Economics and ecologies

This is something that other people, far cleverer than your truly have thought of - however, it is always worthwhile to put some random thoughts down. Consider an economy as an ecology. Most economies will begin as primitive ecosystems - where meagre resources (basic chemicals) will be traded amongst almost lifeless entities. And economies, just like ecosystems, given the right mixture of resources (nutrients) and conditions (an energy surplus, moderate stability in the environment) will evolve. As they do, more complex traits will emerge. At some point, the barter system of trade will become something more sophisticated. A common currency of trade might emerge. In the living world, this is, mostly chlorophyll derived carbohydrates. There will, of course be primary producers, like farmers - or in the biological case, plants. Almost everyone else will use the primary product (crops/carbohydrates) and act as middlemen. At the same time, there will be continue to be niche markets and niche ecologists, such as the lovely anaerobic bacteria which help in fermenting any number of things we love to eat and drink. Think also of the tenacious little buggers (like my old friend Thermus thermophilus) surviving absolutely extreme conditions in volcanic springs like any Glen Beck viewing survivalist who wants nothing to do with trade treaties.

And as every economy grows, it creates a surplus. With a sufficient surplus, there comes the opportunity to do more than merely eke out a living. There will be people who do other things - which, in turn can accelerate the rate of development. The first person to make a wheel was perhaps greeted with the same derision that the first sea-dweller who liked hanging out on beaches was subjected to. There might even be a critical mass, a tipping point for every economy and every ecology after which the rate of growth increases and increases.

And inevitably, in both systems, there will be predators. And there will be predators of predators, superspecialized creatures which usually represent the current peak of development in that system. But such apex predators can only survive when their footprint, their constituency, or simply put, their garden isn't wiped clean. If these predators kill everything that sustains them, then the whole system collapses. Probably examples are many current deserts. (side note- does the goat count as an apex predator, when protected by the benign hands of humans?)

I leave it to your active imagination to think of hedge fund managers as apex predators in today's economy and why their untrammeled greed can lead to the undoing of a functional economy which has taken a long time to build up.

But, before leaving, two links which are the reason I started thinking about such things: the first concerns the use of cellphones as a barter system in Africa - which is a new economic development - and should merit close study. The second is a podcast by Kaspersky's people on frauds in the cellphone economic system. The predators have arrived.

Guest post - on building a tech base

Guest post from the Statesman.
All content belongs to the Statesman, Kolkata - but this is worth reproducing here.

From body shop to hi tech

8 November 2011

The tendency of India’s government and its industrial sector to play safe when it comes to technological invention will prove disastrous in the long run if more emphasis is not put on research and development, writes arunabha bagchi

A new controversy regarding IIT graduates made headlines recently in India. It was sparked off by comments made by Mr Narayan Murthy at the IIT 2011 Global Conference in New York while ruing the poor quality of recent IITs graduates. His contention was that the quality of students gaining admission to the IITs had deteriorated over the years owing to overemphasis on coaching classes. Chetan Bhagat, a well-known writer and an IIT graduate, hit back, wondering how could someone, who ran a “body shop and calls it hi-tech”, make such sweeping comments.
While Bhagat’s observations about Infosys were just as candid as Mr Murthy’s take on the quality of recent IIT graduates, the point worth exploring is whether the perception that IT bellweathers such as Infosys are no more than mere body-shops and not really pioneering centres of technological excellence holds good or not. Newspaper articles and books churned out by American and Indian presses would give a layman the impression that Indians are giving a tough competition to Americans in the technology race with only the Chinese still in the reckoning. Japan and Europe already seem to have disappeared from the picture. A glance at an article titled Special Report: Technology in India and China that appeared in the 8 November, 2007 issue of The Economist, made it clear that outside of the pharmaceutical and software sectors, India finds hardly any mention. Our technology handicap in other sectors of the world economy cannot be more glaring. What is also surprising is that while the article lauded the remarkable success of the Indian pharmaceutical industry and had special words of praise for Biocon, to name a few, it pointed out: “Few Indian firms are creating drugs, rather than recreating them.” Furthermore, according to The Economist, exports of indigenous software comprised a tiny fraction of the Indian IT industry’s total service exports. Most telling was the comment of the then head of the National Association of Software and Services Companies (Nasscom), Mr Kiran Karnik: “…companies are either born as product companies or as service companies, not both. Scribes want to become better scribes. To be a poet, you probably need to be born as one”. This is likely what Bhagat had in mind when he had reacted to Mr Muthy’s comments. Why should we then bother about the deteriorating quality of IIT engineers? The truly bright among the IIT graduates should be busy inventing products for companies in the West. Perhaps the not-so-brilliant ones would serve India’s interests better!
How does one then reconcile this scenario with the barrage of good Press that the “India story” seems to be enjoying? Well, it would seem that this had been made possible by a twist in the tale provided by desi and phoren business gurus. They put the thrust on “innovation”, as opposed to “invention” to forecast India’s continuing high growth in the foreseeable future. Roughly speaking, innovation has three levels: “know how”, “know why” and “invention”. “Know how” means learning and tweaking the production process, better quality control, making slight adjustments to the technology already in use and adopting other minor measures to improve business performance. “Know why” involves delving into the technology in use and improving the design by trial and error. This is commonly known as “reverse engineering”. The third level, of course, is genuine technological invention. In fact, a subtitle in the 8 November, 2007 issue of The Economist suggests: “A new way of mixing existing technologies is also innovation.” The argument often advanced is that India has unlimited potential in this broad area of technological innovation.
In fact, the World Bank and other organisations advise India against making large investments in technological inventions. A report put out by one such organisation argues that traditional companies in India are so inefficient that just improving the functioning of a vast majority of them in order to bring them to the level of the few well-run ones would increase India’s production by five-fold. So, the World Bank and other moneybags of the world recommend that India remain in the “know how” stage and protect the impressive growth rate witnessed during the last decade without disturbing the status quo. But, given India’s lack of “inclusive innovation”, this growth model is bound to hit a wall in the medium term. International experts do not advise India to even dabble in the “know why” stage of innovation. The argument is that the “know why” stage does not give much of an immediate return though it is, of course, an essential step to reach the invention stage that guarantees an enormous return ~ something enjoyed by the developed economies. India is warned again and again that any policy favouring investment in invention would be very expensive, highly uncertain and unnecessarily stressful.
So, how does India fare by international standards in the matter of technological innovation? The World Competition Index: 2011-2012 prepared by the World Economic Forum puts India in the 38th place in the field of “Innovation” ~ way above Pakistan but nothing to write home about. A closer scrutiny makes it clear that India would have done far worse but for the economic meltdown of the former USSR and some Soviet bloc countries during the 1990s. But India is advised to remain optimistic. For any country, optimism of such a nature is derived from its level of “technological readiness” or, the current state of human resources in a country deemed necessary for successful absorption of new technologies. Another glance at the World Competition Index: 2011-2012 made it clear that India has very little to be optimistic about for the simple reason that it ranks 93rd under the head “Technological Readiness”. In fact, in terms of both innovation and technological readiness, India is doing no better than Indonesia ~ a country that is rarely mentioned by business gurus.
India’s poor performance in technological readiness is a very serious matter and needs a separate discussion. It will be appropriate at this stage to recount India’s efforts to develop innovative technology since Independence. Even before Independence, top Indian scientists had been making plans. The final strategy adopted was two-fold: to develop strategic technologies and to help foster indigenous technologies for both capital and consumer goods through import substitution. The first strategy led to the birth of Bhaba Atomic Research Centre (Barc) and the Indian Space Research Organisation (Isro). The success of both Barc and Isro is now well known. The only pity is that the technology developed in these centres did not appear to have much of a spin-off effect on the industry as it happens in developed countries. To implement the second strategy, diverse government-run research centres were set-up under the aegis of the Council for Scientific and Industrial Research (CSIR). Research undertaken in these centres had only a marginal impact on the private sector. Big companies catering to sheltered markets were not particularly interested. And, import substitution efforts resulted in horrible inefficiency, obsolete technology, shoddy products and the license raj.
There was also a parallel effort by the government to create a technologically-trained workforce by setting up a number of IITs, complemented by National Institutes of Technology and other engineering colleges. India’s best and the brightest were attracted to IITs because of their world-class facilities. Some of the IIT graduates went on to become highly-successful engineers and scientists abroad, mostly in the USA. The opportunities for successful invention offered by the Indian industry were, however, limited. So, in effect, India eventually gave some very expensive gifts to the West. No wonder, IITs received universal acclaim and the attention of multinational corporations.
With economic liberalisation, efforts were undertaken by the government to provide fiscal incentives for research and development (R&D) in the private sector at the expense of R&D in government-run research institutions. As such, one would expect the private sector to invest more in R&D in the new economic climate. Expenditure on R&D as a share of the gross national product (GNP) is an important indicator of a country’s level of innovation. In the case of India, this share steadily increased from 0.17 per cent in 1958-59 to 0.98 per cent in 1987-88 and thereafter started declining before settling around 0.8 per cent. This confirms the general perception that India’s technology remains primarily in the “know how” stage, despite the fact that huge profits made after economic liberalisation by Indian companies have given them the wherewithal to move into the “know why” stage. We know that Japan, and later South Korea and Taiwan, deployed the “know why” strategy extremely successfully in the years following World War II. It would seem that the only exception to the rule has been delivered by India’s pharmaceutical industry that has clearly crossed over to the “know why” stage.
While writing this article, I tuned in to the BBC World Service just when the presenter was announcing that Europe’s first satellite-navigation (sat-nav) spacecraft, developed as part of its Galileo mission, had been launched into orbit. This sat-nav system is Europe’s answer to the GPS system ~ developed originally for defense, and now used widely for civilian purposes all over the world ~ put into orbit earlier by the USA. I recalled that at the planning stage of the Galileo mission, the USA had put every conceivable pressure directly and indirectly through Great Britain, to dissuade the European Union from going ahead with the mission. The argument advanced was that the GPS system was available to everyone for free and to try to develop an alternative system would be very expensive, highly uncertain and unnecessarily stressful. Sounds familiar? The stance of European Commission’s Vice-President Mr Antonio Tajani, as reported on the BBC website could not have been clearer. “Galileo is at the heart of our new industrial policy,” Mr Tajani said once the separation (of satellites from rockets) confirmation had come through. “We must commit very strongly to Galileo. We need this; this not entertainment. This is necessary for the competitiveness of European Union.”
When will policymakers and business leaders show the same determination in India? To not move our focus beyond the “know how” stage in order to play safe with economic growth will prove disastrous in the long run. Our nuclear and space research must find a resonance in the industrial sector. Even more important is to develop an indigenous defense industry with a strong research base. The civilian spin-off of defense technology would give a big boost to new inventions and the private sector can play a major part in this endeavour. Indian business houses must spend far more on R&D than they do at the moment. The ultimate key is in forming a research triangle involving universities, government-run research institutions and the private industry so that India’s “Innovation” ranking climbs steadily. Only then will India be able to shed its “body shop” sensibilities and put its economy on the “hi-tech” track.

The writer is ex-dean and professor of applied mathematics at University of Twente, The Netherlands