Civil Unrest and Government Transfers in India

Professor Patricia Justino

Institute of Development Studies

12 March 2015

Context

Several instances of civil unrest across the globe in last few years: food riots, Arab spring, occupy movements

Inequality at the source of discontent: Bates (1983), Grossman (1991, 1999), Gurr (1970) etc..

Private and social costs of unrest high: Barron et al (2004), Collins and Margo (2004)

Not all civil protests escalate into violence and destruction Emergence of inclusive and democratic societies explained by how institutions

manage social diversity (Acemoglu and Robinson

Distributive conflicts solved through fiscal policy and provision of public goods and services through centuries Extension of voting rights in 19th century (Acemoglu and Robinson 2000)

Sozialstaat (Bismarck) as means to win the loyalty of the German working classes; foundations of European Welfare State

‘Winning hearts and minds’ in modern USA counterinsurgency

Large literatures on the role of government transfers in reducing crime and in gaining political support and votes

But also literature suggesting that redistributive transfers may result in economic distortions and spur social conflict

Government transfers limited in poorer countries due to fiscal limitations

Limited empirical evidence on whether government expenditure reduces unrest

Research question

What is the effect of government transfers on civil unrest? Can government expenditure be used to mitigate unrest and prevent civil violence?

Case study: India

Data: longitudinal dataset major 16 Indian states 1960-2011

Theoretical framework

Justino, P. “Carrot or Stick? Redistributive Transfers versus Policing in India” MICROCON WP#3

Polarised society across two groups A and B (elite vs rest of pop) (e.g. Grossman, 1991, 1994; Acemoglu, 2007 on oligarchies)

Existence of inequalities between groups cause social discontent (also a la Grossman)

Elite choice: buy-out potential troublemakers through transfers or resort to repressive measures (police and military)

Costs: redistribution may lead to discontent amongst those taxed more highly and may cause economic distortions; repression may spur further conflict and ability to finance large police and military forces (repression threshold – Boix, Gurr, Hirschman)

Two periods (t-1 and t); group B do not save between t-1 and t

Conceptual model

Difference equation:

With:

< : society with high repression threshold > : society with low repression threshold Coefficients normalised; [0,1] θ: inverse of inequality aversion coefficient (Atkinson, 1970; Hirschman, 1981); θ=1

low tolerance; θ=0 high tolerance Relative inequality: intertemporal difference between changes in incomes of rich

and poor (Boix, 2004) Group B do not save; normalise income by povline group B income = transfers;

group B do not incur in costs In absence of conflict management Ct=Ct-1 (conflict trap – Azam, Collier and

Hoeffler, 2000)

111 ttttt I P PCC

tt CP tA

t TYI tt CT

Model solutions

General form:

with and J + L = initial conditions L = amount of conflict that will always persist (dynamic equilibrium state) K > 1: always increasing conflict K = 1: discontinuity point K < 1: always decreasing conflict

LKJC t

t )(

K

1

1

L Y R

( )

111 tL

tttt TY P PCC

Solutions for conflict decrease In order to guarantee decrease in conflict we need: β/ = ratio of elasticity coefficients of

transfers and policing (- ) = repression threshold, calibrated by: 1/θ = inverse inequality aversion

coefficient (1 = high aversion)

Scenario 1: Positive transfers with high threshold (β > 0; < ): costs of transfers and of repression are low

Condition always true; trade-off does not take place; conflict does not increase Eg1: Perfect democracy: everyone votes over optimal level of taxation (high level of

inequality plus high aversion higher preference by median-voter for transfers always move to equilibrium) (Persson and Tabelini, 1994; Alesina and Rodrik, 1994)

Eg2: ‘Enlighted’ oligarchic regimes: Poor excluded from decisions; only minimum level transfers takes place (to keep peace) (Buchanan and Tullock, 1962) (Singapore eg in Acemoglu and Robinson, 2006; Syria until Arab spring)

1

Scenario 2: Positive transfers with low threshold (β > 0; > ): costs of transfers low

but costs of repression high Low repression threshold plus group B have increased probability to engage in conflict

(increase bargaining power)

Because interdependency between UFs poor influence decisions by rich transfers will take place (choice theory; Sen, 1982)

Social unrest decreases when β > (transfer elasticity higher than policing elasticity)

Government transfers are most important as a tool to reduce conflict in scenario 2

Scenario 3: No transfers β = 0 Conflict decreases if <

Conflict spirals out of control at any given time unless police is very large or very efficient (e.g. repressive regime)

How far from equilibrium depends on level of police group A can afford:

Capacity to attract foreign investment (Collier and Hoeffler, 2000)

National resource endowments (Collier and Hoeffler, 2000; Ghate et al. 2003)

Capital mobility (and thus avoid costs) (Boix, 2004)

India

Large propensity for civil unrest: 40,000 people killed or severely injured in riots in India since Independence

(Wilkinson 2004)

Evidence for inequalities as source of discontent and unrest

Large demand for provision of social goods and services (largest democracy in the world): Public employment quotas for scheduled castes and tribes

MNREGA programme

Practical considerations: panel data collected homogeneously across states; avoids problems of international comparison using non-comparable data

Rioting in India 1960-2011

Major riots: Aligarh (1978), Punjab (late 1970s), Mumbai (1992), Ayodhya (1992), Gujarat (2002)

Rioting in India 1960-2011 050

001000

015

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2000

0

0500010

000

1500

020

000

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1500

020

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1960 1980 2000 2020 1960 1980 2000 2020 1960 1980 2000 2020 1960 1980 2000 2020

1 2 3 4

5 6 7 8

9 10 11 12

13 14 15 16

RT

yearGraphs by State

Empirical model

Main dependent variable - riots: ‘collective acts of spontaneous violence that include five or

more people’ (GOI)

Main explanatory variable – government expenditure on social services: annual real expenditure at 1980-81 prices on education, health, family, welfare, labour and other social services (GOI)

Control variables: population density, level of education (no people enrolled in primary and secondary educ), quality of law enforcement (use of police), political institutions (elections won by Congress party) and economic capacity (state income per capita at 1980-81 prices)

Estimation procedures: Panel fixed-effects model Generalised method of moments (GMM) (Arellano and Bond, 1991) IV model: Benerjee and Iyer (2005): mean proportion of districts where historical

collection of revenue was not assigned to landlords; these have higher levels of public spending today

itititittiit VZXC 1

Results

FE FE GMM IV GMM

Lagged riots 0.884*** 0.881*** 0.840*** 0.893*** 0.780***

Gov exp t -197.4 -153.8 -25.8 -318.5

Gov exp t-1 -0.001** -0.001* -0.002** -0.001**

Inequality t-1 86.5**

Poverty t-1 44.9**

Controls YES YES YES YES YES

Year effects NO YES YES YES YES

Obs 388 388 361 358 345

Transfers more effective in longer term: no. riots decreases by 0.1-0.2% for each extra rupee spent in government expenditures per capita in year t-1

Evidence of potential conflict trap (Azam, Collier & Hoeffler, WB 2001) Additional controls: +income effect; +(rural) poverty effect: in richer states poorer rioters

may have more to gain from civil unrest Congress has negative effects on riots: works through poverty effect No effects: police, school enrolments and state population Possible mechanisms: government expenditure reduces inequality and poverty Results driven by medical and social expenditures – not clear why (work in progress)

Additional results

Strikes Naxal insurgency

Crime Low rioting

High rioting

Lagged conflict 0.033*** -0.987*** 0.006 0.128** 0.862***

Gov exp t -546.6*** 3.301 25333.2 -49.41 -445.5

Gov exp t-1 0.001 0.0003*** -0.018 -0.003*** -0.002

Police 0.004** -0.001** 0.009 0.011** -0.029*

Controls YES YES YES YES

Year effects NO YES YES YES

Obs 388 388 361 345

No effect of government expenditure on crime Immediate effect of government transfers on strikes (but no long term effect); police

effective at reducing strikes Positive effect of government transfers in Naxal areas: appropriation of social programmes? Government expenditure most effective in areas of low rioting Police fuels resentment in low rioting areas but effective once rioting escalates Use of government transfers to curtail riots before they escalate and become endemic

Summary of results

Government expenditure on social services associated with significant long-term reductions in riots across India in period of 1960-2011

Results likely to be driven by impact of social expenditure on levels of poverty and inequality (take time to affect social discontent and probability of rioting)

Government expenditure most effective in areas of low rioting before riots escalate and become endemic

Note that India spends less than other developing countries on social services (around 3% of GDP against 4% average)

Implications

Role of redistribution and fiscal policy in preventing civil conflict Government transfers may shape preferences of citizens in ways that prevent

violence

Government transfers may increase opportunity costs of fighting

Merits more study given rises in inequality (Piketty)

Bring back the role of state in managing social and political order: the importance of fiscal instruments and fiscal capacity (Besley)