Salman Khan, a portfolio manager in California has created hundreds of free educational videos, available on his web site, the Khan Academy and on YouTube. These videos cover the basics of banking, finance and the current credit crisis — I saw a couple and they’re quite good.

Even more importantly, there are hundreds of videos on mathematics (algebra, calculus, trignometry, probability and more) and physics. Salman has three degrees from MIT and one from Harvard, so he knows what he’s talking about.

Anyone, anywhere in the world can benefit — all you need is access to the Internet. A good idea, fantastically implemented.

Thank you, Salman for investing all this time and energy.

India: Toward High-End Outsourcing: Vivek Wadhwa in Business Week claims that “companies on the Subcontinent (are taking) the outsourcing industry to a new level of expertise and competitiveness”. Well, with the rupee’s recent fall, presumably even low-end outsourcing is very attractive :-)

The Rise Of Delhi: Suman Bery has an interesting piece in the Business Standard on “the increasing range and intensity of accessible, close to world-class public discourse on issues of public policy on a very broad range of subjects” in Delhi. I suspect that this trend may well accelerate. I certainly don’t see anything remotely close to this in Chennai (during my quarterly visits).

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.

This article talks about a program for Jains to donate money to help teach Jain students for free. It seems like a nice idea. Perhaps other groups (Patels, Jats, Chettiars) can follow their example. However, it may be a bad idea if you think that such charity should be open to all, not confined to one group. The latter is more equitable but it may not generate the level of donations that a more focussed program might generate. Perhaps this is something your blog should debate?

Comments are open.

These problems persist despite several initiatives by the Central government to improve outcomes. Increasingly, therefore, liberal economists, international development agencies, and philanthropies have called for a shift towards greater privatization of primary and higher education. In particular, calls emerge to disconnect the funding of education from its operation, through the provision of education vouchers.

Privatization has worked well in several situations in India. Yet as the belief that it works everywhere gains greater currency, there is a need to evaluate if education is also amenable to privatization.

The Basic Argument

The idea of private education vouchers was first put forth by Prof. Edwin G. West. More recently, high profile organizations such as the World Bank and the Orient Global Foundation (with committed funding of US$100 million) have given the idea new impetus.

The theory is simple – deregulate education and allow private operation of schools, giving parents the option to choose where they wish to send children (so called “school choice”). The resulting competition amongst schools for these “consumers” would lead them to improve quality and expand access. The obvious challenge of including poor students is solved by providing poor parents with vouchers funded by the government.

Voucher systems have been tested in several countries – developing and developed – and arguments exist for and against. But few have tested the underlying assumptions of the theory of privatization.

Testing the Assumptions

The success of a largely private system depends fundamentally on two things – a financial incentive and the natural competition of free-markets. The assumption of competition in turn assumes three things: a) that “school choice” is real, b) that it is not possible to cheat the system, and c) that information flows are reliable enough to evaluate quality.

Do these assumptions hold?

The fallacy of school choice: In a private system quality improves through competition. Yet, experience shows that true competition is unlikely here. This is first, and foremost, a matter of supply and demand. Demand for education vastly outstrips supply in India and will do so for the foreseeable future. This remains true in the most affluent areas of Delhi, where it is common for parents to apply to several schools to secure admission for their children. Further, the cost of switching schools is high, marked by a social cost to the child of readjusting to a new environment and the administrative/financial cost to parents of the process. Finally, and as pointed out by Charles Wheelan, schools tend to restrict supply simply to maintain quality. Consumer power, then, is so limited as to make “school choice” more of an illusion even in the most “privatization friendly” situations. And if it doesn’t work here what hope do parents in small, remote, poor villages have where exclusion is largely social and thus not corrected by vouchers?

The problem of cheating: The second assumption is that faced with strong incentives schools will improve actual outcomes rather than cheat the system. It is illustrative, here, to note that in response to the No Child Left Behind act, public schools in Chicago were found cheating on grades (they also underreported violence). That these were public schools is irrelevant – what is important is that faced with a top-down incentive to improve quality, schools preferred to cheat the system rather than make the necessary investments to improve actual quality.

Poor information for poorer consumers: This brings forth a final problem – that of evaluating quality. The education “market” is marked by poor information flows and by an inability of a large number of parents, who never went to school themselves, to evaluate objectively what a good school is. This again undermines the assumption that “school choice” exists. The truth is that we simply do not have a single definition of quality. Therefore, it is equally possible that schools that invest more in marketing and outreach – rather than in improving quality – will gain the most.

Unintended Consequences

There is one final test to which a private system must be put – even if private education were to improve quality, would it improve access and existing inequities in provision – or at least not make them worse? The two points cannot, of course, be delinked because any school’s outcome depends largely on the students it admits. Therefore, schools that receive students from academically poorer backgrounds must invest more to achieve the same outcomes. As Charles Wheelan said:

I expect that the Chicago Public Schools would be excellent if they had to accept only 1 of every 10 eligible students. (Indeed, the magnet schools in the system, which are allowed to select students competitively, are some of the best in the country.)

Second, education is often denied to children for a variety of causes and money or the absence of schools are only two of them. Others include the lack of roads, the lack of separate toilets for girls and boys (which prevents parents from sending girls), and the lack of “cultural capital” – such as supportive parents – which provides a select group of students with the skills to gain admission while depriving others of the same.

Can a largely private system ensure that schools help students overcome these barriers? Alternately, as education becomes a commodity, provided to the highest bidder, can its ill-effects be suppressed by ensuring necessary investments are made – such as arranging buses, building toilets, or helping disadvantaged students overcome their skills deficit through corrective courses? The obvious solution, of course, is oversight through regulation. Yet, to paraphrase economist Joan Robinson, “any State that has the capacity to prevent the ill-effects of the commoditization of education can also prevent the commoditization of education altogether; and any State that cannot prevent the commoditization of education lacks, ipso facto, the capacity to prevent its ill-effects.”

Is Privatization Necessary?

The preceding suggests that a private system is not a sufficient condition to better quality and access. Is it, however, a necessary condition? Or, is there another way of solving the problem through a public system?

There is no better argument that the same results are possible from a public system than China. As this comparison shows, China has done better than India both in providing quality and access to primary education, yet done so through a largely public system. Recent moves to privatize and deregulate education have been largely limited to higher education, with universities being encouraged to raise their own funds and endowments.

Clearly, then, privatization is not the only game in town. Nor is there any reason to believe that private schools are always preferred. For instance, a recent study in slums found that the vast majority of parents sent their children to “budget” private schools. This does not indicate a preference for private schools, but rather a lack of sufficient and good public schools. Moreover, very often in cases where both are present, private schools may be preferred not because of actual quality differences, but because of a social preference for private providers (seen as status symbols), or due to perceived rather than actual quality differences (bringing us back to the problem of defining quality).

Taking The Best of Privatization

It bears mentioning that despite its limitations, privatization does offer insight into the core problem – that public systems in India currently lack any compelling incentive to provide good education. The question should therefore be, how can incentives be built into public and private systems that ensure greater access and better quality without the negative consequences of a fully private system.

Clearly, this is possible. The American No Child Left Behind Act, despite its problems, is one example. In recent years, Delhi too has improved primary education, largely by providing the right carrots and sticks to schools and teachers. Finally, one must also consider that the majority of government schools in India are poorly funded and managed. Simple measures such as a better working environment for teachers and basic infrastructure that indicate respect for their work would go far to provide non-financial incentives for improving quality. Indeed, without such changes comparing public and private schools is comparing apples to oranges.

Conclusion

The argument for privatization is at once political and ideological. It is political because it reflects how societies feel about the role of the state in providing “public” services such as healthcare and education. It is ideological because proponents often supplement demands for privatization with terms such as “economic freedom” or “choice” to justify their preference. Yet, this last confuses means with ends. The existence of choice can hardly be viewed as an end in itself in this discussion. Not only does such terminology presume that choice is informed but it is relevant in this debate only if it improves actual educational outcomes, rather than the perceived satisfaction of parents.

It would appear that privatization is neither necessary nor sufficient for better quality and access to education. Nor is money the only or even best incentive available to improve either. Yet, the debate does offer valuable insights into why our system has not worked and how to fix it. The current system can, therefore, gain much through greater competition (possibly internal) and better incentives (possibly non-financial).

Finally, this debate must recognize that quality is interlinked with access and equity. The two require clear tradeoffs – high quality can generally only come by selecting the best and conversely by denying access to the most needy. Therefore, no debate on privatization can occur without debating the balance between quality and equity that India wishes to achieve. It is as much a debate on what India’s system should be like, as it is a debate on what our national priorities are to be –to be a thoroughbred meritocracy or to offer equality of opportunity to the majority of our people.

Note: This is cross-posted from The Discomfort Zone. Throughout this text I have used the American English term “public school” to imply a “government school” (the British/Indian English equivalent).

Raj Chetty, an associate professor of economics at the University of California, Berkeley, is the winner of the The American magazine’s 2008 Young Economist Award, a research grant of $100,000 provided by the Searle Freedom Trust.
…
To be eligible for the award, economists have to be featured in the magazine’s bimonthly column entitled “The Young Economist,” which profiles talented economists under the age of forty doing groundbreaking original research.
…
Chetty, who is twenty-eight, did his undergraduate and PhD work at Harvard, became an assistant professor of economics at Berkeley at age twenty-three and an associate professor at age twenty-seven. [link]

As far as we can tell, Raj’s academic work and the Indian economy haven’t intersected. At least, not yet. The only desi link (apart from his family) we found was this interview in Rediff, which might seem a tad tenuous to some. But, what the heck! This guy is an academic superstar in the making…

Let us begin with Dr. Manmohan Singh’s address to the Japanese Business Delegation, on 20 August 2007 -

Today, the Indian economy is in a position to sustain GDP growth rates that are close to 9%. Foreign Exchange reserves stand at over US$ 200 billion. We expect to receive Foreign Direct Investment of about US$ 30 billion this year. Our savings and investment rates are close to 35% of our GDP. Our foreign trade constitutes 33% of our GDP, which is a testimony to India’s growing integration into the global economy.

On cue is the speech by Finance Minister, P. Chidambaram at the Norwegian Nobel Institute, Oslo on ‘India’s Socio Economic Agenda: Development with Democracy’ delivered in October 2007.

The India growth story has been told and retold many times and all of you are familiar with that story. Allow me, however, to narrate some highlights of that story and bring you to the present day. GDP at market prices has increased from US$ 20 billion in 1950-51 to US$ 912 billion in 2006-07 and is expected to cross a trillion dollars in the current year. In terms of purchasing power parity, India’s GDP at US$ 4 trillion in 2006-07 accounted for 6.3 per cent of global GDP. Average annual economic growth, which had been constant and tardy at 3.5 per cent during the first thirty years of Independence, increased to 5.7 per cent during the 1990s and, since 2003-04, the average rate has increased further to 8.6 per cent. 2006-07, in particular, was a splendid year with the GDP growing at 9.4 per cent. This growth has not been jobless growth. During 1999-2000 to 2004-05, India added to its workforce about 12 million people each year. During this period, the rate of growth of employment was 2.9 per cent per year. India, after China, is the fastest growing economy of the world, and together with Brazil, Russia and China is the locomotive driving world growth.

The proportion of people living below the poverty line in India has declined from 51.3 per cent in 1977-78 to about 22 per cent in 2004-05. But in absolute terms they still number around 250 million. More than one third of our 1.1 billion people live on less than one dollar a day.

…we have achieved an enrolment ratio of 95 per cent in primary education. Of the children in school, 73 per cent are now reaching Grade V.

We have managed to provide drinking water to 83 per cent of our rural population and sanitation coverage has gone up in the last decade to 22 per cent from a dismal rate of 3 per cent.

Farm loans have more than doubled in three years from Rs 869 billion in 2003-04 to Rs 2032 billion in 2006-07. Loans to students have trebled from Rs 45 billion at the end of March 2004 to Rs 142 billion at the end of March 2007. It is not widely known that India runs the largest micro-finance programme in the world. At the end of August 2007, 2.93 million self-help groups, an overwhelming number comprising women alone, had been provided credit by the banks. The total amount of outstanding credit is Rs 181 billion.

One-third of the population is below the age of 15 years. India is the only large country in the world where the size of the working age population will grow – and will exceed the number of dependent children and old persons – until 2025, the year up to which projections of population have been made, and perhaps even beyond till 2045.

While the critics sharpen their knives (and you read the comments to this post), savour the moment and feel good about the Indian economy. And do join me in wishing the Indian Economy another great year ahead — 2008.

This year’s Asia round for the GSVC will be held at the Indian School of Business (ISB) in Hyderabad, with the deadline for submission of plans being Nov 15, 2007. The Asia round finals will be held at the ISB this between the 8th and 10th of March 2008, and the global finals will be held at Berkeley on the 18th and 19th of April. So, if you’re sitting on a business idea, model, concept or even an existing business which has a double or triple bottomline, and would like exposure and perhaps even seed/growth capital, head over to the ISB’s GSVC Asia Round website, where you can find all the instructions necessary for submission of business plans and participation, including vital information and FAQ’s for entrants.

I served as a judge for the 2007 finals, so i can give prospective participants some idea on what to expect. First of all, don’t be flaky and keep in mind that there is no business that can meet a second or third bottom line without meeting the financial bottom line. The judges at the Asia Round tend to be very hard nosed and you can therefore expect the same questions that you’d expect if you were to pitch the plan to a venture capitalist. The higher the social impact without sacrificing your commercial viability, the higher your chances of getting through to the finals. Last year’s top prize at the Asia finals went to a bio-technology company from China that had patented a technology to drastically improve crop productivity while the second place went to a Thai team that had developed a new dental technology (the Thai team went to place second at the global finals). One team was also chosen on the basis of their Social Return on Investment (SROI) Analysis.

I know there are several IEB readers out there who are budding entrepreneurs while being socially conscious, so here’s your opportunity to make a difference, and potentially get your business up and running. Questions, if any, should directed to the organizers. Needless to say, if you know of someone who might be interested, feel free to forward the information.

Indeed, underlying many of the cases of increasing Gini coefficients is a growth process in which those at the top of the distribution (top 20% here) have seen their expenditures/incomes grow considerably faster than those at the bottom (bottom 20% here).

This report is particularly fortuitous because it follows closely on my previous post on income inequality in India. In that I made some fairly basic points that a) income inequality was increasing in India (as measured by the Gini index), b) this was undesirable because income inequality reinforced social exclusion, (as a case I showed that inequality negatively impacted access to healthcare), and c) insofar as growth had not reduced, and possibly contributed to, inequality, India should revisit the kind of growth it engendered.

This report further strengthens the case for a more equal growth. It also indicates that our current growth path does indeed exacerbate inequality and how policy interventions could help. The following points, in particular, stand out.

First, why is inequality important? This being an economic report, it does not delve into the ethical choice inherent in that question, but it suggests two more practical reasons – because it damps the “poverty reducing impact of a given amount of growth”, and because it may hinder growth prospects (there is also a very readable introduction on measuring inequality, and how appropriate the gini index is to that measurement).

Second, is the inequality a result of growth? The report suggests it is not growth per se, but the kind of growth we are witnessing that is resulting in inequality, with three proximate causes: growth differentials between rural and urban divides, between sectors (agriculture vs. services and industry), and between the educated and those not. In fact, “widening differentials in earnings of the college-educated vis-à-vis less educated individuals appears to be the single most important observable factor accounting for increasing inequality.” Somewhat simplifying, the BBC quotes the report as saying:

The bank said the main reason for widening wealth gaps in recent years was the discrepancy in investment between urban and rural areas which favoured better-educated, better-off urban populations.

This is particularly important. In my previous post I had made a similar observation regarding healthcare – that inequality affected access to health, a key to equality of opportunity . This report suggests a similar dynamic leaves the uneducated poor in a vicious cycle of social exclusion. Since economic growth prospects favor the educated and the poor lack quality education, it is unlikely they will be able to benefit from those prospects and move up – leading to further inequality.

What role for policy? The ADB suggests increasing reforms that generate income and growth for the poor, as the way forward. The emphasis, clearly, needs to be on ensuring equality of opportunity, through for instance better access to finance, removal of social exclusion, and redistribution of wealth through public funding of rural education and basic health.

The discussion to my previous post was vigorous particularly on the last point. Some suggested that private healthcare (in this case education) is better. But that argues only for private operation of these services, not their funding (two separate debates). The second major criticism, that is countered here, is whether it is public spending – or spending in general – that is important, and the public sector should in fact stay out of funding healthcare. That argument is rather counter-intuitive – since the poor are, by definition, poor and pay a premium for most services, the only way for them to spend more on education (or health) is if someone else does it for them (say the government). I will grant, however, that given the scale of the challenge, it is more appropriate to talk of public and private spending. This is particularly true in agriculture, where distortionary public policies keep private investment out of the supply chain (a point reiterated by the ADB).

I have not seen the entire report, but even the summary makes fascinating reading. It should remind us that GDP growth is not the final measure of success. Since we compare India so often to China, here’s a statistic – China’s GDP increased the most amongst the economies studied, but so did its income inequality. Perhaps we can learn something from that too.

Pragati – The Indian National Interest Review is a monthly magazine on strategic affairs and public policy; and is devoted to promoting economic freedom, an open society and realism in international relations. It regularly features articles and essays from many IEB bloggers.

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