Renu Pokharna

Archive for the ‘Uncategorized’ Category

Poetry to Plumbing

In Uncategorized on March 20, 2013 at 2:37 am

Spanish philosopher Maimonides ranked different kinds of charity in ascending desirability: giving money to somebody you know, giving money to somebody you don’t know when they know who gave it, and giving money anonymously to somebody you don’t know. But he believed the highest form of charity was giving somebody a job. It is important to reflect on how much of the gigantic “inclusion” spending in the last decade has given people fish rather than taught them how to fish — another classic Maimonides quip. But money is always welcome and the budget allocation was useful. More interesting than money, however, was the signalled shift in the narrative to jobs in the budget speech and Economic Survey. India transformed into a high-inflation low-growth economy because of government spending authored by the National Advisory Council — mostly individuals who have never created jobs. The new narrative suggests that jobs will be placed at the heart of policymaking and election rhetoric. Has “naukri” become a more potent electoral pitch than “garibi”?

I propose that many solutions to our education, employment and employability (3E) problems lie in praying to one god: jobs. This shift needs innovation more than money; not more cooks in the kitchen but a different recipe. The chapter in the Economic Survey on seizing the demographic dividend is a wonderful synthesis. We need to start action by tweaking five historic regulatory thought worlds.

One, labour laws, unchanged since the British wrote them, make an employment contract irreversible. We get a toxic brew when this labour market equivalent of marriage without divorce combines with the criminalisation of politics and politicisation of trade unions. Our labour laws have huge costs: high informality, poor productivity, sub-scale enterprises (more dwarfs than babies), substituting people with machines, and small low-skill manufacturing (only 12 per cent of our employment but China’s weapon in getting people off farms). About 90 per cent of our workers employed informally do not get leave, minimum wage, benefits or workplace safety. We need to make these four issues non-negotiable but make employment contracts more symmetric.

Two, the Employment Exchange Act of 1959 makes an employment exchange a physical location staffed by civil servants registering job applicants for employers who will walk in the door. But employment exchanges are failing miserably. Last year, they gave three lakh jobs to the four crore people registered. We need to repurpose them as career centres offering multiple products (assessment, counselling, apprenticeships, training and jobs), multi-mode access (phone, SMS, email and web), and make sure they are run by people who place employers at the heart of operations and are punished or rewarded by matching outcomes.

Three, ancient labour laws (1948, 1952, 1976, etc) make it mandatory for employers to deduct 49 per cent of gross salary for retirement, healthcare and insurance. But in a cost-to-company world where benefits are part of gross salary, these high mandatory salary deductions breed informal employment. Hundred per cent of net job creation since 1991 has happened informally because low-wage workers cannot live on half their salary. This is amplified by the poor value for money, bad service and monopolies in employee benefits. We can start with allowing employers to pay their provident fund to the New Pension System (NPS), and health insurance (ESI) to insurance companies.

Four, the Apprentice Act of 1961 is silly and must be replaced. It restricts trades, prescribes durations, does not unbundle theoretical and practical training, artificially caps numbers and mandates a licence for every apprentice. It is why India has only 3 lakh apprentices while Germany, Japan and China have 50 lakh, 1 crore and 1.2 crore respectively. India must recognise apprenticeships as classrooms rather than jobs that complement bookish knowledge with practical exposure. Apprenticeships have the additional upside of learning while earning (most employers are willing to pay stipends), matching (test drive, resume signalling value), relevance (employers decide curriculum) and scale (higher expansion speed limit than traditional classrooms).

Five, many of us working in skills now realise that you can’t teach somebody in six months what they should have learnt in the 12 years of school. We are not asking for the vocationalisation of school education. If anything, schools must focus on broad and strong foundations because of changes in the world of work (Class 10 is already the new Class 8 as a hiring filter). The recent Pratham report reinforces what employers feel. We are not asking for much but are not getting it and we can’t manufacture our own employees. Enrolment ratios are yesterday’s war and shifting the focus of the Right to Education Act from hardware to learning outcomes and teacher accountability is urgent.

A story about Einstein giving an exam has a student asking, “But how can the questions in this year’s exam be exactly the same as last year’s exam?” Einstein quips “Don’t worry, the answers are different this year.” This story synthesises India’s 3E dilemma; the questions in education haven’t changed since the Radhakrishnan Committee (1948), Kothari Committee (1968), National Education policy (1986) and the National Skill Policy (2009). The questions in employment have not changed since the Labour Investigation Committee (1946), National Commission on Labour (1967), Second National Commission on Labour (2002), and the Economic Survey (2013). But the answers are different because 10 lakh young people will join the labour force every month for the next 20 years. And 200 million already in the labour force need retooling.

Policy masquerading as good politics (subsidies, legislated rights, poetry without plumbing) got this government bad economics (high inflation, low growth, weak currency). But jobs represent a unique intersection. Formal sector employment changes individual self-esteem, healthcare, education and nutritional outcomes in a way that no subsidy can. An additional upside is the dua (or blessings) of the individual and her family.

A jobs narrative in politics is overdue, clever, and inspiring. Now all we need is courage and execution.

 

14 Mar 2013, Indian Express

 

Is development Narendra Modi’s best defence?

In Uncategorized on January 26, 2013 at 1:22 pm

There can be little doubt that Gujarat is India’s dragon state. The past decade has been the best since Gujarat became a state in 1960. Average annual economic growth, at 10.5 per cent, is two and a half percentage points higher than that of the nation. Achievement on the industrial front is to be expected: Gujarat is India’s workshop along with Tamil Nadu and Maharashtra. The surprise is Gujarat’s agriculture. At 12 per cent a year, it has clocked to a Chinese rhythm, while the whole of India struggles to tick past the target rate of 4 per cent. All this has made the Gujarati richer than the average Indian by about a third.

Gujarat has had 14 chief ministers. Narendra Modi is the longest serving – since 2001. As the past decade coincides with his tenure, he deserves much of the applause. Industry leaders hail him as the Prime Minister India never had. Such encomiums grate on those who see India as a vibrant and compassionate society, not just a thriving economy. Gujarat reflects in abundant measure the ‘Beijing Consensus’, which the Economist described as ‘going capitalist, staying authoritarian’. Gujarat is the wrong place to look for social justice. It has been a schizophrenic society. The rage that burst through the fissures in 2002 was long seething. That explains why a Muslim mob could so readily set fire to a train with fanatical Hindu political volunteers on board and the bestial retaliation against Muslims that followed, probably with state complicity.

While Gujarat’s politics is certainly not a template, there is much that the rest of India can learn from its economic model, allowing for certain unique factors. With 1,600 km of coastline Gujarat has long been a mercantile state. Being at the intersection of the Silk and Spice routes, it has a tradition of enterprise. Surat was India’s principal port till the British shifted their affection to Bombay. This is where the East India Company’s flagship Hector dropped anchor in 1608. Gujarat has a progressive administration, in part a legacy of the British. The princely state of Baroda was equally forward-looking and laid the base for the state’s chemical and pharmaceutical industries.

Administrators like V G Patel and former union commerce minister Manubhai Shah encouraged start-ups by setting up institutes for entrepreneurship training and for providing venture capital funding, even braving disapproval from the Reserve Bank of India. Learning from China’s special economic zones (like Shenzhen), Gujarat allowed development of ports – private and with the state as partner, in the 1990s. A chief minister like Chimanbhai Patel, notorious for corruption, was a practitioner of Chinese leader Deng Xiaoping’s practical philosophy of judging a cat by its catch, not colour. Nikhil Gandhi, the founder of Pipavav port (now operated by AP Moller-Maersk) recalls Patel telling his finance secretary to ‘in a bania state, think like a bania,’ when the official objected to taking a greenhorn like Gandhi, with no previous experience, as a port partner. Gujarat would gain even if Gandhi gave up midway, Patel reasoned; it could complete the project and get a port for half the price.

Modi therefore had a solid base upon which to build when he assumed office He has also been very lucky. There have been a string of good monsoons during his tenure, which is significant for a semi-arid state with a history of uneven and erratic rainfall: dry spells pulled agricultural growth into negative territory in almost half of the preceding 40 years. And even as Modi assumed office, India approved the use of genetically modified cottonseeds for commercial cultivation. From being an importer, Bt cotton has made India the second largest producer and exporter of cotton; Gujarat accounts for a third of the country’s output, most of which is genetically tweaked.

But Modi is also an unabashed liberaliser. When attacked for his port privatisation policy, Modi is said to have remarked that ‘the people of Gujarat are very enterprising and they want minimum government’. Some of Gujarat’s minor ports (as state-domain ports are called) handle more cargo that major ports (owned by the central government), so much so that minor ports are now called non-major ports! Rising from the devastating earthquake of 2000 and leveraging its reserves of minerals, arid Kutch has attracted cement, steel, power and chemical industries. It is a global hub for pipeline manufacture. This is where the Adanis have set up a deepwater port with a large industrial enclave. Drinking water from the Narmada is now being supplied through a pipeline. Work on extending the Narmada canal for irrigation began last year. At one time people were fleeing Kutch. Now they are flocking to it. With 32 per cent growth over a decade, Kutch was the second fastest growing district in the state after Surat, according to the last population Census. It is a metaphor for Gujarat.

Modi can also claim part of the credit for the state’s stellar growth in agriculture. A Supreme Court ruling early in the last decade allowing an increase in the height of the Narmada dam has helped. Modi’s contribution is the ‘Jyotirgram’ program that assures farmers around eight hours of subsidised power at off-peak time for pumps though a separate Rs 1,200 crore electricity grid. Power rationing also conserves groundwater. This has by and large spared rural homes from power cuts, which were frequent when pumps were hooked to the same network.

A vigorous check dam movement provides insurance against weather shocks. This was a fall-out of nasty droughts in the 1980s and 1990s. Social workers provided the impetus. Village folk, who had made it big in Surat’s diamond industry, sponsored the movement and spread the message, memorably though a 300-km mass march across Saurashtra. As chief minister Chimanbhai Patel gave official support. Modi has put the programme on skates by cutting red tape and providing technological support like satellite images to locate the water soaks. He is also keen on converting farmers to drip irrigation. A focus on outcomes, rather than on outlays, decided against housing the scheme in a government department. The Gujarat Green Revolution Company claims considerable success, though figures are not in the public domain.

Similar success is claimed for a five-year Rs 15,000 crore tribal development programme aimed at doubling household incomes among 15 per cent of the state’s population living in hilly and forested areas. The touted gains from drought-resist hybrid corn seeds supplied by Monsanto and farm implements provided by John Deere to work the kerchief-size plots would need independent verification.

Modi has also fixed the agricultural extension system, which is broken in most states. Led by the chief minister himself and braving the May sun, tens of thousands of officials traverse the countryside testing soil, supplying high-yielding seed and exchanging information in a celebration of agricultural outreach during the so-called Krishi Mahotsav (farm festival). It is an exercise that other states should emulate.

Anyone who has travelled in Gujarat would vouch for its roads – only Tamil Nadu perhaps has a better network. The Word Bank, which financed the road-building programme, has compiled its happy experience in a book as a lesson for other states. Easier access to markets and suppliers has flattered both industrial and agricultural growth. Following the example of Malaysia, whose tourism industry piggy-backed on roads laid to promote industrial development, Gujarat is drawing in tourists who are persuaded to take a look in by Big B’s catchy (kuch din Gujarat mein guzariye and Kutch nahin dekha toh kuchh nahin dekha) advertising campaign. M Thennarasan, the district collector of Kutch, says the 38-day festival at Dhordo in the salt encrusted Rann attracted 70,000 tourists last December, up from 32,000 in the year-ago month.

Gujarat’s strengths in manufacturing have profited from Modi’s salesmanship. Like former Andhra Pradesh chief Minister Chandrababu Naidu, he is an evangelist for industrial investment. The bi-annual Vibrant Gujarat melas are an occasion for Modi to flaunt his popularity among non-resident Gujaratis and to receive tributes in the form of investment pledges. Many of them do not materialise, but the commitments still add up to a lot. Since 1991, Gujarat has received $7 billion in foreign direct investment. It ranks fourth in FDI behind Mumbai and Delhi regions. What is significant is not where it is in FDI rankings, but where it has come from. In the 1990s, Gujarat was low down in the list. But it has climbed up the rungs despite not being known for IT and financial services (that get much of the FDI) and falling short of the frills of life: good schools, non-veg food and booze. Prohibition is official policy, though liquor is available for a price.

By slashing red tape, providing an administration that is said to be low on corruption, making land easily available, and assuring industrial peace (despite occasional strikes as at General Motors), Gujarat has attracted marquee industries. With Tata Motors, Peugeot, Maruti and Ford setting up plant or planning to, Ahmedabad has become an automobile hub like Mumbai-Nashik-Pune, Chennai and the national capital regions. Industrial enclaves, (known as Sirs, or special investment regions) to be set up along the new high-speed Delhi-Mumbai rail line for heavy goods trains, will add to Gujarat’s manufacturing muscle. Transit-oriented development conducive to public transport could make the new cities models of low-energy urbanisation.

Modi’s innovations in administration are also noteworthy. Administrators from the district collector down are encouraged to implement projects beyond their remit – the ambition of these programmes and the enthusiasm with which they are executed allows Modi to size them up. Feedback gathered through monthly grievance redress exercises over video links. An annual retreat brings chief minister and officials together for an exchange of experiences. Modi likes campaigns during elections and between them. There are campaigns to get the girl child in school, stop the killing of female foetuses, promote sanitation, provide nutrition supplements and encourage birthing in hospitals.

Some of these campaigns may be high on hype. During a week long tour of Saurashtra recently, I found the state buses in dire need of a wash (though they run on the hour and take you there). The bus depots were also filthy. Even a prime pilgrim centre like Dwarka had mounds of garbage. The road leading to Dholavira, the largest city in India of the 5,000-year-old Harappan civilisation, was deplorable. This experience is hard to reconcile with the claims made for the Nirmal Gujarat campaign launched in 2008.

Gujarat’s health attainments are way below its level of prosperity. The death rate of infants (under one year) is the same as the national average. There is a yawning gap between rural and urban areas; the death rate being 51 and 30 (for every thousand born). The rate and disparity is much lower in states like Tamil Nadu (25 and 22). This does not mean that economic growth has been futile. Gujarat has reduced the infant death rate by 20 points over the last decade. But Tamil Nadu has done better with a reduction of 30 points.

But literacy is an area of cheer. The latest Census shows that the state has done better than the nation. It has also closed the gap with Tamil Nadu, and done much better than that state in rural literacy.

Even economic success must be tempered with caution. High growth in the farm sector bodes well for the state. The experience of Brazil and China shows that agricultural growth is two to three times more poverty reducing than growth in other sectors. But on the industrial front, Gujarat’s growth is capital intensive, unlike Tamil Nadu, which leads the country in number of factories. A danger to watch out for is crony capitalism that can flourish under a charismatic and authoritarian leader who is convinced of his certitudes.

Last May I met Kanubhai Kalsaria, three times BJP MLA at his official house in Gandhinagar. Nineteen days after a 175-km walkathon from Bhavnagar to the state capital, he was nursing his sore feet with hot water fomentation. The protest was against Karsanbhai (Nirma) Patel’s cement plant, which will lay waste to fertile fields and small industries like onion dehydrators and cotton gins that keep his constituents gainfully occupied. Kalsaria was telling Modi to put people first.

Gujarat is the last refuge of the Asiatic lion. The big cat sits at the top of the food chain.

In his zeal to attract large industries, Modi should not ignore those lower down in the pyramid. That would be a mistake like his failure to take all communities along.

 

2 Mar 2012, CNN IBN

Les misérables

In Uncategorized on September 6, 2012 at 6:16 am

THE St Oberholz café in eastern Berlin is as hip as any of the area’s bars: graffiti-covered doors, in-your-face art, edgy fashion and the Beastie Boys in the background. It is not at first blush the sort of place to look for magnates in the making. But their presence makes a lot of sense. Europe’s culture is deeply inhospitable to entrepreneurs; wanting to grow a start-up into a behemoth is quite as countercultural as piercings and performance art.

The Oberholz has become a centre for Berlin’s young start-up scene, which has enterprising types flocking to the city from all over the world. The clientele starts out on the first floor, where computer programmers mingle with potential bosses over coffee in the “ko-work-ing” area. Once they attract capital, they move upstairs, where the café rents out office space cheaply. A business taking off may move into one of the café’s apartments, often using the beds as desks. SoundCloud, a five-year-old audio-sharing website, spent its early days at the Oberholz, as did Brands4friends, an online private-shopping club. Txtr, a fast-expanding e-book platform, still has programmers in one of the apartments.

It is an enticing place to begin a business. Which is all to the good, because Berlin’s fresh-faced hopefuls will get little enough enticement and encouragement elsewhere. They will struggle to hire professional managers to help their firms grow, because European executives are extremely risk-averse. Their young firms will quickly find that established European companies tend not to like dealing with tiny ones. Most sources of capital will shun them. Regulations will shackle them. And when they fail, as most are sure to do, they will not be allowed just to dust themselves off and start all over again. In Europe, a business blow-up leaves a lasting stain, akin to a moral failure.

The giants are all ageing

Data show that continental Europe has a problem with creating new businesses destined for growth. According to the Global Entrepreneurship Monitor, which compiles comparable data across countries, in 2010 “early-stage” entrepreneurs made up just 2.3% of Italy’s adult population, 4.2% of Germany’s, and 5.8% of France’s. European countries are below—in many cases well below—America’s 7.6%, let alone China’s 14% and Brazil’s 17%.

Few in number, European entrepreneurs are also gloomy about their prospects. A study by Ernst & Young, an accounting firm, showed last year that German, Italian and French entrepreneurs were far less confident about their country as a place for start-ups than those in America, Canada or Brazil. Very few French entrepreneurs said their country provided the best environment; 60% of Brazilians, 42% of Japanese and 70% of Canadians thought there was no place as good as home. Asked which cities have the best chance of producing the next Microsoft or Google, Ernst & Young’s businesspeople plumped for Shanghai, San Francisco and Mumbai (though, to be fair, London got a look in too).

For all this, Europe produces plenty of corner shops, hairdressers and so on. What it doesn’t produce enough of is innovative companies that grow quickly and end up big. In 2003, analysing Europe’s entrepreneurial gap, the European Commission cited a study which showed that during the 1990s, 19% of mid-sized firms in America were classified as fast-growers, compared with an average of just 4% in six European Union countries. The Kauffman Foundation, which promotes entrepreneurship around the world, argues convincingly that one reason America has outstripped Europe in providing new jobs is its ability to produce new, fast-growing companies such as Amazon, an online retailer, or eBay, an online auctioneer. And in terms of jobs, new small firms have an added advantage. They are less likely than existing giants to outsource a lot of their labour to cheap providers in Asia.

Europe was not always so laggardly. When Britain’s industrial revolution spread to the continent after 1848, ambition and access to capital could take a young man far. August Thyssen founded ThyssenKrupp, a German steel group, Eugène Schueller founded L’Oréal, a French beauty empire, and A.P. Møller set the course for A.P. Møller-Maersk Group, a Danish shipping giant. The vast majority of Europe’s big companies were born around the turn of the last century. So was much of the German Mittelstand, and clusters of manufacturers from Lombardy to the Scottish lowlands.

After the world wars, Europe never regained this fecundity. The devastation made Europeans more risk-averse than they had previously been. Markets that had been closely linked before 1914 fell back into fragments, says Leslie Hannah, a business historian at the London School of Economics. That limited the ability of new firms to build scale and grow into giants, especially in the decades before the European Union’s single market. According to an analysis of the world’s 500 biggest publicly listed firms by Nicolas Véron and Thomas Philippon of Bruegel, a think-tank, Europe gave birth to just 12 new big companies between 1950 and 2007. America produced 52 in the same period (see chart 1). Europe has only three big new listed firms founded between 1975 and 2007. Of those, two were started in Britain or Ireland, which are closer to America in their attitude to enterprise than continental Europe. Europe’s big privately held firms, too, mostly date from before 1950, often a very long time before.

If Europe were more entrepreneurial, says everyone from the commission down, it would not have been such a poor producer of big businesses. And it would have produced more successful new technology firms. Entrepreneurship doesn’t have to be channelled through the tubes of the internet, but over the past few decades a great deal of it has been. That an economy so copiously provided with the technically educated as Germany’s has not produced a single globally important business-to-consumer internet company suggests a big problem with entrepreneurship.

“Why was Google not made in Germany?” asked Konrad Hilbers, the former chief executive of Napster, an online-music service, in a talk last year. The lack of a risk-taking entrepreneurial culture was part of his answer. Firms such as Skype, an internet voice- and video-calling firm founded by a Dane and a Swede, Spotify, a Swedish online-music service, and Wonga, a British online lender, suggest that the picture is not as bad as it could be. But Europe’s entrepreneurs are still underrepresented on the internet. “Though there are some signs of life,” says Yossi Vardi, a veteran Israeli high-tech entrepreneur and “angel” investor, the region is “semi-dormant”.

Too few Virgins; not enough Red Bulls

Europe does have entrepreneurial success stories. The richest is Spain’s Amancio Ortega, who started work for a clothes store at the age of 13 before going on to found Inditex, a fast-fashion empire. Austria has Dietrich Mateschitz, who started Red Bull, an energy-drink maker. France has Xavier Niel, who this year started a mobile-phone revolution by offering consumers extremely low prices; Britain has Sir Richard Branson. But the list is short. And many European entrepreneurs—Sir Richard not included—hide their success. Mr Ortega has never given a media interview; there appear to be just two published photographs of him. Ingvar Kamprad, the billionaire founder of IKEA, a Swedish furniture retailer, assiduously avoids any hint of plutocratic airs.

Many aspiring entrepreneurs simply leave. There are about 50,000 Germans in Silicon Valley, and an estimated 500 start-ups in the San Francisco Bay area with French founders. One of the things they find there is a freedom to fail. If your firm goes under in France, says Dan Serfaty, the French founder of Viadeo, a fast-growing business-networking website, you don’t get a second chance.

Trying to discover what holds back entrepreneurs, the commission last year examined insolvency regimes and found that many countries treat honest insolvent entrepreneurs more or less like fraudsters, though only a tiny fraction of bankruptcies involve any fraud at all. Some countries keep failed entrepreneurs in limbo for years. Britain will discharge a bankrupt from his debts after 12 months; in America it is usually quicker. In Germany people expect it to take six years to get a fresh start, according to the commission; in France they expect it to take nine (see chart 2). In Germany bankrupts can face a lifetime ban on senior executive positions at big companies.

A second important hurdle is finance. Getting seed capital up to €1m ($1.2m) from “friends, fools and family” is pretty easy. Technology entrepreneurs such as Germany’s Samwer brothers, Oliver, Marc and Alexander, made fortunes in the first dotcom boom and then became angel investors in such very young start-ups. In Germany seed money has roughly quintupled in the past five years, says Hendrik Brandis of Earlybird Venture Capital, a venture-capital firm in Munich.

For the €1.5m-4m that firms need to work an idea up into a real business model, though, money is in desperately short supply. Institutional investors such as pension funds regard European venture capital as a bad asset class. European venture-capital firms lost money during 2000-10 after the bursting of the dotcom bubble. The total money invested in European venture capital halved from €8.2 billion in 2007 to €4.1 billion last year. Much of it now comes from governments rather than from private investors.

Some people argue that if there were enough ambitious entrepreneurs with brilliant ideas in Europe, the money would come from America and elsewhere. There is some truth in this. But investors who put money into very young firms tend to prefer operating in their own language and culture, so start-ups depend mostly on backers from their own country.

For the third stage of funding, when firms are looking to raise up to €20m or so to build on what looks like success, American money is increasingly available—though since they depend on big hits to offset dozens of failures, American funds are still more likely to back entrepreneurs at home, where such things are known to happen, or in high-growth emerging economies. And anyway, most European entrepreneurs have hit the buffers long before they get to the €20m stage.

The third big obstacle is labour law. If young firms are to survive near-terminal mistakes, or fluctuating demand, they need to be able to reduce staff costs quickly and cheaply when necessary. That is far harder in many European countries than elsewhere. The complexity and cost of firing people in Europe is a big concern for American venture capital, says Georges Karam, the chief executive of Sequans Communications, a French chipmaker for smartphones which went public on the New York Stock Exchange last year. A fund in Boston recently pulled its investment in a start-up which its French founder had intended to begin in America but then had to bring back to France for family reasons.

The cost of paying out large severance packages (six months of severance pay is typical even for very recent hires) can be a huge drain for a small company. “In San Francisco and in China, a communist country, I pay one to two months,” says a beleaguered French chief executive who does not want his name attached to such a sensitive subject. Big severance packages also make it much harder for start-ups to recruit the professional managers that can take them into the big league. Experienced executives are loth to forgo such reassuring goodies by resigning.

Anil de Mello, who started Mobuzz, a Spanish online-video firm, in 2005, watched his fledgling company implode with the onset of the financial crisis. He thought bankruptcy would give him a new start. But after business creditors were dealt with, Spanish social security pursued him for five more years to extract repayment of severance money it had paid to the firm’s employees on his behalf. Mr de Mello nearly gave up being an entrepreneur entirely. Instead he started his next company—devoted to bringing down roaming tariffs for mobile-phone users—in Switzerland, where the labour laws are less of a deterrent.

And European business founders find it difficult to wield the entrepreneur’s main weapons: the stock options and free shares that make start-ups attractive to employees. The legal complexity of giving new hires free shares is prohibitive, says one entrepreneur who is currently trying to poach someone away from Google, which routinely hands out Google stock units. Everyone advises not doing it, he says. That further limits entrepreneurs’ ability to tempt people into a risky career move.

All these limits have left the continent with a dearth of the sort of entrepreneurial successes which would serve to inspire others; very few people think that going to work for a loony in a garage offers a long-shot at millionairedom. Parisian opinion is convinced that if Sergey Brin’s father had picked France instead of America after leaving Russia, the son would have become an ivory-tower computer scientist instead of co-founding Google.

With the odds so stacked against them, the flickers of enterprise seen in Berlin, London, Helsinki and a few other places offer cause for seemingly disproportionate hope. If the requisite wild spirits can survive in these conditions, how might they flourish if not held back?

Yearning to be free

Though they have suppressed demand and made financing ever harder, the great recession and the euro crisis may also mark a long-term change in Europeans’ perception of risk. For executives, joining a start-up is less of a gamble when big companies are shedding staff. Since the crisis began in 2007, says Martin Varsavsky, an Argentinian serial entrepreneur who has founded a number of telecom companies in Spain, it has been noticeably easier for his current venture, Fon, a global Wi-Fi community, to recruit. The engineers he wanted to hire used to spurn him for Telefónica, a telephone giant, or Prisa, a media company; now those firms are firing people, well-qualified people are more willing to join a new company.

In a presentation to Spanish entrepreneurs last year called “Why you should not move your company to Silicon Valley”, Mr Varsavsky pointed out that salaries for software engineers are currently 70% lower in Europe than in California. There are millions of young people looking for work. And Europe has far fewer lawyers waiting to make life difficult for young firms and lots of protected, uncompetitive sectors ripe for disruption.

Governments are paying attention. A few years ago entrepreneurs were not a priority for politicians, says Mathieu Carenzo, head of the centre for entrepreneurship at IESE Business School in Barcelona. Now, he says, government heads and royalty turn up to promotional events. States are trying all manner of tricks to boost business creation, for better or worse, and there is a whole industry of consultants devoted to the task. There are schemes to create clusters of start-ups, to get academics to hate business less, to expose schoolchildren to entrepreneurial notions. Germany and other countries have recently set up state-backed agencies to send enterprising Europeans straight to Silicon Valley, knowing that successful founders often recycle their money, contacts and experience into start-ups back at home.

The French government has done some useful things for business founders; Mr Karam cites a measure that offers tax relief on research. But France’s real problem, he goes on to say, is its rigid labour law. Nothing governments offer by way of assistance, say entrepreneurs, is as helpful as simply removing the hindrances they currently impose. Germany’s government has made four big attempts in the past 13 years to help entrepreneurs, says Dietmar Harhoff, the director of the Institute for Innovation Research, Technology Management and Entrepreneurship at Ludwig-Maximilians University in Munich, but they have mostly failed.

The branches of government that try to boost entrepreneurship are not powerful enough to do anything about the real problems for entrepreneurs, such as labour rules. Again, the depths of the euro crisis may allow change that was previously stymied. Mario Monti, Italy’s prime minister, says he will lower the administrative cost of starting a company from €10,000 to €1. Italy and Spain are both taking steps to make it somewhat easier to fire workers.

Berlin’s rapid rise and international appeal—about half of the business founders in the city are not German—make it an object lesson in what really matters in an environment appealing to entrepreneurs. There has been zero help from the state; the city is simply too poor to lavish money on the usual schemes. But it is a cheap place to live and work, and it is relatively easy for foreigners, who are especially likely to start companies, to set up shop. This is in contrast to Britain, where targets for net immigration have been slashed after rates rose to record levels.

In the St Oberholz café, among the bars and shared offices and kaffeeklatsches, there is also a soundproofed cupboard. It offers a place to make private calls—and to cry when you miss a deal, jokes Philipp von Sahr, the founder of an online store for organic food. Europe’s entrepreneurs, like all entrepreneurs, will do their fair share of crying in the years to come. But their governments could do a great deal to help them get out of the cupboard and back into the game.

 

28 July 2012,  Economist

Sam Spade at Starbucks

In Business, Civil Services Reforms, Uncategorized on May 31, 2012 at 7:43 am

If you attend a certain sort of conference, hang out at a certain sort of coffee shop or visit a certain sort of university, you’ve probably run into some of these wonderful young people who are doing good. Typically, they’ve spent a year studying abroad. They’ve traveled in the poorer regions of the world. Now they have devoted themselves to a purpose larger than self.

Often they are bursting with enthusiasm for some social entrepreneurship project: making a cheap water-purification system, starting a company that will empower Rwandan women by selling their crafts in boutiques around the world.

These people are refreshingly uncynical. Their hip service ethos is setting the moral tone for the age. Idealistic and uplifting, their worldview is spread by enlightened advertising campaigns, from Bennetton years ago to everything Apple has ever done.

It’s hard not to feel inspired by all these idealists, but their service religion does have some shortcomings. In the first place, many of these social entrepreneurs think they can evade politics. They have little faith in the political process and believe that real change happens on the ground beneath it.

That’s a delusion. You can cram all the nongovernmental organizations you want into a country, but if there is no rule of law and if the ruling class is predatory then your achievements won’t add up to much.

Furthermore, important issues always spark disagreement. Unless there is a healthy political process to resolve disputes, the ensuing hatred and conflict will destroy everything the altruists are trying to build.

There’s little social progress without political progress. Unfortunately, many of today’s young activists are really good at thinking locally and globally, but not as good at thinking nationally and regionally.

Second, the prevailing service religion underestimates the problem of disorder. Many of the activists talk as if the world can be healed if we could only insert more care, compassion and resources into it.

History is not kind to this assumption. Most poverty and suffering — whether in a country, a family or a person — flows from disorganization. A stable social order is an artificial accomplishment, the result of an accumulation of habits, hectoring, moral stricture and physical coercion. Once order is dissolved, it takes hard measures to restore it.

Yet one rarely hears social entrepreneurs talk about professional policing, honest courts or strict standards of behavior; it’s more uplifting to talk about microloans and sustainable agriculture.

In short, there’s only so much good you can do unless you are willing to confront corruption, venality and disorder head-on. So if I could, presumptuously, recommend a reading list to help these activists fill in the gaps in the prevailing service ethos, I’d start with the novels of Dashiell Hammett or Raymond Chandler, or at least the movies based on them.

The noir heroes like Sam Spade in “The Maltese Falcon” served as models for a generation of Americans, and they put the focus squarely on venality, corruption and disorder and how you should behave in the face of it.

A noir hero is a moral realist. He assumes that everybody is dappled with virtue and vice, especially himself. He makes no social-class distinction and only provisional moral distinctions between the private eyes like himself and the criminals he pursues. The assumption in a Hammett book is that the good guy has a spotty past, does spotty things and that the private eye and the criminal are two sides to the same personality.

He (or she — the women in these stories follow the same code) adopts a layered personality. He hardens himself on the outside in order to protect whatever is left of the finer self within.

He is reticent, allergic to self-righteousness and appears unfeeling, but he is motivated by a disillusioned sense of honor. The world often rewards the wrong things, but each job comes with obligations and even if everything is decaying you should still take pride in your work. Under the cynical mask, there is still a basic sense of good order, that crime should be punished and bad behavior shouldn’t go uncorrected. He knows he’s not going to be uplifted by his work; that to tackle the hard jobs he’ll have to risk coarsening himself, but he doggedly plows ahead.

This worldview had a huge influence as a generation confronted crime, corruption, fascism and communism. I’m not sure I can see today’s social entrepreneurs wearing fedoras and trench coats. But noir’s moral realism would be a nice supplement to today’s prevailing ethos. It would fold some hardheadedness in with today’s service mentality. It would focus attention on the core issues: order and rule of law. And it would be necessary. Contemporary Washington, not to mention parts of the developing world, may be less seedy than the cities in the noir stories, but they are equally laced with self-deception and self-dealing.

 

12 Apr 2012,  The New York Times

India’s unlikely romance with Ayn Rand

In Uncategorized on May 31, 2012 at 7:13 am

NEW DELHI: Literary tastes in India, as anywhere, change with the times, but one writer has never gone out of vogue: Ayn Rand—the high priestess of free-market capitalism and unfettered individualism.

A marginal, and often derided literary figure in many other countries, Rand is a perennial presence on Indian bestseller lists and regularly name-checked on the “favourite author” list of influential Indians—from company CEOs to Bollywood stars.

Until 2007, Indians conducted more Google searches for the Russian-American novelist than residents of any other country, and in recent years have ceded the top spot only to Americans.

Rand’s rabid anti-statism and promotion of laissez-faire capitalism has long resonated with conservatives in the United States, where former Federal Reserve chairman Alan Greenspan numbers among her high-profile devotees.

She is currently championed by the right-wing Tea Party movement, whose members focus on her opposition to state welfare programmes, while selectively ignoring her staunch advocacy of abortion rights.

The historic and enduring popularity in India of Rand’s seminal novels, “Atlas Shrugged” and “The Fountainhead,” seems, at first glance, harder to explain.

Decades of quasi-socialist state planning dampened Indians’ entrepreneurial spirit, and the economic liberalisation of the past 20 years has done little to promote the individual freedoms Rand held sacrosanct.

According to entrepreneur Monisha Singh, 43, Rand speaks to a part of the Indian psyche that has traditionally been denied its place or voice in society.

Singh, who picked up “The Fountainhead” when she was just 14, said reading Rand was “a rite of passage” among her contemporaries when she was young.

“The socio-cultural milieu in India was very conformist, and suddenly this voice emerges that challenges the established order, that celebrates individuality. It was very aspirational,” she told AFP.

Three decades later, Singh believes Rand’s work remains relevant.

“Indian society, despite economic growth, despite globalisation remains very conservative. So I think her work still resonates here, it provides a space for people to question the traditional order and be an individual,” she said.

Pirated copies of Rand’s novels are hawked by pavement booksellers in India’s major cities and the country’s leading online bookstore, Flipkart.com sells her books in multiple languages.

Although Flipkart.com would not reveal exact sales figures, Ankit Nagori, vice president for categories told AFP that Rand “consistently ranks amongst our top 20 writers, in terms of sales, across genres.”

In south Delhi’s busy Midland bookstore, 45-year-old Mirza Afsar Baig remembers the days when his father used to run the shop.

“Way back in 1973 I would see my dad working here and university students wandering in to buy her novels for 15 rupees each,” he told AFP.

“Today, when I am running the place, she still sells in big numbers,” he said.

Prominent Indian media commentator and brand management expert Suhel Seth believes Rand’s anti-establishment message strikes a particular chord with modern, middle-class Indians frustrated by social constraints.

“Indians are still fighting for certain freedoms, their fight for individual rights is thwarted all the time, whether it is by the family structure, or by politicians,” Seth told AFP.

“So it makes sense to me that Ayn Rand’s popularity hasn’t changed in all these years.”

In some respects, that popularity taps into a nationwide fascination with inspirational and self-help literature.

In bookshops across India, shelves sag under the weight of tomes offering guidance on everything from making a fortune to holding a conversation.

After India’s former president A P J Abdul Kalam wrote a best-selling autobiography in 2000, he followed up with a series of motivational titles aimed at young readers.

“You Are Born to Blossom,” “You Are Unique” and “Indomitable Spirit” are just some of the books written by the former head of state.

The taste for “inspirational” literature has even extended to Adolf Hitler’s “Mein Kampf”—popular in business student circles as a management strategy guide.

Novelist Shobhaa De recalled how Rand’s books had acquired “a cult status” on university campuses some 40 years ago.

“As far as young Indians are concerned the cult has never ended. Her books are about idealism, heroism and corruption—issues that are of particular interest to the young of India,” De said.

 

31 May 2012,  Dawn

What Isn’t for Sale?

In Business, Trickle Down, Uncategorized on March 20, 2012 at 7:23 am

There are some things money can’t buy—but these days, not many. Almost everything is up for sale. For example:

A prison-cell upgrade: $90 a night. In Santa Ana, California, and some other cities, nonviolent offenders can pay for a clean, quiet jail cell, without any non-paying prisoners to disturb them.

Access to the carpool lane while driving solo: $8. Minneapolis, San Diego, Houston, Seattle, and other cities have sought to ease traffic congestion by letting solo drivers pay to drive in carpool lanes, at rates that vary according to traffic.

The services of an Indian surrogate mother: $8,000. Western couples seeking surrogates increasingly outsource the job to India, and the price is less than one-third the going rate in the United States.

The right to shoot an endangered black rhino: $250,000. South Africa has begun letting some ranchers sell hunters the right to kill a limited number of rhinos, to give the ranchers an incentive to raise and protect the endangered species.

Your doctor’s cellphone number: $1,500 and up per year. A growing number of “concierge” doctors offer cellphone access and same-day appointments for patients willing to pay annual fees ranging from $1,500 to $25,000.

The right to emit a metric ton of carbon dioxide into the atmosphere: $10.50. The European Union runs a carbon-dioxide-emissions market that enables companies to buy and sell the right to pollute.

The right to immigrate to the United States: $500,000. Foreigners who invest $500,000 and create at least 10 full-time jobs in an area of high unemployment are eligible for a green card that entitles them to permanent residency.

Not everyone can afford to buy these things. But today there are lots of new ways to make money. If you need to earn some extra cash, here are some novel possibilities:

Sell space on your forehead to display commercial advertising: $10,000. A single mother in Utah who needed money for her son’s education was paid $10,000 by an online casino to install a permanent tattoo of the casino’s Web address on her forehead. Temporary tattoo ads earn less.

Serve as a human guinea pig in a drug-safety trial for a pharmaceutical company: $7,500. The pay can be higher or lower, depending on the invasiveness of the procedure used to test the drug’s effect and the discomfort involved.

Fight in Somalia or Afghanistan for a private military contractor: up to $1,000 a day. The pay varies according to qualifications, experience, and nationality.

Stand in line overnight on Capitol Hill to hold a place for a lobbyist who wants to attend a congressional hearing: $15–$20 an hour. Lobbyists pay line-standing companies, who hire homeless people and others to queue up.

If you are a second-grader in an underachieving Dallas school, read a book: $2. To encourage reading, schools pay kids for each book they read.

We live in a time when almost everything can be bought and sold. Over the past three decades, markets—and market values—have come to govern our lives as never before. We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us.

As the Cold War ended, markets and market thinking enjoyed unrivaled prestige, and understandably so. No other mechanism for organizing the production and distribution of goods had proved as successful at generating affluence and prosperity. And yet even as growing numbers of countries around the world embraced market mechanisms in the operation of their economies, something else was happening. Market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.

The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation—an era of market triumphalism. The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom. And it continued into the 1990s with the market-friendly liberalism of Bill Clinton and Tony Blair, who moderated but consolidated the faith that markets are the primary means for achieving the public good.

Today, that faith is in question. The financial crisis did more than cast doubt on the ability of markets to allocate risk efficiently. It also prompted a widespread sense that markets have become detached from morals, and that we need to somehow reconnect the two. But it’s not obvious what this would mean, or how we should go about it.

Some say the moral failing at the heart of market triumphalism was greed, which led to irresponsible risk-taking. The solution, according to this view, is to rein in greed, insist on greater integrity and responsibility among bankers and Wall Street executives, and enact sensible regulations to prevent a similar crisis from happening again.

This is, at best, a partial diagnosis. While it is certainly true that greed played a role in the financial crisis, something bigger was and is at stake. The most fateful change that unfolded during the past three decades was not an increase in greed. It was the reach of markets, and of market values, into spheres of life traditionally governed by nonmarket norms. To contend with this condition, we need to do more than inveigh against greed; we need to have a public debate about where markets belong—and where they don’t.

Consider, for example, the proliferation of for-profit schools, hospitals, and prisons, and the outsourcing of war to private military contractors. (In Iraq and Afghanistan, private contractors have actually outnumbered U.S. military troops.) Consider the eclipse of public police forces by private security firms—especially in the U.S. and the U.K., where the number of private guards is almost twice the number of public police officers.

Or consider the pharmaceutical companies’ aggressive marketing of prescription drugs directly to consumers, a practice now prevalent in the U.S. but prohibited in most other countries. (If you’ve ever seen the television commercials on the evening news, you could be forgiven for thinking that the greatest health crisis in the world is not malaria or river blindness or sleeping sickness but an epidemic of erectile dysfunction.)

Consider too the reach of commercial advertising into public schools, from buses to corridors to cafeterias; the sale of “naming rights” to parks and civic spaces; the blurred boundaries, within journalism, between news and advertising, likely to blur further as newspapers and magazines struggle to survive; the marketing of “designer” eggs and sperm for assisted reproduction; the buying and selling, by companies and countries, of the right to pollute; a system of campaign finance in the U.S. that comes close to permitting the buying and selling of elections.

These uses of markets to allocate health, education, public safety, national security, criminal justice, environmental protection, recreation, procreation, and other social goods were for the most part unheard-of 30 years ago. Today, we take them largely for granted.

Why worry that we are moving toward a society in which everything is up for sale?

For two reasons. One is about inequality, the other about corruption. First, consider inequality. In a society where everything is for sale, life is harder for those of modest means. The more money can buy, the more affluence—or the lack of it—matters. If the only advantage of affluence were the ability to afford yachts, sports cars, and fancy vacations, inequalities of income and wealth would matter less than they do today. But as money comes to buy more and more, the distribution of income and wealth looms larger.

The second reason we should hesitate to put everything up for sale is more difficult to describe. It is not about inequality and fairness but about the corrosive tendency of markets. Putting a price on the good things in life can corrupt them. That’s because markets don’t only allocate goods; they express and promote certain attitudes toward the goods being exchanged. Paying kids to read books might get them to read more, but might also teach them to regard reading as a chore rather than a source of intrinsic satisfaction. Hiring foreign mercenaries to fight our wars might spare the lives of our citizens, but might also corrupt the meaning of citizenship.

Economists often assume that markets are inert, that they do not affect the goods being exchanged. But this is untrue. Markets leave their mark. Sometimes, market values crowd out nonmarket values worth caring about.

When we decide that certain goods may be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use. But not all goods are properly valued in this way. The most obvious example is human beings. Slavery was appalling because it treated human beings as a commodity, to be bought and sold at auction. Such treatment fails to value human beings as persons, worthy of dignity and respect; it sees them as instruments of gain and objects of use.

Something similar can be said of other cherished goods and practices. We don’t allow children to be bought and sold, no matter how difficult the process of adoption can be or how willing impatient prospective parents might be. Even if the prospective buyers would treat the child responsibly, we worry that a market in children would express and promote the wrong way of valuing them. Children are properly regarded not as consumer goods but as beings worthy of love and care. Or consider the rights and obligations of citizenship. If you are called to jury duty, you can’t hire a substitute to take your place. Nor do we allow citizens to sell their votes, even though others might be eager to buy them. Why not? Because we believe that civic duties are not private property but public responsibilities. To outsource them is to demean them, to value them in the wrong way.

These examples illustrate a broader point: some of the good things in life are degraded if turned into commodities. So to decide where the market belongs, and where it should be kept at a distance, we have to decide how to value the goods in question—health, education, family life, nature, art, civic duties, and so on. These are moral and political questions, not merely economic ones. To resolve them, we have to debate, case by case, the moral meaning of these goods, and the proper way of valuing them.

This is a debate we didn’t have during the era of market triumphalism. As a result, without quite realizing it—without ever deciding to do so—we drifted from having a market economy to being a market society.

The difference is this: A market economy is a tool—a valuable and effective tool—for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavor. It’s a place where social relations are made over in the image of the market.

The great missing debate in contemporary politics is about the role and reach of markets. Do we want a market economy, or a market society? What role should markets play in public life and personal relations? How can we decide which goods should be bought and sold, and which should be governed by nonmarket values? Where should money’s writ not run?

Even if you agree that we need to grapple with big questions about the morality of markets, you might doubt that our public discourse is up to the task. It’s a legitimate worry. At a time when political argument consists mainly of shouting matches on cable television, partisan vitriol on talk radio, and ideological food fights on the floor of Congress, it’s hard to imagine a reasoned public debate about such controversial moral questions as the right way to value procreation, children, education, health, the environment, citizenship, and other goods. I believe such a debate is possible, but only if we are willing to broaden the terms of our public discourse and grapple more explicitly with competing notions of the good life.

In hopes of avoiding sectarian strife, we often insist that citizens leave their moral and spiritual convictions behind when they enter the public square. But the reluctance to admit arguments about the good life into politics has had an unanticipated consequence. It has helped prepare the way for market triumphalism, and for the continuing hold of market reasoning.

In its own way, market reasoning also empties public life of moral argument. Part of the appeal of markets is that they don’t pass judgment on the preferences they satisfy. They don’t ask whether some ways of valuing goods are higher, or worthier, than others. If someone is willing to pay for sex, or a kidney, and a consenting adult is willing to sell, the only question the economist asks is “How much?” Markets don’t wag fingers. They don’t discriminate between worthy preferences and unworthy ones. Each party to a deal decides for him- or herself what value to place on the things being exchanged.

This nonjudgmental stance toward values lies at the heart of market reasoning, and explains much of its appeal. But our reluctance to engage in moral and spiritual argument, together with our embrace of markets, has exacted a heavy price: it has drained public discourse of moral and civic energy, and contributed to the technocratic, managerial politics afflicting many societies today.

A debate about the moral limits of markets would enable us to decide, as a society, where markets serve the public good and where they do not belong. Thinking through the appropriate place of markets requires that we reason together, in public, about the right way to value the social goods we prize. It would be folly to expect that a more morally robust public discourse, even at its best, would lead to agreement on every contested question. But it would make for a healthier public life. And it would make us more aware of the price we pay for living in a society where everything is up for sale.

 

April 2012, The Atlantic

India Should Re-Wrap Economic Reforms

In Politics, Uncategorized on February 22, 2012 at 8:23 am

I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, “no power on earth can stop an idea whose time has come”. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.

— Manmohan Singh, finance minister, Budget Speech, July 24, 1991

In the two decades since Manmohan Singh’s hat-tip to Victor Hugo, and open markets, per capita income in India has grown from $309 to $1,477 (in today’s dollars), outstripping that of 19th century US and 20th century Japan. Life expectancy at birth grew by seven years, infant mortality rate fell by 40 percent and wage inequality between scheduled caste and other workers declined during the same period. Caste-based differences in grooming, eating and occupation narrowed as more open markets allowed a greater number of people to access a wide range of consumables and services. Yet, despite these lofty successes of the 1991 reforms, pro-market policies are viewed with deep suspicion and antipathy in India.

The reason for that perhaps lies in the way reforms were thrust on the country. A 2008 paper by Peter Boettke, Christopher Coyne and Peter Leeson titled ‘Institutional Stickiness and the New Development Economics’ has an explanation that could fit India. The economists theorised that big institutional changes should be rooted in existing cultures, customs and belief systems of a nation to succeed. They called it métis.

Métis is a set of informal practices and expectations that allow ethnic groups to build successful trade networks. The diamond trade in New York City, for instance, is dominated by orthodox Jews who use a set of signals, cues, and bonding mechanisms evolved over centuries for trading. The trade would not function as smoothly if random traders were placed in the same setting. This difference can be ascribed to métis. Because it is based in the accepted, understood, and habituated mentalities and practices of indigenous peoples, the presence or absence of métis explains the stickiness of various types of institutions. In fact, métis can be imagined as the glue that gives institutions their stickiness.

A large portion of the Japanese métis, which was harmonious with large-scale organisations, trade and market exchange, remained intact in the post-war period, helping in its successful reconstruction. While the Japanese adopted a constitution affirming their commitment to Western democratic institutions, much of the language expressed pre-World War II traditional Japanese social and political values.

Why did India fail to do this? The reasons are embedded in what and who influenced post-Independence India’s politics and economic thinking. The foremost perhaps is the Nehru-Gandhi family’s socialist bent. Socialism took India from one of the first developing countries to manufacture automobiles in the 1930s to one whose primary export was communicable diseases by 1991. No member of the Congress party dares say Nehru or Indira Gandhi got it wrong because the Indian métis is incompatible with socialism, even when moving away from it. Manmohan Singh began his July 24, 1991, Budget speech by saying how he was “overpowered by a strange feeling of loneliness” because Rajiv Gandhi was no more. He went on to say, “thanks to the efforts of Pandit Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi, we have developed a well-diversified industrial structure.”

Forty years of socialism meant that India produced political parties which excelled in winning elections in a socialist economy! Winning elections meant selling ‘collectivist’ ideas that were alien in an India métis. Market reforms in India remain a set of ‘dry economic ideas’ because there are few with the experience of selling these as ‘political ideas’. The reformers were unable to convince even the intellectual elites in influential economic institutions and learning centres. That meant the premier institutions dedicated to studying economics and Indian society did not believe in reforms, at least initially.

It has had its natural consequences. Not only did economic reforms sell poorly, the new policies edged out—instead of integrating and modernising— traditional economic institutions and practices like badla (stock market lending mechanism), hawala (a much-maligned, but low-cost and efficient money transfer mechanism), and rural moneylenders.

It is time India expresses economic freedom through its own social values—not as a tool, but as a value in itself. Economic freedom ought to be seen as a pre-requisite to benefitting from a rich tradition of business and entrepreneurship inherent in India’s diversity. Various communities have showed sharp business acumen, innovation and entrepreneurial skills. Indian managers are prized assets even on Wall Street. The Sikhs, Jains, Marwaris and Parsis have demonstrated their skills in building world-class businesses.

The idea of economic freedom must also be explained through the thoughts of influential Indian intellectuals. It is no secret that B.R. Ambedkar’s economic beliefs tilted towards Adam Smith rather than Karl Marx. Freedom fighter and India’s second home minister C. Rajagopalachari went even further. “A free market…will result in expansion of industry and rise in employment,” he wrote in 1958. Rajaji, as he was widely known, believed that political freedom could not survive unless it was sustained by economic freedom.  The idea of economic freedom is not new to India. The challenge for reformists in India is to promote elements of the Indian métis that are in harmony with a free market economic outlook. In short, the way in which economic reforms are presented matters.

1 Feb 2012,  Forbes

A liberal vision for India

In Tribal Development, Trickle Down, Uncategorized on February 22, 2012 at 8:21 am

India yearns for its liberals to unite behind a vision of great prosperity

In 2011, India made a distinct turn away from economic freedom with the failure of FDI in retail and the Cabinet nod for the so-called Food Security Bill—‘food’ for none, job ‘security’ for babus and a ‘bill’ for the rest of us. This turn towards statism will not be without terrible consequences. In spite of the two decades of progress brought about by a marginal increase in economic freedom, India has lost the plot. The question is why.

At least in part it is because economic freedom is not, and was not even in 1991, defended as a matter of principle. To defend opening up of the retail sector to foreign investors or doing away with import duties on used cars as singular measures is playing in socialist terrain, for those against liberty will point to specific gains from curtailing freedoms while promoters of freedom have only yet unknown gains to offer. There is an urgent need to change the very terrain of public policy debate in India, and we must begin by paying heed to the following passage from Nobel Prize winner, F A Hayek’s book The Constitution of Liberty: “…freedom is almost certain to be destroyed by piecemeal encroachments. For in each particular instance it will be possible to promise concrete and tangible advantages as a result of curtailment of freedom, while the benefits sacrificed will in their nature always be unknown and uncertain. If freedom were not treated as the supreme principal, the fact that the promises which a free society has to offer can always be only chances and not certainties, only opportunities and not definite gifts to particular individuals, would inevitably prove a fatal weakness and lead to its slow erosion”.

And a defence of liberty as a principle ought to offer a vision for India—a vision with answers to three fundamental questions. One, how can India become rich? Two, what about income-inequality? And three, what about the caste-system? We look at each in turn.

One, how can India become rich? Modern economic growth happens through widespread application of science to production processes. And this happens not by government intervention but by entrepreneurship. Simon Kuznets, who won the Nobel Prize in 1971, tells us that “many economically important inventions of the late nineteenth and early twentieth centuries were the results of attempts to apply new scientific discoveries, attempts by people like Edison and Marconi who were no scientists but who understood the scientific advances and were impelled to look for practical applications”. The Soviet Union despite having had a very high number of PhDs per capita at one point did not produce a single innovation in consumer goods! This is because entrepreneurs bloom only in free market economies. Economists James D. Gwartney, Randall G. Holcombe, and Robert A. Lawson in a cross-country study of 99 countries for the period 1980-2000 find that “holding constant geographic factors and changes in human and physical capital, a one-unit increase in a country’s EFW [an index of economic freedom] rating increases the growth of per capita GDP by about 1.24 percentage points.” And 1.24 is not a small number; with the magic of compound interest a two unit increase in EFW could by itself double incomes in 29 years. In short, both theory and history tell us that the only – and yes only – way ordinary Indians can become wealthy is through a market economy.

Two, what about income distribution? The market process is a leveling process both on the production and consumption side. A characteristic feature of a laissez faire economy is the introduction of new products and new production methods. This means capital employed in old production methods continuously become obsolete, and the wealth of owners of that capital depreciates in value. New entrepreneurs rise to riches and old fall, Vilfredo Pareto called this the “circulation of elites”. The elite in capitalism (unlike in Feudalism or Communism) are like the occupants of a hotel, the hotel is always full but never of the same people! That is the story on the production side. As for the consumption side, suffice it to quote the great Joseph Schumpeter: “the capitalist achievement does not typically consist in providing more silk stockings for the queen but in bringing them within the reach of factory girls…” The vast majority of government redistribution plans appear pale in contrast to the capitalist redistributive process. And redistribution through profit- motive rewards success in serving others unlike redistribution through vote-motive which reflects success in stealing from others.

Lastly, what about the caste system? Capitalism nailed feudalism in the Western Europe, and it promises to do far worse to the caste system in India. Kuznets tells us that “Amongst the concomitants of modern economic growth are…an increase in the non-personal forms of economic organisation, and a rise in the relative important of economic achievement in the scale of social values”. Non-personal forms of economic organisation—no city dweller knows the caste of her milk producer—limits the domain of discrimination. And the growing influence of economic achievement flies in the face of by- birth social values. Interesting fairly modest increases in economic freedom seems to have brought above significant improvements for Dalits in India. In a 2011 paper, University of British Columbia scholars Hnatkovska, Lahiri and Paul find that wage gaps between Scheduled Castes (people from the bottom rung of the Hindu caste system) and non- Scheduled Castes have declined since the 1980s. This is no surprise, profit seeking firms link wages to worker productivity, not caste! Progress however is not merely an income- story. A recent survey of 19,087 Dalit families in two districts of Uttar Pradesh found that access to markets had improved Dalit grooming and eating practices, and increased access to jobs traditionally considered to be non-Dalit. In short, a market economy is the antidote to the age old caste system. And unlike the government’s lets-enlighten-the- masses formulas which work well solely on Ministry of Education’s policy documents, markets revolutionise the minds of real people—bottom up.

A liberal vision for India is thus a vision of great prosperity, less inequality and an inequality which is more a reflection of individual choices and abilities rather than birth, and a system whose very logic is antithetical to the caste system. India yearns for its liberals to unite behind such a vision; 2011 tells us that halfhearted measures might just not be enough. The liberal must say to the collectivist, ‘this is my vision for India, what is yours?’

 

16 Feb 2012, Pragati

Media Inc.

In Uncategorized on January 23, 2012 at 6:42 am

The diversity and the continuous growth in the Indian media and entertainment industry have been a matter of curiosity for global observers. The country has close to 650 television channels, more than 2,000 publications and more than 30 FM radio operators running 245 stations across the country. It sees the release of more than 1,000 films a year. This has no parallel anywhere in the world. Add to it the fact that there is still a long queue of aspirants wanting to hop on to this already crowded bandwagon. It leads to a legitimate question: Is media and entertainment a thriving business churning out billionaires in hordes? The answer is no.

On the contrary, we have seen astute businessmen such as Raghav Bahl, the promoter of Network18 Group, who in 15 years put together one of the country’s largest broadcast news networks, struggling hard to stay afloat. His business, comprising some of the market-leading channels such as TV18, CNBC Awaaz, CNN-IBN, IBN7, Colors, MTV and Nickelodeon, had accumulated more than Rs 2,100 crore losses on a group revenue of around Rs 1,600 crore. In the wake of Reliance Industry ‘s proposed loan of Rs 1,700 crore, which may go up to Rs 4,000 crore, to Network18 Group, it is being speculated in the market that Bahl might have sold out his stake to RIL.

The story of many of Network18’s rivals is not much different. The non-news players also have it tough as they operate in the midst of stifling competition and survive on thin margins. One of the country’s largest and most profitable broadcast companies, Rupert Murdoch owned Star India, for instance, had profits of only around Rs 600-650 crore on a revenue of about Rs 2,500-2,600 crore in 2010-11. Most leading media companies in the country would be clubbed with the largest corporations in terms of their influence and recall but in terms of the size of their operations and the weight of their balance sheets, they will be categorised with medium and small enterprises.

While the media and the entertainment sector has been one of the fastest growing in the economy, this has largely been a factor of the overall economic growth seen after liberalisation. The size of the entire sector, for instance, is only around Rs 65,000 crore, much less than comparatively new sectors such as telecom service providers whose current aggregate revenues will be in excess of Rs 1.5 lakh crore. And if one narrows one’s attention to only the print and broadcast sector, the pie shrinks to a mere Rs 49,000 crore.

Big Fish in Small Pond

Even as the industry remains small and scattered, there has been a gradual emergence of big players in the sector with a large mainstream footprint (see graphic). In the past five years, homegrown mainstream media owners have moved horizontally and vertically and established their presence across segments such as print, television, radio, digital and films. With no restrictions on cross-media holdings, the big media houses that were already well-entrenched in the business and had the on-ground intelligence made only incremental investments to build these new businesses.

Then it is the global media houses that have consistently built their mainstream, so-called national presence. With restrictions on foreign direct investment in the news and current affairs business, their focus has been limited to non-news broadcast and film entertainment segments (see graphic).

“The potential of one-billion-people market and the free media environment attracted Rupert Murdoch. These two factors continue to motivate the other big global companies besides the fact that globally, India is one of the very few markets left where media industry is still growing and is likely to continue growing,” says Uday Shankar, CEO, Star India.

The third kind of entrants, the most recent, have been the non-media domestic corporate houses making strategic investments in segments that fit in the overall scheme of their business. With convergence already making inroads, it has largely been telecom operators, such as Bharti Airtel, Tata Group, Reliance ADAG and now, RIL with its broadband venture, who have made such moves.

“The media and entertainment industry remained small despite the fast economic growth of the past two decades because it entirely depends on advertising for its survival, an oddity seen only in India. With their revenues constrained, the existing players never had the resources to grow at a faster pace, to expand and become bigger or develop newer sources of sustenance,” says Farokh Balsara, leader of media and entertainment practice at Ernst & Young (Europe, India, Middle East and Africa). E&Y, incidentally, was involved in the deal between Network18 and RIL. It is to this end that the emergence of big players is being hailed by the business community and the investment by RIL in Network18 has been welcomed by those in the business of business.

“It is a good development. One, it means a company such as Network18, which has created strong media brands, doesn’t sink into oblivion but instead, gets a lifeline. That is good news for its own stakeholders and investors and also, the industry. Two, it leads to consolidation as after the deal, Network18 will have a pan-India footprint with news channels across north and south, which, again is good for the industry as it will see scale being build up in the sector. And three, it brings in a lot of optimism for the entire industry when a sound corporate house such as RIL enters the sector,” says Salil Pitale, executive director at Enam Investment Banking. Like Pitale, the stock broking community is happy that media stocks that have been wilting for sometime will see some sunshine now and attract more investors, which will ultimately reflect on the overall health of the industry.

Media business experts predict that these big media companies will not initiate the process of consolidation but begin moving into smaller media pockets in a significant way besides making aggressive efforts to wrangle out market shares from one another. “It is a natural aspiration of a businessman to grow. It is a natural progression in the evolution of any business,” says Abhijit Pawar, managing director, Sakaal Media Group, a Maharashtra-based leading media company that publishes several newspapers and has broadcast interests as well. “We ourselves grew bigger by acquiring Gomantak Times, Sakaal and Sakaal Times. Survival of the fittest is an established principle and those who deserve to be in the business will survive,” he adds.

The fear of the ‘C’ word

The consolidation of media interests, especially news, in the hands of a few big corporate entities is a subject that has been debated at length in the developed markets such as the US and the UK where media behemoths such as News Corporation and Time Warner own and operate ventures across the media and entertainment sector and have extensive interests across the globe as well. In India, this debate has yet to enter mainstream consciousness.

Unlike the print business, broadcast and radio are a new and emerging phenomenon. Regulations have ensured that news and non-news interests are housed separately. While the non-news mainstream broadcast space has already been claimed by big global players, TV news has had its own issues and challenges that have kept the industry occupied.

RIL’s investment in Network18 is the first big intervention by a large non-news corporation (indeed, there are several real estate companies, politicians, and political parties running news channels but they are too small to call their entry the corporatisation of media. Besides, their entry, though with questionable objectives, has added to the diversity in the business and hence raised eyebrows.

“Media houses adopting corporate structures, processes and policies is the need of the hour. It’s about being able to fit well into the overall economic and business environment,” says Ravi Dhariwal, CEO, Bennett Coleman & Co Ltd. “The same media houses consolidating their interests and expanding their footprint across segments is also understandable. Scale, after all, is important for not only creating value for stakeholders, such as advertisers, but it also helps in bringing efficiency and better utilisation of one’s resources,” he says.

Dhariwal, however, raises the red flag over the entry of non-media corporations in the business. “Media companies do not have any corporate or political agenda. Whereas when big corporations with distinct interests enter the business, there is a risk of they influencing editorial decisions. Even if they remain hands-off, there will be a lurking concern or suspicion over the stands their news room takes on issues that concern them or their rivals,” says Dhariwal.

His fear, however, is dismissed by his own fraternity. “India is perhaps the only country of any size where there is zero cross-media restrictions…where a media group can and does, for example, operate a newspaper, news channel, radio stations, web platforms and also, sell their media for a price as advertising in the name of news,” says UTV founder chairman Ronnie Screwvala. “This has been happening for so many years, so there cannot be a fresh threat (corporatisation and consolidation) bigger than what is already there,” he says.

Pawar echos Screwvala’s views. “I do not see any conflict of interest in a big non-media corporation entering the business. Look at ToI’s (Times of India) private treaties, HT’s connection with the Birlas and Kotak Mahindra’s stake in Business Standard.”

Going by the experience in the West and the larger business trends within and outside the country, corporatisation and consolidation of media interests seem a foregone conclusion. What is also clear is that the process will be examined, debated and opposed by those fighting for the society’s need for unbiased, objective and honest communication.

In the meantime, some are demanding the institution of an independent regulator that may check the excesses from either side.

“There is too much commotion and confusion in the industry. It is time we had an independent and strong media regulator,” says Subhash Chandra, Chairman, Essel Group.

MNC players

News Corporation–Star India Pvt Ltd Owned by Rupert Murdoch, the company runs India’s most popular broadcast network with channels such as Star Plus, Life OK, Star Sports, Star Gold, etc. Produces and distributes film. Has a 26 per cent stake in the company that runs Hindi news channel Star News and also manages ad sales of news broadcaster NDTV. Has produced films. Owns a stake in one of the largest cable distribution companies Hathway and in DTH service provider Tata-Sky

Time Warner–Turner Broadcasting System Inc– Turner General Entertainment Networks India Pvt Ltd Owns and operates Hindi general entertainment channel Imagine TV; a world cinema channel Lumiere and film production house Imagine Film Company; Turner India Pvt Ltd that operates Pogo, Cartoon Network, HBO and WB.

The Walt Disney Co–The Walt Disney Co India After its proposed acquisition in UTV Software Communications Ltd will own Hungama TV, Bindaas, UTV Movies, UTV World Movies, UTV Action, and UTV Stars in the broadcast space. In the film business, it will acquire UTV’s pan-India interests in script development, production, marketing, distribution, merchandising and syndication and its gaming business. It also has a stake in the company that operates ESPN Star Sports.

Sony Corporation–Multi Screen Media Pvt Ltd–Operates Hindi general entertainment channels Sony Entertainment, Sab TV, movies and special events channels SET MAX, Hollywood movie channels, among others. Sony Music Entertainment Pvt Ltd —an integrated music company. Sony Pictures Entertainment Films India Pvt Ltd—produces and distributes films and television content

 

8 Jan 2o12, Indian Express

If science seems stuck, so do the Prime Ministers

In Civil Services Reforms, Uncategorized on January 23, 2012 at 6:31 am

* I would like to see a hike in investments in R&D from the present 0.86% of the GDP to 1% this year, and to be further increased to 2% over the next five years: Prime Minister A B Vajpayee at the 2000 Indian Science Congress, Pune.

 

* We must aim to increase the total R&D spending as a percentage of GDP to at least 2 per cent by the end of the XII Plan Period from the current level of about 1 per cent: Prime Minister Manmohan Singh at the 2012 Indian Science Congress, Bhubaneswar.

 

A coincidence? May be. But consider this.

 

* We will promote public private partnerships, to increase funding for frontier areas of scientific and technological research: Singh at the 2005 Indian Science Congress, Ahmedabad.

 

* We have to increase public private partnerships and catalyse significantly increased interaction between publicly owned Science and Technology institutions and industry: Singh at the 2012 Indian Science Congress, Bhubaneswar.

 

The Science Congress is the largest congregation of scientists in the country, held every year from January 3 to 7 and inaugurated by the Prime Minister. It started in 1914 and the 99th edition just completed in Bhubaneswar. It is a permanent engagement on the Prime Minister’s calendar and after Independence there have been only two occasions when the Prime Minister has not been able to make it.

The event is supposed to showcase the best in Indian science and an occasion for the Prime Minister to announce the big-ticket policy initiatives of the government related to science.

But the speeches of the Prime Ministers in the last 10 years reveal how repetitive this exercise has become reflecting either a policy stasis in the sector, lack of bold reforms or both.

Each year, the PM underlines the same themes: increase in investment, de-bureaucratisation of scientific establishments, public-private partnerships. So much so that sometimes the Prime Ministers use the same quote to make the point. Like Vajpayee in 2000, when he quoted Nehru to say: “As we enter the new century, I recall the stirring words of the first Prime Minister of India, Pandit Jawaharlal Nehru, who said, ‘Scientists are a minority in league with the future’”. Vajpayee used Nehru’s same quote two years later in Lucknow.

Singh followed him a few years later. He quoted Winston Churchill as having said that “The empires of the future are going to be the empires of the mind” in 2008 and then reused the same quote in 2009.

The intention of increasing the investment on R&D to at least 2 per cent of the GDP has been repeated almost every year in recent times — in 2002, 2007, 2008 and 2009. Of course, the growth in GDP means that in absolute terms the money going to science has gone up even if it has remained stuck at just under 1 per cent of GDP.

Similarly, freeing the lab from bureaucratic red tape has been a refrain down the years. In 2002, Vajpayee said that “bureaucratism is an enemy of a result-oriented approach and must be shunned, for it demotivates our scientific talent.” The next year, he echoed this: “We have to ensure that our scientific institutions do not become afflicted with the culture of our Governmental agencies…the main cause leading to frustration among young scientists is seniority displacing merit and talent suppression.”

Singh then struck the same notes in 2005 on the “tyranny of bureaucracy” and the perils of bureaucratic systems in 2009. In 2010, he reiterated the need to “liberate Indian science from the shackles and deadweight of bureaucratism and in-house favouritism.”

Another favourite, enduring theme: the decline of universities. In 2007, Singh referred to the “widespread concern about the decline in the standards our research work in universities” and called for a “massive” upgrade. Two years later, he said: “We need strengthening of institutional leadership in universities and research institutions.”

The one visible movement forward was in the spread of institutions. In 2008, the PM announced the launch of eight new IITs, 30 new Central universities, five new Indian Institutes of Science Education, seven new IIMs and 20 new Indian Institutes of Information Technology. Three years later, the PM announced the establishment of the eight new IITs and the five Indian Institutes of Science Education.

 

8 Jan 2012, Indian Express