Negative Internalities

As human beings, we all have what are known as Primal Urges. These are those most basic of urges required for the survival of the species. The urge to eat, the urge to mate. Somehow, I seem to have an additional urge - the urge to expose Communist Bias.

Specificially, it has to do with a report found over at How The Other Half Croaks. This report claims to be some sort of sociological study of the IT industry. It interviews only 100-something people in Bangalore. Over the next few weeks (maybe) I’ll be tearing this report apart. But today I look only at one specific part:

 These steps indicate that engineering education in India is being reoriented to cater to the needs of the IT industry — a trend that has been questioned by several academics as well as by other industries.32 It is important to note here that IT companies prefer to hire engineering graduates not because their training is directly related to the work they will be doing (unless they have studied computer science), but because they believe that they have already been pre-selected for a certain level of intelligence and aptitude.

I see. And this…for some reason…is bad?

 She argues that the strategy of hiring engineers for software services work represents an “inefficient allocation of resources in a social sense” (2005:159), which also involves negative externalities for other industries by drawing engineers away from them, as well as from public sector research and development institutes.

(Emphasis mine). Ok. Now you hope that people who make these reports are people with brains. Clearly, they are not.

Every (decent) economics course comes with a section on “Market Failures”. That is things that market forces do not handle well. Examples of these are the provision of a national defence force or street lighting. Other exampls include accounting for pollution e.t.c. or externalities. Now every communist worth his/her salt only reads this chapter, and disregards all of the other 15 chapters which show why market forces are a Good Thing (especially the chapters on Free Trade and Minimum Wage)

The definition of an economic externality (positive or negative) is the effect of an economic transaction on an UNRELATED party.

Example 1
There is a Car Producer: X. There is a Car consumer: Y. Then there is Individual Z, who has nothing to do with cars. When I say “nothing” to do with cars, I mean nothing to do with the economic activity of producing or consuming cars. He doesn’t sell them, he doesn’t buy them.

X buys a Car from Y. This can be considered an economic transaction. Now in order for Y to have produced that car for X, Y’s factory emitted some pollution. That pollution spreads into the air, and causes Individual Z to cough. At this point, one can say that the X-Y transaction has produced a negative externality. It affected a party unrelated to the transaction. Governments can reduce negative externalities in a variety of ways and that’s out of the scope of this post. The simplest way to do so, however, would be to put a tax on cars. This raises the price of the car for X, so X buys less cars. And the money the government collects by the Tax can be used to make hospitals to help out Z, or find cleaner ways to produce cars. Ok that’s the most simplest of ideas.

But hopefully it paints a picture.  Now how does this relate to the excresence written above? Well what the author is saying, is that BECAUSE demand for labour is so high in the Software industry, the other industries suffer because of it. The fundamental flaw in this thinking is that the other industries are “unrelated” parties in the transaction between non-computer science engineers and software companies.

The bottom line is this:  The software companies AND the companies in other industries are all consumers for the SAME product. They are all competing to buy the same product - the engineer’s brains. The software company happens to value it more than the other industries and thus gets to hire the engineers.

This isn’t an externality, it’s EVERYDAY LIFE!

When you go to a TV store to buy a TV, you see some which are expensive and some which are cheap. You are willing to buy the cheaper TV. Does this mean that because Plasma TVs are out of your budget, that is a negative externality to you? Are you upset that somebody who is willing to pay more than you are for that TV got it? Are you “affected” by it? Sure, the person with more money may not really have any need for a Plasma TV, and may have rearrange his furniture to install it. But that is not a NEGATIVE externality! It is simply a cost which is part of the transaction.

But this report makes it look like it is some sort of negative impact. The simple fact is that the other industries are unable to pay as much as software industries. Why not? Could be lots of reasons. It could be because they don’t make enough profit, or they don’t know how to manage their costs, or because there is some sort of minimum wage requirement or because of some stupid government regulation. The bottom line is that the fact that someone can afford to pay for an engineers services, and someone else can’t does not make it a negative externality.

From those sample quotes alone, it is obvious that the report is a bunch of completely biased tripe. Further, it shows to what level communism is ingrained in the Indian Psyche, and why it will be a long time before most of the people in our country will ever rise from the misery they are trapped in by “Good Intentions”.

More on this stupid report, later.

Update to Liberalisation - A True Story

Shouting down a well….

Every artist is a cannibal
Every poet is a thief
All kill their inspiration
And sing about the grief

The Fly - U2

I dunno if anybody reads my rants or cares, and since I have not been blessed with a response from Amit of India Uncut (see last post), I can only assume that my write-up prompted him to update - and justify himself - this is when you know you’ve made an impact - when somebody actually feels obliged to defend themselves *pats self on back, for the millionth time*

Some people will no doubt consider such articles to be “unpatriotic”. Some of the responses I got to my AWSJ oped � just a small minority, thankfully � berated me for showing just the dark side of India’s liberalisation.

Ok first - complete inaccuracy. What Amit mentions in his blog is NOT The Dark Side of India’s Liberalisation. It’s the regular everyday side of India that’s existed since independence.

Second, at least now he admits that the liberalisation is not a myth. :-p

Third. It is not for me to judge whether anybody is ‘unpatriotic’ or not. Patriotism these days is almost like a swear word. Bush, and his ilk are ‘Patriotic’. Hitler loved his country. I’m sure Saddam loved his country too, and I’m sure Musharraf considers himself a true patriot.

….This gives globalisation and free markets a bad name, and it was important to point out that the reason for India’s inequalities is not the process that began in 1991, but the fact that it was wasn’t widespread enough, that it touched just a fraction of the people, and crucially, that it was the state, and the vast bureaucratic apparatus set up by Jawaharlal Nehru and Indira Gandhi, that were coming in the way of progress….

So then… again… Liberalisation is not a myth… it’s just not complete (or as Liberal as MANY of us would like it to be). Big. Big. Difference. When you go spouting off to the Asian Wall Street Journal, please try to be a bit more accurate. Second has anybody else noticed his contradiction? Near the top, you say the Dark Side of India’s Liberalisation. Down below, you try to clarify that it is NOT the post 1991-process that’s holding things back.
I don’t think I’m nit-picking. If you write for the Asian Wall Street Journal, you should have an idea of what you’re writing, and what you’re trying to say…

But too many of us get too caught up in ourselves and don’t notice that most of India is still on the outside looking in.

Nope. 99% of us - us being Indians in India, and the rest of the world, are too busy worrying about the Large part of India on the outside looking in. This is called Socialism. And it is ingrained in us, as you show below.

Yes, our prosperity will touch them in small ways, but televisions in slums don’t count for progress if the owner of that television does not have legal entitlement to that land and a system that enables him to get ahead instead of pulling him down repeatedly.

Hmmmm….
1991. Slum-dweller with no legal entitlement to land tries to fight off starvation
2001. Slum-dweller with no legal entitlement to land manages to earn enough money to buy a TV
2011. …ummm can somebody see a pattern, or is just my naivete, stupidity, and optimism getting in the way. Could the entry here be… Slum-dweller makes enough money to either move out of slum, or get legal entitlement to his land? I think this is called progress…..

It is for him, and the millions like him, that it is important to point out what still needs to be done, and to not rest on whatever laurels we’ve earned.

1) Will all those Indians resting on our current laurels and who say that India has achieved all she has to achieve please stand up. All of those who are complacent, again please stand up. I don’t see anybody standing up.

2)I can hear my communism detectors going off - or I guess just left-wing detectors going off, because Amit claims to be all for free markets and stuff. “It is for him…” once upon a time, I wrote a post called The Common Man Myth. It is what every India denouncer uses to get his/her point across. It’s for that poor little common man. Forget the common women, and the other uncommoners. Note Amit says “It’s for him”, not it’s for them, or her. Sure it’s common for all of us to use hims or hers whenever we feel like. But can anybody see the picture that Amit has just formed for himself. It conforms to that same old stereotype used by the politicians down the ages. All of us want our country to be a better place. But I don’t want it to better for the slum-dweller of dharavi. I want it to be better for me. I want it to be better so that I don’t have to walk down a street covered in Cow Shit. So that I can contemplate the meaning of life in an air-conditioned room without having to suffer through a power cut. Slum-dwellers in Dharavi be damned. The Road to Hell, and a place called Pre-1991 India is paved with Good Intentions. Socialism is all about Good Intentions. You want to eliminate those slum-dwellers? Well then stop denouncing your country and scaring foreign investors away. Stop scaring the Indian Diaspora away. Try showing them that good things can happen in your country. Bring them back (along with their nice fat wallets). And eventually, the change will come. It has already begun.

What needs to be done is obvious. But it is difficult. It is obviously easier to progress to the level where the slum-dweller can afford a TV, than to drag HIM (or her :-p) out of that slum. Duh. But that is what comes next. Or were we all hoping to wake up one day and magically find our country transformed, with butterflies flying by while the rainbow’s on the horizon…..?

Liberalisation - A True Story

uicy stuff to argue about….
Everywhere you look in life, you can see patterns. Here’s a familiar one:
“Hey Guess What. I heard that there’s <Insert Positive Development> in India”
“Oh yes, but so what. <Insert standard Real India is poor, everybody is dying caste-system yada yada yada yada>”Now This Voice is the top voice. Deeshaa.org, Indian Writing, Arundhati Roy, The Communist Parties of India, Rohinton Mistry, and others belong in the second camp - latest addition is Amit of India Uncut. He writes about The Myth of Indian Liberalisation - Note this has also been published in the Asian Wall Street Journal.

Wha? Myth? Are you trying to tell me my paycheck from the software company I’m working for is fake?

While part of India has benefited from being opened up to foreign products and influences, most of the country is still denied access to free markets and all the advantages they bring.

Ok all those living under the illusion that India has done all the “developing” it needs to - put their hands up please….. nobody? Ummm duh - I think we all know that India has a long way to go in terms of getting better - who is Amit addressing when he states the above obvious-ism?

India opened its markets in 1991 not because there was a political will to open the economy, but because of a balance-of-payments crisis that left it with few options. The liberalization was half-hearted and limited to a few sectors, and nowhere near as broad as it needed to be.

Another obvious-ism. I have never heard any Indian claim that it was through the sheer brilliance and intelligence of the People of India that we started economic reforms. It was the simple fact that Socialism finally came crashing down and left India with little choice. Yes - it was sort of an “accident” - but one that was going to happen sooner or later. You cannot chain 1 billion people, either economically, or politically. Some way, somewhere, the dam will burst. Further, the part about liberalization being half-hearted - another obvious-ism. Isn’t this just more common knowledge?

Next para goes on about the bribes people have to give to set up shop. Again, more common knowledge - but why doesn’t he mention the things you no longer have to pay bribes for. A telephone line - important for economic growth, last time I checked. Bringing many goods into India (I’m talking personal items here, not commercial shipping - which is yet-to-beliberalized).

The vast shantytowns of Bombay–one of them, Dharavi, is the biggest slum in Asia–hold, by some estimates, more than $2 billion of dead capital. For most of the migrants who live in these slums, India hasn�t changed since 1991. As that phrase from India�s pop culture goes, �same difference.�

Proof - I want proof that these people see no change between now and 1991 - it is YOU who see no change. You saw slum in 91, you see slum today. In 1991, maybe these people thought about where they would get their next morsel of food. Today, it might be where they can find a better place to live. That’s a change. For the better. But yes, these people are not out of the woods yet - but they’re getting there.

The socialist left, a natural proponent of such views, believes that free markets are the problem and not the solution. India�s communist parties have blocked labor reform, opposed foreign investment and prevented privatization of public-sector units. They naturally have a vested interest in the �license-permit-quota raj,� as the web of statist controls is called. On all these issues they are supported, surprise surprise, by the religious right.

The Hindu right wing, led by the Bharatiya Janata Party and collectively known as the Sangh Parivar, also fears globalization.

This is incorrect. It is is the extremists - the RSS and VHP which fear globalization (and all things rational and sane, much like the Republican right-wing in USA) - BUT the BJP is all for free-markets and the like - being right-wing means being all for less government. The BJP wanted to privatise, and there was more privatisation under the BJP and MORE economic reform too, than by any of the previous governments post-1991. Note to all - the only ideology of the BJP that I support is their economic one. As a sort of agnostic Arya-Samaji-Punjabi, I don’t subscribe to their views of Hindutva. At all. Yech.

You can read the rest of his article on his blog. I’m unclear as to what the Creative Commons licensing rights are for reprinting his article, so I’ll stop here. But the point is this. I have yet to come across an article written in the any section of the Media which says that India’s liberalisation is whole-hearted, and very complete, and has benefited everybody. So I’m trying to figure out two things:

1) Who is Amit speaking to and
2) How does this make liberalisation a myth?

What one could say is that liberalisation has benefited the Rich, Upper-Middle- and Middle-Class. And saying so doesn’t make it a myth. The Rich and the upper-middle-class will obviously be the first to benefit from a small unshackling of rules. Obviously, they will be the first ones to go out and buy cellphones and snazzy cars. But is that not an improvement? When previously, the elite section of the country was running away to America, and smuggling “Imported” things into the country, it’s now deciding to stay behind and open another bar or restaurant or multiplex, or mall - is that not an improvement? Who pays the taxes in India? The slum dwellers of Dharavi? Apart of from bribes, where else does India pick up its finances from? It is the Middle Class - these are the salaried people of India, the ones who don’t get to hide their money from the Tax-collector, because it’s deducted at source. You have to push the Middle-Class foward FIRST, before tackling the poor. And these people are benefitting. They can afford cars and houses due to the lower interest rates. They can start travelling across country due to the new bunch of low-cost airlines that have sprung up. Telecom is an issue covered a gazillion times already, so I don’t think I need to mention how easy it is to get in touch. Their lives are no longer restricted to Doctor/Engineer/IAS. There are new ways to make money (legally), that did not exist before. In the TV industry, the airline industry, the BPO industry, the Software industry, the Telecom Industry and I’m sure there are others. This IS liberalisation. This IS economic reform. I’m sorry that 800 million out of those 1 billion aren’t dancing on the streets and riding around in their Suzuki Swifts, but they will get there (well most of them), just not as fast as you would like.

This does not make India’s liberalisation a myth. It just makes it slower-than-China.
Sort of. I think Amit’s intent is to say - “can we cut down on the hype and come back down to reality? We have a long way to go”. And I say NO. Let’s NOT cut down on the hype. For once in a very f-ing long time, there are some genuinely positive things to say about India. Yes people are being murdered for their caste in villages, but at the same time, they’re rubbing shoulders and eating in the same canteen in software companies. There was caste discrimination 10,20,30,40,100 years ago too. But there were no software companies (or malls, or cellphones, or TV channels, or radio stations, or low-cost airlines, or New Delhi Metros, or Mumbai-Pune expressways). That’s a change. For the better. These small changes should be treasured - AND TRUMPETED. Very soon, India’s demographic pattern is going to shift towards youth - I think it already has. There will be more people in the 18-24 year old bracket than in any other. If this is going to be the dominant group in the country - how should you inspire them? By telling them their country is hell? They’re going to need role models. Who should their role models be? People telling them that nothing is ever going to change? Or people acknowledging that some stuff has changed for the better, now go out there and finish the job. That would require the role models - and the youth to be less cynical - this hard to do, because I think Cynicism is now ingrained in India’s genes (and jeans?).But some of us are trying….

Oh, and I have one bit of proof that Liberalisation is not a myth.
I want the next person who reads this article to go and download the latest version of Adobe Reader (version 7.0).
Start it up, click on “Help”.
Then click on “About Adobe Reader 7.0″.
When the splash screen comes up, click on credits.
Now sit back, and count the names which look Indian to you. Most of those names belong to people who work in NOIDA, UP, India. Hell, Siddharth Jain used to work in my team before he joined Adobe!
Now answer this question honestly - would this have been possible before the Mythical Liberalisation?

Ye Olde India-China Debate…

*Pats self on back*
There is a publication, that this Voice has always admired, and turned to as a source for most of its information, called the Economist. Started, in late 19th century London by a Walter Bagehot, to promote Democracy and Capitalism, it has quite a few followers (recent circulation figures have just crossed 1 million, with 500,000 of those in USA). I respect it simply because it makes out a very objective case for the two systems, and is very objective in its news reporting (although it did support the Iraq War II ). Anyway, The Economist makes a case that this Voice has been screaming about forever.
It is this - that although it seems that India is way behind China currently in the race to become richer, India is going to win out in the long-haul. Some excerpts from the India-China (”Tiger in Front”) survey, from the 5th March Edition:

HOME to nearly two-fifths of humanity, two neighbouring countries, India and China, are two of the world’s fastest-growing economies. The world is taking notice. In December, a report by America’s National Intelligence Council likened their emergence in the early 21st century to the rise of Germany in the 19th and America in the 20th, with �impacts potentially as dramatic�.

That India is an open society and China is not is one of the most glaring differences between the two. Some people in both countries are tempted to use it to explain another: that China’s economy has grown much faster. This survey will argue that this view is simplistic and misleading.

Some of the main reasons for China’s better performance have nothing to do with the political system. When China started its reforms, in 1978, it was poorer than India. Part of the gap now is due simply to that earlier start.

India is often portrayed as an elephant: big, lumbering and slow off the mark. Now investment-bank reports are beginning to talk of it as a new Asian �tiger�.

According to the World Bank, 87% of adult Chinese women are literate. The equivalent figure in India is 45%. Many things follow from educating girls: better health and education and longer lives for the whole family; more productive workers; and a boost to industrialisation and urbanisation. �An educated child�, says Asian Demographics’ Mr Laurent, �does not want to plant rice.�

The other consequence of smaller families has been a sex ratio strongly skewed in favour of boys. In China there are 118 boys for every 100 girls born, compared with a natural ratio of 105 to 100. India’s figures are also skewed, but to a lesser extent. The most recent census, in 2001, showed 108 boys under the age of seven for every 100 girls.

The foreign-investment boom in China was started by overseas Chinese. From 1985 to 1996, two-thirds of foreign investment in China came from Hong Kong, Macau and Taiwan. There China has, close at hand, some 30m ethnic Chinese, many of them with close ties to the mainland. Moreover, these places specialised in labour-intensive manufacturing industries for export. Wage costs were rising fast, so, in effect, they exported their trade surpluses with America to coastal China. They were made very welcome, for political as well as economic reasons, and paved the way for the big multinationals.

Overseas Indians, in contrast, are scattered around the world and across professions. There are a number of global tycoons, tens of thousands of software engineers who powered Silicon Valley’s dotcom boom, and millions of others. It is not surprising they have played a different role to that of the Chinese diaspora.

Except for the brief interlude of �emergency� imposed in 1975 by Indira Gandhi, the then prime minister, Indian democracy has stuck. It may have seemed an improbable experiment in such a poor, ethnically divided and hierarchical society, but it has proved resilient and deep-rooted. Turnout at elections is higher than in many developed countries�and it is the poor who vote in large numbers. The system may not deliver economic growth rates of 9-10%, but nor has it imposed Mao Zedong’s murderous millenarian lunacies.

After Jawaharlal Nehru became independent India’s first prime minister in 1947, his Congress party enjoyed three decades of uninterrupted rule, most of them with a large parliamentary majority. It took the chance on offer to make radical choices and changes. It is not democracy’s fault that many of them were the wrong ones.

Well there you have it… of course, I have given you just a small taste of it. Obviously I can’t give more, else I’ll probably be sued. Do check out the latest copy of the Economist and see for yourself. I, in the meantime, shall wander around cyberspace, smug in the knowledge that the Economist agrees with me, rather than Deeshaa.org… it is simply a matter of time, before I will have to change the title of my blog… the sooner, the better.

The Present is Wireless

Hello? India Calling
So I forget which tech company has the tagline “The Future is Wireless” regardless, they got it wrong. The present is wireless. At least it is in India. Sometime today the number of mobile connections will race past the number of landline connections in India, according to the Hindustan Times. This is really amazing stuff for India, considering our beautiful reputation for being a laggard in most developmental figures.
Last time I checked, the average monthly rental for a mobile phone is about 500 rupees (US$11) whereas the outgoing call rates are about 2 rupees/min (US$0.04) - we don’t get charged for incoming calls in India, and an outgoing SMS costs 60 paise..which is less than 1 US cent). GPRS and EDGE have been implemented here, so our mobile networks are very much at the 2.5G stage already…
Contrast this to 1992, which is when I moved back to India after spending 9 years in Hong Kong (heaven, compared to the India of the Eighties…).

We had to fill out a form obtained at a filthy disgusting office populated with paan stains and uncouth bumpkins. This form asked you if you were Government Servant, a Hindu Undivided Family, a Doctor, an Exporter and some other rubbish. If you answered yes to any of these questions, then you got a phone a little bit faster. If the answer was no, you had two options - option 1 was a 5 year wait, and a bribe at the end of it all. Option 2 was a bribe at the beginning of it all, a one year wait, and then a monthly bribe (usually in the form of a bottle of ‘Old Monk’ rum, presented to the local linesman) to ensure the smooth working of your phone. Everytime it rained, you knew your phone would die, along with your connection to the outside world. And every once in a while, somebody would bribe the linesman, who would then hack into your line and allow the briber to make calls on your line, for free.. Fun.
Then one day the government came out with a Telecom Policy, which paved the way for GSM Mobile phones. They were pretty slow to take off, as they were considered pure luxury items, toys for that class of people who pretend to be perpetually ‘on the run’. But slowly and surely, call rates dropped (when mobile phones were launched the incoming AND outgoing rates were 19 rupees/min), and people realised that there was no corruption involved in getting a mobile phone. Further, the quality of the mobile phone network is very much late 20th Century/Early 21st Century, and not 5th century b.c. like the fixed line network . And so mobiles grew so pervasive that people may be homeless, but they aren’t mobile-less. Also, in typically Indian “ishtyle”, the government came up with idea of a “Shared Mobile”. This consists of a mailman with a mobile phone who travels to villages, and allows villagers to make calls on his phone for a small fee. Finally, competition from the mobile companies (and private fixed-line companies) forced the state-owned telecom firms to start behaving, so much so that now, getting a landline in Delhi/Mumbai/Other big cities is also a graft-free experience. And then people say nothing has changed in 5000 years. BAH!

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