Tag Archives: economy

Bringing my writings together

Probably for the first time in the history of my personal blogging, I’ve brought together all my writings under a single site. Since migrating kevlow.com to a self-hosted platform (though you probably won’t be able to tell), I’ve pulled in some of the even older pieces of writing I’ve put out on the internet. This includes blog entries written from as far back as 2005.

Looking through my entries, there was the period of 2011-2013 when I wasn’t so active probably because I was busy in LSE. It was probably a bit of a shame because those were some really formative years as well in terms of the development of my academic thinking and also integration of my faith into my intellectual identity. Perhaps I had wanted to keep things a bit more private. I would like to point out that those were also years when Tim Keller’s writings engaged my mind so much more.

The focus of my writings has certainly evolved significantly especially with the addition of topics around energy and climate. My passion for education and learning was more dominant earlier in my writing though I wouldn’t consider it to have died down from then. My interest in other topics had expanded.

I could have continued to keep my writings in different niches and have them separate but I realised that in some sense, they were reinforcing one another and were all products of my principles and conviction that drove me. After years of refinement, my conviction is still towards this broader theme of trying to create a future that we all want to live in. Whether it’s energy, education, sustainability or economic development, I am future-oriented and all for investing in what is to come.

Markets and distribution

One of the things we learnt early on in economics is that allocative efficiency which the perfect competitive market seem to move towards is efficient in terms of maximising social welfare even if distributionally it is skewed. In other words, by using the ability to pay as the final arbiter for who gets the goods and services, the society moves towards high levels of efficiency about what gets produced and who gets what goods/services without questioning whether things are really ‘fair’ or if in the first place, the ability to pay is properly distributed.

This is a problem that we seem to ignore because it is convenient to think we are already in the best of worlds. The idea of Pareto optimal is powerful – that you stop moving things around as long as you cannot make someone better off without having to make someone worse off even if the one who is slightly worse off is not much more worse than the amount of betterment you can create in another. That comparison isn’t objectively possible anyways.

But by sweeping it under the carpet, economics close itself off to a lot of interesting philosophical debate that really matters and tries to consign itself to an amoral science. Yet championing for markets is not exactly amoral, it is taking the stance that the market approach is morally superior and already deferring to the market in the work of economic justice. Michael Sandel writes and lectures extensively on this and as we ponder over how we marketize various things from infrastructure to healthcare, we can go back to consider those ideas.

Creating a market II

For some reason most people forget that energy markets were created through a combination of business activities and government regulation. There would be a push of some kind towards energy access, electrification in the beginning of any modern country’s development. There wasn’t that much public consultation around these topics – that was simply how development takes place and everyone sort of aspired towards that. Or so we thought; but systems were built to drive countries and societies towards those directions.

Today, in the struggle to set up an orderly energy transition, policy leadership from government is more important than ever. The challenge is in determining what are political choices and what are really policy-choices that is to be determined through more rigorous research and analysis. There is always the search for market-based solutions even though we might actually have seen in history that a lot of big dislocations are resolved or handled through public sector decisions and investments.

The idea of seeking the market for solutions is a new idea. And while the market appear to have been terrific in generating a whole load of choices and new options, the fundamental innovations are still pulled together by a greater sense of mission than market competition. We probably need to mature further to appreciate this.

Creating a market

We might not realise it but governments have a huge role in creating markets. This is because markets do not spontaneously emerge out of nowhere especially in highly developed economies. One of the reasons is that markets actually requires structures, institutions and frameworks such as rules and regulation can encourage players to step forward more boldly and grow the market.

Today, in Australia, despite the multi-dimensional benefits that bioenergy brings, and synergises with the traditional economy, there’s still little recognition of the low-carbon identity of bioenergy. And it is a shame that methane produced from biological processes are still seen as not too different from natural gas that is extracted from the ground. There is no forward direction by the government to stake the space and define the standards for biogas production, upgrading into biomethane and regulations around treatment and handling of the digestate, which itself is a by-product of the process that can be made useful.

There is perhaps a clear path to create a market not just through regulatory clarity but also enforcing demand. Market for audit, market for inspections, even market for many public services are created by regulations. Sure, there’s a need and the market contributes positively to society and so regulations support that. Why can’t we do the same with clean energy? One that displaces directly the fossil fuels in our system?

Market values

When you try to sell your house, you take reference off the market price. You determine essentially the ‘market value’ of your house and then try to sell your house for that price. When you do eventually meet an interested serious buyer who makes an offer, you then haggle until you agree upon a price. This price is of course somewhat anchored by the market value you seem to have developed but then it would likely be different, complicated by the specific situation you and the buyer is in.

Do you value your own home based on that market value? Does it matter that your neighbour bought his house at a certain price? What is the basis of that price? Ultimately, while we can deconstruct these prices into locality, the quality of the build and other attribute, it is still a bit of a mystery. Is the value of something based on our subjective eyes and preferences, or is it intrinsic to the thing itself?

When we pay an artist to perform for 1 hour; is it the performance that is worth the money or the time spent by the artist? Do we allow the market to value us or do we value ourselves? Which market are we talking about anyways?

Being a market leader II

Last year, I wrote a post about market leadership. And it is interesting to see the move by Home Depot to increase salary as an investment towards increasing market share and dominance. Retail and service are being automated more and more with the improvements in technology and rise of AI. It is not so much about the existence of the technologies as they had existed for a long time. But the investment made over the years have accumulated and mass acceptance have reached this stage where broad-based adoption becomes increasingly common.

In the situation where capital investment in machines and technology becomes a more level playing field for companies, the edge that companies can get from replacing humans with machines becomes smaller. But it takes market leadership to decide that the new basis of competition is probably not about having more automation than the competition but to be able to attract and motivate the best frontline workers serving the customers and making their day.

Market leadership is not about following what the rest of the industry is doing but deciding what is the next basis of competition and focusing on those parameters. Scale helps but more critical is the courage and strategic thinking of those in charge.

Age of mediocrity

Each leap forward by technology is accompanied by fears around humans becoming or being mediocre. And most fears are basically exaggerated versions of reality as it turns out. So indeed, mechanisation has reduced the need for physical human labour and it has made majority of mankind physically less able than our forefathers but we’ve also been healthier and lived longer lives.

With the rise of AI, there’s fear of depending on it and concerns in schools about teachers losing their jobs or students outsourcing their work to ChatGPT. Lousy journalists who had been churning out mediocre pieces of work can be now replaced by AI, customer service representatives that don’t know their stuff can be replaced by chatbots and so on. The problem isn’t really about chatbots or AIs, or quality of humans. It is the issue around industrialization specifying standards, creating processes and expecting humans to fit into that.

We should begin to see all of the roles we humans can take as something relatively temporarily. That does not mean we shouldn’t invest in our craft and up our skills but that does put into question where is the boundary between human and machine in the work that we do. Measured in a single dimension, machines and technology can always be optimised to eventually deliver better performance than humans. The issue isn’t human’s mediocrity because there are mediocre workers and they’ve long been easily replaceable. Seth Godin recently talked about the matter on his podcast through two episodes (here and here).

The fact that AI frees us up from having to do the basic, minimum kind of work should present an opportunity for all of us. It might threaten some of us, but only if we allow it to.

Credit matters differently

More than 10 years ago, I took a course in microfinance and then spent some time in a village in Ghana’s Central region designing a village savings scheme for the villagers to pool capital in a manner that allowed them to access the mainstream banking system and also to invest in machines that the farmers could share in, and enhance productivity. It was microfinance but applied differently, a model the team created after consulting the people in the village and concerns around creation of debt.

Microfinance was quite popular then and the common belief was that there were productive people with the opportunities to put capital into productive use but did not have access to credit to allow them to do so because traditional finance were not accessible by these folks.

What was missing from the picture was that these people had struggled to save as well because they did not have places to safekeep cash or other asset instruments they had. This could be why the pre-paid mobile credits were popular and important economic enablers in some of these environments. Credit and savings are different sides of a coin and the way these services are valued works differently in different cultural contexts and markets.

The next generation of retail finance will have to start examining these cultures more to develop stronger value propositions. Central banks paying attention to consumer credit and savings behaviour would be wise to appreciate these elements too.

Coffee stories III

Continuing on the theme of business models, hacking the target audience in multiple dimensions, and also incentivisation by government for social objectives. More governments can learn from this but with the clear objective of advancing social good and making sure that the help they render to the populace lands in the right hands. And that people are behaving in the socially desirable direction.

This is different from the typical incentivisation that is driven by cost-benefit calculations of corporates, and enabling companies to cross certain cost hurdles to invest in certain activities in an economy. The sort of incentivisation that we are operating on here deals with longer term, more strategic directions that the government is driving at – not just trying to hit GDP growth targets or stimulating the aggregate demand of the economy.

And these strategies also gets at cultural shifts and change. Done properly, they create a new, better culture that treasures the future. That does not claim the present or the short term at the expense of the future. Parts of this incentivisation could be about a mixture of regulation that creates demand while subsidisation that buffers the costs of compliance. For example, applying a hefty carbon tax while subsidising decarbonisation technologies and programmes.

It’s not about sticks or carrots but sticks and carrots.

Having answers

In school, the guy who raise his hands to answer a question gets praised. The one who puts up his hand to ask a question feels like he might have disrupted the flow of a lesson or wasted everyone’s time on something that no one seemed to be interested in besides him. Besides, there never was a quiz by the teacher where credit was given to a student for asking questions.

Yet the older I got, the more I realised that having answers is overrated. The ability to ask the right questions and discover new ideas or thoughts from there is so much more important. The journey of discovery starts with questions and not knowing what to discover. The incentives that our education system designed was more about ease of creating robust, scientific measurement without necessarily aligning with the needs of students going through the system.

There has always been a question of whether schooling and the education system is ultimately about training and uplifting people or just measuring and sorting them. I’ve previously pondered over this quite a bit – whether we intend for the system to produce a pooling or separating equilibrium. It is still a question on my mind and I think it’s a conundrum for systems all around the world.