Economists, lets get real (and less dogmatic)

This has got to be one of the best interviews on the discipline of economics that I’ve read in a while, and its with none other than Dani Rodrik – a trailblazer in empirical economics and author of the new book ‘Economics Rules: The Rights and Wrongs of the Dismal Science‘.

My favourite bit from the interview is about how economists need to get over dogma, getting real the usefulness of theories, and recognising that its all happening in an evolving space and is highly context dependent,

Too often economists debate a policy question as if one or the other theory has to be universally correct. Is the Keynesian or the Classical model right? In fact, which model works better depends on setting and context. Only empirical diagnostics can help us know which works better at any given time — and that is more of a craft than a science, certainly when it is done in real time. If we economists understood this, it would make us more humble, less dogmatic, and more syncretic.

Read the full interview here : https://www.washingtonpost.com/news/monkey-cage/wp/2016/03/25/economics-is-more-a-craft-than-a-science-economists-are-only-beginning-to-figure-that-out/

Cities and productivity

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There’s a new McKinsey Global Institute commentary piece titled ‘Inclusive cities are productive cities’ that argues that inclusiveness (including openness to migrants) is important to maximise the productivity gains of urbanisation. This has important ideas for Sri Lanka’s own urbanisation process via the Western Region Megapolis Project. In a previous article on this blog, I highlighted that the earlier urbanisation exercise was re-writing the DNA of entire communities, and we need to better manage the fallout and maximise the gains.

Some of the article’s commentary on openness to migration may appear more relevant to the European case right now, but it is quite relevant to Sri Lanka as well. Migration isn’t only about foreign nationals, but also about internal rural to urban migration, which is inevitable if the Western Region super-agglomeration takes off.

The opening paragraph captures it nicely,

Cities are productivity engines. They create productivity by enhancing the number and frequency of interactions. Higher population density equals higher frequency of interactions, and the more interactions there are, the more you can figure out what you’re good at and what you’re not. Then, we stop doing what’s not good, and we become better at the good. That’s specialization. That’s productivity. Doing that with as many people as you can creates the opportunity for growth.

During the January Sri Lanka Economic Forum organised by the Open Society Foundations and the Harvard Centre for International Development (CID), one of the CID’s scholars highlighted new research by them that showed that workers who moved to urban settings have higher returns to their skills and training than before they moved. This was largely due to the more dynamic interactions that are possible in urban contexts.  Further work by CID showed that mobility of workers helps diffusion of industries and overall economic diversification.

Leveraging on Location with Logistics

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I tend to be far too alliteration happy sometimes, and it’s probably a good thing I didn’t title my speech as I did this blog post. But it was exactly my message to the industry leaders of the Women in Logistics and Transport forum during a keynote address at their Annual General Meeting last week  – that leveraging on location will be a big game-changer for economic growth in Sri Lanka, and the key to that is the logistics and transport industry. I argued that,

[…] overwhelmingly, the investors we meet say that Sri Lanka’s location and access to big markets like India, Pakistan, and eventually China, is a key attraction in their decision to invest here reiterates the case for focussing on our trade, investment and logistics policies.

I highlighted some recent growth and industry statistics; and spoke about the role logistics and transport will play in truly achieving regional hub status and becoming a serious player in commerce in the region; the need to focus more strongly on the aviation sector (and air connectivity) to boost passenger and cargo flows; the need to attract more women into the L&T sector (currently at an abysmal 2.9% of total employment in the sector).

In the speech I mentioned results of a new survey conducted by us at the Chamber EIU which demonstrated that prospective investors consider Sri Lanka’s geographical location and access to regional markets are key attractions in investing here. See the one-pager on the results here.

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The slides of the keynote are below. For the full text of the speech, browse the embedded doc below or click here.

And here’s some press coverage around it:

Dailymirror‘Country location key to spur growth: economist’ 

Daily FT‘Logistics and transport to shape new Sri Lankan economy’

The Island‘Women representation in logistics as low as 2%’

 

Can a robot create IP and own it?

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Sounds like a silly question right? But a new paper by WIPO (World Intellectual Property Organisation) on ‘Robotics, innovation and intellectual property’ argues that it is one of the fundamental questions thrown up by the emergence of robotics innovation. As the paper notes,

A question that cannot yet be considered settled law in any nation, but for which IP practitioners around the globe may soon face, is whether IP can be created by a robot, and if so, who owns IP created by a robot?

While there’s a lot of work out there on the Intellectual Property (IP) issues related to biotech, nanotech, pharma, etc., this is probably the first report that looks at robotics innovation and IP. I met one of the co-authors of the paper, Sacha, during a recent visit to WIPO last month, and found him to be an extremely interesting economist looking at innovation – there aren’t many of them around yet.

 In other insights contained in the report, something that jumps out strongly is the extent to which East Asian countries are leading the robotics space. Just look at the Top 10 patent filers in robotics globally – ALL are from East Asia – predominantly China. If you exclude China, still, 8 out of 10 institutions are from East Asia (the other two are German). Strikingly, of those 8, 6 are from South Korea.

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Online Tax Payment From Next Month

It is always encouraging to hear government officials get excited about reengineering their own processes to become more ‘client-friendly’. This was exactly the feel at yesterday’s Ceylon Chamber Economic Intelligence Unit seminar on the new Inland Revenue Department electronic tax system called ‘RAMIS’ (Revenue Administration Management Information System). At the event, IRD announced that online tax payment will be possible from next month – http://www.lankabusinessonline.com/sri-lanka-to-collect-corporate-taxes-online-from-next-month/

  In my opening remarks at the event, I shared with the audience of over 220 participants that taxation now matters for development more than ever before. Sri Lanka’s tax-to-GDP ratio has been on the steady decline, now at a low ebb of under 11%. Our tax system hasn’t kept up with a changing economy – with new sectors arising and new loopholes emerging. At the same time the new government has announced very ambitious revenue targets in the last Budget. On the other hand there are many new business opportunities in the country and ongoing efforts to improve the business climate will boost business dynamism. Having a tax-payer friendly, modern, tax collection system is essentially then to keep with the times. To facilitate business but also encourage tax compliance. For a smart tax administration, technology is a sine-qua-non. Sri Lanka has ranked consistently low on the ‘Paying Taxes’ pillar of the doing business index -http://www.doingbusiness.org/data/exploreeconomies/sri-lanka?topic=paying-taxes

And so, the new IRD tax system ‘RAMIS’ comes at a welcome time.

Even in the deliberations of the Presidential Commission on taxation (2009), which I worked for, some of the key recommendations related to revenue administration reform and accelerating computerisation.

It’s also encouraging to note that it wasn’t merely a deploying of an IT system, but rather it was accompanied by a whole change management process internally. A reputed Singaporean firm had won the bid to do it.

The Fourth Industrial Revolution is Changing the World of Work

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This article was originally published in the Daily FT of 16th February 2016

At a time when countries around the world are facing challenging circumstances around wealth creation through productive employment, the latest edition of the UNDP’s Human Development Report (2016), anchored to the theme of ‘Work for Human Development’, is timely. Interestingly, this edition has a section dedicated to the ‘changing world of work’ and its implications, and I was asked to share some thoughts on this alongside the Sri Lanka launch of the report held in Colombo recently. This article puts forward some ideas on the changing world of work, particularly due to technological advancements and associated shifts in the economy, and flags some challenges that they throw up for leaders in business and public policy.

Technology is Changing Industry 

The global economy is now entering what is being called the ‘Fourth Industrial Revolution’, with system-wide implications for industries and societies. The first industrial revolution came with the advent of the steam engine, giving birth to an era of mechanical progress and industrialisation. Next came electricity and mass production lines, enabling huge increases in productivity and economies of scale. The third was computers and the Internet, enabling dispersed manufacturing and birthed new sectors like ICT services. The fourth underway now is driven by mobile, ubiquitous digital technologies, the Internet of Things (IoT), connected devices, artificial intelligence (AI), big data, robotics, ‘autonomation’, 3D printing, human-machine interaction, and everything in between.

Industry, in particular, is becoming more capital intensive than ever before, and autonomous machines are driving this new round. For instance, in 2015 firms around the world deployed over 200,000 robots to replace tasks previously done by humans. Especially in economies where labour costs are high or labour is scarce, robotics are on the rise. There are several Sri Lankan firms too that have already begun to deploy robotics in their facilities. Our labour costs are rising, our manufacturing is not always competitive compared to low cost locations in our Asian region. So manufacturers would necessarily have to seek higher technology options that replace workers with robots. It may not be long before there is much greater ‘autonomation’ in Sri Lankan industries than there is today.

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Technology is Changing How Economists Understand Structural Transformation

At the recent launch of the UNDP’s Human Development Report 2016, I spoke on the role that technology is playing in the ‘changing world of work’. Aside from my remarks on the changes brought on in the technology-jobs paradigm specifically, I started with a conceptual issue that economists need to grapple with.

Technological advancements are changing our understanding of a fundamental tenet in development economics – ‘structural transformation’ of the economy.  The conventional wisdom explains structural transformation as the process that occurs when an economy moves from low productivity activities to higher productivity activities – particularly from agriculture to industry to services. The path is assumed to be more or less linear. But those discrete phases or steps may no longer make sense, and the lines are increasingly blurring. We are now seeing these three not only operate side by side, but interact with each other strongly.

Lets take a simple example of a farmer. A few years ago I was part of a study that explored access and usage of technology, and during that time we found young onion and sweet potato farmers in rural Matale using apps on mobile phones to check prices in urban vegetable collection centres. Based on that knowledge and updated information on prices, they would even time their harvest to maximize their gains. So the farmer maybe still in agriculture, but also participating in the knowledge economy (i.e., services sector).

Another example of the blurring lines is the “servicification” of industries – services increasingly getting embedded into manufacturing, or as UNESCAP describes it “the increased use of services in manufacturing processes”. For instance, in Sri Lanka’s top tier apparel firms, design, software, and knowledge services are deeply embedded into the manufacturing value chain. In the future these firms may only be doing the knowledge services component and not stitching any garments in Sri Lanka at all. So, under this new technology paradigm, a firm or individual may be part of the manufacturing sector, but in fact be doing a services sector activity like design.

This phenomenon is part of the broader trend seen around the world – the rise of global production networks (GPNs) – also referred to as global production sharing, networked trade, and international production fragmentation. (See this paper by Prof. Premachandra Athukorala on the subject of GPNs in East Asia)

This has important implications for policy. It calls for a re-thinking of policies that promote structural transformation. It also calls for a re-focussing on the efficiency of services markets; reforming them to ensure they have updated regulatory systems and are not standing in the way of driving greater competitiveness in non-services sectors, like industry and agriculture. Sri Lankan policymakers, and indeed businesses, need to have a sharper understanding of technology influences structural transformation of the economy and figure out more contemporary development strategies to guide the economy through it.

Lower Global Oil Prices: What is Driving It and What Implications for Sri Lanka?

This article originally appears in the Daily FT of 3rd February 2016.

 

The world economy is seeing an unprecedented fall in global oil prices, now hovering at around US$ 30 per barrel – levels not seen since 2003. So far this year oil prices have fallen more than 25%. In 2015, oil prices fell by 47% and are forecast to fall by a further 18% this year. In 2015, global crude oil supply grew by a staggering 2.6 million barrels a day and forecasts indicate that during the course of 2016 over supply is likely to reach around 1 million barrels a day.

The main drivers of these continued low prices are: high supply from OPEC countries struggling to maintain market share; continued supply from the unconventional oil producer – the US – of shale oil/gas; new production coming on-stream from Iran; and the impact of slowdown in China and wider slowdown in aggregate demand in the global economy.

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