How is the biomarker ID aid plan going in India?

by on March 26, 2014 at 1:29 am in Economics | Permalink

One of the most important positive developments of our time – both underpublicized and underappreciated — is our growing ability to send and receive money securely across space.  It’s not just Paypal or Bitcoin in the West, as the truly significant gains from payment systems are coming in the developing world.  In particular, the efforts of the Indian government to set up a biometrically-based payments system are improving the lives of many millions and may go down as one of the most impressive achievements of contemporary times.

In 2009, the government of India set out to create unique, biometric-linked IDs for all 1.2 billion Indian citizens, based on fingerprints and a digital photograph.  Once the identities of these persons are tagged, the government will use the new system to deliver direct cash payments as a form of welfare aid.  To the extent the system works, programs with waste and leakage rates of 40% to 80% will become much more efficient.  Imagine instituting a direct cash transfer in lieu of a low productivity make-work job or sending welfare payments directly to beneficiaries rather than channeling them through corrupt local village officials, who take a cut off the top.

When the biomarker idea was proposed, it was far from obvious it would succeed.  The Indian government has failed at many basic tasks of infrastructure, such as good roads or clean water, and in general the quality of governance is not reliable.  Furthermore conditions in India seemed less than ideal for such an endeavor, as for instance about half of India does not have even a bank account.

There is now a major formal study of how well this new program is going and the results are strongly positive, as shown in “Payments Infrastructure and the Performance of Public Programs: Evidence from Biometric Smartcards in India,” a new NBER Working Paper by Karthik Muralidharan, Paul Niehaus, and Sandip Sukhtankar (ungated copies here).

The authors look at one Indian state, Andhra Pradesh, and rely on a large-scale experiment which gave some people the new service and others not, on a randomized basis.  The results are impressive.  The average household was able to receive 23% more in aid, and more quickly, while the government’s rate of “leakage” – lost or misdirected aid – declined by over 12%.  Overall the new method cost no more than the old, and there were no additional problems of access.  The authors estimate that the benefits in time savings to beneficiaries, taken alone, are larger than the costs of creating the new payments system.  For poor people, those gains represent major life improvements.

No less importantly, the beneficiaries strongly favored the new method of aid by margins of eighty to ninety percent.  That means a recent Indian Supreme Court decision, ruling against making the new system mandatory for privacy-related reasons, is unlikely to stop its ultimate success.

Despite many obstacles and imperfections, the logistics of the system seem to be coming together.  After two years of roll out, the share of Smartcard-enabled payments in the relevant studied districts is running at about fifty percent.  It now seems plausible to imagine that most eligible Indian citizens are in some way connected to the system within the next ten years.  Liberals may prefer to think of this as a boost in “state capacity,” whereas conservatives can see it as a paring back of government programs which were not working and as replacing corrupt and paternalistic in-kind aid with direct cash transfer, as had been suggested by Milton Friedman.

The nature of this Indian innovation has been the combination of modern (but not cutting edge) information technology with the use of labor on a very large scale for implementation.  The process of registering so many Indians, and recording their biodata, has required the mobilization of an immense army of labor in a manner which is only possible in a low-wage country, albeit one with a fairly active bureaucracy.

One broader lesson here is that developing nations are not merely copying and applying the inventions of the West, but innovating on their own.  But a lot of their innovations take labor-intensive rather than capital-intensive forms, and thus they do not always look like innovations to our sometimes ethnocentric eyes.

China too may be a more innovative nation than it at first appears.  Sometimes the Chinese contribution to a production process is dismissed as merely adding to a single stage of production, such as finishing off an iPhone to be shipped out.  The deeper truth is that China offers not only cheaper wages but also a very large pool of skilled workers, including engineers, which can be mobilized in large numbers with extreme rapidity.  To create such a talented labor pool on such a scale is an unprecedented innovation and it is one which the West has not managed to match.

The bottom line is that today I have good news to report.

Steve Sailer March 26, 2014 at 2:13 am

That early scene in Neal Stephenson’s “Quicksilver” in which Isaac Newton and a merchant haggle for 15 minutes over which coin Newton will use to pay for his purchase is a memorable exemplification of how much brainpower in the past was used up on questions of payment.

Of course, the downside of making payment easier is that people overspend until they get used to the convenience (if ever). For instance, the recent boom and onrushing bust in Turkey has a lot to do with the huge expansion of credit cards in that country in this century.

noname@hotmail.com March 26, 2014 at 6:30 am

you’re conflating a physical currency for individual transactions and a personal debt with a national budget and the national debt

Rahul March 26, 2014 at 3:00 am

That paper is so so full of jargon, complexity & convoluted approaches that it is impossible to verify if their surprisingly clean and neatly tied up Conclusions actually follow from the raw data or not at all. Even the Graphs & Tables are pretty opaque.

prior_approval March 26, 2014 at 4:00 am

‘One of the most important positive developments of our time – both underpublicized and underappreciated — is our growing ability to send and receive money securely across space.’

Thomas Friedman take note – this sentence is a worthy challenge to your current position.

‘In particular, the efforts of the Indian government to set up a biometrically-based payments system are improving the lives of many millions and may go down as one of the most impressive achievements of contemporary times.’

A putative libertarian celebrating a dream of totalitarians and central planners everywhere.

‘Once the identities of these persons are tagged, the government will use the new system to deliver direct cash payments as a form of welfare aid.’

Less than a century ago, the Weimar Republic tried its best to do the same, in terms of aiding those who were unable to work – such as the lame, the blind, and those with such problems as Downs Syndrome. Those lists formed a major part of that little ‘bump’ which explains why most people find eugenics repugnant.

‘When the biomarker idea was proposed, it was far from obvious it would succeed.’

I’m confident that India was able to access all sorts of talent to make this dream reality. Why, IBM’s experience in this area alone would be invaluable.

‘To create such a talented labor pool on such a scale is an unprecedented innovation and it is one which the West has not managed to match.’

I can think of one Western country which has been more than capable of doing all that – including registering all its citizens (not to mention the citizens of many other countries), training a labor force able to produce high quality manufactured goods in the face of resource shortages and supply chain disruptions, and even rebuilding its industrial facilities after their complete destruction.

‘The bottom line is that today I have good news to report.’

Anyone who thinks a government registering more than a billion people using biometric data is good news is the sort of person who apparently doesn’t bother to look at the history of those societies which did their best to ensure that each and every one its citizens was perfectly identified. Admittedly, in the case of that one Western country with the highly skilled labor force, they used a more traditional marking technology for identification, supported by data on punch cards.

Prof. Cowen – crime fighting superhero in opposing a minimum wage increase, and champion of freedom and human betterment through mandatory biometric registration.

This is beyond satire at this point.

nuntius March 26, 2014 at 8:50 am

I suppose you’re also opposed to environmentalism, highways, and the prohibition of child labor. While we’re complaining about the bad ends that people put powerful tools to, might as well gripe a bit about that Prometheus bastard.

It is nice to hear more of the “small steps towards a much better world”, Tyler.

Marian Kechlibar March 26, 2014 at 10:30 am

Citing Bruce Schneier: “It’s bad civic hygiene to build technologies that could someday be used to facilitate a police state.”

Read this for detailed explanation: http://parkerhiggins.net/2012/06/bad-civic-hygiene/

Marian Kechlibar March 26, 2014 at 10:33 am

Can’t edit my comment once it has been posted.

I suppose that one’s viewpoint depends on the culture and country of origin. Here in Central Europe, two massive totalitarian regimes used centralized databases to kill and oppress people. The locals did not give up on centralized databases, but they do view them much more cautiously; the historical experience isn’t that lightly forgotten.

In case of India, I could imagine that such centralized databases could cement the caste system in place.

whatsthat March 26, 2014 at 10:37 am

LOL

al March 26, 2014 at 1:40 pm

The caste system is already dying. It turns out quotas actually work.

It’s been replaced by extreme classicism. See the recent Indian diplomat story and how it played out in the Indian press while noting that the diplomat was born into an untouchable caste.

Marian Kechlibar March 27, 2014 at 7:31 am

al, if quotas work, they actually entrench the caste system, even though they change its internal dynamic and logic at the same time. I would say that the caste system were dying if it really no longer was relevant into which caste you belong.

In this sense, the system of nobility in continental Europe is dead – the governments do not collect and keep your nobility status and it does not influence your rights legally and practically.

Society-wide registration of caste status will actually cement the system in place, unless it proceeds directly to abolition in a relatively short period. I do not think it will, because the quota system will produce too many special interests.

One evil produced by the registration systems is that people are forced into relatively small and strictly separated categories. In my own home country, 150 years ago, there was a lot of families that were neither exclusively ethnic Czech or ethnic German; they were mixed and its members could usually speak both languages. The bureaucracy nevertheless forced them later to register as Czechs or Germans; this contributed to binary division of the country, and growth of the us-vs-them nationalism. And the decision of the grandfathers to adopt either Czech or German ethnicity had later significant consequences for their offspring; the ethnic Germans were forced to join the Wehrmacht, and later thrown out of the country when their attempt at Weltmacht failed.

From what I have read, a very similar situation was created in today’s Rwanda by Belgian colonial authorities. Prior to the mandatory registration, the line between the Hutu and the Tutsi was much more blurred and people could switch their affiliations much easier.

nuntius March 26, 2014 at 2:09 pm

And land registries with the government just make it easier to for said government to seize said land, right?

I, for one, like being part of a modern state with all its trappings – property rights, access to credit, preventative care – even though those technologies can be (and occasionally are) misused.

I’d much rather have a national ID a la Estonia, with strict safeguards around transparency and access, than the shoddy patchwork that’s been built on top of Social Security IDs.

As far as caste is concerned, it’s far more likely that this will reduce it than cement it. Do you think the prior graft-heavy distribution network this replaces didn’t vary in its depredations along kinship ties / caste ?

Again, this is a powerful tool, yes – but it’s just a tool. To immediately jump to cries of “Nazi socialism!” is simple-minded and, frankly, ludicrous. Did Bayer make Heroin and Zyklon B.? Sure did. Do you want to try living without pharmaceuticals or synthetic fertilizer? I sure as hell wouldn’t.

al March 26, 2014 at 2:20 pm

I grant that some governments have in fact used a national ID database as a tool to help carry out horrendous crimes against humanity. No doubt about it.

But, the same statement can be made about a transportation or communication system. (The efficiency of the Holocaust was increased by a well developed train system, for example.) Once a totalitarian regime comes into existence, it can use many kinds of otherwise useful and beneficial infrastructure for evil purposes. So, how do we really decide which infrastructure to build and which to fear building?

And what about the main benefit in this article — isn’t that worth a great deal to the literally millions of poor Indians whose benefits, under the current system, are partially stolen from them? How do we present a solid and convincing case to the people of India that their government should dismantle this ID database and go to some other system for distributing the benefits? What would that argument look like? What other system should we propose to replace it?

Rahul March 26, 2014 at 2:42 pm

My skepticism is about the technology. How long does it take to run a de-duplication run on 1.2 billion records. With even a false positive rate of 0.1% we are talking of literally millions of problem hits every day; how do we resolve those. How secure are their protocols, security etc.

Bruce Schneier commissioned to study this would do us more good; but sadly what we get is more studies by economists like Karthik Muralidharan.

Marian Kechlibar March 27, 2014 at 7:22 am

Nuntius: I don’t think that I am the type who immediaterly shouts “Nazi socialism”, maybe you see something that isn’t there. I am nevertheless the type who would very strictly weight what actually should be contained in any database, and the state would have to show compelling interest in collecting a particular type of data.

For example, I would be a strict opponent of including religious affiliation in any government register. This has too big potential to be abused against the currently-unfavored religious group. Double so if the country in particular has historic experience with oppression or harassment of religious minorities – either from the state or from vigilantes.

I would be similarly against any kind of ethnic identification. This is a double-edged sword, especially for people from mixed families.

Luis Enrique March 26, 2014 at 6:00 am

the wiki page for the system, known as Aadhaar, is informative:
http://en.wikipedia.org/wiki/Aadhaar

CPV March 26, 2014 at 9:15 am

May be a good project for Google to biometrically scan all the world’s humans.

fwiw March 26, 2014 at 10:24 am

It isn’t already?

Remember, don’t be evil. Just be powerful enough that the threat of evil can accomplish the same ends.

Marian Kechlibar March 26, 2014 at 10:34 am

If you can’t be evil, just suffocate them with sufficient amounts of good.

Jody Ranck March 26, 2014 at 9:37 am

First, clarification of the language used would be helpful. Biomarkers typically refer to genetics and other forms of diagnostics vs. biometrics. The terminology is a bit confusing for healthcare folks.

From a strict, public health, healthcare informatics viewpoint biometrics are really important for disease surveillance, allocation of resources, not double-counting individuals in different databases and so on. However, they are situated within a broader history of where modes of identification have been used for human rights abuses. Rwanda’s 1994 genocide is a great example of the use of IDs. For this reason, biometrics and unique identification were opposed by some human rights groups in Cambodia. Rather than running roughshod over the ethico-political dimensions of biometrics I think societies are going to have to create room for discussion about these issues that examine the costs and benefits but go well beyond a strictly utilitarian view that it must be done to save the public from itself. Biometrics will be deployed in an environment of sensors, mobiles that offer a tremendous amount of surveillance opportunities as well as improvements in health, environment, etc. Unfortunately, policy-makers are way behind, economists have very little to offer to real world ethico-political discussions these days, and technologists have a great deal of enthusiasm to innovate but less time and room for thinking about what actually constitutes an innovation or the assemblage of social, ethical, political norms and practices that can facilitate life affirming rather than merely market making/surveillance enabling activities to happen.

CPV March 26, 2014 at 10:03 am

One way to do this even in developed countries is as an opt-in /opt-out system that has advantages – like shorter airplane and passport security lines or larger transfer payments / smaller credit card payments due to fraud reduction. Probably lower health insurance premiums if medical records can be tagged to it. Easier ways for workers to move across borders. Faster visas and work permits. Shorter voting lines. There are probably a million examples. So it costs you to opt out. Eventually no-one / few will except for criminals. There will be a stigma to opting out because of that.

How do you “solve” the privacy issues – you don’t. It’s the cost of living in the digital world. There is less privacy. Obviously steps can and will be taken to try to safeguard it, but they will sometimes fail. This probably means that information that was previously considered damaging to your career/reputation that comes out will probably have less of an impact in the future. That’s all for the good. I think the odds of pathological use by governments goes down due to transparency in general of the digital world. Analyzing one component like IDs alone of it is not a good way to estimate overall impact of all the technology.

Holding up you hand and saying “I am who I say I am and I can prove it” should have monetary value. And it will.

It will probably also incentive moral behavior of the simple ten commandments type. Maybe that’s OK too..

Michael D. Abramoff March 26, 2014 at 10:21 am

“The average household was able to receive 23% more in aid”.

Am I the only one bothered by the fact that this biometric program just does a better job of income redistribution rather than improving the economy, worker income, productivity, payment efficiency or whatever – which is what I would hope it would do? Should they not put more effort in growing the pie, rather than slicing it differently?

Rahul March 26, 2014 at 10:50 am

But the pie is growing. Billions of dollar windfall for the IT firms & equipment suppliers. A biometric stimulus.

nuntius March 26, 2014 at 2:21 pm

It does. No need to travel to specific aid distribution centers. No need to wait in line for uncertain distributions of food/fuel. No need to subsidize specific commodities. Reduced corruption of local bureaucracy / reduced rent-seeking. These are all things which produce downstream benefits in terms of producer/consumer surplus. Across the board, this is replacing command & control quotas with price signals.

chuck martel March 26, 2014 at 11:42 am

“To create such a talented labor pool on such a scale is an unprecedented innovation and it is one which the West has not managed to match.”

It’s easier to do with a totalitarian regime that can pigeon-hole people without regard for their personal preferences. But we’re getting there.

mulp March 26, 2014 at 11:10 pm

Do you consider FDR a totalitarian regime?

Such things don’t happen in the US since circa 1980 because that marks the point when labor became considered a pure liability that is best eliminated, and otherwise considered a cog to jam in a machine and pay as little as possible with anyone of cogs to be discarded and replaced with another if it causes too much trouble.

Why workers are not even considered consumers anymore, nor consumers ever seen as workers. Otherwise economists would be stating clearly that growth requires workers be paid higher wages because without higher wages, growth in production will result in overstocked warehouses with no customers. Once a billionaire has a few houses and a few cars, how much more can he buy? He’s not going to eat 1000 Big Macs or buy a car per week.

mulp March 26, 2014 at 11:01 pm

“…also a very large pool of skilled workers, including engineers, which can be mobilized in large numbers with extreme rapidity. To create such a talented labor pool on such a scale is an unprecedented innovation and it is one which the West has not managed to match.”

Well, that’s true if “the West” began with Reagan becoming president.

The West mobilized an industrial capacity in a few years to wage a massive world war across two oceans and two continents in about five years in opposition to forces that had spent a decade preparing for war.

The US in particular manufactured a huge numbers of ships, planes, tanks and other ground vehicles in three years.

Peldrigal March 27, 2014 at 9:08 pm

*applause*

It’s funny how people conveniently forget that democracies are the dominant form of government not by some weird fluke of chance, but because they emerged as the victors of a war waged for five years across the whole globe, which left 50 million dead and only ended with two cities annihilated by nuclear fire.

GXN March 27, 2014 at 10:51 am

Most naysayers seem to come at this from 2 perspectives
1. Totalitarianism – What would the Government do if it had this kind of access
2. The practical aspects of implementing such a massive system

Without pretending to be the expert on India, but with the benefit of 6 months’ experience with people who will likely gain the most from this system (i.e. those who live on ~$10/month), a few things did strike me:

1. The immense value of this system is its ability to cut out the middleman and therefore deliver money more efficiently to its intended recipients. While the trade-off with privacy is very real, I believe it becomes less and less important the lower down you are on the economic ladder
a. ~460 million Indians live on less than $1.25/day PPP – more than the entire population of the United States
b. The last figure I heard was that about 10% of Indian public expenditure reaches its intended consumer group – i.e. 9 of 10 dollars are ‘leaked’ to corrupt middlemen; might not be that exact figure, but its close

I guess what I’m getting at is, if this system can transform the lives of those 460M – and it seems the potential is there given the value that can be recouped from corruption – I would feel pretty silly arguing for concerns about ‘privacy’, when those people need every single extra dollar for basic necessities such as food and clean water (sanitation, clothing, shelter, education, etc are all further down the list)

2. India is a robust democracy. It has been the only consistent one in its neighbourhood since it gained independence from the Brits more than 60 years ago and has a number of the hallmarks of a stable democratic system
a. A robust parliamentary system with a strong opposition which is likely to come to power in the next elections
b. A defiantly independent judiciary
c. A vocal and emphatic media
While the increased transparency from this system is real, to compare India with Central European regimes that have lived in the shadow of the USSR or Banana Republics is patently ridiculous

3. The article seems to say that the system is working in its survey sample – and 80-90% of respondents want the new system
a. By definition, this seems to mean that the system is working – what is needed to build upon this momentum rather than try to tear it down

I would imagine that such a system – and the unprecedented scale at which they would hope to deploy it – should be lauded for its sheer ambition and the benefits it would bring about. Again in the context of a poor, democratic nation that cant really ‘pigeon-hole people’

Rahul March 27, 2014 at 3:10 pm

See but the practical implementation critiques still remain. Noble intentions do not mean good results. Don’t confuse the thought for the deed.

My cynical take is this grand project will never come to fruition. The will is lacking. Right now the momentum is mostly from the IT firms etc. making money of this (and the middlemen who got their commissions, bribes etc. on the contract.)

The moment that windfall dries up there’s really not much motivation to make this complex scheme work.

For evidence, try reading some of the official whitepapers, specs. etc. issued by the UID commission on the Aadhar website. They are a mostly a joke. For a multi billion dollar project I’ve never seen the prototyping and initial roll-out studies done in such a crappy, cavalier fashion. It almost looks like some undergrad turned in a term project.

Peldrigal March 27, 2014 at 9:10 pm

You mean, amateurish like healthcare.gov?

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