Implications of new international financial centres

I was at the FT/DIFC World Financial Centres Summit in Dubai, which helped me to write a Business Standard article titled Implications of new international financial centres.

Authoritarianism 2.0

There is a considerable consensus that USSR-style authoritarianism does not work - it delivers low material wealth, and generally leads to political breakdown. At the end of the 20th century, there was a great deal of `end of history' optimism that the breakdown of this model would lead to a universal movement towards liberal democracy.

However, a series of countries have now embarked on what I term `Authoritarianism 2.0' : a blend of free markets with authoritarian politics. This aims to produce good resource allocation and high growth rates through sound economic policy, while retaining one-party (or one-person) rule, denying the rule of law, and supressing the rights of individuals. Rowan Callick has written an article titled The China Model which reviews this style of design of the State, where individuals are seen as consumers but not citizens; where individuals have some economic flexibility but weak political rights. This model is being attempted in Russia, China, Vietnam, UAE, etc. In some ways, Singapore also exhibits some of these features. These countries do not see their political systems as illegitimate way stations on the road to democracy. The effort is to make Authoritarianism 2.0 work; liberal democracy is not even the long-term goal.

The question we really face is about the soundness of the `Capitalism and Freedom' hypothesis. Does the growth of a free market economy inevitably generate pressures to modernise the political system? Or is it possible to combine 21st century economic policy with pre-enlightenment politics?

One facet of Authoritarianism 2.0 is the rise of large Sovereign Wealth Funds (SWFs) controlled by the State. Many people are benign about the mingling of SWFs into global capitalism. I am not. I am pretty uncomfortable with ownership of shares of Indian firms by the Indian government; by extension I should be even more uncomfortable with shares held by foreign governments, who are not even accountable in the domestic political system. In Business Standard today, Deepak Lal has a suggestion on how liberal democracies should confront the SWF question.

Interpreting the 4th fastest supercomputer in the world

In response to my blog entry (and comments about it posted on this blog) about `Eka' making rank 4 in the Top500 list of the world's supercomputers, I got this email from my friend Viral Shah who knows a bit about the field:

Ajay, it seems that the ranking of Eka at number 4 on the Top500 list has resulted in quite a lot of excitement. Hats off to the folks at CRD Labs for achieving the feat of assembling such a large computer in a short amount of time. As some of your readers noted, Eka is a cluster. It is roughly 2,000 nodes, consisting of roughly 15,000 processors and connected by Infiniband. Some readers noted that the benchmark is not representative of real scientific applications. 

Firstly, making a small cluster is quite easy. However, constructing such a large cluster, and operating it is no easy task. It requires some serious skills to administer it, tune the hardware and software for performance, and run scientific applications on it. Second, the Top500 is an interesting benchmark. Sure, it is not representative of a realistic workload, but over the years, the bar has been set quite high. If a general purpose computer does not achieve a good LINPACK score (the top500 benchmark), it is safe to conclude that something is terribly wrong. I am of course excluding special purpose computers that are built to solve specific problems, rather than get a high LINPACK score. 

That said, one needs to think this through clearly. Why was Eka built? To simply show that we can do it, and place a computer in the Top 10 supercomputers? To run specific scientific applications? I am guessing that the answer is "a bit of both". Almost always, it is safe to conclude that the full supercomputer is never used to solve one problem. What are the largest problems that will be run on Eka? What percentage of peak will they achieve? Would it have been a better idea to buy an "off the shelf system" such as the Cray XT4 or the SGI Altix and focus on programmer productivity, instead of getting a high LINPACK score? 

Computers such as Eka achieve extremely high and unrealistic flop rates on the LINPACK benchmark.Typically, they can achieve over 70% of the peak flop rate (Number of floating point operations per second). However, real applications often run at below 5% of the peak flop rate. Let's examine some other possibilities. 

Note that the software industry has been one of India's strong points. It is becoming increasingly clear, that, software is the key. For example, Apple's success with the iphone and ipod have as much to do with well designed software, as with the hardware. If you ask me, the big event at Supercomputing'07 was not that Eka placed at No. 4 on the Top500 list. For me, the most exciting event was one that you will not hear about in media - it has to do with the other part of the HPC Challenge, often called the beauty contest. Instead of asking "which computer can run LINPACK the fastest", it asks, "which programming language implements the benchmarks elegantly". 

The winners of the class II challenge this year were IBM's X10, and Interactive Supercomputing's Python Star-P. For me, the most surprising, and the coolest event was the revelation that some of the compiler work for X10 was done at IBM's research labs in India. This is cutting edge compiler technology, and the fact that part of the team was based in India is a strong statement about HPC innovation in India. 

Not to belittle the effort that went into Eka, but we should be asking the hard questions. I think it is fantastic that we can afford to build a $30 million supercomputer. But how are we going to program it? What applications will run on these large computers? Will we be able to address some important problems such as better meteorological forecasts for our farmers, or better groundwater modeling to solve our long term water problems, or allow our companies to gain that extra edge in the international arena? Are we better off buying computers from those who know how best to make them, and focusing our skill sets on what we are good at - developing software? 

Our universities are indeed not be up to this challenge yet, but, perhaps, we don't need to wait till they catch up. With all the resources available online, a hungry young person can learn this game - the material is all online, after all, like these classes at MIT, at UC Berkeley and at UC Santa Barbara.

State capacity in 1893

I came across a fascinating story of public administration in the colonial era:

Gohna village is located on the true right bank of the Birahi Ganga, not far from Chamoli town. The nearest road head is Nijmula village, 2 kms down the true left of the river. A further 9 kms by road from there is Birahi town, where the river merges with the Alaknanda. Chamoli town is a 7 km drive from Birahi.

A massive landslip in September, 1893 created a natural dam across the Birahi Ganga near Gohna village, 900 ft high, 11000 ft wide at the base, and 2000 ft high at the apex. The trapped waters of the river collected upstream of the dam, forming a lake that came to be known as Gohna Tal, although several locals seem to refer to it as Durmi Tal, after the village of Durmi 3 kms upstream the Birahi Ganga.

The first intimation that the world received of this catastrophe was a message from the patwari (local administrative official) to the Deputy Commissioner of the district, in which he merely reported that a mountain had fallen. This unlikely news was ignored by the DC. Fortunately, the district surveyor and the executive engineer were touring in the area, and gave a detailed report to the administration. This resulted in a visit by a brilliant army engineer, Lt. Col. Pulford, who gave the opinion that there was no danger until the accumulated waters topped the dam, at which time there would be an enormous flood down the Alaknanda valley. Pulford's view was contested by other experts, some saying that the dam will burst due to pressure well before the waters flow over the top, and some others saying that nothing will happen at all because the waters would top the dam and flow peacefully downstream. Fortunately, again, the Government listened to Pulford.

An Assistant Engineer from the army, Lt. Crookshank, was sent to Gohna, with the task of watching the lake, and sounding the alarm when it was about to top the dam. A telegraph cable was installed for this purpose. Observation posts to monitor the levels of the Alaknanda and the Ganga were established in various places, from Chamoli town all the way downstream to Haridwar. Pillars were erected in many places in the Alaknanda and Ganga valleys to mark the danger limits of the expected deluge, and the inhabitants were directed to evacuate as soon as the water crossed these levels. The pilgrim routes were diverted, and suspension bridges across the Alaknanda were dismantled.

Based on Lt. Crookshank's data, the army engineers very accurately predicted the date when the overflow would occur. On 22 August, 1894, nearly one year after the formation of the lake, Lt. Crookshank declared that the flood would start in the next two days. Quite creditable, since the river topped the dam in the wee hours of the 25th August, the barrier collapsed with a bang at about midnight, and the flood ended early in the morning on the 26th August. It was found that over 10000 million cubic feet of water had escaped, and that the level of the lake had descended by 390 ft. Srinagar was completely swept away, and there was extensive loss of property everywhere. However, there was almost no loss of human lives, the only exception being the rather foolhardy family of a mendicant who returned to their home near the downstream face of the dam after being evacuated from there. I find it an amazingly successful case of disaster management.

It made me wonder how State effectiveness in India today compares against this.

Knowledge without universities

It's a mystery to me, how India manages to make significant progress (the 4th fastest supercomputer in the world) without having credible universities.

The woes of administered prices

While there is a lot of focus on two administered prices - the rupee-dollar and petroleum products - there are many other products where the government also has an extensive engagement. Business World has an interesting edit on the story unfolding with cotton.

Bias in favour of exchange traded

Stephen Cecchetti expands and enlarges on his previous arguments about the importance of exchange-traded instead of OTC in achieving a sound and stable financial system. He also has some ideas on how a policy bias in favour of exchange-traded might be implemented.