Tuesday, June 17, 2008

The Assumptions We Make!

A 2-Pager by Ajit Chaudhuri
June 2008

Introduction: I have a habit, when travelling by train, of scouring the passenger list for a profile of my fellow travellers. This is a residue from the many long journeys undertaken in teenage years, when the purpose was to locate the F 15 to 20s in the carriage. Recently, while travelling from Allahabad to Delhi, I read from the list that I was sharing a coupe with a middle-aged Muslim man. Sure enough, he turned out to have a long beard and a prayer cap, and I braced myself for one of those nose-in-my-book journeys that are particularly unpleasant when one does not have a good book. The guy turned out to be a Professor in Computer Engineering with a PhD from UCLA, and was in Allahabad to take the viva-voce for PhD students at the local university. We discovered a common passion for teaching and football, and the journey was as pleasant as it gets.

But this paper is not about him – it is about the assumptions that we make. As students of economics learn in the torture chambers of first-year college, your assumptions are critical to your model. This paper looks into the robustness of some of the assumptions that shape our models of work, love and life.

Your savings are safe in a bank: We all know of the hit the banking system is taking from the sub-prime crisis in the USA – but what does it have to do with our savings in our local banks? I was in the UK in September 2007 and saw the run on Northern Rock through the eyes of retired relatives, all of whom had substantial savings that were going to disappear into thin air. Much has been written about the causes of the crisis and the role that globalisation, diabolical bankers and lax regulatory systems played. Deep within the layers of hyperbole is one simple fact – that the line between ‘commercial’ banking (the business of looking after ordinary people’s savings, which is subject to heavy regulation and is protected by governments) and ‘investment’ banking (the business of investing money, which is subject to higher risks, higher returns and less regulation) has been erased. Banks have been indulging in risk taking with money that has been given to them for safe keeping rather than high returns – great when the going is good, but a social and economic disaster when not so good. And governments are baulking at providing statutory protection for speculation, rightly claiming that this is a heads-you-win-tails-I-lose situation for the taxpayer that has a ‘moral hazard’ dimension. The lesson to learn is that if your money is in a bank, the bank should be big enough to rock financial systems if it sinks – like Bear Stearns or Northern Rock. And if the only option is a cooperative bank owned by a relative of our current President, you are well advised to make some space in your mattress.

Thin is beautiful: What constitutes beauty? Probably ranked along with ‘what is love’, ‘how do I make more money’, and ‘how do I get my free kicks to swerve and dip simultaneously’ in the list of life’s eternal questions! This paper is not the place to attempt an answer, and I merely look to address two assumptions about beauty (and no, none of that crap about inner beauty being much more important, so please do read on). The first is the female assumption that thin is beautiful. Ladies, if beauty is about being attractive to men, the fashion industry is wrong – most men prefer rubenesque women. Please see models for the clotheshorses that they are and spare yourself the anorexia nervosa. The second is the male assumption that beautiful women are dumb[1]. Guys, you are missing amazing talent at science conventions, technical seminars, and in libraries.

Economic growth will trickle down: This assumption forms the moral justification for a school of thought that propagates economic growth above all else. It has resulted in extreme concentrations of wealth, rising socio-economic inequality, and a three-monkeys attitude (if you don’t see, hear and acknowledge them, they don’t exist) to those missing out. The previous elections were lost on this issue, but the policies continue with a few sops in the form of NREGS. There is a growing realisation that the trickle down is not happening or, if it is, its pace is too glacial to be politically acceptable. But, bandying about of new jargon such as ‘inclusive growth’ apart, little is being done to change policies to ensure a real trickle down. And now, with high inflation being added to the cocktail, what can I say except that we are going to be living in interesting times.

Children are safest in their families: Some of you may be familiar with the Siberian dilemma. It goes like this – if you are ice fishing with a friend on a lake in the Siberian winter (this constitutes making a hole in the ice and putting a fishing line through) and the friend falls through the hole into the water, what should you do? Leave her/him there and s/he freezes to death in 30 seconds! Pull her/him out and s/he freezes to death in 15 seconds! I feel a similar dilemma when I see children in distress – which I do on railway platforms, on the streets, in dhabas, in brothels, and yes, as servants in the homes of some of my relatives and friends. Blow the whistle, and come up against a sclerotic and corrupt system that at best results in repatriation to the same family that was a party to the child being in the situation in the first place. And then blow the same whistle again, thousands and thousands of times over. Ignore it, and see a life that will not achieve its potential. And then keep your eyes closed – until you cannot bring yourself to look into a mirror.

Strong NGOs means better communities: I remember a meeting in Lunkaransar (a sub-district town in western Rajasthan) in the mid-nineties that looked into the impact of ten years of the Urmul Trust (a local NGO) on the region. After the meeting, a representative of Urmul’s donor agency made an acerbic comment that he was unable to gauge whether the beneficiary communities had gained, but it was crystal clear that Urmul itself had significantly benefited[2]. The assumption that NGOs are the best vehicles for work against poverty and development problems, and that therefore support to NGOs translates to less poverty and a better social development status, has been a lucrative one for the NGO sector. While this is sometimes the case, the opposite scenario of large, resource rich NGOs working with communities that are in the same state they were in when the NGO started out is more common. And this may not be because NGOs are corrupt and inefficient (though they often are), but merely because they are not so important in the scheme of things. And until this pervades through, the show goes on.

[1] Put mathematically, it would go as Brains x Beauty = k.
[2]The person is on this reading list – Vinay Raj, will you please confirm. Others, be careful what you say to me – it may backfire on you a decade plus later.

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