Plumbers, police, and hotspots

Now Chris Blattman has new paper on policing which is, willy-nilly, being cast as raising doubts on "hotspot" policing - use of digital technologies for intensive policing of areas where crime is concentrated. 

The paper finds that while such policing "deters crime and violence" in those areas and "reduced the most serious violent crimes" (rape and murder) in the aggregate, it had limited impact on the "number of total crimes deterred". But it found "spillovers", "pushed property crime around the corner" etc. The tone of the paper (and you can just browse to feel what I mean) unmistakably gives the impression that the paper evaluated "hotspot" policing and found limited benefits. 

Given the framing, it is only natural that people will raise doubts on "hotspot" policing. I can also imagine this paper triggering off more research on distant concerns like spillovers. While nothing as damaging as this can happen with this paper, the costs of such digressions are non-trivial.  

This is all very unfortunate and a testament to the state of development economics research. I actually think that the paper's primary endeavour itself is questionable. Why do we need to test the efficacy of "hotspot" policing?

To answer this, we need to deconstruct "hotspot" policing. There are two elements here. One, prioritising and targeting work. Two, using digital technologies (data analytics and visualisation dashboards) to help with decision-support on the prioritisation. 

Do we need evidence about these two elements? In more simple terms, in a system with scarce resources and several competing needs, isn't it a natural order of things to prioritise them using the most effective reporting and monitoring mechanism possible? 

Have we ever sought evidence on whether great Dashboards are a step in the right direction in the corporate world? Did the first set of corporate users demand evidence from IBM before placing orders for Cognos?

I see Dashboards as a logical progress in the transition of data management from the far less user-friendly stages of massive paper Registers and the confusing array of rows and columns of Excel sheets. Registers and Excel sheets contain data. Dashboards contain information. 

There are two logical criticisms to "hotspot" policing. One, given that actual decisions get taken at smaller jurisdictions, the human agents may have the bandwidth to be able to have a good real-time mental picture of the hotspots. A Station House Officer or Police Inspector, especially in urban areas, who has served for a couple of months, should have a fairly good idea of the high crime incidence areas, people, and categories. So why need a "hotspot" map? Two, even if the police manager is able to prioritise, he cannot, for contextual reasons (say, political complusions or there are too many high crime areas and too few constables to spare), deploy staff as he/she wants. What is the need of something that cannot always be acted on?

The responses are also two-fold. One, it may so be that police managers already have a graphic mental knowledge of all this stuff. But a mental map is a private information. Instead, information captured in this manner is amenable to effective monitoring across the organisation and is therefore a public information. This is true of any organised hierarchical system. Two, the objective should not and cannot be to have precise prioritisation and its implementation by all police managers. Even if a small share of them start using it, which is most likely in any large system, in a decidedly second-best manner, that itself would be a big progress. We would have set the stage for diffusion of an undoubtedly more efficient approach to policing. Given the weak state capacity in police systems, any improvements in monitoring capacity enhances administrative efficiency in the aggregate. 

Or the researchers could claim that they have generated evidence which can help limit the damage with fancy ideas which lead to massive wasteful spending. But how costly is a freeware application like this, this, and this that police jurisdictions can use to translate their data to actionable information? 

I see several pathways to change. One, some of the more enthusiastic police managers in a system find great value in using such technologies to prioritise and monitor their beats. Positive deviances emerge. Two, as Justice Brandies said, sunlight is the best disinfectant. Hotspot applications can shine light, bright and deep, into the crime data collected by police systems. Actionable information emerges. At least some insiders and outsiders can learn and act. 

I am unambiguous and unashamed in support of "hotspot" policing. All policing jurisdictions should, among other things, strive for spatial (and on temporal and human dimensions too) prioritisation and targeting of their policing efforts and they should use technologies like "hotspots" and other types of Dashboards! Of course, needless to talk about all caveats of data privacy and data biases, and the need for their mitigation.

This is not all that is bad with the paper. Spending too much research effort dwelling on displacement is a psychologically misleading illusion. Talk of constructing a fictitious straw-man and then refuting it! Why did we ever think that there would not be any displacement? Isn't it natural for thieves to move to the margins if an area suddenly becomes more intensively policed? Who said crime fighting is a binary game? It is far from the case that if we focus efforts in an area, crime will be eliminated.  

Policing is a repeat game. Actually, police officials, unlike economists, deeply internalise this plumbing reality. Focus on the existing hotspots and reduce incidence there. Respond to the emergent trends and redeploy. Keep iterating and aggregate crime will reduce gradually. If available, even use machine learning applications that have predictive analytics to help double down on the displacement locations. And alongside, also take all the other complementary steps required, not just including those by the police, to address crime. At least some police jurisdictions will have the good fortune of confluence of positive factors that contribute to the emergence of positive deviances in a few years. 

And in several policing concerns like traffic safety, where accidents happen more because of location characteristics and are less likely to be "displaced", just "hotspots" visualisation can be useful as decision-support. 

The most disappointing part comes somewhere near the end (italics mine),

But if crime is easily displaced, then targeting, coordinating, and concentrating resources in high-crime places may not be the right approach after all. Rather, it might be wiser to target the specific people who commit crimes or particular behaviors. Displacement may be inherently less likely than in place-based approaches. This is the spirit of focussed deterrence, which identifies the small group of people who commit serious crimes and use threats and incentives to keep them from offending (Kennedy, 2011). This is also the spirit of cognitive behavioral therapy, which fosters skills and norms of non-violent behavior in high-risk young adults (Heller et al., 2017; Blattman et al., 2017).

In an ideal world, we need to address the underlying socio-economic reasons for crime and several other dimensions, including focusing on the most riskiest people. Many of these dimensions are beyond the control of police departments. And in the real world, we all know the difficulty, even impossibility, of breaking down silos and addressing problems in a comprehensive manner. Should we wait for that ideal world to arrive before we try this out?

Who says "hotspot" targeting trades-off police system resources with "person" targeting? How can we say that it should at all be one or the other? Wouldn't measures to target specific people become likely more effective when the deterrent effect on places is higher and vice-versa? 

This is pulling stray research strands, the only intersection being that they were all done by the same researcher, and generating a grand policy narrative about addressing crime and violence. Frankly I just don't have the energy to go on. 

Talk of writing a paper on the obvious! And even making a splash out of it! Why is academic research so plumbing-free?

Bubbles, bubbles everywhere, waiting to burst?

The big lesson for central banks from the bursting of the sub-prime mortgage bubble was that monetary policy has to go beyond narrow focus on price stability and also address financial stability. 

It is therefore remarkable that quantitative easing continues unabated even as asset prices are frothing across markets - bonds, stocks, property, and even cryptocurrencies! In some cases like Sweden, as Zero Hedge points out, real housing prices are well past their highest levels since 1875! In fact, they are at more than double their previous high. 

And despite this, the Riksbank prefers to continue monetary accommodation by retaining rates at minus 0.50%! Of course, it does not help that its monetary policy is locked into ECB's monetary policy stance. 

The real estate markets in Canada and Australia are not far behind. And junk bond spreads in the US are threatening to touch their lowest in the past two decades. Credit spread for investment grade bonds is just a percentage point! Long-term global real interest rates are at historic lows. 

In the US, the Shiller CAPE, which compares the S&P 500's current price to the 10 year average of earnings, stands at a ratio of 31, indicating that stocks are about 50% over-valued on historic average, a figure exceeded only once in the past 60 years! 

In fact, over a longer historical sweep, the average stock is trading at 73% above its historical average, higher than all but two occasion since 1880 - just before the Great Depression and the run-up to the 1999 dotcom bubble bursting.

It is a moot point as to what is the main driver of the extraordinary low interest rates in developed countries. While on the supply-side the global savings glut, arising from shifting demographics, and on the demand-side structural changes have lowered the cost of capital investment, it cannot be denied that the QE has hastened the downward trend of real interest rates.  

While QE was understandable when the world economy was tottering in 2008, it is surely well past time to step back. But the reluctance of central banks to roll back the extraordinary monetary accommodation is yet more proof that central banks are unlikely ever to be able to take the punchbowl away when the party is on.

Isn't this a compelling enough reason why there should be dynamic macro-prudential regulations that act as automatic counter-cyclical measures to lean against the wind when such bubbles are inflating?

Update 1 (19.10.2017)
The graphic below shows why the equity and bond markets are operating at pretty much the tail-end of the spectrum in terms of valuations.

Yet, despite the froth, short-term implied volatility has never been lower for decades.

Start-up innovation fact of the day

I have blogged on multiple occasions lamenting the me-too nature of India's start-ups and the lack of enterprises that leverage digital and other technologies in a manner that has the potential to truly transform specific areas. 

In this context comes an article in The Economist about Rivigo, a Gurgaon-based start-up that uses technology and brick-and-mortar to provide a relay of drivers for truckers and in the process both improve the efficiency of logistics of transportation and the welfare of truck drivers,

Rivigo, a startup based in Gurgaon, an industrial city near Delhi, is using a different road map. Since its founding in 2014, it has set up a network of 70 “pitstops” across India, each around 200-300km down the road from each other. From those, it organises a pan-India relay system, where drivers ply the four- to five-hour journey from their “home” station to the next. They then drive back to their starting point in another vehicle, and clock off in time to make it home for supper most nights. Another colleague is then responsible for driving the load to the next waypoint, and so on.

Administering this logistical ballet is no simple task. Clever software predicts precisely when trucks will arrive and leave pit-stops and which petrol stations they might refuel at most cheaply. A trip from Bangalore to Delhi takes eight different legs. But by keeping the truck on the road more or less permanently, it takes a mere 44 hours to cover the distance of 2,200km, compared with the 96 hours a conventional trucker would take once rest breaks, meals and so on are factored in. Rivigo claims it has no trouble hiring drivers for the roughly 2,500 trucks it now owns and operates... Because most of Rivigo’s driving staff live near pitstops in rural areas between cities, it can pay them much less than truckers who live in cities and command an urban-dweller’s premium. Its monthly salaries are nearer the 23,000 rupee mark. In one way Rivigo’s approach is unusual for a startup. It is busy accumulating assets—those pitstop facilities and trucks—at a time when asset-light platforms matching service users with existing asset-owners are all the rage.

The success of Rivigo underlines the importance of marrying virtual technologies with physical infrastructure assets to address complex challenges. Rivigo's success has been built on painstaking work of building the 70 pit-stops and acquiring the 2500 trucks and their drivers. The IT solution that integrates them may have been the easiest part. But the demonstration effect may be compelling.   

It is impossible to predict which way the market will grow. But it is not inconceivable that Rivigo would have triggered a transformation in India's trucking industry over the next five years. A world of truck operators, pit-stop owners, and driver suppliers, anchored around relay logistics management platform providers, each specialised in their respective core competencies, is not very unrealistic. That would be real disruption and a very productive one at that. We need more such start-ups!

Jobs displacement fact of the day

Mobile phone repair shops have been a sunrise micro-enterprise in developing countries. There are vocational training institutions which have started courses on mobile phone repairs. A not insignificant share of self-employment loans go to applicants seeking to establish mobile phone repair shops. 

We already have electronic repair shops that dot rural and urban areas in most developing countries. They provide employment to tens of millions of people. 

Now all of them may be coming under threat as companies seek to design products that make physical repairs increasingly difficult. A confluence of factors have come together. At one end, apart from physical design, the components are connected and controlled by software, making repairs very difficult. At the other end, firms seek to capture greater value from servicing the product, rather than lose out to outsiders. 

As The Economist writes, the trend which has covered consumer electronics to even toys, has triggered a "right to repair" movement in the US, with demands for regulation to force manufacturers to make their products more easily repairable. 

Some types of gear, such as photocopiers and medical equipment, have always been hard to mend because of their internal complexity. But what has been the exception is now becoming the rule... Even a John Deere tractor comes with millions of lines of software code, controlling everything from the engine to the armrests. Mobile devices, for their part, are getting ever more densely packed to make them smaller and able to accommodate new components...

Manufacturers are also increasingly erecting less tangible barriers to mending. Leased equipment and devices under warranty have always been out of bounds, but firms now regularly ban tinkering with a product’s software... Firms also withhold technical information, proprietary repair tools and spare parts... Not only do firms want customers to use authorised dealers, but a growing number of products are also no longer stand-alone devices, but rather delivery vehicles for services that generate additional revenues. Smart speakers such as Amazon’s Echo are a case in point. The e-commerce giant may even lose money with the device, but it helps to sell other products and collects reams of data about users. These can be used for additional services or to target advertising. Similarly, wearable technology such as fitness trackers would be much more expensive to consumers if manufacturers did not believe they could monetise the data they collect. If owners could easily tinker with such devices, that could sever the profitable links between product, service and data, which may make manufacturers’ guard them even more jealously.

Either ways, is this one more disturbing trend in the direction of displacing jobs?

India state capacity fact of the day - Railways edition

In the aftermath of the Mumbai Elphinstone Road overbridge tragedy, Sunil Jain writes about the challenges facing Indian Railways,

In 2012, the Anil Kakodkar panel said India needed Rs 1 lakh crore for fixing safety and said it wasn’t safe to use the 52kg/m tracks or the 43,000 ICF coaches – this got highlighted in all the recent accidents – but the Railways is too broke, so we fix what we can (albeit at a faster pace under Prabhu) and leave the rest to God. In the case of Elphinstone or the 8-10 people who die every day on Mumbai’s commuter trains – an analysis in TheQuint says while the locals are designed to carry 1,320 passengers, they carry over 4,800 – the answer is obvious: build more trains, make the stations bigger … but when the Railways loses Rs 35,000-40,000 crore every year in passenger traffic, of which around Rs 5,000 crore is in suburban traffic like in Mumbai, how do you pay for this even if you want to do all of this; and if by some stroke of luck, you get the money, where will the land come from to build new stations and tracks? If you move to the roads sector, we have 5 lakh accidents a year and 1.5 lakh people die in them – fixing this means more policemen, more speed-breakers, better-designed roads.

I have blogged earlier highlighting the challenges associated with addressing the problems of Indian Railways here and here. 

It has been reported that people have brought the  problems with the overbridge and the likelihood of stampede to the Railway Authorities, including the Railway Minister. This tweet conveys couple of important messages.

For one, it is classic bureaucracy. It is a well known practice in a bureaucracy for operational or implementation complaints (a corruption intimation or service delivery failure grievance) and requests (a public good or individual welfare benefit demand) submitted by citizens to higher level officials to get routinely endorsed down to the field level functionaries. What is not well known is that the vast majority of these endorsements end up getting lodged without any action. The main reason being that those at the cutting edge are either not equipped or do not have the resources or capacity to address them. It is not that those at the top can do better. 

How can a Divisional Engineer address a particular safety problem, when apart from keeping the show going on (trains running) with the threadbare resources at hand and several other contextual constraints, he also has to attend to tens of such safety problems and several other capital expenditure requirements with resources which can hardly meet a fraction of the needs? And even to meet those requirements, he has to wade through a stifling bureaucratic process. Talk about fighting a battle with both hands tied and eyes folded! 

Of course, an already insurmountable problem is compounded by the intentions, motivations, and incentives of the typical Divisional Engineer, which are not exactly aligned in the direction of achieving the objectives. 

Such submissions to the government have now shifted to the cyberspace. Twitter accords the convenience to do a similar perfunctory exercise of passing the buck. It's just that unlike the office files which have to be obtained through RTI queries, Twitter trails are in the public domain. Nothing has changed, and will change, unless the system has the resources - financial, personnel, and institutional - to be able to deliver. 

Another side is less discussed, but more relevant if we are to address such challenges. It is easy, with our tweet-happy tactile senses, for anyone to shoot off 140 (now 280) characters, especially if it also serves the purpose of both making our psychological selves feel better as well as score social brownie points by signalling one's commitment and interest in public issues. Even better, there is no cost or accountability associated with the tweet. We can tweet whatever we want and then sanctimoniously claim "I told you so" when the issue materialises (as it generally should). Like talk, tweet is cheap! 

But while tweeting away, do we realise that fixing potholes or building overbridges cost money and that does not grow in a tree? Indian Railways has no magic tree to grow the money required to address such concerns. The vast majority of resources required to address them have to come from those who use the trains. But we all know that both individually as well as collectively, we are unwilling to share anything close to the share of the burden required to meet out tweet-happy expectations. 

In a world where even the richest balk at paying their share of taxes and governments are starved of resources, and expectations have been raised sky-high, there is little meaningful that can be done to address such problems. So democratically elected governments are forced into doing events management and quick-fixes. 

Functioning systems require resources and state capacity, as well as civic spiritedness and willingness to shoulder responsibilities. It is a collective endeavour, part of a social compact. The problem is that each side fails to keep its side of the bargain and blames the other. The problems remain unaddressed. Incidents keep happening...

Evidence Vs faith - the story of PPPs

I believe that people with ideological predilections are unlikely to be swayed by evidence. Therefore evidence of the failings of public private partnerships (PPPs) in delivering on outcomes and value for money, howsoever credible and compelling, is unlikely to shake the faith of those with the ideological belief that markets always work better than governments. 

But when the evidence on failures of PPPs is carried, repeatedly at that, by the mouthpiece of free-market capitalism, Financial Times, it may be that the faith is getting unsettled. 

The UK was among the leaders in the use of private capital to deliver public services through structured contracts. Apart from core-infrastructure like transportation and power plants, UK, though its Private Finance Initiative (PFI), pioneered the use of PPPs in social sectors like the construction and management of schools, hospitals, prisons and so on. At its peak, PFI projects formed 10-15% of the gross public sector investments. 

But in a quite stunning reversal of fortunes, the number of PFI projects that achieved financial closure have nose-dived from over 70 in 2006 to zero in 2016!

Apart from fiscal squeeze and the financial crisis, the FT points to another, possibly the most critical, explanation for this decline,

Early PFI projects were shown to be poor value for money, giving equity investors windfall gains not commensurate with the risks they had taken.

Even though it has fallen off favour, its legacy is bitter and will remain so for another thirty years. It is estimated that the 716 contracted out projects, with capital value of about £60 bn, will cost the public exchequer about £10 bn a year, declining gradually till 2050. Education and health form two of the three biggest sectors covering these investments. 

Econ 101 logic favours contracting out construction and operation & maintenance (O&M) to one party (or consortium) on the belief that it would align incentives and minimise life-cycle costs of the project. The construction would be of very high quality so as to keep the maintenance costs low. This may have been so when such PPPs were first tried out. The construction contractor then stayed on to operate and maintain the project. 

But as the market expanded and matured, there emerged a neat segmentation between construction and O&M. The big construction firms assumed the construction risks, constructed and commissioned projects. Once construction risks were off-loaded and since the commissioned project would give a steady long-term revenue, they became attractive to a new category of entities, infrastructure funds. These funds leverage patient capital from pension funds, insurers, sovereign funds, and the like and assume control of a portfolio of projects, outsourcing the physical management to separate O&M contractors.

In simple terms, the asset's ownership becomes similar to a financial instrument, a tradeable instrument, moving from one infrastructure fund to another or to other financial intermediaries like private equity firms. All along the asset is managed by another entity as a service contract. As an example, again highlighted repeatedly by the FT, the consortium led by Macquarie which controlled London's water utility Thames Water for 11 years loaded up £10.6 bn in debt, ran up £260 m pension liabilities, made returns in the range of 15.9-19 per cent and exited with handsome profits. With even lower ownership tenures, allegations of asset stripping by way of loading up debt abound. 

As an illustration, just a handful of infrastructure funds and other financial entities now own most of the UK PFI assets.

The original argument of incentive compatibility no longer applies with the prevailing model of PPP contracting. 

This inherent incentive misalignment compounds the difficulty of writing good contracts in welfare and development sectors like education, healthcare, and prisons. As Oliver Hart, Andrei Shleifer, and Robert Vishny have shown, in sectors where quality is not easily contractible, private participation will struggle to deliver value for money. Worse still, there are also ample opportunities to cut costs either by skimping on maintenance or running down assets or cutting corners on quality (as the Thames Water fines for releasing untreated sewerage shows) or just laying off people and using contract labour and temps. So the investors have headroom of several years, maybe a couple of decades, to squeeze out massive profits by cutting costs and deferring investments.

Do we need more evidence to shake the ideological faith that PPPs are not the holy grail that they are made out to be? Among the ardent ideologues, such snake oil remedies continue to exercise their hold. 

So, what is the way forward? A practical approach would be to discard the logic of Econ 101, view construction and O&M as two distinct activities, and leverage private capital only to finance O&M using contracts which are tightly regulated. Where service quality cannot be contracted credibly, avoid wholesale long-term concession and use shorter duration service contracts. But managing such contracts, in turn, require strong state capacity, an egregious deficiency in developing countries!

India's post-demonetisation policy agenda

My latest work with V Ananthanageswaran examines the policy agenda for the Government in the aftermath of the demonetisation and the efforts to clamp down on black money and shrink the informal economy. Please read the abstract here and the full report here.