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Coping With Complexity : MACRO Versus MICRO

LIVING WITH NATURE IN MODERN FORM - MISSION FOR THE TWENTYFIRST CENTURY

COPING WITH COMPLEXITY : MACRO Versus MICRO

When this article appears India would have gone through a major churning of macro – to – meso - to - micro. It is not that the macro level debates, analyses, speeches, suggestive and non-suggestive imageries in the TV channels, advertisement posters, cartoons etc..., drive the meso, and in turn the micro. Real life is much more complex.

There is no clear method of understanding how an individual voter thinks at the time of voting or even when deciding not to vote. This micro level decision is not  a stand alone, free will decision. Many “forces” work on the voter some from a very distant past; some from the near present, even a day or a few hours, before he/she votes.

Statistics-experts tend to decode these individual decisions by earlier trends; sample voter surveys etc... There are a number of micro-groupings which work – ranging from local  issues of sanitations, or water supply or joblessness or promises by the electioneering politicians or caste/religion-considerations etc... If one tries to aggregate them, for one parliament constituency with an average of 16 lakhs voters, the interactions will run to trillions! Link these to the national level with so many candidates and the successful ones of 543 MP’s. Then there are other complex manoeuvrings for alliances, cabinet making etc... Here again everything is not “macro” such as the policies of parties; in fact micro-level prejudices play sizeable roles as well.

The macro analyses are done to keep the readers of news papers or viewers of TV channels engrossed. In fact these are a service sectors industries themselves. Most of these analyses fall flat within days and weeks. 

Then when govt is formed all these channels, media, etc... will start discussions on a series of policy measures ranging from agriculture to manufacturing to exports to employment generation. Heated debates. Some policies start working, but to claim victories of policies within 100 days is really a bold claim. But, of course, all these “macro” talks/policies can create a feel good factor in the vocal middle class space; how the micro level Indians work, feel etc... are difficult to assess authentically. Sample surveys are no where near the near the real micro level details.

When the prices of daily-use goods like vegetables, food, milk etc., come down, people generally feel happy. If huge construction projects, road making etc., get energised, one can obviously “see” “employment generation”. But the experts will question these “subjective” findings and will say that we have to wait for empirical data, which may take many months!

Thus there is a big hiatus between what we feel individually or in small collective groups and what are described as “authentic” reports by govt, corporates, academics etc...

These “findings” and “perceptions” some times lead to difficult, if not catastrophic conditions for many poor or marginally living people. Often macro policies are made on such findings and perceptions. Agricultural workers and small agricultural land holders (who naturally will have only a few birds or animals to supplement their incomes) are often the worst sufferers of such policies, as it is happening in India. And also many millions of workers (casual or contract) having their livelihood through micro and small industries. 

We therefore desired to look at the theories of complexities as in economics and other systems like societies and governance. Thus I revisited reading a seminal book “The Origin of Wealth” by Eric D Beinhocker (2006). The book’s subtitle is Evolution, Complexity and the Radical remaking of Economics. Also an article “Are economic systems like Organisms” by Mae-Wan Ho, Institute of science in society (2010).

BIOLOGY, EVOLUTION AND SOCIETY

The mindsets of most of the educated persons are still conditioned by the deterministic theories of physics, chemistry and beauty of simple mathematical models to which all the Nature’s Laws are reduced to. This is commonly known as scientific thinking. Most of us take it to be the finality of Nature, the ultimate truth. The philosophical implications of the early 20th Century physics and subsequent applications of its methodologyto other fields like chemistry and engineering (especially in electronics) have not filtered through to most of the non-scientists. Even many scientists prefer to be scientific workers in their own specialised fields and keep publishing papers, rather than worry about the issues of ordinary individuals. So will be engineers, doctors, administrators etc...

They would rather leave these items to the economist who “discover” many laws, use them to predict and thus give policy perceptions to govt, corporates, banks etc... The assumption is that “they” will take care, with their “scientific approach” and huge mathematical models requiring huge computers.

Are we safe with these assumptions of reposing faith on such “economic models” which also have disciplines of micro and macro and even econometrics? The book I had referred to gives a number of clues. In the past two to three decades, the world economics have gone through many crises. Many people in societies like India have suffered very badly and many are still suffering. But we should also recognise the fact that poor people (a billion or more globally and about 200 or so millions in India) have been lifted to good degree of prosperity and to secure income levels. All is not simple black or white!

Those from the fields of physical and engineering sciences give many “solutions” to pull the people out of poverty and misery: New seeds new products, new processes etc.,  Also many corporations come up to mass produce those products. In fact many totally unforeseen products and services like cable TV, internet, mobile etc... have totally changed human life styles including for the poor. Biomedical products and pharmaceutical products have increased human life span even in poor countries like India. Agriculture has also changed over the past few decades, world over, with GM crops and new forms of irrigations.

Still problems of poverty continue. Scientists / Engineers / Medical professionals tend to blame the policy makers (politicians, economists and administrators) for not realising the full potential of the scientific possibilities, which have been proven so well in many places. For example why not enable drip irrigation all over India to help all agricultural fields in India? Why not remove water scarcity through waste water reuse and recycling? Why not use GM crops? etc...

Some of the economic debates on poverty appear far removed from reality or practical actions. It is not a simple arithmetic of balancing government expenditure: that is the taxes collected and the expenditure towards” poverty removing schemes”.

It is not like running a machine by giving it fuel continuously. Even it will show wear-and-tear soon- may be after a few years.

Economics and society are more complex. Complex, even more than biology, from a human point of view. Organisms in biology draw energy from its surrounding (Nature), self organise and continue to grow; they reproduce; over a long period experiment, mutate and evolve with new features. Also there are catastrophes of nature; non availability of water (water stress) to non-availability food. Predator in biological systems cannot continue indefinitely to prey, as the population of the prey may disappear, even after “ingenious adaptation” by the predators. But under normal circumstance’s there are other options like migration to new areas etc.,

In the overall, biological, eco systems adjust and evolve, “complex adaptive systems” as they are called. In fact, human societies also have evolved in these ways, as a part of the total “biological-system-of-the earth” called biosphere.

Look at the human invention of organised agriculture. The process of agriculture itself invented and combined many processes of accelerating “the natural evolution”. Many new species of plants and animals were “cross-breed” and domesticated by the human beings. Many of these have eliminated the earlier “wild” varieties. With so many new human made, varieties, a major invention of Trade as a Societal System took place: Various forms of barter deals to money transactions. The rules (or governing systems) for such systems were required. That led to organised societies with rulers, ruled, and various specialisations of human work.

Thus the complex system of economic and governance was formed to grow in about 10,000 years say about 400 generations into some thing mind boggling without any idea of the linkages between macro and micro (even at meso levels).

DIVERSITY OF OPTIONS

In the book by EB quoted above, he observes that the economics (human economy) started about 2.5 million years ago by trading tools. He compares “the stone-tool- making-hunter-gatherer tribe living along the Orinoco River in the remote border of Brazil and Venezuela” with “the New Yorkers the cell-hone-talking, café-latter-drinking tribe living along with Hudson river on the border of New York and New Jersey”.

He describes as to how both these tribes carry the same type and number of genes. Therefore their biology and innate intelligence are essentially identical. The Yanomamo tribe makes its own products and average income is $ 90 per person years. For a New Yorker it is $ 36,000. But it is not the 400 times more income per person per year, that makes the New Yorker wealthier and richer. It is to be captured in STOCK KEEPING UNITS (SKU’s). This unit is used to count the number of types of products sold by a store. If there are five types of jeans sold it is five SKU’s. In the Yanonamo economy, EB estimates ALL PRODUCTS TOGETHER ABOUT SEVERAL 100’s and at the most several 1000’s. For a New Yorker, he (EB) estimates the economy to be order 10 raised to the power 10, SKU’s, that is, many tens of billions-that is, many thousands of crores of SKU’s.

He points out that the life style of our ancestors about 15,000 years ago (when agriculture was just invented) was typical of the Yanonamo. Now even in India though its economy is still at a very low level compared to USA, the SKU’s in its major metros will be about a few tens of crores. In the other cities and smaller towns, SKU’s will be much less but still running to many tens of millions and villages it may drop down to several lakhs.

The SKU’s are a reasonable indicator of diversities of the economy and consumer options, and therefore the resultant value additions. Take a simple tomato. In addition several types which may be say 10, several value added products can be made and sold in market in different packets, sizes, with different tastes because of additives, etc... Then SKU’s from tomatoes may raise to 1000 or more. Metros will have all of them but villages in which they grow tomatoes will have only a few tens (with a few value added products like ketchup king brought from towns).

Behind the story of SKU’s is not only the complexity economy at a macro level of looking, but also many micro level activities:  many thousands of “value additions” to the products and processes till they reach the ultimate consumers. These micro activities are productive work, giving incomes to the workers, who give the “value addition”.

Now add on many thousands of agricultural products (grains, vegetable fruits, flowers, animals, birds, fishes etc.,) including the “wastes” which are produced. How many hundreds of lakhs of SKU’s will get generted?

In exchange of these many lakhs of value added products, the agricultural economy will attract many other products: from agro-machines, to drip irrigation systems to waste management systems etc... Look at another dimension: many temples in Tamil Nadu, which were great centres of economic activities as well, a millennia ago, were remaining at the subsistence levels. Now with increased wealth in the hands of many millions of people (due to their continued work at the micro-level SKU additions in agriculture, manufacturing and services) most of these temples are now buzzing with crowds. Just in front of the temples many thousands of SKU adding products are being sold: traditional flowers, to packed nuts to pooja, materials, toys to clothes etc...

This is an example of VIRTUOUS CYCLE.

When there are major disruptions like lack of water availability for the fields; or lack of electricity for the factories or lack of transport fuels or severe disruptions to the agricultural supply chain systems due to govt controls, or other physical reasons etc., the number of SKU’s will fall down. Options to the consumer will go down. Lesser number of products or options will lead to price rise, inflation. Then other distortions like excessive storage by cautious consumers to clever traders, will take place. With prices rises, product choices will go down; consumers will have to pay more to get less. Their money loses value in this ‘inflationary’ cycle. Their incomes remain same; often times many persons who were in the SKU multiplying processes may lose jobs and therefore incomes.

Schemes like employment guarantee or food security by giving free food or highly subsidised food grains / food items, can at best be temporary. The key ingredient of the economic machine from the times of the TRIBAL COMMUNITIES many millennia ago was to increase diversity of products –baskets, clothes, tools, many new varieties of plants/animals/birds-medicines etc... - and further increase the SKU’s through trade. Indian and Chinese economies naturally dominated the world during the 16th, 17th century as they had the population to produce diversities of products and exchange them globally through ships and land routes.

Years after 1750 changed the situation due to automated machines, mass production and also newer tools for the military, faster transport of ships, trains, etc... It was natural that the countries which mastered the industrial revolution ruled the world economy and also ruled many parts of the world to maintain the supply chains for making energy, materials etc... and also to increase their SKU’s in the global markets.

India and China started to acquire these industrial technologies developed in the West since their Independence. Indian and Chinese people worked on the low value adding SKU’s. It is through the strength of their primary sector (agriculture, mining the ores etc...) and the hard work of many of the traditional artisans, India could pay for the import of machines. Since more number of people were drawn into the (albeit) low value added SKU’s, Indian/Chinese economy started growing with more wealth creation.

During the predominantly agricultural phase till the Industrial revolution, the number of working people (population) and the number of specially skilled artisans engaged in the SKU generation activities, determined the wealth generation capacity of the country.  After machines came, the focus shifted the not merely to population but to the number of persons who are highly skilled in science, engineering, medicine, trade, transport,  military equipment etc... So the developed world has economic military and political power, far beyond sizes as a part of the world population.

China steadfastly focussed on acquiring these skills for a large number of its population and in giving them important (albeit at low level value addition) roles in the global production chain. So much so a good part the SKU proliferation in front of the New Yorker are with products made in China. They are mostly with the machines made in Japan, Korea, Germany USA etc., bought by china.

India some how missed such a focussed approach as brought out by the 25 reports of TIFAC (Technology Vision for India 2020, (1996) and also briefly brought out in the book “India 2020: Vision for the New Millenium” by Kalam and Rajan. (1998). In the phase of liberalisation and globalisation post – 1991, (which was a very good thing that happened to India as the economy could be freed from the shackles of earlier bureaucratic- socialist SKU reducing economics), Indian economists and policy makers took only a macro-view of economic growth. They only hyped about financial figures of investment and company performance. The engineering, technological and skill strengths of people and their activities were forgotten, (almost!). S&T institutions and IIT’s were stand alone, expenditure items paid for from tax incomes and not considered as items which integrated with the lives of people. Similarly the industries were lumped as items of macro-economics and  financial engineering, forgetting the need for their internal engineering and technological build up, which alone will help them in innovation. It is innovation which leads to high diversity of high value SKU’s which can win domestic and global markets.

It is not necessary that a country or society needs to have internal strengths in all sectors having “self-reliance” (an unrealistic and unachievable goal of our socialist past, which had made Indian economy nearly stagnant for four decades). Value added billions of SKU’s available in New York, are not all produced in USA. But there has to be WEALTH in USA / New York to buy; otherwise shops will close; options will shrink and SKU’s will plummet.

The ‘wealth’ referred to above is not the govt budget which is generated by taxing people and their activities nor is the total wealth of rich people. That wealth of a country comes from the income adding economic activities of people, at the micro level. If they (people) are in the value chain, they will earn; they will spend; that will create many new products/ services and options (choices). Even USA which is wealthy by any standard and which provides large incomes to its people, is not immune to this reality. Ignoring large scale pro-active skilling of its people, by leaving it to the neo-liberal market forces and also being complacent that the poor can be taken care of in their social security networks, unemployment insurance etc., for long periods, USA faces unemployment problems now. So USA is trying to restrict immigration in the hope that it will stimulate local employment by US companies. This is a macro step.  What is more important is to skill its people / youth and induce them to take up the challenges of low end/middle end IT based activities and make them competitive vis a vis Indian, Chinese, Philippines etc., counter parts. President Obama often emphasizes this aspect in his speeches.

Therefore for India, it is all the more vital that we give attention to micro level activities, not just skilling but also other economic activities starting from the farmers who have marginal lands, landless agricultural workers, to worker of many micro-small-medium-industries. Big ticket investments, FDI in retail, big infrastructure etc... have their roles, giving a macro set up. But they will fail in the country as a whole, when they are not linked to all the diverse micro-level economic activities and the diverse set of people (who are micro-level economic agents).

This is where, the role of Complexity Economics (CE) which is emerging as a serious study in the developed countries, is VERY USEFUL. As per CE, to quote from the book by EB. “Wealth must be a product of evolutionary processes. Just as biological evolution summoned complex organisms and eco systems out of the primordial soup, economic evolution has taken humankind form a state of nature to the modern global economy filling the world with order, complexity and diversity along the way.”  CE helps to understand the processes of wealth creation much better than the existing Traditional Economics (TE) whose deficiencies are being understood after about a century of “majestic rule” by TE. Read EB book. The article by Mae-wan Ho quoted earlier gives full critique of TE as well. Also see an article in the Economist “What went wrong with economics” (18th July 2009).

Therefore let us not be overly obsessed with the indicators of TE as god-sent truths and ruin the economic growth of India and deprive Indian people an opportunity to earn respectable incomes in the global economic chain. If the macro-micro linkages in the complex-adaptive-system of Economics are not addressed, it is not possible to achieve the above objective of good lives for all. CE does not indicate a flat-income “welfare” society; the evolutionary processes will lead to rich and poor. The solutions to take care of the poor is not through bang-bang taxation to feed the poor. CE processes give much better insights, which will help eliminate accumulation of poverty. The solutions are not in the Right or Left extremes of TE policies. Not just a mushy-mushy middle way, but an insightful holistic way. The book by EB gives many examples and details.

The more I read the book (this is my third revision over the past few years) I am convinced that Indian traditional wisdom of holistic thinking, when used along with the analytical processes of CE, will be very useful to find practical solutions for the Indian problems.

COMPLEX ECONOMICS FOR INDIAN AGRICULTURE

It is with that goal in mind I have written this article. If the EB book itself is about 500 pages and still is only an introduction, it is too much to expect a road map for India, derived from that book! Also such macro-road-maps is the anti-thesis of the spirit and approach of CE. The book will give us mind-set-changes and indicate avenues for exploration. These in turn, would give insights for short term actions, in a better informed way.

I would request the more mathematically oriented, model oriented Kisan World readers to attempt a CE model for Indian Agriculture: marginal farmers rain fall variations; agro-climatic endowments; animal husbandry; poultry; fishery; forestry; related agro based industries; transport systems; water sources; water industries human habitats and encroachments; price controls; other Govt rules; Social Technology (EB book terminology) infrastructure like cooperatives NGO’s labour/Kisan associations labour laws etc... in different states; fertiliser, pesticide, seed suppliers; consumer markets; labour migration, exports etc... Fortunately many of these can be modelled and simulated in the computers, as powerful computers and related software are available in India. Many competent modellers, systems thinkers and mathematicians are available in India but are working on problems which are the agenda of developed nations, as they get better money, easy funding and recognition.

Are there any forward thinking philanthropists (if Governmentts join it will be good but without pushing their agendas) support such CE studies (as Santa Fe institute gave a place for study of CE and EB’s book)? Indian agriculture may be looked at differently and therefore newer insights to tackle agricultural poverty may be derived.

My main emphasis is that let us not get lost in macro slogans of Right, Left, Centre etc., and instead understand the COMPLEXITY, with modern tools and also with an attempt to use Indian holistic  thinking for solutions. Those who want to look at the earlier Indian (South Asian) holistic thinking in the modern forms may refer to a book by Susantha Gunatilake “Towards a Global science: Mining Civilisational Knowledge” Sage Publications (1999).

Readers are also requested to enthuse others (who may not be readers of Kisan World), in fields of mathematics, sociology, economics, theoretical sciences, life sciences, compute scientists etc., to start a process of CE modelling of Indian agriculture, with a view to gain insights for actions.

Y S Rajan

31-03-2014

(Ugadi Day)