Wednesday, April 29, 2009

I get paid to remain awake!!

Have you ever got paid for sitting in a movie?? (I am sure Ramgopal Varma might think of that as a possible idea, to attract audiences for his next remake)
If I were to get paid for visiting a doctor, I might think twice about using his prescription. If I were to get paid to eat in a restaurant, trust me I don't want to taste their food. This "law of incentives" works pretty well with most professions-including that of a tailor,a carpenter, a musician and certainly that of a teacher.
Why would a teacher pay you to ask questions or for participating actively in his class?. Such an idea can lead to two inferences.
a. The teacher has got a lot of money and does not know how to spend it.
b. The teacher wants to give you an incentive to stay awake in his class.
What if the teacher were not actually distributing his own money and shelling student grades as an incentive to students participating in his class. Common logic would then eliminate option 'a' and one is left with the unfortunate truth of option 'b'.
Many business schools grade students on the basis of their participation in the class. Weird as it might seem, I am tempted to compare this to the hospital that would pay patients if they survived an operation.
Stimulating a participation in a class is an art which many professors and teachers have mastered after years of experience. Grading students based on their 'Class participation ' is an indirect insult to the noble profession of teaching.

Monday, January 12, 2009

We can always clean it right up!!

Morgan Freeman, in the Hollywood blockbuster , Bruce Almighty, flashes his characteristic 'I-am-GOD' smile and says "It’s a wonderful thing. No matter how filthy something gets we can always clean it right up". The audiences world over applauded this inspiring dialogue and found a moment of introspection in what was otherwise a comedy flick.

In my opinion, the recent announcements made by the Government of India, is likely to warrant a similar applause. Even while one cannot completely fathom the extent of free fall SATYAM has had, the Government has quickly moved (although many argue that the moves aren't quick enough)and is making plans to revive the company. SATYAM is often being referred to as India's ENRON, the infamous company which was involved in a similar case of accounting fraud and eventually went bankrupt. Bankruptcy is however a painful option in the given scenario. Nobody wants SATYAM to go bankrupt. Not the 53,000 employees of SATYAM, not the IT industry, not anybody. Since nobody likes bankruptcy , the company is most likely to be bailed out. With the Government announcing an independent board of directors to turn around the company ,I can smell that the Government is willing to "clean it right up!!"

The picture might look very rosy, if the Government can somehow salvage SATYAM. The only person sulking will be the pure capitalist. Although the mess might get cleaned up, it will leave a very bad precedent. It will seem to send a message to fraudsters that "it is OK to carry on being unethical as long as you don't get caught. And even if you do, don't worry. The Government will bail you and your thousands of employees out!" I believe that it is in every body's best interest if the Government stays right out of the mess and lets SATYAM go to a bankruptcy. Even if that tends to pain everybody for sometime. "The villain has to die, no matter how gory his death may appear".

As far as the cleaning up goes, I would request that the Government focus on cleaning several other messes including Terrorism and Corruption. I am sure market forces will take care of fraudulent corporates by itself without Government intervention.

Sunday, January 11, 2009

The 'Trick' to save the Economy.

Keynesian economics ,was a model that many believe brought United States and the world out of the Great Depression. During the Great Depression of 1929, unemployment was at a peak, markets faced a recession and the morale was terribly low. Experts viewed the Great Depression as moral punishment for evil over-spenders , and as lesson economics taught to these spenders advising them to increase their savings. As often is the case with bad economic times, people thought they had to save the money for the future , after nature had befallen them with the depression.
Consumers stopped spending and they started saving money. Retailers stopped buying goods. Industries reduced manufacturing of these goods causing a further reduction of jobs. Keynes realised that a recession was caused by excess saving, which drove down demand , caused unemployment and landed the economy into a downward spiral. Keynes believed that government action could end this cascade effect and stop the over-saving attitude of people. He suggested that governments should pay people to dig ditches and then fill them up again. This would put money into the pockets of people, and that was the aim of the exercise.
It is interesting to note that his suggestion had several messages. One, that the government had to create jobs. Jobs that will enable people to earn, and enable them start spending. Two, the jobs created need not add any value by the nature of the jobs themselves. Keynes' idea of asking to pay people to dig ditches and then fill them up again, was clearly the idea of creating jobs , that required minimal investment , required minimum skill and were of minimal value to the Government. The World War II , provided ample opportunity to exercise this trick. I should say USA was fortunate to have had gotten into the war. The military economy created a lot of jobs. Most jobs did not add any value to US from the point of view of industrial economy. (although the war created for USA a huge political advantage since they won.)But the war created earnings and hence consumption. The real victory for USA may not have been the victory in the political sphere but the victory in the war against recession. They had established themselves as the political superpower alright. But more importantly they had won to become the economic superpower.
The world is in a recession again. People are reducing the spending again. Companies are reducing expenditure, cutting costs and laying off people. The role of the Indian Government for the next 4-5 years is going to be a crucial one. The government will have to create an atmosphere of spending. Investing heavily in infrastructure will create jobs alright. But that alone wont do. With elections round the corner, we may have to rethink our priorities in the given scenario. We need to see what can do the trick for India.
A little after the Great depression began, in 1932 ,President Roosevelt made created huge investments in infrastructure. He got several roadways, highways and electric stations sanctioned from his budget. He created jobs. But he could not kill the depression. The financial weakness of the economy prevented his idea from remaining sustainable. His wonderful idea failed. Luckily World War II came to his rescue and the military economy saved the day.
For a long time now, our finance ministers have been speaking about the basic financial strength of our economy. Hence, I am led to believe that , even in the wake of this cash crunch, the money is not all lost. It remains trapped with governmental and private firms as savings for the bad day. (or as bundles of black money! or both ). These firms need to be triggered to start spending the money. Public- Private consortiums may do the job. But, we have to find our own 'Keynes' trick for this scenario. I believe that we need to increase our spending in three important areas.
1. Infrastructure: More investments needs to flow into roads, metro rails, airports, harbours, 3G,etc.
2. Nuclear energy: Government should invite private players to start manufacturing nuclear energy efficiently and figure models of distribution.
3. Anti-Terrorism: Government needs to spend heavily in intelligence, NSG, Police system etc.
These measures are needed. They are needed now and as soon as possible. We need to really ask ourselves, which Government if elected can do the 'trick'. A 'trick' that can save the economy.

Saturday, January 10, 2009

'Satyam' Eva Jayathe

The title for this post is a a sanskrit equivalent for "Only the Truth will win". That is what many of us believed until recently. 'Satyam' in sanskrit means 'truth' and 'Satyam Computer Services' was a name that stood synonymous with growth, best practices and the IT revolution of India. 'Satyam' (as the company was fondly known) has put Hyderabad on the global IT map. Satyam stood for entrepreneurship, Satyam stood for truth. In fact it was a common saying that Hyderabad had two towers. 'The Charminar ' and 'Ramalinga Raju' and the latter founded Satyam.

The last few weeks have been far from good for both Satyam as well as for Ramalinga Raju. With the latter admitting on committing a fraudulent forgery of vital information, he is tonight in jail, and stands a very good chance of being judged to serve a jail term of 10 years.

The Satyam SCAM has set the bells ringing, across the world. Many companies who are known for their best practices, will soon come under the scanner. Investors will have to look beyond the performance parameters of a company. They may have to be well informed about the 'quality of earnings' as an independent decisive factor in making investments. All these issues have raised concerns in the minds of the average investor. The question is 'How can I trust the quality of a company's disclosed earnings?'

Many people have understandably misinterpreted that these tragic developments with SATYAM (or earlier with ENRON) have conclusively demonstrated the evils and the devils of the free market and liberalisation. It might seem to be inevitable to conclude that corporate failures of such natures negate the merits of free market. When corporate giants collapse, the earth shakes under them. Business confidence will lower. Investors may be wary. All these consequences are not good for the economy. If poor 'corporate governance' can cost the nation of its trust in the free markets, it is undoubtedly clear that measures need to be taken to ensure right standards of governance.

The most easiest solution is not necessarily the right solution. Enacting more statutory laws , instilling more stringent checks to seal the crevices through with corporate malaise ooze may sound absolutely necessary.I do agree that more the laws and more the interference, lesser will be the chance of a fraud against a share holder. But I would like to point out that too much of a statutory intervention can lead to unnecessary bureaucracy and increase the complexity of operations and hence not serve the purpose of a free market.As the regulators enforce transparency, investors will have a flood of information that the companies would be forced to share with them. The volume of information made available can confuse shareholders or even hide the important facts, defeating the very purpose of transparency.

The problem here is akin to the problem of terrorism. and terrorism cannot be solved by increasing security services for all the citizens. (Read:You can't cure Terrorism with ASPIRIN ! ). Law can enforce order in a society. It cannot enforce values.Corporate governance-- unfortunately is a value. Corporate governance is not about the number of Board meetings convened, nor about the attendance report of the directors. It is not about certification by external auditors nor about the practices of the auditing firms . Corporate governance is about values and good citizenship. It is about the responsibility the corporate owes to the society that allows it to create wealth.

Apart from other things the fall of Satyam has proven a simple adage, that inspite of everything, no matter how long it takes "Truth shall prevail Victorious". "Satyam Eva Jayathe".

Friday, January 2, 2009

Bachelor Woes

Booker Prize winner Aravind Adiga hammers the nail on the head when he says
"If you want to rent a flat in Mumbai, take care you don't belong to that very worst minority: the single man"--(Read: Bachelor bigotry)
Trust me, I know the feeling. I am sure, ten million other "single men" like myself running about their lives in Bangalore, Mumbai or any other city understand this too. Wherever you are, you shouldn't be 'single'. God forbid, if you are ,you shouldn't be a 'man'. There is something about the Indian urban society that makes a 'single man' the least respected entity of the social network. Neighbours look at you as if you are from a different planet. A creature that is obnoxious , dangerous and frightening. No sooner than you open the door of your flat , the respectable housewives of the neighbourhood would whisper to each other in lowered voices. They would silently peek above your shoulder into the flat to try to catch evidence of any 'Bachelor Atrocities' within. The husbands would muster the courage sometimes to knock at your door in the evenings with a emptied bottle of Chivas Regal in their hands and ask you "Excuse me I found this bottle lying outside, but I am sorry, drinking is not allowed in this apartment". No amount of explaining that you are a teetotaller will help. If there is a bottle in the garbage, and there is a bachelor in the apartment, somehow it is obvious that the bottle belongs to the latter.
I see pamphlets in various apartments notice boards. "FLAT 302 for RENT. ONLY FAMILIES, BACHELORS STRICTLY NOT ALLOWED" or sometimes "PG ACCOMMODATION AVAILABLE , STRICTLY LADIES ONLY". It is sad how the same treatment does not apply to single women, married men, or even men who stay with their parents. Its only the lone stag who has got to bear the brunt all the time. If you are new to the city, learn from the veterans. Never ever reveal to a prospective landlord that you are a single man. The best you could do is to tell them that you are moving in with your mother (please note it has got to be mother, not father!!). I know friends who bring their mother from as far as Assam or Punjab just for the day of the interview with the landlord. The mother does not have to say or do anything. She just needs to be in the room while you negotiate the terms with your landlord. Once, you have managed to convince the landlord that you are really not single, and that you are the loving son of your loving mother, that your hobbies are Bhajans and your favourite singer is M S Subbalaxmi, then and only then you get the flat. Your mother can stay for the first week or so, lest the landlord make a visit to see if you are a happy ,God fearing ,family.
It is interesting to imagine that the same landlord, or the neighbour's husband, was a bachelor once upon a time himself. And how he must have enjoyed partying, lazing and rock music. It is amazing how he would have irresponsibly kept his own house dirty, with his socks on the fridge and his toothpaste on the bed. It is unfathomable how he loses all his 'irresponsibility' and all his 'bachelor values' when he ties the knot. He changes into a responsible 'Man of the house' who imagines that every single man in the country would be as irresponsible as he was , when he was a bachelor.
Single men, will be great friends with other single men. But only until the other men remain single as well! Once married, the single men have to find other single men. That's the rule of law.The same things that excite and engage a man as long as he is single doesn't seem right to him, the moment he is married. Pizzas and burgers become junk food. colas turn bad for the digestive system, Pink Floyd becomes loud music, beer becomes alcoholic and parties make him miss on his sleep. Thus the single men get socially out casted and they silently eat at Mc Donald's everyday with the other single men.
I can understand the roots of discrimination against race,color,sex, religion, caste or nationality. I can't understand the true motive behind legally allowing the discrimination against 'single men' to exist. As I am writing this, I hear a news clip on the BBC, on how people in Japan are protesting against shipping in the deep seas, as it may disturb the peaceful existence of whales. 'Whales have a right to live' says a placard. All I want to say is 'Lucky Whales!!'