The Industrialist: An applied R&D lab bringing the insights of development economics to Indian factories

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Mar 01, 2022

In the previous Engineering Innovation post, I detailed how America’s research ecosystem has become less applied and less exploratory since the mid-1900s. To most, the concept of true exploratory research is fairly intuitive. But wrapping one’s mind around research that is truly applied isn’t so obvious. In today’s piece, I’ll provide a concrete example of a possible course of applied research from the field of economics.

This is a field in which my colleague, my co-author on this post, and I have worked for several years — both of us in our role at the Center for RISC, a social impact incubator at UChicago, and myself additionally as a Lead Policy Researcher for the Argentine Ministry of Social Development.

Today’s piece lays out an idea for how to structure a for-profit, applied research lab in the field of development economics. We think the idea is practical, exciting, and are interested in building it out into a real operation — if we can find the right partners. If you or anyone you know would be interested in talking to us about it, please tell them to reach out at egillia3@alumni.stanford.edu.

The Field of Development Economics to this Point

Policymakers often dismiss whole fields of academic social science as not useful in practical settings. One research area that has avoided these accusations entirely is development economics: a subfield of economics focused on finding the cheapest and most effective ways to improve lives of people living in developing countries. To understand what development economists do, consider the thousands of things available in the average American’s life that are not readily available in developing countries, such as a full course of vaccinations, new textbooks in schools, or indoor air conditioning. All of these inventions improve lives, but it’s unclear which would be characterized as having an ‘extremely high’ ROI.

Development economists specialize in conducting experiments to find out which of these interventions have inordinately high return on investment. For years, philanthropists obsessed over the idea of bringing new textbooks or tablet computers to schools all over the developing world. Thanks to development economists, we know that de-worming pills have exponentially higher returns to education than new textbooks and tablets.

Researchers in development economics have made masterful use of the randomized control trial (RCT) in developing countries. These trials typically aim to find and measure which policy solutions are most cost-efficient and should be deployed by governments and NGOs in the developing world. The experimental structure can vary, but, in general, RCTs in development economics look something like going into a group of similar schools and randomly giving one set of children textbooks, free lunches to another group, tablet computers to a third group, iron supplements to a fourth, and nothing to a control group, and then measuring the effects of each intervention on test scores. In a popular series of studies, researchers gave communities cash grants to better understand if the most cost-efficient way to improve the lives of impoverished individuals was to provide specific goods or services, like iron pills and school uniforms, or to provide direct cash transfers to families.

Beyond testing policies in the realm of the public/non-profit sector, development economists have an affinity for finding ways to help micro-enterprises and subsistence farms thrive. Micro-enterprises are similar to subsistence farms in that they generally consist of just one person or one family unit operating a simple small business. One man selling cabbage or mangos out of a cart is a common example. Researchers often test interventions such as extending credit or loans to these individuals or providing them some minimal business training to see how it affects their returns.

Since the field’s inception, development economists have been the recipients of several Nobel Prizes and are responsible for many findings, including the following:

De-worming school children decreased total absences by 25%. And 20 years onward, the group of de-wormed children earned hourly incomes that were 13% higher as adults. And all of that for the yearly cost of less than $1 per year per child!
In many countries, less than 10% of individuals actively use water chlorination kits which keep their water relatively disease-free. Researchers found that if they promoted the use of chlorine dispensers installed next to local wells, utilization rates skyrocketed to as high as 80%. This success rate was up to 30% higher than delivering free chlorine kits directly to homes, which was much more expensive! Deploying this solution at scale has the potential to save disability-adjusted life years around the world for as little as $20 to $30 per year.
Teachers were half as likely to miss school in India when required to have a student take time-stamped picture of them every day with a special camera. Absenteeism fell from 42% to 21% compared to schools using the previous best practice in teacher accountability.

In general, many of these findings seem very obvious in retrospect. But, as is the case in most experimental work in the social sciences, you often have to test a handful of “obvious” solutions to find one that works. For example, in the case of teacher absenteeism, prior to the camera system, teacher attendance was monitored via a system of local village workers reporting absent teachers and performing random drop-ins. The absenteeism rate under this human monitoring system was twice as high as under the camera monitoring system.

The tools of development economics have certainly proven their efficacy. However, the field has a pretty huge problem.

The Hole in the Research Market

Development economists spend almost no time focusing on problems that help the private sector in the developing world beyond micro-enterprises. They spend massive amounts of money on research that translates into public policies or policies that will help one-man operations, but extremely little on policies that might help boost the productivity of major private sector employers in the country.

It’s unclear exactly why this is the case. When I’ve asked researchers in the space, they’ve given answers that indicate a combination of three factors. First, because the number of possible “consumers” of a government policy is the population of an entire country, economists see the government as the entity with the most reach in terms of potential research impact. Second, working with governments and non-profits is a more natural culture fit for the academic research ecosystem. Finally, many think that private industry “should be able to fund it themselves.”

This is both a problem and a major market opportunity. Take India as a case study: there are millions of industrial enterprises in India that employ hundreds of millions of workers in total. While many are quite small, there are approximately 350,000 whose yearly revenues eclipse $660,000 in USD — quite a lot in India. And not only is the addressable market large, but it is underperforming. In recent decades, India has been falling behind countries that were once its peers in terms of total factor productivity, management scores, and attracting investment from foreign manufacturers.

Manufacturing is not just a path to prosperity for industrialists, but for their employees as well. Nothing has historically improved the standard of living for the average worker across the world as much as an efficient, high-performing industrial sector. Improving the productivity of private sector manufacturing in India would not only help raise wages, but would likely directly improve the health of workers as well. This is because many of the most productivity-enhancing interventions increase productivity by first making workers healthier.

“Increasing productivity” does not need to be stereotypical MBA bullshit. Development economists have paved the way and proven that their toolkit works. Experimentation can find many extremely cheap solutions that make individuals 10+% more productive. Why not apply that rigorous toolkit to the private sector?

If you can deliver on that promise — a workforce that is 10% more productive — then surely you can find business people willing to pay you for your service.

The Industrialist

The possible value add of using the development economists’ toolkit in factories like those in India is obvious. The major question was really, “Is this something farm and factory owners would be willing to pay for?”

As social science types, we hoped the answer was yes. But there was only one way to find out: customer interviews. So we conducted eight interviews with the owners of mid-size farms and factories in India and came to a business model that was scalable, unanimously liked, and worth a reasonable price to potential customers.

Our potential offering, The Industrialist, pitches itself as a centralized R&D firm for Indian factory owners. A subscription to our service, for which customers indicated they’d be willing to pay $50-100 a month, gains you access to our monthly journal as well as customer support in implementing the ideas contained in the monthly journal.

Each monthly journal consists of five research-backed ideas that have been tested in similar contexts and have the potential to measurably increase worker productivity in factory operations. Each idea is written up informally (think New York Times) for easy reading. And, for the articles that spark the factory owners’ excitement, each idea has an accompanying, in-depth how-to checklist that walks the owner through how to implement the idea in their own operation. These how-to’s drew a lot of excitement from those we interviewed because, once they decided they liked an idea, it meant they could instantly spring into action and get moving on the next steps without having to worry about how to actually make it happen.

Given that there will always be questions or ambiguities, we have an open WhatsApp line to communicate with our customers about questions they have or different implementation strategies.

Of course, this business model could also work as a non-profit or academic lab off-shoot. The only major changes would be that the issues could be offered for free or at cost depending on the grant funding or philanthropic funding.

We Made a Sample Issue

(You can find the sample issue here)

There are at least six to nine issues that can be published based solely on existing experiments and academic literature. In the long run, The Industrialist should grow into a truly centralized R&D lab where it coordinates and runs experiments in its partner factories and writes up its own results and how-to’s in the monthly journal. We have a list of dozens of cheap experiments to start running once there are funds to do so.

As a proof of concept, we have set up a site and posted our first issue of the monthly journal so those interested can see how this would work. The site, theindustrialist.in, contains a free version of an issue along with the accompanying how-to articles.

The ideas shared in this first journal included:

An experiment in which, when provided the correct $8 reading glasses, showed workers—tea leaf pickers in this case—could be as much as 20% more productive. Two of our interviewees immediately began investigating how to implement this solution when we explained the experiment to them.
A smart incentive scheme that incentivizes workers to report issues with their machines as early as possible. This problem was a particular pain point for several that we interviewed. One owner said, “My machines do all of the physical labor. My productivity is largely determined by whether or not my workers proactively report issues on their machines.” This article helps solve this problem.
A detailed breakdown of every single intervention a group of Accenture consultants did when they were brought in to advise a group of Indian textile mills. These interventions, when implemented in the textile mills, improved output by 10% and cut defects in half. These services that Accenture provided are valued at a quarter-million US dollars. We explain to our readers why they did what they did and how to implement it themselves—for far less than $250,000.
An empirically-informed way to play music on their factory floors to increase productivity and workers’ job satisfaction. While it is obvious to many that playing music can increase productivity if done correctly, it also stands to reason that there are many ways to do it that only cause a distraction. We break down exactly how to get the most out of this ridiculously cheap intervention that makes the workplace more fun and more productive.
An introduction to the principles of scientific management, Taylorism, as well as a detailed breakdown of how to conduct time-studies in their own factories if the principles excite the owner. While Taylorism experienced its rise and fall in US management circles, it is undeniable that in the right contexts, when done well, tools like time-studies can have a massive productivity impact on a production operation.

Moving Forward

This issue is the perfect proof of concept for just how transformative these ideas could be for an industrial operation and why the relatively low cost and digital delivery make this method of delivery ideal for scaling. In the long run, as The Industrialist moves into new countries and regions the team will certainly need to ensure that, beyond translating the articles to the appropriate language, all of the ideas that previously worked and were appropriate for one cultural context are suitable for another.

In the short run, we would love to turn this proof-of-concept into a reality. The world needs more applied R&D labs, and this is one that we are excited to help build. To do that, primarily, we would love to talk to any interested parties who have connections in the Indian industrial sector and are excited by the mission. While the authors of this post have a strong grasp on the potential ideas to write about in the issues and the high-level business strategy, we need smart and excited partners who are better immersed in the Indian context than ourselves to make this work. So, if that sounds like you or someone you know, please reach out to egillia3@alumni.stanford.edu.

We are also looking for academic partners to work with to develop the best ideas possible. Whether it is a large lab or an interested graduate student in the area, we’d love to talk with any and all parties who think their research area could inform our ideas and how best to implement them.

Lastly, we need customers. So if you think you may know anybody interested in using this service, please send them the link to our site or put us in touch. We have heavily researched the area, produced a proof-of-concept, and confirmed with potential customers that this is the kind of service they’d be excited about at the price point. But this service will only work if we can get it into the hands of those excited to use it.

Thanks so much for reading! Hopefully this post helps you see that practical applied R&D labs are possible. If this article sparks ideas in your imagination for similar operations in other fields, please let me know. We hope to bring attention to as many examples of feasible applied R&D labs as possible in the coming months — and hopefully help jump-start some of them. Please subscribe and share this newsletter with anyone else who might enjoy it. It helps a lot.

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