Glinka's Grand Sextet

Glinka was a Russian composer, best known for being a member of the The Five (also known as the Mighty Handful), a group that attempted to create a distinctly 'Russian' music, drawing on the folk traditions of Russia.

One of his early, and quite delightful, works is the Sextet in E flat, written in 1832. Its written for an unusual combination of instruments; two violins, viola, 'cello, double bass and piano. The double bass in not frequently used in chamber music.

I first encountered it in a rare recording by a group called Capricorn, its popularity seems to have increased, deservedly so. There are several recordings available now. Listen to it on Youtube. It tends to load slowly so its best to let it load first before listening.

Losses at the CEB and private power

I was at dinner with some people this evening. At our table were seated a person who works for a company that runs some private power projects and someone who works for the CEB. I spent some time talking to these people and this is what I gleaned over the course of the evening.

The person working for the private power firm said that they sell power to CEB at Rs.13 per unit for hydro and Rs.21 per unit for wind power. The return on investment on wind power is apparently about 22% while that on hydro is 17%. I asked if there was any risk in the power business, in the opinion of the person involved in the business there was none. The CEB buys all output at the set price.

When talking to the CEB employee she claimed that the main reason for the losses at the CEB was private power. According to her, about 60% of the CEB's revenue is spent on private power. Quite apart from the tariff charged by the private companies there is apparently a hefty surcharge that is charged by the companies for delayed payment. She claimed that transmission losses were small in comparison to the losses on generation.

The information that I obtained tends to square up with what I have gathered from other sources so I believe it is largely correct. There are plenty of other inefficiencies that can be improved upon, from overstaffing to power piracy but these appear to be the big ones.

The CEB sells a unit at around Rs.8 but buys it at around Rs.13 from private producers, thus incurring a huge loss. I have no problem with private enterprise, which need to earn a fair return for investors. However are they charging too much? Given that they have a low risk business should they only earn the risk-free rate of return ie the rate on treasury bills (currently in the range of 10-11%).

However if all the private producer is going to earn is the risk free rate they may as well as put their money in the T bills and save themselves the hassle of running the business, therefore no private power would be generated. Therefore a premium is necessary, but how much? A difficult question, so why not let the market resolve the question? Let private power producers bid every quarter to supply the CEB at whatever rates they may determine. The CEB can then buy from whoever quotes the lowest price. This is a simplistic model, there probably needs to be a floor price to at which the CEB buys as the buyer of last resort and, possibly, options for the private producer to sell direct to consumers, but the general principle of the auction is best.

In the meantime, the CEB engineers should lobby to move to daylight saving time, a painless means of saving power that will help ease losses to some extent at least.

The state as a bandit or why poor countries are poor

Tim Harford, the economist who is known for his best selling book The Undercover Economist has written an interesting piece on why poor countries are poor.

He uses the arguments put forward by the American economist Mancur Olson in his book Power and Prosperity, which looks at the economic effects of different types of government. To quote Olson:

Under anarchy, uncoordinated competitive theft by "roving bandits" destroys the incentive to invest and produce, leaving little for either the population or the bandits. Both can better off if a bandit sets himself up as a dictator - a "stationary bandit" who monopolises and rationalises theft in the form of taxes. A secure autocrat has an encompassing interest in his domain that leads him to provide peaceful order and other public goods that increase productivity. Whenever an autocrat expects a brief tenure, it pays him to confiscate those assets whose tax yield over his tenure is less than their total value. This incentive plus the inherent uncertainty of succession in dictatorships imply that autocracies rarely have good economic performance for more than a generation. The conditions necessary for a lasting democracy are the same necessary for the security of property and for contract rights that generates growth.

I would emphasise the importance of secure property and contract rights, as well as the rule of law. Corruption, which is another way in which agents of the state, in the form of officials and politicians tax businesses and citizens is an obvious deterrent. The fact that corruption is unorganised, or anarchic, in that there is no certainty of knowing how much will be demanded and at what point in a transaction effectively brings in aspects of rule under anarchy as described by Olson. The agents become roving bandits, stealing whatever is possible before the next election, cabinet reshuffle or when they may otherwise fall from grace and be removed from their positions of power.

The path to prosperity is thus about governance, governance and governance. Singapore had an autocratic leader but thanks to excellent governance and sound policies they prospered. South Korea, Japan and Taiwan, did not score as high on governance (corruption and cronyism were problems) but with decent legal systems and sound property rights (and a lot more resources than Singapore) still did well.

Malaysia, with many times Singapore's resources but far worse governed has achieved only a fraction of Singapore's prosperity. Still, a functioning system of commercial law and property rights with some half-decent policies has paid dividends.

The growth of Japan, South Korea and Taiwan were helped by the boom in Europe and US in the 1950's and 1960's; Malaysia and Singapore reaped more or less the same benefit between the 1980's and 2000.

Now with world economy in the doldrums, those who were left behind have to work a great deal harder, if they are to find a path to prosperity.

Taxes on potatoes increased by Rs.10/ kg

The Government has increased taxes on potatoes by Rs.10/kg, taking the total tax to Rs.30/kg.

This took me by surprise, I was expecting the next round of price increases during the extra long stretch of holidays between the 6th of April and the 14th of April. Thus we have a tax increase, albeit a relatively small one, out of season, so to speak. Well, not quite. Tomorrow is a mid-week holiday and Sri Lanka managed to win a game of cricket this afternoon so, so it is perhaps a good day to release bad news, when the public are preoccupied with other things. Those with long memories will recall that there was one fuel price hike, on the weekend of the World Cup Cricket final.

The Treasury has mastered the art of taxation by stealth. To begin with, very few tax increases are actually proposed in the budget, which is when they are supposed to be presented. Instead, starting from around September (or in the case of last year, in October, just after the local council polls) a few taxes are increased every week or so. After the budget is presented in mid-late November comes another round of increases, usually between January and April.

This time around, what has been shocking is the frequency and size of the tax hikes. Clearly finances are under pressure and the Government is doing its best to raise revenue and shore up the currency. With dollar denominated loans to pay, every decline in the exchange rate increases the size of the debt and the cost of servicing it.

The fuel price hike alone left consumers reeling, I can already see a reduction in traffic on the roads, now we have others to contend with potatoes and only heaven knows what we will be hit by during the long April holidays.

When I was a child and we asked our parents for things they would sometimes retort that 'money does not grow on trees'. Colombo was a much greener city then, but that piece of wisdom is one that the rulers would do well to ingest. It is unconscionable to keep heaping taxes on people, while tolerating, waste and corruption on a mammoth scale. It is time to start cutting costs and passing those savings on to the citizenry.