Tag: property rights

One Step Forward, Five Steps Back

Alternate history is a genre is underrated. I should say at the outset that I haven’t read as much as I would have liked to in this genre, but have thoroughly enjoyed what little I have read (or seen, in terms of movies).

Why begin with this? Because Niranjan raises, as he puts it, a tantalizing question:

The short period when Lal Bahadur Shastri was prime minister offered hope of change. Shastri wanted more investment in agriculture to control rising food inflation. He saw that physical controls were creating artificial shortages and black markets; he preferred financial controls. And the failures of the public sector convinced him that the private sector should have a bigger role in the economy. One of the tantalizing questions in Indian economic history is whether India would have embraced liberal economic reforms 25 years before 1991, if Shastri’s tenure had not been cut short by his premature death.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

But if there is somebody reading this whose interests lie at the intersection of writing fiction and studying economics, boy do I have a project for your consideration. What if agriculture had become more productive and efficient back in 1965? What if we had moved away from the License Raj, rather than embracing it wholeheartedly? What if – the most ‘if only’ question of them all – 1991 had instead been 1965?

Please, somebody, write this book.

But alas, we went in a whole other direction. It all began promisingly enough, but things soon went awry:

Indira Gandhi began with a relatively liberal economic agenda, including devaluing the rupee as well as easing trade restrictions in response to balance of payments pressures. However, in response to the international geopolitical situation as well as domestic political calculations, she swung to the Left after 1969. The economy was choked with stringent licensing, credit rationing, import controls, as well as draconian laws such as the Monopolies and Restrictive Trade Practices Act and the Foreign Exchange Regulation Act. A series of exogenous shocks between 1965 and 1980 — wars, droughts and oil prices — further battered the economy.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

I would strongly encourage young readers and folks new to economic theory to go over the presentation linked to in this blogpost. Why do I recommend this presentation? Because it is one thing for Niranjan to say that Indira Gandhi ‘swung to the Left after 1969’ because of domestic political calculations, and it is quite another to model why this was inevitable. Economics, remember, is the study of how to get the most out of life, and Indira Gandhi chose to get the most votes. This presentation explains why.

Economics is also the study of opportunity costs, and this presentation explains to us the cost of her choices. India fell behind when compared to some of her Asian peers in this period, and any student of Indian economics must almost heave a wistful sigh when studying this era of India’s economic history.

But the other reason I ask you to go over that presentation is because it helps you understand decisions made by all political leaders in all electoral democracies everywhere in the world. And as students of economics, it helps to understand how politicians respond to their incentives. This helps you become a better analyst of both economics and politics, and therefore of public policy.

The 1970s were a lost decade, with low growth and high inflation. However, there were two significant structural breakthroughs. First, the Green Revolution that began in the late 1960s helped India make a big dent in the food constraint. Second, the domestic savings constraint eased, perhaps helped by the spread of bank branches after nationalization. There were also the first signs of introspection on the nature of Indian economic policy in several official committee reports, though actual policy reforms were not yet on the horizon. The underrated budget speech by H M Patel in 1978, as finance minister of the short-lived Janata party government led by Morarji Desai, deserves more attention.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

To me, what is most interesting in this paragraph is what Niranjan doesn’t say in it. In my personal opinion, this decade is worth studying not for its datasets or its metrics, but for the weakening of India’s institutions. The Solow Model is a great way to think about the growth trajectories of nations, and what students often miss out in the Solow Model are the underlying assumptions. Well defined property rights, a strong and independent judiciary, free and well-functioning markets, and a legislature that doesn’t indulge in over-reach are crucial for reasonably rapid long-term growth, and I would argue that all of these were missing either in parts or wholly for much of the 1970’s.

Niranjan hints at part of this in the paragraph that precedes the one I have extracted above, but there is much more going on in that unfortunate decade. If you wish to learn more about this decade and the impact that it has had on our growth trajectory, come to the economic data and its analysis last. Begin with biographies of the more important public personalities of those times, read about landmark judgments passed in and around that decade, and speak to journalists and political scientists who were around back then, or have studied that era well. Once you get a sense of the politics and the culture (political, social) of that decade, then start upon the economic analysis. That would be good advice in general, I suppose, but it is particularly applicable to the 1970’s. Oh, and watch the movies that were being made back then!

There is far too much going on in this decade for us to speak meaningfully about it in a single blogpost, and I hope to come back and write/speak about this topic later. But for the moment, I wish to leave you with my own sense of utter regret and wistfulness regarding the 1970’s. There was some progress, of course, but there was, in my opinion, much that was wrong, and too little that was right.

Growth always matters, but it really and truly mattered back then, and we failed to optimize for it.

Professors Koyama and Rubin Explain How the World Became Rich

To be honest, you really should read the entire book. But then again, it is freakishly expensive by Indian standards, and the interview we’re about to discuss serves as a very good introduction to thinking and reading more about this subject, so let’s get started.

If you play the animation in that chart (and make sure you have tick-marked the “Relative change” box), you should be struck by two questions. Well, I am, at any rate.

  1. Why the hell did it take so long?
  2. What the hell happened about two hundred years ago?

And the interview is about precisely these questions, but before we get there, a slight digression.

My way of getting students interested in the topic of macroeconomics is by showing them Gapminder, and then asking them a seemingly simple question: why does the world look the way it does?. That is, why did the countries that are rich today (on a per capita basis) get that way?

Some students say it is because those countries have a smaller number of people, and I say that by logic China ought to be poorer than us. Some say it is because those countries were never colonialized, and I say that by that logic Singapore ought to be a very poor country, and so also South Korea. This goes on for a while, but I eventually get the discussion around to two central questions/conclusions.

First, is it likely that we will ever know for certain, and if so how? Or are we doomed to just faffing around for ever?

And second, if we do find out, can we apply some of those lessons in India’s case today? That is, if at all there is a recipe for growth, does it remain applicable across time and space?

And as Robert Lucas put it (in a different but very related context), it is very hard to stop thinking about these questions once you start thinking about them!

The book in question, How The World Became Rich, with its subtitle ‘The Historical Origins of Economic Growth’ aims to answer these very questions. And as anybody who has attempted to study a subject such as this know, this is A Very Hard Thing to do. Here is the description from the Amazon page:

Most humans are significantly richer than their ancestors. Humanity gained nearly all of its wealth in the last two centuries. How did this come to pass? How did the world become rich?
Mark Koyama and Jared Rubin dive into the many theories of why modern economic growth happened when and where it did. They discuss recently advanced theories rooted in geography, politics, culture, demography, and colonialism. Pieces of each of these theories help explain key events on the path to modern riches. Why did the Industrial Revolution begin in 18th-century Britain? Why did some European countries, the US, and Japan catch up in the 19th century? Why did it take until the late 20th and 21st centuries for other countries? Why have some still not caught up?
Koyama and Rubin show that the past can provide a guide for how countries can escape poverty. There are certain prerequisites that all successful economies seem to have. But there is also no panacea. A society’s past and its institutions and culture play a key role in shaping how it may – or may not – develop.

https://www.amazon.in/How-World-Became-Rich-Historical-ebook/dp/B09VNRJZ31

As the excerpt says, there are many, many theories about why some countries got a headstart on the others. And while we can’t ever be sure of what the exact mixture of theories is, and whether this mixture remains the same for all countries across all periods, we can be sure that any recipe must contain at least some of these ingredients. And that’s better than knowing nothing, eh?

But which ingredients? In the next section, my notes from having read the article

  1. The Fate of Rome, by Kyle Harper, is now added to the list.
  2. Life slowly got better across the centuries from the time of the Roman Empire until the Middle Ages, but many of these changes could be explained by major demographic changes (such as, say, the Black Death and the resultant decrease in the population.)
  3. Sustained economic progress necessarily needs sustained technological progress. And sustained technological progress needs to be high enough to be able to beat the inevitable downward pressure imposed by population growth. They also add property rights as an important component, but it is, in essence, enough technological progress to be able to beat the inevitable Malthusian Trap.
    “Ultimately (and this matters for the acceleration in growth we observe from the late 19th to the 20th centuries), it also helps if families limit the number of children they have. This does not necessarily contribute to innovation, but it does mean that innovation will more quickly translate into growth.”
    Of course, the next logical question to ask is why would families limit the number of children they have, and to me, the answer is that they will only do so if they are convinced that their children have a more than reasonable chance of surviving into adulthood. Health comes first, both for individuals, but also for economic growth.
  4. This is an article I will need to read carefully, on the debate between historians and economic historians. The topic? What role did slavery have to play in the economic development of Europe.
  5. Remember the ‘ingredients in the recipe’ analogy that I used in the previous section? Institutions (such as property rights, labor unions), the demographic transition and education are three things that Professors Koyama and Rubin completely agree upon.
  6. “I think one thing the history of technology has taught us is that as long as the incentives are there for innovators to innovate, we will continue to be surprised.”
    I think this to be a key sentence, and I wonder if we think hard and often enough about whether the world is incentivizing innovators enough.
  7. Capitalism without Capital is also added to the list. Sigh.

2 Videos on Property Rights

Tomorrow’s essay will be on property rights, what with it being the first Monday of the month – a continuation of the series of essay I am writing about aspects of the Indian Constitution. Research for that essay included these two videos, which I learnt a great deal from.

 

 

EC101: Links for 5th September, 2019

All five links from Marginal Revolution today, in relation to a talk that was held at the Gokhale Institute yesterday, by Murali Neelakantan. This is a topic that I am becoming more interested in, so you might see more posts about this topic.

  1. “It is less commonly recognized by the critics, however, that tougher IP protection may induce more foreign direct investment. Why for instance invest in a country which might subject your patents and copyrights to an undesired form of compulsory licensing?”
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    A typically Cowenian (and by that I mean contrarian) statement, and therefore also likely to be at least somewhat true. MR on Why TPP in IP law is better than you think.
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  2. “It’s hard to believe that the extension of copyright for decades after an author’s death can appreciably increase artistic creation and innovation, thus the public has gained little from copyright extension. What has been lost?”
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    Alex Tabarrok on the tragedy of the anti-commons.
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  3. “Patents are supposed to increase the progress of the useful arts.”
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    Are patents out of control?
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  4. “Walt Disney was long-dead when his copyright to Mickey Mouse was extended. Rumors to the contrary, Walt ain’t coming back no matter how much we incentivize him with a longer copyright.”
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    Alex Tabarrok is rather exasperated with copyright protectionism.
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  5. “How can we increase innovation? I look at patents, prizes, education, immigration, regulation, trade and other levers of innovation policy.”
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    Alex Tabarrok’s blog post on his book, “Launching the Innovation Resistance”

Links for 1st April, 2019

  1. “For many in technology, New & Improved means faster with more of every measurable parameter. More memory, more pixels, more storage, more bandwidth, more resolution. In devices, the tendency has been to communicate “new & improved” through an increase in screen size. We are subject to this to such an extent that phones are becoming unusable with one hand, stretching screens to the edge of the device and then wrapping those screens around the edges and then even folding the screens so that we have to unfold or unroll to use the product. Maybe an origami phone is in the works.But there is a parallel movement where “New & Improved” means smaller. This is the trend to miniaturization. Smaller is better because it’s more portable, more conformable. Things sold by the ounce are better than things sold by the pound. The best computer, the best anything, is the one you have with you and having it with you is more likely if you can take it with you. So that which you can take with you is the best. QED.”
    On the face of it, a review of the iPad mini. But the excerpt above is also a useful way to think about improvements in general – how much of learning, for example, has become better because of ‘miniaturization’?
  2. “It is yesterday once more. The Reserve Bank of India (RBI) has put forth an old solution for a perennial problem. It has suggested, through a discussion paper, the need to create ‘Wholesale & Long-Term Finance Banks’. The discussion paper argues that with the “deepening of the financial sector” there is a need to evolve a structure where apart from universal banks, “differentiated banks provideservices in their areas of competitive advantage”. The thesis is that this would enable fulfilling long-term financing needs of the growing economy.”
    This is from a while ago – nearly two years ago, in fact, but is worth reading, especially if you are a student of finance in India. The article is a good summary of the many, many efforts made by the government to arrange for long term financing in India – and how they just haven’t worked out – and are unlikely to work out in the future as well.
  3. “And what might Rodgers and Hammerstein themselves have thought of Ms. Grande’s song? Todd S. Purdum, the author of “Something Wonderful: Rodgers and Hammerstein’s Broadway Revolution,” said the masters of musical theater enjoyed being in the thick of popular culture. But most important, he said, they were never ashamed of commercial success.“They would love the ka-ching of it,” Mr. Purdum said.”
    Have you heard the song seven rings? I haven’t, although as the article goes on to tell you, if you do go ahead and hear it, two long dead musical geniuses from the past will become richer. Copyright, property rights, music, licensing rights, streaming, the economics of music – all in there.
  4. “Then with the Kindle and the iBooks coming along, that allowed me to start treating books like I treat blogs. When I go to blog, I’ll actually skim through lots of articles until I find one that looks really interesting and then I’ll read that whole article all the way through and maybe take notes. Now I treat books the same way. I’ll skim through a large number of books. I’ll put them down. I’ll jump around, back, forward, middle, until I find a part that’s interesting. Then I’ll just consume that piece. I won’t feeling guilty about having to finish the entire book.I just view it as a blog archive. A blog might have 300 posts on it and you could read just the two, three, five that you need right now. I think you can think of a book the same way. Then that opens the world wide web of books back open to us instead of it being buried somewhere.”
    Books as a series of blog posts is a remarkably useful, and dare I say it, comforting idea. It probably is a more useful way to think about reading books, and about not reading them. I didn’t finish reading the entire transcript, but hope to get around to listening to the podcast soon.
  5. ““In a fight between a fly and a lion,” he wrote, “the fly cannot deliver a knockout blow and the lion cannot fly.” Using conventional methods “have at best no more effect than a fly swatter. Some guerrillas are bound to be caught, but new recruits will replace them as fast as they are lost.”I know very little about Kashmir, and I am aware of how little I know every time I read a little bit more about it. But this particular analogy leaped out at me, and helped me think about not just the insurgency problem in Kashmir, but about guerilla warfare in general. The entire article is worth reading, by the way. Multiple times, in fact.