Undergraduate Economist

Perspectives of an economics student

Archive for September, 2006

Select Stock Indices of the World

Posted by Alex M Thomas on 29th September 2006

Usually, we are aware about the details of only a few stock indices in the world. This post aims to widen your horizon. The table has enumerated some of the facts about 10 other countries’ stock index generally quoted, other than India.

Country Stock Index Stock Exchange No of Companies Birth year Index kind
Brazil Bovespa Sao Paulo Exchange 56 1968 capitalization-weighted
China SE Shang composite Shanghai Stock Exchange (Unavailable) 1990 capitalization-weighted
France CAC Paris Stock Exchange 40 1987 capitalization-weighted
Germany DAX Frankfurt Stock Exchange 30 1988 capitalization-weighted
Hong Kong Hang Seng Index Hong Kong Stock Exchange 33 1969 (Unavailable)
India Sensex Bombay Stock Exchange 30 1986 capitalization-weighted
Japan Nikkei Tokyo Stock Exchange 225 1949 price-weighted
Korea KOSPI Korean Stock Exchange 200 1964 capitalization-weighted
Mexico Mexbol Mexican Stock Exchange (Unavailable) 1978 capitalization-weighted
US Nasdaq composite Nasdaq Stock Market 5540* 1971 capitalization-weighted
UK FTSE London Stock Exchange 100 1984 capitalization-weighted

*Subject to change

Capitalization weighted: It means that firms with the largest market value have the greatest influence on the indices’ value.

Price weighted: A stock index in which each stock influences the index in proportion to its price per share. Stocks with a higher price will be given more weight and, therefore, will have a greater influence over the performance of the index.

NOTE: The number of companies refer to the number of companies included in the computation of the indices.

Posted in Economics, Stock Exchanges, Stock index | No Comments »

Bimal Jalan's Future of India

Posted by Alex M Thomas on 24th September 2006

The Future of India
Bimal Jalan
Penguin Book
Price: Rs 250

Bimal Jalan, one of India’s well known economists and a former governor of the RBI has brought out the relationship between politics, economics and governance and their consequences in a very perspicuous way.

He emphasises the need for more participation in democracy, as the benefits which can be derived are high. He says that “Corrective action is feasible only if there is more effective political participation by the ordinary citizen-in short, fuller practice of democracy.”

He has tried his best to unwrap and unravel the morass of bureaucracy.
“Political parties are now subservient to their leaders, and not to the people who sustain them.”

“The selection for the civil service posts at all levels of government at the centre and states is truly independent of political interference.” He recognises and posits absolute transparency in the selection of civil servants, but he goes on to say that “While politicians are free to overrule the advice rendered by civil servants, the advisory functions of the bureaucracy are expected to be performed without regard to their impact on the private interests of politicians and the party in power.”

“Political leaders deliver what civil service unions demand by way of pay, security of service, leave, working hours and creation of jobs. In their turn, civil servants deliver what the politicians want in terms of power and favours. The casualty is the public interest.” The knot between the politicians and the bureaucrats is tight and one cannot live without the support of the other.

Bimal Jalan has brought out the adverse impacts of delays in judiciary, a very integral part of the constitutional framework of a country and brings to our notice the growing disjuncture between politics and economics.

Jalan on coalitions: “These coalitions are always more interested in influencing the distribution of wealth and income in their favour rather than in the generation of additional output which has to be shared with the rest of the society.”

He has enumerated the problems that have befallen the public delivery systems like lack of accountability, fiscal stringency etc.

On corruption:
“Corruption is a major hurdle in growth, development and poverty alleviation.”
“Corruption is also an important cause of fiscal drain and higher inflation in developing societies.”
“Thus, another economic effect of corruption is that it further aggravates inequality in an already unequal society.”

One of the main reasons for the proliferation of bribes is that “If administrative rules and regulations are complex and involve multiple agencies acting at cross purposes, then the public has no option but to purchase the required permits, licenses and registrations by paying bribes.”

Thus, Bimal Jalan has brought out the main causes of the underperformance by India in the economic, social and political spheres. He has also put forth remedies which seek to enhance the efficacy of the government. It is a book which deserves to be read by all those who want to know India or change India.

Posted in Bimal Jalan, Book reviews, Economics, India | 11 Comments »

Economic Anthropology

Posted by Alex M Thomas on 8th September 2006

Economics can be defined as the science which lends a helping hand to the economic units enabling them to make rational choices from the available information. The economic units include households, producers, consumers, entrepreneurs, government, etc. Anthropology is the science that deals with the origins, physical and cultural development, biological characteristics, and social customs and beliefs of humankind.

Economic anthropology analyses decisions and behaviour of economic agents who are embedded in the networks of social relationships and cultural influences. Economic Anthropology is directly concerned with the most central anthropological issues of human nature, choice, values, and morality.

Of late, the sociological aspects of issues pertaining to the economy are increasingly being avoided. The convenient answer which is given for such occurrence is that a ‘lobby’ has exerted tremendous pressure. The issue is discarded and the media has a majority share in making most of the populace ‘conveniently informed’.

Like any other science, the social sciences are interdependent and interrelated. Thus, to learn economics as an isolated subject, will not enable the learner to get a totalitarian comprehensive view of the economy in the real sense. Mathematics has got so entrenched in economics, that other social science like sociology, history etc are not given the required importance.

Thus, it is of paramount importance that a paper in Economic Anthropology be offered to the students of economics, especially at the undergraduate level. In India, owing to the impact of Occidentalism and the better research opportunities provided in the west, especially in the US, a frantic race for learning mathematics is imminent. (Other social sciences are ignored) This can lead to a clique of economists who have limited knowledge about the sociological impacts of policies and issues under their purview.

Resources online

1) Society for Economic Anthropology
2) Economic Anthropology books
3) University of Sussex (Study abroad: Economic Anthropology)
4) Clifford Geertz (Anthropologist)

Posted in Anthropology, Economic anthropology, Economics, India | 8 Comments »

The Economics of Innocent Fraud

Posted by Alex M Thomas on 1st September 2006

The Economics of Innocent Fraud
John Kenneth Galbraith
Pocket Penguin 26

Price:Rs60

This book reveals the unacknowledged grip of the private sector on public life and considers our increasing tendency to accept blindly legal, legitimate, ‘innocent’ fraud.

I have put down some excerpts which I think have immense relevance in today’s world.

Some of the innocent frauds are
1) “Consumer choice shapes to the demand curve.” “Belief in a market economy in which the consumer is sovereign is one of the most pervasive forms of fraud.”

Galbraith talked about how consumers were lured into believing that they are the king. I remember being taught in school that in today’s market, the consumer is the king and that he is the price maker, etc. He compares the tactics employed by corporations in affecting the choices of the consumer to that of political parties’ propaganda during the time of elections. There is so much monies being pumped into advertising, brand image, etc that very often it is these multinational companies which we lovingly call as MNC’s, who determine our purchasing patterns.

And because all these managers and CEO’s in the top are from good business schools, he has rightly written “Economics as taught and believed lags well behind the reality in all but the business schools”. The present day teaching and understanding of economics contrasts widely vis-à-vis the reality.

2) “The composition of the GDP is determined not by the public at large but by those who produce its components.” “Good performance is measured by the production of material objects and services. Not education or literature or the arts but the production of automobiles, including SUVs.”

Presently, the major concern by the planning institutions and committees are how to increase their respective economy’s GDP growth. Though India is growing with close to 8% GDP, large numbers of people are dying due to lack of health and food, and more sadly some are killing themselves because of the unfavourable situations they face.

3) “Here is the paradox. The word ‘work’ embraces equally those for whom it is a clear pleasure with no sense of the obligatory.” “Also those who, having wealth and well-being, seize the rewards of leisure, personal friendship, public concern and expression and do not work at all.” “Just because leisure is an acceptable alternative for the affluent, it can still be morally damaging for the poor….Therefore, while idleness is good for a leisure class in the United States and all advanced countries, it is commonly condemned for the poor.”

In India too, scholars have pointed out that it is owing to the indolence of the workers that they remain poor.

4) “The corporate management illusion is our most sophisticated and in recent times one of our most evident forms of fraud.” “Ownership, the stockholder, is routinely recognised, even celebrated, but all too evidently is without any managerial role.” “Capitalism having given way to management cum bureaucracy, an appearance of relevance for owners is contrived. Here the fraud.” “An accepted fraud.”

Textbooks and other media of teaching refer to the shareholders as owners of a company and who are entitled to suggest changes in policies. Reality shows that all what is happening is a huge puppet show, wherein the strings are being pulled by the management.
Moreover, in Galbraith’s words “It is also not surprising in an economic system where those favoured have freedom to fix their own reward.” What motivates the present generation to become managers is mainly the fact that, fat chunks of salary paid to the CEO’s and the CFO’s.

5) He talks about the entrenched corpratocracy within the public sector and especially its influence on major policy decisions in the foreign affairs and battlefield decisions.

In India, much of the public expenditure is innocently siphoned off to the defence sectors. Where as priority areas like education and health are conveniently put off for later on the premises that the government lacks funds!

6) “It is that the future economic performance of the economy, the passage from good times to recession or depression and back, cannot be foretold.” “The men and women so engaged believe and are believed by others to have knowledge of the unknown; research is thought to create such knowledge.” “The financial world sustains a large, active, well-rewarded community based on compelled but seemingly sophisticated ignorance.”

“On Wall Street, economists had not confined themselves to passive, unfavored reward. Instead they chose to forecast what most rewarded those requesting the research. Also they indulged in well-publicized prediction that was favourable to their personal holdings-prediction molded to serve personal gain or to protect against personal loss. A blight on professional economics; a fraud close to home.”

Some people involved at the lower and middle layers may be innocently harming the populace but the managers know.

Thus this book serves as an eye opener to those in the corporate world, to those planning to enter these MNC’s and to those questioning minds. Try to read this book to get more insights into this ‘real’ dismal world. Please post your views on this aspect of fraud that is innocent.

Posted in Book reviews, Economics, J.K. Galbraith | 5 Comments »