The Indian Economy Blog

July 8, 2008

Economic Illiteracy

Filed under: Basic Questions,Education,Human Capital,Media & Economics — Prashant @ 7:06 am

Mukul Asher, a professor at the LKY School of Public Policy in Singapore and Amarendu Nandy, a research scholar at the same university, have a thought-provoking guest post:

A recent ASSOCHAM Business Barometer Survey of 258 faculty members of MBA programs in India found that most professors did not know basic facts about the national and global economy.

“89 per cent of the teachers were unable to tell the GDP growth rate scaled by the Indian economy in the financial year 2006-07.

The survey further divulged that hardly 6 per cent of the lecturers surveyed read any business newspaper on regular basis. Moreover, persistent readers of business magazines were negligible”.

The appalling ignorance of these faculty members is symptomatic of an endemic financial and economic illiteracy among wide sections of Indian society, including intellectuals, media, politicians, policymakers, and the bureaucracy.

India’s economic illiteracy explains the pedestrian quality of most discussions about the economy — they rarely reflect an appropriate mental picture of India’s economic structure, its sources of growth and competitiveness, its vulnerabilities and challenges.

As we explain at more length in our Pragati essay, in terms of immediate public policy priorities, incorporation of economics in the education curricula is essential for multiple reasons – to increase the employability of graduates, to help manage social change better, to ensure more effective design and delivery of public services, to obtain a better ROI from budgetary outlays and ensure better governance.

Speaking of governance, for instance: policymakers are not sufficiently held accountable for their poor decisions which display a shameful and at times, willful, ignorance of basic economic principles. A prime example (just one of many) is the National Rural Employment Guarantee Scheme, which ignores the vital concepts of opportunity cost and moral hazard, and is not based on robust empirical evidence.

India’s hopes of moving into the 21st century and its dreams of reaping the so-called demographic dividend are unlikely to fructify unless the education establishment at the Centre and the States rethink the curricula and its priorities.

Questions:

1) Do you agree with Asher & Nandy? If so, how does that square with Ramesh Venkataraman’s view that “today’s electorate is starting to view government less as a mai-baap granting entitlements — seats in colleges, jobs in the public sector, subsidies — and more as an enabler of opportunities.”

2) At first blush, I would have assumed that an economically literate populace was a prerequisite for sound economic policy decisions. However, is that really true of the other developing countries, especially the Asian tigers? Can someone with first-hand experience of those countries comment? And, if they’re as bad as (or not much better than) India in terms of economic illiteracy (as I suspect), what explains their economic decision-making? The East Asian countries’ economic policies may be far from ideal, but I find it hard to believe that they’ve managed to come so far and so quickly on the basis of worthless economic policies.

24 Comments »

  1. [...] Indian Economy on Economic Illiteracy. I just don’t understand the fancy for addressing various kinds of [...]

    Pingback by Assorted Links « Mostly Economics — July 8, 2008 @ 9:12 am

  2. And yet…Americans remain terrified of India.

    We read that there are more Indian engineering students that American college students

    We intereact with the elite 3% of the Indian workforce, and assume the remaining billion Indians are of similar quality.

    Americans think that the average Indian is 2.5 meters tall, bulletproof, and has a 180 IQ.

    Comment by John Galt — July 8, 2008 @ 10:00 am

  3. Ha!
    The illiteracy is not restricted to just economics. Recently I was interviewing IIT graduates for an engineering job (for different disciplines -Electrical/Electronics/Chemical). NONE of them knew even the basics of engineering, which was kind of shocking. They were however all arrogant and wanted to know if we could up their existing offers (not from any technical /engineering companies mind you but from assorted unrelated businesses like banking,insurance,software et al).
    They have all forgotten what they studied(if they ever have)and they do not even care about not knowing anything. If this is the state of the IITs, what could be the level of understanding of graduates of other institutes?
    There will be of course howls of protest from thos eof you who think IITians are the creme de la creme-to shake off this fantasy please do a campus interview the next season and ask some basic technical questions.

    Comment by Cool Head — July 8, 2008 @ 11:16 am

  4. Well Mr. Cool head,
    IITians are not the one to be blamed for this.
    Its you, sitting there, who feels that if the IQ & callibre of IITians is blended with finance et al knowledge, it would be a classic mix. You gave them offers & moreover when this trend started of recruiting engineers for various fields it was a cheaper option compared to MBA’s.
    I myself was picked up by one of the Indias largest & fastest growing private sector bank & lured me into job of credit analyst & what not,finally dumping me into sales,so lets leave it there.

    Getting back to Economic Illiteracy…
    It would be really important(though difficult) to share, what grade of colleges these faculty memebers were from. Being a statistics student I understand that 258 memebrs would be a good sample size, but the selection of samples does matter.
    I mean to say, there are some 1000 B-school in India but what really matters is that where these faculty memebers were from; top notch or the B-grade, C-grade. In any case such surveys shouldmake it to top newsprints to show case it to NKC & moreover to students & faculty members

    Comment by Gorbachev — July 8, 2008 @ 4:24 pm

  5. Show the success of Thomas Macaulay. This is a universal phenomenon and not restricted to the Indian professors. The scholars can conduct the same audit in any western nation with equally appalling results.
    If such is the state of the so called educated elite you can imagine the apathy of the average population.

    The average global population is made to search for one villain for all their troubles. Find him/her; defeat him/her and you will live happily ever after. When the villain abounds in multitudes they simply walk away in apathy. The unwillingness to keep themselves abreast is due to apathy and not incompetence.

    History — Economics — Politics

    are the ultimate Triumvirate in social awareness. As long as the masses are ignorant about either of these three, they will never be truly educated.

    BTW : Did you know that India and China were either the 2nd or 1st largest economy in the world during the entire Mugal history spanning 7 centuries. We were numero Uno during the entire Aurangazeb era !! So much for history awareness

    Comment by goldwinner — July 8, 2008 @ 8:54 pm

  6. Uh, John, one of the big problem with India’s education system is the lack of meritocracy, so we don’t know if in fact those Indians in the US are at the very tip of the Indian workforce. The less wealthy people in India have virtually no Post Secondary chances whatsoever, due to the cost of education (I assure you that you will never meet an Indian doctor trained in India whose family wasn’t already insanely wealthy). In other words, a massive section of India’s population is ignored. And having recently visited India a few months ago, I had a sneaking suspicion that it is among the poor that India’s real brains are. I don’t think dummies can easily survive in that kind of society….unless of course, those dummies happen to have rich parents.
    Though I do agree that there is no way Indian people in general are as intelligent as those that migrated to the US – there’s no way any large group of people is for that matter, but I also don’t think they are anywhere near the top 3% of Indians.
    BTW, how does the US filter out those Indians who have a ‘degree’ but really don’t know anything about the field they got their ‘degree’ in? Or do they just become the taxi drivers when they arrive?
    Oh, and 2.5 meters tall? Indians?? C’mon, everyone knows that we’re a diminutive people :P.

    Regarding the article: I agree with goldwinner. Living in Canada, I don’t see much economic literacy among any group of people, other than the economists. Most people will just parrot what they hear on the news or from friends. They certainly don’t have enough understanding to grasp most of what the politicians are talking about during election times. Hell, most people here would see the Rural Employment Guarantee as a brilliant policy! The difference is, I guess, the people that need to have a firm grasp on economics have it here, but these kinds of people in India don’t, or won’t bother to apply it. Though it can be argued that to keep India and Indians down for 60 years, you HAVE to be a pretty good economist, no? What politician in his right mind would want an India that is developed?

    Comment by Singh — July 8, 2008 @ 9:42 pm

  7. more than economic illiteracy, there is a deep instillied fear and hatred about capitalism with our people. the ‘socialistic’ decades, esp the hystrical 60s and 70s (when Piloo Mody came to Paliament with tag : I am a CIA agent !!), the rhetoric against big business, ‘concenration of economic power’ , US hegomony, etc were at its peak.
    Until the 90s it was common for the politicians (all shades except the JAn Sangh variety) to mount high pitched abuses in public against buisness, foreign investments, MNCs, IMF, WB, etc. the continous drumming of all this nonsense (and blatantly false)
    into the public psyche still lingers. it may take many more decades for ‘normal’ attitude to develop. Lots of otherwise ‘sane’ people who enjoy the fruits of MNCs and free markets ‘oppose’ capitalsim or free markets. and they are not communists either.
    simply ignorant or …..

    Comment by K.R.Athiyaman — July 10, 2008 @ 3:36 pm

  8. K. R. Athiyaman

    “Otherwise sane” people who benefit from capitalism and free markets but oppose the same because they are “simply ignorant”

    You agreeing with the blog post, then.

    Comment by Prashant — July 11, 2008 @ 2:24 am

  9. I think most on here fail to acknowledge a very good point made by Prashant. By and large most people are very poorly informed on the economy apart from the daily headlines. Very few take time to do a little research on issues. It matters very little to most on why the way things are the way they are. As long as there is the local rag to feed them whatever the latest headline is.

    Acknowledging a weakness is the way to go. Once awareness emerges of the huge opporunity that comes with being more informed things will change. This is a matter of progress and maturity.

    I am prone to agree with goldwinner that the results of a similar survey in other places may just bring some interesting information to the table.

    Comment by Nikhil Nayak — July 11, 2008 @ 10:43 pm

  10. It is unreasonable to expect general public to understand the ins and out of economics. For example neither the sales person who sold the loan nor the borrower who is suffering from the mortgage mess really understand how their predicament causes US Fedral bank to bail out Bear Stearns. When this is the plain truth, how does one expect a car salesman in Bangalore (for instance) to be any more knowledgeable.

    Having said that it is strange that B school professors do not read any business magazines. If you are teaching something (especially something that changes from day to day as management does), how can you afford to not stay up to date?

    Comment by Chandra — July 13, 2008 @ 11:32 am

  11. From vBharat.com » Economic Illiteracy…

    Mukul Asher, a professor at the LKY School of Public Policy in Singapore and Amarendu Nandy, a research scholar at the same university, have a thought-provoking guest post:A recent ASSOCHAM Business Barometer Survey of 258 faculty members of MBA progra…

    Trackback by vBharat.com » Economic Illiteracy — July 14, 2008 @ 5:56 am

  12. well I am not at all astonished with the findings..there is a huge and widening faculty crunch in the country as a result I think most colleges are forced to accept whatever there is on offer.

    Education especially in the engineering schools has deteriorated primarily because they haven’t kept pace with the times, the labs are the same, teaching methologies, it’s about marks and getting through somehow(at the under grad level atleast)…this you kind of saps the interest which a person coming out of school might be having…so at the end of the day on thinks why to slog so much..will pass somehow and get a job…..for research, and meaningful highed education one has to look towards the West!

    Comment by rahul — July 15, 2008 @ 8:04 am

  13. good article please continue the same

    Comment by vijay — July 19, 2008 @ 11:04 am

  14. Its very sad to see the economic literacy level. May be the sampling distribution also to be considered.

    //A prime example (just one of many) is the National Rural Employment Guarantee Scheme, which ignores the vital concepts of opportunity cost and moral hazard, and is not based on robust empirical evidence. //

    I think its not good to compare a govt policy/scheme with all sort of western economic terms and try to prove it all wrong in theoritical way. All economists came with number of forecasts and no-One could answer the recent economic crisis in US. Its just that when there are little growth, these so called economists hyped the mortgage industry and in long run it has been proved wrong.

    Better to think our policy/scheme in a practical and macro economic way. Just go to the places directly (where the REGS is happening) and see the situation and talk about it.

    With my own life experience as a son of a village panchyat president, it does address the poverty in some part of the country where there is real poverty. In case of my village near a lot of industrial towns (tiruppr – knitting , Kangayam – Rice mills , Oil mills, Vellakovil- Powerlooms) It is really less number of people who are in poverty and nobody interested in this scheme.

    Per the scheme, the salary for men is 80 Rs – (Dont say its jus 2$ a day .. thats the real foolishness without comparing living costs) and 45 Rs for women. Even the salary cannot be paid in full cash but with PDS rice and cash. We could not find anyone for this salary and ended up paying 120 Rs for men , 80 Rs for women.

    In my view ,, I will just see whether it helps people in poverty. Yes, It does in other non-industrial part of the country. They will get salary from which they can make living for 2-3 days. It gives infrastructure to the rural areas. better roads, better lake.

    So it is a good policy. It gives money to poor. make them feel good and gives good infrastructure to rural areas.

    Comment by Dhanasekar — July 20, 2008 @ 2:15 am

  15. This observation about the state of economics education in this country is spot-on. I went to one of the country’s top B-schools and was taught by some ‘eminent’ economists. Nevertheless, economics remained one of the most poorly taught disciplines.

    This is not going to change any time soon as there are very few good teachers around, very few textbooks that can hand-hold the student through the learning that they need to acquire. I am not at all sure that the general population in other Asian countries or elsewhere is better educated. However, I suspect the best students in some other countries have a better knowledge of economics than we do and that could (partially) explain the outcome of relatively bad policies in India.

    Unless employers demand or see the need for better educated staff, we are going to keep churning out ill-educated graduates be it in engineering, or any other area. The most important thing good education does for anyone is to help you know that you do not know. Leaving this aside, in practical terms I feel a well-educated workforce should lead to greater innovation and invention. This is probably being a bit unkind, but whatever we see by way of creative endeavour is possibly in spite of our education system! It is a tribute the endless inventive capacity of human beings that we get a few wonderful things happening despite mediocrity in education.

    Rather than lamenting this state of affairs, the best we can do is to make sure that we use our individual circle of influence to spread and share what we learn. This informal educational endeavour can make up for the errors of the MBA schools and other institutes.

    Comment by little Ram — July 27, 2008 @ 2:55 pm

  16. @ little Ram says

    Rather than lamenting this state of affairs, the best we can do is to make sure that we use our individual circle of influence to spread and share what we learn. This informal educational endeavour can make up for the errors of the MBA schools and other institutes.

    Bingo, LR! This a key driver behind IEB…

    And, (ahem) we’re always looking for more people willing to “spread and share what we learn”

    Comment by Prashant — July 27, 2008 @ 3:00 pm

  17. I agree with you.

    Rather than lamenting this state of affairs, the best we can do is to make sure that we use our individual circle of influence to spread and share what we learn. This informal educational endeavour can make up for the errors of the MBA schools and other institutes.

    Comment by Jitendra — August 1, 2008 @ 6:02 pm

  18. @ little Ram says
    //This informal educational endeavor can make up for the errors of the MBA schools and other institutes.//

    Why cant we make it formal educational endeavor? We do have a large number of Indian economists, Engineers, Business leaders in western world with years of experience. Many of them still investing in Indian real estate and want to come back to India at some point in time.Why cant all make it now ? Our NRI educationists should think of coming back to home, teach students. Don’t expect the same money/infrastructure , but lets give back our life of 4-5 years for the country which gave us a lot for 20-30 years!

    We got good free/subsidized education (my Engg college fees per semester from 2001-05 is Rs.2000 to 3000 – second least in a Govt aided college, but now increased to 20-30K) and whether any of us did at least a visit to our schools back to meet teachers/students to share the learning ?

    The best we did till now is capitalize the opportunity in market economy with cheap labour and IT, invested in real estate to hype the prices, inflation and made the disparity wider. Should we look forward and do something to create a independent domestic market, helping people to understand the system, teach the benefits of paying tax and live better?

    A simple thought, taught by my friend. Don’t blame the system unless do something to correct it. First let us correct ourselves then neighbors, community and country will follow.

    Comment by Dhanasekar — August 2, 2008 @ 3:01 am

  19. there is no doubt that not only the common man but also most of the educated lot of India is economically illiterate.we have to improve ourselves and change our outlook towards economic change.

    Comment by a common man — August 23, 2008 @ 10:12 am

  20. I do not agree with this article.Most of the economics teachers i know are quite well versed and update with economic situation prevailing in the country.Actually, it is the polititians who are to be blamed for economic illiteracy.They keep us in disguise about the actual impact of deals&policies.

    Comment by ruchi sagar — August 23, 2008 @ 10:14 am

  21. I agree with this article.Economixc literacy is vital to make appropriate and practical policy decisions which will benefit the people.Today our political leaders are more interesed in votes and they lack vision. A high literacy state like Kerala for example is lagging behind .

    Comment by Rajalakshmy — August 23, 2008 @ 10:16 am

  22. Lack of adequate knowledge on the consequences of economic policies is one of the main reasons foreconomic illiteracy.In orderto have a clear understanding of the wide opportunities made available by economic reforms it is necessary to sensitise the economy on the variuos issues and challenges of gloabalisation.

    Comment by shagun — August 23, 2008 @ 10:16 am

  23. This survey’s results sound a bit unbelievable. Yes, I concur that understanding of economy is not as great as it should be among average Indians, however, show me one country where it is great. In the US of A, how can you explain people going crazy on their credit cards. Don’t they understand that the interest on the credit card debt adds and adds until one day they are deeply tangled in the web of their own making to be rescued? Don’t they understand that leasing of car is the biggest scam business? Why do they flock to auto agencies to lease a new car every few years then? The point is, not everybody in this world is born to understand and live by the numbers. Good for them who do.

    Indians are not economic illiterates. They just don’t think as much about the numbers. Kind of like the Italians.

    As for the critique of REGS, I would take the first person account of Dhansekar a bit more credibly than some public policy school professor’s musings made sitting thousands of miles away from the place of action.

    And, lastly, I don’t think that India has any dearth of good economists. What we don’t have are people who can implement the policies laid out by these economists. It is a matter of political will rather than economic intelligence.

    Comment by Reema — September 12, 2008 @ 3:04 pm

  24. The survey of business instructors is surprising, though what sort of colleges were these, in what areas? As a measure of economic literacy, the question of growth rates is a bit silly — I would likely fail it if asked that today. But illiteracy in the sense of ignorance of economic calculus or logic — of opportunity costs, etc. is an issue. I doubt the East Asian populace fares any better on this measure however. The Americans perhaps a bit better, but not by much. Economic literacy however can also mean the broader philosophical perspective on role of the state, markets, business, etc. Here, the past few annual PEW Global Attitudes Surveys (http://pewglobal.org/reports/display.php?ReportID=258 ) are instructive. They reflect a far greater share of popular support for Trade, for Foreign Companies and for Free Market amongst the populace in India than what is found in the US. For example, in 2007, 89% in India favored Trade over 59% in the US; 64% in India favored Foreign Companies over 45% in the US; and 75% in India supported Free Markets over 70% in the US. Perhaps it is the economic theories of the literate rather than the values of the illiterates in India that need to be refreshed.

    Comment by Nimai Mehta — September 27, 2008 @ 8:28 am

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