Zoo Station

Georgia is a fascinating country, which has been at the cross-roads of history for centuries. First came the Romans, then the Persians, Arabs, Turks and then the great waves of Mongols. The country then fell under the Ottomans and the Persians before finally being absorbed into the Russian empire and Soviet Union subsequently. Georgia became independent in 1991 and was then ruled by Gorbachev's foreign minister, Edouard Sheverdnadze and his incredibly corrupt government.

Georgia has had a great turnaround since the Rose Revolution of 2003 brought Mikhail Saakashvili's United National Movement to power. Since Saakashvili took over, Georgia's GDP has grown from $3 billion in 2003 to $8 billion today and is expected to double again in the next 3 years. Nonetheless, Georgia's GDP per capita in PPP terms remains on par with India at $3,800 which gives you an idea of the scope for growth, despite all the troubles the country faces, none more so than persistent Russian bullying.

I have been interested in Saakashvili since I read about him disbanding the entire Georgian police force to deal with persistent corruption. Since then, the new police force have winning plaudits from international observers for their non-corrupt ways. This interview with him appeared earlier this week in the Wall Street Journal and goes to show why Saakashvili is a remarkable politician of the sort that we do not find very often, and definitely not anymore in India. Here are a couple of excerpts from the interview:

A day or two later, at a dinner for Georgian businessmen, the president delivers a speech hammering home his well-honed message of self-help. "The government is going to help you in the best way possible, by doing nothing for you, by getting out of your way. Well, I exaggerate but you understand. Of course we will provide you with infrastructure, and help by getting rid of corruption, but you have all succeeded by your own initiative and enterprise, so you should congratulate yourselves."

Mr. Saakashvili's style of leadership feels like a permanent political campaign -- which it is, in a way. He seems determined to show citizens how it's being done, visibly to demonstrate accountability, transparency and political process, so they grow accustomed to the sight of politicians answering to them -- in short, to Western political habits. All the while, he's exhorting and explaining, striving to change attitudes ingrained through decades of Soviet rule and 15 years of stagnation, strife and corruption. "I keep telling people that this is not a process like some silver-backed gorilla leading them to new pastures. They must do it themselves, and they are."

Now if only more politicians would simply express the obvious and in plain language, like Saakashvili does.

(Via Thomas) History, especially scientific history, is littered with under-statements. I guess the most famous of the lot was Watson and Crick writing at the end of their paper, "it has not escaped our notice that the specific pairing we have postulated immediately suggests a possible copying mechanism for the genetic material."

This image below is destined to join the ranks of famous understatements. A certain Tim Berners-Lee submitted a proposal for an information management system to Mike Sendall, his boss at CERN. Sendall read the proposal and wrote, "vague but exciting." Berners-Lee continued his research, became a saint, and the world as we knew it was changed forever.

Greetings to all from Lyon. I am on the road again, which is why the terribly delayed blog posts. In the next few weeks, I will be in London, Paris, Lyon, Geneva, possibly Zurich, Lausanne, Bombay, and Hyderabad before returning to New York in the end of September. If any of you are in these cities and would like to grab a drink, drop me a line. I hope regular posts can resume later in the week once I get to Switzerland and dependable Internet connections.

Aaron Schiff has put together a list of the world's top economics blogs, based on Technorati rankings. Not much of a surprise that Freakonomics and Marginal Revolution are at No:1 and No:2 respectively. However, I must say I was really surprised to see that the Indian Economy Blog, which I co-founded with a couple of prominent Indian bloggers/libertarians has made it to the top 20, at No: 17, meaning that we're ranked above quite a few prominent global blogs. We're also the only Indian blog in the top 30. I think this is really cool, so congrats goes out to all my colleagues and co-writers at Indian Economy Blog.

In case you missed it, Nick Kristof wrote yet another op-ed in the NYTimes that is either utterly confusing or reflective of the confusion that he himself feels about the aid issue. On the one hand, he admits that there is mounting evidence that aid either doesn't work, or worst case, it leads to negative outcomes. On the other hand, he wants more aid, not less.

A handful of recent books and studies suggest that aid is sometimes oversold, including the superb new work called “The Bottom Billion,” by Paul Collier, the World Bank’s former research economist (it’s the best nonfiction book so far this year). A forthcoming book, “Farewell to Alms,” by Gregory Clark, a University of California economist, even argues that conventional aid can leave African countries worse off than ever.

And a study by two economists formerly of the I.M.F., Raghuram Rajan and Arvind Subramanian, forthcoming in The Review of Economics and Statistics, concludes:

“We find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought.”

So does this mean we should give up on foreign aid?

No, not at all. On the contrary, I believe there is an urgent need for more aid. But this is an important discussion worth having, and the critics (though a minority of the experts) make some fair points. Plus, there’s no doubt that aid can be made more effective.

Is it just me that simply cannot understand Kristof in this piece? Paul Collier is no Milton Friedman and yet, the The Bottom Billion states the obvious in very polite terms. As for the call for aid to me made "more effective," I can't help get that deja vu feeling all over again (to paraphrase Yogi the Berra) given this is what every advocate of aid says every time more evidence emerges of the inefficacy of aid.

To me, it seems like Kristof is having a very hard time reconciling his very strong good-guy instincts with what is mounting evidence that contradicts his fundamental beliefs. Dan Drezner is a lot harsher than I am, when he poses this question: Is Nick Kristof insane?

Some amazing news from the Indian blogosphere. My buddy, uber-blogger, and Indian Economy Blog co-blogger, Amit Varma, has been nominated for the 2007 Bastiat Prize for Journalism, named for the famed French liberal thinker, Claude Frédéric Bastiat. The Prize is awarded to writers for their promotion of free societies and defence of fundamental economics and social freedoms. Amit has been nominated for his work with Mint, India's finest business newspaper. Amit joins a fab set of nominees which includes Clive Crook of the Atlantic Monthly, Jonah Goldberg of the L.A.Times, and Dominic Lawson of The Independent. Previous winners include Tim Harford, Amity Shlaes (both from the FT) and Robert Guest of the Economist.

As you can tell, this is high honour, so congratulations Amit. You deserve it, and here's wishing you the very best for the final round.

Very few economics papers have influenced my thinking as much as F.A.Hayek's brilliant, "The Use of Knowledge in Society." A friend of mine had asked for it earlier today, and while searching for it, I found that the entire paper is now available online for free at the Library for Economics and Liberty. I would still recommend that you read the print version at the American Economic Review (Sept 1945), if you can, and if not, read the paper online. To give you a taste of what to expect in the paper, here's a little bit extracted from my doctoral dissertation about the centrality of the price system to a market economy.

In his seminal paper, “The Use of Knowledge in Society,” Hayek (1945, 526, 527) writes that “in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.” He goes on, “the most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change.”

Hayek (1945, 528) drives home the point about the signaling and coordinating role of prices by quoting the great mathematician Alfred North Whitehead from his book “An introduction to Mathematics”:

It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they make speeches, that we should cultivate the habit of thinking what we are doing. The precise opposite is the case. Civilization advances by extending the number or important operations which we can perform without thinking about them.

I wonder what it means when 419 emails begin in this fashion.

DEAR FRIEND,
APPARENTLY, YOU MAY BE JUDGING THIS MAIL AS ONE OF THOSE SCAM MAILS THAT INUNDATE YOUR BULK MAILS, AND AS SUCH MAY NOT WANT TO ACCORD IT ITS DESERVED ATTENTION. PLEASE IT IS NOT, AT ALL.

On another note, why is it that GMail is so much better at sending this crap straight to spam than Yahoo Mail (we're not going to discuss Hotmail, AOL etc)?

On his blog, Dani Rodrik dives into why economists differ so much about so much. He thinks the answer lies in the fact that there are two genres of economists, economists who believe in a first-best world and economists who believe in a second-best world.

The gut instinct of the members of the first group is to apply a simple supply-demand framework to the question at hand. In this world, every tax has an economic deadweight loss, every restriction on individual behavior reduces the size of the economic pie, distribution and efficiency can be neatly separated, market failures are presumed non-existent unless proved otherwise (and to be addressed only by the appropriate Pigovian tax or subsidy), people are rational and forward-looking to the first order of approximation, demand curves always slope down (and supply curves up), and general-equilibrium interactions do not overturn partial-equilibrium logic. The First Fundamental Theorem of Welfare Economics is proof that unfettered markets work best. No matter how technical, complex, and full of surprises these economists' own research might be, their take on the issues of the day are driven by a straightforward, almost knee-jerk logic.
[...]
Those in the second group are inclined to see all kinds of complications, which make the textbook answers inappropriate. In their world, the economy is full of market imperfections (going well beyond environmental spillovers), distribution and efficiency cannot be neatly separated, people do not always behave rationally and they over-discount the future, some otherwise undesirable policy interventions can generate positive outcomes, and general-equilibrium complications render partial-equilibrium reasoning suspect. The First Fundamental Theorem of Welfare Economics is proof, in view of its long list of prerequisites, that market outcome can be improved by well-designed interventions. Since they have given up on the textbook model, members of this group have an almost-infinite variety of "models" to choose from as they think of public-policy issues.

The first group's instinct is always to apply the first-best reasoning to the case, ignoring market imperfections in related markets, while the second group almost always presumes some market imperfections in the system. I am over-simplifying a bit, but not a whole lot.

Who belongs in what category, you ask? Here is the surprising bit. According to Prof Rodrik, Gary Becker, Greg Mankiw, Brad deLong, Jagdish Bhagwati, and Tyler Cowen fall into the first category, while George Akerlof, Joe Stiglitz, Paul Krugman, Alan Blinder etc fall into the second category. Now, I can understand why he would think that way about Becker, Mankiw and Bhagwati, but I have always thought of Tyler Cowen and Brad as economists who really do take imperfections into account. It's an interesting read, though I very rarely agree with Prof Rodrik these days.

Adlai Stevenson is one of my favourite politicians. I first came across him while reading about JFK's last visit to Dallas, but since then I've read much more about Adlai and the more I read about him, the more I like him.

To celebrate the current turmoil in the capital markets, here's a gem from Adlai.

"There was a time when a fool and his money were soon parted, but now it happens to everybody."

Here's what just appeared on my web page via Google Ads. Part outrage. Part irony. The first ad from Christian relief organization, World Vision, asks for your money claiming that there's a famine in India and that your $20 will help children escape lives of horror. Now, where this famine in India is, heaven only knows. To the best of my knowledge, India hasn't had a famine in quite a while, so clearly whoever is responsible for buying keywords for World Vision is being deceptive. Google Ad Sense also manages to serve a generous dose of irony in the same ad space. Watch the other ad in the picture. It says "Invest in India stocks." Not bad, Google.

The Economist has a comparison of productivity figures from around the world. I was surprised to learn that Norway topped the table for GDP per hour worked, and by quite a wide margin at that. My American friends should also take note that the French manage higher productivity despite the 35-hour work week. Fascinating.

Kruger National Park. South Africa. A pride of lions attacks a young buffalo calf. Gets the calf. Falls into the river in the process. A huge crocodile wants a piece of the action. Crocodile drags calf one way. Lions drag the other way. Lions win the battle with the crocodile. Drag the calf ashore. Lunch is almost ready. The buffalo herd returns to attack the lions. A buffalo gores a lion and tosses it in the air. The buffalo attack saves the calf somehow. The calf gets up and walks away. A great win for family. Watch The Battle of Kruger!

As someone fresh from a safari, I can tell you how difficult it is to actually see a kill in the wild, leave alone a titanic battle like this. Dave Budzinski, who shot this video, can consider himself very, very lucky to have witnessed something even dedicated National Geographic movie-makers have seldom managed to capture on film.

One of the widely-circulated and key ideas in the international development arena of late is the celebration of entrepreneurship among the poor in developing countries. The assumption seems to be that the poor could successfully run these small micro-businesses, if only the slightest amount of help could be offered, especially financial help. The thinking goes like this: Nagamma would be able to buy two cows if she had access to $200, then she would be able to supply milk to the community, make money, repay the $200 at 25% p.a., and have money left over to scale the business to a point where she can buy more cows, make it a viable business etc. This is the sort of thinking that forms the basis for the current hype for micro-finance and social entrepreneurship, though one most also add that real-world practitioners of micro-finance (some of whom are very good friends of mine) typically are free of any such delusions. I must also confess that I personally flirted with the ideas around micro-entrepreneurship for a while, before thinking through the problem and arriving at a different conclusion.

I think the fundamental problem with the thought process is the conflation of real entrepreneurship with micro-entrepreneurship. Entrepreneurs of the Nagamma variety are forced into entrepreneurship because they have no other alternative. In other words, survival becomes entrepreneurship. That does not mean, however, that Nagamma possesses the skills required to be a real entrepreneur. True entrepreneurship is a specialized skill which requires a very high degree of risk-appetite, and I'd argue that less than 1% of the population have these skill sets and risk appetites. I should know, having been involved in two start-ups in the mid-90's. I was an entrepreneur because I don't really like taking orders from others and I have always lived for the thrill of doing something very new. I am also extremely well-networked to knowledge, capital and people with solid management skills. To compare an entrepreneur like me with Nagamma is a bit absurd, isn't it?

To people who meet me and doubt this, I typically take them to meet some of these so-called micro-entrepreneurs who are being celebrated in the beautiful stories you hear from time to time. Some of them run their businesses pretty close to the ISB. Typically, they're small stores, tea-vendors and the like. Speak to them, and you'll realize that their margins on their businesses are typically $40-60, if not lower. Arguably, this makes them better off than their lives in the villages, but speak to them a while longer and ask them what they'd really like to do, and they'll tell you they'd love to be cab drivers running cab services to the ISB or Microsoft or some such, for example. Cab drivers working at the ISB (for car companies) typically make $120-150 a month, with benefits and the base income is not variable. The attraction of cab driving becomes immediately obvious.

So, if you really wanted to make a difference through private business, the real target should not be micro-businesses, but SME's. In the case illustrated above, the two potentially highly profitable businesses that need to be seeded are skills training companies, which teach these chaps how to drive a car and speak a bit of English (micro-finance could have a real role here), and large cab companies that can hire these guys as drivers to cater to exploding demand in Hyderabad. There is no point imagining this small guy sitting outside is somehow going to become the Starbucks of the chai business in India. Miracles do happen, but not with the regularity required to solve the problem of employing the poor in India. In other words, what needs to grow is the formal sector, which alone has the scale to absorb people in large numbers with reasonably paid jobs. The celebration of the wrong kind of entrepreneurship simply expands the informal sector, which we can all agree is a second-best alternative at best.

How soon the international aid/Base-of-the-Pyramid/Social Entrepreneurship crowd will understand this very important distinction is the real question. And yes, I do belong to this crowd, so I am trying to affect some change of thinking from within. Whether my thinking on this gains any traction or not remains to be seen.

Steve Levitt is asking an interesting question at the New York Times: If you were a terrorist, how would you attack? The basic premise is quite simply wisdom of crowds, I guess. If you had posed the same question back in 2001, chances are that someone would have come up the idea of flying planes into buildings and maybe, it would not have come as such a shock to the system.

Levitt himself comes up with an idea that I agree could potentially be devastating for the simple reason that unpredictable small acts of terror are far more terrorizing than huge acts of terror like 9/11. Anyone who lives in Israel or in Delhi during the 80's will probably agree strongly.

The best terrorist plan I have heard is one that my father thought up after the D.C. snipers created havoc in 2002. The basic idea is to arm 20 terrorists with rifles and cars, and arrange to have them begin shooting randomly at pre-set times all across the country. Big cities, little cities, suburbs, etc. Have them move around a lot. No one will know when and where the next attack will be. The chaos would be unbelievable, especially considering how few resources it would require of the terrorists. It would also be extremely hard to catch these guys. The damage wouldn’t be as extreme as detonating a nuclear bomb in New York City, of course; but it sure would be a lot easier to obtain a handful of guns than a nuclear weapon.

As you can imagine, Levitt's piece has pissed off some of the usual flag-waving suspects, but some of the responses are rather intriguing and I bet Levitt will do a follow-up based on the feedback he's receiving. In the meanwhile, let's hope law enforcement authorities are looking at these ideas seriously since it may be the best way to prevent some of the ideas from coming to fruition just like reading Tom Clancy novels could have served as a warning before 9/11 or reading Forsyth could have served as warning on belt bomb wearing suicide bombers.

Given my past experience with overly sensitive readers, I ask you to actually read the Levitt piece and think about it before violently reacting to it, like some of the commenters on that blog have. For those who think this is a bad idea, I ask this: would you also consider not publishing a Tom Clancy or Frederick Forsyth novel, based on the assumption that it will give terrorists ideas?

I have, on this blog, lamented several times (including very recently) about the complete absence of architectural sensibilities in modern-day India. It almost seems like the pre-independence art deco movement was the last time anyone used their brain and imagination to build. This is very strange because India has such a rich architectural tradition, so to see these monstrosities all over is embarrassing. The trend in Hyderabad and Bangalore, for example, seems to be to build ugly-as-fuck sprawls with ugly-as-fuck buildings to go with the sprawl. Hopefully, there is an inflection point (in wealth terms) when people do pay more attention to design, planning etc.

Given these biases of mine, it was refreshing to read Shoba Narayan's piece in Mint which addressed some of the issues articulated above. Let's start at the bottom.

India has no dearth of builders, ranging from the Hiranandanis to the DLF Group. But without a single exception, most mass-market builders lack imagination. They loathe taking architectural risks and, as a result, the homes they build lack individuality. I should know; I live in one such flat.

Corporations, thankfully, are donning the patron mantle and encouraging architects who think outside the box. TCS has hired Carlos Ott to build its eco-friendly Chennai campus. The Ananda Group uses Hong Kong-based Indian architect, Chandu Chadda, for all its properties, including its newly opened resort in Mauritius. Infosys, thankfully, has continued its patronage of Indian architects even for its projects overseas.
[...]
Architects are (or can be) the barometers of a society’s aesthetic sensibilities. Good architecture can become a cultural and travel touchstone. After all, there are two ways for a city or country to get on the tourist map: You either have history or you make history. We, in India, are blessed with a 5,000-year-old architectural history that we perhaps take for granted. Unlike Dubai, which is building the “History Rising,” tower, we have history in spades. Our problem is how to channel all this into tourist income.
[...]
In my mind, cutting edge architecture is the one thing that can take an obscure location and turn it into an instant tourist destination. Consider: Had you heard of Bilbao before Frank Gehry put it on the map with his Guggenheim museum? Similarly, Cincinnati was hardly on the tourist circuit until the recent unveiling of the Rosenthal Museum—a tour de force by the staggeringly talented Iraqi architect, Zaha Hadid.

Using architecture as a tourist crowd-puller doesn’t always work. Kuala Lumpur, for instance, invested a lot when it hired Cesar Pelli to build what was then the tallest building in the world—or at least a contender. Even though Pelli inventively adapted the local minaret idiom in his Petronas Towers, KL never really became an architectural destination like Bilbao. In order to become a travel destination, the buildings have to have a certain insouciance, a certain star quality; and not all of them have that even if they were designed by world-class architects. Daniel Libeskind’s design for the World Trade Center memorial was perfectly respectable, even sincere, but it lacked the oomph factor that would elevate it from an important building into an icon.

As I've mentioned before, TED Africa was simply the best conference I've ever attended, and that's saying a lot coming from an academic who hates conferences by and large. And one of the best things about TED is how it puts all of this fantastic intellectual property online, free of charge. I've been a fan of TED Talks long before I ever attended the real thing; it just provided endless hours of thought-provoking stuff. Given how much I've been talking about TED Africa, several people have asked me when it would go online and I asked everyone to be patient based on what Emeka told me. The organizers have slowly started putting the Africa talks online and you can find the first installment here. I am also going to embed the videos here for the lazy ones.

TED Africa was opened, amazingly enough, by my good friend, Euvin Naidoo, and Euvin spoke about the investment opportunities in Africa and offered a different lens to view the continent through.



Long-time readers of this blog also know of my admiration for George Ayittey, who I have met several times now to understand Africa better, especially the political dynamics underpinning the economic ones. Here is his powerful and hard-hitting speech that pretty much lays out the fundamental problems on the continent and appeals to the "cheetah" generation to change the way things get done. You judge for yrself whether George is the right-winger he is often deemed to be.



Ngozi Okonjo-Iweala was the finance minister of Nigeria in the Obasanjo government. I have followed her closely in her government role and it was quite amazing how she shook up the political economy of Nigeria, which probably explains why she didn't last that long. It was, therefore, a great privilege to meet her and spend some time with her. Here is Dr Okonjo-Iweala explaining why it's not an either/or scenario.



As I said, this is just one of the many talks going online at TED, so watch this space and I'll continue to link to some of the better speeches I heard. For now, enjoy these three.

I know I am putting this picture in here at grave risk to myself, but I figured the least I can do for loyal ZS readers is to provide y'all with a bloody good weekend laugh. Now, here's what you all of you have really wanted to tell me in the months and years of knowing me. Google just did the job for you. Have a look at what Google Ads threw up on ZS a little while back. It really is too funny :)



Go Helium??? In the immortal words of the great poet Norman Cook, WTF?