We are often asked why we recommend only a Permanent Fund for investment / saving, and only a Citizen’s Dividend for distribution of income. Why not hand the money to the government, there are so many urgent needs? In an earlier post, we discussed why we insist that every paisa received from mining and minerals be deposited into the Permanent Fund.
Our core principle is that minerals are inherited assets and a part of the commons. Hence either the minerals or their financial equivalent in other “non-wasting” assets must be available to future generations. Conceptually, replacing minerals with a Permanent Fund converts our mineral inheritance corpus into an asset that generates income perpetually, a perpetual annuity or a perpetuity. Since minerals are a part of the commons, the Permanent Fund continues to be part of the commons, and by extension, the real income is distributed as a commons dividend, equally to all as a right of ownership. Provided we maintain the real value of the Permanent Fund, this can happen in perpetuity.
The natural situation is to distribute the income from the commons to the true owners, the people. The government is then free to tax it. If we let the government appropriate the income, it is the equivalent of a per-head tax on the people. It is not feasible for a democratic government to impose a per head tax on the people. Imagine the permanent fund pays out Rs. 1,000 to all as a Citizen’s Dividend. Then imagine a per-head tax of this amount of Rs. 1,000. There would be riots. And correctly so. Why should the poor, the bonded labour, have to be taxed like this. It is immoral. Such a per-head tax can only be imposed by underhand means, such as appropriating the money from minerals (the corpus of the commons), or appropriating the Citizen’s Dividend (the income from the commons).
The Citizen’s Dividend plays a critical role in our solution. This is to create a strong bond between the citizen and their commons. Right now, there is no such link – who really feels emotionally that they own the minerals in their state? In our experience, most people don’t even know they are owners. As a result, no one is monitoring mining – it is someone else’s problem. The critical idea is that if the Citizen’s Dividend creates such an interest in people, then the citizen seeing illegal sand mining now has a financial reason for speaking up (the Citizen’s Dividend) and along with it a moral reason (protect my children’s inheritance) as well. There is no other design that does this. This makes the Citizen’s Dividend essential.
There’s a few more reasons not to give the money to the government. One reason is the usefulness of the money and how it will be spent. The best pilot of basic income was done in India. 12 villages in Madhya Pradesh, 18 months, Rs. 200/300 per adult, Rs. 100/150 per child. Things improved on all kinds of metrics. Health, education, work effort, alcoholism. It brought down debt. People started tiny businesses – a group dug a pond and started fish farming. They didn’t fritter away the money, they made good use of it. SEWA & UNICEF did this study. There’s a good video on youtube. Summaries are online. There’s a book.
Now compare this outcome with giving the dividend to the government. Suppose the dividend amount is Rs. 1,500 crores, approximately Rs. 10,000 a person. This is what we lost during 2004-2012 as we were sleeping. Suppose the government spent this Rs. 1,500 crores. We estimate that we would lose at least 1/3rd at the PWD contracting stage due to poor project selection (yet another Tiracol bridge), corruption, and poor monitoring of the construction. The chronic underinvestment in maintenance would lose probably another 1/3rd of the value, leaving us with approximately Rs. 500 crores of useful things done with the Rs. 1,500 crores income. Compare this with distributing the money as a Citizen’s Dividend. Suppose 1/3rd of the population thought Rs. 10,000 as a dividend was a trifle, personally meaningless. Even then, the poorer 2/3rd population would make good use of the Rs. 1,000 crores.
A fourth reason is that we are trying to stop easy money going to the government. The strongest current theory of good governance is that easy money (like from minerals) allows governments to spend that money with special interest groups (voters who will support them for the cash, or their favoured groups, brahmins, capitalists, dalits, muslims, etc). It also creates unnecessary expenditure – the unnecessary Tiracol bridge for example, or concreting our khazan bunds.
Good governance comes when politicians are forced to tax the people and in consequence have to deliver. We’ll pay taxes if we get delivery. Hence, in both steps (at the time of mining, and at the dividend time), we insist that nothing goes to the government. If the government wants to do all the various good things that need to be done, let them make a case to the people directly. If the people feel the government is good, they will agree to whatever new tax is imposed.