Wednesday, December 21, 2011

Do we really need to punish the corrupt?

The axiomatic assumption in all the debates raging in the Indian Parliament on the “Anti-Corruption Bill” has been “If you need to stem corruption, you need to punish the corrupt"- and once this is said, we have all redirected our efforts in fighting about how much punishment, who is to be punished, and who will punish.

I mean seriously, in the heat of all the debate, the basic premise of such a bill has remained unquestioned. Is it worth really questioning this assumption in the first place? I mean, is it really true that "punishing" the corrupt is the only way to "stem corruption", and more importantly even if it is a way, is it the best way?

I am often drawn to this discussion of compensating employees. Given a choice between a "performance bonus" rewarding performance and a "non-performance penalty" - punishing non performance, I would like to believe that employees are more likely to perform better if they were rewarded for performing rather than being punished for non performance.

Imagine a hypothetical scenario where, a highway toll charges INR 50 each time you use the highway. Additionally every time a police inspector catches you violating a traffic rule, he immediately fines you INR 50.  Assuming you use the toll everyday to work, you are paying INR 1500 towards toll charges. Let’s say you bend the rules 5 days in a month, you are charged a fine of INR 250. But in a corrupt environment, the police inspector collects just 25INR and pockets the rest to himself and does not issue a receipt.

The Corrupt Driver now spends:
 INR 1625 having defaulted the rule 5 times in a month
The Corrupt Policeman makes
 INR 125, running the risk of getting caught
The Highway makes
 INR 1500 running the risk of an accident 5 times in a month

Alternatively, if the toll charges were raised to INR100, but  at the end of the month the highway will wire you a “Bonus Reward” of INR 50 for each travel where you are not caught for traffic indiscipline. If you are caught for an indiscipline, the police fines you INR 100. The policeman is rewarded INR 50 for each time he issues a receipt.

If there is a deviation from the traffic rule 5 times in a month,

The Driver now spends
INR 2250.... Realizes he could have earned a Bonus of 500 Rs had he not bend the rules, he will try that the next month

The Policeman now earns
INR 250 by properly issuing the receipt, and hence he is likely to look out for deviations and catch rule benders and issue receipts each time.

The Highway now earns
INR 2000 and also expect more compliance in the future.

The basic demonstration here, observes that the driver is more likely to follow rules when he realizes he will be rewarded in the end. The Policeman is more likely to issue receipts when he knows he will be rewarded for it at the end. The Highway makes just as much money or more  and enjoys a Corruption free environment .

I am not proposing that the solution is very simplistic or even that this can be extended all scenarios where corruption is rampant.  But is it worth spending time on trying a cultural change where people see a gain in not being corrupt rather than merely debating on "how to punish" "whom to Punish" and "who will Punish"

What say?

Tuesday, December 20, 2011

Will Walmart pay my Auto Rickshaw Charge?

Would it make more sense for telecom operators to charge commercial services for incoming calls, and subsidize outgoing calls from individual subscribers.

This way I feel, they can easily increase the ARPU. This can happen because if outgoing calls were free, people are more likely to use telephones for business transactions, and hence increase top lines for various other businesses. And this increased topline, will make the businesses willing to spend on an additional telephone bill.

It is also possible that the businesses may pass on the additional charge to the consumer using his service (like say the Pizza price goes up from 350 Rs to 355Rs-- just because the customer ordered it via telephone)...the increased price can result in a slight reduction in demand, but the increased access to market will compensate for the reduced demand by bringing in more customers.So effectively the telephone company can get the user to pay for the service although it looks like the charges are free!!

The question is what happens when two telephone companies approach a commercial unit, and compete on price that they will charge for incoming calls on the unit, the telcom who charges nothing from his individual subscribers will be forced to charge the commercial unit a higher charge, but the telcom who charges his individual subscribers will soon be out of business,because the competing telecom provides free service.

Finally what happens to the market dynamics of the commercial unit itself? Imagine, That a Pizza delivery service cant charge the consumer an additional amount due to competitive forces, he is forced to suffer a reduced bottom line due to the additional charge from the telecom, and therefore the problem of the low ARPU gets transferred to a problem of lower" realisation per customer" for the Pizza service.,a reason why the Pizza service will refuse to agree to a model where he pays the consumers telephone bill. But the point is he will have no choice, if he wants customers to call him, he will have to subscribe to the telcom who offers free services to the consumers.Soon nobody will call him.

In summary this is a debate on who pays for the Market Channel cost?
When you are a car maker, you pay to keep enough dealer locations, so that the consumers can reach you. The same applies to E commerce and telephone commerce. If you want your consumers to reach you, you pay their telephone bills. What next , Wall Mart should pay for the metro ticket, if you walk into their store. The next time I walk into Big Bazaar I want to see a marketing executive paying my Auto rickshaw charge!!