I agree with Elizabeth Warren !

Readers of my last few posts on TPP would have noticed my complete disagreement with one Elizabeth Warren – junior Senator from the Bay State of Massachusetts. In this blogger\’s humble opinion she is a card carrying member of the loony left. And yet, here is proof that even from the loony left, an occasional wise word may arise (granted this is as rare as a bright sunny day in the great state of Oregon, but ….. !)

Her utterance was actually from last year – \”The message to every Wall Street banker is loud and clear. If you break the law you are not going to jail\”, said the good lady. Well, let us pass lightly over the fact that there are no banks on Wall Street and that the New York Stock Exchange is not the same as banks. She has a point, which has been doubly proven in the events of lastweek.

It was a familiar story. Six banks agreed to pay $5.6 bn in penalties for manipulating currency markets. Five of the six admitted to the crimes. And yet, there is not a single banker going to jail. In fact , in all the settlements (LIBOR rigging, abetting client tax evasion, etc etc), the penalties are in billions of dollars. And nobody has gone to jail.

The details of the current forex manipulation case are not the purpose of this post. The banks formed a cartel and used coded communication in online chat rooms to rig the daily fixes of the exchange rate between the Euro and the US dollar. We won\’t get into the details. Suffice to say that this is a fraud, and that if prosecution were to be brought against the perpetrators, they would go to jail. Yet this never happens. Why ?

Firstly it is hellishly difficult to prosecute banks. They have access to the best lawyers, tons of money, and their actions are of such a highly specialist nature that proving the fraud in a court of law is extremely difficult, time consuming and expensive. Secondly the authorities drool at the prospect of these huge settlements and greed wins them over the principle of criminal deterrence. Thirdly, even though banks agree to these huge settlements, it is far from clear that a criminal act was actually involved – banks are so terrified about losing a case and having their banking license revoked (an automatic consequence) that at the first possibility, they agree on a settlement however outrageous the amount is and however strong or weak the case against them is.

Look at who wins and loses. The shareholders of the bank lose (after all these settlements are being paid out of their profits). Their customers lose – by rigging forex rates they essentially screwed their customers. The winners are firstly the bank management and the actual employees who committed the fraud. Nothing happens the bank management. As for the employees caught in the act, they get fired allright, but simply join another bank or fund house across the street. Worse, they get to keep their bonuses.

This is an outrageous state of affairs. This will keep happening again and again. Fines, even of such gargantuan amounts, mean nothing to them. The bank committing the fraud must be taken to court. The employees who actally did the deed must be locked up in jail. The bank must lose its license and suffer the consequence. Only such a deterrence will prevent such monstrosities from happening again and again.

In this stand I am in the camp of the said Elizabeth Warren, the Tea Party (they are outraged at this too) and The Economist ! Strange bedfellows, eh ?

CEOs sacked for conduct don\’t deserve severance pay

This blogger has been fascinated with lululemon for some time. The Vancouver based company has been peddling fashion wear for yoga and been successful at it. Firstly this blogger is amazed that you have fashion wear for yoga. Secondly, can a company really be named lululemon ? And spelt without a capital L ? There was also the business of yoga pants that, er, revealed too much, a few years ago. With that sort of pedigree, it is a \”must follow\” company !

(Wunder Under Hi-Rise 7/8 Tight Full-On Luxtreme 25\” for $98.00 USD – Note the price !)

They are in the news again. They fired their CEO yesterday. The gobbledygook announcement they put out said \”lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct.\” In plain English, the Board fired him. He did something wrong, relating to employees, and they fired him. Plain and simple. Nothing earth shattering about that – CEOs are fired for a variety of reasons and this happens all the time. But clearly he was fired, not for poor performance, but for something he should not have done with employee(s), but did. We should not speculate further.

So far nothing spectacular. But what got my goat was also the statement in the announcement that \”Potdevin will receive a cash payment of $5 million, including $3.35 million upfront and an additional $1.65m over the next 18 months, according to a separation agreement filed with the Securities and Exchange Commission.\” This is outrageous. He\’s guilty of misconduct and you pay him $5 million ? I\’m gobsmacked. Yes, there must have been a separation payment in his employment contract. That\’s standard in almost all CEO contracts. Why CEOs – any employee\’s contract. You have to be paid a severance pay (however measly it may be) if you are fired.

But this guy is being fired for wrong conduct. Would any low level employee guilty of the same conduct as Mr Potdevin ever be paid a severance pay ? No chance ? Then why should he be paid simply because he was the CEO. If there was an iron clad clause in his contract that said he would be paid no matter what the reasons for firing are, then the guys who drafted such a contract must be fired and made to pay a fine equal to this severance pay.

This sort of action is why companies are hated by the general public. Any corporate action must not only be fair, but be seen to be fair. The Board of lululemon deserves to be fried , roasted and hauled over coals. It is a listed company. What are the shareholders doing ?

CEOs are exactly the same as any other employee of a company. I have no problem with them being paid handsomely for the work they do. But they should not be paid for conduct that necessitates a firing.

Buy American and Hire American

When this blogger started blogging in 2009, his very first post was titled \”What is American goods, anyway ? \” Eight years later, when returning back from a two year hiatus in blogging, the same theme resurfaces as the second innings of blogging is started.

The trigger for this post is of course Trump\’s executive order titled the same as this post, which he signed with much fanfare three days ago. The order , of course, is pure bombast and is only meant to show that the President is doing \”something\”. It simply orders the Secretary of Commerce to tell the world what the hell this means in 60 days and orders sundry other Ramamrithams to specify how it will be implemented in 150 days. I was not aware that you need an Executive Order to tell people to do their jobs, but apparently in the world of alternative reality, that is required.

Precious little, other than nuisance value, will come of it. For you see, in today\’s globalised world of supply chains it is almost impossible to determine what is \”American\” as my first ever post argued. If \”value added\” is the yardstick for measuring national origin, then your iPhones are as American as mom and apple pie even though they are entirely manufactured outside the US. If the physical act of manufacturing (read final assembly) is the yardstick, then the iPhone is Chinese while BMW is American. If the entire supply chain has to be in the US, most products will simply disappear off the shelves as some of the raw materials and components are simply not available in the US and have to be imported.

The Executive Order gives some clues to the warped thinking – apparently they would like that \”for iron and steel products, all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States .\” US iron and steel has been on decline for decades. Only an idiot will set up steel capacity in the US – after all the next President can sign another Executive Order to the opposite. Not a single new job will be created. What will only happen if this pig headed policy is even half tried is that the existing US steel plants will jack up their prices. The American consumer shall pay.

The problem of disappearing jobs is a real and serious one, but there are no easy fixes. It cannot be tackled by trumpeting economic nationalism. It certainly cannot be solved by sitting on the toilet seat and tweeting whatever comes to your mind.

By the way, the GOP was meant to stand for free markets and trade. It would have been appropriate if a President Sanders were to try something like this. But a Republican President ?

Élection présidentielle 2017

France goes to the polls on Sunday to elect a new President. If you haven\’t been following this election, then you are missing something. It\’s a very crucial election and is much more fun for an outsider to follow than the US Presidential elections.

This blog largely tries to steer clear of political issues and focuses on the economic ones. So, although this blogger has strong views on the candidates and knows who he would vote for if he had a vote, he will avoid discussing that here. Instead, the focus is strictly on economic policies, which is of course, only one dimension of evaluating any candidate.

Who\’s the most dangerous of them all economically ? If the pat answer is Marine Le Pen, a more polished version of Trump, think again. Introducing Jean-Luc Mélenchon, the far left candidate who is currently surging in the polls . Nearly 20% of France want him as President .

Here are his economic policies, without comment

90% tax rate for those earning more than Euro 400,000 a year
273 billion Euros higher spending over 5 years
16% rise in minimum wage to Euros 1326 a month (Rs 90,000 a month)
35 hour work week.
Exit the Euro
Abolish the treaties prescribing a target of deficit to GDP . In other words, simply print money
Exit EU, a la Britain, if necessary
Join Alba the economic pact between Cuba and Venezuela. Honourable observers of this pact are Iran and Syria
Right to housing to become a constitutional right
Nationalise utility companies

There is more, but this is enough for the time being.

The system of French elections is such that that he is unlikely to get through even in the first round. But it should give a pause for thought that a full 20% of the French electorate is willing to subscribe to such lunacy.

The right to vote is a heavy responsibility. Concepts like protest vote, angry voter, etc are deadly pitfalls. You are supposed to consider the options carefully and vote according to what you think is best for your country. You can have differing views, but irresponsible exercise of the franchise is catastrophic.

If you are of the view that this is all fear mongering, capitalism has failed, and we should give such a philosophy a try (yes, I am talking to you , if you have felt the Bern), then all I will say is that this has been tried before and the example is there for all to see. Venezuela.

The loony left is even more dangerous than the rabid right.

I should have the right to vote out Trump

I am an Indian citizen. I have no right to vote in the US elections. That\’s fine – US citizens can make their own choices on who to govern them. But when the US starts passing laws that affect the world, expects global compliance and which have global consequences, then I am not prepared to keep quiet.

Nowhere is the US effect more on other country citizens than in the area of finance. If it starts a war, as it did in Iraq, at least I am not affected too much and its unlikely that the US will start a war with India. But Trump, by the act of trying to roll back Dodd Frank, is directly affecting me and is therefore fair game in being virulently criticised.

Dodd Frank what ? Yes that\’s a fair question as unless you are a student of economics you may not have come across the Dodd Frank Act. Here\’s the context in layman terms

– Remember the financial crisis of a decade ago. It was caused by global financial behemoths (mainly US based) going crazy
– Post the crisis, the Obama administration enacted the Dodd Frank Act to govern the conduct of financial institutions. Massive compliance requirements were brought in and severe restrictions and policing was introduced on what they could and could not do.
– At the time, the Republican Party was in the phase of \”Hell No\”. Therefore the law was not passed on a bipartisan basis. It was mostly a Democratic Party legislation.
– Republicans hated it, largely because they hated anything Obama did. The big finance companies and banks absolutely loathed it.
– The law is complex, fiddly, adds huge costs of compliance and is an absolute nuisance for those in the finance business. All true. But we have seen what havoc they can wreck on the world if they are let loose. So their complaints should simply be met with a stonewall.
– This is one perfect example of a bad law being infinitely better than no law.
– The consequence of another financial meltdown is that I, an Indian citizen, will have to pay for it even though Indian financial institutions played absolutely no part in creating the mayhem. Like it or not there\’s no \”Buy American\” in finance. Finance is global.

Trump is now trying to loosen the provisions of the Dodd Frank Act. Thankfully he cannot repeal it as he needs 60 votes in the US Senate and he does not have them as the Democrats are now the party of \”Hell No\”. But he can dilute it considerably and that\’s what he is starting to do. An Executive Order came out on Friday. Thankfully for now, the Order is just asking somebody to do something , as most Executive Orders thus far have been. Nothing really has happened.

But it will happen. Trump\’s cabinet and advisers are full of Wall Street types. They have a vested interest in undoing the Act . They must be resisted with every force. And I\’ll loudly call for Trump to be resisted on this one. As should you, whatever nationality you are. It affects you and me.

Dodd Frank has lots of faults. It\’s 2300 pages long. That alone is enough to tell you that Ramamritham has run amok. BUT, before anybody tries to do anything with it, he has to prove that it will improve controls and not dilute it.

For, you see, if you want to be really scared, do not think of nuclear war with North Korea. Or Arctic melt down. Or an asteroid hitting the earth. Get mortally terrified with just this one statistic. The total value of financial derivatives in the world at this moment is some $1.5 quadrillion. By comparison the world\’s GDP is $80 trillion

The flying car

Did you see the news item about a flying car, revealed by Kitty Hawk, a Silicon Valley startup funded by Google\’s founder, Larry Page ? If you didn\’t , watch the video below

I now petition Kitty Hawk that the best place in the world to launch it first would be in Bangalore. Everybody knows that a basic version of this already exists in the wonderful city\’s roads , for after all, a two wheeler can come from all 360 degrees to dent your car even today. But passing over that lightly, let\’s examine how and why this would be a major hit in Bangalore

Everybody who works in the world famous Ecospace building would buy it immediately. Ecospace is the world\’s first building where traffic jams are inside the building area and not outside. Average mean time currently for exiting from parking and coming to the gate is 45 mts. With a flying car, the coder will simply jump out of his office window in it and zoom away. Similarly coders in cubby holes in every other monstrosity – Maanyata, ITPL, Bagmane in that order – are enough to ensure that Kitty Hawk\’s order book for the next 10 years is filled up.

Two wheeler riders of Bangalore migrating to the flying car are likely to be confused initially as they are genetically programmed only to ride on the pavement or ride on the wrong side of the road. They will need some significant retraining to take to this new vehicle. Two wheeler riders are also currently used to taking the wife and both kids along with them. It is unclear from the prototype of the flying car as to where the two kids can be placed. Perhaps they can be made to hang from the wings. There is no safety worry – in Bangalore, even babies are trained from birth on how to hang on while on a two wheeler

The world famous cab drivers of Bangalore will be the world\’s best drivers on this car, as they have considerable practice in ducking and weaving and zooming. So the maneuvers required of a flying car come to them naturally. They will also be doing a massive public service. As they are used to constant honking, they will take this practice to the air and thereby drive off all the pigeons who currently infest every apartment building.

One of the greatest features of this car appears to be that it can instantly stop and hover in a particular spot. This will be very useful to BMTC drivers who like to stop in the middle of the road in an instant, if the fancy hits them.

There is one problem however. In Bangalore, every type of a cable – be it electricity, TV or internet cable dangles about 2 mtrs above every public space. Kitty Hawk will have to design the car such that it can take off and land passing through the 1 nanometer space available between the cables. In this they will be greatly aided by the dodging powers of the legendary cab driver of Bangalore.

We have one of the most proactive governments in the world in Bangalore. They will instantly build KR Puram, Silk Board and Graphite junctions in the air so that Bangaloreans on flying cars would not be deprived of the unique experiences to be had at the aforementioned places. They will also ensure that enough airpockets are released into the atmosphere so that Bangaloreans will not get sick from a smooth ride – their bodies having being conditioned to the soothing effects of pot holes.

Another design suggestion for Kitty Hawk would be to provide a glass panel whereby owners can paint or affix stickers saying Bhuvaneswari , Parthiban and Rajasekhar (please note that these will be written in Kannada and therefore will require some additional lateral space)

Drivers will have to adjust their perception of tree branches. Today, the sight of a tree branch on the road means a vehicle has broken down and a twig and some leaves have been lodged in a crack to warn others of this fact. From the flying car, a branch and leaves may be safely taken to be on a living tree.

I am not sure of the impact these cars will have on the traffic cops of Bangalore. Perhaps they can climb trees and tow away the flying cars that have been parked on every branch – the ex two wheeler driver being an expert at parking his vehicle on any vacant area in any terrain.

What I am not clear is how two drivers who have banged each other will fight. Current practice, which is almost a holy covenant is that you stop right there, get out and hurl the choicest abuse on the other guy. You cannot move even 1 mtr from the spot (ie move to the side of the road) before fighting). How this will be done mid air in the future scenario requires deep thought.

All in all, Kitty Hawk must simply relocate to Bangalore and start here. In any case the CEO is probably Arvindkatakshan Ramasubramaniam, who originally went from here. Welcome home, Sir !

Corporate Fluff

Lucy Kellaway of the Financial Times is one of my favourite columnists. One of her specialities is to roast companies that spew out meaningless bullshit in their communications and press releases. She even hands out annual Golden Flannel Awards for the worst corporate gobbledygook.

She\’s at her best today canning Mondelez (The Oreos to Cadbury company). The company\’s marketing head quit and this is what they had to say about finding a successor

\” Our search for a successor will focus on finding a digital-first, disruptive and innovative leader who can build on Dana’s legacy and mobilise breakthrough marketing in a rapidly changing global consumer landscape\”

Every word is a cliché and the sentence says absolutely nothing other than mouth inanities. Does it make you any wiser who they are going to hire ?

She has , over the years, mocked at meaningless drivel, quoting such outstanding examples as these

From Burberry – \”In the wholesale channel, Burberry exited doors not aligned with brand status and invested in presentation through both enhanced assortments and dedicated, customised real estate in key doors\”

Or this from E Bay – \”We are passionate about harnessing our platform to empower millions of people by levelling the playing field for them\”

Have you stopped to think about the nonsense that is shovelled each day. Infosys is doing an \”orderly ramp down of about 3000 people\”, ie sacking them. Citibank was \”optimising the customer footprint across geographies \” ie, er firing people. What about grandiose words for mundane things . Speedo\’s swimming cap is a \”hair management solution\”, another\’s aluminium doors are \”entrance solutions\” and Siemen\’s healthcare business is \”Healthineers\”.

We ourselves mouth such fluff often – We want to touch base . We are moving forward. We are solutioning for a client. We are mitigating risks by risk management. We are at a \”workshop\” where somebody is droning through 200 slides and the rest are supposedly paying attention. We are tele commuting.

How about some good old plain English for a change. Something the Queen would approve of. Declare the next week as a fluff free week. Speak in simple English. If you cannot, try Gurmukhi ! A language where fundamentally jargon and flowery language is impossible.

A passing note to American readers. I know the English language is strange to you, but you may want to try and learn it !!

Fear of Flying

In the normal world of business, companies are supposed to treat their customers with kids gloves. And customers are supposed to be very partial to the brands that they buy. It\’s all supposed to be a love love relationship .

Not so in the airline industry. Customers absolutely loath airlines. The act of flying is considered by most flyers, especially the regular ones, as next only to root canal surgery. And airlines (mostly) hate their customers. They are little more than cattle, in their eyes. And everybody associated with the act of flying hates everybody else. The security folk are hated by all. Most airports in the world are glorified cattle pens. And yet the industry is booming. The rash of incidents being reported from the US will simply pass over. The hate hate relationship is alive and kicking and will simply continue thriving.

Why is this so ? Two reasons primarily, in my view

– One, there is no option but to fly.
– Two, customers care for nothing else but price. All the talk of wanting service is humbug.

We all moan about how seats have become cramped, food has disappeared altogether, everything costs extra , security lines are impossible, etc etc. And yet , if there was a flight that costed $1, but required you to stand on one leg throughout the flight, we\’ll cheerfully take it. And therein lies the problem.

Take India and the case of New Delhi . I had the misfortune of flying from there a couple of days ago and hence this post.

There are two domestic terminals in Delhi. One is swank, large, with lots of space, small security lines and can compare favourably with the best in the world. The three airlines that use this as the base are very good, serve complimentary food, are generally on time and don\’t charge ridiculous extras. The other terminal is a disgrace – crowded worse than a train station, no place to even sit, and a close approximation of a pig pen. The airlines that are based here charge extra for everything, offer no complimentary food and bus you to the plane worse than a Mumbai local. But this lot are generally cheaper than the other lot by say Rs 500; maybe Rs 1000. Absolutely no prizes for guessing which one the passengers prefer.

We really should stop complaining about how airlines treat us. Until we are prepared to open our wallets a little more.

Companies don\’t make investment decisions based on tax rates

If you cut tax rates, will companies invest more ? This is almost a religious belief in a certain party in a certain country in the world. Is it justified ?

The answer, in my opinion, is mostly No.

Companies make investment decisions based on markets, sales projections, competitive advantage, margin potential, scalability and the like. These are extremely complex business variables and occupy 90% of the time and effort that goes into a business decision.

The tax line is one of the last lines in the cash flows of an investment proposal. It is certainly important, but hardly a determiner of whether the investment goes ahead or not.

There are a few instances when the tax rate indeed becomes a determining variable in the decision. For example, in India, there have been many instances where the government, in an effort to stimulate an underdeveloped part of the country has allowed zero income tax rates for operations located in those areas. In such a case, the tax rate becomes a determiner of the location of the investment; not the investment per se. Nobody puts up a factory just because the tax rate is zero. They put up a factory because the business opportunity is compelling. Having decided to invest, they may choose to locate it in a low tax zone.

The other instance when a tax rate becomes a determiner of investment is if the tax rate is ridiculously high. For example if the marginal tax rate is 90%, nobody will invest even if the business opportunity is compelling (M. Melenchon\’s supporters, are you listening ?). But if you cut the tax rate from 35% to 15% , it\’s a nice bonus, but it will not add one dollar of investment which otherwise would not have been made.

Further, companies make investments based on a 7 or 9 year time horizon. If one President cuts tax rates this year, what stops the next President from increasing it 3 years from now. So its almost inconceivable that a company which would otherwise have not made the investment, will rush to now make it because of the tax cut.

The argument that a major tax cut on companies, will spur investment growth is mostly flawed. It will however have the following consequences

It will improve corporate profits (for after all tax is a cost) and therefore both the investible surplus and/or dividends in the hands of shareholders. It will increase the wealth in the hands of those who are shareholders. They may spend it which will have a beneficial impact on the economy.

It will correspondingly increase the deficit that the government runs, and therefore the nation\’s borrowings. That will push the cost of borrowing and inflation.

But will it also increase tax revenues and therefore make the measure revenue neutral. Mostly No. But there is one big exception in the US, which will be the subject matter of the next post.

Turn the world vegetarian

Humans love eating meat. Vegetarians and vegans (this blogger is a vegetarian) don\’t stand a chance. In quite a few countries in the world, you simply have to starve if you are a vegetarian. In many others, your only ordering choice in a restaurant is likely to be an apology of a salad, that could more appropriately be fed to a cow !

Any chance that you can turn the human race into vegetarians ? Well, at least one company thinks so. The aptly named Impossible Foods based in California (where else) would like to try. An interesting Q&A with the founder that I read in the Guardian, prompted this post.

The logic for turning the human race vegan is impeccable. The largest environmental impact that humans have created is from rearing animals for food – cows being the primary culprit. The resources utilised – water, land, etc – per pound of meat is also the largest. The absolutely atrocious conditions in which we rear and kill farm animals has to be a permanent blot on the human species (pig farmers in Iowa – are you listening ?) And if the population of farm animals decreases, there is a better chance of wildlife prospering, as one of the chief causes of habitat loss is grazing.

Of course, this is not going to happen. Go back to the first sentence of this post.

I however have this feeling, totally unsubstantiated by data, that this might be a long term trend. Technology in food production is on the cusp of a revolution. After all humans don\’t eat meat because they like to kill animals. They eat it because they love the taste. If, and when, plant based foods are engineered to taste like meat, there is every chance that people will start to switch. Especially if it is cheaper. And then, slowly, the ethical side of it will start to play a part. If you can satisfy your nutrition and the craving for taste without killing, why wouldn\’t you do it. After all, if many of the meat eaters actually saw how their meat was being produced, a good proportion will turn vegetarians immediately !

But this is not going to happen in a hurry. Impossible Foods is just a fad and, this being California, fads are always welcome. But good luck to them. I might even come out of retirement and open the India branch – at least it will get me into the good books of the awful gau rakshaks !

But one day, in the distant future, maybe 100 generations later, our descendants will look upon with horror at \”prehistoric man\” for killing and eating animals. And maybe somebody will read my post from the archeological archives and pronounce me as a prescient wise man !

The pox on Ramamritham (for the nth time)

Regular readers of this blog know that this blogger rather likes railing against Ramamritham. Ever so often, there has to be a post yelling at this cursed individual.

This time it is on the Department of telecom (DoT) which is a pesky nuisance that purports to regulate every aspect of our phones and how we talk to others. Along with the child it spawned TRAI – The Telecom Regulatory Authority of India, they have been busy over the last decade framing rules and procedures for everything on earth. Did you know that every phone company has to publish its prices and tariffs in a prescribed format ? If you have seen that format, you\’ll know that you need a PhD in mathematics to understand it.

One result is that you have to go armed with lots of paper and proof for something as simple as getting a SIM Card. In control obsessed China, I just went to a corner shop and bought a SIM. It took me 2 minutes to do so. In India, you submit an ID proof and an address proof (of course Raramritham has written rules on which documents will be accepted for either of those proofs), then wait a while as the SIM is \”activated\”, then you call up a number and revalidate the proofs you have submitted ……..

The latest antics of Ramamritham that has got my goat is that he has ruled that all phones henceforth sold in India must have GPS. His logic ? The safety and security of women is \”of utmost importance\” says this blessed specimen. If she is in danger, we can trace her whereabouts through the GPS signal !!

Really ?? Is it the business of Ramamritham to be legislating such nonsense ? If he was really concerned about women\’s safety, he would be improving police coverage, improving response time to complaints, ensuring more policewomen in the force, ensuring that cases are brought to speedy trial, having a helpline where somebody actually answers the phone, etc etc. No. That\’s all too difficult to do. Instead he can indulge in his favourite activity – write a rule.

Never mind that if a woman wanted GPS on her phone to reassure her of security, she can simply go and get such a phone. No. It has to be legislated.

India has an installed base of 400 million phones that are euphemistically called \”feature phones\”. Translation – they do not have feature such as GPS ! The cost of a phone is likely to increase by Rs 400 if GPS has to be featured in all phones. That of course, does not bother Ramamritham.

When the industry protested, in true style Ramamritham replies – \” It is reiterated that all mobile handset makers should adhere , blah blah, to implementation of GPS facility in all mobile phones sold in India from January 1 , 2018. The representation (sic) in this regard will not be entertained in future \” . Beautiful.

Can all scientists stop their work on space exploration, finding a cure for cancer, sequencing the DNA, etc etc and instead concentrate single mindedly on the eradication of Ramamritham please !

Right problem ; Wrong solution

The extreme left , as this blogger is wont to repeat ad nauseam, is as bad as the extreme right. The champions of the hard left – Bernie Sanders in the US and Jeremy Corbyn in the UK have one policy in common that is a good example of this. Free college for everybody.

They also have another thing in common which is often the case with the left\’s policies. Right problem. Wrong solution.

First the right problem. Its a complete disgrace that in a developed country, a young person starts working life under a mountain of debt. Outstanding student debt is now £100bn in the UK, and a ridiculous $1.3 trillion in the US. And just to give you a perspective on the latter statistic, its $ 600 m higher than the total credit card debt in the US. You start life with a mountain of debt, and not a ready prospect of a good job. Great. If I was to be born again and had a choice of where to be born, I wouldn\’t choose either the US or the UK on that statistic alone.

The left deserves great credit for highlighting this problem. Successive governments of all stripes and colours (pun intended) deserve censure for ignoring the problem and allowing it to build to these levels. A society, and a nation, that spurns its young does not deserve to be called \”civilised\”.

But, as is often the case, the left\’s solution is dead wrong. Their prescription is for college to be made free and the costs to be picked up by the government. Fantastic. Will they never learn that tax tax tax and spend spend spend does not work – for free advice apply to Hugo Chavez, Fidel Castro, et al.

This blogger suggests three solutions instead.

First cut costs. Why is college education so expensive ? In the US, a ridiculous amount of cost is spent on college sports, fancy living quarters and everything that has nothing to do with education. My good friend Sriram has blogged extensively and is far more knowledgeable on this subject. In the UK, the average Vice Chancellor earns £300,000. And gets payoffs for leaving the job, which would make any corporate fat cat proud. Wield an axe on any cost that does not strictly have to do with education. Get the professional cost cutters from industry and let them loose on the education sector and within 3 years they\’ll cut costs down.

Secondly, what about parental responsibility. I am not at all clear why parents in these countries do not pick up a large portion of these costs. In Asia, education costs are largely picked up by parents. That\’s their legacy and gift to their offspring. If you are not prepared to start your child off well in life, you don\’t deserve to have a child. Period. And anyway what sort of an argument is it that you will not pay for your offspring\’s education, but somebody else (the tax payer) should. And don\’t tell me the parents cannot afford it – they have 15 odd years from the child\’s birth to plan savings. Save $ 5 every day and you won\’t have to worry about student debt.

Thirdly make college education truly global. Allow students from anywhere in the world to study anywhere else – allow free movement of students. There are superb universities in China and India for example, where you can get high quality education at a fraction of the cost in the US or the UK. Just like industry has truly globalised with activity automatically moving to the lowest cost location, so be it with education. Yes, I know this is an utopian dream and will never happen, but at least I can articulate it in my own blog (and no doubt face a volley of criticism in the comments !). Just to make it very clear, I am only advocating free movement for education; not permanent immigration.

The hard left may not ascend in the US, despite how many ever have felt the Bern. But there is a real chance that Jeremy Corbyn might become the Prime Minister of the UK. In that case their national anthem of \”God save the queen\” could perhaps be amended to God save the UK !

Beggars in Nigeria will start paying tax !

So says the Finance Minister of Nigeria. Beggars will have to pay taxes. Apparently some beggars are earning millions in Nigeria. Perhaps its fair enough that Mrs Adeosun , the Finance Minster said “proceeds from begging are taxable. You are supposed to pay taxes even if your means of income is begging”.

Nigeria is a notoriously corrupt country and tax evasion is blatant and has been elevated to a fine art. Hence the startling \”fact\” that beggars are earning millions. Nigeria should, by all rights, should be a very prosperous country. It has oil wealth and is a net oil exporter. It has a young , bright and growing population. It has a decent education system and some of the ablest people in the African continent. It is a large economy – second largest after South Africa. And yet, it is a huge underperformer economically.

Periodically the Nigerian government tries to tackle corruption and the also shore up the country\’s finances. Bolstering tax revenue by cracking down on rampant tax evasion keeps getting tried periodically, but with not much success. The latest is the Voluntary Assets and Income Declaration Scheme ( with the unfortunate acronym – VAIDS) . Good luck for the latest attempt.

India suffers from similar evasion, with its own home grown quirks. Agricultural income is not taxed , but much of what is claimed as agricultural income has nothing to do with farming. Similarly the tax entity called Hindu Undivided Family is nothing but an institutionalised way to manage taxes. The irony that \”Undivided\” and \”Family\” cannot be put adjacent to each other when it comes to money matters is completely lost on Ramamritham !

The United States being the leader of the world in all matters offers a rich variety of such dodges in the law. Walt Disney in Florida and other big landowners collectively dodged $950 m in taxes by renting a few cows to graze on their large land holdings and thereby qualified as agricultural land inviting lower taxes. And since two of my usual commenters are from the great state of Oregon, they may wish to declare that two of their limbs are useless and thereby earn a tax credit of $50 !

Back to begging. Actually no country exempts the proceeds of begging from taxation. If your earnings from begging exceed the minimum threshold, you have to pay tax on it anywhere in the world. Mrs Adeosun was only stating an universal truth ! Beggars of the world, beware !!

Job losses in India too ?

My good friend who goes by the moniker of Vaingluory, at least on my travel blog, messaged me drawing attention to this story . The opinion piece from a headhunter is titled \’Expect 100,000 to 200,000 Jobs to be Lost Every Year For The Next Three Years\’ .

There is a lot of hyperbole in this – I don\’t think India is going to lose jobs at that rate. Certainly not from the IT industry . But there is an undercurrent of truth , and there is a chill wind coming.

In the last 10-15 years, India, especially in the IT and BPO sectors has seen a pace of job creation that has been unmatched in its history. The impact this has had on people\’s lives is very visible in India\’s cities. In any other country, these job numbers would have been a spectacular miracle that would have transformed the country. India has a huge population and hence this is only a small wave in the ocean.

The young have come to believe that this scorching pace is the natural order of things and that anybody can get a job for the asking. Of course, this can\’t last for ever. The IT industry has matured and the rate of job growth has slowed down. That is only to be expected. The days of \”Tresspassers will be recruited\” are long gone ! Companies are not recruiting in the same numbers. They are asking some underperformers to leave. Some have to cut their costs and so some layoffs have happened too. I do not see any evidence that there is going to be a large shrinkage of jobs ; there will be a much slower rate of growth and there will be some layoffs. But the overall numbers is not going to shrink in a short span of time.

But some global trends are inevitable and they will have a big impact. The most important of them is automation. This is an inexorable trend and will affect all industries including IT. This is going to be the single largest impact on jobs. It\’s a global problem without any easy answers.

The second problem in India, is agriculture. Agriculture has always been the sponge – the vast majority of the Indian population is employed (more accurately underemployed) here. This sector is increasingly becoming financially strained, for reasons that are peculiar to India . Small land holdings, a major water crisis, inability to make significant profits, and the extent of risks for which there are no commensurate rewards. All these make agriculture likely to shed jobs on a scale that will be gargantuan. This has profound consequences for India. Manufacturing or services simply cannot absorb this load and even if they could, there is a massive skill gap for agricultural workers to migrate to other sectors.

India has one big advantage – an already strong services sector which will keep growing. This has the capacity to absorb skilled manpower. Touch any area and India has actually a huge potential for job creation. Judges, policemen, health care workers, retail industry workers, logistics industry workers, even professions like carpenters, plumbers, electricians – everywhere we have a shortage of qualified people even today. Jobs will keep getting created in each of these trades. Many of them will be self employed . Many of them may be in the government ; for example if we have to have a policemen to population ratio that is even remotely comparable to other countries, we will need to add millions of policemen. Ditto judges. Ditto nurses.

The issue is skills. India has a young population that is extremely keen on education and willing to work hard. It lacks a real effective skill building initiative. The National Skills Development Corporation, if it really does its job, can transform India.

This blog turns to politics

On October 18th, or immediately thereafter, a small line of people will walk in into the Great Hall of the People in Tiananmen Square. That will be the new Standing Committee headed by Xi Jinping. And at that time the world shall know what has happened to the \”elections\” in China. The stunning fact is that very few people in the world seem to even know about one of the most momentous events in world politics. Very little has been written about it in the world press and almost nothing has made it to TV. Not even the significant Beidaihe retreat that happened in August.

All this at a time when many people in the world seem addicted to the nonsense that a certain person spews sitting on his toilet seat. The lack of interest in what is happening in China is, to this blogger, unbelievable. Perhaps unfamiliarity is the reason. And hence this blogger is breaking his vow to keep this blog completely apolitical and is launching into a series of posts on what is happening in China.

I begin with a small primer on the current Chinese political system. The Communist Party of China (CPC) is the apex body in China. The government is subservient to the Party. Even the People\’s Liberation Army is not the army of China; its the army of the Party. Therefore what happens in the Party is of prime (only) importance in the politics of China.

The apex decision making body in the CPC is the Politburo, currently consisting of 25 members. Consider it as the Cabinet. From amongst these, an elite group forms the Standing Committee of the Politburo. Currently it has 7 members. This is the all powerful body.

When Mao Zedong established the Party, and for as long as he ruled China, all these institutions were irrelevant. Mao was the sole power centre. But when he died and the dangers of concentrating so much power in one man became apparent, the party elders led by Deng Xiaoping, established some rules and norms for the politics of the future. Thus far they have been adhered to. They are

The principle of retirement . The unofficial term is \”qishang baxia\” or \”Seven up; Eight down\”. The unwritten rule is that if you reach 68 at the CPC Congress meeting which is held once every five years (think of it as election year), you step down and retire. 5 of the 7 members of the Standing Committee and 11 of the 25 members of the Politburo have crossed 68.

The General Secretary and the Premier usually serve for two terms – 10 years – and then stand down. The current incumbents are finishing their first term and can therefore continue for one more term.

An all powerful single power centre , a la Mao, was never allowed to happen post his death. Even Deng was not all powerful – he had an equivalent power centre in Chen Yun. Factions abound ; the Shanghai faction, the Youth League, etc. These factions and their powerful overlords jockey for power behind closed doors. Retired leaders don\’t keep quiet – they exercise power by placing their underlings on these bodies.
The norm in China is for leadership changes to happen with great turmoil, purges and the like. Only two peaceful transitions have ever happened – the handover from Jiang Zemin to Hu Jintao and from Hu Jintao to Xi Jinping. Even the transition from Hu Jintao saw the dramatic fall and subsequent imprisonment of Bo Xilai.
There are three powerful positions in China – The President of China (a mere titular position), the Secretary of the Communist Party (the real powerful position) and the chairmanship of the Central Military Commission that governs the armed forces. Currently all these three positions are held by Xi Jinping. That was the case with Jiang Zemin and Hu Jintao as well, but in the Deng era, he was simply the Chairman of the CMC and the other positions were held by his chosen people. A fourth, and less powerful position is that of the Premier – currently held by Li Keqiang and is the No 2 position in China.
Every year in the summer, the power brokers in China retire to a coastal town called Beidaihe , where all the skullduggery, bargaining and negotiations happen. Each faction tries to get its people on to the Politburo and the Standing Committee. Usually most of the big decisions are made here on the beach behind thick closed doors. This is the real \”election\” in China. The Beidaihe meeting happened last month and this blogger is mystified that not only have there been very little leaks, there has been scant reporting in the press as well. Next to the US elections, this is the most important political activity in the world. And we don\’t hear even a squeak.
In the last two peaceful transitions, at the end of the first of the two terms of the incumbent leaders, the top of the subsequent generation is usually nominated to the Standing Committee. This gives the clue as to who would subsequently take over as leaders. If the past 20 years is a guide, then this should happen in the current change and the successor to Xi Jinping who would take over 5 years from now, would at least be indicated. But as we would see in subsequent posts, there is a good chance that this won\’t happen.

In the next post, we will assess the current political landscape and who are the power brokers in China.

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