Currency Swap (Demonetisation) - Why don't people mind standing in queues?

Government of India on November 8th, 2016 withdrew the legal tender to 500 and 1000 rupee notes. It's technically not demonetisation since the 500 rupee and 1000 rupee notes are coming back. Essentially, at the end of the day, old 500 rupee notes are replaced by new 500 rupee notes. The replacement of notes is a regular process, the only difference this time is that it's sudden and not gradual like previous instances. So, some have pointed that the right term is 'currency swap' and 'not demonetisation'. For instance, Mint editorial uses the term 'currency swap' and not 'demonetisation'. So, let's use the term 'currency swap'.

One of the immediate effects of the poorly executed 'sudden' 'currency swap' is that it takes long to replace the notes, creating a shortage for notes. People have to hence stand in long queues. In a normal world, where 86% of the medium of exchange is sucked out, it should have created huge unrest and riots. The question then is - why didn't that happen? Why are people not protesting? For the sake of this post, let us stick to a narrow question of long queues to with draw or exchange money, and not on lost wages, employment and a business down turn.

One argument can be that people are willing to undergo this pain to be as part of a process for the sake of a larger good. The thought of 'sudden evaporation' of 'huge black money' is consoling to the people, even if such assumptions are questionable. In Marxist terms, currency swap has tapped into huge class hatred, ironically making the working class punish themselves with the hope of inflicting  a proportionate pain on bourgeoisie.

Understanding Auto and Uber fare regulations using first principles

Let's start with auto fares. Why should auto fares be standardized? Why can't auto drivers decide their own price as per their wish?

Consider a world where auto fares aren't standardized. For the sake of simplicity, assume that Uber/Ola aren't yet there in that world. In that world, assume you get down in a town and request a trip to a certain place? The onus is on the driver to quote a price. How would a driver behave in such circumstance?

Economic Theory (psychology!) sheds light on this context. Consider this as an auto driver - customer bargain. What incentive does the driver have to quote a fair price? Why should the driver forego (higher price) and be altruistic to quote a fair price? 

Literature in psychology - game theory suggests that in such contexts, the cooperation is enhanced by a) possible interactions in future; and ii) reputation.

"Possible interactions in future" means that if the driver is to encounter the customer definitely again in future, then there is incentive for driver to act fairly, so that he doesn't lose his future business. In case of a typical auto - customer transaction, it is highly likely that the auto driver isn't going to see the customer again. Hence, there's no incentive for the auto driver to be fair.

"Reputation" means that if other people observe you carrying out the transaction and if it affects your business, then there is an incentive to be fair. For instance, if another customer watches you quote high price, then the other customer might avoid you, should the auto driver meet the customer in future. It's similar to the case of feedback in restaurant listing sites like Zomato where other customers' feedback affects behaviour of new customers. In our context, the auto driver doesn't face any such consequences because the  possibility of future interactions with the other 'observing customers' is uncertain. The other customers also may not be aware of the prices. More importantly, who would continuously eavesdrop on others bargaining?

Even China allows for-profit private schools

In India, schools cannot be run as for - profit enterprises. They have to be run as trusts or not-for-profit entities. In essence, it means that the profits earned from schools should  be reinvested in school itself and cannot be taken out for other purposes.

The reasons for such regulation are many. I discussed them in my book - UnpackED: The black box of Indian school education reform.

One of the justifications for not allowing for profit enterprises is the deep distrust in the private entities. The argument is that the for profit entities would exploit the poor.  Normally, this line of reasoning is expected from capitalist skeptics or communists.

Given this context, one would expect the so called communist country, China, which is also among the top countries in PISA, to ban for-profit private schools.

The reality is that China doesn't ban for-profit private schools. Even China allows for-profit private schools to exist and deliver education.

Clearly, we need to think beyond ideological insecurities.

Perils of prioritizing economic benefits over normative rights and morals

Michael Munger of Duke University eloquently describes the history of slavery in one of his recent podcasts. Prof. Munger explains that the idea of 'slavery is bad' wasn't obvious in those days. The intelligentsia of those days justified slavery citing its economic benefits. Several analysis were put out demonstrating that societies with slavery are well-functioning economic systems and that slavery keeps it going. The obvious question then is - what about normative rights (human rights)? The answer of proponents of slavery was - the normative rights don't matter as long as slavery serves economic purposes OR that economic benefits take priority over the human rights or morality.

Fortunately, such arguments that put economic benefits of a practice over the normative rights were countered and humans got rid of physical slavery. However, the dilemma of choosing between normative rights (human rights or morality) and economic benefits keeps recurring. The latest one being the case of Donald Trump.

Peter Thiel, founder of PayPal and a famous venture capitalist is one of the outspoken supporter of Donald Trump. Thiel's WP article summarizes his arguments. The central argument of Thiel is that

Trump gets things done.
Thiel argues that in a slow moving and broken economy, it's important to get things done, and that Trump is good at it, and hence Trump should be voted.  This immediately evokes a counter argument as like the case of slavery- what about Trump's comments on minorities, his track record on respecting human rights? For Thiel, the normative rights don't matter, as long as Trump 'gets things done', because economics trumps rights.

A section of 'Hindu NRI Nationalists' have reportedly given similar arguments in support of Trump.
"Mr. Trump is all about development, development, development; prosperity, prosperity, prosperity; tremendous job growth. "
The rationale here again is here - normative rights are a non issue as long as economic benefits are promised.

India is no exception to such arguments. We have a poor track record of electorally punishing human right violators. We have often prioritized promises of economic benefits over questionable records of politicians.

The worrying trend is that the earlier phenomenon of overlooking human right violations is slowly turning into active defense. It is broadly in four forms.

One, the electoral victory of politicians appears to vindicate everything they did in the past - corruption, crime etc. It doesn't matter what you have done in the past as long as you secure electoral victory. Recall the awe with which such leaders are praised on the day of electoral victory. All the past records of politicians are set aside and an unfettered praise follows. It equally applies to the election managers. Their administrative capability is object of unfettered praise which turns into admiration, with utter disregard to their questionable past. As discussed, victory vindicates everything.

Two, in some cases, the argument currently seems to be - May be (s)he has questionable record of human right violations in the past, so what? (H)She has brought or will bring economic benefits. Economic benefits is the urgent need of the economy. So, it's time to support him/her.

Three, his/her criminal record is a testimony to the fact that (s)he can stand up to the system and get things done!

Four, justifying human right violations. This takes the form of justifying riots, extra judicial killings. It is argued that there is nothing wrong with either riots or extra judicial killings. They are termed as compulsions of politics or carried out to teach a lesson. 

The first form, victory vindication, is a case of unconscious overlooking. The second, need for economic benefits, is a case of deliberate overlooking of human right violations though acknowledging the negative value associated with violations.  The third form, ability to navigate the system, is a case of making the rights violation itself the eligibility for election, a bizarre indeed. Fourth, justifying violation, takes the argument completely to the side of 'active justification of violations'. In this form, the negative nature of human right violations itself isn't acknowledged, instead it is actively advocated for or justified.

Clearly, we haven't learnt our lessons from history. If there's one lesson from history, it is this : the arguments of economic benefits in all such cases as proclaimed by the proponents are nothing but a mask to cover up human right violations. The proclaimed economic benefits are either ways to justify the existing or earlier violations or/and an agenda to carry forward them in future. Unfortunately, we constantly fall prey to them.

When the economy is in shatters, everything looks bleak and the short term impulses can drive people to prioritize economic benefits over normative rights. If we don't think from a long term perspective and don't defend hard earned freedoms, those with track record of human right violations or those who have disregard for human rights come to power in the name of providing economic benefits. However, after coming to power, true to their nature, they don't bring economic benefits as promised but they mainstream bigotry and create fissures in the social fabric. Economy may be rebuilt but social fabric is much difficult to build, once ruptured.

It's time we learn our lessons from history. It's time we prioritize normative rights over falsely proclaimed economic benefits. It's stop we stop eulogizing electoral victory of those with questionable records. It's time we don't fall prey to the false promises of those with track record of human right violations. It's time we shed the dilemma of normative rights vs. economic benefits. It's time we consider human right violations or any one with disregard to constitutional rights itself as a disqualification criteria, a criteria to not to vote. It should be regardless of other qualities of the person (it doesn't matter if some things don't get done for few years because the costs of such false decision are much higher in long term). It's time we save humanity.

In short - No Trump. No other such leaders in India who promote hatred between communities or have questionable records.

Is urban households' electricity payment behaviour different from rural households'?

An earlier post discussed the non payment of electricity bills in rural areas. The immediate question that follows is - why do urban households pay electricity bills? Rural households can be blamed for 'entitlement mindset', as in, using something for free without paying for it, even if they have capacity to pay, because they feel that electricity is an entitlement. Does that mean that bill paying urban middle class don't have that mindset?

Consider this scenario - the same urban households that pay electricity bills, don't pay for softwares, music, movies, TV shows, downloaded from internet. Often, they are downloaded using torrents or hacks or pirated versions. This is despite having the ability to pay for such services, in most cases. Why is that so? How is it any different from a rural household not paying electricity bill? 

At a behavioural level, there could be several reasons for non payment (Note: this is not to take people on a guilt trip and justify non payments of electricity bills)

Why don't rural households pay electricity bills?

Why don't people in rural areas pay electricity bills?

The standard narrative is that enforcement systems are weak; people feel electricity as their entitlement, expect it to be provided free of cost, and hence don't pay. Such narratives, though convincing, mask a large set of other genuine issues that can result in non-payment. 

Before going to the discussion, let's understand the billing system. An electricity bill consists of typically 4-5 line items, depending on the utility.
  • Monthly standard charge: It's minimum charge that has to be paid monthly. You have to pay it even if you don't consume anything during the billing cycle.
  • Charge as per consumption: This is the amount corresponding to the number of electricity units consumed (total number of units consumed x per unit charge).
  • Asset charges: If utility has installed an upgraded new meter in your house, it retrieves that amount in small amounts monthly. This includes any other similar charges.
  • Arrears: It's the pending bill amount that hasn't been paid. Interest is also added to it. Not applicable to everyone
  • Taxes
Coming to the reasons for non payment:

1. Irregular and poor quality power: Remember that you have to pay some amount monthly, even if you don't consume anything. If low voltage power is the norm and electricity is only for few hours a day, it leads to dissatisfied consumers, why should I pay money?

2. Poor customer service: A part of the anger can also be from non responsive customer service. Sometimes, utilities take few weeks to months to repair blown up transformers. However, villages are expected to pay even for this time during which they didn't get power.

Solar micro grids: A reality check

Solar is a buzz word today. There's a lot of hope and expectation on solar micro-grids as reliable mechanisms to delivery electricity to rural and remote areas. (In brief, solar micro grids are moderate sized solar panels (larger than small roof top panels) set up in a village. All households in the village are  connected to it.) We may need to exercise caution about utility of solar micro grids. It's not as straight forward as it seems.

Anant Sudarshan of EPIC India, University of Chicago has an article in I4I on the experience of solar micro-grids in Bihar. The article outlines the challenges as tracked by their study. Broadly, the challenges are

1. Low take up: Only 20% of the villages who were offered micro grids agreed to take up, even after subsidizing the price by half. The capital costs of setting up the grid are separate which are also taken care of by the provider.

There can be multiple reasons for it.
  • Expectation of grid electricity: People expect to receive grid electricity soon. Hence, they don't want to commit to solar.
  • Insufficient power: Currently, these villages don't get any power. Micro grids can only supply enough power to power a bulb and fan. This isn't enough for people to shift to solar. They want to shift only if the power is sufficient to run TVs, electric motor etc.