Indy Telecom & Industrial Media

I rarely recommend textbooks as good reads. Not that they aren’t, of course, but they often tend to be academic in nature and therefore of little interest to anyone other than academics (and unfortunate students).

However, I’m taking a class by Professor Stephen P. Marks on World Poverty & Human Rights this Spring, and one of the textbooks is Amartya Sen’s rather excellent book Development as Freedom.

The book was such an engaging read that I finished reading it even before the start of my semester. Sen’s writing is very humanist in nature, peppered with a wry sense of humor in parts, all the while maintaining a tone that is at once both philosophical and pragmatic to the world’s problems.

Sen starts out addressing the question of whether or not freedom is conducive to development. He feels that such a question is at best defectively formulated, for reasons given below.

Sen ponders over how freedom is often dissociated from development, and considered a pleasant consequence thereof. However, Sen counters that freedom in itself should be the goal of development, and it is both constitutive and instrumental to development. He makes the argument that freedom (political, economic or societal) is central to achieving development; while freedom may result from such development, it would be unwise to ignore the inverse relationship, and true development will only happen through the proliferation of such freedoms. Furthermore, if the definition of development is to move beyond GNP and include freedom, unfree societies aren’t really quite developed.

Sen also argues against the “Lee Hypothesis”, named after the first Prime Minister of Singapore, Lee Kuan Yew. The idea behind the “Lee Hypothesis” is that democracy and freedom are luxuries that only developed societies can afford, and to become developed, less-developed societies will need to push forth agendas that may be at odds with democracy and freedom. Furthermore, a more ardent view would be that “non-democratic systems are better in bringing about economic development” for such societies.

In the same vein, he also takes to task the interpretation that “Asian Values” are inherently unsuitable and unfit for democracy, where Asia is defined not by region but through culture. The argument goes that discipline and obedience are critical traits to the Asian cultural psyche and as such, democracy is at odds with such a principle. This particular notion has had the unfortunate reputation of being exploited by authoritarian governments across Asia.

Sen counters both the “Lee Hypothesis” and the “Asian Values” argument by offering the example of the biggest democracy in Asia — India. While India has made several economic mistakes through the years, the fact that it continues to be free democracy hsa helped its economy grow while preserving the freedoms of its citizens. Sen also counters that the “Asian Values” argument isn’t necessarily unique to Asia, and that even within Asia, there have been differing schools of thought, including those that question blind allegiance to the state.

And of course, this book also touches upon Sen’s (now-famous) insight on famines and democracies.  He argues that famines are not necessarily caused by lack of  declines in food production but rather due to instability in the political, economic, or societal structures that leaves sections of the population unable to fend for themselves. Sen further proposes that countries that are “free” in the economic sense would have citizenry with a consistent income flow, and this income can be used to borrow or import basic necessities in times of need.

But at the end of the day, Sen concludes that true development cannot be measured through mere tangibles (e.g. GNP). Freedom remains the only true measure of development, and when there is freedom, development will follow.

(Cross posted from my International Relations blog.)

Here’s a fun visualization created using Google’s Visualization API.

The data was queried from International Monetary Fund’s World Economic Outlook Database, October 2009.

So, more debt stuff. Here’s a chart showing the comparison of debt between the US, China and the World, with percentages.

Data was sourced from Index Mundi.

Rather nice interview with Gao Xiqing, who is one of the many people overseeing China’s $2 trillion investments in the US.

While some of his statements make me cringe (i.e. comparing socialism with American characteristics with socialism with Chinese characteristics), he does make a lot of good points on how our system cannot be sustained long term.

He also talks about how Americans have to tighten up and spend less, and save more. Of course, one must also not forget that the Chinese help expedite this process by largely giving us a sword to fall on (i.e. an artificially low currency, and cheap manufacturing to feed the consumerism).

But the best part of the interview is his analogy of mirrors and derivatives –

In 1999 or 2000, I gave a talk to the State Council [China’s main ruling body], with Premier Zhu Rongji. They wanted me to explain about capital markets and how they worked. These were all ministers and mostly not from a financial background. So I wondered, How do I explain derivatives?, and I used the model of mirrors.

First of all, you have this book to sell. [He picks up a leather-bound book.] This is worth something, because of all the labor and so on you put in it. But then someone says, “I don’t have to sell the book itself! I have a mirror, and I can sell the mirror image of the book!” Okay. That’s a stock certificate. And then someone else says, “I have another mirror—I can sell a mirror image of that mirror.” Derivatives. That’s fine too, for a while. Then you have 10,000 mirrors, and the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted. And all the rest will go.

When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down.

Painful, indeed. For both him and us.

And on that note, I wonder what Mr. Xiqing would think of the US’ latest stance to encourage more Chinese investment.

The Economist has an excellent article on inflation in emerging economies, and how they may be making the same mistakes that developed economies once did.

For instance, the graph below shows the CPI comparison between today and a year ago, and the difference is simply staggering. This is made made worse by the fact that food is one of the biggest component of the consumer price buckets.

Also interesting is the comparison of GDP vs. interest rates, and the currency supply between developed and emerging economies.

An interesting take away could be that the increasing price of exports from emerging nations could be because of a weakened Dollar, rather than faster inflation. But as someone who has relatives in Asia (who complain a lot about the price increases), I’d like to point out that the current rate of inflation increase in emerging economies (at least in Asia) is among the fastest, historically speaking.

Either way, increased inflation in the developed economies translates to less discretionary spending. Increased inflation in emerging economies usually translates into less food on the table, which is something to think about.