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Friday, November 21, 2003

The Problem with 2200 seats -- Part 2

I am moving the discussion from the comments section of a previous post. Here is Vivek's comment
Actually, I think most applicants wouldn't be the very poor relatively speaking.
I suspect most applicants want the job because they are risk averse...they want the security of a government job. It ok to be risk averse, so can you pay the social cost of it.

By auctioning jobs you ensure the relatively better off among the lot pay to secure employment with perks. You use the money to modernize railways/ capital expenditure of governement (both will create more jobs). And you get rid of the queue. Highest bidder gets to be a gangman.

I think most applicants for the job were poor. I got home late around 11 pm on Saturday night. On the way back, I saw thousands of them sleeping on local train platforms. I did not know what was going on then, but I wondered how the number of homeless could shoot up so abruptly.

Regarding using the money raised from auctioning off the 2200 jobs: I am not sure I understand the arithmetic. Assume that the gangman jobs pay Rs 5000 a month. The net present value of a permanent job paying Rs 5000 a month cannot be more than Rs 500,000 or Rs 5 lakhs. That is an upper limit. Judging by the sample population I saw sleeping on the platforms, I would guess that they would be hard-pressed to come up with even Rs 25,000. But let us generously assume that 2200 of them could bid Rs 100,000 each. So the total sum raised would be Rs 22 crores (Rs 100,00 x 2200 or approximately US $5 million).

Rs 22 crores is probably about 0.001% of the total budget of the railways. It is so vanishingly small that it is not worth talking about. It is much less than the rounding errors usually seen in government undertakings. Precious little imporovement can be done with that sort of numbers.

But all this debate about auctioning is missing a more important point and that is the sheer economic waste of the entire exercise of filling 2200 low-level public sector jobs. Assume that each of the 0.65 million applicants spent an average Rs 400 on the whole exercise of getting to Mumbai from all over India and other expenses. Suppose it cost them 2 days per person. Therefore about Rs 260 million (US$ 6 million) was spent directly. Total days lost was 2 x 0.65 million, or 3,560 person years were lost.

Let's repeat that: Rs 260 million in direct cost and 3,560 person years lost. Assuming that per capita production in terms of purchasing power parity is $1,000, that translates into an opportunity cost of $ 3.5 million.

This is only one of a few thousand futile idiotic wasteful things that the people of poor countries such as India do. Add up the waste, and you could easily cross the $100 billion mark of waste. Is it any wonder that India is poor? I don't think so. India is poor for a set of very easily understandable reasons. Figuring out that set is very important and it is primary to figuring out the solution. One of the most essential tools for the whole exercise is a firm grasp of arithmetic. As John McCarthy of Stanford University repeatedly said, those who refuse to do arithmetic are doomed to speak nonsense. I pray that we teach our students the ability to do arithmetic.

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