Smart solutions for India's productivity problem

From: Blog

India’s GDP growth slipped to 4% from 9% in just eight fiscal quarters. It has never been more important, as the country’s economy languishes, to improve productivity across the public, private, and social sectors.

A Chicago Booth panel discussion on the topic—organized as part of the celebrations to mark the opening of the University of Chicago Center in Delhi—gave rise to some solutions.

Steven J. Davis, William H. Abbott Professor of International Business and Economics at Chicago Booth, discussed a field experiment conducted by the University of Stanford and the World Bank on 28 large textile plants near Mumbai. Small improvements in basic management practices made a big difference. By introducing better quality control, inventory management, human resources management, sales management, and so on, the researchers saw dramatic results within a year: defects reduced by 50%, while overall productivity rose by 20%.

These changes seem obvious in the context of more developed economies. Why, then, do poorly managed firms continue to operate as they do, and why do they exist at all? There are several reasons: Firms often don’t have information about global best practices, or do not believe these practices can make a difference; family-owned firms are resistant to outside managers; there are restrictions on competition such as trade barriers or entry barriers for new firms (lack of financing or difficulty in obtaining licenses, for example); and there are barriers to expansion by highly productive firms (due to family size, for example).

Marianne Bertrand, Chris P. Dialynas Distinguished Service Professor of Economics at Chicago Booth has been studying the workings of the Indian Administrative Service (IAS). She said the solution to improving the productivity of Indian bureaucrats lies in introducing accountability and incentives into the system, as well as improving the selection process to ensure that people who are better motivated for public service join the IAS.

Bertrand said no single metric—compensation, selection criteria, internal assessment, and so on—can explain the huge variation in how effective or honest a civil servant is perceived to be. At the same time, she said, the government can improve productivity by simply getting out of sectors where the private sector can deliver more bang for the buck given the right motivation and proper regulation.

Luis Miranda, MBA ’89, senior advisor, Morgan Stanley Infrastructure and chairman of the board of advisors at the Centre for Civil Society, said India's large unorganized sector—where 80% of economic activity takes place—is a big drag on productivity. He cited studies that show that in sectors where the private sector has been allowed to compete with the government—such as education and ports—people and businesses are increasingly choosing the private sector for its efficiency.

Miranda cited the example of OpASHA, a public-private partnership led by UChicago to provide treatment to tuberculosis patients. He said that the program has reduced the cost of treatment to just 6% of what it costs the government, and has improved the success rate to 89% from 32%. And it has achieved all this just by using technology, community volunteers, and conveniently located treatment centers so that people don’t have to miss work to visit the distant government health center.

The key learnings, he said, are that the government must support economic freedom and remove barriers on entrepreneurship and innovation. It must encourage competition. There is evidence, he said, that since FDI was allowed into India in the early 1990s, productivity has shot by 2.5-3 times. And finally, it must put in place an ecosystem that supports scale.

The writing is on the wall. The question is: will India be able to elect a strong government in the national elections in April and May that has the mandate to take these steps?

—Madhur Singh

Cat: Policy, Business,Sub: Economics,


End the mommy wars, use data

From: Blog

What really happens when women opt out of paid employment

Earlier in August the New York Times Magazine printed a cover story about successful career women who left work to raise their children. The story got readers predictably riled up, with more than 1,000 comments posted on the site. It also fueled debates on other websites (for an example, see the Atlantic).

The article continued a grand tradition in the  “mommy wars” of creating and backing up arguments with anecdotes. For other examples, see here and even here, published in the New York Times Magazine a decade ago.

Many people seem to read these articles as general comments about whether women should work in or out of the home. They want to discuss and, yes, argue about the tradeoffs many women make when they balance work and family, but all many commenters do is offer more anecdotes to stories based on anecdotes.

So where are the data? What really happens when women opt out of paid employment? Research by Chicago Booth’s Marianne Bertrand, described in the summer issue of Capital Ideas, sheds quantitative light  on the topic. Her 2013 paper “Career, Family and the Well-Being of College-Educated Women” (here’s a link) compares college-educated women who stay home with those who work full time. Instead of anecdotes, it draws on data presented in General Social Surveys from 1972 to 2010, and the 2010 Well-Being module of the American Time Use Survey. The results, greatly simplified: women at home report being happier.

It would be a mistake to think that data contain all the world’s answers, especially when conclusions can be simplified and spun out of context. If  women in paid employment report being less happy, that doesn’t mean that women shouldn’t work outside the home, but it does raise questions: among them, what does happiness mean? What is negatively impacting the happiness of working women?

But data provide a basis of discussion, and referencing research rather than personal stories might help to cool tempers and advance the conversation. Unless, of course, we want to argue over the decisions made by 22 women featured in the New York Times Magazine. In that case, carry on.

—Emily LambertCat:Business,Sub:Economics,