Categories
LHE

Sunglasses and Honesty

This is part of my – Learnings from Human Experiments (LHE) series


In four separate experiments by researchers at Harvard Business School, Duke University, and UNC Kenan-Flagler Business School, participants were asked to wear either real or knock-off sunglasses under the guise that they were participating in a marketing study.

People who were randomly assigned to wear the fake sunglasses cheated more on tasks and lowered their ethical expectations of others. Wearing fake sunglasses made people less honest.

***

Categories
Books Gyaan

Some negatives of a positive mood

Most of us are aware that mood affects what we think. In fact the influence is measurable. But did you also know that our mood impacts how we think as well? It does, and I learnt about it from Kahneman’s new book – Noise.

Thinking Fast and Slow by Kahneman is one of my fav books (part of the top reading list that I curated some time back). So when I saw a new book co-authored by him, I had to read it. I have finished almost 1/3rd of the book and frankly don’t think Noise comes anywhere close to TFaS. The focus is much narrow here (how we judge). But the book does offer some fascinating insights – like those around mood.

Studies have shown that people who are in a good mood are more likely to let their biases affect their thinking.

Noise – A Flaw in Human Judgement

Good mood also makes people more receptive to bullshit and extra gullible. And then there are scenarios where a bad mood is more helpful than a good one. For example in case of crimes, eyewitnesses who are exposed to misleading information are better able to disregard it – and to avoid false testimony – when they are in a bad mood!

We are not the same person at all times. As our mood varies, some part of our cognitive machinery vary with it (something we are not fully aware of). The footbridge problem illustrates this.

The Footbridge problem

Imagine you are on a footbridge. You can see the road below you. There’s traffic. There are five people down there too. You see a speeding truck coming towards them, from behind. They are unaware. The truck will most certainly run them over and they will all be dead. There is no time to shout and warn these five people. But there is one thing you can do. There is a large bodied person on the footbridge right next to you. You can push him off so that he falls and blocks the speeding truck. This will save those five lives but of course the person who you push, will die. What would you do? Would you just see all five die or would you sacrifice one life to save five? That’s the footbridge problem.

From a moral point of view, one choice is utilitarian (Jeremy Bentham) – loss of one life is preferable over loss of five. The other choice is in the realm of Deontological ethics (Immanuel Kant) – killing someone, even in the service of others is prohibited.

Very few people (1 in 10) ever say they would push the person.

But here’s the crazy insight – subjects who were placed in a positive mood (induced by watching a 5-min video game) were three times more likely to say that they would push the person off the bridge.

When we are shown a complex judgement problem, our mood in the moment influences our approach to the problem and the conclusions we reach, even when we believe that the mood has no such influence!

Alright, that’s all I had to share. May be I will have more when I read the remaining 2/3rd. Or may be not. Either way, see you soon.

Categories
general

Narrative Vs. Truth – BJP style!

Narrative 1 & 2 – Modi / Govt. didn’t see second wave coming / states were not warned.

The below news is from 08 March. But I guess Harsh Vardhan was just cracking a joke while Modi was busy warning the states! Why take Health Minister seriously?

Narrative 3 – India has the highest number of cases in the world

HOW THE FCUK IS THIS A “NARRATIVE”?

So let me rephrase what they are probably trying to say? India’s situation is worst in the world because it has the maximum cases – is a misleading “narrative”. Agree. But who the fcuk is saying that in the first place?

Btw, here’s a tweet from the Health Minister again.

Hello sir, India has more people than Europe and North America put together. So in absolute numbers India will obviously be higher.

Why you do this narrative-giri sir?

Narrative 4 – Modi’s Bengal Rallies and Kumbh caused second wave.

The response to this is “Rahul Gandhi bhi push-ups kara raha tha”? Isn’t Modiji 10x better than Rahul Gandhi? So how does it matter what he / others were doing? You yourself are saying that Modiji was busy warning everyone that second wave was coming – then at least he should have done what he could to control it no?

Narrative 5 – Why did India export vaccine while denying it to its own people? “This is nonsense” is how you choose to start your “truth”?

Bakchodi ki koi seema nahi hai. The “truth” itself says 1 in 3 vaccines were exported! And still this is a “narrative”!

I think it’s futile to lay bare this stupid table put out by BJP! I wonder if even Bhakts will feel comfortable forwarding this to anyone! I leave it at this.

Categories
general

My Crypto story so far and what you can learn from it

I bought my first crypto-currrency on 31 Dec 2020 (Etherium). I spent 50,000 rupees. The present value of my Etherium asset is 1.45 lakh (May 2021) and I don’t plan to sell it at all. Let me explain.

Before I begin, this post is only for those who are not sure about this Crypto thing and are wondering what the first right step should be.

If you don’t own any stock, then forget about Crypto. That would be just weird. First understand how stock markets work, enter the market – see your money grow and then think about Crypto.

You already hold stock assets? Cool, let’s talk about Crypto. I will not focus too much on short-term trading because I don’t understand that much myself. My focus is on long-term growth of your money.

Buying a crypto-currency (like Etherium or BTC) essentially means buying an asset whose price is totally dependent on supply and demand – there is no physical real-world value. But then even a 500 rupee note is exactly that, isn’t it? After all, the physical real-value of the paper on which a currency is printed is negligible.

So what’s the difference between how a 500 rupee note works and how a Crypto works?

The value of a 500 rupees note is also dependent on supply (mostly) and demand but the supply is 100% controlled by RBI – it prints those notes – nobody else can.

But crypto’s are not generated by any central bank. By way of a technological hack (blockchain), the supply of any crypto currency is fixed (or let me say – severely limited, more so for those currencies that have been around for a long time – like BTC and Etherium). And this means that if enough people keep buying crypto-currencies, the price will keep going up. If people start selling what they have, the price will go down.

Sounds similar to stocks? It is. But the difference is – at some level a stock-price is also supposedly linked with the real valuation / business-performance of the company whose stock you own. In case of crypto – it is 100% supply and demand. It’s economics at its most basic.

And in my opinion, this is all there is to know about Crypto to start buying it.

Why did I begin with Ehterium?

When I bought it, BTC had highest market-cap, Etherium was at no. 2 (am not cross-checking it, but very likely that’s the case even today). So I just went with no. 2 because:

  1. it’s cheaper than no. 1, and
  2. it is still safe because it’s unlikely that people will stop buying Etherium any time soon – and that means the price will keep going up, year after year. It has some solid backers (Google it).

Last week, when BTC’s price went down I bought BTC too (worth another 50k). It is worth 54k as I write this post. I don’t think I am going to invest in random cryptos – there are hundreds of them. If you have high appetite for risk, you can buy whatever you feel like. If your bet is good, you will make more money than buying Etherium or BTC. All that you need to guess right is, will the rest of the world keep buying it year after year or sell it off?

How to actually buy any of the cryptos using Indian money?

When I asked around in Dec, Wazirx and Coinswitch by Kuber were the most recommended exchanges (I have used both). You download their app, do the KYC and then deposit money from your bank account to the exchange.

Using the money deposited in the exchange, you buy whatever currency you want. That’s your crypto asset. You can keep this asset in the exchange itself (if you plan to sell soon) but like me if you don’t plan to sell any time soon, then best practice is to withdraw your asset and keep it with you. Why should you ever withdraw the asset when eventually you need the exchange to sell it and get back Indian rupees anyway?

Well, because exchanges get hacked.

An exchange-hack is very different than a bank getting robbed. When a bank gets robbed, you can still claim your money. When an exchange gets hacked, there is no way to show that it was not ‘you’ who withdrew your asset (the same technology that enables crypto, creates this issue).

So I would suggest you take out the asset from the exchange. You can keep your crypto with yourself in a device like nano ledger (looks like a pen-drive but essentially stores the unique code for each crypto transaction).

Whenever you want to sell your asset – you can transfer the asset to any exchange (using your physical device), sell the crypto in that exchange and receive the money in INR. Then you transfer the money from exchange to your bank account. As simple as that. You may have to pay Capital Gains tax.

What if the government bans Crypto?

Government can ban an exchange (another reason, you shouldn’t keep your purchased crypto in the exchange). But banning Crypto is not implementable.

For example let’s imagine you hold 1.5 lakh worth of Etherium with you and when you plan to sell it, exchanges in India stop working. What do you do?

Well, sell it in some other exchange of any country (if you have to). You will then end up owning “money” in that particular country’s currency (say if you sell it in a US exchange, you will end up owning dollars). That’s still your money though. Figure out a way to transfer those dollars to your Indian account!

There is so much money in BTC / Etherium today that if GoI stops Indian exchanges, multiple startups will flourish just to enable you to receive your foreign currency asset (be it dollars or anything) to your Indian account in INR. So ‘ban’ has zero risk per say to your money – it will only cause inconvenience and raised transaction cost perhaps.

Also, most likely, when GoI will finally realize that it cannot ban Crypto, it would rather let the exchanges run so that at least the capital gain tax flows to the Government and not gets wasted.

So yeah, this is all that I have learnt and had to share. Before I end, few cautionary words – only put that much money in buying Crypto that you don’t need now and would have used to invest in buying more stocks / MFs / gold etc. anyway.

Some people do make money by short-term buying and selling but I am too busy doing other interesting things in life to waste it on becoming mildly richer by continuous buying and selling. My post is only for those who are in it for the long run and understand that eventually the benefit of compounding pays off so much more than this whole daily-trading business.

Alright, hope this post helps you get started. The best way to learn is to put in some real money. All the best.

Categories
general

Here’s why everyone should read ‘The Tyranny of Merit’

I grew up believing that opportunities in life – from job to everything else – should be merit-based. May be you did too. This book challenges all of that. When you do read the book, I hope you find the arguments as fascinating as I did. Let me take you through some of them.

Meritocracy or the idea / philosophy that society should allocate economic rewards according to merit is appealing for two primary reasons – efficiency and fairness. As per the meritocratic ethic, we do not deserve to be rewarded, or held back, based on factors beyond our control. So far so good. But wait a second, do you notice the contradiction? Is having (or lacking) certain talents really our own doing? And if not, is meritocracy really all that ‘fair’?

All of us will agree that our having this talent or that is not our doing. It’s just a matter of luck. We do not merit or ‘deserve‘ the benefits (or burdens) that derive from luck. But what about those of us who ‘work hard‘? Talent or luck is not everything, right? Really? Just look around at any poor person – your maid, your driver, the guy who delivers you Swiggy or Amazon. Do you really believe they don’t work as hard as you do?

For decades, meritocratic elites have believed and propagated the mantra of the “rhetoric of rising” – those who work hard and play by the rules deserve to rise as far as their talents and dreams will take them.

But the same elites often fail to notice that for those stuck at the bottom or struggling to stay afloat, the rhetoric of rising is less a promise, and more a taunt!

In the book, the author sums up the issue beautifully (an eye opener for me): the meritocratic ideal is about mobility, not equality. And that’s where the problem lies. Meritocracy does not say there is anything wrong with yawning gaps between rich and poor; it only insists that the children of the rich and the children of the poor should be able to, over time, swap places based on merits. How often does that happen though?

In reality, the explosion of inequality in recent decades has not at all quickened upward mobility! To the contrary, it has enabled those on top, to consolidate their advantages and pass on to their children. Today’s meritocracy has hardened into hereditary aristocracy.

The meritocratic ideal is not a remedy for inequality; it is a justification of inequality.

There is another consequence – under conditions of rampant inequality and stalled mobility, reiterating the message that we are responsible for our fate (“rhetoric of responsibility”) and deserve what we get, erodes and demoralizes those who get left behind. The principle of merit can easily take a tyrannical turn, not only when societies fail to live up to it, but also – indeed especially – when they do.

Allocating jobs and opportunists according to merit does not reduce inequality; it re-configures inequality to alight with ability. This reconfiguration creates a presumption that people get what they deserve.

The Tyranny of Merit – Michael J. Sandel

Confusing value with price

The assertion that people morally deserve whatever income a competitive free market assigns them goes back to the early days of neoclassical economics. In reality, what people earn depends less on their native abilities and more on the vagaries of supply and demand! Water is more valuable than diamond but priced at a fraction of what diamond costs.

Isn’t meeting a demand a valuable thing to do, you ask? Sure, but most of the times, the demands which the economic system operates to gratify are largely produced by the workings of the system itself.

Being good at making money measures neither our merit nor the value of our contribution.

All the successful can honestly say is that they have managed – through some unfathomable mix of genius or guile, timing or talent, luck or pluck or grim determination – to cater effectively to the jumble of wants and desires, however weighty or frivolous, that constitute consumer demand at any moment.


Education & Meritocracy

To the liberal class, every big economic problem is really an education problem, a failure by the losers to learn the right skills and get the credentials everyone knows you’ll need in the society of the future. But it’s really not an answer at all – it’s a moral judgement.

In the mid 1970s, Stanford accepted nearly 1/3rd of those who applied. In the 1980s, Harvard and Stanford admitted about one in five. In 2019, they accepted fewer than one in twenty. It is difficult to emerge from this gauntlet of stress and striving without believing that you have earned – through effort and hard work – whatever success may come your way.

But the fact remains that even the best, most inclusive educational system would be hard pressed to equip students from poor backgrounds to compete on equal terms with children from families that bestow copious amounts of attention, resources and connections.

On this topic I highly recommend you watch the new Netflix documentary on the 2019 US college admission scandal.

Back to the book. See, encouraging more people to go to college is a good thing. Making college more accessible to those of modest means is even better. But as a solution to inequality, the single-minded focus on education has a damaging side-effect – it erodes the social esteem accorded those who have not gone to college. The notion that the system rewards talent and hard work ends up encouraging the winners (wrongfully) to consider their success their own doing and in turn they start to look down upon those less fortunate than themselves.

One last thing – dumb Vs. smart

In every age, politicians and opinion makers, publicists and advertisers, reach for a language of judgement and evaluation. Such rhetoric typically draws upon evaluative contrasts: just vs. unjust, free vs. un-free, progressive vs. reactionary, strong vs. weak, open vs. closed and so on and so forth.

In recent decades, with the rise in meritocratic modes of thinking, the reigning evaluative contrast has become “smart vs. dumb”.

Everything and everybody must be smart – smart city, smart-phone, smart parents, smart students, smart thinking, smart farmers and on and on.

You are opposed to climate change? You are not smart. You are dumb. But is that always true?

If the primary source of opposition to action on climate change were lack of information or a refusal to accept science, one would expect opposition to be stronger among those with less education / scientific knowledge. It so happens that this is not the case really. Studies of public opinion show that the more people know about science, the more polarized are their views on climate change (rather than converging). What about those who oppose government action to reduce carbon emissions, not because they reject science, but because they do not trust the government to act in their interest? Meritocracy creates the illusion that everything can be split into smart vs. dumb.

Sorry for making this post so long. I appreciate your patience. Let me try to wrap it up now.

The term meritocracy was invented by a British sociologist Michael Young who wrote a book in 1958 called The Rise of Meritocracy. But for Young himself, meritocracy described a dystopia, not an ideal. In his book, he already anticipated that the toxic brew of hubris and resentment created from meritocracy would fuel a backlash. In fact he concluded his dystopian tale by predicting (all the way back in 1958) that in 2034, the less educated classes would rise up in a populist revolt against meritocratic elites. I guess his prediction came true 18 years before time (both Brexit and Trump happened in 2016)?

May be the real problem with meritocracy is not that we have failed to achieve it, but that the ideal itself is flawed.

If you learnt something useful by reading my blog, I’d appreciate if you dropped in a comment. Thanks.

Categories
LHE

Have we been doing networking wrong all our lives?

Consider the following statements:

  1. I frequently catch up with colleagues from different departments, and
  2. I use company events to make new contacts.

A study that followed 279 employees over the course of two years to understand what predicted career-success, found that agreement with either of these statements, significantly predicted their current salary, the salary growth trajectory over two years, and their career satisfaction.

Which group do you think had better salary / career outcomes – the one that went with the first statement (focusing on network-management) or the second (focusing on building new connections)?

Here’s the finding: agreeing with the first statement predicted close to half of the variance in salary growth and career satisfaction while focusing on meeting new people (second statement) was much less important!

Net net, existing colleagues matter more than new contacts. I learnt this while reading Social Chemistry by Marissa King. However this applies only to work-colleagues + when money / career-growth is the desired outcome.

Outside of work, it is new friends – not the old – who make us happier and create a greater sense of well-being.

Marissa King, Social Chemistry

So have we been doing networking wrong all our lives (trying to get more professional contacts at work and sticking to same old friends outside of work)? You tell me.

This post is part of my LHE series.

Categories
LHE

MEE: the mere exposure effect

Robert Zajonc – a psychologist, presented some subjects with a variety of photographs. The photos were of different white men taken from a yearbook. Some photographs were shown only once, while others were shown up to 25 times.

Each subject was then asked to rate how much they thought they’d like the person (in the photograph) if they happened to actually meet them, in-person.

Seeing a photograph 10 times led to about 30% increase in perceptions of likeability – compared to a face that was shown only once!

This is called the ‘mere exposure effect‘ (MEE) and in the decades since Zajonc’s original study, this finding has been replicated across more than two hundred studies.

Merely being exposed to people, objects, and ideas leads us to have more favourable evaluations of them.

I learnt this while reading Social Chemistry by Marissa King. A little bit of additional Wikipedia-reading explains why MEE happens.

Hope you learnt something new. This post is part of my LHE series.

Categories
Gyaan

What jobs are “Bullshit Jobs” ?

I went through a recommended book one of these weeks called Bullshit Jobs by David Graeber. I didn’t read every single page but read some chapters. This blog is about the crux of what the author’s trying to say in the book, and my reflections on some of that.

In essence, bullshit jobs are ones where those who have such jobs, in the heart of their heart know that their job is not really needed as such – that what they are doing is basically bullshit.

Ever felt that way about your job? Then read on.

Graeber (who died only few months ago – in Sep 2020) goes ahead and offers the below classification for bullshit jobs:

  1. what flunkies do – jobs that exist only to make someone else look or feel important (needless receptionist / PA for example);
  2. what goons do – something that you need to do only because your competitor / enemy is doing it (army / PR etc.);
  3. what duct tapers do – fixing other people’s mistakes that could have been easily avoided had the original person showed basic competency;
  4. what box tickers do – folks that do work that’s mainly needed for some sort of a ‘tick in the box’ by someone (typically bureaucratic in nature); and
  5. what taskmasters do – folks who spend most of their time allocating tasks to others.

I graduated with a masters in 2008 and played the role of a management consultant for four years. Reading the book made me reflect on that job. I always knew there was something meaningless about the consulting job that I had. Sure, every assignment that I worked on was of value to someone somewhere (that’s how consultants get paid), but at the end of the day, most of what I did was essentially a box-ticking activity. I think most consultants, for most part of their working lives, are box-tickers. The jobs are bullshit.

How about what I do today? When I create a video or a short documentary film purely for the joy of it, it is obviously meaningful to me. But what happens when I get paid to help clients with my storytelling skills? From Graeber’s classification, if my final work is essentially an ad, then I am pretty much a ‘goon’ – it’s a job that one does only because someone else is doing it.

Graeber shares his correspondence with a London based post-production guy Tom. Tom told him that there were parts of his job that he found enjoyable and fulfilling – getting to make cars fly, buildings explode, and dinosaurs attack alien spaceships for movie studios – because all said and done, these things provide entertainment for audiences worldwide.

But a growing percentage of Tom’s customers are advertising agencies where Tom would use visual effects trickery to make it seem like the products worked (shampoos, toothpastes, moisturizing creams, washing powders). Most of his work on TV shows and music videos – where the celebrities are the products – involves things such as reducing bags under the eyes of women, making hair shinier etc.

We essentially make viewers feel inadequate whilst they’re watching the main programs and then exaggerate the effectiveness of the “solutions” provided in the commercial breaks. I get paid £100,000 a year to do this.

Tom

When Graber asked Tom why he considered his job to be bullshit (as opposed to merely, say, evil), Tom explained that a worthwhile job should probably be one hat fulfills a pre-existing need, or creates a product or service that people hadn’t thought of, that somehow enhances and improves their lives. But since supply for most products / services seems to have far outpaced demand (in most industries), the demand is being essentially manufactured, which he partly helps do. After manufacturing demand, the usefulness of the products sold to fix it, is exaggerated. That is the job of every single person that works in or for the entire advertising industry.

If we’re at the point where in order to sell products, one has to first of all trick people into thinking they need them, then one would be be hard-pressed to argue that these jobs aren’t bullshit!

Makes sense, right? I wouldn’t necessarily recommend you pick the book but if you really really relate to what you read here, may be you will enjoy it more than I did. At this stage in my life, I don’t care much about the bullshit part of the work that I do, as long as I don’t sell my time and skills to doing that entirely. As long as I am also writing blogs like these and doing my personal 3MinuteStories, I am fine. Are you?

Categories
Economics VATSANALYSIS

Do we perform better when we are rewarded?

You are given a wax-candle, a box of matches and a box of pins. These are placed on a table next to a wall. Without using anything else, you have to fix the candle on the wall and light it in a way that no wax drips down the table. How would you solve this problem?

The above is called the Candle Problem. Two groups were asked to solve it. One of the groups was promised some money if they finished the task in a given time. The other group could take as long as they wanted; they weren’t getting any money whether they solved it or not.

Which group do you think finished the task faster?

The group that was not given any monetary incentive took lesser time to solve! I know, I know.

You can watch the above video to understand what explains this non-intuitive result but the short answer is – when a task requires creative thinking, we perform worse when working for a reward (think performance bonus). A reward leads to a bias called “functional fixedness” that makes us slower at coming up with creative solutions.

The speaker in the above video goes on to add that when the task is a straightforward one (simple set of rules + clear destination), then monetary incentive does lead to better performance.

Let me now flip the original question – do we become more productive when our earnings are taxed less?

For example, would the top 1% rich in the world be any less productive / innovative if we increased their taxes?

There is this ‘intuitive’ prevalent belief that low tax rates are necessary at the top, because the likes of Ambani need to be given the incentive to work hard, be creative, and launch the next Jio to change the game for everyone.

But the sad truth is that there is no evidence this actually happens, as Abhijit Banerjee and Esther Duflo investigate and observe in their book – Good Economics for Hard Times.

There is absolutely no relationship between the depth of the cut between the 1960s and 2000s in a country and the change in growth rate in that country during the same period.

Abhijit V. Banerjee & Esther Duflo – Good Economics for Hard Times

One of the possible reasons why the rich continue making more money even when you tax them is that a rich person who makes 100X more than a poor person is not really working 100X times harder or innovating 100X times more.

Click on the image to read the full article (could be behind paywall)

Since the major chunk of all the money that the rich person makes, is simply not coming from his / her efficiency (or productivity), even if they feel like not working as hard because of higher tax (hypothetical scenario), it does not cause any significant dent in their overall earnings.

The speaker in the below TED talk also suggests the same (just watch the first three minutes if you are pressed for time).

By the way, if a person A who makes 100X more than a person B, is not not really creating 100X value compared to B (or anywhere even close to that), what explains the income difference? Rent seeking is one of the answers.

‘To put it baldly,’ says the economist Joseph Stiglitz, ‘there are two ways to become wealthy: to create wealth or to take wealth away from others. The former adds to society. The latter typically subtracts from it, for in the process of taking it away, wealth gets destroyed.’ Rent seeking is nothing more than a polite and rather neutral-sounding way of referring to what I call ‘accumulation by dispossession’.

[…]

As Stiglitz remarks, ‘Some of the most important innovations in business in the last three decades have centered not on making the economy more efficient but on how better to ensure monopoly power or how better to circumvent government regulations intended to align social returns and private rewards.

Harvey, David – Seventeen Contradictions and the End of Capitalism

If you are someone who knows more about Economics than me and find some of my arguments faulty, do let me know. Over the past few months I have been trying to understand how much of the outrage against the rich getting richer, is justified. Growing inequality is bad, but do we blame Ambani for that or the government? There is a lot that I am still reading and my perspective at this point in time is definitive by no means. Also, I don’t want to imply that all that Ambani does is make money by rent-seeking. I am sure he is also generating real value. But how much? Does the increase in the amount of wealth of the top 1% (or the top 0.1% or the top ten) truly reflect the increase in value that they generate? So far, all that I have read tells me – clearly not.

Let me end this post with a profound statement Nick Hanauer makes in the above embedded TED video – “people are not paid what they are worth; they are paid what they have the power to negotiate”.

Categories
Economics VATSANALYSIS

Does democracy make it difficult to introduce useful reforms?

NITI Ayog’s CEO Amitabh Kant was all over the news recently for the one line that he said in a video interview (that you can still see on Youtube) – “we are too much of a democracy”.

The context: relationship between dealing with democratic decision-making and ability to usher in “hard reforms”. Kant seemed to suggest an inverse correlation – the more democracy there is, the harder it is to introduce reforms. But is it really true?

Last week, I was having a conversation with a startup founder who said something similar. I don’t remember the exact words, but let me share an extract from a World Bank paper that sums up this intuitive logic that many seem to hold.

Reforms are often unpopular because they tend to reduce living standards in the short run. Even reforms that increase overall prosperity (measured in GDP growth) may be unpopular if compensation schemes for the losers are not credible; and if benefits are far in the future and costs more immediate.

These problems are compounded by the fact that democracies offer more channels of protest and influence on policy-making to subordinate groups than authoritarian regimes. Democratic rule may fragment decision-making authority among branches of government, allowing opponents of reform to interfere more easily with program design.

In contrast, authoritarian governments have less need to respond to either popular opinion or vested interests and hence can more readily base their decision on criteria of economic rationality. They are better able to make long-run plans than are democratic governments tied to electoral cycles; and have greater centralization of power that facilitates the implementation of reforms.

World Bank Policy Research Working Paper, 2016

Now comes the twist – this same World Bank paper goes ahead and analyzes 140+ countries to see if data supports this hypothesis and the answer is – NO! There is in fact robust evidence for a positive link between democracy and growth-enhancing reforms. A move from below-average to above-average level of democracy for example, increases the probability of reform by 20% +

Source: World Bank

Another paper from 2010 had a similar conclusion. The authors plotted a) the global democratic index from 1960 to 2004 and b) reform index for the same period (feel free to read up on how these indices were calculated in the linked paper). Almost always, the two graphs matched – implying that the more democratic the world gets, more reforms happen.

Now this is just a correlation, so causation may be debated but what the above charts show, is still significant – a belief that ‘hard reforms’ happen better in non-democratic setups is not backed by any statistical evidence.

So now we know the link between democracy and reforms. What about growth? Do democratic countries grow faster? Data says – yes. Below is a graph from a study by MIT, published last year.

So even when data doesn’t justify less democracy for the sake of better reforms / growth, why do some folks believe so? Amitabh Kant may have an agenda but what about the startup founder who is extremely rational and wouldn’t last in the industry if he didn’t rely on hard data to make business decisions (his company has been doing good)?

In the same conversation that I mentioned earlier, he narrated to me the story of chewing-gum ban in Singapore that was brought in at a time when miscreants were using the gum to block metro doors. He remarked how radical changes like the chewing-gum ban are so difficult to introduce in a democracy like India. But what he was telling me was a story – one that fed his intuitive idea of how the world probably works (by focusing on exceptions than what usually happens).

There is a deep gap between our thinking about statistics and our thinking about individual cases.

[…]

…even compelling causal statistics will not change long-held beliefs rooted in personal experience.

Daniel Kahneman – Thinking, Fast & Slow

The “China growth story” is another example that makes it easy for many to resist looking at the aggregate global evidence. It is easier to give in to the urge to conclude that democracy in general comes in the way of reforms / growth without asking – is China an exception or a rule? Has China grown in spite of democracy or because of its absence? Most of us never ask these questions; we simply form our opinions and beliefs based on stories that sound reasonable and once the opinion is formed, data becomes irrelevant – stories are all that remain.