Note to recruiters

Note to recruiters: We are quite aware that recruiters, interviewers, VCs and other professionals generally perform a Google Search before they interview someone, take a pitch from someone, et cetera. Please keep in mind that not everything put on the Internet must align directly to one's future career and/or one's future product portfolio. Sometimes, people do put things on the Internet just because. Just because. It may be out of their personal interests, which may have nothing to do with their professional interests. Or it may be for some other reason. Recruiters seem to have this wrong-headed notion that if somebody is not signalling their interests in a certain area online, then that means that they are not interested in that area at all. It is worth pointing out that economics pretty much underlies the areas of marketing, strategy, operations and finance. And this blog is about economics. With metta, let us. by all means, be reflective about this whole business of business. Also, see our post on "The Multi-faceted Identity Problem".

Thursday, May 9, 2013

Have the subsidies given to IITs been a good investment for the Indian government?

So I emailed Prof. Ananth Raman, Professor at Harvard Business School and alumnus of the Indian Institute of Technology Madras, regarding the IITs. The matter in question is whether the IITs have been a good investment for the Indian government. The short answer to the question is "Yes". Prof. Ananth Raman concurs with me on this matter.

My email to him is pasted below. Please note that the EdNotes (in italics) were added by me later in preparation for this blog post. Please note the typo in the usage of the word 'alumnae'. The correct term is 'alumni'. One of the great things about having been to Stanford and Harvard is that when you have typos in your emails, people do the auto-correction themselves. Stanford + Harvard joint reference FTW! 

I should add that I was at the Bacchanal buffet yesterday in Las Vegas. How much did the buffet cost to build? 17 MILLION DOLLARS. Two buffets such as this one and we are already there. In this age of easy, I wonder how anyone can believe that an investment in STEM education that amounts to less than 40 million dollars such as this one could be considered a bad one. Remember that we are talking about the Indian economy which is a >$1.8 trillion dollar economy in nominal terms and a >$4.5 trillion dollar economy in PPP terms. 

I fail to see Atanu's point regarding welfare maximization. How could the cost of the coaching classes be considered welfare decreasing even from a purely neo-classical point of view? I mean - let's forget about institutions. Let us do a simple purely self-interest based analysis. Here is a large number of people who independently, freely choose to spend money on a service. Would they do it if the option was not increasing their utility? And if it is increasing the utility of so many people, then how could the activity be welfare decreasing? I don't want to spend any more time reading through Atanu Dey's numerous posts on this topic. There are times when one must decide that there are other things that are a better use of one's time and this, frankly, is one of them.

P.S. This may well be the first ever post on the Indian economy which uses the sentence "Stanford + Harvard joint reference FTW!".

Dear Prof. Ananth Raman,

I trust this finds you well.

I recently came across a blog post by Berkeley Ph.D. Atanu Dey arguing that the IITs are : (a) "not all that they are cracked up to be" (which is a safe thing for anyone to say since it could mean anything); (b) a net welfare loss for the economy as a whole (wow! I mean, wow!) (EdNote: Exact quote from Atanu Dey : "One of my major points is that the subsidies given to IITs (and other tertiary education institutes) is regressive and welfare decreasing.") and (c) a drain on the economy since they represent a 'subsidy' and so the subsidy should, of course, be stopped (Link :

This sounds like one of those loony rightwing talking points memos which propose tax cuts as a solution for everything, and I say this even though my political beliefs are somewhat to the right of center even in America. To put it really bluntly, I find the post to be almost entirely nonsensical. IITs have turned up in a couple (if not more) of our discussions in the past (and speaking of our conversations, I must confess that I did not quite pick up on your cues on IIT during my conversations with you - there are several reasons for that which I shall not get into). Anyway, as alumnae (EdNote: sic), I hope I may broach the matter of whether the IITs should be paid for the Indian government (EdNote: <stuff deleted>).

I have argued many times that, sometimes, one statistic is enough to convince, and so for the IITs, here is the one statistic. Given that each of the major IITs has only about 300-400 students and given that four years of an undergraduate education in a cheap country like India should not cost more than 100,000$, the total cost of the undergraduate program at the IITs comes to a laughably small 40 million dollars. Just one company, Infosys, alone might be sufficient to justify this sort of investment - assuming an interest rate of 4%. We do not even have to get into other companies such as TCS, Satyam and Wipro.
  • Finances: How could such a small investment be considered a bad one? It seems to me that the one and only reason that the IITs are being beaten up on is that they are run by the government and so there are some intellectual possiblities in terms of arguing against them. But still the argument is a ridiculous one. I am no fan of socialism and indeed have much more in common with the Chicago School than with Nehruvian socialism (which gets a bashing in this here related post by Atanu Dey : But even so, I am not so blind as to not see the benefts of institutions, especialy when they can be run for as little money as the IITs are run for.
  • Externalities: And furthermore, how can one possibly not see the positive externalities of an institution such as the IITs? The externalities are in terms of research into science and technology, yes, but the externalities are far more than just that. Promoting a culture where science is respected and scientists are respected, not trashed as nerds, is surely a good idea for a country like India where the technical talent pool is huge and - what's more - easily monetizable. 
  • Organizational: And then, there is the organizational aspect. Many people have told me that they did not understand how an organization should be run until they saw the IITs. Even if there are other examples now available (for instance, MNC run companies), it is hard to miss the important role these institutions played in India in the 50's, 60's and 70's.

Ultimately, the question is - could the opportunity cost of 35 million dollars really be that high? I highly doubt it.