On Indian federalism and economics, Indian media & lack of competition, Chinese R&D in applied sciences, the wisdom of Audrey Tang, and first drafts / early work
Interesting Links: October 25, 2020
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Two interesting posts by Advait Moharir, a Masters student in economics, about the drivers of India’s debt-to-GDP ratio, and India’s federalism and the woes of its states.
The first one explains that from the perspective of a country’s debt-to-GDP ratio, what matters isn’t necessarily total new borrowings but the interest rate on its existing borrowings relative to its economic growth rate. He makes the case that what is necessary for India as it navigates the pandemic and the years beyond is ensuring that it can borrow cheaply and maintain (or, rather, recover) high growth rather than limiting new borrowing. For example, he concludes:
What is the policy lesson from all this? The key insight is that reducing the cost of borrowing is more effective in stabilizing the debt ratio than cutting spending. At the same time, a revival in growth is essential for the debt ratio to stabilize, and prevent debt-deflation. An active fiscal policy, supported by generous stimulus packages is what India needs most of all now While the monetary authorities in India have been fairly active and supportive — with repeated rate cuts and moratoriums on loans — the government has been passive. With the economy already in recession, a well-targeted spending programme is essential to complement the central bank’s efforts — this will help generate employment, and also stabilize the debt ratio.
The second article is the more important one I think. It makes the point I’ve been repeatedly making: Indian states have virtually no power of their own - they can’t raise taxes on their own, and they can’t borrow money without the Centre’s permission. This has been an ongoing problem ever since the birth of the country to be honest, and its only becoming worse. And it is not surprising that the author reaches such conclusions:
[r]egional inequality will worsen. Poverty in weaker States will entrench. … A state like Maharashtra with favourable dynamics can continue spending unfettered. But a state like Andhra Pradesh will have to maintain a balanced budget, and cut expenditure. A state like Uttar Pradesh, however will suffer the most — it has to maintain a primary surplus (become a net lender!) of almost 1.5%. But it also has to deal with 47,000 plus active cases. As has historically been the case, these disparities will tend to widen and amplify over time.
The author concludes with an optimistic recommendation which is difficult to imagine the Centre ever implementing, yet here we are, time and time again since independence:
Until the pandemic eases at least, all conditionalities on state borrowings from the centre must be removed.
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The Ken write about how Indian media continues to block competition. It’s in a great graphic format that works quite well in keeping the reader engaged, so just go read it instead of my summary/notes. But I can’t resist, so here we go -
In 1955, Nehru created a blanket rule: no foreign funding in any of India’s newspapers, and no foreign newspapers. It stayed this way for a very long time, while the traditional Indian media that those of us here grew up with kept controlling this oligopolistic market.
In 2002, Vajpayee allowed FDI into the print news media - up to 26%. 34 of India’s 50 leading newspapers, with a 76% readership share, opposed this move. Not a surprise. Unlike most of the rest of the world, print media has proven to be a decent money-making business in India.
Like elsewhere, Indian newspapers are reliant on advertising revenue - ₹1-20 cost to produce a newspaper sold at ₹3-5. But another dirty little secret - one of India’s biggest advertisers is the Government, which is another way to exert control over what newspapers publish.
Digital media companies didn’t fall under the purview of this ‘FDI limited to 26%’ rule. Hence the proliferations of outlets like newslaundry, the Wire, etc.
However, in 2018, a bunch of companies formed a coalition called the ‘Digital News Publishers’ Association’. Except none of the members are digital-only companies. The members are media groups like NDTV, India Today, The Indian Express, Hindustan Times, Times Internet, etc. And in 2019, the Government announced that digital media companies now also could not take FDI beyond 26%. The reasons given include curbing Chinese influence in media - except that the same traditional news media organizations continue to raise money from Chinese companies.
And lest you think that advertisers don’t exert a lot of control in Indian media, or that they can be objective or at least independent, here are some insights in how it works:
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The Times Group has a division that offers to place any content that companies want across all its news websites & guarantees coverage.
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The Times Group has another division that solicits equity stakes in companies that it writes about every day, in return for promoting their brands in its newspapers. These equity stakes are worth over $4 billion across 850 companies.
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These traditional media companies continue to themselves raise money from international investors including China’s Tencent. Tencent led a $50 million funding round into Gaana, the Times Group owned music app, thereby owning 35% of the company.
NOW the punchline. Just last week, the government clarified that it’s ‘26% FDI only’ rule also applies to news aggregators, blogs, podcasts, videos. It appears to also apply to local bureaus of international publications. And potentially to the likes fo Google, Facebook, Youtube, and Whatsapp.
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ChinaTalk discusses China’s focus on applied R&D. Emily De La Bruyere talks about how China is predominantly spending on applied science R&D, on mature research rather than on primary research. The US spends big on primary research. Spending on applied rather than primary research at some level means you’re always a step behind. But if you are able to quickly copy a new technology, and especially do so efficiently at scale, it’s not much of a disadvantage at all. On the other hand, investing in applications means investing in infrastructure. And thus not investing adequately in applications means not investing adequately in infrastructure.
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Audrey Tang, Taiwan’s Digital Minister, is interviewed by Tyler Cowen and is interviewed by Azeem Azhar. Couple of choice quotes from the interview with Tyler.
Cowen: What kind of software do we need to make the democracy of the future work?
Tang: …definitely as something that makes the listening at scale work, that makes co-presence work, that enables people who are closest to the suffering amplify their experiences, and so that people with various different backgrounds can empathize with that experience. In short, software that enables listening and feeling scale.
Cowen: Would it be better if smartphones did not have touch screens?
Tang: …if the touch screen is the primary interaction button, then, of course, it builds addiction.
Cowen: How do you think it mattered for Taiwan that democracy and information technology came to the country at more or less the same time?
Tang: Well, of course, that means that we see democracy as a set of technologies, social technologies. To us, technologies are not always industrial; it could also be social. The set of constitutional amendments, of which another one or few is going on right now, shows that even the constitution, the kernel of democracy, is technology — that people can contribute to it just like sending pull requests to the Linux kernel.
Tang: …Isn’t America this grand experiment to keep making mistakes and correcting them in the open and share it with the world? That’s the American experiment.
And from the podcast with Azhar:
Tang: …our President, Dr. Tsai Ing-wen who said a very inspiring statement in her inauguration speech four years ago. She said, “Before we imagined democracy as a clash, a showdown between two opposing values. But nowadays democracy must be calm. A conversation between many diverse values.”
Tang: …When a constitution is a living document, when the participatory tools such as presidential hackathon, sandboxes, participatory budgeting, and so on, are being invented literally every day. Quadratic voting, quadratic funding, and so on, being deployed in a very quick succession, it liberates us from the idea that democracy is just about each person uploading 3 bits every four years, which is called voting, by the way.
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Paul Graham with a new essay on early work.