One Small Voice

Continuing in the spirit of Haphazard Linkages, I look at the consequences that a false sense of ‘progress’ has on an economy. Things may look ‘good’, but is it a true and justified reflection of the resources at a country’s disposal? Can things be made better? An economist aims for efficiency. A state where one individual cannot be made better off, without making another worse off in some way.

On the 60^th anniversary of India’s independence, patriotism and a sense of well-being abounds everywhere. People are mostly unanimous in their verdict that India had arrived and bask in glory…The Times of India headline, “60 and getting Sexier” couldn’t have captured it better. Every news channel and celebrity waxed eloquent about how much progress India had made during this time. Waxed eloquent about India’s stupendous GDP growth…about India Shining.

Did this appraisal reflect reality? Or was it just another day where patriotism oozed out of wherever anybody cared to look? As much as I want to believe the stuff expounded by the channels and newspapers, I am forced to objectively evaluate the opposite.

What follows reflects my personal opinion about the way I perceive India today. I will keep patriotism out and write from an economist’s point of view. From where I stand, I am forced to conclude that we as a nation need to drastically change the way we see reality. Or run the risk of being obliterated in the long run by smarter economies.

Firstly, there are lots of things that are right about this country. Standard of living has moved up, demographics are excellent; the Indian middle class has arrived and is shaping the way entrepreneurs do business. Of course India has progressed. But am I happy with the speed of progress? There seems a void. A void of incompetence and lax attitudes that seriously threatens our future if left untouched.

I begin by looking at our attitude towards education.

Education = Equality right?
Reservations are an old story now. Everybody knows the perils of it but it just keeps going on and on. So I won’t write about it. The thing I am worried about most is the prevalence of what I will call ‘Equality’ in education.

‘Equality’ which was supposed to imply equal opportunity to education, now seems to have taken a slightly different meaning. The word now implies ‘equalizing’ individuals so that there are no ‘outliers’. Here’s a true story. (I won’t take names).

A smart guy decimates his competition in class (Class of 50). He is the only one who manages to pass through a series of tough assignments and rightly expects his reward. What awaits him at the end of the tunnel? ‘Equality’!

The powers that be decide that it’s not a great idea to show-off to prospective recruiters that only one guy in the whole class had passed! So they decide to normalize the marks awarded to the class, resulting in 98% of the class ‘passing’ the assignment. Some find themselves happily vaulted to the Top-5 from nowhere. Not surprisingly, the smart guy is very upset. In a whiff of a wand, the institute takes away his USP…Superlative performance in a difficult situation.

The institute did what it thought was in the best interests of the students…and itself. Leaving morals out (evidently this is a case of unethical and immoral behavior), the economic consequences of this apparently harmless act are profound.

The ‘passers’ (pardon that term) find plush jobs with salaries that are disproportionate to their competence (the same is true for the smart guy). They start off and for quite some time their incompetence doesn’t show up. Once these sheep are left to tread on their own, disaster strikes.

Small errors get magnified into big ones very quickly, and most of these get laid off. In an expanding economy, most manage to find alternative jobs and so the disease stays hidden for some more time. When the economy turns for the worse…well, a quote borrowed from Warren Buffet is appropriate here…

‘Its only when the tide goes out, that we know who is swimming naked!’

Unemployment rises…the ‘incompetents’ start cribbing about what a raw deal they got from the business world…they find it easier to curse capitalism than to own up to their short comings…And if nothing changes, they go and beg to the government for a solution; which in most cases, obliges happily.

Where does this lead the country? A growing bunch of incompetent working class is the last thing that a growing economy needs. The costs of nurturing them in a growing economy are high, because in most cases their salaries are disproportionate to their skill level. The costs are also high when the economy turns for the worse, because the same level of wealth now needs to be divided over a larger proportion of unemployed people, who aren’t contributing to the GDP.

Result? The country stays a ‘developing’ one for longer than anybody desires. But nobody seems to bother…India shining?

What happened to the smart guy? Well…the guy, smart as he is, decides to leave the country. And makes a living elsewhere. I hear farcical pleas of Brain Drain somewhere.

The above example to me is a classic example of inefficient allocation of resources. The act of ‘equalizing’ led to the country losing out on one smart fellow to make room for 49 others. Admittedly, one guy cannot contribute as much as 49 others. But over a long period, the contribution made by a group of smart fellows far outweighs the ‘contribution’ made by a collection of 49s (if we can indeed call it a contribution). Contribution to the GDP and taxes (the smart guy’s income goes up, his taxes go up, assuming he pays taxes!). The 49s languish, and since they are out of sync with reality, most won’t be able to earn much…and by extension, their contribution to the country for once mirrors their skill level. And they become liabilities.

I am a firm believer in meritocracy. The not so competent guys need to make way for the better ones. There is every incentive for the former to get better in a world where meritocracy is awarded transparently. The disbursal may take an inefficient path, but it shows up in the end.

Bad Infrastructure = Political whim = Gargantuan loss of productivity = Encouraging mediocrity = Demand for subsidies = India shining?
Every day, I waste 15 minutes in traversing a 100 meter stretch of road due to traffic. I have a few 200 people for company. 200 men wasting 15 man-minutes equates to 3000 man-minutes of lost time. That’s 50 man-hours lost only in the morning. Add another 50 for the evening journey back home, and we are already staring at a loss of 100 man-hours every day. That is a conservative estimate. Extrapolate it to the whole country and what we see isn’t India shining. Talk about productivity?

A politico’s convoy zooms down the road, and traffic on both sides of the road is held up for ages. Most of the people on the roads aren’t aware that they will be held up for quite sometime and leave their engines running. Wastage of fuel? The convoy zooms down after ages, farting soot on the faces of the traffic cops.

Ask anybody who follows the Indian economy and he says that infrastructure is one area that demands attention. But is the attention there? Innumerable delays result in wasteful cost over runs and it’s the poor tax payer who foots the bill. The incentive system encourages the powers-that-be to keep delaying the projects. “What if some one else takes credit for this after my term?” Thinks the politico, whose time horizon is often not more than 5 ‘long’ years. “What will happen to my annuity?” Thinks the road company that is awarded the contract.

In a system, where the emphasis isn’t on accountability, there is every incentive to keep things inefficient. The powers-that-be find it easier to handle queries by irate masses rather than watch the ‘credit’ being snatched away from them.

China’s labor productivity has grown at twice India’s rate over the past decade and a half. While it’s simplistic to attribute the above as the only cause for this, the beauty of layered connections ensures that the above is one of the primary reasons behind this. Consequence?

Businesses demand more ‘sops’ and ‘subsidies’. The appreciation of the Indian Rupee causes a lot of pain to exporters, who line up with the government with pleas for more sops and subsidies to alleviate the ‘pain’. While I can understand small businesses asking for subsidies, I cannot digest thriving large IT/ITES companies demanding the same. Companies that enjoy consistent 30% net margins and loads of cash asking for subsidies, is tantamount to Bill Gates begging for a living.

Germany’s exports grew about 10% despite a strong appreciation of the Euro. How was this possible? Weren’t we taught that an appreciating local currency is supposed to hurt exports? Is Germany an ‘outlier’ that demands ‘equalizing’?

The answer lies in the huge difference in the competitiveness of the products exported by Germany and those exported by India. Instead of thinking up ways to enhance productivity and competitiveness, most find it easier to demand sops. Sops are like drugs; they ease the pain and provide temporary relief, but cannot cure the disease. Curing the disease demands the patient to bear short term pain for long term gain…but…

The other grouse that I have against the sops system is that it encourages mediocrity. When businesses know there is an easy (and profitable) way out of a problem, there isn’t a strong incentive to make things better.

Sports = Reflected Glory?
A country of 1 billion people struggles to produce a world class cricket team. We are nowhere in Soccer and Tennis. Cricket and Hockey is a classic case of reflected glory of the golden years gone by long ago. A few sporadic wins, like Halley’s Comet, engages media attention; which resurfaces after the next sporadic win.

While superiority in these can hardly qualify as a reason for a country shining, the attitude is what is paramount here. The way the players approach a game speaks a lot about their attitude. Can we see a hunger to win? More importantly, is there an incentive to pursue a game as a profession? Is there meritocracy?

But India continues to shine…

India Shining?
Every country has its short comings, but the moot point is, “Are we doing justice to the resources that are at our disposal today to the desired level?” I am tired of this attitude of being satisfied with mediocrity and reflected glory. L N Mittal acquires Arcelor to become a steel czar and India falls over to salute him. I am a huge admirer of Mittal’s business sense, but get furious at the media’s immediate act of basking in reflected glory of how an Indian is now at the forefront of the global steel industry. The media and the politicos who hail him to the heavens need to introspect and ask questions like, “Why did he leave the country? What made him successful in another country? Is there anything that we can change for the better to help grow over achievers? Are we creating an environment where entrepreneurs can build businesses profitably? Are we creating a meritocracy where each individual knows that if he gets better, the rewards are there for the taking? And if he chooses to sit on his backside and do nothing, he will be blown away?”

Mittal’s competence didn’t change dramatically when he left the country. But the external factors probably did…for the better. And maybe therein lies the answer. A Reliance and Infosys in a country of 1 billion cannot be forever used as shining examples of successful businesses.

As an Indian I wish I was happy at the progress that the country has seen over the years. But the realist in me poses difficult questions. Of course, nothing is perfect in other countries too. Some even contend that the Yuva needs to take to politics to change the country. I differ. I believe that each man should identify his strongest competence and work upwards from there on. As a tax payer, my focus on getting better at my craft makes its way to the country’s coffers by way of ever increasing taxes. What the country does with this money is now a prerogative of the politicos. Adam Smith’s concepts of Self Interest and the Invisible Hand will ensure that the country sees tangible progress over the long term. We have a choice of being happy with the way things are at the moment, or raise the bar and make things better.

Maybe then, I will have a lot of conviction in saying that India, is truly ‘Shining’.