Cashlessness Needs Connectivity

... And connectivity needs political and administrative convergence.

Shyam Ponappa    |   January 5, 2017

This new year brings with it uncertainties amidst the push for cashlessness. Without going into the demerits or otherwise, some clarity on a road map to go forward from where we are might help with realistic planning to manage our way out of this situation.

Cashless transactions need ubiquitous connectivity, which we don’t have.  Without it, the goal is simply unfeasible. Better to recognise this now, rather than act out elaborate charades, resulting in avoidable economic hardship and social ructions.  Connectivity needs effective, efficient communication links at a reasonable cost. These call for realistic objectives and solid implementation, not bluster and unrealistic goals or plans, such as fibre-optic networks everywhere, payment systems on a hastily assembled database riddled with imposters, or insufficient security and privacy.

What’s required?

 

The need is for internet connectivity using fibre backbones, extending to users through aggregation networks that are mostly wireless. The chances of establishing these networks increase if political parties and government agencies take concerted action on how to do so. This is necessary for two reasons. One is that our present network development and spectrum policies do not facilitate achieving universal broadband, especially in areas with lower commercial potential than prosperous urban clusters. The second is the legacy of network development with entrenched rivalries and perceived ways of managing spectrum, and the aftermath of the spectrum scam.  These constrain society’s collective ability to configure solutions for connectivity, as opposed to the biased or limited perceptions of stakeholder groups such as the government, the judiciary, the citizenry, and industry (comprising service providers and equipment suppliers). Government agencies also have divergent agenda, e.g., the Telecom Regulatory Authority of India (Trai) is responsible for recommending spectrum use, the Department of Telecommunications/Ministry of Communications has licensing authority and runs the state-owned operators, the Ministry of Information and Broadcasting holds certain spectrum bands, the Ministry of Defence and government agencies hold other bands, and the Ministry of Electronics and Information Technology is responsible (without the authority) for providing broadband. Hence, the need for a convergent approach, as effected partially for electricity supply, from coal mining through transportation to distribution (although other sectors – hydel, hydrocarbons and nuclear – are yet to be similarly linked).

What needs doing
 

Radical changes such as pooling and sharing network infrastructure have to be considered for widespread connectivity. Such changes can’t happen with confrontation and mistrust, but only with trust and cooperation. This may seem naïve, but the ruling party leadership sets the tone for cooperation, as does the administrative leadership. Their pitch has to be sufficiently persuasive to induce diverse stakeholders – other political leaders, the judiciary, the citizenry who want industry to pay their pound of flesh while getting good services that are priced very low, and the operators, who have huge investments in networks and spectrum rights – to consider sharing equipment, and to work out worthwhile terms for everyone. 

Currently, contending political parties pursuing selfish objectives as antagonists settle at the lowest achievable equilibrium. To understand why, consider two parties, A and B, with objectives along the horizontal X axis for A and the vertical Y axis for B in the chart. 

When parties pursue conflicting interests confrontationally, they end up at N or Nash Equilibrium, where neither can improve their position without the other’s concurrence.  Assume A has the objective of maximising a majoritarian agenda, while B seeks to maximise dynastic control of its leadership positions. This holds for any objectives that are unrelated (orthogonal). If their objectives are along the same dimension — say, control of the Centre or of the same states, there can be no accommodation: one wins what the other loses. This has happened so far, as parties are periodically voted in and then out by a disenchanted electorate. But if they accommodate, their equilibrium could move up to S, the “Best Feasible Equilibrium” point, where the acceptable limits of their respective objectives meet. (For more details, see: “Tata’s Corus Buy: A Game Theory Analysis”, organizing-india.blogspot.in, November 2, 2006, and "India’s Access To Nuclear Fuel & Technology", April 3, ) 

2008.)

Imagine waking up to find that instead of the usual confrontation and vitriol, a different and gracious protocol awaits you. One of harmonious interaction marked by accommodation and courtesy, despite nature being red in tooth and claw. Utopian?  Perhaps. But not if the powers that be realise that the way out of the cashless crisis is to seek benefits for everyone, instead of self-destructing by chasing chimera such as pure cashlessness or other unrealistic goals.  Instead, they could give people what they need but don’t have: ubiquitous communications  infrastructure that facilitates all activities (not just cashless transactions), and a more secure, well-ordered environment for pursuing their livelihoods and well-being. Policy decisions to share network infrastructure would be the start of this journey.

We can then break out of the impasse created by legacy communications policies and posturing, e.g., which party was responsible for what scam, the popular obsession with high auction prices for spectrum while wanting cheaper services, and operators committed to cornering spectrum.

Once the leadership collaborates, they’ll find that communications services delivery will be much improved by sharing capacity and coordination. This would enable other stakeholders – private sector operators, the citizenry, the judiciary – to accept that everyone gains from cooperative access to and delivery of communications services, provided adequate profits are generated and shared equitably. This will help in accepting a more rational, pay-for-use policy on the lines of highways, metro rail, or oil pipeline usage, and recognise the financial infeasibility of having auctions as well as funds for investments in networks for countrywide broadband access.

Government and stakeholders can then work together to develop solutions that are fair and practical. For instance, one or more consortium/s of operators with the government as a co-investor in each (on the lines of Singapore’s OpenNet) can co-own the network and coordinate for most effective and efficient service delivery.  Earnings from spectrum usage can be collected by the government once the networks are commercially viable, as for developing any other infrastructure. Such collections are likely to exceed the auction fees foregone, as with revenue sharing from licence fees.

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                                                               Shyam Ponappa at gmail dot com

Making The Most Of The Cash Flow Crisis

                       

     

                                        Humankind cannot bear very much reality - T.S. Eliot

The government needs to design incentives for greater cooperation, with disincentives to discourage defection.

Shyam Ponappa  |   December 1, 2016  

The economic arguments apart, some observers see the demonetisation/currency replacement initiative as a political strategy, similar to the United Progressive Alliance (UPA)-I’s instituting the National Rural Employment Guarantee Act (NREGA, later renamed Mahatma Gandhi NREGA). MGNREGA was famously successful in reinstating the UPA in 2009, although having beggared the treasury and wrought many unintended consequences through unthinking or even intentional mismanagement. It’s too soon to tell what the election effect of the currency replacement exercise will be despite local election results from Maharashtra and Gujarat. The drastic reduction of cash will induce severe constraints in economic activity for months together with the attendant consequences, unless the need for cash is alleviated.  For now, three weeks later, there seems to be reasonable popular support for the move.

The social and economic aspects of these policies lend themselves to analysis through the frame of Evolutionary Game Theory (EGT). EGT studies how patterns of strategies associated with groups affect competition for resources through repetition. Originating in biology, it is applied to many fields. Its focus is the frequency or spread of strategies in a population in competition and natural selection, and not only the nature of the strategies. EGT explains altruism in life forms as a benefit for a species, whereas survival of the fittest at the individual level leaves little room for altruism.  This explains why people act for the common good despite competition and natural selection, when selfish alternatives offer greater gains.

EGT models help us understand the motivation for group affiliation and altruism affecting behaviour that results in our living conditions and environs.  Of particular interest in our context is a basic assumption that strategies that lead to high pay-offs are transmitted within a population either through a learning process (culture) or through evolution. EGT helps to identify such strategies, as also to understand how additional aspects, such as population structure, affect the emergence of such strategies.

From a public-interest perspective, demonetisation and the MGNREGA are social engineering initiatives aimed at changing the structure and processes in society. In other words, apart from redistributing income, their purpose is to develop a culture that supports cooperative processes for a well-functioning society, e.g., with clean environs and sound infrastructure as well as clean money. A problem with the approach in both has been that they are perceived not so much as strategies crafted for the common good, as gamesmanship for political gain. In the process, the public interest objectives of social stability, productivity and well-being appear to have been sacrificed for partisan gains.

While political aims may be the unstated primary motivation and an unavoidable aspect of reality, both involve major structural changes to influence processes affecting large populations. EGT tells us that while human societies rely on mechanisms that promote cooperation, natural selection in unstructured populations favours defection over cooperation through higher pay-offs to defectors. However, with appropriate corrective mechanisms, natural selection can favour cooperation. But without special incentives for cooperation and compliance, combined with deterrents against defection/non-compliance, natural selection increases the dominance of defectors, driving co-operators to extinction. It follows that the benefits from cooperation and compliance must be attractive (high) so as to result in a virtuous circle leading to dominance by co-operators in a population, while the costs must be kept relatively low.¹ Urgent attention is therefore needed to design such benefits and reduce costs.

Apart from the financial effects of these policies, their aim is, presumably, or should be, to engender behaviour in a virtuous circle to help create a preponderance of co-operators in society. EGT shows that direct reciprocity (A helps B when B helps A) is an effective way of inducing cooperation in repeated interactions. However, researchers working together from Harvard, the University of Amsterdam, and the Max Planck Institute have found that it takes a combination of two factors, namely, direct reciprocity together with a degree of population structure such that it leads to greater interactions between co-operators than between co-operators and defectors, to work synergistically in creating high levels of cooperation.² They report that this combination yields much higher levels of cooperation than achievable through reciprocity alone in unstructured populations. They observe that this combination of reciprocity and some structure is very similar to actual human interactions, which are typically repeated, and occur in not very rigid yet not entirely unstructured populations. They conclude that if reciprocity in behaviour is combined with only a small amount of assortment (e.g., so that altruists interact more often with altruists than with defectors), then natural selection favours the behaviour typically observed among humans (in well-functioning societies): High levels of cooperation implemented using conditional strategies.

To make the most of the demonetisation “stick”, the government needs to design the right combination of incentives to induce greater cooperation, with disincentives to discourage defection. These are needed to help accelerate the adoption of cashless transactions to the extent feasible, given our levels of connectivity. It is also desirable to train change agents to seed co-operator populations, and to design supportive processes, including efforts to induce a degree of structured interaction that clusters co-operators to increase their number in sub-populations. This would be akin to the commercial equivalent of good agricultural extension.

Two aspects need resolution for cooperation to have a reasonable chance of success:

One is improving connectivity for communications for cashless transactions. This needs new approaches to resolve rural, semi-urban and urban communications problems, with government working with industry and experts to bring about genuine breakthroughs.  Otherwise, cashless transactions remain an urban phenomenon, and the hinterland is left out.

The second, and most urgent, is the restoration of economic activity flows. This requires resolution of the induced cash flow problems.  It is not clear how, but without that, there is a risk of a cash flow crisis overwhelming the rest. 

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Shyam (no-space) Ponappa at gmail dot com

1. “A simple rule for the evolution of cooperation on graphs and social networks”, Ohtsuki et al, February 10, 2006, Nature:

http://www.nature.com/nature/journal/v441/n7092/full/nature04605.html

2. “Direct reciprocity in structured populations”, Van Veelen et al, May 3, 2012, Proceedings of the Natural Academy of Sciences:

http://www.pnas.org/content/109/25/9929.full.pdf