Archive for November, 2014

The unsung billionaire… Qimat Rai Gupta of Havells India

November 21, 2014

Bhupesh Bhandari of BS pays tribute to Mr  Qimat Rai Gupta of Havells India  He just passed away recently. Mr Gupta made his billions through hard work but remained humble all through his life. One does not even know what kind of a company Havells is with most thinking it is some foreign company given its name.

So how did Havells come about?


In Finland, Tax Day Is the Best Day..

November 20, 2014

A really interesting story from the Finnish land.

People hate taxes. But this is one country which celebrates the tax day. Not because it is the last day to pay taxes. But because authorities disclose tax figures for all individuals:


Taxis vs Autos in Bengaluru – the fare war hots up..

November 20, 2014

One serious city level reform (if we can call it reform) in India is asking autorickshaw drivers to behave and charge strictly based on the meter reading. Even in India’s national capital, the authorities have been unable to get this basic measure going. And we talk of big transport proposals which will take many years to complete (and some not completing at all), with no focus on a measure which shall bring immediate relief to lakhs of commuters.

So what does one do, when there is no action from policy to address this? Some enterprising private sector guy/guys take sense an opportunity in the mayhem and make a business case for the same.

In Bengaluru (have to get used to the name change) for instance, private taxi operators are making a case. They have taken the fight right to the auto chaps. First, a company called has reduced taxi fares lower than autos. That is something.


From Berlin to Bengaluru, in search of joint families…

November 20, 2014

An introspecting article for Indian society.

Yesterday’s ToI Bangalore edition has this story of a German woman in search of joint families:


Where are the philosopher leaders in today’s world?

November 20, 2014

Robert Skidelsky has a much needed piece in Proj Synd.

He generally asks the question — where are the philosopher leaders of today?  He begins quoting from this speech of Irish President Michael D. Higgins. President Higgins criticised the lions in latter’s dens (Chicago school of economics in Univ of Chicago; worthy of a post by itself):


Stop trying to save the world…why we should “dream smaller” in economic development?

November 19, 2014

Michael Hobbes, a long time development practitioner has written this really useful piece on economic development (HT: MR Blog).

In a longish piece he points how development world gets crazy about an idea and then oversells it to rest of the world. So we keep seeing fads come and go with overall development remaining unchanged. What is worse is that just because we see some positive result in a really small experiment in a small place, the experts sell it as the solution. The hype is built up for some years only to see plenty of dollars wasted and no progress.

The idea is not to shun these dev programs. But just have much smaller targets (dreams) and be really humble over its claims. Starts with this interesting example of Playpump:


Poem – The Mathematician in Love (could easily apply to economists as well)..

November 18, 2014

William John Macquorn Rankine (a Scot  civil engineer, physicist and mathematician 1820-72) has written this amazing poem (HT: came across this poem in one of the threads discussing history of math and economics).

The poem is titled as mathematician in love but very easily fits in for an economist too. Being a Scot, he would have surely heard/ known of this field called economics developed by his fellow Scotsmen Adam Smith and David Hume. But I guess the field of economics was not really as mathematical then, otherwise he would have been advised to add economist there as well.

Just read these lines:


Bank of Finland’s 200 years..

November 18, 2014

Seppo Honkapohja of Bank of Finland has this interesting speech covering history of the central bank. It was established in 1811 making it the 4th oldest central bank.

The journey from being a central bank established by Russians to becoming a EMU member is all captured:


Evolution of money…from playing cards to e-currency

November 18, 2014

Superb speech from Carolyn Wilkins of Bank of Canada.

In particular she points to this picture placed in one of BoC  halls which shows evolution of money.


50 years of Solow growth model…implications and impact

November 17, 2014

A nice interview of Prof. Robert Solow in McKinsey Quarterly (MQ). The interview celebrates 50 years of both the model and MQ.

The best thing about the interview is that it discusses how Solow model was actually applied to the real industries. What is Solow model? Well it says what matters for growth is not labor or capital but technology. What did the actual evidence show?

The Quarterly: What, if anything, surprised you about the findings of the early MGI studies?

Robert Solow: What came as something completely new to me was that if you looked at the same industry across countries, there were almost always dramatic differences in either labor productivity or total factor productivity. To my surprise, it turned out that most of the time, certainly more often than not, the difference in productivity—in the auto industry or the steel industry or the residential-construction industry in the US and in countries in Europe—was not only substantial but couldn’t seriously be explained by differences in access to technology.

We also found that the productivity differences could not be traced to differences in access to investment capital. The French automobile industry, much to my surprise, turned out to be more capital intensive than the American automobile industry. So it was not that either. The MGI studies instead traced these differences in productivity to organizational differences, to the way tasks were allocated within a firm or a division—essentially, to failures in managerial decisions.

I was, of course, instantly suspicious of this. I figured to myself, “What do you expect a bunch of management consultants to find but differences in management capacities? That’s in their genes. That’s not in my genes.” But MGI made a very convincing case for this. And I came to believe that it was right.

🙂 Gave some legitimacy to the consulting industry..

What drove management? Competition..

The Quarterly: So management was the primary factor in productivity differences?

Robert Solow: Yes, and there was another surprise, for which there was partly anecdotal, partly statistical evidence. If you asked why there were differences that could be erased or diminished by better management, the answer was that it took the spur of sharp competition to induce managers to do what they were in principle capable of doing. So the idea that everybody is everywhere and always maximizing profits turned out to be not quite right.

MGI made a very good case that what was lacking in these trailing industries in other countries—or in the US, in cases where the US trailed—was enough exposure to competition from whoever in the world had the best practice. And this, of course, can apply within a country. We know that in any industry, there is a whole distribution of productivity levels across firms and even, sometimes, across establishments within a firm. And much of that must be due to the absence of any spur to do more.

So an interesting conclusion to me was that international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation.

The Quarterly: So competing against the global best-practice leaders is a way to encourage your own industry to use best practice?

Robert Solow: Yes, and it goes beyond that, even. Competing as part of the world economy is an important way of gaining access to scale. If you’re a Belgian company or even a French company, it may be that best practice requires a scale of production larger than the French domestic market will provide for French producers.

So it’s important for such companies to have access to the international market. That was not something I had thought of. And I don’t think anyone had—at least I had no reason to think, within economics, that there had been much thought about management activities as a big difference between best practice and less good practice. We had always thought, “Well, people seek profits. And if they seek profits, they’ll have to adopt best practice.” Not so.

He says the future research shd look at productivity in services sector:

The Quarterly: Looking toward the future, are there other issues in economics that MGI’s sector-level approach might be helpful for?

Robert Solow: I would like to see more work on the determinants of productivity and productivity increases within the service sector. To begin with, I don’t think we even have a very clear idea about the relative capital intensity within the service sector or between the service sector and goods-producing sector.

I remember I was once writing something in which I was describing the service sector as being of relatively low capital intensity. And then I stopped and remembered that the following day I had an appointment with my dentist and that my dentist’s office was as capital intensive a 500 square feet as I had ever seen in my life.

So I think the place where the MGI approach is most needed right now is in the service sector. There has been service-sector work within MGI, and outside of it as well, but not as much as is warranted in view of the 70 percent or more of all employment in advanced economies that’s in service industries.

The Quarterly: Are there particular places in the service sector where you’d look first?

Robert Solow: Well, that brings me to another MGI result that I found fascinating. At one point, we were trying to understand the industrial basis, the sectoral basis, for the acceleration and deceleration of productivity growth. And one of the things we found was that the two largest sectoral contributions to the acceleration of productivity growth when it was accelerating and, presumably, to the deceleration when it was decelerating came from wholesaling and retailing.1 Both of them, at the time, were low-productivity sectors and low-productivity-growth sectors. But they employ so many people that a slight improvement in the productivity of retailing makes a large contribution to the increase in national productivity.

There has been some work on that, but I think the work is needed now more in personal services. God knows, in healthcare. And education. Or child care. All sorts of things.

Nice bit..Calls himself an ordinary macroeconomist…hope most of us really ordinary economists also believe the same..


Underemployment vs. unemployment…Why overeducaton is as much a problem as undereducation?

November 17, 2014

Brian Clark, Clement Joubert and Arnaud Maurel raise an important issue. When we link labor markets to education the focus is on how undereducation leads to unemployment and so on.  We hardly look at the other side of the story which is how overeducation leads to underemployment where people do not get the jobs as per their education levels. There are ample stories of this kind as well where graduates run taxis and so on.

The authors raise this concern from an American perspective but could be a more global problem as well. Much of the work we do hardly requires knowing just basic skills of 3 R’s (reading, (w)writing and (a)rithmetic).  Unless you get into rocket science kinds of work, just basic is more than enough. But we are really required to pile on more and more degrees just for the sake of it. It is funny how you need an advanced MBA to sell shampoos, hair oils, balance accounts and so on. One can just do all these tasks by just being a simple graduate. But then this is how it is. The society forces us to spend our time more and more on getting education which does not add much value overtime.

Plus with rising costs of education, students have additional burden of debt on their heads. This is how the authors start the post:


Central Bankers and bahavioral biases

November 17, 2014

Andy Haldane of BoE discusses the issue in this speech.

He first lists the behavioral biases and then suggests what central banks can do to overcome the biases:

Preference biases – where the decision maker might put “personal objectives over societal ones, such as personal power or wealth”   

Myopia biases – “people differ materially in their capacity to defer gratification” and studies suggest that people who show greater patience “outperform their impatient counterparts in everything from school examinations, to salaries, to reported life satisfaction”. 
Hubris biases – over-confident individuals are “more likely to be promoted to positions of influence” but tend to pursue “over ambitious targets” like “undertaking over-complex company takeovers. That way nemesis lies”

Groupthink biases – people tend to adapt their view to confirm to those around them and also have a “tendency to search and synthesize information in ways which confirm their prior beliefs”.     
There is little doubt that central banks have suffered from either all or some of these biases over the period with hubris bias being the biggest.
BoE (and others in their own ways) have tried to get out of these biases:
To tackle preference bias, the Bank’s does not set its own objectives.  It has three policy making committees – for monetary policy (MPC), financial policy (FPC) and prudential regulation (PRA Board). In addition, “to ensure the actions of the Bank’s policy committees are well-aligned with society’s wishes” their targets are “set ex-ante in legislation by Parliament acting on behalf of society”. 
To prevent myopia, the Bank of England has been made independent from government when choosing how to set monetary and financial policy to achieve their respective objectives.  These decisions have been given to an institution “whose time horizon stretches beyond the political cycle”.  Andrew suggests that central bank independence has been successful at taming “the inflation tiger” but he warns that “as some countries are finding today, the tiger is capable of biting back” in the form of low and falling inflation expectations. Andrew notes that while inflation expectations in the UK have held up pretty well, this is something he is “watching like a dove.”
To guard against Hubris at the Bank, “all policy decisions … are made by Committee rather than an individual” which “provides some natural safeguard against over-confidence bias”.  Andrew notes that external MPC members have contributed importantly to the diversity of opinion on the committee “on average they have been around twice as likely as internals to dissent from monetary policy decisions”. 
Finally to ward off groupthink, each member of the policy committees is individually accountable for their vote or view, and this should encourage “a variety of analytical perspectives”. That said Andrew notes that analysis of MPC minutes suggests that they did not devote enough time to discussing banking issues in the run up to the financial crisis, something that in hindsight, “looks like a collective analytical blind-spot”. He argues that despite all the changes to the Bank’s policy responsibilities since the crisis, “it is too soon to tell whether any remaining blind-spots remain”. Also, in his view “improvements to the Bank’s forecasting process have some considerable distance still to travel”.
Have these committees worked? I mean it just has people with very similar backgrounds trained in the same kind of economics. How can views be any different? We make a big deal of dissents. Have these dissents dissuaded the chief of the central bank from taking a different path? All we have is hype around dissents, nothing more nothing less. Groupthink continues despite committees
Much of fight against inflation was brought during highly comfortable global times. We are now seeing serious limitations on what central banks can achieve on inflation as well. Despite so much easing, deflation pressures remain in most adv economies. This is against expectations that we will have high inflation due to these policies by many experts. The  standard ideas have just failed really. But hubris continues..
All these biases can only be avoided if alternate schools of thought are encouraged in economics. The subject should be more interdisciplinary and humble. Just by saying we have committees and encourage diversity, it does not happen.  When most students are made to think in one standard way, diversity is just a myth and groupthink a reality..

Volcker does not understand the monetary policy of today…

November 14, 2014

Well, not many do either barring those who seem to be making the policy.

WSJ Blog has these comments by Paul Volcker over the monetary policy at today. He does not really get it:


Why Keynes is important today?

November 14, 2014

Eco Historians Peter Temin and David Vines have this article.

There is huge animosity to fiscal stimulus today based on Ricardian equivalence. The authors show how Keynes faced a similar situation in 1930s:


How academics can engage with policymakers?

November 14, 2014

This blog has has written in the past on the need for policymakers to engage with academicians.

Professor Hugh Lauder of University of Bath has this excellent article on the same:

As academics face increased pressure to prove the impact that their research is having on the wider world, universities are considering how they can communicate more effectively with policymakers.

There are fundamental problems that confront the relationship between academics and politicians. The rules, incentives and institutional architectures that distinguish the academic field are different from those of the policy landscape.

Policymakers often have relatively tight timeframes when compared to academics: they frequently want short, clearly written synopses of research that can throw light on their policy problems.

In contrast, academics are driven by the need to secure grants and get published in high quality journals.Their research may take five years or more – the length of a parliament. Having been trained to think carefully and at length about the problems they confront, they find responding to the more immediate demands of policymakers a challenge. How can these difficulties be overcome?

Politicians could better engage with academics at the point when they start to think about manifestos; embedding academic knowledge into the policy process from the beginning. In order to develop such agendas, universities need to foster new channels of engagement with policymakers. Policymakers could have an increasing presence on our campuses to develop the questions that are key to their policy concerns.

So what should be done? Both should meet and discuss often:

The onus lies not just with policymakers visiting academic institutions. There is also the opportunity to get more academics directly in front of policymakers, be it through presenting to all-party groups, being involved in calls for evidence, and presenting to select committees. However, the processes for being invited to present are far from transparent, limiting the opportunity for fair academic representation.

Communicating with policy think tanks is also beneficial – this is something we’ve tried to do here at Bath with the appointment of our new advisory board that brings policymakers, think tanks and academics together. We hope that university policy institutes can act as a bridge, developing links between the worlds of academia and policy.

There are occasions when it takes the policy community time to take in the implications of research.

My own work, with Phillip Brown, on the future of graduate job opportunities and earnings was based on a study of the implications of the emerging global labour market for many graduate jobs. It was not an optimistic picture we were painting; British graduates now have to face competition from their counterparts across the globe who can often work at a fraction of the price of our graduates.

Younger policy wonks from across the political spectrum quickly expressed interest but it took some time before senior policymakers took note. In part, this may have been because the research challenged official estimates of the returns to graduates. It’s not, however, the role of academics to serve existing policy agendas, important as they might be. It may take time or a change of government for such research to surface in policy agendas: it is a question of dialogue and maintaining good relationships.

Well, this will be a win-win. Policymakers get access to academic understanding and acads get real world perspectives.  Academicians will then pass on the info to the students who will gain immensely in the exercise.  Research students can do thesis on policy related issues and be a part of the real world.

In India’s context. it is even more amazing that some academics do become policymakers but stop engaging with Indian academics thereafter. They are far more comfortable in engaging with academia abroad but are highly reluctant to do the same with academia in India. It is like best of both the worlds for them. Academics abroad and policymaking in India. Indian economic policy will only improve if there is a healthy relationship between policymaking and academia. Both have to look for ways to reach out to each other..

Does corporate ownership of media lead to conflict of interest?

November 13, 2014

Recently there is increased spotlight and criticism due to increasing corporate takeover of the media. People feel over a period of time. much of the news is going to be managed and presented to suit corporate interests. We are seeing it partly as the media has gone completely berserk over anything that the government does. It has just lost its basic element of journalism.

Anyways, this paper shows that conflict of interest is rather limited. In a really innovative way the authors figure the conflict of interest. They look at movies which are produced by these big media houses and movie reviews in newspapers owned by the same media houses. Ideally, we should think that these reviews shall be biased. But the authors figure no such thing:


How Pakistan created its Unique identity system?

November 13, 2014

I was completely unaware of this thing called NADRA Card (National Database and Registration Authority) which serves as an identity card for Pakistan people.

This speech by Tariq Malik, former chairman, National Database and Registration Authority is quite a fascinating one. He explains how this idea of unique identity for Pakistan people came about and was then implemented in a vigorous fashion. There are not many poisitive stories from Pakistan but this one looks like quite a successful one. How the identity card eventually got integrated with all kinds of services and also helped in conducting a transparent election in 2013 is quite a story.

There are questions raised on this identity system but the speech is much more than that. It also explains how one goes around developing a good public organisation in countries like Pakistan.

Even more interesting is how NADRA is now doing similar/related projects in other countries as well. So, the quality of work is accepted at an international level as well.


Is Your Impact Evaluation Asking Questions That Matter? A Four Part Smell Test

November 13, 2014

Prof Lant Pritchett gives his 4 smell tests to figure whether impact evaluators are asking the right questions..


How restaurants in Lima and Copenhagen became best in the world..

November 13, 2014

Interesting piece in HBSWK.

It is all about the vision of the founder and persistent maintenance of high quality:


The Economics of Tipping

November 12, 2014

Kenneth A. Zahringer  has this interesting article on the topic.

Why do we tip?


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