An Admirable Evasion of Whore-master Man

I believe that a person is at his most pathetic when he makes excuses for his failures and justifies them saying that they are primarily due to circumstances beyond his control. It is not merely an abdication of responsibility but what is worse, it precludes the possibility of corrective behavior. If it was not his fault, there’s no reason for him to change. He believes that when circumstances change, he will not fail.

I call this failure to own up to one’s failure “meta-failure.” I am only too familiar with my failures, and at times I have taken the easy way out by making excuses. But even when I try to fool others by shifting blame away from myself, I am not so deluded as to really believe my own excuses. That leaves me the opportunity of fixing my failures in the future. In other words, I fail but I don’t meta-fail. Redemption is possible but only if one is not asleep or self-deluded.

Shakespeare, as always, puts our unfortunate tendency to deflect blame from ourselves with his usual awesomeness. Listen.

This is the excellent foppery of the world, that,
when we are sick in fortune, (often the surfeit
of our own behavior) we make guilty of our
disasters the sun, the moon, and the stars: as
if we were villains by necessity; fools by
heavenly compulsion; knaves, thieves, and
treachers, by spherical predominance; drunkards,
liars, and adulterers, by an enforced obedience of
planetary influence; and all that we are evil in,
by a divine thrusting on: An admirable evasion
of whore-master man, to lay his goatish
disposition to the charge of a star!

King Lear (1.2.132)

These ruminations are a result of the “Yaabutt Singapore is a small country and cannot be compared with India” idea that I claimed was bogus at the end of my post, “A Tale of Two Countries“. It’s bogus because at best it is a meta-failure, an attempt to explain away India’s failure and thus absolve oneself of responsibility.

Not just poor, but impoverished

As I constantly remind everyone, India is a large country of extremely poor people. More accurately, India is a large country of extremely impoverished people. Impoverished because it has been reduced to poverty, deprived of all vitality and creativeness, driven to mass misery. India need not have been this miserable but it has been made to be so. It can be something else, something vital and rich in all senses of the word. But that possibility is precluded if Indians make excuses. That meta-failure is what I rail against in these pages. (The best way to become unpopular is to strip people of their comfortable delusions.)

The list of excuses advanced to explain away India’s backwardness is not long. Heading the list is the popular, “India is a democracy.” Then there’s “India is a large country and cannot be compared to small rich countries.” When compared to China’s rapid transformation, the excuse is “India will surpass China because China is authoritarian.”

Aside from the excuses list, there is a list of comforting delusions. The top of that list is “India has a demographic dividend coming due and will beat China.” Also on the list is, “India is a superpower.” Sometimes the super-powerdom is specified: “India is an IT superpower.” At other times, it is economic: “India has N billionaires.” At times it is based on an inability to do arithmetic, and not being able to understand the distinction between gross measures and per capita measures: “India is the largest producer of milk.”

Excuses and delusions. Where would we be without our excuses and delusions? Without our popular delusions, I think we would be on the road to success.

Bigger is Better

Here I will address, as promised, the matter of why the argument — that India’s failure to develop cannot be compared with Singapore’s enviable success due to differences in size — is meaningless. It is based on an absolute misapprehension of the way the world works. All we need to do to see through the matter is a little bit of common sense, a quiet place, and a bit of time to turn things around in one’s head.

Being large confers benefits. Look at it from any angle, and you will see the advantages. Large entities live longer. Compare a mouse to an elephant. Large corporations persist, and can weather downturns better than small firms. Large ships do better in storms than small boats. Large objects can affect the environment to their own benefit. A candle in the wind goes out; a large forest fire creates its own environment and whips up a storm. Large corporations can influence policy. Large suppliers can dictate prices and change the market equilibrium. Large universities have access to better faculty and students. Large cities attract the more talented compared to small towns and villages.

Look at it any which way, and you find that large entities have advantages over tiny ones. Especially being “economically” large is a great advantage.

When it comes to economies, larger is better because of some fundamental principles. First there is the notion of specialization. As Adam Smith reasoned over 200 years ago, division of labor and specialization allows the greater creation of wealth. The degree of specialization possible increases with population, which translates into greater productivity and production.

The second matter that confers advantage to size is that large economies have large domestic markets. There are scale economies in most modern production. The more you manufacture, for instance, the lower is the per unit cost. So if you have a large domestic market, you will achieve economies of scale, which lower your costs, and that enables you to be competitive in the world market. Not just competitive but you can even create a comparative advantage for yourself. Large economies have power to change the terms of trade to their advantage.

As human civilization has progressed, the size of the interacting group has increased. From small tribes, to city-states, to nations, to blocks of nations engaged in mutually beneficial trade arrangements.

The Western European economies not too long ago became part of a large economic union — to obtain those benefits that large size affords. They would not have done so if the benefits did not out weigh the costs.

Scale Economies

It is true that there are disadvantages to size as well. Very large organizations — like oil supertankers — cannot turn on a dime. Their momentum is hard to dissipate. But that is can also be an advantage. Long after they engines have stopped turning, they can coast along for quite a while. A large corporation can typically survive economic turmoil better than little shops.

Large organizations turn out more complex manufactured goods. You cannot have a small firm turn out superjumbos like the Boeing 777s or the Airbus 380. These superjumbos exist because they are super efficient. Once again, scale economies kick in.

There’s one thing we have to bear in mind, though. Merely being large does not confer any advantage. Size is necessary condition but not a sufficient condition. For a large entity to be successful, it also has to have a complex nervous system. For proper functioning, the brain has to be sufficiently large as well.

The large dinosaurs, we are told, had small brains for their physical size. That’s a recipe for disaster. Some of them evolved to have large bodies but really tiny brains. In a sense, the same can be said about India — large body and a tiny brain. We will explore this incongruity a bit later.

Cooking Up a Good Economy

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe.

Paul Romer.

Previously on this blog I explored the idea that at the bottom of it all, what matters is “stuff.” I am a stuff fundamentalist.

I believe in stuff. First of all, I am made of stuff. Second of all, I use stuff. I eat stuff, wear stuff, use stuff to get around, need stuff to shield me from the natural elements, etc. We all do. Those who don’t have stuff that they can use, are poor. Poverty is the lack of stuff. Everything that we do, ultimately involves stuff.

From the composition of sublime music to mind-blowing accomplishments of theoretical physics—they all involves stuff because they are all produced by people who, as we can easily appreciate, need stuff. Any system that produces lots of useful stuff has the necessary condition for producing all sorts of things. Conversely any system that is unable to produce stuff in sufficient quantities is one that is characterized by poverty.

Romer’s analogy of final products as the result of the operation of a recipe on inputs is instructive and accurate. You need good recipes and you need ingredients. If you do, you produce good stuff. If you have a lousy recipe, you can make a mess of even the finest ingredients. Conversely, if you have a good recipe, you can make delightful stuff with even modest ingredients. Broadly speaking you need three bits — the cook, the recipe and the ingredients — which then have to come together well for a good outcome.

You’d notice that the three bits are actually quite different in nature. The recipe is an “information good” and therefore falls in the category of “public goods.” You can not “use up” a recipe. Any number of people can simultaneously use a recipe. On the other hand, the ingredients are “private goods.” If you use that pound of butter for your dish, that same pound of butter is not available to me. Butter is a “private good.” The cook embodies “agency” — she has a purpose, makes choices, acts to achieve her goal, mixes and chops stuff, determines when the batter is just right, and when to stop the cooker. The cook “implements” a recipe and uses up ingredients (input stuff) to produce a dish (output stuff.)

So let’s see their analogues in the case of an economy. The government (cook) chooses and implements policies (recipes) to combine resources (ingredients) to produce final goods and services that the economy consumes immediately, or intermediate stuff for use in the production of final goods and services.

This general description of how an economy functions applies to economies of all sizes, large and small. If an economy fails to produce sufficient amounts of goods and services relative to its population, it is poor. This failure can be attributed to a lack of any or more of the three basic bits. Even with the best recipe and ingredients, a lousy cook can mess it all up by not choosing the right recipe, or not correctly following the right recipe.

So far we have not seen any reason for why a large economy cannot be as equally successful as a small one. The government and policymakers are taken from the population. There is nothing to suggest that in large populations, the percentage of smart people is lower than that in smaller populations. Public policies (recipes) are chosen from a large set of available policies. Being public goods, these can be taken from anywhere at all. With a little bit of care, one should be able to look around and distinguish between those policies that have proved good and those that haven’t. Take those that work for your specific circumstances. It’s a matter of public choice, and that depends on the competency of the policymakers and their objectives.

The Bogus Argument

With that background established, now we are ready to discuss why the objection, “yeah but Singapore is a small country, and India is large,” does not make sense.

First, large size is an advantage rather than a handicap. Singapore does not have the diversity ant the geographical extent of India. One or the other regions of India has any of the resources required for economic production, and it also has a large domestic consumer market. The number of smart people in India’s population of 1.2 billion far exceed the number of smart people in Singapore’s 5 million population (although in percentage numbers they may be the same.)

The public policies that Singapore uses — whether home grown or imported from abroad — are also available for India to use. The stock of public policies available is the same for all countries. It is a matter of which to choose with regard to the specifics of the country.

Singapore has access to limited domestic resources — human or physical. India has a wider choice since India is large. Granted that the per capita stock of resources for India is low. For example, India’s per capita availability of arable land, water, and other natural resources are lower than many other countries, large and small. But India is not entirely devoid of resources either. (Then of course there is no reason why India’s population should have been allowed to balloon to the point where it overwhelms the available resources. That itself speaks to a failure of public policy.)

In international forums, large size gives more bargaining power. In trade, it gives the ability to dictate terms. Large populations allow greater degree of specialization. Large economies can afford large fixed costs — thus allowing lower average costs in industries that have low marginal costs.

Conclusion

All things considered, large size is an advantage rather than a disadvantage in most cases. But even in those areas where size is a disadvantage, the large economy can (almost costlessly) disaggregate to the extent required to reach optimal size.

Here’s what I mean. Let’s take an analogy. Suppose in the manufacture of widgets, the larger the factory producing them, the per unit cost is lower — but only up to a certain point. So a factory producing 1 million widgets has a lower per unit cost than one that only produces half a million widgets. But suppose this advantage on the side of the large peaks at 2 million units. That is, beyond 2 million units, the cost per unit starts rising. At 10 million units, the cost per widgets rises to be the same as the cost of the factory producing half a million widgets.

Now consider two countries. Singapore needs only 1 million widgets domestically, and cannot export any. India needs 10 million widgets. So if India builds a factory to produce all 10 million widgets, it will be paying more per widget than Singapore which is using one factory to produce the 1 million it needs. Singapore does not have the option of scaling up the factory to 2 million units to get a lower cost per unit. Therefore its small domestic market has handicapped it. India, on the other hand, has a way out. It can produce the 10 million widgets in five factories of the optimal size — 2 million unit.

This is an important point worth repeating. A small economy cannot scale up it operations to that of a large economy, but a large economy can scale down if necessary.

If the optimal size for the administrative efficiency of a population is say 10 million, then a population of 100 million has the choice of splitting itself into 10 units of 10 million.

I think I have given sufficient reasons to believe that the objection that Singapore cannot be compared to India for the reason of size is bogus. Indeed, in the ordinary course of events, one would expect that given India’s size, India would be the more successful of the two, not Singapore.

But why is India so desperately poor relative to Singapore? What explains India’s poverty?

I think that would be a good topic to explore in a future post. I am sure that you already know the answer. In terms of the analogy, the answer is incompetent cooks. Let’s talk about that next.

Thanks

Thanks to all who have posted comments to “A Tale of Two Countries.” I will address them shortly in a separate post.