Tyler Cowen: Forget Europe. Worry About India.

… these economically segregated islands of higher productivity suggest that success is achieved by separating oneself from the broader Indian economy, not by integrating with it.

India continues to have very sticky institutional problems. So argues Tyler Cowen in this NYT op-ed. Standout examples:

  • the reluctance to wholeheartedly embrace advanced agriculture, including GMO opportunities
  • the “license Raj” seems to be returning to “one of the world’s most unwieldy legal systems”
  • free markets are more the exception – example Wal-Mart has been given the cold shoulder

 Imagine how Wal-Mart would stimulate logistics and retail innovation! On agriculture Tyler wrote:

Agriculture employs about half of India’s work force, for example, yet the agricultural revolution that flourished in the 1970s has slowed. Crop yields remain stubbornly low, transport and water infrastructure is poor, and the legal system is hostile to foreign investment in basic agriculture and to modern agribusiness. Note that the earlier general growth bursts of Japan, South Korea and Taiwan were all preceded by significant gains in agricultural productivity.

For all of India’s economic progress, it is hard to find comparable stirrings in Indian agriculture today. It is estimated that half of all Indian children under the age of 5 suffer from malnutrition.

This is fundamentally the outcome of a dysfunctional political scheme. One possible way out is to launch one, hopefully several, of Paul Romer’s Charter Cities. The hungry, hard-working labor is certainly nearby and eager to migrate into such cities for better jobs. Is there suitable coastal land, appropriate for new links to global trade?

A Deadly Triangle: Afghanistan, Pakistan and India

The hostility between India and Pakistan lies at the heart of the current war in Afghanistan. Most observers in the West view the Afghanistan conflict as a battle between the U.S. and the NATO-led International Security Assistance Force (ISAF) on one hand, and al-Qaida and the Taliban on the other. In reality this has long since ceased to be the case. Instead our troops are now caught up in a complex war shaped by two pre-existing and overlapping conflicts: one local and internal, the other regional.

Within Afghanistan, the war is viewed primarily as a Pashtun rebellion against President Hamid Karzai’s regime, which has empowered three other ethnic groups—the Tajiks, Uzbeks and Hazaras of the north—to a degree that the Pashtuns resent. For example, the Tajiks, who constitute only 27% of the Afghan population, still make up 70% of the officers in the Afghan army.

(…snip…)

The Pashtuns had held sway in Afghan politics ever since the state assumed its current boundaries in the 1860s. By aligning with the Tajiks of the northern provinces against the Pashtuns of the south, the U.S. saw itself making common cause with the forces of secularism against militant Islam; but it was unwittingly taking sides in a complex civil war that has been going on since the 1970s—and that had roots going back much further than that. To this day, because the Pashtuns feel dominated by their ancestral enemies, many support or at least feel some residual sympathies for the Taliban.

There is also an age-old Pashtun-on-Pashtun element to the conflict. It pits Taliban from the Ishaqzai tribe, parts of the Nurzais, Achakzais, and most of the Ghilzais, especially the Hotak and Tokhi Ghilzais, against the more “establishment” Durrani Pashtun tribes: the Barakzais, Popalzais and Alikozais.

Beyond this indigenous conflict looms the much more dangerous hostility between the two regional powers—both armed with nuclear weapons: India and Pakistan. Their rivalry is particularly flammable as they vie for influence over Afghanistan. Compared to that prolonged and deadly contest, the U.S. and ISAF are playing little more than a bit part—and they, unlike the Indians and Pakistanis, are heading for the exit.

(…snip…)

In the eyes of the world, never has the contrast between the two countries appeared so stark as it is now: one is widely perceived as the next great superpower, famous for its software geniuses, its Bollywood babes, its fast-growing economy and super-rich magnates; the other written off as a failed state, a world center of Islamic radicalism, the hiding place of Osama bin Laden, and the only ally of the U.S. whose airspace Washington has been ready to violate and whose villages it regularly bombs. However unfair this stereotyping may be, it’s not surprising that many Pakistanis see their massive neighbor as threatening the very existence of their state.

(…snip…)

For the Pakistani military, the existential threat posed by India has taken precedence over all other geopolitical and economic goals. The fear of being squeezed in an Indian nutcracker is so great that it has led the ISI to take steps that put Pakistan’s own internal security at risk, as well as Pakistan’s relationship with its main strategic ally, the U.S. For much of the last decade the ISI has sought to restore the Taliban to power so that it can oust Karzai and his Indian friends.

To achieve this goal, the Pakistani military has relied on “asymmetric warfare”— using jihadi fighters for its own ends. This strategy goes back over 30 years. Since the early 1980s, the ISI has consciously and consistently funded and incubated a variety of Islamic extremist groups. Pakistani journalist Ahmed Rashid calculates that there are currently more than 40 such extremist groups operating in Pakistan, most of whom have strong links with the ISI as well as the local Islamic political parties.

(…snip…) 

Pakistan-watchers are unanimous that, while Kayani is mindful of the Taliban threat in his own country, his burning obsession is still India’s presence in Afghanistan. As I was told by a senior British diplomat in Islamabad, “At the moment, Afghanistan is all [Kayani] thinks about and all he wants to talk about. It’s all he gets briefed about and it’s his primary focus of attention. There is an Indo-Pak proxy war, and it’s going on right now.” 

Excerpts from the The Brookings Essay by historian William Dalrymple – highly recommended, but definitely not for bedtime reading.

MIT’s Poverty Action Lab: devising cost-effective development interventions

Development economist William Easterly has demonstrated convincingly that most “foreign aid” is ineffective, and often is worse than doing nothing (increasing corruption and dependence). E.g., see Africa’s Poverty Trap and Foreign aid vs. growth: Robert Lucas and William Easterly.

But there are effective interventions – so how do we discover how cost-effective various ideas are? That is the mission of J-PAL at MIT, created by French economist Esther Duflo. J-PAL is applying randomized controlled trials (RCT) as a key input to their cost-effectiveness methodology.

For an example, the above graphic summarizes the results of their Teacher Attendance & Incentives program. I like this example because it illustrates that some of the most effective ideas are simple and cheap. In this case, providing a basic digital camera to each village school

(…) Esther Duflo, a French economics professor at MIT, wondered whether there was anything that could be done about absentee teachers in rural India, which is a large problem for remote schoolhouses with a single teacher. Duflo and her colleague Rema Hanna took a sample of 120 schools in Rajasthan, chose 60 at random, and sent cameras to teachers in the chosen schools. The cameras had tamper-proof date and time stamps, and the teachers were asked to get a pupil to photograph the teacher with the class at the beginning and the end of each school day.

It was a simple idea, and it worked. Teacher absenteeism plummeted, as measured by random audits, and the class test scores improved markedly.

 FT has an interesting profile of Dr. Duflo (if you don’t mind reading what they had for lunch).

India only: the $35 tablet computer

This sounds sensible on the surface – India packages up an Android tablet with optional mobile broadband. To accelerate widespread internet access. What’s not to like (aside from the probable subsidy)? Here’s Tyler Cowen:

Do you want a tablet but don’t have enough money to buy one of those high-end tablets available in the market today? Here’s some good news for you. There’s a new $35 tablet, the catch is, you can only get it in India.

The new Aakash UbiSlate 7Ci comes equipped with WiFi so you can connect to the internet but if you’re living in India, you can avail of the $64 upgrade and have yourself a cellular Internet package of $2/month for 2 GB of data which translates to roughly 25 emails, 25 websites, 2 minutes of streaming video, and 15 minutes of voice chat a day. It also features voice search, so it might help pacify your need for something similar to Apple’s Siri.

It features a 7.5-inch display, a front facing VGA camera, and a Cortex A8, 1Ghz Processor. According to reports, it’s as fast as an iPhone, so it can’t be too bad. It runs Android but the version hasn’t been specified yet.

The cheap tablet is part of the Indian government’s move to technologically mobilize the country. The first batch of the affordable tablets will hit universities around India sometime this month and via a “special offer”, DataWind, the carrier and maker of the tablet, will offer broadband for a monthly cost of US$1.78. And for those living in remote areas where electricity is sparse, they can get a solar charger for the Aakash UbiSlate 7Ci.

Here is more, and for the pointer I thank Mark Thorson.

Tyler quipped “Perfect for MRU” in his caption. Translation “Perfect for Marginal Revolution University“. Tyler and Alex Tabarrok are on their way to Korea for a MR session.

China: getting old far too fast

In fact, some scholars of the Indian economy are estimating a growth-rate crossover before 2020: when the Indian economy averages higher economic growth than China. And no scholars can usefully estimate political outcomes – how rapidly can India solve its governance problems?

For a look at the dynamics of the Indian economy, please read Edward Hugh, at Econmonitor, whose essay includes the above two graphics.

The relative demographics are huge. China has been benefiting from a bulge of working-age adults. That beneficial trend is now rapidly being reversed as the above charts indicate. Conversely, India is just beginning to benefit from a working-age bulge, which will be smoother and longer-lasting than China’s experience.