By Sarthak Gulati
‘Theres no such thing as a free lunch.’ The common economic proverb holds immense relevance for our society. Currently, cab aggregators offer free rides, telecom service providers offer free data, state governments offer free water and central governments promise free education and healthcare. This raises a question about how sustainable such free goods and services are. One must think about who finances them and whether or not they are truly free.
Free services: A story of forgotten accountability and quality
It is worthwhile to look at certain issues related to these so-called ‘free’ goods and services. To begin with, there is a total disregard for quality whenever things are provided for free. Consider this: How often does one complain if free internet comes with the provision of slow speed? The answer to this lies in the negative.
The moment something is provided for free, the accountability goes down the drain. This can be seen in poor education outcomes in government schools that provide free education. Similar is the case with government hospitals. This quality is further impacted by the lack of adequate competition. Costlier, better quality service providers are at times driven out of the market. This is because people do not wish to pay when they can get goods and services for free. However, the question is, are these goods and services really free?
An inextricable link with taxes
The cost of providing for a particular good or service free has to be ultimately financed through taxes. If one has to purchase something from the market, the choice lies between paying a user fee directly or paying a tax. What happens in the latter’s case, is that the collected money in the form of taxes ultimately ends up adding to the consolidated fund of India. It is then allocated by the finance ministry to a particular department and that department then subsidises the service provider. The point is that by increasing the number of departments and bureaucrats which the payments have to pass through, free goods and services indirectly promote corruption.
Similarly, private sector players currently enjoy free services from telecom service providers despite their poor financial health due to falling profitability. This leads to them being unable to pay back huge bank loans. These bad loans are ultimately paid by our money which is collected in the form of taxes.
This is in sharp contrast to a system where a user fee is the primary mode of payment. The tariffs can easily be set out in such a way that goods are made affordable for the poor. This clearly defines every individual’s share in the cost of the provision of any good or service. In addition to these benefits, a user fee also takes care of the unfair distribution of costs among consumers spatially or temporally.
The way around free services
Free goods must not be made a source of inefficiency and inequality in the economy. The fact that a consumer is a king because he pays for the services, needs to be emphasised. Payment of fees is the sole reason why service providers are accountable to consumers. This accountability ensures the reception of services of the best quality at best prices.
Even in the government sector, user fees must be the primary mode of reimbursing the cost of service. A simple innovative method, like the issuing of school coupons to the poor by the government at minimal prices, can be tested. These coupons can be allowed to be reimbursed by any government or private school. This will provide consumers with the authority to ensure the quality of service and will initiate a healthy competition among service providers.
As consumers, people must weigh the cost of goods and services in the long run. They must evaluate and observe how free goods are being financed and also compare their quality with their cost. Accountability must be demanded even if the service provider insists on providing something for free. At the same time, the government should try and incorporate user fees in as many services as possible and promote competition to reduce prices.
What we need today is a rejection of the system of free goods. Alongside, the promotion of a demand for better quality services at competitive prices must be approved. Unless this is materialised, we might never be able to replace competitive populism with competitive service delivery.