James Bond is passe. The spy of the 21st century is more likely to be software secretly smuggled into your computer which enables somebody to know exactly what you are doing with your PC or laptop. Or it could be a drone drifting into a cave harbouring Afghan militia.
The Economist has a fascinating article on how spying has evolved. In the old days, the thing to do was to smuggle in a smart guy- preferably from an elite institution, such as Oxbridge- into the target country with a fake identity, visiting cards and plenty of cash. Today, with biometric identification, this has become difficult. The other form of 'humint' - or human intelligence- is simply paying people on the other side for passing on information. This is, of course, alive and well. But, targeting the right people who will spy for you is becoming more sophisticated- it's no longer a matter of accosting people at clubs or parties.
The thing to do is to get data on a whole lot of people and look for weaknesses- medical problems, financial problems, hints of scandal. That's what the people who hacked the site of America's Office of Personnel Management were looking for. I am surprised people didn't think of hacking Ashley Maddison for this reason.
This gives us an idea of what the focus of spying game will be: electronic communications and materials stored on PCs and laptops. One begins to understand why the NSA and other intelligence agencies are so keen on scrutinising email and related traffic. By combing through this, one can lead a treasure of information. The equivalent of this is listening into phone conversations, including mobile conversations.
One problem for spy agencies, the Economist mentions, is encrypted messages. Since it is the receiver and the sender who hold the keys- and not the channel that allows them- spy agencies want the channels to insist that users give them the keys. But this may not be necessary. You don't have to crack an encrypted message. It's enough if you can track what the sender is typing or what the receiver is typing- and there's plenty of spyware available for this.
The flip side is that spy agencies that store information are themselves vulnerable- as the Snowden episode highlighted in a big way. How to steal somebody's else data while safeguarding your own is the central challenge of modern spying.
All of this seems pretty clear. Still, some doubts remain. Electronic spying may be effective when it comes to spying on official agencies. Will it work with terrorists or criminal groups? Such groups are more likely to rely on passing messages on a slip of paper or by word of mouth. Electronic spying can't help here. Since, James Bonds can no longer be smuggled in to mingle with such groups, it's just possible that spying on terrorists and the like has been weakened in recent years.
Monday, August 31, 2015
Wednesday, August 26, 2015
Making sense of crashing markets
Markets have crashed all over the world, including the US. It's not easy to make sense of this phenomenon. The glib explanation is that it has to do with the inability of Chinese authorities to stem the crash in markets there and the devaluation of the yuan. Both point to clear slowdown in Chinese growth and falling Chinese demand for imports. China is a big source of incremental global growth, so this is bad news for the world economy.
All of which is true. But what's new in that? Why should markets crash instead of declining in an orderly way? How does that explain the panic? One possible explanation is that the slowdown in China will be more severe than thought- growth won't be even 7 per, it would be, say, 6 per cent. But, again, why would markets latch on to this virtually overnight?
The other suspect is the impending Fed rate hike. But this has been long in coming. Also, it's not as if the Fed will press ahead regardless of what's happening to markets worldwide. An article in Business Insider highlights these points very well but does not come up with a plausible alternative. So let me stick my neck out and offer one.
Might worsening geo-politics be a factor? There's been news in recent days that both Russia and Nato have carried out exercises that military analysts see as a clear preparation for war. Then, there's been news that the US is moving some of its most advanced aircraft to its European allies. Oil prices have fallen to close to $40 and there's been another run on the rouble. This adds to Russia's economic woes and puts Russian president Putin under further pressure.
It could well be that the flight of funds from emerging markets is a sign of a full-blown global crisis that is not just economic in nature. I read in the Economist recently that Russia will find it difficult to hold on to Chechnya and other states in the federation the moment it runs out of cash. Any impending turbulence in Russia, with all the uncertainties it carries, would certainly frighten the life out of investors.
Worsening ties between the west and Russia are part of worsening geo-politics in general: think the situation in West Asia, China- Japan, India- Pakistan, etc. Don't get me wrong. I don't see any of these crises playing out in the near future. But worsening geo-politics makes it difficult to get the necessary focus on the economic situation. Indeed, crashing asset prices, notable that of oil, which is crucial to Russia, may just suit the agenda of the western powers.
My sense is that the US and its allies under-estimate Russia, as it has been under-estimated by others in the past. When this becomes clear enough, the geo-political situation should improve and panic should dissipate. However, this learning could be a long and painful process. Until then, however, risk aversion will be high. It's the combination of a weak economy and worsening geopolitics that, perhaps, explain the current panic.
(Updated on August 27, 2105)
All of which is true. But what's new in that? Why should markets crash instead of declining in an orderly way? How does that explain the panic? One possible explanation is that the slowdown in China will be more severe than thought- growth won't be even 7 per, it would be, say, 6 per cent. But, again, why would markets latch on to this virtually overnight?
The other suspect is the impending Fed rate hike. But this has been long in coming. Also, it's not as if the Fed will press ahead regardless of what's happening to markets worldwide. An article in Business Insider highlights these points very well but does not come up with a plausible alternative. So let me stick my neck out and offer one.
Might worsening geo-politics be a factor? There's been news in recent days that both Russia and Nato have carried out exercises that military analysts see as a clear preparation for war. Then, there's been news that the US is moving some of its most advanced aircraft to its European allies. Oil prices have fallen to close to $40 and there's been another run on the rouble. This adds to Russia's economic woes and puts Russian president Putin under further pressure.
It could well be that the flight of funds from emerging markets is a sign of a full-blown global crisis that is not just economic in nature. I read in the Economist recently that Russia will find it difficult to hold on to Chechnya and other states in the federation the moment it runs out of cash. Any impending turbulence in Russia, with all the uncertainties it carries, would certainly frighten the life out of investors.
Worsening ties between the west and Russia are part of worsening geo-politics in general: think the situation in West Asia, China- Japan, India- Pakistan, etc. Don't get me wrong. I don't see any of these crises playing out in the near future. But worsening geo-politics makes it difficult to get the necessary focus on the economic situation. Indeed, crashing asset prices, notable that of oil, which is crucial to Russia, may just suit the agenda of the western powers.
My sense is that the US and its allies under-estimate Russia, as it has been under-estimated by others in the past. When this becomes clear enough, the geo-political situation should improve and panic should dissipate. However, this learning could be a long and painful process. Until then, however, risk aversion will be high. It's the combination of a weak economy and worsening geopolitics that, perhaps, explain the current panic.
(Updated on August 27, 2105)
Tuesday, August 18, 2015
Indradhanush: a fortune for PSBs at the end of the rainbow?
The government has unveiled a plan for revamping PSBs titled Indradhanush. One thing is striking: the government is implementing the recommendations of the P J Nayak committee in form but not in content. The Nayak committee wanted a radical departure in the way PSBs are run. Its model for PSBs was Axis Bank, the former UTI Bank in which the government allowed its stake to fall below 51% and let it be run like a private bank, with a professional board and with private sector scales.
Well, it doesn't look as though any of this is going to happen with PSBs under Indradhanush. The centre-piece is the infusion of Rs 70,000 crore over four years, with Rs 25,000 crore being infused this year itself. This marks a turnabout in the government's position on recapitalisation. In its first budget, the government took the view that capital infusion would be a reward for performance.
The departures from the Nayak committee report are striking:
appointments process has been more rigorous than what we say in UPA-II.
More in article in Quartz, Slow, steady and sensible: Modi's new approach to reviving banks
Well, it doesn't look as though any of this is going to happen with PSBs under Indradhanush. The centre-piece is the infusion of Rs 70,000 crore over four years, with Rs 25,000 crore being infused this year itself. This marks a turnabout in the government's position on recapitalisation. In its first budget, the government took the view that capital infusion would be a reward for performance.
The departures from the Nayak committee report are striking:
- There will be a Bank Board Bureau that will make top appointments in PSBs, including appointments of independent directors. But this is not going to be manned entirely by professionals as the Nayak committee wanted. Some reports say half of the six members will be government appointees. One report quoted the banking secretary as saying he will be the sole representative. Either way, the government will make the final call on appointments. It cannot be otherwise as long as the public sector character of the banks continues. I have always thought that the idea of government distancing itself from control of PSUs and PSBs was hogwash- it just can't happen.
- Two of the five appointments have been from the private sector. But the finance secretary has assured PSBs that hereafter there will be no more appointments from the private sector- EDs at PSBs will be given a chance.
- Performance-linked pay and private sector pay scales: If this happens, it will be in a restricted way. The basic framework of government, defined by the Pay Commission, won't go away.
- Bank Investment company: The Nayak committee wanted government equity to be transferred to a BIC with the BIC dropping its ownership in individual banks below 51%. The BIC won't happen in a hurry. And when it does happen, government will not drop its ownership below 52%. That means, CVC and CAG will stay.
appointments process has been more rigorous than what we say in UPA-II.
More in article in Quartz, Slow, steady and sensible: Modi's new approach to reviving banks
Saturday, August 15, 2015
Land Bill setback could be a blessing in disguise
The Modi government has had to backtrack on the Land Bill. Industry is howling but, on a longer view, this may not be such a bad thing.We need an approach that farmers regard as fair. Perhaps, parliament can now consider a fresh set of options.
It's not enough to say glibly that farmers should not complain as long as they are compensated and that twice the market value in urban areas and four times the market value in rural areas is good enough. The problem very often is that the market value is not easy to determine. Simply looking at recent land sales may not help, as the Economist points out, because these may distress sales made by farmers to other farmers or because the sale price may have been under-reported to dodge stamp duty.
The fact of the matter is that the true value, in acquisition for industrial use, becomes known only after the industries are set up. This means that farmers should have a 'call option' on the property that is sold to industry. The approach taken by AP Chief minister Chandrababu for the construction of a new capital for AP may well be the way to go. Naidu has offered to give back to farmers 30% of the land pool they have together contributed once the city is constructed. This is a way of providing a call option to sellers.
The problem of dealing with holdouts- people who simply refuse- may still be there. The Economist cites a suggestion made by two economists. Ask for bids for plots close to the ones being acquired and offer these as compensation to those unwilling to sell in the acquired area.
Land acquisition is a hugely emotive issue and more so at a time when farmers are in distress. Forced and unfair acquisition is a factor underlying insurgency in many parts of the country. We need to think of new solutions. So the setback to the government on the Land Bill may well be a blessing in disguise.
It's not enough to say glibly that farmers should not complain as long as they are compensated and that twice the market value in urban areas and four times the market value in rural areas is good enough. The problem very often is that the market value is not easy to determine. Simply looking at recent land sales may not help, as the Economist points out, because these may distress sales made by farmers to other farmers or because the sale price may have been under-reported to dodge stamp duty.
The fact of the matter is that the true value, in acquisition for industrial use, becomes known only after the industries are set up. This means that farmers should have a 'call option' on the property that is sold to industry. The approach taken by AP Chief minister Chandrababu for the construction of a new capital for AP may well be the way to go. Naidu has offered to give back to farmers 30% of the land pool they have together contributed once the city is constructed. This is a way of providing a call option to sellers.
The problem of dealing with holdouts- people who simply refuse- may still be there. The Economist cites a suggestion made by two economists. Ask for bids for plots close to the ones being acquired and offer these as compensation to those unwilling to sell in the acquired area.
Land acquisition is a hugely emotive issue and more so at a time when farmers are in distress. Forced and unfair acquisition is a factor underlying insurgency in many parts of the country. We need to think of new solutions. So the setback to the government on the Land Bill may well be a blessing in disguise.
Srikrishna on the RBI and the IFC
You must read this interview Justice Srikrishna has given to the Economic Times.Here's what he has to say about the MPC and separation of public debt from the RBI:
Originally, there was a proposal that there will be a veto with the RBI governor. The government said a veto is not good. Originally, we had said the majority in the Monetary Policy Committee should be outsiders. The RBI objected, saying we should have a majority. So the government, after consulting the RBI, conceded ground and said, 'Let there be three Reserve Bank nominees including the governor, deputy governor and the one nominated by them'. So, the new thing has been accepted.
Srikrishna is also worth quoting on RBI independence about which misconceptions abound:On public debt, the government says right now we don't have the capacity to deal with this issue, the Reserve Bank says, 'no we have to do this'. One by one things are being done. So, what is the controversy being generated? The government has no controversy, the Reserve Bank has no controversy and I see no scope for controversy. You chaps are creating the controversy.
Nobody is independent except the judiciary, for obvious reasons. Under the Constitution, the only independent body is the judiciary. Now, the RBI is merely putting into practice the policy to be pursued by the government in financial matters. It is of course undeniably an experts' advisory body and its advice has great weight. On recapitalisation of banks... the government has neither the time nor is it competent. So, the Reserve Bank looks at all such things as the exchange rate, inflation targeting, etc. The mandate is given to the RBI but the government may still disagree with it, unlike a Supreme Court judgement where it is bound by the decision.
Nobody
is independent except the judiciary, for obvious reasons. Under the
Constitution, the only independent body is the judiciary. Now, the RBI
is merely putting into practice the policy to be pursued by the
government in financial matters. It is of course undeniably an experts'
advisory body and its advice has great weight. On recapitalisation of
banks... the government has neither the time nor is it competent. So,
the Reserve Bank looks at all such things as the exchange rate,
inflation targ ..
Originally,
there was a proposal that there will be a veto with the RBI governor.
The government said a veto is not good. Originally, we had said the
majority in the Monetary Policy Committee should be outsiders. The RBI
objected, saying we should have a majority. So the government, after
consulting the RBI, conceded ground and said, 'Let there be three
Reserve Bank nominees including the governor, deputy governor and the
one nominated by them'. So, the new thing has been accepted. On public
d ..
Originally,
there was a proposal that there will be a veto with the RBI governor.
The government said a veto is not good. Originally, we had said the
majority in the Monetary Policy Committee should be outsiders. The RBI
objected, saying we should have a majority. So the government, after
consulting the RBI, conceded ground and said, 'Let there be three
Reserve Bank nominees including the governor, deputy governor and the
one nominated by them'. So, the new thing has been accepted. On public
d ..
Originally, there was a proposal that there will be a veto with the
RBI governor. The government said a veto is not good. Originally, we had
said the majority in the Monetary Policy Committee should be
outsiders. The RBI objected, saying we should have a majority. So the
government, after consulting the RBI, conceded ground and said, 'Let
there be three Reserve Bank nominees including the governor, deputy
governor and the one nominated by them'. So, the new thing has been
accepted. On public ..
Originally, there was a proposal that there will be a veto with the
RBI governor. The government said a veto is not good. Originally, we had
said the majority in the Monetary Policy Committee should be
outsiders. The RBI objected, saying we should have a majority. So the
government, after consulting the RBI, conceded ground and said, 'Let
there be three Reserve Bank nominees including the governor, deputy
governor and the one nominated by them'. So, the new thing has been
accepted. On public ..
Originally, there was a proposal that there will be a veto with the
RBI governor. The government said a veto is not good. Originally, we had
said the majority in the Monetary Policy Committee should be
outsiders. The RBI objected, saying we should have a majority. So the
government, after consulting the RBI, conceded ground and said, 'Let
there be three Reserve Bank nominees including the governor, deputy
governor and the one nominated by them'. So, the new thing has been
accepted. On public ..
Sunday, August 09, 2015
Maoist policies would not change China's future growth rate
I found this hard to believe when I read it but it appears to be the result of solid research. If China were to revert to Maoist policies, the Chinese economy would grow on the average at 4-5% every year between now and 2050- about one percentage point lower than the growth rate projected for China under the pro-market liberal policies it has had since the 1970s. These projections have been made by four US-based economists, says a report in the FT.
The projections made for the Chinese economy under current policies are interesting:
The interesting question thrown up by the projections on China is whether the focus on continued "reforms" isn't a little overdone in India. Perhaps, the PM's instincts are right: it may be more useful to focus on implementation of existing policies than on bringing about radical policy changes that are, in political terms, a hot potat.
The projections made for the Chinese economy under current policies are interesting:
Assuming a continuation of current policies, the paper predicts the Chinese economy will expand by 7-8 per cent for the next 10 years or so, with growth slowing to 5.2 per cent on average between 2024 and 2036 and then a rate of just 3.6 per cent between 2036 and 2050.India's economic growth should overtake China's this year. India's superior growth rate should persist thereafter until 2050- barring unexpected political shocks.
The interesting question thrown up by the projections on China is whether the focus on continued "reforms" isn't a little overdone in India. Perhaps, the PM's instincts are right: it may be more useful to focus on implementation of existing policies than on bringing about radical policy changes that are, in political terms, a hot potat.
Tuesday, August 04, 2015
More capital for public sector banks
The government has made a welcome about-turn on the question of infusing fresh capital into public sector banks (PSBs). It plans to infuse Rs 70,000 crore in the next four years, starting with Rs 25,000 crore this very year. The government's position in the first year in office was that the government would reward performing banks with capital; non-performers would have to fend for themselves.
This is an untenable position to take because it leaves unaddressed the issue of how non-performers are to fend for themselves. They can raise capital from the markets, if at all, only at throw away prices, which means the government as the owner is giving away equity cheaply. It makes sense to tap capital markets only after valuation improves. Valuations can improve only if revenue and profit grow. Revenue and profit can grow only if banks can lend more. (Options such as selling off non-core assets may not fetch enough capital and they cannot be done in a hurry in the government scheme of things), And banks can lend more only if they have more capital. QED.
The government's hand has, perhaps, been forced by the rise in NPAs in recent months. Provisions against these will reduce profit or increase losses and erode capital. It's not clear what level of capital adequacy the additional infusion of capital is intended to achieve- hopefully it will be at least two percentage points above the regulatory minimum of 9%- only then can PSBs take some risks in lending.
The general perception is that bouts of recapitalisation of PSBs are uncalled for and a colossal drain on the exchequer. Neither is true when one looks at the worldwide experience with bank recapitalisation. There is always a fiscal cost associated with recapitalising banks. If you can keep the cost below, say, 5% of average GDP over a 20 years and prevent a banking crisis, you have achieved something.
In India, we have done just that and we have prevented a full-blown crisis. Contrast that with economies where governments recapitalise banks after a crisis and end up paying a higher fiscal cost, not to speak of the bigger loss of output arising from a banking crisis.
More in my article in the Wire, Three myths about recapitalising public sector banks.
This is an untenable position to take because it leaves unaddressed the issue of how non-performers are to fend for themselves. They can raise capital from the markets, if at all, only at throw away prices, which means the government as the owner is giving away equity cheaply. It makes sense to tap capital markets only after valuation improves. Valuations can improve only if revenue and profit grow. Revenue and profit can grow only if banks can lend more. (Options such as selling off non-core assets may not fetch enough capital and they cannot be done in a hurry in the government scheme of things), And banks can lend more only if they have more capital. QED.
The government's hand has, perhaps, been forced by the rise in NPAs in recent months. Provisions against these will reduce profit or increase losses and erode capital. It's not clear what level of capital adequacy the additional infusion of capital is intended to achieve- hopefully it will be at least two percentage points above the regulatory minimum of 9%- only then can PSBs take some risks in lending.
The general perception is that bouts of recapitalisation of PSBs are uncalled for and a colossal drain on the exchequer. Neither is true when one looks at the worldwide experience with bank recapitalisation. There is always a fiscal cost associated with recapitalising banks. If you can keep the cost below, say, 5% of average GDP over a 20 years and prevent a banking crisis, you have achieved something.
In India, we have done just that and we have prevented a full-blown crisis. Contrast that with economies where governments recapitalise banks after a crisis and end up paying a higher fiscal cost, not to speak of the bigger loss of output arising from a banking crisis.
More in my article in the Wire, Three myths about recapitalising public sector banks.
Monday, July 27, 2015
Goodbye to performance appraisals?
I am not bowled over by the news - rather inaccurately reported in many places- of Deloitte and Accenture doing away with performance appraisals. First, they are not doing away with appraisals, they are doing away with annual appraisals. These, they have concluded, involve too much time and money and do not produce commensurate benefit. An FT article estimates that Deloitte must have wasted £ 200 million every year on these appraisals.
Deloitte will replace its elaborate appraisal with a set of four questions. Accenture will provide appraisal on the go. All of which is fine. But it's important to understand that, while can and must improve the methodology of appraisals, we can't eliminate performance appraisals altogether. We still need to determine who are to be promoted. Where there are performance- linked incentives, we will need measurement of performance. Appraisals won't disappear.
So the real question to ask is: how do we improve appraisals? The first thing is to realise that performance is best measured over a long period, certainly more than one year. This happens in the case of promotions but not in the case of variable pay (except at the very top level). If we accept that there are serious problems with annual appraisals, we should also accept that variable pay linked to annual performance is not a great idea. It rewards a few and demoralises the many, it is prone to error and getting the quantum of reward right in a given situation is also a problem. Doing away with variable pay will substantially reduce the need for annual appraisals.
What about appraisals for promotions? Well, the most important thing, as this article in the New Yorker emphasises, is to eliminate biases to the extent possible. One way to do so is to get make sure that a person is evaluated by many people, not just by one big boss. (You can call this 360-degree feedback or whatever you like). In some businesses, we could even get customers to evaluate certain people.
The second thing is to focus intensely on selection. Once you are reasonably confident you have the right people, you don't have to worry so much about 'managing' performance. Thirdly, upto a certain level, let promotions be time-bound, in other words, go by seniority (as in the bureaucracy). Again, the logic is that if a person has come through an intense selection process, he or she should be able to do well upto a certain level. This fosters cooperation and team spirit which are more important for performance than individual effort, however accomplished an individual may be.
Annual appraisals, especially for the purpose of handing out incentives, are divisive, subject to bias and errors in measurement and a serious obstacle to team work. How many companies, including Deloitte and Accenture, have had these for a years if hard to comprehend.
Deloitte will replace its elaborate appraisal with a set of four questions. Accenture will provide appraisal on the go. All of which is fine. But it's important to understand that, while can and must improve the methodology of appraisals, we can't eliminate performance appraisals altogether. We still need to determine who are to be promoted. Where there are performance- linked incentives, we will need measurement of performance. Appraisals won't disappear.
So the real question to ask is: how do we improve appraisals? The first thing is to realise that performance is best measured over a long period, certainly more than one year. This happens in the case of promotions but not in the case of variable pay (except at the very top level). If we accept that there are serious problems with annual appraisals, we should also accept that variable pay linked to annual performance is not a great idea. It rewards a few and demoralises the many, it is prone to error and getting the quantum of reward right in a given situation is also a problem. Doing away with variable pay will substantially reduce the need for annual appraisals.
What about appraisals for promotions? Well, the most important thing, as this article in the New Yorker emphasises, is to eliminate biases to the extent possible. One way to do so is to get make sure that a person is evaluated by many people, not just by one big boss. (You can call this 360-degree feedback or whatever you like). In some businesses, we could even get customers to evaluate certain people.
The second thing is to focus intensely on selection. Once you are reasonably confident you have the right people, you don't have to worry so much about 'managing' performance. Thirdly, upto a certain level, let promotions be time-bound, in other words, go by seniority (as in the bureaucracy). Again, the logic is that if a person has come through an intense selection process, he or she should be able to do well upto a certain level. This fosters cooperation and team spirit which are more important for performance than individual effort, however accomplished an individual may be.
Annual appraisals, especially for the purpose of handing out incentives, are divisive, subject to bias and errors in measurement and a serious obstacle to team work. How many companies, including Deloitte and Accenture, have had these for a years if hard to comprehend.
Monday, July 20, 2015
Growing irrelevance of B-schools
Everybody knows what B-schools are for. They are a screening mechanism for companies that want to hire bright people. Whether the courses they teach add value to businesses is unclear. Whether their faculty and research have anything to contribute is even less clear.
This is not a situation peculiar to any country. It's a problem that B-schools everywhere have to face up to, as is evident from an article on UK B-schools. If B-schools are not seen to be contributing much to businesses either through their students or their research, it is only natural that industry should stop perceiving much value in them. In the UK, where it's fifty years since the London and Manchester business schools started taking in students, this seems to be happening:
This is not a situation peculiar to any country. It's a problem that B-schools everywhere have to face up to, as is evident from an article on UK B-schools. If B-schools are not seen to be contributing much to businesses either through their students or their research, it is only natural that industry should stop perceiving much value in them. In the UK, where it's fifty years since the London and Manchester business schools started taking in students, this seems to be happening:
Perhaps even more worrying for business schools, there is no sign that business sees them as part of the solution any more. When the UK and global banking system went into a tailspin, few called to deans and professors for help. Did anyone expect the UK government’s plan for productivity to give a leading role to business schools?....Support for business school research by UK business shrunk by over 50 per cent in real terms between 1999/2000 and 2009/2010.Why is this happening? Because B-school research is tailored to the requirements of their hot universities rather than to industry. Academic research has become an end in itself, with little thought given to whether such research is of any use to industry:
Reports on graduate aspirations might indicate that they want learning that is applied and connected to the ‘real’ world, but the evidence suggests that business academics are engaging less and becoming more inward-looking. This reflects the “capture” of business schools priorities by their host universities. Where they can, universities are increasing their control over their favourite cash cows. Faculty naturally respond by seeking academic legitimacy rather than economic contribution. The chair of the Chartered Association of Business Schools Angus Laing might see its members as central to solving the economic challenges faced by the UK but this can pall into insignificance against a good research assessment.For B-schools, the implications are frightening: if the corporate world should find an alternative screening mechanism that is as effective- say, hiring bright graduates through a competitive process- where would B-schools end up? In India, it's even more frightening that there is no indication that these issues are even being raised for discussion.
Thursday, July 09, 2015
Grexit drama is still unfolding
It does appear that unfolding events point to a Grexit. Today, Greece is supposed to present its plan. The EU, the IMF and ECB will review the plan and give their response on Sunday. If they find the plan unacceptable, it will be Grexit. That means, immediately, that Greece will not have the euro as its currency. Eventually, it could also mean that Greece leaves the European Union.
Is this inevitable? Well, yes, because the EU is unwilling to accept that debt restructuring must be the basis for any deal. It's the IMF that made a powerful case for restructuring ahead of the vote in Greece on the referendum, a fact that Yanis Varoufakis, recently ousted as Greece's FM, gleefully latched on to his blog. The IMF showed that not even heroic austerity- a primary surplus of 2.5% for 50 years- can lead to debt sustainability for Greece.
Joseph Stiglitz is among the heavyweight economies who have thrown their weight behind the idea of further debt relief for Greece. But the EU will have none of this. They say the EU states have taken their hits. Thus far and no further. If there's no debt relief, more austerity will be mean more economic contraction for Greece. Instead of facing austerity hell, the Greeks would rather face the hell that would be unleashed by Grexit- that's what the 'no' vote on the referendum meant.
Why would Germany and others in the EU be willing to put up with the risks of a Grexit? One reason could be that they are confident of containing any economic contagion. It could also be that they think that events have really spun out of control, so any attempt at agreement on Greek debt is futile. Perhaps, governments in Europe think they shouldn't be feeding leftist movements elsewhere by indulging Greece.
Well, neither the US nor the IMF is taking as sanguine a view. Perhaps the US is also concerned about the political fall-out (a strengthening of parties similar to Syriza in other countries, Greece edging closer to Russia) but it's clear that they are not under-estimating the economic fall-out either. The Americans should know. They have seen the consequences of the Lehman implosion and what it did to the world economy.
Is this inevitable? Well, yes, because the EU is unwilling to accept that debt restructuring must be the basis for any deal. It's the IMF that made a powerful case for restructuring ahead of the vote in Greece on the referendum, a fact that Yanis Varoufakis, recently ousted as Greece's FM, gleefully latched on to his blog. The IMF showed that not even heroic austerity- a primary surplus of 2.5% for 50 years- can lead to debt sustainability for Greece.
Joseph Stiglitz is among the heavyweight economies who have thrown their weight behind the idea of further debt relief for Greece. But the EU will have none of this. They say the EU states have taken their hits. Thus far and no further. If there's no debt relief, more austerity will be mean more economic contraction for Greece. Instead of facing austerity hell, the Greeks would rather face the hell that would be unleashed by Grexit- that's what the 'no' vote on the referendum meant.
Why would Germany and others in the EU be willing to put up with the risks of a Grexit? One reason could be that they are confident of containing any economic contagion. It could also be that they think that events have really spun out of control, so any attempt at agreement on Greek debt is futile. Perhaps, governments in Europe think they shouldn't be feeding leftist movements elsewhere by indulging Greece.
Well, neither the US nor the IMF is taking as sanguine a view. Perhaps the US is also concerned about the political fall-out (a strengthening of parties similar to Syriza in other countries, Greece edging closer to Russia) but it's clear that they are not under-estimating the economic fall-out either. The Americans should know. They have seen the consequences of the Lehman implosion and what it did to the world economy.
Wednesday, July 01, 2015
IIM Bill: what's the fuss about?
The ministry of HRD is embroiled in yet another controversy involving the IIMs. Such confrontations have been going on since 2004 when Murli Manohar Joshi, then HRD minister in the NDA government, wanted the IIMs to reduce their fee for PGP to Rs 30,000.
Every time, there is a run-in with the government, the IIMs contend that their autonomy is under threat. Legions of alumni are mobilised. An adulating middle class and a media that believes that government can do no good rush to the support of IIMs. Politicians and bureaucrats beat a hasty retreat. We have seen this played over and over again.
Thus, in 2007, the government advertised the post of director of IIMA. Faculty and alumni went to town saying this was a threat to autonomy! One would have thought that they would have insisted on the widest advertising and search for the post.
In 2005, IIMB wanted to set up a campus in Singapore. The then minister, Arjun Singh, stalled this, saying they needed to create more seats in India in the first place, not an unreasonable point. IIMB claimed its autonomy was under threat. There was a huge ruckus. In 2010, Kapil Sibal called their bluff. He said they could go ahead. Nothing has been heard of the proposal since.
On another occasion, the government advised the IIMs to reduce their board size from an unwieldy 25 to around 15- a perfectly sensible suggestion. Again, the war cry of 'autonomy in danger' was raised before the IIMs came around to accepting the proposal.
I happen to have studied the history of IIMA and written about it (Brick by Red Brick). In the course of my research, I was struck by the fact that no chairman or director of IIMA had ever complained about lack of autonomy for nearly four decades until the early 2000s. That was a period in which IIMA and other IIMs were heavily dependent on government for funds- and yet there was no talk of government interference. If anything, those at the helm of IIMA had showered praise on the government for its support and restraint.
Things began to change in the early 2000s once the leading IIMs ceased to depend on government of funds- thanks, initially, to burgeoning consulting income and, later, to steep increases in the fee charged for various programmes. Some directors reckoned that since they were not taking money from government, it suited them not to be subject to government oversight. (Going by this logic, ONGC and SBI should also be resistant to government oversight- not only are they not taking money from government, they hand in generous dividends!).
That's how the clamour for autonomy started. Some of the IIMs articulated their position on autonomy through Position Papers. What do they mean by autonomy? The leading IIMs, notably IIMA and IIMB, would like to become board-driven institutions, with the government only setting very broad objectives. All major appointments- the chairperson, board members and the director- would be done by the boards. The board would decide the fee. The board should also be free to delink compensation from government so that the IIMs could become globally competitive (a privilege not granted to ONGC or SBI, which are commercial entities).
It astonishes me that those who make these proposals should show lack of understanding of the legal position. There was report on the IIMs prepared by V K Shunglu, former CAG, in 2004. He said that the concept of autonomy espoused by IIMA was simply not supported by the Articles of Association of the Institute. Shunglu cited a Supreme Court judgement that upheld the government's right to regulate admissions, fees and service conditions of employees even in private aided institutions.
If the IIMs come to be covered by an Act of parliament, it will be even harder,legally speaking, for government to adopt the hands-off approach that the IIMs want. After all, the government is accountable to parliament. It is just not possible for the government to leave all matters, including matters of governance, to the IIM boards. The self-perpetuating board- with the chairperson and members being appointed by the board, as also the president of the university- is a feature that obtains in private universities abroad, not in public universities. What the leading IIMs propose thus amounts, in effect, to an attempt at privatisation of the IIMs.
Legalities apart, there's the question of who will enforce accountability in the IIMs if the government were to withdraw. The IIM boards consist of people with little stake in the institutes. So when people say that matters should be left to IIM boards, they mean, in effect, that matters should be left to directors. Government withdrawal would thus result in a dangerous governance vacuum at the IIMs.
One last point. If I can write freely today not only about IIM matters but also on matters of public policy, it's because I'm protected by the service rules of the government of India . Government is thus the saviour and protector of my autonomy. I must confess that the prospect of being at the mercy of an all-powerful board - and, by implication, an all-powerful director - fills me with more than a little trepidation.
More on the IIM Bill in my article in the Hindu, No reason for IIMs to be alarmed.
Every time, there is a run-in with the government, the IIMs contend that their autonomy is under threat. Legions of alumni are mobilised. An adulating middle class and a media that believes that government can do no good rush to the support of IIMs. Politicians and bureaucrats beat a hasty retreat. We have seen this played over and over again.
Thus, in 2007, the government advertised the post of director of IIMA. Faculty and alumni went to town saying this was a threat to autonomy! One would have thought that they would have insisted on the widest advertising and search for the post.
In 2005, IIMB wanted to set up a campus in Singapore. The then minister, Arjun Singh, stalled this, saying they needed to create more seats in India in the first place, not an unreasonable point. IIMB claimed its autonomy was under threat. There was a huge ruckus. In 2010, Kapil Sibal called their bluff. He said they could go ahead. Nothing has been heard of the proposal since.
On another occasion, the government advised the IIMs to reduce their board size from an unwieldy 25 to around 15- a perfectly sensible suggestion. Again, the war cry of 'autonomy in danger' was raised before the IIMs came around to accepting the proposal.
I happen to have studied the history of IIMA and written about it (Brick by Red Brick). In the course of my research, I was struck by the fact that no chairman or director of IIMA had ever complained about lack of autonomy for nearly four decades until the early 2000s. That was a period in which IIMA and other IIMs were heavily dependent on government for funds- and yet there was no talk of government interference. If anything, those at the helm of IIMA had showered praise on the government for its support and restraint.
Things began to change in the early 2000s once the leading IIMs ceased to depend on government of funds- thanks, initially, to burgeoning consulting income and, later, to steep increases in the fee charged for various programmes. Some directors reckoned that since they were not taking money from government, it suited them not to be subject to government oversight. (Going by this logic, ONGC and SBI should also be resistant to government oversight- not only are they not taking money from government, they hand in generous dividends!).
That's how the clamour for autonomy started. Some of the IIMs articulated their position on autonomy through Position Papers. What do they mean by autonomy? The leading IIMs, notably IIMA and IIMB, would like to become board-driven institutions, with the government only setting very broad objectives. All major appointments- the chairperson, board members and the director- would be done by the boards. The board would decide the fee. The board should also be free to delink compensation from government so that the IIMs could become globally competitive (a privilege not granted to ONGC or SBI, which are commercial entities).
It astonishes me that those who make these proposals should show lack of understanding of the legal position. There was report on the IIMs prepared by V K Shunglu, former CAG, in 2004. He said that the concept of autonomy espoused by IIMA was simply not supported by the Articles of Association of the Institute. Shunglu cited a Supreme Court judgement that upheld the government's right to regulate admissions, fees and service conditions of employees even in private aided institutions.
If the IIMs come to be covered by an Act of parliament, it will be even harder,legally speaking, for government to adopt the hands-off approach that the IIMs want. After all, the government is accountable to parliament. It is just not possible for the government to leave all matters, including matters of governance, to the IIM boards. The self-perpetuating board- with the chairperson and members being appointed by the board, as also the president of the university- is a feature that obtains in private universities abroad, not in public universities. What the leading IIMs propose thus amounts, in effect, to an attempt at privatisation of the IIMs.
Legalities apart, there's the question of who will enforce accountability in the IIMs if the government were to withdraw. The IIM boards consist of people with little stake in the institutes. So when people say that matters should be left to IIM boards, they mean, in effect, that matters should be left to directors. Government withdrawal would thus result in a dangerous governance vacuum at the IIMs.
One last point. If I can write freely today not only about IIM matters but also on matters of public policy, it's because I'm protected by the service rules of the government of India . Government is thus the saviour and protector of my autonomy. I must confess that the prospect of being at the mercy of an all-powerful board - and, by implication, an all-powerful director - fills me with more than a little trepidation.
More on the IIM Bill in my article in the Hindu, No reason for IIMs to be alarmed.
Wednesday, June 24, 2015
China's communist party is not so communist
I am not saying this, it's well known sociologist Daniel Bell who thinks so. I have to say that this is the impression I too have formed over the years.
The CCP no longer subscribes to full-blown communism- it is committed to the market economy to a degree. More importantly, it's not the monolithic entity that most people outside think it is, with people of a particular orientation only being included and those at the top dictating the line. It is highly pluralistic and there is plenty of room for people to express their views:
The differences on most issues within the CCP, I would imagine, are as broad as those between the Congress and the BJP. Instead of having people in two parties sharing the spoils, the CCP does it within one roof. The key divide between the Congress and BJP is not political or economic but cultural. The BJP differentiates itself clearly with its Hindutva orientation. Who knows?- the Congress may go the same way. Rahul Gandhi's decision to head for Kedar soon after he came back from his retreat is an interesting straw in the wind.
The CCP no longer subscribes to full-blown communism- it is committed to the market economy to a degree. More importantly, it's not the monolithic entity that most people outside think it is, with people of a particular orientation only being included and those at the top dictating the line. It is highly pluralistic and there is plenty of room for people to express their views:
With 86m members, the CCP is a pluralistic organisation that co-opts leaders of different sectors of society, including keen capitalists, and it aims to represent the whole country..........The CCP does not need a unifying ideology, so long as people agree that the political system does a good job of selecting public officials with superior qualities. The pressing problem of corruption casts doubt on the question of virtue. So the anti-corruption campaign is essential to buttressing the legitimacy of the CCP, though we will not see results for a few years.In other words, the CCP is the political equivalent of the bureaucracy. People with a flair or passion for public life are selected and promoted on merit. It's not yet free from dynastic politics (many of today's leading lights are descendants of close associates of Mao or Deng) but there is the promise of getting there. Moreover, as Bell points out, it's important for the party to gain legitimacy by rooting out extreme corruption.
The differences on most issues within the CCP, I would imagine, are as broad as those between the Congress and the BJP. Instead of having people in two parties sharing the spoils, the CCP does it within one roof. The key divide between the Congress and BJP is not political or economic but cultural. The BJP differentiates itself clearly with its Hindutva orientation. Who knows?- the Congress may go the same way. Rahul Gandhi's decision to head for Kedar soon after he came back from his retreat is an interesting straw in the wind.
Tuesday, June 23, 2015
Helsinki Diary-II
The presentation of papers kicks off on day 2 at the Grand Marina Congress Center right opposite my hotel. It's a two-storied building with several conference rooms, large and small. As in such conferences, there are parallel sessions on various topics: banking, education, stochastic frontiers, total factor productivity, etc. Delegates move from one room to another depending on their interest. Mine is banking. The participants are from all over the world but there are not many from North America. I am one of two Indians at the conference.
The sessions are well organised. About 20 minutes for the presenter with five minutes for questions. Not enough time to do justice to issues arising from a given paper but that is something that participants do "offline" during the coffee and lunch breaks. Food is laid out on two tables. Unlike in the typical Indian conference which swarms with attendants, there's nobody behind the counters- again, a reminder that manpower is costly. When the break is over, a couple of ladies, with aprons tied around their waists, materialise from nowhere and clear the tables without fuss. Within minutes, the lobby is spotless.
***********
There's no point hanging around for lunch- not much to take care of a vegetarian. I head for my room and munch tepla along with chundha, which I had had the sense to pick up Indubhen's in Ahmedabad. (This is a place from which people buy snacks to courier to relatives and friends pining for Indian savouries and sweets elsewhere in the world). I have picked up several varieties of yoghurt and protein bar from a nearby supermarket. My lunch is done in all of ten minutes.
I make my way to the Uspenski Orthodox Church located a few hundred metres away from the hotel. Built in 1868, it's the largest Orthodox Church in western Europe. It's built on a hill and appears to ascend into the skies. The Orthodox Church dominates in Finland, something the country has in common with Russia. (Ditto for Greece, a point PM Tsipras has made in talking ominously of his nation's long-standing ties with Russia). The architecture is strikingly reminiscent of that at IIMA, with the red brickwork clearly standing out in the distance. The golden cupolas are magnificent.
I ascend a steep stone staircase leading up to the Church, crossing tourists moving in the other direction. I'm told the tourists are mostly Chinese and Japanese. There are some very old people in the crowd- one elderly man can barely walk and is being helped by a girl. I wonder how he made it up the stairs in the first place. There's no admission charge and no security, perhaps, not such a great idea considering that an icon was stolen from the Church about a decade ago.The balcony one level below the Church entrance gives a great view of the city. I could have stood there for hours taking in the view and enjoying the weather.
**************
There is a wide range of papers in banking. The impact of financial services on industrial structure and development (one important question that came up was whether small, local banks translate into more lending for small enterprises); Sources of productivity growth in Indonesian banking; Bank branch operational performance; Sources of return to scale of US banks; and so on.
My paper is on performance of public and new private sector banks in India in the post-reform period, using what is called a pooled sample. The conclusions are striking: between 1993 and 2011, there was a trend towards convergence in performance between the two categories of banks. Only in 2011-13 did performance diverge. And the divergence happened because public sector banks chose to be exposed to infrastructure in a way in which new private banks did not. The infrastructure sector itself was impacted by non-economic factors such as regulation, lack of clearances, etc. I conclude that performance in Indian banking has been ownership neutral. Policy prescriptions based on a snapshot of performance in recent years, such as the ones made in the P J Nayak committee report, are thus inappropriate.
My conclusion is not novel. There is a wide range of studies that have arrived at the same conclusion but these were done much earlier. What my study does is to validate the conclusion for a much longer period. Strangely, neither the media discourse nor government policy has been informed by the evidence thrown up by the academic literature on the subject. People keep parroting the same nonsense about the superior performance of private sector banks.
**************
In the evening, I head for Esplanade Park, just past Market Square. The Square itself is filled with stalls selling cherry, plum, strawberry and banana, a wide range of fresh vegetable and lots of sea-food. I sit on a stool facing the sea, the wind blowing lightly, and savour a delicious cup of freshly squeezed orange juice.
Esplanade Park has come alive. There is a band playing on stage. The chairs are filled with mostly old people. (The adverse demographics of Europe is manifest on the streets). Then, a group of dancers dressed in traditional costumes hope on to the stage for a round of folk dance. The glass cafe, Kappeli, opposite the stage is more nearly 150 years old. It was a hangout for the likes of Jean Sibelius, the famous music composer of Finland. (Finlandia is one of the famous compositions of the country- you should listen to it on You Tube).
The music and the luxuriant vegetation on the park are wonderfully soothing. There must be several dozen such places in Helsinki where people can hang out and relax. In material terms, life is made for people in such places The income level is high, medical care of high quality is assured and so is social security. There are parks, swimming pools and saunas in abundance (an estimated two million saunas for a nation of five million!).
In much of the developing world, including India, life is harsh, unrelenting and the main cities virtually devoid of beautiful public places. When you step out, there is very little to lift the spirit. Paris is, perhaps, the finest example of a city built to enthuse and energise its denizens. China is a luminous exception in the developing world. There is, however, a downside to the comforts of the Nordic region. People have to deal with a truant sun- I'm told by a conference participant that depression is high in many of these places and so is suicide. Not all the cafes and parks and upmarket shops can make up for a plain sunny day.
There is a reception for the conference participants at City Hall, just off Market Square. This is the building that houses the Mayor of Helsinki and his administrative staff. There's a brief welcome speech by one of the assistants of the mayor. The City Hall, he says, is meant to receive important visitors "such as yourselves"- there are broad grins in the audience. Food and wine are served in a high-ceilinged room lit up with chandeliers.
**********
It's time for a tour of the city. There are two basic options: a straight one and a half hour visit to the main sights and a hop-on-hop-off tour which enables you to get off and explore places and get back to a bus when you are done. I opt for the former. I have a flight to catch in the evening. Besides, it's impossible to do justice the museums, concert halls and other places in a hour or so.
You need to stay in a place for at least ten days if you want to do justice to it. You must use public transport, including trains, to get a feel for it. And, of course, a lifetime is not enough to explore New York or London (my two favourite cities, I spent five years as a student in the former.). That's why I've always felt that the seven-day tours of eight cities that tour operators offer are a dumb idea- there's nothing to these other than being able to tell yourself that you've been there.
I board a bus at Esplanade Park. The driver greets every single passenger warmly. There is a young girl to shepherd us around. A commentary is available on the audio system in 12 languages. It's raining hard so the windows have streaks of water on them. The snaps one takes end up with gashes.
Off we go. Over the next couple of hours, Helsinki is revealed in all its splendours. There's the Senate Square with a variety of important buildings. The government Palace which houses the PM and his cabinet, on the opposite side is the main building of Helsinki University and adjacent to these is the Helsinki Catherdral glistening in white. A university opposite the office of the PM? Given the security paranoia we have in India, this would be unthinkable. I can't seen any sort of security anywhere in the Square, much less gun-toting commandos. It's a different world.
Other sights fly past in succession. The upmarket residential area which houses the embassies and the Helsinki rich- it's set on a hill facing the sea, the houses surrounded by acres of greenery; the Museum of Contemporary Art; the National Museum; the central office district which includes the biggest supermarket in Europe; the Central Bank; the Finnish Parliament; the Olympic Stadium; and the Sibelius memorial. All along the route, elegant cafes and parks spring into view. Helsinki was able to host the Olympics in 1952; we dream of hosting one in the next decade. That one fact
epitomises the gap in standard of living. I mustn't sound too harsh. There's a world of difference between creating prosperity for a land of five million and a land of 1.2 billion.
The bus drops us at Senate Square. It's raining hard but I think it would be a shame not to visit the Helsinki Cathedral. I climb the steps leading up to the white stone monument. As I enter the Church, a communion is on with a priestess presiding. I take a seat. The priestess says a few words, then the music starts playing. I am not a religious person but the ambience in the Church gives me a flavour of what the religious feeling is all about, a sense of beauty and a sense of the sacred.
***************
I await the taxi that will take me to the airport. The receptionist at the hotel tells me it's safer to book one than to bank on getting a taxi at the stand right outside the hotel. She doesn't tell me that pre-booking costs an extra five euro- commercial instincts are the same everywhere in the world. I am charged ten euro per hour for the five hours I have spent past the check-in time. In India, if you have stayed in such a place for four days, they would cheerfully waive extra charges for late check-out. If they charged extra, people would start howling.
I keep looking around the lobby for signs of the driver. Finally, I see somebody at the door holding a placard below his waist. I missed him earlier because he happened to be wearing a suit. With his spectacles and gray hair nicely brushed, he could pass for a distinguished academic. He picks up my bag and takes it down the steps. The vehicle is a mini-van. I tell him I had asked for a cab. He smiles, "The fare is the same". He keeps up a steady chatter of comment on the places along the route. He will park his vehicle near the airport and cycle back home, he tells me. No wonder he looks so fit.
The check-in and immigration counters are done without fuss. I am soon at the check-in counter. I head for the loo. There's a heavy stench as I enter. I feel almost exultant- this happens in the developed world too! The crowd again is overwhelmingly Indian and middle-class.
A girl is going around offering her laptop to sundry passengers. I figure she's taking some sort of feedback about the airport. I see our aircraft parking outside the boarding gate just hour an half before the departure time. I know we are gong to be late. Sure enough, we depart late and arrive in Delhi half an hour past the scheduled time. At Delhi airport, I make a beeline for Vaango and gobble down idli-sambhar.
Helsinki, you won my heart.
The sessions are well organised. About 20 minutes for the presenter with five minutes for questions. Not enough time to do justice to issues arising from a given paper but that is something that participants do "offline" during the coffee and lunch breaks. Food is laid out on two tables. Unlike in the typical Indian conference which swarms with attendants, there's nobody behind the counters- again, a reminder that manpower is costly. When the break is over, a couple of ladies, with aprons tied around their waists, materialise from nowhere and clear the tables without fuss. Within minutes, the lobby is spotless.
***********
There's no point hanging around for lunch- not much to take care of a vegetarian. I head for my room and munch tepla along with chundha, which I had had the sense to pick up Indubhen's in Ahmedabad. (This is a place from which people buy snacks to courier to relatives and friends pining for Indian savouries and sweets elsewhere in the world). I have picked up several varieties of yoghurt and protein bar from a nearby supermarket. My lunch is done in all of ten minutes.
I make my way to the Uspenski Orthodox Church located a few hundred metres away from the hotel. Built in 1868, it's the largest Orthodox Church in western Europe. It's built on a hill and appears to ascend into the skies. The Orthodox Church dominates in Finland, something the country has in common with Russia. (Ditto for Greece, a point PM Tsipras has made in talking ominously of his nation's long-standing ties with Russia). The architecture is strikingly reminiscent of that at IIMA, with the red brickwork clearly standing out in the distance. The golden cupolas are magnificent.
I ascend a steep stone staircase leading up to the Church, crossing tourists moving in the other direction. I'm told the tourists are mostly Chinese and Japanese. There are some very old people in the crowd- one elderly man can barely walk and is being helped by a girl. I wonder how he made it up the stairs in the first place. There's no admission charge and no security, perhaps, not such a great idea considering that an icon was stolen from the Church about a decade ago.The balcony one level below the Church entrance gives a great view of the city. I could have stood there for hours taking in the view and enjoying the weather.
**************
There is a wide range of papers in banking. The impact of financial services on industrial structure and development (one important question that came up was whether small, local banks translate into more lending for small enterprises); Sources of productivity growth in Indonesian banking; Bank branch operational performance; Sources of return to scale of US banks; and so on.
My paper is on performance of public and new private sector banks in India in the post-reform period, using what is called a pooled sample. The conclusions are striking: between 1993 and 2011, there was a trend towards convergence in performance between the two categories of banks. Only in 2011-13 did performance diverge. And the divergence happened because public sector banks chose to be exposed to infrastructure in a way in which new private banks did not. The infrastructure sector itself was impacted by non-economic factors such as regulation, lack of clearances, etc. I conclude that performance in Indian banking has been ownership neutral. Policy prescriptions based on a snapshot of performance in recent years, such as the ones made in the P J Nayak committee report, are thus inappropriate.
My conclusion is not novel. There is a wide range of studies that have arrived at the same conclusion but these were done much earlier. What my study does is to validate the conclusion for a much longer period. Strangely, neither the media discourse nor government policy has been informed by the evidence thrown up by the academic literature on the subject. People keep parroting the same nonsense about the superior performance of private sector banks.
**************
In the evening, I head for Esplanade Park, just past Market Square. The Square itself is filled with stalls selling cherry, plum, strawberry and banana, a wide range of fresh vegetable and lots of sea-food. I sit on a stool facing the sea, the wind blowing lightly, and savour a delicious cup of freshly squeezed orange juice.
Esplanade Park has come alive. There is a band playing on stage. The chairs are filled with mostly old people. (The adverse demographics of Europe is manifest on the streets). Then, a group of dancers dressed in traditional costumes hope on to the stage for a round of folk dance. The glass cafe, Kappeli, opposite the stage is more nearly 150 years old. It was a hangout for the likes of Jean Sibelius, the famous music composer of Finland. (Finlandia is one of the famous compositions of the country- you should listen to it on You Tube).
The music and the luxuriant vegetation on the park are wonderfully soothing. There must be several dozen such places in Helsinki where people can hang out and relax. In material terms, life is made for people in such places The income level is high, medical care of high quality is assured and so is social security. There are parks, swimming pools and saunas in abundance (an estimated two million saunas for a nation of five million!).
In much of the developing world, including India, life is harsh, unrelenting and the main cities virtually devoid of beautiful public places. When you step out, there is very little to lift the spirit. Paris is, perhaps, the finest example of a city built to enthuse and energise its denizens. China is a luminous exception in the developing world. There is, however, a downside to the comforts of the Nordic region. People have to deal with a truant sun- I'm told by a conference participant that depression is high in many of these places and so is suicide. Not all the cafes and parks and upmarket shops can make up for a plain sunny day.
There is a reception for the conference participants at City Hall, just off Market Square. This is the building that houses the Mayor of Helsinki and his administrative staff. There's a brief welcome speech by one of the assistants of the mayor. The City Hall, he says, is meant to receive important visitors "such as yourselves"- there are broad grins in the audience. Food and wine are served in a high-ceilinged room lit up with chandeliers.
**********
It's time for a tour of the city. There are two basic options: a straight one and a half hour visit to the main sights and a hop-on-hop-off tour which enables you to get off and explore places and get back to a bus when you are done. I opt for the former. I have a flight to catch in the evening. Besides, it's impossible to do justice the museums, concert halls and other places in a hour or so.
You need to stay in a place for at least ten days if you want to do justice to it. You must use public transport, including trains, to get a feel for it. And, of course, a lifetime is not enough to explore New York or London (my two favourite cities, I spent five years as a student in the former.). That's why I've always felt that the seven-day tours of eight cities that tour operators offer are a dumb idea- there's nothing to these other than being able to tell yourself that you've been there.
I board a bus at Esplanade Park. The driver greets every single passenger warmly. There is a young girl to shepherd us around. A commentary is available on the audio system in 12 languages. It's raining hard so the windows have streaks of water on them. The snaps one takes end up with gashes.
Off we go. Over the next couple of hours, Helsinki is revealed in all its splendours. There's the Senate Square with a variety of important buildings. The government Palace which houses the PM and his cabinet, on the opposite side is the main building of Helsinki University and adjacent to these is the Helsinki Catherdral glistening in white. A university opposite the office of the PM? Given the security paranoia we have in India, this would be unthinkable. I can't seen any sort of security anywhere in the Square, much less gun-toting commandos. It's a different world.
Other sights fly past in succession. The upmarket residential area which houses the embassies and the Helsinki rich- it's set on a hill facing the sea, the houses surrounded by acres of greenery; the Museum of Contemporary Art; the National Museum; the central office district which includes the biggest supermarket in Europe; the Central Bank; the Finnish Parliament; the Olympic Stadium; and the Sibelius memorial. All along the route, elegant cafes and parks spring into view. Helsinki was able to host the Olympics in 1952; we dream of hosting one in the next decade. That one fact
epitomises the gap in standard of living. I mustn't sound too harsh. There's a world of difference between creating prosperity for a land of five million and a land of 1.2 billion.
The bus drops us at Senate Square. It's raining hard but I think it would be a shame not to visit the Helsinki Cathedral. I climb the steps leading up to the white stone monument. As I enter the Church, a communion is on with a priestess presiding. I take a seat. The priestess says a few words, then the music starts playing. I am not a religious person but the ambience in the Church gives me a flavour of what the religious feeling is all about, a sense of beauty and a sense of the sacred.
***************
I await the taxi that will take me to the airport. The receptionist at the hotel tells me it's safer to book one than to bank on getting a taxi at the stand right outside the hotel. She doesn't tell me that pre-booking costs an extra five euro- commercial instincts are the same everywhere in the world. I am charged ten euro per hour for the five hours I have spent past the check-in time. In India, if you have stayed in such a place for four days, they would cheerfully waive extra charges for late check-out. If they charged extra, people would start howling.
I keep looking around the lobby for signs of the driver. Finally, I see somebody at the door holding a placard below his waist. I missed him earlier because he happened to be wearing a suit. With his spectacles and gray hair nicely brushed, he could pass for a distinguished academic. He picks up my bag and takes it down the steps. The vehicle is a mini-van. I tell him I had asked for a cab. He smiles, "The fare is the same". He keeps up a steady chatter of comment on the places along the route. He will park his vehicle near the airport and cycle back home, he tells me. No wonder he looks so fit.
The check-in and immigration counters are done without fuss. I am soon at the check-in counter. I head for the loo. There's a heavy stench as I enter. I feel almost exultant- this happens in the developed world too! The crowd again is overwhelmingly Indian and middle-class.
A girl is going around offering her laptop to sundry passengers. I figure she's taking some sort of feedback about the airport. I see our aircraft parking outside the boarding gate just hour an half before the departure time. I know we are gong to be late. Sure enough, we depart late and arrive in Delhi half an hour past the scheduled time. At Delhi airport, I make a beeline for Vaango and gobble down idli-sambhar.
Helsinki, you won my heart.
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