Tag: seeing like a state

On Sri Lanka

Back in 2014, out of the blue, I got the chance to travel to Sri Lanka thrice in the space of two months for work. It was my first visit to the country, and I haven’t been back since. I spent time in Galle, Colombo and a place called Puttalam. As with most other people who have been to the country, I found it to be a beautiful place with fabulous food. Oh, the food. What food it was.

And the deep irony, of course, is that the current tragedy revolves so much around the same word: food. Only now, there simply isn’t enough of it.

But what happened, exactly? How did Sri Lanka get to where it is today?

The answer to that question must necessarily be another one: how far back do you wish to go? To borrow an analogy from another field, where should you begin if you want to explain the 2008 Great Financial Crisis? Should you begin with Bear Sterns going belly up in March 2008? Or should you begin with low interest rates in the early 2000’s? Maybe 9/11 and the lowering of interest rates immediately after? The S&L crisis of 1984? How about tulips in the 16th century?

In Sri Lanka’s case, thanks to the excellent Amol Agarwal, let’s begin with a book written by the son of the guy who founded Bata shoes:

At that time, the only oasis of peace in the area was Sri Lanka, or Ceylon as it was called before decolonization. When I first went there in the late 1940s, it was a Shangri- la full of smiling people, ambling elephants and king coconuts with delicious milk to quench one’s thirst. Almost in defiance of the horrors that were raging all around it, Ceylon was an island of tranquility and racial tolerance. Forty years later the Indian subcontinent, along with Singapore, Malaysia, Thailand and Indonesia all enjoy peace and varying degrees of prosperity, and our enterprises in these countries are among the strongest pillars of the Bata organization.

https://www.amazon.com/Bata-Shoemaker-World-Thomas-J/dp/0773724168

But then things started to go wrong in 1948, and who better than Samanth Subramanian to make a complicated history simple to understand? Read the entire book, but the introduction is a good way to come to grips with how things started tear apart at the seams:

It is curious to locate the proximate cause of a war in something as noble as a desire for education. When Sri Lanka broke free of British rule in 1948, the seats in its universities were occupied to disproportionately high levels by the minority Tamils, who through quirks of colonial history spoke better English and were better educated than the majority Sinhalese. The Tamils then went on, after university, to fill the civil service, the country’s most reliable provider of employment at the time. To the country’s Sinhalese who suddenly found themselves empowered with a vote, and therefore to the government, this state
of affairs appeared too lopsided and unfair to continue. When laws and quotas were enacted to protect the interests of the Sinhalese, the Tamils felt they were being discriminated against. The frictions between the two communities erupted repeatedly into ghastly riots; in the worst of them, the Black July riot in 1983, roughly 3,000 people were killed, many of them burned alive. Tamil houses and shops were looted and burned, and 150,000 Tamils were rendered homeless.
When a clutch of Tamil militant groups had begun to emerge in the 1970s, to agitate for a free Tamil state, they found only a trickle of willing recruits; after Black July, though, they were flooded by young
men and women wanting to fight, and none more so than the Tigers. Starting as a ragtag outfit carrying out the odd guerrilla attack, the Tigers grew into a fearsome terrorist organization. They ran arms and drugs, pulled in funds from a Tamil diaspora scattered across the planet, killed thousands of civilians, assassinated presidents and prime ministers, and perfected the art of the suicide bomber. They kept their own people, the Tamils, in line by intimidation and murder. In their full pomp, the Tigers controlled vast wedges of territory in the north and east of Sri Lanka, where flat, hot, sandy coasts meld gradually into jungle. Here they ran their own country in all but name, collecting taxes and policing the streets and adjudicating disputes. But the Sri Lankan state was always just outside the door, impatient to snatch back its land, working itself up into a state of angry nationalism.
Buddhism, the religion of most Sinhalese, developed a vocal right wing; its monks entered politics, pressed for a more merciless war, and dreamed of a purely Buddhist island.

Introduction, This Divided Island (Life, Death and The Sri Lankan War) by Samanth Subramanian

Even by my usual standards, this is a bit of a whopper, this extract, but I hope it nudges you into reading the entire book. (Actually, given that it is Samanth Subramanian we’re talking about, pick up anything written by him. It’s guaranteed value for money.)

The war ended, finally, in the year 2009, but it ended with a very high cost. The Wikipedia article serves as an introduction to the war, and Samanth’s book is a deep, thought-provoking reflection on the aftermath.

That’s a ridiculously brief background, and now let’s get down to the economy. The Sri Lankan economy, much like the Indian economy, is mostly a service based economy. Around sixty percent of their GDP comprises of services today, but that’s where the similarity with the Indian economy ends. A large chunk of this sixty percent, as you might imagine, is down to the tourism sector. And the pandemic has devastated this segment – not just in Sri Lanka, of course, but the effects are felt with much more severity in a nation that is so very dependent on it.

But it gets worse!

The economy is highly-dependent on imports for essential items such as food, and oil. The economy finances these imports mainly via agricultural exports (tea, rubber, and coconut), industrial products (textiles), and remittances from abroad. The revenues from exports, and remittances have not covered the cost of imports, and Sri Lanka has always been in a current account deficit (CAD). The average CAD in 2010-19 was around 1.2 percent of GDP.
The CAD has been met mainly by the government borrowing from abroad. As the government borrowing from abroad has been larger than the CAD, the balance has been pegged to the foreign exchange reserves. What can one make of an economy where the forex reserves consist of mainly borrowings from abroad!

https://www.moneycontrol.com/news/opinion/how-sri-lanka-reached-this-economic-precipice-8314151.html

So an economy that was, at best, precariously placed during the Covid-19 pandemic. And then, of course, going 100% organic.

Here’s a part of the conclusion from Seeing Like a State, by James C. Scott:

Take small steps: In an experimental approach to social change, presume that we cannot know the consequences of our interventions in advance. Given this postulate of ignorance, prefer wherever possible to take a small step, stand back, observe, and then plan the next small move. As the biologist J. B. S. Haldane metaphorically described the advantages of smallness: “You can drop a mouse down a thousand-yard mineshaft; and on arriving at the bottom, it gets a slight shock and walks away. A rat is killed, a man broken, a horse splashes.”

Seeing Like a State: How Certain Schemes to Improve The Human Condition Have Failed, by James C Scott

Or, if you prefer pithier statements, Deng Xiaoping’s famous dictum about crossing the river by feeling the stones comes to mind (although the quote isn’t originally by him). But Sri Lanka, of course, went straight to 100% organic farming, and well, if you’ve read even a single newspaper in the last two months or so, you know how that turned out.

The rest of the story is predictably depressing, and depressingly predictable. Rapidly depleting forex reserves, a drying up of foreign investment, stratospheric inflation, a weakened currency and all the rest of it.

And the knock-on effects of each of these on the ordinary person on the street are equally horrible. We’ve all heard about postponement of exams because of a lack of ink, long lines at petrol pumps, rising protests, people fleeing the country and so on.

And most tragic of all perhaps, is the ostrich-like approach of the government, which insists on coming up with ridiculous (there really is no other word) responses in terms of policy making. Long story short, this is a problem that is going to get much, much worse before it gets better.

I’ve tried to keep the story as simple as possible, but if you’re looking for a good in-depth read about this, here are some recommendations:

  1. Via Splainer.in (which you really should subscribe to!), an excellent in-depth macro analysis of the crisis, but in English (with jargon explained at the end, imagine!)
  2. The political fallout, which is rapidly evolving, and may well be out of date by the time you read this.
  3. Best of all, try and play around with the data if you happen to be a student of macroeconomics. What charts and tables would you create using this data, for example, and why? Best of all, pick an article such as the first one here, and try and see how many of these charts you can recreate in Excel. Trust me, ’tis the best way to learn.

Notes on “Why Tech Didn’t Save Us From Covid-19”

The MIT Technology Review recently published an interesting, thought-provoking article with the title in quotes above. It was also a little bit one-sided, but we’ll get to that later.

  • The title itself brought to mind Peter Thiel’s quote about being promised flying cars, and being given 140 characters instead. You may want to make a snarky joke about whether 280 characters counts as progress or not, but the point is well taken. And indeed, reinforced by this quote from David Rotman’s article:
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    “In an age of artificial intelligence, genomic medicine, and self-driving cars, our most effective response to the outbreak has been mass quarantines, a public health technique borrowed from the Middle Ages.”
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  • The article then goes on to highlight at least three separate aspects of why tech has failed us: lesser government support for technology and innovation (particularly in the USA), a sclerotic bureaucracy, and policy-making that is not a) proactive enough b) good at managing risks effectively c) far too focused on short-term issues d) aware of the pitfalls of focusing solely on efficiency.
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    Let’s begin with the last of these points:
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  • ““The pandemic has shone a bright light on just how much US manufacturing capabilities have moved offshore,” says Erica Fuchs, a manufacturing expert at Carnegie Mellon University.”
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    I teach courses in international economics at the Gokhale Institute, and one of the fundamental insights that I think students need to walk away with is the concept of a non-zero sum game. Trade makes both parties better off, and therefore more trade is good, is literally the basic starting block of a course on trade. For an excellent summary of this idea, read this article by Paul Krugman, or watch this TED talk by Matt Ridley.
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    But two basic concepts from economics have come to haunt this rather neat idea. One is scale, and the other is the need to diversify. Both are very closely related.
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  • If, conventional theoretical thinking goes, a firm is able to scale up effectively, it will be able to produce more for cheaper. Yes, it is more complicated than that, but that’s the gist of the benefits of scale. Now, think of all countries as firms, and China is the obvious example of a country that scaled more rapidly than other countries, and was able to produce stuff cheaper than almost anywhere else. And that’s how China became the “manufacturing centre of the world”. The more you import from China, the more they scale (and effectively!). The more they scale, they cheaper they can make stuff. The cheaper stuff gets, the more you have an incentive to import from China. And once the loop is up and running, it becomes difficult to stop.
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  • And that’s a simple explanation for how the world ended up putting all of its eggs in one basket. We failed to diversify, because we focused on efficiency, without worrying about risk. What happens if an increasingly efficient global trading order suddenly breaks down? The price of efficiency is two fold: a) a lack of diversification b) not enough risk mitigation measures that allow one to fall back on domestic production. Which is where most of the world finds itself today. Readjusting global supply chains away from China is necessary, but it will not be easy. Especially because most countries will not want to pursue twin objectives: a) diversification away from China into other potential export powerhouses b) some production to be kept at home, especially in crucial sectors such as healthcare.
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    Scale, and a lack of diversification. There’s a lesson in there for us at the individual level as well, of course. A single minded pursuit of some goal (say money, or career growth) at the cost of other things isn’t necessarily a good idea.
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  • “Why couldn’t the US’s dominant tech industry and large biomedical sector provide these things? It’s tempting to simply blame the Trump administration’s inaction.”
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    The truth is always more complicated than you think, and beware simple explanations, but that being said, you might want to read The Fifth Risk. Here’s a slightly tangential review from The Guardian if you are feeling lazy, and a quote from that article follows:
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    “But we’re actually much more likely to die driving to the shops. The fifth risk is something impossible to conceive of in advance, or to prepare for directly. What matters is having a well-organised government in place to respond to these contingencies when they hit – exactly what the Trump administration has failed to do.”
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    No government, or Big Ol’ Central Planner is perfect, of course (and there’s a very readable book about that topic, or here’s a fascinating review of the same book), but Michael Lewis makes the claim that the Trump administration is rather less than perfect even by our less than exacting standards.
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  • “Any country’s capacity to invent and then deploy the technologies it needs is shaped by public funding and government policies. In the US, public investment in manufacturing, new materials, and vaccines and diagnostics has not been a priority, and there is almost no system of government direction, financial backing, or technical support for many critically important new technologies. Without it, the country was caught flat-footed.”
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    The book to read about this topic, if you ask me, is The Entrepreneurial State, by Mariana Mazzucato. Here’s the Wikipedia link about the book. Governments need to play, she says (and I suspect the author of this article would agree), a more active role in fostering the tech ecosystem in a country. Shades of Studwell, perhaps, but I have a counterargument here:
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  • “Incompetence and a sclerotic bureaucracy” is a phrase David Rotman uses early in the article when speaking about the Center for Disease Control in the USA. I find myself in complete agreement with the adjectives used. Why presume, then, that other government departments are likely any better? The truth, as always, lies somewhere in the middle. You can certainly make the case a la Michael Lewis, that the Trump administration took us to one end of the spectrum – but you should beware equally the other end of it!
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  • “Economists like to measure the impact of innovation in terms of productivity growth, particularly “total factor productivity”—the ability to get more output from the same inputs (such as labor and capital). Productivity growth is what makes advanced nations richer and more prosperous over the long run. For the US as well as most other rich countries, this measure of innovation has been dismal for nearly two decades.”
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    Well, yes, sure. And there is more than a grain of truth to the charge laid above, and not just for America. But keep in mind that measuring TFP is really and truly hard, and I am nowhere close to being convinced that we do a good job of it, even for a country like the USA, forget India. I am writing this post while sitting in my bed, using a laptop that allows me to keep multiple tabs (well over 50 right now) open in a modern browser, while being seamlessly connected to an overwhelming variety of news sources. All this while I listen to a Spotify playlist, and sip on excellent coffee that is made using home delivered Arabic beans. I’ll stop channeling my inner Keynes now, but most of this was not possible, especially at these prices, two decades ago.
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    Progress may not be fast enough for our tastes, sure – but it has been taking place. If you would like to read a book with a take contrarian to mine, try this on for size: The Rise and Fall of American Growth, by Robert Gordon.
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  • “The problem with letting private investment alone drive innovation is that the money is skewed toward the most lucrative markets.”
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    Churchill’s quote about democracy comes to mind!
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  • “In a widely circulated blog post, internet pioneer and Silicon Valley icon Marc Andreessen decried the US’s inability to “build” and produce needed supplies like masks, claiming that “we chose not to have the mechanisms, the factories, the systems to make these things.” The accusation resonated with many: the US, where manufacturing has deteriorated, seemed unable to churn out things like masks and ventilators, while countries with strong and innovative manufacturing sectors, such as China, Japan, Taiwan, and Germany, have fared far better.”
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    Here’s is Andreessen’s post, and also, this is your periodic reminder to read How Asia Works. China, Japan, Taiwan and Germany being up there isn’t a coincidence.
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  • ““The great lesson from the pandemic,” says Suzanne Berger, a political scientist at MIT and an expert on advanced manufacturing, is “how we traded resilience for low-cost and just-in-time production.””
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    Options are easy to teach, but difficult to grasp, and even more difficult to implement. See put, long.
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  • “…they are calling for an immediate ramp-up of public investment in technology, but also for a bigger government role in guiding the direction of technologists’ work. The key will be to spend at least some of the cash in the gigantic US fiscal stimulus bills not just on juicing the economy but on reviving innovation in neglected sectors like advanced manufacturing and boosting the development of promising areas like AI. “We’re going to be spending a great deal of money, so can we use this in a productive way? Without diminishing the enormous suffering that has happened, can we use this as a wake-up call?” asks Harvard’s Henderson.”
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    More participation from the government than is currently happening, but throw also into the mix a more venture-capital-ish approach, and don’t forget prizes! In fact, I found myself wishing midway through the article that the author had explored other options, rather than the government-or-markets binary.
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  • I hope I haven’t comes across as overly critical of the article, and my apologies if I have. That has certainly not been my objective. We rely far too much on the private sector now, that is true – and government can and should play a bigger role than is the case currently. But an extreme position, in either direction, always worries me a little!