The Rationality of Underdevelopment

Dorothy L Sayers took a rational view of the world and stressed the causal nature of the universe. She wrote:

War is a judgement that overtakes societies when they have been living upon ideas that conflict too violently with the laws governing the universe…Never think that wars are irrational catastrophes: they happen when wrong ways of thinking and living bring about intolerable situations.

It is important to understand the nature of war — that it is a rational response to intolerable situations which have been brought about by wrong ways of thinking and living. Please bear with me for dwelling on that quote.
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Please Visit India in 2020

This is from the NOT A VERY BRIGHT IDEA Department. Mr. Ram Narayanan sent out an email reporting that a US Congressional delegation was going to visit India. Quote:

Congressman Crowley said, “…With over 300 million citizens considered middle class and with a burgeoning economy and geo-political role, strengthening US-India relations is more important now than ever for trade and security. I commend the Confederation of Indian Industries for putting together this exceptional program to give the delegation a well rounded overview of the political, economic and cultural vitality of India.”

Congressman Crowley’s delegation includes Congressman Steve Israel (NY), Congresswoman Carolyn McCarthy (NY), Congresswoman Denise Majette (GA), Congressman Jim Marshall (GA), Congresswoman Barbara Lee (CA), Congressman Anthony Weiner (NY), and Congresswoman Linda Sanchez (CA). Congressman Gregory Meeks (NY) will join the delegation in Mumbai. Except for Congressman Crowley, no other member of the delegation has previously visited India.

None except Crowley has ever been to India?

The last thing one should do to people who are favorably inclined towards India (from news reports and such like) is to bring them to India. The disillusionment cannot be but a total reversal of opinion.

If all I knew about India was from hyped-up news reports that claim that India is an IT superpower, from pictures of the Taj Mahal, pictures of regal Royal Bengal tigers, pictures of pretty village women dressed in colorful ghagras carrying shiny pots on their heads, and other such advertizing copy, it would be a total shock for me to arrive at any of the international airports and find that it is so dilapidated that it beggars imagination, and from then on, it would be a downhill run when I see the unimaginable crowds and abject poverty amidst the filthy rich of any city of India.

I think the best thing for friends of India is to stay as far away from India as possible and to use their time reading the articles by President Kalam and other visionaries. I recommend they put off their visits till — shall we say — 2020.

The Land Grant Colleges and Universities of the US

The development of an economy is a natural consequence of the shift of labor from agriculture to manufacturing, and subsequently from manufacturing to services. Note that the shift refers to the labor; agriculture has to go on still but with fewer people.
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We are Made of Stuff

… We are such stuff
As dreams are made on; and our little life
Is rounded with a sleep.

Shakespeare’s The Tempest

Writing in the Dec 28th, 2003 edition of The Week, President Kalam says, “In the 21st century, knowledge is the primary production resource instead of capital or labour.”

I have been unable to fully comprehend that insight, fundamentally because it does not make any sense. Sounds profound but makes no sense. What is a ‘primary production resource‘? Did Kalam imply that once upon a time capital and labor were primary production resources but knowledge wasn’t? What changed so that labor and capital got displaced and now knowledge holds that position?
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Panchayat Raj

The anniversary special of the newsmagazine The Week of Dec 28th, 2003 has lots of stories of the warm and fuzzy feeling variety. I went through the breathless prose of a large number of luminaries in it, including that of President Kalam’s. What especially caught my eye was an article in the section BestofTheWeek2003 section from their Jan 26th issue — the Republic Day issue — titled simply SOLD.

The story was about panchayats in rural India, specifically about women being ‘fined, humiliated, and sold to the highest bidder.’ It is chilling reading and here are some lines from that article.

… Devaki Bai, 30, had been sold to another man for Rs 5,000 … Women were auctioned during Panchganga, a panchayat held to hear matters of dispute … Women were asked to lower their saris and stand with stones on their heads. Continue reading “Panchayat Raj”

Dutch Disease Disturbing the Universe

Do I dare
Disturb the universe?

The Law of Unintended Consequences is pretty well known, I suppose. It is part of a more general law which I call the Zeroth Law of Ecology which says that you can never really do only one thing. That is, you want to do only A and instead you find that you have also done B and C, both of which you had no inclination to do. This is because the universe is complex and all its parts are interlinked and so when you do something to one bit of the universe, you end up disturbing the whole universe.

There must be many reasons why we cannot see all the connections. There may be ignorance, willful or otherwise, for instance. Or it could be that we are not omniscient. But, I believe, it is mostly due to what is called our bounded rationality, that is we are not clever enough to think through all the complexities of the universe.

I find paradoxical stuff fascinating. A paradox is puzzling only as long as you have not figured out the full story. Counter-intuitive stuff also give me thrills. Take, for instance, the observation that many people who win lotteries end up being not lucky after all. A good many of these lucky winners end up broke and sometimes worse off than they were before they got the windfall. It is like a winner’s curse with vengeance.

These unlucky lottery winners seem to be having a sort of their own personal DUTCH DISEASE. What is the Dutch disease and how can I avoid catching it? you ask. I will tell you. Here is what I found on the web (I have lost the link, unfortunately):

In 1959 a large reservoir of natural gas was discovered in the Netherlands, which by 1976 earned that country revenues of some $2 billion in addition to an estimated $3.5 billion of savings in imports. By the mid 1970s, gross corporate investment had fallen by 15% since the start of the decade, while employment in manufacturing had declined by 16%. The total level of unemployment had risen from a modest 1.1% to 5.1%, while the share of profits in national income which had averaged 16.8% in the 1960s had fallen to 3.5% in the first half of the 1970s. While the first oil crisis had a devastating effect on most of the western industrial base, why did The Netherlands, with its new-found fortune in natural gas, fare worse than most?

This process of de-industrialisation of the existing manufacturing base was attributed to the upward pressure that the energy discovery placed on the Guilder and the wage rate, and was dubbed the Dutch Disease. Since then, the term’s use has widened considerably to encompass any situation whereby a country’s apparent good economic fortune ultimately proves to have a net detrimental effect.

So where am I going with all this, you ask. Is there a Dutch disease lurking in India’s future? That question has been bothering me. Here is what I mean. I will present only the outlines of my concern and if there is sufficient interest, I will expand on the issue.

India is a two-sector economy: the urban educated sector and the rural uneducated sector. The latter forms the base of the huge pyramid and toils away at a subsistence existence. The urban sector is seeing a boom what with BPO and ITES and all sorts of stuff. Policy makers, politicians, journalists, management gurus, TV reporters, and everyone and his brother are totally wrapped up in this incredible phenomenon. India, they all scream, has arrived. Having convinced themselves of that, they focus entirely on that part of the urban sector that is involved in the boom. This leads to a shocking neglect of the larger rural sector. Then when the boom runs out of steam, the country is worse off than what it would have been without the boom at all.

This is Dr. Atanu “Dooms” Dey signing off for now.

ADLI: A Lesson from the Age of Industrialization

The transition from an agrarian to an industrial society was the great challenge that faced economies before. Much attention was paid on ways to make the transition. Of the various models of development (such as export-led growth, import-substitution industrialization, and others) used it is instructive to recall one called agricultural development led industrialization, or ADLI.

ADLI recognized that cost-reducing technological change increased agricultural productivity and therefore increased rural incomes. Increased rural incomes provided a demand boost for manufactured goods both for consumption as well as for use in agricultural production. The increased demand for domestically manufactured goods raised wages which in turn were spent on the consumption of agricultural output. On the labor side of the market, as agricultural productivity increased, labor shifted from the agricultural sector to the manufacturing sector. Thus the industrialization of the population was achieved at pace with the labor transition and was based on increased agricultural productivity attained through the use of appropriate technology.

The lesson from the ADLI model is directly relevant to the question of ICT production and use in the economic growth strategy of a large country such as India. The ICT sector in India is very small compared to the rest of the economy, as in any other developing country. While IT exports will only lead to direct gains only for the IT sector, far more gains can be realized through the use of IT in the non-ICT sector and through the production of IT for domestic consumption. The use of IT in the non-IT sector will increase productivity leading to higher incomes and greater demand for consumption goods which will increase employment, and so on.