Thinks 696

strategy+business: “You need to [first] understand the company’s culture—the identity of the organization. A lot of CEOs think they have this understanding, but that’s often at a high level, based on impressions and anecdotes (and of course, CEOs don’t always get the full and unfiltered view). Even when companies conduct formal research, they tend to focus on employee engagement, asking whether employees are happy coming to work, whether their jobs are fulfilling, or whether they’d recommend the company to a friend. Those methods have value, but they answer a different question: whether employees feel positively or negatively about various aspects of their workplace experience. They don’t identify what the culture actually is. To fully understand a company’s culture, you need to go beyond those sentiments. That requires a comprehensive survey of the organization, one that looks at more than just employee engagement. Questions need to be structured to accurately define the dominant traits of an organization and how they might impact its ability to deliver on its strategic goals, as well as the workplace experience it offers to employees. It’s a challenging task, because culture—the unwritten rules for how a company functions on a day-to-day basis—is often invisible.”

Washington Post: “TikTok starts studying its users from the moment they first open the app. It shows them a single, full-screen, infinitely looping video, then gauges how they react: a second of viewing or hesitation indicates interest; a swipe suggests a desire for something else. With every data point, TikTok’s algorithm narrows from a shapeless mass of content to a refined, irresistible feed. It is the ultimate video channel, and this is its one program. The “For You” algorithm, as TikTok calls it, gradually builds profiles of users’ tastes not from what they choose but how they behave. While Facebook and other social networks rely on their users to define themselves by typing in their interests or following famous people, TikTok watches and learns, tapping into trends and desires their users might not identify. The system runs on a sophisticated machine-learning engine — ByteDance researchers have championed its “sub-linear computational complexity” — but to TikTokers, the process could not be simpler. Launch the app. See the video. Passively consume.”

Kenneth Rogoff: “In chess, when a player makes a mistake, they’re much more likely to make another mistake in their next move. People lose their nerve — this is a very human tendency but I worry that’s what we’re seeing with central banks today. They induced too much stimulus, remained unaware as inflation rose and now, they’re panicked and rushing in the other direction. We can’t follow one mistake with another — we need to overlook the past to focus calmly on the situation now.”

Benjamin Reinhardt: “If we draw the thread of ergophilia out into the future, we can build a world where energy too cheap to meter unlocks technology that is indistinguishable from magic. Chunky, fixable technology unconstrained by the need to make everything as efficient as possible. A return to the belief that our children will have better lives than our own. Airships sailing the sky, hypersonic craft skipping along the atmosphere, and ion-belching behemoths plying the stars. Fusionpunk…The great slowdown began when we started rationing energy. Restarting progress means getting energy that is so abundant that it’s almost free.”

Solving India’s Income Problem (Part 13)

Liberty

The Preamble speaks of liberty in the context of thought, expression, belief, faith and worship. But there is one liberty which stands above all. It is the freedom to trade and exchange. From Investopedia: “[Adam] Smith argued that by giving everyone the freedom to produce and exchange goods as they pleased (free trade) and opening the markets up to domestic and foreign competition, people’s natural self-interest would promote greater prosperity than could stringent government regulations.”

Here is a quote from Smith’s “The Wealth of Nations” written in 1776: “He generally, indeed, neither intends to promote the public interest nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

Voluntary trade is a positive-sum game; it only happens if both sides come out ahead. Trades and exchanges happen in markets. The freedom to trade and exchange – without constraints and interventions in free markets – is not an easy ask. Governments interfere in markets and use the threat of force to coerce, and in doing so start a downward slide to serfdom.

It probably sounds very counter-intuitive in a world which is erecting barriers to trade but the path India should choose is that of openness. This is the time to recreate the initial conditions of the 1800s and early 1900s that helped the US prosper and create the greatest wealth creating machine the world has ever known. The foundational ideas are simple and centred on liberty, especially economic liberty (which did not find a mention in the Indian Preamble).

There is a direct correlation between economic freedom and prosperity. Just look at this map of the world from Fraser Institute’s Economic Freedom of the World report – the more free a country, the more likely it is to be prosperous.

India is in the 3rd quartile, ranked at 89th. (This is based on 2020 data.)

Here is a summary of what the index measures:

Economic freedom is what our Constitution writers missed – and many generations of Indians are paying the price. This is the real liberty Indians need to let the ‘invisible hand’ and spontaneous order work their magic.

Thinks 695

Ninan: “Taking all four decades (1981-2021) together, the IMF numbers show that only three countries did significantly better than India. China was in a category by itself, multiplying its economy 62-fold (in current, not constant, dollars); South Korea was next at 25 times, followed by Vietnam. India fitted into the pack of countries that followed. Along with four others (Egypt, Sri Lanka, Bangladesh and Taiwan), it multiplied about 16-fold, while Thailand and Malaysia were not far behind. So it has been a creditable but not an outstanding record. Nevertheless, the country’s share of world GDP, after shrinking in the 1981-91 decade, from 1.7 per cent to 1.1 per cent, rose to 2.5 per cent by 2011 and then to 3.3 per cent in 2021, with still higher shares to come.”

Leonard Read: “Property – access to valuable resources – is simply a tool to help satisfy human desires. As long as the ownership and use of property is determined and guided by the market forces of open competition, everyone has access to these valuable resources in proportion to his own productive effort. Private ownership means personal control over the tools of production and, thus, personal control over one’s life. But when government owns and controls the property and thereby denies the functioning of the market, then government controls lives.” [via CafeHayek]

strategy+business: “When a business is going well, I’ve seen leadership teams conform to an unwritten 80-20 rule of thumb: They spend about 80 percent of their time focused on growth for the long term and only 20 percent managing the short term. But when things are not going well, I’ve observed the opposite: The temptation is to focus almost exclusively on the short term, with leaders spending a mere fraction of their time looking ahead. An ultra-short-term focus, however, is not sustainable. As pressing as today’s demands are, as businesses continue to struggle with impact of COVID-19 and economic uncertainty, leaders should strive for balance between the short term and long term to produce value that benefits all stakeholders.”

Donald Boudreaux: “In the private sector, we rely upon two core features of markets to protect against…abuse [of government power]. First, each person is free not to patronize firms that fail to deliver sufficient value. Second, firms prosper only by — and only so long as they continue — competing successfully for consumers’ dollars. But because government agencies are funded with taxes — and because those agencies face no competition — greater reliance than is necessary in the private sector must be put on the integrity, altruism and diligence of elected officials to oversee government agencies in ways that ensure that those agencies don’t abuse their awesome powers.”

Solving India’s Income Problem (Part 12)

Justice

While the Preamble talks about social, economic and political justice, I believe the most important of the three is economic justice; without it, the poor will not have access to the other two. A recent article in Times of India based on a report from PRICE (People Research on India’s Consumer Economy) had this table:

The key takeaway: 67% of Indian households (comprising the Aspirers and Destitutes) have (on average) expenditure greater than income, and therefore almost no savings (and probably some debt). Given that 800 million people in India (60% of population) are still dependent on free food from the government, this is perhaps not that surprising.

This table below from PRICE is even more shocking. The bottom 60% of Indian households saw their household income decrease in the 5-year period from 2016 to 2021. (This includes the impact of the pandemic.)

Above anything else, Indians need economic justice – and filled stomachs. The solution is Dhan Vapasi – a return of their wealth that has been captured and is controlled by India’s central and state governments. As I have written previously, Dhan Vapasi is that program which can achieve the following:

  • Put money in the hands of people without enlarging the fiscal deficit
  • Get India to sustained 10% GDP growth rate
  • Not entail any government borrowing which will impact future growth
  • Attract global investors and their trillions of dollars
  • Not cause inflation
  • Be politically popular and financially wise
  • Solve the credit constraint problem that many Indians face
  • Give families the freedom to make their own choices
  • Not a violation of the fundamental rights of the people

Dhan Vapasi combines two ideas – the monetisation of surplus public assets combined with universal wealth return. India’s public wealth of $20 trillion which is locked up in land, PSUs and minerals needs to be returned to the rightful owners – the people of India, who can then decide what to do with it. Dhan Vapasi is the only fair solution which delivers economic justice to every Indian and offers them the freedom to choose. It is the first building block for a prosperous India.

Thinks 694

Rita McGrath: “Breakthrough innovations are relatively rare, and are often the consequence of years of tinkering and cumulative creativity.  This is a point that is made by both Matt Richtel in his book on creativity “Inspired” and by Safi Bahcall in his work on “Loonshots”.  This is why the story of innovation progress is so difficult to unpack, as it is never a straight line from concept to market-creating impact.”

Economist on China: “Many developing countries see nothing magic about the year 1945, and have limited nostalgia for a time when the West dominated rulemaking. China is ready to offer them alternatives. Seven decades ago, at founding meetings of the UN, Soviet-bloc delegates sought an order that deferred to states and promoted collective rather than individual rights, opposing everything from free speech to the concept of seeking political asylum. In the late 1940s communist countries were outvoted. China now seeks to reopen those old arguments about how to balance sovereignty with individual freedoms. This time, the liberal order is on the defensive.”

Adam Tooze: “It is often said that the dollar wins whatever the state of the world economy. It is a safe haven in crisis; in a boom, money surges into the dollar because US business is the prime generator of profits. But what is increasingly hard to ignore is how the dollar’s monetary pre-eminence is out of proportion to America’s actual economic standing in the world. Thanks to the explosive growth of emerging markets such as China and India, the world economy is increasingly multipolar. As a result, the US accounts for little more than 20 per cent of global GDP and yet its share of currency reserves is closer to 60 per cent and the dollar is involved in 85 per cent of all foreign currency transactions. If currency is conventionally thought of as an attribute of sovereignty, then this preponderance of the dollar would seem to confirm the continued existence of a US financial empire. And yet in 2022 this is at odds with America’s polarised and dysfunctional politics and the great power competition it faces abroad. It seems almost anachronistic that the Federal Reserve still functions as the de facto central bank of the world, like a hangover from the era of the Marshall Plan in the mid-20th century, or the moment of unipolarity in the 1990s.”

Robert Greene: “People don’t understand that the person above them who seems so powerful and in control often has insecurities. The truth is, the higher up you go in a hierarchy, the more insecure you become. The more you worry about whether people truly respect you.” [via Arnold Kling]

Solving India’s Income Problem (Part 11)

Three Words

This is what the Preamble to the Indian Constitution says:

WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN, SOCIALIST, SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens:

JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity

While much of the debate in the past few decades has focused on the addition of the words “socialist” and “secular”, what has been missed out is the importance of three words which can guide us on the journey ahead. These are justice, liberty and equality. In the rest of this series, I will discuss how a reinterpretation of these objectives can lay the foundation for India’s future prosperity.

I have been a strident critic of the Indian Constitution. While its length and legalese render it almost unreadable for the ordinary Indian, what is more appalling is its origin. Here is what I have written:

India’s pre-1947 poverty was crafted by the British and their invading predecessors. India’s post-1947 poverty was handcrafted by the composers of the 1950 Constitution. A Constituent Assembly of elitist Leftists led by their patron saint Jawaharlal Nehru concentrated powers in a Central government – exactly as the 1935 Government of India Act passed by the UK Parliament did. 242 of 395 Articles in the 1950 Constitution were copied verbatim from the 1935 Act which was designed to subjugate the people and deny them freedom. The fate of Indians – and those unborn – was decided in those crucial years between 1947 and 1950.

The continuing Colonial Constitution (with its 100+ amendments which chipped away the few remaining freedoms that Indians enjoyed) has concentrated ever-increasing power in the hands of a few at the top of government – just the way the British ruled and controlled Indians. If we did not have freedom before 1947, it is impossible to argue that we have freedom now – because the rules have not changed.

I am not the only person critical of the Constitution. Its primary author, Dr. Babasaheb Ambedkar, was under no illusions about the document drafted. The Quint quotes Dr. Ambedkar (speaking in the Rajya Sabha on two separate occasions):

… Sir, my friends tell me that I have made the Constitution. But I am quite prepared to say that I shall be the first person to burn it out. I do not want it. It does not suit anybody.

… The reason is this: We built a temple for god to come in and reside, but before the god could be installed, if the devil had taken possession of it, what else could we do except destroy the temple? We did not intend that it should be occupied by the Asuras. We intended it to be occupied by the Devas. That’s the reason why I said I would rather like to burn it.

Indians revere the Constitution – even though none bar a few have actually read it. (At 145,000 words, it is not for the faint-hearted.) Let us use the three objectives set in the Preamble as the guiding principles for India’s new direction in a fragile, uncertain world.

Thinks 693

Richard Wagner: “Everyone, private citizens and political figures alike, acts on partial and incomplete information, for there is no other option in the presence of the scale and complexity of contemporary societies. A chief and a council of five elders might reasonably know everything of relevance for keeping a tribe of 200 performing as they think it should. For democratic systems of tens or hundreds of millions, however, any such presumption is some combination of arrogance and fatuousness.” [via CafeHayek]

Bill Dudley: “The Fed’s aggressive monetary tightening is undoubtedly imposing stress on the rest of the world, in large part by boosting the exchange rate of the dollar to other currencies. In developed countries, this drives up prices of imports such as crude oil, stoking inflation and forcing central banks to respond with matching rate hikes — even in economies where inflation pressures are relatively mild and growth is weaker. The effects are even harsher in developing countries. Aside from more expensive food and energy imports, they face reversals of foreign capital inflows (which makes financing imports harder) and increasing difficulty servicing their already burdensome dollar-denominated debts.”

Gerard Baker: “For years now, the critics of liberal democracy seem to have had the upper hand. They can point to the malaise of the West since the turn of the century: repeated economic failure, disastrous foreign adventurism, cultural collapse and conflict at home. For most of that time the so-called strongmen seemed to be gaining the upper hand. Whatever moral qualms there might have been about the messy moral realities, the long-term strategic advantage seems to be in their favor. But setting aside the moral case for liberty, its essential practical virtue has always been accountability. When you can audit, scrutinize, interrogate and ultimately remove the people who govern you, history and logic tells us you should get better government. Exposing failure and venality and punishing it creates incentives for success and probity. The primary contrast between our system and that of the autocrats is the application of this accountability. We have too much of it. They have too little.”

ET: “Ecommerce in India is expected to grow at a rate of 25-30% annually for the next five years, with a steady increase in user base that is estimated to beat the second largest ecommerce shopper base – United States – in the next one or two years, according to a report by consultancy firm Bain & Co and homegrown e-tailer Flipkart. The online shopper base in India, which was at 180-190 million in 2021, will also increase to about 400-450 million users by 2027 when the industry is estimated to be valued at over $150 billion. The report pegged the ecommerce market at $50 billion this year, up 40% from last year.”

Solving India’s Income Problem (Part 10)

Past Writings

I have written in the past about India’s need for a new direction (what I have called, ‘Nayi Disha’). “Freedom is the bedrock of prosperity. With every new leader in power, liberty has been diminishing and government control over the economy has been increasing. Since the leaders in power are unlikely to increase freedom and reverse the anti-prosperity measures that are still widespread, it is up to the people to lead a political and economic revolution if we are to make Indians rich.”

I wrote in a recent essay: “In India, we know all too well how to destroy wealth. Suppression of freedom, high taxes on economic activity by individuals and businesses, putting hurdles on education, taxing imports (which inevitably taxes exports), delayed justice, public sector units, not decentralising governance, random government interventions, discrimination based on caste, religion and group affiliations, and control of public wealth – these are just some of the facets of the anti-prosperity machine run by those in power. India’s politicians and bureaucrats have learnt nothing in the past 75 years from the successes of the nations that created wealth for their people; they have focused on wealth capture for themselves and their cronies.”

In another essay, I wrote: “India, colonised first by the British and then subjugated by its own leaders after Independence, remained poor. 75 years after the British left, the per capita income of Indians is only $2,000, a sixth of the world average. Indians have created wealth for themselves outside India (the household income of Indians in America is the highest among all ethnicities) but have not been allowed to do so in India…Even as the liberal world order faces challenges, India has this moment in time when it can rise…A free and rich India can be the real Vishwaguru. With the West caught in the aftermath of its own financial excesses, with Russia and China being led astray by authoritarian leaders, India has a unique opportunity in its 75th year to transform itself. India’s Amrit Kal can become true if Indians embrace the ideas of freedom – not just political independence, but real economic freedom for every Indian and in every action. This is the Nayi Disha India needs.”

More: “What India is missing is quality jobs paying Rs 40-50,000 a month with a promise of upward mobility as a reward for hard work. Today’s India seems stuck between the sub-Rs 20,000 job and the high-end job in IT and specialist functions paying upwards of Rs 100,000 a month. The chasm in the middle needs bridging… India needs to prioritise economic growth. It needs policies which free businesses, people and trade – and get the government out of business. With many countries and continents under economic duress, this is a unique moment in time for India to shed the baggage of the past and reverse policies that have kept people poor.”

I had written this about two-and-a-half years ago: “Swatantrata (independence) without Samriddhi (prosperity) is a battle not even half-won. We must not rest till every child, worker, entrepreneur has been truly liberated in our country. The good news is that it is possible – because India is rich, even as Indians have been kept poor. If enough of us come together, a peaceful political and economic transformation is possible – not in a generation, but before the next election. This Indian Revolution must begin in our minds. We must begin by replacing the dated romantic ideas of what creates prosperity with the evidence-backed reality of what actually does. Each of us must be a node in this networked spread of new ideas. We must set aside differences of caste, class and community that have been used to divide us. We must unite to set India in a new direction, to choose a different future. The only questions we must ask are – If not us, who? If not now, when?”

Thinks 692

Annie Duke on quitting: “A common misconception about quitting is that it will slow your progress or stop it altogether. But it is the reverse that is actually true. If you stick to a path that is no longer worth pursuing, whether it’s a relationship that isn’t going well, or a stock that you’re invested in that’s losing money, or an employee that you’ve hired who isn’t performing, that is when you lose ground. By not quitting, you are missing out on the opportunity to switch to something that will create more progress toward your goals. Anytime you stay mired in a losing endeavor, that is when you are slowing your progress. Anytime you stick to something when there are better opportunities out there, that is when you are slowing your progress. Contrary to popular belief, quitting will get you to where you want to go faster.” [via Shane Parish]

NFX: “What city you live in. Who you date or marry. Which job you choose. What clothes you wear. We all think we make these choices ourselves. It certainly feels like we’re in full control. But it turns out that our choices — both in our startups and in our lives — are more constrained than we think. The unseen hand in them all is the networks that surround us and the powerful math they exert on us…Our networks are our most valuable resource. They are the way our lives express themselves. Those networks are made up of all the people you care about, the people you, inspire, move, and help to live their best lives.”

John Reed: “When you first start to study a field, it seems like you have to memorize a zillion things. You don’t. What you need is to identify the core principles – generally three to twelve of them – that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles.” [via Morgan Housel]

Anurag Wadehra: “Customer loyalty pyramid is how a tech business cultivates a cohort of loyal customer champions. A pyramid is an apt metaphor for building loyal customers. Most customers are sporadic users of a company’s product or service, some find enough value to become repeat purchasers, fewer still engage repeatedly in depth to become delighted users or passionate buyers. Every B2B tech business can build a loyalty pyramid for their customers, and help them climb up the spiral path. To do so, you have to start with three elements of the pyramid: a bedrock of customer relationships, the promise of your brand, and the reality of your tech product or service offering.”

Solving India’s Income Problem (Part 9)

Global Backdrop

India needs many doublings on its path to prosperity. But the favourable global conditions of the past four decades which helped the rise of China (and many others) are not likely to be there going forward. The post-World War peace in Europe has been broken by the Russia-Ukraine war; an energy crisis looms for much of Western Europe; free trade is being replaced by trade wars, onshoring, friendshoring and protectionism; leaders talk of decoupling and deglobalisation; inflation is at multi-decadal highs and interest rates are rising in Western nations leading to possible recession; fertility rates are falling in much of the developed world; polarisation is increasing and tolerance is decreasing; autocracy, authoritarianism and totalitarianism is on the rise; Western liberal democracies face simultaneous challenges from the far-right and far-left. As Russell Napier put it: “We’re in for a long social and political journey. What you have learned in market economics in the past forty years will be useless in the new world. For the next twenty years, you need to get familiar with the concepts of political economy.”

Here are two charts from Wall Street Journal on the new order (or disorder) in world trade and inflation. As the introduction to the article states: “The post-Cold War order promised a globe stitched together by markets and cooperation between nations. That system has fallen into disorder, and left the world with rising inflation, trade conflict, military confrontation and gnarled supply chains.”

From a recent special report in The Economist: “A great policy reversal is under way in the rich world. The tight fiscal, loose monetary policy mix that defined much of the 2010s is being upended into a loose fiscal, tight monetary policy one. The likely result is a tug-of-war between hawkish central banks and spendthrift governments that will make inflation harder to fight. It will lead to a reckoning about just how much short-term pain societies are willing to bear in the name of long-term economic stability. But it could, ultimately, help economic policy into a beneficial reboot.”

It writes: “The immediate difficulty is that big spending by governments will make it harder (and perhaps impossible) for central banks to hit their 2% inflation targets. Governments are unlikely to stand idly by as central bankers inflict pain on their economies in the name of getting inflation down. They could instead unleash fiscal stimulus before the disinflationary task is complete. The danger is even greater when economies are already buffeted by supply-side shocks, notably the energy crisis. Without fixing the underlying shortages, it is not within the gift of governments to stop the economic pain they cause—they can only redistribute to protect the poor. If politicians try to protect everyone’s living standards, they will cause prices to rise further. The long-term challenge is to avoid fiscal crises. Ageing societies are a challenge spanning the whole of the 21st century. If governments do not control their spending on the old, eventually they will run up against fiscal limits, whatever their cost of borrowing. It would be a mistake to accumulate debts simply in order to put off hard choices, using up fiscal space that may be needed in future crises.”

Bloomberg Businessweek writes: “A world where the US and its allies are in retreat is a world where illiberal states are empowered and destabilizing shocks follow…The current weakness in the global economy provides another way of thinking about the short-term effect of geopolitical shocks. Russia is already in recession. Europe is about to follow, largely because of the cutoff in gas supply. In the US, inflation—also in part a consequence of the Ukraine war—has pushed the Federal Reserve onto its most aggressive tightening trajectory since the 1980s. A Bloomberg Economics model suggests that’s very likely to tip the economy into a downturn in 2023,throwing millions out of work…The lesson of the past few years, though, is that anyone waiting for a return to geopolitical stability may be waiting a long time. History is back, and that’s bad news for prosperity.” It has the chart below.

Niall Fergusson writes: “The world today is dominated by two empires: the US, which originated in the British colonization of North America, and the ethnic-Han-dominated Middle Kingdom we call the People’s Republic of China. But a number of former empires continue to play disproportionate roles in world politics: The Russian empire limps on in the guise of the Russian Federation; the Persian empire is now the Islamic Republic of Iran; one might say the Holy Roman Empire has been reincarnated in the form of the European Union, at once extensive, German-centered and weak. It is not civilizations that clash, but empires.” He adds, in the context of the US-China tensions: “If we pursue Cold War II to the extent of stumbling into World War III.”

Against this backdrop, what should India do? What is India’s path to wealth creation and prosperity?