Dear Expats

So, you’ve got a job in India. Welcome. I like the fact  that a stint in India is a valuable addition to your CV. I also appreciate that your salary enables you to live among India’s rich. I also understand that you’d like to stay in yuppie enclaves as you find yourself most comfortable there. But having done that, what sense does it make for you to complain that India’s rich yuppies behave like the rich yuppies back home? If you really want to “find” yourself, well, locate yourself elsewhere. There is a lot of India for your kids to experience, if you can sacrifice the comforts of an expatriate lifestyle.

Also, most Indians aim to live their lives. We aren’t particularly interested in being a country-sized museum of anthropology for you guys to visit for extended periods when you get bored of your suburban life.

H G Wells’ Alien

One of H G Wells’ stories or novels had a character who behaved as if he was well-up on all the latest news, but had an out-of date library. If I remember correctly, that character later turns out to be an alien. Does anyone remember the name of the story? Is it from “War of the Worlds”?

I Wasn’t Talking to You

The dark lord says:

The typical arguments are made by the right too. If the economy is going good “see, the deregulation has brought about unprecedented wealth. How can you propose more regulation?”

When the economy goes bad, we get the answer “see, the crisis is brought about due to regulation in the housing mortgage market. How can you propose more regulation?”

Yes, the libertarian right makes this argument, but there is a consistency in it. We believe that most regulations do harm, and that a lightly regulated economy works best.

If the socialist left made the counter-argument, that too would be internally consistent. If you really wanted to regulate the economy all the way to the Soviet Union, you could justifiably claim that both the US and India are variants of the same system. But in my post, I wasn’t arguing with the socialist left – I don’t need to, as history has already answered them.

My argument is with those who say that “we need a free market with some regulations, but that doesn’t mean that we should be socialist”. If you hold that belief, I would expect you to believe that there is some point at which additional regulations do more harm than good, so you’d support some regulations and oppose others. But what I notice is that for supporters of regulation, the right amount of regulation is always “A little more than we have now”.

We Always Need More Regulations

As Ajay Shah points out, we don’t just regulate our financial system, we micro-manage it. When things are going well in the US, and we make the case for deregulation, we get the answer: “See, even in the US, we don’t have a completely free market system. Even they have regulations. How can you propose that we junk ours?”

When things go wrong in the US, we get the answer: “See what happened to the US because they followed a free market system? How can you propose that we junk our regulations? We need more.”

This bias ensures that we will always follow suit when the US moves left, never when it moves to the right.

Perverse Consequences

Two nights before the first communion, Father Antonio Isabel closeted himself with him in the sacristy to hear his confession with the help of a dictionary of sins. It was such a long list that the aged priest, used to going to bed at six o’clock, fell asleep in his chair before it was over. The interrogation was a revelation for Jose Arcadio Segundo. It did not surprise him that the priest asked him if he had done bad things with women, and he honestly answered no, but he was upset with the question as to whether he had done them with animals. The first Friday in May he received the communion, tortured by curiosity. Later he asked Petronio, the sickly sexton who lived in the belfry and who, according to what they said, fed himself on bats, about it, and Petronio answered him: “There are some corrupt Christians who do their business with female donkeys.” Jose Arcadio Segundo still showed so much curiosity and asked so many questions that Petronio lost his patience.

“I go Tuesday nights.” he confessed. “If you promise not to tell anyone I’ll take you next Tuesday.”  (Gabriel Garcia Marquez, One Hundred Years of Solitude)

The purohit who did my upanayana when I was 8 was very wise. He confined himself to forbidding me from throwing stones at dogs.

Markets and the Long Term

The Economist has an article on the problems of aligning the CEO’s interests with those of the shareholders. The obvious solution to this  is to ensure that a large proportion of the manager’s compensation is in the form of shares or stock options. But it turns out that during the recent financial crisis, the more shares of a bank its CEO held, the worse the bank performed.

I believe that this is confounding two different problems. The agency problem relates to aligning an incentives of the agent (i.e. the CEO) to that of the principal (i.e. the shareholders).  The second problem is that of translating long term goals into short term actions.

Human beings are not very good at solving the second problem even when the principal and agent are the same people. We aren’t good at planning our own diet and exercise so that our long-term health is maximized. The challenge is not only the intellectual one of long-term planning, it is also one of the incentive to execute the plan. Who wants health food and rigorous exercise when fried stuff and indolence are so pleasurable?

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The August Pragati

Have you picked up the August 2009 issue of Pragati yet?  It is good. The focus this time is on legal and regulatory reform and it has been guest-edited by Shruti Rajagopalan.  My favourites are this piece by Ajay Shah about the changes in legal regime required for  further Financial Reform, Aadisht’s article on the widespread prevalence of retail corruption in India, and Jaivir Singh’s article on Labour Laws and Special Economic Zones.

A little more about that last piece. The common wisdom is that we need to reform our labour laws to make life easier for our companies. The theory is that if employers know that they can lay off workers without getting mired in red tape, they will be more willing to hire workers.  Now, many people argue that labour inflexibility is not actually much of a burden on employers and that they get around restrictions by hiring contract labour or by “persuading” labour inspectors to be more flexible.

Labour laws do hamper employers when the workers have lots of market power anyway and there are strong unions, as was the case in the Bombay of the 60s and 70s, but when companies set up textile mills in remote areas of Tamil Nadu and Gujarat where employment is scarce and the low wages they offer are still better than the alternatives, they are pretty much useless. In other words, labour laws are ineffective precisely where they could be of use to Labour.

Jaivir Singh points out that instead of changing the law to provide a little more flexibility to employers, opposition to the relaxation   has forced government to adopt a subterfuge wherein they are ignored almost entirely within SEZs. Incidentally, Aadisht’s article is also about why India’s preferred mode of corruption is one where industries buy lax enforcement of the law, rather than lobbying to have laws changed.

Senility and Justice

Commenters have suggested that Justice Iyer is getting senile. Not really, it is Justice that has suffered  from an onset of senility. Amartya Sen  will be writing a book about what V R Krishna Iyer has already put in practice. Justice, acording to Sen, will not be achieved by identifying specific principles that are to be upheld, violation of which would constitute injustice. Instead, like pornography, we will know injustice when we see it. So, Justice Iyer saw injustice in hanging Dhananjay Chatterjee, so he opposed hanging him. He sees injustice in dowry harrassment, so he supports hanging those who drive women to death for dowry. The relevant principles can be thought up after we figure out which side we are on.