Classic

In Free India – I

  • If you start a company, the company’s name cannot have “Bank” in it if you are not actually a bank. So if Citibank starts an IT/ITES captive, it can’t be called “Citibank Solutions”. Presumably, my HR consultancy can’t be called Talent Bank, or my defensive driving franchise cannot be called Banking Angle. This creates a branding headache for my company, which is a subsidiary of Bank of America.

    Why? Because of RBI regulations. I shudder to think of what went on in the mind of the official who formulated such a regulation. I suppose he thought that commoners will see “Bank” and instantly line up with their money to open a savings account.

  • If you are a bank in India. You cannot offer only corporate banking. You have to allow consumers to make deposits as well. You want to set a minimum deposit limit of Rs. 50 lakhs to get around the problem? No problem.
  • There is an entire line of business called Wealth Management, which the RBI simply does not allow. In the US, if you are rich, your bank will offer to manage your wealth for you. You decide on your investment goals with your account manager, and then the portfolio manager allocates funds between equity and debt, takes buy and sell decisions and executes those decisions. You get a periodic report on how your investment has actually fared against your goals. It is like an individualised mutual fund. The RBI does not allow this practice, because banks cannot promise returns on equity and they do not trust consumers to understand the difference between “promising returns” and “promising to try to get those returns.” Actually, consumers can understand the difference when they invest in mutual funds, but their brain stays at home when they visit a bank. At least, that is what the RBI thinks.

    But banks are allowed to set up a Wealth Management practice, where they only provide advice, and their customers have to actually take the decisions. In ICICI’s case, this involves carefully discussing with the client what his investment needs are, and in every case, advising him to buy more insurance because they get hefty commisions from the insurance companies. That is allowed. But an honest business deal is not.

Genes and Economic Development

A few days back Nilu sent me an NY Times article about Gregory Clark, an economic historian who is arguing that there may be a genetic explanation for the industrial revolution in the West. The article does mention that he is considering both genetic and cultural explanations, but leaning towards the genetic. He has brought out a book on the subject.

The theory is that the inhabitants of Europe today are the descendents of the rich of the middle ages. Because they are rich, they must have had the qualities that made them rich. These qualities correspond to the “middle class values” of today, such as thrift and prudence. When the poor of those times died out because of hunger or in wars, the surviving population ended up with the same qualities – transmitted through the genes or through culture- that are conducive to capitalist institutions that enable the current prosperity. This theory is put forward as an alternative to the idea that it is the lack of institutions that keep countries poor.

Stated in those simple terms the error seems so obvious that I wonder why the theory is being taken seriously. The qualities of thrift and prudence will make you rich only in an environment where property rights are respected. In a lawless society, your willingness to loot and rape enable your genes to survive. The article mentions declining interest rates as evidence that the propensity to save increased during the middle ages. But as far as I remember, one of the reasons for high interest rates in the middle ages is that princes borrowed from Jewish moneylenders and then defaulted. The moneylenders had to charge higher interest rates to cover the risk, giving Jews a reputation for usury. It is hard to believe that these princes had a gene for thrift.

Of course, every quality that we humans possess, thrift or shopaholism, anger or a sense of humour, must have enabled our ancestors to survive at some time in the past. To say that genes for a specific combination of qualities suddenly gained supremacy over a few generations is a far weaker explanation than any I have heard so far.

The Nation and the Anthem

Some time back, there was a furore because Narayana Murthy played the instrumental version of the National Anthem because singing it aloud would embarrass Infosys’ foreign employees. I suspect that the actual reason was that Murthy gets embarrassed by overt displays of patriotism, just as he would get embarrassed by overt displays of any strong emotions. This embarrassment would be all the more in the presence of foreigners, just as any strange practices at your house would make you squirm all the more when outsiders are present.

This makes Murthy a bit of a bore, like some people who,when they watch cricket matches, clap politely, but refuse to take part in Mexican waves. In my young days, such people used to be given the bums. We also used to call them traitors, but we weren’t serious. Those who jumped on Murthy were. There was no question of accepting a charitable explanation for his words. The only possible explanation was that his words betrayed his servile attitude to foreigners, and this made him unfit to be the country’s president. Of course, considering who was elected eventually, it is probably true that Murthy was in fact unfit for the post.

Incidentally, who came to your mind when Murthy mentioned “foreigners”?

Americans?

Would your reaction be any different if the foreigners in question were Sri Lankans?

Those foreigners were actually employees. Being nice to your employees and to make allowance for their sensibilities is generally considered a sign of magnanimity. I can understand the criticism that Murthy went overboard on this, but to take it as a sign of servility, suggests that the problem lay more in his critics’ mind than in his.

I work with Bank of America. My employer’s branding exercise takes its identity as an American company quite seriously. The company’s logo is derived from the American flag. The corporate colours are red and blue, from the same flag. The company’s logo is “Bank of Opportunity”, which echoes “Land of Opportunity”. The company’s induction programme harks back to its links with American founding fathers.

But the fact is, these connections are made in an understated way. The need for understatement comes from relative strength. If you are are the powerful guy, being subtle is a better way to convey your values. If you are secure in your power, you don’t need to convey power.

If citizens of a country are prone to singing the Anthem aloud, looking around to see who is not singing it and using this non-singing as evidence of insufficient patriotism, it indicates a very insecure country to me. If you use the singing of your anthem loud to demonstrate your position in the power game, it is more likely that you are the weaker party.

The furore, if it demonstrated anything, showed us the extent of the chasm between Murthy’s image of India and his critics’ image of India – between those who think that it goes without saying that India is an equal member of the community of nations and those who think that India still needs to demonstrate it. As India turns sixty, I note with satisfaction that the former image is truer to reality than the latter.

The Examined Life, v4.0

With the Jagadguru’s blessings, I hereby declare this revision of The Examined Life open to the public.

Officially, The Examined Life was founded on August 14, 2002, exactly five years back. I wasn’t using any standard blogging software then. I had rigged up something in ASP and used an MS Access database. Those posts were always available with me, but they were not online, which I am sure was a great loss to humanity. Fortunately, I have found time to extract the posts and integrate it with WordPress. They are now available in my archives (all posts before Jan 2004), or you can find them by going to: http://vintage.ravikiran.com. (Warning: Lots of broken links, and I haven’t imported any comments. I will do so later.)

I took it down around Jan 2004 and shifted to Movable Type with MadMan’s help in April. Later he helped me move to WordPress. Counting this as a major redesign, we are at v 4.0. This version will continue to uphold the fine traditions established by this blog – viz. defend the good, oppose the wicked and make bad puns.

I had formed a mailing list of some friends to get feedback on the redesign effort (which I codenamed Plato because I am pompous and self-important). I had actually softlaunched this blog and started posting a few days back; just scroll down for more posts. I would like to thank them for giving me advice and blame them for anything that has gone wrong.

Like any great software development effort, Plato was and still is behind schedule. I am launching this on August 14 because I wanted to launch on the fifth anniversary of my blog. There are still lots of things to do. We will probably get to 4.2 or 4.3 before it stabilizes. Please update your bookmarks to blog.ravikiran.com, because ravikiran.com will contain my homepage, not my blog. My old permalinks will stay that way till I get around to redirecting them. My feeds have automatically been redirected – or so I think. But nonetheless you can find my RSS 2.0 feed at: https://www.ravikiran.com/blog/feed/ and my comments feed at: https://www.ravikiran.com/blog/comments/feed/. Please let me know if you find anything broken or if something can be better.

Cramped marketplaces

Last sunday, I was wandering through a rythu bazaar – “farmer’s markets” where farmers directly sell their produce to consumers and eliminate middlemen – set up by Chandrababu Naidu as part of his drive to, like, totally neglect farmers and focus on the IT industry.

As designed, the market had a broad corridor for the buyers to walk through, with granite-floored galas for the sellers to sit. But every single one of the sellers had abandoned those galas and were sitting on the corridors, getting in the shoppers’ way. The actual galas were badly underutilized. They were being used for storage, but not very efficiently. If the sellers had wanted, they could have used it for both.

I thought that this was a perverse result, which had occurred as a result of the fallacy of composition. One seller must have found that he could get a share of the customer’s attention by moving to the corridor and squatting there. Competition must have forced the others to follow. The result was that no seller was better off, but the buyers were worse off, because the shopping experience had worsened. The solution to this problem, I thought like any good free market fundamentalist, was to have marketplaces compete in giving a better experience to customers. I was like totally going to blog it, but didn’t find the time.

It was a good thing I waited, because Prashant Kothari sent me a link to an article in the Wall Street Journal that tells me that this is actually what the customers prefer.

Mr. Biyani redesigned his stores to make them messier, noisier and more cramped. “The shouting, the untidiness, the chaos is part of the design,” he says, as he surveys his Mumbai store where he just spent around $50,000 to replace long, wide aisles with narrow, crooked ones: “Making it chaotic is not easy.”

Even the dirty, black-spotted onions serve a function. For the average Indian, dusty and dirty produce means fresh from the farm, he says. Indian shoppers also love to bargain. Mr. Biyani doesn’t allow haggling, but having damaged as well as good quality produce in the same box gives customers a chance to choose and think they are getting a better deal. “They should get a sense of victory,” he says.

…

Instead of long aisles and tall shelves, the stores cluster products in bins and on low shelves. With long aisles, he says, “the customers never stopped. They kept on walking on and on so we had to create blockages
The bins let customers handle products from different sides. Decades of shopping from stalls also means that most customers feel more comfortable looking down when they shop, he says. Narrow, winding aisles create small traffic jams that make people stop and look at products. Last month, one of his first stores in Mumbai changed from long, straight aisles to the haphazard cluster design. “Sales are up 30% since the change,” Mr. Biyani said, as he struggled to walk through the knots of shoppers at the store.

Indian consumers aren’t used to processed and packaged goods, so the stores sell wheat, rice, lentils and other products out of large buckets. Housewives want to grab handfuls, checking them out for pebbles, quality and smell, he says. Mr. Biyani tells his staff not to tidy up, as he noticed that customers are less likely to check out a product if it is in neat stacks. He scoops up a handful of plastic razors from a pile in a bin. “When it is like this,” he says, “it feels like a good deal.”

(Link might stay good only for a week.)

Annals of Innumeracy I

This is a new series, where I point out instances of mathematical illiteracy so that I can be a smartarse.

According to sociologist Walter Fernandes, 40 percent of those displaced by development projects are tribals, although they constitute less than 8 percent of the population. Put another way, a tribal is five times as likely as a nontribal to have his property seized by the state.

This is Ram Guha, in an otherwise excellent article in the Nation about the roots of the Naxal threat. The correct number is not five. It is 7.66 times.

Are you reassured now?

“Sub-prime rates in India are given to the highest rated industrial group… You and I don’t get sub-prime rates. Somebody like NTPC may get a sub-prime rate or Tatas… I am only speculating.

That’s P Chidambaram, our smart Finance Minister reassuring his countrymen that the sub-prime wreckage won’t hurt India much.

Except of course, that sub-prime rates are not below the Prime Lending rates, but above.

Subprime lending, also called “B-Paper”, “near-prime” or “second chance” lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. (source)

To be fair to Chids, I too was fooled by the “sub” in sub-prime till my brother explained to me that what was “sub” about it was not the rate, but the quality of the borrowers. But I am a mere blogger, not the country’s finance minister.

The Parliamentary Kleptocracy

I have a review of Arun Shourie’s book in the latest edition of Pragati. I had titled it “The Parliamentary Kleptocracy”, but Nitin changed it to “First Past the Post”. It starts:

When India celebrates the diamond jubilee of its independence, it will have as its president a person who, when she was running a bank, took money from women depositors, distributed most of it to her relatives as loans and, according to the RBI, did pretty much nothing to recover the money, thereby causing the demise of the bank. This fact will be celebrated as a victor for women. To understand how India managed to accept a person in the Rashtrapati Bhavan who in any mature democracy would be in jail for fraud, it is important to read Arun Shourie’s latest book.

Comments welcome here.

There is a problem, but we still shouldn’t do anything about it

No Shruti, reducing the proportion of women will not improve the lot of women. Yes, the “price” of women will go up, but the price will not be paid to women. It will be paid by men to fathers of women. You don’t have to theorise about this. We know what happens when the sex ratio declines. It has been happening in Punjab, where men have been alleviating the shortage of women by purchasing them from Bihar. Strangely, an increase in the price of women has not resulted in an increase in the quantity supplied. This is probably because the price of a woman will never go up so much that it pays for the 20 years of bringing her up, so all sales of women are distress sales.

Yes, there is a problem in the future if female foeticide does not stop. A world with fewer men than women is tolerable for both men and for women. A world with fewer women than men is not tolerable, neither for men nor for women.

But no, we shouldn’t try to use the police to stop the practice, simply because it will be futile. It is a simple matter for the doctor to find the sex of the child, and it is an even simpler matter for him to convey this fact to the parents. Back alley abortions are also trivial to perform. Unless you start policing every single clinic and the police are incorruptible, you aren’t going to be able to stop it.

The practice will however stop when people stop being dependent on their children to look after them. It will stop when people live on jobs rather than business or on land so that it is less important that someone continue after them. It will also stop when it becomes acceptable for daughters to take care of their parents or when it becomes acceptable for daughters to continue after their parents.

Proximately, it will stop when it becomes socially unacceptable to abort girls and when not aborting girls becomes a sign of modernity.

All this will happen in a generation, but till then, let us accept that there will be a problem regardless of what we do. There will be a generation when there will be more men than women in certain communities and there will be problems of social instability and violence. Just as glib calls to prevent this problem through laws will not work, glib assertions that demand and supply will take care of the problem will not work either.

Was restricted franchise a good idea?

I will most probably have a review of Arun Shourie’s latest book “Parliamentary System” in the next issue of Pragati. In that book, Shourie is contemptuous of popular sovereignty. He proposes a Presidential system because that will apparently reduce the influence of popular moods. I take issue with much of his logic in the review, though I support the Presidential form.

But since doing the review, I’ve had another thought. Was adopting universal franchise right from independence a bad idea? Of course, I am not the first person to have this idea; many others have had it. Nani Palkhivala used to say the same. But I always used to dismiss the idea, because it rests on the assumption that voting is a duty you perform for your nation rather than something you do in your self-interest. Even assuming that educated voters have a better grasp of issues and are more “qualified” to judge the candidates (an assumption I am doubtful about) I am highly sceptical of the argument that they will use these superior powers to elect candidates who will do good for the country rather than just for themselves.

But now I have found two plausible reasons why starting off with a limited franchise was a good idea:

  1. It reduced the size of constituencies. Smaller constituencies means better control over representatives
  2. Because the voters were rich, confident of their rights and peers the idea that governments existed for the “people” rather than the other way round could be established.

The two points need to be taken together. When you have a small group of people, democracy works much better. Everyone can participate, voice their views and come to a decision. In large groups, voting every five years is the only job for the average individual. Power gets delegated to the “representatives” and very soon they become rulers. This problem gets worsened when you have poor and illiterate people who are unaware of their rights.

So the hypothesis is that limited franchise led to the development of a tradition of good governance which stayed stable even when voting was expanded. When the barons got together and got King John to put his seal on the Magna Carta -for themselves but not for the laymen under them – or when the property owners established the United States, they also established principles of good governance and actually practised them. Yes, the principles and practices were only for themselves, but when the poor started demanding the same rights for themselves, they had a running vehicle to hop onto rather than one whose engine needed priming.

Anyway, this is a hypothesis and I am not fully convinced of it. This is not an argument for restricting frachise now (I am not even sure it would have been a good argument for restricting it in 1950). I do not know if these allegedly positive aspects outweigh the negative effects of disenfranchising large numbers of people, but it does give us an idea for how to improve governance.