The (Over)-Importance of Institutions...

I have come across the word "Institutions" several times over the last month and a half, in the context of sound macroeconomics. The only parameter that economists find has a positive correlation with a nation's economic health is the existence of strong institutions.

Geography does not matter. Natural resouces, perhaps counter-intuitively do not matter either. Indeed, natural resources in a country with weak institutions often leaves the country worse off. It breeds corruption, an over-reliance on the wealth generated from the resources and a consequent neglect of more sustainable sources of growth. Two cases in point: Saudi Arabia v Singapore. One sits on the largest known supplies of oil reserves and the other has...well...trees. I wont pain you with the economics of it...you get the picture.

Another theory is that the further you go from the equator, the more prosperous the countries become. Norway and Sweden are amongst the most properous of nations, while sub-Saharan afica and parts of Asia are the poorest. Hmmm....seemingly outrageous in that there is no underlying logic. Yet, it largely holds true. Does one buy it? NO! It is merely a reflective rather than a causal realtionship.

All of this raises the question: what are good institutions? OK, so this comprises of a strong & independent Central Bank and Judiciary, an efficient & incorruptible civil service, growth driven government policies, strong basic & professional educational institutes, sound financial markets, competitive product/service sectors, etc, etc. Seriously though, for the develoing world, targeting this "wish-list" will consume all output in itself.

Perhaps a more sensible approach for the government is to start with the 'no-brainer' stuff, such as cutting down on licence requirements to set-up an industry, speed up procedures to import valuable raw materials and tax breaks to export-based industries, etc. Do this and your industry and entrepreneurs will be free from their shackles. It needs a few strong, practical leaders at the top to set the ball rolling. The wish-list can be followed up with later. Keep things simple and simple things will be done right, they say. Perhaps...just perhaps this applies here too.

Bienvenue recruitment!

Alas, P4 is upon us! Its recruitment season now in INSEAD. Sample this:

Monday: Marakon Associates, Google
Tuesday: The Boston Consulting Group
Wednesday: Bain & Co., American Express
Thursday: Booz Allen Hamilton, UBS
Friday: McKinsey & Co., LEK Consulting, Roland Berger Consulting

Next week is not looking any better. The next 2 weeks will be spent working through Motivation letters and appropriate CVs for each of the applications. Painful as this may seem, I suppose its a pain worth welcoming. For as long as this pain continues, there is hope my escaping my current unemployed status.

Speaking of which, went through a Mock Interview session today conducted by a group of London-based consultants. I was warned that this wasn't like other "Mock" interviews. The guys were good at what they did and dead serious. It turned out to be hugely intense and frighteningly real. Can't imagine the real deal being much tougher.

All building up for the days coming up...

Good signs on improving the Supply side?

This is following up on my post on Feb 20 regarding the possibility that India's economy may be Overheating and the urgent need to think long-term by improving India's productive capacity. The Union budget for the 2007-2008 budget was released this Wednesday.

The following made for heart-warming reading...

"Finance Minister Palaniappan Chidambaram said spending on education would be increased by 34.2% in the coming fiscal year, while health and family welfare spending would rise by 21.9%"

The move attempts to boost one of the three key contributors to an economy's productive capacity: Labour. A first good step. Lets hope the strategy is executed well.

Overall, the budget has been well-received with a strong emphasis on increasing output in the agricultural industry, a sector that still employs two-thirds of India's population. Given that I am currently keying this at a transit lounge at the Chennai airport and my flight to Bangalore is 45 minutes away, more on this later...