We take it as a given, almost a fact of nature like the seasons or the geography of continents, that different parts of the world enjoy different levels of prosperity. But there’s nothing “natural” about this since this is almost entirely within human control. The differences are stark, and at one end of the scale, heartbreaking. Consider the extremely rich first. Luxembourg has an annual per capita income of over $110,000, Norway over $100,000, Switzerland around $85,000. Those are small countries and outliers with perhaps little to tell us. But the US is large and has an annual per capita income of $53,000. Why is it so rich?
At the other end of the scale are Burundi and Malawi with only $200 or so annual per capita incomes. Why are they so poor? The richest countries are around 500 times richer in per capita terms than the poorest. What accounts for this inequality in incomes of countries? That question has engaged the attention of people for hundreds of years — starting with of course the great Scottish economist Adam Smith who inquired about “The Nature and Causes of the Wealth of Nations” in his famous 1776 book.
One of the Founding Fathers of the United States, polymath, inventor, scientist, writer, diplomat, etc., etc., Benjamin Franklin (1706 – 1790) observed that “We are all born ignorant, but one must work hard to remain stupid.” An analogous statement about nations could be that all nations are born poor but it requires hard work to keep it in poverty. Not surprisingly that hard work is properly done by the politicians of poor countries. What’s surprising is the evident pride they appear to take in their dismal accomplishment. They obviously revel in the fact that the country is poor and proclaim it loudly for all to marvel at. A recent statement on twitter (image below) by the official spokesperson of the Ministry of External Affairs of India, retweeted over 1500 time no doubt approvingly by Indians, brought this to mind.
In August in a post, Is the Indian Government the Greatest Enemy of India’s Prosperity?, I had quoted a WSJ piece which read in part, “Because India’s entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more were India to reduce barriers to business and clean up corruption.” I commented on that and wrote: Continue reading
Development inclusive of people in rural areas is not really distinct from development in general. Indeed it is not possible to have real development while excluding the majority of the people — the majority of Indians are rural.
Generally speaking, Indian rural populations and subsistence agriculture are almost exactly congruent notions. As long as that equation persists, India will continue to be underdeveloped and poor. The reason is that subsistence agriculture does not scale, and therefore the productivity is bounded by a very low limit.
Follow up to BJP’s Policy of “IT for All”.
In the following, I will present the features of a rational “IT Policy” and argue why it makes sense. This is only an academic exercise as this is not likely to be followed by the policymakers of India. Color me cynical but if Indian policymakers were in the habit of making rational policies, India would not be a desperately poor country, would it? Why India gets saddled with moth eaten policies made by inept policymakers is a different matter that we will save for a rainy day. But first, let’s talk IT and what it is.
In an article in the Business Line titled “Kalam’s PURA will not work,” Lee Kuan Yew makes the case for urbanization of the population for India to develop.
Markets Work, Incentives Matter
The two broadest generalizations one arrives at from a study of economics are that markets work and that incentives matter. People respond to incentives because that is at the core of what it means to be rational. To the extent that humans are rational, their behavior is predictably in the direction that existing incentives point to. Trade between humans is rational because both parties in any voluntary trade benefit. The abstract mechanism which enables trade is called the market. Markets work in the sense that they maximize the gains from trade among an arbitrary number of entities. There are other methods of enforcing trade among people, such as the command and control mechanism often employed by communist governments. But they are at a distinct disadvantage relative to the market because the latter is based on the premise that rational actors respond to incentives.