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Economics Journal: Should India Liberalize its Baby Market?

By Rupa Subramanya

Economists generally like markets and distrust government regulation. But even economists tend to get uneasy when it comes to markets that seem to infringe on human autonomy.

Jaipal Singh/European Pressphoto Agency
Legal scholar Richard Posner and economist Elizabeth Landes argued that government regulated adoption should be replaced by a free market for babies.

Slavery, for example, is universally illegal. Even the most die-hard libertarians draw the line at buying and selling fellow human beings. The economic theory of the “gains from trade” only makes logical sense if transactions are voluntary. Someone forced into slavery cannot be said to have gained from it.

The trickier question arises when dealing with those who knowingly sell themselves into slavery or servitude, such as bonded laborers , to pay off a debt. An official estimate places the number of bonded laborers in India at around two thousand, but this is surely an underestimate.

A staunch libertarian would argue that bonded labor is alright. Assuming that the person isn’t tricked or coerced into becoming a bonded laborer, interfering with this transaction would take away from economic efficiency and indeed that person’s autonomy.

How about the even more emotive question of whether there should be a market for babies? The maverick legal scholar Richard Posner stirred up a hornet’s nest of controversy more than 30 years ago, when he and economist Elizabeth Landes argued that the U.S. should replace the system of government regulated adoption and move towards a free market for babies. Mr. Posner argued that moving to a market system would reduce unnecessary waiting times for childless parents who were legitimate candidates to adopt. The government regulated system also deprived mostly poor parents who were giving up their kids for adoption of a legitimate source of income. And the transfer of an unwanted child from poor parents who couldn’t afford to look after it to wealthier loving parents would surely be good for the child.

Needless to say, Mr. Posner’s arguments didn’t go over too well, even in the free market U.S. (It’s commonly thought that he missed out on a Supreme Court nomination because of his views.) Such an argument is even less likely to fly in India, where the scope of the market is much more restricted than in the U.S. and where the default setting in most situations is for some sort of government regulation, regardless of how well it works.

I reflected on the Posner argument recently when reading about an illegal “baby-selling” racket in Mumbai . In a sting operation, journalists posing as prospective clients approached a fixer at an orphanage who offered to sell them a male child for 230,000 rupees ($4,650.) The fixer promised them it would take less than a week to get the child, complete with doctored birth certificate, and with only a cursory check of their own documents. (The parents of the child, in turn, would have received a few hundred dollars at most, with the “middle-man” pocketing the difference.) By comparison, a legitimate, legal adoption would involve a lengthy and bureaucratic vetting and matching process and could take a year or more. The fees associated with legal domestic adoption are about 45,000 rupees (less than $1,000), while foreigners are charged around $5,000. In other words, the illegal racketeers are charging well-to-do Indians approximately the “international market price” for adopting an Indian baby.

The existence of a black market for babies, something Mr. Posner himself had noted, raises ethically challenging and economically difficult questions. On the one hand, it demonstrates an “excess demand” for babies: there are parents who would like to adopt but are unable to under the government regulated system and are willing to go outside the law and pay to “adopt” a baby. On the other hand, it’s clear that an unregulated black market is not in the interests of children, given that the people who sell them will do so to the highest bidder and won’t be too concerned about where they end up. These are difficult trade-offs to which there’s no easy answer.

In terms of the economics, the existence of a black market points to the fact that, whether government regulators like it or not, markets will tend to arise wherever there are unrealized possibilities for mutually gainful exchange. Just as in the case of someone who voluntarily sells himself or herself, the existence of a black market for babies points to the fact that there are a lot of people who would like to adopt legally but cannot, either because the wait is too long or they don’t meet the adoption criteria.

Even if Indians aren’t prepared to go as far as Mr. Posner’s libertarian position, the current system could be greatly improved by moving to differentiated fees for adoption, based on the wealth or income of the would-be adopters. We already have a “two tier” system, with foreigners paying more than five times as much as Indians to adopt. Why not charge well-to-do Indians the higher price and ensure a speedy and hassle-free adoption process, and cut out the usurious middle-men? It wouldn’t get rid of the black market entirely, since there would still be demand from people who aren’t considered “qualified” parents (for example, convicted criminals, paedophiles, or, in India, gay couples.) But, for legitimate parents looking to adopt and with the means to pay a bit more, it would go a long way to toward getting rid of our current pernicious mix of slow bureaucracy saddled with a black market, and will be better for the kids as well.

Rupa Subramanya writes Economics Journal for India Real Time. You can follow her on Twitter @RupaSubramanya.

You can follow India Real Time on Twitter @indiarealtime.

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