Monday, December 5, 2011

DUMB AND DUMBER

DUMB AND DUMBER

A 2-Pager by Ajit Chaudhuri: December 2011


Introduction: We have all, dear readers, at one time or another, been party to some really stupid decisions. Those of us with championship pretensions on this score would find the following list, of some of the dumbest decisions ever taken, humbling. The purpose of this paper, however, is not only to help put your own stupidity into perspective – it is also to examine why groups of intelligent people sometimes take stupid decisions, and how to avoid this. For those of you uninterested in history, please go directly to the end of page 3.

Some Of The Dumbest Decisions Ever Taken (in chronological order)

By the Shah Of Khwarazm – killing Genghis Khan’s envoys – 1218:

Khwarazm, or Eastern Turkestan, was a large and prosperous empire that included much of today’s Iran, Afghanistan, eastern Azerbaijan, and Central Asia. Extreme deserts and high mountains separated the empire from the Chinese in the east and a burgeoning Mongol tribe further to the north. The Mongols, who were busy at that time fighting the Chinese, sent a trade mission to Khwarazm. A local Governor stopped the mission and confiscated its goods at Otrar (along the Syr Daria river in today’s Kazakhstan). Genghis sent three ambassadors to the Shah, asking for the goods and the mission to be released and the local Governor to be punished. The Shah executed the ambassadors and sent their heads back to Genghis.

The Mongols crossed the Syr Daria with 200,000 men, led by Genghis himself, in 1219 and proceeded to sack the empire. Samarkand, Bukhara, Tashkent, Bamiyan, all flourishing cities at the time, were destroyed. Populations were massacred, raped and enslaved (this is where the Mongols picked up a reputation that has survived 800 years). The offending local Governor was captured and then history is divided as to whether he was built alive into a wall or made to swallow molten gold. The Shah spent two years running and hiding, a fugitive in his own kingdom (the Mongols chased him right up to the Indus river, their southern most advance) before dying in some remote island in the Black Sea. And the land became a Mongol Khanate.


By Napoleon – invading Russia – 1812:

Most of Europe was under French rule in early 1812 – the Prussians had surrendered, England was on the other side of the channel, and, apart from a few annoying guerrilla wars in Spain, the French were well in charge. French military might and Napoleon’s charismatic leadership combined with the values of liberty, equality and fraternity to make for an irresistible force, making the many little kings in the region nervous about the spread of ideas questioning the legitimacy of monarchy within their own populations. And then, Napoleon invaded Russia!

Adam Zamoyski’s account of the invasion, entitled ‘1812’ , suggests that the invasion was meant to be a rap on Czar Alexander’s knuckles that went too far (the Czar had been employing renegade Prussian officers in the Russian Army and encouraging insurrection against the French by the aforementioned little kings). The Grande Armee crossed into Russia in June 1812 with 500,000 men and crossed out in December with 27,000. And the events of those intervening months marked the beginning of the end of French hegemony in anything (with the possible exception of culinary arts).


By the British – invading Afghanistan – 1839:

The British became the bosses of the world in the 19th century – Napoleon was defeated, India was conquered, the sun had difficulty setting on the empire, etcetera. The one blip was on the Raj’s western front, where Czarist Russia was trying to get a foothold in Afghanistan. The British Governor General in India, Lord Auckland, decided that the Afghan Emir was unreliable, and sent in British (i.e. mostly Indian) troops in 1839 to install a puppet Emir and a British representative.

The forces reached Kabul, but were unable to hold on there and therefore decided to return to Peshawar in January 1842. A British contingent of about 16,000 people left Kabul, of whom one person reached Jalalabad on the Indian border. To quote Rev. G.H Gleig, an Army Chaplain in Kabul, it was ‘a war begun for no wise purpose, carried out with a strange mixture of rashness and timidity, brought to a close after suffering and disaster, without much glory to anybody. Not one benefit, political or military, was acquired with this war.”


By Germany – invading USSR – 1941:

The Germans of the 1930s decided on a policy of lebensraum (literally “living space”) or the need for eastward expansion – killing, deporting, or enslaving inferior Slavic populations and replacing them with superior Germanic peoples. Hitler came to a deal with Stalin in 1939, called the ‘Molotov-Ribbentrop Non-Aggression Pact’, dividing up eastern and northern Europe between Germany and Russia and ensuring quiet there so that he could fight in the west. And then, 4.5 million Axis forces moved into the USSR along a 2900 km front in June 1941!

Hitler was not prepared for a long war and fully expected to be in Leningrad, Moscow and Baku (yes, he needed the oil! Sounds familiar?) before the onset of winter. Bolstering his confidence was Stalin’s recent purge of the Red Army’s leadership, and it’s disastrous conduct of the 1939 winter war in Finland. He (i.e. Hitler) is rumoured to have said, “We only have to kick in the door and the whole rotten structure will come crashing down.”

It didn’t! The invasion determined the outcome of World War II, with 95 percent of German casualties between 1941 and 1944 being suffered in Russia , and ended in May 1945 in the form of a German surrender in Berlin.


By the USSR – invading Afghanistan – 1979:

In the 1970s, the Soviet Union was at the height of its empire. Today, it doesn’t exist! The key reason is a decision taken by the Politburo to respond to the ‘request’ of the then Afghan government for military support – the Red Army crossed the Amu Darya river in December 1979 looking to create a 16th state, Afghan SSR. It crossed back in February 1989, a shadow of its former self and a danger only to itself. And the Soviet Union disbanded in 1991. In the words of the then US National Security Adviser Brzezinski, ‘the Soviets fell into the Afghan trap’.


By Real Madrid – allowing Samuel Eto to Barcelona – 2004:

Florentino Perez became President of the world’s most successful football club in 2000 with the promise that he would buy Luis Figo, which he did. He also bought Zidane and Ronaldo and won La Liga in 2001 and 2003, and the Champions’ League in 2000 and 2002. He then ushered in the first era of ‘Galacticos’ with the purchase of Beckham – a policy of playing the best attacking footballers in the world and a defensive philosophy of ‘we’ll let in three but score six’.

Real Madrid had also purchased the 16-year-old Samuel Eto in 1997, and loaned him out to various clubs before selling him to Real Mallorca in December 2000, albeit with a buy-back clause. Eto proceeded to create havoc every time he played against Real Madrid, most famously scoring two wonderful goals in a 2-3 win for Mallorca in the Bernabeu in the 2003-04 season. At the end of the season, Real Madrid chose not to exercise the buy-back saying that they already had the two best strikers in the world (Raul and Ronaldo) , and Eto went to Frank Rijkaard’s Barcelona.

Eto went on to score 108 goals in 145 appearances for Barcelona, winning La Liga in 2005, 2006 and 2009 and the Champions’ League in 2006 and 2009 and being in the forefront of a shift in the focus of Spanish football from Madrid to the Catalan region that is firmly cemented today. Real Madrid did not win anything for the next three years (and has yet to challenge again for the Champions’ League), and went on to disband the Galacticos and relieve Perez of the club Presidency. As a footnote, Perez is now back and has ushered in another Galacticos era to break Barcelona’s grip on La Liga.


Why Intelligent People Take Stupid Decisions

Conventional thinking had it that highly cohesive groups generated the best decisions, and generated them quickly and with little fallout. And then, in 1961, the Bay of Pigs incident happened. Allow me to describe this a little!

Castro had just taken over Cuba, and the Americans didn’t like it. A new President, JF Kennedy, approved a covert plan to invade Cuba with a bunch of CIA-supported renegades, and to unseat Castro. The invasion was beaten back in three days and merely served to achieve its opposite objectives – strengthen Castro’s regime and cement its alliance with the Soviet Union.

The Kennedy administration studied what went wrong. They found that the CIA had made many assumptions – on the weakness of Castro’s army, on the support the renegades would receive from the local populace – that proved unfounded, and that the administration had not critically assessed the plans (and did not have systems that enabled critical assessment), and had not discussed and evaluated alternative plans. Key reasons for the above were that decision-making groups within the administration were homogenous, they strongly believed in the morality of their plans, and they relied heavily upon consensual validation, leading to a loss of individual creativity and independent thinking. The research psychologist Irving Janis, who studied the Bay of Pigs incident, termed this as Groupthink (GT).

To those with a love for definitions, GT is a mode of thinking that people engage in when they are deeply involved in a cohesive group, when the members’ striving for unanimity override their motivation to appraise alternative courses of action (Janis, 1972).

Most of us, if we think about it, have seen GT in action in our professional lives. Take a look at these symptoms and see if you recognize them.

Symptom 1: Overestimation of the group’s morality and power: This includes that illusion of invulnerability that creates excessive optimism and encourages the ignoring of dangers and the taking of risks, and that unquestioned belief in the morality of the group and the rightness of its objectives that causes members to ignore the moral and ethical consequences of their actions.

Symptom 2: Close-mindedness: This includes the collective rationalization of warnings – by explaining away or discrediting evidence that contradicts the group’s beliefs – and the stereotyping of those opposed as weak, evil, stupid, impotent, etc. In the cases above, the German view of Slavs and the Russian and British view of Afghans illustrate the latter component of this symptom.

Symptom 3: Pressures towards uniformity: This has several aspects! Groups sometimes indulge in self-censorship of ideas that deviate from apparent group consensus, or have ‘mind-guards’ or self-appointed members who shield the group from dissenting or adverse information. And the group creates an illusion of unanimity among members by viewing silence as agreement, and applies pressure on members to conform by seeing disagreement as disloyalty or, to use a recent term, as being ‘off message’.

Symptom 4: Overbearing leadership: The boss makes his/her preferred choice of action overt while assigning a task to a group.


GT often results in bad decisions due to the following reasons –

• An incomplete appraisal of objectives
• An incomplete survey of alternatives
• Failure to examine the risks of the preferred choice of action
• Poor information search and selection bias in information collection
• Failure to work out plan B


Guarding against GT? Janis has the following recommendations –

1. Higher-ups should not express opinions when assigning a task to a group.
2. Each member of the group should be a ‘critical evaluator’, and the group should be open to dissenting opinions.
3. An organisation should set up several independent groups to work on the same problem.
4. Group members should discuss ideas outside, with ‘trusted outsiders’.
5. Groups should invite outside experts to sit in its meetings.
6. All effective alternative courses of action should be thoroughly examined.
7. One group member, on a rotational basis, should be assigned the role of ‘Devil’s Advocate’ – arguing for a diametrically opposite course of action.


To conclude: There are several criticisms of GT, both as a concept and as a villain – the many good decisions that have come about as a result of GT, the many other (probably more influential) causes of bad decisions, and the fact that hindsight is always 20/20. But, coming from an industry with a high GT index (especially the moral superiority and overbearing leadership aspects of it), the concept strikes a chord. I, for one, will organize task-force groups differently in future. And I will have a stronger refrain when I am next shat on for harbouring a dissenting opinion – ‘you buggers are indulging in GT!’

Thursday, October 20, 2011

LOVE AND MARRIAGE

LOVE, MARRIAGE, RIGHTS AND RESPONSIBILITIES!

A 2-Pager by Ajit Chaudhuri

Some of you may remember Art Buchwald’s column in the Washington Post. In one, he describes the basic difference between bachelors and married men as being that married men think that bachelors dine with fashion models (and get sex after that), and bachelors think that married men get a home cooked three-course dinner served with love and affection (and get sex after that) when in actuality both eat cold food in front of the TV every evening (and sleep after that) – it’s just that married men are more likely to use spoons.

Which brings me to some questions I occasionally ponder – is it correct for a man to expect a hot meal every evening, cooked by his wife’s own hands? Is a woman entitled to the expectation of ‘being provided for’ for life by virtue of getting married? Who decides these things? Do married people have a right to their respective expectations and a responsibility to fulfil their spouse’s? In an era wherein many marriages break up early because of mismatch of expectations and unwillingness to compromise, it may be useful to see what the great philosophers have to say on these mundane matters.

I recently read a fascinating paper outlining the disagreement between Kant and Hegel on the role of rights in marriage.
Kant saw marriage as a contract between two people for ‘lifelong reciprocal possession of their sexual facilities’ and said that, in sexual relations, one party in the contract uses the other as an object and vice versa. Now, using any human being to satisfy one’s desires is against basic laws of humanity (and renders the used as ‘irrational’, the ultimate crime). Marriage remedies this with the condition of reciprocity, wherein the used simultaneously uses the user and thus enables both parties to remain ‘rational’. Kant stressed the importance of equal and reciprocal rights and responsibilities in marriage so as to satisfy the fundamental test of respect for persons. Reciprocity requires monogamy, because polygamous systems of matrimony involve unequal amounts of giving and taking between parties.

Hegel adamantly repudiated the Kantian view of marriage as a purely contractual arrangement . Couples celebrate marriage not merely as a quid pro quo but in order to attain a union of desire, affection, interest and identity that goes beyond anything specified in a contract. He said that there is a world of difference between the Kantian ‘contract for reciprocal use’ and the ‘love, trust and common sharing of their existence as individuals’ that married couples commit themselves to. If marriage begins in an agreement, it is a contract to transcend the standpoint of contract.

After 19 years of marriage, I’m not sure which one I go with. But there is one aspect of Hegel’s critique of Kant that I would like to touch upon – that of reducing marriage into an array of legalistic rights and responsibilities. Hegel did not see a role for rights in marriage, saying that to stand on one’s rights is to distance oneself from those upon whom claims are made. It is to announce the opening of hostilities, and to acknowledge that warmer bonds of kinship, affection and intimacy can no longer hold. Conjugal rights, or the right to a partner’s fidelity, or to be freed from domestic chores, or to draw equally upon family income, or an equal right to pursue a career, are OK as expectations and as a natural outcome of mutual concern and respect. But to claim them as rights (that one party presses upon another) is a moral failing.

This broadens into a larger conflict between liberals and communitarians. Liberals see the bonds of social life as constituted primarily by the rights (and the rights-based relations) of individuals. Communitarians take their reference from the shared lives of people within the communities of which they are a part, and the informal and engaged (as opposed to impersonal and abstract) relationships between them. They take umbrage at liberal political philosophy for the way the desires and preferences of individuals have precedence over community, fraternity, and a shared social good. Liberals counter that communitarians dangerously underestimate the possibility of things going wrong between human beings, and the need for guarantees when they do.

Is this something that one needs an advanced degree in philosophy to understand, or do the concepts described apply easily to the real world? I am reminded, at this stage, of a visit to the state of Mizoram in the mid-1990s and a debate on whether Mizos (an indigenous community resident in the state) should revert to traditional tribal law. The move was opposed (and is still opposed) tooth and nail by the Mizo Women’s Association because traditional law sees women’s rights within an informal communitarian framework, without countervailing guarantees that could be relied upon when things went wrong. A formal system of marital rights that could be enforced in a court of law, they felt, is better for women. And Mizoram, don’t forget, is where 89.4 percent of the women (as per the 2011 census) are literate.

To conclude, we would all like that things in love, marriage, and relationships be perfect, and we also know that this is rarely the case. Some expectations are met, some are not, and one is expected to compromise! Beyond a point, one or both partners may choose to break the matrimonial bond and restructure their lives. There is nothing wrong in this! However, when this happens, community spirit and kinship ties may not be sufficient to provide continued care and security to partners and children. A formal legal framework that outlines rights and responsibilities, that partners know they can fall back upon if mutual affection fades, strengthens the institution of marriage. Put simply, there is nothing like having love, respect, and friendship within a marriage so that a mutual and fair understanding of who does what is achieved. And there is nothing like the cold language of rights and responsibilities to back this understanding up. The combination is a winner!

Saturday, August 27, 2011

FAIR AND LOVELY

FAIR AND LOVELY

A 2-Pager by Ajit Chaudhuri – August 2011


Most Indians’ first introduction to Britain is via the chapter on the freedom struggle in class 8 history. Some of us are fortunate to move on – to see Britain through the eyes of Goscinny and Uderzo in ‘Asterix in Britain’ and George Mikes in ‘How to be an Alien’, and to thereby gain an acquaintance with quirky British customs such as the conversations about the weather, the tea break, the love for one’s garden, the queue and the hot water bottle. My own introduction went a step or two further, via my 12 years in a British organisation, and let me state emphatically that I share with Asterix, Obelix and Mikes a wonderment at what I saw and learned in that time.

For example, the value of playing oneself down! In India, high status individuals make sure that they are recognizable by the presence of bowing and scraping minions, by visibly not observing rules and courtesies, and by conspicuous big talk. In the UK, they are not so easily discernable. The scruffy person standing next to you on the London tube could be a Nobel Prize winner, the rubenesque blonde you are trying to chat up at a bar could have a PhD in the classics, and the illegal-immigrant-looking fellow lining up behind you to watch the football game could be Real Madrid’s scout. It is best to reign in one’s initial assumptions. I, for one, remember visiting a pub in rural Scotland where I drank copious quantities of beer with someone looking like a daily wage labourer coming in straight after a day spent shovelling dung. It was only at about drink #5 that I got to know that he was the chief scientist in the “Dolly the cloned sheep” project. And I have many similar stories!

Or the appreciation of realistic reports! Some years into my job, I decided to unilaterally review the work done under my beat, and to do this with brutal honesty (as it was for my own information). The review report highlighted mistakes and bungles, and I did not come out smelling of roses. I sent this on to my boss in London fully expecting that he would trash it and cover up the failings, or else get rid of me. Instead, I was asked to present the findings to the board, then to write a paper for the industry magazine, and then to sit on a panel at an industry jamboree to discuss the realities of working in India. I learned that people there did not value rosy reports, and that I should always include what was not going well, and why, along with what was.

Or the general expectation of honesty and truthfulness! If an authority asks you who you are, you are not expected to corroborate your answer with some form of formal identification. If you put up a proposal for financial support, the claims made within are assumed to be factually correct. And if you submit a request for reimbursement of expenses, you don’t have to provide a hundred countersigned vouchers as proof. Quite unlike Indian systems, where the basic assumption is of dishonesty that has to be proven otherwise!

Or the issue of conflict of interest! We Indians would remember a minister who was found to have allotted a petrol pump under the ‘unemployed youth’ quota to his son, who upon query said, “So who’s son should I allot it to? Yours?” In Britain, he would have been joining the ranks of the unemployed very quickly.

The one quirk that I was particularly unable to apply to Indian conditions was that of ‘being fair’. Let me describe two instances where ‘fairness’ was called into question. We received too many proposals for financial support for our systems to handle, and were (therefore?) somewhat judgemental in disposing of them. And when we found dishonesty in our project partners we quickly and peremptorily closed the projects, without recourse to hearings, alternative viewpoints, and opportunities for the we-are-sorry-and-will-be-good-in-future syndrome to kick in. These were seen as ‘unfair’ by British standards (and therefore synonymous with high treason) even though the action taken was probably right. Similar handling of these issues in the Indian organisation that I simultaneously worked in was considered normal and unworthy of further explanation or justification. I was left feeling schizophrenic!

So, and here I come to the point of this paper, what is ‘being fair’? It is only now, as a ‘mature’ (ahem!) PhD candidate with an interest in policy issues relating to equity and justice, that I am able to read the philosopher John Rawls’ treatise on ‘justice as fairness’ . Fairness, to him, is about avoiding bias or the influence of vested interests, prejudices and personal priorities, and taking note of the concerns and interests of others . Here is a very brief synopsis of what he says about a ‘fair society’.

One, on the role of justice – it has to be the first virtue of all institutions of society. Laws and institutions, no matter how efficient and well arranged, must be reformed or abolished if they are unjust.

Two, on basic individual liberties – each person has to have an equal right to an adequate set of basic liberties that is compatible with a similar set of liberties for all. These basic liberties should be inviolable, not subject to political bargaining or the calculus of social interests. ‘Justice as fairness’ denies that loss of freedom for some is made right by a greater good shared by others. An injustice is tolerable only if it is to avoid a greater injustice.

Three, to identify a set of ‘principles of justice’ for assigning the rights and duties in the institutions of society, and for determining the benefits and burdens of social cooperation, there need to be two rules. There has to be equality of opportunity to gain the skills and inclinations that make for merit and capability. And inequality is acceptable only if it brings the greatest benefit to the least advantaged members of society.

Rawls goes on to identify a hypothetical ‘original position’ wherein the principles of justice in a society are agreed upon using the above three basic positions. The original position has members of society sitting together without taking account their respective social places, classes and positions, or their fortune in the distribution of natural assets and abilities, i.e. in a ‘veil of ignorance’. The fundamental agreements reached in this position, the principles of justice agreed to in this situation, can be considered ‘fair’.

Why is ‘justice as fairness’ important?

First, it moved the issue of justice out of the realm of economics and into that of political philosophy, where it provided a platform for subsequent thinkers such as Amartya Sen to develop their ideas. It provided an alternative to the then prevalent utilitarian beliefs that a society is just when its institutions are arranged to provide the most total satisfaction (summed for all individuals within), and that losses for some are compensated by greater gains for others.

Second, it brought the concept of ‘fairness’ into justice – that the violation of basic liberties of a few is not made right by the greater good shared by many. This would be well learnt in countries such as ours, where we suffer violations of all sorts in the name of security and economic growth (but actually for the greater benefit of our politician – bureaucrat – contractor nexus), so as to enable, inter alia, sensible policies on land acquisition, displacement of indigenous communities, and bestowing of mining and extractive rights.

Third, it provided a theoretical construct for developing ‘fair’ principles. The voluminous and occasionally legitimate, in my limited opinion, criticism that the concepts of ‘original position’ and ‘veil of ignorance’ have attracted do not take away from their importance as enabling constructs.

Finally, it provided a theoretical basis for the acceptance of inequality as being just – that a low-income household may be better off in a high income but unequal society than in a low income but egalitarian society. That we may not intuitively agree with this, again, does not take away from its importance.

To conclude, John Rawls has been like a ‘shaft of light’ (to quote Amartya Sen again, also on reading Rawls) on my dilemmas relating to equity, efficiency and justice. And yet, I hesitate to recommend his writings – they require time and/or greatly superior intelligence (and I have time). I also wonder what he would have made of the current British government’s expropriation of his ideas into the concept of a ‘Big Society’, and then using them to axe budgets and curtail basic services. Maybe he would have said, “It’s not fair!”

Sunday, July 24, 2011

FOUR LITTLE PIGS

FOUR LITTLE PIGS

A 2-Pager by Ajit Chaudhuri


Most of us, as toddlers fighting sleep (and subsequently as parents attempting to induce sleep into recalcitrant two-year-olds), have encountered the story of the three little pigs. Some of us have used the word ‘pigs’ as an adjective, usually in relation to attitudes to gender (and usually with a pejorative undertone – I humbly confess to having been an occasional recipient of this one) or to describe the behaviour of our bureaucrat-contractor-politician nexus towards the public exchequer. And now, the word has moved up in the hierarchy of the English lexicon – it has become a widely used acronym.

PIGS, for those of you who do not read the financial news, is a derogatory reference to troublesome economies in Europe – specifically Portugal, Ireland, Greece and Spain – who, by their errant behaviour, have endangered the very fundamentals of the Euro. The purpose of this paper is to understand how the PIGS have messed up, and to make sense of the rapidly increasing column inches on one or the other of this august group in the newspapers.

Let me begin with some housewife economics. If a household earns less than it spends, it has the following options –

1. Earn more

2. Spend less

3. Borrow money (and pay this back later)

4. Sell an asset

5. Get a handout from a rich relative

Option 5, on paper, seems pleasant! Unfortunately rich relatives tend to be few in number and can rarely be approached more than once, rendering this as non-tenable in the long term. Option 4, similarly, requires the existence of saleable assets and is rarely a long-term fix. Option 3 requires one to bet on future earnings being sufficient to generate a surplus (after meeting future expenditure) to pay this back – interest and all. Going wrong means drastically restructuring expenditure, losing assets, going broke, and probably committing suicide. Ultimately, it is options 1 and 2 that address the problem.

National budgets can be understood similarly, except – a government does not have the option of suicide when things go wrong. Anything more than restructuring, sale of assets and austerity measures leads to the possibility of a ‘failed state’. And a government has the following additional options –

6. It can print money, it can control the amount of money released by banks as loans, and it can set interest rates, i.e. it decides monetary policy.

7. It has some say over the value if its currency vis-à-vis other currencies. It can boost exports and spur tourism by allowing its currency to devalue (its products will be cheaper in other currency denominations). Alternatively, it can enable import-led growth by allowing its currency to appreciate.

So, what’s with the PIGS? Allow me to begin somewhat in the beginning. In 1999, a group of European countries came into a monetary union that included having a common currency, the Euro. The main advantage of a common currency is that it reduces transaction costs in trade. In the process, the members cede some control (basically those described in options 6 and 7) to a central authority – in this case the European Central Bank (ECB) in Frankfurt. Today, the Euro-zone consists of 17 members, all with different national attitudes and behavioural traits – the Teutonic Germanics, the circumspect Scandinavians, the profligate southern Europeans, the wannabe Scandinavian Baltic states, and the east Europeans who just want to be as far away from Russia as possible. The members are supposed to observe some basic rules, including that the difference between expenditure and income, also called the deficit, be 3 percent of expenditure or less (relating to options 1 and 2) and that sovereign debt (option 3) be not more than 60 percent of GDP. The members also agreed that there would be transfers to the poorer pockets within the Euro-zone (option 5) to enable them to ‘catch up’.

The first blip happened in, believe it or not, Germany. In the early 2000s, the German economy was in a sclerotic state – slow growth, high costs, and low employment. The then Chancellor sorted it out in a typically Germanic fashion; he cut taxes, made pensions and the dole less generous, and worked out a deal with the unions that held wages constant (thus enabling inflation to reduce the cost of labour over time). He also lost the next election, but the current health of the German economy is, in a large part, due to his actions.

The next blip began with the sub-prime crisis (late 2007) in the US. When Iceland fell, attention shifted from banks to the state of public finances of nations – and the PIGS were found wanting. Why the focus on PIGS? After all, they are (except Spain) not significant economies – Portugal is about the size of Malaysia, and Greece Thailand – and there are countries whose finances are in worse shape (Zimbabwe comes to mind). And the short answer is, though they are small and have different problems, each can trigger a collapse of the highly interconnected European monetary union.

Let me begin with Ireland! This country was called the ‘Celtic Tiger’ for its economic performance until 2007 and for its Anglo-Saxon attitudes. Corporate tax is low, the business environment is open, the population is skilled, and foreign direct investment poured in. The government was encouraging and circumspect, and maintained healthy public finances. Unfortunately, the Irish banks had too much money and too little oversight, and began lending to friends and relatives for dodgy projects. This was caught in the immediate aftermath of the sub-prime crisis. The Irish government now finds itself between a rock and a hard place. If it lets the banks fail, the financial system will collapse. If it rescues the banks, it would be tantamount to asking the ordinary tax payer to pay for the profligacy and bad conduct of a few (politically difficult) and would lead to the risk of moral hazard (If I know I’m going to be rescued, I will go ahead and make risky loans).

Portugal (along with Greece) should not have been a member of the Euro-zone in the first place – it is an economic backwater whose main basis for competitiveness were its low costs, which it lost by joining the Euro. Its pre-crisis growth was fuelled by option 5, handouts from the EU, and from remittances, and these did not lead to increases in either efficiency or competitiveness. I was amazed to find, in the UK, that Portuguese workers pretend to be Brazilian so that they can compete in the grey market for jobs (and therefore don’t have to be paid formal EU regulated wages), just as Brazilians pretend to be Portuguese so that they can be paid formal wages.

Greece is a complete basket case whose national attitude of ‘take them for what you can’ can only be understood if one recognises that it was ruled for centuries by Ottoman Turks and for four years, and in living memory, by Germans, and that neither rule was benevolent. It jumped on to the monetary union bandwagon by fudging its accounts, it then enabled public sector workers (the majority of its work force) to retire at 55 years with full state pensions, and it assumed that easy money (options 3 and 5) would always be available. Its economy is fundamentally uncompetitive, and its reaction to crisis (make some noises just before bail-out decisions rather than reform and restructure as per options 1, 2 and 4) has been based on its assumption of a continuing ability to threaten the larger financial system with default.

Spain is the only large (4th largest in the Euro-zone) economy among the PIGS, and therefore the one that can itself actually drag the monetary union down. Spain’s problem was that its growth and employment was centred on a single sector, real estate, which burst with the sub-prime crisis bubble.

Within Europe, the PIGS issue is seen as an outcome of south European love for siestas and Irish cronyism. Within the PIGS, there are murmurs of a north European plot to convert them into Germans and of a grand ‘destabilise the monetary union’ plan by Anglo-Saxon bond traders. Whatever the value of these assertions, everyone agrees that, as they say, ‘somethin’s gotta give.’

What can be done? The founders of the monetary union did not envisage a scenario in which a country would leave the union, but this is where the denouement of this particular Greek tragedy is heading. It will be politically difficult for northern European taxpayers to continue paying for Greece, just as it would be for Greece to undertake painful reforms to set public finances right (its current sovereign debt is at 170 percent of GDP and rising, meaning that the next two generations will have to live in austerity to pay it back). Going back to the drachma and allowing devaluation to enable competitiveness, for all its difficulties, may be the only long-term solution. For Portugal, it may be less painful to focus on reforms than to leave the union, if not for themselves than for all those banks that are heavily exposed there. Ireland needs to decide who should pay for its bad banks, the Irish taxpayer, the EU taxpayer, Ireland-based companies, or the banks themselves. Spain needs to work to broaden the base of its economy beyond housing. The EU needs to arm itself with teeth so that members adhere to the rules of membership. The ECB needs to work out ways to ring-fence troubled economies so that they do not threaten the larger financial system. And, in the long term, political union will need to follow monetary union. Simple!

Friday, July 1, 2011

LECHER'S GUIDE TO THE WOMEN'S WORLD CUP

A LECHER’S GUIDE TO THE WOMEN’S WORLD CUP
By Ajit Chaudhuri


Alternative summers are a bleak time for football fans (except for the truly desperate who follow the Russian and/or Norwegian leagues). The Champion’s League final closes the season in end-May, and one has to wait until the next season’s kick-off in mid-August (unless it is a World Cup or European Championship, i.e. an even number, year) for a glimpse of football. Odd number years’ summers are usually spent catching up with friends and family and doing all those things that football normally provides you with an excuse not to do. But this year – something has changed! There is a Women’s World Cup on (26 June to 17 July) and it has a difference!

Those of us who love sports and women know that the twain do not meet, with the honourable exception of women’s volleyball, and that these loves are best not combined. I, for one, followed the Women’s World Cup in 1991 (won by Germany) and swore never to repeat the experience – the football was mediocre, and most of the players looked like prison guards in drag.

The first hint that things had changed was earlier this month when soccernet.com, an ESPN website for the serious football fan, alerted me to a film featuring three stars from the German junior women’s team of 2010 that was made for Playboy. The women (Selina Wagner, Julia Simic and Kristine Gessat – the film is on Youtube) were beautiful by any standards, they were professional footballers, and they said they were doing this to generate interest in the Women’s World Cup (WWC) that is being hosted by Germany. Well, to put it bluntly, my interest got generated!

And so, dear readers, I have been watching the action from the WWC. What follows is a list of 10 players who catch the eye for both looks and football skills. The list is in alphabetical order. Here’s hoping that this generates a subsequent interest in this oft-neglected sub-sect of football. Here goes!


Corine Franco, 28 years, defender, France: She’s just short of 6 feet, and she can play in the heart of the defence, in the Makalele, and as a deep lying playmaker a la Xabi Alonzo or Andrea Pirlo. She is also on covers of magazines that have nothing to do with football, for all the right reasons.

Desire Oparanozie, 18 years, forward, Nigeria: She caught the eye for her football skills and her looks at the 2010 junior world cup and has made a smooth transition to the senior Nigerian team. One of those for the future!

Fatmire Bajramaj, 23 years, midfielder, Germany: Her background as a Kosovan refugee from the Balkan Wars makes her the face of German multi-culturalism, a bit like Mesut Ozil and Sami Khedira for the men’s team. Like Ozil, she is a creative midfielder or a trequartista. Her transfer this year from Potsdam to Frankfurt is the most expensive in Bundesliga history.

Josefine Oqvist, 28 years, forward, Sweden: This beautiful blonde has appeared on the covers of racy Swedish girly magazines. She also has 11 goals in 49 appearances as a striker for the Swedish national team.

Kaylyn Kyle, 23 years, midfielder, Canada: Another glamorous blonde!

Louisa Necib, 24 years, midfielder, France: An up and coming French team whose creative lynchpin is of Algerian descent. Sounds like the le Bleu of the late 1990s? No, it’s the current French women’s team and its playmaker, a leggy beauty, makes the fashion and sports pages.

Mana Iwabuchi, 18 years, forward, Japan: This diminutive (155 cm) striker is the Asian youth player of the year and is being used as an impact substitute in the senior team. Another one for the future!

Natalie Garcia, 21, defender, Mexico: Long hair, sunny smile, and also the defensive pivot of a Mexican team that is looking to surprise.
Rachel Unitt, 29 years, defender, England: This left sided and left footed defender has twice been England’s player of the year. She plays her club football at Everton.

Saskia Bartusiak, 29 years, defender, Germany: This experienced defender is known as much for her shyness off the field as her crunching tackling on it.

Monday, June 6, 2011

GENIUSES AT THE GATE

GENIUSES AT THE GATE

A 2-Pager by Ajit Chaudhuri

‘Professors – be good to your A students, for one day they will come back and make excellent faculty. Be good to your B students, for they are the mainstay of the graduate class. Be good to your C students, for one day they will come back and donate $100m for a new science building.’

I have long argued for the development sector attracting smarter people. Now – I am not so sure! Two recent papers make a convincing case for good old laziness, self-satisfaction and stupidity. Allow me to elaborate!

The first, “Wall Street Smarts” , takes a tongue in cheek look at investment banking and concludes that the havoc is all because smart people started going to Wall Street. If one looks at where the toppers of 30 years back are now, one finds that they are in government, or in research, or are university professors. It was the bottom third that went into banking – their families were already in banking, and they were blessed with pleasing personalities and good social skills. They were not greedy – they already had that second home and an ocean going boat. And they could never have come up with concepts such as derivatives or credit default swops – the maths was beyond them.

And then, the toppers started coming to Wall Street. Why? The author attributes the phenomenon to the rising cost of higher education, which had toppers postponing their moves to public service, fundamental research and PhD programmes to make some money and pay off loans, and then letting the big bucks cancel these altogether. These guys could (and did) come up with complicated schemes to make money and subvert checks and balances. Their bosses, of the previous paragraph, could not understand what was going on but were making serious money – and were therefore in no position to exercise control. And that, in essence, is the cause of the global economic crisis. The paper itself makes a powerful argument in a humorous way, and I recommend a read (you can google the title) in case you have missed it.

The second, “Giving in India” , provides a glimpse of what happens when the toppers dump investment banking (or vice versa) and hit the development sector. The authors, all of whom are specialised in equity research, spend a year studying the philanthropy industry in India, come to the conclusion that much that happens is wrong, and make a case for research and analysis guiding funding decisions. The serious reader would find the paper, despite its many positives (especially on the use of the public domain for intellectual property), underwhelming for three key reasons –

It plays ‘zap the bozos’: Communiqués from the intelligent to the unintelligent have two common indulgences. One, they make strong statements without bothering to effectively justify them. Two, they use technical terms incorrectly and/or inappropriately with confidence that they are unfamiliar to the reader. This paper is not an exception. I include a small addendum to provide reasons for these remarks without losing the flow of this note.

It doesn’t examine the antithesis: Is there a tiny possibility that people providing money for philanthropy are not idiots, and that their money is going into the correct places? And could it be that the Indian NGO sector is an unworthy recipient of money for philanthropy compared to, say, religious institutions or local government? The paper assumes not without question.

It doesn’t make a convincing case for research and analysis: The fact is that the number of NGOs in this country that are honest, capable, and have permission to receive money from foreign sources is not impossibly large. A few development conferences, a meeting or two with informed sources over drinks, and a Google session on a computer and you are likely to have an adequate list of possible NGOs to work with. The paper does not convince the reader that the additional benefits of rigorous analysis outweigh the costs.

If you are a topper, chances are that you are not as repelled by the development sector as you were last year. And if you are looking for an opportunity within, here is some unsolicited (but, I hope, constructive) advice.

Do something useful: Make more money available for social development, or enable benefits reach needy communities effectively. Please do not look to make the sector a new repository for ‘socially useless activities ’ now that the financial sector is clamping down – there are enough middlemen here!

Do not replicate blindly: Does it work in Scandinavia, or in Africa? Or Bangladesh? It does not mean it will work here. India is a graveyard for those looking to replicate successful ideas, policies, systems, programmes, etc. in social development from elsewhere – even from elsewhere within India.

Remember – beneficiaries are people: Control group experiments, randomised control trials and suchlike may sound fancy, may be the ‘gold standard of measurement’, and may enable rigorous attribution of effect to activity. But, when they are applied here, what they actually mean on the ground is the purposeful denial of services (such as immunisation, or a toilet) to a poor community (the control group). The ideas you concoct should pass a basic test – of treating beneficiaries as people and not mice in a lab.

Do not play God: Being poor is not so much the lack of this or that as it is the unequal relationship with others, the lack of voice, and the denial of rights. Handouts from philanthropists will not change this. The government can, however, and you may support or oppose but please do not look to replace.

Think out of boxes and silos: Social development is complicated and chaotic. Things don’t slot into nice little boxes and columns to make neat explanatory diagrams. And a successful education project requires work on a gamut of issues that seemingly have no connection to education, such as governance, health, livelihoods, et al – if it is only about education it is doomed to fail.

Let me leave you with two thoughts from the management guru Peter Drucker on the occasion of his birth centenary. He said that ‘cleverness is no substitute for knowledge’. He also said that the only reason they use the word ‘guru’ is because ‘charlatan’ is difficult to spell.

Addendum: The introductory section in chapter 1 says that ‘the evidence suggests that money is neither being allocated to the most important areas of social need, nor given to the most effective organisations’, and that ‘funding is dysfunctional’. The evidence that follows to substantiate the statements is vague and unconvincing through the paper . It goes on to say that this can be conceptualised as a ‘broken’ funding market. The term ‘broken market’ has a meaning – it describes a situation in which the chooser of the product does not purchase it and the purchaser of the product does not choose it – the market for school textbooks in the US, for example. It is difficult to think of the philanthropy industry as being a market at all, broken or not, in the absence of sellers, buyers and choice for the final users i.e. the benefiting community.

Monday, May 16, 2011

THE VALUE OF HIGHER EDUCATION

THE VALUE OF HIGHER EDUCATION

A Two-Pager by Ajit Chaudhuri – May 2011

‘The enemy of truth is not the lie but the myth’

I would like to introduce you to Peter Thiel, one of the promoters of Paypal and more relevant to this paper also known for having predicted the dotcom and housing bubbles in the US. When is a price rise normal interplay between supply and demand, and when is it a bubble that needs policy intervention? According to Thiel , a true bubble is when something is both overvalued and intensely believed – and that belief, while rooted in truth, gets pushed to unhealthy levels. He says that the next big bubble to burst will be higher education, with its too high and rapidly rising costs, the onerous debt levels that its consumers acquire, and mounting evidence that the rewards are over-valued. This paper looks to examine this contention.

A typical bubble has buyers thinking that they are buying something that will appreciate in value and make them rich in the future. The product grows more and more expensive. The expense is off-shored by easy credit. An increasing numbers of buyers buy at increasing prices in the expectation that the value will continue to increase. At some point, Stein’s Law (‘if something cannot go on forever, it will stop’) kicks in and the bubble bursts. Buyers dry up, sellers proliferate, the product’s value drops abruptly, and those holding it are left with a mound of debt that surpasses the value of the product. Larger bubbles take down entire financial systems, which is why central banks are supposed to keep a close watch on irrational exuberance within the economy.

Can higher education be a bubble? This is controversial! The Bennett Hypothesis of 1987 first identified the possibility, observing that college rankings are partially driven by spending levels, that higher tuition prices are correlated with perceptions of prestige, and that it is in colleges’ best interests to increase prices as long as financial aid ensures an ability to pay. Coupled with this is the widespread belief that, no matter what the cost, education is necessary for future prosperity. The ingredients for a bubble exist.

Several recent papers look into the possibility, and examine the price of higher education in the US, the demand for it, the returns to it, and the level of debt incurred to obtain it. This is disturbing stuff! Tuition fees have gone up at well over inflation, and demand for higher education has behaved similarly. Average salaries for new bachelor degrees have dropped. And the class of 2011 is the most indebted ever, with outstanding student debt surpassing credit card debt for the first time ever in June 2010. In a rapidly de-leveraging US economy, this is the only category of debt that is increasing.

The premise that higher education equals future prosperity too is being subject to scrutiny. The economist Paul Krugman questions the belief that progress increases job opportunities for those who work with minds and hurts those who work with hands, and others point out that the trend may be the opposite and that demand for truck drivers and manual labourers is likely to outstrip that for low-end white collar jobs (which can easily be Bangalored).

But is this a bubble? Higher education is not a typical product in that the buyer cannot subsequently sell it (necessary for a bursting bubble), only rent it for wages. Also, most economists do not think that the returns to higher education are falling in the long term, and do think that demand supply corrections should sort out temporary imbalances. This has already begun, with an 11 percent decline in applications to law school this year, mainly because students see no sense in piling up debt to join the legion of unemployed lawyers. Mid-ranking business schools too are seeing a drop in demand, masked by them taking weaker candidates. And an economic recovery should see demand for college graduates pick up, and a subsequent return to business as usual for the system. But this is by no means certain.

Why is this debate important for us here in India? Higher education was seen to have a strong public good component, and the state therefore provided the service and contributed a significant proportion of the cost. This thinking is changing to it being seen as a commodity in which all the benefits accrue to the one undergoing higher education, and s/he should therefore bear a larger proportion of the (rapidly increasing) costs. The demand and supply, in the mean time, are increasing significantly and the debate regarding increased tuition fees is couched in terms such as institutional autonomy and the need to ensure that any capable but broke person should have access to student loans. Proponents of the Bennett Hypothesis would feel a sense of déjà vu.