Notes on being Aatmanirbhar in Agriculture

The full title of the article is “Aatmanirbhar in agriculture will require incentives for export of high-value agri-produce” and it has been written by Ashok Gulati.

One may ask: What does Aatma Nirbhar Bharat mean? Is it self-reliance or self-sufficiency in all essential items?

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

If you are confused about the difference between self-reliance and self-sufficiency, here is Swaminathan Aiyar in ET:

Self-reliance means making your own economy strong and strong does not mean giving it crutches like protectionism. That is the wrong way. Self-reliance means we say, look I am uncompetitive because I have relatively high cost of land or labour, high interest rates, high electricity rates and high freight rates. If I get all these down, I become more competitive. So if you are going in that direction, India will become strong and competitive. It will be able to trade in the world and we will not have a trade deficit problem. So the correct self-sufficiency means you strengthen your economy by making it more productive and more low cost. It does not mean you make it high cost by putting up tariffs. Therefore, protecting your least productive industry is the wrong direction.

https://economictimes.indiatimes.com/markets/expert-view/govt-needs-to-understand-the-difference-between-self-sufficiency-and-self-reliance-swaminathan-aiyar/articleshow/76710928.cms?from=mdr

The consensus among economists seems to be that we should be targeting self-reliance rather than self-sufficiency, but I would say that it is one thing to debate which to aim for without being explicit and crystal clear about what each of these terms mean.

You might want to read this Wikipedia article about the issue. Also, a request: if any of you have articles about the distinction, and any clear articulation about India’s policy stance in this regard, I would love to read it.

It is presumed that for a large country like India, with a population of 1.37 billion, much of the food has to be produced at home. We don’t want to be in a “ship to mouth” situation, as we were in the mid-1960s.

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

You might want to read about the following if you are unfamiliar with our “ship to mouth” situation: the sorry saga of the PL480 scheme and India (two separate links)

In the mid-1960s, if India had spent all its foreign currency reserves — the country had about $400 million — just on wheat imports, it could have imported about seven million tonnes (mt) of wheat. Today, India has foreign exchange reserves of more than $500 billion.

ibid

A question that is rarely asked – or at least, not asked as often as I would like it to be asked – is how did we get to a stage where we have more than $500 billion in reserves? We must have earned it, we obviously can’t print dollars. Which begs the question, how did we earn it? Two things: we depreciated our exchange rate, and we exported a helluva lot more post 1991. Self-sufficiency, in other words, tends to not work well!

Chart from the IE article

Agri-exports have been subdued for the last six years or so, and we have yet to recover the peak of the ear 2013-2014. As Ashok Gulati mentions in his article, that year’s performance has not been bettered since.

What do our exports look like currently?

Marine products with $6.7 billion exports top the list, followed by rice at $6.4 billion (basmati at $4.6 billion and common rice at $2.0 billion), spices at $3.6 billion, buffalo meat at $3.2 billion, sugar at $2.0 billion, tea and coffee at $1.5 billion, fresh fruits and vegetables at $1.4 billion, and cotton at $1 billion.

ibid

Of which, Prof. Gulati picks rice and sugar for analysis – $8.4 billion worth of exports in total. Now, here is where all of what you may have learnt in microeconomics starts to make sense.

Think of a farm producing rice. The production function will tell you that you produce rice by combining inputs to produce output. What inputs? Labor, land – but also water and fertilisers. And the problem with fertilisers and water is that it is heavily, heavily subsidised in India.

Again, microecon 101: whatever isn’t priced tends to be overused, and that too indiscriminately. So what happens when you export more rice and more sugar every year? Well, to export more you have to produce more, and to produce more you have to use more inputs, and when you use inputs inefficiently, you end up exporting that input in larger quantities than is optimal.

Or, the simple version: we are exporting a lot of our water when we export sugar and rice. We’re also polluting our rivers and our soil, but that’s a story for another day.

But more importantly, it is leading to the virtual export of water as one kg of rice requires 3,500-5,000 litres of water for irrigation, and one kg of sugar consumes about 2,000 litres of water. So, in a sense, the two crops are leading to a faster depletion of groundwater in states such as Punjab, Haryana (due to rice) and Maharashtra (due to sugar). Thus, quite a bit of the “revealed comparative advantage” in rice and sugar is hidden in input subsidies. This leads to increased pressure on scarce water and a highly inefficient use of fertilisers.

ibid

What about the other side of the story – which is the big ticket item when it comes to imports of agricultural goods?

On the agri-imports front, the biggest item is edible oils — worth about $10 billion (more than 15 mt). This is where there is a need to create “aatma nirbharta”, not by levying high import duties, but by creating a competitive advantage through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches.

ibid

And within oils, Prof. Gulati recommends increasing our productivity in oil palm:

This is the only plant that can give about four tonnes of oil on a per hectare basis. India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil. But it needs a long term vision and strategy. If the Modi government wants “aatma nirbharta” in agriculture, oil palm is a crop to work on.

ibid

And on a related note, you may want to read this article from Scroll, an excerpt from which is below:

It is now clear that, in the face of rising demand, domestic production will remain way under 10% in the years to come. That essentially means that India will continue to import palm oil in various forms. However, the dynamics of imports is not just dictated by demand but also geopolitics. For instance, diplomatic tensions with Malaysia led the Indian government to discourage imports of refined palm oil from the Southeast Asian nation, resulting in a precipitous fall in recent months.
Domestic palm oil processors, such as millers and refiners, also routinely demand restrictions on imports so they can protect their margins. The Solvent Extractors’ Association of India recently presented the government with a list of demands that would favour local processors. This puts further price pressures in Malaysia and Indonesia, making it more difficult to green the palm oil supply chain.

https://scroll.in/article/967186/as-worlds-largest-importer-of-palm-oil-india-has-a-duty-to-push-for-ethical-production-practices

Video for 19th July 2020

Tweets for 18th July 2020

Links for Friday, 17th July, 2020

  1. David Perell writes a mid-year review. It is worth reading in full, and there were multiple excerpts that I wanted to include here.

Writing is nature’s way of showing you how sloppy your thinking usually is. My mind tends to skip between topics, and the quarantine has made it worse because my Twitter usage has increased. At its worst, I develop BuzzFeed Brain where I find myself skimming instead of reading, secretly hoping my next intellectual breakthrough is just a thumb-scroll away. Long-form writing, however, re-activates my focus muscle and that’s why I do it.

https://www.perell.com/blog/mid-year-review

2. Scroll on what Mumbai’s coastal road will look like. Next week’s episode on urbanization with Binoy will have this as a primary focus – keep an eye out for that one! The pictures are worth going through – full screen on a laptop/desktop recommended.

But the proposal reflects one of the many flaws that urban planners have found with the Mumbai coastal road project: it is expensive, beyond the city’s means and capacity and is likely to congest the city even further.
A group of architects and urban planners in Mumbai have attempted to highlight these problems through visual representations of the planned coastal road. Since 2016, the group – named the Bandra Collective – has created several animated GIFs that superimpose artists’ impressions of the coastal road on actual photographs of Mumbai’s landmark coastline.

https://amp.scroll.in/article/876929/what-will-mumbais-coastal-road-actually-look-like-an-eyesore-say-these-architectural-projections

3. Varun Grover raises some interesting questions in an article about caste in the Indian Express:

There are two main arguments against reservations — one, they bypass merit and two, they should be given on the basis of economic status alone because otherwise “rich Dalits are taking undue advantage of the policy”.
The broad logical observation here is that one can’t offer both these arguments together. If we are okay with poverty-based reservations then merit is not a genuine concern. That means we hate its bypassing only when a ‘lower-caste’ person gets ahead and not when a poor from our own caste does. That’s casteism 101.

https://indianexpress.com/article/opinion/columns/reservation-vinod-kambli-dalits-varun-grover-6501257/lite/

4. If you have kids at home, this is worth it – I and my daughter are working through it, and it is genuinely fun, and educational!

Welcome to Camp Google. Two engaging weeks of interactive activities and assignments which will make this extended summer memorable for kids at home.
Starting 1st July, 2020, we will share exciting and innovative assignments with your kids to help them explore skills such as painting, writing, storytelling, arts & crafts, coding and cooking. These assignments will also include internet safety tips which will teach you how to be responsible digital citizens while being safe online.

https://events.withgoogle.com/summercamp2020/#content

5. I haven’t read this just yet (I’m writing this on the 15th of July), but it was recommended by Grant Sanderson – and that’s good enough for me!

But Gödel’s shocking incompleteness theorems, published when he was just 25, crushed that dream. He proved that any set of axioms you could posit as a possible foundation for math will inevitably be incomplete; there will always be true facts about numbers that cannot be proved by those axioms. He also showed that no candidate set of axioms can ever prove its own consistency.

https://www.quantamagazine.org/how-godels-incompleteness-theorems-work-20200714

What is development economics?

That was a question sent in by a student recently, and today’s essay is an attempt to answer the question.

Have you heard of the tsetse fly? Unless you are a student of biology, or from Africa, it is unlikely that you have. And there’s no reason for you to have heard of it, of course. On the other hand, if you were to be from Africa, and from a long time ago, you likely would not only have heard of the tsetse fly, but you would have dreaded it.

Why would you have dreaded it? Because the tsetse fly feeds on the blood of vertebrate animals, and in doing so, also manages to transmit diseases between species. And this fly was so very efficient at transmitting diseases that it actually prevented the emergence of animal husbandry in those parts of Africa where it was both present and dominant.

Worse: research has established that the existence of the tsetse fly in certain parts of Africa has at least partially contributed to those parts of Africa remaining relatively underdeveloped today.

Ethnic groups inhabiting TseTse-suitable areas were less likely to use domesticated animals and the plow, less likely to be politically centralized, and had a lower population density. These correlations are not found in the tropics outside of Africa, where the fly does not exist. The evidence suggests current economic performance is affected by the TseTse through the channel of precolonial political centralization.

https://www.aeaweb.org/articles?id=10.1257/aer.20130604

That’s what development economists do: they try and figure out which parts of the world are not doing well. Then they try and figure out why (imagine being able to identify a fly as a potential cause of underdevelopment!). And finally, they try to recommend policies that might make the situation better.

Three Big Questions

When I teach courses in development economics, I often introduce the subject by speaking about three “big picture” questions:

  1. What does the world look like?
  2. Why does it look the way it does?
  3. What can we do to make it better?

And honestly, that is really all you need to think about when you want to understand what development economists do. Let’s tackle each of these questions in turn.

What does the world look like?

Good development economists don’t begin with recommendations and policy measures. That’s a long way down the road. They begin by trying to paint for themselves a picture of the world.

My favorite way to paint for myself a picture of the world is by using a freely available online tool called Gapminder.

Click here to open Gapminder in your browser

What are we looking at? Hans Rosling, the Genius (I don’t use the word lightly, and the capitalized G is intentional) who came up with this tool, used to call this chart the “Health and Wealth” chart.

Inflation adjusted, purchasing power parity adjusted per capita income for each country is plotted against the life expectancy for the citizens of that country. The color coding shows you which part of the world that country is from, and the size of the bubble indicates the population in that country.

Well, ok – but what does it tell us?

Well, here’s what it tells me – see if you agree with my understanding. It tells me that the reason economists harp on so about increasing income (GDP) for all nations is not because getting rich is an end in and of itself. It is the means to an end – that end in this case being better health.

Two caveats: higher life expectancy doesn’t necessarily mean better health. But in this case, I think it is an acceptable proxy. Second, correlation is not necessarily causation! Higher wealth may not necessarily be causing better health. Maybe better health is causing higher wealth? Maybe some other variable is causing both of these things? Maybe it is all of these and more?

But all those caveats aside, at first glance, a basic fact emerges:

There is no country that is at the top left of this chart, and there is no country at the bottom right of this chart.

Poor countries tend to not do well in terms of life expectancy, and rich countries tend to do well in terms of life expectancy. If I want the members of my family to live longer, I would want my country to be towards the top right of this chart.

But back to the central question: what does the world look like? This is a generalization, of course, but most of the African nations tend to lie towards the bottom left. Most of the European nations tend to lie towards the top right. And Asian nations (and some South American nations) tend to lie somewhere in the middle.

That’s one answer to the question we were trying to answer in this section: what does the world look like?

But there are other answer possible! Here are just two to get you started:

  1. Read the excellent introductory chapter in Partha Dasgupta’s “A Very Short Introduction to Economics”
  2. Play around with the World Bank Atlas, a most excellent data repository.

Why does the world look the way it does?

The Magic That Happens When You Hit Play in Gapminder

I have been using Gapminder for over 12 years now, but I am yet to get tired of watching that video. In fact, as I often tell my students, you could do a lot worse than spending time with Gapminder open in one tab, and Wikipedia in the other.

(On a tangential note, take a look at what happened to the world between 1918 and 1921. That’s the Spanish flu at work.)

Why did I include this video in this blogpost?

Because it helps us begin to think about the answer to the second question: why does the world look the way it does?

The world looks the way it does today because some countries were able to steal a march on others about two hundred years ago. The United Kingdom, the United States of America, Japan, Germany and some other nations started moving towards the right top of the chart before other countries could. You could, in fact, make an argument these countries were able to move to the right top by making sure that the other countries stayed at the bottom left!

And when you make that argument, you begin to try and answer the second question – this argument is the anti-imperialist stance. The Asian and African colonies of the European powers of the 19th century lag behind as much as they do today because they were colonies: that’s one candidate for explaining why the world looks the way it does.

The tse-tse fly (remember?) is another candidate for a more localized answer to the second question. Politics, race, religion, geography, caste, gender, openness to innovation – there are so, so many candidate answers! People can (and do!) spend entire careers making their way through just one of these candidates.

By the way, if you would like to read books about this topic – why does the world look like the way it does – here are two absolute must-reads:

  1. Guns, Germs and Steel, by Jared Diamond
  2. Why Nations Fail, by Acemoglu and Robinson

What can we do to make it better?

Can chickens cure poverty in Africa?

I’m not joking! That was a genuine proposal, made by this guy who you may have heard of. Started a software firm, dabbled in philanthropy, and is now engaged in trying to literally save the world. Yes: Bill Gates. His master plan to save Africa involved giving everybody a chicken.

Our foundation is betting on chickens. Alongside partners throughout sub-Saharan Africa, we are working to create sustainable market systems for poultry. It’s especially important for these systems to make sure farmers can buy birds that have been properly vaccinated and are well suited to the local growing conditions. Our goal: to eventually help 30 percent of the rural families in sub-Saharan Africa raise improved breeds of vaccinated chickens, up from just 5 percent now.
When I was growing up, chickens weren’t something you studied, they were something you made silly jokes about. It has been eye-opening for me to learn what a difference they can make in the fight against poverty. It sounds funny, but I mean it when I say that I am excited about chickens.

https://www.gatesnotes.com/development/why-i-would-raise-chickens

Well, I exaggerate, of course. Not literally giving everybody in Africa a chicken – but something along those lines.

Development economists were less than impressed:

But first, let’s talk about poultry. I think we can agree that we can only give away so many chickens. You’ve said that a family that receives five hens could eventually earn $1,000 annually, assuming a per-bird price of $5. But would that still be true when a third of your neighbors are in the same business? As supply goes up, I’d expect the price and profits to come down. And moving to an economy in which 30 percent of rural Africans sell chickens is a humongous increase in supply.

https://www.vox.com/the-big-idea/2017/3/14/14914996/bill-gates-chickens-cash-africa-poor-development

And to make matters worse, other development economists were less than impressed with the development economists who were less than impressed with Bill Gates’ chickens:

I have friends/alumni/colleagues working around the world in many facets of the challenge of development. I have friends working for the Prime Minister of India. I have friends working for the President of Indonesia. I have friends working on the conflict in Yemen. I have friends working as civil society activists in Egypt. I have had policy discussions with policy makers all over the world. I worked for 15 years in the World Bank. I have taught development at Harvard for 15 years. In all of those conversations with friends, colleagues, policy makers, and students all kinds of difficult and pressing development questions have arisen that research could address. Never, ever, ever has “chickens versus cash” arisen as an issue at all, much less as the remotely possible “best investment” in research.

https://www.cgdev.org/blog/getting-kinky-chickens

By the way, that blog post that I quoted above? It has possibly my all time favorite title ever: Getting Kinky with Chickens.

Why am I telling you all this? Because allow me to let you in on a dirty little secret: there is zero consensus on what is the correct answer to the third question.

Well, OK, zero consensus is an exaggeration. But it ain’t a settled issue, no sir.

That is, nobody has come up with a definitive, one-size-fits-all answer to the question, “What can we do to make the world better?”

Let’s parse through the question. That might help us understand why it is such a controversial one.

What can we do to make the world better?

  1. Who, exactly, is “we”? That is, who is in charge of decision making when it comes to making things better? Do democracies work better? Or do autocracies? Or something in between?
    Remember, we are not asking which political system is the best from a moral, or political, perspective. We are asking which system is likely to give us the most rapid growth. Was Singapore under Lee Kuan Yew a true, participatory democracy, or was it a democracy with Asian characteristics? What about South Korea under General Park? And while we’re on the subject, an autocracy is not by itself a guarantee of rapid growth! Pakistan, Cambodia are two examples from our own neighborhood.
    Also remember: just because a system may give us more rapid economic growth doesn’t mean it is the best system to use. China is the obvious country to think about in this regard!
  2. Do we really need to “do” stuff, or is it more about just getting out of the way, and letting the economy work it’s magic?

3. Are we agreed on what “better” means? Lesser pollution comes at the cost of lesser industrialization, for example. Are we so sure that all seven billion of us can identify the exact point on the spectrum that works best? And if not, then we’re back to the first point: who is “we”?

And hey, even if you could imagine a world in which we somehow, magically get everybody to agree on “What can we do to make the world a better place?”, we’d begin a new round of battles, centered around a new question.

“How?” – and on this point, last year’s Nobel Prize winners have won accolades and received brickbats in equal measure.

Still, there is some good news. The unsettled nature of the debate means that this is extremely fertile ground to work upon, and you can count on development economics as a field remaining a fundamentally interesting one to work in for years, if not decades, to come.

And that, my friend(s), is what development economics is all about!

Colleges: A Framework for Efficiency

I wrote an essay yesterday about unbundling college. You might want to read that first before tackling this essay.

In today’s essay, we’re going to decide how we’re going to judge the efficiency of college. What framework should we be using and why?

A Framework for Judging the Efficiency of College

Efficiency is actually fairly easy to define: maximal output for minimum input.

And input is also fairly easy to define: minimum resources to be used in terms of time and money.

It is the output bit that is rather more difficult to specify and define.

What is the output of a college? Here are some candidates:

  1. The number of students who graduate in a given year
  2. The marks these students score
  3. Particularly in the Indian scenario, the placement record of the college
  4. Number of seminars/workshops/outreach programmes conducted by the college
  5. Research output of the faculty/students in the college

Let’s work our way through each of these, and highlight the problems that present themselves:

  1. Number of students graduating per year:

    Do large classrooms – that is, classes with a very large number of students in them – work well?
    The obvious reason I ask this question is if you’re going to graduate more students, the number of students per class must go up.
    There is a large amount of academic research on the subject, if you feel like going through it. I haven’t read all of the papers on the subject, but the consensus seems to be that larger classes are necessary from an economic viewpoint, but don’t work as well as small classes would. Key points being, there ideally needs to be some sort of an opportunity to have a discussion with the professor, and that doesn’t necessarily work out well in a large class.
    I’ll speak of my own personal experience in this blog post, rather than cite academic studies. The largest class I have taught included 250 students, while the smallest included just two students. Neither of those extremes is ideal: 250 is more of a speech than a lecture, while two students is economically infeasible. My personal preference would be for a class size of not more than thirty.
    More students graduating per dollar spent by the university isn’t a great way to judge the output, or the educational outcome, of a college, because students don’t necessarily learn better in a large classroom. And in any case, if you are going to use this is a measure, online classes have offline classes beat!
  2. The marks these students score:

    Here’s a Hindustan Times article for your reading pleasure.
    ..
    ..
    I quote:
    “Compared to last year, the number of students scoring 95% and above has increased by 118.6% and those getting 90% and above by 67.48% this year in the Central Board of Secondary Education (CBSE) Class 12 results announced on Monday.
    A total of 38,686 students have scored 95% and above marks in aggregate of all subjects, up by 118.6% from 17,693 in 2019. As many as 1,57,934 students have scored 90% and above, 67.48% higher than last year’s tally of 94,299.”
    ..
    ..
    Are students this year twice as good as they were last year? If so, why? If not, are we just giving more marks this year than we did last year?
    Personally, I don’t think this year’s cohort is any better (or worse) than last year’s. It is quite likely that marks have been given more liberally this year than they were the last year. You can work your way through to what the equilibrium will be, but here’s my assessment: grades become mostly meaningless in the long run. Especially when they’re being handed out like this.
    Judging the output of a college by taking the average marks scored by the graduating batch doesn’t make for a great outcome either.
  3. Placement record of the college:

    I should state at the outset that I am the faculty-in-charge for placements at Gokhale Institute.

    Colleges, in an ideal world, should have skin in the game. Is learning a means to an end in itself, or is it the means to an end? If it is the means to an end, and that end is gainful employment, then should college not be paid only if the end is achieved? Income sharing agreements are, you might argue, a natural next step in this regard.
    But that being said, there is a part of me that dies a little when I think about the whole means to an end thing. Yes, employment matters, and yes, colleges should be held to higher standards than they are right now in this regard. But I would hate to live in a world where you go to college only in order to get employed. There’s surely more to life and education than that!
  4. Number of seminars/workshops/outreach programmes conducted by the college

    Goodhart’s Law. Goodhart’s Law. Goodhart’s Law.
  5. Research output of the faculty in the college

    See 4. above.

Honestly, I don’t quite know how to measure educational outcomes, and I’m not the only one. By the way, the first chapter from “The Case Against Education” is worth reading while thinking about some of the issues we’re speaking about here.

But this raises an important, and potentially problematic issue. Change is worth pursuing if what is new is objectively better than the old. But as it turns out, we find ourselves unable to settle on an objective measure by which to differentiate between the old and the new!

Consider the range of services that a college provides:

The range of services provided by college

There are four outcomes you get from college: grades, placements, peer networks and the degree. Of the four, we have spoken about and discarded grades, placements and number of degrees awarded as useful/appropriate measures of outcomes in education. That leaves peer networks, and this is perhaps even more nebulous and difficult-to-measure than the other three.

Of the lot, employability and the quality of peer networks are (to me) the most important. But the latter is literally immeasurable, and the former ought to not be the only benchmark for judging the outcomes from education.

There is, as it turns out, a problem waiting to be solved, and it is a fundamental one.

If I’m wrong, please let me know how!

Unbundling College

I, along with the rest of the universe, came across this meme the other day:

dopl3r.com - Memes - Annual Streaming Price NETFLIX $108 hulu $72 ...

Today’s post is about explaining what is wrong with this image, but also why thinking about it really, really matters. Let’s begin:

Electricity and Education: More Similar Than You’d Have Thought

This Friday, I’ll be launching a new YouTube series on India’s electricity sector. Stay tuned for further details.

The reason I bring this up right now, is because one of the points we cover in that first episode is about how the electricity sector in India became much better after generation, transmission and distribution were “unbundled”.

And thinking about that point helped me frame a question about the education sector in India. I have written about this before, but I’ll expand upon that thought in much greater detail today: unbundling college.

The Typical College Bundle

What does the typical bundle in college look like? Something like this:

A student writes the entrance exam and gets in, attends classes, makes friends, writes internal examinations, gets an internship, gets placed, writes the semester end examination, gets the degree. And next year a new batch comes in, and we rinse and repeat. That, in a nutshell, is the higher education sector, at least in urban India.

One point worth emphasizing here: when I say peer networks, it is actually much more than that. Well, at any rate, it should be much more than that. Mentors, in particular, are best discovered in college.

Horizontal and Vertical Players

Ben Thompson had a lovely write-up many years ago about understanding Google

You really should read the article in its entirety, but here’s the quick takeaway: some firms, like Apple, are vertically integrated. Everything, right from deciding which kind of screw should be used in the construction of the latest iPhone, to the OS (that is, the software), to the in-store experience – everything is controlled by Apple. Hell, they don’t let you change the number of icons in the dock! It is a vertically integrated firm.

Other firms, such as Netflix, are horizontal. You can watch Netflix on Chromecast, on the Firestick, on your laptop, on your tablet, on your phone – Netflix honestly doesn’t care where you watch it, so long as you pay them their monthly fees. In fact, they will go out of their way to make sure that you can watch Netflix no matter what device you own. Netflix is a horizontal firm.

And that’s one way in which the forward I received the other day is wrong. Every other service on that forward is a horizontal firm. But Harvard? Entirely vertical. They control who gets in and how, they control what they’re taught and how, they control who gets the degree and how. They don’t even need to control the peer network: the Harvard alumni network is one of the reasons getting into Harvard is worth the effort, so naturally the alumni themselves will work to maintain the exclusivity. Entirely vertical!

But, Pandemic!

Now, the reason that forward exists, and the reason that forward became as popular as it has, is because there is more than a grain of truth to it, especially in the year 2020.

Take a look at it again:

dopl3r.com - Memes - Annual Streaming Price NETFLIX $108 hulu $72 ...

Most students in most colleges the world over are asking a very simple question: if we are to sit at home and watch videos, why restrict ourselves to what our college professors have to say?

I’m due to teach Principles of Economics to the incoming undergraduate batch at Gokhale Institute, for example. But why should students listen to me rather than watch videos from MIT’s OCW, or Marginal Revolution University, or Coursera, or edX, or Khan Academy?

Hell, for that matter, why should I bother coming up with a teaching plan when all I have to do is point students towards all of these resources?

And as the forward asks, or at least implies: if that is indeed the case, then why pay tuition fees this year? Not just Harvard students of course – every student is asking this question.

So What’s the Answer?

Well, microeconomics 101: a good place to begin is by asking what you’re paying for when you pay those tuition fees. And as I wrote in a blog post a while ago, you’re paying for much more than classes:

Now, the problem of education: when you buy a degree from college, you’re getting all three things.
College is a bundle: education | credentialing | peer networks

https://econforeverybody.com/2020/03/12/signaling-bundling-and-college/

Harvard is not charging you money to teach you stuff you can learn elsewhere. Those guys – the people who run the place and the professors who teach there – they’re pretty good, y’know. They know you can learn that stuff elsewhere.

You are paying your local college an obscene amount of money for the other two things. Coursera might be able to give you a better econ prof than your local college, but Coursera can’t yet give you a certificate that carries as much weight as does the one from your local college. This is much more true if you sub in Harvard for your local college.

Or put another way, Coursera existed since before the pandemic. Yet enrollments happened in colleges, did they not?

Enrollments happened because people weren’t buying lectures.

They were buying access to the peer networks, and they were buying the certificate.

And Harvard – and most other colleges the world over – are effectively saying that the certificate is still as valuable in 2020 as it was in 2019. Arguably more so, and so no discounts.

OK, But What About Peer Networks? Surely A Discount There?

Um, well, no. And for two reasons.

First reason, this excellent argument from Tyler Cowen:

Perhaps the logical conclusion is that both the “social connections/dating” services of Harvard and the certification services of Harvard are strong complements. If you are certified by Harvard, but live on a desert island, or carry a contagious disease, that certification is worth much less. So it is hard to unbundle the services and sell the certification on its own, without the associated social networks. Nor is it so worthwhile to sell the social connections on their own. Harvard grads are socially connected to their dry cleaning workers as it stands, but that does not do those workers much good.

https://marginalrevolution.com/marginalrevolution/2020/07/signaling-vs-certification-at-harvard.html

Peer networks develop best when you go through intense, shared experiences. Both adjectives matter: just hanging about in a college without going through the same grind that everybody else is going through doesn’t cut it (skin in the game). And that grind must be intense, it can’t be an optional, laid-back thing.

So sure, the grind is going to be online this year, but it still is shared, and it still is intense. That’s what helps with the bonding, and that bonding is valuable enough for Harvard to get away by charging you USD 50,000.

Peer networks developed online can be an extremely valuable resource, by the way. Ask David Perell or Seth Godin, to name just two people.

Second, those peer resources stay with you for life. You develop them now, but they get even better with time than does wine! As your peer group grows and matures, the number of connections they open up increases exponentially. So even if you can’t meet your peer group in a physical sense, it still is an investment worth making.

Tyler Cowen again:

Keep also in mind that the restricted Harvard services are probably only for one year (or less), so most students will still get three years or more of “the real Harvard,” if that is what they value. And they can use intertemporal substitution to do more networking in the remaining three years. It’s like being told you don’t get to watch the first quarter of a really great NBA game. That is a value diminution to be sure, but there will still be enough people willing to buy the fancy seats. Most viewers in the arena don’t watch more than three quarters of the game to begin with.

https://marginalrevolution.com/marginalrevolution/2020/07/signaling-vs-certification-at-harvard.html

If anything, Tyler Cowen’s analogy is slightly off the mark. The people who watch the NBA game in the stadium are never going to get in touch with each other twenty years down the line, much less depend on them for jobs or references.

So no, no discounts for reduced peer network benefits in 2020, sorry.

So far, Harvard can still justifiably charge you USD 50,000 – and they will.

So What Next?

Well, think of many vertically integrated colleges, all offering more or less the same kind of services:

… and ask yourself how we could introduce horizontal services into this structure. LinkedIn and Coursera attempt two separate models:

And those two models overlap more than you’d think. LinkedIn offers learning, for example.

But the real way, if you ask me, to think about how to unbundle college is by expanding our framework a little bit more:

This is a blog post, not an academic paper, much less a book. And therefore, forgive me for using catch-all terms here. By recruiters, I mean literally anybody who will work with graduates in any capacity: colleagues in start-ups, government, think-tanks, and yes, recruiters.

But the point of the framework I shared above is this: it will help us understand where change will come from, if at all it must.

Put another way, do you think $50,000 for Harvard (or whatever amount for whichever college) is too expensive? Then you need to explain how you can get the same things (or more) that a bundled college degree gives you for a lesser price with a different model.

How to get, that is to say, credentialing, peer networks and learning (and maybe more) for less than USD 50,000. That’s the million dollar question. And even if we come up with an answer, you’ll be up against the following:

  1. Colleges will be unwilling to change for two reasons.
    1. Why change something that isn’t broken? And college isn’t broken, from the perspective of the college.
    2. Inertia
  2. Firms such as Coursera and LinkedIn will struggle to replicate the “full-stack” experience that college has right now. And a piece-meal horizontal replacement will never be as valuable.
  3. Government will be unwilling to change the way college is structured right now
    1. Because of lobbying by colleges themselves
    2. Because too radical a change is a risky move, with unpredictable upsides and more than a little chaos in the short run
  4. Parents and students will not want colleges to change far too much, because the system as it stands right now is what enables jobs to come by.
  5. And that, finally, leaves recruiters. Or as I explained above, it is us: society. Until we (society) acknowledge the fact that college as a bundle has become too sclerotic, too expensive and too rigid for its own good, we can’t begin to change it.

And so, it ultimately comes down to this: we need to prove the inefficiency, and therefore the relative expensiveness of college as it stands today to society, before we can begin to talk about reforming it.

Well then, let’s get to proving the inefficiency of college as it stands today. That’ll be next up!

Thinking Aloud About Uttar Pradesh

Until very recently, I used to teach a course called Contemporary India. The program in which I used to teach this course is suspended temporarily, for it was designed for American students who would spend a semester studying in India.

One of my favorite classes in that course was about India’s demographics. It was one of my favorite classes because I got to show three slides in it. These slides were nothing but screen-grabs from an excellent feature that the Economist magazine had published a while back. Note that the content requires Flash, and it therefore probably will not work in our modern browsers. But the slides I speak of are presented below.

The first of these shows each state in India mapped to the country that is closest to it in terms of economic output:

The second shows each state as mapped to the country that is closest to it in terms of economic output per capita:

And finally, we have the third chart: each state in India being represented as a country that is closest to it in terms of population:

Each chart is worth more than a few minutes of your time. Note how Maharashtra is like Singapore, Sri Lanka and Mexico respectively, for example, when you make comparisons in terms of economic output, economic output per capita and population respectively.

My favorite thing to point out, especially to my American students, used to be how all of Canada’s population could fit inside Kerala. India is truly a mind boggling country!

But, Uttar Pradesh. That is what we’re going to talk about today. This is a mind boggling country (not a typo. It really is a country. If it were a country, it would be the fifth most populous country in the world. Yes, really).

It has, as this article points out, about 10 percent of India’s districts. One out of every seven Lok Sabha MP’s comes from this state. One out of every six Indian is from the state of Uttar Pradesh. Yogi Adityanath is the chief minister of Uttar Pradesh, but he is responsible for the same number of people as Imran Khan or Jair Bolsonaro. It, to put it mildly, is a truly large state.

And the article that I linked to in the paragraph above makes a point that is worth thinking about: is it too big?

Shekhar Gupta recommends carving up the state into five separate states, and before you scoff at the idea, consider the facts once again: should one chief minister be responsible for the governance of the fifth most populous country in the world?

And the problem isn’t just about population, it is also about national level politics. Or rather, about a problem that nobody wants to think about with any level of urgency.

Here’s the problem: how many people should a Member of Parliament in the Lok Sabha represent? Ideally, it ought to be India’s population divided by the number of elected representatives in the Lok Sabha. But obviously, in a country of India’s size and complexity, that isn’t always possible.

Here’s Ajit Ranade from two years ago, writing in the Livemint:

We may desire “equality” of constituencies, but economic development and demographic patterns do not develop uniformly across the country. Some states have achieved zero population growth while others still have very high fertility rates. This pattern too has a north-south dimension. It is as if the economic centre of gravity is shifting south and the political centre of gravity is shifting north.

Here is what he means by that: in the year 1976, we passed a law that effectively froze the number of seats in India’s Lok Sabha, per state. That number was frozen on the basis of the 1971 census. And from 1976 until the year 2000, we decided to not do anything about it.

And then, in the year 2000, we made the problem worse. Here’s Ajit Ranade again:

In 2000, another amendment postponed the day of reckoning to 2026. Thus, only after 2026 will we consider changing the number of seats in Parliament. Till then, everything is frozen as per the 1971 census. Remember, in 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion. The great apprehension is that redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states.

https://www.livemint.com/Opinion/7unVzUcfBJxbHHaiRpenmK/India-should-begin-discussing-the-delimitation-question.html

It is not just the fact that Uttar Pradesh is too big from an administrative viewpoint, and that it contains too many people for it to be administered as one state in a country. It is not just the fact that it is far too important a state in the political calculus of India.

It is the fact that it is about to get a lot bigger, a lot more complex, and a whole lot more important in about five years from now. Why do I say that, you ask? Well, for all of the reasons above, but also for the chart below:

Here’s Shekhar Gupta, from the article I referred to earlier:

Twenty crore people, divided over 75 districts spread over 2,43,000 sq km, is too much to govern for one government, especially when run entirely by one individual, which is the norm in our states now. Similarly, 80 seats in the Lok Sabha is too much power for one state in a federal republic. It is more than Gujarat, Rajasthan and Karnataka put together. It is politically distortionary. Especially when UP’s politics is so internally divisive based on caste and religion that the incentive for improving social indicators is poor.

https://theprint.in/national-interest/uttar-pradesh-is-indias-broken-heartland-break-it-into-4-or-5-states/458552/

When you think about that excerpt, and think about the point Ajit Ranade makes in his article two years ago, you realize that we need to start talking – soon, and a lot – about what is to be done about Uttar Pradesh.

I would love to read more about this. If any of you reading this have reading material to share, I would be very grateful indeed. Thank you.

Video for 12th July, 2020

I came across this video thanks to David Perell’s newsletter.

Short, concise and very informative! Also, India may well leapfrog into a much more advanced freight transportation world compared to where she is at present.

Interesting times ahead.

Tweets for the 11th of July, 2020