Offence is defence and other China links

The Democratic National Committee has decided to sue the Trump campaign, Russia, etc. for the 2016 Presidential campaign gone wrong. Most extraordinary.

The Congress Party and its allies decided to move to impeach the Chief Justice of India. Most extraordinary. When was the last time it happened?

The reason why the US and the UK have targeted ZTE is not a matter of protectionism. Check this out.

Chinese students studying to be diplomats taught ‘us’ and ‘them’ brand of diplomacy

This tweet shows the people that make up the Confucius Institute in the University of Queensland

The Chinese Communist Party is setting up sleeper cells across Universities in America

China’s GDP growth numbers have not varied by more than 0.1% since 2015.

Prof. Hal Brands on the axis of autocracy versus America

Hong Kong dollar currency peg is not ending anytime soon. But, if interest rates in Hong Kong rise, it is a threat to their hypervalued property prices.

Quitting Finance to invest responsibly

China firms more reliant on foreign source revenues – well, only 13% from about 11% earlier

US weighs emergency powers to restrict China tech investments. The US is not doing this in a scatterbrained manner as is being widely perceived.

This article by Prof. Keith Burnett of the University of Sheffield in the UK is one reason why you should read this Mercator Institute report. I have read both. Notice what the former British PM David Cameron is doing.

27 of 28 EU ambassadors have compiled a report that criticises China’s Silk Road project. Only Hungary has not signed.


Don’t know; can’t know

Every once in a while I visit the twitter handle of Martin Ford (author of ‘The rise of the robots’) to catch all that is happening, not happening or should not be happening (but happening) in the world of technology, robotics and artificial intelligence (AI). I am profoundly sceptical of their net impact on the world. Yes, they may help in criminal investigations, in making some diagnoses for certain diseases, etc. Humans may even live longer, thanks to them. I do not know if it will happen and if it happens, whether it is a good thing. I do not think it is a good thing.

But, on balance, with its impact on employment, on its potential avaialbility only to the rich and the well-heeled, I think AI and Robotics will accentuate the many faultlines in the society.  Also, humans, bored stiff, and having too much time to kill, will actually turn destructive of one another, of the society and of the environment. Sounds bleak,  I know. But, it is just one person’s view. As fallible or as correct as anyone else’s or like any other view that I have held. But, some of the recent links:

Luke Dormehl writes about eight jobs that are under threat from the AI revolution. Non-paying or pro-bono blogging is not one of them.

This WSJ article says that employers are relying on intelligent software to figure out what you meant when you said or wrote something in an employee survey.

Although this article is in the context of the use of robotics and AI for elderly care, this question is relevant in all contexts:

“The greatest danger of Artificial Intelligence,” he writes, “is that people conclude too early that they understand it.”

Any serious discussion of AI’s impact on the aging population must start with Yudkowsky’s implied question: Do we understand it? And if we do, how do we harness it to enhance the lives of our burgeoning population of older adults? [Link]

‘Retailers race against Amazon to automate stores’ is the header of this article in New York Times. You think of a supermarket that is eeriely quiet and there are no tellers at checkout counters. I think humans will forget how to communicate. They will become idiots, I think. In that sense, AI will have triumphed over Real Intelligence or RI because it would have extinguished whatever RI was there in humans.

Stephan Talty thinks of five sccenarios in 2065 with AI but he is not thrilled or that is what I think:

If there’s one thing that gives me pause, it’s that when human beings are presented with two doors—some new thing, or no new thing—we invariably walk through the first one. Every single time. We’re hard-wired to. We were asked, nuclear bombs or no nuclear bombs, and we went with Choice A. We have a need to know what’s on the other side.

But once we walk through this particular door, there’s a good chance we won’t be able to come back. Even without running into the apocalypse, we’ll be changed in so many ways that every previous generation of humans wouldn’t recognize us. [Link]

It is a fascinating, engrossing and scary article. Certainly, I do not want to live in that world. Give me the messiness of humans, any day.

This article proves the point that Stephan Talty makes. It is about AI professors boycotting a Korean University for its killer robots. It sounds nice and brave but the conclusions are sobering and realistic:

Although a boycott against KAIST would be significant, some experts say the campaign to control the development of autonomous weaponry is futile….For Walsh and others, though, the danger is too great to be complacent. “If developed, autonomous weapons will […] permit war to be fought faster and at a scale greater than ever before,” said Walsh in a press statement. “This Pandora’s box will be hard to close if it is opened.” [Link]

Walsh is a Professor at the University of New South Wales.

Rupee on watchlist

I am grateful to MINT Edit for saving me the effort to write on the United States adding India to the watch list for its accumulation of foreign exchange reserves and for India’s bilateral trade surplus with the United States. One finds the American report here.

The report is all of 46 pages long and it is easy to read the portions pertaining to India. The data on India’a national savings rate is most likely wrong. India’s savings rate has stagnated, at best, and declined at worst. The change in the base year to 2011-12 in India and failure to provide a historical time series for the new base year renders comparisons impossible. Same goes for the comparison of growth rates over time. The report acknowledges that India has a rising current account deficit (chart on page 14) but it says elsewhere that India has managed to raise its national savings rate, post-2008 crisis. Untrue.

As per official Indian data, Gross Savings/GPD ratio had dropped to 30.0% in 2016-17 from 34.6% in 2011-12. This is as per the 2011-12 basis. As per the old basis, 2004-05,  the savings rate peaked at nearly 37% (36.8%, to be precise) in 2007-08. This is as per data from RBI Handbook of Statistics. In recent years, RBI has switched to report the savings rates as a percentage of Gross Domestic Income whereas the Government still provides the GDP ratio.

MINT Edit (ht Amol Agrawal of ‘Mostly Economics’) called the decision, ‘scandalous’. It is actually stupid. No one looks at bilateral trade balances to judge a currency’s under or overvaluation. India runs a overall trade deficit. In fact, the rate at which India’s trade and current acount deficits are running this financial year, it is possible that the current account deficit reaches 3.0% of GDP in 2018-19!

Of course, the US knows that no one looks at bilateral trade balances. It is yet another arm-twisting exercise except that when it came to China a much stronger case for twisting their arms existed and both Presidents Bush and Obama ducked the opportunity.

The question for India is whether letting USDINR depreciate is a good thing since the price of crude oil is rising. Will it make a difference to India’s struggling export performance? Or, will it suck in more imports? India is already on slippery ground with its external balances and this development does not help.

The Prime Minister should tell the MoF to take this up firmly with the US Treasury and get India off the watchlist. Pushing India to let Rupee appreciate for fear of ‘sanctions’ and seeing India facing a destabilising external balances situation is not in America’s interest. It goes against the geopolitical goals of the United States in the region. There is no co-ordination or consistency of logic in the American actions.

Finance Commission brouhaha – when the shoe is on the other foot

In these matters, I consider myself an outsider and dispassionate observer since these are intra-national matters. Nor do I come with any accumulated knowledge baggage about Finance Commissions, etc. All I did was to read the Terms of Reference (ToR) of the XV Finance Commission and that of the Fourteenth Finance Commission.

You can find the ToR for the Fifteenth Finance Commission (FC) here.  On the crucial issue of population, the ToR states the following:

5. The Commission shall use the population data of 2011 while making its recommendations.

On this aspect, the ToR of the Fourteenth Finance Commission had the following clause:

7. In making its recommendations on various matters, the Commission shall generally take the base of population figures as of 1971 in all cases where population is a factor for determination of devolution of taxes and duties and grants-in-aid; however, the Commission may also take into account the demographic changes that have taken place subsequent to 1971.

What the Southern States are protesting about?

Southern States are up in arms that this would mean a lower share of the central pool of taxes because they have done a good job of bringing their population growth under control since 1971. See here for the most recent data on Total Fertility Rate. The contrast between the Southern States and the laggards could not be more vivid. Tamil Nadu and Keral are among the top six States with the lowest fertility rate. Uttar Pradesh and Bihar are among the top four states with the maximum fertility rate. 

Uttar Pradesh has made tremenous progress, however, in bringing down its TFR from 4.46 in 2004 to 2.64 in 2017. Bihar relatively less so. Rajasthan and Madhya Pradesh too have made very good progress in bringing down the TFR from around 3.70-3.75 to 2.24-2.34.

R. Jagannathan at Swarajya had a very good piece on the controversy that has erupted on the ToR, particularly with respect to the use of 2011 population data as the basis for the Commission to make its recommendations. He says that sticking to 1971 would unfairly advantage the Southern States whereas using 2011 would not be bad for Tamil Nadu and Pondicherry since their decadal population growth between 2001 and 2011 actually picked up:

In contrast, the southern states show large divergences in their decadal population growth rates, with Kerala showing the largest absolute drop of 4.57 per cent (9.43 per cent to 4.86 per cent), Andhra Pradesh 3.49 per cent and Karnataka 1.84 per cent. But Tamil Nadu and Puducherry actually reported a rise in their decadal population growth rates, the former from 11.72 per cent to 15.6 per cent, and the latter from 20.62 per cent to 27.72 per cent. [Link]

What the Southern States (deliberately, perhaps) fail to acknowledge is an important component of the ToR of the Fifteenth Finance Commission which was not there in the Fourteenth Finance Commission. It is this:

4. The Commission may consider proposing measurable performance-based incentives for States, at the appropriate level of government, in following areas:

(i) Efforts made by the States in expansion and deepening of tax net under GST;

(ii) Efforts and Progress made in moving towards replacement rate of population growth;

(iii) Achievements in implementation of flagship schemes of Government of India, disaster resilient infrastructure, sustainable development goals, and quality of expenditure;

(iv) Progress made in increasing capital expenditure, eliminating losses of power sector, and improving the quality of such expenditure in generating future income streams;

(v) Progress made in increasing tax/non-tax revenues, promoting savings by adoption of Direct Benefit Transfers and Public Finance Management
System, promoting digital economy and removing layers between the government and the beneficiaries;

(vi) Progress made in promoting ease of doing business by effecting related policy and regulatory changes and promoting labour intensive growth;

(vii) Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services;

(viii) Control or lack of it in incurring expenditure on populist measures; and

(ix) Progress made in sanitation, solid waste management and bringing in behavioural change to end open defecation.

If the Southern States think and claim that they are better governed, then they ought to do well on the above nine parameters (mostly, if not all) and hence, the Commission has a very big leeway in giving them incentives on the above to make up for any setback arising out of the population figures of 2011.

Clause (3) of the ToR of the Fifteenth Finance Commission and Clause (6) of the ToR of the Fourteenth Finance Commission are similar in principle and comparable. But, the considerations that the XIV FC was asked to keep in mind in that clause (6) were longer. This government has kept its clause (3) shorter.

Instead, it had come up with caluse (4) – see above – and that goes a long way in accommodating and recognising good governance.

The charge of politicisation of the Finance Commission

Some others have picked up issue with the fact that the ToR for the 15th Finance Commission includes the devolution sanctioned by the Fourteenth Finance Commission. The Fifteenth FC has been asked to study its impact.

The Union Government may have one political party in office now. When the Fifteenth Finance Commission submits its report, it may or may not be in office. So, it is hard to make the accusation that the Union government is politicising the institution.

ToR are meant to guide the Finance Commission’s deliberations and its analysis. It does not dictate the conclusions to be reached. The Commission can say that it finds nothing to change in the recommendations of the Fourteenth Finance Commission. To say that the Government is asking the Fifteenth to sit in judgement of the Fourteenth is a logical stretch and a consequence of some creative imagination.

The Fourteenth Finance Commission was asked to assess the impact of GST on the finances of the Union and State governments and the impact of the compensation mechanism to States in case of revenue loss. Can we argue that the Union Government then was asking the Fourteenth Finance Commisison to sit in judgement of the various Committees that had recommended the implementation of GST?

Good to see Souther CMs batting for efficiency 

Interestingly, Mr. Chandrababu Naidu told the HT Leadership Summit in Singapore on Friday the 13th April that his only point was that efficiency should not be penalised and non-performance rewarded.

Wow! a perfectly appropriate sentiment for a Chief Minister to have.

I am really happy to note that this aspect has now been recognised by the Southern Chief Ministers – the challenge is to strike the right balance between rewarding efficiency and performance even as one tries to bring the laggards up to speed.

But, they must now think of the so-called welfare policies that they had been following. There are multiple examples.

Think of loan waivers – whethere they are microfinance loans or farmer loans. What is the incentive for thoso who diligently repay? What is the incentive for the loan providers to keep providing those loans if the States write them off and do not compensate the lenders on time and in full and drag the compensation out? Second, why cannot States encourage the borrowers to honour their loan contract by giving them the money and ask them to repay. If they misuse the money, then they did not deserve it.

What about the permanent policy of reservations with the booster shot of diluted performance criteria for admissions to educational institutions – at all levels of learning. Why cannot the criteria be maintained or diluted just a little? Why cannot the ladder be withdrawn at some point in the higher education institutions if they had been given the leg up already at entry and slightly later levels? Also, for how long? It was meant to be for ten years after independence? Now, these policies are permanently in place.

What is the incentive for those who have performed well? Leave the State? Leave the country?

What about reservations in jobs in the government and even in promotions too? Doesn’t the same issue arise there too? Now, politicians are dropping threats every now and then that they would extend reservations to the private sector too.

In sum,  if the Southern States feel that they would be penalised unfairly for doing well on population management while laggards would be rewarded, they would do well to reflect on many segments of the population in their States must be feeling about some of their ‘welfare policies’ that achieve exactly the same thing – punish the achievers and pamper the laggards. Moral hazard is written all over India’s development policies – perhaps, as pervasively in Southern India as it is elsewhere, if not more.

Now that they know how the shoe pinches when it is on their foot, they would do well to rethink the impact of some of their ‘anti-development’ policies.

Let us be clear. India does need welfare policies as there are millions in the bottom of the pyramid for not much fault of theirs. As Warren Buffett put it, they just did not win the ovarian lottery. So, development policies are needed – they need good education, nutrition, sanitation and healthcare.

Government schools have to function, teachers have to teach, schools must have toilets and there should be running water. Streets should have functioning lights and not overflow with sewage. Drains must not clog and stagnate, pollute and contaminate drinking water. If the States do the above development tasks well, then many at the bottom of the pyaramid would compete rather well and rise up the material ladder.

The challenge for States is to do the development thing right and that too, without hurting, scaring or driving away the efficient and the well performing ones.

In that sense, the Union Government has achieved the impossible already. It has woken up the Southern State Chief Ministers to the quintessential challenge of economic and social development in India – one that they have either ducked or failed miserably, more precisely.

Stuff that happened

I was at the MINT Asia-HT Leadership Summit held in Singapore on Friday, 13th April. Found Chandrababu Naidu impressive in terms of presenting his views. Of course, he was selling too hard. Nitin Gadkari was disarming and had a smiling disposition. Wish the Indian Prime Minister copied some of that. Tony Blair delivered the keynote speech after lunch. He was impressive. Had a self-deprecating humour. He is partially responsible for the mess that Iraq still is. But, one has to admit that he did come across as a thoughtful guy.

He said that politicians enter office most popular and least capable and leave office least popular and most capable!

He also recalled how Bill Clinton deftly dodged a reporter’s question on whether he was speaking to the next British Prime Minister when he was meeting with Tony Blair, then the leader of the Opposition. Either a YES or a NO would have been bad answers. Clinton was facing his own re-election in 1996 in a few months when this incident happened. He deftly said that he hoped that Tony Blair was speaking to the next President of the United States! That is really on-the-feet thinking and diplomacy.

India’s former foreign secretary Dr. S. Jaishankar made some pertinent observations on the state of play between Asia and West. He said that if Asian nations favoured a multipolar world, they should work towards multipolarity in Asia, to begin with. Second, he said that it might be premature to write off the West. I quite agree with both.

That said, writing this on Saturday, after the ‘surprise’ America-led missile attack again on Syria, one year after the last attack and the last charge that Assad used chemical weapons on his own people, I find myself nodding in appreciation that China has opposed the Western air strikes. As the British MP George Galloway told a reporter, there is no due process. In any case, how can the Western media that criticses Trump at every opportunity suddenly finds something to appove of? In their eyes, how does this one become right? The response of the journalist in this interview to the former British General is simply stunning.

Tucker Carlson of Fox News is worth watching in these two videos.

MarkGB, in his blog, has this explanation as to the real motivation behind the missile attack on Syria:

Of course your government would lie to you, they are lying to you right now. This has nothing to do with saving lives – bombing kills people. This is about preventing the Syrian government regaining total control of the country. It’s about what it’s always been about – breaking the country up, taking the oil, putting the Qatari pipeline through Syria to rival Russia’s dominance of the European oil market. It’s about keeping the region de-stabilsed so that the Apartheid regime in Tel-Aviv can take more of the energy resources in the Golan Heights…and sooner or later…take the water resources in southern Lebanon. [Link]

The real bully in the America-China trade war – part 2

Earlier in the day, I read Professor Joe Stiglitz’ piece in ‘Project Syndicate’ on Trump and the tariff threat. Predictably, he has criticised President Trump heavily so much so that the ‘darling’ of the World Social Forum now bats for free trade – which is the pet project of his nemesis, the Fund! This is the comment I posted under his piece in ‘Project Syndicate’:

Ash Carter, in an interview to ‘Politico’ in February had said that economists had not provided real answers for dealing with China. William Galston, he served in Clinton’s first term in office, says that China is yet to ratify the Government Procurement Agreement that it agreed to do so when it joined WTO in 2001. it is about non-discriminatory opportunity in government procurement.

Joseph Stiglitz, who discovered a niche for himself, opposing free trade and all the other nice things for the Fund and for Wall Street, suddenly discovers virtue in free trade because Trump is now considering imposing tariffs on China.

One thing is clear: whether or not Trump wins, economists have both lost it are still losing it.

Later in the afternoon, I read Larry Summers in FT where he says that the world is rallying behind China and not behind Trump. My response to his piece was as follows:

Mr. Summers should worry that he is on the same page as Joe Stiglitz. He can then reflect on what binds them. Is it rationality or an irrational bias against whatever Trump does.  He should read up on what Ash Carter told the interviewer from Politico on how useful (or not) economists had been to America in dealing with China.  Here is the link.

Two, he can read papers by economists Peter Schott (Yale University) and Justin Pierce (Federal Reserve) on how much the conferring of ‘Permanent Normal Trade Relations’ (PNTR) status to China mattered, for the worse, for American manufacturing employment.

Three, he might do well to have a word with William Galston who served in the first Bill Clinton term. He wrote in WSJ in August 2017 that China agreed to sign the Government Procurement Agreement – a non-discriminatory government procurement regime – when it signed up to the WTO in 2001. Sixteen years later, it had not done so. Referring cases to WTO takes years for adjudication. China knows that. That is why it now pretends to have faith in the multilateral system when it had shown very little respect for its own commitments to the WTO.

Far from calling out the real bully and asking that country to make concessions such that the threat of a trade war is averted, American economists are busy running down their own President.  That is evidence, if it were needed, that elite interest are divergent from national interests.

If proof were needed for my last satement above,  he should check out the pages 108, 161-162 and 169-175 of the monthly Harvard-Harris poll for the month of March released late March.  Here is the link.

In a pre-Trump world when no one threatened tariffs on China, inequality rose, Brexit happened, 2008 crisis happened and Trump himself got elected.

After Trump but where Trump is not in office, in Italy, Austria, France, the Netherlands, Poland and Hungary swung Right and Catalonia voted to separate from Spain.

Summers and his ilk must find answers as to why their world of free trade had no answers for these people (including for Ash Carter!) that they decided to show their helplessness, anger and frustration in the above manner.

Postscript: Indian readers might be interested to check out pages 108 and 110 of the Harvard-Harris poll. Link given above.

Interest rates and growth

This article by Rohan Chinchwadkar of IIM Tiruchi made me happy for more than one reason:

  • It is from a faculty member from one of the newer IIMs
  • It is well and simply written. It does not try to overdo its point
  • It sources a recent piece of international research
  • It shows a faculty member who is in touch with contemporary reserach. Good for students
  • It was well timed – on the eve of the RBI Monetary policy meeting
  • It presented a paper that had turned conventional wisdom on its head

Not much can be asked of an op.-ed.

Kudos to MINT for publishing it.