Luis Miranda

Poorly Taught Economics


Prof Arvind Panagariya

A few weeks back I attended a talk by Prof Arvind Panagariya of Columbia University, hosted by Gaja Capital. And I loved it. After a really long time I heard someone in India talk about the role of markets in reducing poverty. Our colleges are filled with socialist teachings on the subject and we seem to trap our students in a time warp. So it was so refreshing to hear Prof Panagariya. He talked about the need to grow the pie in order to redistribute wealth … if we only have poverty then there is not much wealth to redistribute. He added that the reduction of poverty is more important than the reduction of inequality.

A few days before that I had met a consultant who had recently majored in Economics from one of the leading colleges in India. When she was still in college she had attended a course taught by a think-tank that I am associated with, Centre for Civil Society (CCS). CCS, was set up by Parth Shah 16 years back to open the minds of young Indians … to teach them about public policy … to give them an opportunity to connect classroom theory with practical work … to highlight the importance of making decisions based on data. And this young lady said that she enjoyed the iPolicy sessions of CCS because they discussed a very different type of economics from what she was taught in college and the theory was validated by experiential testing. I recalled my college days in Mumbai.  I was taught that the father of economics was Adam Smith and that John Maynard Keynes was God. That was it – no mention at all about economic theory after Paul Samuelson.  I then went to the University of Chicago and was exposed to a branch of economics that I had never heard about in Mumbai. I was introduced to names like Milton Friedman and was taught by Nobel Prize winners like George Stigler and Gene Fama. Thirty years later the situation is the same in our colleges, with a small tweaking … maybe one part of one paper over 4 years would talk about ‘fresh water’ economics. The developments in Economics over the past 30 years seem to be irrelevant in India.

I recently participated in a discussion on philanthropy with Rohini Nilekani and she talked about how we should use markets as a force of good in philanthropy, especially since a lot of recent wealth was created by entrepreneurs like Azim Premji and the team at Infosys, thanks to the role of markets.

Unfortunately after 60 years of independence we are still brainwashing our students that socialist policies will get our country out of poverty. So I asked Prof Panagariya how can we get more Indians aware about the role of markets in economic development and the reduction of poverty. He said that the problem lay with the faculty in our colleges. Those who are market-inclined either don’t get teaching positions because their ideology clashes with that of the rest of the faculty or they decide to take up corporate jobs. As a result, we have the same antiquated knowledge being taught over generations in our classrooms by so-called development economists who fail to realise that the world has changed around us. I have still to see the curriculum of a top college in India devote sufficient attention to new concepts like the Chicago School of Economics, the Public Choice School of Thought and Behavioural Economics. And this gets compounded when the faculty invariably comes from former students of the same college. This inbreeding has to stop so that students get exposed to new concepts.

I am not arguing that one theory is better than the other – all I am saying is that students need to be exposed to different schools of thought. And students should be encouraged to debate these theories and get hands-on training in economic policy. At Chicago Booth the faculty consists of people like Gene Fama and Richard Thaler who are on opposite sides of the efficient markets hypothesis. We need to see such intellectual tolerance in our campuses in India. About a year back I spoke about the role of markets to a bunch of post-graduate students at Manipal University. I felt like a slave in Roman times being fed to the lions. We argued a lot and most of the students felt that I was a total idiot to talk about crazy concepts like the importance of incentives and competition. I ended by saying that I wasn’t there to brainwash them that markets represented the Holy Grail, but to expose them to other ideas and let them debate these ideas amongst themselves. Their professor, Sundar Sarukkai, subsequently told me that there was fierce debate on my talk after I left. Mission accomplished.

I remember attending a 2-day seminar in Delhi a couple of years back where faculty of Delhi University, JNU and the University of Chicago got together to discuss the future of the study of humanities. One particular session stood out – a presentation by a professor from Delhi on research being currently done in Indian universities. Nothing in her presentation was backed by data and we instead discussed frivolous issues. It was a fascinating couple of days which highlighted the lack of academic rigour amongst some of the leading faculty in Delhi and the total disdain to look at what the data says. Which is why Bhagwati and Panagariya’s recent book, ‘India’s Tryst With Destiny’, is great – they use data to debunk common myths about India’s journey over the past two decades. For example, after markets took over from the state in 1991 poverty has declined even for scheduled castes and tribes, growth has gone up, jobs have been created and health and education has improved … this is, of course, only if you want to look at the data. Panagariya is also a supporter of education vouchers and cash transfers.

I asked my former Chairman, Dr. Vijay Kelkar, why data is largely ignored in public decision making and he paraphrased the sorry state of affairs with this lovely quote of leaders in public policy – “Don’t confuse me with the facts.” Dr Kelkar also reminded me of the famous quote of Prof Raj Krishna, of the Delhi School of Economics – “India’s policy makers are knowledge proof.” So is the media.

So those of you who were brought up on a heavy diet of Keynesian economics (like I was) and want to take a walk on the wild side, sign up for “Are Markets Moral?” (Jan 4-5 in Delhi; or the Asia Liberty Forum (Jan 7-9 in Delhi;

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Dear Luis, I urgently needed your email id. I am from Random House India and wanted to discuss some ideas with you on the lines of your blog subjects. they've been great reads and have portrayed some interesting insights. Do send me your mail id as soon as possible.
we talked .... thanks
Good read on sate of affairs, as regard to the disdain on data. I use to hear my employers stress that the "devil lies in the detail"-meant data. In fact such is the aversion to looking at data that some political parties are born to turn it over its head for their election manifesto!! so much so for the academia who are paid by these rulers!!
Data neglect or distortion has become a part of our daily lives across all classes, starting with politics. The old saying "a lie if repeatedly told, becomes the truth."
Luis, As a Chicago Booth grad, I found this article very thrilling. Especially because there is a similar (if not worse) situation here in Indonesia. Many believe that our country was founded on socialist ideal. Politicians with socialist-type programs are hugely popular (watch out for our upcoming presidential election). We need to have a CCS here!
Thanks Nur Aman for mentioning CCS in your comment. The generation after the reforms is not as diehard but a lot needs to be done to expose them to alternative point of view.
Nur, thanks for your comments ... I love doing a session at CCS on public choice ... it looks at the challenges posed due to differences in interests, incentives and information. Reality is not what it seems to be.
Luis, The problem is much more deep rooted than it appears to be. Firstly legally education can not be imparted 'for profit' in India. That is a disincentive for serious players to enter the sector. A good number of private players in the field resort to dubious means to circumvent the law. There is no incentive for existing universities to upgrade. There will never be unless they face existential crisis due to competition. So most of them muddle along. There has not been a vision and leadership to promote the culture of research. For bulk of the students a degree is just a precursor to a job. Socialism for the political leadership is a holy cow. It can be easily misrepresented to gain mass appeal. India story in last 2 decades has been one of entrepreneurship bottom up. Owing to the sub standard quality of elected reps, the scenario is not going to change soon.
Dear DInesh, I agree with your comments. I just have one comment - many of the world's best colleges across the world, including in India, are private non-profits. There is a difference between government, private non-profit and private for-profit.
Luis,my experience was similar with some of the the "experienced"faculty of economics in Madras University. I found them having predetermined views as they had little exposure to diverse schools of thought on the role of markets, private service delivery in infrastructure and the like . You can imagine the plight of the students. On a different but more serious note, I strongly feel that students of law, practising lawyers and judicial experts should be exposed to diverse economic models of public and private ownership, markets and realted concepts of economics beyond socialisim . Inadequate appreciation of economics and public policy can be very costly for the society and economy in today's contxt when most of the policy decisions be it telecom auction/audit, mining are challenged and settled in the courts of law - bala
Bala, I agree.
Luis I had similar experience when i spoke to PG student sof economics in Madras University. Many students it seems are not exposed to different schools of thought on markets , privatisation and the like. On a different note students of law , lawyers and judges have to be exposed to these economic concepts as most of the major policy decisions ( say licensing , auction, mining) are increasingly challenged in courts of law and inadequate appreciation of economics and public policy may impair judicial pronouncements with huge consequences for the economya nd the society.- bala
Dr Suresh Deman
There is nothing new in what Dr Panagaria says about role of market forces in reduction of poverty by focusing on increasing the size of the pie i.e., growth. Since there is no room for distribution in the Neo-Classical theory, like most protagonist of market economy he could not have added more. However, moment of truth is since the WWII both disparities and poverty has increased globally. Percolation effect does not work and people can't wait infinitely for Manna from the Heaven to fall from nowhere. For Neo=Classical theorists if you are 'unemployed or poor', it is too bad and they should blame God for it because for Panagaria, their MP is either Zero or negative? Once I was told wealth creation is not only privilege but also a social responsibility, so there is nothing wrong is using public money to save banks failures due to market inefficiencies or failures. Then why it is not a social responsibility to save people from poverty. The promise of that glorious fulfillment is investment in human capital formation by combing economic growth with social justice.
Suresh, no one denies the need for social justice. But to think that the State can do it more efficiently is being naive - what has the past 60 years shown us? And the free markets can work with morals.
Dr Suresh Deman
Luis: Free markets and morals are contradictory things that you can see in India height of corruption with growth and prosperity for a few created a new corporate middle class who always looks up and not down at those who are less fortunate ones. Despite global financial crises since 2008 I found it quite disheartening anyone advocating free market economy which has just become a religion. What more evidence one needs as Random Walk is no longer random as the drunken man has not yet found his home since 2008. Perhaps you have read Paul Krugman's article in NY Times, "Why Economist got it wrong"... After all since the publication of Theory of Value, it appears no one has seriously addressed the issues raised by Laffont, Herbert Simon and John Romer?
Dr Deman, You have to understand that Paul Krugman is considered hallow with respect to his non-empirical rheoteric lately. 2008 is unavoidable even if you have strict regime, if the rule setters are of no clue.
If 2008 was unavoidable why no financial economist could give any hint except Raghuram Rajan? It is lot easy to rationalise ex-post.
Most of the college economics do not focus on empirical data to study the society. Understanding data and interpreting information out of it is not emphasized in the college education. Also, most of learning is rote, with professors belching out theories with no questioning encouraged. There is no active discussion of economics in the classroom. Economics should be everyday life. We can analyze everyday problems with economics angle. The current curriculum is not up-breast with latest trends in economics and changes in this dynamic field and the syllabus does not get updated every two years.
Sitara. Unfortunately this is true. But things are changing. At St Xavier's College in Mumbai, I was amazed to see the syllabus being discussed openly with a couple of students also taking part in the discussion with the faculty and outside 'experts'. This open culture of determining what should be taught hopefully will cover other colleges also. Also new liberal arts colleges like FLAME, near Pune, and Ashoka University, near Delhi, will see less of rote and more of empirical data and debate.
Very well written article highlighting a major problem in all education, not just economics in India. Academics are atleast 10 years behind Industry consequently we have research that says a majority of India graduates are unfit for jobs after graduation. Well how can they be ?
Tushar, hopefully new institutions (like Ashoka University and FLAME) and autonomous colleges (like St Xavier's Mumbai) will lead the change. Don't expect to see huge changes soon across the country - it will take at least 25 years (a full generation) before we can see real change across the country and that is if we start focussing on this now ...
Venkat Surya Subrahmanyam
Even I was in teaching for some time.I agreee with you the changes which are taking in the various fields must be updated to the students.But do you really know how students are really interested in knowing these facts.To my knowledge for students at the MBA Level economics is only a theoritical subject which they have to get through in one of the semisters.No one is really interested in learning about the various theories and if you start talking about these things you are labeled as a bad teacher.Where is the problem lying is it with the students or the teaching community or the management itself.Well I think all of them have contributed a little towards this situation
Venkat, possibly all 3 are responsible. Many professors talk about the lack of interest by students. One reason is also that the fees are so low in most colleges that the value is not seen. And attendance is not strict in most colleges. The concept of widespread bunking of classes is not seen in US campuses.
Sridhar Deshpande
The system of teaching Social Sciences must change in India. We are just going by our old outdated method of learning social issues and concerns ignoring the actual changes social setup around us. The Social Sciences have the biggest laboratories compared to Other Science subject. The changing Society it self is that Lab where they can find so many Social Problems for which they have find solutions that is missing in our education system. Particularly it has to be imparted among our Rural Students who are not aware of these things.
Sridhar, I agree
I often quote this example during many of my conversations with students in India's classrooms. Barely 5 years ago, one used to see youngsters begging on traffic signals in India, more recently we see them selling wares -- be it toys, cellphone charging cords and the likes of it. Little research and you quickly figure out, these are affordable (perhaps 'cheap') produce from China which the youngsters are able to purchase and sell. The youngsters are able to fund the working capital for these cheaper prices goods and thereby shift from begging to tiny business men. In short, when capital becomes cheaper, and the hurdle rates reduce, even the uneducated for the same skill sets upgrade. Question is where does India's capital go -- it goes to companies such as Infosys and their counterparts in other industrues -- for the banks get a handsome returns on their capital. Question is: Have we ever compared the efficiency of capital utilization by these companies vis-a-vis their peer groups in other nations? When a 100K organization generates $7bn of revenue whereas another contemporary entity from the same industry from a different shore generates $100bn with another 100K staff, then something is seriously amiss in this approach of celebrating apparent "market savvy" industrialists.
Venkat, worth exploring ... different parts of the value chain and different cost structures.
It is very good to look at every view point. Should we not have the freedom to make the final decision? Capitalism and free market economics is one way of looking at things. What are the other alternatives? I agree that Indian college education has fallen behind and needs to catch up with the rest of the world. Manipal University is not a good representation of Indian higher education! Your arguments need to be backed by good data sir!
Sudhakaran, of course everyone should have the freedom to choose ... but they need to be shown the alternatives so that they can make an informed choice. And I agree that Manipal is not a good representation of higher education in India - it is a good representation of GOOD higher education in India .. and I am basing it on the rankings of universities in India ... at least that is what the data says.
Sanjeev Sabhlok
Behavioural economics! No, stay away. Overall, point well taken.
Sanjeev, yes, there are many who believe that behaviourial economics is a fad. But I have used Thaler's ideas very successfully in fund raising ... over time, as we learn more about how the brain works, this stream of economics will become more important. All I am saying is that we need to expose our students to new ideas and theories.
See, its clear that you are pro-markets, if not from your article then from your profile. Now take health and education - there is also data and research showing that health has worsened and education quality has dropped. Without mentioning such research, are you not falling into the same trap of being biased?
In 1974, there were seven Engineering Colleges in Tamil Nadu, three in Madras (Chennai), three in Coimbatore, and one in Salem with a total number of engineering graduates around 2000. Now in Tamil Nadu there are now 500 engineering colleges with 2 Lakh engineering graduates every year. What this data suggests.
Is it so ? I thought the very opposite has happened, if you are talking post liberalization. Can you show some date ?
Most of the increase in the number of engineering colleges happened since 1991. There was not much increase from 1974 and 1991. Maybe only 20 to 30 engineering colleges before 1991.
Dear Nag, yes I am pro-markets. And I have to thank Nandagopal for the data. Last year I spent two weeks in Manipur and Nagaland - parents (who have never finished school) want to send their kids to private schools. I then spent 3 weeks with government schools in Leh - these schools have reached to remote villages and we met a handful of brilliant teachers; but the average quality of learning (reflected in the ASER data) is poor. In some parts of the country private engineering and management colleges are being shut down - this is a good sign of the fact that markets are working. A bad product has to be stopped. But I haven't come across situations where 'badly' run government colleges and schools are being shut down. The private engineering colleges in the south have been much maligned because of their poor quality. But if it wasn't for these private colleges the IT boom in India may have never taken off.
Yes, the quality of private engineering colleges can't be guaranteed but in a free market, when they have to compete with better colleges, either they have to raise their standard or perish and close down. But, the Government colleges which are far worse than many private collages continue to function.
Luis Miranda
Luis Miranda started investing in India's infrastructure before it became fashionable. He started IDFC Private Equity and was earlier a part of the start-up team of HDFC Bank.
Luis has invested in and has been on the boards of companies like GMR Infrastructure, Delhi International Airport, Gujarat Pipavav Port, Gujarat State Petronet, L&T Infrastructure and Manipal Global Education.
Today he is involved with various non-profits like Centre for Civil Society, SNEHA, Human Rights Watch, Gateway House and Samhita Social Ventures. Luis graduated with an MBA from Chicago Booth.
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February 13, 2014 23:12 pm by Luis
we talked .... thanks
February 13, 2014 23:11 pm by Nur
Data neglect or distortion has become a part of our daily lives across all classes, starting with politics. The old saying "a lie if repeatedly told, becomes the truth."
February 13, 2014 23:10 pm by Nur
Nur, thanks for your comments ... I love doing a session at CCS on public choice ... it looks at the challenges posed due to differences in interests, incentives and information. Reality is not what it seems to be.
February 12, 2014 15:34 pm by Debdatta Das
Dear Luis, I urgently needed your email id. I am from Random House India and wanted to discuss some ideas with you on the lines of your blog subjects. they've been great reads and have portrayed some interesting insights. Do send me your mail id as soon as possible.
February 04, 2014 19:40 pm by parth
Thanks Nur Aman for mentioning CCS in your comment. The generation after the reforms is not as diehard but a lot needs to be done to expose them to alternative point of view.