Weekend reading links

1. Tao Liu and Qiujie Shi have a paper on the Chinese hukou system, the registration permit given to urban migrants which helps them avail social and welfare benefits in the city. They point to two less-discussed issues - the localized (or city-specific) application requirements and evaluation criteria of the hukou transfer, and the inconsistencies and discrepancies between the stated requirements and real criteria.

In the context of their study of hukou practice of Beijing, they point to the state eligibility requirements,

The first one is regarding education. Before 2009, many documents issued by the Beijing Municipal Human Resources and Social Security Bureau stated that a bachelor’s degree was required to apply for a Beijing hukou. This requirement was then raised to a master’s degree in 2009... Second, it is advantageous to work in a sector that contributes towards the development of Beijing’s economy (and)... contributing to Beijing’s core priorities... The third guideline centres on residence. To guarantee that local hukou go to settlers rather than movers, a certain period of residence is always mandatory.

And their findings about the hukou system works in practice,

Decisive factors include having a university education, working in a key occupation, living in Beijing for more than five years and being located in a village. Migrants who best meet the city’s needs are also prioritized. In order to maintain its role as China’s political centre, the capital of a socialist country, the national centre for science and technology and economic centre for northern China, Beijing has a vested interest in attracting the best talent and to balance development across the municipality. As such, who is eligible for and who should be granted hukou are both decided locally in order to best meet the city’s core objectives. Eligibility is more often than not essential to being granted a hukou. Significant gaps between migrants, eligible applicants and hukou winners have been revealed. In 2010, most migrants in Beijing failed to meet the education and job requirements, and they did not live where Beijing wished them to live. Even among the limited number of qualified applicants, the chances of obtaining a hukou still varied. Those with a postgraduate education had a much higher chance than those with an undergraduate education, a bias rarely mentioned in official documents. Preference was also given to those who worked in the civil service over workers in other key sectors. This was also a “hidden” rule. Although the Beijing government clearly sets out the eligibility requirements for hukou, it is less clear about what is needed to actually obtain one.

Clearly, the hukou system is, like with so many other things Chinese, a heavily controlled rural to urban migration process.

2. The Economist has an article on the corporate executive search market. This is apposite,

A recent Conference Board survey of executives and corporate secretaries found that 73% thought there was no need for a firm with a strong internal candidate for ceo to conduct an outside search. There appears to be no shortage of such talent within. Last year almost four-fifths of new s&p 500 bosses came from inside the firm... Yet most large companies will continue to use search firms—even if they do not fully buy the science, or harbour other doubts. That is because external validation has a value all of its own. Recruiters can be crucial in helping build consensus when, as is so often the case, boards are split. It is as diplomats that the best headhunters earn their keep.

This explanation for hiring head-hunters is, most often, just as much relevant for hiring consultants. Very often they deliver little by way actionable and real long-term value which is not known to the insiders. It is just an external assessment, with the veneer of objectivity, is convenient for executives both to buy the credibility and organisational buy-in required to undertake hard reforms or make high profile hires and also a means to cover their backs if things go wrong.

3. The Economist has another article about the Euston station redevelopment plan in the context of its origination point for the HS2 project,

Last month Camden council, within whose boundaries the station wholly lies, published a draft planning brief, which envisages up to 3,800 new homes, a quarter of a million square metres of commercial space and as many as 14,000 new jobs in a project that has the potential to become not only a massive transport hub but also what the plan calls “a new piece of the city”... The plan imagines green spaces, housing, offices and retail above the new station, as well as building over exposed, below-street-level tracks that extend north for nearly a mile. It foresees bringing back the ancient street pattern to reconnect Somers Town and Regent’s Park with pedestrian and cycle routes over the roofs of the stations. Camden council has experience in such matters. The redevelopment of King’s Cross, a nearby station, transformed a huge chunk of derelict land into a vibrant quarter of the city. Google is building its London headquarters there.

A potential addition to London's growing list of transit-based transformations - King's Cross, Liverpool Street, London Bridge, Canary Wharf, Battersea etc. Also a lesson for urban planners in India to learn from.

How about a mandatory requirement that any new metro project should be associated with an area transformation project or some linkage with housing and commercial stock development and job creation around at least some of its stations?

4. Nice NYT feature on perhaps the new Ground Zero for water wars, the Grand Ethiopian  Renaissance Dam being constructed on Nile River by Ethiopia. An estimated 95% of Egyptians live along or inside the delta and the river provides 95% of the country's drinking water, all of which are now threatened by the upstream $4.5 bn project.

In some respects this is also about the upper riparians exercising their rights over a river which was hitherto mostly exploited by Egypt.

5. Pronab Sen makes this point about unemployment rate in India,

The unemployment rate in the country for 2017–18 was estimated at 6.1%, which was the highest in the 45 years for which such data have been collected.

Is the unemployment situation so worse as to be a half-century low? Do we smell signatures of such an exceptionally high unemployment rate? So what gives?

There are two surveys here. One, the NSSO used to do employment-unemployment survey (EUS) once every 3-4 years which was last done in 2011-12 and since discontinued. Two, the PLFS, which was initiated by this government in 2017-18 and is done annually. 

Sen has competed the data from the two on a historical basis. This is wrong and they are not comparable. There are several differences, like for example, the PLFS gives higher weights to educational status. This in turn gives it a bias towards unemployment among the more educated, a rate which has always been higher. If we are to do a true comparison, we need to get the raw data for PLFS and subject it to the same statistical treatment/formula as was being done for EUS and then make comparisons. 

I can understand the regular journalist being loose with such interpretations, but for a professional statistician, and a credible one at that, to make such a claim. Am I missing something here?

6. Good article by Nidheesh in Livemint (HT: Ananth) about the challenges faced by small enterprises in Coimbatore due to economic slowdown and policies like GST, 

The issues with GST go beyond the tax rate, and is more about the system’s inadequacy in understanding the ground realities of a small enterprise, explained J. Maheswaran, owner of pump-set manufacturer GV Industries. The small and medium businesses in Coimbatore are almost completely running on credit, said Maheswaran. A local vendor usually supplies some spare parts on credit to a company, with the assurance of payment when the final product gets sold. In a slowdown, as products pile with sales drying, the vendor naturally suffers payment delays. But in the meanwhile, he has to pay his GST by the 20th of each month. “If I have made a turnover of about ₹5 lakh, I have to pay about ₹90,000 per month as GST. I get the payment from the customer after a minimum of 90 days, that too, sometimes, partially. This has been the procedure in the market for years. But now, after you have made the bill, you have to pay the GST within 20 days... even before the full amount comes to you," explained Maheswaran. “If you fail to pay the GST, you will get fined. If you continue to fail for three months, the GST will be blocked. Your bank account also will get blocked. So, now, we are borrowing money from wherever we can to pay the GST until we get the payment," he added.

It will always remain a challenge when such reforms are introduced into largely informal economic systems where not all costs and benefits are monetised. In a formal market, in such cases, there would be a market for factoring receivables or the cost of locked-up receivables would be captured in some higher receivable. 

Assuming that there are, say 4-5 transactions, in a typical production-to-consumer chain, I guess only the 2-3 (the original manufacturer and the wholesaler) would be formal, and the rest mostly informal. Some mapping study of a few typical such transactions would be useful. 

So, to this effect, I guess, given the large share of informality, GST is as close as it can get to being a genuine disruption (without being judgemental on this, since the reform itself is desirable) to the economic system. The best that can perhaps be done to such shocks is to cushion them as much as possible and have policy respond iteratively. The new equilibrium where costs are monetised and internalised and associated eco-system (like factoring receivables) will take time to emerge.

The RERA too will surface similar problems since construction sector is largely informal and the working capital locked up is much higher. 

 

7. Nice data journalism on European club football.

8. The checks and balances on executive activism in the US are fast disappearing, as the US Attorney General starts acting as the private lawyer to the President.

9. A New Yorker essay which raises questions with the quest for perpetual prosperity and income growth,

Dietrich Vollrath, an economist at the University of Houston and the author of “Fully Grown: Why a Stagnant Economy Is a Sign of Success”... argues that slower growth is appropriate for a society as rich and industrially developed as ours. Unlike other growth skeptics, he doesn’t base his case on environmental concerns or rising inequality or the shortcomings of G.D.P. as a measurement... Vollrath offers a detailed decomposition of the sources of economic growth... The movement of women into the workplace provided a onetime boost to the labor supply; in its aftermath, other trends dragged down the growth curve. As countries like the United States have become richer and richer, Vollrath points out, their inhabitants have chosen to spend less time at work and to have smaller families—the result of higher wages and the advent of contraceptive pills. G.D.P. growth slows when the growth of the labor force declines. But this isn’t any sort of failure, in Vollrath’s view: it reflects “the advance of women’s rights and economic success.”

Vollrath estimates that about two-thirds of the recent slowdown in G.D.P. growth can be accounted for by the decline in the growth of labor inputs. He also cites a switch in spending patterns from tangible goods—such as clothes, cars, and furniture—to services, such as child care, health care, and spa treatments. In 1950, spending on services accounted for forty per cent of G.D.P.; today, the proportion is more than seventy per cent. And service industries, which tend to be labor-intensive, exhibit lower rates of productivity growth than goods-producing industries, which are often factory-based. (The person who cuts your hair isn’t getting more efficient; the plant that makes his or her scissors probably is.) Since rising productivity is a key component of G.D.P. growth, that growth will be further constrained by the expansion of the service sector. But, again, this isn’t necessarily a failure.

“In the end, that reallocation of economic activity away from goods and into services comes down to our success,” Vollrath writes. “We’ve gotten so productive at making goods that this has freed up our money to spend on services.” Taken together, slower growth in the labor force and the shift to services can explain almost all the recent slowdown, according to Vollrath. He’s unimpressed by many other explanations that have been offered, such as sluggish rates of capital investment, rising trade pressures, soaring inequality, shrinking technological possibilities, or an increase in monopoly power. In his account, it all flows from the choices we’ve made: “Slow growth, it turns out, is the optimal response to massive economic success.”

10. On sexual assault cases, some very shocking findings from the US,

Only 23 per cent of rape or sexual assault victims report the crime to the police, according to a US Department of Justice study. Within that group, only a fraction of these cases lead to a trial, and about 35 per cent of rape trials end in conviction, the DoJ found. Sexual assault cases are often difficult to prove and become a battle of credibility

11. FT review of an Adam Cohen book that highlights how since 1970 the US Supreme Court has continuously helped maintain the status-quo by privileging the interests of the rich and well-off over those of the poor and less well-off.

12. Finally, what is the real-world purpose of this paper, and that too with five Principal Investigators?