THE BEST OF BOTH WORLDS

I like Nehru. Wasn’t non- alignment an awesome strategy in the wake of cold war? Reading a bit on game theory, I realized that in any two party game, the ‘third way’ could be better for any third party as opposed to aligning with one of the two in which case one invites the wrath of the rival camp.


India’s policy wasn’t that of neutrality or isolation in the sense that we never ran out of the battle ground feigning to know nothing about the cold war politics. We were active and we were strategically important and we were not aligned. Both US and USSR as a result were involved in novel enticement tactics – there were entreats and connivances. We got food from the US in our ‘ship-to-mouth’ woes in the 60s while we countered the China-Pakistan-US axis in 1972 by signing the Treaty of Friendship with the USSR for 20 years.


Over the years I have learnt that middle ground is mostly better than extremes – it gets you sympathy from both ends while you end up making no enemies.


The other day, listening to an IDG talk by Mr. Vinod Raina, I discovered a similar viewpoint in this sense in another field. Think of India’s Constitution. It mentions the word ‘socialism’ in the Preamble as a reflection of the spirit of the Constitution while at the same time Article 19 (a) gives every citizen the right to engage in any trade, profession or occupation reflecting highly capitalist goals. Isn’t it a beautiful balance? Of course, I admit that these double views can end up creating more confusion that mere allusion – but it certainly is a good enticing tactic to keep all the groups in a diverse country happy and content!


Lately I have been highly impressed by the views of Jean Dreze and Amartya Sen on markets and equity. The logic goes thus – there are two types of common errors any human being or system commits –

1. The error of omission i.e. not doing something one was supposed to do
2. The error of commission i.e. doing something one was not supposed to do

I find the errors similar to the statistical errors in hypothesis testing. You may end up rejecting a right conclusion (Type 1 error) or you may end up accepting a wrong one (Type 2 error).


These errors pop up everywhere in our lives and around. So as the saying goes, ‘to err is human’ – it follows that all systems made my humans must also be prone to errors. Capitalism and socialism are man-made systems, afterall. While capitalism traces its roots to Hobbes’ social contract theory and views on individualism and liberalism, socialism evolved as Karl Marx’s solution to the exploitation of the proletariat by the bourgeoisie under capitalism.


Dreze and Sen believe that neither extreme is flawless and both capitalism and socialism come with their own kitty of errors of omission and commission, which can sometimes be big bloomers than minute errors. While markets may fail to discourage parallel evolution of black markets, government may fail on grounds on distributing commensurate rewards to the most hard-working people.


So the word of the day is CO-OPERATION – in other words an amalgam of both the systems. Let the market take care of efficiency at the micro level while the visible hand of planning sees to the long term macro goals of the economy.

India, as always, went for a mixed economic model – enjoying the best of both worlds.


So the most important question is, why am I talking of this ‘both world theory’ at this time of the year?

The answer is SUS ELECTIONS at college. Its probably the best time of the year for students especially fuchaas when their views are heard and an uncanny respect for every single student of the college (excluding the opposition camp) evolves out of thin air. Suddenly our inboxes are full of election promises and suggestions. There is lively canvassing on the campus – its more like a ‘power mela’ where both camps are multicultural and claim the other to be a bigoted and regionalized one!

It seems like a battle between the ‘most hardworking candidate of the SUS last year’ vs. the ‘most hardworking candidate of the SUS last year’!!!

While I sit back deleting the bulk ‘vote for bla bla bla’ messages from my overflooded inbox, I wait for the open court tomorrow. I sincerely hope I am able to find some substantial difference between the agendas of both the camps so it becomes easy to decide – the most difficult decision to make is ‘choosing between equals’ or ‘perceived equals’!

In this scenario, what does the ‘best-of-both-worlds’ theory teach me, then?
Getting my demands fulfilled and my personal utility maximized from the either of the two winning!

...and btw yeah, you guessed it right…I plan to walk to the open court tomorrow wearing a white shirt and a black pant! :P

Choices Matter

You must have heard of Scrooge in Charles Dickens’ ‘A Christmas Carol’. Scrooge was a greedy businessman who had no joy and love in his heart. So, he worked in his office even on the Christmas Eve. Had Scrooge went to celebrate Christmas, he would have had to buy gifts. Being ‘rational’ Scrooge chose not to. Why? Suppose Scrooge gave a gift worth Rs. 100 to a person, say A. But, A values the gift to Rs. 80. Scrooge in return might receive a gift that he values less than the price of the gift. Therefore, it leads to a loss in total utility. Scrooge could have given Rs. 100 in cash as a gift but he chose not to, because he won’t be as satisfied, though better off than the previous case. Scrooge’s rational thinking led to him having no place in his life for love and compassion!

We make choices every day. These little choices that we make are very crucial. You must have heard someone saying, ‘I have no choice.’ What does ‘choice’ mean? Actually, when we say ‘I have no choice’, it means we had choices but they were not liked by us. In short, they were ‘bad’. Choice is something that relates what we prefer and what we demand. While studying microeconomics we often assume that all consumers are rational and that their decisions maximize their utility. But is it so?

Let’s take a simple example. B likes swimming and hence joined swimming classes. He has two choices-either pay Rs. 50 per visit or Rs. 900 per month. If B goes for swimming frequently, the second choice must be preferred. But B is a busy man. He still prefers second choice thinking it cost Rs. 30 per visit. At the end of the month B finds that he went for swimming only 15 days and ended up paying Rs. 60 per visit. This, as some economists call is ‘irrational confidence.’ B overestimates his number of visits and hence lands on a lower indifference curve (See diagram).  Take another example, C goes to watch a movie. He wants to buy popcorn. (Is C actually hungry?) Small size cup costs Rs. 50 and large size costs Rs. 60. C’s decision to buy the large cup was not determined by his hunger level but by the thought of getting those extra popcorns for just Rs. 10. Had he bought a small cup, he would have saved Rs. 10 and also taken care of his ‘health’.

Thus, we see that there are many factors which influence decisions because of which consumers are irrational. If the ‘overconfident’ consumers think a little rationally, coupled by looking at the macro-economic indicators, then they can save a lot in times when prices are soaring high. Hence choices do matter!

Corruption - Economic Bad or Good

Some days back, my Microeconomics Professor suggested a very strange thing – ‘Maybe corruption is a good thing after all.’ I was taken aback for a moment and then the incredulous feeling was replaced with a strong contemplation as he proceeded about how the thought of earning that extra bit of money might actually serve as an incentive for people to perform better and work harder. “Maybe it is not such a bad thing after all”, he said.

 I started dwelling on it. Then again, when you think about it, maybe corruption and the facility and liberty of making that extra bit of money can distort many other things as well. If things were left to the policy of – “how much you can get by how much you do”, people would tire everything out to make money. What I believe is the problem in India is the work policy and the facts that people aren’t driven by the right motives and incentives to work. Every one works only to make them better and richer and healthier. There is the spirit of philanthropy, of the concept of making things better for everyone... these things missing. Therefore with the advent of such a policy, there comes this whole widening gap of the social and economic status of people in this country. Corruption is essentially a bad thing, defined as ‘Dishonest or fraudulent conduct by those in power, typically involving bribery’. It is found in a survey that corruption as incredible as it might sound can actually elevate the efficiency of an economic system.

There is an example where it is shown the case of bribery in attaining the driver’s license. Now a person would pay the extra marginal money only if he believes that his utility from that product would be much greater than others and would definitely offset the extra cost, therefore he values it more than the others, which further implies that his usage of the product would fetch an increased marginal productivity, which is kind of efficient. Now this argument of mine might look absurd when it is made to stand on certain moral and welfare grounds, because on a whole, corruption is never good on a long term. The efficiencies on the short term are always short scale and have the capacity to erode social equality and even mar law and order. The cost of corruption is always so huge that it causes disparities on another level. The money which is siphoned off from the main stream is definitely a flawed angle in the whole system of the way the economics works in a nation.

But the main negative point, according to me about this social evil is the huge disparity that it causes amongst the poor. It creates distributional consequences. It hampers the progressivity of the taxing system, creates social and economic inequality and also leads to slowing of the growth of a country and reduces the effectiveness of the social programs, and by perpetuating an unequal distribution of asset ownership and unequal access to education. In a cross-section of 37 countries, a significant impact of corruption on inequality was found, while taking into account various other exogenous variables. When controlling for GDP per head, this impact remains significant at a 10 % level. It was concluded that deterioration in a country's corruption index of 2.5 points on a scale of 0 to 10 is associated with the same increase in the Gini coefficient as a reduction in average secondary schooling of 2.3 years.

Therefore though we can continue contemplating about the good effects of corruption and it’s potent of becoming an economic developer, yet the ill effects need to be diluted first. I would continue writing of this, if some new idea strikes me on how to go about this dilution!!! Till then, have a great weekend! 

Reference for the statistics:  Anti Corruption Resource centre U4

Reservations (Aarakshan)

Today in this ‘free’ country, I believe candidates who are more deserving should get the opportunity irrespective of his Religion and caste. What Aarakshan or Reservation does is that it gives opportunities to the candidates from socially backward classes at the cost of depriving the other candidates, who are not socially backward, the ‘equality of opportunity’. I don’t really understand why there is reservation in colleges, universities and centres of educational excellence.  Is it because the government wants to uplift the backward classes? Yes, the development of backward classes is an area of concern, but reservation as an instrument for this development speaks of the inability to impart better primary school-level education to everyone. The admissions should be completely on ‘merit’ basis. I would like to make it clear that I am not against reservation but I am against the kind of reservation. It was said in the movie ‘Aarakshan’- talk of ‘merit’ only when everyone starts from the same level. This is exactly what I think should be done. Often, it is seen that people make through good institutes through reserved seats without having adequate knowledge base to be able to cope up with the syllabus of these institutes which in a way leads to the decline in quality of education. So, it is essential to focus on building a strong base for ‘everyone’ and then allowing free competition to get admissions in colleges. In order to help those who are deprived, we must not deprive those with merit.

Here’s an example from my experience. In FIITJEE you are required to pay huge tuition fees even after getting some scholarship. This might not be affordable by backward classes. FIITJEE selected 40 students (after a test) under SC/ST/OBC categories and provided them coaching free of cost. So, everyone comes to the same level, getting access to same faculties. Now when the results of IIT comes, the one with 5000 AIR gets a low branch in a low ranked IIT and the one with AIR 6500 gets a good branch in one of the top IITs. Is it justified? Isn’t this injustice, inequality? The need of the hour is, to provide facilities to the backward classes (which can be in proportion to their merit?) at primary and secondary school level and NOT reservations in colleges and universities. Have reservations in schools, why only in colleges and universities? What colleges/IITs/management institutes do is help you develop on what you have acquired so far.

Till now I talked about reservations in general. Now, talking about some specific type/kind of reservation- the one in St. Stephen’s College. I am not in favor of the reservation based on Christian quotas. Those who make through these seats (most of them) are not educationally disadvantageous and hence I see no reason for the same. It is extremely difficult for general category students to get through. First, the cut-off is very high as against 15% less for those through quotas and then you need to be impressive in the interview. While it becomes extremely difficult for a person with 98% to be selected through general category, for a Christian with even below 95% it becomes relatively much easier. All this, in a future date, might break the virtuous circle of academic excellence for which St. Stephen’s is known for. I agree with the reservations for the visually challenged and handicapped people. I also agree with the sports quota for there is a cost in specializing in something and that should be considered. Ok, I am not against reservation for Christians, but look at the number of the seats reserved!

All I would say is reservation is a shortcut to achieve something that can easily be achieved if we focus on ‘small’ things which can lead to a big change, instead of hasty decisions to make a big change which will ultimately lead us nowhere!

Sufferings Refute Religion?

Back in December 2004, I remember, I was in Kannyakumari on the 25^th, a day before the devastating Tsunami hit the coastal areas and took away so many ‘innocent’ lives. According to our itinerary we were supposed to see the sunrise on the 26^th, but because of the bad weather and the predictions that we might not see the sunrise, we left the place on 25^th. And after that I had only one thing to say, “Thank God! You saved us!” But I wonder why did I say so? Just because I was saved, is it reasonable to thank God? What about those innocent people who lost their lives and above all those who lost the dear ones? They must have thought why God did this to ‘them’ and not others? God is cruel. This leads me to the conclusion that we thank God when he saves us and we curse him in our sufferings. In our happiness we forget him; in our sorrows we curse him!

We doubt the existence of God when we go through extreme pain and sufferings. The God created the universe and that he is the most powerful and has ‘full control’. Then why does he let the innocent suffer? “God doesn’t exist and if he exists why is he so cruel?”- This is what we say in times of pain and suffering. In other words: “Suffering refutes religion”

Recently, Arun Shourie, a former Stephanian has written a book titled- ‘Does he know a mother’s heart?” Arun Shourie has been an economist in the WB and the editor of Indian Express and Times of India. He had a successful career. In this book he talks of his experiences in bringing up his son who is suffering from cerebral palsy (a congenital disorder of childhood which leads to some physical disability.) and his wife suffers from Parkinson’s disease (a disorder of central nervous system). In this book he talks about why there are sufferings if God exists and why God punishes the innocent? But in reality this is not the case. There are sufferings all around, in everyone’s life at some point of time. But what makes Arun Shourie not believe in God or refute religion is the intensity of the suffering that he has gone through and is going through. He is 70, his ‘disabled’ son is 35, his wife is herself suffering with the disease and at this point of time this father worries of who will take care of his son as he exits.

In his book he talks of a situation where a father beats his son, shouts at him, in short inflicts pain and sufferings upon his son (basically referring to his life). Probably this ‘cruel’ father should be prisoned so that the sufferings of child cease. Then Shourie questions: “What if the ‘father’ here is God?”  I don’t have an answer to this but what I would like to say is if ‘the father’ beats the son and shouts at him, doesn’t mean that he doesn’t care and love him. In fact he loves him the most and always wants his well-being. He wants him to struggle and win. And so is the case with ‘the father’ of mankind- God. He gives sufferings to his sons so that they can struggle, work hard and go through bad times, for there is joy in good times but a greater joy when good times succeed the bad ones. There are sufferings and those who are strong ultimately receive what I would say “Eternal blessings” Still many people think that God does injustice to some people, but this is not so. I repeat, there are sufferings in every man’s life. Think of the sufferings of those millions of people who are under the shackles of poverty.

I won’t say that you believe in God, for everyone has a different opinion in this matter. What I would say is believe in the ‘cosmic energy’- The energy, the bond that keeps us moving. The energy, that is everywhere in space and even within you. Discover and multiply the cosmic energy, for it keeps everything in order. If God gives us sufferings, he also gives us the strength to overcome them. We need to discover that strength in order to make our lives better.

Change the way you look at things and you will find those things changing!