On social welfare in elections

Are poll-time handouts really innocuous? Can they be counted as a step towards social welfare?

With election time in the Indian state of Tamil Nadu, black money is out in the open. The Election Commission, charged with the responsibility of conducting fair polls, seized an unaccounted 54.17 crore rupees in the state, the highest ever.

During poll times in India, things aren’t just limited to cash for votes, political parties offer freebies like television sets, food processors and fans to woo voters - A definite upgrade from the usual bottles of booze for men, and saris for women.

Is Anna right?

They cast their vote under the influence of 100 rupees or a bottle of liquor or a sari offered by candidates.

Anna Hazare, after a successful campaign for the Jan Lok Pal Bill, lamented about the practice of candidates wooing voters by freebies and vociferously damned the voters accepting handouts. He said, “Ordinary voter does not have awareness. They cast their vote under the influence of 100 rupees or a bottle of liquor or a sari offered by candidates. They don’t understand the value of their vote.”

Rupa Subramanya Dehejia raises two important questions towards this in her missive at the Wall Street Journal’s blog called Economics Journal:

1. Does it make sense for politicians to offer freebies? And,
2. Are voters rational to accept them?

To further her case that voters, especially the poor, are perfectly rational; she points to scholarly research in economics and political sciences in analyzing voter behavior and election outcomes. She argues that, “The thrust of this research shows that voters in India, as in mature Western democracies, respond to a range of factors, such as the economic record of the incumbent government, in casting their vote.”

I don’t completely agree with Rupa Subramanya’s conclusions in her missive. Nonetheless, her questions are pertinent and important.

Welfare schemes

What we call welfare schemes, people call them freebies.

Rupa asserts, “Politicians of all stripes in Tamil Nadu argue that election giveaways are not just freebies but rather a way of doing social policy and redistribution.” Indeed, there is such a consensus in the ruling elite. She cites M K Kanimozhi, a senior DMK politician who also happens to be daughter of the party leader M Karunanidhi, “What we call welfare schemes, people call them freebies.” (sic)

Experienced marketeers call such freebie distributing techniques ‘bribing the buyer’. While a child sees lasting play value in the toy and gravitates towards a McDonalds Happy Meal meal, he isn’t in really in a position to appreciate the value, or the efforts required to get the money in the family kitty. The child is indeed perfectly rational in maximizing his benefits, but one shouldn’t forget that McDonald’s is maximizing its profits too. In a nutritional sense, the parents are probably losing money, but they don’t bother because the sums involved are marginal.

In our case, the poll freebies do raise the common standard of living, but they do not add or even buttress the voter’s income generating capabilities. Rupa rightly points out that these ‘welfare schemes’ are expensive and inefficient. The free TV policy of the ruling DMK has cost tax-payers $773 million since 2006.

Also, this generosity is generally only visible during poll times. For the rest of the season, and during disasters; natural or man-made, the tides of generosity ebb far out into the sea.

The politician’s argument is obviously perfidious. These ‘welfare schemes’ are essentially bribes: A means to achieve a favorable outcome in the polls.

A prisoner’s dilemma?

This time around, DMK’s bribe of a grinder and a food-processor was trumped by the AIADMK. They added a fan in as well. While Rupa states that economists call such scenarios a prisoner’s dilemma, it doesn’t capture the dynamics or the rules of the game completely. In the prisoner’s dilemma, a prisoner can’t really opt-out of the game.

Limited votes and multiple buyers makes it a full-fledged market. When bribing, the game that political parties essentially play is that of pure escalation. In such scenarios, fierce competition makes it a race where buyers try to outbid everyone else by the means of escalating their offers, read bribes. Clearly, the sellers and the top bidders win. Buyers that aren’t so confident about winning, opt out to stay liquid till the next round.

Even if this were legal, the real question should always be: Who pays for this game?

Of bribes and outcomes

If one assumes the scholarly body of work to be right, then bribes shouldn’t really influence the voters’ minds or their votes. If political parties held similar assumptions to be true, they should ideally opt out of the game by not bribing voters.

For political parties with equal means, an equilibrium condition is reached when everyone opts out and nobody bribes. Even when parties have vastly differing means, the premise that bribes don’t buy votes should make them conserve their resources and opt out. Especially so when it is impossible to determine the outcome of bribes conclusively.

In any case, when the outcome of bribing isn’t proven or even predictable, rationality dictates that one shouldn’t bribe. But of course, come election time this isn’t exactly what one sees in Tamil Nadu.

The election game

Coalition governments of parties with strong reputations in satisfying agendas collectively leave a lot on the table when it comes to performance. For perfectly rational voters, elections are simply much more than one single game of choosing political parties with agendas that align with their own interests.

Individually, all voters have is a single vote. As a result, voters root for a majority win of the party they voted for; not an unpredictable coalition that leaves unsatisfied agendas on the table for political convenience. In such scenarios, information or even signals about which way other voters may vote become tantamount for a majority win, with perhaps, small compromises on agenda from the voters. The strength of the candidates and the reputations of their parties matter too. More variables make the game more susceptible to the dangers of information asymmetry.

No wonder then, a multi-party system makes elections a difficult game to analyze let alone play… It is perfidious to think that all voters are rational enough to successfully avoid dominated strategies.

Also, the game where the simplistic voter votes in the hope of a majority win, is remarkably different from the game political parties play. Barring a few, most political parties know that majority wins aren’t really possible singlehandedly. Thanks to the multi-party system, their game thus reduces to finding leverage by the means of appeasing marginalized communities. The idea is to stop stronger parties from getting majority, thus opening opportunities to coalesce with them to form one. Only now, instead of capturing votes, they’re trading horses. Again, it is a free market, the best bid wins.

Even if one assumes that a majority of voters vote simplistically; and that they collect bribes, but vote without the influence; there will always be a few who will get influenced. And we all know how marginal gains make a huge difference in fiercely competitive scenarios. All political parties need to do is to concentrate bribes and benefits on key communities and regions where such differences can be created.

Due to the myopic focus, large number of voter expectations from a voted party or coalition comes to naught. The result? Voters disengage from the election process. There can’t be a better testament to this fact than dwindling voter turn-outs in urban areas.

As such factions of the influenceable few aren’t (yet) easily identifiable; parties have to be over-zealous with bribes and cover a large numbers of voters. Inefficiencies result: Colossal amounts of money are wasted in distributing unproductive assets as bribes to many in order to cover a decisive few. The cost of playing this game is billed to the already overburdened tax-payer and the economy as a whole in the form of ‘welfare schemes’. And, as the bribes escalate, the law of diminishing returns applies.

Rather than the voters with steadfast convictions, it is these ‘influenceable few’ that control the game. It is precisely this that makes political parties play escalating strategies under the guise of ‘welfare schemes’.

The endgame

As televisions, food-processors, fans, mixer grinders, booze and saris don’t directly or indirectly contribute to the income-generating capacity of marginalized communities; their status as ‘welfare-goods’ is highly debatable. Besides creating an artificial demand for manufacturers, the money spent on them isn’t at all being used optimally.

In a scenario of escalating bribes in fierce competition, the race for votes can quickly can also become an extremely dangerous race to the bottom. While it can be argued that the briber and the bribed both win without departing from rationality, the true costs of this game are very suitably externalized to the tax-payer and the economy as a whole.

If bribes don’t affect election outcomes, political parties should have no rhyme or reason to give them in the first place. If social-welfare is the ulterior mission of bribing parties; without a doubt, elections a wrong game for them to play. The money can be better employed in a myriad of other ways to increase the income-generation capacity of marginalized communities.

The era when politics governed economics is long gone. Today, economics governs politics. With India’s rising debt and aspirations, policies and practices have to make sound economic sense. From an economics as well as a political sciences stand-point, what is bad for a nation’s economy is ultimately bad for the nation. Distributing appliances in the form of affirmative action is as good as Marie Antionette saying, “Let them eat cake”.

Regardless of whether parents, children, and fast-food joints are being rational in maximizing benefits, it is no wonder that New York City and other places in the US, are seriously considering banning the fast-food freebie. As for Anna Hazare, he may well be right; but only so slightly: Not only the poor, a good number of people don’t understand how the election game works.