Interesting readings

• Read this interview in the Times of India with Steve Coll, and this Congressional testimony of his. If you haven't yet read Ghost Wars, you should.
• Vijay Kelkar's recent speech on privatisation.
• The comments on this blog post are worth reading.
• Sanjeev Sanyal, in Business Standard, summarises our public policy problem: we need to build a strong (i.e. capable) State with a limited mission.
• Joe Leahy, in the Financial Times, has an article titled India: A nation develops about global quality R&D taking place in India. I'm pleased that researchers are being paid salaries large enough to make it easy to relocate to India. Also see David Brooks in the New York Times on Israel's achievements in this.
• Tamal Bandyopadhyay in Mint on the woes of foreign banks in India.
• Pratip Kar in Business Standard on competition between stock exchanges in India.
• Parth Shah debates Vinod Raina in the Business Standard on private schools.
• Nitin Pai has a response to Barbara Crossette's diatribe.
• Vikas Bajaj in the New York Times on the literature festival in Jaipur. How civilised. I have long felt that a genuine life of the mind in India is 25 years or more into the future. Maybe that's being too pessimistic.
• Olivier Coibion and Yuriy Gorodnichenko remind us that we are in the Great Moderation.
• Shai Bernstein, Josh Lerner, Morten Sorensen and Per Stroemberg have an NBER working paper titled Private Equity and Industry Performance . They find that industries where PE funds have invested in the past five years have grown more quickly in productivity and employment.
• Michael Slackman in the New York Times, taking stock of Dubai.
• One of the best blogs that I know of, from India, is `Wanderer's Eye', by Aniruddha Dhamorikar. E.g. see his latest post, on a mother wasp. Also see: a great collection of pictures on India.
• In the Hall of Shame of the 25 dirtiest cities of the world, by Forbes magazine, Bombay is at rank 7 and Delhi is at rank 24.
• Watch me talk about the recent RBI credit policy announcement -- part 1, part 2.
• Raghuram Rajan has a careful response to the Obama's proposals, which illuminates my recent writings on this.
• Scott McNealy has a beautiful goodbye note to Sun.
• Chris Anderson has an amazing story in Wired magazine about the new world of `small batch' manufacturing.
• Miles Corwin has an inspiring story for everyone who wants to be a writer or a journalist. And, for anyone engaged in deep thinking about the media, do not miss this lecture by Alan Rusbridger.

What could go wrong if petroleum product prices are decontrolled?

I have an article in Financial Express on this today.

Mumbai as an international financial centre

Three fascinating new takes on Mumbai as an international financial centre:

• Mukul Asher and Azad Singh Bali in DNA a few weeks ago.
• In the February 2010 issue of Pragati released yesterday, there are two articles on this: by Percy Mistry himself, and by V. Anantha Nageswaran.

A while ago, I had a blog post - http://tinyurl.com/mistry - which collected together the MIFC report and the immense outpouring of responses to it at the time.

How do I think we are faring? Pretty much as expected:

• India has not yet moved towards a deeper rewriting of the core financial laws, and redefinition of the role and function of government agencies in finance. But there is an increasing acceptance that this task is high on the TODO list of policy-makers, after the Patil, Mistry, Rajan and Aziz reports.
• Some incremental change has come about, such as currency futures. SEBI is making good progress on strengthening the capital markets which will be the foundation of India's play in the world of international financial services.
• Bombay is making a little progress (or maybe not ). See my recent blog post: Two paths to good cities.
• Participation in IFS production through BPO is continuing to grow rapidly. There is real capability building up in the labour market.
• India's de facto integration into the world economy took a knock in the crisis. The gross flows in and out of the country (across capital and current accounts) achieved a peak value of $211 billion in the September 2008 quarter.
  From that peak, there was a drop to $152 billion in the March 2009 quarter - this took India back to a value similar to that seen in September 2007.
  From that bottom, growth has begun again, and in the latest data (September 2009) this number is back up to $175 billion (which is bigger than the value seen in the December 2007 quarter but not yet the March 2007 quarter).
• In the crisis, we have better understood that small countries like Iceland find it difficult to be a big international financial centre given the lack of a commensurate fiscal backstop. This improves India's competitive positioning when compared with Singapore, Dubai or Qatar.

Two paths to good cities

There are two paths to nice cities: to take a messy old city and fix it, or to start from scratch.

The process of solving the problems of an old city is hard. Some cities started over owing to the destruction caused by war, an earthquake, or a great fire. We wouldn't wish that on any city. So there is going to be no opportunity to start over.

The other strategy consists of building new cities from scratch. This has traditionally been a troublesome problem. Cities like Chandigarh or Brasilia haven't worked out too well. The designers who dreamed up these cities did not understand the complexities of the genuine urban life.

I don't know if Bandra-Kurla Complex was intended to be an attempt at urban planning. But if it was, the designers surely knew nothing about what makes a financial centre. All they have there is a few towers housing large corporations. The entire ecosystem of finance - myriad small firms, service providers, even coffee shops - is missing.

There are people who think differently. There is increased confidence these days that it's possible to start from scratch and build good new cities. In India, the most important experiment of this nature is GIFT, which is near Ahmedabad/Gandhinagar. It will be interesting to see how this works out. Read Greg Lindsay's article in fastcompany.com on these radical ideas and opportunities.

Another experiment which is taking place in India, with the establishment of a new high-quality city, is Lavasa.

The real challenge is that of going beyond a first sensible urban plan and some sensible urban infrastructure. Once the machine is set in motion, how will it continue to work? It will inevitably run into problems of urban governance. How can we be sure that the problems of governance and elections, where Bombay has failed so badly, will not bedevil Lavasa?

Here again, there is a slow long path and there is an attempt at a short solution. The slow, long path is to undertake deeper reforms. The 73rd and 74th Amendments to the Indian Constitution began that process but a lot more needs to be done.

In China, the biggest cities (Beijing, Tianjin, Shanghai and Chongquing) have the status of provinces. This idea, of a `direct-controlled municipality' is equivalent to cities like Bombay, Delhi, Calcutta, Madras, Bangalore being states who directly elect a state government and directly get Finance Commission funds from the central tax sharing. This would be a big step forward in improving urban governance in these giant cities.

In some countries, governance is so bad that such reforms are inconceivable. Some countries are just not able to figure out how to do urban governance. Paul Romer's 2nd big idea is: Would it help if a country like Sweden or Canada was given a 50-year lease on a 100 square kilometre block of land, where it would build a high quality city with first world urban governance? He calls this charter cities. I have a blog post which engages in an alternative history on such a theme.

Obama's left turn

I wrote a column in Financial Express about Obama's left turn.
Also see:

• The associated editorial in Financial Express.
• White House nightmare persists by Ed Luce in the Financial Times.
• Neil Irwin in The Washington Post on the difficulties that Bernanke is facing on getting a second term. Also, see this sharp drop in the price of the Bernanke contract at Intrade.
• Analysis by Michael Grunwald in Time magazine.
• Response by Viral Acharya and Matthew Richardson in the Financial Times.

How efficient is the traditional Indian family-run business?

A perennial debate rages in India, about the merits of the traditional family-run business versus the knowledge of the fancy-pants consultant or MBA. A remarkable paper by a group of economists sheds new light on this question. I wrote a column in Financial Express today titled Are Indian family businesses well run? where I describe these results and interpret them. Also see this column by Nirvikar Singh in Mint on the same subject.

The Internet changes everything: Research edition

An amazing story of Internet-scale collaboration to prove a theorem in mathematics.