ONDC has made a promising start. But, it could learn from ‘Market Design’

My new piece in moneycontrol on ONDC (Open Network Digital Commerce).

I draw lessons from market design on making the network more robust and sustainable.

Dampening global financial shocks: can macroprudential regulation help (more than capital controls)?

Katharina Bergant, Francesco Grigoli, Niels-Jakob Hansen and Damiano Sandri in this BIS paper:

We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. We do not find evidence that capital controls provide similar benefits.

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RBI’s report on developing secondary market for loans

RBI recently released a report on the need to develop a secondary market for corporate loans.

In this moneycontrol article, I review the main findings of the report.

Pakistan’s privatisation dilemma as it seeks IMF bailout: Lessons from its privatisation history

Interesting piece from Prof Kamal Munir (Strategy and Policy) of Cambridge Judge Business School.

Reluctantly seeking an IMF bailout for its balance-of-payments crisis, Imran Khan’s nascent government in Pakistan has already devalued its currency, hiked utility rates and imposed new taxes in an effort to be “ready” for IMF reforms. As if these measures were not enough to make the government sufficiently unpopular, it now faces demands to immediately privatise large loss-making state-owned enterprises.

For a few reasons, the government has so far been reluctant to sell these off. Two reasons stand out in particular. First, selling of these state-owned enterprises is likely to generate significant unemployment. Politically speaking, this would be a highly unpopular move, as Khan’s new government promised to create millions of jobs within five years. Second, given the outstanding debts of Pakistan’s state-owned enterprises, there will be few takers unless the government clears up the balance sheets first.

Whichever course the government takes, it would be foolish to ignore the lessons from Pakistan’s troubled history of previous privatisations – three spring to mind.

He points how the previous three privatisations – telecom, energy and banking – backfired. As there was limited competition in telecom and energy, all it did was to transfer a public monopoly to becoming a private monopoly. In banking, the banks made gains mainly by lending to government and not to other sectors.

The key lesson:

consistent with the general history of privatisation in Pakistan, banking privatisation was great for the new owners. Many got bargain basement deals – while doing little for the cause of national economic development.

Above all, the government should realise that in the absence of a broader national development policy, privatisations are not going to yield the desired benefits. Before contemplating any sell off, the government needs to first figure out the roles it needs various institutions to play and devise appropriate regulatory and monitoring frameworks.

Goals such as maximising the value of an enterprise before its sale or enhancing its profitability, should be supplanted by aims that are in line with a larger development plan. In order to avoid the mistakes of previous governments, longer-term goals must be prioritised.

Hmm..

Will “Big Data” make a centrally planned economy possible?

Indian media and experts are celebrating that finally Indian government is using big data for analysis and catch tax evaders. Even before budget, the government had set up panel of experts to look at deposit data on demonetisation.

In our excitement, we fail to realise this is exactly the trap governments want us to fall into. The idea of controlling and planning people’s activities is some thing which always excites governments and big data once again raises hopes for governments. We only realise our follies of falling in the trap when we are trapped into it.

Xiong Yue writes at Mises Institute blog about the big data potential for the governments. He is less hopeful though. Big data surely give governments more information about people but still prices etc are shaped by preferences of people:

Case of fiat currency: history, power and denominations..

There is just so much happening that one does not not know what to read/blog and what not. The Trump event looks like another Brexit case where the pollsters failed miserably.

But the blog has to start from the shocker of a night where you realised the fickleness of fiat power money. Then you wake up to see this post topping the daily stats: Why is currency in circulation in India rising?

Endless amount of media and expert commentary has followed with each one saying the same thing. Of all , this piece by Prof JR Varma was different. He said the world runs on credit and not money. So we should be more worried about losing our source of credit than source of money.

I also wanted to take a different perspective as well.  No one has asked the following  question: How does government decide overnight that what it itself said as legal tender a few seconds ago is no more a legal tender just a few seconds later?

The answer is simple here: The government proposes and disposes. It is this single monopoly to print and manage the currency which makes governments the most powerful entities. As countries warred so often earlier, they realised the superiority of who wins the war does not depend on better war machinery but on better currency/financing machinery. Napoleon figured much later though that what gave England edge in Anglo-French wars is not superior war technique or machinery but financing facilities pioneered by Bank of England. Thus, came Banque de France in 1800 nearly 106 years after Bank of England.

Even before or without these banks, role of financiers was crucial in these war outcomes. History of Rothschild tells you the same and same is the case with our very own Jagat Seths.

One just remembers and rephrases the famous dialogue from the Hindi movie blockbuster Deewar.  Just that the dialogue is between people and the government. The people say : “Look we both started together in this journey. But I have voting power, I have consumption power, I invest and make money and so on. What is it that you have?”  The Government says “I have currency printing monopoly..” And no explanations are needed.

Apart from putting up central banks to finance wars, some other central banks basically evolved to monpolise this very currency. Before central banks, banks issued their own currency backed usually by gold or some other asset. So one could always encash the currency note with some of those assets. As some banks failed to do so, it led to concerns amidst the public (just like when bank fails to payback deposits today). This led the then governments to monopolise the currency function under one of these banks. Now, the central bank issued currency and other banks were not allowed to print their currency.

In other cases, where there was no central bank as such but governments still figured a way. It ensured that only currency printed by a government bank or a government chosen bank was considered as legal tender. Only their supporeted currency was accepted in government treasuries.So even if other banks printed their own currency, they found no takers as it was barely exchangeable. This was seen in Presidency Banks case. The Presidency Bank issued their own currency from 1823-61 but were not central banks. However, due to their legal tender monopoly, the other banks could barely compete. The other private banks especially in Bengal fought against this monopoly but to no avail. A classic fight is depicted between Union Bank promoted by Shri Dwarkanath Tagore and Presidency Bank of Bengal  in Amiya Bagchi’s history of SBI.

Infact even before we had governments coming in picture, we have stories of Maharajas and their currencies. That time we actually just had coins. So each time a new king came, he demonetised the old coins and issued coins showing his legacy. The new coins would have new shape, new design and so on. Each era of new king showed a different coin.

Later as forgers caught up with the game, attempts were made to introduce new coins to prevent fake currencies from circulating. The message was same. This is the government monopoly and it shall remain that way.

One thing which ticked the game further in favor of governments and forgers was the start of fiat currency. Earlier currencies had some backing. Now, it is just based on fiat. The government just prints whatever it wants to and then one day decide to take it away as we learnt last night. It is that simple. What had some value few seconds before is just a piece of paper now.

Then there are all these mention of black money and how it will curb black money. The question is who creates black money? We have demonetised all these high denomination notes many times in the past. Each time the reason is same – curb black money. Then why do we keep reintroducing them?

The first was when Rs1,000, Rs5,000, and Rs10,000 notes were taken out of circulation in January 1946, a year and a half before the country won independence from the British. The Rs10,000 notes were the largest currency denomination ever printed by the Reserve Bank of India, introduced for the first time in 1938. All three notes were reintroduced in 1954. 

In the early ’70s, the Wanchoo committee, a direct tax inquiry committee set up by the government, suggested demonetization as a measure to unearth and counter the spread of black money. However, the public nature of the recommendation sparked black money hoarders to act fast and rid themselves of high denominations before the government was able to clamp down on them, Mint reported.

Then, in 1977, the Janata Party coalition government came into power. A year into the government’s term, party leader Morarji Desai was more bullish about cracking down on counterfeits and black money. The High Denomination Bank Notes (Demonetisation) Act, instated by the ruling party on Jan. 16, 1978, deemed the Rs1,000, Rs5,000 and Rs10,000 notes illegal for the second time.

 At the time, then-RBI governor I.G. Patel disagreed with the measure and accused the Janata coalition government of trying to cripple the corrupt predecessor governments instead of simply eradicating black money.

 For the most part, Modi’s measure mirrors Desai’s—except this time, he has the backing of his RBI governor, Urjit Patel, who applauded Modi’s “very bold step” addressing concerns about the “growing menace of fake Indian currency notes.” But that doesn’t mean all the skeptics are off his back. Economists doubt the impact of his decision.

Given this limited history and knowing that high denomination notes lead to corruption, why keep going through circles? They are the ones which first allow all this black money to be parked and then they coolly say none of these are legal!

The Rs 1000 and were reintroduced in 2000-01(by NDA I) and Rs 500 started in 1987-88 (by Congress). After years of inflation and now this habit of carrying these notes in wallets, they are now worthless.

The government could have ended this high denom notes problem once and for all.  But all you know a new series of Rs 500 and even bigger RS 2000 notes are being introduced. The same people who laud the government for decision against black money just don’t ask why again Rs 500 and Rs 2000?

All this just leads to constant source of worry for the common people. They have no idea why these things keep happening. All of a sudden there is panic across the country. One would also need to fill a form and furnish id to get the new notes. The currency notes will be rationed initially which will make lived even tougher.

Earlier these high denom notes were held by the top income class. Now it is help by everyone. The government has specified deadlines and places where old notes will be accepted. But it also knows no one will take these notes as who wants the headache of going to the bank? Visiting bank and exchanging notes is a problem never really foreseen by the ministers or bureaucrats as they themselves never have to stand in these queues. It is easy to say things like short term pain without experiencing any pain whatsoever.

One is also wondering why note security measures were not upped in another demonetisation exercise 1-2 years back. That time we just introduced notes which had years mentioned at the back.

Then there is this hype over cashless economy. Much of this discussion comes from big cities where plastic money has taken off. Go a little deeper and cash remains the thing. We are some years away for the transition to plastic money in most parts of the country. How do we move to a cash economy so soon? Even more Ironically it will lead to more powers in the hands of governments and not people as suggested. These things should also be done taking people with you and not by force.

A free banking proponent will say told ya! Much better to link currency to gold and prevent all these government machinations trying to make the world believe that it is trying to curb illegal practices. As the government prints too much money at will, these issues were bound to crop up sooner or later…

How IMF is dictating economic terms to Pakistan?

Ashraf Mahmood Wathra, Pakistan Central Bank chief shares insights about IMF’s program in Pakistan given in 2013.

He says this is the first time in Pak history that IMF program has been completed:

…..Pakistan – faced with a balance of payments crisis – embarked upon the IMF’s External Fund Facility Program in September 2013. At that time, the economy was mired in persistent energy deficiencies, declining development expenditures, rising inflation, and meager foreign exchange reserves. As a result, the country’s economic potential was on the decline and investor confidence was badly shaken. There was a need to reform policies and systems which could be instrumental in reversing the meltdown and add to the well being of Pakistanis.

I believe that the Government took the right step to enter the IMF program at that crucial juncture. Furthermore, its sincere efforts and commitment have been instrumental in driving the program to a successful completion. Indeed, the Government and State Bank of Pakistan have worked hard together to achieve this goal, and restored the much needed stability and stakeholder confidence in doing so. Before I go on to highlight the achievements of this Program, let me make two things clear: One, no IMF Program is an easy program. This explains why Pakistan has never in the past completed an IMF program. The fact that we have completed one also shows the seriousness towards reform. Two, having completed the IMF program, one should not be complacent about what remains to be done. Specifically, on the continuous consolidation of the macroeconomic stability gains we have made and the reforms that remain to be done.

What does IMF want in return? Similar things. Control of Fiscal deficits and Inflation, central bank autonomy and MPC, banking reforms etc:

Let us briefly look at some evident achievements made during the program.

Under the program, establishment of an independent Monetary Policy Committee and publication of minutes of the Monetary Policy Committee meetings, besides enhanced SBP autonomy, is expected to bring further transparency in monetary policy decision making. In plain words, these reforms provide us with a superior and structured decision–making technology. Similarly, strengthening of the internal operations of SBP, improvement in capital adequacy of banks, enactment of Credit Bureau Act, amendments to Anti Money Laundering Act, promulgation of Deposit Protection Corporation Act, and amendment to Financial Institutions Recovery Ordinance, are the major reforms that would increase financial sector resilience against any domestic and external shock. Indeed, these reforms directly address bank runs and related financial crisis.

 Further, amendments in Fiscal Responsibility and Debt Limitation Act to enhance fiscal prudence, removal of Federal Board of Revenue’s powers to grant exemptions through issuance of Statutory Regulatory Orders and removal of tax exemptions are critical reforms that will go a long way to support a sustained increase in tax revenues. These reforms and range of other actions taken by the government have produced concrete results. These have not only helped the country to build the foreign exchange reserves and provide stability to foreign exchange market – a direct consequence of the program, but also supported a sustained increase in tax revenues, lower fiscal deficit, and a significant reduction in direct fiscal borrowings from State Bank of Pakistan.

 Hmm. The program is so similar across countries.

Pakistan has faced so many economic crisis in recent years. One wonders why they keep getting into war zone with India with such poor economic situation at home…

UIDAI’s (Aadhaar) Public Policy Innovations: What to outsource and what to keep?

Mr. Ram Sewak Sharma, one of the key persons behind the Aadhaar card has a paper. He goes through the thinking behind setting up and running of UIDAI, the government body behind Aadhaar.

The success of the UIDAI in performing the difficult task assigned to it offers us much food for thought.

Why do we believe so much in powers of ‘Men of Money’?

One is tired of reading these kinds of articles (or this) on prowess of central banks and their managers. Why does it take us so long  to figure this despite repeated occurrences showing their infallibility?

All one wants is to quote these memorable lines from John Kenneth Galbraith’s book – Money, Whence It Came, Where It Went. This blog reviewed the book here but did not quote the lines. Given continued madness, one has no choice but to quote straight from the book:

How ideology has destroyed US economy over last 40 years..

J Bradford Delong says this based on his recent book on role of public policy ideology in decline of US economy:

Occam’s razor of public policy

Ajay Shah has a food for thought post on public policy:

Occam’s razor is the idea that when two rival theories explain a phenomenon, the simpler theory is to be preferred. Aristotle’s epicycles fit the data as well as Kepler’s ellipses, and a pure empiricist could have been agnostic between the two. Occam’s razor guides us in preferring Kepler’s ellipses on the grounds that this is a simpler explanation.

In the world of public policy, a useful principle is: When two alternative tools yield the same outcome, we should prefer the one which uses the least coercion.

Gives a lot of examples where least coercion just works and even better than more coercion..

Traditional stock broking firms react negatively to discount brokerages..

Interesting article. Financial broking/trading industry thrives on other companies competing with each other and coming out with new products/services. After all that is what leads to increase in earnings, potential growth etc. The whole idea is let markets function and pick winners and losers based on capabilities/capacities and so on.

But what about when it comes to competition in financial broking industry itself? Of course oppose it:

BSE Brokers’ Forum and Association of National Exchanges Members of India (ANMI), the two leading association of stock brokers, are divided over the idea of setting a floor brokerage rate.  BSE Brokers’ Forum has written to the market regulator, Securities and Exchange Board of India (Sebi), proposing a minimum brokerage rate as it believes discount-broking is distorting the market. ANMI says the charges should be market determined. At present, broking houses are free to charge any below an upper ceiling of 2.5 per cent.

“A cross-section of brokers is worried about the discount-broking model as it impacts them adversely. Several of them had written to take up the issue. Brokerage charged by firms is the smallest component of all levies and taxes, that also shouldn’t be taken away,” said Alok Churiwala, vice-chairman, BSE Brokers’ Forum.

“Prescribing a minimum brokerage rate may be counter-productive. Besides, brokerage rates have already come down a lot, so fixing a lower limit would be difficult. If there is a lower limit, it should come from broker consensus and not through regulation,” said Gopal Agarwal, president, ANMI.

Discount broking is a business model whereby brokers offer to charge only a flat fee (often less than the price of a packet of biscuits), irrespective of size of trade. The two most popular brokerages offering discount services are Zerodha and RKSV Securities.

Brokers are feeling the heat as more and more net-savvy investors prefer the low-brokerage model adopted by Zerodha and RKSV. The discount brokerage strategy often involves a web-based platform for users to trade on, without any research or advisory services. Clients are charged a flat fee for each trade irrespective of its value. Any additional service provided is paid separately by clients.

Why write to SEBI feeling heat from discount brokerages? Let markets and clients figure out whether discount brokerages are of any value or not. Traditional brokerages have picked pounds (not pennies) from clients for many years now. Has been a classic case of where are the customer’s yachts? High time customers get some value from discount brokerages as well.

Applying IO principles one can see the impact of competition right away. Brokerage houses charge above the marginal cost and earn a premium for their services. Discount firms might be just pricing at marginal cost or just slightly lower than MC just to capture the market and then increase it later to MC levels.

One could also model it as a game between incumbent and new entrant. Under such games what matters is the threat incumbent send to the new entrant. If the threat is credible and incumbent will fight the competition then new entrant stays away. If the threat is not credible then new entrant enters and tries to capture some market. In this case, traditional brokerage industry instead of competing is using their lobbying power and push regulator from dissuading the discount firms. It will be interesting to see how SEBI responds. Knowing SEBI it might just ask these firms to compete and let markets figure..

Markets have shrugged off poor monsoons in last decade..hence no problem?

In Indian economy, stock markets are a test for anything and everything. Whether any policy/event is good or bad is justified by stock markets. Rest does not matter.

Once again, there are predictions that monsoons are likely to be bad this year too. Ideally, given the pathetic state of agriculture and farmers, one would expect markets to react negatively. But this is not how it has fared in the past. Infact, it has ignored the bad monsoons in last decade. But history cold be tested this time:

Markets gave double-digit returns in 3 of the past decade’s worst monsoon years but the resilience will be tested this time.  The stock markets have not always followed the same trend as the monsoons in the past decade. Returns have ranged from 13 to 81 per cent during times of rain shortfall in these years.

However, this seems unlikely to continue in 2015. The stress of two years of rain shortage, the attendant negative sentiment and some earnings pressure bodes ill for returns this year, say experts.  “There have not been two years of bad rainfall in a row. If the monsoons are bad this year as well, there could be a major problem even in the irrigated areas, as groundwater levels would have been depleted. The markets are likely to be impacted,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

“In 2009, Indian equity markets were in recovery mode after a major selloff in 2007-08, so the rise was off a small base. Similarly, the markets had begun to rise in 2003-04, after a long consolidation since October 2001. Now, we are sitting on a large base, with markets having risen to all-time highs. So, even a small negative trigger can play spoilsport, though, traditionally, the impact of deficient rainfall has not been very large,” said Deepak Jasani, head of retail research at HDFC Securities.

2009 was one of the best years in terms of market returns, despite a poor monsoon. The S&P BSE Sensex gave a return of 81 per cent. Two of the other worst monsoon years also saw double-digit returns, according to an analysis of data from the stock exchanges and monsoon data from a report by Edelweiss Securities.

The next worst year in rainfall was in 2014, at only 88 per cent of the long period average (LPA). The market returns were 29.9 per cent. The year 2004 saw rain at 91 per cent of the LPA and the market return was 13.1 per cent.

Only if markets had reacted negatively previously things could have been better in terms of our agri policy. That is how the country has been governed for many years now..

 

A rather precious public policy lesson for policymakers from top to bottom…

Good friend Anantha Nageshwaran sent this wonderful quote.

It is by Dr. M Vidyasagar, ex-DRDO/TCS and presently teaching in US (how to retain such people to teach here). He seems to have said:

Become a public policy thinker in three easy steps..

Ajay Shah has a piece on this.

Easier said than done but he has some nice ways to think about public policy. The three steps are:

• Step 1: What’s the market failure?
• Step 2: What’s the proposed intervention?
• Step 3: The hurdle of public administration

In the end he says:

Decades of Indian socialism have starved us of capabilities in economics. Everyone interested in the field of public policy should limber up with these three steps: (a) What’s the market failure? (b) What’s the minimal intervention that precisely addresses the root cause of the market failure? (c) How do we construct mechanisms through which government agencies in the real world will deliver the desired outcome, even though their first instinct is to favour laziness and corruption?

This is hard work. The outcomes of this process of thinking resist classification into prefabricated belief systems. I sometimes meet people who say “As I’m a Keynesian, I propose policy X”. That’s a great economy of thought; by reading a few books by Keynes, you have figured out the world. It’s  better to start from first principles, and analyse each problem on its merits, and engage with the gritty reality out there in figuring things out.

Well same thing could be said for this: “As I’m a Friedmanite/Hayekian, I propose policy X“. But this is going to be really appreciated as it is the in thing. The real thing is to avoid any such ideology which is difficult. Some defunct economist/political thinker is always influencing your ideas.

More important is to be humble about what you are trying to achieve and should be surprised if certain public policy experiment succeeds. And be weary of unintended consequences..

How Andhra Pradesh’s new capital (around village Thullur) is becoming a real estate haven…

Picture is worth 1000 words and economists should use them to make a point as well.

S. Ananth, an independent researcher from Vijaywada has this superb pictorial article on the topic:

The announcement by the Andhra Pradesh Chief Minister Chandrababu Naidu that the new capital will be located in and around the village of Thullur, about 25 km from Vijayawada, has dramatically altered the socio-economic dynamics of these sleepy villages. Until the announcement these villages were considered to be little more than backwaters of the main city. The following photos attempt to highlight the rapid pace of change over the past five months.

The mainstay of these villages was agriculture and petty commodity production where they grow vegetables, fruits like guava and bananas, paddy, sugarcane, cotton and in a few cases flowers. In the more fertile villages, vegetables are the most important corps. Abundant supply of water is an added advantage: in certain areas, groundwater is available at about 50 feet. During monsoon, groundwater is available at about 30 feet. Earnings can be as high as Rs 1.5 lakhs per annum (in the case of those growing vegetables). High level of investment in education is a marked feature in all the villages.

In almost every village, a common way to bide time is to gather at a common point (usually near a temple or panchayat office) and “discuss” everything under the sun. One such gathering of elderly people in Thullur village.

Locals believe that the present village housing blocks will not be brought under land pooling for the new capital. Residents of Thullur village point out that the chief minister has promised to “develop” their common areas in a different way: regeneration of the lakes, addition of walking tracks around the lakes, development of parks, temples, etc. One of them was confident that each village will have an “outer perimeter” beyond which land and development of the capital will be taken up – creating pockets of the “old village” within the “modern” capital.

The announcement of the capital in the region has literally shaken the area from its stupor. The pickup in construction activity immediately catches a traveller’s eye. The road from Vijayawada to Thullur village indicates the rush to construct shops and apartments, especially among villages that are close to Vijayawada city. A large number of apartments are coming up on the road from Vijayawada to AP capital region villages. Almost all the apartments advertise their bank approval prominently. It is indicative of the manner in which information asymmetry works or is perceived to work. High cost of apartments means that buying agricultural land is still attractive. Unlike in other cities, a luxury apartment means one that has a large carpet area with a few fittings thrown in as a perk. Most of these apartments now cost three times the cost in early 2013.

Before any development, housing prices shoot through the roof.

Cases of land grabbing and cheating have sprung up as well:

A visit to these villages seems to indicate that real estate and ancillary service industries are the only business that interests people – at least, those willing to venture into a business. Everything seemingly revolves around land: people are either keen to buy land, sell land, mediate between the buyers and sellers or offer some service to those trying to fix a deal. The attempt to make a quick buck from real-estate speculation seems to encompass all classes, castes and overshadows everything else. The urgency to close a deal is indicative of the thinking that the good times are unlikely to last long.

A discernible feature is that of roadside kiosks that have now taken to real estate broking because it is a more profitable occupation. These include kiosks that in the past served as a tailoring shop, dual-purpose units like a motorcycle repair kiosk that doubles as a real estate broking office, a bicycle repair kiosk to one that stored agricultural equipment.

The business logic is impeccable and incredibly simple: even if one land deal can be intermediated and the transaction completed, then the commission earned (about 1% of the deal value) is often more than the incomes earned by most over the past one year. In other cases, the obsession of the region’s middle classes for “extra-income” with little or no “investment” other than their labour is satiated. In most of cases, it only requires drawing on one’s social capital and social networks.  

The influx of brokers from outside the villages is easily discernible. A year ago, most of these villages had only the occasional visitor – mostly connected with the agricultural commodity trade. Most of these brokers are from neighbouring cities like Guntur and Vijayawada. Residents blame these outsiders for all the fraudulent land transactions in their villages

An abnormal rise in land prices have resulted in instances of land grabbing. Land grabbing or threats related to purchase and sale of land was unheard of in the region. There were the occasional civil disputes that would snake their way through the courts. A rare dispute related to completing a land transaction was usually “settled” through the informal arbitration mechanism, which usually consisted of the local elite presiding and mediating the two sides – the anthropological equivalent of the “big man” or the “elder”. However, the influx of outsiders means that the “local big men” or “elders” do not control the social levers that they did in the past and are helpless to arbitrate in any dispute.

The picture below is a flexi-banner notice issued by the Superintendent of Police at a bus shelter warning people about and against land grabbing. Of course, a real estate agent uses that as a good place to market himself and his business..

Hype and more hype..

 

World Bank tries to go the behavior way for development..

The change is happening gradually.

World Bank’s annual World Development Report 2015 (WDR) is based on behavioral insights..

Why can’t countries think like companies? (because both are different entities)

Well, countries can’t think like companies as two are very different entities. Just as we are told elephants can’t think like ants and vice-versa.

It is surprising to read such pieces from public policy professors. Kishore Mahbubani of Lee Kuan Yew Public Policy Institute actually argues something which professors of public policy have usually guarded against – countries are not companies.  So what works in companies does not really work at the country level.Actually, such kind of thinking will leave no role for public policy schools as well.

Much of modern economic thinking gets into this whole idea that country policies do not matter. One should just apply principles of economics (efficiency, profit maximisation etc) to country level and all shall be taken care of. The west has been influenced by this thinking for many years only to reap the enormous problems they have created for themselves.

So what does this article say? It speaks about missed opportunities in China and India:

Why good economic reforms could actually be bad news for ruling party…

There is large literature on political economy of reforms. Whether the ruling party wins on economics reforms? What kind of reforms? Should it highlight the reforms/growth or remain quiet? How should the reforms be sequenced? etc etc.

This paper is an addition to the literature giving contrary ideas. It is written by Sweder Van Wijnbergen of Universiteit van Amsterdam and Tim Willems of University of Oxford. They show why some reforms that begin well, lose public support. They say such reforms are like sampling without replacement..once out of the sampling bag they cannot go back into the bag. Overtime, people lose confidence and as a result lose out:

Honeybee Economics – Implications for Ecology Policy

What a brilliant paper by Vesa Kanniainen of University of Helsinki, Tuula Lehtonen  of Finnish Beekeepers’ Association and Ilkka Mellin  of Aalto University.

It tells you about so many things about economics using honeybees and their activity at the centre. It tells you about economic systems, leadership, externalities (positive ones), work ethics and what not:

For thousands of years, humans have known the value of honeybees in agriculture. Their pollination services are crucial for the mankind, the Global ecosystem and food production. The recently documented decline of the honeybee colonies in the world is alarming and may threaten the whole living nature. To develop a proper policy intervention, the economic analysis can be employed to develop Honeybee Economics. Such an endeavour reveals striking efficiencies of honeybee societies in terms of division of labor, the pleasure of work, career development, information sharing, and extreme altruism. A communist society, however, comes at a cost. Strict policing in management of the genetic interest conflicts is unavoidable in terms of workers’ dictatorship with a rather limited power allocated to the Monarch.

In our paper, the economy of honeybees is analyzed in terms of an implicit labor contract with a farmer. It is a two-output economy: the honeybees not only produce honey but are engaged in Pareto-efficient exchange with flowering plants including procurer and provision of pollination services. This benefits the whole nature. Markets for pollination services exist only in limited areas, for example in the Western United States. The missing market makes the pollination an externality. In their principal-agent relationship with the farmer, the working effort of honeybees appears a virtue in the spirit of the Calvinist Ethics. The industry is subject of substantial risks. The risk aversion creates a wedge between the expected market price and the production cost. The risks are reflected in volatility in the pollination services reducing the consumers’ welfare. Data on honey production, a complement to the pollution services, is used to examine the magnitude of risks and the potential cycles. Both the externality, the industry risks and the risk aversion speak for taxing consumers and subsidizing producers as the solution for the optimal tax problem.

Though the paper is on technical side. However, students could be given this paper in the class to work simultaneously on econ and math lessons. The paper moves interestingly from one aspect of honeybee econmics to other ….I would love to be part of such a class and sort some math..