Economics, Development & Policy Takeaways, 2017

It has been an extraordinary year in academic realm, especially in public policy and economics. This is the year when economics got realistic, if one regards the annual Nobel Prize in Economics as a defining moment in economics research. Richard Thaler won it for for showing how the human traits of ‘limited rationality, social preferences, and lack of self-control’ systemically affect individual decisions as well as market outcomes. This has been a clear break from the past. When have economists bothered about psychology before?

Besides being my areas of interest and training, public policy and economics, in my reading went through a rather significant transition led by eroding away of the traditional orthodoxy. The heterodox economics movement has now acquired the necessary critical mass which makes me hopeful about the discipline’s future.  May be, the Nobel prize recognition to behavioural economics also helps the cause.  The kind of change required was articulated well by Jean Tirole trying to push for economics for common good – ‘we urgently need economists to engage with the many challenges facing society, helping to identify our key objectives and tools needed to meet them.’ It is further affirming when the most influential thinkers contribute to a book titled Economic Ideas You Should Forget, edited by Bruno Frey and David Iselin. Some of the ideas to forget about, included in this book are “capitalism”, “rational expectations” and the efficiency-equity tradeoff”.

As for public policy, traditional policy thinking has been about what ought to be done, imagined in isolation from political factors like incentives for politicians. Thinking about policies that help institutions align social and private interests has only begun, as I figure. However, I’d still wish there was more concern shown to issues of work in digital era and workers’ welfare in these times of cheap goods and services. The year’s readings to the least makes me sure of pursing labour welfare research in the future. At the moment it looks somewhat ignored, in contrast to its consequences for development outcomes in an economy.

In terms of reading preference this year, it was India focused. I picked up Sumantra Ghoshal’s World Class in India and began looking at the case studies on Indian corporations again. This is a fine collection of innovative, risk taking and forward thinking Indian corporations detailing their paths to growth and transformation. I am particularly struck by Dr Parvinder Singh’s remark on the theme of building a world class company in India – ‘Ranbaxy cannot change India. Instead what it can do is create a pocket of excellence. Ranbaxy must be an island within India.’ As a philosophy for change, this is simple and compelling.

In development, I was led to Bad Samaritans: The guilty secrets of rich nations and the threat to global prosperity by Ha-Joon Chang. Earlier this year, I also read his Kicking Away the Ladder: Development strategy in historical perspective. Both these books are a seminal read in thinking about development from a mix of economic and historical perspective. The intersection of these perspectives makes Chang’s works insightful. Bad Samaritans alerts the reader to ‘the historical double standards involved in recommending free trade and free market to developing countries’. Whereas, the developed countries grew by practicing exactly the opposite. What follows is a careful, evidence-based and tempered argument for the same. I have learnt the art of constructing a clear and forceful argument from Chang’s writings.

In July, 2017, I graduated from MPP course. The quantum of reading in public policy almost dipped after that, except occasional academic papers. I intend to now begin a policy-thinker series which gives me an opportunity to discuss interesting ideas as well as develop a set of policy thinkers who are shaping the discipline. In all of these readings, I am struck by how few Indians I come across. May be, it says much about my exposure. While we do have scores of economists, those in public policy research seem few. I hope to discover them in the year ahead.

Overall, the year’s readings leaves me feeling positive about these disciplines’ focus and concern. I didn’t feel this way last year or before that. In fact, the state of disciplines made me reconsider if I ever want to pursue a Ph.D. But this year is different. I am considering research again, over abandoning it for business and work.

Among others, I was fascinated by Dror’s critical examination of public policy making which reviews the state of discipline in the early 1980s, and goes on to propose a shift (away from the idea of ‘muddling through’ of Lindblom) towards theoretical frameworks. Perhaps, there is a characteristic policy approach in the developing world and countries of the tropics, as opposed to others. It could be seen as ‘policy-making in the tropics’. I hope to build this idea further, in the months ahead. For one, policy-making in tropics is intricately linked to an institutional working culture which is somewhere between formalism and non-procedural, incidence-based functioning.


The Colonization Narrative : India

Victorial Memorial, Kolkata, India

Victorial Memorial, Kolkata, India

This is an perhaps an oversimplified, linear narrative of how India went from a land ‘out there’ and ‘somewhere’ to being the crown jewel of the British Empire. If I were to write this story of colonization for a history paper, I would perhaps sink without a trace in the deep waters of historical analysis. But it still merits a shot for the fact that simpler narratives are a point of start for the more nuanced ones.
The story of colonization in India is that of a gradual subjugation and systematic economic exploitation. From the first colonial encounter – with the merchants of the British East India Company – to establishment of British empire with India as a colony, the two hundred years of British presence has left an indelible mark on all aspects of Indian economy, agriculture, geography and more so its social core. Historians reason that Indian colonization happened in three distinct phases –

Mercantilism (Phase I), 1755 – 1813

What started as a small trading operation from a small post on the Hoogly river in Calcutta in 1755, the operation of British East India Company went much beyond trade in the decades to follow. The English merchants were interested in trading spices, silk, jute and other goods which would sell in Britain. Merchants and businessmen dominated this period and expanded their trading operations in India rapidly as the demand for these goods in Britain increased. However, growing demand for these goods back in Britain also meant an outflow of bullion out of their country and into India. In addition to this the cost of trading in India were high due to wars with the Portuguese and Dutch trading companies.

The merchants sought to address this by extracting land revenues in India as taxes which could compensate the outflow of money from Britain. The rights to land revenue were to be acquired from the rulers of princely states of India. The first such land revenue collection rights or the “Diwani” rights were acquired for Bengal after the Battle of Plassey in 1957. This was soon to spawn an elaborate system of land revenue system known as “ryotwari” system and the “mahalwari” system (in northern parts). The model was on a template of land revenue system of the Mughal rulers who preceded the British. Ryotwari system is a characteristic of this period. It was operationalzed with the help of intermediaries or “zamindars” who were awarded the ownership of large tracts of land and were responsible for collection of revenues on behalf of the Company. Historian Bipan Chandra estimates that the export from India to Britain increased four times during this period. Indian trade had come to be monopolized completely by the British as the 18th century came to an end.

Free Trade (Phase II), 1813 – 1858

During the second decade of 19th century Adam Smith’s idea of free trade or “laissez faire” economy had managed to influence the British parliament with some of its members – the “free traders” demanding that access to Indian markets must be made free. This translated into the Company losing its monopoly rights in India. To this effect the Charter Act of 1813 was passed. It withdrew British East India Company’s trade monopoly. The Company’s territorial possessions were now subordinated to the British crown.

This phase is marked by commercialization of Indian agriculture. India was fast converting into a plantation colony with cash crops like indigo, opium, jute and tea being forced on the peasants, over food grains. Consequently indentured labour was used for running several of its plantation colonies in French Guyana, Trinidad and Tobago and Sri Lanka. Agriculture in India now served as a raw material base for British industries. Famines, introduction of railways (1853) and irrigation projects were other features of this phase.

Financial Imperialism (Phase III), 1858 – 1947

Industrial revolution in Britain and an uprising of native Indian soldiers against the Company (the Sepoy mutiny) ushered in the imperialistic phase where the colonizer and the colonized relationship was set firmly in place. The railways, land revenue system, civil services and judiciary served as the apparatus of the British government to strengthen the colonial grip and make India serve as a captive resource providing colony which would get fed into the furnace of British prosperity perpetually.

This phase is marked by de-industrialization of Indian industry (as argued by many historians and economists, though I find that this period also served as a demonstration of industrial technology and its capability for the Indian entrepreneurs and who would later make good use of it to set up their own businesses. Ex- V O Chidambaram Pillai in Tamil Nadu, Birlas and Goenkas in Calcutta, textile entrepreneurs in Bombay). Indian goods during this period became in-competitive to the superior machine made goods like textiles which flooded the Indian market from Britain. This inflow of cheap goods was a consequence of the industrial revolution in Britain.

The domestic market was systematically exploited and foreign trade by 1920s had declined significantly. Indian capitalist class rises in the aftermath of the World War II when the foreign economic influence wanes away due to the war. It is then that the Indian economy picks up steam and the Indian industrialists align with the Congress to push for independence. What follows later ends the colonization of India in 1947.


Social Responsibility of Business & the Companies Act 2013



In an earlier version I titled this post as – Legalizing loot by the state – Companies Bill 2013. It was due to the coercive way of making businesses part with their profits over and above the taxes they pay (by the way of Companies Bill 2013) , to get some of its own work done. The question is – who is responsible and what is this emergent form of ‘social responsibility’ that is being forced upon businesses.

The legendary economist Milton Friedman wrote that the ‘social responsibility of businesses is to increase its profit’ in New York Times magazine in 1970. The analysis is remarkably relevant even now, when there are all sorts of loose analysis on responsibilities, mandates and spending being attempted which refer to ‘corporate social responsibility’ (CSR) with vague references to who actually is responsible and what are its/his responsibilities in the social context as implied by CSR. Such inexacting tendencies are typical of Indian policy process and can be witnessed in the new Companies Bill which has been passed. The resultant Companies Act 2013 mandates a compulsory annual spending as a percentage of net profits made by companies in India towards social causes. This is being done under the notion that businesses have a social obligation and that it must then be their responsibility to direct a part of their profits towards ‘social’ causes – it could be towards education for children, healthcare in areas with poor access, serving poor and below poverty line population and works of similar order. If that is what is expected of the businesses now then what are governments to do? And what is being done to the corporate taxes being paid by the companies? Doesn’t that make it a good share of spending which now the government has to direct and which it is not able to over these years as we see in India. If this primary responsibility of taking care of the economically weaker and basic services deficient constituencies too is to be imposed on businesses then what might the government want to do? Be a cashier perhaps.

In an opinion piece Samir Saran and Vivan Sharan of the Observer Research Foundation hold a quick trial of Indian businesses and dispense a poor performance judgement. Following this they list their reasons for why the new act is important and how this ‘scheme’ might work in transferring profits  –

Perhaps, the most important new element introduced in Clause 135 of the Bill is the notion of mandatory Corporate Social Responsibility (CSR). Colloquially referred to as the “2 per cent clause,” it has the potential to transform the landscape of CSR in India. Indian businesses have been loath to go beyond the “glorified worker towns” syndrome or providing employee services and benefits passed off as social interventions. Indeed, “Corporate India” has fared rather poorly when it comes to affirmative action in employment, environmental responsibility and in resource efficiency and revitalisation over the years. Therefore, a scheme that potentially transfers profits towards social causes, environmental management and inclusive development could be the much needed medicine for a nation with such deep socio-economic cleavages. This provision in the new bill must be welcomed and its efficient implementation must be ensured.

There is some excitement among the NGOs in India about the resultant fund inflow or the ‘CSR money’ that is likely to come in annually, after the Companies Bill comes into effect. This has also led to a positive outlook on the hiring in development sector and for entry level jobs for graduates with social work, social science and development studies degrees. The buzz is rather appalling. I find that it is absurd and (policy wise) misguided to mandate corporate spending on ‘social responsibility’ by a legal statute that Indian government has brought into force now.

The reference to Milton Friedman was to highlight this brilliant analysis of social responsibility, which is being ignored in India. The socialist streak of India’s early years keeps surfacing and sometimes in a damaging form as this Companies Bill.

What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending customer’s money. Insofar as his actions lower the wages of some employees, he is spending their money.

Companies Bill in India and similar such coercive measures by governments are against the interest of economic growth as well as human development in the long run. In principle what it is doing is to reaffirm the idea that businesses are extractive and that government can step in to redistribute the wealth so generated. This is a negative view of markets and is likely to create an environment which could be stifling for growth of businesses and consequently impact production, employment and overall growth.

Understanding Public Policy Research – A schematic

By Keshav (Courtesy: The Hindu)

By Keshav (Courtesy: The Hindu)

Here is a ‘discipline neutral’ way of understanding policy research. This stuff comes out from a course on Introduction to Policy Research that I take this term. Interestingly enough this is the first time that we have a specific course titled as that – Public Policy, as a part of any graduate program in an Indian university. What follows is a way to simplify what policy research is for the uninitiated. It can possibly help in mapping the landscape of the several different kind of policy studies that exist.  This is closer to what we have often done – applied and functional to get going in a space. The policy professor here whose own work looks at Indian politics, policies and processes from an applied perspective, helped folks understand policy research area through the schematic that I’ve cleaned up and represented below.

On public policy, he argues that it is about creating change by making hard choices between competing values. It is about approaching problems and these approaches vary with different interest groups. I am attracted to this explanation because it is not theory heavy and emerge from a gaze set on real world and unlike other insular theories in public policy that I have come across.

The schematic came about from discussion on India’s transition in public policy space and various studies like Rob Jenkins’ on what made the 1991 reforms work in India, Achin Chakrabarty on reform debates and more importantly Pranab Bardhan who articulates the Indian state as “predatory” during the Indira Gandhi period.  The variety of public policy study and practice as seen in the West is relatively new in India and therefore the extra effort in explaining its direction, intention and methods. Public policy study is done in two ways –

1)      Policy Research – which is a post facto analysis of what happened with policy X in place and why.

2)      Public Policy Analysis – which is conducted before or towards developing and implementing a new policy.

And hence the following schematic to understand public policy research –

A schematic to understand policy research (Ref: Srikrishna Ayyangar)

Approaches in policy research (Ref: Srikrishna Ayyangar)

Paving the road to hell with agricultural productivity

Kuppam, Andhra Pradesh . This region in AP witnesses a bumper tomato produce in November, 2012 and effects the prices (adversely) in the nearby cities of Bangalore and Chennai. High volumes of production did not lead to commensurate rise in income of the farmers in this region, as we know.

Kuppam, Andhra Pradesh . This region in AP witnesses a bumper tomato produce in November, 2012 and effects the prices (adversely) in the nearby cities of Bangalore and Chennai. High volumes of production did not lead to commensurate rise in income of the farmers in this region, as we know.

Here is a brief of a new policy study that my colleague Praveena and I begin this month. We are excited about this idea as agriculture and development has been sectors of our interest since long and that a sector fatigue (from our work in water sector) is slowly kicking in. We would sharpen this as we get going on this, but sharing a rough cut of the idea is called for to invite inputs and criticism on this from folks we know and the readers of this blog. 

Paving the road to hell with agricultural productivity: Agri- commodities, International Trade and Development

Focus on increasing agriculture productivity as an intervention in alleviating poverty across the less developed and developing countries, particularly of Africa and Asia has had reverse effect of pushing people further down into economic crisis. We begin a small study this week where we explore the consequences of large agriculture programs which are focused on increasing agricultural productivity of farm sector, for a variety of staple crops, cash crops as well as horticultural crops. The increase in productivity is treated as end in itself. Whereas, in practice, the productivity rise is not realized as increased income for the farmers but works adversely works on pushing the prices of that crop further down. What is proposed is that increased agri productivity will lead to increase in income of the farmers. In practice, what happens is that the increased flow of agri-produce in the market pulls the price down and neutralized the gain of the producer.

There are two problems that we see –

1)      Development programs which focus on increasing agriculture productivity alone are not desirable as they do not alleviate poverty in long term, instead work adversely.

2)      Increased agri-productivity affects less developed and developing economies which earn by exporting these primary goods. When a higher volume of produce hit the international market they push the prices down and lead to lesser earnings by the producing country. This has an aggregate effect of leaving the economy as impoverished as it was earlier, if not worse.

These two problems could be addressed by thinking about development sector programs in agriculture as well as international agri-commodities trade from analyzing existing policies in agriculture and trade sectors.

Our argument is that development sector programs in agriculture, domestic as well as international agri-commodities trade and poverty are linked very closely and in a direct fashion. There is a ripple effect that travels right through this chain and leads to adverse effect on the producers if these programs focus only on productivity increase. This fixation without looking at the policy environment and prevalent trade practices will always lead to poor outcomes as seen in declining international agri-commodity prices by as much as 25% across the board – coffee, tea, cocoa and sugar, in the last decade. From 1980 to 2000, world prices for 18 major export commodities fell by 25% in real terms.  The decline was especially steep for cotton (47%), coffee (64%), rice (61%), cocoa (71%) and sugar (77%)  (World Commission on the Social Dimension of Globalization 2004: p83).[1]


[1] The commodities crisis and the global trade in agriculture: Problems and proposals, Martin Khor

Microfinance in India: A case of development’s bull run

Image: Flickr User Vikram Walia

Image: Flickr User Vikram Walia

Talking to some friends who work in NGOs I have noticed an increased pace of activity in NGOs running microfinance programs. And some programs around the other buzz word ‘financial inclusion’. This made me think if microfinance really has the kind of emancipatory potential that many in the non-profit sector see. I dug up a few papers that were discussed as a part of microfinace module back at the university and found I could use them to make a case of a clear bull run that happened and which really isn’t anything better than retrofitting a market idea into a ‘non-profit’ space.

Whatever the motivations of microfinance as a service in the interest of development were, there is one thing that may be safely stated – that microfinance was a market based enterprise. An enterprise which affected a kind of financial engineering that could potentially help people in the poor and low income categories to get out of the poverty trap that they found themselves in. It may not have started with the motivation of making higher returns by extending credit at an interest to the poor but it certainly ended as that. By end, I imply the crashing of microfinance industry with the Andhra Pradesh crisis. On the thought that it was a market based enterprise it would not be difficult to find consensus, irrespective of which side of the debate one is positioned. What many contend is writing off microfinance as an approach in helping the poor and lower income people to get out of poverty.

If we look at microfinance industry’s performance in India during the period 2000-2010  it reflects what I allege as microfinance’s ‘bull run’ in the development sector. ‘Bull run’ is a term borrowed from stock markets where it is characterized by a sustained increase in share prices. Such an increase is based on positive investor confidence in the economy. For instance, the Bombay Stock Exchange had a bull run from April 2003 to January 2008, a period of five years when the sensex increased from 2,900 points to 21,000 points. This is a massive bull run which tends to pay off investors handsomely. During such a bull run there is a widespread confidence in the market which tends to obfuscate information, merits and overall sustainability of prices of a company’s shares. I argue that such a thing happened with the microfinance industry in India. The use of market terms in explaining the dynamics of an industry which was touted to be necessarily steeped into development sector is deliberate. It is deliberate because microfinance’s emergence as an industry received its most important impetus only when capital from the conventional or mainstream financial markets made its entry into the sector.

The origins of microfinance industry may have been out of concerns of poverty alleviation and genuine belief in the deliverance of microfinance as a tool to escape poverty but as it unfolded it can be seen that it was anything but that. This professor at the university notes that microfinance industry has done well in the last decade: has grown from a USD 400 million in 1996 to USD 200 billion industry, by 2010. In terms of market size it has indeed done well and is an indicator of the kind of growth that a necessarily development activity is capable of showing if it is left to market forces. This aligns with the bull run phase that is the subject of this article. He also explains the underlying reason for such a splendid rate of return that many of the microfinance companies saw during this period. There was also a growing thinking that subsidized credit has its own limitations. Lending should be done at rates which cover the costs: of capital, of delivery and of risk. While costing, cost of delivery of both financial and technical assistance and support services, at the doorstep of the poor household was also included. However, these services were often not delivered, leaving an extra-normal margin for the Micro-finance Institutions (MFI).

This extra-normal margin is well explained in a paper by this professor and his co-authors who happened to be a part of the early microfinance movement themselves. An extra normal margin was an attractive proposition for the mainstream finance companies which were already reeling under the ongoing crisis in the banking industry in India to channelize their capital and of course forces in to this emergent sector. The emergent patterns had all the making of a typical market space where the ruling order is capital and scale. This became evident in the course of growth that microfinance companies in many states later followed. A high capital investment which had to be responded to with strict performance in terms of return on investment which would then effect the earlier stated ‘development outcomes’ by the microfinance company.

There are several arguments made on the impact of microfinance on poverty alleviation, its role as an activity which brings access to finance by the poor who are not covered by mainstream banking etc. These arguments need empirical evidence. Presenting microfinance as a win-win solution that helps companies find that fortune at the ‘bottom of the pyramid’ as well as offers a value proposition to the poor in terms of access to low interest capital is incomplete. As a general proposition the vision is fully supported neither by logic nor by the available empirical evidence. Morduch’s example from Micro Banking Bulletin, 1998 speaks to the emotive argument made by others – that the most careful and comprehensive recent survey shows that the programs that target the poorest borrowers generate revenues sufficient to cover just 70% of their full costs. So why would such an inefficient program as microfinance should be run when in comparison by making lending to the poor a banking priority one could achieve similar results, theoretically. Now, one may argue that banking priorities gravitate towards those who are rich and not to the poor. Then this is where the argument that making access to finance to the poor a political priority will be necessary. If it can be a political priority then it will also get addressed by the banking sector. The reason for having a parallel industry where regulation and quality control has been rife with conflict is unexplained. It will be easier to achieve this outcome via the conventional banking industry given the same political and social conditions that are argued for by the microfinance proponents.

Mission drift argument about microfinance industry’s good intentions in the beginning which then get subjected to equity market’s pressures of return on investment and also to the emergence of microfinance as a ‘sunrise’ opportunity must also be examined in the reverse order. Why did the mission drift happen? 

The mission drift argument does not note that structurally finance industry is oriented towards capital flows, performance of capital, return on investment, scale and other typically market oriented structures. What was being attempted by the microfinance industry pioneers was a retrofitting of a market structure into the development sector and reorienting its goals from wealth creation to servicing the poor with access to finance and help them escape poverty. This reasoning is not pursued for a variety of reasons. First is that of admitting to this massive transplantation experiment. Second, is that of making mistakes and not acknowledging them. Third, that pushing microfinance as a solution the development practitioners have come so far that mission drift is the only convenient and saving argument that can be made. However, this reasoning must be driven in order to not make the same mistakes again.

A revision in the microfinance industry regulation and working is being proposed in the wake of Malegam Committee report and the other multiple crises like debt recovery methods of microfinance companies and borrower suicides. It should be questioned if watering down of a capital and market dominated industry like finance to suit development outcomes could be done like the way it was done starting from Grameen Bank to Basix and to SKS Microfinance.
It appeared to be a purely market opportunity which ran well for a period rising on investor confidence and sector wide optimist. During this time finer details were dispensed with. Every microfinance company responded to the lure of capital and the charm of ‘reaching out’ to a large number of ‘unreached’, ‘under-served’ constituency of poor.

The crash of the industry should serve a vital lesson to development sector – of not working in complete dispensation of the day’s reality that market forces are major influences. The development goals of equity, access and opportunity to a poverty free life cannot be situated in a world which discounts the market forces. The measures must work with them and try to negotiate around conflicting goals. Not in the way of retrofitting an idea from one space to the other. If the poor must escape poverty then structural adjustments in the political, governance and social spaces must be effected which then effects a conducive environment for the poor to rise up on the back of equal opportunities and on their own capabilities. The idea that enabling access to finance will achieve this outcome has been a flawed one not only incomplete.

The proverbial India – China comparison

There is this obsession with Indians about Chinese cities, their outrageously large engineering projects, their ventures in Africa, the Chinese people and other things Chinese. Especially in my neighbourhood which is a rather insignificant south Indian town where a private university (happens to be my alma mater too) has been admitting hundreds of Chinese students in its various technology programs (undergraduate) over the past couple of years. It is a common sight in the town to see these chatty young faces walking by, learning and living in a completely different culture. What brings them here is an MoU of this private Indian university with another in China to teach their students in an ‘english medium’ institution. At least that is how the common story goes on coconut radio here.

Now, after a term of economics as a major subject I have begun to see things a little more differently and perhaps clearly. The clarity that has set in is about the difference in Indian and Chinese initiation of market reforms, which has come to determine the current economic statuses and accomplishments of both these large nations. This in a way refers to the ‘path dependency school’ of thought which I have just begun to explore.

The difference in initiation of market reforms is on 4 counts:

  1. Colonial history and political experience:  As a consequence of an early brush with British imperialism (the exploitative opium trade & trading environment on the offshore ports off the mainland) the development thought in China was marked by an intense mistrust of the markets. With the humiliation and forced submission brought about during the opium wars with Britain in late 19th century Chinese were very clear about their mode and degree of interaction with foreign trade interests. Consolidation of power and later rule of the communist party carried these early experiences to the formation and governance style of the state. Later reforms too were guided by this in a sense that China believed that state owned companies must be the major players in the market. State’s participation in the market meant that it would play an enormous influence instead of allowing a free market play. Chinese state owned companies like CNOOC, OCBC etc as a consequence grew bigger  on state involvement. The reform process in China has been different from the Indian reform process in the extent of participation and control by the state. This consequently made it easier for Chinese companies to compete overseas and at the same time give a tough competition (although skewed) to foreign multinationals desirous of doing business in China. A case in point is Chinese search company Baidu vs. Google China. Similarly, online commerce company Alibaba gave a tough run to foreign ecommerce majors like eBay and Amazon. Markets in China have had a greater control by the state and designed to incline with Chinese interests. 
  2. Role of State: The communist party in China has had a long reign of power and is still going strong. State’s presence is pervasive in the economy. This is quite different from India. Indian companies have competed in the international markets alone and on their own merit compared to the state backed Chinese companies. While the reform trigger for India was a balance of payment crisis brought about by the state (to mark the tipping point), China’s reform process appears to be gradual and not crisis induced. China exhibited high levels of readiness in terms of literacy, infrastructure and other necessary ingredients for people to make use of the rapidly liberalizing markets.
  3. Development Strategy: As said earlier, during market reforms initiation in China it was better prepared to make use of the opportunities that opening up of markets presented. The workforce was literate and trained as well as the state of infrastructure complemented the opportunities of the time quite well. Transport network, production and labour linkages, power infrastructure and financial system – all of it could aid a rapid growth process. Higher literacy meant that the population was essentially a ready workforce which would only require basic training for their vocation. At the same time a single party rule meant faster decision making process and rapid implementation of projects which required things like public consent, relocation of people etc. The concerted action required from various departments and wings of the system was achieved conveniently due to their political structure.
  4. Leverage of International Trade: While India and China stood at the same position with respect to their initial mistrust of the markets and capitalists, China moved ahead with a different strategy whereas India completely shut itself off from the markets in the initial years (at least for the first four Five Year Plans). During these the famous Mahalanobis model of economic growth was being test fired in India. In spite of having a large domestic market China still focused on international trade. It promoted manufacturing sector by developing production processes so massive that it could produce goods much cheaper than what it would take to produce them in the western countries. This cost advantage boosted Chinese manufacturing sector to begin with. Consequent export market growth paid huge dividends in later decades. For instance China has the world’s largest forex reserves. All this while Indian export market was small and comprised of raw goods primarily.

It may appear that Indian market reform story has been slower than that of China. The point being made here is that the two countries have had a vastly different path to growth from the late 20th century. In comparing them one should be conscious of the paths that these countries have taken. Otherwise the exercise would be unproductive as it is often seen.


On use of safety gear in the Indian Industry (Part 2)

A construction worker wearing an oversized pair of gum boots only because he has an injury on his shin (at a site in PES Engineering College, Electronic City, Bangalore)

A construction worker wearing an oversized pair of gum boots only because he has an injury on his shin (at a site in PES Engineering College, Electronic City, Bangalore)

My interest in  Personal Protective Equipment (PPE) or Safety Gear use in India stems from a business interest that I have. Doing long road trips and train rides do this thing to you – that you  are never short of ideas to pursue. Starting a business in manufacturing PPE for construction and building industry is one such idea from a basket full of it that I carry. The fact that so few workers use it and that manufacturing some smartly designed products in this segment can sure boost the use of PPE and thereby improve occupational safety and health in India. So there! I hit a real issue and make money as well. Now, towards this I began with a small economics project where I explore just why isn’t the industry or government bothered about ensuring PPE use and what are the issues involved.

(I have immensely benefited from industry insights and perspectives of Nandakumar Vadakepatth and T V Varadarajan, Senior Sustainability Practitioners at Det Norske Veritas AS (DNV). The paper rests on the understanding drawn from the valuable information shared by them. I am also thankful to P N Narayan (at Wipro), Vikas Kumar and Chiranjib Sen. The earlier discussions on the topic with them have shaped the paper and propelled me to pursue this lesser known area of industry.)

In a recent article Saving Economics from Economists Ronald Coase expresses his concern about the increasing distance of economics as practised from business and entrepreneurship, as it happens in the real world. He concludes by saying, “At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.”

The thought about PPE use in India stems from a commonplace observation of many construction sites –buildings, highways, bridges etc, as one travels across India. The observed required a scientific rigour in order to understand just why things are the way they are. Economics as we understand, did not offer a satisfactory explanation to the phenomenon of poor use and implementation of PPE in various industries. This perhaps explains why we concur with Coase’s conclusion. In course of our study we have found that many factors influence the use of PPE than financial reasons alone. The labour dynamics- availability and nature (migrant or local), perception of employers and the workers towards safety and history of its use in India – all of these together paint a complete ecosystem in which the workers in India exist. This paper is an attempt to understand this ecosystem and build a body of knowledge which can be instrumental in studying the poor use of PPE and means to improve it.
Here, I would also like to engage in a value based discussion of current practices in the industry. A lesser known Indian economist J. C. Kumarappa in a booklet Economy of Permanance offers a strikingly relevant thought to the present context in spite of the booklet being written in 1945. He reasons that “the standard of value applied and the method of valuation used impress their characteristic trait on their users”. In our context the users are the employers who place a certain value to worker safety and health. This value then determines the level of attention and care that they are likely to give to the issue apart from the minimal compliance with legal acts that safeguard workers’ interests. Mere compliance as we find do not help in reducing the accidents and fatalities in the industry. It needs the employers to view safety as a priority and workers health as central to their interests. We take the value argument further where it is closely linked with ethics. While market based incentives might bring in a short term improvement in worker safety (as seen in ISO standards based rating of companies) these have business interest at the core, as motivation. An ethical stand would imply recognition for basic human dignity and value of contribution that a worker makes to the entire endeavour of production than merely deeming it an act of paid labour for which he is compensated by wages. Such an argument is corroborated with the reasoning in the paper Are Gandhi’s Economic Precepts relevant in the Era of Globalization where the relevance of ethics is established based on an analysis of current economic problems and how Gandhian ideas stand relevant in addressing them. Sen argues, “The failure of market-fundamentalism has revealed very starkly the necessity of re-establishing an ethically grounded ideology for both business and for policy.”

I think factors that effect PPE use are a fine mesh of interconnected issues that are quite typical of India. A laundry list of issues looks like the following. As I go further I would take each one of these and explore them further.

  1. Financial Cost: It is noteworthy that the actual cost of providing PPE to the workers in a construction project is about 0.6% of the project cost.5 This is a very small cost component of the project and indicates that there is no financial barrier as far as provisioning of PPE by employers is concerned. It is an important figure to remember because the common argument against use of PPE in industry is that they are expensive to buy and that employers have to spend heavily on it. Considering the cost of provisioning PPE as a fraction of project cost it can be easily seen that it is well within the reach of employers and does not require any financial capability to achieve it.
  2. Availability: Much of the  PPE range is widely available in India. The products are manufactured according to the Bureau of Indian Standards (BIS) specifications. PPE manufacturing industry sufficiently services the needs in India as far as the low-tech products like gloves, helmets, boots and harness are concerned. The higher range of protective gear for specific purposes like working near a furnace requires air cooled helmets, which are imported from manufactures in Europe. Only technologically sophisticated gear is imported and this segment of the market is small. However, most of the broad spectrum PPE is accessible and available in many sizes, grades and designs.
  3. Design: Use of PPE is dependent on how good the equipment fits when the worker wears it and if it causes any alteration in his functioning and productivity. If the PPE fits loose or is obstructing the worker in his work then there is a high likelihood that the worker may not wear it. This is a commonplace occurrence in India. For instance, gum boots worn by workers at a building construction site or highway are often very loose and sloppy to work with. A researcher notes in his paper Health and Safety at Workplaces in India that “informal workers give low priority to OSH, as having work is more important than the quality of the job. Many workers argue that they may die of work, but if they do not work their families would die of hunger.”6 This reflects the priority that workers tend to give to having a job. And when they have it, they do it regardless of how safe the working environment is. The issues here are two fold – a) poor design of PPE and ergonomics of use; b) attitude of workers and employers towards OHS. Although there are numerous manufacturers and suppliers of PPE their design, material of construction and ergonomics tend to be neglected.A broad range of fixed sizes are manufactured which then employers buy in fixed lots and pass on to the workers. Boots, gloves, safety vest, helmets and other wearable gear is seldom appropriate for the men and women who use them. Understandably, they would not want to use it if the gear cannot be adjusted and made to fit snug. Since the danger of not using it is not apparent or at times negotiable like scaling of skin, ocular irritation etc, the workers tend to do away with wearing it. Only cases of widely used gear are when they work on high rise buildings where they compulsorily use safety harness and in using helmets. Other than these PPE is little used on ground due to design and ergonomics issues. The danger in not using PPE is often not immediate or safety related. It could be a slow setting health risk like bronchial asthama from prolonged exposure to fine dust and cement at construction sites. This hazard due to its slow onset, is often neglected.
  4. Location: Use of PPE is also location dependent. When the construction site is remote the norms of PPE use are generally flouted by the employers. It could be due to issues in supplying PPE in such remote location or plain lack of concern for the workers. Alternatively, workers too tend to avoid using it if they find that the site supervisors and safety manager would rarely check. Other than this, the climatic factors are very critical for a temperate country like India. Most PPE and accessories are made of polymers and thick canvas. All these materials are poor in allowing any ventilation when worn. The user is likely to feel hot and extremely uncomfortable in using them on a hot summer day in any of the cities in India. As it appears currently, PPE manufacturing industry concerns itself with producing standard compliant gear and research in materials and design is non-existent.
  5. Awareness: Informal as well as formal sector workers in India remain woefully unaware of the hazards associated with their occupations. The problem is compounded by the fact that they feel inadequate or are vulnerable in voicing their concerns to their employers. In spite of several unions and associations they have, the bargaining power with the workers is negligent compared to their employer asserting his interest.

Poor OHS standards also have tremendous social costs. And these are poorly understood in India. The disease burden in India is high due to several preventable communicable diseases. This is pushed further by occupational hazards which 90% of the work force employed in informal sector suffers from. Loss of an income earning member of a family can push that family into poverty and perhaps erase all chances of the children to educate and find a way out of poverty. Debilitating work in stone quarries, asbestos industries, cement and fertilizer warehouses and other such places involving hard physical labour under trying conditions cause incalculable harm to health and vitality of a person. If it happens to be the man of a house, his wife and children then bear the burden. In many cases it is men, women and children equally afflicted with the occupational hazards. These are the social costs which the family bears working in an environment which has little or no regard for worker safety and health.

Now, there are multiple issues here which merit a comprehensive paper. The landscape to me appears interesting particularly from an entrepreneur’s point of view.

This Indian attitude: On use of safety gear in Indian Industry (Part 1)

While I still struggle with framing the argument for this economics paper that I had to turn in a last week, here goes the abstract. Folks reading could give me a thought or two to help, or just go poke holes to reveal its flaws. Schematics by @praveenasridhar

The question- why does India exhibit such gross levels of Personal Protective Equipment adoption and use has bothered us for over three months during which we have tried to explore the landscape of use of safety gear (termed Personal Protective Equipment or PPE here) in various sectors of the industry. We explore why is it difficult for Indian industries in FMCG, Oil & Petrochem, Building & Construction etc, to enforce and value safety measures and consequently PPE in their processes. We do this by approaching this issue in 3 ways:

  1. Study of regulatory framework of OHS in India

    Ministry and various departments at central and state level responsible for Occupational Health and Safety (OHS) in India

    Ministry and various departments at central and state level responsible for Occupational Health and Safety (OHS) in India

  2. Discussion with senior executives from an industry leader in safety audits.
  3. A small informal survey of labourers at a construction site

The paper begins with outlining the regulatory and legal landscape of occupational health and safety (OHS) in India. It includes the various legislations that are in force. In this landscape we locate the building and construction industry which form the paper’s specific focus. The discussion on PPE in this paper is specific to its use in building and construction industry, although the arguments are applicable to other industries as well. It is widely held that three issues affect the use of PPE in India – (i) cost (of providing PPE to workers) (ii) design (iii) attitude towards safety and health. These are discussed briefly. Following this, the implications of inadequate use of PPE and poor OHS standards is pursued by using an implications framework. We conclude by stating that Indian industry has strong reasons to adhere to OHS practices not only in cases where there is a direct threat to man and property but in a wider sense. Towards this PPE use is paramount. We suggest that it is in a company’s own interest (even if they do not see direct monetary benefits in ensuring PPE use) if its worker’s enjoy good health at work, are prevented from health hazards at work (which they may or may not realize will happen) and feels the environment to be safe for himself. The company on the other hand benefits from a healthy and efficient workforce. Additionally, it is seen as an ethical and caring employer which is a strong incentive in today’s labour market in India. With high attrition rates and labour shortages this measure can greatly help companies in ensuring that adequate labour supply. On the customer side, the company gains a reputation of being a company with values and this is likely to boost its image with its prospective clients.


Legislations and Regulations that exist in OHS in India

Various legislations in different sectors in India. Building and Other Construction Workers Regulation of Employment and Conditions of Services act, 1996 is highlighted as it relates to the building and construction industry sector that the paper focuses.

Various legislations in different sectors in India. Building and Other Construction Workers Regulation of Employment and Conditions of Services act, 1996 is highlighted as it relates to the building and construction industry sector that the paper focuses.

In our quest to find institutional elements that define such behaviour we subject the actual behaviour of these companies to the theoretical framework that economists like Douglass North and Garry Becker offer which basically relates culture and economics in a manner that it helps explain such departures like our study where in spite of the fact that there isn’t really a significant incentive for companies to not provide PPE to their employees. At the same time the benefits of greater employee care and safety concern seems to escape their understanding.  We have tried to study this departure and tried to arrive at its root cause.

Interestingly, when we compare the trend of use of PPE in industries across the world we find that their adoption is not an aspect of country’s development standards, but likely of relatively abstract aspects like prevailing culture in that geography.

From Development Economics to Beat Generation

Here is an economist (and sociologist) describing his journey from economics (of the Chicago school) to immersing himself in the Kerouac-Ginsberg inspired Beat Generation. This in a way is amusing for the intense disillusion (or disgust?) that economic thought can bring about and how apparent outlandish, esoteric forms of literature serve as the final refuge. I am amazed at the distance between these two disciplines and the effortless travel that it is for the disenchanted!

Andre Gunder Frank was a prolific thinker and author. This excerpt is from his autobiographical piece and illustrates the journey of a development economist through the political-economic landscape of the world in 1950s. This is how he puts it (Source: The Underdevelopment of Development) :

In 1950, not knowing what I was letting myself in for, I started a Ph D in economics at the University of Chicago. I took Milton Friedman’s economic theory course and passed my PhD exams in economic theory and public finance with flying colors. Despite that, I received a letter from the Chicago Economics Department advising me to leave, because of my unsuitability or our incompatibility.

I went on to the University of Michigan and studied for a semester with Kenneth Boulding and Richard Musgrave. I wrote a paper on welfare economics for Boulding, which proved that it is impossible to separate efficiency in resource allocation from equity in income distribution. [Later Ian Little would become famous for doing the same thing. Now (Little 1982) also pontificates on Economic Development and dismisses my writings on the same as unpersuasive]. I took the paper, for which Boulding had given me an A+, back to Chicago to get at least an MA out of them. First they made me cut the heart of the argument out of my paper, and then they gave me a C for it. Then I dropped out altogether. I became a member of the beat generation at the Vesuvius cafe in San Francisco’s North Beach before Jack Keruac arrived there On the Road.

And there begins a beat generation Gunder Frank. This guy was too prolific and his works make tremendous sense. An official archive rests here.