Category Archives: Economics

9 Takeaways on US-India Ties After Obama’s India Visit | The Diplomat

After arriving in India over the weekend, U.S. President Barack Obama concluded a series of bilateral agreements with Indian Prime Minister Narendra Modi. Obama, who was invited to India as the chief guest for India’s annual Republic Day celebrations, broached the once-uncomfortable topic of climate change with Modi, making surprising progress on the issue. The two leaders followed up on themes addressed during Modi’s September 2014 trip to the United States and addressed some issues that had been on the U.S.-India bilateral back-burner for several years now. What follows below is a quick distillation of nine highlights out of the released joint statement, joint strategic vision document, and the visit overall. I’ll likely follow this up shortly with more detailed analysis on at least a couple of these points. I put together a similar summary of the previous U.S.-India bilateral joint statement after Modi’s U.S. trip, which focused primarily on defense and security issues that may help contextualize some of the below.

via 9 Takeaways on US-India Ties After Obama’s India Visit | The Diplomat.

via 9 Takeaways on US-India Ties After Obama’s India Visit | The Diplomat.


The Politics of Economic Stupidity by Joseph E. Stiglitz – Project Syndicate

In 2014, the world economy remained stuck in the same rut that it has been in since emerging from the 2008 global financial crisis. Despite seemingly strong government action in Europe and the United States, both economies suffered deep and prolonged downturns. The gap between where they are and where they most likely would have been had the crisis not erupted is huge. In Europe, it increased over the course of the year.

Developing countries fared better, but even there the news was grim. The most successful of these economies, having based their growth on exports, continued to expand in the wake of the financial crisis, even as their export markets struggled. But their performance, too, began to diminish significantly in 2014.

In 1992, Bill Clinton based his successful campaign for the US presidency on a simple slogan: “It’s the economy, stupid.” From today’s perspective, things then do not seem so bad; the typical American household’s income is now lower. But we can take inspiration from Clinton’s effort. The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “Demand, demand, demand.”

via The Politics of Economic Stupidity by Joseph E. Stiglitz – Project Syndicate.

via The Politics of Economic Stupidity by Joseph E. Stiglitz – Project Syndicate.


The Indian Dream? World Bank Says Social Mobility in India Comparable to U.S.

A recently released World Bank report has claimed that the chance of escaping poverty is now roughly the same in India as it is in the U.S.

The report, called Addressing Inequality in South Asia,  compares the share of consumption among three developing countries – Vietnam, Bangladesh and India – and the United States, divided along transitioning class lines – moving out of poverty, those moving from poverty into the middle class, falling back to poverty, falling out of middle class. The findings of the analysis were that “within the same generation, mobility in earnings – measured by the ability to move out of poverty and into the middle class – is comparable to that of the United States

The report says that India between 2004-05 and 2009-10, 15% of the total population also moved above the poverty line. By these measures, the report claims “upward mobility within a generation in…. India was comparable to that of dynamic societies such as the United States.”

via The Indian Dream? World Bank Says Social Mobility in India Comparable to U.S..

via The Indian Dream? World Bank Says Social Mobility in India Comparable to U.S..


Institutions and Sustainability


I
nstitutions, whether political, social or economic ; set the context for individual and group behaviour and are meant to provide the resources individuals need to survive. How people act and live is shaped in large part by the social structures in which they find themselves.[1] Social Justice and Rewarding Courage,  is in part , a matter of ensuring that these institutions through its instruments of intervention and action do in fact satisfy basic human needs.

Many structural forces which are characterized by exploitation and lack of innovation tend to create a system in which people become trapped in a particular social situation. Structural violence often results, in the form of power inequity, poverty, and the denial of basic human rights. Basic human needs go unmet, and groups suffer from inadequate access to resources and exclusion from institutional patterns of decision-making.[2]

Many sustainability professionals are fearful about the scale of the challenges facing the world, but this uncertainty can help generate the energy required for courageous action. While the desire to concentrate on finding practical solutions is understandable, it makes sense at the same time to also recognise and step towards our deepest fears, which can feel akin to taking a leap into a bottomless abyss.[3] Former US President Bill Clinton illustrated some of the nuances of uncertainty and sustainability in his talk at University of Oxford in 2012. Bill Clinton said that the most important change that needs to happen to confront the sustainability challenges of our age is to raise the consciousness of the world’s population. He said it was a good thing that we did not know for sure whether the calamitous cocktail of climate change, resource scarcity, ecosystem degradation and population growth would lead to an end of civilisation as we know it.[4]

Creating Shared Values with Institutions

When the expression “sustainable development” was coined in the report of the World Commission on Environment and Development in 1987, it was defined as “… development to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987). From a legal perspective, sustainable development has been defined as “a comprehensive economic, social and political process, which aims at the sustainable use of natural resources of our planet and the protection of the  environment on which nature and human life as well as social and economic development depend…” (International Law Association, 2002).

The task of identifying a common framework for institutions to be effective in leading the path to sustainable world order is not easy. One important observation that could be drawn from available literature is that Institutions of any kind , now have to create shared values to achieve this task. Michael Porter and Mark Kramer has talked about creating shared value in business and corporate strategy in their award winning article in Harvard Business Review.[5] The article talks about purpose of corporation to be creating shared value and how to achieve that. In recent years business increasingly has been viewed as a major cause of social, environmental, and economics problems.

The question is how to transform the institutions to be being in virtuous circle of sustainable development. In this essay I propose a framework to which institutions should look into to bring that change and create shared value. The three wings of that change would be the following:

Sustainability and Education: Fostering organizations for sustainable economics and management .

Fostering Innovation : Fostering a culture of Innovation that is centred around driving business models  which bring in societal change.

Rewarding Courage: A focus on rewarding courage to stay the course in the times of adversity and uncertainty and even to take discomfort.

Three_pillars

Exhibit 1:  Three Pillared Framework for transforming the Institutions

Sustainability and Education

Education is a prerequisite for promoting the behavioural changes and providing all citizens with the key competences needed to achieve sustainable development. Education and training should contribute to all three axes of sustainable development, namely:

The Social perspective – education and training strengthen social cohesion by investment in human capital;

The Economic perspective – education and training contribute to building a knowledge society based on sustainable economic growth; and,

The Environmental perspective – education and training are crucial for changes in citizens’ behaviour on issues such as: consumption, transport, use of sustainable energies, etc.

Knowledge, Values, and Education are fundamental to all the changes that have been considered is a major transformation of human awareness. This shift in attitude and thinking, which is already underway, involves a new intellectual understanding One of the key initiatives that many universities around the world has taken,  is to foster student organizations who acts as agents for sustainability to bring in curricula change and motivate the academic and student community for sustainable development. One such organization is oikos , which with its chapters around the world is increasingly creating awareness on sustainability and coming up with tangible deliverables to bring in the change. My personal experiences as President of a oikos local chapter in New Delhi has been immensely fruitful in terms of generating a knowledge bank in the university and spreading the word on sustainability . While doing so there have been many instances when we were able to partner with a variety of organizations to create projects which would in future keep generating insights in the area of sustainability. Institutions today need to realize the fact that education right from the very beginning of one’s formal education and  has to absorb the true values of sustainable development.

If the positive changes and are to continue and intensify, the driving force will be an awakened, concerned, and mobilized global civil society. Governments and corporations will respond to voter and consumer demand, and a vibrant global people’s movement could inspire endless variations on the theme of sustainable development.[6]

Fostering Innovation

It has to be now understood well by all kinds of Institutions that the next phase of innovation lies in the fact that new business models need to be driven for societal change and not economic value added. In fact economic value should be drawn by designing new products and services which can bring societal change in turn generating economic value. Creative thinking has always been integral for improving well-being. (Lemelson – MIT Program, 2003 )

As the world’s largest democracy, with a diverse population of more than one billion, India has become a key testing ground for sustainable development. Most of the media attention has been focused on the country’s pockets of urban, English-speaking university graduates who are “piggybacking,” capitalizing on the Internet and decreasing telecommunications costs to capture hundreds of thousands of software and customer service jobs from overseas, at a fraction of American or European wages. The high-tech start-ups of Bangalore have been heralded in the press. Corporations such as GE and IBM have even opened R&D centres there, employing PhD-level engineers who are helping to invent and improve info tech, biotech and nanotech.[7] There are various case studies available similarly for China[8] and Africa[9] which talk about Innovation for Sustainable Development.

The proposed framework envisions a world where Science and Technology work more directly for social justice, poverty alleviation and the environment. This requires innovation which is transformative – reshaping social and power relations to allow innovation in new directions. It means innovation for sustainability, paying attention to ecological integrity and diverse environmental and social values. It means that the benefits of innovation are widely and equitably shared, and not captured by narrow, powerful interests. It means encouraging open and plural forms of innovation pathway – social and technical; high tech and low tech; those which are currently hidden, as well as those which are more commonly recognised. It means organising innovation in ways that are networked, distributed and inclusive, involving diverse people and groups, including those who are poor and marginalised. As a result, this is a world where all feasible directions for scientific, technological and wider social innovation are discussed as matters for legitimate political argument, just as in other areas of public policy. It is a world where scepticism over some particular innovation pathway can no more be excluded as indiscriminately ‘anti-innovation’ than opposition to any specific policy is generally ‘anti-policy’.  It is a world where a deliberate diversity of innovation pathways flourish and interact. What is needed is nothing short of a vigorous new critical glob al politics of innovation.[10]

Rewarding Courage

The recent global financial crisis and ensuing recessions placed a premium on strong, effective and “sustainable” leadership. Although people tend to measure wealth in terms of the dollar value of a portfolio, we believe it is better to measure wealth in terms of the real spending that the portfolio can sustain over the entire life of the obligations served by the portfolio. Sustainable spending[11], is an expression used  to gauge this true value of a portfolio. Jim Garland used the term “portfolio fecundity,” to describe much the same concept.[12]

Many people felt jubilation at the peak of the tech bubble, because they felt so wealthy. And they were—as long as they were inclined to liquidate their holdings and spend before the market lost its euphoria. If they were still investing (e.g., for some future retirement), those new purchases bought precious little yield! Reciprocally, people felt panic and dismay at the 2009 trough of the financial crisis, because they felt as if their assets had been wiped out. And they were—if they intended to liquidate and spend their assets immediately. But, for the buy and-hold investor, their real income was higher than at the 2007 peak!

Focus should be on creating enough incentives to rebalance into higher yielding assets after they’ve cratered, presumably funded from assets that have performed much better, we can systematically ratchet our sustainable spending ever higher. This ground is amply explored in asset allocation literature. Indeed, the essence of Tactical Asset Allocation (TAA) is an effort to rebalance into investments when they become most uncomfortable, and are therefore priced with a superior risk premium, to reward those who are courageous enough to invest at such times.

Much of these incentives has to come from the policy makers of the world. Rebalancing into the most feared and loathed stocks, and out of the most beloved high-fliers, requires courage—even if we get a “raise” almost every time we do it! Andrew Ang of Columbia labels this “countercyclical investing.” He calls on long-term investors to institutionalize this kind of contrarian behaviour.[13] If we have the courage to do this, even though it creates discomfort and goes against human nature, it far better aligns our investments with the long-term obligations that they are intended to serve.

Institutionalizing a focus on sustainable spending, as a basis for gauging our investments over time, can help give us the courage to stay the course in adversity and even to take on more discomfort when it is most profitable—and most frightening—to do so.


[1] E. Franklin Dukes, “Structural Forces in Conflict and Conflict Resolution in Democratic Society,” in Conflict Resolution: Dynamics, Process, and Structure, ed. Ho-Won Jeong. (Vermont: Ashgate Publishing Co., 1999), 159.

[2] John Paul Lederach, Building Peace: Sustainable Reconciliation in Divided Societies. (Washington, D.C., United States Institute of Peace, 1997), 83.

[3] Jo Confino , For sustainability leaders, embracing uncertainty can be rewarding, The Guardian (July 2012)

[4] Jo Confino , Live blog from Oxford University: Day two on food, water and energy for all, The Guardian (July 2012)

[5] Michael E. Porter and Mark R. Kramer, Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and growth. Harvard Business Review (January- February, 2011)

[6] Steven C. Rockfellar, Vision, Courage and Sustainability, The GEA Conference for a Sustainable Future (October 2003)

[7] William Bulkeley,  IBM to export highly paid jobs to India, China, page 1, Wall Street Journal, page 1, (December 15, 2003.)

[8] “China’s Second Wave: Country is Now Poised to Flood World Markets with High End Products Like Cell Phones and Autos,” by Jehangit Pocha, The Boston Globe, Page D1, January 2, 2004.

[9] Innovation for Sustainable Development , Local Case Studies from Africa, United Nations DESA, New York (2008)

[10] STEPS Centre (2010) Innovation, Sustainability, Development: A New Manifesto, Brighton: STEPS Centre

[11] Arnott, Robert D(2004) Sustainable Spending in a Lower-Return World, Financial Analysts Journal, vol. 60, no. 5 (September/October)

[12] Garland, James P., 2004, “The Fecundity of Endowments and Long-Duration Trusts,” Economics and Portfolio Strategy, September 15.

[13] Ang, Andrew, and Knut N. Kjaer, 2011, “Investing for the Long Run,” November 11. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1958258.

Bibliography

INTERNATIONAL LAW ASSOCIATION (2002) Legal Aspects of Sustainable Development. Fifth and Final Report of the International Law Association’s New Delhi Conference, London: International Law Association.

INVENTION AND INNOVATION FOR SUSTAINABLE DEVELOPMENT (November 2003)  Report of a workshop sponsored by the Lemelson-MIT Program and LEAD International,  London , THE LEMELSON-MIT PROGRAM, School of Engineering, Massachusetts Institute of Technology 

WORLD COMMISSION ON ENVIRONMENT AND DEVELOPMENT (1987) Our Common Future. Oxford: Oxford University Press.


The austerity question: ‘How’ is as important as ‘how much’ | vox – Research-based policy analysis and commentary from leading economists

Europe’s embrace of austerity has sparked a debate among economists. This column argues that the debate has gone astray. Until the critical principle – ‘how’ is as important as ‘how much’ – is embraced, the austerity debate in Europe will continue to be completely out of line with the real economic trade-offs.

 

The European debate on fiscal austerity has gone astray – focusing exclusively on the size of deficit reductions. What policy makers should really be focusing on is the budget tightening’s composition�(tax versus spending) and on the accompanying policies. Indeed, the title of this Vox debate – “Has austerity gone too far?” – reflects this inappropriate emphasis on size.

In our view, the essential question is not ‘how far’ governments go but of ‘how’ they go far enough.

Evidence on new taxes versus new spending cuts

Economists have engaged in some lively debates about how to measure and evaluate the effects of large fiscal adjustments episodes in OECD countries (Europe in particular). But a careful and fair reading of the evidence makes clear a few relatively uncontroversial points, despite the differences in approaches. The accumulated evidence from over 40 years of fiscal adjustments across the OECD speaks loud and clear:

via The austerity question: ‘How’ is as important as ‘how much’ | vox – Research-based policy analysis and commentary from leading economists.

via The austerity question: ‘How’ is as important as ‘how much’ | vox – Research-based policy analysis and commentary from leading economists.


Government Intervention in the Economy

Statue of Liberty Gaeilge: Dealbh na Saoirse

Statue of Liberty Gaeilge: Dealbh na Saoirse (Photo credit: Wikipedia)

Economy is akin to the freeway, though on the freeway there is a speed limit and traffic signals to regulate the traffic. And of course police to book the offenders. The economy, too, should have limits, regulators, and the law to book offenders.

If we base our analysis on methodological individualism, subjective rationality and inherent unpredictability of economic system to properly analyze the Government role in society we have to conclude that, beyond the point of maintaining the basic framework of law and order, government’s role in society is very limited. One single intervention is unlikely to produce a solution to deep-rooted economic and social problems and thus policy makers often try to build a variety of policy, policies that work on market demand and market supply.

Economists have referred innumerable times to the “free market,” the social array of voluntary exchanges of goods and services. But despite this abundance of treatment, their analysis has slighted the deeper implications of free exchange. One of the most lucid analyses of the distinction between State and market was set forth by

In his book The General Theory of Employment, Interest and Money (1936), John Maynard Keynes set forth a series of theories that have come to be known as “Keynesian economics,” whose major implication for the public and for governments was that recessions and depressions are not simply natural events that will eventually correct itself, but rather a problem that must be solved by direct government intervention in the economy, by deficit spending and other measures.. He pointed out that there are fundamentally two ways of satisfying a person’s wants: (1) by production and voluntary exchange with others on the market and (2) by violent expropriation of the wealth of others. The first method Oppenheimer termed “the economic means” for the satisfaction of wants; the second method, “the political means.” The State is trenchantly defined as the “organization of the political means.”

Economists usually make a common mistake, that extensive modeling, statistical and empirical coverage of events is enough for proper design of any system. Economics is a social science and the effects of intervention cannot be calibrated / forecast with great accuracy , people’s behaviour is subject to change as one can infer that from the ‘law of unintended consequences’. If we live in such undetermined and unpredictable world, with limited knowledge and limited ability for proper economic analysis, one cannot be sure about the policies that are being proposed.


WTO and Regional Trade Agreements

“In the last years, we have seen the WTO being stuck, while regional & bilateral trade agreements gained ground, so how would you assess the role of the WTO in the upcoming decade and do you think that the WTO will need to adjust to this new environment, if so, how?”

Global trade liberalization occurs through a variety of channels and not all of them appear to be in harmony with one another. Though every major nation is now a member of the World Trade Organization (WTO) and a participant in its complex process of multilateral trade liberalization; an average WTO member also belongs to six Preferential Trade Agreements (PTAs) (World Bank, 2005). WTO is now facing growing ‘irrelevance’ in bringing multilateral trade agreements palatable to all the members on the table, amidst the growing popularity of Regional Trade Agreements (RTAs) and PTAs.

RTAs on one hand can further the process of globalization through expanding the scope of trade cooperation, whereas, on the other hand, their trade diverting effects may contribute negatively to the process of international economic integration. Their proliferation could create competing blocs, eroding the viability of Multilateral Trading System (MTS). Regional groupings like ASEAN are nothing but a reflection of spaghetti -bowl effect. With the growing number of RTAs and PTAs the WTO needs to change gears and come up as a stronger organization to prevent the harmful effects of regionalism on International Trade and MTS.

The challenge is to ensure greater coherence among PTAs and between PTAs and MTS. The prolonged Doha negotiations suggest that the interest in multilateral agreements have been seriously weakened. Such a situation offers more room for bilateral deals. DDA should be concluded sooner than later, as implementing free trade within RTA is becoming increasingly difficult. From the perspective of normative economics, countries and WTO should work towards removing domestic distortion in Agriculture Sector. An effective competition policy, with an idea to remove market imperfection is needed. There is also a need for conducting joint exercises by the relevant ministries among the partner countries to understand whether the reasons for restricting market access are genuine or not. Predatory pricing is difficult to practise; therefore, anti-dumping measures on presumptions for stopping that have to be verified. RTAs pose a potential risk to the multilateral system, which gives rise to the need for an internationally financed Advisory Centre on Regional Trading Arrangements to provide training, negotiating advice and accreditation to private providers based on an agreed analytical framework.

The world trading system is far from perfect; and many reforms and changes in rules should be under discussion. But to further the cause of trade liberalization, much remains to be done including a defence of what has already been accomplished.