What I Believe

It is easy to defend the view that resource scarcity is a crucial causal factor in most conflicts. And since scarcity of resources increases with increasing populations, a greater balance between resources and population numbers could reduce strife.

I see the result of extreme imbalance between resources and populations every day in Mumbai. People lose their dignity in the face of dehumanizing poverty. I have also seen the other extreme — of affluence. I have lived in the US for over a couple of decades and witnessed their profligate over-consumption which is also unsustainable. Somewhere between the thoughtless affluence of the few and the de-humanizing poverty of the many, is the middle-path of sustainable development of all humanity. The problems of our system are easy to see and are stated easily enough though they are hard to solve.

Although I am not a religious person in the traditional sense of the word, I hold some things sacred. I believe that life in the universe is the most profound mystery second only to the mystery of why something, rather than nothing, exists. And that mystery of life is deserving of our most profound respect and wonder. Preservation of all life on Earth, therefore, is the most sacred of duties. Not just preservation but to see that it flourishes in all its infinite variety and diversity. I believe it is a moral imperative that every human being born to this life should have the opportunity to live a life of dignity, purpose, and meaning. Living in harmony with nature and with other fellow life on earth is axiomatic to a good life.

My interests lie in the interaction between the environment, the world economic order and humanity. I have spent some time thinking about growth, development, sustainability and the environment. I recognize that there is a distinction between growth and development. The natural evolution of any system in the initial stages requires growth but that there is a natural limit to the growth past that stage. Development could go on without limits at all stages without it being linked to growth. I feel that if in a system growth is a necessary condition for its continued development, then the development of that system is unsustainable due to the limits to growth in a world of finite resources. How to develop without growing is one of the greatest challenges that faces India.

We need to understand the meaning of progress, what its implications are with respect to the impact on the ecological systems we inhabit and what are the limits to growth: of populations, of the economic system’s physical throughput and other related factors.

Education as the linchpin

Rajesh Jain is continuing on his series of posts on As India Develops. His focus is on education and it set me thinking.

India is a land of opportunities. By that I mean, that we have so much to accomplish, so much to get done, so much has been neglected for so long, that everywhere we look, we find things that need to be done. There is a veritable surfeit of opportunities and one has a hard time figuring out where to begin. The whole set of opportunities is overwhelming. More so because we have severe resource limitations. So much to do, and so little to do it with. Consequently, one has to prioritize the tasks. To my mind, one issue wins hands down when it comes to priority. It is education.
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A Set of Hard Problems — Part 2

An attitude to life which seeks fulfillment in the single-minded pursuit of wealth –in short, materialism– does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited.
E. F. Schumacher in Small is Beautiful

THE ETHICS OF POLICY

Economist Thomas Schelling defined the ethics of policy ‘as what we try to bring to bear on those issues in which we do not have a personal stake.’ It can be convincingly argued that there are no issues in which we do not have a personal stake. Every action in an interdependent global system has far-reaching consequences. My desire for cheap hamburgers could translate however indirectly to rainforest destruction.

One has to grapple with the notion of social obligations and what we owe to the poor and the disadvantaged who have legitimate claim to the resources that are required for a decent human existence.

Continue reading “A Set of Hard Problems — Part 2”

Biodiesel

An email exchange with Reuben got me thinking about biodiesel. I wrote saying:

I am not sure what ‘biodiesel’ is. I am assuming that it is some sort of oil that is extracted from some plant that is grown for the purpose and which oil can be used to fuel a diesel engine.
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As India Develops

Rajesh Jain on his Emergic weblog has been writing a series of articles called As India Develops.

In these set of articles, he traverses a wide range of topics and lays out a road map for India’s development. (Disclaimer: I am necessarily biased in favor of his point of view because of two reasons. First, he quotes from my writings. And, second, he is my business partner.)

Also of interest is his series he calls Tutorials on Development. There are four of them, the first of which is here.

India’s Shining New Clothes

Of course India is shining. Just ask the guy who is raking in the stuff from his BPO company. Or ask the those who are buying all the electronic gizmos from the mega stores in the mega cities. India, defined strictly as those people at the top of the heap who make a shining living because the supply of people at the bottom of the heap is so abundant that they work for next to nothing, is shining and how.
Continue reading “India’s Shining New Clothes”

Destroying the Country from Within

This is a rant. Displaying equanimity in the face of adversity is an admirable quality. I am afraid that there are times when one has to give vent to one’s true feelings and come out openly and call a steaming pile of excrement a steaming pile of excrement without mincing words. I am refering to the recent Supreme Court decision to support the reduction of fees for the IIMs from Rs 1.5 lakhs to Rs 30,000.

Today’s Times of India editorial calls it a senseless subsidy. {In the original draft, I had expressed my opinion of the Supreme Court in blunt language. A friend called up to say that in India one is liable to be thrown in jail for doing so since it a non-bailable offense. It seems that one cannot freely express one’s opinion of the President of India and the judges of the Supreme Court. I don’t know for sure but this must be the legacy of the British — royalty being above criticism. Be that as it may, I am removing the honest criticism from here and publishing it elsewhere where one can freely express one’s opinion.}

India is poor by choice. The policy of subsidizing higher education and neglecting primary education is one such policy choice that has condemned India to being a poor third-world irrelevant nation which has the highest number of impoverished illiterates in the universe.

We are poor by choice. We don’t need adverse external shocks to keep us illiterate and poor; India’s leaders and its courts will do the job of keeping India a chronically ailing over-populated collective of starving illiterates without any help from abroad.

The importance of primary education cannot be overstated — ever. No amount of India Shining campaigns can paper over the fact that India is doomed unless it focuses on primary education. I have been writing about the shocking neglect of primary education and the regressive subsidy of higher education for years. (See Who Paid for my Education? for instance.) It is not rocket science. A moment’s reflection is all that it takes for one to realize the importance of primary education. Allow me to quote from Venkatesh Hariharan in a recent exchange at the India-gii mailing list:

… How can India be shining when we have [an education] minister who doesn’t care a damn for the pathetic lack of a primary education? The man is, instead, taking a sledgehammer and applying it diligently to what are the crown jewels of India–the IITs and IIMs. Our current success is IT is just a “flash in the pan,” whatever NASSCOM may say. We happened to be in the right place at the right time when the IT and BPO booms happened but to sustain it we need more than luck. In the knowledge economy, our lack of a primary education system is a serious handicap.

Many years ago, I met with MIT’s noted economist, Lester Thurow and he said that India’s lack of a primary education system was one of its biggest handicaps. I recently met him again for an extended interview that appeared in MIT’s Technology Review. Here are some excerpts from the interview:

  1. In the knowledge economy, Thurow says, countries that wish to stay ahead must pay great attention to education. “Ask yourselves this question–30 or 50 years from now what job will an illiterate do? By that time you will have robots to do what an illiterate does now.”
  2. “When we talk about the knowledge economy, we are not talking about just information technology or programming,” says Thurow. “Every job will have a big knowledge component. For example, in a modern steel mill, a worker is more likely to sit behind a computer screen than lift anything physically. When we are talking about knowledge workers, we are talking about any job that has a knowledge component.” Fewer and fewer jobs fall outside of that description, he says. Countries that aim to progress in the global economy therefore have to ensure that everybody becomes literate as fast as possible.
  3. According to Thurow, the lack of widespread, basic education is one of the reasons that India has problems competing with China. “The worst educated province in China is better than the best educated province in India. Indian universities are better than Chinese universities but more people are in Chinese grade schools than are in Indian grade schools. This will hurt India and you cannot allow this to continue in the long-run. You have a top-down strategy versus the bottom-up strategy that China has. You better have a strategy that gets everybody educated,” he says.He praised China’s approach of getting everybody educated up to the third grade, then to the sixth grade, tenth grade, twelfth grade and so on. Globalization strategies have to carry the masses with it or they would not succeed. A knowledge based economy is not one where only the elite get educated, he says.

Our education system, our national IT strategies are all deeply elitist. As a country, we need to broadbase our education system and leverage IT for the dispersion of knowledge. Instead, what we have are crumbling schools, absent (and often underpaid) teachers, and students who will emerge completely unprepared for the kowledge economy. And what we have is a thin elite layer that is happily using IT as a milch cow that showers dollars and pays scant attention to how it can be deployed for our country’s benefit. India shining? Not unless you are smoking pot!

When one ponders the factors that account for India’s backwardness, one is struck by how significant is the role of luck. It is sheer bad luck that India got saddled with mostly self-serving ignorant power-hungry narrow-minded short-sighted bunch of leaders and policy makers. How long it will be before the billion plus people of India find within them enlightened leaders is hard to tell. If ever there was a time for good leadership to emerge, now it is.

[I have written earlier on Pricing Management Education in this blog which looks at the arithmetic of subsidizing IIM education.]

Hasty Outsourcing Tales

Yesterday, it felt as if everyone and his mother was emailing me an op-ed in the New York Times by Thomas Friedman titled
What Goes Around …. I am sure that you have read it.

A nice chatty piece as usual from Tom. He argues against putting up protectionist walls with folk wisdom as his major tool. The bit of folk wisdom which goes what goes around, comes around. It boils down to argument by anecdotes, really.

Argument by anecdotes is great expect for the fact that your adversary could also use the same tactics and then it can only end in a shouting match with the winner being the one who can shout the loudest. Demagogues — that tribe which Tom has a special disdain for — use anecdotes all the time.

I am not saying that Friedman should have written an academic paper citing published sources on the costs and benefits of outsourcing for the US economy. It is just that he starts off by admitting that the matter of outsourcing is a complex issue and that it requires reference to reality for one to comprehend it. Then he descends into a trap that he himself cautions others about. My gripe is that his reference to reality is too selective, the sample size too small for the conclusion that he wishes to support.

For instance, many other commentators stand on the other side of the issue and support their position by re-telling heart-wrenching tales of yuppy programmers in the Silicon Valley being unable to make their SUV payments because their jobs have been stolen by Indian programmers making less than $3 an hour.

Folk wisdom: one swallow does not a summer make. Or as we sophisticated people like to call it: the logical fallacy of the hasty generalization.

The Logic of Outsourcing

In the Feb 24th edition of BusinessWeek Online, Russell Roberts comments on the benefits of outsourcing for the American economy. The article simply points out that the benefits of free trade — and the transition of an economy from an agricultural to manufacturing to a post-industrial economy — follow a logicalprogression that leads to a richer economy. Of course, politicians are often inclined to cater to the perceived anxieties of the voters and I am sure that the candidates in the race for the US presidential elections will fiercely compete on who can reassure the “American people” that they will stop all this outsourcing of jobs. Here is Roberts for the record.


If the U.S. had insisted on making all its own cars, watches, TVs, radios, or shoes, resources wouldn’t have been available to channel into creating the jobs of the last 50 years in telecommunications, software, and biotech. People wouldn’t have been available to work in those industries, and the American standard of living would be dramatically lower.

PROTECTED BUT POORER. But what if India gets all the software jobs? I doubt that will happen. I suspect that for most information-technology jobs, Americans will still be more effective than foreign workers. But suppose Indians decided to work for free and give away the software, the ultimate competitive threat. If outsourcing work to low-wage Indians is bad, surely free software from zero-wage Indians is even worse.

Free software would be hard for the U.S. workers in the software industry to compete with. But it would be a boon for America — plenty of U.S. outfits would expand. Having free software would let a lot of new companies come into existence that couldn’t have been profitable before. Programs at no cost would mean lower prices across the board. That would liberate resources to do new things all over the economy. Many of those out-of-work American programmers would find new jobs. The same effect occurs when the software is merely cheaper, rather than free.

The hardship that results from economic change always tempts politicians to limit individuals’ freedom to buy what they want and businesses to hire whom they desire. Such political restraints will make life more secure — but poorer and less dynamic. Ultimately, it will have no effect on the number of jobs in the U.S. but only make the ones that survive pay less.

Why education is underprovided in India

Gary Becker, a Chicago economist, has an opinion piece in the Business Week of Feb 16th titled What India can do to catch up with China.

Unsurprisingly, he makes the point that education is the primary requirement for India to lift itself out of grinding poverty.

To compete effectively in world markets, India needs to expand its secondary school education. It also has to vastly improve its health services. There is abundant evidence that returns on such investments in India’s human capital would be high.

Economists are deservedly known to disagree on many issues. But on one matter there is consensus: the absolute necessity of an educated population for an economy to develop. This fact has been known for ages by almost all who have ever pondered the question of economic development and growth. The puzzle therefore is to explain why education is broadly neglected in India. What is it about education that makes it a scarce good in any poor economy? I believe that there are two factors that explain this unfortunate phenomenon. First, education is a public good. And second, the socially optimal provisioning of public goods require collective action. India is particularly prone to a failure of collective action, which in turn leads to an under-provisioning of public goods, including the most fundamental of public goods — education.

It is important to distinguish between public goods and private goods. To start off, public goods are not goods that are provided by the public sector, although the public sector is often required to provide public goods. What makes a good a public good is not who provides it but rather the nature of the good itself. Public goods are best defined as goods that are not private goods. And private goods are those goods that are rival, excludable and do not have externalities in consumption. By contrast, public goods are nonrival, non-excludable, and have positive consumption externalities. These are terms that need to be defined precisely so that we can reason further why a collective action problem leads to an under-educated population. Only by fully understanding the causes of the failure can be begin to find a solution to the problem. I hope to investigate this more in the days to come.