Indian Construction Workers and Social Wealth Funds

by Thomas Manuel

According to Oxfam, “82 percent of the wealth generated last year went to the richest one percent of the global population, while 3.7 billion people that account for the poorest half of the world saw no increase in their wealth.” In the US, the top 1% of families own more wealth than the bottom 95%. In India, 73% of the wealth generated in 2017 went to the richest 1% while the bottom 50% got a measly 1% of that wealth. To combat these inequalities, we’ll have to upend or at least leverage the fundamental logic at the heart of capitalism that wealth breeds greater wealth so that it works for the benefit of the poor. One proposed solution that is gaining some mainstream attention is the idea of social wealth funds.

Social wealth funds are essentially publicly-owned financial funds that hold income-generating assets and use the returns for the welfare of all. They offer one way of socializing and redistributing wealth. Probably the most famous and most ambitious proposal for social wealth fund is the one commonly called the Meidner Plan. Implemented in the 1980s, these funds were called “wage-earner funds” and were an attempt to create a system that would slowly transfer ownership of companies from their shareholders to their employees. It worked by mandating that large firms had to issue new shares worth 20% of the annual profit to these wage-earner funds which were maintained by trade unions. This stock could not be sold and the dividend from these stocks would be reinvested into more stock. As per the original estimate, the majority of the ownership of Swedish companies could pass to employees within 25 years. But while the Meidner Plan was tried out, a successive government shut it down.

In his paper for the People’s Policy Project, Matt Bruenig argues for the institution of a new social wealth fund in the US, using two modern examples: the Alaska Permanent Fund and Norway’s two Government Pension Funds. Bruenig writes this about the latter: “Adding up all of the wealth collectively owned through the Norwegian state produces some truly staggering figures… the Norwegian central government owned assets equal to 271 percent of the country’s GDP in 2016… The SOEs, gpf-Norway, and other local government funds combine to own a little more than one-third of all the equity listed on the Oslo stock exchange. This level of ownership is nearly 5× what the Meidner plan achieved before it was halted.” Norway’s government pension funds are operated extremely efficiently, earn respectable rates of profit and essentially …they just work.

The Alaska Permanent Fund is also interesting. Funded by taxes on gasoline extraction, the Fund invests its receipts in a portfolio of income-generating investments and every year, pays out an annual dividend to every single citizen of the state. “In 2017, Alaska’s government paid out a dividend of $1,100 to 629,859 citizens… In prior years, the dividend went as high as $2,072, or $8,288 for a family of four.” Citing several studies, Bruenig argues that the fund has led to lower inequality, reduced poverty, did not lead to increased unemployment and, most of all, Alaskans love it.

In India, there are a number of programmes that bear varying degrees of similarity to these social wealth funds. The Goencha Mati Permanent Fund proposed by the Goa Foundation in 2014 was extremely similar, in motivation at least, to the Alaska Permanent Fund. Other interesting examples would be the various state welfare funds formed under the Buildings and Other Construction Workers Act, 1996. These funds collect a cess of about 1% of the construction cost from every builder whose project is large enough to qualify. The collected monies are then distributed to construction workers in the form of a number of welfare benefits. These vary from state to state but include medical expenses, accident relief, marriage and funeral costs and so on. But the problem is that these funds never get disbursed. As of July 2017, almost 30,000 crore rupees remained unspent across these various welfare boards. That’s 5 billion dollars – a lot of money.

As of 2015, more than 2 crore workers had registered with these boards -though this might represent only 40% of the actual number of construction workers in the country. The National Campaign Committee for Central Legislation on Construction Labour (NCC-CL) has been doing great work investigating the various ways the welfare boards fails their constituents. The NCC_CL has calculated that the average amount collected per worker per year is less than 500 Rs. This appears to be 1/8th of what would’ve been collected if the cess was implemented perfectly, implying the vast majority of construction projects are evading it. The Parliamentary Standing Committee on Labour is reported to have been “astonished to note that no efforts have been made to compare the collected Cess figure with the total construction activities carried out in respective States.” The NCC-CL have also conducted a social audit of the Delhi welfare board that show that legitimate claimants find it hard to access these benefits while cronyism thrives.

While these problems of implementation plague every single welfare programme in India, the failure of the construction welfare boards to fulfil their primary purpose – the disbursal of welfare – has surprisingly not led to any discussion of radical reform. The Indian government is currently drafting a new model welfare scheme for construction workers but the proposals seem to be uninteresting except for the fact that online registration of workers has been made compulsory. While this is reportedly done to ensure better delivery of services, it’s hard to see how it would solve the fundamental problem.

The fact that the onus is on the worker to claim their benefit from the welfare board (instead of just receiving their benefits as a matter of course) seems to be a major challenge. And this is a problem that a traditional social wealth fund that pays an annual dividend might solve. Most of the benefits from the fund essentially involve a transfer of money, so prima facie the option seems to be worth exploring. It could operate as a kind of minimum wage or basic income for construction workers – it is a distribution from construction companies to workers after all. It wouldn’t be a large amount at the moment. Even if the undisbursed balance of approximately 30,000 crore rupees was invested with a return of 10-15%, given that there are 2-4 crore construction workers, the dividend would not be more than a few thousand rupees. But depending on the nature of assets of the fund, its management and increased additions to the corpus through cess collections, this annual dividend could easily grow much higher.

Of course, an annual dividend would suffer from the usual issues of direct benefit transfers such as the problem of India’s poor banking penetration. I’ve not found data on the number of construction workers who operate bank accounts but the number is probably small and highly variable from state to state. But one advantage is that unlike say an LPG subsidy, a switch to this kind of system would not involve a disruption of any current distribution system. Any improvement in actually getting the benefits to workers would be a positive.

Image Credit: Satyendra Kumar on Flickr

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