Tag: vietnam

Ben Casnocha in Tokyo

How to travel better, and how to write about my travels better are among two of my “goals” for 2024. Goals is in inverted quotes because I’m very good at not meeting them.

What do I mean when I say travel better? Travel more, for one. But more importantly, it is to observe more, and observe better, while traveling. Observe what, exactly? Everything! And I do mean everything, ranging from how the Vietnamese use their footpaths, to the fact that raspberries are called “himbeer” in German (a berry that grows when it is snowing, get it?)- and everything in between.

What do I mean when I say write about my travels better? Observing better while traveling is just the start. Writing about my travels and my observations helps me make connections between what I have learnt, observed, seen and experienced at home, and while traveling. In other words, I understand my world better when I travel, and when I make connections between what is familiar, and what isn’t.

Take tirphal, for example, a spice familiar to most people in Western Maharashtra. Turns out this is likely a close cousin (if not kind of the same thing) of Sichuanese peppercorns!

“Learn how to build bridges for yourself between your home and the rest of the world” is one way of putting it, and like I said, I would like to get better at it.

Lots of examples come to mind when I talk about writing about travel better. There’s Tim Ferris talking about entire families in Japan taking a both together. There’s David Perell talking about Austin. There’s Devon Zuegel talking about what sometimes feels like the whole wide world. There’s Derek Sivers on Japan, and what a lovely little story this is. And that’s just short from content – books are a whole other story.

But for the purpose of this post, and this year for me personally, I want to get better at observing, and creating notes when it comes to travel. And an excellent example of the kind of notes I have in mind is Ben Casnocha’s notes from his travels in Japan.

For example:

On one of my first days in our private office in Tokyo, some light jazz music suddenly began playing out of a speaker built into the ceiling. I couldn’t figure out how or why the music started. 30 mins later, the music hadn’t stopped, and I grew concerned that what was supposed to be a quiet, private office in a coworking space actually was subject to some building-wide music system steered by a jazz aficionado building manager. (Hey, it could have been a worse genre of background music.)

I pulled out Google Translate and typed English sentences: “There is jazz music playing in my office. I did not turn it on. Why is it playing? Can you turn it off?” Google Translate spit out out the Japanese version and, clutching my iPhone, I swung open the door to my office to stomp to the front desk and inquire.

As it happens, two men were already standing outside my office in official, erect poses. What luck. I clicked “Play” in Google Translate to ask my pre-loaded question in Japanese. They micro head bowed as they listened — the micro bow where your head drops ever so slightly in rapid succession: the most common type of bow in Japan.

Then they spoke back into my phone: “Deep apologies,” Google’s translation’s said back to me. “The jazz music means the fire alarm system is working. We are conducting a test of the fire alarms in the building. The jazz music plays if the alarm is working. Thank you very much. Thank you very much.” They proceeded to deeply bow and walked off. Only then did I notice they were wearing fire department helmets.

It had never occurred to me that a fire alarm building test could be anything other than bone-tinglingly loud.

https://casnocha.com/2024/01/impressions-from-a-longer-stay-in-tokyo-2023.html

I’ve never traveled to Japan, alas, but I have traveled to Japan twice in the recent past. Once by reading Ben’s post, and once by reading a book about a lady who works as a concierge in Paris. To cut a long story short, the protagonist uses the washroom in a Japanese gentleman’s home in Paris, and is embarrassed beyond belief when the flush, in addition to doing its job, also plays Mozart’s Requiem at full volume (The Elegance of the Hedgehog, by Muriel Barberry, if you were wondering about the book).

And so if and when I travel to Japan, I run the risk of being surprised and disappointed if flushes and fire alarms don’t play music.

But you see what I mean about traveling better, and observing better, don’t you?

Anyway, all of this is to tell you that Ben’s post is, to me, a great example of traveling well, and writing well about having traveled well. I hope you like it, and I hope you get to do a fair bit of traveling yourself!

Notes from Vietnam

  1. Half the width of the footpath is for businesses, and this is formally/informally understood. The reason for the “/” is that in some cases, there is a white line running along the length of the footpath that kinda sorta officially sets the boundary.
  2. The other half is not necessarily always for walking, it can be used for parking too. In this sense, walking in Hanoi was very similar to walking in India. Some cafes actually have little wooden blocks that are kept adjacent to the footbath, so that bikes can be pushed onto the footpath. Can be used by paying customers of the cafe only, of course.
  3. Traffic is as chaotic as India, but pedestrians assume that the vehicles will stop for them (and they do). Here, of course, it is the other way around.
  4. Coffee rules. I approve. We stayed next to a lake, and sitting on one of those small chairs and sipping on black coffee is a wonderful way to spend an hour or so.
  5. I couldn’t help but wonder if the word “banh” comes from “pain” in French, which means bread. But apparently not.
  6. The drop-off in quality of visible infrastructure is as startling as it is in India. You know how the areas around where the bigwigs stay and immediately outside the airport in your city are much better than the neighbourhoods where aam janta stays? Hanoi is exactly like that, but marginally cleaner.
  7. You can’t go wrong with the food, and in more ways than one. Almost all of the stalls and shops along the main roads and with fronts opening up on the streets are tourist friendly, and the food is excellent.
  8. When I say tourist friendly, I don’t mean to say the rest of the city is not friendly. I mean the dishes are tourist friendly. Which is why a food tour is recommended – because you’ll never get to even see some of the more “hidden” places. If you’re feeling adventurous, try the balut. I did, but couldn’t manage more than one bite.
  9. There is a lot more to Vietnamese cuisine than just the pho and the banh mi, and the best way to learn about it is to walk, mostly through the old part of town. Walking is also the best way to experience the city.
  10. The higher the rating for a place on Google Maps, and the more the number of ratings, the more likely it is that the place is a favorite with tourists. This is a good example, but there are many such places. This will be good food, but it won’t be truly Vietnamese. It will be a somewhat decent version of heavily touristified Vietnamese cuisine.
  11. But when you’re traveling with a ten year old, that may not be a bad thing. What are you optimizing for?
  12. But while walking to your restaurant of choice, feel free to stop and try as much of the food from the street side shops as you possibly can. Surprises abound on virtually every corner.
  13. I observed shop-owners and friends sit down for a meal in their shops, or in front of their shops, on more than one occasion. A sense of community is palpable, and if not a meal, often a cigarette and a coffee, or a beer. Wonderful.
  14. Staring at your phones isn’t a thing if you are in charge of a streetside shop. At least, isn’t as much of a thing as it is in India. Note that these things are hard to quantify!
  15. Don’t order a dish for yourself in restaurants. Order, instead, lots of small dishes and share.
  16. The food is not spicy. The flavors are, as a rule, more subtle than in, say, Thai cuisine, or Malay cuisine.
  17. Our food tour guide told us that cats are considered unlucky in Vietnam because the meowing of cats sounds similar to the word “poor” in Vietnamese. Huh.
  18. I was hoping for better bakery products.
  19. Don’t waste a meal by going into a truly fancy place. If your time is limited, have every single meal in as many local places as possible.
  20. The Vietnamese National Museum of Fine Arts is well worth a visit, and you could easily spend half a day there, if not more. The ground floor and the third floor were my favorites.
  21. Bottomline: heavily recommended!

A Question for Lant Pritchett

This interview went viral (well, about as viral as interviews of economists can be) recently. And it was this excerpt that made the rounds:

India never changed its mind about having a selection system rather than an education system. A selection system is where you put all children in a classroom, but provide a poor or indifferent environment for learning, and see what happens. The students that learn in that environment must be brilliant. As for those who do not learn, teachers will say they must be the type of children who cannot learn. India took that option because they expected that 2-3% of the population would be an educated elite, and that would be good enough. And so, they committed themselves to selection rather than education. Things will only change once they fundamentally change their ideas, which they are hopefully in the process of doing now.

https://www.cde.org.za/wp-content/uploads/2021/06/Lant-Pritchett-in-conversation-with-Ann-Bernstein.pdf

Tyler Cowen chose a different bit of the same question to excerpt:

Ann Bernstein: From your knowledge of India and Indonesia, what are the core causes of their lack of educational progress? These are places with highly qualified civil servants and, at least in India’s case, a democratic government. How do you see this problem? How do we get out of this trap?
Lant Pritchett: I’m head of this very large research project called RISE and we’re spending millions of dollars to find out the answer to that question. One of the countries where education improvements have been dramatic is Vietnam. At a tiny fraction of the spending in most countries – including South Africa – Vietnam is achieving OECD levels of learning. When we asked our Vietnam team why the country has produced this amazing success, they told us: ‘because they wanted it’.
On one level, that seems silly; on another level, it is the key. Unless, as a society, you agree on a set of achievable objectives and actually act in a way that reveals that you really want those objectives, you cannot achieve anything.

https://marginalrevolution.com/marginalrevolution/2021/06/ann-bernstein-interview-with-lant-pritchett.html

Me, I’m dying to ask Lant Pritchett a question, and I really wish it was asked in that interview:

What made the Vietnamese want educational progress?

I finished yesterday’s post by asking what needs to change in terms of societal incentives for my Almost Ideal University to have even a chance at existing. Same question, except it seems to not be a theoretical one in Vietnam’s case – and so I’m dying to know: what made the Vietnamese want educational progress?

More generally, what makes any society want educational progress?

I sometimes worry that I have found such a good hammer that the whole world looks like a nail, but please tell me how my answer is wrong: a society that agrees that life is a non-zero sum game is a society that will want educational progress.

Status driven societies, for example. If which college you go to matters more than what you learn in that college, you live in what these days is called a status driven society. And since, by definition, there are only so many “top” colleges in a given geographic area, there are only so many seats to go around. Those that get in have “won”, at the expense of everybody else who has “lost”. And the incentive for the college in question is to not increase the number of seats, for that would drive down its status.

I wonder if that conclusion is as befuddling for everybody else as it is for me? The best college in town should not admit more students because that very act will ensure that it is no longer going to be thought of as the best college in town. We have successfully Groucho Marxed the education sector in India.((Not just in India, of course. But given where I am, and given who I am, I will naturally focus much more on India)) He meant it as a joke, we think it to be a great way to dispense quality education.

(Scaling up will have a negative impact on quality, especially when it comes to education. Therefore replicability rather than scale. That is, there is an argument to be made that the “top” colleges admit more folks than they do right now. But their bigger responsibility is to help other colleges become better, in my opinion.)

It’s the whole college as a bundle problem all over again: when you spend the time and money getting educated from a top college, you’re hoping, as a student, to get at least two things (there’s a third, but that’s not relevant right now):

  1. A great education
  2. The license to say, “… from XYZ” in addition to whatever your educational qualification is. XYZ could be Harvard, could be IIT, could be Fergusson College in Pune. But hey, only so many additional people get to say that every year. Status!

Parents want to be able to say that their kid went to a great college. Kids want to go to a great college. Companies want to recruit from great colleges. Professors want to work in great colleges.

And in a zero sum world (or status driven societies, if you prefer), there can, by definition, only be so many “great” colleges.

Go back to a part of the excerpt from Lant Pritchett’s interview at the top of this post:

And so, they committed themselves to selection rather than education.

https://www.cde.org.za/wp-content/uploads/2021/06/Lant-Pritchett-in-conversation-with-Ann-Bernstein.pdf

Yes, indeed we did. And my contention is that we did so because we prioritized status over education. LinkedIn over Coursera, in my framing.

And that, unfortunately, leads us to a chicken and egg problem. Because the only way to change priorities at a societal level is through… education.

So, three conclusions, and before that, one problem.

The problem: if what I’ve said here makes sense, we have a really, really big battle up ahead of us. How to use a broken education system to nudge society towards a better education system that isn’t broken is a hard thing to think about – and I would therefore love to understand how I might be wrong. Please tell me!

The three conclusions:

  1. Depending on only the education system to provide higher education isn’t a great idea (“But then what else?” is a question I do not have an answer to at the moment).
  2. I need to read more about education in Vietnam
  3. Teaching more people that life is best thought of as a non-zero sum game is a great mission to have in life. No?

The Solow Model in Action

One of the most useful models to know when you are thinking about the long term growth prospect of any nation is the Solow model. Or as Marginal Revolution University refers to it in what I think is the best video available about the topic online: The Super Simple Solow Model.

Anybody can (and everybody should) see all the videos in that series. What I’m going to attempt to do in today’s post is try and explain to you how to think about the Solow model, and also speak a little about why it (the Solow model) matters.

I’d written a series of short posts about the Solow Model about four years ago: if you (like me) prefer reading to viewing, here they are, in order:

  1. The difference between the long run and the short run
  2. How to think about long term growth
  3. What does capital mean in the context of economics?
  4. Small economies, big economies
  5. The importance of institutions
  6. Understanding depreciation

Now, today’s essay is not so much about the model, but about how to use the model to think about the real non-ivory-tower world.

I often say in classes that economic models are like photographs taken by smartphone cameras. They are abstractions of reality. They can’t possibly capture all the nuances, hues, details and features of whatever it is that you are photographing. And looking at the photograph gives you an idea of what it might have been like to actually be there – but you cannot possibly ever experience it yourself.

Similarly, a model is an abstraction of reality. It cannot possibly capture all that you need to know about the real world. And using a model as a crutch to get to grips with reality is like seeing a photograph and imagining yourself there. As a thought experiment, it’s fun. As a way to reach policy decisions, it is fraught with risk. ((Let me be clear: I am not criticizing modeling as an endeavor. I am simply stating that it has its limitations.))

Noah Smith came up with an excellent post recently about the Global South, which triggered this essay. His essay is a must read, and in a loosely chronological sense, it speaks about the history of convergence in the world. More to the point, it helps one understand the point I was trying to make above:

Economists generally agreed that instead of unconditional convergence, countries showed “conditional convergence” — that poor countries could only reach parity with rich ones if they had broadly similar institutions and levels of human capital . The subtext was that poor countries just didn’t have what it took to become rich. On the political left, this was of course taken as evidence that developing countries were being held down by neocolonialism, or at least that the capitalist global economic system didn’t have what it took to lift nations out of poverty.

https://noahpinion.substack.com/p/checking-in-on-the-global-south)

But the story soon gets better:

Since the mid-1990s, developing countries began to converge toward levels of income of advanced countries. This process accelerated and became strongest in the 2000s…[This] is not driven by advanced nations lowering their growth performance but rather by developing countries raising theirs…Essentially, the entire distribution of growth amongst rich countries has remained stable over time; in contrast, the entire distribution of poor country growth has shifted up.

https://www.cgdev.org/sites/default/files/new-era-unconditional-convergence.pdf

And today, as Noah points out, the world is a much, much better place than it was about seventy years ago. Nations, particularly those in South East Asia, that would simply not have been thought about as having rapid growth prospects are today all but developed nation status (he mentions Malaysia, Laos, Vietnam and Bangladesh in particular) – and a great way to understand my little series about the Solow model and the MRU video is by reading this essay and reflecting on it.

But the basic point of the Solow model is this: growth matters. It is, in fact, the only thing that matters:

Broad-based growth, defined as the process that raises median income, is far and away the most important source of poverty reduction. There is no instance of a country achieving a headcount poverty rate below 1/3 of its population (at moderate poverty line of $5.50) without achieving the median consumption of that of Mexico. This is not to say that there do not exist anti-poverty programs that are cost-effective and hence should be expanded, or, conversely, that there are anti-poverty programs that are not cost-effective (or even have zero impact on poverty) and should be cut back or eliminated. Analyses of these types of programs would enable a more efficient use of resources devoted to poverty reduction. But large and sustained improvements in global poverty will almost certainly have to focus on how to raise the productivity of the typical person in a poor country, which is a key source of national income growth.

https://econofact.org/poverty-reduction-and-economic-growth

I came across this quote in an essay by Gulzar Natarajan, and the rest of the essay is worth reading in its entirety – but I’ll resist talking about it today – maybe tomorrow!

Notes on “Re-aligning global value chains” Part II

Yesterday, we took a look at how China makes it difficult for supply chains to move away from that country. That happens through a combination of mind-boggling scale and efficiency, coupled with astute moves up the ladder in terms of no longer dealing with just cheap manufacturing. Think robotics, app development, advanced and skilled manufacturing units. After that, the gravity model takes over, and well, good luck moving out of China.

Today, we ask the following question: let’s assume that all that is somehow put to the side, and a country is looking to move out of China. What are the chances this firm will come to India?

Again, we’ll use Gulzar Natarajan’s excellent article as the basis of our discussion, and foray into other parts of the internet. Let’s begin:

First, a quote from within Gulzar Natarajan’s post:

“Nomura Group Study found that in 2019, out of the fifty-six companies which shifted their production out of China, only three of these invested in India; while 26 went to Vietnam, 11 to Taiwan, and 08 to Thailand. In April 2020, Nikkei noted that out of the 1,000 firms which were planning to leave China and invest in Asian countries, only 300 of them were seriously thinking of investing in India.”

300 out of 1000 isn’t great, you might think, but it’s not bad, surely. Well, read again: it’s “seriously thinking”, not actually relocated. If you want to take a look at action, not thoughts, it is 3 out of 56. About 5%.

Why?

Let’s begin with this tweet:

And here’s (to my mind) the most interesting quote from within the editorial:

“The situation is far worse when it comes to comparisons with China in the EoDB. It takes double the time to start a business in India as compared to China, around six times as much to register property and double the time—and also in terms of the value of the contract—to enforce a contract. And, this is without even looking at the policy flip-flops that this newspaper catalogues diligently.”

The real measure of success when it comes to the Ease of Doing Business ranking is not how far we’ve come, but far we have to go. And it’s going to be a long haul.

This article, which I got from reading Gulzar Natarajan’s post, is instructive in this regard.

Sample this:

““Navigating labour laws is a total mine-field because interpretation is left to the courts and the officers and can be done in more than one way and removing an incompetent worker is not easy,” Gopal said. “I can get a divorce faster than removing a factory worker for non-performance.” In Karnataka, an employer would have to give three warning letters, a show-cause notice, have two inquiries — one external and one internal, and then terminate an employee only if the charges are proved to be serious. “Theft is considered serious but if an employee is lazy and doesn’t perform, that may not be taken as serious,” Gopal says. “In one’s own company, one cannot hire and fire.””

This article is just about furniture, but there are similar problems in every single sector in India.

To which, usually, there are two responses:

  1. Yes, but we have to start somewhere, don’t we?
  2. Yes, but we’re so much better than we were before!

Yes, sure, in response to both of these statements. But keep in mind that firms who are looking to move here are not going to ask if we’re better than we were before. They’re going to ask if we’re better than our competition today. Are we better than Vietnam, for example? What about Bangladesh? And if the answer is no, why should firms come here?

For our domestic market isn’t (yet) a good enough answer, unfortunately.

Our domestic consumption wasn’t large enough or lucrative enough for firms to locate themselves here before the pandemic – it’s obviously reduced since then.

And bureaucracy (not to mention bureaucracy-speak!) has gone up:

“On Sunday, for instance, the home ministry issued a clarification intended perhaps to limit the numbers of those who would be allowed to travel to their villages to a category called ‘genuine’ stranded migrants. The letter from the Centre to chief secretaries in the state administrations reads: “The facilitation envisaged in the aforesaid orders is meant for such distressed persons, but does not extend to those categories of persons, who are otherwise residing normally at places, other than the native places for purposes of work, etc. and who wish to visit their native places in normal course.”

I think I am reasonably good at English, but I still don’t know what this means. Even if I were to understand it, I do not know how I would go about implementing it! And that’s me, a guy who teaches using the English language for a living, and writes a blog in the English language. What chance does a manufacturer have? What chance does a non-Indian manufacturer have?

Government, in plain simple terms, has to get out of the way. Unfortunately, we seem to be heading in the opposite direction.

R Jagannathan writes in the Livemint:

“Companies compete, while governments can only enable. Governments cannot create global champions, though mercantilist countries like Japan, South Korea and China did do so at one point. What governments can do is create an enabling policy and regulatory environment that fosters economic growth and lets companies scale up. Airtel and Reliance Jio did not emerge as India’s two big telecom survivors because the government anointed them as winners. Nor did TCS, Infosys and Wipro become global outsourcing giants because of the government. They became global biggies because the policy environment for their growth was positive both in India and abroad.”

I might wish to disagree with parts of that excerpt (Studwell alert!), but I am in complete agreement with the broad message:

“The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.”

As of now, though, the lock is far too rusty, far too old and far too much like a pre-1991 model.

Notes on “India’s Footwear Industry: A Reality Check”

Gulzar Natarajan has an excellent, excellent blogpost up on this blog, Urbanomics, titled “India’s Footwear Industry: A Reality Check“. In what follows, I make notes for myself about the post in terms of what it reminds me of, what I did not understand, and additional links or resources I learnt about while reading the post.

  • “The footwear industry makes 2 billion pairs, of which 286 million pairs were exported last year. It employs 2-4 million people, the vast majority as informal and contract labour and/or hired through manpower agencies and at very low salaries in the range of Rs 6000-10000.”
    ..
    ..
    Reading more about this helped me land up on a website called worldfootwear.com, and I learnt of the existence of the 2019 World Footwear Yearbook. In 2018, the world manufactured 24.2 billion pairs of footwear, and the industry grows at about 3% a year in normal circumstances – give or take a few points.
    ..
    ..
    90% of all shoes manufactured in the world come from Asia. That makes sense, as Asia is responsible for 54% of the world’s demand for footwear on an annual basis.
    ..
    ..
    China alone was responsible in the year 2018 for about 70% of the world’s exports.
    ..
    ..
    All of these snippets come from this page.
    ..
    ..
  • “As a summary, the current state of the Indian footwear industry is characterised by small scale, very low productivity, low automation, stagnant growth, and pervasive informality.”
    ..
    ..
    One of the reasons I liked reading this blogpost so much is because while I get to learn a lot about the footwear industry in India, I also get to reflect on how so much of what is true for the footwear industry is also true of other industries in India. The inability to break out of the small scale (about which much more below), the low levels of automation and the pervasive informality are to be seen in almost all industries in India. There is, perhaps, a sociological point to be made about whether the causality runs from the inability to scale to informality or the other way around (or indeed, both!), but we’ll save that for another day.
    ..
    ..
  • “The highest value market segment is the mainstream global branded manufacturing in non-leather footwear. But this is a segment that has proved elusive even to the Chinese manufacturers, especially in the global market. It may well be outside the reach of Indian manufacturers, unless some particular brand breaks out due to a combination of exceptional entrepreneurship and even more exceptional good fortune.”
    ..
    ..
    As you will learn later on in this blogpost, Gulzar Natarajn seems to be as big a fan of “How Asia Works” as I am, and perhaps a bigger one. One of my favorite questions to ask in class as a consequence of reading that book is this one “Name one globally recognized brand from ASEAN nations”. This applies to India, and to a lesser extent to China as well – that’s basically the point that is being made here. Being a manufacturing and export powerhouse is not the same as building globally recognized brands.
    ..
    ..
    This brings to mind both the “manufacturing smile” as well as Peter Thiel’s distinction between technology and globalization. It also raises important questions about what paths India should choose between for the next two decades when it comes to manufacturing policy, but again, more on that later.
    ..
    ..
  • “The next best alternatives may be to increase their share of the Indian branded manufacturing segment and become large scale contract manufacturers for global brands. This is the playbook of the Chinese footwear industry.”
    ..
    ..
    Have you read Shoe Dog, by Phil Knight? Don’t know who Phil Knight is? Well, have you heard of Nike? Read especially the bits about his travels in Japan, in search of contract manufacturers.
    ..
    ..
  • Gulzar Natarajan’s first recommendation when it comes to the footwear industry in India is to be a contract manufacturing hub. Easier said than done! (To be clear, that is not a criticism of the point he makes – it is a reinforcing of his message, and also a reminder to readers that India is not quite ready to this just yet, for a variety of reasons).
    ..
    ..
    One of these reasons is actually mentioned in a more recent post by the same author, regarding Vietnam’s recent agreement with Europe about tariffs on Vietnam’s exports.
    ..
    ..
    What about India and the EU, you ask?
    ..
    ..
    “Negotiations for a comprehensive Free Trade Agreement (FTA) between the EU and India were launched in 2007 and suspended in 2013 due to a gap in the level of ambition between the EU and India.”
    ..
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  • The last bullet point was about India making for the world. Gulzar Natarajan goes on to point that we must also think about India making footwear for India.
    ..
    ..
    “Any strategy to increase local branded manufacturing to capture this market has to focus on Make for India (and not Make in India for the world). This does not mean skimping on quality, but competing with the imported manufacturers by gradually improving productivity. This can be done only by efficiency gains to cut costs – improving labour productivity, local component manufacturing, greater automation (not full automation, but enough to enhance labour productivity), and economies of scale.”
    ..
    ..
    He speaks about each of these four points: improving labor productivity, local component manufacturing, greater automation and economies of scale in his blogpost, click here to read those specific parts of the post.
    ..
    ..
  • Gulzar Natarajan speaks about manufacturers having no incentive to train workers:
    ..
    ..
    “In order to train the workers, the manufacturers have to incur the cost of trainings as well as bear their salaries. They have no incentive to bear this cost, even if a couple of months trainings can suffice.”
    ..
    ..
    Well, maybe so. But this does remind me of an excellent excerpt from one of my favorite books to recommend to students about macroeconomics – Tim Harford’s “The Undercover Economist Strikes Back“
    ..
    ..
    The section on Ford and superior wages is especially worth reading. Perhaps I am missing an obvious point (which is all too possible), but I can’t help but wonder why Ford’s strategy cannot work in India – whether on footwear or elsewhere.
    ..
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  • “While capital investment subsidies are in general not a very desirable thing, some form of fiscal incentives may be necessary to encourage the smaller and medium sized manufacturers to increase their level of automation. Though targeting and tailoring these subsidies will be challenging, the government could consider a subsidy that is linked to some performance, either exports or on higher productivity growth.”
    ..
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    For those of you who have read the book, the reference is unmistakable. And for those of you who haven’t, I’ll say it again: How Asia Works is mandatory reading.
    ..
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  • “The Government of India already has specialised institutions on footwear design and leather research. There is a need to have them play a much more proactive role in supporting with supply of trained and quality designers. There may also be a need for an arrangement to access good quality designers at a reasonable cost. An incentive compatible subsidy mechanism may be required here too. This should be complemented with colour and fashion forecasting support.”
    ..
    ..
    I actually find myself in disagreement here with Gulzar Natarajan. Reading this post made me aware of the Best Footwear Design and Development Institute (yes, it really exists), but isn’t this an example of government overreach? Facilitating a college like this is one thing, actually having government run it is quite another, no?
    ..
    ..
    But the solution is in the quote above: incentive compatible subsidy mechanism. Another recommendation in this regard: please read In The Service of the Republic, by Vijay Kelkar and Ajay Shah. My notes on this book can be found here. Providing subsidies that are designed to keep incentives (preferably for both parties) in mind is a surprisingly powerful idea!
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  • “For sure, the industry will not collapse, but will meander along business as usual. There may even be the occasional mutant success. But there cannot be a sectoral exit out of the current low productivity and stagnation trap.”
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    It is oddly depressing to have Gulzar Natarajan be pessimistic about the growth prospects for this sector, particularly because it is so hard to disagree with him on this account.
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  • He is against tax breaks, particularly because of the inevitable equilibrium in terms of the lobbying that will take place.
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  • “The conventional wisdom in this regard blames poor quality of infrastructure, restrictive labour laws, difficulty in assembling large land parcels, high cost of capital, and pervasive red-tape. These are all, in general, factors of concern.”
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    My favorite book to recommend to students in this regard is Bhagwati and Panagariya’s book “Tryst with Destiny“. And of course, in terms of policy prescriptions, Gulzar Natarjan’s own book “Can India Grow?“
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  • Gulzar Natarajan has an extended section on the “innate charactersitics of entrepreneurs“. It is too long to excerpt, but it did remind me of an excellent paper on why productivity in India is so very low. Worth reading, especially if you are a student of micro, IO or India.
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  • “The impact of reforms like GST, while certainly beneficial in the long-run, may have ended up squeezing the vast majority of the small manufacturers. For a start, for these small manufacturers, the compliance costs in terms of hiring accountants and IT requirements are a non-trivial share of their profits. Then there is the structure of the GST tariffs – 18% for the components and 5% for the final product. This means that the manufacturers capital gets locked up as receivables for a long time. For small manufacturers, these costs are prohibitive.”
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    This point is a little weird. Let me explain what I mean when I say “weird”. I think almost every economist is aware of this issue, and has spoken about it repeatedly. But the level of awareness otherwise is very, very low. Again, the GST is a great idea with poor implementation. The unique nature of India’s economy (a blend of formal and informal along the supply chain for many, many things) makes the implementation worse.
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  • And perhaps the coda to this excellent blog post, and for me the most important part:
    “It is important for the Government to play an important role if the footwear industry can move significantly forward. The market by itself is unlikely to have the incentives or the capacity to manage that.”
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    This is a classically Studwellian recommendation. The problem is that the “no but markets will work if you let them” brigade will never accept this line of reasoning. Additionally, there are far too many people in India (especially within government) who will interpret this to mean that government needs to actively participate in the actual ecosystem by getting into manufacturing and allied activities.
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    And hardly anybody will get what I think is the actual Studwellian message. Government needs to carefully design incentive compatible subsidy mechanisms and make it clear to producers that it (the government) carries a very, very big stick – and that it is not afraid to use it. And well, if push comes to shove, actually use it. Please, read How Asia Works!

ROW: Links for 12th June, 2019

  1. “Readers will by now be familiar with the list of industries impacted by the US China trade war. These include soyabeans, cars, steel, and semiconductors.But one commodity is increasingly important to how the tensions play out: students. The Chinese state media is now saying the government will issue a warning on the risk of studying in the US”
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    The FT reports on how Chinese students will now be discouraged from going to American Universities – in a sense, an expected move, but you would be surprised at just how dependent universities in America today are on foreign students. Interesting times.
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  2. “To summarize, based on the above I doubt that actual Chinese growth is more than 1% below the reported figures, at least up through 2018. Of course it’s possible that things have changed in 2019; if so I expect that to show up in upcoming airline travel data for China.”
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    Scott Sumner patiently reminds us that we should look at the data before making a claim, and having looked at the airline data, he rejects the notion that there is a dramatic slowdown in China. The truth, as usual, lies somewhere in the middle.
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  3. “Vietnam, like China really doesn’t import very many manufactures from the United States. That’s partially a function of the fact that the value added in Vietnam is often low, and thus Vietnam cannot afford a lot of top of the line U.S. capital goods (yet). But it is also a function of the fact that many of the global value chains that generate large (often offshore) profits for U.S. firms don’t give rise to that much U.S. production these days. There just isn’t much sign that the Asian value chains stretch back to include U.S. factories and workers. Fabless semiconductor firms that design chips likely export their designs to a low tax jurisdiction before they license their designs to an Asian contract manufacturer. The rise in Vietnam’s exports hasn’t been associated with a commensurate rise in exports from the United States to Vietnam.”
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    Brad Setser takes a look at whether Vietnam is the new China, and concludes that it kind of is, and kind of isn’t.
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  4. “It is not surprising that the CPC has worked so hard to extirpate the Tiananmen Square massacre from public memory. History – including the horrors of Mao Zedong’s rule – is too volatile a substance for the Chinese dictatorship. China’s leaders hold up their system of government as a model for other countries. But how can a regime be confident in the sustainability of its values and methods if it is afraid of its own past?”
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    Chris Patten (who knows a thing or two about this issue) reviews the Tiananmen square massacre, and ponders on what it means for China and Hong Kong today.
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  5. “Despite a small increase in young and female lawmakers—like Ms Suematsu, who is in her forties—local politics is still dominated by old men. “In these municipalities, candidates are so old they have a hard time putting up election posters,” says Shigeki Uno of the Nippon Institute for Research Advancement, another think-tank. Indeed, three-quarters of town and village assembly members are over 60. The oldest, aged 91, holds a seat on a city assembly in Shizuoka, in central Japan.Young people are loth to stand because local politics is not a financially rewarding profession. The law bans assembly members from holding other jobs concurrently. Their pay averages around ¥300,000 ($2,740) a month, hardly enough to support young families. “It’s basically a job for the retired,” sniffs Mr Uno. And for little pay, the workload is onerous.”
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    The Economist reports on Japan, and it’s ageing population – and what that means for democracy on the ground, at local elections.