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!”

People Matter: India’s Population Problem

Time to take a look once again at the population-poverty trap.

In 1965, about 40 years ago, there were less than 500 million of us. By 2004, the population of India has more than doubled. The effect of this incredible increase has been a falling standard of living in general, shortages, untold misery and conflict. It is foolish to expect that we can provide a decent standard of living to so many in such a short time. The vast majority of us do not have adequate drinking water, sanitation, health care, education and job opportunities. The preceding statement does not even begin to indicate the amount of human misery and sorrow which it implies. It hides within it the teeming millions who suffer without the slightest hope of ever seeing a future remotely human.

But let us get back to numbers again so that we can have at least an intellectual understanding of the problem before we begin to address the real issues. The population growth rate is a convenient measure of how fast the population is increasing. For India, it is at present 2.2 percent annually. This apparently innocuous looking number has terrible consequences. It implies that the population will double in less than 30 years. By the year 2030, at the current birth rate, India would have 1700 million people, surpassing China to become the most populous nation on earth. For the present, India has an additional 16 million mouths to feed, clothe and educate every year. Even the most optimistic scenario for the future of India is daunting due to demographic momentum. To quote Paul Ehrlich of Stanford University: “Suppose, over the next thirty to thirty-five years, India’s average completed family size dropped from the 1990 level of about 4.3 to 2.4 (replacement level) and remained there, and death rates didn’t rise. India’s population would continue to grow for almost a century, and when it stopped there would be about 2 billion Indians – as many people living in that one nation as populated the entire planet in 1930!”

A HUMAN PROBLEM

The numbers above are dry statistics and we are understandably dismissive of them since they have little relevance to more pressing problems at hand. So what’s the big deal? Well, it is a human problem and we have to feel the human issues involved to really understand what the implications are. An account of a personal encounter would be in place here. I walked out of a railway station while waiting in transit not long ago. It was noon time and the road in front of the station was crowded with the mad hustle of cars, buses, cycles, scooters and people. In the middle of the road, over a narrow divider, was the sleeping form of an old woman. She lay there in her rags with her eyes closed, perhaps asleep out of sheer exhaustion, with a stick and a battered tin can near at hand, in the middle of all the noise and fumes of the traffic in the noonday heat.

So here was a human being with all the capacity for love, pain, joy, hope, caring, companionship, contemplation and all those qualities that you and I have in common with every human. Nature had invested as much in her as in any other human on earth. Yet she was just a hopeless bundle of misery existing in a void without comfort or joy. I watched with a sick feeling in my stomach that I couldn’t do anything for her. And for the millions of others in circumstances not too different from her’s. It wasn’t the first time that I had seen something like this. It wasn’t even the first time that day. I am sure that you too have felt the pain. But we have stood by helplessly and turned away finally to cope with other problems.

Perhaps everything terrible is in its deepest being
something helpless that wants help from us. — Rainer Maria Rilke

We may have unlimited compassion in our hearts but there is a limit to the sizes of our pockets. We have to shut out the dictates of our hearts to turn our attention to the urgent task of surviving. At best we dig out a few coins and hope to alleviate our conscience. The problem remains out of mind even though it is not out of sight. It is a human problem.

At another level of comprehension, it is an economic problem. The value of an entity is ruthlessly dictated by the ratio of supply and demand. We have too many people and hence each individual is valued so little. Pathetic though it is, the fact is that we have devalued human life to the point that millions continue to exist in conditions that afford little dignity and humanity and we are apparently unmoved to do anything about it.

What does this personal account have to do with the larger issue that I was discussing above? Pretty much everything, really, if you care to think about it. When I hear, for example, that so many millions of people live in dire poverty, I don’t really understand what it means. To fully understand it I would have to have the empathy to feel how it is like to be in that old woman’s place. Then to take that painful existence and multiply it a million fold (an impossible task, surely) and then I may have a hint of how much suffering is implied by that statement.

Well, you may say, all this thing about compassion and human pain is a lot of sentimental hogwash and doesn’t really concern you overly. But what if all this has an impact on you, your future and your children? Would you be concerned then? More about this later.

Cargo Cult and Democracy

There is an interesting anthropological curiosity which arose amongst the islands in the South Pacific after the Second World War. It is known as the Cargo Cult. I first came across it in Marvin Harris’s book Cows, Pigs, Wars & Witches many years ago. (By the by, I highly recommend Harris’s book OUR KIND: Who we are, Where we came from & Where are we going — Evolution of Human Life & Culture.)

The islanders had noticed that Europeans had some sort of powerful magic which allowed them to receive stuff from the heavens. The islanders decided that they too must make arrangements to receive stuff. So they faithfully reproduced the artifacts that they saw the Europeans use in magically making cargo appear out of the skies. They cleared a large area in the forest, lit bonfires around this, built a hut close by in which they put a box with antennae sticking out of it, made ‘headphones’ out of coconut shells, and spoke earnestly into a ‘microphone’. Then they waited for cargo to drop out of the skies, just as they had seen the Europeans receive during the war.

It is a fascinating tale and has wide-ranging implications. The islanders were not stupid, merely ignorant. They figured out what we could call the ‘front end’ of the whole enterprise. They did not know that there was a very deep backend to the deal. In their ignorance, they expected a facsimile to work and when it didn’t, they attempted to modify the front end to more accurately reflect the bits they had observed the Europeans use.

The cargo cult is an amazingly important metaphor for our age. Technology is increasingly becoming more complex and the effective use of this complex technology confers immense advantage. However, the more complex the technology, the more its use is dependent on a complex ecology within which it is developed. Transplanting the technology without the supporting ecology is a waste because it does not work as advertised. The technology — whether it is hardware, software, all sorts of institutions — co-evolved with other bits that form an ecological whole which make the whole system function whereas any subsystem in isolation will not work.

Let’s take an institution such as capitalism, for example. Hernando DeSoto in his book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else outlines the missing bits in the case of capitalism. Another example: why did the shift to a market economy spell disaster for the former Soviet Union. A market economy has a very deep backend. That backend includes institutions such as the legal system which enforces contracts, a flexible labor market, a number of banking and financial intermediation institutions, and so on. Without the supporting institutions, the market institution is a non-starter. It is merely a cargo cult market economy.

In the area of digital technology also, we see the cargo cult mentality. The modern computer evolved in advanced industrialized countries (AIC). AICs have other systems that support the use of computers and these systems also evolved to keep pace with the rapid evolution of computers. Transplanting computers to a place where these systems don’t exist is silly because the computers are then like the props used by the South Pacific islanders. It is no wonder that they don’t work as advertised.

My final example of the cargo cult metaphor is the institution called democracy. Voting every so often to elect representatives that sit in a great big hall to decide matters of national importance is the front end. The deep backend requires an informed public at a minimum. Even under the best of circumstances, aggregating individual preferences is a risky venture as students of public choice theory will appreciate. (See Ken Arrow’s Impossibility Theorem.)

In the case of India, we have a cargo cult democracy. It looks like one with electronic voting machines and election speeches and manifestos, with pollsters and pundits, with election commissioners and voting stations. Only the deep backend is missing. There is no understanding of issues of substance among the people who vote. Put up a name which is recognizable, and they would vote for or against that name. Promise enough freebies (free electricity, for instance) and they will vote for you, never mind that it may bankrupt the state and that eventually it will impoverish the same voting public. For democracy to work, you need accountability — both among those who vote and those who are elected. In an area where the government is seen as a source for endless handouts by the people, and the leaders look upon their stint in the driving seat as an excellent opportunity to steal from the public, democracy is not likely to work. All the talk about the smart voter is so much hogwash that the mind boggles.

The Indian stock market is crashing. People are voting with their pocketbooks and sending an important signal. The signal, as I see it, is that the Indian economy is spinning around in the bowl and will soon be down the tubes as soon as the flush cycle finishes.

It is all karma, neh?

Wrong again, Mr. President of the US of A

There’s a lot of people in the world who don’t believe that people whose skin color may not be the same as ours can be free and self-govern. I reject that. I reject that strongly… I believe that people whose skins aren’t necessarily — are a different color than white can self-govern. [Source]

The above, in case you haven’t figured it out, is the ever articulate President of the United States of America.
Continue reading “Wrong again, Mr. President of the US of A”

The AP results are in: Chandrababu Naidu is out

Andhra Pradesh (AP) election results are in and Chandrababu Naidu is out. He was an unusual CM. He wanted to make Hyderabad into a Singapore, and make AP a shining state. From what I hear, it appears that his stress was on the use of hi-tech for bringing about transformation. I am not too informed about what the game plan was but it appears that the common person did not obviously share his vision and they voted him out. Perhaps he fancied himself to be a Lee Kwon Yew and did not realize that unlike the Singaporean dictator, he had to seek a mandate from the masses. The masses are more interested in the short-run rather than the long-run.

Continue reading “The AP results are in: Chandrababu Naidu is out”

Politically Incorrect: India’s Corrupt Voters

I am never quite sure why people insist that the Indian democracy is so great. To me it appears to be the greatest curse imposed on India from up on high. It is totally politically (sic) incorrect to take this view, of course. But I don’t apologize for believing so and I am convinced that the Indian voter is corrupt.

Rajesh Jain’s blog has an item on lessons from India’s elections which got me thinking. The claim made by Shekhar Gupta of the Indian Express is that India’s voter has become smart.

Compared to whom? I ask. Compared to Shekhar Gupta?

I guess so since Shekhar Gupta claims that the Indian voter has become smart. For I don’t see any reason to believe that the Indian voter has changed in any substantial way. The Indian voter continues to be a narrow-minded, ignorant, casteist, bigoted, vacuous idiot it has always been.

Here is my reasoning.

  • Exhibit A: I look at the politicians of this country. To a first approximation, they are ignorant, bigoted, casteist, vacuous idiotic criminals. These bunch of unspeakable criminals (where I use the word in its literal sense) are consistently voted into power by the Indian voter.
  • Fact B: A population of wise, informed, well-meaning, broad-minded, intelligent voters cannot continue to vote a bunch of corrupt ignorant bigots as their political leaders.
  • Major Premise C: Voters reveal their character by expressing their preferences at the polls.
  • Minor Premise D: Leaders are endogenous to the group, that is, they emerge from within the group and so reflect the dominant traits of the group.

Mr Gupta writes that the voter is not swayed by charisma. Well, how would we know? We need charismatic people first and then if the voter is unmoved, we can say that it is true.

We do know that the Indian voter is swayed by “big names”, though. Why else would they trot out an uneducated chap (Rahul Gandhi) as the Congress mascot unless they were confident that the Indian voter will be swayed?

What else explains the tenacity with which the entire Nehru-Gandhi clan is totally into getting into the highest political positions? By their indomitable courage? No. Their astonishing brilliance in academics? None are really even educated. Their thorough understanding of the problems of development? Never done an honest day’s work. Their undying dedication to the hard task of nation building? Shirley, you jest. Their selfless sacrifice demonstrated by their social work? Not a bloody chance in hell.

What then explains the astonishing idiocy of the Indian voter to continue to vote the Nehru-Gandhi clan to power?

Let’s face the facts. I would have loved to report that we are a great democracy. We are not. If we were, we would not be facing the prospect of having an Italian aupair as the prime minister of a country of 1000 000 000 people. She says that she is loyal to her adopted country (never mind that she did not apply for Indian citizen for over a decade). Well, I would ask her whether she has any loyalty to the country that she was born in. No? If a person has no loyalty towards the land of one’s birth, I would not pay a tinker’s damn to any other oath of loyalty that the person takes. If you change your allegiance once, it is all too easy to do it once again. Indians who don’t understand that simple concept are idiots and I don’t care how accomplished they may be in their respective fields. If an Indian says that Sonia’s origin is not an issue for the prime minister’s seat, I would say that Indian is a moron.

I have met only a handful of politicians personally. I have known some of them well and all of them — every one of them to the last person — has accumulated vast sums of money through bribery and corruption. It is a random sample. I have no doubt that the vast majority of Indian politicians are corrupt. Politicians are endogenous to the population. They are random samples drawn from the underlying population. In other words, the sample characteristics give an indication of the population characteristics. The corruption of the politicians is the single most damning evidence that the voters are corrupt.

That is the law.

Liberation and Development — Part II

Last week on May 3rd, I began discussing Liberation and Development which I will continue now. I had written that

I will further argue that it is possible to bootstrap the process of development but only if resources are used efficiently and if problems are solved by addressing causes rather than by alleviating superficial effects.

The point I was making is that energy, credit, and knowledge are the basic ingredients for economic production. Economic production is a pre-requisite for development. Efficient use of the three basic ingredients is important. I had also taken a more generalized view of credit where I considered the stock of capital available to an economy as form of credit. It is intergenerational credit because the present generation can use the capital stock created by the previous generations. The capital stock is represented by the machines, buildings, transportation systems, etc. The source of the capital stock is investment which itself the flip side of a flow of savings. Savings in any period is the difference between production and consumption of that period. Finally, efficient use of savings translates into capital stock via through the investment route.

Does efficiency in the use of savings matter? The chairman of the US Federal Reserve Board Mr Alan Greenspan believes it does. At a conference in Chicago on May 6th, in his speech Globalization and Innovation, Greenspan said:

Although saving is a necessary condition for financing the capital investment required to engender productivity, it is not a sufficient condition. The very high saving rates of the Soviet Union, of China, and of India in earlier decades, often did not foster significant productivity growth in those countries. Saving squandered in financing inefficient technologies does not advance living standards.

Volumes can be written in merely outlining how inefficiently India uses its savings. There has to be a reason for why an economy which has a high savings rate cannot translate those savings into higher production through the intermediate steps of investment, capital stock growth, and higher productivity. One of the primary reasons could be the missing complementary ingredient which is knowledge or know-how. Our savings rate is high but savings are low because our incomes are so low. A poor person with a Rs 1000 income and 20% savings rate will only be able to save Rs 200. Compare that to a rich person with a savings rate of 5% but an income of Rs 10,000, saving Rs 500. Furthermore, the rich person is likely to have better investment advice and therefore be able to mobilize his savings better than the poor person.

In other words, when it comes to savings and what to do with them, we are caught in a classic bind which is exemplified by the lament garibi mein aataa geelaa. I cannot quite translate it accurately but it goes like this: Too much water in the dough has made it unusable; but one is so poor that one cannot afford any more flour to correct the imbalance; thus whatever little one had is also wasted. The caution therefore is that when one is poor, one cannot afford not to be careful about how to use the resources one has. How much water to add to a given amount of flour is a decision taken by policy makers who may or may not be sufficiently knowledgeable about cooking. If at the end of the day, all you have is a lump of useless runny dough, you know that the policy makers have messed up. That is what has happened in the case of India. For decades, absolute morons ruled the country whose idiotic economic policy led to the disaster we see around us today.

The economy is being freed after decades of mismanagement and misrule. But even now, we are definitely not out of the woods. Whether it is telecommunications policy or education policy: the idiots continue to pour too much water in the too little flour we have. I would like to look into the telecommunications policy tomorrow.

On the Birth Anniversary of the Buddha

Yesterday was the anniversary of the birth of one whose concern was with enlightenment and awakening. I wrote a small piece on my personal weblog at UC Berkeley to mark that occassion.