Tag Archives: Atanu Dey

Fast Food Enlightenment

Markets work. That’s the “First Law” of the Extended Order of Social Interactions. I just made up that EOoSI bit but the “markets work” bit is a genuine law in the sense that it expresses an observed regularity in human societies.

What does it mean? Among other things, it means that when the need (the demand) for something arises, the market spontaneously figures out a solution (the supply) without the need for some controlling authority passing orders to get that need met.

Those who address the needs of people are sometimes referred to as entrepreneurs. These are the people who look around for unmet needs and figure out some way of meeting those needs.

The corner bicycle repair shop or the bakery is in a limited sense an entrepreneur. In these cases, the needs are quite evident and obvious, and so are the solutions. People need their bikes fixed and someone who knows how to fix them can go into the bike repair business. Nothing new has to be invented; just that the person has to be enterprising enough to get started and keep the customers satisfied at least as much the competitors do.

And then there are cutting-edge entrepreneurs. These respond to latent demand for some good or service. Latent demand refers to needs that are not even felt as a need until the supply occurs—and then the demand surfaces.

There was really no demand for smart phones until smart phones started showing up in the marketplace; and then everyone and his mother couldn’t live without one. (Amazingly, I am the only person I know who does not use a smart phone.)

Did you ever feel the need to use a micro-blogging platform like Twitter? Perhaps but only after Twitter came into existence. Before that, no one really wanted one.

Markets work.

When demand (latent or explicit) exists, markets figure out a solution. The solution consists of a set of suppliers, a range of goods, and a set of prices.

Who sets the prices? That depends on the market organization. If the market has only one supplier (a monopoly firm), the prices are set by the firm. But in markets that are served by a number of firms which compete with each other, the prices are set by no one and everyone.

Let’s just say that Samsung cannot price its TVs without regard to what competitors like LG and Sony are pricing their TVs. Burger King pays careful attention to what McDonalds’ prices are.

How much fast food, of what kind (the range of goods), will be supplied, and by whom (the sellers), and at what prices—are what the market discovers.

Order emerges without orders.

That is, firms enter or leave the business depending on their own calculations. Firms set their prices as they see fit. Customers decide what to buy and from whom. There’s freedom all around—firms can enter the market or leave, customers freely choose to buy or not buy, etc. In the long run, there are no shortages and there are no surpluses.

That’s the magic of markets.

What motivated this line of thinking? I came across an old email (from 2004) from a follower of Sri Sri Ravi Shankar, or SSRS as he is known around here. Like many others, she (AA for short) wrote that I should enroll in an “Art of Living” course because then I may realize how amazing SSRS is. The signature line in her email read:

~~ “Life is sacred. Celebrate life. Care for others and share whatever you have with those less fortunate than you. Broaden your vision for the whole world belongs to you.”—Sri Sri Ravi Shankar
Here is my reply, for the record.

Dear AA:
I think you misread my opinion of SSRS. I do believe that he adds value to the lives of people as demonstrated by the fact that people willingly pay handsomely for what he has to offer. Commercial success is a fairly reliable indicator of value that a person or an institution adds.

As for my taking an AoL course, I will do so only after I am convinced that the course will offer me something that I value. As of now, I have only come across obvious platitudes and generic be-good admonitions that I myself can produce in astounding amounts if I were so motivated.

For instance, take the quote in your signature line. Is there anything there that is not obvious, hackneyed, trite, platitudinous—in short, is there something that a person of average intelligence and moral sense cannot have figured out by the age of 10?

Having said that, I am sure that there are people who need to be told what to me is basic plain common sense and are willing to pay to be told basic truths because they are perhaps too lazy to have pondered these matters themselves. It is what I would call “fast food enlightenment.” You drive up, check out the menu, order “Happy Meal #4,” pay your money, are handed a prepackaged meal, and drive off with it effortlessly.

I don’t think that fast food vendors are evil. They add real value by providing meals for people who are either incapable of preparing a healthier meal or are unable to find the time to do it right. For myself, I like to take the time to cook a decent meal for myself. I have taken the time to consider the world and marvel at it and arrived at my own conclusions that I believe cannot be packaged into simple verities for mass consumption.

Atanu Dey, Ph.D., is an economist. His blog “Atanu Dey on India’s Development” is at deeshaa.org. Connect on twitter @atanudey.

India’s Prosperity is Made in India

Many superlatives have been applied to India. Some are laudatory—the largest democracy;  some are appalling—home to the largest number of illiterates; and some whose overall value is hard to assess. In that last category must be the designation of India’s prime minister Narendra Modi as the most foreign-traveled Prime Minister (PM) in world history. He is, as some have remarked, India’s first non-resident Indian (NRI) prime minister.

Globe Trotting Prime Minister
Since becoming the PM, Modi has visited 38 countries. Between June 2014 and June 2016, Modi has traveled abroad 42 times, or close to two foreign trips per month, including four visits to the United States, and two visits each to Afghanistan, France, Nepal, Russia and Singapore. Compared to him, his predecessors preferred to stay home. Vajpayee had only six foreign visits during his first two years, and during his entire tenure as PM from 1999 to 2004, he went abroad only 19 times, including just twice to the United States.

All this globetrotting would have earned Modi an enviable truckload of frequent flyer miles had he been flying commercial. Unfortunately since he takes the state owned and taxpayer funded Air India, he does not get miles credit. The taxpayers, instead, get saddled with the cost of his travels, an informed estimate of which, to date, is around US $400 million at an approximate average of $10 million per trip.

Selling India Abroad
One could object to that kind of bean counting by noting that the expenditure is investment into India’s economic growth. With his foreign visits, so the argument would go, Modi has elevated India’s image globally and cemented vital relationships. This enables significant investment flows into India, it would seem.

There are two reasons why this argument is problematic. The first is that it is basically an advertising and sales job. The second is that India is a large economy and therefore its prosperity is internally driven and cannot be predicated on external factors.

Not Easy to Make in India
The “Make in India” initiative is a marketing job. Bombastic rhetorical claims that India is the prime destination for global investment sound hollow and tired when the facts on the ground speak differently. The World Bank ranks economies on the ease of doing business (www.doingbusiness.org) in 189 countries. Methodological and precision issues of the ranking aside, it does reflect an underlying reality.

As one would expect, the high ranks go to open, free enterprise economies like Singapore (#1), Hong Kong, United States, Taiwan, Germany, etc. Bringing up the rear are South Sudan, Libya and Eritrea (#189). India comes in at #130, a solid 46 places behind China (#84). That’s a terrible place to be for a country that has delusions of becoming a giant in world commerce.

Marketing and sales jobs, though valuable, are ultimately futile if the product doesn’t work as advertised. Like all of us, multinational corportations are rationally self-interested. Their investment decisions depend entirely on how easy it is to do business in India and have practically nothing to do with PM Modi’s sincere entreaties to “make in India.” A nice paint job may draw in the curious buyer but the car ultimately gets sold based on what’s under the hood, not on the shiny hood ornament.

Is the United States an Indispensable Partner?
The second problem with the view that Modi is attracting investment into India by frequently selling India abroad is that India’s prosperity, like that of any large economy, depends on what Indians and Indian firms do, which in turn depends on government policies. Certainly, a few tens of billions of foreign investment could not hurt but that all amounts to rounding errors in the spreadsheet of real growth.

In his speech to the U.S. Congress, Modi said, “In every sector of India’s forward march, I see the United States as an indispensable partner.” That mindset is not that of winners. Given that India is clearly not indispensable to United States’ prosperity, that attitude reflects a reliance on an unhealthy relationship of asymmetric power. Did Modi really mean, for instance, that India’s domestic affairs are now open for U.S. administrations to interfere in? Does that “partnership” extend to the United States making interventions in Indian rural and urban administration, labor laws, agricultural and industrial policies, law and order, banking and finance —all sectors that are critically important to India’s “forward march?”

His assertion to the Congress about non-resident Indians in the United States speaks volumes:  “Today, they are among your best CEOs, academics, astronauts, scientists, economists, doctors, even spelling bee champions. They are your strength. They are also the pride of India. They symbolize the best of both our societies.”

Mr Modi’s pride is misplaced and frankly pathetic. With all due respect to him, those facts actually speak to what’s wrong with India and symbolize the worst failures of Indian governments. Talented people were forced to migrate abroad because they could not do in India what they were evidently good at. India embraced socialism and is paying heavily for that by seeing human capital flight. That’s nothing for India to crow about. At the very least Mr. Modi should get better speech writers.

The Answer is at Home, Not Abroad
The United States did not become what it is by partnering with some large industrialized nation or dancing to foreign tunes. It marched to its own drumbeat of freedom and free enterprise that created unprecedented prosperity. It crafted its own constitution—not its colonial master’s rules—which guaranteed freedom of speech and private property rights to its citizens and which was (note the past tense) implacably opposed to socialism. Thus the United States attracted talented people from all across the world, not just from India, in the recent decades. Modi needs to ask what it is that compels so many highly productive people to leave at the first opportunity they can.

An honest answer to that could easily form the backbone of the structural reforms that are urgently needed for India to succeed. The key to India’s development is freedom. No country whose citizenry are bound by the arbitrary will of government functionaries empowered to implement needless, incomprehensible, vitality-sapping, senseless rules and regulations that inhibit enterprise—in short socialist policies—has ever escaped poverty.

Indians have had the utter misfortune of being forced to live in virtual serfdom under the licence-control-permit-quota-inspector raj, a legacy of the British Raj that impoverished India, for nearly seven decades. There was some hope that Modi would dismantle the horror that imprisons India because he did talk loudly about “minimum government.” After two years, that hope is vanishing fast. Government is not only becoming more intrusive but it is expanding its vice-like grip on Indian entrepreneurship and enterprise.

United States prosperity was built in the United States, not abroad. That’s par for the course, not some outlandish exception. India’s progress does not depend on the United States or any other external entity. India is an independent, sovereign nation and that fact places its destiny within it, and only within it. Mr Modi needs to demonstrate that understanding and act accordingly.

Genghis Khan, the great Khagan, reportedly said, “Conquering the world on horseback is easy; it is dismounting and governing that is hard.” Flying around the world on state-owned Air India promoting India is easy; it is disembarking and staying at home to free India from the controls of an oppressive government that is hard.

Atanu Dey, Ph.D., is an economist. His blog “Atanu Dey on India’s Development” is at deeshaa.org. Connect on twitter@atanudey.

A Misplaced Sense of Pride

One of the Founding Fathers of the United States, polymath, inventor, scientist, writer, diplomat, etc., etc., Benjamin Franklin (1706–1790) observed that “We are all born ignorant, but one must work hard to remain stupid.” An analogous statement about nations could be that all nations are born poor but it requires hard work to keep it in poverty. Not surprisingly that hard work is properly done by the politicians of poor countries. What’s surprising is the evident pride they appear to take in their dismal accomplishment. They obviously revel in the fact that the country is poor and proclaim it loudly for all to marvel at. A recent statement on twitter (image below) by the official spokesperson of the Ministry of External Affairs of India, retweeted over 1,500 time no doubt approvingly by Indians, brought this to mind.qatardeathtoll

PM Modi is quoted as saying to expatriate Indian workers in Saudi Arabia that “your sweat and toil is the pride of India.” Really? The pride of India? A superficial reading of that statement suggests that he is proud of the work that expats are doing and commending them for it. I have a different perspective from that of Mr. Modi’s because of my personal circumstances of being an expatriate and also because of my profession as a development economist.

Migrations always imply that subjectively and objectively some places are better than others. Most people do not migrate just for the fun of it; they are forced to do so. Leaving home is never easy and seldom undertaken frivolously. The clearest example is when people are forced to migrate en masse due to conflict. There are other reasons for migration such as famine, natural disasters, and the search for livelihood but it is always indicative of some failure in the native location. Mass migration, undertaken in search of safety or livelihood, is a matter to be pitied rather than to be celebrated.

The situation of Indian migrant workers in Gulf states basically underlines the fact that the Indian economy has been a failure. Their sweating and toiling away in those inhospitable places is not just a metaphor but is literally true. They don’t sit around in air-conditioned offices busily typing on keyboards; they sweat it out in the desert heat working in construction jobs. They are abused and made to do dangerous jobs. And they die from accidents at the workplace, and many commit suicide.

Above, see the graphic from the Washington Post quoted by the BBC (June 2015) about deaths related to the construction work for the scheduled 2022 World Cup in Qatar.

“[The numbers were] first published in 2013 in a report by the International Trades Union Confederation (ITUC), called The Case Against Qatar.”

The ITUC went to the embassies of Nepal and India, which counted more than 400 deaths a year between them—a total of 1,239 deaths in the three years to the end of 2013.

Reading the report brings home the point that migrants have it tough. They are maltreated, abused and in many cases killed. Here’s more dismal statistics fromTheMuslimIssue.wordpress.com:

In the Gulf Cooperation Council (GCC) countries, the “moderate” UAE tops the list with 2,513 deaths of Indians reported, Saudi Arabia comes second with 2,427, Qatar is fourth with 279 cases and Bahrain is in the last position with 175 cases.

The working conditions can only be described as brutal slavery. And yet Indian workers voluntarily go there. What does that say about their economic prospects in India? Further, what does that say about the Indian economy? And finally, what or who is responsible for this state of affairs?prideofindia

That Indians sweat and toil abroad under inhuman conditions is not a matter of pride for India, however jingoistically it is uttered. That fact should call for some introspection and then appropriate action. But that is never ever done. Prime Minister Modi was in San Jose, California, last September. The hoopla of his public appearances then involved heavy servings of self-congratulatory “look how amazingly successful people of Indian origin are in the United States and therefore how wonderful India is!” Nope.

The success of Indians abroad points to India’s failure. It is a systemic failure that denies talented, hardworking, competent people the opportunity to create wealth. Again, it should lead to critical self-examination, not unearned boastful chest thumping. Instead of bombast, Indian leaders need to ask what changes need to be done so that people—the ultimate resource—don’t choose to migrate out of India. The oh-so-successful Indian entrepreneurs abroad are a glaring indicator of the Indian dysfunctional system, and the Indian leaders’ lack of interest in figuring out the cause is a major part of the problem.

On the day of Modi’s visit to San Jose, I wrote this:

“A lot of self-congratulatory speeches will be made, and the successes of Non Resident Indians(NRIs) in the United States recounted. There is only one truth that will not be mentioned: that all these NRIs are in the United States because they voted with their feet. They voted with their feet and came to the United States because of what India is. This fact should actually shame Indians and its leaders. But instead they are oblivious to its implications. And it will be a cold day in hell when Indian leaders will ask themselves these questions: “Why is it that so many hundreds of thousands of Indians vote with their feet? Why do they create wealth for themselves and for those foreign lands instead of creating wealth in India? Could it be because in India the government of India has put massive barriers to the creation of wealth?

putflowhnwi

Dear PM Modi, when the circus is over, when the performers have done their song and dance, when the photos have been taken, when the NRIs have all patted themselves on a great event they made possible, do ponder the simple question of why are there so many NRIs? Because there is another phrase that describes these NRIs—economic refugees and economic migrants. When will India be such a place that there will be very few NRIs to welcome Indian politicians in foreign countries?”

Let there be no misunderstanding. Indians are like any other people. They seek a better way of life. Unfortunately, too many opportunities are denied to them and therefore those who can, move out. A small percentage (large in absolute terms) of the laboring classes go to the Gulf coast countries. Another small percentage (again significant in absolute terms) of the professionally trained class is able to move to the advanced industrialized countries. There they create wealth for themselves and naturally add wealth to the host countries. All that wealth is lost to India.

Talking of loss of wealth brings me to another class of migrants. The bottom and middle of the economic pyramid are not the only two sources of migrants. There is migration from the top layer as well. The so-called “high net worth individuals” (HNWI) also move out. The March 2016 Millionaire migration in 2015 report by the New World Wealth organization has interesting numbers. Such as that net inflow of millionaires into various cities in 2015: Sydney (4,000), Melbourne (3,000), Tel Aviv (2,000), Dubai (2,000), San Francisco (2,000), etc.

In countries ranked by net inflows, Australia tops the list with 8,000, followed by United States (7,000), Canada (5,000), Israel (4,000), UAE (3,000) and New Zealand (2,000). We should note that Canada, Israel, and NZ are small countries with a total population of less that 50 million, and they had a net inflow of over 11,000 millionaires in 2015.

The outflow of wealth represented by the over 4,000 HNW individuals leaving India could easily be over $20 billion (assuming an average of $5 million per person). That estimate is for the year 2015 alone.

Add that over the years since India’s independence, and you can easily reach over half a trillion dollars in losses. That’s a significant amount that a poor country like India can ill afford. Who or what is responsible for that loss of wealth to India?

To me, the government of India is criminally responsible for the loss to India. Government mismanagement of the economy lies at the foundation of India’s poverty. India loses wealth with every migrant—whether they end up toiling in the deserts, or working for high-tech corporations in the Silicon Valley, or moving their wealth abroad.

Mr. Modi would do well to contemplate this fact when he gets some time out of congratulating NRIs abroad. The Indian government must stop working so hard at keeping India is such poverty.

Atanu Dey, Ph.D., is an economist. His blog “Atanu Dey on India’s Development” is at deeshaa.org. Connect on twitter @atanudey.