Germany: What Next? (And a fascinating read as a bonus)

I’ve thoroughly enjoyed learning more about Germany as a consequence of writing these articles. Alas, I am all too aware that the learning has been very superficial indeed, but that will hopefully only serve to whet my appetite further. I’ll attempt to summarize my key learnings in a post scheduled for later this week, and in March, we’ll learn more about France.

Onwards then, to the topic of today’s essay: where does Germany go from here?

For many years, Germany’s economic strength has been based on prudent
monetary policy, a highly skilled workforce and a renowned manufacturing
sector that has successfully built up export markets across the world. Germany
has enjoyed political stability and exhibited a contained approach towards
foreign policy, where Germany regularly played by the rules set by others in the
liberal international order.
However, these pillars of Germany’s strength and stability may not be the right
tools to manage the upcoming disruptive changes.

That is from the executive summary of a report titled “Is Germany ready for the future? The case for action in a climate changed world“. The report speaks about how increasing digitilization, rising social inequality (globally), the disruption to the rules based trading order that worked so well for Germany, rising nationalism (again, globally) and low/non-existent aggregate demand will challenge Germany’s current model. The infographic below gives their (the authors) recommendations to deal with these challenges. Also, the word for the day where I am concerned: mittelstand.

Figure 1 from the same report linked to above

“Germany isn’t exactly in a state of disrepair. It doesn’t feel as though it is, even though potholed streets aren’t a rarity, trains often don’t run on time and cellular reception is spotty outside cities. Nor, however, does it feel future-proofed enough, even after a decade and a half of Merkel’s generally successful rule. The WEF touts unshakable financial stability (the country got 100 points out of 100 for it in the competitiveness ranking) as one of Germany’s biggest advantages, but that stability has been achieved, in part, by shifting problems to the local level. “

That is from a short, but excellent, persuasive and full of surprises column in Bloomberg by Leonid Bershidsky. The report that he cites is, alas, in German, but his takeaways make for thought provoking reading. And speaking of surprises, from the same article:

The World Economic Forum ranks Germany as the world’s seventh-most-competitive economy this year, down from third in 2018. According to WEF, its greatest weakness is in information and communication technology adoption, where it’s ranked 36th in the world; only one German out of 100 has a fiber optic broadband subscription, compared with one out of 32 in South Korea.

In an embarrassing episode on Monday, a state TV broadcast about a special government session on improving mobile coverage was broken off because of a bad connection.

I traveled through parts of Germany last month, and while Internet speeds in both Airbnb’s that I stayed in were slower than in France, they were certainly good enough, and with no loss in connectivity. I’ll note that for about four hours in a town called Gottingen, I lost connectivity on my phone.

Does this report on population trends in Germany by the year 2050 hold a cultural clue that might help us think more about the excerpt above? Pure conjecture on my part, of course, but worth thinking about, perhaps.

As a result, there will be a clear shift in the age structure of working-age people.
At present, 50% of working-age people belong to the medium-age group, which includes people of 30 to 49 years, nearly 20% belong to the young age group of 20 to
29 years and 30% to the older age group of 50 to 64 years. In 2020, the medium-age
group will account for as little as 42%, the older one, however, will remain almost
unchanged at about 40%; the situation will be similar in 2050 (medium group: 43%,
older group: nearly 40%). The percentage of the 20 to under 30-year-olds will not
change very strongly. As a result, older people will clearly prevail among working-age population.

I’d never heard of Strategic Perspective 2040 until I started searching for phrases linked to the future of Germany. But the fact that it was written, leaked, and the responses to it – they’re all equally fascinating.

The assumption behind the UK’s repeated promise of security cooperation with Europe after Brexit is that the core democracies – Germany, France, Italy and Spain – will remain committed to Nato, democracy and the rule of law. And that a reformed and revitalised Europe will deliver enough jobs and growth to sap the energy of the nationalist and xenophobic right. But it would also be wise for politicians to begin admitting that these things are no longer certain. If we want order, we have to create it – through engagement, multilateralism, by accommodating what we can of the demands of rising powers and through the promotion of resilient democratic institutions. If we fail to achieve order, we must deal with disorder when the US is no longer a reliable ally, nor even a stable democracy.

And now for the bonus. I have read quite a few articles/PDF’s/essays about Germany, and given last week’s essay, about the Berlin Wall. None was as gripping as this one. It is titled “The Story of Tunnel 29“, and it is an absolute must read.

My thanks to Gandhar Joshi, a student of the BSc programme at Gokhale Institute, for sharing it with me.

On the history of laptops

How and why did we move away from desktop computers towards laptops? Although this next question isn’t the focus of today’s links, it is worth asking in this context: has the tendency to miniaturize accelerated over time? Mainframes to desktops, desktops to laptops, and then netbooks, phones, tablets to wearables – and maybe, in the near future, implants?

(Note to self: it might be worth thinking through how attention spans have also been miniaturized over the same period, and the cultural causes and effects of this phenomenon.)

But for us to be able to answer these questions, we first need to lay the groundwork in terms of understanding how we moved away from mainframes to laptops.

The first portable computer was the IBM 5100, released in September 1975. It weighed 55-pounds, which was much lighter and more portable than any other computer to date. While not truly a laptop by today’s standards, it paved the way for the development of truly portable computers, i.e. laptops.

The first laptop weighed near enough 25 kilograms. Insert large-eyed emoji here.

Though the Compass wasn’t the first portable computer, it was the first one with the familiar design we see everywhere now. You might call it the first modern laptop.

The Compass looked quite different than the laptops of 2016 though. It was wildly chunky, heavy and expensive at $8,150. Adjusted for inflation, that’s over $20,000 by today’s standards. It also extended far outward behind the display to help with heating issues and to house the computing components.

As with this series that we run on Tuesdays, as much for the photographs as for the text.

The portable micro computer the “Portal” of the French company R2E Micral CCMC officially appeared in September 1980 at the Sicob show in Paris. The Portal was a portable microcomputer designed and marketed by the studies and developments department of the French firm R2E Micral in 1980 at the request of the company CCMC specializing in payroll and accounting. It was based on an Intel 8085 processor, 8-bit, clocked at 2 MHz. It was equipped with a central 64K byte RAM, a keyboard with 58 alphanumeric keys and 11 numeric keys (in separate blocks), a 32-character screen, a floppy disk (capacity – 140,000 characters), a thermal printer (speed – 28 characters/second), an asynchronous channel, a synchronous channel, and a 220-volt power supply. Designed for an operating temperature of 15–35 °C, it weighed 12 kg and its dimensions were 45 × 45 × 15 cm. It ran the Prologue operating system and provided total mobility.

The Wikipedia article on the history of laptops is full of interesting snippets, including the excerpt above. In fact, interesting enough to open up a related article about the history of the Intel 80386, from which the excerpt below:

Early in production, Intel discovered a marginal circuit that could cause a system to return incorrect results from 32-bit multiply operations. Not all of the processors already manufactured were affected, so Intel tested its inventory. Processors that were found to be bug-free were marked with a double sigma (ΣΣ), and affected processors were marked “16 BIT S/W ONLY”. These latter processors were sold as good parts, since at the time 32-bit capability was not relevant for most users. Such chips are now extremely rare and became collectible.

Every now and then, there are entirely unexpected, but immensely joyful payoffs to the task of putting together these set of links. I started off reading about the evolution of laptops, and wanted to post a link about the development of LCD screens, without which laptops simply wouldn’t be laptops. And I ended up reading about, I kid you not, carrots.

Yes, carrots.

Liquid crystals were accidentally discovered in 1888 by Austrian botanist Friedrich Reinitzer while he studied cholesteryl benzoate of carrots. Reinitzer observed that when he heated cholesteryl benzoate it had two melting points. Initially, at 294°F (145°C), it melted and turned into a cloudy fluid. When it reached 353°F (179°C), it changed again, but this time into a clear liquid. He also observed two other characteristics of the substance; it reflected polarized light and could also rotate the polarization direction of light.

Surprised by his findings, Reinitzer sought help from German physicist Otto Lehmann. When Lehmann studied the cloudy fluid under a microscope, he saw crystallites. He noted that the cloudy phase flowed like a liquid, but that there were other characteristics, such as a rod-like molecular structure that was somewhat ordered, that convinced Lehmann that the substance was a solid. Lehmann continued to study cholesteryl benzoate and other related materials. He concluded the cloudy fluid represented a newly discovered phase of matter and called it liquid crystal.

On The State of Higher Education in India (#1 of n)

Quite unexpectedly, I have ended up writing what will be an ongoing series about discovering more about the Indian Constitution. It began because I wanted to answer for myself questions about how the Indian Constitution came to be, and reading more about it has become a rather engaging rabbit hole.

Increasingly, it looks as if Mondays (which is when I write about India here) will now alternate between essays on the Indian Constitution and the topic of today’s essay: the state of (higher) education in India.

The series about the Constitution is serendipity; the series about education is an overwhelming passion.

I’ve been teaching at post-graduate institutions for the past decade now, and higher education in India is problematic on many, many counts. I’ll get into all of them in painstaking detail in the weeks to come, today is just about five articles you might want to read to give yourself an overview of where we are.

In the last 30 years, higher education in India has witnessed rapid and impressive growth. The increase in the number of institutions is, however, disproportionate to the quality of education that is being dispersed.

That is from the “Challenges” section of the Wikipedia article on higher education in India. The section highlights financing, enrollment, accreditation and politics as major challenges. To which I will add (and elaborate upon in the weeks to come) signaling, pedagogy, evaluation, overemphasis on classroom teaching, the return on investment – (time and money both), relevance, linkages to the real world, out-of-date syllabi, and finally under-emphasis on critical thinking and writing.

“Educational attainment in present-day India is also not directly correlated to employment prospects—a fact that raises doubts about the quality and relevance of Indian education. Although estimates vary, there is little doubt that unemployment is high among university graduates—Indian authorities noted in 2017 that 60 percent of engineering graduates remain unemployed, while a 2013 study of 60,000 university graduates in different disciplines found that 47 percent of them were unemployable in any skilled occupation. India’s overall youth unemployment rate, meanwhile, has remained stuck above 10 percent for the past decade.”

That is from an excellent summary of higher education in India. It is a very, very long read, but I have not been able to find a better in-one-place summary of education in India.

A series of charts detailing some statistics about higher education in India, by the Hindu. For reasons I’ll get into in the weeks to come, the statistics are somewhat misleading.

Overall, it seems from this survey, which shows impressive strides on enrollment, college density and pupil-teacher ratio, that we have finally managed to fix the supply problem. Now, we need to focus on the quality.

Swarajyamag reports on the All India Survey on Higher Education (AISHE) in India, 2016-17. As the report mentions, we have come a long way in terms of fixing the supply problem in higher education – we now need to focus on the much more important (and alas, much more difficult) problem of quality.

“Strange as it might look, the quality of statistics available for our higher education institutes has been much poorer than our statistics on school education. Sensing this gap, the central government instituted AISHE in 2011-12. We now have official (self-reported and unverified) statistics on the number and nature of higher education institutions, student enrolment, and pass-out figures along with the numbers for teaching and non-teaching staff. Sadly, this official survey does not tell us much about the quality of teaching, learning or research. There is no equivalent of Pratham’s ASER survey or the NCERT’s All India School Education Survey.”

That is from The Print ,and it takes a rather dimmer view than does Swarajyamag. With reference to the last two links especially, read both of them without bias for or against, beware of mood affiliation!

Education needs to become much, much, much more relevant than it currently is in India, and half of the Mondays to come in 2020 will be about teaching myself more about this topic. I can’t wait!

A short YouTube explainer on German Reunification

Persistent Software Bugs, On Economic Growth, a16z’s Marketplace 100, Cooking Advice from Adam Liaw and Online repositories in India

 

 

A (surprising) profile, a surprising result,a Maharaja(h) in the Yorkshire Dales, Driverless Cars and (non)ergodicity

Can you guess what this article is about, who has written it, and when?

The dirty little secret on Wall Street is that the men responsible for its current reputation were not exceptionally bad. They were just ordinary people placed in unusual circumstances.

“Knowing somebody” to “get the job done” is older than you thought, is applicable in more places than you’d expect, and last across a longer time horizon than you’d have expected. Well, I don’t know about you, but each of these was true in my case.

The main empirical analysis of this article compares a snapshot of the location of mission stations in Africa in 1903 to the precise locations of projects funded by the World Bank in 1995–2014. The unit of analysis is derived from a grid of 55km×55km square cells covering the African mainland and Madagascar. The results imply that the presence of (at least) one mission station increases the probability that an area is allocated a development project by approximately 50 percent.

A rather macabre excerpt, but to me a revealing one. On “The Maharajah of the Yorkshire Dales

The first ethnically Indian minister in Britain was Parmjit Dhanda. He too found a rural seat, out in the West Country, in Gloucestershire. People were almost always polite and pleasant to him, but one morning he came out and found a severed pig’s head on the bonnet of his car.

The year was 2010.

 

Vox explains the current state of affairs when it comes to driverless cars, and how long that might take (short answer? A little bit longer, but no idea exactly how long. Sorry.)

There are two core statistics useful for evaluating how advanced a self-driving car program is. One is how many miles it has driven. That’s a proxy for how much training data the company has, and how much investment it has poured into getting its cars on the road.

The other is disengagements — moments when a human driver has to take over because the computer couldn’t handle a situation — per mile driven. Most companies don’t share these statistics, but the state of California requires that they be reported, and so California’s statistics are the best peek into how various companies are doing.

On both fronts, Google’s sister company Waymo is the clear leader. Waymo just announced 20 million miles driven overall, most of those not in California. In 2018, Waymo drove 1.2 million miles in California, with 0.09 disengagements every 1,000 miles. Coming in second is General Motors’ Cruise, with about half a million miles and 0.19 disengagements per 1,000 miles. (Cruise argues that since it tests its cars on San Francisco’s difficult streets, these numbers are even more impressive than they look.)

A topic that more students of economics should know about: (non)-ergodicity.

First is a very micro level concern: behavioural biases. The whole idea of endowment effects and loses aversion make sense in a world dominated by non-ergodic processes. We hate losing what we have because it decreases our ability to make future gains. Mathematics tells us we should avoid being on one of the many losing trajectories in a non-ergodic process.

What do Income Tax Returns, Demonetization, and Fast Tag have in common?

It may help to read last Thursday’s post before you start reading this one.

Why are there such long lines at all the toll plazas across India at the moment? You may give  a lot of answers, and if you have recently passed through a toll plaza yourself, your answer may well be unprintable.

Here’s mine though: you are, currently, assumed guilty until proven innocent.

All cars must wait in line, pay cash/have the RFID tag scanned, and for each car, once the payment is done, the barrier is raised, and you may pass through. The barrier stays put until the verification is done: that’s another way of saying guilty until proven innocent.

But the cool thing, to me, about implementing Fast Tag, is that once a certain percentage of vehicles in India is equipped with Fast Tags, the barriers can stay up. We will transition to a regime in which all vehicles are assumed to be innocent.

Now, as we learnt the previous week, with a large sample, there will  be problems. In the new systems, in which vehicles just pass through because we assume all of them have Fast Tag implemented, there will be exceptions. There will be vehicles that don’t, in fact, have Fast Tag implemented, and so they may end up not paying the toll.

But the vast majority will have Fast Tag, and don’t have to pay with money and waiting time. The government will miss out on catching a few bad apples, but a lot of Indians will save a lot of time. On balance, everybody wins.

And of course, given technology, it should be possible to have notifications sent to those vehicles that pass through without paying. Yes, I know it seems a long way off right now, but the point is that as a statistician, we move to a world where we assume all vehicles are innocent until proven guilty, rather than the other way around.

Fast Tag implementation, when fully functional, will get the null hypothesis right.

And pre-filled income tax returns, sent to us by the government, with minimum of audits and notices, is exactly the same story. The government assumes innocence until proven otherwise, leading to a system in which every tax-paying Indian is assumed to be an honest tax-payer until proven otherwise. We already have a system that is closer to this ideal than was the case earlier, and hopefully, it will become better still with time.

And now that we’re on a roll, that’s the problem with demonetization, if you were to ask a statistician! All notes were presumed guilty, until proven innocent.

Here’s the point: if you are a student of statistics, struggling with the formation of the null, and wondering what the point is anyways*, the example from last Thursday and the three noted above should help make the topic more relatable.

And to the extent that it does, statistics becomes more relatable, more understandable and – dare I say it – fun!

 

*Trust me, we’ve all been there

 

One on inflation, and four on Germany’s reunification

As a student of economics, I think I’ve read one article too many on Germany’s inflation. In fact, one of the many joys of writing this blog has been discovering how bad inflation was in other parts of the world: the version of economic history that I have studied has underplayed this.

(Name four countries that experienced hyperinflation: Germany! Zimbabwe! Venezuela! Uhhhhhh…..)

But that being said, learning more about Germany this month wouldn’t be complete without at least one article about it’s hyperinflation. And the reason I enjoyed the one I excerpt from below is because while it is full of interesting anecdotes about the period of hyperinflation, it also speaks about how it all ended – and with what consequences. And a fun fact which you may have not known earlier: the root of the word credit means to believe. That’s modern finance, in a nutshell.

Obviously, though the currency was worthless, Germany was still a rich country — with mines, farms, factories, forests. The backing for the Rentenmark was mortgages on the land and bonds on the factories, but that backing was a fiction; the factories and land couldn’t be turned into cash or used abroad. Nine zeros were struck from the currency; that is, one Rentenmark was equal to one billion old Marks. The Germans wanted desperately to believe in the Rentenmark, and so they did. “I remember,” said one Frau Barten of East Prussia, “the feeling of having just one Rentenmark to spend. I bought a small tin bread bin. Just to buy something that had a price tag for one Mark was so exciting.”

All money is a matter of belief. Credit derives from Latin, credere, “to believe.” Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further.

The political “give” that was needed to get the political, economic, cultural and civilizational “take”, in an interesting article from DW. The set of links at the bottom of this article are also worth a read. (Note that I have added the WIkipedia link to the 2 Plus 4 Agreement, it is not there in the original).

The 2 plus 4 Agreement, also called the Treaty on the Final Settlement with Respect to Germany, recognized all European borders established after World War II, resolving this outstanding dispute once and for all. Bonn and Berlin’s signatures to the treaty meant that a newly reunited Germany would recognize national borders as they stood, not as they once were. Coupled with the reduction in military concentrations, the acceptance of current borders was a significant step toward an enduring peace in Europe at large.

An unusually short excerpt by my own standards, but this is the last sentence in the Wikipedia article about German reunification. It deserves to be read in the full, the entire article, especially if you were under the impression that reunification in Germany was relatively quick, painless and that there was much happiness all round.

The absorption of eastern Germany, and the methods by which it had been accomplished, had exacted a high price throughout all of Germany.

But there is an argument to be made that it was worth it, because one way of thinking about it is this: West Germany purchased access to culture by sharing economic prosperity, while East Germany purchased access to economic propserity by sharing culture. Costs matter, but maybe, just maybe, culture trumps economics?

“On average, people in the East are less successful, less productive and not as wealthy. Materially speaking, they’re less happy,” Seemann said. “But that’s exactly why cultural diversity in the eastern states plays a more important role than in the West. People in eastern Germany are aware that there are things which are more important than making money and paying taxes. They see the arts as a creative process of ‘togetherness.’ We need to strengthen this consciousness, because that’s the only way to ensure culture and society continues to thrive — regardless of where we stand economically in the years to come.”

Note that there are links at the bottom of this article about whether lessons from German reunification can apply to Korea. Alas, the article says no. I am an Indian, so double the alas for me, please.

And finally, a reminder that these things take time! This article is about the reunification of not Germany, but of the German language. Note that the East Germans had to adapt, and not the other way around. Maybe, just maybe, economics trumps culture?

The former East and West Germany have grown closer together in many areas over the past 26 years. At the same time, some differences are still marked precisely by the former border between East and West, such as economic strength, family structure and wealth. Furthermore, stereotypes about Wessis and Ossis have still not been consigned to history. According to a study carried out by the Berlin Institute for Population and Development, it will take another generation before German unity is firmly anchored in people’s minds. It has, however, long been reflected in the way they speak.

Five articles about Clayton Christensen

As I mentioned in yesterday’s post, Clayton Christensen passed away recently. Five articles about him in today’s write-up, to honour the man, and his most popular and lasting contribution to theory.

The Innovator’s Dilemma is what most people know Clayton Christensen for, and the book is a great read. It is slow going, be warned, but the idea is remarkable. And that idea is the theory of disruption.

First, a quick recap of the idea: “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

As I said, most people know of The Innovator’s Dilemma, but there was another book – and theory – called The Innovator’s Solution. But where the second theory was concerned, Ben Thompson wasn’t so convinced.

Read the whole thing, but if I had to summarize the argument (always a dangerous thing to attempt), it’s this: there’s a world of a difference between B2B and B2C companies.

The excerpt below is from a fine profile of Clayton Christensen by Larissa MacFarquhar, and reading it (the entire thing) is recommended. You might also want to pair the excerpt with Thiel’s Christainity. At any rate, I was reminded of it.

Mormons believe that family is for eternity, and that in Heaven they will be together with their relatives as they were on earth. They believe that after death they will grow to resemble their heavenly parents as children grow to resemble earthly parents, until eventually they become gods.

Also from the New Yorker, a rather less complimentary piece about the efficacy of the theory of disruption:

Christensen has compared the theory of disruptive innovation to a theory of nature: the theory of evolution. But among the many differences between disruption and evolution is that the advocates of disruption have an affinity for circular arguments. If an established company doesn’t disrupt, it will fail, and if it fails it must be because it didn’t disrupt. When a startup fails, that’s a success, since epidemic failure is a hallmark of disruptive innovation.

Joshua Gans writes in his honour, upon his passing, and the link is here.

And finally, I found this advice from an essay written by Clayton Christensen very useful indeed – and of course, the rest of the essay is also very well written!

 

In using this model to address the question, How can I be sure that my family becomes an enduring source of happiness?, my students quickly see that the simplest tools that parents can wield to elicit cooperation from children are power tools. But there comes a point during the teen years when power tools no longer work. At that point parents start wishing that they had begun working with their children at a very young age to build a culture at home in which children instinctively behave respectfully toward one another, obey their parents, and choose the right thing to do. Families have cultures, just as companies do. Those cultures can be built consciously or evolve inadvertently.

How to think about the budget

This Saturday, I will be a part of a panel discussion about the budget.

This is happening at a college here in Pune, and today’s blog post is an answer to the question that I have been asking myself for the past couple of days: is there anything that has been left unsaid about the budget? For if not, I speaking at that panel discussion is a waste of everybody’s time, including myself.

Here are, very briefly, the three things hat I think are most noteworthy about this budget:

  1. In much the same way that we have the removal of exemptions, but not really, not just yet, we also have an admission of the real extent of the fiscal deficit: but not really, not just yet.

    To the credit of Finance Minister Nirmala Sitharaman, in this Budget, she has taken significant steps to improve transparency by presenting a statement on the vexed issue of extra-budgetary spending/borrowing (see Annex V of speech Part A and Statement 27 of the Expenditure Profile). That shows a total of about 0.85 per cent of GDP of such expenditures/borrowing in both 2019-20 RE and 2020-21 BE, excluding the footnoted reference to amounts for public sector bank capitalisation. Much of this is for financing the food subsidy through the Food Corporation of India. If added to the “shown” fiscal deficits (FD) for these years, it would raise the ratios to 4.6 and 4.4 per cent, respectively.
    ..
    ..

  2. Revenue will be less than the government was hoping for, and as a consequence, it will not be able to spend as much as we would have hoped in an economic slowdown. We also remain dependent on disinvestments working out on a scale that has never before taken place. Read this article, by Vivek Kaul – especially the section titled “The Family Silver”. Note that this was written before the budget came out. This year’s budget is as optimistic, if not more, about income it hopes to earn through disinvestment.
    ..
    ..
  3. We are, in the words of Shankar Acharya, lurching towards protectionism.

    For 25 years since 1991, successive Indian governments reformed our trade policies in favour of greater openness and engagement with world trade. Customs duties were greatly reduced and quantitative restrictions largely eliminated. As a result, our foreign trade — both exports and imports — expanded robustly, providing a significant boost to our economic growth and employment. Since 2017, we have reversed policy and retreated from engaging with the world economy. Our ministers and senior officials do not seem to appreciate that higher duties and restrictions on imports hurt our capacity to grow exports. No sizable, non-oil country has sustained high export growth while imposing significant duties and restrictions on imports. And no such country has sustained high overall economic growth without high export growth. We ourselves grew fastest when our exports expanded robustly (1992-97 and 2003-2012).

If you ask me, there really isn’t that much more to say about the budget, that is so noteworthy that it bears repetition and emphasis. In any case, I’d much rather think about the Economic Survey to reflect on that state of the economy, and what needs to be done about it. The budget, Andy Mukherjee says (and I agree), isn’t all that important.

But this past week, I read about Clayton Christensen and Andy Grove. Clayton Christensen, author of The Innovator’s Dilemma, and one of the most respected thinkers on strategy, passed away recently. I had been reading essays and blog posts written in his honor, and came across an essay written by Clayton Christensen himself about the distinction between the “what” and the “how”.

I’ve thought about that a million times since. If I had been suckered into telling Andy Grove what he should think about the microprocessor business, I’d have been killed. But instead of telling him what to think, I taught him how to think—and then he reached what I felt was the correct decision on his own.

The essay is much more than that, and you might want to read it. But that part truly resonated with me: the how over the what.

Now, you might be wondering about what this has to do with the talk on Saturday – or indeed about anything at all.

Well, reading this post by T N Ninan in the Business Standard is what brought the anecdote above to mind:

So it might be a good idea for the next Economic Survey to deal with not just the many “What” and “Why” questions in economics, but also the “How”. There is no other way to understand how the impossible becomes possible — as more than a campaign slogan. India struggles with budgets and procedures, and still has a major corruption problem that can send a project off the rails. China has corruption, for sure, but no other economy with a per capita income of $10,000 is able to grow at 6 per cent, or anywhere near that rate.

Of all the articles I have read about the budget and the economic survey (and there have been a fair few of them) this was the one that resonated the most. Maybe because I just finished reading (and thoroughly enjoyed) In The Service of The Republic, or maybe because of other reasons. But all of those other articles are, using Ninan’s framework, about the “what”. This needs to be done, that needs to be done, if only we had this, that or the other.

And all of those things are true, to be sure. We would be better if all of those many, many things were around. But a la Grove: how, dammit?

Here is Ninan’s solution:

“Is there a solution? Yes, railway engineers of old like the metro builder E Sreedharan, builders of government companies like D V Kapur and V Krishnamurthy, and agricultural scientists like M S Swaminathan have shown how they made a difference when given a free hand. Vineet Nayyar as head of Gas Authority of India was able to build a massive gas pipeline within cost and deadline in the 1980s. The officers who are in charge of Swachh Bharat and Ayushman Bharat, and the one who has cleaned up Indore, are others who, while they may not match China’s speed, can deliver. Perhaps all we have to do is to spot more like them and give them a free hand.”

But as any experienced HR professional will tell you, spotting them is very difficult, even in the corporate world. And as any corporate CEO will tell you, giving these talented folks a free hand is even more difficult. And as any student of government bureaucracy will tell you, achieving the intersection set of these two things in a governmental setup is all but impossible.

And so what we need to study and copy from China is not so much anything else, but lessons in achieving, and sustaining, excellence in government bureaucracy. Or, if you prefer, how to improve state capacity.

In short, quality of government, not size of government, is what matters for freedom and prosperity.

Because we could analyze the budget and its numbers all we like, but without the Grovesian “how”, the “what” is essentially theory without practice.

For just one extremely effective example of the “how”, see this.

So how did China get so very lucky?

Indeed, we may now be living at the peak of the influence of the so-called Class of 1977. A September press conference ahead of the celebration of the 70th anniversary of the People’s Republic of China gathered together three of China’s top economic technocrats: central bank governor Yi Gang, Finance minister Liu Kun, and National Bureau of Statistics director Ning Jizhe. In an unusually personal moment for such an event, they mentioned that all three of them had taken the college entrance exams in 1977.

That is from Andrew Batson’s blog post titled “A Very Fine Reallocation of Resources“. An opportunity for some of her best and brightest to learn, and therefore apply meaningful change to their society, is one important factor in China’s rise. Du Runsheng, whose write-up I linked to above,  is just one example. There are many, many more.

More important than the budget is the Economic Survey, and I think T N Ninan is right, the next Economic Survey ought to focus on the how, not so much the what.

All that being said, here is a list of articles I enjoyed reading about the Union Budget:

Lessons from 1966 and 1991 for this year’s budget.

Contrary to the received wisdom that she should take steps to increase demand, I think she should do what was done in 1966 for exactly the same reasons: being broke. No fiscal boosters to artificially increase demand.

That said she should also do what the 1991 budget did: free businesses from random, illogical and counter-productive controls.

In short, we need a sensible combination of the1966 and 1991 approaches, namely, deep fiscal prudence (1966) and a withdrawal from the economic stage (1991).

Spend less and increase non-tax revenue significantly – and that’s pretty much the best way to judge if this is a good budget or not, says T C A Srinivasa Raghavan.

Surjit Bhalla’s summary of the good, the bad and the ugly in this year’s budget. I am slightly confused about exactly what his idea of the “good” was. For me, personally, it is the government being clearer about it’s actual expenditure.

Vivek Kaul provides an excellent summary in four parts over on NewsLaundry.

Deepak Nayyar is less than impressed with the budget.

Rathin Roy remains worried about the artihmetic.