National life and economic destiny

National life and economic destiny

On 23 June, the UK will vote on whether to withdraw from the European Union. This is a momentous decision, with far-reaching economic and political consequences that are now being hotly debated. If Britons vote to exit, it could lead to a break-up of the EU, and set back the global move towards greater political integration.

This raises an intriguing question: What’s the optimal size for economic performance? Are we better off with many little competing city-states, a bunch of mid-sized nations or just a few big super-countries overseeing hundreds of millions of people each? If bigger is better, what about a global government?

Actually, economists have thought about this a fair amount. In 1956, Charles Tiebout believed he had a solution to the problem. He reasoned that local governments knew more about their people’s needs than distant central governments, and so the best system was one where local governing units—city-states, essentially—offered different packages of taxes and public services. People would vote with their feet, going to the place that suited them the most.

This is a very appealing vision. Want to live in a libertarian paradise, where all the roads and schools are privately built? In a Tiebout world, there will be a city set up to accommodate you. Would you rather have lots of government-built trains and hospitals? That’ll be available as well.

A number of modern-day thinkers have suggested a return to Tiebout-style city-states as a solution to our problems of political gridlock and policy paralysis. In 2013, entrepreneur and venture capitalist Balaji Srinivasan playfully suggested that Silicon Valley could secede from the US, forming a technology-oriented utopia. A number of my Japanese friends have similarly suggested that Tokyo should secede from Japan—notably, not all of those favouring succession were Tokyo residents! Others have praised the economies of city-states such as Singapore, Dubai and Hong Kong.

Some people also claim that political fragmentation has been beneficial in the past. Anthropologist Jared Diamond, in his book Guns, Germs, and Steel, suggested that competition between small countries allowed Europe to get a head start on unified China in the Industrial Revolution. Economists Brad DeLong and Andrei Shleifer argued in 1993 that city-states helped Europe develop (though more recent evidence seems to counter this). Casual evidence would also suggest that Taiwan’s de facto independence from China helped provide the mainland with a capitalist model to revive its moribund economy in the 1980s and ’90s.

So, there are plenty of economic and historical arguments in favour of fragmentation. These imply that a Brexit would be good not just for the UK, but for all of Europe.

But there are arguments on the other side, too. Mathematician and economist Truman Bewley examined the Tiebout idea in the 1980s, and found that a patchwork of little city-states doesn’t always lead to a well-functioning system.

There are several reasons why Tiebout’s idea can fail. One is that many of the services governments provide are what economists call public goods. These are things that the private sector either can’t or won’t provide. The classic examples are national defence, police, courts and support for basic research. But many other things, like roads, electrical grids and ports, are usually in short supply when left to the private sector.

When you have public goods, one person’s economic welfare depends on how much everyone else in that city, state or country is willing to pay for things like roads, power grids and sewers. That throws a big wrench into the Tiebout model, because there are many different kinds of these goods, and the amount people want of each one tends to differ a lot. You and I might both agree that we need good roads, but you might care much more about broadband infrastructure or schools than I do. Bewley showed that even splitting the government into tons of local units doesn’t solve this thorny problem.

A second issue is that governments don’t always have the right incentives. Some governments may decide to maximize the size of their tax bases. Others might care only about the welfare of their citizens, while others might be beholden to special interests—I imagine an independent San Francisco would be ruled by local landlords even more than it already is. There’s no perfect type of local government, and so we’ll have a wide variety of them. Bewley showed that this problem also prevents Tiebout’s patchwork from being an economically efficient utopia.

There are plenty of other problems that Bewley didn’t think about. It might be very hard to coordinate between city-states—for example, one little local government, concerned about preserving open space, might be able to veto a cross-continental highway that would boost almost everyone’s income. Also, there’s the possibility that some city-states might just decide to conquer their neighbours, returning us to a world of empires. In fact, this is exactly what happened in Europe, China and elsewhere every time those regions fragment. And the only way to defend yourself against a neighbouring empire, many cities have found, is to band together into a nation. Since peace is good for growth, security considerations like this are also economically important.

So, the answer to the question of fragmentation is that there’s no ideal size. Sometimes city-states are the best, but sometimes super-states are better. The UK might be on the verge of an interesting experiment. If it abandons the EU, only history will tell us whether it was a good idea.

Lessons from the nuclear security summits

Since the NSS process began, more than 175 tonnes of highly enriched uranium has been removed or down-blended

The Nuclear Security Summit (NSS) process—to prevent non-state actors, particularly terrorists, from acquiring nuclear material—was launched with fanfare in 2010 by US President Barack Obama with the ambitious objective “to secure all vulnerable nuclear material in four years”. Six years and four summits later—the last of which concluded on 1 April—this aim has not been reached, despite substantial progress being made.

Since the NSS process began, more than 175 tonnes of highly enriched uranium (HEU)—enough for nearly 7,000 nuclear weapons—has been removed or down-blended (mostly from Russia); 30 countries have eliminated all HEU from their territory; and radiation detection equipment has been installed at 329 international border crossings, airports and seaports to prevent, detect and respond to trafficking in nuclear and other radioactive material. Additionally, the Convention on the Physical Protection of Nuclear Materials (CPPNM), with the 2005 amendment, is now only eight signatures shy of entering into force and the International Convention on the Suppression of Acts of Nuclear Terrorism (ICSANT) has been signed by 103 of the 193 United Nations members.

However, an estimated 1,400 tonnes of HEU and nearly 500 tonnes of plutonium—enough for about 200,000 simple fission-type nuclear bombs—is still held by more than 30 countries. Moreover, the absence of Russian President Vladimir Putin (over strategic differences with the US) indicates that progress towards this cause is susceptible to the overall state of bilateral relations. Similarly, the failure to invite Iran (despite the nuclear deal) was a missed opportunity to engage Tehran on a crucial issue of global importance. Finally, as reports emanating from Brussels before the summit indicate, despite the NSS’ efforts, the possibility of terrorist attacks on nuclear facilities has not been eliminated even in nations such as Belgium.

These achievements and challenges underline several key lessons from the NSS process. First, because the NSS is narrowly focused on the threat of non-state actors acquiring nuclear material, it took great initiative on the part of the US to get it going; it is unlikely that any other world leader could have led a similar project. This indicates, as Obama boasted, that even in the multi-polar era, the world is dependent on US leadership.

However, as the absence of Putin and the inability of the process in securing all nuclear material in four years reflect, there are limits to even what the US leadership can achieve. Besides, the fact that the 2012 and 2014 summits were held in South Korea and the Netherlands respectively—both US allies from the developed world—indicates that Washington is still not able to find willing partners for its initiatives in the global South.

Second, some experts argue that the NSS process only deals with nuclear material in civilian facilities and not the military nuclear facilities, which account for about 83% of all nuclear material. This is disputed by others who assert that the NSS communiqués along with the CPPNM, the ICSANT and UN Security Council resolution 1540 deal with all nuclear material—civilian and military. What is not in dispute, however, is that the danger posed by forward-deployed tactical nuclear weapons, particularly by Pakistan, Russia and the US, has not been addressed and needs to be remedied.

Finally, the relative success of the NSS process also underlines the failure of the international community to address similar dangers emanating from biological weapons. As there is no international regime or institution to deal with biological weapons, they remain largely unregulated. Indeed, non-state actors and individuals are increasingly conducting research in biotechnology, especially, synthetic biology.

For India, while its contribution to the success of the NSS process is useful to highlight its credentials as a responsible nuclear state, any initiative on similar threats from biological weapons and its ability to rally others to the cause would enhance its credibility as a global leader.

Time for a world currency?

In a world even more subject to destabilizing volatility, Robert Mundell’s proposal to create a global unit of account merits serious consideration

Do we need a single global currency?

That question would have seemed quixotic to many analysts of global economics and finance a few years ago. The suggestion that we do, indeed, need a global unit of account—made by a few brave mavericks over the years—would have been, in fact, was, scoffed at and derided as hopelessly unrealistic at best and highly undesirable at worst.

These maverick economists and bankers saw merit in eliminating the destabilizing and destructive volatility in global trade, investment and financial capital movement patterns induced or exacerbated by the excessive volatility of flexible exchange rate regimes—each of which tries to achieve its own national objective without regard to the potentially damaging spillovers caused to others. The greatest of these free thinkers is my own guru, the Nobel economist Robert Mundell. Taking a leaf from former Federal Reserve chairperson Paul Volcker, Mundell has often repeated the mantra: “A global economy needs a global currency.”

During the high water mark of the great moderation, a period of roughly two decades before the great financial crisis, a certain hubris had set in among central bankers and conventional macroeconomists: the notion that the “modern” policy of inflation targeting by independent national or supranational central banks, linked by a series of bilateral flexible exchange rates, would suffice to stabilize the global macroeconomy.

In this benign view, sharp recessions, and, more generally, excessive volatility of output, unemployment and the inflation rate, were a thing of the past. The economics of the conduct of monetary policy was now a science, it was breathlessly averred. In reality, it was a cult, presided over by central bankers as high priests. The army of economists who crunched increasingly complicated mathematical models to guide the priests of the cult were votaries at the altar.

It all came terribly unstuck with the build-up of asset price bubbles that were completely missed by inflation-targeting models fixated on consumer price inflation and by a faith in the ability of financial markets to function efficiently, which proved overly optimistic. As the crisis unspooled, advanced economy central bankers, led by the US Federal Reserve’s Ben Bernanke, unleashed an arsenal of new weapons, known collectively as unconventional monetary policies (UMPs), to bring the global economy back from the brink.

A few prescient voices warned early that such adventurous new policies might, perhaps even would, have seriously undesirable side-effects, in the form of damaging spillovers to emerging market economies, in the form of excessive volatility in capital flows and associated movements in their exchange rates. Such lone voices in the wilderness included the late Ronald McKinnon, a maverick economist in his own right, and India’s own Raghuram Rajan.

From his bully pulpit at the Reserve Bank of India, Rajan has argued that, as advanced economy UMPs were harming emerging economies—as evidenced during the taper talk crisis of 2013, which badly affected India, among others—the right thing for the Fed and others to do would be to take account of these harmful spillovers when they formulated monetary policy. Bernanke, in particular, was dismissive of such arguments, and, famously, has exchanged sharp words with Rajan on a number of occasions since stepping down as Fed chairperson.

To be fair to Bernanke, the US is not going to care about the spillovers of its policy on other economies unless there is a demonstrable spillback on the US itself.

Not only is altruism not part of the Fed chairperson’s job, he or she is explicitly mandated to focus on the US economy, not worry about what is happening in India or elsewhere.

Crucially, despite the best efforts to quantify them—including by this writer and several other economists—such harmful spillbacks have been notoriously difficult to tease out of the data and to assess in terms of their economic significance. Yet, despite this challenge, Bernanke’s successor, Janet Yellen, appeared to suggest in recent remarks that emerging economy spillbacks were a real concern. Critics of the Fed’s policy go further, and argue that, by ignoring them, the Fed made a premature decision to raise rates last December, and is now scrambling to recover.

Mundell has argued repeatedly that the types of crises and mini-crises the global economy has suffered since the collapse of the Bretton Woods system of fixed exchange rates in 1971 are only to be expected, given the absence of any kind of global monetary order since then. Despite the faults it might have had, including the need for sharp and painful adjustments to shocks in the face of slow price adjustment, the Bretton Woods system gave the world a monetary order, within which trade, investment and portfolio allocation decisions could be made without the distorting effect of uncertain, uncoordinated and volatile exchange rates. The quarter-century after the end of World War II, until the collapse of Bretton Woods, was something of a golden period, at least for the advanced economies; it is plausible to argue that the system of fixed exchange rates played its role. In a world even more globalized today, and even more subject to destabilizing volatility, Mundell’s proposal to create a global unit of account surely merits our serious consideration.

China successfully launches retrievable satellite

In a bid to aid scientists to study microgravity and space life science.

China on Wednesday launched a retrievable scientific research satellite in a bid to aid scientists to study microgravity and space life science.

SJ-10 was put into orbit by Long March 2-D rocket from the Jiuquan Satellite Launch Centre in north-western China’s Gobi desert.

19 on-board experiments

While in space, the bullet-shaped probe will house 19 experiments involving microgravity fluid physics, microgravity combustion, space material, space radiation effect, microgravity biological effect and space biotechnology, before coming back to Earth with results, state run Xinhua news agency reported.

On-board experiments were selected from a pool of over 200 applicants. They include one that will study early-stage development of mouse embryos in microgravity to shed light on human reproduction in space, and another studying space radiation effects on genetic stability of fruit flies and rat cells.

“Soret Coefficient in Crude Oil”

A “Soret Coefficient in Crude Oil” experiment in partnership between the National Space Science Centre under CAS and the European Space Agency (ESA) is also onboard together with an investigation of coal combustion and pollutant formation under microgravity.

The former test is aimed to improve scientists’ understanding of oil reservoirs buried kilometres underground, while the latter is expected to help enhance energy efficiency and cut emissions.

Completely new experiments

“All experiments conducted on SJ-10 are completely new ones that have never been done before either at home or abroad,” Hu Wenrui, chief scientist of the SJ-10 mission said. “They could lead to key breakthroughs in our academic research.”

Second scientific satellite, 25 retrievable one

SJ-10 is the second of four scientific satellites under a CAS space program. Unlike the others, SJ-10 is returnable.

It is the 25th such retrievable satellite launched by China in the past decades.

Overall, eight of the experiments on fluid physics and microgravity combustion will be carried out in the orbital module and the others in the re-entry capsule which is expected to land at Siziwang Banner in Inner Mongolia, the designated landing spot for China’s Shenzhou manned space missions and a 2014 test lunar orbiter.

World military spending up in 2015, India in sixth position

India is also ahead of countries like France, Germany and Israel who happen to be among its top arms suppliers.

India is the sixth largest military spender in 2015 having spent $51.3 billion even as the world spent $1,676 billion reversing a global trend which was on the decline since 2011., as per the latest report from the Stockholm International Peace Research Institute (SIPRI).

India moved one rank up from last year accounting for 3.1 percent of global military expenditure. Over a ten-year period from 2006-15 this represents a 43 per cent jump. India is also ahead of countries like France, Germany and Israel who happen to be among its top arms suppliers.

World military expenditure rose by 1 per cent in 2015, the report noted said it reflects continuing growth in Asia and Oceania, Central and Eastern Europe, and some Middle Eastern states.

Sam Perlo-Freeman, head of SIPRI’s military expenditure project said that the military spending in 2015 presents contrasting trends. “On the one hand, spending trends reflect the escalating conflict and tension in many parts of the world; on the other hand, they show a clear break from the oil-fuelled surge in military spending of the past decade,” he said in the report.

The U.S. remained by far the world’s largest spender in 2015 despite its defence expenditure falling by 2.4 per cent to $596 billion followed by China, Saudi Arabia, Russia and U.K.

China’s expenditure rose by 7.4 per cent to $215 billion.

After Energy Efficient Bulbs, Government Launches National Programmes for Smart Pumps for Farmers and Energy Efficient Fans

After Energy Efficient Bulbs, Government Launches National Programmes for Smart Pumps for Farmers and Energy Efficient Fans

-          Vijayawada to be the first city to implement the National Energy Efficient Fan Programme

-          EESL will distribute 2 lakh Smart SIM-enabled Agricultural Pumps sets free of cost to the farmers in AP

In order to make country more energy efficient, the Union Government today launched two schemes namelyNational Energy Efficient Agriculture Pumps Programme and National Energy Efficient Fan Programme in Vijayawada, Andhra Pradesh. The programme was launched by the Chief Minister of Andhra Pradesh, Shri N. Chandrababu Naidu during the inaugural session of the two-day International workshop on energy efficient lighting. These Schemes will be implemented by Energy Efficiency Services Limited (EESL), a JV of PSUs under Ministry of Power.

Under the National Energy Efficient Agriculture Pumps Programme, farmers can replace their inefficient pumps free of cost with the new BEE star rated energy efficient agricultural pump-sets. These pumps will come enabled with smart control panel and a SIM card, giving farmers the flexibility to remotely control these pumps from their mobile phones and from the comfort of their homes. EESL will distribute 200,000 BEE star rated pump-sets to the farmers under this programme, which will lead to 30% of energy savings by 2019. This translates into an annual savings of approximately Rs 20,000 crore on agricultural subsidies or a saving of 50 billion units of energy every year.

FEATURES OF NATIONAL ENERGY EFFICIENT AGRICULTURE PUMPS PROGRAMME

Smart BEE star rated Energy Efficient Agricultural Pump sets be distributed to farmers.

Farmers can replace their inefficient agricultural pump sets  free of cost.

Pumps to come with Smart Control Panes that has a SIM card and a Smart Meter.

Smart Control Panel will enable a farmer to switch on or switch off these pumps through his mobile and sitting at the comfort of his home.

Smart meters to ensure the farmers to monitor consumption on real time basis.

EESL to distribute 200,000 BEE star rated pump-sets to the farmers under this programme, which will lead to 30% of energy savings by 2019.This translates into an annual savings of approx Rs20,000 crore on agricultural subsidies or a saving of 50 billon units of energy per year.

With the usage of these 50 Watts BEE 5 Star rated ceiling fans, to be distributed under the National Energy Efficient Fan Programme, it is estimated that consumer’s electricity bills will reduce by about Rs. 700-730 per year. Therefore, the cost recovery of purchasing these fans is less than 2 years. These fans are30% more energy efficient as compared to conventional fans, which range from 75-80 Watts. At present, two energy efficient fans will be provided to each consumer at Rs 60 a month per fan on EMI basis. The EMI amount will be added to the consumers’ electricity bills for two years. This scheme will be available to the consumer on providing a copy of latest electricity bill along with a copy of residence proof at the designated distribution centre. The consumer can also purchase the fan by paying Rs. 1250/- upfront.

FEATURES OF NATIONAL ENERGY EFFICIENT FAN PROGRAMME

Energy-Efficient, 50 Watts and 5-Star Rated Ceiling Fans.

These fans are 30% more energy efficient as compared to conventional fans, which range from 75- 80 Watts.

Fans being procured form leading companies.

At present, two energy efficient fans will be provided to each consumer at Rs 60 a month per fan on EMI basis.

Scheme will be available to the consumer on providing a copy of latest electricity bill along with a copy of residence proof at the designated distribution centre.

Consumers can also purchase the fan by making UPFRONT payment of Rs. 1,250 for 50 watts fan

It is estimated that consumer’s electricity bill will reduce by about Rs 700-730 per year- which means that the cost of this fan can be recovered in less than 2 years.

Speaking on the occasion, Chief Minister of Andhra Pradesh  Shri N Chandrababu Naidu     called upon the people to feel responsibility of saving energy which is a big challenge the nation is facing. He said that the State government is moving ahead with innovative ideas in saving energy. Shri Chandrababu Naidu also said that when Visakhapatnam was hit by Hudhud cyclone last year, the government replaced all the incandescent bulbs with LED which saved 21,000 mw of power and also saved money of the State exchequer.

Stating he was the harbinger in bringing reforms in Electricity Board functioning, Shri Naidu said “Andhra Pradesh is the first state in India to adopt more than 1.8 crore LED bulbs under the UJALA scheme which has helped the state government to save Rs 2.6  crore daily. Andhra Pradesh has always been a pioneer in adopting Energy efficiency programmes. To add to the success of UJALA in the state we will now implement energy efficient fan programme and the energy efficient agriculture pumps programme. This will help us to manage our peak demand and in-turn help the state become energy sufficient”.

Earlier Shri N Chandrababu Naidu inaugurated the International workshop on Energy Efficient Lighting by unveiling the Energy Efficient Fan and by switching on Energy Efficient Agriculture Pump installed in Rajamundry, 150 km from Vijayawada, through remote control.

Shri Chandrababu Naidu distributed first lot of LED bulbs and fans to the consumers at the function.

First National Tribal Carnival will be held in Delhi from April 29 to May 02, 2016.

National Tribal Carnival to be Held from 29 April 2016

Conference of State Tribal Welfare Ministers Held

             First National Tribal Carnival will be held in Delhi from April 29 to May 02, 2016. The carnival will be inaugurated by the Prime Minister. This was announced by Union Tribal Affairs Minister Shri Jual Oram in New Delhi today while inaugurating the conference of State Tribal Welfare Ministers/ Principal Secretaries/ Secretaries to evolve strategies for overall development of tribal communities. He said the purpose of this carnival is to showcase and promote various facets of tribal culture on a large scale. The Minister said, “The underlying idea is to preserve and promote various facets of the tribal life relating to culture, tradition, customs and their skills and to expose it to the general population with a view to utilizing the potential for overall holistic development of the Scheduled Tribes.” Activities liked displaying documented traditional socio-culture aspects, collection of art/artifacts, cultural performances, demonstration of skills like sports, paintings, traditional healing practices etc. will be part of the Four day event. The Minister said, “the thematic panel discussion on issues like tribal health, education, skill development and culture with experts in the relevant filed will be a part of the carnival”.