How rural India continues to be under distress, why large firms matter to development, how patriarchy is hard to beat, Shakira’s tryst with tax officials, a short video that explains why stock markets go wherever they like, and more.
Large firms matter: While there is enough written (and read) about the role of small and medium firms in development, a new World Bank publication points to what is often-overlooked: the role of large firms in developing countries.
Large firms support a range of development objectives in ways that smaller firms do not.
They are more likely to innovate, export, and adopt international standards of quality. Much of this comes from advantages of scale and increased productivity – a challenge for developing country firms that often remain small.
Limited market size is a key barrier. This is why the growth of mobile phones in Kerala that allowed fishermen to look for buyers outside their local market, increased the size of the efficient ‘firms’ and pushed the low-quality firms out. But unequal market power between buyers and sellers means that firms do not always prioritise productivity either – it can take a back seat to managing complex relationships with buyers, who can take their business to the factory down the road.
The linked publication argues that large firms are often born large, or with some or many features of 'largeness'.
So what's the policy implication? For developing countries it means that they need to create conditions that enable the birth of large firms. This is done by:
Opening markets to competition, breaking oligopolies, removing unnecessary restrictions to international trade and investment, and establishing the rules and the state capability to prevent abuse of market power; and
Ensuring that people have the skills, technology, intelligence, infrastructure, and finance they need to create large ventures.
To be fair, these sound more or less like what countries need to do to enable their small firms to grow. I suspect the difference would be in the scale and type of support, say across the levels of finance you need to provide or the type of technology you need to enable access to.
For background on the issues around firms capabilities and economic growth, read this good evidence note from the International Growth Centre.
Distress in rural India: Even as many pin desperate hopes on rural India for India’s economic recovery, findings from a household survey across Uttar Pradesh, Rajasthan, Madhya Pradesh, Bihar, Jharkhand, and Andhra Pradesh show brutal impact of Covid-19 and the lockdown on India’s rural economy. While unemployment levels improved between May (68%) and July (40%), they remained higher than those in March 2020 (17%). The median respondent in the survey lost 57% of their weekly earnings between March and May 2020.
Recovery in weekly earnings in July 2020 reached only a third of pre-lockdown levels.
Another survey by the Centre for the Study of Developing Societies (CSDS) and rural media platform Gaon Connection confirm the distress. Conducted across 179 districts across 23 states, the survey shows devastating impact of the pandemic-induced lockdown on rural livelihoods.
78% of the respondents said their work had either completely (44%) or largely (34%) come to a standstill.
60% said that it was difficult to fulfil needs from their household income even before the lockdown – revealing the extent of rural distress that had set in much sooner. Expectedly so, the impact of the lockdown was seen to be severest among the poorest. Unemployment continues to remain a major concern in rural India and the situation was worsened by the return of migrants from urban centres. You can go here for the detailed survey numbers, and here for a news report summarising the numbers.
Don’t underestimate the patriarchy: When India's Supreme Court ruled declared equal property inheritance rights for men and women in 2005, we celebrated it as a step towards gender equality and all that’s good for women.
But it looks like patriarchy may have won yet again.
In this paper, Sanchari Roy, Sonia Bhalotra, and Rachel Brulé look at the most defining feature of gender inequality in India – the preference for sons over daughters – and find that giving women rights to the family property exacerbated this preference.
Children born after the reform in families with a firstborn daughter are 3.8–4.3 percentage points less likely to be girls.
The inheritance reform raised the costs of having daughters and encouraged female foeticide using sex-selective abortions.
The reform was also followed by a rise in female infant mortality (relative to male) and an increase in the tendency for families without a son (or their desired number of sons) to continue having children. The law raised the stakes and made people even more determined to have a boy. You can also tune into a podcast that covers these findings – 25 minutes.
It wasn’t all rosy before Covid-19: The 2020 Human Capital Index Report update is out. Using data as on March 2020, the report serves as a good benchmark for what human development across nations looked like before the pandemic struck – revealing that while we may have much to blame the virus for, substantial human-capital shortfalls and equity gaps existed before the crisis.
The index measures progress on 5 key health and education indicators: child survival, harmonized test scores, child stunting, expected years of school, and adult mortality.
While the correlation between HCI and GDP per capita is strong, human capital does not always move in lockstep with economic development.
India scores 0.49 on the index that goes from 0 to 1. The UK is at 0.78 and China at 0.65. Singapore (0.88) and the Central African Republic (0.29) make the two extremes. The report shows that 80% of the world’s poor live in economies with an HCI score under 0.5 – which includes India.
Whenever, Wherever, Just Pay You Tax: How different would the world be if the rich just paid their taxes? Read this fascinating account of how “with the devotion of a diehard fan and a detective’s eye for detail” Spanish tax authorities used social media to corner Shakira for tax evasion to the tune of €14.5 million.
Tax evasion by the rich is problem and them giving money to charity doesn’t even begin to solve it. A lot of of philanthropy is the elite spending on elite causes – and benefits the super-rich. Charity funds also don’t always go to a country’s own priorities but reflect the donor’s passion.
Of course, the pieces I link to speak mainly of western donors – little or no data means it is nearly impossible to make any sense of Indian philanthropy. What we do know is that Indian billionaires are far less generous than Chinese billionaires when it comes to parting with their money for charitable causes. (chart below)
Does the stock market have a life of its own?: Finally, have you ever wondered why stock market movements appear to have nothing to do with the economy’s reality?
Watch this short video explainer by financial journalist Latha Venkatesh for some much needed clarity!