Today’s news links

The re-election problems of PM Modi [Link]

Suzuki commits to ‘Make in India’ with electric vehicles [Link]

Suzuki will test run its first electric cars in India in October! This news is from September. I do not know if it happened [Link]. If it did not, then we know how to read the previous link, though.

Japan is still struggling to come to terms with its relaxed foreign worker visa policies. The resolution passed but after a lot of doubts and scepticism were expressed [Link]

Philippines compromises (or, attempts to) with China on South China Sea [Link]

Two well-known Chinese economists-critics of China’s economic growth model actually blame China for the trade dispute with the United States. [Link]

A story in FT on how Mauritius still makes its revenues through assisting tax evasion although the African state confirms that it is compliant with all tax-evasion international laws and treaties. Indeed! India has scrapped its double-taxation treaty with Mauritius. Full capital gains tax will apply on capital gains earned by Mauritius-registered entities from 1st April 2019. Let us see.

China allows share buybacks to boost stock market – when in doubt, ape the West and yet claim superiority to Western model of economics and finance!

American college undergraduate students are now ambivalent on capitalism. Wall Street Journal is alarmed! While most of the points made by James Freeman are valid, he would have been more correct had he also exhorted capitalists to introspect on why things have come to such a pass.

The techypocrisy

The wheel has come back a full circle or is on its way – or so it seems. See two recent NYT articles here and here. The digital gap is not what you thought or think it is and that technology deprivation is no deprivation but a blessing!

Of course, I am not sure extreme answers are the right ones or that they would be effective with all children. To each children, each parent. In fact, I am wary of fundamentalist or extreme views with respect to technology – utopia vs. dystopia. But, evidence points to a compelling case that modern technology is shaping a dystopian world.

But, what psychologists working for tech. companies do and how tech. company executives themselves have discouraged their own children from taking up ‘screen’ habits are extremely illuminating and insightful. Of course, without mincing words or sentiment, they are most troubling and leave us fulminating, angry and helpless, all at the same time.

[On a related and unrelated note, read this piece about the forked tongues of tech. leaders.]

The march of progress be damned and perhaps, named something more appropriately for what it is.

These developments are consistent with ‘More is preferred to less’ axiom of neo-classical economics. That is why we have frequent updates to hardware, software and also so many clickbaits with man apps.

I would also recommend the 4-part (each approximately one hour) documentary on ‘The Century of the Self’. I have watched two parts. Very, very insightful.

https://topdocumentaryfilms.co m/the-century-of-the-self/ (This is the link to the complete 4-hour video)

Those who teach consumer marketing should find it useful as to how it all began. You may draw your own conclusions as to the morality (or, lack thereof) of it all. On my part, I am clear. Consumer marketing – for most products (fast foods, soda, entertainment electronics, to name just a few) – sails close to the wind on ethics and morality or beyond it.

Why do you want to become an ‘insider’?

I had long wanted to write a detailed review of Yanis Varoufakis’ book, ‘Adults in the Room’ which I finished reading some six months ago. But, never got around to doing it. I shall post separately a long review of ‘Adults in the Room’ – a simplified and shorter version of which appeared as a MINT column. It appeared in MINT in April 2018.

As my good friend Gulzar Natarajan remarked recently, the drawback of YV seems to be that he does not seem to admit to any mistakes or frailties or failures on his part.  In fact, some in Europe have claimed that he failed not so much because the ‘Troika’ (European Commission, the European Central Bank and the International Monetary Fund) did not agree with him but that his personality was abrasive and somewhat insufferable. We will not know which version is true.

But, one of the first things that strikes you from the book is the question that Larry Summers poses to YV:

There are two kinds of politicians: insiders and outsiders. The outsiders prioritise their freedom to speak their version of the truth. The price of their freedom is that they are ignored by the insiders, who make the important decisions. The insiders, for their part, follow a sacrosanct rule: never turn against other insiders and never talk to outsiders about what insiders say or do. Their reward? Access to inside information and a chance, though no guarantee, of influencing powerful people and outcomes. So Yanis, which of the two are you?

This is a very profound statement. In the context of Greece, both Alex Tsipras and Varoufakis were outsiders who became insiders. But, Alex internalised his ‘insider’ role too much while YV retained his ‘outsider’ spirit and could not continue and came out to become an outsider, again. That Alex Tsipras chose to agree to the demands of the Troika after the referendum he called gave him the mandate to reject the EU conditions was a dramatic about-face. Notwithstanding everything that must have gone on before, including possibly YV’s personality playing a role in the debacle of negotiations with Europe,  this must be a sad moment for all those who harbour romantic notions of challenging power and coming out the better for it.

Actually, Larry Summers’ quote above might sound utterly cynical but is very close to the truth. All change agents succeed only when insiders permit them to. Otherwise, most end up as rebellions without success. Even if they succeed in overthrowing a particular regime and come to office and then turn into ‘insiders’ themselves, did their cause or the ordinary citizens who trusted them succeed?

‘Insiders’ are those who control the discourse, the narrative, wield power, influence and usually benefit smaller power centres and narrow interests than serve large interests. ‘Outsiders’ are like Don Quixote tilting at the windmills.

If you become an ‘insider’ by accident as YV did and if the ‘insiders’ already inside permit you – assuming that you retain the spirit of the ‘outsider’ in you, you may be able to achieve a few things that are consistent with your ideals. That is the bitter reality of the balance of power. All democracy in that sense is a fig leaf for the balance of power that rests firmly with the powerful. The power of power is powerful!

A rising tide might turn some boats into giant steamers andin the process may lift some boats. But, we mistake it for the power of our ideas, power of our persuasion and the triumph of the underdog, etc. It might simply be the case that you were allowed to succeed for various reasons.

The question, at a personal level, is whether one wishes to remain an outsider or an insider. IF one wanted to become an insider for the sake of ‘doing good’, then it is important to remember Summers’ advice. IT is sound, practical and true. The risk is that one might become a quintessential ‘insider’ oneself. The system digests you completely.

Or, one retains the spirit or remains loyal to it, remains untouched by the trappings of becoming an insider and achieves whatever possible. At the margin, he or she would have made the world a better place. It is possible theoretically but happens relatively rarely or to a few. It is possible for policy advisors and some technocrats but less so for politicians and for those who hold political office.

Or, one comes out; becomes an outsider again and remains true and loyal to one’s beliefs and values and sleeps soundly. If one were lucky, a crisis occurs and one’s ideas are sought and one pushes them through in a crisis. Otherwise, insiders would never permit them. One’s ideas see the light of the day and make a positive impact and one remains an outsider. That is the ultimate success story. But, it needs a lot of luck or divine will.

In India, many political parties started out as outsiders. The DMK in the South, the All Assam Students’ Union come to mind. Laloo Prasad Yadav started out as a Lohia-ite socialist. Tamil movie, ‘Achamillai, Achamillai’, is the story of how the insiders turned an outsider into one of them – a school teacher who joined politics to do good; becomes a politician, engineers a caste conflict and killings. His wife does not ‘recognise’ him any more and kills him in the end.

Tamil Novel, ‘Mayaman Vettai’ by Indira Parthasarathy is another tragic tale of a returning non-resident Indian becoming an insider – part of the system that he sets out to change.

Just right now, notice how in the tragic turn of events in Sri Lanka, Arjuna Ranatunga, the hero of their World Cup victory in 1996, has been arrested as his bodyguards fired at demonstrators or opposition supporters. He was the leader of the underdog team – an outsider – that challenged  ‘status quo’ powers.

One of the most brilliant articles I had read this year was about the current Pakistan Prime Minister and the brilliant cricketer cum captain, Imran Khan, who led his team to victory in 1992 World Cup. The story is that of an outsider for whom becoming the insider became an end in itself.

Very few remember why they became insiders in the first place. IF they do not truly become insiders – at least, they forget their original ideals and settle for their personal career advancement. That is, becoming part of the system becomes an end in itself. They may not be as harmful as true insiders usually are but they drift far away from their ‘outsider’ spirit. Very little of it stays with them. There is little public welfare gain from them becoming insiders. There are many in this category.

Personally, I feel very comfortable imagining myself as an outsider. I must consider myself lucky that, in my corporate career, I was allowed free reign of my ‘outsider’ spirit. That was partly a matter of luck for my role never really threatened the insiders and my research calls, predictions and views – out of consensu as they were – did not turn out to be systematically and persistently wrong. In fact, they were right, for the most part. It was a lucky confluence of many things that helped me remain an ‘outsider’ for most of my corporate innings.

Things became difficult in more ways than one, after 2009, with the engineered economic recovery. I never could come to terms with it, until today. No wonder I quit in 2011, feeling confused about many things! I still am.

[Cross-posted in http://www.jeevatma.wordpress.com]

India’s twin-surplus problem

My column in MINT today:

Last week, there was a story in Business Standard that HSBC has projected that India’s gross domestic product (GDP) would reach the size of about $5.9 trillion by 2030 rather than $10 trillion that Niti Aayog had projected for 2032. This implies an annual compounded growth rate in real GDP of 6.2%. Around the same time this story appeared in print, there was also a report that the government of India had rejected the findings of the World Bank’s Human Capital Index launched just this month because, according to the government, it ignored many transformational initiatives that have been undertaken to improve India’s human capital. The HCI had placed India at 115 out of 157 with some of its neighbouring countries doing better.

The government may be right that it is doing all the right things to make India’s children productive citizens in future. But, the World Bank is probably onto something in throwing the spotlight on India’s low productive potential. India is a productivity-challenged nation because it is an attitude-challenged nation.

When we think of productivity, we think about infrastructure and we think of a factory or assembly line in which thousands of workers are assembling parts and coming up with a finished product. This thing called infrastructure has two components. There is hard infrastructure. That is mostly about connectivity—transport and internet. That will be addressed sooner or later because the shortcomings are evident. Consequently, the issues cannot be covered up for too long. Someone has to take ownership and responsibility and fix the problem. It happens eventually but after much expenditure of effort— material and psychological. That is why it may be more important to focus on India’s soft infrastructure problem. That is the second component of infrastructure. It largely reflects our workplace attitudes.

Further, no matter how it is measured, India’s services sector dominates the economy. Productivity is hard to measure in this sector but attitudes are visible. They fall short. Long-term is most often traded for the short-term and there is far too much emphasis on form over substance. This leads to a control mindset that focuses on inputs than output or outcomes. To be clear, it is not just the problem of the governments or that of the public sector. It is an India problem.

When one goes to a pharmacy just to pick up an ordinary tablet for stomach disorder, he casually hands out an antibiotic strip as well without even telling the customer that he is dispensing an antibiotic medicine. Of course, dispensing an antibiotic over the counter without a doctor’s prescription and with no regard to the patient’s history or constitution is dangerous. Most of the customers have neither time nor money nor both to see a qualified doctor. They would accept the medicine offered by the pharmacy store and consume them. Both necessity and expediency lead to such dangerous shortcuts. Consequently, lost labour-hours due to bad health or sickness must be a substantial productivity drag.

Recently, there was a story in Financial Times about how workers in the UK work more intensely than their counterparts in Germany or France but produce lower output than these countries (“Workplace exhaustion is a vicious cycle in the UK”, 16 October). One of the reasons cited is underinvestment in technology. That might be true of India too. The article then lists ‘high strain jobs’ as one of the reasons for low productivity. High strain is marked by high pressure combined with loss of control. We can develop Indian variants of it. High-strain jobs are marked by high pressure combined with no control over output or outcomes. In other words, there is responsibility and accountability for outcomes without authority to execute. Per contra, for some, there is authority without responsibility or accountability for outcomes and that is what leads to high strain on others. In other words, India has a ‘twin surplus’ problem in the workplace just as it has a twin deficit problem in the macroeconomics space. Big egos and small minds are in surplus.

Together, the two ensure that there is much emphasis on controlling and supervising inputs without commensurate regard for output or outcomes. At the macro level, one of the recent examples is the legislation on right to education which had elaborately specified various inputs—including dimensions of classrooms and playgrounds, etc., with little regard for education outcomes. This is not just a government problem but it is a pervasive national problem. Power is exercised not to empower but to enfeeble and emasculate. This breeds mistrust and mistrust lowers productivity and output. Trust is the lynchpin of economic activity. Management by empowerment, empathy and exception remains the exception. Therefore, subordinates practice escalation rather than focus on execution.

Thus, India’s productivity challenge is, in part, due to its inability to produce on scale and that, in turn, is due not just to inadequate capital investment but to underinvestment in life skills combined with improperly formed attitudes.

Indeed, the low Human Capital Index score may be reflecting more the latter than the former. Finally, that may be why HSBC’s projection of India’s economic size in 2030 is more realistic than that of Niti Aayog’s and yet still excessively optimistic.

Short-term costs and long-term solutions

In today’s MINT column I narrate an episode at the pharmacy that I encountered in Gummidipoondi near Chennai on Thursday (Oct. 18). That is one dimension of India’s health challenge.

The second dimension is this: disposal of waste into water and arable lands. See this scary story about urban waste from UP towns finding their way into arable lands.

It is the opposite of what happens in Stockholm:

When you fill up your car in Stockholm, you’re doing it thanks to toilet visits by 100 people: the city converts sewage into biofuel, which is then sold at local petrol stations. . In 2007, vehicles entering central Stockholm began paying a congestion charge — after which acute asthma attacks in young children slumped. Link]

Then, there is environmental pollution. Now is the season for Delhi’s air to go from poor to apocalyptically bad.  The FT article on air pollution in big cities has a scary graphic.  Important to remember that air quality lowers IQ. Is that why poor decisions get made in Delhi? May be, this problem is acute for children only.

Then, there is acute shortage of potable water and clean water. Chennai’s water lorries struck work last week because there was a reasonable order from the High Court to stop extracting ground water. That order took the long-term into consideration. But, in the short-term, the city ground to a halt. There is no potable water for current  consumption without extraction of ground water. But, that is a long-term problem and long-term is coming closer.

The situation is similar to the order that the Supreme Court had issued stopping construction in several states because they had not put in place rules, processes and procedures for disposal of solid waste management. It is well intentioned and necessary but there is a short-term cost and a fairly high one.

That actually raises the question of if and when would India find the impetus and ‘auspicious’ or propitious time to deal with long-term issues, if short-term costs of pursuing long-term benefits are fairly high and substantial

Finally, India has to reckon with the excessive use of chemicals and pesticides in agriculture. Most of the plants, fruits and grains are not organically grown.

Add to all of these poor eating habits, lack of exercise and the population size, the risk of India frittering away its demographic advantage through small or big health epidemics is rather high.

Rakesh Mohan’s trilogy

I just finished reading a series of three articles that Rakesh Mohan wrote on RBI and the government relationship. He wrote about the attempts to scuttle its independence, to extract a higher dividend out of it, the changes to the composition of the RBI Board and the proposal to set up an independent Board for payment and settlement, away from RBI and on the composition of the Monetary Policy Committee, etc. It is a good three-part series.

The series was a much-needed articulation of the priorities of RBI and their importance in the national context.

I did not know about the changes to the process of nomination of Government directors made in 2012:

After the Department of Financial Services was carved out from the Department of Economic Affairs in the Ministry of Finance, provision has been made for a second nonvoting government director on the RBI board. This provision amending the RBI Act was quietly inserted in 2012 as a clause in the Factoring Regulation Act (!) with almost no discussion in Parliament. [Link]

Also, the other amendment that the government had made in 2013 to make directors demit office after the completion of four years without appointing their replacement promptly.

Notice that both these changes happened under the watch of the UPA II government. Yet, the Congress was very strident in its criticism of the government’s thrusting of the decision on demonetisation on the RBI in 2016 as an infringement of its independence.

His points on the merits of the Board for Payments and Settlements being under the RBI umbrella and on the drawbacks of the composition of the Monetary Policy Committee (MPC) without all Deputy Governors were well made.

A credible central bank is actually a boon to the government and an instrument it can deploy in times of stress. That credibility is earned through protecting, preserving and nurturing its independence rather than through curtailing it or chipping it away slowly and slyly.

You can read all the three articles here, here and here. They may be behind a paywall, though.

While Dr. Rakesh Mohan’s articles constitute a defence of the institution, Rajeev Malik raises some valid questions on the recent meeting of the Monetary Policy Committee of the Reserve Bank of India. They are pertinent questions. I am sure that the MPC was not unaware of them.

They just attached a different risk weights to the arguments than Rajeev does here. It backfired in the market – based on stock market reaction. I am not sure that it is the relevant yardstick to judge a central bank’s effectiveness.

Be that as it may, these views were worth airing.