## Monday, January 30, 2012

### Battlefronts

Freedom of speech is high on our minds in India today, with the problem rooted in laws about three fronts: obscenity, defamation and hate speech. While freedom of speech is an essential foundation of democracy, it is closely connected with other dimensions of freedom. Here are some fascinating episodes, in the liberal project of getting to personal freedom.

### United States, 1644

Faramerz Dabholwala in the Guardian:

When the Massachusetts settler James Britton fell ill in the winter of 1644, he became gripped by a "fearful horror of conscience" that this was God's punishment on him for his past sins. So he publicly confessed that once, after a night of heavy drinking, he had tried (but failed) to have sex with a young bride, Mary Latham. Though she now lived far away, in Plymouth colony, the magistrates there were alerted. She was found, arrested and brought back, across the icy landscape, to stand trial in Boston. When, despite her denial that they had actually had sex, she was convicted of adultery, she broke down, confessed it was true, "proved very penitent, and had deep apprehension of the foulness of her sin ... and was willing to die in satisfaction to justice". On 21 March, a fortnight after her sentence, she was taken to the public scaffold. Britton was executed alongside her; he, too, "died very penitently". In the shadow of the gallows, Latham addressed the assembled crowds, exhorting other young women to be warned by her example, and again proclaiming her abhorrence and penitence for her terrible crime against God and society. Then she was hanged. She was 18 years old.

### India, 2007

Vinod K. Jose in Caravan magazine:

...on the morning the poll was published, an angry mob of about 50 people attacked the Dinakaran office in Madurai, Azhagiri's home base. They threw petrol bombs and set the newsroom on fire; two journalists and a security guard were burned alive.

### Pakistan, 2012

Declan Walsh in the New York Times:

One morning last week, television viewers in Pakistan were treated to a darkly comic sight: a posse of middle-class women roaming through a public park in Karachi, on the hunt for dating couples engaged in immoral' behavior.

Panting breathlessly and trailed by a cameraman, the group of about 15 women chased after - sometimes at jogging pace - girls and boys sitting quietly on benches overlooking the Arabian Sea or strolling under the trees. The women peppered them with questions: What were they doing? Did their parents know? Were they engaged?

Some couples reacted with alarm, and tried to scuttle away. A few gave awkward answers. One couple claimed to be married. The show's host, Maya Khan, 31, demanded to see proof. So where is your marriage certificate'' she asked sternly.

### India, 2012

Reportage in the Hindustan Times:

Over 50 Shiv Sena activists attacked the The Times of India building at south Mumbai on Saturday and damaged plants and furniture at the reception.

The men, who claimed to be supporters of former Sena MLA Anandrao Adsul, were protesting against a news report that appeared in Maharashtra Times, a Marathi daily. The report speculated that Adsul was on his way to join the Nationalist Congress Party. Adsul, who addressed the media later, has threatened to file a Rs 100-crore defamation suit in addition to a complaint with the State Election Commission and Press Council of India. "Such baseless allegations made without hearing my version won't be accepted," Adsul said. The Sena man was unapologetic about the incident. "My supporters went with a letter, but they were not allowed inside. So they reacted in anger."

### India, 2012

Johnson T. A. in the Indian Express:

While she was being beaten up, Suvarna insisted that she would only marry Govindaraju and that it was she who wanted to meet him that day, Govindaraju told the police in a statement last week when he briefly emerged out of hiding. An enraged Davalana, according to the police complaint, directed his relatives to hang this girl who is insistent on marrying a Madiga'.

Police investigators say they believe Suvarna probably died after the thrashing from her father at her relative's house but her body was dragged to Govindaraju's house and strung up on a rope to make it seem like a suicide in the lover's home.

## Friday, January 27, 2012

### Inflation targeting has come to the US

Reportage by Robin Harding and Michael Mackenzie in the Financial Times:
The rate-setting Federal Open Market Committee predicted low interest rates until late 2014 and set a formal inflation objective of 2 per cent, reflecting chairman Ben Bernanke’s long-held goal of providing greater transparency.
The FOMC downgraded its estimate of growth in the coming quarters from “moderate” to “modest” and Mr Bernanke indicated that another monetary boost for the economy – most likely another round of quantitative easing, or QE3 – remained an option.
“We are prepared to take further steps in that direction if we see that the recovery is faltering or if inflation is not moving toward target,” Mr Bernanke said.
The Fed also published its first detailed forecasts of future interest rates.
...
Adopting the 2 per cent objective is a historic move that binds the whole FOMC to a defined goal that will endure after Mr Bernanke leaves. It means the FOMC can easily justify more easing if it wants to because its inflation forecast for 2014, of between 1.6 and 2 per cent, is below target.
The FOMC voted for Wednesday’s decision by 9-1. The only dissenter was Jeffrey Lacker, president of the Richmond Fed, who wanted to leave the late 2014 date out of the policy statement.
The US suffers from legacy legislation, which predates modern monetary economics, which places the burden upon the Fed of pursuing both price stability and low unemployment. The evolution of the US Fed has been led by human energy within the Fed. Starting from Paul Volcker, who took charge in August 1979, the US Fed has run a Taylor rule with a nice strong above-1 inflation coefficient. In a recent column in the Indian Express, Ila Patnaik tells us about Paul Volcker's story and how it matters to us. In effect, from Volcker's chairmanship onwards, the behaviour of the US Fed has been that of an inflation targeting central bank. This was the de facto reality. Everyone knew that the US Fed targets inflation at 2%. What is new now is that the Fed has put greater credibility behind this, by going closer to de jure inflation targeting.

A key dharma of good central banking is to say what you will do, and then do what you just said. By saying that there is an inflation target, there is now full alignment between the words and deeds of the US Fed.

The day will come when India will enact high quality legislation which puts monetary policy on a sound institutional foundation. But we should not accept mal-performance by RBI until that day. It is possible for RBI to do much better, when compared with the present, even though the present legislation is really badly written. The US Fed is a good example of how technical capabilities within the Fed, and not an external legislative mandate, have driven improvements in the functioning of the Fed. This sort of progression is what RBI can and should aspire to, and this does not require waiting for a high quality RBI Act.

## Tuesday, January 24, 2012

### Education in India: A compact reading kit

With the first release of OECD PISA results for India, and with the release of one more year of Pratham data, there has been an upsurge in interest in education in India. The following set of materials are a useful reading kit to get a grip of the field.

### The debate

Roughly one decade ago, there was a strong debate in India about how we should tackle the problem of education. There were two views:
Intensification
On one side were those who felt that nothing was fundamentally wrong; all that was needed was more money. So we should just continue building more government schools and hiring more civil servants to act as school teachers, and we'll be fine.
Reform
On the other side were the reformers, who argued that the basic incentives in Indian education were wrong. Putting more money down a dysfunctional system was pointless.
The Intensifiers won this debate. An informal coalition of educationists (i.e. the incumbent education system) and leftists came together, supported by the World Bank, which pushed for mere enlargement of Indian education, without questioning the foundations.

All of us are involved in this story at many levels. At the simplest, we are the customers of the education establishment. We pay income tax and VAT and a few other taxes. On top of this, we pay the 2% education cess. In return for this, we get certain educational services. These influence our kids, and they influence all the young people that we encounter in this young country. Trillions of rupees have been spent, and more than a decade has gone by. It is time to assess the performance of this strategy.

Three blocks of evidence are now visible, which tell us that the Intensifiers were wrong. The old strategy, which was invigorated by a vast rise in spending, was the wrong one.

### Evidence #1: OECD PISA results for India

This story is well told in a recent blog post by Lant Pritchett. Bottom line: The first internationally comparable measurement of what children learn has been done. The sample correctly includes urban and rural children; it correctly includes children going to private or public schools; there are no first order mistakes in what was done. It tells us that Indian education policy has failed miserably: the results have come out at the bottom of the world.

### Evidence #2: ASER 2011 results

Pratham has been running surveys which measure characteristics of children and schools in rural India (only). Their latest survey results, for 2011 show the following facts.

First, rural kids learn less at public school. Here's a simple example of what the evidence shows. Surveyors ask kids in class III to recognise numbers upto 100. Here are the numbers, for the proportion of kids in class III who cannot recognise numbers upto 100:

In 2008, the failure rate with private schools was roughly 17 per cent. Government schools were much worse at over 30 per cent. A short three years later, conditions had deteriorated sharply in government schools. The failure rate had gone up to 40 per cent. Private schools had also worsened slightly, to a failure rate of 20 per cent. By 2011, a big gap had opened up between the two: private schools are failing to teach 20 per cent of the kids while government schools are failing with a full 40 per cent of their kids.

Parents in India face the choice between sending their children to a government school, which is free and serves a mid-day meal, versus sending them to a private school where they pay fees. Yet, an increasing fraction of parents choose to send their children to a private school, paying tuition fees from their own pockets, while government schools are free. The relationship between a parent and a private school is a transaction between consenting adults. The relationship between a parent and a government school involves all of us, because we are paying for it.

Given the low income of parents in India, their use of private schools is a striking indictment of what the Intensifiers have wrought:

At class II, the fraction of rural children in private school went up from 19 per cent (2007) to 23 per cent (2011). At class VII, this rose more slowly to levels slightly above 20 per cent.

### Evidence #3: CMIE household survey

CMIE has data for the year ended March 2011 about the behaviour of 169,492 households, about their expenditure on school/college fees and tuition fees. Here's the picture for the quarter ended September 2011; all values as percent of overall expenditure:

Income class School/college fees Private tuition fees
Rich - I 4.79 0.66
Rich - II 3.79 0.51
High Middle Income - I 3.54 0.63
High Middle Income - II3.12 0.65
High Middle Income - III2.44 0.68
Middle Income - I 1.93 0.59
Middle Income - II 1.62 0.45
Lower Middle Income - I1.38 0.49
Lower Middle Income - II1.05 0.60
Poor - I 0.76 0.58
Poor - II 1.13 0.28
Overall 2.10 0.57

If parents chose to stay within public sector schools, their expenditure on fees would have been zero. The table shows that across all income groups of India, there is movement towards private provision of education, both by paying fees at schools and by paying for private tuition classes. These two elements add up to 2.67 per cent of overall expenses of households. (The CMIE household survey separately measures expenses on books, journals, stationary, additional professional education, education overseas, hobby classes and other education expenses. This helps us gain confidence in the extent to which the two fields in the table above narrowly pin down the feature of interest).

These decisions of well intentioned parents are the strongest indictment of education policy in India. The product being given out by the Intensifiers is such a terrible one, the parents of India are walking away from it even though it is free and the alternative is not and the parents are poor.

### Implications

For more than a decade, the Intensifiers have controlled Indian education policy. They have said: Leave education to the education establishment, do nothing radical, just give us more money, we will deliver results. Now we know that they were wrong. They took the money, but failed to deliver the results.

Kapil Sibal has said that his ministry should not be held responsible for the stream of bad news that is coming out. To me, this seems to be dodging accountability. His ministry is responsible for Sarva Shiksha Abhiyaan, for the Right To Education Act, for blocking OECD PISA from being done in India, etc. The bureaucratic consensus of his ministry represents the education establishment.

The key phrase that needs to be emphasised today is accountability. If a contractor took money from you, and failed to deliver on building your house, you would sack him. (You would also take him to court, to recover the money that was paid to him, for services not delivered). In similar fashion, education is too important to be left to the educationists. We need to start over.

### What is to be done

• We need to start over in the field of education, with a fresh management team, one that is not a part of the status quo, one that is rooted in the worlds of incentives, public policy and public administration.
• In 2004, we were told that in return for a tax rate increase of 2%, in the form of an education cess, we would obtain improvements in education. We now know that those improvements did not come about. Hence, that tax rate increase should go. (Even if sharp improvements in educational outcomes had been obtained, the education cess was a mistake in terms of basic public finance, and needs to go. Public expenditures on education should simply come out of general tax revenues; there is no need to have a cess.)
• The flow of public money into the status quo needs to go down sharply. There is no reason to put money into something that fails to deliver the goods. First we must prove that a mechanism delivers results, and only after that should we put money into it. This is the common sense that a housewife would apply. She would not spent gigabucks on promises from people who have failed to deliver.
• OECD PISA measurement needs to take place every year at every district. The production of this data is a public good that the government can and should do. It can be fully contracted out to private firms so as to avoid the problems of public sector production. Datasets about student characteristics and school characteristics should be released, covering every district and every year, so as to enable research.
• Civil servant teachers, who have tenured (permanent) have no incentive to teach well, regardless of their qualifications or high income. We can't sack them, but what we need to do on a massive scale is to stop recruiting them. The existing stock can be reallocated to other civil servant functions where staff is in short supply. Through this, it would become possible to whittle away at the accumulated stock over the coming 20 years.

## Monday, January 23, 2012

### A fueling fable: Consumer protection issues with payments

by Naman Pugalia and Viral Shah.

On 22nd December 2011, we purchased petrol worth Rs.100 from an Indian Oil fueling station in Bombay using an ICICI Bank debit card. The receipt suggested that we could have saved a fuel surcharge of 2.5% had we used an Indian Oil Citibank credit card. Upon seeing this message, we asked the cashier at the petrol pump if we would be charged 2.5% over and above the Rs.100 that we paid for the fuel. The cashier assured us that only Rs.100 would be debited from the account linked to the card. The chargeslip and the receipt were:

 The chargeslip

 The receipt
A couple of days later, we viewed the account statement online and found that the relevant transaction had been recorded. A full week later, we observed that an additional charge of Rs.11.03 had been
debited from the account for the same vendor. Not only was the entry unusual, the charge did not match the 2.5% figure which was mentioned on the transaction receipt:

 The statement

We wrote to the bank asking them to explain the transaction. The bank explained that for fuel purchased at non-HPCL petrol pumps, a surcharge of 2.5% of the fuel cost or Rs.10 (whichever is higher) would be levied. A service tax would be levied additionally.

There is a consumer protection issue here. After the account had been debited, and up until we sought a clarification from the bank, we were not made aware of the surcharge. The chargeslip gave a false impression of the amount being paid.

Upon delving further, we find various websites where people have complained about this surcharge being confusing. Further investigation revealed an interesting combination of participants:
1. The surcharge on fuel is mentioned in the fine print in Terms and Conditions of a debit card.
2. The bank that deploys the POS machine (acquiring bank being Citibank in our example), at the end of day, surcharges the higher of 2.5% or Rs.10 and sends it to the customer's bank (issuer bank being ICICI Bank in this case).
3. The issuing bank then creates a separate debit in the customer's account for the surcharge
4. The acquiring bank shares much of this surcharge back to Oil Marketing Company (Indian Oil in this example).
5. Contrast this with typical debit card processing fees in India around 1.5%. In most cases, merchants will inform a customer before surcharging, and the value on the chargeslip is what the
customer pays.
6. Many banks apply these surcharges weeks or months after the transaction actually occurs, which helps ensure that most customers do not understand what is going on.
When paying for fuel in India with a debit card, the customer pays the surcharge by being misled, the Oil Marketing Company makes higher profits, the charge is administered in a non-transparent way, and is posted late when the customer may not even recall the transaction. Thus, Government owned companies and banks have created a perverse incentive, whereby customers prefer to use cash rather than pay electronically.

On this blog:

## Wednesday, January 18, 2012

### Accountability in education

by Jeff Hammer.

I was shocked by Lant Pritchett's note on the appalling performance of India's best two states on the international PISA assessment. Actually, I was not really shocked; I didn't expect anything else as I've been listening to Lant for years now. By the same token, I agree with Jishnu Das that we really don't know much about what works in education (other than that good teaching makes a difference) and that our bean-counting of inputs into education may be completely wrong headed. From conversations with him (also over years) I surmise that the only thing we really know about what leads to more learning is that it is correlated with how many years children stay in school. What that suggests, though, is that attention be directed towards the choice of parents and students to stay in school.

In my opinion people choose to do things if it is worth it to them. This is a common assumption for economists. While challengeable in some circumstances, does it make any sense to think that people send their children to school if they don't think it's worth it? If it is compulsory: sure. With compulsion, attention of policy makers and carefully watchful observers such as Pratham should be to make sure school is worth the year of children's attendance since people would not be able to decide for themselves. Until we see compulsory schooling enforced, though, years of education remain a family's choice and we have to understand how and why people make that choice.

Unless we think parents are utterly clueless about the value of education and totally incapable of telling if teachers are doing anything or their children are learning anything, the effectiveness of teaching and the amount of knowledge imparted must be a major factor in their decision as to whether school is worth it. Don't get me wrong, I've met dozens of educators and education officials in India who believe parents are, indeed, clueless and such decisions should be out of their hands. But they are the very people who gave us the PISA ratings and are indeed throwbacks to the License Raj where only bureaucrats were assumed to know anything. Further, with the explosion of private schools, even in rural areas, it is laughable to think that there are so many parents who value education so little. They are willing to forego free public education in order to pay for something more worthwhile.

Which brings us to accountability.

What could parents be looking at, that makes them think school is worth it? It must be based on performance: parents don't really see the inputs, they mostly just see their children learn. Or not learn as is the case. So how can they translate their concern for learning into actual learning? They have to be free to pick the educational context that they see is working for them or their neighbors. That's where accountability comes in.

A provider of any good or service is likely to be most accountable when their livelihood depends upon attracting customers. If what they provide is worth it, people will take the service, and the provider can make a living. If not, parents won't pay and teachers won't get paid. As of now, there is no mechanism to allow families to make that choice. There is no such compulsion for teachers to provide a service worth paying for. No doubt there are many teachers (probably most) who are doing the best they can regardless of how they are paid. But with over 24% absenteeism, large numbers of teachers observed to be doing anything but teaching, and many sub-contracting their position to under-qualified replacements at a fraction of government salaries, there is substantial room for improvement.

Further, if we are going to get more students (and, hence, teachers) into classrooms, the dedicated teachers may be the ones who are already on the job. People induced to enter the profession may not be as dedicated and, hence, need some other way to hold them accountable than internally felt professional ethics.

I am an educator (of sorts) but have no opinion about what the bottleneck in children's learning really is. Jishnu says the most successful headmasters all say different things (after good teachers - but then, don't we judge the goodness of teachers by whether their students actually learn? It's an output based judgment, too.) I know little of pedagogical theory. But I know just as little about the inner workings of most complex things I use -- computers and the Internet, water systems, bicycles. I can tell when they work and when they don't, though. Similarly, I know that my sons learned to read and write, become responsible citizens and to develop and exercise critical intellectual capacities (sometimes way too critical for my taste) even though I have no idea how they learned them. I did know that their teachers were in school almost every day and doing things that sounded like teaching to me. I did not have to be an expert on pedagogy to hold the schools completely accountable for my children's education.

I was also fortunate enough to be able to take (or threaten to take) them out of government schools if I thought otherwise. Funding for government schools (in the U.S.) follows enrollment, if not so directly and obviously as for private schools. So my threats about shifting my children out of government school directly mattered to their teachers.

There is no reason why Indian parents can't do the same. They, on average, may not have my education but after talking to hundreds of families in rural areas, tribal villages, urban slums and SC hamlets, I hear no less concern for their children's future than I have for mine and no less ability to tell if a teacher appears to be doing his job. They may be more capable than me since they are more likely to see the teachers themselves -- I needed to ask my children.

In many rich countries, the issue of vouchers to pay for schools is emotionally charged. Historically, free compulsory public education was a result of fights between church and State (even in Japan where church' doesn't quite fit -- but religion and State does). Children were already attending school in high percentages and there was a fight for their hearts and minds. In rich countries currently, suggestions to provide vouchers instead of State-run schools re-kindle this old antagonism against religious instruction.

India never had this fight nor this evolution of public provision. Our view of schooling here in India was imposed based on the final result of universal free education seen in rich countries without the history from which that final result evolved.

India needn't go through the phase of fighting over who gets to teach students who are already highly motivated to learn and have seen learning take place. If India wants to see all children educated, she can certainly pay for the cost of education (in fact, the job can be done for much less per student is presently spent) so that families don't have to. But the government doesn't have to provide it directly (though government schools should be free to compete for this money if it can). The fight is the State against society (families), not against the church.

What the State can do is make as much information known to parents as possible. What should children know after how many years of school? How do you know if your child is keeping up? How do you know what you're paying for is worth it? As of now, this information is certainly not given to parents. Maybe State run schools don't want parents to know (and, unfortunately, most Indian parents will not know about PISA). And as of now, there is nothing parents (particularly poor parents) can do about it anyway.

## Monday, January 16, 2012

### The new world of computers

I read a beautiful article, Why software is eating the world by Marc Andreessen. It made me reflect on how the world of computers and networks has evolved over the last 20 years. It is comfortable for us to think that the world has only evolved in incremental ways. But as I look around me, it seems that the hard-driving pace of change on many fronts has added up to fundamental change, to places far away from the comfort zone of people of my vintage.

All the way till the 1980s, business computing was dominated by databases. The basic story was one of capturing data, storing it, and summoning it forth with queries.

At first, databases were the exclusive preserve of mainframes and minicomputer. The PC revolution made it possible for small databases to be held on the desktop. It's interesting to note that at first, we got PCs without networks. We evolved from databases stored on remote mainframes or minicomputers to databases stored on PCs. All the way into the late 1980s, it was quite a cool thing to have a standalone PC holding a database where certain queries could be executed.

The first wave of change, of the early 1990s, was networks in the form of TCP/IP (the universal communication protocol) and the Internet (the universal network). Now, suddenly, the data centre became more interesting. Instead of storing and manipulating data at the desktop, we could do so many better things by storing and manipulating data at a big central computer. The desktop diminished from being the location of data and computation to being the location of the user interaction.

Then came a series of surprises which have added up to a qualitative shift.

### 1. The network got ubiquitous

First, the Internet went everywhere for the road warrior armed with the laptop computer. Crashing prices of laptop computers and then netbooks meant that essentially everyone had one. So workers started spending much more time outside the office (with 100% connectivity).

Software had to adapt itself to reach out on an Internet scale. This killed off applications which worked on the scale of the LAN. The software that the busy road warrier used was the software that worked effortlessly on his laptop.

Today, 1 Mb/s wireless networks are common and 50 to 100 Mb/s offerings are on the anvil. This is relentlessly shifting the balance of convenience to mobility.

In a place like India, the low-end staff might not have netbooks and/or Internet on the go. So for certain very low-end applications, it might make sense to hug the desktop at the workplace. For any modestly well paid person, laptops / netbooks coupled with 3g or CDMA networks are the norm, and hence being tethered to the office network is quite limiting.

### 2. The user interfaces got better

In the 1980s, software came with fat manuals. Users actually sat down in training classes. A remarkable feature of the new world is how the manuals and training are gone. Software is incredibly capable but there are no manuals. Google maps or Amazon or Apple Mail are very powerful programs, but the fundamental assumption is that a reasonable person can just start tinkering with them and learn more as he goes.

The modern office worker gets no formal training in software all his life. The modern knowledge worker learns major tools (e.g. a programming language) and often puts in enormous effort for these. But for the rest, the ordinary flow of day to day life, where new software systems come up all the time, is done without formal training.

Once the modern office worker faces high quality UI design from google and such like, where there is zero training and zero marketing, it became much harder to accept training. Standards have changed; in the olden days, people would actually try to learn. Today, knowledge workers are willing to get training in programming languages (e.g. R or Stata) but not in applications. The MBAs are generally training-proof.

### 3. All of us got busy

There was a time when one purposedly went about the work day systematically doing certain things with certain software tools. Knowledge workers have become deluged with information and with stimuli. We have gone from being an information scarce economy to being an attention scarce economy.

Software and information systems are now competing for the attention of the user. The scarce resource is now the mind share of the user. This is linked to the problem of user interfaces. If something has a complicated user interface, and there are a hundred other tasks that need to be done, the user ignores the complicated thing. Software systems that don't fly immediately just die.

### 4. Peers determine where attention is directed

In a world where the knowledge worker is bombarded with hundreds of things every day, what does he do? He tends to direct his scarce time into the things that come well recommended. The recommendations of respected peers are supremely important in determining what a person does.

High powered sales compaigns have lost power. The person just asks his friends what they do. The impulses through the day coming into each person - over email, IM, twitter, social networks, etc. - are the de facto controllers of the persons' time.

Peers are thus the gatekeepers to the user. The stuff that is striking and remarkable gets noticed and pointed to friends. What gets pointed tends to get a high google pagerank.

The importance of high pressure sales dropped. Some of the most successful firms got by with negligible sales departments. Their stuff was intuitive and good, and got immediately picked up.

### 5. Network effects leading to user generated content

The old model was one of corporations producing information and users consuming information. In that power structure, the user was only a source of revenue.

In the new world, the critical story is about kicking off network effects. The systems that win are those that get better because of one more user interaction.

At the simplest, user interactions kick off impulses to peers which brings in more customers (viral marketing). But very soon, user interactions generate relevant data. Google watches what users click and uses that to improve search. Amazon tells you that the people who liked this book also liked that book. Amazon has user-generated content in terms of reviews.

Good systems create a warm and supportive environment in which users contribute bug fixes, feature suggestions. These systems ride the power of user eyeballs and brains to get better. The power structure has changed. IBM DB2 used to be designed in a temple and then went out to the helpess masses. Google's world is critically linked to the users at so many levels (a receptive environment for bug reports, feature requests, user generated content, and usage data being turned back into strengthening the system).

The bottom line: Successful designers found ways to harness every single user and user interaction to build the quality, the content and the footprint of the system. Stalinist structures, which disempowered the user and treated him only as a source of revenue, stand isolated and stagnant.

### 6. Loss of power of enterprise IT

In the old world, enterprise IT mattered more. Grave decisions were made by enterprise IT managers and then thousands of users fell in line. In the new world, users forge ahead with their laptops and tablets and mobile phones, exercising enormous autonomous choice about how they spend their time. Consumer considerations, and the loyalty of each individual user, are far more important than they used to be. The enterprise IT department is much less of a gatekeeper. In the olden days, hardware and software was sold to enterprise IT, which made decisions for everyone inside the organisation. In the new world, usage is won one user at a time, and it is contestable every day.

### 7. CPUs became too cheap to meter

In the old world, computation was something scarce. The money that went into building data centres was carefully weighed. System designers carefully did things that were parsimonious in the use of CPU.

With the rise of parallel computation, bringing 1000 CPUs into a problem became cheap. Successful designers were those that found ways to deploy incredibly large amounts of computer power to do things that delight users. Google and amazon are spending millions of clock cycles in the back end, thinking about how to handle the next move, as the mouse cursor moves! When faced with a choice between doing something nice that users will like, versus doing something that saves compute power, the former always won.

### 8. Unexpected revenue sources

Who would have imagined that an ad agency would become the most powerful author of operating systems for mobile phones in the world? When hardware got dramatically cheap, and the Internet generated access to eyeballs on an unimaginable scale, new revenue models came about which were surprisingly different from the way we used to think earlier.

A nice pair on UIDAI from the Economist: The magic number and Reform by numbers.

Trampling on the individual in India: Akshaya Mishra on Firstpost.

Devangshu Datta in the Business Standard.

Ila Patnaik, in the Indian Express looks at Italy and worries about India.

Kanika Datta in the Business Standard on the Bombay Club.

Authoritarian India at its worst.

Ila Patnaik in the Indian Express worries about the economic consequences of NREGA.

Ila Patnaik in the Indian Express on RBI's thinking about new entry by private banks.

A great article on India's energy-fiscal mess by Urjit Patel, a rare person who understands both.

Tamal Bandyopadhyay in Mint, and Ila Patnaik in the Indian Express, on RBI's use of capital controls to combat rupee depreciation.

In the Indian Express, Ila Patnaik reminds us to avoid adventurism in the use of reserves for buying natural resources.

Shahan Mufti has a great article in Business Week on the supply chain problems that the US faces in Afghanistan.

I have often worried that we are not as bright as we used to be. Mark Pagel has an argument about why that might be.

Fundamental progress on payments by Russ Jones. I'm not a lawyer, but it's a fair guess that Square will be banned in India.

I just re-read James Buchanan's 1986 Nobel prize speech.

Once the public goods of a strong statistical system are in place, the real challenge becomes the brainpower that is deployed into thinking about the data. In India, we don't have half decent maps data in the public domain. But once high quality maps data becomes freely available, things change. Seth Stevenson on Slate tells a story of a beautiful design for a humble problem: a map.

## Friday, January 13, 2012

### Where did we go wrong?

It is a time for deep thinking about what has gone wrong in India. Here are a few excellent takes:

As we watch many train wrecks in India unfold in slow motion, Timothy W. Ryback in the New York Times reminds us about that ineffable substance of the human soul ... that shapes individual decisions and ultimately determines the course of actions, both large and small, that constitute the chain of events we know as history.

## Thursday, January 12, 2012

### Land ownership in pre-modern India

In India, 50 or 100 years ago, land was a defining feature of wealth. The stock of land generated a flow of income. The landless were low-paid agricultural labour. The landed gentry of rural India were the kings of their heap. They had power, prestige, position, prosperity.

In the eyes of many, the initial conditions of high inequality of land ownership were a key barrier that held India back. It was argued that a one-time bout of bloodshed was essential, to expropriate the rich, and to transfer land ownership into a more equitable distribution. In India, this capacity for State-inflicted bloodshed was present in some places only. In much of India, the unequal distribution of land ownership found in 1947 was left intact.

Fast forwarding into the present, there has been a sea change in the fortunes of the owners of agricultural land.

### Agriculture is less important

Particularly after we escaped from the Hindu rate of growth (3.5%) in 1979, the share of agriculture in GDP has dropped sharply. In relative terms, the wealth created through firms in industry and services has dwarfed the wealth of the landed gentry. The richest man in India today is born of one who started out with no land. Government interventions continued to stifle agriculture, but shifted to a greater laissez faire approach in industry and services; this helped accelerate the decline of agriculture.

### The plight of those who stayed back

Rural to urban migration has unleashed new forces on the role and status of the landed lords. Within rich families, high IQ children may be going off to the city to a greater extent, e.g. based on the filtration by competitive examinations where outcomes are correlated with IQ. To the extent that such a process has been afoot, it has given a selection bias where the low IQ children were the ones more likely to stay back in the idiocy of rural life' (as Marx characterised it). Over a couple of generations, the interplay of nature and nurture can add up to substantial effects.

That there was an easy option - to live off the land - was a resource curse' which afflicted the households who had land. In contrast, for landless households, there was no conflict of interest in moving to cities (other than the recently introduced NREG, which tries to perpetuate poverty by hindering rural to urban migration).

The power and status of the landed lords was now twice undermined. Their quick-witted cousins who established themselves in the cities were connected into capitalism and getting ahead. Families of the landless have tended to move to cities, connect into capitalism, and get ahead. The erstwhile lords have started looking nervously at both groups of escapees, wondering whether land ownership was such a nice initial condition.

In a fascinating recent article, Devesh Kapur, Chandra Bhan Prasad, Lant Pritchett and D. Shyam Babu gave us some insights into these changing social structures. In their survey data, in 2007, 98.3 per cent of Harijans were contracting-out the work of tilling their fields to their erstwhile lords, the upper-caste men who owned and operated tractors. The upper tail of the Indian income distribution has, in a few generations, been reduced to operators of agricultural equipment.

### The importance of engaging with the market

A defining issue of modern times, for an individual, is a continued and deep engagement with the market. For insights into this idea, see this interview with Tom Sargent. The Ljungqvist/Sargent story matters even more in India, when compared with what has happened in the West. At 7 per cent GDP growth, every few years, far-reaching change comes about in technology and processes. Each individual builds knowledge and human networks by continually engaging with the market. If a person is cut off from engagement with capitalism for even a few years, this generates a lot of human capital depreciation. At that reduced human capital, the person has to either accept an offer at a much reduced wage, or stay unemployed (which further undermines human capital).

The Ljungqvist/Sargent story helps us understand the plight of adivasis in India, who have been away from the market economy, and are unable to plunge into it. It helps us understand the plight of the unemployed of Europe: the welfare state pays them dole to stay warm and well fed for many years of unemployment, but after this they are unable to come back into the labour market.

In this setting, consider the plight of a land owner, who has been living off the land, and has never engaged with modern India. Particularly in the post-1979 period, when India has experienced relatively rapid growth, each year of being a country hick owning land meant being further away from the skills required to participate in the contemporary Indian economy. The landed gentry of India lacks the skills to participate in the market economy. Income from the land, their resource curse, dulls their incentive to overcome the barriers. They are often too proud to accept low wage assignments which are the starting point through which the unskilled connect to capitalism. These problems have come together to give a unique vicious cycle of dis-engagement with modern India.

### Sale of land in the outskirts of cities

At the edges of all cities, urbanisation is proceeding through developers buying land from the local landed rich and transforming it into the endless suburbs. In the short term, this has generated immense windfalls of wealth for the landed rich. But in some ways, this is a bit of a disaster for many of them. Lacking in knowledge about the market economy, they are scammed by insurance salesmen and such like. Much of this newfound wealth tends to get dissipated in a few years.

Urbanisation and land development throws open vast opportunities for trade and industry. But the erstwhile landed rich tend to be uniquely ill equipped at harnessing these opportunities. They tend to be too proud to work for someone else, and inadequately equipped to stake out on their own. They experience a brief blaze of glory when paid fabulous prices for their land, and then fade away into insignificance.

Some politicians have been moved to advocate special legal protections for the hapless rural rich who sell land to the modern sector. It's quite a turnabout within a few generations: from landed elite that oppress the others, to witless folk who need to be protected by special laws that inhibit the sale of land.

### The curse of land

A few decades ago, the left-of-centre view dominated the thinking in India. It was felt that inequality of land was a major bottleneck that held India back. Many argued that the failure of Indian democracy to engage in a one-time bout of class warfare through land reform' was a major mistake that was holding India back. It was argued that the Chinese path was the right one: to expropriate the landowners and then start a capitalist economy under conditions where everyone is equal.

With the benefit of hindsight, things look different. I think this story reiterates the dangers of social engineering. We are dealing with enormously complex systems that we only dimly understand. As far as possible, it is wise on our part to use the force of the State as little as we can, and to always avoid treading on fundamental human rights such as property rights.

### Acknowledgments

I am grateful to K. P. Krishnan, Suyash Rai and Mihir Thaker for insightful conversations.

## Thursday, January 05, 2012

### The first PISA results for India: The end of the beginning

Now this is not the end. It is not even the beginning
of the end. But it is, perhaps, the end of the beginning.

Winston Churchill, November 1942

The PISA 2009+ results are the end of the beginning. For the last decade there has been a debate. Some argued the levels of learning inside Indian elementary schools (primary and upper primary) are a national scandal and a threat to the future of India's society, polity, and economy. Others appeared to believe that the main, if not only, problem with Indian schools was that not enough children attend them and that with more money and more of the same, all would be well. The last five years saw a relentless accumulation of evidence about the crisis of learning. The establishment has tried to deny, deflect, and dismiss the evidence on learning. Eventually the Government of India agreed to participate in the PISA (Programme for International Student Assessment) - but only for two states, Tamil Nadu and Himachal Pradesh - and both sides agreed PISA was the litmus test. The PISA 2009+ results, which are both official and are beyond gain-saying are unspeakably bad. They confirm the worst of what anyone has been saying about the levels of learning in India elementary education.

• In reading of the 74 regions participating in PISA 2009 or 2009+ these two states beat out only Kyrgyzstan.
• In mathematics of the 74 regions participating the two states finished again, second and third to last, again beating only Kyrgyzstan.
• In science the results were even worse, Himachal Pradesh came in dead last, behind Kyrgyzstan, while Tamil Nadu inched ahead to finish 72nd of 74.

But just coming in last (if we can dismiss as a relevant comparator for India a tiny Central Asian state) does not convey the enormity of how bad these results were, as not only was India last, it was far, far, behind its aspirations, both at the bottom and at the top levels of performance.

PISA expresses the levels of performance in two ways, an overall index number and the fraction of students achieving various "levels" of achievement. The PISA index numbers for each subject are scaled so that the typical OECD student is at 500 and the standard deviation across OECD students is 100. The testing of thousands of students allows the results to present not only the average but also the worst (5th percentile) and best (95th percentile) students do in each country/region. PISA also classifies student performance into "levels" that represent different degrees of mastery of the material.

Table 1 compares India's performance to three groups of countries. The economic superstars have successfully completed the transition from poor to rich economies in just two generations - Singapore, Hong Kong, Korea (China's only results are just for the city of Shanghai, which are the highest scores of any region tested, but this is too a typical to really be comparable) and India aspires to their sustained success economically. The current super powers are represented by the USA and the OECD average reflects India's aspirations as a superpower. The rising powers are represented by the BRIC countries of Russia and Brazil which reflect the rise of the emerging markets.

Compared to the economic superstars India is almost unfathomably far behind. The TN/HP average 15 year old is over 200 points behind. If a typical grade gain is 40 points a year Indian eighth graders are at the level of Korea third graders in their mathematics mastery. In fact the average TN/HP child is 40 to 50 points behind the worst students in the economic superstars. Equally worrisome is that the best performers in TN/HP - the top 5 percent who India will need in science and technology to complete globally - were almost 100 points behind the average child in Singapore and 83 points behind the average Korean - and a staggering 250 points behind the best in the best.

As the current superpowers are behind the East Asian economic superstars in learning performance the distance to India is not quite as far, but still the average TN/HP child is right at the level of the worst OECD or American students (only 1.5 or 7.5 points ahead). Indians often deride America's schools but the average child placed in an American school would be among the weakest students. Indians might have believed, with President Obama, that American schools were under threat from India but the best TN/HP students are 24 points behind the average American 15 year old.

Even among other "developing" nations that make up the BRICs India lags - from Russia by almost as much as the USA and only for Brazil, which like the rest of Latin America is infamous for lagging education performance does India even come close - and then not even that close.

To put these results in perspective, in the USA there has been huge and continuous concern that has caused seismic shifts in the discourse about education driven, in part, by the fact that the USA is lagging the economic superstars like Korea. But the average US 15 year old is 59 points behind Koreans. TN/HP students are 41.5 points behind Brazil, and twice as far behind Russia (123.5 points) as the US is Korea, and almost four times further behind Singapore (217.5 vs 59) that the US is behind Korea. Yet so far this disastrous performance has yet to occasion a ripple in the education establishment.

 Table 1: Comparing Indian (Tamil Nadu and Himachal Pradesh) students mastery of mathematics to economic superstars, current superpowers, and rising superpowers Country/Region 5th mean 95th HP+TN average to comparator average HP+TN average to comparator 5th percentile HP+TN best (95th) to comparator's average HP+TN best (95th) to comparator's 95th Points TN/HP is behind (-)/ahead(+) Economic Superstars Singapore 383 562 725 -217.5 -38.5 -99 -262 Hong Kong 390 555 703 -210.5 -45.5 -92 -240 Korea 397 546 689 -201.5 -52.5 -83 -226 Current Superpower OECD avg. 343 496 643 -151.5 1.5 -33 -180 USA 337 487 637 -142.5 7.5 -24 -174 Rising Superpowers Russia 329 468 609 -123.5 15.5 -5 -146 Brazil 261 386 531 -41.5 83.5 77 -68 Indian States Tamil Nadu 241 351 468 Himachal Pradesh 223 338 458 Average of TN and HP 232 344.5 463 Source: PISA 2009 Plus Results, Table B.3.1 for first three columns and author's calculations.

I have emphasised Mathematics because many believed math was an Indian strong suit. The results for reading and science are similarly bad. Table 2 shows science results in a different format, which shows the proportion of children in various categories of performance. There are three points:

1. "Below level 1" doesn't even have a description as it implies that so little proficiency is demonstrated it is impossible to distinguish from not knowing anything at all. In the USA, even with its socio-economic and racial inequalities and language inequalities and its failing inner city schools, only 4.2 percent are in this category. In HP 57.9 percent of 15 year olds in school cannot be distinguished from not having learned any science at all and in TN 43.6 percent all in this category - ten times as many as the USA.
2. PISA considers "level 2" as the minimum level that provides the science competencies that will enable them to participate actively in life situations related to science and technology. Since more than 80 percent of students in both HP and TN are level 1 or below this most students in these states have reached age 15 ill-equipped for the century they will face.
3. While a thin elite that competes for the few highly selective technical institutes are globally competitive, this is a tiny fraction of the population. The estimate of the fraction of TN or HP students at level 6 in science proficiency was zero. Their estimate of the fraction at level 5: also zero. Of course this does not mean there are not such students in these states, of course there are, just that from the samples available in the study the best estimate was so small as to be indistinguishable from zero.

 Table 2: Comparison of science proficiency in Tamil Nadu and Himachal Pradesh to India's aspirations Country/Region Below level 1 Level 1 1 Level 5 5 Level 6 6 Singapore 2.8 8.7 15.3 4.6 Hong Kong 1.4 5.2 14.2 2 Korea 1.1 5.2 10.5 1.1 OECD avg. 5 13 7.4 1.2 USA 4.2 13.9 7.9 1.3 Russia 5.5 16.5 3.9 0.4 Brazil 19.7 34.5 0.6 0 Tamil Nadu 43.6 40.9 0a 0a Himachal Pradesh 57.9 30.9 0a 0a Source: PISA 2009 Plus Results. Description of levels Table 3.2, percentages Table B.3.4. 1) At Level 1, students have such a limited scientific knowledge that it can only be applied to a few, familiar situations. They can present scientific explanations that are obvious and follow explicitly from given evidence. 5) At Level 5, students can identify the scientific components of many complex life situations, apply both scientific concepts and knowledge about science to these situations, and can compare, select and evaluate appropriate scientific evidence for responding to life situations. Students at this level can use well-developed inquiry abilities, link knowledge appropriately and bring critical insights to situations. They can construct explanations based on evidence and arguments based on their critical analysis. 6) At Level 6, students can consistently identify, explain and apply scientific knowledge and knowledge about science in a variety of complex life situations. They can link different information sources and explanations and use evidence from those sources to justify decisions. They clearly and consistently demonstrate advanced scientific thinking and reasoning, and they demonstrate willingness to use their scientific understanding in support of solutions to unfamiliar scientific and technological situations. Students at this level can use scientific knowledge and develop arguments in support of recommendations and decisions that centre on personal, social or global situations. a) In Table B.3.4 these are reported as blank but the estimated percentages in below 1 to level 4 sum to exactly 100 percent. Obviously this not imply that there are exactly zero students in all of these two states meeting these levels but that with the sample sizes assess students of 1616 in HP and 3210 in TN there was insufficient information to create a non-zero estimate.

These results on PISA 2009+, while tragic for what they imply for Indian youth and perhaps shocking to newcomers to this subject, come as no surprise to those who have been working on basic education in India:

• Das and Zajonc (2008) used results from Orissa and Rajasthan to create indices on mathematics performance similar to those of TIMSS (Trends in Mathematics and Science Study) and found these states near the bottom of the global rankings.
• Educational Initiatives carried out an 18 state study using sophisticated testing instruments and found levels of performance on TIMSS comparable items that were stunningly lower. For instance on the open ended question "Write a fraction larger than 2/7" less than 30 percent of Indian students in standard 8 could answer correctly compared to more than 70 percent internationally.
• The APRest study led by Karthik Muralidharan and Venkatesh Sundararaman in rural AP asked the same questions of students in grades 2 to 5 and found very slow rates of learning progress.
• The results year after year from the ASER [2010 2009] study supported by Pratham find that significant fractions of students in Standard 8 cannot master even Standard 2 curricular basics. In rural areas nationwide a third of children in grade 8 could not do a simple division problem and almost 20 percent could not read a level 2 text. The 2011 results, due out in a few weeks will show continued stagnation or even retrogress in learning.
• Numerous studies by MIT's JPAL, World Bank, NCAER/University of Maryland and other researchers found levels of performance that were shockingly low compared to curricular expectations.

These PISA 2009+ results are the end of the beginning. The debate is over. No one can still deny there is a deep crisis in the ability of the existing education system to produce child learning. India's education system is undermining India's legitimate aspirations to be at the global forefront as a prosperous economy, as a global great power, as an emulated polity, and as a fair and just society. As the beginning ends, the question now is: what is to be done?