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Development, or just a U turn?


Cows Tilling the Field | Machra

There is now a huge debate between development and its consequences. Development, which leads to change in the environment and displacement of those living in that environment.  It is believed that a fair compensation and rehabilitation – providing alternate livelihood – could amicably solve this conflict.

What is a fair compensation system for those displaced by developmental projects? The existing compensation structure is calculated on  principles of classical economics. According to this theory, the true value of all factors involved in a transaction can be calculated basis market forces. And as long as this value is exchanged in lieu of the land, it is a fair transaction. Any amount that is given over and above this amount makes it even more fair.

New sciences like Behavioural Economics and Cognitive Neurology looks at these as issues not only as numbers on a spreadsheet. Behavioural Economics have brought into focus the irrational nature of human beings and Cognitive Neurology helps understand the adaptability of human brain to new surroundings.  Looking through the lens of these new sciences, even a compensation thats much higher than market prices will be considered grossly unfair.

Why is this so?

The existing owners of the land eke out their income by selling basic produce like honey, tendu leaves or firewood, gathered from this land or from very basic farming.  Most of them earn less than forty rupees a day.  This meagre cash flow is often seasonal and erratic. The existing needs and hence the expenditure pattern of these land owners is in tune with this meagre cash flow.

What happens when this person is thrust with a one-time compensation that introduces a cash flow that is many times larger than what he is used to?

This type of unusual cash flow and the ensuing irrational exuberance will lead to creation of totally new needs and spending pattern for him. This is in line with evidenced behaviour pattern of people who have got sudden windfall gains, like lottery winners.

The news of an impending compensation for a farmer’s land will slowly start to attract ‘suction pumps’ in the form of automobile, consumer durable companies and dubious financial institutions who in turn further exaggerate  this new need generation. In no time the land-owner’s newly formed needs and the ensuing lifestyle will start to suck out the money he obtained through compensation.

What adds to the misery is that his earlier skills are not adequate, or mostly inappropriate in this new context. Soon, he finds himself in a worse mental state. He now really feels the loss of his original land most and regrets having sold it. In this mood of loss and despair he will believe that the compensation structure that looked fair at that time, now looks like daylight robbery. He then takes to the streets in protest, creating a law & order issue.

The land owner’s reaction doesn’t necessarily mean the company or the government is in the wrong. This is just one of those frustrating situations where no party is happy. The government claims all rules were followed and the Corporation says that a fair compensation was paid. They even have written agreements. The company followed the law, kept their commitments and are well meaning. Unfortunately, this existing compensation system does not consider the irrational nature of human beings, and in that process does gross injustice to those displaced.

Even savvy financial professionals find it difficult to manage money.  How do we then expect a poor, mostly illiterate person to efficiently manage this large amount of money he has never seen in his life? This large disbursement should ideally be handled by a competent and reliable authority like Pension Fund Regulatory and Development Authority (PFRDA).

The most important feature of this new compensation system could be that the compensation be distributed in tranches that are similar to his existing cash flow. The financial  disbursement system that is a part of the UID program can be used improve efficiency in distribution.

When it comes to rehabilitation, we must know that human brain is not comfortable with any new situation. It prefers status quo. The new context to which the person is being rehabilitated  should ideally allow him to continue using his existing skill sets. Unfamiliar context always creates a sense of apprehension in the human brain and exacerbates any negative feelings.

These behavioural perspectives are absent while looking at compensation through Classical Economics. For those displaced, compensation is not an economic issue. Nor is it about legalities. It is a behavioural Issue. Human behavior defies logic and rationality; intricate observation and understanding of human behaviour can effectively guide our experts to solve the conflict between much needed development and its unintended consequences.

Image source: Rohit Markande on flickr

#farmer #Irrationality

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