ESIC: A review in Heavens ! – Episode II

It so happened that we had a chance, recently, to visit the Heavens, and come back too. What we saw and heard there were found to be worth sharing. Hence this attempt. 

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What Mr. Wagner asked raised the curiosity of everyone. They requested him to explain the facts without putting questions.

Mr. Wagner continued, “There was one Mr. Charles Ponzi. He collected money from a lot of people promising that he would pay them very high returns. Attracted by his promises, people poured in money. ‘He promised investors outrageous returns of 50 percent in 45 days, or 100 percent in 90 days. Ponzi paid these investors using money from other investors, rather than with actual profit….He bought a mansion in Lexington, Massachusetts, with air conditioning and a heated swimming pool. He reportedly made $250,000 a day.”

“How could he pay so much?” asked Mr. Beveridge.

“Yes. He paid money to the investors from the deposits made by the subsequent investors. He could not invest the deposits properly in any venture to make profits. He did not pay the investors from dividends that he got any source.”

“How long could he go on like that?”

“His reasoning was that as long as the inflow is more than the outflow, there was no problem for him. That was the reason he could continue with the scheme for so long. He could run the scheme only for two years. When The Boston Post started investigating and bringing out the facts, the scared depositors stopped paying further. Naturally, it caused the bubble to burst.”

“A lone man had brought sufferings to millions.” concluded Mr. Dingell. There was sullen silence there for some time.

Mr. Murray broke the ice. “But, the United States Social Security Administration has not learnt any lesson. These administrators also want to run the Social Security Scheme just like that of Ponzi scheme although they labour so much to portray that they are not managing it like the Ponzi scheme”.

“Yes. They say, ‘As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever. There is no unsustainable progression during the mechanism of pay-as-you-go pension system and so it is not a pyramid or Ponzi scheme’. But, this very concept is Ponzi Scheme only.”

Mr. Adharkar intervened. “But, we did not conceive of the ESI Scheme in India that way. We wanted the scheme to be the backbone of the nation’s economy. Our concept was making the scheme largely self-sustaining and stronger in the long run.”

(Economic Times: 05.02.2003: Please click on it for bigger image)

(Economic Times: 05.02.2003: Please click on it for bigger image)

Mr. Beveridge nodded in assent. He said, “Yes. Indians managed the ESIC funds very well. If they had continued with that trend, the scheme would have become self-sustaining in the long run. For example, their surplus of about Rs. 16000 crores would have earned them, on proper investment @ 10% interest per annum, a sum of Rs. 1600 crores. That was equivalent to the revenue generated in Maharashtra and Tamilnadu combined together. Or it was equivalent to the revenues generated in many other states. Once you have the economic strength to run the scheme with your own funds, you are stronger economically and provide better security net for the posterity forever.”

“But, what is the problem now? They can continue that way.” said Mr. Dingell.

“No. Things are different now. The surplus funds have been frittered away in the name of establishing medical colleges and constructing buildings for them.”

“How is the scheme being run, then?”

“By increasing the wage limit of the employees coverable under the Scheme. That appears to be the only way, once all the Medical Colleges start functioning. You know, these medical colleges do not collect donations like the private medical colleges. There is no income through them, but only expenditure. And, the expenditure is very huge. If you compare the revenue generated in a region with the expenditure required for the medical colleges in those regions only, you will be alarmed to think of the consequences.”, said Mr. Adharkar.

“But, can the Indians increase the wage limit everytime they find the money available is inadequate?”, said Mr.Wagner.

“Yeah. That’s what makes Mr. Adharkar sad”, said Mr. Beveridge.

There was a wry smile in the face of Mr. Adarkar. “That is not the only thing that makes me sad” , he said.

“What else?”, demanded Mr. Beveridge.

“The brazen interference of politicians in the transfers and postings of the officers in Group A and Group B level in the ESI Corporation. That is wrecking the system. The Labour Ministers do not want to stabilise the system so that it works for public welfare. They want to play godfathers to one or the 0ther officer and force the Director General to yield. In the process, the officers who are the beneficiaries of such favours from the Ministers demonstrate their loyalty to the Minister and not to the organisation. The pr0blem was there earlier in respect of one or two stray cases, earlier. But, it was Mr. Sahib Singh Verma who wanted to institutionalise his interference in the matters of transfers and postings of senior officers. It was resisted fiercefully. Yet, he could have his way in some cases. Fortunately, because his political party lost the elections he could not meddle with the ESIC and EPFO anymore. But, his successor Mr. Sis Ram Ola also followed the footsteps of only Mr. Sahib SinghVerma. It was only Mr. K. C. Rao who put an end to it in the year 2005. He put the organization, again, on the right path. But, many Indian politicians could not resist the temptation of demonstrating that they are mightier. They believe in the present and, therefore, care for their show of strength only. They do not care for establishing corruption-free system in the institutions.  India, therefore, goes the Haiti way. That makes me sad”, said Mr. Adharkar.

“Oh, My!, I am tired of hearing all these things. I need a break, yaar!”, said Mr. Murray.

“Okay, let us make a move, then! We assemble here next week and discuss about the Haitian examples and warnings, the importance of transfer policy of officers, the consequences of the interferences by the Labour Ministers in the transfers and postings of officers in the ESIC and the EPFO and the necessity for the public to know the facts as all these administrative matters affect only the public and the nation, at last.”

“I agree. The Social Security System of every nation is too big to be left only to the Labour Ministers to be run by them as they please. The public must know why these Ministers have such irresistible temptation to play with the transfers and postings of the senior officers in the ESIC and the EPFO. A trip down the history is essential. Mr. Adharkar has, rightly, drawn the Haitian example. Let us discuss it next week”, concurred Mr. Beveridge.

(Continued in Episode-III)

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Readers who would like to know more of the Ponzi Scheme and the Social Security Scheme in the USA may please click on the following links please for some facts. The opinions expressed therein are subjects of discussion, if not subjects of controversy:
http://mises.org/daily/5658
http://www.youtube.com/watch?v=oh-NqdmEDq4

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Filed under Amendments 2010, Benefits, For Trainees, Transfers

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