Weekend reading links

1. Ananth send this excerpt from a new book, Meltdown by Chris Clearfield and Andras Tilcsik, that explores the reasons for failures and what can be done to avoid them. 

It points to the likelihood of conformity being a biological default option for human beings,

In one experiment, scientists used functional magnetic resonance imaging (fMRI) to see how our brains react when we hold an opinion that deviates from our group’s consensus. It turns out that two things happen when we go against the grain. First, a brain region involved in error detection becomes very active. The nervous system notices a mistake and triggers an error message. It’s as though your brain is saying: Hey, you’re doing something wrong! You need to make changes! At the same time, an area of the brain that anticipates rewards slows down. Your brain says: Don’t expect that you’ll be rewarded! This won’t work out well for you!

“We show that a deviation from the group opinion is regarded by the brain as a punishment,” said the study’s lead author, Vasily Klucharev. And the error message combined with a dampened reward signal produces a brain impulse indicating that we should adjust our opinion to match the consensus. Interestingly, this process occurs even if there is no reason for us to expect any punishment from the group. As Klucharev put it, “This is likely an automatic process in which people form their own opinion, hear the group view, and then quickly shift their opinion to make it more compliant with the group view.”

... And when people went against the group, there was a surge in activity in brain regions involved in the processing of emotionally charged events. This was the emotional cost of standing up for one’s beliefs; the researchers called it “the pain of independence.” When we shift our opinions to conform, we’re not lying. We may not even be conscious that we’re giving in to others. What’s happening is something much deeper, something unconscious and uncalculated: our brain lets us avoid the pain of standing alone.

And this about the natural inclinations when in positions of authority or power,

Research shows that when people are in a position of power, or even just have a sense of power, they are more likely to misunderstand and dismiss others’ opinions, more likely to interrupt others and speak out of turn during discussions, and less willing to accept advice — even from experts. In fact, having power is a bit like having brain damage. As Keltner put it, “people with power tend to behave like patients who have damaged their brain’s orbitofrontal lobes,” a condition that can cause insensitive and overly impulsive behaviour. When we are in charge, we ignore the perspectives of others. This is a dangerous tendency because more authority does not necessarily equal better insights. A complex system might reveal clues that a failure looms, but those warning signs don’t respect hierarchy. They often reveal themselves to folks on the ground rather than to higher-ups in the corner office.

This is a fascinating illustration of the problems with authority (how it stifles dissent) and how small tweaks can help overcome the problem.

Since the 1970s, a series of fatal accidents have forced changes in the airline industry. In the bad old days, the captain was the infallible king of the cockpit, not to be challenged by anyone. First officers usually kept their concerns to themselves, and even when they did speak, they would only hint at problems... Captains and first officers usually alternate flying the airplane. The flying pilot manipulates the primary controls. The non-flying pilot talks on the radio, runs through checklists, and is expected to challenge the flying pilot’s mistakes. About half of the time, the captain is the flying pilot, and the first officer is the non-flying pilot. In the other half, the roles are switched. So, statistically, roughly 50 per cent of accidents should happen when the captain is flying the plane, and 50 per cent when the first officer is in charge of the controls. Right?

In 1994, the NTSB published a study of accidents due to flight crew mistakes between 1978 and 1990. The study reported a staggering finding. Nearly three-quarters of major accidents occurred during the captain’s turn to fly. Passengers were safer when the less experienced pilot was flying the plane. Of course, it’s not that captains were poor pilots. But when the captain was the flying pilot, he (and most often it was a “he”) was harder to challenge. His mistakes went unchecked. In fact, the report found that the most common error during major accidents was the failure of first officers to question the captain’s poor decisions. In the reverse situation, when the first officer was flying the plane, the system worked well. The captain raised concerns and pointed out mistakes and helped the flying pilot understand complex situations. But this dynamic worked only in one direction.

All this changed with a training program known as Crew Resource Management, or CRM. The program revolutionized the culture not just of the cockpit but also of the whole industry. It reframed safety as a team issue and put all crew members — from the captain to the first officer to the cabin crew — on more equal footing... An important part of the training, for example, focuses on a five-step process that first officers can use to raise a concern:

1. Start by getting the captain’s attention. (“Hey, Mike.”)

2. Express your concern. (“I’m worried that the thunderstorm has moved over the airport.”)

3. State the problem as you see it. (“We might get some dangerous wind shear.”)

4. Propose a solution. (“Let’s hold until the storm is clear of the airport.”)

5. Get an explicit agreement. (“Does that sound good to you, Mike?”)

These steps sound barely more sophisticated than what we might teach a child about how to ask for help. Yet they were rarely followed before CRM came along... CRM was a huge success. Since it took hold in U.S. commercial aviation, the overall rate of accidents involving flight crew mistakes has declined sharply. And whether the flying pilot is the captain or the first officer no longer matters. In the 1990s, just half of the accidents — rather than three-quarters — happened when it was the captain’s turn to fly.

2. Fascinating profile by Simon Kuper of Manchester City coach Pep Guardiola, who's now won nine league titles in three countries - Spain (Barcelona), Germany (Bayern), and England - over the last twelve years. 

3. Tamal Bandopadhyay examines the flawed structure of Asset Reconstruction Companies (ARCs) which buy bad loans from banks and make money from that. He makes several reform suggestions in this regard.

4. Apart from problems with the vaccine policy, an area of big concern is their pricing. This and this are good articles on the problems with the pricing offered by Serum Institute of India and Bharat Biotech. The former is a contract manufacturer for Astra Zeneca. 

Unlike other countries, India has allowed both vaccine manufacturers to sell their vaccines in the open market at prices determined by them. Despite this freedom, which allows them to price much higher, there are compelling reasons to believe that the prices at which the vaccines are being sold to state governments amounts to rent-seeking. 

The unfortunate part is the complete opacity on these things. For example, the Department of Biotechnology, Government of India has not made available the various forms of support received by Bharat Biotech in developing Covaxin and the different grant agreements. Nor are the details of the advance purchase order put for Covishield. 

5. Mahesh Vyas makes the point about demand weakness being a big drag on economic recovery. 

The index of consumer sentiment declined by 1.5 per cent in the week ended May 16, 2021. This was the fifth consecutive week of a fall in consumer sentiments. Cumulatively, the index has dropped 8.3 per cent since the week ended April 11, when it began its persistent fall. It has fallen 9.1 per cent since the last week of March... In the week ended May 16, only 3.1 per cent of the households reported that their incomes were higher than they were a year ago... Well over half the households – 55.5 per cent reported a loss of income compared to a year ago. The remaining 41.5 per cent stated that there was no change in their income compared to a year ago... The unemployment rate shot up to 14.5 per cent in the week ended May 16, 2021. This is the highest unemployment rate in last one year. The average unemployment rate in 2020-21 was 8.8 per cent. It was 8 per cent in April 2021. It could be in double digits in May 2021... By December 2020, household incomes were 6.7 per cent lower, in nominal terms, than the average incomes during 2019-20.

6. India's solar manufacturing snapshot,

India imports close to 90 per cent of its solar cells and modules, with 80 per cent being from China. According to industry data, India has 3,100 Mw of cell manufacturing capacity and 9,000 Mw of module making. India’s installed capacity of solar power stands at 39.08 Gw (including ground mounted and rooftop). India aims to have 100 Gw of solar power capacity by next year.

7. India health care brain drain fact of the day,

As per OECD data, around 69,000 Indian trained doctors worked in the UK, US, Canada and Australia in 2017. In these four countries, 56,000 Indian-trained nurses were working in the same year.

8. Indian Express report on how the local government and civil society organisations are leading the Covid management efforts. This example of Mayyil Panchayat in Kannur with a population of 31,000 says it all,

This panchayat, with 18 wards, has set up a 24×7 call centre of its own and deployed a Rapid Response Team (RRT) of 140 active volunteers, including college students, youth leaders, daily wagers and taxi drivers. Apart from the RRTs, every ward has “jagratha committees”, comprising a local panchayat member, ASHA workers, government employees and RRT members. The focus is on monitoring cases, especially those under home quarantine.

“Our call centre is for people to inform us about all their requirements… food, medicine and vehicles to go for Covid tests and vaccination. Three persons have been deployed at the centre to alert RRT teams in each ward on the requests received. The idea is to ensure that people do not come out of their homes for even a minor requirement,’’ Rishna K K, the panchayat president, said... “The panchayat had only one ambulance at its primary health centre. But when we asked for more vehicles, a local organisation handed over its ambulance and several others their vehicles and taxis,” she said. Special care is taken in cases of Covid deaths. “Teams for burial or cremation are deputed considering the religion of the victim to ensure that all the rituals are followed,” Rishna said... The panchayat has a domiciliary care centre, which is a quarantine for those who do not have a bathroom-attached isolation option at their homes. It also has a “people’s hotel”, where a plate of rice and curry costs Rs 20. For Covid patients and those under home quarantine, this “hotel”, run by women members of the poverty alleviation mission Kudumbashree, supplies food free of cost three times a day. “Volunteers in each ward organise home delivery, wearing PPE kits if they are supplying to positive cases,” Rishna said.

Local government and civil society organisations have been the central force behind Kerala's Covid response. 

Srinath Reddy outlines a decentralised response action plan.

9. India trade facts of the day,

The level of exports in 2019-20, for instance, was roughly the same as in 2014-15... As highlighted in the latest Economic Survey, India’s exports went up by a compound annual growth rate of 0.9 per cent between 2011 and 2019. The comparable number for Bangladesh was 8.6 per cent.

10. I have never understood the case for lower corporate tax rates in India. A K Bhattacharya has this data based assessment of the corporate tax reduction policy of the government of India.

This is a summary of all corporate tax changes made by the government in recent years,

In 2016-17, new manufacturing companies incorporated on or after March 2016 were given the option to be taxed at 25 per cent plus surcharge and cess (compared to 30 per cent plus surcharge, etc.) if they did not claim profit-linked or investment-linked deductions, investment allowances, or accelerated depreciation. Additionally, the tax rate for all companies with an annual turnover of less than Rs 5 crore was brought down to 29 per cent plus surcharge and cess. In 2017-18, the tax rate for small and medium companies with an annual turnover of up to Rs 50 crore was brought down to 25 per cent. This meant about 96 per cent of companies that filed a tax return were brought under a concessional tax rate of 25 per cent plus surcharge and cess... In the following year, 2018-19, the government extended the coverage of the 25 per cent tax rate to cover all companies with an annual turnover of up to Rs 250 crore — a move that would benefit 99 per cent of companies filing tax returns... In 2019-20, the government extended the concessional tax rate of 25 per cent to all companies with an annual turnover up to Rs 400 crore, thereby covering 99.3 per cent of all companies filing tax returns. Subsequently, in September 2019, all companies not availing themselves of the various exemptions and incentives like tax holidays were allowed to be taxed at 25 per cent, inclusive of the 10 per cent surcharge and a 4 per cent cess. Moreover, manufacturing companies starting operations after October 1, 2019, were to be taxed at an overall rate of 17 per cent.

The outcomes,

Corporation tax collections used to be about 34 per cent of the Centre’s gross tax revenues in 2014-15. This share plummeted to 28 per cent in 2019-20 and further down to 23 per cent in 2020-21... the share of corporation tax in GDP has kept falling almost every year in this period — from 3.4 per cent of GDP in 2014-15 to 2.74 per cent in 2019-20 and 2.28 per cent in 2020-21... In 2014-15, about 188,000 companies in a sample size of close to 580,000 paid taxes at an effective rate of over 30 per cent and this cohort accounted for 60 per cent of the total corporation tax collected by the Centre that year. In 2018-19, thanks to the various tax concessions, only about 85,000 companies of a larger sample size of 885,000 paid taxes at the rate of over 30 per cent. And this cohort accounted for only 50 per cent of the corporation tax revenue of the Centre... In contrast, there were just about 24,000 companies in 2014-15 paying taxes at an effective rate of 25-30 per cent, accounting for only 16 per cent of the corporation tax collected by the government. Another 15,000 companies paid taxes at the rate of 20-25 per cent, but their contribution to the corporation tax revenue was only 10 per cent. By 2018-19, the number of such companies saw a huge increase, without, however, a corresponding increase in their share in total taxes collected. Companies paying taxes at 25-30 per cent numbered around 184,000 in 2018-19, but their share in corporation tax was 19 per cent. The number of companies paying tax at 20-25 per cent increased to over 46,000 and their share in total corporation tax rose to 23 per cent.

In short, the story of India’s corporation tax revenues is about how more and more companies have been taxed at a lower rate. As a result, the contribution of a large number of companies to the corporation tax kitty is getting smaller. No wonder, corporation tax buoyancy has suffered in the last seven years.

There appears no Laffer curve here. 

11. India allopathy health care facts of the week,

The Allopathic doctor-population ratio in India is 1:1,404, per the current population estimate of 1.35 billion. This is well below the WHO norm of 1:1,000. Interestingly 52 per cent of these doctors are practising in just five States — Maharashtra, Tamil Nadu , Karnataka, Andhra Pradesh and Uttar Pradesh... Ministry of Health and Family Welfare (MoHFW) data presented to the Rajya Sabha last month show that there were 12,01,354 Allopathic doctors registered with the State Medical Councils/Medical Council of India as on September 30, 2019.

12. President Trump initiated the $10 bn Operation Warp Speed to expedite vaccine development. It involved massive amounts of research grants, capital investment subsidies to establish manufacturing facilities, and advance market commitment for vaccine purchases. 

Operation Warp Speed is now credited with having played a central role in expediting vaccine supplies. 

13. India corporate earnings facts of the day,

Despite the havoc created by the covid-19 pandemic, listed companies’ net profit as a percentage of the gross domestic product (GDP) has hit a four-year high at 2.6 per cent for the financial year 2020-21 (FY21)... At its peak in FY08, the contribution stood at 7.8 per cent. Since then, it has been on a downward slope. Corporate earnings growth has largely remained stagnated in the last five years. The global average is about 4.7 per cent. India’s long-term average is about 4.4 per cent.