Category Archives: Economics

Free Market NGOs in Bangladesh

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There’s an article in the January/February issue of The Atlantic about Bangladesh. Authored by Robert D. Kaplan, it’s called “Waterworld,” and it starts out with a long, perhaps sensationalist account of what Bangladesh might have to look forward to because of global warming — a scenario which wasn’t very surprising to me at least. (This much we knew from Al Gore.) There is also a bit about the growth of Islamic extremism — and that too wasn’t at all surprising for those of us who have followed Bangladesh even off-and-on.

What was interesting, however, was Kaplan’s account of the role NGOs play in making an otherwise dysfunctional country work. To begin with, Kaplan argues, central government has always been rather weak in Bangladesh because of the geography and climate:

Yet Bangladesh is less interesting as a hydrologic horror show than as a model of how humankind copes with an extreme natural environment. Weather and geography have historically worked here to cut one village off from another. Central government arrived only with the Turkic Moguls in the 16th century, but neither they nor their British successors truly penetrated the countryside. The major roads were all built after independence in 1971. This is a society that never waited for a higher authority to provide it with anything. The isolation effected by floodwaters and monsoon rains has encouraged institutions to develop at the local level. As a result, the political culture of rural Bangladesh is more communal than hierarchical, and women play a significant role.

Four hours’ drive northwest of Dhaka, the capital, I found a village in a Muslim-Hindu area where the women had organized themselves into separate committees to produce baskets and textiles and invest the profits in new wells and latrines. They had it all figured out, showing me on a crude cardboard map where the new facilities would be installed. They received help from a local nongovernmental organization that, in turn, had a relationship with CARE. But the organizational heft was homegrown. (link)

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Your money’s no good here

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First the world’s richest supermodel stopped taking the dollar as payment for services rendered:

The catwalk star’s twin sister and manager Patricia told Bloomberg in September that: “Contracts starting now are more attractive in euros because we don’t know what will happen to the dollar…” [Link]

Rupees only please – this is a quality establishment, we only take hard currencies here

Then rapper Jay-Z switched his fetti from Franklins to purple euronotes, choosing gouda over american cheese:
Jay-Z … is seen cruising the streets of New York in Bentleys and Rolls Royces (now owned by Germany’s Volkswagen and BMW) with a briefcase of 500 euro notes. [Link]

But now comes the final low blow for the beleaguered greenback – you can no longer use it to pay the white man’s tax at Mumtaz’s tomb:

Foreign tourists to many of India’s most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says. The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar. Until now, foreign tourists to sites such at the Taj Mahal have had the option of paying in dollars or rupees. The ruling will affect nearly 120 sites of interest run by the Archaeological Survey of India (ASI). [Link]

That’s right gringos – put away your cheddar and feed sarkar some paneer, you gotta use rupees if you wanna license to skrill.

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Pandit in the Citi

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One of the great and tragically misunderstood virtues of capitalism is Creative Destruction. Joseph Schumpeter and others famously pointed out that, perhaps perversely, one of the real measures of dynamism in an economy is the rate of failure. Firm failure (and, the symbiotically related measure “ease of entry”) is important for rejiggering the status quo and setting the stage for testing new ideas, structures, and, most importantly, people.

The Next Head of Citibank? Vikram Pandit

The subprime mortgage “crisis” is clearly shaking up a segment of the economy and, in its wake, one of the largest and most venerable blue chip financial institutions in the country, Citigroup –

A longtime banking analyst said late last night that Citigroup may be forced to cut its dividend or sell assets to stave off what she said was a $30 billion capital shortfall, moves that could pull down its shareholder returns for several years.

…”We believe the stock will be under significant pressure and could trade in the low $30s,” she wrote. That would be as much as a 28 percent decline from yesterday’s $41.90 closing price for Citigroup shares.

If correct, the findings could be yet another blow to Citigroup’s chairman and chief executive, Charles O. Prince III, who has endured a barrage of criticism in the last few years for his failure to control costs and improve results.

If Prince is forced out, as Wall Street odds makers strongly believe, one of the top internal candidates for replacing Prince will be superstar Investment Banker and minor legend on the Street – Vikram Pandit.

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Amit Varma Wins the Bastiat Prize

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A hearty SM congrats to Amit Varma of India Uncut who, last night, won this year’s Bastiat Prize.

Pict courtesy of Ultrabrown; Rockstars get bra-throwing female fans; Real rockstars like Amit Varma get Manish Vij as an entourage for the evening.

The Bastiat Prize for Journalism was established by International Policy Network to encourage, recognise and reward writers around the world whose published works elucidate the institutions of the free society.

In the enduring spirit of the Prize’s namesake Frédéric Bastiat, the Prize is given to writers who employ eloquent and witty explanations of complex ideas, combined with a clear understanding of markets and their underlying institutions -property rights, the rule of law, freedom of contract, free speech and limited government. 2007 marks the sixth year of the Bastiat Prize.

Varma’s work has been featured on SM many times before. In addition, his articles have been carried in a number of publications including the Asian Wall Street Journal and, local Indian biz rag, Mint. A collection of his published work can be found here.

Interestingly, while focusing on “old journalism” Varma and at least one other contender for the prize – Jonah Goldberg of National Review’s Corner – are possibly more well known in the blogosphere than they are on dead trees. Varma even credits blogging as the first step on a long path towards press geekdom –

As I mentioned in my post about being nominated, it all began with India Uncut. The blog led to the column, and made me grow as a writer. And I wouldn’t have bothered if no one was reading me. So thank you–you are more a part of this than you realise!

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Why won’t desis go All-in?

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The always interesting Freakonomics Blog, hosted on the New York Times website, asked its readers a very critical question Wednesday (one I’ve laid awake many a night thinking about as I carefully weighed my career options): Why aren’t there more Indian American Professional Poker Players?

Whenever I see a poker tournament on TV or wander through a casino, I am always struck by a particular absence: there seem to be very few Indian-Americans playing poker. Considering that there are so many Indians of poker age in this country who thrive in finance, computer science, engineering, and other fields that incorporate math, probability, risk, etc. — i.e., the kind of fields that produce a lot of amateur and pro poker players — why should this be so?

I guess there are two separate questions:

1. Am I right in my perception that Indians are underrepresented?

2. If so, why is that the case?… [Link]

The author of the post, Stephen J. Dubner, first asks three people, including two “notable” Indians, to break it down for the audience:

Rafe Furst, our poker-playing friend, truth-seeker, and all-around smart guy; Sudhir Venkatesh, our sociologist friend who isn’t a big gambler (as far as I know), but is an Indian immigrant and perceptive observer; and Shubhodeep Pal, an 18-year-old from Dehradun, India, now studying at Singapore Management University (and who just happened to recently send in an interesting question by e-mail, having nothing to do with the topic of gambling). [Link]

Unfortunately, both Venkatesh and Pal give the obvious-half-of-the-answer without digging below the immediate surface. Also, from Pal’s answer it is clear that he is thinking like an Indian (which he is) and not an Indian American, a critical difference to this particular query that I hope is not lost on Dubner or his readers. Here are their responses: Continue reading →

The Hardest Lessons to Unlearn

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Amit Varma, of India Uncut, has an OpEd up in the Asian WSJ chastising the National Rural Employment Gaurantee Act (NREGA) in India –

Politics is often about grand gestures, and the Congress Party’s 37-year-old new general secretary, Rahul Gandhi, understands this perfectly. Shortly after landing his position last month, Mr. Gandhi demanded that Prime Minister Manmohan Singh extend a massive cash redistribution scheme, the National Rural Employment Guarantee Act (NREGA), to all 593 districts of the country…

As wth most political gestures, the goal of NREGA is certainly well intentioned. In many ways, it’s a more energetic / invasive version of the goal pursued by “living wage” advocates in the US. While our economic interventionalists wish to push incomes higher by raising the cost to employers (invisible unemployment be damned), Indian politicians go many steps further, take the nasty employers out of the question altogether, and directly (attempt to) provide 100 days of government employment a year.

The problem, as Varma dutifully notes, is that a nasty bureaucrat can be far worse than a nasty capitalist –

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Econ 101 Works: Call Centers

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It’s pretty much a staple of Econ Development 101 that all economies start with crap jobs and that, overtime, competition for workers grows, productivity grows, and thus salaries grow. The amazing thing about India is how quickly we’re seeing it work right before our eyes –

Young people say it is no longer worthwhile going through sleepless nights serving customers halfway around the world. They have better job opportunities in other fields.

…As recently as four years back, the choice was pretty clear,” Karnik said. “Either you got a high paying, good job at a call center or no job at all. Today, not only are there other options, but they are pretty close to the call centers [in terms of salaries].”

“Earlier it was considered cool to work at a call center,” said Nishant Thakur, 19, after the group had dispersed. “That died out quite quickly.” Added Thakur’s friend, Vishal Lathwal, 19, “If you work at a call center today people will think you don’t have anything else to do or were a bad student.”

From wired to tired in 4 years…. wild stuff.

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Keep the Gold, I Want a New Nokia for Diwali

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I had a relatively traditional Punjabi wedding 4+ years ago; gold was involved. Not a lot, mind you (we’re no Chatwals). But my wife did get some heavy-looking gold necklace-and-earring ‘sets’ from both her own family and my extended family at the time of the wedding. Later, I came to wonder about the point of it all, since the majority of that jewelry simply can’t be worn ever again. (You’d look silly wearing such heavy jewelry at anything but your own wedding.)

Amongst urban Indians, gold is going out of fashion in general:

“My daughters keep saying, ‘Nothing yellow, nothing yellow.’ For them, gold is old,” Bhardwaj said in her living room while sporting three gold rings, bangles, a chain and earrings. A painting of a 16th-century Mughal empress embellished with 24-karat gold decorated the wall.

Her 21-year-old daughter, Sonam Bhardwaj, has had it up to here with gold. “I think it is too gaudy and chunky,” she said with a look of disgust. “Look at my mother.”

In India, where an economic boom has taken hold and tastes are noticeably shifting, Sonam represents one of the newest consumers on the block — a young urban woman who has distanced herself from India’s deep-rooted gold tradition.

Today there are legions of young Indians whose eyes twinkle not at the sight of gold but at the sight of luxury goods. Sonam, for example, is hoping for a new Nokia Nseries phone next month for Diwali, the Hindu festival of lights. She already has a pair of Versace sunglasses and a Guess bag in her collection of fineries. (link)

For me, this transition seems to be an interesting case of a changing economic structure leading to unconscious changes in cultural values and practices. Insofar as most Indians used to be suspicious of banks and credit, gold was the central denomination in life’s most important rituals. New brides were given jewelry in gold partly because the gold itself was a rock-solid economic asset, and I gather the jewelry was usually considered a part of the dowry ‘trousseau’ as well. In a more “liquified” consumer driven system, on the other hand, gold seems dull — static and dusty, like the Gold Standard itself.

Am I speculating too much here, or is there really some sort of unconscious connection between the psychology of the change in fashion and the changing macroeconomic paradigm?

Secondly, does anyone want to defend gold wedding jewelry, and the traditionalism it represents? (Would you rather have gold, diamonds, or something entirely different — say, a Blackberry ‘Pearl’ — as a wedding present?) Continue reading →

Market Cap

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The Rupee has been surging against the dollar again (it’s approaching 39:1; see an earlier discussion here), and according to the New York Times, the instability in the U.S. market in recent months has led investors to pour money into Indian corporations:

Fueled in part by overseas investors seeking refuge from America’s subprime mortgage mess, share prices in India’s markets have outpaced other Asian markets in recent weeks. The Bombay Stock Exchange’s Sensex index set records on 10 of the last 11 days, before closing slightly lower on Thursday at 17,777.14.

The Sensex is up 14.6 percent since Sept. 17. That follows months of somewhat slower gains — the index is up 28.9 percent so far this year, according to Bloomberg Data, and up 102 percent (0r more than double) over the past 24 months.

The real estate company DLF, for example, which had a $2.3 billion initial public offering in July, now has market capital of more than $37 billion — making it roughly the size of Marriott International and Hilton Hotels combined. On Thursday, the company said it would consider overseas acquisitions and offshore fund-raising at its next board meeting.

Reliance Industries, the largest publicly traded company in India, reached a market cap of more than $85 billion this week, up from $6.5 billion in January 2003. Reliance, an oil, chemical and manufacturing company, is now about double the size of Dow Chemical. The market cap of Bharti Airtel, a telecommunications giant, nearly reached $46 billion this week, making it triple the size of Qwest and larger than Telecom Italia. (link)

Those are undeniably impressive gains — and it’s interesting to see companies most Americans have never heard of reaching “blue chip” valuation levels (for more on market capitalization, see Wikipedia).

But — am I right to be worried about a possible bubble? Continue reading →

A Name To Watch: Raj Chetty

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The American magazine has been running a series of profiles of the newest crop of bright, young economists. Their latest profilee is Raj Chetty, associate professor of Econ at Berkeley (although now on loan to Stanford’s Hoover Institution).

Raj Chetty

Raj began his promising econ career by proposing and investigating – at a wee age – an intriguing thesis: in some situations, the demand curve for capital might be upward sloping –

Raj Chetty, now 28, was a sophomore at Harvard University when he came up with the theory that higher interest rates sometimes lead to higher investment. It was a counterintuitive idea. Usually, companies invest less when rates rise because the higher rates increase the cost of capital. But Chetty found that some companies, in fact, invest more because they want to get revenue-generating projects off the ground sooner, rather than later, in order to pay down that costly capital more quickly.

Put another way – when money is more expensive, and the time crunch is on, firms actually accelerate investments in certain, less risky, faster time-to-revenue projects. It’s sort of a “Sorry boys, the first bank payment is due next next week, so stop planning a coast to coast franchise, and start building the first, local Bombay Palace right now….” And building costs more (in the short run) than planning…. Continue reading →