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Aadhaar – catching crooks & criminals

UIDAI members

The Aadhaar fever started in 2009, when the UPA government was in office. It encountered turbulent times in 2014 when the government changed. But Prime Minister Narendra Modi, a technology enthusiast, was persuaded to look beyond the past at the opportunity it gave to reduce official discretion and corruption, whilst targeting and delivering public services.

Inspirational achievements: Speed, scale, low cost & sustainable institutions

The results have been impressive on three counts — speed, cost and sustainability. First, the system was scaled up at breathtaking speed. Around 15 citizens were digitally registered every second, over seven years, assuming a 60-hour week.  Registering 1.2 billion residents out of around 1.3 billion, in a country spanning 3.3 million sq km is by itself a “never- before” achievement.

Second, unbelievably, this feat was achieved at a nominal cost of Rs 73, a little more than $1, per person. The norm for biometric identification anywhere else has been at least $10 per person. Clearly, frugal Indian innovation was at its best here.

Third, Nandan Nilekani, the single parent of Aadhaar, moved on in early 2014, serially to politics, social impact ventures and today heads Infosys as its non-executive chairman. Small, effective public institutions — UIDAI had a sanctioned staff of just 115 in 2009 — tend to be helmed by charismatic banyan trees — leaders who allow nothing to grow under their horizontally spread branches. But the Unique Identification Authority of India (UIDAI), which he first headed, continues to flourish, which speaks volumes of its sustainable management systems and the quality of successor chairpersons.

Why, then, the angst?

So why then the public angst against Aadhaar? Three reasons come to mind — all of them related not to the technical effectiveness of the system itself but the manner in which it is proposed to be used.

Illegal immigrants are rich political fodder

First comes politics. Illegal immigrants from Bangladesh — between three million to 20 million — along with legal immigrants from Nepal, have acquired voter IDs and ration cards. They are difficult to distinguish from their neighbours. But it has also suited the government politically, till now, to not identify such immigrants. Aadhaar can upset political calculations. Targeting Aadhaar at residents — a more inclusive genre — than citizens was a compromise solution. But the threat remains that this powerful data set will feed into culling voter lists of duplicates or ghosts and weeding out passports wrongly issued to people who were never Indian citizens.

We are all “crooks”

Second is the scale of disruption associated with ending corruption. Consider that 14 per cent of Indians, or 180 million, have a driving licence. But one-third are fake and many more are improperly given to ineligible drivers — a key factor in road fatalities.  290 million Indians have a unique number called PAN, required for filing income-tax. But 80 per cent are not authenticated with the Aadhaar database. This illustrates the poor integrity of the tax database.

Big bang reform catches headlines but induces a push back

Third, managerial ambitions have outrun executive caution in graduating the pushback from those adversely affected. From being a back-office tool, Aadhaar has become a digital shortcut to cull ghosts from the burgeoning food security scheme; weed out manipulations in income-tax submissions; introduce a security check over phone connections or use big data to link bank accounts, phone numbers, vehicles, houses, financial investments with each biometrically identified individual. Aadhaar is the shortcut to dig out our dirty secrets. And no one likes that.

Protection needed against low data integrity at time of issue & poor connectivity for authentication of Aadhar

aadhar center

Section 7 of the Aadhaar Act 2016 specifies that Aadhaar shall not be the sole arbiter of identity for accessing public benefits.  Section 5 makes it obligatory for UIDAI to get those, who lack identity documents — children, women, the specially-abled, senior citizens, workers in the unorganised sector, nomads are mentioned — covered under Aadhaar by other means. The intention is clear. The State must devise methods to include all residents in the database and ensure, till then, that the flow of public benefits to eligible recipients continues uninterrupted. Similarly, the onus for protecting the privacy of the individual is on the State. The government has no option except to align with the law. Indeed, it seems to have already diluted its hard stance on the timeline for the implementation of Aadhaar.

Rolling back or stalling the program a poor option

Two options present themselves for the way forward. First, the government could downsize its ambitions for Aadhaar and allow other modes of identity verification to continue till the availability of Aadhaar becomes universal and, more important, the hardware for authenticating Aadhaar is widely available. This is unlikely, in the short term, till the Bharatnet fibre cables have been laid and are operational in all gram panchayats. Just one-fourth are connected today. But the more real downside here is of a slide into never-ending inertia. This seems alien to the present government’s style.

Prescribe fall-back identity authentications with better oversight over the quality of initial data capture 

AAdhaar alt

The second and better option is to deal with the fears of activists who have petitioned the Supreme Court against linking bank accounts and phones with Aadhaar. With respect to privacy, the fact that the State will be able to trace individuals behind phone conversations or bank accounts seems innocuous. On the contrary, both security and tax revenue considerations point to this being desirable, if not essential.

Better branding: disseminate tax and security advantages of Aadhar widely

The government has advertised the Aadhaar principally as a means to transfer benefits to citizens in a more targeted manner and thereby optimise the public subsidy on such benefits. But this is only part of the story. Aadhaar is a significant tool in increasing tax revenue and bringing criminals to justice. What is in it for those who do not enjoy social security benefits? They must be made aware of how Aadhaar creates a trade off between privacy on the one hand and public finance and security on the other. It must be re-branded as a broad governance tool. It should take a cue from what President Obama said about privacy concerns. No individual right, against the State, is perfect. It must needs bow to the larger public interest.

Theoretically, any information, available with the State, can be misused to violate the privacy of an individual. But surely an income-tax officer using the Aadhaar authentication to check if you have included all your bank accounts in your tax return does not fall in that category. What about a duly authorised police officer who traces the owners of phone numbers talking about crime or a threat to public security? Protocols for tapping phones and accessing details of private bank accounts already exist. The Aadhaar link simply makes it easier and faster to catch crooks and criminals.

recovery ITGovernments rely on their credibility to gain the trust of citizens. Safeguards for individual rights do help. But only for governments that are public-spirited and well-intentioned. Once this is no longer the case, the only recourse is to voice your opinion through your vote, and good luck to you on that.

Adapted form the author’s opinion piece in The Asian Age, December 13, 2017 http://www.asianage.com/opinion/columnists/131217/aadhaar-fever-unveiling-secrets-to-secure-india.html

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bureaucracy, corruption, Digital connectedness, Economy, India, Infrastructure, Law and regulation, Tax

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TRAI should junk net neutrality

Chairman TRAI

Telecom Regulatory Authority of India (TRAI), was once the gold standard for “light touch” regulation, in stark contrast to electricity regulators, who continue today, to be stuck in byzantine rate of return regulation and administering cross subsidy between classes of users.

TRAI loses industry focus

TRAI has changed since. Consider that on November 29 it recommended to the Department of Telecommunications (DOT) that rural users should get a limited amount of data for free, funded from the Universal Service Obligation Fund (USOF) managed by DOT. To the everlasting credit of DOT, this was shot down, as unnecessary and inconsistent with the basic objective of the USOF, which principally finances telecom infrastructure.

One third of the 250,000 gram-panchayats, targeted under Bharatnet, have been connected to broadband. Tenders have been finalized to connect an additional one half. But Bharatnet is still a work in progress. Diverting funds into revenue expenditure is unwise.

TRAI’s proposal would have taken telecom down the route of electricity regulation, where subsidies for agriculture and domestic users have proved intractable and sap the viability of the distribution utilities.

Intrusive regulation has become the norm for TRAI, suitably packaged as serving the interest of the “small” user. Regulatory experience shows that governments should steer clear of distorting business incentives by subsidizing one technology over another or by benefiting a set of users either at the expense of other users (cross subsidy) or at the expense of budgetary allocations (state subsidy).

Net neutrality has its adherents but is it backward looking

Net Neutrality

It is ironic that, way back in March 2015, Facebook had proposed a privately funded initiative to provide free access to limited or curated content, in collaboration with a Telecom Service Provider (TSP) to the same “small” users, whom TRAI now wants subsidized from public funds.

Curiously, this proposal was shot down by TRAI in February 2016 as violating “net neutrality”, cheered on by vocal, Indian “netizens”. Over 1 million netizens had jammed the servers of TRAI with outraged petitions against Facebook’s proposal. NASSCOM, which represents software and content providers, added its weight to the storm, thereby protecting the business interests of incumbent content providers.

Even IT gurus like Nandan Nilekani opposed the innovative intrusion into the cozy confines of Indian IT. Paying homage to “net neutrality” was, at the time, also justified by pointing to the elaborate systems, for protection of this concept, put in place by the Federal Communications Commission (FCC) in the United States.

United States FCC to roll back “over regulation” and restore net freedom

Ajit PaiToday, a marginally Republican FCC, incidentally helmed by Indian origin, Ajit Pai, is rolling back, what it calls stifling “over regulation” of the net in the name of restoring freedom for innovation. To be sure 22 million US “netizens” have howled in orchestrated protest, against a rule change, seemingly, in favour of business. In this charged debate, anything which is pro-business is anti-consumer. A zero-sum view of commerce which is a familiar story in India.

Closer home, the November 28 recommendations of TRAI on “net-neutrality”, expectedly, carry forward the bloated carcass of Obama style intrusive regulation. TRAI is right in asserting that neutral traffic management is a technical ideal – selective blocking, slowing down or degrading specific content even when line capacity is available is banned. No one contests that generic principle.

Competition is aso an effective tool for optimisation

The real regulatory choice today is between competition in transmission, as a compelling instrument to simulate what “net neutrality” was supposed to do versus continuing with intrusive oversight over quasi-monopolistic transmission providers. Relying on and enforcing competition, seems a more effective, hands-off option in our pervasive, low-oversight ecosystem.

Another reason why “net neutrality” as a principle stands compromised is that increasingly, the transmission needs of content vary. With new services coming online, we will need multiple transmission protocols. Consider that online text need not be continuously streamed without detracting from reader pleasure. But online heart surgery support can be fatal unless continuous streaming is ensured. The same applies to internet access for driverless vehicles. TRAI has recognized these difficulties and the possibility that the Internet of Things will transform the rules for optimum scheduling of transmission.

Regulation by exception is non-transparent

TRAI’s solution falls short of transparent regulation. It has provided for exceptions, on a case-by-case basis, from “net neutrality” norms – for emergencies and unspecified “specialized services”. The latter are distinguished from general services by their targeted appeal to a narrow set of users.

Is net neutrality obsolete?

A better option would have been to review whether “net neutrality” itself is not obsolete because it will become riddled with exceptions. It was an important principle in the 1990s, to ensure market access for fledgling innovators in content provision by prescribing a merit order for getting past monopolistic telecom transmission utilities. But today competition is rife, both in transmission and in content provision. Possibly, the need of the hour for TRAI was to seek pathways downsizing regulations to simply protecting access, to basic internet services, for small users. High value-added services anyway, provide sufficient revenue incentives, for TSPs to push availability.

Providing net access remains a challenge

A massive challenge for India, per TRAI data, is that only one half of Indian citizens are connected to the internet as compared to 81 percent in the US and 76 per cent in China. Competition has reduced the access charge to affordable levels. But the quality of services is low because of under- investment in infrastructure.

Internet Service providers need new pools of revenue

Heavy penalties for non-compliance with quality standards can improve the quality of service. But TSPs finances are already under stress. Spectrum cost is high. If government earnings from spectrum are not to be reduced and user charges are to remain low, TSPs need to find new pools of revenue to fund infrastructure development. Their business models need to go beyond being just “passive pipes” – the role which “net neutrality” forces on them.

Software and content providers are not necessarily winners either in a net neutral environment. Consider that, in 2015 Facebook got stymied in India. But which Indian “edge provider” (jargon for content providers) gained from that blocking action? Rapid growth of infrastructure is the best option to fuel demand for content. This is a better incentive for innovation than protectionist regulation.

“Minimum government, maximum governance” is a Modi mantra. TRAI appears not to have been copied.

Also available at TOI Blogs December 6, 2017 https://blogs.timesofindia.indiatimes.com/opinion-india/trai-should-junk-net-neutrality/

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Digital connectedness, Economy, India, technology

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“Demonetisation” as a morality play

The politics around “demonetisation” — a misused term for what happened on November 8, 2016 — has taken centerstage in the run-up to the Assembly elections in Himachal Pradesh (that voted yesterday) and Gujarat (which goes to the polls in December). Finance minister Arun Jaitley has added “morality” to the cluster of objectives, that seemingly justified compulsorily replacing 86 per cent of our currency with new notes over a short period of just two months last year.

Whose morality?

Morality is a slippery slope to tread in public affairs. It’s certainly an individual virtue, but at a societal level it’s difficult to define. Consider the moral conundrums that arise while enforcing a law which doesn’t have widespread local acceptance. Rebels with a cause see themselves as morally-elevated outliers. Not so long ago, our freedom fighters were feted for disrupting the peace, assassination or damaging public property. Even today in areas like Kashmir or the Maoist belt in central India, it’s tough to apportion the balance of morality between those who violate the law and others who seek to enforce it.

Our Constitution, quite properly, is silent about “morality”. A quasi-moral concept of “socialism” was introduced in 1976 into the preamble, by former PM Indira Gandhi, as a populist measure. But it sits incongruously with the otherwise liberal slant of the document.

Corruption is patently immoral as it saps national wealth. Measures to fight corruption are part of public dharma. The real issue is: was demonetisation essential to end corruption?

Demonetisation to identify counterfeit money like using a hammer to kill a bug

If the objective was to weed out counterfeit money, which can fund terrorism or even legal transactions, there was no need to impose a tight timeframe of two months. This is what caused widespread panic and disruption. It would have been enough to alert the public to the menace; provide markets (banks already have them) with testing devices to weed out “compromised” notes over time. This is an ongoing activity, that all central banks do routinely, because any note (besides crypto currencies) can be counterfeited.

Better policing can identify & capture the stocks of black cash

If the objective was to capture the stocks of “black” money, held as cash, in one fell swoop, this was better done by making known “havens” of “black” cash — apparently entire warehouses — unsafe for storage through effective enforcement, coupled with strong incentives to come clean. Note that “black” money hasn’t gone away.

Black money was generated even as the notes were being replaced

Demonetisation can do very little to stop generation of black money. The government knows this. It intends to use “big data” for surveillance of potential evaders; embed governance systems with enhanced oversight and enhance transparency. Only improved technology and perpetual, intensive oversight can starve this hydra.

Was it political?

Not least the timing of the move, just before the elections in Uttar Pradesh, India’s most populous state, which sends the largest number of members to the Rajya Sabha, where the BJP didn’t have a majority, could indicate the compulsion to play to the gallery. If this was the motive it worked very well politically — not least, because UP is a poor state with low governance indicators and high levels of inequality. Hitting the rich is a tested populist strategy, perfected by former PM Indira Gandhi, and still held dear by our antiquated Communist parties.

Would Gandhiji have approved?

But demonetisation doesn’t align with Mahatma Gandhi’s precept that “means matter as much as ends”. Hitting tangentially at corruption, at the cost of scorching even the law-abiding, is unacceptable. Anti-corruption measures which ignore the social and economic collateral cost of implementation are suspect. The State has an asymmetric, fiduciary relationship of trust with citizens. Did it live up to its dharma of insulating the honest from State-induced actions intended to harm the corrupt?

Some positives – nudged people towards digital and banked transactions

Undoubtedly, demonetisation did accelerate a shift towards banked transactions and boosted digital payments. Both outcomes are winners. But it’s also true that it put a temporary brake on economic growth by disrupting business and inducing job losses, mostly in the informal sector, where workers and the self-employed are less well paid, and less well-endowed to absorb the cost of a disruption.

Means matter as much as ends

Seemingly desirable steps to make the system honest can have grossly inequitable outcomes, which Gandhiji would have termed “immoral”. It’s possible to reduce corruption by replacing income-tax with a “head tax”. Citizens are more easily identifiable than their income, so very few would be able to escape this tax. If a “head tax” were to replace income-tax, each citizen would pay Rs 3,600 per year. But consider, for 40 per cent of the population, which is vulnerable to poverty, the head tax would be a minimum 12 per cent of even the poverty level income of $1.90 per day. Currently, even an income of Rs 10 lakhs (Rs 1 million), or 22 times the poverty level income, attracts a low effective tax rate. Protecting the weak is cumbersome. It creates tax escape routes, which need to be plugged with minimum collateral damage to the weak and the honest.

GST the first efficient, corruption buster

The good news is that the Narendra Modi government has got it bang-on with its second major corruption-busting initiative: the Goods and Services Tax (GST). Implemented from July 1, 2017, it has also disrupted business and compounded job losses, arising from the shutting down of businesses, which relied on the illegal competitive advantage of avoiding tax. GST is a potent standalone, medium-term winner. This expectation mitigates the interim economic “amorality” arising from the collateral harm to innocent workers and suppliers to such businesses. The proactivity of the GST Council in correcting mistakes and acknowledging errors has only deepened its credibility and conveyed a sense of responsible stewardship. This is welcome.

Compensate for the distress & dislocation

cashless

Demonetisation was misguided even if it had “moral” end-objectives. One-fifth of our population, which suffered the most, is in the income segment of Rs 50,000 to Rs 5 lakhs (0.5 million) per year, being workers and those self-employed in the informal sector. They have still not been compensated. Hopefully, the finance minister will apply some balm in his 2018-19 Budget and bring this tragic “morality play” to a happy end.

Adapted from the author’s opinion piece in The Asian Age, November 10, 2017 http://www.asianage.com/opinion/columnists/101117/end-morality-play-its-a-misfit-in-eco-policy.html#vuukle-emotevuukle_div

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banking, BJP, bureaucracy, corruption, Democracy, Digital connectedness, Economy, elections, India, Uttar Pradesh

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Rooting out perverse incentives in GST

Hasmukh Adhia Masterclass

Muscular tactics are paying-off in the Income Tax system. The number of assesses went up by an astounding 25 percent from 37 million in March 2016 to 46 million, by March 2017 and to 63 million by mid-July 2017. The linking of Aadhar-PAN card to bank accounts; the campaign against cash and now the GST, together create desirable institutional incentives for individuals and business to bank their transactions. This provides the “push” factor for enlarging the income tax base of potential assesses.

Transformative GST  

The GST is even better designed to provide desirable incentives for enlarging the indirect tax base. Unlike, Income Tax where “push” factors compel assesses to pay tax on the income revealed via bank transactions, the GST uniquely also has “pull” factors for better tax compliance. The biggest being the facility to set-off GST paid on purchases against GST payable on sale, which reduces the net tax payable. This induces both buyers and sellers to bank their transactions – which is also good for income tax collections.

Transformative, as the GST is, glitches have inadvertently crept in, which go against the grain of positive incentives to prefer banked to cash transactions; increase value addition and boost tax revenues.

But design glitches remain

One such, relates to small service providers with annual revenues of up to Rs 2 million. Those providing services within the state are exempt from both registration and payment of GST up to this limit. But the moment they provide a service across the state borders or to a client abroad, they are compelled to get a GST registration; submit the mandatory three returns per month and much worse, pay GST on their entire revenue stream.

Killing the small cross-border service provider

Individual IT professionals writing code or designing websites routinely get contracted over the internet to provide services to overseas clients or to clients across state borders. Each contract may be as low as Rs 20,000. But all these professionals will need to get registered and incur the transaction cost on submitting monthly GST returns. For these small service providers, the price points are highly competitive. It is unlikely that clients will be willing to part with the 18 percent GST for out of state providers. They will be pushed to get registered and pay the GST themselves or absorb the tax in the price they charge with the GST paid on the purchase by the client.

The net result will be that out- of-state small service providers will become uncompetitive and may stop seeking work outside their states, reducing competition. GST which was meant to create a Pan Indian national market will instead, end up creating intra-state silos for small service providers.

The negative impact is fiscally marginal but it rankles

This design flaw will also impact income tax revenue. Service providers whose annual billing reaches Rs 1.6 million within a state, will refuse out-of-state work of less than Rs 0.5 million because, by increasing their out-of-state billing by up to Rs 0.4 million they end up paying the entire incremental amount as GST.

If 2 million small service providers, ranging from civil contractors, designers to business consultants, refuse additional work due to this reason, the government loses Rs 18 billion as income tax. This calculation assumes a tax rate of 20 percent and the underlying taxable income lost at one half of the amount of work refused.

Protection for local service providers breeds inefficiency

The “infant industry” proposition can be used to justify discouraging cross border services and thereby encouraging small local service providers to ramp up their capacity and fill the gap. This may well be true. But it rankles against the pan-Indian tax framework objective of promoting efficiency and competition. It is also, against the logic of digital India which is meant to enable seamless work across state and international borders.

Whence the pan-Indian market and digital India?

Admittedly lost income tax revenue of Rs 18 billion is small change, in an income tax kitty of around Rs 4 trillion. But it is personally frustrating for small service providers who can see the cross-border opportunity to expand their business but are blocked by the “deadweight” amount of Rs 0.4 million of billing, which equals the GST they would pay by increasing their billing to Rs 2 million, if some part of it coming from cross border contracts.

Have a common GST exemption limit irrespective of location of the client

Is there a way of getting away from this flawed design? Yes, there is. The first option is to extend a common GST exemption limit to all service provision, irrespective of whether it is within state, across state borders or overseas. This immediately removes the “deadweight” of GST becoming payable, the moment a cross border transaction, no matter how small, is made.

Tax only the incremental revenue above the GST exemption limit

However, this still leaves the problem of expanding billing above Rs 2 million and thereby losing the exemption from GST on the initial Rs 2 million. Adopting the principle of taxing only the incremental amount, as used in the Income Tax, can effectively avoid the perverse incentive for opting for cash based transactions to avoid losing the tax exemption above a billing of Rs 2 million, till billing expands substantially beyond Rs 2.4 million, at which point it would neutralize the additional GST paid and yield a net income increase for the supplier.

Harmonise tax exemptions under IT and GST to reduce reduce the compliance cost 

The best option is to harmonize the exemption limits under GST and income tax. The current income tax regime presumes taxable income at 50 percent of billing, unless shown otherwise. A billing of Rs 0.5 million corresponds to a net taxable income of Rs 0.25 million which is also the maximum limit for income exempt from income tax. Hence the exemption limit for GST could be reduced to Rs 0.5 million from the existing limit of Rs 2 million. But rolling back exemptions is tough. Alternatively, the exemption limit in Income Tax could be increased to Rs 1 million. Enhancing the income tax exemption limit is the preferred option.

The number of income tax assesses increased by 25 percent in 2016-17 over the previous year. In comparison the revenue from Income Tax increased by 18.4 percent. Tax yields are lagging increase in assesses. Efficient tax collection practices would point towards focusing on high value targets rather than cluttering up the system with marginal yield assesses until tax filing systems are vastly more simplified and easy to follow for the average citizen.

This article is also available at http://blogs.timesofindia.indiatimes.com/opinion-india/end-perverse-incentives-for-small-service-providers-in-gst/

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Digital connectedness, Economy, India, Tax

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Book Review

 

parag-khanna

Connectography: Mapping the Global Network Revolution, Parag Khanna, Weidenfeld and Nicolson, 2016

In the 1980s, Disney World, Florida offered a gripping, virtual journey as viewed by a blood corpuscle as it rushes through the arteries, veins, into and out of organs in the human body. Parag Khanna’s fourth and latest book –Connectography: Mapping the Global Network Revolution – does much the same for the world of physical and digital infrastructure -roads, railway tracks, power lines, communication cables, oceans, rivers, canals and electrons joining suppliers to customers, uniting families physically and virtually, whilst creating ever widening value enhancing networks around mega cities.

In this world, national borders are little more than irritants; national sovereignty a barrier to be overcome; national passports a poor substitute for global identity options and the ownership of land valueless, unless it is part of global supply chains.

Global citizen

parag-khanna-2

Parag is a self-confessed global citizen. He was born in India, grew up in the United Arab Emirates, studied in the US, works in Singapore but feels at home anywhere – chatting with Chinese workers in Tibet, Turkish Gastarbeiters in Germany or breakfasting with the President of Mongolia in Ulan Bator. There are around 300 million others like him. This book describes the way the world could be from the view point of global citizens. A world without borders or intrusive governments; self-regulating businesses kept customer friendly by competition; open markets allowing capital and goods to move freely, perpetually in search of optimizing costs and maximizing value.

Open economy

The virtues of the “open economy, networked” universe are generally accepted today, even if most peoples’ view on markets is similar to their opinion of democracy – not the best option but better than anything else available.

Parag hammers away at re-establishing these generic concepts with relentlessly energy via a high octane delivery, interspersed with a wealth of granular information to buttress his argument. It helps that the book is extensively researched. Its bibliography lists nearly 500 references and almost each page has a quotable quote. An added attraction is the 38 color plates which illustrate what connectography could look like. Maps or traditional cartography which represent geographical or political features, actually tell us very little about the world. These are of little use beyond being partial navigational aids. Consider that Singapore is a mere dot on the world map with just 0.1 percent of the world’s population. But if countries were mapped to scale on the size of their GDP, it would be twice the size of Bangladesh. Does Singapore’s land size or population determine its function in the world today or its economic heft?

Connectivity is key

The book is divided into five parts. Part one dwells on the truism that connectivity and not territory or resource endowments, are the arbiter of how nations grow. In a riposte to the reasons listed by Paul Collier of why nations fail, Parag argues, that countries can overcome the disadvantage of poor geophysical endowments. There is hope even for land locked nations, like Rwanda. Despite being resource poor, it is one of the fastest growing economies, in Africa, because it actively searches out opportunities for becoming part of global supply chains.

The withering Nation State

Part two posits controversially, that the nation state is an artificial construct whose longevity is explained by inertia rather than any irreplaceable value addition ascribable to it. This is especially true in nation states which spend much time and effort to reconcile mutually antagonistic and parochial domestic stakeholder identities. Far better then, to devolve power away to homogenous, smaller sub entities – tribes, communities, companies and cities which, in any case, are the basic framework for solidarity and common interest.

The recent splintered vote in Britain, with London, Scotland and Northern Ireland voting to remain in the European Union whilst the rest of the country voted to exit, seems to illustrate the inherent fragility of nation states in the face of sharp internal divisions based on self-interest. The nation state is similarly powerless against the loss of sovereignty to larger regional aggregations- earlier the United Nations, cold war alignments and now regional trading blocks. Better connectedness and communications fosters this trend towards aggregation, driven by Metcalfe’s law that the value of a network increases proportionately to the square of the number of interconnected users. Scale is everything.

Sub- national entities are stable

Part three asserts that a future world of connected sub-national entities aggregated into large regional entities, is a more stable and competitive arrangement than the present geopolitical architecture. Sovereign nations seem besieged by split mandates and dissidence at home whilst simultaneously assaulted by external threats. Competitive connectivity trumps national sovereignty. There is no incentive for destabilizing any actor because all are connected for mutual gain. In comparison, Orwellian instability is built into the DNA of competing nation states.

Snap shot of a connected future

Part four fleshes out the future as a landscape of connected megacities. Multinational businesses will be replicas of the Dutch 19th century colonial empire – a web of small enclaves – business hubs for a global supply chain. The nodes of growth would be the four thousand Special Export or Economic Zones, which dot the world today and are also the foundation of China’s extraordinary economic growth.

….and everything else

Part five is mixed fare – an overview of current issues in the digital economy; the genetic transformation resulting from human cross breeding inherent in the physical movement of more people across the globe than ever before- provocatively titled “a mongrel civilization”- and how to best deal with the competing needs of conserving nature and welfare enhancing growth.

For resilient readers only

This is not a book for the faint hearted. The style varies from the explanatory; the exhortatory to being chattily conversational. Some parts are too dense for a lazy afternoon’s read. Others, particularly where the author links his own experiences to more generic issues are lucid and revealing. Editing is unfortunately, lackluster. Rwanda is not a country which is natural resource rich as claimed on page 94; the lead paragraph on page 337 under the attractive title “The digital identity buffet” is an incomprehensible, single sentence of seventy-one words! Deng Xiaoping’s reforms kicked in during the 1980’s in China, not the 1970s as page 380 claims.

Read this book if you are interested in knowing more about the intersections between globalization, geopolitics, business, technology, urbanization and culture. If you are looking for deep knowledge in any one of these areas, you are likely to be disappointed. If you are looking for a new theory of development or growth, it isn’t here. What you do have is masses of information brought together anecdotally in a narrative format.

This is a tour de force of contemporary world trends with attractive, self-explanatory titles to each of the seventy-eight sub chapters. Each of these is self-contained so you don’t have to read the book sequentially. And don’t miss the quotable quotes. My favorite is “a smart rabbit keeps three holes to hide in” to explain why large numbers of Chinese citizens invest in the US or Canada as a safe haven option.

If you are looking for advice on very long term business investments, check out the heat map on plate 31. Be warned, India, China, Africa, Southern Europe, the US and South America may all be deserts by 2100 dried out by the ravages of climate change – unlivable but good for generating solar power. Think instead of investing in Canada, Greenland, Northern Europe, Russia and Western Antarctica, where the climate is expected to be salubrious and the resources plentiful for the depleted population which manages to emigrate there.

This book review by the author first appeared in Swarajyamag, August 2016 http://swarajyamag.com/

 

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Book Review, Digital connectedness, Economy, India, Infrastructure, Space

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