Private Sector Reservations

The government has constituted a group of ministers to study the issue of reservations in the private sector. I don’t know whether the government is serious about this or this is a way of killing an inconvenient idea, but I think everyone agrees that it is a horrible idea. Almost everyone who has gone through our competitive education system has the demoralising memory of missing out on that seat in the sought-after college. Reservations are probably the first step in the long process that breaks a person’s innocence and idealism. The student comes away with the dull realisation that the “system” isn’t fair and he may conclude that it will never be.

Reservations in the private sector will be as bad. But it will be bad in a different way. It will be worse not because it will reduce opportunities for employees, but because it will mean death-by-regulation for the employers.

First of course, the companies will try to get around the requirement by “expanding” their roll to accomodate the extra employees and then keeping those extra jobs vacant because “no suitable candidate is available” (That will be quite true. The IITs do something like that. Since IITs have pretty high cutoffs even for reserved seats, most of these remain vacant. This practice has saved the lives and careers of many SC/ST students who would otherwise have had to drop out, unable to cope with the rigour.)

Then someone will point out that the companies are indulging in these tricks and the regulation will be tightened to ensure that the industry actually employs people belonging to the backward castes and doesn’t just advertise for them. Companies will try to get around this by trying to fill up the quota by recruiting all their peons and janitors from the backward castes (what happens to many companies which outsource these activities is anyone’s guess). And then of course, someone will amend the regulation to clarify that the jobs are supposed to be reserved at all levels. There will be much debate about what all levels means, much lobbying will take place and a lot of bribes will change hands, without any change in the actual situation of those whom the regulations are supposed to help. This is a depressingly familiar story.

Some people, notably Gurcharan Das have proposed US-style Affirmative Action and laws against discrimination as an alternative to reservations, probably in the mistaken belief that it will do less harm. Really, which is better? Death by regulation or death-by-a-thousand-lawsuits?

But do I have a solution to the very real problem that people belonging to the backward castes are poor, lack opportunity and are often discriminated against? Yes I do. Open up the economy. and enforce rule of law

I heard a debate yesterday on NDTV, where the Minister for Social Justice, Ms. Meira Kumar was scoffing at the idea that a person who has gone to an engineering college paying lakhs as capitation fees is more “meritorious” than a poor person from a backward caste who couldn’t afford to make the payment.
That, by the way is a good argument for letting more people open colleges by removing restrictions that hamper the process so much that right now only a well-connected politician who cares more about making money than about imparting education will go through the trouble of opening a college.

More competition means more opportunities and hence more jobs for everyone, inclding those from the poorer castes. That should be obvious. But there is another dynamic at work. The trade-off of trust vs. competence.

In a protected economy, you will be more interested in hiring trusted people because you are more worried about your employees cheating you than about your competitor driving you out of business, and naturally that means that you will hire people from your own caste. In a competitive economy, you will hire competent people. And as a practical matter letting loose a multinational company on a small town is the best way to force local companies to discriminate less. Throttling private companies from hiring seems to be the exact wrong way of going about it.

Likewise, in a country where legal protections are weak and contracts aren’t enforced speedily and quickly, you have to rely on extra-legal means to protect yourself. That frequently means that you have to rely on your caste network to provide you with the necessary support. If you can rely on the courts to give you justice, you will be less uncomfortable about dealing with people whose background you do not know.

Finally, as long as reservations remain, people will band together with their own caste brethren because this banding is needed to get their men into power

An open economy with rule of law is the only antidote to the misery of the poor and the problem of caste-discrimination, not reservations.