Wednesday, September 19, 2018

The misleading narratives of our time

Narratives define our lives. Even when they are completely divorced off reality or any evidence, they exercise vice like grip on our imagination. In fact, all of us, howsoever smart, are captives of narratives.  

Consider some of the enduring narratives of our times. 

People on welfare prefer to stay on and not search for work, thereby necessitating tight restrictions on welfare amounts and duration. Market dynamics ensures efficient allocation of returns on economic activity between labour and capital. Higher minimum wages lead to businesses hiring less or relocating or even closing down. 

Higher taxes discourage people from working and businesses from investing. Higher taxes force businesses to relocate. Capital gains taxes should be lower than income taxes so as to avoid double taxation. Soaring wage compensation is just desserts for superstar executives, attracting whom is essential to compete in the market. 

Large companies are also the biggest job creators. The vibrancy of economic activity is dependent on the economy's large companies. Industrial policy is about providing input subsidies and fiscal concessions - this is what attracts businesses. Foreign direct investment leads to technology transfers, is associated with manufacturing activity, results in large job creation, and is therefore critical to economic growth of developing countries.   

The main role of financial markets is to intermediate capital for economic activities. Financial markets facilitate efficient allocation of resources between savers and borrowers. Capital markets are the most efficient part of the financial markets. Boring banking is inefficient and lazy, even perhaps an example of rent-seeking. Stock markets can be made more efficient by financial engineering and high frequency trading. Stock prices are a fair reflection of life-cycle valuation of the business. Sophisticated financial engineering is productivity enhancing and creates value. Hedge funds and private equity firms contribute to more efficient financial intermediation. What is good for Wall Street is good for Main Street!

Public private partnerships (PPPs) are the most efficient and cost-effective approach to managing infrastructure projects. Private sector delivers more value for money with managing infrastructure projects than the public sector comparators. Infrastructure funds and private equity investments bring in high quality management practices to improve the efficiency of large and long-term infrastructure projects.   

Business competitiveness is about containing costs, especially worker wages, almost to the exclusion of all else, including retaining workers or externalising internal costs. Higher business profitability and surpluses are good for the economy since companies will re-invest them to create more growth and jobs. Higher interest rates discourage businesses from investing. Government regulation of any kind is bad, unless there is a clear market failure and the costs-benefits balance from that regulation is favourable. Mergers and acquisitions help businesses leverage economies of scale and scope to increase competitiveness and maximise profits. Maximising shareholder value should be the objective of businesses.

Digital economy companies are unlocking more value than the externalities they create. The business structure in industries with network effects have to be oligopolistic - therefore the inevitability of behemoth superstar monopolies like Facebook, Google, Amazon etc. The superstar technology companies are the touchstone for innovation. They are led and populated by nerds who have created fantastic products and services on their own.

It is markets, and not governments, who lead on innovation and cutting edge technologies. Most of the great new technologies have   been the outcome of private entrepreneurship and initiative. Most the global research and development (R&D) work takes place in private companies and R&D spending comes from the private sector. The leading companies in their areas, especially in technology and pharmaceutical sectors, invest heavily in R&D so as to stay ahead of the market. The prevailing intellectual property (IP) rights protections are necessary to promote investments in R&D. Innovative technologies from the private sector are the result of IP protections.

Finally governments are invariably inefficient, corrupt, and unproductive. Government officials are slothful, inept, apathetic, and unimaginative. Governments, in general, are sand on the wheels of market enterprise. Governments should be involved only in areas where markets cannot work or till markets become mature enough. Governments need to step aside to let markets unlock value and realise the full potential. 

Where is the evidence for the unqualified embrace of any of these narratives?

Some of these narratives do not stand even a cursory test of empirical scrutiny. Most of them stand on weak ground when faced with empirical evidence. In some cases, the evidence is too confusing to form any definitive opinion. In some other cases, like with executive compensation, the response function may well be a reverse U-shaped curve - higher compensation upto a certain level is good, but it starts becoming counter-productive beyond a certain level. We know about the famous Laffer curve in taxation, though we have no evidence about its actual shape for different contexts - when the rising curve turns around.  

Never mind all these bitter realities, these narratives form the basis for modern capitalist economies. Ideologies are formulated, opinions are formed, policies are made, and behaviours are shaped based on these narratives. These narratives exercise a form of hegemony over the society's collective consciousness.

Accomplished economists speak with great certitude about each of these without anything remotely close to the standard of evidence required to do so, one which they themselves aggressively promote and accuse governments and others of not adhering to. Ideologues and opinion makers confidently follow suit. Newspapers quote all of them and peddle them as definitive. Policies get made. Narratives get entrenched. These become conventional wisdom.

This blog itself has posts, scattered across, on most of these narratives, outlining the evidence to the contrary. The incisive Ha-Joon Chang has outlined several of these with illustrations here

US-China trade facts of the day

As the trade-war intensifies, highlighting the complex trade-offs involved, the Times writes,
The Dartmouth economist Douglas Irwin estimated 140,000 American workers make steel, while 6.5 million workers make products that include steel.
The Obama administration imposed tariffs on Chinese car and light-truck tire makers in 2009-12, and 2015 onwards for five years. The result,
Imports of Chinese tires for sale to American consumers fell to 12.3 million in 2017 from 43 million in 2009, according to Modern Tire Dealer, a trade magazine.
On Chinese FDI into the US,
Amid rising tensions, Chinese direct investment in the United States declined to $2 billion during the first half of 2018 from $45.6 billion in 2016, according to Rhodium Group, a consultancy.
But here is China's problem
China doesn’t import nearly enough from the United States to target $200 billion in American goods — let alone the additional $267 billion in Chinese goods that Mr. Trump has threatened to target... Chinese officials “are generally confused,” said Raúl Hinojosa-Ojeda, a trade specialist at the University of California, Los Angeles.. “They don’t know what to do,” he added. “They worry that the tit-for-tat model is playing into Trump’s hands.”... But China’s leaders feel they can’t back down. They have presented the trade war as part of a broader effort by the United States to contain China’s rise. The Chinese public could see any effort to soothe tensions as capitulation.
And this is even more disturbing for China,
The tariffs may be here to stay. Mr. Trump is suffering from weak approval ratings and could lose influence in congressional elections in November. But while Democrats have opposed most of his agenda, many have supported his attacks on trade with China. Even if Mr. Trump leaves office in two years, there is little guarantee that his China trade policies will be changed.

Sunday, September 16, 2018

The balance sheet of the global financial crisis

An excellent summary of the balance sheet of the global financial crisis from Nelson Schwartz in the Times,
The financial crisis didn’t just kill the dream of getting rich from your day job. It also put an end to a fundamental belief of the middle class: that owning a home was always a good idea because prices moved in only one direction — up... When the bubble burst, the bedrock investment for many families was wiped out by a combination of falling home values and too much debt. A decade after this debacle, the typical middle-class family’s net worth is still more than $40,000 below where it was in 2007, according to the Federal Reserve. The damage done to the middle-class psyche is impossible to price, of course, but no one doubts that it was vast.

Banks were hurt, too, but aside from the collapse of Lehman Brothers, the pain proved transitory. Bankers themselves were never punished for their sins. In one form or another — the Troubled Asset Relief Program, quantitative easing, the Fed’s discount window — the financial sector was supported in spectacular fashion.
Like the bankers, shareholders and investors were also bailed out. By cutting interest rates to near zero and pumping trillions — yes, you read that right — into the economy, the Federal Reserve essentially put a trampoline under the stock market. The subsequent bounce produced a windfall, but only for a limited group of beneficiaries. Only about half of American households have any exposure to the stock market, including 401(k)’s and retirement plans, and ownership of the shares of individual companies is clustered among upper-income families.
For homeowners, there wasn’t much of a rescue package from Washington, and eight million succumbed to foreclosure. Sometimes, eviction came in the form of marshals with court orders; in other cases, families quietly handed over the keys to the bank and just walked away. Although home prices in hot markets have fully recovered, many homeowners are still underwater in the worst-hit states like Florida, Arizona and Nevada. Meanwhile, more Americans are renting and have little prospect of ever owning a home.
Worsening the picture, the post-crisis era has been marked by an increased disparity in wealth between white, Hispanic and African-American members of the middle class. That’s according to an analysis of Fed data by the Pew Research Center, which found that families in the latter two groups were more dependent on housing as their principal form of investment. Not only were both minority groups harder hit by foreclosures, but Hispanics were also twice as likely as other Americans to be living in Sun Belt states where the housing crash was most severe.

In 2016, net worth among white middle-income families was 19 percent below 2007 levels, adjusted for inflation. But among blacks, it was down 40 percent, and Hispanics saw a drop of 46 percent. For many, old-fashioned hard work has simply not been a viable path out of this hole. After unemployment peaked in the fall of 2009, it took years for joblessness to return to pre-recession levels. Slack in the labor market left the employed and unemployed alike with little leverage to demand raises, even as corporate profits surged... A recent study by the Federal Reserve Bank of St. Louis found that while all birth cohorts lost wealth during the Great Recession, Americans born in the 1980s were at the “greatest risk for becoming a lost generation for wealth accumulation.”...
Maybe it was inevitable that when half the population watches its wages stagnate while the other half gets rich in the market, the result is President Donald Trump and Brexit.
By the way, as an assessment of the post-crisis response, there could not have been anything more stark than this by Neil Irwin, and this by Peter Doyle. The former was a close observer of the response whereas the latter was a participant in the response. In particular, their respective assessments of the recent Brookings conference that brought together the leading crisis policy makers. 

Neil Irwin describes the post-crisis response as "the high-water mark for a mold of centrist, technocratic policymaking that seeks to tweak and nudge existing institutions toward better outcomes". His enthusiastic paean to the "technocrats" like Tim Geithner, Hank Paulson, and Ben Bernanke, without any reference to counterfactual situations nor the issues raised by his own colleague, Nelson Schwartz in the above-referenced article, is representative of the hegemony and rot among opinion makers on the liberal side. Doyle raises several concerns, none of which merit even a cursory mention for Irwin. Nor any mention of the consequences of the post-crisis response, nor the fact that the so-called recovery is confined only to the top 10% and has barely touched the rest, nor even the toxic debt legacy fuelled by the extraordinarily long period of low interest rates. 

This and this present alternative perspectives just on the Lehman decision. 

It is not so much the specifics of the policies initiated in the immediate aftermath of the crisis that should be the matter for debate. It is about the manner in which those policies were formulated and the stakeholder consultations that went into it. It is about those who were heard and who were not, those whose interests were prioritised and those whose interests were marginalised. It is about those policies which were not pursued with same fervour or not initiated at all. It is about the continuation of those policies well beyond reasonable limits, both in scale and in time duration. It is about the consequences of those actions that has left the financial markets more concentrated and arguably at least as unstable as before the crisis. It is about the failure to entrench the learnings from the crisis and prevent a slip-back to the same ideologies and policies that led to the crisis. It is about how the post-crisis response policies have set the stage for the next financial crisis. It is about how the same "technocrats" contributed to each of the aforementioned failings. In the absence of a reference to any of these, Irwin's qualification of the post-crisis policy responses as a "success" is stunning!

Employed but poor in America

A superb long form by Matthew Desmond in the Times on the paradox of poverty amidst high employment rate in the US. Sample this,
Over the last 40 years, the economy has expanded and corporate profits have risen, but real wages have remained flat for workers without a college education. Since 1973, American productivity has increased by 77 percent, while hourly pay has grown by only 12 percent. If the federal minimum wage tracked productivity, it would be more than $20 an hour, not today’s poverty wage of $7.25. American workers are being shut out of the profits they are helping to generate. The decline of unions is a big reason. During the 20th century, inequality in America decreased when unionization increased, but economic transformations and political attacks have crippled organized labor, emboldening corporate interests and disempowering the rank and file... Today, 41.7 million laborers — nearly a third of the American work force — earn less than $12 an hour, and almost none of their employers offer health insurance.
The Bureau of Labor Statistics defines a “working poor” person as someone below the poverty line who spent at least half the year either working or looking for employment. In 2016, there were roughly 7.6 million Americans who fell into this category. Most working poor people are over 35, while fewer than five in 100 are between the ages of 16 and 19. In other words, the working poor are not primarily teenagers bagging groceries or scooping ice cream in paper hats. They are adults — and often parents — wiping down hotel showers and toilets, taking food orders and bussing tables, eviscerating chickens at meat-processing plants, minding children at 24-hour day care centers, picking berries, emptying trash cans, stacking grocery shelves at midnight, driving taxis and Ubers, answering customer-service hotlines, smoothing hot asphalt on freeways, teaching community-college students as adjunct professors and, yes, bagging groceries and scooping ice cream in paper hats. America prides itself on being the country of economic mobility, a place where your station in life is limited only by your ambition and grit. But changes in the labor market have shrunk the already slim odds of launching yourself from the mailroom to the boardroom.
Worse still, this state of affairs has an intellectual rationalisation, that "indolence and poverty go hand in hand", we need innovative approaches to address poverty, and so on,
Ask us why the poor are poor, and we have a response quick at the ready, grasping for this palliative of explanation... How can a country with such a high poverty rate — higher than those in Latvia, Greece, Poland, Ireland and all other member countries of the Organization for Economic Cooperation and Development — lay claim to being the greatest on earth?... But rather than hold itself accountable, America reverses roles by blaming the poor for their own miseries... Poor people lacked work ethic, they told me, or maybe a strong backbone or a commitment to a better life...
Here is the blueprint. First, valorize work as the ticket out of poverty, and debase caregiving as not work. Look at a single mother without a formal job, and say she is not working; spot one working part time and demand she work more. Transform love into laziness. Next, force the poor to log more hours in a labor market that treats them as expendables. Rest assured that you can pay them little and deny them sick time and health insurance because the American taxpayer will step in, subsidizing programs like the earned-income tax credit and food stamps on which your work force will rely. Watch welfare spending increase while the poverty rate stagnates because, well, you are hoarding profits. When that happens, skirt responsibility by blaming the safety net itself. From there, politicians will invent new ways of denying families relief, like slapping unrealistic work requirements on aid for the poor.
Democrats may scoff at Republicans’ work requirements, but they have yet to challenge the dominant conception of poverty that feeds such meanspirited politics. Instead of offering a counternarrative to America’s moral trope of deservedness, liberals have generally submitted to it, perhaps even embraced it, figuring that the public will not support aid that doesn’t demand that the poor subject themselves to the low-paying jobs now available to them... Because liberals have allowed conservatives to set the terms of the poverty debate, they find themselves arguing about radical solutions that imagine either a fully employed nation (like a jobs guarantee) or a postwork society (like a universal basic income). Neither plan has the faintest hope of being actually implemented nationwide anytime soon, which means neither is any good to Vanessa and millions like her. When so much attention is spent on far-off, utopian solutions, we neglect the importance of the poverty fixes we already have. Safety-net programs that help families confront food insecurity, housing unaffordability and unemployment spells lift tens of millions of people above the poverty line each year. By itself, SNAP annually pulls over eight million people out of poverty. According to a 2015 study, without federal tax benefits and transfers, the number of Americans living in deep poverty (half below the poverty threshold) would jump from 5 percent to almost 19 percent. Effective social-mobility programs should be championed, expanded and stripped of draconian work requirements.
While Washington continues to require more of vulnerable workers, it has required little from employers in the form of living wages or job security, creating a labor market in which the biggest disincentive to work is not welfare but the lousy jobs that are available. Judging from the current state of the nation’s poverty agenda, it appears that most people creating federal and state policy don’t know many people like Vanessa. “Half of the people in City Hall don’t even live in Trenton,” Vanessa once told me, flustered. “They don’t even know what goes on here.” Meanwhile, this is the richest Congress on record, with one in 13 members belonging to the top 1 percent. From such a high perch, poverty appears a smaller problem, something less gutting, and work appears a bigger solution, something more gratifying. But when we shrink the problem, the solution shrinks with it; when small solutions are applied to a huge problem, they don’t work; and when weak antipoverty initiatives don’t work, many throw up their hands and argue that we should stop tossing money at the problem altogether. Cheap solutions only cheapen the problem... “Study hard, stick to it, dream big and you will be successful” — had been internalized as a theory of life. We need a new language for talking about poverty. “Nobody who works should be poor,” we say. That’s not good enough. Nobody in America should be poor, period. 
Those searching for explanations for the rise of populism and responses to it need to look no far than read this article and internalise its message.

Thursday, September 13, 2018

Midweek reading links

1. Arguably the biggest suffering caused by the sub-prime mortgage meltdown involved the 7.8 m home foreclosures during the 2007-16 period. While the TBTF firms got bailed out, households got foreclosed out!
And who purchased them? Sample this
Since the crisis Blackstone has marched into markets that others have been forced to vacate. Its credit arm finances businesses that would once have borrowed from Wall Street banks. But nothing underscores Mr Schwarzman’s rise more clearly than the portfolio of more than 80,000 single-family homes that have made his firm one of America’s biggest private landlords. With so many people unable to get on the property ladder, Blackstone reckoned the rental market would be highly lucrative. Beginning in 2012, the firm dispatched representatives to buy houses in fast-growing metropolitan areas across the nation, including southern California, Chicago and Atlanta. About one-third of the properties were bought in foreclosure auctions, typically without anyone even inspecting them first. The result of that effort is a company called Invitation Homes that floated on the stock market last year. Today it is worth $21.6bn including debt, buoyed by a 35 per cent increase in US house prices since the start of 2013 and an unyielding approach that few private landlords can match.
People lose their houses and with it their hard-earned life-time savings. Hedge funds, benefiting from the extraordinary monetary accommodation, pocket these houses for fire-sale prices!

2 Interesting take on Trump by Peter Beinart who argues that Trump's supporters fear the corruption of American traditional identity, not American law. In the context of a murder in Iowa of a white woman by a Latino immigrant,

In a forthcoming book titled How Fascism Works, the Yale philosophy professor Jason Stanley makes an intriguing claim. “Corruption, to the fascist politician,” he suggests, “is really about the corruption of purity rather than of the law. Officially, the fascist politician’s denunciations of corruption sound like a denunciation of political corruption. But such talk is intended to evoke corruption in the sense of the usurpation of the traditional order.”... When Trump instructed Cohen to pay off women with whom he’d had affairs, he may have been violating the law. But he was upholding traditional gender and class hierarchies. Since time immemorial, powerful men have been cheating on their wives and using their power to evade the consequences. The Iowa murder, by contrast, signifies the inversion—the corruption—of that “traditional order.” Throughout American history, few notions have been as sacrosanct as the belief that white women must be protected from nonwhite men. By allegedly murdering Tibbetts, Rivera did not merely violate the law. He did something more subversive: He violated America’s traditional racial and sexual norms.

Once you grasp that for Trump and many of his supporters, corruption means less the violation of law than the violation of established hierarchies, their behavior makes more sense... Why were Trump’s supporters so convinced that Clinton was the more corrupt candidate even as reporters uncovered far more damning evidence about Trump’s foundation than they did about Clinton’s? Likely because Clinton’s candidacy threatened traditional gender roles. For many Americans, female ambition—especially in service of a feminist agenda—in and of itself represents a form of corruption... For many Republicans, Trump remains uncorrupt—indeed, anticorrupt—because what they fear most isn’t the corruption of American law; it’s the corruption of America’s traditional identity. And in the struggle against that form of corruption—the kind embodied by Cristhian Rivera—Trump isn’t the problem. He’s the solution.
3.Tirthankar Roy draws attention to the serious limitations of historical economic data.
Maddison’s work shows growing inequality in average incomes between countries. The data is – to put it mildly – bad data. Look closely, you will see that the average income of India was USD533 for 1820-1870. Year after year for 50 years Indians earned exactly USD533 on average (and exactly USD550 for 320 years before that). These numbers contain no worthwhile information about Indian history. Such is the quality of the statistics on which the divergence debate has so far been based.
4. Fascinating essay on the rise of India's Rs 23 trillion mutual funds industry which today attracts Rs 75 bn every month.
5. FT has a nice story on the emergence of a united US-Japan-US front in the trade war with China and how it is starting to bite in Beijing.

In recent months the EU and Japan have joined forces with the US in WTO complaints against “forced technology transfers” in China through mandatory joint venture structures with local partners... Tokyo has been pleasantly surprised by a Beijing-initiated rapprochement over the past year. According to one Japanese official, a recent spate of Chinese overtures are all “thanks to Trump”. The official adds: “Trump’s trade policies have been influencing China’s diplomatic stance.” ... “The Chinese should be worried about Trump,” says Steve Bannon, Mr Trump’s former political adviser. “They’ve never had to confront anything like this.”... Wang Chong at the Charhar Institute, a Beijing-based think-tank, says China’s current problem in the US is not just related to Mr Trump: “Both the Republican and Democratic parties have reached a consensus that they should try to curb China’s development.”

... the only trade deal he would accept from China is one Mr Xi could not possibly offer, because it would include concessions on how the party manages everything from industrial policy to state-owned enterprises and the renminbi. Others argue that Mr Trump’s ideal outcome is in fact no deal at all, so he can implement long-term tariffs on all Chinese exports to the US in a bid to bring about a radical overhaul of global supply chains. “People in the administration now understand that Trump may be flexible on so much stuff, but the hill he’s willing to die on is China,” says Mr Bannon. “Trump’s focus is shifting the supply chains out of China.”
Donald Trump gets eviscerated in the mainstream media for pretty much everything he does. And rightly too in many cases. But he deserves some applause here.

Not too many people will disagree that China resorts to extremely unfair trade practices, those which hurts manufacturers in other developing countries as much as in the US. In a fair world the Chinese actions should have long since been called to account. No American President who would have represented the mainstream establishment would have had the resolve and courage to do so. Trump has called the bluff and, in his own bluster-filled way, shaken up the entrenched equilibrium. 

6. The popular reaction to Serena Williams' abhorrent antics at the just concluded US Open Women's Final is a great illustration of the duplicity associated with the liberals. Serena has made a mockery of the existing rules of the game, behaved disgracefully (and has a track record of doing so),  and like the classic opportunist taken shelter behind race and sex to justify her actions. The referee has done what he was supposed to do as per the rule book and has a track record of doing so. And what do we get from the liberal establishment? Serena is portrayed as the victim and Carlos Ramos as the aggressor, in fact as a straw man who represents the racist and sexist establishment.

Evidently gender and race are very politically sensitive subjects. It is a mark of a liberal to be always on the right side of any gender and race debate. Serena Williams, also due to the politics surrounding her, ticks both boxes. So, it is almost suicidal to be seen to be taking on Serena, whatever the provocations. Liberals, therefore, rallied to her support. 

Add to the sex and race dimension, Serena is also a powerful persona in the tennis world. Besides being the GOAT, she also wields enormous influence among tennis administrators, sponsors, media, and players associations. Add everything in and the strong reactions in her favour is unsurprising. 

Martina Navratilova is among the very few sane voices trying to put matters in perspective.

This also highlights the contrast between the on-field governance of tennis and cricket. A tantrum like this is just impossible. Just remember the flak Steve Smith got with his "brain fade" moment when he apparently turned back to get dressing room reaction for an on-field review.

7. As emerging economies face turmoil, Times has a graphic that captures the external vulnerability, in terms of external debt to GDP ratio for the major emerging market economies.

8. As its new CEO, David Solomon, prepares to take charge, Times carries the story of sensational leak alleging unethical practices by a Goldman Sachs Partner, James C Katzman. Katzman, while leading Goldman's US West Coast M&A practice, complained to the bank's whistle-blower hotline about repeated attempts to obtain and then share confidential client information and hire a customer's child. Senior Goldman bankers apparently tried to "extract confidential client information from him that they intended to share with other Goldman customers or otherwise use for the bank’s benefit".

But the law firm managing the hotline, instead of independently investigating and presenting it before the Company Board, referred it to the Company's General Counsel and quietly buried it. Worse still, insiders, including the incoming CEO, tried to dissuade Katzman, who resigned from the firm, from pressing forward his complaints.

9. Finally, the Eritrea-Ethiopia border is open for trade after 20 years following the bitter separation of the two countries. Sample this,
Eritrea gained its independence from Ethiopia in the early 1990s, and war broke out later that decade, locking the two nations in unyielding hostilities that left more than 80,000 people dead. The turning point came in June, when Mr. Abiy announced that Ethiopia would “fully accept and implement” a peace agreement that was signed in 2000 but never honored. The formal deal was signed weeks later. Few people expected such a quick turn of events. Embassies have reopened, telephone lines have been restored and commercial flights between the capitals have resumed. An Ethiopian commercial ship docked in an Eritrean port last Wednesday — the first to do so in more than two decades.
Is this the most dramatic reversal of cross-border relations between countries in recent times?

Wednesday, September 12, 2018

More thoughts on evidence generation

I thought it may be useful to analyse this paper which does an RCT (with three treatment arms) to evaluate the efficacy of a mobile App that can track payment releases in the Government of India's National Rural Employment Guarantee Scheme (NREGS).

For those unaware, as part of the program, rural labour are guaranteed a minimum 100 days of work every year by deploying them to build community assets. The program's execution consists of village level officials maintaining muster rolls of workers and making weekly/fortnightly payments directly to the worker's bank accounts. The program is hobbled by delays in payment releases to the bank accounts (due to delays in recording of work, updation of muster rolls, approvals of muster rolls etc). The immediate supervisors of the village level officials are those at the block level, who, in turn, are monitored by those at the district level.

The 3-arm RCT involved providing a payment tracking App, PayDash, to only the block level supervisors, only the district level supervisors, and to officials at both levels. It found that only the last option was effective in significantly reducing payment receipt delays.

Did we at all need an RCT to know this? Isn't it evident from the well accepted theories of management? How has this research moved the body of practically relevant knowledge on the use of such applications to improve state capacity in any way? The authors make this claim,
we have limited empirical evidence on the relative importance of asymmetric information at different levels of the hierarchy in affecting bureaucratic performance.
Do we need "empirical evidence" on this? Don't we have enough evidence from theories of organisational behaviour and management to validate the hypothesis? Is that evidence inferior in a meaningful way?

Instead, shouldn't the focus of evidence generation be on figuring out the most effective deployment dynamics of PayDash - its Dashboard interface, the periodicity and nature of reviews by block and district level officials, nature of integration of this information with performance management of officials etc? All of these are amenable to evidence generation, but not of the kind that international development community is associated with!

We need another type of evidence generation - tight operational feedback loops and close integration of the learnings into the operational processes. Coupled with an eye on capturing and monitoring credible enough proxies of impact.

Tuesday, September 11, 2018

Superpower China?

Whether we like it or not, only the semantically finicky will deny that China is not already a global superpower. In this context, Bloomberg explores China's economic, military, and soft power projection capabilities. 

China is catching up fast militarily...
... and economically too.
This maritime supremacy map of the Indian Ocean is important given that the Ocean may well turn out to be one of the major battlegrounds for the new world order.  

Even with potential slips-ups due to a debt implosion, China will most likely catch up economically and militarily, may be not in terms of parity but reasonably close enough, with the US in the medium-term. However it is very unlikely that China will come anywhere close to the US in terms of its soft power projection capabilities. 

And that, in the final analysis, may well be what keeps China from ever scaling the heights America reached with global influence and acceptability. In fact, China's aggressive foreign policy actions involving all its own neighbours in recent years may well have been the last nail on its ambitions to be seen as an acceptable a super power like the US. And the Hambantota-type legacy of its Belt and Road Initiative will, in the medium-term, most likely invite a backlash which even the well-oiled Chinese foreign policy machinery and its deep pockets will struggle to stave off. The decision by the Malaysian Prime Minister Mahathir Mohammed to put on hold large BRI projects and warning about a "new version of colonialism" during his visit to China may only be the begining of the backlash. 

And it is here that India can give China a very close run for, at least, regional influence. In fact, given the promising medium to long-term economic prospects of the Indian economy, it may actually be on a strong wicket going forward. So all the more important for the Indian foreign policy establishment to build capacity and engage actively in advancing its soft power.