The 100 million reasons why Pakistan will never progress

This is not out of cynicism. This is in fact out of cold, hard analytics. Pakistan will never become a middle income country (let alone a high income one) as it continues to under rate and under prioritize investment in its human capital. It is a tired and jaded slogan but it is as true today as it was 6 decades ago - only sustained and quality education of the masses will break GDP growth out towards the double digit level and keep it there. Otherwise, the economy will remain beholden to local/global liquidity cycles where periods of fast growth will be followed by periods of stagflation/stagnation.

Currently Pakistan invests the least in its human capital in the entire South Asia - a group that is not, even as a collective, very high on any scale of global economic development. So we are the worst of the worst. But the other South Asian nations are well ahead in recognizing the need to invest and develop human capital. Already countries like Bangladesh and Sri Lanka are defying the twists and turns in the global liquidity cycle to post sustainable break out in the production possibility frontier. Indias literacy rates are well known - with rising wage costs in China, India might finally be able to bring, in a big way, its 1.2bn people into the global supply chain.

Unfortunately, in Pakistan, despite higher enrollment rates in each subsequent year, the quality of education continues to deteriorate and leaves much to be desired. Even if the average kid makes it out of the horror that is the public secondary and high school system, the higher education institutions available to them have inadequate facilities, poor teachers and terrible learning environments. Many private universities have sprung up but they are only a drop in the ocean. And how big is this ocean? As per estimates, 64 million Pakistanis are below the age of 14. Another 42mn sit in the age 15 to 24 age bracket. That is more than 100mn that will be requiring or are acquiring education over the next 10 years.

100mn. That is more than the population of Germany, Egypt or Israel. It is almost 1/3 the population of the USA. One can easily say there are more young Pakistanis than Germans, Egyptians or Israelis in the world.

These young Pakistanis, unfortunately, are not just Pakistan’s problem anymore. Nicholas Kristoff in a recent op-ed in the NYT said it right (and I summarize) - the wahabi sunnis are well advanced in their strategy of disseminating their constrictive ideology than developed countries; these sunnis are spending money at the primary and secondary level through madrassah systems of the Islamic world, to create a formidable formation of indoctrinated youth. In contrast, advanced countries are well behind in ensuring that the precious aid that they do provide the developing world is used to for providing a more modern and more centric education.

Poor labor education and training leads to lower total factor productivity. Inadvertently, in a highly competitive world, Pakistani manufacturing has struggled to compete. The country has been moved upstream (that is non-value add) on almost all exports supply chains that it used to significantly contribute to. Short term palliatives like high protection to import substitution industries, substantial subsidies to export sectors and favorable monetary/FX policies have allowed manufacturing to come up for breath. However as its share of the global pie shrinks or stagnates every year, capital moves towards short term trading opportunities (commodities, asset markets, etc) rather than investments that create jobs, income, wealth and, eventually, social mobility. Labors vicious cycle gets that much more vicious. With falling to stagnant incomes, social and communal instability increases leading to poor security, bad democracies and terrible politics.

In a gist - welcome to Pakistan: current, past and future.

 

The unbearable lightness of the economic being - I

Let's face it. French economist Thomas Pikettys 'Capital in the Twenty-First Century' told us what we kind of knew - the rich have started getting rich again while the poor, well, remain the same. In fact, the book explains, the 2 world wars, it seems, were the anomaly that reduced income inequality and ensured a more broader distribution of economic wealth. However, the last few decades have seen a return to the 'patrimonial capitalism' that Marx was worried about.

And here, in my humble opinion, is why modern economics is contributing towards the ossification of the fissures between the haves and the have not’s: too much of modern economic policy making is centered on monetary policy over and above any other forms of public policy. And given the increasing conservative bent in recent times towards government size (smaller the better mantra), monetary policy carrys a disproportionate burden for a countries economic management.

There is no doubt effective (and better understood) monetary policies are one of the key reasons behind global post-ww2 prosperity. However, its importance has trumpeted all other forms of economic policy making - especially fiscal policy. Controlling and managing inflation is necessary for sustainable economic development – that’s the 11 commandment. Low inflation, amongst many things, keep inequality in check and labor, as not just a factor of production, is able to sustain a lifestyle. Low inflation, as it should, also protects owners of capital. High inflation destroys debt; what you lend/invest is worth lot less over time. By keeping inflation in check, monetary policy has ensured the value of credit AND allowed credit markets to flourish.  

However, in todays world, monetary policy exists to protect the interest of capital rather than labor . That is because the monetary transmission mechanism is flawed. How? At the end of the monetary transmission spigot are the banks and other financial intermediaries and these intermediaries do not easily lend to the poor. For the poor (labor) to recieve loans, there needs to be a strong business case. Unless the poor pay a steep premium (anyone remember sub-prime?) over and above what other borrowers are paying, they are not considered \good credit. In fact, even if they pay steeper premiums, they still not considered good credit (anyone remember the shorting of subprime?).

So hence....

....the modern private financial system, inadvertently, suffers from a moral blind spot as poverty alleviation is not a business goal

....despite the best intentions of central banks (and they actually do have noble intentions), financial intermediaries make monetary policy an ineffective tool to improve the livelihood of labor (poor)
 

... Picketys conclusion is quite logical - the main beneficiaries of prosperity has been owners of capital and not labor. And this will remain so, as all policy making is skewered towards protecting the interest of the former over the latter.

 

 

 

 

Those strange, poor people

They are a strange lot - these poor people. They make up the majority of the planet (last count, over 50% of the 6bn earthlings earn less than a USD2.5 a day), they (on a per capita basis) suck less resources than their richer counterparts and, guess what, they are pretty sanguine about it.

In most countries undergoing deep social and political turmoil (springs in Arab and in other places), its the middle class that is the vangaurd of change. Infact that has been a fact of history. Defined as the people between the rich and the poor,  the middle class is very noisy. It is THE chattering class. Its mood and its preferences dominates airwaves, markets and trends. Simply put (or simplistically put), its the class that the upper class (the top 1% and a few more percentiles) worry about. About the poor? Not so much.

And why is that? Cause the poor dont have a voice. And when they do, their loud speaker is normally some middle class/upper class crusader rebelling (being cool) against society/father/Hollywood.

After all, if the poor were vocal we would be hearing about them a lot more. Take India for instance. According to one measure, 620mn out of 1.2bn Indians do not have access to sanitation facilities. Yes, 620mn people are excreting under the open skies every day. Logic, and compassion, should suggest that Indian media and such would be having a lot more content about 50% of the population defecating out in the open. In reality, that is not the case. Indian media, print and digital, spends more time worrying about who Salman Khan (Bollywood superstar) is marrying rather than where that horrible stench is coming from.

 

Anyway poverty economics is a whole university degree in itself (and definately well beyond my knowledge-spent). However we can start by understanding the poor better. They might be sanguine most of the time. But when ruffled enough, the tsunami will come. They bought the revolution in France; the revolution in North America; the revolution in Moscow. Even closer to home - the masses thronged to the call of Gandhi and Jinnah. Yes the middle class led from the front; but the ground swell was the average poor. Whenever these poor have appeared in their true numbers, chaos and order find themselves as bed partners.

 

Closer in history? Take Benazir Bhuttos arrival home in Oct 2007. Before her arrival, she had made a deal with the strongman Musharraf; she and he were set to jointly rule. That never materialized cause it all changed. It all changed when she arrived at Karachi on that fateful chilly day in October 2007. Thousands and thousands flocked to greet her. One estimate placed the ground at approaching a million. Seeing that support galvanized Bhutto. She didnt need to compromise; Pakistan, apparently, lay at her feet. And the crowds that made up the millions? Not the chattering classes. Most of them were watching the spectacle on cable. It were the poor.

 

Lets start talking to the poor man and woman. Do not expect much in the way of a conversaton. The poor man is a scared, complexed, insecure and, probably, unknowledgable creature. Some, if not most, dont care for morality and might be indulging in drugs, pedophile, prostitution, etc. But can they really be blamed for their mental decay?

 

Lets start asking them how they feel about inflation, public transport, taxes and security. Lets ask them about social mobility, free speech and inequality. Lets ask them how things can be made better. We the chattering classes (atleast the ones that are left behind) bear this incredible responsibility. Giving a voice to the poor might not be the panacea for the troubles in the country. But it should, at a fundemental level, change the narrative of our national concience. And, sometimes, that is all that matters.

 

 

 

 

 

 

 

How Batman beat Captain America

This is for comic movie buffs. Or perhaps economic buffs. Or both.

 

In any case, one of the more remarkable developments in entertainment property in recent years is the gradual takeover of Marvel Comics content and property of the entire entertainment world. More specifically, Marvel Studios creation and expansion of an incredibly lucrative cinematic universe has confounded expectations and rewritten Hollywood rule-books. And its latest addition to the stable, Captain America 2, by expanding the standard Summer season to the beginning of the April and by smashing the April box office gross record, is just adding to the already formidable strength of a studio that released its first movie, Iron Man, in 2008!  

 

Add to the fact that other owners of Marvel cinematic property, Fox (X-Men) and Sony (Spiderman), are also picking up their game, it is obvious that superheroes of the Marvel-kind are going to be dominating our digital consumption for many years to come. All of this, as you might have guessed, is really really bad news for, Marvels long-term competitor, DC/Warner Bros - the owner of Batman and Superman cinematic property.

 

This is also another remarkable reversal of fortunes. In July 2008, Nolans' Dark Knight changed not only the super-hero genre but also changed the entire fiction genre. Campy was out, brooding was back. Forget the movies boxoffice gross (stratospheric at the time, this was pre-Avatar era) - Nolan had melded art and commercial truimph; he had created the ultimate Hollywood wet dream - a movie that makes a billion bucks and can win 10 oscars. DC in the batmobile looked unstoppable.

 

As we know now, the batmobile did stop. Besides being squashed by the Avengers and its off-shoots juggernaut, DC failed to create and/or expand upon Nolans classic. New titles and sequels (Green Lantern, Watchmen, Man of Steel) failed to revitalize and enrichen. Even Bat 3 didnt live up to the hype. 

 

Anyway, fast forward to 2013, and DC has finally another cunning (reboot) plan - the tag team of Batman and Superman will take the local cinema by storm on the 6th of May, 2016. With a significant cast and an equally significant cat-walk of important comic characters (Luthor, Wonder Woman), the sequel for Man of Steel would finally push forward, in a meaningful manner, Warners attempt to create, meld and expand the DC cinematic universe. Unfortunately, Marvel wont do a DC, i.e. roll over and play chaos. And this is where game theory comes in.

Game Theory is "is a study of strategic decision making. Specifically, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers". Game theory is mainly used in economics, political science, and psychology, as well as logic and biology. The subject first addressed zero-sum games, such that one person's gains exactly equal net losses of the other participant(s). Today, however, game theory applies to a wide range of behavioral relations, and has developed into an umbrella term for the logical side of decision science, including both humans and non-humans (e.g. computers)" (Wikipedia entry).

 

In a simplification of the game, our 2 players (Marvel and DC), will choose a strategy that maximizes their respective payoffs. The payoff is maximum box office gross and the strategy revolves around the release schedule for their respective 2016 tentpoles - Man of Steel (DC) and Capt America 3 (Marvel). 

 

A word of about the importance of May to tent poles - it is the gateway to the most lucrative season for Hollywood movies - the summer season. Anywhere between 30-40% of the annual global gross of Hollywood movies is generated in the 3 months of May, June and July. And May first week is often the release date of THE summer tent-pole flick.

 

Hence in the first move of our multi-stage sequential game, DC by opting 6th May 2016 has flagged Man of Steel 2 as THE movie event of the 2016 summer. However, Marvel Studios/Disney wont have any of that.

 

In their move, to maximize its own potential payoff and make a dent in the take of MoS2, Marvel/Disney has set up a direct clash with Superman and friends by announcing ALSO a 6th May 2016 release date for Captain America 3! Lunacy you would say? Why would a studio pit a movie costing USD150-200mn  against a solid franchise (Batman), whose previous 2 releases have outgrossed (in US domestic) every Marvel movie barring the Avengers flick? Simple: Marvel is willing to take a cut in the box-office payoff from Cap 3 release IF it can dampen/dilute/isolate/(even) devastate the thunder of the launch of the DC cinematic universe aka MoS2.

 

And DC gets that. Stage 2 has arrived (which is basically NOW) and its their turn. By opting to leave the release schedule as is, DC would maintain its dominant strategy. However it runs the gamut of loosing face/appeal/shine, IF Cap 3 manages to out-gross MoS2. Everyone expects MoS2 to make more money than Cap3. But what would if it doesnt? It would be a damning verdict for DCs franchise value and probably ensure that their cinematic universe is dead on arrival.

 

However opting to change the schedule ALSO entails massive risk. Firstly is the loss of face (Marvel vs DC); secondly the lost of a lucrative slot; and thirdly, and most importantly, it creates a dominant strategy for Marvel and other studios against any future big-budget movies released by Warner/DC. Explaining the last point further: all competition would have to do against Warner/DC is move movies in direct competition/confrontation and expect the latter to blink.

 

Yes - rock and a very hard place. And DC is the patty.

 

The next move than (and from here its all conjecture): DC will move release of MoS2 TO 5th May 2016 from 6th May 2016.

 

Too simple? It is actually. By just moving it a day ahead, DC captures max possible screens and creates critical space/distance from the Cap3 release. And if MoS2 proves to be a juggernaught (box office, social media, word of mouth), Cap3 would be steamrolled. And the stone would be used to kill the 2nd bird - Marvels growing stature of being bullet-proof.

 

So how would Marvel respond? By taking DCs place between the rock and the very hard place. If Marvel moves schedule from 6th to 5th as well, it would seem petty - there is a thin line behind brave and foolish. And if it doesnt, it would either hope that Cap3 is damn good or MoS2 is damn bad. Either way, there is too much dependence on hope.

 

 Again, so how would Marvel respond? By over time (we have 2 years still to go) quietly announcing a change in dates on pretext of 'film being not ready'.

 

This is my forecast. There is a lot of time and variables to go and things might change outside of the direct face-off. For instance, cinema owners might push the 2 studios to reach compromise. And/or, either of the movies might actually be not ready. And so on.

 

For the time being, though, it seems that Batman is one punch away from knocking out Capt America (and co).