Fostering high quality social science research in India

Jacob Greenspon and Dani Rodrik have an illuminating paper analysing the levels and trends in the global distribution of authorship in economics journals. The paper calls out "striking imbalances". 

While Western and Northern European authors have made substantial gains, the representation of authors based in low-income countries remains extremely low -- an order of magnitude lower than the weight of their countries or regions in the global economy. Developing country representation has risen fastest at journals rated 100th or lower, while it has barely increased in journals rated 25th or higher. Fields such as international or development where global diversification may have been expected have not experienced much increase in developing country authorship. These results are consistent with a general increase in the relative supply of research in the rest of the world. But they also indicate authors from developing countries remain excluded from the profession's top-rated journals.

Some graphics. Change in distribution between 1986-2000 and 2001-16 based on publication in journals categorised on ratings.

Change in distribution during the same period across different regions, by field of study.

An interesting graphic comparing the shares of frontier economic research with global economic output.

In this context, I'm reminded of an idea which I had written up sometime back and iterated with a  friend, but not followed-up. It's about what Indian-origin academicians and researchers based in the US and Europe can do to improve the quality of research in India. 

I'm inclined to argue that they can contribute more meaningfully to their native country by staying with their core-competence of research, instead of pursuing the more glamorous path of offering policy advice to governments. In other words, the spirit of giving back may be best served by mentoring young local researchers, collaborating with local researchers and institutions, publishing in local journals, and finally by occasionally teaching in local universities. Accordingly, here is a list of ways in which foreign-based researchers in Ivy League universities can help academic research in India:

1. Enlist as principal investigators (PIs) local researchers in field work, just as is being done with foreign PI collaborators. The former, besides boosting their confidence will be a great learning experience for local researchers, and also enhance the credibility of their universities. The latter is only furthering individual careers. In simple terms, while the former generates significant positive externalities in nurturing local talent, the latter generates private gains.

2. Support the development of an academic consortium like the BREAD, CEPR, and NBER, hosted by some Indian universities/think tanks. Initiate the process by bringing out their working papers on this platform and even publishing there. Imagine the credibility bestowed and positive network effect generated on a journal if superstar US economists start to publish there. Target the emergence of a world-class Indian social science research journal over a 10 year period.

3. Help Indian students benefit by taking sabbaticals to teach in some Indian universities, even if for a semester. Or at the least find the time to lecture couple of classes occasionally, even if by video-conference (now rapidly becoming the mainstream), or give guest lectures everytime they visit India. Besides benefiting these students, this experience will also help enhance the US-based researchers' own learning and understanding (far more than from a disconnected classroom in the US). The latter is especially relevant to those researching on development economics (as against macroeconomics) where context knowledge is critical.

4. Mentor a handful of India-based young researchers. Give them an opportunity to learn and benefit from the close association. Support them by offering comments on their papers, mentioning their work in esteemed environments and to reputed colleagues, enlisting them as co-PI, inviting them to conferences hosted by their network, co-authoring with them, and so on. 

5. Senior academicians in editorial positions should push to have at least one referee from India on "India papers" and listen to their peer review. The journal would benefit as papers that do not take the context seriously or make false assumptions on India will be challenged. Junior faculty based in India will get exposure on how to write in top journals and the network effects will come for free. Besides, it can help with aligning incentives – if as faculty in a big foreign university, you know that your referee could be in India, you would be more humble and polite to them, and even make an effort to invite them for talks (or go present in Indian institutions) much for the same reason they invite researchers in other US universities.

6. Support the emergence of research data repositories, integrated with those in their foreign institutions, with the best data sharing protocols in research, and which is accessible to researchers based in India. This would provide non-discriminatory access to all research data, especially those which are not in the public domain and are privately (by individual researchers) sourced from various government and other agencies. After all, these are all public goods, so why should they be the exclusive preserve of any one researcher, even if that person took the initiative of accessing it. 

In fact, the Government of India (like most European countries and the US) should have a policy that mandates all such data be shared with others. It cannot be anybody's case that academic careers be allowed to be built on rent-seeking of data and such research not be subjected to scrutiny by other researchers. In this regard, it is pertinent that all developed countries have restrictions on undertaking research and data access. See this and this (US), this and this (Denmark), this (Germany) etc. India would stand out as perhaps the country with the least controls on undertaking research, preferential access to public data etc.   

7. Support the organisation of academic conferences in India (outside of the usual handful which are already being organised and which any case provide a pulpit for foreign researchers) and encourage their Ivy league peers to present papers and participate in them. Similarly, encourage promising young India-based researchers by inviting them to conferences organised by their university and giving them the great opportunity to present their work.

8. Seek out and forge tightly integrated partnerships with local universities and think-tanks in institutional research endeavours rather than establishing stand-alone ventures. Several European institutions have partnerships and visiting positions in US universities. Use all such opportunities to transfer knowledge and technical capacity. To borrow the FDI analogy, establish technology transfer joint-ventures and not fully-owned turnkey projects. This will enrich those institutions, enhance their credibility, and help attract more high quality students and faculty.

9 Support the emergence of world-class research enabling institutional ingredients in India. For example, help develop a common and transparent IRB certification system for social sciences research in India, rather than have captive fiefdoms (like gated communities having their own utility services).

These are only illustrative areas completely within their control where reputed foreign researchers can actually contribute significantly, without relocating back (which is not a case I'm making).

None of this is to overlook the poor general quality of universities, think-tanks, faculty, students, and so on in India. But it is also true there are very good ones in each category. Places like DSE, IGIDR, CDS, Gokhale Institute, TISS, CESS, ISI, MIDS, CPR, Bombay University, Hyderabad University, Ashoka University, and so on are institutions with some excellent faculty who understand Indian context and its challenges far more than most foreign researchers.

None of these are also arguments coming from some swadeshi spirit. Instead, it is to embrace the truest spirit of academic endeavours - inclusive, transparent, and socially beneficial. It's also about leveraging comparative advantage. It is about more equitable research eco-system where there are no barriers and one which contributes to enhancing the quality of research, engagement with public policy, and (through the long route) hopefully the quality of development related debates and policy outcomes.

The wisdom of nature and the folly of experts

The global response to Covid 19 has been a teachable moment illustrating the limited boundaries of our knowledge. Not even claims of having developed vaccines in remarkably quick time can gloss over the reality that we still do not know how it originated and spread, what holds for us in terms of future mutations, the timing and nature of a possible third wave etc. In the last eighteen months, expert opinion has vacillated from one idea to another, one moment advocating something to debunking the same a few weeks later. It should have been a sobering reminder about the limitations of experts and expert advice. However, it's unlikely to be the case. 

I had blogged here and here in the early days of Covid 19 cautioning against the folly of relying on expert advice and urged a more nuanced approach that sought to accommodate and co-exist with the virus. 

Ananth points to a very good essay by Norman Doidge who provides a perspective on human beings search for solutions that seek to "eliminate" the virus.

Ancient science was attractively harmless: It saw human beings as inseparable from nature, and tried to describe the web within which we dwell... Nature—as the ancients understood it—was seen as a whole, likened to a vast living organism, meaning something alive and organized... Nature, they believed, could be understood... as in some way, partaking of intelligence. This kind of intelligence, called nous, was not merely the highest human faculty, but also a transcendent principle manifest throughout the cosmos. It was because the human microcosm mirrored that macrocosm that we had the capacity to understand, and resonate with intelligible nature in awe and amazement. This was knowledge for its own sake, a dignified form of contemplation of a cosmic order that inspired the questing feeling that, according to Socrates, underlies the fundamental philosophic attitude: Wonder.

But modern science sees knowledge as power—and science as a means to other, greater, more useful and more practical ends. Since its origins, modern science has emphasized that “nature” is harsh, and often rallies against us, and so, following Francis Bacon (1561-1626), has come to see itself as a method of mastering nature, “for the relief of man’s estate.” Henceforth, “utility” was science’s purpose, not wisdom, and nature was there not to be contemplated, but conquered... Thus, Bacon weaponized the wonder that drove ancient philosophy, and spoke of using the new science to extend “the empire of humanity” over “the universe.” He was to science what Machiavelli —to whom he explicitly said he was beholden—was to politics: He discarded the ancient approach to nature, which took as the primary question of study, how we might understand it better, to live, “the good life,” in accord with nature, and replaced it with the study of the science as a means to acquire power, to master nature.

In the world of Covid 19, this scientism meant that our collective objective was to eliminate the virus. And the consequences of responses motivated by such scientism are often counter-productive.

The officials, blinded by the eradication at all costs mentality, discarded the practical wisdom required to respond to such a crisis, and endorsed an intervention that defies the standard public health practice of taking a holistic approach and always taking into account a measure’s total effects, and not just its immediate effects on the pathogen labeled as “the invisible enemy.” “COVID denial” is real. So is “COVID-management-induced-devastation denial.” The term, in medicine, for the inadvertent harms caused by a medical treatment is “iatrogenic” harm. Because public health exists on a massive scale (compared to individual doctoring), when public health officials make iatrogenic errors, millions suffer. Iatrogenic errors are underestimated for long periods because they are often made with the best of intentions (which is part of the reason they are missed, and repeated), until there is a sudden reckoning. A good rule of thumb is that the more the practitioners are certain of their good intentions (as they define them), the more vigilant we must be about the iatrogenic possibilities.

An alternative and more holistic approach that the essay points to is the work of Janelle Ayres,

She says, “The way we have been thinking about treating infectious diseases is that we have to annihilate the pathogens through vaccines and antimicrobials.” She completely reframes the problem, and challenges our thinking: “Instead of asking how do we fight infections, we should be asking ‘how do we survive infections?’”... The project of developing these new kinds of therapies (which is well underway in Ayres’ lab) requires having a better understanding of the “tolerance defense system,” alluded to above. Not every infection kills us, in part because an innate tolerance system has already evolved to help our bodies coexist in the sea of microbes in which we live, and which dwells within us (the microbiome). It is the product of a cooperative two-way evolutionary process.

To understand this cooperative co-evolution, it’s best to first look at its “opposite,” the traditionally studied antagonistic co-evolution. An organism gets inside us, we evolve ways to kill it, then it evolves ways to resist that, and perhaps we, the host, evolve more aggressive means of attack, but that also leaves us with an overactive immune system, which perhaps then also predisposes us to causing collateral damage to ourselves. This basically describes the traditional immune resistance system, and the collateral “autoimmune” damage it causes. This is not good for us, but, if a pathogen’s host dies it is not necessarily helpful to it either. After all, once the pathogen gets inside us, we are its environment, so, if it kills us (a Baconian specialty) it’s created a disaster for itself (as it were)... In a more cooperative co-evolution, as Ayres calls it, both host and pathogen acquire traits that are not mutually destructive. 

Ayres hypothesized this must exist, and then began demonstrating it did. In cooperative host microbe evolution, cycles occur, in which the host influences the microbe and the microbe influences the host, such that they co-evolve, together, and cause each other to select for traits that maximize their mutual ability to both survive, and replicate. From the point of view of the microbe, for instance, it does well to develop traits that let it acquire nutrients from our bodies to meet its metabolic demands, and to replicate, and get passed on to another host, whom we can meet at a party, because the microbe hasn’t killed us... In this situation, there is an evolutionary pressure on the organism to develop mutations that are less lethal (which happens sometimes) and Ayres and her lab have shown that the host can, in certain cases, trigger these anti-virulence traits in the pathogens, so that while they are present in a host, they don’t trigger a disease. 

In this context, Howard Marks points to two excellent analogies of how systems contain within themselves the mechanisms to treat their problems

In the forestry business, if there's a small fire they let it occur and sometimes they even cause some small fires to burn up the fuel that lies on the forest floor. And if you don't permit any small forest fires, when you finally have one that you can't put out right away, you're going to have a doozy because of all the accumulated fuel on the forest floor.

I believe that if they prevent every recession, that will give rise to such excesses on the high side, it will be, as I say, unsustainable and will cause a recession and that's going to be a doozy. So it just seems to me that if I were running Fed, which I'm absolutely unqualified to do, I would opt for leaving it alone most of the time, the economy, and having it do what it does naturally...We're all in the investment business because we believe in the efficacy of the free market as an allocator of resources. So if you do, then shouldn't you leave the economy and the capital market alone as much as you can so that it can freely allocate resources?

Or on similar lines from John Kay in his book on Obliquity,

From the early twentieth century, the policy of the National Park Service (NPS) was one of zero tolerance. Every outbreak of fire, however small, would be extinguished – the basic-level action. But the incidence of fire did not fall: it increased. Computer simulation of fire control policies suggests the explanation. Most forest fires are small and burn themselves out. In doing so, they remove combustible undergrowth, and create firebreaks that limit the spread of future fires. So the best way to reduce fire is not to extinguish all fires. The Service adopted a different view of the goals that would achieve its higher level objective: controlled burning replaced zero tolerance. But what actions does this goal require? In 1972 the Service decreed a new policy: it would put out man-made fires but allow natural ones to burn.

Sixteen years later, the largest fire in American history swept through Yellowstone National Park. In extremely dry conditions, several fires joined together. Lightning was probably the original cause, though perhaps some fires were lit deliberately by arsonists. By the time the blaze was controlled by a force of 25,000 fire-fighters at a cost of over $100 million, almost half the vegetation of the park had been destroyed. Today’s guidelines allow experienced forest rangers to use their judgement in deciding which fires should be tackled and which left to burn. Experience has shown that too much effort devoted to fire extinction is counter-productive. But some fire-control activity is essential. Time demonstrates, but only slowly, whether policy has gone too far in one direction or the other – whether actions are appropriate to states, whether goals are appropriate to objectives.

However, striking out on your own and opposing the conventional wisdom can be very hard.  

It’s not that modern science doesn’t produce some scientists who urge caution. It’s just that it also creates an appetite, and a climate of opinion, in which those who counsel restraint and moderation (another ancient, but not a modern virtue), just about always lose eventually.

On treading this lonely path, Ananth again points to another essay by Ann Bauer about her personal struggles in fighting the conventional wisdom in treating autism in her son. She describes the sway till the early nineties of the theories by the fraudulently fabricated theories of Bruno Bettelheim over autism diagnosis and treatment.

Weekend reading links

1. The late Ezra Vogel compares Xi Jinping and Deng Xiaoping. He points to the need to evaluate them in their respective contexts. 

Because of the changes introduced by Deng, Xi Jinping inherited a China that was far stronger than China during Deng’s era. Deng’s approach for dealing with foreign relations, ‘taoguang yanghui, juebu dangtou, yousuo zuowei’ (avoid the limelight, never take the lead, and try to accomplish something) was well-known. In the 1980s, Deng held back on increasing military expenditures in order first to build up an economic base. After 1995, the Chinese began to increase military expenditures even more rapidly than the economy was growing. Thus by the time that Xi Jiping came to power, since China had much greater economic and military power than during the period of Deng’s rule, he could take a much stronger stand in dealing with foreign countries.

His summary is apt,

To summarize my perspective as one views Xi from the perspective of Deng, I conclude that Xi could be considered a stronger leader than Deng in three senses. He ruled a stronger country that could take a stronger stance in dealing with other countries. Secondly, as a micro-manager, he personally exercised more direct personal control over daily activities. Thirdly, he spent more time and effort in controlling developments in local areas. But I would argue that in three areas Deng was a stronger leader. As one with such a broad background in so many areas, he had more personal knowledge and confidence in shaping broad overall policies. Secondly, as a person who had held so many high positions and had so many former subordinates, he could achieve more through macro-management because of his experience and the readiness of former subordinates to implement Deng’s policies. Thirdly, as one who had such broad experience and such broad perspective, he conceived and implemented changes that had far more impact on the course of China’s development and thus had a far greater role in shaping the course of China’s history.

2. Anna Weiner has a fascinating profile in The New Yorker of the polarising figure of Peter Thiel. This is interesting,

Dodge the rules, skirt the law, shiv your business partner, abandon your friends: Chafkin argues that the Silicon Valley edition of this playbook was written at PayPal.

3. One signature of the distress in the rural and informal sector is the persistently high demand for NREGA jobs. 

Data available on the MNREGS portal show that 2.07 crore households availed of the scheme in September — which was 3.In fact, the monthly figure for households availing of the MNREGS has been hovering over two crores since December last year. In the last 18 months, or since the pandemic hit, the numbers have been below the two-crore mark only thrice — in April 2020 (1.10 crore), October 2020 (1.99 crore) and November 2020 (1.84 crore). In pre-Covid times, the number of households availing of the MNREGS would cross two crores only in the months of May and June.85% higher than for the same month in 2020 (coming after the first wave and the severest restrictions of the pandemic), and as much as 72.30% higher than September 2019, the last non-Covid year. The monthly average figure for households availing of the MNREGS was 2.36 crore in the first half of the financial year 2021-22 — higher than the monthly average of 2.28 crore for the whole of 2020-21. In 2019-20, the figure stood at 1.56 crore.

On a different note, Business Standard reports of a new study which points to delays in timely payments of NREGA wages.

Wage payments were delayed for 71 per cent of the transactions beyond the mandated seven days, 44 per cent of the transactions beyond the mandated 15 days and 14 per cent of the transactions beyond the mandated 30 days. The study was conducted on about 1.8 million transactions between April 2021 and September 2021 by randomly sampling 10 percent of the Fund Transfer Orders (FTOs) from one block per district per state for 10 states... 

Normally, the MGNREGA payment process consists of 2 Stages. After work is completed, a Funds Transfer Order (FTO) with worker details is digitally sent to the Central Government by panchayat/block. This is called Stage 1 and it’s the state’s responsibility. The Central government then processes the FTOs and transfers wages directly to the workers’ accounts. This is called Stage 2 which is entirely the Central government’s responsibility. As per the Act’s guidelines, Stage 1 must be completed in 8 days and Stage 2 must be completed within 7 days after Stage 1. Workers are entitled to delay compensation for each day’s delay beyond 15 days.

4. Some graphics about India's telecoms market. Spectrum charges are among the highest in the world.

While data charges are the cheapest.

And average revenues per user remains woefully small.

It is believed that the industry can become sustainable only if the near-term monthly ARPU rises to about Rs 200. 

5. Vivek Kaul writes that India's covid recovery may be a case of glass half full. 

The total priority outstanding home loans of banks as of August 2021 had stood at ₹4.71 trillion. A year back, in August 2020, this stood at ₹4.73 trillion. This means that in the past one year, banks have largely funded non-priority sector home loans... Further, as of August 2021, the outstanding loans of banks against gold jewellery have gone up by a whopping 66% to ₹62,926 crore compared to August 2020. Between August 2019 and August 2021, these loans have gone up by 137%... A recent survey by the National Restaurant Association of India stated that around 25% of the restaurants across India may have shut down permanently during the last financial year. Around 230,000 jobs may have been impacted... As per the Centre for Monitoring Indian Economy (CMIE), the labour participation rate—the size of India’s labour force as a proportion of the population aged 15 years or above—stood at 37.88% in urban India in September this year. It was 40.48% in February 2020, before the start of the pandemic. When it comes to rural India it was at 42.08% in September and 43.67% in February 2020.

6. FT on Korean halyu,

In turns saccharine, brutal, and dazzlingly original, Korean content has since bulldozed its way into the global cultural consciousness. Girl group Blackpink has the most YouTube subscribers of any musical artist in the world, while boy band BTS has a following so organised and devoted that Chinese authorities have come to regard it with the kind of suspicion historically reserved for religious groups like Falun Gong. More recently, South Korea’s merciless social satires have conquered the heights of film and television respectively. Bong Joon Ho’s Oscar-winning Parasite and Netflix sensation Squid Game — the streaming service’s most-watched show ever — have given global exposure to traditional Korean preoccupations with economic precarity and social violence.

7. The airports, alongside national highways and ports, are a great example of successful infrastructure PPPs. Sample this,

The Airports Authority of In­dia (AAI) can make over Rs 650 crore annually as concession fee from the six brownfield airports that have been won by the Adanis... This is more than four tim­es the income that AAI made in 2019-20 from the same airports, at Rs 142.72 crore, by running them on their own... AAI has also earned Rs 29,300 crore in 13 years from the concessions of the greenfield Delhi and Mumbai airports under the private-public partnership (PPP) model. How­ever, in both these airports, the concession model was not based on bid per passenger as has been the case for new PPP airports but on a revenue-share model. So, while Delhi pays 45.99 per cent of its annual revenues, Mum­bai forks out 38.7 per cent. In contrast, the earnings (profit from operations) that AAI made from these airports when it was running them between 2001 and 2007 was collectively only Rs 3,000 crore. However, in just one year (2019-20), under the PPP model, AAI’s earnings from Delhi and Mumbai together was at Rs 3,052 crore. And, this of course does not include the increase in valuation of the 26 per cent equity that it holds in these two airports.

8. The arrest of former SBI Chairman, Pratip Chaudhuri, supposedly a very honest official, on very questionable and flimsy grounds is sure to exacerbate decision-paralysis within the banking sector. Most worryingly it goes to the heart of decision-making on NPAs in their valuation, transfers, and resolution. 

Consider this. An asset becomes NPA. It's taken up for resolution. The lender follows the due process and sells the asset to an ARC. The original promoters (the borrowers) question the transaction at DRT, NCLT, High Court, and Supreme Court. All were dismissed. Now the promoters press a fraud charge and get one Director of the ARC arrested without even issuing a summons! 

This raises the question of accountability. One cannot but help wondering whether the Chief Judicial Magistrate of Jaisalmer will be held accountable for this decision, and the damage it does. 

Two very good articles on the issue here and here. 

9. India's exports may hit the $400 bn mark.

Business Standard reports that the fact that it's significantly contributed by rise in exports of sugar, cotton, and iron ore means its sustainability is doubtful. 

10. The Federal Reserve finally announced the beginning of the long-awaited tapering of its massive $120 bn monthly bond purchase program. The FOMC announced that it will keep reducing its purchases of Treasuries by $10 bn a month and of agency mortgage backed securities by $5 bn every month. The process will start in mid-November and the stimulus will cease in June 2022. It also said it'll calibrate the taper based on changes in the economic outlook. It however said nothing about rate hikes, saying the economic bar for the was much higher. 

“It is time to taper, we think, because the economy has achieved substantial further progress toward our goals,” Powell said. “We don’t think it’s time yet to raise interest rates. There is still ground to cover to reach maximum employment, both in terms of employment and in terms of participation.”

In recent days, the Reserve Bank of Australia and the Bank of Canada have led the way in reversing monetary accommodation and raising rates. The Bank of England is expected to follow suit next week by raising rates for the first time since 2018. 

11. FT has a long read on the rise of green parties.

Green parties now have a share of power in six European coalition governments: Austria, Belgium, Sweden, Finland, Ireland and Luxembourg. They are on track for an even bigger prize in Germany, Europe’s largest economy, where they are in talks to form a three-way coalition government after winning 14.8 per cent of the vote in September’s election. That is more than double the 6.7 per cent of votes the Greens won in 1998, when they first entered a ruling coalition with Gerhard Schröder’s Social Democrats, in a move that made their leader, Joschka Fischer, foreign minister.

Green activism is heightened by the increasing trend of floods, droughts, and forest fires across the world. Scientists have shown that emissions must halve by 2030 and reach net zero by 2050 to limit global warming to 1.5 degree celsius, the safest temperature goal in the Paris agreement.

Crucially, scientists have shown that emissions must nearly halve by 2030 and reach net zero by 2050 to have a good chance of keeping global warming to 1.5C, the safest temperature goal in the Paris agreement. 

12. It hard not to feel that Mark Carney, as UN special envoy on climate and finance, is doing a great dis-service to the cause of climate change activism by leading the mother of all greenwashing with his claim that "we have all the money needed" to achieve net zero greenhouse gas emissions. He is leading $130 trillion of private sector assets, supported by more than 450 banks and Wall Street titans, committed to achieving net zero emissions by 2050 through the Glasgow Financial Alliance for Net Zero, or Gfanz.

13. In a brilliant article Simon Kuper points to a fascinating phenomenon - climate gentrification. 

The Little Haiti neighbourhood is barely five miles from glitzy Miami Beach, but it feels a world away. There’s no whiff of ocean here. Miami remains largely segregated and almost all the people sweating their way down Little Haiti’s streets are black... A new high-end development, Magic City, is arising on top of what used to be a mobile-home park. Hipster shops are opening: Scarab handmade cycles and Booktanica, a wine bar that sells books. House prices are shooting up. In 2012, according to Zillow, the average home in Little Haiti cost $99,600, just 38 per cent of Miami Beach. Today the price is $414,000, fractionally more than Miami Beach. Many new buyers in Little Haiti are investors using limited-liability corporations. They are betting on a future when this neighbourhood will benefit from a previously disregarded asset: its elevation. An average of seven feet above sea level, Little Haiti should outlive Miami Beach. If so, today’s poorer residents will be priced out. Miami is Ground Zero for a new phenomenon that will reshape the world’s coastal cities: climate gentrification...

Miami real estate agents used to ignore rising sea levels, then pretended the problem had been fixed by what look like waist-high garden walls. But lately Miami market thinking is shifting from “Location, location, location” to “Elevation, elevation, elevation”... What starts in Miami will go global. About 40 per cent of humanity lives within 100km of a coast, and many coastal cities share Miami’s social structure: rich neighbourhoods on the beach, poor ones inland. Think of Rio de Janeiro, Los Angeles or Cape Town. As seas rise, the most expensive places are at the highest risk. In Istanbul, for instance, the choicest coastal bits of the Kadiköy neighbourhood could go under.

Miami, built on porous limestone, is described as the world's most vulnerable major coastal city, and may be gone by 2100. 

14. Is Ethiopia going the Afghanistan way with the Tigray People's Liberation Front going to do a Taliban on the Oromo dominated government of President Abiy Ahmed? 

On the one-year anniversary of war between the federal government and the Tigray People’s Liberation Front, Tigrayan forces are intimating they could march on Addis Ababa, the capital, and eject Abiy from power. The TPLF, which ran the country for 27 years until 2018, is no Taliban, however brutally it governed and whatever its detractors say. But like the Taliban, banished from government and criminalised, it could now bludgeon its way back to power.

Ethiopia's recent history has been complicated,

Most of the regions into which Ethiopia is divided — including Tigray, Amhara and Oromia — regard themselves as nations with their own languages, cultures and competing versions of history. Transfer of control involves profound shifts in the balance of power between constituent nations of the “Ethiopian empire” and is rarely less than traumatic. Haile Selassie, who oversaw a feudal system, was deposed and later executed after a student-inspired, Marxist-led uprising in 1974. The regime that followed, the Derg, dismantled feudal land structures but imposed a “red terror” that culminated in man-made famine. After decades of perceived Amhara domination, it was a rebel army from Tigray that led the 1991 overthrow of the Derg. The TPLF, though it represented a region with only 6 per cent of Ethiopia’s population, held power until 2018. Abiy is from Oromia, the most populous region with more than one-third of Ethiopia’s population, but which has traditionally stayed on the margins of government. His election followed years of protests against Tigray’s outsized influence on politics. He promoted national unity. To some, that promised modern, ethnic-neutral democracy; to others, it spelt a return to the suppression of ethnic rights.

15. As inflationary pressures mount, on the back of rising energy prices comes the sharp rise in food prices. 

Global food prices have surged because of bad weather, such as droughts in North and South America and heavy rain in Europe, and the supply chain problems that came with the easing of coronavirus restrictions. The FAO food price index rose at an astonishing annual rate of 31 per cent in October. The IMF’s food and beverages commodity index rose at a similar rate. In real terms, after taking into account inflation, global food commodity prices are now higher than their 2008 and 2011 peaks, just before the Arab spring protests that were partly caused by soaring food costs.

16. Interesting snippet about how migration of high tariff consumers through open access and captive power plants is shrinking the cross-subsidy margin available for discoms, 

According to research by Prayas (Energy Group), with high tariff consumers beginning to move away, the share of cross-subsidy in discom tariff support (the other part being state subsidy) has declined from 29 per cent in 2017-18 to 23 per cent in 2018-19 — a decline of 6 percentage points in one year.

With the increased share of renewables, this trend will only hasten. And this is a stunning statistic,

As of March 2020, the net worth of all public sector distribution utilities in the country put together was a negative Rs 61,757 crore (though it was positive in states like Gujarat and Maharashtra). In comparison, the combined net worth of the few private sector discoms that exist in the country was a positive Rs 24,965 crore.

Thoughts on covid 19 recovery - sustainable recovery or release of pent-up demand and supply?

Has the Indian economy left behind Covid 19 and recovered? I confess to being confused by headline indicators of economic recovery and anecdotes and observations to the contrary. So how do we make sense of these conflicting signals?

Several headline indicators ranging from tax revenues, exports and imports, corporate revenues and profits, real estate prices and sales, consumer durables and non-durables spending, passenger vehicle sales, electricity consumption, and so on have rallied impressively since the second wave lows. There are ample formal signatures of recovery to argue that the Indian economy has put the pandemic behind. 

The smart pace of vaccinations (after the very slow start) and the flush of foreign venture capital inflows into Indian start-ups, coupled with the visible signs of recovery, have rekindled the animal spirits. It may not be incorrect to argue that the general optimism and spirits among investors have not been this high for several years. The equity markets have soared on the back of rising corporate profitability, a continuing globally synchronised irrational exuberance, and a definite and welcome expansion of the base of domestic equity market investors. So is the pandemic really behind us?

Given the nature of such predictions and the acute deficiency of good data on the informal economy, arguments in either direction have to rely on some theory, history, and observation and then make informed judgements. Fundamentally, those arguing that we have left the pandemic behind and those arguing against premise their respective explanations on their personal assessment of whether the recovery is broad-based enough.

Therefore any assessment of whether the recovery is broad-based enough is, given the lack of good and relevant data about the wide swathe of semi-formal or informal economy, purely a matter of personal judgement. Without being strongly connected to the realities of life outside our typical narrow urban and high income confines, personal judgements are fraught with problems. So any assessment has to be tempered with this humility. (Good field stories by journalists, screened for biases, are more useful than oped pieces by largely metro-based commentators)

There is little doubt that the salaried classes and the corporates (at least the larger and middle-sized ones) have come out of Covid 19, perhaps with even stronger balance sheets. But given the small size of this segment, the sustainability of their performance depends critically on sustenance of aggregate demand in the remaining economy. Outside of food and other essentials, a large, perhaps the major, share of consumption of fast moving consumer goods and consumer durables comes from the broad base of consumers outside of the small middle-class and above. Have they recovered enough from Covid 19 to be able to sustain the demand going forward? 

Since the pandemic, this blog has consistently held that the pandemic has adversely impacted the lower middle class and below (who make up the vast majority of economically active population). Further, like elsewhere in the world, and due to the nature of the lockdowns and differences in how it impacts different people, the formal sector and the salaried class have not only come out unscathed but perhaps even better off. The lockdowns have led to accumulation of household disposable incomes among the better off. And businesses have shed excesses, improved productivity and squeezed labour. This coupled with the wealth effect from capital gains on financial assets, the main source of wealth of the richer Indians, have even flared bubbles in areas like luxury real estate. A combination of this makes me slightly inclined to the K-shaped recovery camp. 

It's not that all the macro indicators point to a recovery. Important indicators speak otherwise. Credit growth remains stuck at low levels, private investment intentions do not signal expectations of promising future, labour force participation rates remain significantly below pre-pandemic levels etc. Then there are the good proxies of distress which have risen or are staying elevated - persistently high demand for NREGA work, gold loans issuance and their liquidation by lenders have soared, large numbers of small private schools have been closing and government schools have been witnessing a surge in admissions, significant shares of services jobs (retail shops, restaurants, tourism etc) have not been restored etc.

More than anything, it is evident to any observer that the economy suffered an unprecedented negative shock during the lockdown and the subsequent second wave. Businesses folded up, millions lost their livelihoods, migrants returned home. Millions depleted their life savings, both due to the loss of livelihood and also on Covid expenses within the family. And the repairs cannot be so quick and easy without external support. It's not at all clear that these disruptions have been anywhere close to being repaired enough for these actors to restart activity. And now inflation is threatening to squeeze real incomes. Of course, it's also plausible that the damage has not been as bad as is being thought of and the repair is well underway. 

In Can India Grow?, we had argued that the core of India's economic expansion stood on very narrow foundations. We argued that drastically broad-basing this foundation (of productive firms, farms, and labour, and investible capital) is critical to create the conditions for sustained high growth rates to match those of the North East Asian economies. Further, in the circumstances, any growth spurt has to come from unsustainable growth in some parts of the economy. The pandemic ended up boosting the strength of this narrow base. But the growth boost from the narrow base on its own can only go so far, especially if the remaining parts of the economy are distressed. 

Having argued in favour of the likelihood of a K-shaped recovery, it's also quite possible that the growth boost from the narrow base will provide the momentum and also buy the time required to help overcome the distress among the smaller firms, informal economic actors, and lower income households. In a continental economy, that likelihood is a non-trivial possibility. It's also possible that the agricultural economy, which largely escaped the pandemic and has grown at a healthy clip, has cushioned rural distress.

It's important to be cautious about drawing inferences about the economy. The booming equity markets, rising tide of venture capital inflows and birth rates of unicorns, and healthy headline indicators can spark complacency across. In many respects, as highlighted in Can India Grow, India has a two-track economy. The animal spirits in one part of the economy can co-exist with distress and pessimism in other parts. It can be fatal mistake to confuse a release of pent-up demand with more broad-based recovery.

In any case, only the coming months will tell us definitively enough about the extent of recovery. Anything till then, on all sides, is pure subjective assessment. 

Lock-in and late commitment in large infrastructure projects

Alon Levy at Pedestrian Observations draws attention to the important point about lock-in effect in infrastructure projects. I cannot do any better than his succinct description

The short version is that politically committing to a megaproject too early leads to lock in, which leads to compromised designs and higher costs. The solution, then, is to defer commitment and keep alternatives open as much as possible.

The point is that more than any technical or economic explanations, the real reasons for cost over-runs in many large infrastructure projects are political and psychological.  

Lock-in arises from the nature of large infrastructure projects. They require public debates to generate support. These debates in turn throw up options and the relative merits of the different options are discussed. Then, at some point in time, a political choice is made on an option. A strong interest group coalesces, consisting especially of its direct beneficiaries, around this choice. Also, once this choice is made, a series of technical activities follow, which in turn take up significant time (especially environmental and other clearances and permissions), most often years. In the meantime, things are likely to change - new trends and demands emerge, technologies change, better alternative choices appear, newer financing options become possible, political and government priorities change, and so on - which may necessitate a revisit of the choice and perhaps even choosing from one of the alternatives which were discarded. However, by now the chosen option has become entrenched, with powerful and vocal interest groups supporting it. 

Levy points to this Flybjerg et al paper where they define lock-in as contributing to two effects,

Lock-in can occur both at the decision-making level (before the decision to build) and at the project level (after the decision to build) and can influence the extent of overruns in two ways. The first involves the “methodology” of calculating cost overruns according to the “formal decision to build”. Due to lock-in, however, the “real decision to build” is made much earlier in the decision-making process and the costs estimated at that stage are often much lower than those that are estimated at a later stage in the decision-making process, thus increasing cost overruns. The second way that lock-in can affect cost overruns is through “practice”. Although decisions about the project (design and implementation) need to be made, lock-in can lead to inefficient decisions that involve higher costs. Sunk costs (in terms of both time and money), the need for justification, escalating commitment, and inflexibility and the closure of alternatives are indicators of lock-in... Lock-in also stresses the importance of economic and psychological explanations, with sunk costs in terms of money creating conscious lock-in as various parties are aware of their investments, while the bounded rationality of decision-makers results in unconscious lock-in. Finally, lock-in is a psychological explanation if it arises from behaviour intended to justify decisions, and is a political explanation if it emerges in response to intentional (strategic) behaviour.

The same paper writes a self-reinforcing loop,

Decision-makers show evidence of entrapment whenever they escalate their commitment to ineffective policies, products, services or strategies in order to justify previous allocations of resources to those objectives (Brockner et al, 1986). Escalating commitment and justification are therefore important indicators of lock-in. The need for justification is derived from the theories of self-justification and the theory of dissonance which describe how individuals search for confirmation of their rational behaviour (Staw, 1981; Wilson and Zhang, 1997). This need arises due to social pressures and “face-saving” mechanisms. The involvement of interest groups and organizational pushes and pulls can also introduce pressures into the decision-making process, threatening the position of the decision-makers, who may feel pressure to continue with a (failing) project in order to avoid publicly admitting what they may see as a personal failure (McElhinney, 2005). “People try to rationalize their actions or psychologically defend themselves against an apparent error in judgment” (Whyte, 1986) (“face-saving”). When the support for the decision is sustained despite contradicting information and social pressures, the argumentation for a decision is based on the need for justification.

See also this more recent paper on lock-in examples from Netherlands. 

In addition to political face-saving, another equally important obstacle to pivoting away from the original project choice is bureaucratic risk-aversion. While a new political regime may not carry much baggage or commitment to the project, the bureaucracy which all along made the case on record to justify the original choice will struggle, both individually and collectively, to reverse course and support an alternative option. Further, like with the politicians, vested interests in favour of the project would have developed strong roots with the bureaucracy too. 

Levy makes the case for delaying political commitment as late as possible and making decisions to build at advanced stages of design (where the need for major revisions are unlikely). 

Late commitment is thankfully common in low- and medium-cost countries. Germany does not commit to high-speed rail lines early, and, judging by Berlin’s uncertainty over which U-Bahn extensions to even build, it doesn’t commit to subways early either... overall, Nordic infrastructure projects are developed by the civil service beyond the concept stage and only presented for political negotiation and approval well into the process. Southern European planners come up with their own extension programs and politically commit close to the beginning of construction.

While Levy's post is in the context of major transportation, especially high speed railway, projects in Europe and North America, it has equal relevance to other countries. In India, such lock-in is common with irrigation, urban metro-railway, drinking water, airport, and port projects. There are several irrigation and drinking water projects across states which have become baked into the landscape and accumulated cost over-runs amounting to multiples of the original estimate. In many of those cases, as Levy writes, "Formal cancellation is embarrassing; a forever construction project is less visible a failure."

In the context of developing countries, apart from cost over-runs, lock-in creates a major problem of displacement of scarce fiscal resources away from more important expenditures. I am referring to lock-in manifesting in the form of chasing aspirational trophy projects like metro-railways, unviable and less optimal drinking water projects (including desalination projects), massive river inter-linking projects, unviable airports and ports etc. 

However, the late commitment strategy to mitigate the lock-in problem suggested by Levy is complicated by the lack of control over the manifesto promises of political parties and the general practice of those promises invariably translating into formal project approval. The actual decision to build precedes the formal decision to build. The manifesto promise of the winning party is invariably the formal approval. 

One practical strategy to atleast partially mitigate lock-in (in case of India) is to introduce a legislation (executive directions may not suffice) for approvals of large projects. This would be a procedural commitment strategy. It should mandate the automatic cancellation of any approved project if it has not physically started within three (or five) years of approval. This should be supplemented with a requirement that the project approval again undergo afresh the entire process including evaluation of competing options. Further, the Cabinet Note and other important documents that form the basis of such project approvals should mandatorily include an independently done financial and economic costs-benefits analysis of all competing choices, with the decision to over-ride the results of this analysis to be recorded with justification. The entire process should necessarily be audited by the Comptroller and Auditor General (CAG). Finally, this should also be incorporated into the General Financial Rules of the Government of India for procurement of large projects. 

These procedural requirements would make it more politically and psychologically costly and time consuming for both politicians and bureaucrats to press ahead with large projects whose benefits are questionable. 

Levy takes a swipe at the ideological bias that unwittingly plays into the hands of vested interests,

In conversations with people in the European core as well as the United States, there’s an unspoken assumption that the community is good and the state is bad. If the community demands something, it must represent correction of a real negative externality, rather than antisocial behavior on behalf of self-appointed community leaders who the state can and should ignore. It doesn’t help that the part of Europe with the least community input is the Mediterranean countries, which Northern European planners look down on, believing any success there must be the result of statistical fudging.

Weekend reading links

1. FT reports that Beijing is considering introducing property tax,

China has expanded trials for a property tax, a decision that pitches President Xi Jinping against deeply entrenched vested interests across an economy fuelled for decades by real estate development. The state council, China’s cabinet, will expand pilot schemes to tax residential and commercial property in cities, according to an announcement by the National People’s Congress — the rubber-stamp legislature — on Saturday. The locations were not disclosed but rural households will be excluded... Proposals to introduce a property tax have been discussed for almost 20 years. The tax is envisaged as an annual levy on home ownership and would be set and collected by local governments... Many tax specialists and economists believe it will also help wean local governments off their chronic dependence on selling and leasing public land to developers. This relationship has contributed to widespread property speculation and pushed land and house prices higher in a cycle that many experts believe is unsustainable.

In keeping with its "crossing the river by feeling the stones" approach, it plans to pilot it experimentally in a few places. 

See also this.

2. Tamal Bandopadhyay makes the point about low penalties imposed by RBI on banks for various regulatory violations. 

One way of tackling this could be linking the penalty to the profits of the entities, depending on the gravity of the violation. Also, to make it more effective and force the penalised entity to care for its reputation, the RBI can think of making the full contour of the violations public instead of issuing a sanitised press release. The market regulator makes full text of such orders public. Penalty must act as a deterrent. If it is too low, it could encourage the regulated entities to lap up penalty instead of complying with the norms.

3. Tesla's share price has risen five fold since July 2020 and the company is now worth more than the next nine most valuable carmakers combined.

John Thornhill has more on Tesla,

Tesla is a very different type of car manufacturer, integrating hardware and software and allowing it to charge a gross margin of about 30 per cent on each car sold, matched only by the likes of Ferrari... Tesla does not just bash metal, however elegantly. It also generates income from software services, charging, maintenance and insurance as well as sales of powertrains, batteries and carbon credits to other manufacturers. All this means Tesla enjoys far higher barriers to entry than most other carmakers.

4. From Bloomberg,

There’s a good reason we use ships to ship stuff rather than planes, though: They can carry SO much more. Take Ever Given, for example. When it’s not hanging out in the Suez Canal, it’s capable of shipping about 20,000 twenty-foot equivalent units, with a net tonnage of 99,155. The world’s biggest container ship, the Ever Ace, can ship 23,992 TEUs. In comparison, the world’s biggest-ever cargo plane can only carry a measly 250 tons. It’d need to make about 397 journeys (not including the return journeys to reload) to ship everything Ever Given could in one go, costing a bundle in fuel costs and taking way more time.

5. Useful Indian coal production facts,

In the decade between 1980-81 and 1990-91, the coal production grew by 6.5% per year on average. This fell to 3.5% per year between 1990-91 and 2000-01. Between 2000-01 and 2010-11, it stood at 4.9% per year. In the decade between 2010-11 and 2020-21, it has fallen to an all-time low of 3.3% per year... the growth in coal production for the ten-year period ending 2019-20... stands at 3.4% per year on average... The point here is that the production of Coal India typically tends to grow by 3-4% per year on average. The demand for coal on the other hand in the last ten years has grown by around 4.8% per year. 

So why is Coal India not able to expand coal production fast enough? The answer lies in the fact that the firm is not able to start new coal mines fast enough. The annual report of 2020-21 points out: “114 coal projects with a sanctioned capacity of 836.5 million tonnes and a sanctioned capital of ₹1.2 trillion are in different stages of implementation, out of which 75 projects are on schedule and 39 projects are delayed". The delay is attributed to delay in forest clearances, possession of land from which coal has to be mined and rehabilitation and resettlement of people living on that land. The firm also had to contend with encroachment and an appreciation in land prices. Simply put, Coal India runs into the major systemic challenges encountered by any entrepreneur in India...

In 1993, the government decided to allocate coal blocks to both private sector and public sector companies for captive consumption... By 2013-14, 218 coal blocks with a geological reserve of around 50 billion tonnes had been allocated. In September 2014, the Supreme Court cancelled allocation of 204 out of these 218 coal blocks... the fact is that captive blocks never really produced a significant amount of coal in the first place. In 2012-13, the total production of captive coal blocks stood at 37 million tonnes. This formed around 6.7% of the total coal production during that year. In 2020-21, net production from captive coal blocks was 66.4 million tonnes or around 9.3% of the total production.

6. Business Standard reports that Indian companies in the top 500 global companies in terms of market capitalisation are the most expensive. 

The Indian companies that are part of the top 500 are Reliance Industries, Tata Consultancy Services, Infosys, HDFC Bank, ICICI Bank, Hindustan Unilever, HDFC, Bajaj Finance, State Bank of India, Kotak Mahindra Bank, Bharti Airtel, Wipro, HCL Tech.

7. KP Krishnan has a good article on the overlapping regulatory jurisdictions in areas like audit services, competition in banking, data protection etc. 

8. Simon Kuper proposes a four-day work week in developed countries,

So to stop climate change, we need to get poorer, and the safest way to do that is to work less. This would continue a long trend of improving life by cutting working hours. In 1870, the average worker in industrialised countries put in more than 3,000 hours a year, or 60 to 70 hours a week for 50 weeks, calculate economic historians Michael Huberman and Chris Minns. By 2019, that total had dropped to 1,383 hours in Germany, and 1,777 in the US, before slumping during lockdowns... The four-day week is being piloted in various countries, discussed even in Japan, and is already common in Iceland.

9. Richard Waters wonders how much big is too big as he describes Google as devouring the global advertisement industry

Magna Global estimates that global adverting will reach $657bn this year. With around $200bn of ad revenue flowing through its systems, that suggests Google will handle around 30 per cent of all global advertising (after handing back some of this to partners in the form of traffic acquisition costs, it will keep around one-quarter of the global ads cake for itself). And it is still growing at more than twice the rate of the overall industry... Next year, Wall Street analysts are forecasting what might seem more modest growth for Alphabet of 17 per cent. When you get to this size, though, there is nothing modest about it. The extra $40bn in sales projected for Google in 2022 represents about as much as Comcast, Disney, WarnerMedia and ViacomCBS generated between them last year.

The scale of market capitalisation growth is mind-boggling,

A day after reporting earnings this week, Microsoft and Google put on nearly $200bn in stock market value between them. Google’s latest advance put its market cap within a whisker of $2tn. Big Tech’s stock market advance has come in lurches. Last year the big gainers were Apple (which added $970bn on hopes for an iPhone “supercycle”) and Amazon (which gained $700bn from the swing to ecommerce caused by Covid-19). This year it has been the turn of Google and Microsoft, which have put on around $800bn of market cap each on a belief that the pandemic-induced shift to cloud computing and digital advertising will prove lasting.

10. Vivek Kaul makes a case that inflation in India may be much higher than what's captured in the official CPI numbers. As against the official retail inflation of 4.35%, he offers some disaggregated rates,

If inflation in key commodities like palm oil…was about 100 in 2020-2021, we are now talking about 1.6 to 1.8X... A report by ICICI Securities published on 14 October points out that the price of titanium dioxide in September 2021 was up 44% from September 2020. Further, tinplate prices have risen 148% in comparison to last year, ICICI Securities points out. Tinplate is used to make the metal cans in which paint is packed. Given this, Syngle of Asian Paints said the following: “We have never seen… in the last about 3-4 decades, inflation which is so strong… Overall inflation is closer to about 18-20% levels when we see from a perspective of Q3 [October to December] of last year.”... If we look at the detailed CPI, the petrol and diesel prices in the last one year have gone up by 22.26% and 22.44%, respectively... And recreation and amusement prices have gone up 7.58% in the last one year... Taxi and autorickshaw fares are up 6.76% in the last one year... Airfares are up 32%. Domestic cooking gas prices are up 41%... 

Health inflation has been at 7.74%. Further, clothing and footwear prices have gone up by 7.16% in the last one year. Even under food prices, different things need to be considered. Cereal prices have been kind of flat in the last one year. The prices of eggs, fish and meat are up 7.91%. Edible oil and fat prices have been on fire, going up 34% in the past year. Prices of pulses are up 8.75%. But vegetable prices are down 22.47%... Within inflation of manufactured products, textiles inflation was 16.81%, chemical and chemical products inflation was 13.09%, and basic metals inflation was 26.71%. So, those who have been asking why inflation hasn’t been showing up in data have been looking at the wrong kind of inflation. Some of this inflation has seeped into retail inflation, but the extent to which you have been impacted by it depends on your consumption basket or what exactly you consume. Take a look at the price increases of fast-moving consumer goods. The price of toilet soap is up 7.86%. Toothpaste prices are up 4.84%. Shaving blades are up 6.07%. And shampoo and hair oil prices are up 5.04%.

I don't know where these numbers are from and how credible they are. But the general evidence points to a much higher inflation than is captured in the CPI.

11. The Economist points to the return of the big state in UK

According to forecasts by the Office for Budget Responsibility (obr), a watchdog, spending will grow from 39.8% of gdp before the pandemic to 41.6% by 2026-27, the highest sustained share since the 1970s. Tax will rise from 33.5% of gdp to 36.2%, a level not seen since the early 1950s.

12. Is Mongolia one of the worst exhibits of the natural resource curse? The country, despite benefiting from the commodity up-cycle, appears to have frittered away its resource revenues in populist handouts and corruption. 

Beginning last year... the country's new president, Khurelsukh Ukhnaa... paid off 695 billion tugrik ($244 million) worth of pensioners' debts by selling bonds backed by state-owned silver deposits. Then, a month before the election, the cabinet, under the control of Khurelsukh's party, transferred 216 billion tugrik to debt-free pensioners. Again the money came from bonds backed by state silver deposits. Patronage politics have become routine in Mongolia, where elections have turned into cash giveaways and the country has very little to show for the fire hose of wealth that has been largely consumed by political handouts and corruption... Andrei Mikhnev, country manager at the World Bank, cites the bank's estimate that for every dollar of mineral wealth that has been generated during the past 20 years, Mongolia has consumed 99 cents and saved a mere 1 cent. Buying elections wholesale began in 2008, when the MPP made a campaign promise to pay $700 to each citizen from mining revenues. The following day, its opponents, the Democratic Party, pledged $1,000. The amount would have totaled 60% of the country's entire GDP at the time.

(HT: Ananth)

Location is destiny - India edition

Branko Milanovic's seminal work illustrated the importance of location (country of residence) as the biggest determinant of global inequality. He argued that more than luck or effort or specific circumstances, people's economic outcomes are driven by the level and distribution of income within their country. 

The Opportunities Project work of Raj Chetty and Co highlights the importance of place of birth in determining future life outcomes of Americans. 

In the context of India, Prakash Loungani and others from the IMF have a paper that explores the role of location in determining living standards in India. 

Their headline finding,

It's not for, instance, caste or class that are really the dominant sources of your income. But as we were discussing, the fact of whether or not you were born in a poor rural community versus being born in an urban community, really is what determines 20, 25% of your income, just this one factor... we find that almost a third of living standards is likely to be determined by location alone.