to the poorest agrarian societies.
Two of the most important countries in world-United States and United Kingdom- have Indian professionals in nearly all colleges and universities, hospitals, all types of business firms including IT, entertainment, manufacturing and space. Graduates of all Indian universities, set up by the British or Indians, are found to be successful and in high positions in all fields in advanced societies. This is becoming so throughout the world. Therefore one can say that the Indian education system has a strong base of quality which should be strengthened.
One way to improve quality is to allow a more competitive knowledge production, dissemination and consumption system by increasing the role of the private sector, the non-profit sector, the government sector as well as private-public partnerships and partnerships of all kinds between Indian schools, colleges, universities, pure research centers and organizations and their foreign counterparts in all three sectors in all fields.
A small women’s college like Barnard (Columbia University), Wellesley, Bryn Mawr, Radcliff (Harvard University), Smith, Mt. Holyoke to large state systems like CUNY, SUNY, UC system, Ohio State, Michigan State, Penn State all could be encouraged to connect to the Indian institutions beyond the most prestigious names like Columbia, Cornell, Duke, Harvard, MIT, Princeton, U Penn in the US, and Cambridge and Oxford in the UK.
Policy should be accommodating and flexible to give to more opportunities to Indian students and faculties to interact with and learn from foreign knowledge systems in Europe, North America, South America, Africa and Asia. Open and transparent educational links are needed to improve quality whether based on government budget or private budget. Return, surplus, profit, value added are desirable outcomes as they signify high value of the graduate of the Indian education system within India and abroad, in any sector or industry they are employed, become entrepreneurs and industrialists or civil servants and politicians.
We commend the HRD Minister Kapil Sibal for highlighting all three aspects-access, equity and quality-in his evolving new education policy of India as India connects more and more with the rest of the world and competes with it.
Friday, September 24, 2010
Equity in Education in India
Equity in Education in India
Equity is a simple sounding ideal in its meanings as evenhandedness, fairness, and impartiality at the hands of an individual, a family, a government, a society, a country or the whole world. But it is a very difficult concept to practice to achieve its intended goals and targets. So when Kapil Sibal, a lawyer by training, formulates India’s educational policy in his capacity as the Minister for Human Resources Development (HRD) most likely he has all those meanings of the concept in mind and perhaps even more as justice and justness of the education system of India. Since the minister did not elaborate on the meaning of equity let’s assume he means evenhandedness, fairness and impartiality.
Now comes the difficult task of practical use of the concept: Does equity mean spending education budget equally on education among all states; between primary, secondary and higher education; between arts, commerce and science; between third, second and first division and distinction students; between boys and girls; between poor, middle class and rich students; between IITS, IIMs, national and state universities; and between urban and rural universities and colleges? Is there a normative government policy on all these and other similar claimants including caste, religion, income and geography based variables to make the government spending on education equitable? Then there is the whole range of issues and criteria regarding the treatment of the private non-profit and profit sectors that are a significant part of the Indian education sector.
Since there are no criteria set out in policy to define equity, other than the admission quota systems and court ordered decisions, actual budget allocations for the expansion of the system envisaged by government gives some sense of what the policy implicitly considers evenhanded and fair education policy.
All one can hope for in the policy is that a large number of possible criteria mentioned above have been considered in arriving at a fair education policy for the ones for whom it is intended-namely, present and future students and the impact they will have on the future progress of the country and its prosperity across all segments.
Is creating a certain number of additional national universities, IITs and IIMs the best use of scarce but expanded budgetary resources for education from a national perspective or expanding and improving currently existing institutions a better policy choice for the country? Perhaps the education system can be expanded both in terms of new institutions and existing institutions taking into account the possible fairness criteria enumerated above.
As we have argued in the essay on access to education, expansion of the entire education system should be the most important policy goal as it directly addresses the equity issue as well by opening up opportunities for more students in each age group- primary, secondary and higher education, to be able to get education. So fairness or distributive justice in education is important to avoid extreme abundance of educational resources for a few and lack of adequate and reasonable educational facilities for most.
As we look for empirical evidence of successful knowledge-based societies, the ones that have done better and made more and faster progress generally have been built on a more equitable education system. Some of the examples are the United States, Canada, Sweden, Norway, Denmark, Finland, France, Japan, Russia, Germany, Poland, the Czech Republic, Taiwan, South Korea and most recently Ireland. Great Britain followed an elitist policy and India inherited some of it even as it has expanded the education system since 1947. Britain opened up and expanded its education system from about the mid-1980s during the government of Prime Minister Margaret Thatcher and since then.
It is good that the government of Prime Minister Dr. Manmohan Singh educated at Punjab University as well as at Cambridge and Oxford in Britain and his education minister Kapil Sibal educated in Delhi University and Harvard University in America are not only putting more budgetary resources into education but thinking of doing it in an equitable way.
It is a sound approach for a sustainable education system and a sustainable economy and society while avoiding the extremes of haves and have-nots in education and therefore in the sharing of the GDP and incomes generally for an overall distributive justice and a just society.
Equity is a simple sounding ideal in its meanings as evenhandedness, fairness, and impartiality at the hands of an individual, a family, a government, a society, a country or the whole world. But it is a very difficult concept to practice to achieve its intended goals and targets. So when Kapil Sibal, a lawyer by training, formulates India’s educational policy in his capacity as the Minister for Human Resources Development (HRD) most likely he has all those meanings of the concept in mind and perhaps even more as justice and justness of the education system of India. Since the minister did not elaborate on the meaning of equity let’s assume he means evenhandedness, fairness and impartiality.
Now comes the difficult task of practical use of the concept: Does equity mean spending education budget equally on education among all states; between primary, secondary and higher education; between arts, commerce and science; between third, second and first division and distinction students; between boys and girls; between poor, middle class and rich students; between IITS, IIMs, national and state universities; and between urban and rural universities and colleges? Is there a normative government policy on all these and other similar claimants including caste, religion, income and geography based variables to make the government spending on education equitable? Then there is the whole range of issues and criteria regarding the treatment of the private non-profit and profit sectors that are a significant part of the Indian education sector.
Since there are no criteria set out in policy to define equity, other than the admission quota systems and court ordered decisions, actual budget allocations for the expansion of the system envisaged by government gives some sense of what the policy implicitly considers evenhanded and fair education policy.
All one can hope for in the policy is that a large number of possible criteria mentioned above have been considered in arriving at a fair education policy for the ones for whom it is intended-namely, present and future students and the impact they will have on the future progress of the country and its prosperity across all segments.
Is creating a certain number of additional national universities, IITs and IIMs the best use of scarce but expanded budgetary resources for education from a national perspective or expanding and improving currently existing institutions a better policy choice for the country? Perhaps the education system can be expanded both in terms of new institutions and existing institutions taking into account the possible fairness criteria enumerated above.
As we have argued in the essay on access to education, expansion of the entire education system should be the most important policy goal as it directly addresses the equity issue as well by opening up opportunities for more students in each age group- primary, secondary and higher education, to be able to get education. So fairness or distributive justice in education is important to avoid extreme abundance of educational resources for a few and lack of adequate and reasonable educational facilities for most.
As we look for empirical evidence of successful knowledge-based societies, the ones that have done better and made more and faster progress generally have been built on a more equitable education system. Some of the examples are the United States, Canada, Sweden, Norway, Denmark, Finland, France, Japan, Russia, Germany, Poland, the Czech Republic, Taiwan, South Korea and most recently Ireland. Great Britain followed an elitist policy and India inherited some of it even as it has expanded the education system since 1947. Britain opened up and expanded its education system from about the mid-1980s during the government of Prime Minister Margaret Thatcher and since then.
It is good that the government of Prime Minister Dr. Manmohan Singh educated at Punjab University as well as at Cambridge and Oxford in Britain and his education minister Kapil Sibal educated in Delhi University and Harvard University in America are not only putting more budgetary resources into education but thinking of doing it in an equitable way.
It is a sound approach for a sustainable education system and a sustainable economy and society while avoiding the extremes of haves and have-nots in education and therefore in the sharing of the GDP and incomes generally for an overall distributive justice and a just society.
Access to Higher Education in India
Access to Higher Education in India
Access, Equity, and Quality are the three key aspects of the new education policy emerging from the Minister of Human Resources Development Kapil Sibal in New Delhi in 2010. Access to higher education is perhaps the most important to build an educated society and a knowledge economy. Post-Independence India has the distinction of continuing to build an extensive modern education system with greatly expanded educational opportunities at the elementary and secondary level throughout India.
Education, however, on the average had only about three percent of the annual budget of India in the first sixty years from 1947 to 2007 with the intent to spend six percent; only 13 percent of that or 0.04 percent of the central government budget went to higher education. This small amount has created an extensive network of universities in each state. The result is that about 5 percent of India’s population (60 million or so) has received college degrees in a large variety of subject areas. One-fourth of the five percent (around 15 million) are now enjoying among the highest standards of living outside of India; three-fourths or 45 million are pulling India up and enjoying high standards in India as it grows at more than double the historical annual rates of GDP growth. Benefits of growth are accruing mainly to this educated group of 45 million or so in a population of more than 1.2 billion.
The story of the Indians educated in Indian universities and mow living in the US and other high income countries is even more dramatic as they enjoy the highest per capita incomes in their new adopted countries. The dramatic high returns on investment in the private and public higher education in India is remarkable at home and abroad.
It is therefore significant that the government has finally understood this point and plans for a major expansion of the higher education system in the Five Year Plan from 2012 to 2017. Plans include new national universities, engineering and business schools, medical schools, vocational schools, etc. This effort and additional budgetary resources devoted to higher education will no doubt further expand access to more young men and women to get higher education. But the expansion plans are not enough to remove great bottlenecks and shortage of institutions of higher education. Unfortunately this will keep the rationing and quota systems in place to allocate limited seats on non-rational and non-merit criteria of caste, religion, geography, etc.
India’s higher education goals should be to achieve the average Western levels of access to and achievements of higher education levels such as 25 percent of population (300 million people at the current population level) or 50 percent of the college age population. Access should be expanded much more and much faster than envisaged in current plans if India wants to continue to sustain current high rates of economic growth of more than 6 percent a year. The stock of scientists (college graduates in all subjects) should double to 10 percent of population in the next thirty years so that there are about 120 million Indians with higher education. This stock of scientists will make India a knowledge-based economy with balance in agriculture, industry and services in terms of employment and output unlike the imbalance today when agriculture creates most jobs while services create most incomes.
There has been a bias in favor of urban universities versus rural colleges and universities as urbanization itself has increased in medium and large cities. There need to be many more universities and colleges in rural India to give knowledge base to villages for a sustainable population and economy in the long-run. There should also be expansion of women’s universities and colleges by having a policy and goal of at least one women’s university/college in every district of every state in India by 2017. Eventual goal should be that 25 percent of all men and women have higher education in the college age population.
One way to do this, in addition to expanding government investment in education equal to 8 percent of GDP, is for the government to encourage, support, subsidize and partner with the not-for-profit private sector. The thriving private sector should be appreciated for creating an environment of educational competition for the two other sectors while also being innovative in its course offerings and modalities of delivery of education. This is good for the country and its growth. If growth is good for the economy as a return on invest in education (“profit”) in the public sector on government investment then private profit seeking colleges and universities are perfectly consistent with national goals. Together, public, not-for-profit, public-private partnerships and for-profit institutions can supply the needed human capital for a better than 6 percent growth on a sustainable trajectory for the foreseeable future.
Education –higher education is the source of progress and great prospects for India in the footsteps of Europe, Japan, Taiwan and South Korea.
Surendra K. Kaushik is professor of finance at the Lubin School of Business of Pace University in New York and founder of Mrs. Helena Kaushik Women's P.G. College in Malsisar, Rajasthan, India.
Access, Equity, and Quality are the three key aspects of the new education policy emerging from the Minister of Human Resources Development Kapil Sibal in New Delhi in 2010. Access to higher education is perhaps the most important to build an educated society and a knowledge economy. Post-Independence India has the distinction of continuing to build an extensive modern education system with greatly expanded educational opportunities at the elementary and secondary level throughout India.
Education, however, on the average had only about three percent of the annual budget of India in the first sixty years from 1947 to 2007 with the intent to spend six percent; only 13 percent of that or 0.04 percent of the central government budget went to higher education. This small amount has created an extensive network of universities in each state. The result is that about 5 percent of India’s population (60 million or so) has received college degrees in a large variety of subject areas. One-fourth of the five percent (around 15 million) are now enjoying among the highest standards of living outside of India; three-fourths or 45 million are pulling India up and enjoying high standards in India as it grows at more than double the historical annual rates of GDP growth. Benefits of growth are accruing mainly to this educated group of 45 million or so in a population of more than 1.2 billion.
The story of the Indians educated in Indian universities and mow living in the US and other high income countries is even more dramatic as they enjoy the highest per capita incomes in their new adopted countries. The dramatic high returns on investment in the private and public higher education in India is remarkable at home and abroad.
It is therefore significant that the government has finally understood this point and plans for a major expansion of the higher education system in the Five Year Plan from 2012 to 2017. Plans include new national universities, engineering and business schools, medical schools, vocational schools, etc. This effort and additional budgetary resources devoted to higher education will no doubt further expand access to more young men and women to get higher education. But the expansion plans are not enough to remove great bottlenecks and shortage of institutions of higher education. Unfortunately this will keep the rationing and quota systems in place to allocate limited seats on non-rational and non-merit criteria of caste, religion, geography, etc.
India’s higher education goals should be to achieve the average Western levels of access to and achievements of higher education levels such as 25 percent of population (300 million people at the current population level) or 50 percent of the college age population. Access should be expanded much more and much faster than envisaged in current plans if India wants to continue to sustain current high rates of economic growth of more than 6 percent a year. The stock of scientists (college graduates in all subjects) should double to 10 percent of population in the next thirty years so that there are about 120 million Indians with higher education. This stock of scientists will make India a knowledge-based economy with balance in agriculture, industry and services in terms of employment and output unlike the imbalance today when agriculture creates most jobs while services create most incomes.
There has been a bias in favor of urban universities versus rural colleges and universities as urbanization itself has increased in medium and large cities. There need to be many more universities and colleges in rural India to give knowledge base to villages for a sustainable population and economy in the long-run. There should also be expansion of women’s universities and colleges by having a policy and goal of at least one women’s university/college in every district of every state in India by 2017. Eventual goal should be that 25 percent of all men and women have higher education in the college age population.
One way to do this, in addition to expanding government investment in education equal to 8 percent of GDP, is for the government to encourage, support, subsidize and partner with the not-for-profit private sector. The thriving private sector should be appreciated for creating an environment of educational competition for the two other sectors while also being innovative in its course offerings and modalities of delivery of education. This is good for the country and its growth. If growth is good for the economy as a return on invest in education (“profit”) in the public sector on government investment then private profit seeking colleges and universities are perfectly consistent with national goals. Together, public, not-for-profit, public-private partnerships and for-profit institutions can supply the needed human capital for a better than 6 percent growth on a sustainable trajectory for the foreseeable future.
Education –higher education is the source of progress and great prospects for India in the footsteps of Europe, Japan, Taiwan and South Korea.
Surendra K. Kaushik is professor of finance at the Lubin School of Business of Pace University in New York and founder of Mrs. Helena Kaushik Women's P.G. College in Malsisar, Rajasthan, India.
Saturday, August 28, 2010
Thoughts on Sustainability
Sustainability, where real per capita income in India can grow at 3.5 to 4 percent a year to double every generation of about 20 years, requires that real GDP should grow at least 5.5 to 6 percent a year and the population should grow somewhere between 1 to 1.5 percent a year. These rates are quite possible given the long-term history of a slow but steady decline in birth from 2.5 to 1.8 percent rate and a slow but steady increase in GDP from less than 2 to 9 percent from 1951 to 2010.
It is an optimistic view to say that the economy will grow at 6 percent when historically it has grown about half as much. The recent experience of higher growth rates of GDP from 7 to 10 percent range is unlikely to be sustained in the long-term. Likewise population stability requires that the birth rate be reduced by about half from four children per couple to two.
The best way to manage and stabilize population at current levels of 1.2 to 1.5 billion is to keep girls in college and focused on their building up of income producing capacity so that when they become mothers they are also able to contribute to GDP and the higher standard of living for their families. Keeping girls in college will also mean that unlike their mothers and grandmothers they are not having babies in their most fertile years in the 17 to 24 age group.
“Hit the Books and Not the Sack” or “Knowledge before Babies” or “College before Marriage” could be adopted as a national slogan by the Parliament and the government. This should be achieved by (i) increasing scholarships based on merit, sports, and public service in any academic field of their choice, (ii) student loans, (iii) more colleges and universities for women in both the private and public sectors, preferably at least one in every district, (iv) entrepreneurial training and financing through micro-financing of business enterprises they create, and (v) education and assistance in family planning. Thus the process of getting education becomes the best and natural abstinence method of population control while increasing supply of skilled and educated workers with higher productivity at home and in the market.
Thus, there is no better investment for the development and growth of the society and the economy than higher education of women. The Parliament should pass a law which mandates a certain number of women’s universities in the country. Government should establish public universities and give assistance and incentives to private not-for-profit institutions to achieve its national goals and aspirations.
To summarize, population growth of less than 1.5 percent a year and GDP growth of about 6 percent a year would stabilize the system at a sustainable level of growth in per capita income of about 4 to 4.5 percent a year or the standard of living doubling every generation of 18 to 20 years.
It is an optimistic view to say that the economy will grow at 6 percent when historically it has grown about half as much. The recent experience of higher growth rates of GDP from 7 to 10 percent range is unlikely to be sustained in the long-term. Likewise population stability requires that the birth rate be reduced by about half from four children per couple to two.
The best way to manage and stabilize population at current levels of 1.2 to 1.5 billion is to keep girls in college and focused on their building up of income producing capacity so that when they become mothers they are also able to contribute to GDP and the higher standard of living for their families. Keeping girls in college will also mean that unlike their mothers and grandmothers they are not having babies in their most fertile years in the 17 to 24 age group.
“Hit the Books and Not the Sack” or “Knowledge before Babies” or “College before Marriage” could be adopted as a national slogan by the Parliament and the government. This should be achieved by (i) increasing scholarships based on merit, sports, and public service in any academic field of their choice, (ii) student loans, (iii) more colleges and universities for women in both the private and public sectors, preferably at least one in every district, (iv) entrepreneurial training and financing through micro-financing of business enterprises they create, and (v) education and assistance in family planning. Thus the process of getting education becomes the best and natural abstinence method of population control while increasing supply of skilled and educated workers with higher productivity at home and in the market.
Thus, there is no better investment for the development and growth of the society and the economy than higher education of women. The Parliament should pass a law which mandates a certain number of women’s universities in the country. Government should establish public universities and give assistance and incentives to private not-for-profit institutions to achieve its national goals and aspirations.
To summarize, population growth of less than 1.5 percent a year and GDP growth of about 6 percent a year would stabilize the system at a sustainable level of growth in per capita income of about 4 to 4.5 percent a year or the standard of living doubling every generation of 18 to 20 years.
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