Author: Atanu Dey

Economist.

The Privatization of Public Sector Units

The June 2nd Business Standard carried an opinion by Mr A B Bardhan, Secretary of the Communist Party of India, on the question “Should the disinvestment ministry be scrapped?” He said,

Even Lord Keynes would not have approved of disinvestment! Even he believed that there are some areas the government should not step out of. … Disinvestment means privatizing profits and nationalizing losses…. Profit making public sector units should not be privatized for two main reasons. First, because they are major contributors for taxes, and, second, they pay huge dividends. … Selling profit-making PSUs, like Oil and Natural Gas Corporation, is akin to selling jewels to buy groceries. … I am against privatization of the state electricity boards. I simply do not understand the merits of the decision of setting up state regulatory commissioners even as private distributors increase costs repeatedly. In a state like Delhi, for instance, can any private power distributor without an established work force be able to carry out electrification? …

For the record, I have to make a disclosure first. Mr. Bardhan is a respected elder to me. So when I differ with him vehemently, I do so with the utmost respect and regard for him. With due respect, I think what he says is nonsense and nonsense of the most pernicious kind. The entire piece in the Business Standard is a study in how wrong-headed thinking carried on over an entire life-time can warp the judgment of a well-meaning and idealistic person. I don’t doubt for a moment his total commitment to the lot of workers. I am confident of his sincerity for the well-being of labor. But good intentions are far from sufficient in making things better. Let me save you from drowning, said the monkey to the fish, as he put it up on a tree.
Continue reading “The Privatization of Public Sector Units”

The lighter side of outsourcing

Some time ago, I had posted a blog entry on the logic of outsourcing which quoted Russell Roberts of BusinessWeek Online. All very serious and good. I recently came across Dave Barry’s take on outsourcing and he does not disappoint.

A Dummy Post to help out search engines__

The name of this blog is Deeshaa where there are two e’s and two a’s. The reason I point it out is that I notice that many people make the mistake of thinking it is “Deesha” and they end up either not finding this blog or not being able to reach me on email. The name ‘Deesha’ was already taken and therefore we spell deesha as Deeshaa.

This is a dummy post. This post will have the words Deesha Deeshaa Atanu Dey RISC Rajesh Jain Vinod Khosla Rural Development Population Planted Trees Suhit Anantula Vivek Padmanabhan Reuben Abraham Economics India Infrastructure Services Commons Policy Telecommunications Information Technology Communications ICT and other such words to help searchers get to this site.

All things must pass

Civilizations, like everything under the sun, have a life-cycle. They arise, they persist for a while, and then they inevitable decline and fall. Happened all the time in the past, and there is no reason to believe that it will cease to happen in the future — we are all Bayesians, after all. Continue reading “All things must pass”

Upper and Lower Mumbai: A Tale of Two Cities

Mumbai is a fascinating place. It is place where the rich and the poor live cheek to jowl, where the so-called first world, the second world and the third world co-exist in the same geographical space. In a manner, it is a microcosm which reflects the global economic condition. Continue reading “Upper and Lower Mumbai: A Tale of Two Cities”

Palliatives Considered Dangerous

Recently the Indian Postal Services have started offering a service which can be characterized as “mediated email services.” You write out a message on a piece of paper and bring it to a post office and they will transmit the information to an email address after any required translation. On the return route, they will print out an email and a postman will deliver it to the addressee who does not have direct access to email.

I subscribe to an email list where matters relating to India’s progress down the information highway is discussed. One member, Mr. S.N.Rao, wrote in response to the postal department’s scheme. I find Rao’s comments very pertinent and with his permission I quote him for the record.

I can see that this is a very useful thing to have and that it benefits large numbers of poor people who cannot afford to own computers or learn how to operate them or speak/write English.

That brings me to the frighteningly palliative nature of this kind of solution. It attempts to provide a workaround – causing the real problems to be ignored along the way. I hope I am not the only one to see the striking parallels between this solution and the “good old days” solution to illiteracy where the postman often read out incoming letters to his customers and scribed outgoing mail on their behalf!

The basic problems that need to be solved are

a. Computers and technology are still bewildering and sometimes threatening in their cost and complexity of use. The platform that is used to develop and test software is basically the same as the platform that is used as a home PC…with all the attendant disadvantages of a user interface geared for essentially production/office environments.

There are some products that make sending email simpler by providing a dedicated email station that does nothing else – but that again is a point solution. There is a sorely felt need for a home platform. Sending email/voice/photos via the internet should be at least as easy as turning on the TV and switching between Z-TV and CNN (if not as easy as switching on a light).

b. Local language support is nearly non-existent despite large cumbersome frameworks and customisation options being built into operating systems. As a result it is almost imperative that the user be comfortably familiar with English. Oh! wait – that’s only true for India and a few other countries – in Japan, the computers, UI, keyboards are all in Japanese (I think you might be even able to select between two different scripts – kanji and the more common mix of katagana and hiragana). Now wouldn’t it be nice for the old man in Alleppy if we had a computer with an interface and markings entirely in, for example – Malayalam?

Band-aids, palliatives, patches, workarounds — are dangerous when they mask underlying problems. They work in the short-run and appear to solve the problem but in the long-run, they indirectly contribute to the persistence of the problem. They often address symptoms rather than causes. I am not advocating the abandonment of band-aids. My insistence is on making sure that even as we are busy putting on band-aids, we should spare some time and effort to address underlying causes.

Computers are complex beasts because of the evolutionary pathway they have traveled. Made by techies for techies. For them to be useful for the unwashed masses (such as yours truly), they have to be transformed into easy to manage domesticated animals. Some people are working on that domestication.

The availability of computers for the masses is of course increasingly becoming a necessity. But that is far from sufficient. For us to have a reasonable shot at development, we need to have a literate population. Palliatives that mask that underlying deficiency should be considered dangerous.

People Matter: India’s Population Problem — Part II

{Continued from People Matter: India’s Population Problem.}

A big picture description of an economy would have to include at its minimum the resources within an area, the technology available, the population and how they are organized. The available resources are strictly limited in the short-run. For a given area and its resources, a factor called the carrying-capacity can be defined. This indicates the level of population which the area can sustain without resource depletion. Any population larger than the carrying-capacity would lead to unsustainable resource depletion. By this factor, any area which exceeds its carrying-capacity is considered overpopulated. It can be plausibly argued that India’s population exceeds India’s carrying-capacity. That is not to say that India is alone in this regard; even the US is vastly overpopulated by this criterion given its capacity and inclination to use global resources unsustainably. But my focus here is India.

Some of the effects of overpopulation should be briefly indicated. Intensive agriculture can impoverish the soil and the relentless conversion of forests and old growth to farmlands leads to soil erosion and desertification. India loses about 8,000 square miles of arable land each year. Fresh water reserves are used up faster than what nature can replace; groundwater levels fall. With the disappearance of forests, rainfall patterns change leading to droughts and floods. The biotic diversity decreases with the loss of animal habitat. Pollution of lakes, rivers and the atmosphere takes its toll in terms of health hazards.

At the social level, overcrowding leads to communal tensions and civil unrest. Malnutrition and poor health services create unnaturally high infant mortality rates. Education takes the back seat while the society is remorselessly driven to unemployment and underproductivity. The cycle of poverty finally gets a firm hold on the population at large and it is a vicious cycle from which it is almost impossible to break free. Though we may gloss over the details of the exact effects of all this, it can be reasonably argued that overpopulation is the corner stone upon which all the other ills of society are founded.

The scarcity of goods and the abundance of people are a potent formula for poverty. Poverty and exploitation are quite well suited. Let’s look at an analogy to see the connection and further explore its implications.

A THOUGHT EXPERIMENT

Consider the hypothetical situation of two men who start out with equal resources at their disposal in terms of earning capacity and so forth. One of them, call him Blue, has two children whom he cares for with all his limited resources. The Blue children get reasonable education and become professionals. The other guy, call him Green, has six children. The Green children do not become professionals since they each had only one-third the resources as the Blue children. The Green children become labourers. The trend continues and soon Green has 36 grandchildren all of whom are not very well educated. The Blue grandchildren, numbering four now, continue on the footsteps of their parents since the parents were educated and more productive. The Blue children were able to have spare resources to educate their children and these became rich people who finally employ the Green grandchildren to work for them.

Now in this hypothetical situation, we need not ascribe any malice on the part of the Blue family nor any attempt on their part to exploit the Green family. All things being equal, the Green family just did not have any surplus to invest in the education and growth of their offsprings unlike the Blue family. The Green family just had to use all its steadily declining resources to feed its exponentially increasing population; they just did not have any left over money to improve their lot.

Let’s fast forward a few generations now. Given the rate of growth of populations — exponential — the Greens number in the thousands and the Blues are in hundreds. The Blues have steadily improved their lot since they keep getting richer doing more productive and creative work which is highly valued and the Greens work for the Blues in factories, houses, etc., at less productive (albeit necessary) positions.

What can be learned from this admittedly highly artificial scenario which we have developed? That humans are in one significant respect different from any other species on the planet. For any other species, numerical strength implies biological success and any strategy which leads to increased numbers is a winning strategy. Survival of the species depends upon successful breeding within the natural constraints of available resources. The name of the game is to proliferate as fast as possible to maintain quantity. Nature imposes quality control with ruthless efficiency. But for humans, the situation is different. Numbers alone do not ensure success since we have left that stage of evolution a few thousand years ago with the advent of technology and the need to effectively exploit the environment.

The concept of disposable resources comes into the game. Any resources which are not strictly required for the basic needs of food, clothing and shelter, is available for purposes which are uniquely human. The surplus is available for education, scientific research, technological development and the pursuit of art and recreation. All of these activities ideally improve the quality of human life and also change the survival game in favor of those who have an excess at their disposal.

INDIA: BONDED LABOR

There exists, unfortunately, the notion of bonded labour. These are people who through circumstances are in perpetual debt and whose earning capacity is so low that they cannot ever hope to have any excess with which to repay their debts. Lacking any disposable resources at all, they continue to barely survive using all their earnings and don’t have any hope of ever breaking free of the cycle of poverty.

Consider, if you will, India. So we have a very large population of poorly educated people a large majority of which live at or below subsistence levels. All the available resources are used in trying to desperately survive and there is virtually no surplus. There is nothing left over for investing in those areas which are the most productive like education, social uplift and technological development. India has to buy from other nations some of the things that it needs and these tend to be costly because of a number of reasons.

Let us dispassionately look at the trade situation between India and say a developed country like the USA. They, USA, export to India products which are high cost, like weapons, software, airplanes, etc. These products are high in price and capital intensive. India, in return, exports to the USA products which are labour intensive, low cost and low value. So, we have the import of say a single airplane costing millions of dollars which a small number of people in the USA produced. In exchange for that airplane, we have to export the output of millions of Indians in say industries like stone, leather, carpets, etc., at a low price to the USA. The rate of exchange is naturally set by the forces of supply and demand. There are numerous sources from which USA can import all the labour intensive products that they need. But for India, the options are limited for high tech goods. To compete in the world market, therefore, a steady devaluation of Indian goods have to be maintained. The terms of trade continue on a trend adverse to the poor country and this is reflected in the steady devaluation of the local currency relative to the foreign currency.

The vicious cycle inexorably continues. The rich nations have the means to produce high value, high demand goods. They continue to have a surplus which they invest in technologies which are more productive and the gap increases. India has no surplus to invest in technological advancement and it continues in this race constantly falling behind. Any advantage gained is quickly dissipated in maintaining a burgeoning population through the import of essential goods like fuel and other scare commodities.

In effect, India is like a nation of bonded labourers with no recourse. The exploitation of this nation is inevitable given the circumstances however unfair it may appear to be. It is unfair that 20 percent of the world’s population consumes 80 percent of the world’s resources. It is unfair that India with 16 percent of the global population uses only 3 percent of its resources. But who is responsible for this imbalance and who are we going to complain to? Unfortunately, we have no one to thank but ourselves for the situation that we find ourselves in. Finally, what are we going to do about it?

The Persistence of Poverty

Economic analysis can be broadly categorized as either ‘positive’ or ‘normative.’ Positive analysis refers to the investigation of how things are, whereas normative analysis is concerned with how things should be. The former is supposed to be value-neutral whereas the latter is necessarily an expression of one’s values. A study by the UN determined that about a billion people around the world live in absolute squalor in the world’s cities and that every third person will be slum dweller within 30 years. That is a positive statement. The Guardian reports:

One in every three people in the world will live in slums within 30 years unless governments control unprecedented urban growth, according to a UN report. The largest study ever made of global urban conditions has found that 940 million people – almost one-sixth of the world’s population – already live in squalid, unhealthy areas, mostly without water, sanitation, public services or legal security.

The report, from the UN human settlements programme, UN-habitat, based in Nairobi, found that urban slums were growing faster than expected, and that the balance of global poverty was shifting rapidly from the countryside to cities.

Africa now has 20% of the world’s slum dwellers and Latin America 14%, but the worst urban conditions are in Asia, where more than 550 million people live in what the UN calls unacceptable conditions.

The emphasis on the word ‘unacceptable’ is mine. The UN in labeling something unacceptable is making a normative statement, not a positive statement. Meaning, the UN is saying that so many people living in slums should be unacceptable. Normative statements arise only in cases where the normative and the positive diverge. That is, when what is is not what should be. Here I argue that the reason that the reason so many people do live in squalid conditions is precisely because it is acceptable by all parties concerned.

Before you reject this seemingly idiotic stance, consider what it means for something to be unacceptable. If I accept something, I clearly cannot find it unacceptable. If I don’t totally and unconditionally reject it and somehow reluctantly accept it, it means that I don’t find it unacceptable. It is not ideal but it is not unacceptable either. If something were truly unacceptable, I would not accept it. So now consider the statement “550 million people living in unacceptable conditions.” They not only find it not unacceptable, but given that their numbers grow, they thrive in there. So slum dwellers find the slums acceptable in the strict sense of the word. So also, the rest of world which does not live in slums finds the existence of slums acceptable as well. If it were not acceptable, then they would have done something about it. There are ample resources in the world which if it were equitabley distributed would have resulted in a different outcome. The fact that this alternative distribution is feasible but not chosen reveals that the world as a whole prefers the unequal distribution. Therefore it is acceptable in the strict sense of the word.

I have just used what is called a revealed preference argument. If you really want to know what the preferences of an economic agent is, just note what they do rather than what they say. I don’t need to ask you whether you prefer tea or coffee at a particular time if I can simply observe you choosing tea over coffee when both were available to you. You would have revealed that you prefer tea over coffee by your choosing tea. The world has a billion people living in slums. The people of the world could choose an alternate state of being in which no one is forced to live in slums. The world chooses the former over the latter and therefore reveals its preference for the current setup.

The point I would like to stress is this: if poverty were truly unacceptable, then it would not exist given the technology and resources at the disposal of the global community. Both the poor and the rich are implied in this global community. The poor tolerate poverty as much as the rich do. I think I can explain why the poor accept poverty. I believe it has something to do with biology. The urge is for survival and therefore we adjust to unimaginably difficult conditions. People in concentration camps survive horrible deprivation. Slums are economic concentration camps. People survive. Life is Hobbesian (nasty, petty, mean, brutal, and short) but sufficiently large numbers survive so as to produce the next generation of slum dwellers. The poor breed poverty.

The rich and the powerful also tolerate poverty. If they did not, they would have mobilized against it and eradicated it. Poverty is not seen as unacceptable the way terrorism is seen as unacceptable. The US moves rapidly to spend hundreds of billions of dollars at real or imagined areas of terrorism. But it does fancy little for eradicating global poverty. A few hundred billion dollars every year would totally eradicate global poverty. But the US does not choose to wage a war against global poverty like it does against global terrorism. The rich are apparently quite comfortable with the idea of poverty. How else would one explain the persistence of poverty?

Reciprocal Rights and Privileges

From Anish Sankalia:

The President is said to have informed her that according to Section 5 of the Citizenship Act of 1955, she has no right to assume the office of the Prime Minister of India and that he was seeking the advice of the Supreme Court on this issue. Section 5 of the Citizenship Act of 1955 says the rights and privileges allowed to foreigners who become citizens by application (not by birth) are conditional upon the rights and privileges granted to Indians in the country of the concerned person’s origin (in this case Italy).

The President reportedly told Sonia that he had to ascertain the legal position in this matter as there was no confirmation that all the rights and privileges granted to persons of Italian origin are reciprocated by Italy in the case of Indians who become citizens of that country. Sonia is said to have decided not to take the risk after the President’s briefing.

So there. Sort of what happens in commerce — you grant most favored nation (MFN) status to a country only if they grant you MFN. Also, you grant a certain number of landing-slots to the carrier of a foreign country only if they grant you reciprocal rights in theirs.

A naturalized Italian citizen of Indian origin cannot become the municipal commissioner of a third rate town in Italy. India cannot in good conscience reciprocate by allowing a naturalized Indian citizen of Italian origin to become the chief of the executive branch of the government.

Of course, there is a very compelling personal reason for Mrs S Maino Gandhi to not take a shot at the PM’s seat — security. Indian soldiers provide personal security to Indian leaders, not Italian soldiers. At some level deep inside, soldiers have very strong sense of nationality and duty and honor and pride and all sorts of things that make them willing to put their lives in danger for the protection of their motherland. I, as an Indian, would not trust Italian soldiers to keep their guns pointed the right way if I was to somehow get to become the prime minister of Italy.

Be that as it may, it was a pragmatic decision. A challenge in the Supreme Court of India would have been all and she would have been asked to vacate. Better to take the high road and avoid being thrown out, is my guess.

Great Job, Communists!

They are succeeding mightly in dragging India back to where it was, oh say, about 55 years ago so that they can repeat the good old days of dismal 2 to 3% “Nehru Growth rate”. The market went down the tubes and the proverbial stuff hit the big rotating blades as soon as the commies opened their mouths. One feels sorry for the impoverished hundreds of millions who would suffer down the road due to this, of course. But that sorrow is partly mitigated by the realization that to a very large extent, these include those who voted the commies into the driver’s seat. Karma is a bitter pill to swallow, eh? Anyway, for the record, I include two snippets.

Continue reading “Great Job, Communists!”