What a difference a few days have made in the mainstream headlines.
Overblown concerns about Dubai defaults are quickly shifting to the into the shadows. On Tuesday clarity on the extent of the loan restructuring indicated that Dubai World likely would restructure debt worth $26 billion against earlier talk of a possible $59 billion default.
Moving to center stage was a string of economic good news on Monday and Tuesday.
To kick off the week, gains in new orders were the highlight of November’s Chicago purchasers’ report. Chicago’s PMI rose nearly 2 points to 56.1 to indicate another strong month-to-month increase in the pace of overall business activity in that area of the country. New orders rose 1.4 points to a very strong 62.8. The Chicago survey includes both service and manufacturing segments of the economy in its report.
Contrary to a more gloomy consensus forecast, reports Tuesday showed a continued rebound for the auto sales even in the absence of government incentives. Sales of domestic-made vehicles came in at an 8.2 million annual rate in November, considerably above the 7.9 million rate in October.
On the retail front, Redbook reported strong results for the Nov. 28 shopping week. Redbook’s year-on-year measure for the week is up 3.8 percent and week over week up 1 full percentage point! (That’s 52% annualized). No doubt this is the strongest retail rate of the year and Redbook projects an exceptionally strong 5.2 percent rise in November vs. October. (That’s a heady 62% annualized)
Indications in the manufacturing sector continue to point to strength with ISM’s report showing continued momentum. The manufacturing new orders component of the index (the report’s leading indication for future activity) continues higher to 60.3 for a 1.8 point gain. Acceleration in new orders and gains in backlogs show a healthy mix pointing to rising production and rising employment ahead. Employment continues much improved from earlier in the year, holding above 50 in November from October’s very strong level of 53.1. You’ll remember the past relationship between ISM’s PMI and the overall economy. If the correlation to the PMI for November is annualized, it corresponds to a 3.9 percent increase in real GDP annually.
Then home sales reports were released. You may remember that existing home sales got a giant boost in October as speculation increased that the homebuyer’s credit expiration would pull sales forward and then dip in subsequent months. But to the contrary Tuesday’s report points to continued strength ahead. Pending home sales jumped nearly 4% in October adding to September’s 6% gain. Year-on-year pending home sales are now up a robust 32%.
Then early Tuesday afternoon, Philadelphia Federal Reserve Bank President Charles Plosser gave his views on monetary policy. Plosser (like us) sees economic recovery to be a little more modest than many gloomy economists. Said Plosser, “Looking ahead to next year, I expect real GDP growth from the fourth quarter of this year to the fourth quarter of 2010 to be about 3 percent. I expect similar real GDP growth in 2011. These rates of growth are more modest than what some forecasters anticipate.”
This economic recovery continues to build momentum. No surprise here.
In India, in the fields of health and education, an impressive rise of a private ecosystem has come about. In these fields, the State has tried hard to get back in the game, particularly after the UPA won power in 2004. But the unwillingness of the State to undertake deeper reforms has meant that ultimately, government facilities generally work badly. CPI(M) ideologues send their children to private schools.
The CMIE Consumer Pyramids data shows the fraction of household expenditure on school/college fees. Households that spend nothing are those that have no children, or those that are fully served by government schools/colleges. The CMIE data separates out expenditures on stationery, books, private tuitions, etc., so what is observed here is just the pure payment to the school/college. It shows:
The overall average expenditure per household in the survey is Rs.86,228, so 2.82% of this is Rs.2400 a year or Rs.200 a month. This, of course, reflects a split between some households who use government facilities (who spend nothing) and others who use private facilities (who spend more than Rs.200 a month).
An incipient academic literature shows that learning outcomes from the weakest private schools broadly replicate learning outcomes from government schools even though the resource outlay of government schools is 3x to 10x bigger. If this evidence was correct, private schools would not have gained market share. Poor people have been spurning government schools with zero tuition fees and free meals, and choosing private schools where significant payments have to be made. There are two possible explanations: either the parents are not understanding how best to take care of their interests, or the econometricians are not understanding what parents are thinking. I am biased in favour of the latter explanation.
Like all incumbents, public sector producers of educational services resent competition, and particularly competition that is gaining market share. With the Right to Education Act, the government has armed itself with new powers to force `unrecognised schools’ to close down. This is similar to the Department of Posts trying to prevent private firms from carrying letters. This is going to shape up as one of the most important battlegrounds in Indian education. So far, the broad story was that the government floundered and spent ever larger sums of money, but did not prevent `unrecognised’ schools from coming up. Now it is shifting gears from category 3 (”State Production But Do No Harm”) to category 4 (”State Production While Damaging the Private Sector”).
As Lant Pritchett has emphasised, countries like Chile which have a fully competitive framework, where parents choose between public and private schools, have a bigger market share of public schools as compared with India, where the main approach of the State is to pretend that private schools don’t exist, or to try to force them out. This ought to trigger off fundamental rethinking about what we are doing in the government. This rethinking has not begun, and the customers are quietly voting with their feet, switching their children to private schools. Despite the huge increase in funding to public schools, the market share of private schools is rising every year.