The Tathagata’s Sermon on Economics

Thus have I heard, that once when the The Blessed One, the Tathagata, was resting in Rajagriha during the season of rains, he carefully pondered the economic truths. Among those assembled were Shariputra, the son of a noble family, and Avalokiteshwara, the Bodhisattva Mahasattva, the Buddha of Infinite Compassion, and lots of monks too numerous to name here.

Shariputra asked The Blessed One, “What is the chief lesson that one can learn from a careful study of economics?”
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The Care and Feeding of the Permanent Arms Industry

Don’t let me stop your great self-destruction.
Die if you want to, you misguided martyr.
I wash my hands of your demolition.
Die if you want to, you innocent puppet!
————– Pilate to Jesus at the trial in Jesus Christ Superstar.

Fact: A permanent arms industry requires perpetual wars for its sustenance.

Fact: The most advanced industrialized economies have the most high-tech industries.

Fact: The arms industry is one of the most intensively high-tech industries.

Final fact: The US has the most sophisticated high-tech armaments industry.
Continue reading “The Care and Feeding of the Permanent Arms Industry”

The Trick is not to Mind the Pain

I came across this quote in Myke’s weblog.
T.E Lawrence wrote in the Seven Pillars of Wisdom:

All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity; but the dreamers of the day are dangerous men, for they may act their dream with open eyes, to make it possible.

I recall a scene from the movie “Lawrence of Arabia” where Lawrence puts out a burning matchstick with his bare fingers. Someone tries to immitate him and burns his fingers and asks Lawrence what is the trick. Lawrence replies, “The trick is not to mind the pain.”

The Price of a Revolution


The recently concluded elections in the US gives credence to
what H. L. Menken (1880-1956) predicted when he wrote:


“As democracy is perfected, the office of president represents,
more and more closely, the inner soul of the people. On some great and
glorious day the plain folks of the land will reach their heart’s
desire at last and the White House will be adorned by a downright
moron.”


There is much truth in the saying that a country deserves the
government it gets. It is a chilling realization that India is
not exempt from that general rule and we somehow deserve the
inept government we have had since the country became independent
in 1947. The collorary to the generalization must be that a
change in the quality of government can only come about as a
consequence to an improvement in the quality of the soul of
the people of India.


Fundamental change — whether in an individual or in a people —
is extremely hard. It is sometimes triggered by some external
event, mostly of a negative nature. Only when an individual is
confronted with the dire consequences of his past mistakes does
sufficient momentum for change accumulates and he makes a break
with his past. Wars and other catastrophes, natural or otherwise,
transform societies, and are called revolutions.


If you want to have a revolution, be prepared to pay the price
of a catastrophe.

Corruption and Economic Development: A Reference


Yesterday I claimed that
India is the world’s largest kleptocracy somewhat along
the lines of the claim usually made about India being the
world’s largest democracy (if you use a really flexible
definition of democracy, of course.) One reader, Sudhar, wanted
to know exactly how is it that corruption retards economic
growth. It is a very important question. I could spend a whole
day writing about that but being bone lazy, I am taking the
easy way out of giving you a reference. Why re-invent the wheel,
eh?


So the article you may wish to read is
from the Whirled World Bank
by Paulo Mauro:
Corruption: Causes, Consequences, and Agenda for Further Research.
To quote just a couple of paragraphs:

From economic theory, one would expect corruption to reduce economic growth by lowering incentives to invest (for both domestic and foreign entrepreneurs). In cases where entrepreneurs are asked for bribes before enterprises can be started, or corrupt officials later request shares in the proceeds of their investments, corruption acts as a tax, though one of a particularly pernicious nature, given the need for secrecy and the uncertainty as to whether bribe takers will live up to their part of the bargain. Corruption could also be expected to reduce growth by lowering the quality of public infrastructure and services, decreasing tax revenue, causing talented people to engage in rent-seeking rather than productive activities, and distorting the composition of government expenditure (discussed below). At the same time, there are some theoretical counterarguments. For example, it has been suggested that government employees who are allowed to exact bribes might work harder and that corruption might help entrepreneurs get around bureaucratic impediments.


One specific channel through which corruption may harm economic performance is by distorting the composition of government expenditure. Corrupt politicians may be expected to spend more public resources on those items on which it is easier to exact large bribes and keep them secret–for example, items produced in markets where the degree of competition is low and items whose value is difficult to monitor. Corrupt politicians might therefore be more inclined to spend on fighter aircraft and large-scale investment projects than on textbooks and teachers’ salaries, even though the latter may promote economic growth to a greater extent than the former.


It is a very accessible article and one does not have to be a
genuine economist to gain considerable insight from it.

India, the World’s Largest Kleptocracy

My brother came to visit me at our offices in Lower Parel in Mumbai this afternoon. He was duly impressed by the spanking new buildings that occupy what used to be Morajee Mills land. I guess I can understand why he was impressed because usually he ends up in seedy run-down offices trying to do business. He has a bunch of dealerships for equipment and materials required for large-scale public sector enterprises. As part of his business, he has to visit the offices of his customers who are housed in crumbling offices because state-owned loss-making enterprises are severly resource constrained and cannot afford nice premises.
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India and Utility Computing

Stand-alone computing a la PCs delivering “services” is fine for those who can afford that luxury, but is definitely a show-stopper for those who have very little disposable income and yet can make use of those services that PCs deliver. I remind myself repeatedly that people do not want a PC — what they actually want are the services that a PC delivers. As long as we focus on the fact that it is services — and not the hardware nor the software — that matter to people, we will not end up putting the cart before the horse. So if a firm were to deliver those set of services at an affordable price, it is immaterial to the consumer whether the consumer (of those services) uses a PC or some other device. Continue reading “India and Utility Computing”

You might be a third world country if …

Indian roads reflect the amazing diversity that is India, a mix of the modern and the ancient. It is as if a cross-section of the entire history of transportation were displayed for all to marvel at. A huge mass of humanity using every conceivable mode of transportation — from no-wheelers to two-wheelers (powered and otherwise) to three-wheelers to four-wheelers to sixteen-wheelers — moves along at varying speeds on what apparently are roads. I say moves but at times the whole mass merely sits there for hours. That is what happened during one stage of my journey from Mumbai to Pune last week.
Continue reading “You might be a third world country if …”

A Path with a Heart

Many years ago, while in high school, I had read a bunch of books by Carlos Castaneda about the Yaqui shaman don Juan. Later on in the US, I learnt that Castaneda’s claim that don Juan was a real person was questioned and most likely he made up the shaman. In short, his books were not an anthropological study but fiction. In any case, what the books presented was an alternate reality which was accessible through magic and psychoactive drugs. I am wary of all claims of magic. I do believe that the world is magical but I don’t believe that magic is a sufficient explanation of the world. Keeping the caution that one should not throw out the baby with the bath water, the don Juan’s advice is worth remembering. Hence the following bit.
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The Poor as a Fertile Source of Slave Labor

I have never been able to shake off the conviction that there must be a very good economic reason for why there are so many poor people around the world. You may say that I am crazy to connect what apparently are totally distinct facts about the world but bear with me for a bit while I lay out my argument.

I argue that the large pool of poor people serve as a reservoir of extremely cheap labor which helps the rich. The rich have control and are powerful. They could choose to bring about the end of poverty. But they don’t because absent grinding poverty, the cheap labor will dry up and lead to less favorable outcomes for the rich and powerful. I hasten to add that the rich and the powerful cannot be distinguished by the color of their skin, racial origin, or nationality. The rich and the powerful exist in rich and poor countries alike. Their interests are aligned irrespective of which part of the world they live in.

Thus the rich in India would advocate policies that will ensure that the reservoir of poor Indians never run dry. Empirical evidence is plenty. There were only about 150 million abjectly poor people in India around 1950. Today, about 50 years later, India has about 300 million abjectly poor people. Mind you, this is after implementing every conceivable form of “pro-poor” policies. Not a single policy maker would ever claim that their policies were anti-poor. They all are for the benefit of the poor. And yet, the numbers of the poor continually increase. I claim that the policies are “more-poor” rather than “pro-poor”.

One such policy now making the rounds is the so-called “Employment Guarantee Scheme” which I mentioned here last time. In my considered opinion, this would raise the level of poverty in India and increase the number of poor. How this will come about, I will address later. For now, I will move to the utility of the poor. They are good for slave labor.

Slavery is an ancient institution. Mention slavery and you conjure up images of Africa. In the past, Africa paid the price and the benefits went to Europeans, both in the Old World as well as the New World. The rich and powerful, both in Africa and in Europe (and their American colonies), gained immensely. Let’s not forget that African slavery was not an entirely European-driven phenomenon. Africans were involved in it as much as anyone else. Africans managed the supply-side while Europeans the demand-side.

For guns and other European manufactures, powerful Africans would conduct raiding parties with guns and cavalry. Here is a heart-breaking account by James Richardson writing about it around 1850:

A cry was raised early this morning: “The Sarkee is coming!” … It turned out that a string of captives, fruits of the razzia, was coming in. There cannot be in the world … a more appalling spectacle than this. My head swam as I gazed. A single horseman rode first … and the wretched captives followed him as if they had been used to this condition all their lives. Here were naked little boys, running alone, perhaps thinking themselves upon a holiday; near at hand dragged mothers with babes at their breasts; girls of various ages, some almost ripened into womanhood, others still infantile; old men bent two-double with age, their trembling chins verging towards the ground, their poor old heads covered with white wool; aged women tottering along, leaning upon long staffs, mere living skeletons … then followed the stout young men, ironed neck to neck! This was the first installment of the black bullion of Central Africa; and as the wretched procession huddled through the gateways … the creditors of the Sarkee looked gloatingly on through lazy eyes, and calculated on speedy payment.

Only humans are capable of inhumanity. It is part of human nature and I don’t think that it can be eradicated. It takes different forms and shapes depending on the fashion of the era and the compulsions of the age. The compulsions range from monotheistic madness (the Crusades, the Islamic hordes destroying peaceful non-Muslims) to nationalism (the Nazis slaughtering Jews, the Americans carpet-bombing countries, the Belgians killing millions in the Congo, the Pakistani army slaughtering between 3 and 6 million other Pakistanis, … the list goes on) to natural resources (too many to mention but Iraq is the lastest example.)

{To be concluded tomorrow.}