Narayana Murthy- Bill Gates of India

N. R. Narayana Murthy- a true Indian hero.

"I want to be remembered as a fair person...nicety I don't care"

He attributes the success of the firm to the reforms of 1991.

Related;
Infosys Foundation

The industrial revolution and the democratic transition

The industrial revolution and the democratic transition. -- Aubhik Khan

In the 19th century, the United Kingdom began a period of economic transformation known as the Industrial Revolution. It’s commonly believed that this era opened as new inventions improved the technologies used to produce goods and provide services. However, we now know that such improvements affected only a relatively small part of the economy. Nonetheless, output rose during the first stage of the Industrial Revolution because of capital accumulation. One explanation for this increase in capital may be that another revolution occurred in Britain around the same time: the demographic transition. In this article, Aubhik Khan outlines some evidence on the Industrial Revolution and the demographic transition, then presents two economic theories that link the two phenomena.

Econ Talks

Ian Ayres talks to Owen Bennett-Jones of BBC

McCloskey on Capitalism and the Bourgeois Virtues

A Happy St. Patrick's Day

And Thank you all the commentators on this blog- I've collected a sample of them below;

Chris Blattman;

As usual, it's like being a kid in a candy store. I'm awed by the volume of high-quality daily links in general. Thanks!

Maynard;

And once again I ask why it is that economists, who are supposedly trained in mathematics, seem unable to handle the most basic units properly.

The unit of electrical power usage is (kW h/a), ie kilowatt hours/annum, NOT kW/h.
(There are alternative ways to write this, of course. You could write J/a, or you could write W, or you could even use kJ/h though neither would be especially natural. The one you cannot write is kW/h.)

Luis Enrique;

On the one hand I find your blog incredibly useful, on the other hand I never get any fricking work done because I am always following links and reading stuff I found here.

On Solow reviews A Farewell to Alms;

Isn't Solow basically missing Clark's point?
I haven't read the book yet, just heard Clark talk about it, but at least one of his points is that, contrary to the sneering of various left and right-wing types, Malthus was basically correct --- the story of humanity until the Industrial revolution was of whatever improvements were made to productivity being dissipated in increased population.

By these lights, what is significant in Europe during the 19th century was that a set of cultural conventions arose that did NOT lead to increased wealth being translated into 12 babies per woman.
(To be fair, it certainly helped that huge stretches of the world "opened up" as places to dump excess Europeans, rather to the detriment of those who had previously been living there. I'd be interested to see the numbers as to whether it was this or controlled fertility that was moer important in preventing a Malthusian squandering.)

This could, for example, be used as a foil to Solow's claim regarding China --- China deliberately and methodically forced its citizenry away from a Malthusian trajectory, regardless of what the underlying culture may have wanted. Likewise one could argue that this is, perhaps, part of Africa's problem --- that they are still stuck in that world --- or at least they were until AIDS came along, and killing productive people, after they have spent 18 years or so as unproductive kids is hardly the way to resolve the issue, and can't be compared with the required situation of having fewer kids in the first place.

On Watch A Beautiful Mind on You Tube;

The Noncooperative Game in A Beautiful Mind
The movie suggests that a motivating example for the discovery of Nash equilibria might have been the strategies of five suitors most attracted to the same woman in a group of five. As suggested by the movie's visuals, positive outcomes occur only when each woman is approached by one suitor. In the two-person version of this game, each of two suitors, say John and Martin, decides with what probability, say x and y respectively, he will approach the more attractive of two women. The expected payoff to John is xa(1 – y) + (1 – x)by, where a > b > 0 since John prefers the more attractive woman. Likewise the expected payoff to Martin is (1 – x)cy + xd(1 – y), where c > d > 0. Two Nash equilibria for this game, as suggested in the movie, occur when x = 1 and y = 0 (with payoffs a and d) or when x = 0 and y = 1 (with payoffs b and c). The only other Nash equilibrium is when x = c/(c + d) and y = a/(a + b) (with payoffs ba/(a + b) <>

Ross Emmett's Teaching Philosophy

I can't resist responding, since this is my teaching philosophy that was just called "stupid"!

The story was used in my statement of teaching philosophy as an illustration of my approach. The approach itself is explained in my statement, giving a justification that runs in terms of what my goals in the classroom are. Those goals are not the impartation of knowledge or telling the students what to think. Instead, my purpose is to help students ask better questions, make arguments that reflect the complexity of issues, and use the tools they have effectively.

A Question to Tyler Cowen, Dani Rodrik and Greg Mankiw

When we are lectured about economics, I hope that we do not take it as the Gospel, rather, we treat it as something to be discussed. I would hope that a lecture on ethics and moral choice would be treated in the same manner, not as indoctrination. The moral consequences of the application of economic policies can be far reaching, and these consequences should, at the very least, be featured in a graduate program designed to send people out into the world as important decision makers.

How to be a jack of all development trades;

Well, I wouldn't necessarily say that the Harvard MPA/ID is the best development curriculum in the world. I wanted to speak of an econ-intensive, development focused masters degree. I think these other programs would be fine substitutes. I'd hate to sound like one of these obnoxious Harvard grads you see in the movies (and, every so often, at Harvard).

Even standard MPA programs can be transformed into something development focused and rigorous at many schools.

Kiss of Death vs eating GDP;

I'm with Gates, but that's because The White Man's Burden is a bitter, nasty book, rent of context, self-inconsistent, and starts by ranting more about the Evil of Jeffrey Sachs and throwing out bogus and ad hominem attacks on Sachs more than even pretending to make a case.

I expected better from the author of The Elusive Quest for Growth.

Governance Blogs;

Thanks for the heads up about Kaufmann's blog, which is good, judging by the first set of posts so far. He is already challenging convention and political correctness even if he works at the World Bank, providing information, and a bit of fun. And also worth checking out a new article on economics and rule of law in the current issue of The Economist, featuring Kaufmann's work with his colleagues and also the research of other noted economists.

The best comment for the last;


Operationalizing 'Agriculture for Development '

Google has become sophisticated providing translation software. But the search engine hasn't even tried to help us mortals with translating World Bank language into readable English. They know better. What were you thinking when posting this? The long text content speaks for itself, but just look at their title. 'Operationalizing' means what? 'Agriculture for Development' is a wonderful redundancy. Or meant to distinguish it from Agriculture for McCain? Duh.

Spinning Adam Smith

Greg Clark reviews a book;

In Adam Smith in Beijing (Verso, 2007), Giovanni Arrighi, an economic sociologist at the Johns Hopkins University, sees the rise of the East as representing an opportunity to escape an international order based on oppression and exploitation. In the Arrighi cosmology, a ruling class of capitalists, first in Britain, then in the United States, has dominated the world since the Industrial Revolution, having their wicked hegemonic way with the weak. The riches of the West were created by the oppression of the rest.

Arrighi, along with Samir Amin, Andre Gunder Frank, and Immanuel Wallerstein, is one of the leaders in world-systems theory. This school has extended Marx's idea of exploitation within societies to international relations. Trade between rich and poor countries is not equal exchange, according to this view, but instead systematic exploitation of the poor. Arrighi's earlier books, particularly The Long Twentieth Century: Money, Power, and the Origins of Our Times (Verso, 1994), are widely cited. This latest work, however, illustrates why world-systems theory has found little purchase except in the most intellectually undemanding environments (including, apparently, sociology departments).

In 1800, China, before being overwhelmed by the military might of the West in the 19th century, had attained as high a level of economic development as Europe, Arrighi argues. But unlike Europe, Chinese growth did not depend on the exploitation of subordinate classes and countries. Militarily defeated, however, late imperial China was forced into subordination, and thus impoverishment, by the hegemons.

The Communist Revolution in China eventually created "extraordinary social achievements," as Arrighi puts it, in literacy and health care in the Mao era that laid the foundation for recent economic growth. China has now returned to its earlier, noncapitalist, nonexploitative economic system: "accumulation without dispossession," in Arrighi's parlance. As its income has risen, China has emerged as an economic and political competitor to the United States in international relations. It now offers to poor societies, he says, "attractive alternatives to the trade, investment, and assistance of Northern countries."...

The likely success of the Chinese model, he predicts, will mean that the United States will not be able to "impose coercively upon the world its right to an extravagant way of life." In other words, the rise of China will imply a decline in American living standards as cooperation internationally replaces exploitation.

How does the Adam Smith of the title enter this story? Arrighi wants to show that, ironically, modern Chinese growth represents the true fulfillment of Smith's vision in The Wealth of Nations.

In Arrighi's interpretation, Smith, the champion of capitalism and individual freedom, so beloved of the right, turns out to have been an enemy of unfettered liberty, and instead a friend of the Chinese bureaucratic-capitalism vision of growth. Milton Friedman, the Chicago School, and the whole economics establishment completely misread him. He was not an advocate of limited government and free markets.

Rather, Arrighi would have it, Smith's main concern was the promotion of big government as a constraint on the evils of the market: "The dogmatic belief in the benefits of minimalist governments and self-regulating markets … were completely alien to Smith." Further, Smith saw, even in 1776, "China rather than Europe as a model of the kind of market-based economic development that was most advisable for governments to pursue." The Chinese model was to be preferred because it was a natural, inward-focused growth as opposed to the unnatural trade-driven growth of Europe, which relied on the expropriation of the raw materials of the rest of the world. The recent reforms of the Chinese economy also follow the approved Smithian path, Arrighi writes: "As Smith would have advised, Deng's reforms targeted the domestic economy and agriculture first."

How plausible is Arrighi's interpretation of the current juncture of West and East?

A crucial failure in Arrighi's thinking is his obsessive misconception that all economic growth in the West since the Industrial Revolution has been provided by the brains and brawn of the dispossessed of the developing world. Yet generations of research by economic historians — David Landes, Deirdre McCloskey, and Joel Mokyr, among others — show that the wealth of the West was homegrown, the result of a stream of Western technological advances since the Industrial Revolution.

Arrighi, for example, reflexively assumes that in the 19th century "Indian workers were forcibly transformed from major competitors of European textile industries into major producers of cheap food and raw materials for Europe." In fact, technological advances in England, not any compulsion by colonial profiteers, drove out the much cheaper Indian workers from the cotton-textile industry. The East India Company, the ruler of much of India until the end of the Industrial Revolution, had every interest in maintaining the export of Indian muslins, one of the most valuable Indian exports in 1760.

Similarly the United States became an industrial colossus in the early-20th century through advances in techno-logy that included an ability to extract from American soil all the raw materials needed for its growth. Only in the late-20th century did imports of raw materials become of any importance.

Arrighi's basic misconception leads him to conclude that growth among the rest must imply decline for the West. But the last 20 years, when significant growth has occurred both in China and in India, have been prosperous ones for the United States as well. Real income per person in America has increased by 50 percent in those years, despite the rise of China and India. That rate of increase is similar to the rise between 1950 and 1987, when China and India stagnated. There is no sign that the rise of the East is clawing back the growth of the West. That is because the overwhelming source of growth in the United States is technological advance within the U.S. economy.

The growth of the Chinese and Indian economies will exert pressure on U.S. incomes through the increased demand in the world economy for commodities — most important, oil. If everyone in the world were to consume as much oil as Americans do now, then world oil output would have to be more than five times greater than at present. As Chinese demand for oil has risen, China has been aggressively seeking supplies of oil in Africa and the Middle East, doing deals with countries hostile to the United States such as Iran and Sudan.

But even in that regard, the Chinese impact on American incomes through higher commodity prices will be modest. Even at current prices of roughly $100 per barrel, annual U.S. imports of oil are still less than 4 percent of national income. A further doubling of oil prices, to $200 per barrel, assuming we used just as much oil per person as at present, would consequently reduce U.S. income by less than 4 percent. But since technological advance is increasing income by more than 2 percent per year, that hit to the American economy would be compensated for by less than two years of normal growth.

And there is plenty of room for economizing if oil becomes permanently much more expensive. Currently in America we consume the equivalent in energy of six gallons of gas per person per day. But energy is even now so extravagantly cheap that most of it is squandered. We drive huge distances at the slightest pretext, in giant, gas-hungry vehicles. We live in cavernous houses — the average person in the United States, including each child, has 900 square feet of expensively conditioned, mostly unused space. Towns sprawl across the landscape so that the only way to get to work or to shops is by car. Sidewalks have disappeared in some locations as useless adornments from a bygone age.

Some countries in Europe, such as Denmark, which have by public policy made energy much more expensive, already use only the equivalent of about three gallons of gas per person, with little cost in terms of living standards. Over the long run, even more substantial reductions in oil usage are feasible at modest cost. So however big the future Chinese impact in world commodity markets, a perfectly satisfactory living standard will be feasible. The rise of China and India, with 2.4 billion people between them, is hastening an energy-scarce future. But that future is not one we need fear.

Arrighi's assessment that China now offers poor societies "attractive alternatives to the trade, investment, and assistance of Northern countries" seems a conclusion that only the most ideologically blinkered could hazard. In recent years, Europe and the United States have switched, at least outwardly, to a policy emphasizing the promotion of democracy, human rights, and transparency in their relations with poor countries. There has been reluctance to draw up agreements with governments for access to raw materials when those countries' ruling cliques will appropriate most of the benefit. China's aid and trade policies in contrast have been exclusively rooted in its own economic interests, which in the case of poor economies typically lie in access to raw materials. There has been minimal concern with who actually benefits from these deals.

China has had little scruple in doing deals with corrupt or oppressive governments. It maintains friendly relations with the Myanmar junta, for example, acting as their main arms supplier and trading partner. Myanmar exports raw materials, mainly timber, to China, and it imports manufactured goods. But that pattern of trade is exactly what Arrighi so vigorously laments in the West-rest trade of the previous two hundred years.

In Africa, China has been happy to arrange deals with the ruling clique to get the oil and timber of the Congo Republic, even though President Denis Sassou-Nguesso (who came to power most recently in a civil war in 1997), his family, and his entourage are notorious for their extravagance with national resources while the masses live in squalor. Sassou-Nguesso attained notoriety by running up a $285,000 New York hotel tab in 2006 on a trip to deliver a 15-minute speech to the United Nations at the same time his country was begging for debt relief from the International Monetary Fund and the World Bank.

Arrighi's interpretation of Smith is as contentious as his views on the modern world. There are many ambiguities in Smith's writings. Smith's comments on China in 1776 are limited, and his knowledge of conditions there was sketchy. But nothing in The Wealth of Nations suggests Smith saw China as a model for Europe to follow. Indeed he saw China as a stagnant society that had exhausted its growth potential...

In summary, the evidence Arrighi offers for his sweeping cosmology is astonishingly thin. The book indeed is little more than an extended anti-market, anti-capitalism, anti-Western harangue. Statements of dramatic import are proffered with little explanation: "The decisive battle to contain the rising power of China is still being fought in Iraq"; the Iraq War "aimed at using military might to establish U.S. control over the global oil spigot"; "China is not a vassal of the United States, like Japan or Taiwan."

A Brief Economic History of the World

A course on economic history using Greg Clark's book- taught by Barry Eichengreen- The Mastery of Nature:A Brief Economic History of the World

The "text" for this course is Gregory Clark's A Farewell to Alms: A Brief Economic History of the World (Princeton University Press, 2007). We will read a portion of Clark's book every week in order to understand how economic historians think about the big issues of growth, stagnation, development and underdevelopment in the very long run. This book will be supplemented by other readings. Students will be aware that there are two kinds of textbooks. First, those in which the author purportedly suppresses his personal opinions and provides a digest of "the facts" as they are understood by scholars. Second, those in which an opinionated author alerts his readers to unsettled controversies and prompts further reflection. Clark's book is the second sort. Students should not expect to find conventional wisdom and easy answers. But those who bear with it will be stimulated to think further.

Related;

The Industrious State

In conclusion, Gregory Clark has given us a provocative work. It is economic history, but it has strong implications for contemporary problems. His quantitative techniques for demonstrating such phenomena as the innumeracy of pre-industrial humanity and the evolution of the speed of information flows are clever. However, the contest between institutional accounts of economic performance and Clark's cultural explanation is probably best resolved through a synthesis. Clark's attempt at a winner-take-all for cultural Darwinism falls short.