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".

Sunday, May 12, 2013

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

Five further comments on the IIT post (I am moving my blog updates from Thursday into a post of its own and have added a fifth comment):

Comment 1: A very short analysis of what is wrong with Atanu Dey's argument : He assumes that education in the sciences does not have any value over and beyond getting into a university, institute or college, and he also assumes that education does not have sufficiently large positive externalities. That $1.3 billion estimate by Atanu Dey is a measure of value added to the Indian economy, not value destroyed. If the IITs were not there, this sector of the economy would not exist and so that is a net gain to the economy as a whole. The value of the education that students in these coaching classes get should be measured not in terms of whether they actually get into IIT but in terms of what value they get from it over their lifetimes.

Comment 2: Fixed up some typos. Note that $1.3 billion is a measure of the value added to the Indian economy, not an estimate. A measure simply gives you some idea of the variable being measured whereas an estimate must be at least somewhere in the ballpark of the actual value of the variable being measured.

Comment 3: It is not really very time optimal for me right now - given that I am on a long-awaited vacation and given my various other commitments - to spend any more time on this, and so I am going to be brief. Here are some very brief overall remarks on the matter of the IITs.

1. A more rigorous analysis is called for to make the sort of bold claims that Atanu is making: It would be useful to take a look at the balamce sheets of the some of the companies I mentioned - Infosys - et cetera to get some idea of the size of the numbers in question when comparing costs (the cost per year of umdergraduate education vi the IITs) and benefits (the net taxes being paid by the IT companies in India). At any rate, to do any convincing on this matter, a more rigorous analysis is called for which makes clear what, if any, were the assumptions made in the analysis.

I am prepared to agree with almost anyone but I don't think I have enough reason to do so in this case. If you read any economics paper in any of the management journals, you at least have some idea of where the disagreements may lie. These posts are surely not well argued and seem to be full of holes. Now, whether these holes cold be later papered over is not the question. The executive summary, the thesis and the supporting arguments have to be front and center in the posts. Furthermore, there has to be some technical paper of some sort somewhere that tells me what the model being used is. So far, I have found very little.

2. Quick-and-dirty back-of-the-envelope calculations seem to indicate the IITs to be a good investment: Basically, here is how I did my back-of-the-envelope calculation. I just took a look at the balance sheets of Infosys and some of the other software companies, and used that to get some ballpark estimates of the benefits of the IITs. I wish I had more time to write up an actual post, but I leave this as an exercise for the reader. Just draw up an Excel spreadsheet listing out the cost factor, apply some time discounting of costs in the past and add some reasonable premium to just be conservative. The aim here is to get a very rough ballpark estimate of the net cost of the investment. Assume that a portion of the taxes paid by (I sometimes hate to use the word 'rent' because it is so non-specific in terms of actual numbers) some of the software behemoths is attributable to the 'founder effect'. (Nobody wanted to invest in Narayana Murthy's company when it was small. Trust me on this one. He came to a number of professors' faculty houses at IIMA to get some initial investment for the firm now known as Infosys. Very few wanted to invest.) This is because the only reason he even got his foot in the door was because he had an academic background from the IITs. You now have some idea of the benefits accrued. By way of comparison, Pakistan and Bangladesh don't have the IITs and don't have an IT industry to speak of either.

3. Small investment value: We are not talking about massive dollar investments here. There actually isn't a whole lot of corruption in the IITs and so the money actually gets spent on what it is set aside for. One must really believe that the Indian gvoernment is going to be able to better utilize the 30 million dollars or so it spends on each IIT since that is after all the opportunity cost of the investment. And to agree with the opportunity cost argument, one must believe - and I am not prepared to believe it - that there will be little or no corruption involved. 30 million dollars after the pigs have fed at the trough would be something like 5 million dollars - if you are lucky. (That is about 1/3th of the Las Vegas buffet's cost. Just sayin') I fail to see how this could bring about anything like the sort of results one can reasonably attribute to the IITs.

Comment 4: What are some empirically sound things that one could say about the IITs. a) They are probably never going to feature very high in World Rankings of Universities; b) The very high selectivity of the undergraduate program (at least until the mid-2000's) creates an undergraduate student population that is high in terms of motivation, scientific and/or technological talent and application, and given the very high level of selectivity, the undergraduate student population is - on academic terms- comparable to the student population in other institutes of technology such as MIT and Caltech ; c) The students in the Masters programs are harder to empirically analyze since less is known about them other than the fact that their entrance exam scores are high (the GATE entrance exams used to be multiple-choice and choosing people based on multiple-choice tests usually leads to skewed populations). This does not mean that they are less smart. It just means that we have a population that is harder to make strong statements regarding.

Comment 5: A couple of things that have not been sufficiently addressed in the arguments on IITs : the matter of the PhDs and this other business of public reputation. First, the PhDs. It is odd to completely ignore the PhDs in any analysis of an academic department or institution. What one would expect here is that (a) low investment research areas (projects in computer science can be very low investment) would be of excellent quality and (b) the quality of PhD theses in these areas would also be of very high quality. This is, in fact, what one sees. The Database Group at IIT Mumbai is very strong and is arguably one of the world's best. The PhD theses in theoretical computer science are often excellent as well. And second, the matter of public reputation. It would be very odd if an academic institution could sustain a very high public reputation over decades and yet have serious organizational failures. If anything, the IITs are a good example of how governments can run high performance organizations. If it is indeed the case that the IITs suffer from major organizational failures (just keep it real, folks!), then it is, by all means, okay to post about these. But nothing I have read so far in the couple of posts that I have gone through seems to suggest that major organizational failures actually exist. And finally, an acknowledgement : the phrasing "a good investment for the Indian government" is due to Prof. Ananth Raman at HBS.