Causation or correlation, institutional deliveries are a step in the right direction.

Karthik has provoked me sufficiently with his comment on my last post on NRHM and reference to this older post by Jeff Hammer and Jishnu Das. And the article is a teachable exhibit. 

First, let's get some facts out of the way. The Das-Hammer observations are till the 2008 period and this is for the 2005-06 to 2015-16 period. The IMR outcomes do not seem to have tapered.

Be that as it may, even if this were not true, I still have several problems with the blogpost. I think it takes theory and the quest for evidence to some extremes. Just a few that pop out egregiously are as follows

1. C-sections get done in the bigger institutions, community health centres (CHCs) and above, rarely in Primary Health Centres (PHCs). While they are undoubtedly a big concern in general, they cannot be the reason for any relative stagnation in the decline in mortality rates due to deliveries in PHCs. 

2. I agree with the logic of the marginal cost/returns and that is a part of the larger state capacity issue itself - state is trying to address a vastly increased scope of its activities with pretty much the same set of institutional, human, and financial resources. 

But I am not sure whether the marginal cost curve has reached the diminishing returns part in case of PHCs and institutional deliveries. My guess would have to be that the average monthly institutional deliveries in PHCs would be 15-20 (and very few would have, say, more than 75). In any case, what is the authors' basis for making their own assumption about the marginal cost argument? It appears to be only a hypothesis? It would have been useful to engage with this hypothesis if it was backed by more evidence of the like I just mentioned.

3. Surely the standards on promotion of institutional delivery and drugs validation process cannot be equated! Do governments need to wait for evidence before promoting institutional deliveries? Or should governments wait to fix state capacity before they promote institutional deliveries? Or should governments stand aside and ask local communities to iterate on institutional deliveries? 

4. Again the author's argument about respecting the decisions of the poor is as much as their thought exercise as the practitioner's explanation of their theory of change. Does it mean that we now question the narrative about people not delivering in hospitals because of ignorance, customs, social norms, religious beliefs, and so on? Do we need evidence on that? In remote areas, and these are very large swathes, transportation is a big constraint on institutional delivery. Do we need evidence to show that this is indeed a constraint?

In all such examples, there are no one or two "starting points" to explain trends and behaviours. There are many, and it varies from region to region. And trying to figure that out on a context basis is obviously ideal, but of no practical relevance in our Bayesian world. 

5. Some other arguments are plain baffling (italics mine),  

Government encouragement of institutional deliveries is based on the idea that poor people choose to deliver at home either out of ignorance or an inability to make the right decisions or due to cultural norms and the exercise of (male) power. But an alternate starting point is that people were not using institutions to begin with precisely because quality was low, and that increasing quality would also bring more people in. In fact, this is the most obvious explanation for the correlation between increasing institutional deliveries and lower child mortality. To base policy on the belief that we can make better decisions over the lives of those who are about to be born than their parents is a stand that minimally requires the onus of proof to be on those who claim such knowledge.

How can we say with any degree of certainty that which of the two, supply or demand sides, are the bigger constraint on institutional delivery? Further, the answer could vary widely across regions, rural-urban, and so on. In fact, there is most certainly no one constraining factor across the general population. Frankly, not only do we not have answers to many of these issues, nor are we likely to ever have satisfactory enough answers to them. 

Right now, we know that given the context in these developing countries, it is a good thing to encourage institutional deliveries. But we need to be simultaneously cognisant of the systemic weaknesses and try to address them. The NRHM has certain institutional features which tried to make some (obviously limited) attempts at this. As a counterfactual, Sarva Siksha Abhiyan allocates nothing to the school to improve learning outcomes (apart from a meagre annual grant to the teacher to make teaching materials). 

Look, I hold no brief for India's health care system, which I will emphatically say is broken and needs fixing big time. But try coming up with a politically acceptable and administratively feasible action agenda (a program to address maternal and child health issues, leave aside a policy for healthcare), conditional on the world as it exists, for scaled up implementation across India!

Let us dispense criticism with some realism. I can understand some academics critiquing other academics for the latter's unquestioning embrace of some models like the NRHM or Chiranjeevi voucher scheme. In fact, this blog has consistently questioned the obviously inflated claims of many government programs. But I cannot understand academic critiques of governments for focusing on institutional deliveries. 

If critiques are to be constructive, it would have to focus on more practical issues. Conditional on the focus on institutional deliveries, what additional resources are required to support the PHCs? What is a reasonable number of deliveries an institution can perform and is there some mechanism to support institutions where they exceed this number? 

May be they are not amenable to academic research publications. Instead, if we disown any priors and open up all boundaries, we are left with idle critiques of no relevance to practitioners. Of course, it is fair to say why should academics be held to that test. Well, that is a different matter and for a latter post.

Is NRHM the most successful healthcare program in the world?

In the dismal world of pervasive program failures in development, India's National Rural Health Mission (NRHM) should stand out as a heartening positive deviance. While it is undeniable that there are fundamental problems like poor quality of health care, which need systemic reforms that go beyond a single program, the NRHM has helped achieve significant improvements in a broad spectrum of health outcomes (maternal and child mortality) and outputs (immunisation, ante-natal care, institutional deliveries etc). 

The most striking indicator is the near doubling of institutional deliveries over a ten year period.

Given the importance of this single intervention of promoting safe delivery, I cannot recollect an achievement of similar scale on any similarly important indicator in any other sector. The contrast with Sarva Siksha Abhiyaan in school education cannot have been starker. Granted the nature of challenges are different. 

The Janani Suraksha Yojana, initiated in 2005, has been instrumental in the success with maternal and child health interventions. It is the world's largest conditional cash transfer program, and makes payments to mothers to undertake institutional deliveries and to community health workers for ante-natal and post-natal visits, institutional deliveries, and immunisations. 

The NRHM's success (as evident from the graphics here) can be traced back to its unique focus on implementation flexibility, untied resource allocations, local accountability, demand-side incentives, and outcomes-based payments. In fact, the NRHM may also be the only example of Payment by Results (PbR) financing that has worked in scale in social sectors anywhere in the world.

India's campaign finance reform journey

The recently passed amendments to the Finance Bill 2017 by the Lower House of the Indian Parliament includes a provision to remove the caps on undisclosed donations to political parties. Critics are right in questioning the wisdom of pushing through such an important decision as part of a Money Bill. And it is most likely that this would be litigated and stuck down by the Supreme Court. 

But their critique that this would weaken campaign finance reforms is arguable. In fact, I am inclined to argue that lifting the cap on corporate donations may be a prudent compromise, though the government may have ended up overreaching with its other elements. 

The conventional wisdom on campaign finance reforms advocate a simultaneous pursuit of transparency (limiting cash donations), competition (capping of donations), and deter cronyism (making their disclosure mandatory). 

While logically unexceptionable and intellectually laudable, I am inclined to believe that this is impractical given the political economy and the scale of transformation that it would entail. Given the prevailing nature and scale of campaign financing, the massive gap between the actual and permissible amounts, and the difficulty of cobbling political consensus on such issues, it is surely unrealistic to expect a simultaneous targeting of all dimensions with one comprehensive strategy. 

A more realistic approach to addressing campaign finance may be to take a few steps at a time. Between the three, it may be prudent to address transparency initially by squeezing out channels of cash donations and ensuring that only clean money enters the political arena. While the decision to dispense with the cap on donations may actually be a practical response, the waiver of disclosure requirements is a retrograde step. The latter becomes all the more so since maintaining the current disclosure requirements would have been politically feasible. 

Instead of the current proposal, it would have been more appropriate and practical to have a much higher cap than the (now amended) 7.5 per cent of the average net profit over the past three years and either retain the current disclosure requirement or link disclosure to the revised cap. A progressive reduction of that cap would then have become the natural phasing of campaign finance reforms. Now, anonymous corporate donations have been given a complete free pass. And future reforms have to battle insertion of the caps on both donations and disclosure requirements.  

The credibility of government's commitment to campaign finance reforms will be measured by complementary measures to strengthen the rigour of audits and tax filings of political parties as well as enforceability of their violations. 

In any case, as already mentioned, I feel that the last word on this enactment may yet come from the Supreme Court, and it is here that some of the aforementioned suggestions can be considered.

Oil industry automation fact of the day

From the Times on the new labor market normal in oil drilling in the US, 

Roughly 163,000 oil jobs were lost nationally from the 2014 peak, or about 30 percent of the total, while oil prices plummeted, at one point by as much as 70 percent. The job losses just in Texas, the most productive oil-producing state, totaled 98,000. Several thousand workers have come back to work in recent months as the price of oil has begun to rise again, but energy experts say that between a third and a half of the workers who lost their jobs are not returning. Many have migrated to construction or even jobs in renewable energy, like wind power... 

Indeed, computers now direct drill bits that were once directed manually. The wireless technology taking hold across the oil patch allows a handful of geoscientists and engineers to monitor the drilling and completion of multiple wells at a time — onshore or miles out to sea — and supervise immediate fixes when something goes wrong, all without leaving their desks. It is a world where rigs walk on their own legs and sensors on wells alert headquarters to a leak or loss of pressure, reducing the need for a technician to check. And despite all the lost workers, United States oil production is galloping upward, to nine million barrels a day from 8.6 million in September. Nationwide, with a bit more than one-third as many rigs operating as in 2014, production is not even down 10 percent from record levels. Some of the best wells here in the Permian Basin that three years ago required an oil price of over $60 a barrel for an operator to break even now need about $35, well below the current price of about $53...

Pioneer Natural Resources, one of the most productive West Texas producers, has slashed the number of days to drill and complete wells so drastically that it has been able to cut costs by 25 percent in wells completed since early 2015. The typical rig that drilled eight to 12 wells a year just a few years ago now drills up to 16. Last year, the company added nearly 240 wells to its Permian Basin inventory without adding new employees.

The start-up story clarification

This is in continuation to this earlier post. Let me clarify. No body can have a problem with start-ups. After all business creation has been a feature of economic life much before Amazon and Uber.

I see three narratives around the start-up story. One, start-ups allow the expression of entrepreneurial talents and energies of the youth. Two, start-ups create jobs. Three, start-ups innovate to create new products and services that enable more efficient utilisation of resources and solve development challenges.

The problem with the first is one of glorification of entrepreneurship, almost to the marginalisation of all else. This trend overlooks the fact that India needs not more entrepreneurship, but more productive jobs. Just as human resource misallocation towards the financial sector has been a problem in the US, it cannot be denied that the best and the brightest could end up being seduced by the hype and glitz of the get-rich-quick narrative associated with the world of IT start-ups. The best and the brightest find even the most high quality jobs unattractive and lose out on the invaluable experience of acquiring the skills and expertise that come with starting a career in good organisations. 

The second and third are even more complicated, with potentially adverse secondary effects. In case of the second, there is the strong likelihood that start-up activity may be crowding-out other activities. Are scarce savings being misallocated towards specific sectors, those which run on IT platforms, at the cost of other more important ones? Would the median entrepreneur have been better served by seeking a job employment? Would the economy have benefited more in the aggregate with a less exuberant start-up environment by channeling top class talent into medium sized firms engaged with making stuff? Would the aggregate job creation been greater with a greater share of wage employment? It is difficult to answer these questions either ways with any degree of certainty.

It is on the third issue that I am least convinced. I will say no more than what has been written here.

The need for regulation in e-commerce

In an earlier post I had raised the issue of how internet firms benefit from regulatory arbitrage. The competitive advantage of the sharing economy firms over their brick and mortar counterparts can be traced to their very low regulatory compliance costs, in terms of entry standards, labor protections and different categories of taxes. 

It was not that any of the externalities from such activities disappeared. But instead of being internalised, as with the case of brick and mortar enterprises, they were socialised away from the internet firm and borne by the tax payers. 

Consider two features of the ride-on-demand (RoD) market in India as against developed markets. One, unlike the US and developed countries where Uber drivers complement their incomes, those in India are largely full-time workers. Second, instead of enabling a more optimal utilisation of an already owned vehicle, Uber drivers here either lease or purchase vehicles or are doing part time with (mostly) informal taxi operators. 

Both these features mean that RoD market in India is not the classic "sharing" economy. In fact, they are often indistinguishable from a regular business with employees and a management. The only difference between a registered taxi operator and Uber is that the former pays all the taxes and adheres to all regulatory compliances. Uber, Ola and Co manage to shift the entire burden away to the tax payers. By using drivers who work for informal taxi operators, likely to be one of the largest categories of drivers, RoD firms are formally leveraging an informal economy platform. 

And the regulatory vacuum encourages perverse incentives,

In India, Uber leases vehicles to drivers through Xchange Leasing — a challenging proposition in a country with no centralised credit score system. “To us, creditworthiness is not a criteria, our goal is to give out leases and give out cars to as many people as possible,” says Amit Jain, president of Uber India. Several thousand cars have been leased through the programme, he said, which uses background checks rather than traditional credit checks. “If somebody cannot pay the monthly amount, they can simply return the car,” he added.

Don't be surprised if a significant portion of those "subsidised" Mudra loans, which the government is promoting to encourage entrepreneurship, is ending up financing Uber and Ola's expansion. And the risk is that when the powder runs short, as it should, and the price sensitive Indian customers inevitably retreat when prices rise to reflect commercial considerations and likely forthcoming regulatory burdens, these loans could end up adding to the already big pile of non-performing assets. 

What is happening in large parts of the e-commerce market is resource misallocation on a fairly significant scale. This is true as much of the so-called "sharing" firms like Uber/Ola and Oyo, as of the broader e-commerce market itself. Amidst this euphoria over start-ups and me-too firms, with their undoubted entrepreneurship (starting and doing a business of any kind in India requires some entrepreneurship!), I struggle to spot the fundamental rationale, innovation.

In this context, greater regulation assume significance. The problem when governments do regulation is that they tend to be excessive. But the problem with no regulation may be worse still!

China update

China's alarming obsession with debt is arguably the biggest concern regarding the country's economic growth prospects. Morgan Stanley's Chetan Ahya puts the scale of the problem in perspective,

China’s debt has risen from 147 per cent of GDP in 2007 to 279 per cent of GDP in 2016. Last year, China added 21 percentage points to its debt-to-GDP ratio, or the equivalent of $4.5tn. In effect, China needed almost six renminbi of new debt to grow its nominal GDP by one renminbi... only two economies which have a population of above 20m have been able to escape the middle income trap, in which rapidly growing economies stagnate at middle-income levels, over the past 30 years. Those were South Korea and Poland.

But, despite this, there is a rising tide of opinion that China may have done enough to overcome the worst fears. A recent Morgan Stanley China report clearly came out bullish on China. Its arguments for macroeconomic stability focus on Chinese debt being funded domestically, its very big external balance sheet with net international investment position of 16% of GDP, low inflation effect due to credit allocation being used to fund investment, political acceptance of lower growth going forward, potential for rebalancing towards consumption, reforms to transition away from low value manufacturing, and the sure signs of moving towards high value added manufacturing. 

This blog has been inclined to the view that China's growth momentum was built on strong enough foundations and, coupled with its unique size and fairly enlightened government unencumbered by the troubles of democratic politics, meant that the country could potentially tide over these problems without a hard landing. It has built everything that India does not have - human, physical, financial, and institutional capital - to sustain a high (relative to its income levels) growth trajectory. 

However, there are two concerns. The size of debt is massive and these numbers do not accurately reflect the non-bank sector debts. For corporates and local government entities, an orderly deleveraging cannot be taken for granted. Apart from the economic contagion from lurking potential too-big-to-fail dangers, there is also the likelihood of social disruptions from job losses and so on.  

Further, despite its net positive external investment position and foreign exchange surpluses, that channel may not be as secure as we believe. In a couple of years, a trillion has been wiped off from the reserves, and a significant proportion is not liquid enough to be drawn for use. In case of external and, more critically, internal events, if the renminbi becomes a one-way downward bet, then the flight of domestic savings capital from China itself and efforts to prop up the currency could end up rapidly eating up the reserves buffer. And then we could have a different scenario.

I am therefore not surprised that Michael Pettis holds the view of a "gradual decline in GDP growth to below 3 percent by the end of this decade, or shortly thereafter".