Month: May 2005

Beware of Monkeys

Alan Watts is one of my heroes. From his talks and writings, one can gain significant insight into the nature of the world. The World as Just So is a series of delightful lectures that I first came across on public radio. In them, he explores Indian thought – Vedantic and Buddhist. Trained as a Zen master, he made esoteric wisdom accessible to millions. A very deep bow in his direction. He used to live in Berkeley CA but passed on into the great beyond before I made Berkeley my home and therefore did not have a chance to meet him.

In one of his lectures, I came across a statement which has profoundly affected my thinking about the world. The context was, if I recall correctly, how to comprehend the world and live in harmony with it. In his inimitable style of talking infused with lighthearted laughter he said: Don’t be like the monkey who said to the fish, “Let me save you from drowning,” and put it up on a tree. When I heard that, I was enlightened. (I subscribe to the Soto school of Zen thought which holds that enlightenment is sudden.) The world, I realized, was full of monkeys. Look closely at any disastrous situation in the world and you will see a monkey’s hand in the background busy pulling fish out of rivers saving them from drowning.

For instance? The global disaster perpetrated by an advanced industrialized country which I shall not name. Examine the picture closely and you will see the hand of a chimp. (OK, I know that chimps are not monkeys; they are apes. But the point remains. And if you don’t believe me about the chimp bit, see some astonishing pictures of the guy and chimps posted on various websites. The resemblance is striking as if they were twins separated at birth.)

One is stunned by the realization that monkeys rule the roost pretty much wherever you have disasters. Even though some will loudly protest this, I claim that India is to a first approximation a disaster zone. By saying this I open myself to accusation of being an “India hater”. Whether I am or not is totally immaterial, irrelevant, and inconsequential. What is material, relevant and consequential is whether India is a disaster zone or not. Later we can argue about that but for now I seek the monkeys behind the millions of mini-disasters that add up to the mega disaster I call my motherland.

Mini-disaster #592: Free electrical power to farmers. Ostensible reason given: To support poor farmers. Consequence: depletion of ground water, water-logging of fields, billions of rupees owed by an already bankrupt State government to the electricity board, regular power cuts in most cities of at least four hours each day.

Surely, it has to be an incomprehending monkey that believes that free power to farmers will improve the lot of farmers. First, poor farmers and peasants have little use for free power. They don’t have the equipment to make use of power, free or otherwise. Relatively rich farmers have equipment and given free power they do what the average person does when you get free anything: use it beyond the socially and economically efficient level. As someone put it to me yesterday, the farmers “turn on the pumps in the field in the morning and go back to the village to spend the day and return in the evening sometime to turn off the pumps.” In the meanwhile, excess water has been withdrawn and today’s excesses will lead to more problems tomorrow.

Free power to farmers has the first-order disastrous effect of depleting scarce ground water reserves. It has second-order effects of creating power scarcity in cities. Cities which need power for commerce and manufacturing have to invest in costly alternative power supply such as diesel generator sets. This drives up the costs and generally makes us poor. On the supply side, the government owes money to the electricity board and in all likelihood cannot pay and so much needed capacity will not be installed leading to further shortage of power. Third-order effect: urban people who need power to produce non-agricultural stuff and do business don’t produce as much and so have reduced incomes. Reduced incomes means that they have less money to spend on agricultural produce. So the farmers receive less for their production. So they are poor. And the story comes full circle: the next election cycle, the monkeys will promise free fertilizers and power and water and we will be further impoverished.

I admit that free power is a move cynically calculated to win elections and it may not be that those who make these policies are as stupid as they appear to be. But they are still monkeys, really.

So what is the quintessential characteristics of this problem of monkeys intervening. It is this: monkeys, well-meaning perhaps, don’t understand the nature of the universe that they meddle in. We are all monkeys, in some sense. We make mistakes and are not always rational in our personal day to day dealings. Being a monkey is necessary but not sufficient to give rise to disasters; you need to have power. If you are a powerful monkey, you have what it takes to create havoc. The more power you are, the more death and destruction you can unleash. The most powerful chimp in the world is the most destructive today.

But then the question arises, how is it that monkeys get to be so powerful. I think I have a tentative answer to that question which I will go into in a bit.

What about Magarpatta City? Well, let me get to it as well in a bit.

Making Rental Housing Market More Efficient

“Magarpatta City” lies in the south-east outskirts of the city of Pune in Maharashtra, my home state. Searching for place to live in led me to Magarpatta City yesterday. Since moving out of my Mumbai apartment in mid-February, I have been a homeless person leading a rootless life living out of a suitcase. February saw me in New Delhi, Nagpur (my home town), and Bangalore; March was spent in New York City, Long Island NY, Boston MA, and Newark DE; April I was in Berkeley CA, Saratoga CA, Seattle WA, and Tampa FL. Upon my return to India on May 3rd, I spent a few days in Mumbai and then came here to Pune with the idea of storing my suitcase for a bit and have a home for a couple of years.

Searching for a place to call home is not an easy task. You cannot refer to a directory of places available for rent because there is no such central depository of information. What information exists is fragmented and incomplete. There are listings in local newspapers but you would have to consult many sources published over an extended period. Given space limitations in newspaper classifieds, the information for any specific place is incomplete. You would have to call and/or visit to see for yourself what is on offer. Search costs add up and makes the market for rental housing needlessly inefficient. Where there are information imperfections of this kind, specialized services emerge. Rental property brokers step into the picture as specialized agents bridging information gaps manually.

Brokers have specific areas of the city that they operate in and have inside information on available places. To increase my chances of finding a suitable place, I had to engage through various sources, a set of brokers. Each has about a dozen properties to show. The process is time-consuming and frustrating because of a number of reasons. First, there are numerous levels of indirection. The broker is one link in a network of relationships. Broker A, for example, will call up an intermediate B who will in turn call up C who has the key to the apartment. When you go to see the property, a confluence of events have to occur such as the presence of B and C for you to actually look inside. At places, I have spent over an hour just waiting, while the actual seeing of the place took only about two minutes.

The second reason for the frustration is cultural, the inability to say no. I have a set of very specific criteria about the place I wish to rent. Somehow I get taken to see properties that don’t come anywhere close to what I have clearly stated I want. Why do they do that? Don’t they waste their time as well as mine? There has to be a rational explanation. I conjecture it has to do with conveying an impression that they have earned the commission they charge.

Brokers charge about two months’ rent as commission. If they were to show only those properties that meet the specifications, they would perhaps be able to show only one or two places. If that means you rent a place through a broker after he (or she) shows you only a couple of places, the impression could be that the commission is disproportionate to the work done.

The third reason for the frustration is structural. The market is fragmented. Information which could have been aggregated and made searchable is only present as knowledge in heads of various agents. The asymmetric information—renters don’t have information on the complete set of available properties—gives rise to ‘rent-seeking’ opportunities, the commission charged for the deal. Dis-intermediating in this situation would involve aggregating the information (which is currently held as private knowledge) and making it searchable but would result in a loss of income for those agents.

Imagine, for a moment, a more efficient system. Let’s say there is “Craigs List” type platform where landlords list their properties in detail including pictures of the insides and of the surroundings. The technology exists for making this list accessible and searchable to prospective renters from anywhere in the world at very lost costs. In a few minutes of searching, one identifies a set of properties and invests in going over to check out the places. If such were the case, I would have only seen three properties and spent about half a day. Instead, I have spent four days and seen about a dozen properties only two of which I would even remotely consider renting.

Is there a point in this renting story? Yes, a general point. The availability of technology is only a small part of the story of development. It is a necessary part but very small and far from sufficient. The technology has to be adopted. There are barriers to adoption of technology which go beyond affordability and appropriateness: adopting technology could hurt the entrenched interests of the existing system.

Using a web-based system to remove information asymmetries in most markets would eliminate rents that information brokers (and property rental brokers are information brokers) currently enjoy and therefore they can be relied upon to resist such an efficiency enhancing change. But then you may ask, how does any efficiency enhancing change come about at all when in practically all cases the vested interests would prevent the change? The answer: If the vested interests can find alternate and better roles in the new system, the change can occur. That is, if they can move up the value chain. Even after the implementation of an efficient web-based system, people would be required to help with the creation and maintenance of the list, of vetting prospective renters, etc.

Efficiency implies that less labor would be required, however. So instead of a dozen agents, I would need only one agent. In short, if the market does not expand, then there will be mass unemployment among property agents. But the market may indeed expand, both due to lower transaction costs and due to increasing population of tenants and landlords. Then again, in an expanding economy, there will be other opportunities for those who used to be property brokers. It is an old story repeatedly told: fewer secretaries when printers and word-processors became the norm but more programmers. What you lose on the swings, you gain on the slides.

So what about “Magarpatta City”, you may ask. I was coming to that. Tomorrow, shall we say?

Guest Post: Navin Jaganathan on “India’s IT Companies”

A guest post from Naveen Jaganathan marks the return of this blog from vacation.

R.A. Mashelkar once said “Even if India does not do anything it is inevitable that we will emerge as the knowledge power in the next 5-10 years. If you look at our successes in the past and our emergence in the field of software technology, then this is fairly clear”.

It didn’t appear a tiny bit clear of how India will emerge as the “knowledge power” when I read this way back in 2003. Only thing that was happening then was, India was getting lot of call center/BPO work along with some outsourced IT work. If this is to be dubbed as “knowledge power”, it is not clear what the benefits of becoming one are. If all Indian kids who are playing gully cricket start to play tennis will we be called “Tennis Power” even though none of us even qualify to Grand slams?

Why is everybody tooting the “IT super power” horn over the past few years? It is simply because we could not do anything great in the Manufacturing/Industries sector and bring development to the country. Stephen Roach, the chief economist at Morgan Stanley, after traveling on Indian roads sighs like any other westerner: “A journey to Pune, 115 miles southeast of Mumbai .. by road.. I had been told that the Mumbai-Pune expressway is a modern construction. I would rank the six-lane, barely-divided Mumbai-Pune expressway a B-minus, at best. The exit experience was even worse than the approach — a tedious drive on low-quality local roads — overall, a driving experience that left me exhausted, head spinning, and with a sore back. If this is progress in closing India’s infrastructure gap, the problem is even worse than I had imagined.” On another occasion, “India’s infrastructure gap is almost beyond comprehension — inadequate roads, deficient power supply and transmission facilities, and not one good airport in the entire country.”

The India Infrastructure Report 2004 says it all, “…even relative to our income, our failure in water, roads, sanitation, schooling, and electricity is woeful.” The industry/manufacturing sector does not look promising in India as infrastructure is below par which holds back supply chain management and delivery capabilities and doesn’t encourage FDIs. For example, India did not seem to have taken advantage of the post WTO quota regime in textiles. We lost a great opportunity whereas Chinese geared up for it by transforming Dongguan. One of the trade fairs held in the Chinese province seemed to have drawn 30,000 professional buyers!! Because of pathetic growth in the Indian manufacturing sector, the job growth in the sector is just 2% per annum over the decade.

Thanks to high yield crops, Agriculture is doing good enough to meet internal demands). But with fickle monsoons and an exponentially growing population (which pushes the internal demand), this sector is not likely to take India to any great heights.

With manufacturing and agriculture not presenting a rosy picture, all jumped to the IT/Knowledge power bandwagon. Let us go straight to IT/Services work, which seems to be our strength and certainly is the tight rope on which our GDP growth seems to be walking nowadays.

As the fruit (IT industry) gets bigger and older, it has started to rot. Any doubt? Take two whiffs of the reek, please.

  1. A big company slashes pay for reasons unknown and shrugs off the massive outrage.
  2. CEO of a famous billion dollar IT firm bullshits “IT pros earn handsome salaries, they should be taxed more to improve the infrastructure of Bangalore” and does not bother about these sensible queries.

The two most insensible things that are happening now in most Indian Software companies are Forced Ranking (Appraisals) and Process (CMM) stuff.

Apprisals – In one of the leading companies, there are SET percentages for each ranking. “10% (for eg) should be given top rating of 5 (on a scale of 5) , 40% should be rated 4 and 40% rated 3 and 10% rated 2”. I can’t understand how they argue that only 10% are top performers. What if more than 10% are top performers? Is that not possible? In addition, how are they agreeing that 10% of the company is low performers? Aren’t they ashamed of this? Guess what the folks who got a low rating do? They mostly switch to one or other big companies and those big companies think they are hiring the top 5%“. This forced ranking is a shameful copy from GE which had different intentions behind the implementation

Process – The main idea behind Indian IT companies going for Process certifications (CMM etc) seems to be to woo customers and not to enhance quality. There is not enough tailoring of the standards mentioned and on most occasions, it presents itself as a pain rather than as a facilitator to quality. I wonder why Indian vendors alone go for this and not the foreign counterparts. Google, Yahoo, IBM etc do not seem to have this.

Then there are other debaucheries like the bonds for not leaving the company, haphazard promotions etc. Other dishonorable thing is the implementation of social activities, the only reason for these seems to be to get the PCMM and hog some limelight in the media. Of course there are exceptions to this like Infosys who generously gave 5 crores to the Tsunami from its own pocket where as other Indian IT companies where busy setting up the intranet page to enable the employee to login and donate from his salary. Some companies take advantage of the huge number of freshers who come out each year and employee them for cheap salaries. There are other malpractices like employ a guy and take in only his part of his previous experience, the guy only gets to know when he gets confirmed an year after and doesn’t get a deserved promotion. Then they try all tricks possible with the salary structure with terms like “Cost To Company” etc. These tricks may seem silly to talk about but when we think on the broader scale, it just appalling. An entire nation is (wrongly) pinning hopes on few Indian Software companies who by involving in hoodwinks is not likely to shape anything. If all the companies are short sighted to just look at their margins/ balance sheet without any ear to all the stakeholders’ expectations, it is not going to hold for too long. Its this shortsightedness that is keeping Indian companies transforming themselves into a Google (35 billion market cap with just 3500 employees), a Yahoo, a Microsoft etc.

You might be in a third world country if you don’t believe in Abraham Lincoln’s quotes – “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time”

Change in RSS URL

The RSS URL for Deeshaa.org has changed. For those of you reading Deeshaa using its RSS feed, please update the subscription in
your aggregator to the new URL to be http://www.deeshaa.org/feed/.

This blog is back on-line after a few technical changes. I assure you that I have definitely not left the building.