Thinking Rationally

Category: New

  • Corona Pandemic- One size does not fit all

    “Blessed are the Meek, for They Will Inherit the Earth” (Matthew 5:5). 

    Corona virus -COVID-19- started its journey in an industrial city of China sometimes in late 2019. Within a short span of 3 to 4 months it has enveloped the entire earth with its foot print, thus qualifying it to be designated as a pandemic attack by a tiny microorganism that can multiply only when it can find a human cell as a host , a springboard for jumping to its next victim. It is said that a virus is agnostic about the socio-economic profiles of its victims; it does not care as to what economic strata as person belongs, to what god a person kneels. At the same time credible evidence is there that age, sex and existing conditions do have a bearing on the survival probability of a corona infected person. For example, a study1 of 6839 corona deaths in New York City shows that 72.3% of them belonged to the age group 65 and above, 75% had underlying conditions like Diabetes, Lung Disease, Cancer, Immunodeficiency, Heart Disease etc. 62% of the victims were males.  In another study of 44,000 cases from China, deaths were at least five times more common among confirmed cases with diabetes, high blood pressure or heart or breathing problems2.

    So, there are factors that create an enabling conditions for COVID-19 to thrive and kill its victims. But rate of incidence of corona cases and consequent deaths also varies between countries.  One Indian internal medicine expert has stated why incidence of corona is relatively low in India. He has identified 3 factors for a virus’ spread — the “agent or the virus itself, the host and the environment”.  According to him India’s relatively higher temperature and humidity slows down the march of the virus3.

    It has also been reported that a US government study has also confirmed the role of ambient temperature and humidity in killing the virus on surfaces and air4.

    Even after controlling all the above noted factors there is cultural a dimension that also determines how the virus would affect a given society. David Kelvin, a Canadian microbiologist has pointed out that the practice of Italians greeting “each other with an embrace and kisses” increases the probability pf passing the virus “on a more dangerous dose of COVID-19.”5

    Religious faith also sometimes determines a society’s willingness to accept scientific approach to handling of any epidemic disease. For example, only 72.2% of children aged 19 to 35 months in the United States were fully vaccinated in 20156.

    A major global survey published in June 2019, covering 140,000 people aged 15 and older in more than 140 countries found people in higher-income countries were among the least confident in vaccine safety — particularly in North America and Europe. Meanwhile, vaccine trust was highest in countries where preventable diseases still spread, such as Bangladesh and Rwanda.7

    The above brief review of various plausible determining factors for country wide variations in incidence of corona virus and subsequent death provides a possible direction to further research that would help countries to identify deficiencies in their health infrastructure and attitudinal bottlenecks of the people at large to contain and minimize the effect of a virus like corona , in current time as well as in future. Pending that it may not be irrelevant to look at available data that provides some clues to the factor that are driving the variations in country wise impact of corona virus. Our aim is to carry out a descriptive statistical analysis without trying to build any model for conducting statistical hypothesis. 

    Data and Study Variables: For this article we have used data that are available in public domain and put out by multilateral organizations like World Bank, World Health Organization., Worldometer and Pew Research Centre. Main data on COVID-19 is collected from Worldometer, a reference website.  Pew Research Centre brought out a report in October 2017 analyzing religious change and its impact on societies around the world. Covering 199 countries and territories around the world, the study identified countries which favor a specific religion either as an official government sponsored religion or by according a special status to one specific religion over all other faiths. Income data is taken from World Bank website. Expenditure on health data is taken from WHO website. (the further details are available in a table given at the end).

    Intensity of infection of a virus can be estimated by the number of virus afflicted persons with symptoms. But a corona infected person may not show any symptom for several days, extending up to 14 days. These pre-symptomatic cases cannot be detected unless a country either carries out a random tests of enough size or for all citizen or at least of all persons in selected age groups. It is also possible that many persons with COVID-19 symptoms remain un-documented because many covid-19 infected persons with mild symptoms recover without hospitalization.  So, the number of cases reported by a country may also depend on the number of tests carried out by that country. However, we consider the number of reported cases as the primary variable of study. To account for the effect of population size we have taken normalized variables- that is cases/tests/deaths per million of population. 

    Regarding health infrastructure we have considered the “government expenditure on health as percentage of government expenditure / GDP” as the discriminating variable across countries. To convert this numerical variable to a categorical variable, we have divided countries into 4 groups based on their percentile ranks; 4 groups based on 25 percentile, Median, 75% and maximum amount. The corresponding groups are named as Lower, Lower Middle, Upper Middle and High spenders.

    Regarding “Religious Status” variable, every country is put into one of the three categories- (1) Having official State Religion, (2) Having a preferred religion, (3) No official religion. Countries which have declared atheism as official doctrine, we have designated “Capitalist Communism” as its state religion. China, Vietnam. Incidentally, Russia has a preferred state religion- Christianity.

    Analysis:

    Country Coverage:  This study is based on 123 countries having a total population of 7.2 billion as on 2019. The latest US Census Bureau estimates world population at 7.58 billion as on June 2019, a coverage of 95% of world population8

    Income Group: The total number of cases of these countries was 2,32,37,82 or around 2.3 million. If we had included cases of all countries which have reported COVID-19 cases, this number would have been 2.33 million. So, analysis that follows would be representative of the world scenario.  Top ten countries in terms of number of cases accounted for 1.8 million cases, that is 78.26 percent of total cases covered. The income group wise profile of COVID-19 and its proximate determinants is given in the table below.

    Table 1 here:

    Table 2 here

    The descriptive details of various measures of incidence of COVID-19 across income groups and its covariates given above leads to one conclusion – the richer countries with higher proportion of older people are more likely to fall prey to COVID-19 and once infected most likely to die also. The best possible health infrastructure does not provide any protection against these silent and invisible killer.

    A sharper picture emerges if one looks at the top ten countries in terms of incidence of COVID-19. The following table gives the relevant details.

    Table 3 here            

    One obvious outlier in this group most affected countries is Germany. Despite having a high share of older people and a moderate level of public expenditure on health it could achieve much better performance in containing death rate of affected persons. The fact that Germany conducted tests of relatively larger number of persons may not be a good explanation because Spain and Italy also have tested a similar proportion of its people. S

    Health Infrastructure:

    The quality of health infrastructure of a country is positively correlated with the government allocation of resources for this purpose. Many physical indicators like number of doctors per million people etc. would depend more on government initiative than on private one. To establish the relationship between quality of health infrastructure and other COVID-19 related measures we have converted two numerical indicators of Government health expenditure into qualitative measures based on their percentile ranks. The resulting 4 quality levels are based on quartiles. These 4 levels in ascending order are Low, Lower Middle, Upper Middle, High. The tables below are expected to provide some clues about the importance this factor in determining the intensity of COVIS-19 in different countries.

    Table 4 here

                 

     It is obvious that, the countries in highest income bracket with high rate of government expenditure on health suffered disproportionately more due to COVID-18 pandemic. This group of countries accounting for 10.7 percent of the world population recorded 65.4% of death due to COVID-19.  Both China and India, two countries that account for near about 40% of world population and both spending relatively much less than their peer countries in their respective income groups account for only 4 % of the share of cases and 3 % of total deaths. In China, a plausible reason for this could be that the government at a early stage could segregate the district where the virus first struck.  In India, demographic profile of the population as well as peoples’ inherent immunity due to their constant exposure to highly un-hygienic living conditions could be one factor.  I believe people intuitively understand this- the fact that migrant workers are risking their lives to go out of their metropolitan workplaces to remote villages without any worthwhile medical facilities only corroborates what our data is showing above. It is the rich who should be more scared of COVID-19 than the poor.

    Age Structure:

    Table 5 here

    Table 6 here

    Table 7 here

    The following chain of hypothesis emerges from the data presented above:

    1. the prosperity results in longer life span of people of high-income countries
    2. better health infrastructure increases survival probabilities of older people with heightened co-morbidities
    3. when a new virus like COVID-19 emerges on the horizon, these are the people who are most likely to succumb to the new killer.
    4. in the low-income countries with rickety health infrastructure expected life span is shorter
    5. high child mortality and un-hygienic environment of living for the poor masses create a built-in capability to survive in a hostile environment.

    Blessed are the poor for whom poverty is an enabling condition that better prepares them to face the vagaries of nature; otherwise they would have died young. Cursed are the rich who are shielded by their wealth from various known morbidities but make them ill-prepared to face an unknown one.

    Societal Culture 

    Wikipedia defines culture as “an umbrella term which encompasses the social behavior and norms found in human societies, as well as the knowledge, beliefs, arts, laws, customs, capabilities, and habits of the individuals in these groups” 9.  As mentioned above forms of greeting a person through hugging vs handshake vs bowing reflects “culture” of a group of persons. Religious beliefs or faiths provide the overarching framework of culture of most of the countries, even in 21st century. Such beliefs do matter in the mundane task combating a pandemic. In many Islamic Societies, women cannot go out without wearing burqa or hijab, a kind of mask.  Wearing mask or covering face with simple clothes has been made mandatory in many countries reeling under COVID-19. So, women are much better protected in a conservative Islamic society. An obvious testable hypothesis would be that women to men infection ratio would be much less in an Islamic country that a non-Islamic one.

    Religion could be another major factor in determining the intensity COVID-19 infection in social groups opposed to vaccination. Many low-income or lower-middle income countries have implemented universal immunization policy. But in many developed countries it is legally permitted by parents to deny vaccination to their children invoking religious sanction against vaccination.  For example, in USA, 45 states and Washington D.C. have allowed religious exemptions for people who have religious objections to immunizations. 15 states now allow philosophical exemptions for those who object to immunizations because of personal, moral or other beliefs. The Wellcome Trust survey cited above found that some of the world’s top anti-vaccine countries are in Europe. In France 1 in 3 persons disagreed that vaccine is safe. Till a few years back many Catholics were opposed to vaccination because “genetic source material made to develop most vaccines come from aborted fetuses”.  It may be noted that more than 80% of Italian citizens were Catholics. In Spain around 68% are roman Catholics.

    Thus, religion can be considered another factor that may affect the progress of COVID-19 in any country. When a state declares a religion as a state religion or a preferred religion, the world view of that religion would guide, direct and probably compel any citizen to be incompliance with the edicts of that religion. The following table may not confirm or reject, prima facie, the role of religion in creating a relatively smooth passage of the onward march of COVID-19 across the globe, but it should ignite a more structured examination of the issue.  We may point out here that countries which have Christianity as an official religion belong to either High or Upper-Middle Income group. The shares of countries in these two income groups among all countries with Christianity as declared religion are respectively 41.4% and 50.3% respectively. So, there is confounding effect between these two factors, namely income status and religious status. It is neither attempted nor possible to disentangle the impact of these two factors on intensity of COVID-19 spread in different countries10, 11.

    Table 8 here

    Note: Capitalist Communism is taken as state religion for China and Vietnam as atheism(or rather no organized religion)  is declared as state policy.

    The table above clearly points out that high per capita income does not ensure lower risk for a citizen getting infected by COVID-19, even though the country has built the best possible health care infrastructure. One caveat is due here. It has been reported that incidence of COVID-19 among poor African Americans are much higher as compared to US average. More data will be needed to address such intra-country issues like incidence of COVID-19 by race, gender and income group.

    Concluding Observations:

    Governments across the world have reacted to the COVID-19 pandemic in a way that reminds me of what Bertrand Russel famously said-   “Collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd”12.  Only one solution – that is Lockdown and Social Distancing – has been offered by our medical experts and their political bosses without any effort to calibrate its implementation with due regard to social differentiation in terms of prosperity, access to habitable shelter, presence of co-morbidities.  A government which in normal times cannot organize delivery of adequate nutrition to millions of children is taking upon itself to feed hundreds of thousands of migrant wage laborer because they were not allowed to return to their home villages. The irony of such policies is that while migrants would have financed their own journey if they could proceed to their home before imposition of Lockdown, now they will have to be provided with shelter and food at government’s cost.

    This essay has been written to highlight the fact that COVID-19 does not affect all countries and even all social groups within a country equally. Of late, politicians across democracies are taking help of Data Science to understand voter’s behavior   – who is more likely to vote in their favors and who are on fence etc.  The electoral strategy is based on such data analysis. But we are yet to see any country that has used Data Science to calibrate its response to COVID-19. For example, in India there are many large industries which are in a relatively segregated place. Most of its workers are residents in the campus. Irrespective of the goods produced there, it is madness to impose complete Lockdown in such places. Many University campuses are also far away from large habitations. It should be possible to work out modalities of functioning of such campuses with appropriate precautionary measures.  These are only few examples.

    References

    1. https://www.worldometers.info/coronavirus/coronavirus-age-sex-demographics/
    2.  https://www.bbc.com/news/health-51674743.
    3. https://economictimes.indiatimes.com/industry/healthcare/biotech/healthcare/india-did-have-an-innate-natural-shield-against-coronavirus-after-all/articleshow/74453719.cms?from=mdr
    4. https://in.news.yahoo.com/sunlight-heat-above-35-degrees-043448286.html
    5. https://nationalpost.com/news/why-the-covid-19-death-rate-varies-dramatically-from-country-to-country.
    6.   The state of the antivaccine movement in the United States: A focused examination of nonmedical exemptions in states and countries:  by  

    Jacqueline K. Olive, Peter J. Hotez, Ashish Damania, Melissa S. Nolan : https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1002578

    7. https://www.vox.com/2019/6/19/18681930/religion-vaccine-refusal

    8. https://worldpopulationreview.com/

    9. https://en.wikipedia.org/wiki/Culture  

       10 https://catholicethics.com/forum/dealing-with-the-coronavirus/ 

    11. https://www.buzzfeednews.com/article/peteraldhous/global-survey-vaccine-safety-measles-outbreaks

    12.http://readingrussell.blogspot.com/2008/04/unpopular-essays-chapter-7-part-3.html

    For all tables see the file from the Google Drive: follow the link below

    https://drive.google.com/open?id=15oP7L_k6PAJhecpjMYUSfdzyK3ylSIqXEO1b9xsd7sA

  • Poor as a Commodity

    This is a blog that I wrote on 21st April 2010 for my earlier site . I am tempted to reproduce it without any revision today in the wake of Prof. Abhijit Banerjee getting his Nobel for his work on poor of the world. Although his work is extremely valuable and revolutionary from methodological point, I am still skeptical about the obsession of social scientists and politicians with poverty , particularly absolute poverty.

    Counting tigers and poor have become a national pastime of India’s leisure class. While the population of tigers we want to protect, we would like to number of poor to decline to zero.  We are failing in both, some would say miserably.

     The practice of counting number of poor in a country goes back to the second half of nineteenth century when Charles Booth carried out a remarkable survey of living conditions in London. Booth wanted to contest the results of an 1885 report that claimed that 25% of Londoners were living in abject poverty.  Booth and his team visited every street of London and estimated that the incidence of poverty at 31% initially and then at 35%.  In the first decade of 21st century and after 62 years of independence we can not claim to be in a better position.

    The reason for obsessive preoccupation with a precise headcount of poor on the part politicians and economists is not difficult to understand. The Indian government has a huge budget for a variety of poverty alleviation programs. Every state vies for a share of the cake and it depends on the number of poor. There is a turf war between the Ministry of Rural Development (MORD) and the Planning Commission with regard to this counting tussle. A footnote in the Expert Committee Report of the MORD is quite candid about it. It says-

    Which Ministry in GOI has the best control over the district collectors, CEO Zilla Parishads and Panchyats? The obvious answer is the Ministry of Rural Development (MoRD). , because it transfers huge funds to DRDAs and to panchayats, runs NREGA, BRGF and TSC, and ever since their creation panchayats have always regarded MoRD as their mentor.  Hence MoRD is the only Ministry in GOI that can make the field officials and the panchayats take its guidelines seriously. Therefore the task of overseeing preparation of the new BPL lists has been rightly given to the MoRD

    Another very interesting thing that this report brings into focus the practice of fixing number of BPL (below poverty line) families to the limit fixed by the planning commission estimated poverty ratio. Thus BPL certificate becomes a badge of honor like a caste certificate. Only difference is that BPL certificate can become a tradable commodity. In fact Mr. P. Sainath, a member of the expert group has put it succinctly

    • In many regions like the KBK, with millions extremely poor, you will find that most of the BPL cards in a village are with the local moneylender. The poor owe him money and he takes their cards as collateral. You can find one man with 400 cards.

    He also notes that

    Dharavi , the biggest slum in all the world  and with a population of over a million ended up home to just 141 BPL cards. If that’s all the poor there are in that slum, then India is poverty-free.

    The expert group estimates the number of poor in India as close to 50% as compared to 28.3%.  With this order of variation coming from two arms of the same government, what sanctity is there in these numbers?

    Apart from the exegesis of official experts, we have a whole industry of Poverty Research mostly funded by multilateral agencies and grant giving foundations. The route to stardom is well laid out – from JNU / Delhi school to Cambridge on both side of Atlantics or some other ivy league schools and then to the portal of the World bank / UN organizations. India which is estimated to be home of the largest number of poor in the world has also produced the maximum number of researchers on poverty.

    And the debate on what is the best way, statistically speaking, to estimate incidence of poverty some times assumes surrealistic proportion.  One just has to recount how, long back, two highly qualified statisticians and professors engaged themselves in a fierce debate about how to take into account inter-person variation in calories intakes and consequently how to correctly measure the incidence of poverty using a minimum level of calorie intake recommended by nutritionists.

    What is the real purpose of the debate? The real motive is political – which set of policy measures is good for poverty reduction. So if your prior belief is that economic reform is bad for the country then get a suitable measure of poverty index to demonstrate that poverty has increased in the post reform period. If one’s prior belief is opposite then get hold of another measure. It is said in statistics that if you beat some data sufficiently you can always reject a null hypothesis.

    I can not better the opening sentences of Charles Elliott’ book Patterns of Poverty in the Third World in this regard-

    The basic configuration of world poverty is well known. Although the detailed statistics are unreliable, the services of a statistician are not required to establish that the majority of mankind is ill-fed, ill-housed, under-educated, and prey to preventable disease.

    Do we really need to count the number of poor so accurately as if it is gravitational constant on which depends the trajectory of a missile?  Poverty is ugly and de-humanizing. It is ugly more in a relative sense than in an absolute sense. A poor is not treated as a full citizen in any country- developed, under-developed, capitalist or socialist. The greatest suffering a poor has when she is made to feel as a lesser human being, a person deserving only piety from others. The tears of universal humiliation are much more real and enduring than the tears of hunger. It does not matter whether she is a singleton or numerous.

  • Adequacy of Reserve and Economic Capital Framework for RBI

    How much forex reserve should RBI have? How much capital should RBI have?  One simple answer to both these questions is- “it depends’.  The obvious follow-up question is – it depends on what?  And there is the rub.  Is it given for a central bank to “die, to sleep – to sleep, perchance to dream” of a tranquil crisis free state of economy when reserves are a luxury, a framework for economic capital for all contingent situations can be worked out. Politicians always seek simple solutions to complex problems. In today’s world, most of the national economies are highly interconnected and are subject to “butterfly effect”. When flap of wing of a butterfly in Mexico engenders a hurricane in China, we call it a “butterfly effect”. The mathematical discipline, called Chaos Theory that deals with such complex interconnected non-linear systems, is based on the assumption that such systems are inherently unpredictable.   There is thus neither any theoretical nor any empirical basis to expect that a central bank like RBI can  predict with a certain measure of uncertainty the capital required to tide over any severe shock in next one or two year.

    It is even debatable whether the concept of economic capital is applicable to a central bank. The economic capital of a firm is the amount of capital that would be required by the firm to remain solvent. The capital adequacy norm for a bank is a regulatory requirement towards that effect. The central banks, however, are not banks in ordinary sense. Although a central bank does function like a bank for government and banks, it is also an integral part of sovereign so far as it has unlimited power to issue risk free liabilities in its own currency. This prerogative of a central bank enables it to become the lender of last resort. Since, theoretically, a central bank can work with even negative capital, it is difficult to work out a threshold level of minimum capital that a central bank would require to remain solvent. Some recent evidences prove this point.

    In January 2015, the Swiss National Bank abandoned its pegged currency regime and allowed Swiss franc to float. Resulting appreciation in EUR/CHF rate led to a massive loss in SNB’s foreign currency portfolio. The bank’s estimated loss of CHF41 billion in the following 3 months period till March 2015 came to be about 6.5% of Swiss GDP.

    Another example of a technically insolvent central bank is the Czech National Bank (CNB).  CNB was operating, at the end of 2007, with an accumulated loss of CZK200 billion, which formed 57% of the central bank currency in circulation and 6.7% of the country’s nominal GDP. The bank’s own negative capital stood at CZK 176 billion.

    The following graph shows even for emerging countries, some central banks continued to function even after registering negative capital for extended periods.

    Even the Federal Reserve of USA registered a steep dip in its capital-to asset ratio – 0.77% at the end of 2013 from 3.54% at the end of 2006, the year preceding the onset of global financial crisis. It is nobody’s argument that the capital requirement of Fed can be a benchmark for any other central bank, as US dollar is the primary reserve currency of the world. However, the fact remains that even for Fed, resolution of a crisis is much more important than maintaining any debatable target capital adequacy ratio of a central bank.

    Since the main component of RBI’s capital is its reserve, search for an optimal capital adequacy ratio for RBI would boil down to a search for adequacy of its reserve. To a large extent the asset counterpart of RBI’s reserve (on the liability side) is its Foreign Exchange Reserve. In my earlier blog post I have provided the relevant numbers for RBI (here) . In this post I want to dwell on the IMF framework for assessment of FOREX reserve of a central bank.

    While building the framework, IMF’s main emphasis has been on the “key distinguishing characteristic of reserves- their availability and liquidity for potential balance of payment needs” (emphasis original). The global financial crisis has woken up all central banks, including those of advanced countries, to the critical role that availability of reserve plays in maintaining financial stability of a country. The IMF study has noted that most emerging market countries have “ accumulated more reserves in recent years than suggested by standard rules of thumb, with the median coverage ratio among EMs being around six months of imports, 200 percent of short-term debt, and 30 percent of broad money in 2009”. Analyzing the costs and benefits of reserves under macro-economic scenarios, IMF has worked out a new metric to assess adequacy of reserve. The metric for emerging market economies comprises four components- export income, broad money, short-term debt and other liabilities.  Computed reserve adequacy, based on this metric, for selected countries including India shows that India is not an outlier in terms of forex reserve it is currently holding.

    Finally, we hope that search for an optimal capital adequacy framework for a RBI would not turn out to be an exercise in futility. Let it not be : tale / Told by an idiot, full of sound and fury, /Signifying nothing.

    Table: Actual Forex Reserve maintained as percentage of required           

    Year RUSSIA BRAZIL INDIA INDONESIA KOREA CHINA
    2010 179% 129% 175% 94% 118% 197%
    2011 174% 156% 159% 144% 117% 175%
    2012 163% 159% 143% 90% 112% 160%
    2013 151% 159% 144% 123% 114% 155%
    2014 225% 155% 151% 126% 118% 137%
    2015 264% 192% 156% 122% 124% 120%
    2016 248% 165% 155% 128% 121% 106%
    2017 265% 162% 159% 128% 106% 97%

    Source:            http://www.imf.org/external/datamapper/ARA/index.html

    Table: Balance Sheet of Federal Reserve of USA

    Source: Carpenter, Seth et. Al; The Federal Bank’s Balance Sheet and Earnings: A Primer and Projections, International Journal of Central Banking March 2015

    IMF:  Assessing Reserve Adequacy February 2011

  • Trillion Dollar Economy – no magic required

    Reaching $ 5 trillion GDP benchmark is being projected as a landmark milestone for the Indian economy by many in the Government. The latest estimate puts the size of Indian economy, measured as GDP at current market prices, at $2.4 trillion. Does reaching $5 trillion mark reflect a significant achievement or is it really an implicit admission of incipient sluggishness in growth of Indian economy? Let the data speak.
    Indian economy registered an average annual growth of 12.8% in GDP (at current market prices) during 17 years – from 2000-01 to 2016-17. During the same period, only in 2 years, the growth rate fell below 8%, the minimum being 7.6%. The 25 percentile growth rate was above two digits at 10.4% and the median rate was 13%.
    Given this nominal growth scenario of recent past, dollar value 5 trillion appears to be too modest a goal to be set by the current government. Table 1 gives the projected value of Indian economy till 2035 under various growth rate scenarios. Even if Indian economy grows at the lowest rate achieved during last 17 years, the size of the economy would reach at least 4 trillion US dollar by 2025. If rupee depreciates in mean time the growth in dollar terms would be lower. At 70 rupees per dollar, the size would become only 3.9 trillion dollar by the end of 2025.
    A nominal yearly growth rate of 7.6 percent would imply, given 4 % target growth rate notified by the government of India (GOI), a real growth rate of only 3.6 percent. A 10.4 % growth rate would thus imply real growth rate of only 6.4%. Thus if projections of $5 trillion is in nominal terms, then no big achievement is being claimed.
    Suppose, all the projections are being made under the assumption of constant prices of 2016-17, then the target average growth for next eight years should be 9%. India has achieved a double digit real growth rate in the last 66 years only once. Even in the last 25 years India clocked a real GDP growth rate greater than 8% only 6 times. So the probability of clocking a real growth rate of more than 8% is as low as 25%. Achieving 9% uniform real growth rate till 2025 with stable rupee-dollar rate might be a chimera. If rupee depreciates to 70 rupees by 2025, we would need an average year over year real growth rate of 11%. It could be a dream worth pursuing but there is no evidence in terms of accelerated investment or growth in productivity that could make the dream a reality.
    In summary, reaching 5 trillion USD by 2025 in nominal terms is no big deal – a lower than achievement would be considered a highly disappointing performance. Achieving the same target in real terms could be an enormous challenge- heralding a real structural break in the Indian economy with productivity led growth and not merely by adding more capital and labour.

    Table 1: Projected USD Size of Indian Economy under various growth rate scenarios and with constant exchange rate of 63.5                      ($Trillion)

     Distribution Measures based on data from 2000-01 Compound Growth Rate of GDP at current market prices 2025 2030 2035
    Minimum 7.6 4.2 6.1 8.9
    1st quartile 10.4 5.2 8.6 14.1
    Average 12.8 6.2 11.4 20.9
    Median 13 6.3 11.7 21.5
    Note: Only first decimal value without rounding up has been reported. Projections are based on CSO’s preliminary estimate of GDP at current market prices for year 2016-17.

    Note: Only first decimal value without rounding up has been reported. Projections are based on CSO’s preliminary estimate of GDP at current market prices for year 2016-17.

  • Corporatization of Nations

    Reliance Jio Infocomm Ltd, the telecom arm of India’s largest company by market cap (NSE:RELIANCE), plans to create its own cryptocurrency called JioCoin. Supply chain management logistics and loyalty payment with JioCoin are amongst the envisaged uses of JioCoin. Worldwide, many large corporates have already started launching their own private cryptocurrency.  KFC, Burger King and Kodak are the few well-known names that have hitched onto the bandwagon of this currency of the Internet.

    Fast-food chain KFC has announced that it will accept  virtual currency for paying bills in its outlets in Canada with the launch of Bitcoin Bucket. A customer can buy this bucket with 0.0011564 BTC, equivalent of CAD $20, according to a company statement. Eastman Kodak has announced last week that it is going to launch its own cryptocurrency KodakCoin in partnership with WENN Digital. Burger King has launched its own cryptocurrency in Russia called ‘WhopperCoin. IBM recently partnered with Stellar and klickex to develop a blockchain-based cross-border payments solution. Stellar is a distributed hybrid Blockchain that facilitates cross-asset transfer of value including payments. Similar to Bitcoin, Lumen is the asset of value issued by Stellar.

    This rush by multinational companies to get on board of the cryptocurrency mania camouflages a much larger issue and a potential threat to the current international political order. This threat can be analyzed from various perspectives including political, economic and technological.

    Glenda Sluga, a Professor of International History, has written about  the possible unraveling of the current international order from a historical and political perspective: These days, the pulse of the world’s political health is running fast. The general prognosis is terminal, the end of the international world order, as we know it.(here)  Political headwinds which led to such prognosis are easily discernible- rise of “radical nationalism” in USA, “long the axis of modern international society” and, rise of “heteropolarity” in the international power structure.

    Beyond this haze of political chaos, a much bigger threat to the existing international world order lies in emergence of private cryptocurrency and its adoption by multinationals. There is no gainsaying the fact the comity of nations defines the current world order. A nation state without its own currency is like the staging of Hamlet without the prince of Denmark. The power of a nation state to tax its citizens would stand highly diminished if large corporates can issue their own currency. Let us see how it would play out in reality.

    Alice buys 1000 JioCoins (JC) by paying, say, 20000 Indian rupees. Alice pays 60 JC to Bob for as rent for the apartment she has leased from Bob. Bob buys monthly grocery from the supermarket run by Reliance. Bob uses 250 JC for this purpose.  Bob tops up his Jio mobile with 50 JC. Suppose, Bob works in Reliance Industries and receives 3000 JC every month. Bob pays 750 JC to Reliance Petroleum for purchase of gas for his car. He has purchased his car by taking loan from HSBC by paying EMI of 750 JC every month. This EMI payment is routed through a cryptocurrency exchange run by a Russian bank.  RIL pays IBM India monthly 100 million JC for maintaining its IT infrastructure. IBM may pay RIL is own cryptocurrency for using Jio mobile services in India. Gradually, a complete ecosystem of economic agents can emerge, who will use JC as their preferred currency for all their payment requirements.  It may be seen that the JC to Rupee exchange takes place only when Alice purchased JC. At a certain stage of development JC will acquire its own life, cutting its umbilical record with the fiat currency.

    The above description of evolution of JC to encompass a significant slice of economic transactions in its country of incorporation, i.e. India, does not necessarily imply that JC would pose a threat to the  existence, or at least severely restrict usefulness,  of the sovereign currency INR as a fiat money. Initially, INR can continue to be the unit of account within the boundary of India. But if JC emerges as the people’s preferred medium of transactions and store of value, only raw state power can prevent rupee’s passage to oblivion. Be that as it may, the moot question is whether JC would severely dent the Indian state’s capability to tax the economic activities mediated through JC. Given the ability of a cryptocurrency to mask the identity of transactors, imposition of indirect taxes, like goods and service tax, might be a serious challenge for tax administration. If an Indian resident tax payer earns and spends only in JC, fixation of its tax liability would not be an easy task.

    If all multinationals including RIL, IBM and others can agree on an exchange platform for conversion of their currencies then the nations of the world would find themselves divested of their defining power to tax and earn seigniorage.  The depth and reach of the large multinationals can be gauged from the fact that in 2016 the Fortune 500 companies had revenue of 27.7 trillion USD while the combined GDP of 198 countries was around 76 trillion USD. Using Output to GDP ratio for US economy, the share of Fortune 500 companies in the worlds’ GDP would work to around 21 percent.   So if these large corporates were to sign off from the current international order with their own currencies, their total GDP would be the second highest, next to USA only. They can usher into a new Bretton Wood regime for their private currencies and significantly reduce the cost of managing exchange rate risk.

    Technologically, these large corporates could not but continue to be part of one country or other, at least formally, the emergence of cryptocurrency can unshackle them from this tether of fiat currency and its in-built inflationary bias. If the world economic order get re- arranged on this line, what would happen to the multitude of people who would continue to remain outside the charmed circle of digital economy, can only be a matter of speculation and not an informed guess.

  • The centenary of Bolshevik Revolution and the fatal attraction of the concept of Class

    “The history of all hitherto existing society is the history of class struggles” (Communist Manifesto).   Communist parties everywhere consider this sentence written in 1848 by Marx and Engels as a well-established truth. However, it may also be considered as one of the greatest half-truths ever penned.  This manifesto was the inspiration of those who created, in October 1917, the first state to actuate Marx’s vision of a classless society.  After 100 years, to liken the idea of class struggle as the main driver of human history to a kind of religious baloney may sound blasphemous to many. However, a critical scrutiny of the Soviet Union’s history – from 1917 to its final denouement in 1991- with an open critical mind, would lead most to the same conclusion.

    History does not follow a linear path along one single dimension of human progress, be it moral, technological or material. The number of interpersonal or inter-group relationships that would be required to capture the dynamics of a given human society could be quite a many, even if we are able to abstract away many relationships that are inconsequential to the core elements of this dynamics. To expect that one single factor, the conflicting claim on the produce of economic activities, would be sufficient to capture such a complex dynamics for all societies that we know of is highly presumptuous. Without belittling Marx’s enormous contribution to our understanding of the complex relationship between organization of production and technology of production in a market driven economy, his linearized view of evolution of human society reminds us of the caricature of Maurier about the curate’s egg.

    But before we deliberate on the sweeping abstraction that Marx imposed on the past, we need to first deconstruct the concept of Class itself.  Marx himself never defined this concept in any rigorous sense. The title of the last chapter of Capital volume 3 is “Classes”. This chapter was prepared and published by Engels in 1894 based on notes left by Marx. In this unfinished last chapter Marx raised the question of definition in the following way.

    The first question to be answered is this: What constitutes a class? — and the reply to this follows naturally from the reply to another question, namely: What makes wage-labourers, capitalists and landlords constitute the three great social classes? here  

    The answer to this question is given in the next line:

    At first glance — the identity of revenues and sources of revenue. There are three great social groups whose members, the individuals forming them, live on wages, profit and ground-rent respectively, on the realisation of their labour-power, their capital, and their landed property. (ibid)

    The circularity of his effort to pin down his concept of class to a rigorous one is obvious.  For Marx “landlords” is a class because the source of revenue for every member of this group is same.  Does anyone who owns any quantity of land is a member of this class? What is the threshold? What are the other attributes that we need to make it a workable definition?

    To Marx’s credit, he was well aware of the inadequacy of this definition as in the next line itself he raises the immediate problem that this concept gives rise to. Unfortunately he did not finish this chapter to give his solution to this problem.

     However, from this standpoint, physicians and officials, e.g., would also constitute two classes, for they belong to two distinct social groups, the members of each of these groups receiving their revenue from one and the same source. The same would also be true of the infinite fragmentation of interest and rank into which the division of social labour splits labourers as well as capitalists and landlords-the latter, e.g., into owners of vineyards, farm owners, owners of forests, mine owners and owners of fisheries. 

    Obviously this definition of class is not only inadequate but fraught with severe inconsistencies. This becomes apparent when we read Marx’s own analysis of the class contradictions afflicting the French society during the period of French coup of 1851 in which Louis-Napoléon Bonaparte assumed dictatorial powers. In fact, in his own words, the essay was written to “demonstrate how the class struggle in France created circumstances and relationships that made it possible for a grotesque mediocrity to play a hero’s part.” here  He then goes on to identify the classes pitted against one single class – that is  the proletariat.

    “The bourgeois republic triumphed. On its side stood the aristocracy of finance, the industrial bourgeoisie, the middle class, the petty bourgeois, the army, the lumpen proletariat organized as the Mobile Guard, the intellectual lights, the clergy, and the rural population. On the side of the Paris proletariat stood none but itself”. here  (emphasis and underlining are ours).

    What is the definition of “middle class”? Are they different from “the petty bourgeois”?  It is apparent that new entities which cannot fit into the abstract definition of class of the Communist Manifesto emerge spontaneously in analysis of actual social upheavals. Subsequently, all his disciples used the concept of class as a basic constituent part of any society in the same fashion a physicist describes the physical world in terms of atoms and molecules. This is axiomatic for a Marxist to consider class as real and observable entity.

    1. P. Thompson wrote the book “The Making of the English Working Class”. The title itself betrays the fragility of the concept of “class” as a primary driver of social dynamics. If a “class” is always in “making” then one’s class position cannot be unambiguous at any point of time. He considers “Class” as “an historical phenomenon” and not as “a “structure”, nor even as a “category”, but as something which in fact happens (and can be shown to have happened) in human relationships.  This relationship takes shape only when “some men, as a result of common experiences (inherited or shared), feel and articulate the identity of their interests as between themselves, and as against other men whose interests are different from (and usually opposed to) theirs.”  Presumably this identity crystallizes only when it is opposed to another group of men having a conflicting set of interests. History shows that there could be a myriad of conflicting interests that could bind people into opposing interest groups.  More importantly, interests that separate a mass of people into two opposing groups needs not be economic nor needs to have a direct link with any production system. We know that people have fought bitterly and violently over ethnic, religious or even linguistic identity.  Furthermore formation of opposing groups with conflicting interests need not be static as the dominant interest change over time.

    Going back to Marx’s original view about “class struggles” as the principal driver of the history, it is quite clear that the concept lacks any operational content. This comes out clearly when Marx himself attempts to identify the major factors that precipitated major historical events.

    As regards operational contents of Marx’s concept of “class”, it would be apposite to examine the view of Lenin, the architect of the first attempt to consciously and explicitly apply Marx’s concept of “class”. Lenin’s definition of “class” is prima facie quite clear and without much of ambiguity that Marx’s definition entailed.

    Classes are large groups of people which differ from each other by the place they occupy in a historically determined system of social production, by their relation (in most cases fixed and formulated in law) to the means of production, by their role in the social organization of labour, and, consequently, by the mode of acquisition and the dimensions of the share of social wealth of which they dispose. Classes are groups of people one of which can appropriate the labour of another owing to the different places they occupy in a definite system of social economy.  (A Great Beginning)

    Suppose we want to apply this definition to any group of people from a given society. We would like to locate the class position of any member of this group. What would be the attribute that would capture the fuzzy notion called “relation to means of production”. Is it the occupation of the person? At what level of granularity the occupational status of the person would be considered? Does a cardiac surgeon employed in a top notch metropolitan hospital share the same relation to the social production system with that of a doctor employed in a rural health center, earning a small fraction of the former?  Would a major shareholder of a multinational corporation with 100 thousand employees stand in the same relation to the production system as a capitalist employing 1000 employees, operating only in a regional market of a country would do?  Although a billionaire capitalist and a small factory owner are both earn profit and thereby stand in an exploitative relationship with their workers, can we consider them as member of a “capitalist class in making”?

    We also need to understand the existential dilemma that Lenin was confronted with when Bolsheviks seized power in Russia. The “working class” or proletariat did not form the majority of working and oppressed people of Russia of 1917. He had to justify the seizure of power in terms of “class” and “class struggles”. He thus wrote: “In order to achieve victory, in order to build and consolidate socialism, the proletariat must fulfill a two-fold or dual task: first, it must, by its supreme heroism in the revolutionary struggle against capital, win over the entire mass of the working and exploited people; it must win them over, organize them and lead them in the struggle to overthrow the bourgeoisie and utterly suppress its resistance, of whatever kind. Secondly, it must lead the whole mass of the working and exploited people, as well as all the petty-bourgeois strata, onto the road of new economic construction, onto the road to the creation of a new social bond, a new labour discipline, a new organization of labour, which will combine the last word in science and capitalist technology with the mass association of class-conscious workers creating large-scale socialist production.”  These lines can be mouthed by any leader of any country- just replace “socialism” by “our great nation”, “proletariat” by our “ patriots”, “bourgeoisie” by “ domestic traitors”  and “capital” by “our enemies”. The plot remains the same ; only the actors change.

    But the attraction of the concept of class does not fade away. When facts reveal the fault lines of a theoretical construct, we can either look for a “scientific revolution” or try to tweak the existing theory to accommodate its fault lines.  That is why Max Weber, not a Marxist of any hues, tried to inject life into the Marx’s concept of class by coining a new term – “class situation”.  The following quote from Weber explains his definition of this new term

    In our terminology, “classes” are not communities; they merely represent possible, and frequent, bases for social action. We may speak of a “class” when (1) a number of people have in common a specific causal component of their life chances, insofar as (2) this component is represented exclusively by economic interests in the possession of goods and opportunities for income, and (3) is represented under the conditions of the commodity or labor markets. This is “class situation.”

    This definition is as fuzzy as it can be. It allows a social and political historian to identify as many small or large groups of people as they would like to be called as one interest group or “class”. To operationalize this definition, one researcher defined a class called “All service” comprising individuals with occupation declared as “Large Business”, “Professional” and Lower service:”

    In fact, history of Bolshevik rule as it unfolded in the post 1917 period is a testimony to the operational emptiness of the concept of class. If anything, it proves that human history so far has been history of struggles between old oppressors and emerging new oppressors.  The role that a group of economic agents bound by common interest would play in that struggle cannot be inferred from their class positions as defined by Marx or Lenin.  Marxists like Eric Ohlin Wright has to, therefore, invent the contradictory class locations of economic agents to somehow accommodate this obvious contradiction that Marx’s concept of class leads to. The root of this fuzziness and complete lack of operational content in Marxian and other related concept of “class” lies in the fact that human nature is more tuned to the biological and thereby existential imperatives of the species than its economic imperatives. A worker in a factory – a card holding member of a communist party- may behave almost exactly in the same way in relation to his homemaker wife as a capitalist owner of the same factory would do. A taxi driver may charge 3 times of normal fare in a flooded city as a capitalist would do when there is scarcity of its products. Transition from one “class location” to another one happens in case of many individuals depending on the circumstances and the underlying instability of such positions is not so negligible as to be of no consequence in social strife and interpersonal conflicts. It is generally observed that poor participate most vociferously and violently in case of ethnic and tribal conflicts. In such cases, how does the “class location” per Lenin explain the behavior of the person? It is utopian to expect that once the workers of a factory become owner of the factory, they would all work together harmoniously and with the common interest in mind. If human nature largely depends on the class location then efficiency and productivity should increase significantly with change of ownership. Under “proletarian dictatorship” all workers would give their best and achieve the maximum productivity given the material condition of production. There is no sufficient historical evidence to support any such assertion.

    Based on the historical evidence of changes in political and social regimes since the time we have trustworthy data, it may be safely asserted that human nature has not changed much since the time of  the Old Testament, Chaucer, Homer or Ramayana. If one categorizes the conflicts that informed all these classics and compares them with their modern counterparts, it can be seen that some basic themes have remained the same. That is why it is so easy to transport the themes of Sophocles, Euripides, Kalidasa and Sudraka to contemporary times.

    Despite its fuzzy definitional content, very well intentioned serious scholars always fall for the fatal attraction of the concept of “class”. Because of their empathy for fellow human beings, they cannot but  highlight social and economic inequality, deprivation and injustice meted out to one or more groups which get formed in specific time and context. For want of any better term we may call it a “class” – not in Marxian sense.  The root of this empathy lies in human nature. Instinct for survival is the genetic in nature. For a thinking species like homo sapiens, survival is hierarchical. It starts with self and progressively embraces family, clan, tribe and perhaps nation and race. That instinct creates the ground for group formation and ensuing conflict between groups. At the same time, altruism is also etched in the human being’s gene because that would ensure that humanity does not experience the fate of becoming extinct from the face of earth, like the fate that had befell many other species in the past. There lies the fatal attraction for the concept of class.