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Never Waste a Crisis

“ Never waste a good crisis “Winston Churchill.  There is no doubt that we are in the middle of unprecedented crisis globally. With almost 3 million people infected and over 200,000 people dead due to the corona virus.  Look at the headlines;  ·        German newspaper sends China USD 130 billion invoice against Corona Virus damage ·        Japan to offer billions to firms shifting production out of China ·        Trump warns China of consequences as Republicans and democrats fight over who is cozier with Beijing. It is evident to all but the most perma China bulls that global supply chains will now need a backup if not an alternative to China. The days of running a global factory with slave labour, financial repression (and therefore cheap capital), scant respect to the environment and a bully mercantilist mentality are now numbered. The world is truly unipolar now with China on one side and the rest of the world on the other. Look at the exports and imports
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Why a total shutdown in response to the Covid-19 pandemic is a moral imperative for India

Why a total shutdown is a moral imperative in India  There is a viral whatsapp text going on in India about the Protagoras paradox (where both sides have equally valid arguments) being applied to the total shutdown in India ( http://www.citypeopleonline.com/covid-19-protagoras-paradox/ ). As per this, on the one hand, the argument is that without the shutdown, our health systems MAY be overwhelmed and millions COULD potentially die in India. On the other hand, the increase in poverty that this shutdown WILL exacerbate may lead to a lot more misery and (paraphrasing the great modern philosopher Trump), "the cure may be worse than the disease".   Before we get into the argument and counterarguments, let us remember 2 rules: Rule number 1 : Statistics in the science of large numbers. So any analysis based on early trends when numbers are small may not sustain.  Rule number 2: correlation does not mean causation. What it means that just because 2 things seem t

Part 1: What needs to be done to get INDIA back into 8% growth

Classical economic theory from the time of Adam Smith and Karl Marx considered the four factors of production as  Land, Labour , Capital and Entrepreneurship.  This model was appropriate for Basic agricultural and emerging industrial societies but can be tweaked to encompass factors which are relevant for the modern post industrial era as well.  For the economic machinery to operate in balance, there are two critical but implicit assumptions :  1)   Rule of law 2) Free Market  Think of the overall economy very simplistically as a very large box full of gears of different sizes - green gears for Land, red for labour and blue for capital and think of entrepreneurs as people who buy these different gears and connect them to a very large rotating shaft of  there   economy  which has a very large number of black gears of different sizes attached to it.  The job of the entrepreneur is to create his little machine of green red and blue gears and ensure that it’s connected to t

Part 2 of What needs to be done to get INDIA back into 8% growth .... Why is stable , fair and transparent Rule of Law critical for a well functioning economy

A stable, fair and transparent rule of law allows for 2 very important things : 1)  no coercion of any sort and 2) contracts can be enforced .  Let’s take the latter first. If contracts can be easily and timely enforced, it creates a high trust society, which increases efficiency all around. In the absence of ability to quickly and cheaply enforce contracts , societies rely on family and clans and their social enforcement mechanism like ostracism, which by definition reduces the talent and partners pool and therefore the size and output of the enterprise.  If entrepreneur 1 has setup a b2b business - supplying to entrepreneur 2 under a contract and entrepreneur 2 refuses to honour the contract for whatever reasons, entrepreneur 1’s business is impaired and if it takes years for restitution, many such businesses will not even start reducing the overall output. Therefore countries in which the legal system is slow, complex (like in India) and consequently expensive lose out by

Part 3 of What needs to be done to get INDIA back into 8% growth .... Free markets and confusions relating to it

Free markets allow for everyone to have access to all factors of production equally, for prices to be determined fairly and for anyone to have the ability to enter and exit any business.  Free markets have a very bad press in the liberal left media. Paraphrasing Winston Churchill’s famous quote on democracy “free markets is the worst form of economic system except the rest”...  They are associated with the wild west , robber barons, monopolistic oligarchs and high level of inequality, among other evils. Nothing could be further from the truth.  These are all situations of jungle raj (might is right) and not rule of law.  Let’s take each one of them and prove that they were not free markets. If readers are to take away one thing for. This article , it should be that. The west west was not a free market because coercion and violence was used by the settlers to acquire land (which in an agrarian society was the main factor of production). So a critical determinant of fre

Part 4 of What needs to be done to get INDIA back into 8% growth .... how to leverage Indian entrepreneurial culture in nation building

The invention of the joint stock company with limited liability was the single most important invention to unleash entrepreneurship. This allowed entrepreneurs to take business risks without the risk to life and liberty (earlier, there was a concept of debtors prison where business failure and the inability to repay business loans could lead to imprisonment and even death because of unlimited liability) led to an explosion of business building.  India is a land of entrepreneurs(Including the small farmers and unorganised vendors) surrounded by an army of bureaucrats who in general have a deep rooted suspicion of entrepreneurs. Every bureaucratic intervention is designed with the mindset of “guilty unless proven innocent”. This mindset was formed during the command and control raj of the British overlordship and further buttressed during the socialist / license raj days where guanxi (“ connections with the right people”) and the ability to find loopholes in the impossibly comp

Part 5 of What needs to be done to get INDIA back into 8% growth .... land reforms needed to unleash India

China is on track to become the largest economy in the world on the back of massive industrialisation and movement of agricultural labour to factory workers to become the factory for the world. While India remains stubbornly rural with close to 50% of the population still dependent of agriculture.  The zamindari abolition (redistribution of land to the tillers from absentee landlords) remains an unfinished agenda. The unfinished agenda report has been gathering dust for a decade being “studied” by the Indian bureaucracy. More than 10 million people remain landless labourers and sharecroppers.  However, even if the redistribution (which is a state subject) were to be expedited, it is not going to be transformative. The increase in population and therefore fragmentation of holdings has led to a situation where an average farmer has less than 2 acres of land. This is a fraction of the minimum viable size to invest in mechanisation and has ensured that Indian agricultural remains