Wednesday, July 31, 2013

Online education versus the traditional university

Peter Drucker once said, "Universities won't survive. The future is outside the traditional campus, outside the traditional classroom."

That was nearly two decades ago. And yet universities survive and prosper. Drucker saw the rising costs of university education as undermining the edifice of the university. He thought it inevitable that substitutes such as online education would displace the traditional university.

That hasn't happened.Why so? An article in the FT puts it down to vested interests in higher education:
Currently teaching is delivered in much the same way in schools as it was 50 or even 100 years ago. A single teacher talks to a classroom full of pupils, who work with textbooks, paper and pens. Few pupils are examined online. Libraries are still full of reference books but no tablet devices. Not only is this model out of date but in many countries, including Britain and the US, it is not proving effective – especially at teaching the skills employers want for the workplace.

....Unfortunately, the educational establishment, at both secondary and university levels, is too slow to change. I suspect that a resistance to new techniques of learning is partly about protecting jobs and defending senior staff whose skills are outdated. Why on earth do schools in Britain still put so much emphasis on teaching French? They should be teaching languages more relevant to the 21st century, such as Mandarin or Spanish. Why can’t schools equip pupils with up to date information technology skills? Perhaps their instructors are not up to the task – or possibly their processes are wrong.

Well, I am not sure that's the whole story. We need to be realistic about what can be taught online and what cannot be taught. Some basic courses, yes. A range of basic arts, science and management courses can be taught. But medicine or higher science or engineering? You need labs for all these.  You also need a fair degree of interaction between teacher and taught. And, yes, quality can be ensured only through rigorous exams that are difficult to operationalise on a mass scale.

There are other problems. Universities don't only teach. They are also into research (some would say of the leading universities that they are also into teaching). Is it possible to separate the production and imparting of knowledge? What would be the appropriate mechanisms for doing so? Can we researchers in specially funded institutions who do only research. And others at colleges who only need to teach. In the process, do we lose something? Finally, what about the benefits of student interaction on campuses, the advantages of networking etc?

We need to be realistic and walk on two legs, to start with. We need business models that will make mass provision of basic skills and knowledge viable through online education. Universities need to find a way to do this. However, it may be premature to think of online education as the only or even principal instrument of education, at least at the higher levels.

Friday, July 26, 2013

Last minute justice

There has been comment on the recently retired Chief Justice of the Supreme Court Altamas Kabir's delivering judgement on the NEET, the common entrance test for medical colleges, on his last day in office. The eminent lawyer, Raju Ramachandran, writes in the Hindu that this is by no means novel. There are several instances of judgements being delivered on the last day or close to the retirement of a judge.

The issue is not somebody delivering judgement on the last day or close to the date of retirement. When a judge takes up a case or is part of a bench that admits a case, he has no means of knowing when the case will conclude. The actual writing of the judgement, one would imagine, takes a few days and, therefore, the fact that a judgement is delivered on the last day need not detract from its merits.

The key issue, as Ramachandran points out, is whether judges have had adequate time to share views with each other. A judgement delivered on the last day of a judge's tenure would not be a problem if it has been preceded by adequate consultations amongst judges on a bench. That this does not happen very often is the real cause of concern. Ramachandran cites examples:
Kesavananda Bharati (1973) is the most celebrated case in Indian constitutional law. It is the majority opinion in this case which laid down the basic structure doctrine (that the power of Parliament to amend the Constitution did not extend to destroying its essential features). In his judgment, Justice Chandrachud (a ‘minority’ judge) wrote that the impending retirement of Chief Justice Sikri did not leave enough time after the conclusion of arguments for an exchange of draft judgments. Of the 13 judges who constituted the bench, he said that he had the benefit of fully knowing the views of only four of them.

.....Many years later, a nine judge Bench of the Supreme Court decided by a majority that primacy in the matter of appointments to the superior judiciary vests with the Judiciary and not the Executive (Supreme Court Advocates on Record Association, 1993). M.M. Punchhi, a dissenting judge, wrote in his judgment that he had hoped that some “meaningful meetings” would be held, so that the court could strive to reach a unanimous decision. He complained that he was “overtaken” when he received the draft opinion of Justice J.S. Verma for himself and on behalf of four others.
Ramachandran proposes some remedies. One, a permanent Constitution bench whose  composition would remain fixed for a full court term. Another is that, from about three months before their terms are ending, judges should stay away from "heavy" cases. Perhaps, one could also have a disclosure requirement for judgements delivered by a bench: the presiding judge must disclose whether the judgement has been preceded by exchange of views or consultations amongst the judges.

Thursday, July 25, 2013

Why are American companies not investing?

Profits of American companies are at a record high; the cost of capital is at a record low. Yet American companies are not investing. The facts: pre-tax profit are 12% of GDP while investment is a mere 4%. Why? An article in FT attempts to shed light on this mystery:

  • Excess capacity was created in the boom years and this effect has to wear off before fresh investment can begin (one notable area is housing)
  • Excessive regulation is stifling investment (for example, the high costs associated with compliance).
  • Profitability has been boosted by more use of IT, which replaces workers with computers. But this does not explain why higher profit is not being ploughed back into investment
  • Investment is happening but it is intangibles such as brand-building, research and better organisation
  • High profitability reflects rent from monopolies (Paul Krugman)
  • Wall Street's focus on quarterly numbers means that it makes more sense to focus on cost-cutting and efficiency than on risky investment, especially when the economic outlook is murky
  • Profits are being appropriated by avaricious managers rather than going into investments that would benefit shareholders
 None of these would explain the phenomenon fully but, together, they add up to a worrying narrative. As the author indicates, it's time for policy makers to get their acts together. 

Tuesday, July 23, 2013

Bailouts need not mean losses to taxpayes

When failed banks are bailed out, these are seen as losses to tax payers. This need not be so, as an article in FT points out. The US Treasury made a profit of $5 bn on its investment in AIG and another $4.5 bn on its investments in Citigroup and Bank of America. In the UK, the government has broken even on its investment in Lloyds Bank. It also cites instances where central banks that bought securities - whether of corporates or sovereigns- stand to make profit.

In other words, intervention to save failing banks not only prevents economic collapse but also ends up as gain for the tax payer over time. The operative expression is "over time". What is seen as a "bailout cost" is a cost only at the point of intervention. The case for public intervention to save failing banks is thus overwhelming.

Where do these profits come from? Well, in a financial crisis, assets tend to be hugely undervalued. There is enormous under-shooting in prices. The moment economic calm returns, there is a good chance that prices will move up.

This is not just a foreign phenomenon. The government of India ended up making a huge profit on UTI through SUUTI. Only, the gains did not accrue to the holders of UTI units who were fobbed off with securities carrying yields of around 6% because they were not given a call option on the government investment in SUUTI. The UTI "scam" in which  managers were said to have ripped off investors through bad investments has, in fact, turned out to be a bonanza for the government. So much for the "scam" of which the media had made an enormous hullabaloo at the time.

Monday, July 22, 2013

Does the RTI Act cover political parties?

Political parties are up in arms against the CIC judgement which says they are public authorities
and hence within the purview of the RTI Act. The public is infuriated that political parties should be opposed to the CIC order. It sees this as unwillingness on the part of the political class to practise transparency. Are political parties being unduly cussed in the matter?

People are entitled to their views on whether it is desirable to bring political parties under the purview of the RTI Act. The important question, however, is what the RTI Act, as it stands, has to say on
the subject. In other words, how sound is the legal basis for the CIC's judgement? An article
in EPW raises this question and comes to the conclusion that the CIC's judgement is rather infirm.

The author, Anirudh Burman, points out that the CIC gave three reasons in justification of its judgement: political parties “are continuously engaged in performing public duty”, receive sub-
stantial financing from the government and have important constitutional and legal rights and liabilities.". He opines that the the last reason given has no legal basis as "This criterion is
not present in the definition of “public authority”at all."

He then scrutinises the other two reasons. Can political authorities be said to be
"public authorities" because they perform public functions? He thinks not- nowhere in
the Act is a "public functions" test specified for determining whether an entity is a public
authority. Who can be considered public authorities is laid down down very precisely in the
Act. The CIC also refers to the fact that political parties are registered with the Election Commission
and argues that this makes them somewhat similar to entities to established by government.
However, there is a Karnataka High Court  judgement that ruled that goes against this stand.

What of the argument that political parties get "substantial financing" from government? The difficulty, Burman points out, is that the CIC has steered clear of defining what constitutes "substantial financing". He argues that unless it can be established that, without the support they receive from government, political parties cannot carry on with their activities, they cannot be
said to receive ""substantial financing".

It is important to distinguish between transparency in respect of funding of political parties
and the broader transparency required under the RTI Act. In respect of activities not related
to raising funds, Burman argues- correctly, in my view- that transparency may not be desirable
and may pose obstacles to their effective functioning:
First, as a body seeking to outdo other competing parties, a political party has the
right to keep certain parts of its activities hidden from public view.  .....Second, in light of the fact that the RTI creates this information asymmetry, theRTI mechanisms may become a tool of political warfare rather than a tool forpromoting transparency.
The danger is stretching the RTI Act to cover entities it was not intended to is that it may
end up discrediting the Act itself, quite apart from rendering the entire political class
hostile to it.In the process, a most valuable instrument of empowerment and the purpose
of rendering a whole range of public authorities accountable may fall by the wayside.

Friday, July 19, 2013

How IIM came to Ahmedabad

How an IIM came to be located in then obscure and small-town Ahmedabad and not in Bombay (as it was then called) has been much written about. The automatic choices were the two leading industrial cities of the time, Bombay and Calcutta. The latter got an IIM, the first to be set up; a few months later in 1961, the second IIM came up, not in Bombay, but in Ahmedabad.

The official version (which I have reported in my book on Ravi Matthai- IIMA) is that Bombay University dragged its feet over the idea as it not comfortable with an autonomous institution within its fold. Vikram Sarabhai, with the backing of industrialists in Ahmedabad, used his clout in government to claim the IIM for Ahmedabad.

In his memoirs (A book of memory), well-known pscyho-analyst Sudhir Kakar has a different story to tell. He contends that Sarabhai got an IIM created in Ahmedabad primarily in order to retain Kamla Chowdhry, an academic then working at ATIRA, with whom Sarabhai had a long and intimate relationship. (Chowdhry happened to be Kakar's aunt).

Chowdhry, Kakar says, began to get uncomfortable in the triangle that had Sarabhai and Mrinalini at the other two ends.  She began to toy with the idea of accepting an offer from DCM in Delhi which was similar to the work she was doing at ATIRA. Sarabhai "used every means at his disposal to persuade her to stay back in  Ahmedabad". He dangled the prospect of a directorship of a research centre on group dynamics, funded by an American foundation.

This didn't work out and three years later, Chowdhry envisaged a move to ASCI in Hyderabad or to Bombay University. This time, Sarabhai offered her a chance to work with a branch of UK's Tavistock Institute in Ahmedabad. This too did not happen.

Finally, as Kakar puts it, "To keep Kamla in Ahmedabad, Vikram Sarabhai successfully lobbied the Indian government to locate one of the two postgraduate institutions of management ....... in Ahmedabad rather than Bombay." Not only that, since Sarabhai and Chowdhry both had connections with Harvard, the original collaborator with IIMA, the University of California, came to be replaced by Harvard.

Kakar bases his narrative on the private papers of Chowdhry. The conclusion he draws is illuminating:
"The letters (from Sarabhai to Chowdhry) are also cautionary for any historian who still believes that decision-making in institutions, whether private or those of the state, is independent of the personality and the emotional needs of the actors, that the public record is sufficient to fully explain the course of a historical event......the location of the IIM at Ahmedabad rather than in Bombay and its collaboration with the Harvard Business School.... had as much to do with the demands of the relationship between Vikram and Kamla (if not more) as with the rational deliberations captured by the public record."

Sunday, July 14, 2013

Hogwash on dilution of the IIT brand

A section of the media has gone to town on the subject of some 700 odd students turning down IIT offers. This is construed as a dilution in the IIT brand for whatever reason: poor quality of infrastructure and faculty at the newer IITs, the impact of quotas for SC/STs and OBCs, or the availability of other institutions that are better (although I would myself be hard put to identify these).

This is plain hogwash, as Dinesh Mohan makes clear in an article in BS. He points out a number of reasons why some offers may not be getting accepted:

Students have become acutely aware that all disciplines do not offer challenging or rewarding jobs after graduation (such as civil, production, textile, and many others). Therefore, some of them may prefer to go to an NIT closer to home that gives them an opportunity in a discipline of their choice. Studying at an IIT for undergraduate students can cost about Rs 20,000 a month, not a small amount for a middle-class family. Some of those declining may have opted to spend less by studying at a local NIT instead of a new IIT and save on hostel expenses.
A significant proportion of the students entering IITs know from day one that they are not interested in an engineering career, but do so under parental and societal pressure or a lack of choices for obtaining decent education. If there was a good supply of excellent liberal arts and science colleges with hostel facilities, applications to IITs may drop by a third. It is possible that some of those declining an admission to IIT have gained admission to good law schools, design schools or science colleges that have made a name for themselves in recent years.

Lastly, there would be a group of young men and women who would prefer to spend much more money and go to an institution in the US, Australia, Singapore or the UK, even a second-rate one, than take admission in a discipline and IIT location they don't like. Therefore, the fact that many applicants have opted out of the IIT system may be a good sign, showing that we have more choices and the system is maturing. It certainly does not reflect on the standing of IITs as academic institutions in India. 

The proposition that the entry of newer IITs is diluting the IIT brand would be strictly true only if the older and more reputed IITs fail to fill their seats because of a perception that IITs are not what they were. Nobody has argued that this is the case. We need data on how many seats at which IITs were rejected.

A similar apprehension was raised in respect of the newer IIMs. It's a fact that many of the new IIMs could not place all their students in the last round of Placement. Has this impacted IIMA, the market leader? Not one bit. IIMA achieved 100% placement. The newer IITs and IIMs will take a while to establish themselves. That is very different from saying that the IIT or IIM brand will go into decline because of them.

Incidentally, Dinesh Mohan's article last year on why the JEE should be abolished is also worth reading.

Saturday, July 13, 2013

A bold blueprint for banking reform

Several committees have gone into the financial crisis and come up with prescriptions for avoiding such disasters in future. Except for a modest increase in capital requirements, some proposed restrictions on proprietary trading in the US and an attempt to ring-fence retail operations in the UK, we have not seen any significant reforms so far. Reforms that will radically change the way banks will be run.

It was a pleasant surprise, therefore, to see a report from UK's Parliamentary Commission on Banking Standards that squarely addresses basic issues in the functioning of the banks- the accountability of bankers, incentives in banking, the role of bank boards, culture and standards in banking, competitiveness in UK banking, the privatization of  RBS and Lloyd's, etc.

Anybody interested in the governance of banks should peruse this two-volume report- they are a terrific read. The reports have gone almost unnoticed in the Indian media. After going through them, I was left wondering how a parliamentary commission could have come up with such an insightful report where expert bankers, regulators and economists have fared not so far. I guess it's not a matter of knowledge but of intention or sincerity. Bankers have their own axes to grind when it comes to reform; they have been thwarting serious reforms since the crisis. Regulators and academics are prone to capture by business lobbies.

Politicians are not exempt from capture either. It's just that the public mood towards bankers is so sour, especially in the UK and the rest of Europe, that politicians cannot afford to ignore it. I have said this before and will say it again: there is accountability in politics in a way there isn't in the corporate world or amongst professionals such as lawyers, doctors, accountants and even academics.

I have analysed the report in an article in the Hindu, Making bankers pay for failed gambles. I have strongly recommended that many of the proposal for reform proposed by the Commission should be embraced by the RBI.

Wednesday, July 03, 2013

The electoral arithmetic of Modi's bid for PM

Ashutosh Varshney, professor at Brown University, has done the Math on what it would take Modi to become PM in this article in IE:

When the BJP won 182 seats in 1998 and 1999, it captured 25.6 and 23.7 per cent of the national vote respectively. In 2009, it won a mere 18.8 per cent (and 116 seats). Though, under certain exceptional circumstances, one can show that a party can win 180 seats in India's Parliament with only 18-20 per cent of the national vote, a more reasonable assumption is that 24-25 per cent of the national vote will, in all probability, be required for 180-plus seats. In short, Modi needs to raise the BJP's vote by 5-6 percentage points.
In 2014, the size of the electorate is expected to be a little over 800 million. Assuming a 60-62 per cent turnout, we will have roughly 500 million voters. A 5-6 per cent increase in the BJP's vote essentially means that Modi will have to deliver an additional 25-30 million votes .
Varshney is sceptical about Modi being able to bring it off in 2014:
Of the 500 million likely voters in 2014, only 150 million will be urban, and of these, only 90 million are in the west and north. The BJP has already won a lot of these votes in the previous elections. Can Modi really mobilise an additional 20-25 million votes from this northern and western pool, assuming he can get 5 million more elsewhere? 

The order is monumentally tall. Advani may well have the last laugh next year unless a broad anti-Congress alliance can be constructed. With urban India rising, Modi's power to pull votes could be greater in the 2019 or 2024 elections, but might fall well short in 2014.