Thursday, April 30, 2009

Day 4 - 6: Business As Usual

Another day, this time I thought I would have meetings but spent mostly working on documents etc. I may also postpone my travel plans to India, originally scheduled next week, and concentrate on getting done as much as possible remotely. In fact, I realized I am better off planning a very busy schedule when I actually travel, which I was not doing for the last few months. This means I shall be in the UK for a while, at least till the middle of May uninterruptedly and would be able to organize my life and work better. I am hoping that this will impact my productivity significantly and help me turn around things much faster. [I recognize one of my big problems is the long time I take to respond to emails or return phone calls, which is partially because I am hardly at one place and I do get pulled in at different directions during a day's work.]

I had a fairly busy Tuesday, though I am not sure how much of that actually went to any of my three prime tasks, ILR, Company Restructuring and Dissertation. I almost know for sure that I did nothing for my visa or my dissertation, and whatever I did at work was more to respond to urgent necessities or expand our scope of operation rather than scaling down and restructuring. If I have to get the best out of my stay in UK, I need to reverse this and get focused on what I have to do - pick up a set of smart people to work with us, solve the cash flow issues once and for all, and give them a product basket which they can take forward. My discussions regarding the product basket did go forward, if only a bit, and I now have initiated at least three discussions that will allow us more courses to sell. Besides, I actually sent out a Product Idea for consultation to the guys in Kolkata, something that we need to have to fill a market requirement.

I am pretty keen on getting on with my visa - I have almost finished my five years in the UK and this makes me eligible for a Permanent Residence. While I did not care about this before, I am getting increasingly convinced that I can not go back to India and find a proper job in Kolkata, at least not one which will satisfy my intellectual curiosity. And, if I can't go back to Kolkata, that makes me less keen to go back to India at all. Oh yes, I know I don't want to spend rest of my life in Croydon, but then I have a wide world to see and I would rather go and spend some time in different countries and learn and absorb their cultures as much as I can. I am any way not a great believer of the future of nation states and do believe that professionals of the future should be internationalists at heart, not just by work experience, but also by their belief, their openness and their willingness of learn. I shall take myself through that exercise conciously.

I am also adding two supplementary objectives to my list now. One is improving my health, which must start with reducing my weight to some extent. I am not obese, but bordering overweight, and I guess I shall need to reduce about 10 kgs and get back in shape pretty soon. Travel wrecks havoc on my health, but this time around, I am conscious and have started working on this. I have already seen some movements on my weight scale, I moved down two kilograms after a long time and would want to stick to this. I am also trying to get back in shape, though the local Virgin Active's £65 a month price tag is way too much and I am better off trying to run a couple of miles everyday. We are supposed to have the warmest and sunniest summer for a while, which is definitely helpful, and I shall give the gym a miss and try out something myself.

Also on my list is working towards what I do post-August. I have kept myself open so far, but I definitely know that I don't want to continue with my current job/ employers. There is no problem as much and I do like them as people. But I have this feeling that they treat all employees as RESOURCES - just that, a typical anglo-saxon thing - and this does not make me comfortable working with them. I don't think they are in a position to build a people-centric organization and by implication, they will never be able to run an excellent service business. I am better off going away after settling the business in the stable path, which by itself is a bit of work, and pursue my objective to build a 'great' organization outside.

But then, building up what I do next will require some work. I have thought about going to the university for a year, which I may still do. I think I need the discipline of thinking with greater clarity, and stepping back and acquiring knowledge will give me that. There are lots of people who are trying to discourage me on this one, and I am aware that this is no easy task. But then, so far, I am quite committed to it and will start working on this in next few days.

I obviously also need to have some economic activities with the studies, and I am looking at a portfolio of work - training, consulting, selling assignments - that I can do. I have a number of opportunities to pursue in India, but I should guard aganist committing to things that I can not do. So, interesting time ahead, indeed.

Tuesday, April 28, 2009

Day 3: Thinking about immigration

I had a relatively productive Monday, which is always good for a crucial week. I have noticed that I work in bursts and a good start helps - as I would have covered a lot of ground by that. I had a long awaited meeting yesterday and if I can follow-up on the ideas and execute things, this meeting will help me a lot to restructure our operations in India. Critically, I have realized that we have to reposition our English offering in India, and offer this more as a skill to complement other objectives - jobs, immigration, professional studies - rather than by itself. We are working to create an international employability course, which covers the critical employment skills, but then we need to do more. I have in mind the international accounting qualifications, which is quite popular among Indian graduates, but given that the accounting training is always tricky, one has to steer clear of regulatory roadblocks to offer such training. Yesterday's meeting will help me to create an interesting International Accounting Qualification offering through our centres, and dovetail this with an assisted learning English Language course. I do think this is a much better strategy than trying to push a premium English course in the Indian market.

While I am saying this, I am getting convinced that the general impression that everything to be offered in India has to be cut price is misplaced. India has two markets - one urban and for the upwardly mobile, and the offerings here better be aspirational, and the other mass market, and here the value pricing come into effect. The aspirational pricing in India, as i notice, is not very different from what it will be in developed market - a Chloe handbag sells in India at £300 upward - but the concept of value pricing, I agree, operates at a very different level. That's understandable, as the huge multiplier effect comes in when one looks at the value market. My one strategic mistake in planning for our project was that we wanted to be mass market and operate at the value price level, despite our obvious limitations, high input costs and high overheads, to achieve this. To be fair, my assumption was that we shall invest a significant amount and create a disruptive offering - a premium quality course at a reasonable price - which did not happen due to recession and other reasons. And, when it did become clear to me that we are unlikely to get more money and we have to correct the positioning ourselves, I had this fright of change, I did not know how to do it for a good many months. It is only now that I have realized that we need to completely reinvent ourselves - reformulate our offering as a Global Skills training organization rather than an English Language training organization - and get started afresh.

Hindsight, indeed, is an exact science, though it is not useful. However, I do think these reflections are helpful in doing my job well and I am feeling happy that I could work on these ideas over last few weeks and progress a bit. I am just hoping that I shall be able to continue to work on my three goals with focus and effectively. What I dread now is travel - it is one thing that disrupts me enormously. And, of all my travel obligations, I dread the travel to Northern Ireland most, days that I spend almost without any productive work and end up disrupting my whole schedule. This also tells me one thing that I was told a long time back - I do work better alone, with minimal supervision, than anyone standing over my shoulder. This I have seen when working in Bangladesh, away from the HQ, and in the contrast of my experiences when I was expected to work out of Kolkata, sitting with my senior colleagues, on the same territory. This makes me increasingly uncomfortable with my professed goal of a corporate job, and by implication, makes me question the wisdom of investing in an MBA.

I have also started reading an interesting book - Immigrants: Your Country Needs Them - by Phillippe Legrain. The central argument of the book I already know, but it was interesting polemic against the immigraphobes in the Western countries. The other concept I have started developing is that all this talk about globalization eradicating poverty is essentially a rich country, patronizing way of looking at the poor people: We are saying that with globalization [read the unrestricted movement of capital] that poor farmer's son in Somalia will make more money than his father and will live a happier, healthier life. But the true promise of globalization is unlocking the global talent - why can't the son of the Somali farmer be the biggest newspaper magnet in New York - and this can only be unlocked if the global movement of capital is matched by loosening restrictions on the global movement of labour. This obviously has strong opposition - not just the privileged who wants to protect themselves and create an one-dimensional globalization; but also the racist who sees the world in white, black and brown [and possibly Yellow] and the leftists, sadly, who oppose globalization in general and often forgets that this is pronounced inevitable by their own prophet. I have come to believe that the human civilization is indeed guided by an invisible hand, a natural equilibrium beyond the control of any conscious policy, and the coming crisis of the partial globalization will push us towards a more open world. Yes, not before that current parochial nation states reach their existential crisis - but it will happen.

One can figure, from the way I write, that I sincerely believe that this will happen. I do. Despite my very provincial background, I had this great opportunity to have a first hand view of globalization and its attendant social mores. I studied economics and history at the University, and then went on to learn Computers and work in an Email services company in early 90's, the forebearer of ISPs. I saw Internet breaking in like an avalanche and threatening to put me out job. Then, I worked in computer training, unknowingly playing my part in the greatest skills revolution in the world, when millions of small city graduates equipped themselves with a computer diploma joined the global workforce and powered globalization with their skills and talents. Thereon, I immigrated myself, going through the chores of shifting materials in a shop and staying in a poor-house, and then started working with middle aged, privileged public sector executives in Britain to change the way they learn and disseminate knowledge, through e-learning and knowledge management system. And, finally, I see myself setting up this business, with presence in South and South East Asia, Middle East and Eastern Europe, and travelling 20 days a month, all to create a global level playing field for skills, bridging culture gaps, teaching English language and recruiting staff from all around the world for our clients. If I don't believe in complete globalization, I can not do my job and can not be myself.

I know that I have to come to this: What I do next. I do think an opportunity will emerge for me to keep doing a similar thing, working on the fault lines of globalization and facilitating the global movement of talents and skills. I must say that I am not planning to be a human trafficker and people smuggler; anything which is legal and above board will do for me. I am already working on building a boutique cross-culture training offering for Asian clients and seeking partnerships with people and companies in that area. I shall do this even if I go to university - I see such tremendous possibility in this. This is another dimension of my journey, though this may pick up only a little while later, which I shall keep reporting in this blog.

Monday, April 27, 2009

Day 2: On A Monday

I had a rather lazy Sunday, despite planning to do a number of things beforehand. I finally heard from India - a meeting I was trying to set up for selling a particular territory franchise will finally happen between 30Th and 5Th - which effectively means that I am travelling next weekend. The prospect of immediate travel made me focus on household chores, which I never get to do. I love travel, I still do - but I think I try to do too much these days in travelling, saving money on flights and hotels and compressing my itinerary so much that I don't have to spend much money. This was okay about 20 years back, when I was 20, but now it is really catching up with me.

I did read, and find that exercise enlightening. I am reading Geert Hofstede's Culture and Organizations, a short paperback synthesis of his seminal Culture's Consequences. This is an extremely interesting read as I learn about the methodologies behind the derivation of Hofstede's dimensions. I also read and reflected upon the five dimensions of culture - Power Distance or Deference to Authority, Collectivism vs Individualism, Masculinity vs Femininity, Uncertainty Avoidance and the new dimension, Long Term vs Short Term orientation. I could contrast my experiences of Britain and India, and found many of the observations as true as it could be. Of course, Hofstede talks about regional variations under an overarching national culture, though I do think it is the job of Indians to explore their regional cultures further and work out suitable strategies in the organization for recruitment and people development.

Hofstede's book was useful to me for another reason. For past two years, I have been trying to adopt an English Language curricula for India. The curricula we use is very European, though I like its approach and it completeness. However, I could now see - from Hofstede's framework - where a possible issue could arise. India, a high Power Distance culture, has a different culture in the classroom, where the tutor leads the agenda and what gets transferred is supposed to be teachers' wisdom, not impersonal truth. The English curricula we have is fundamentally an assisted curricula, where the student is supposed to take the lead, ideally suited for a Low Power Distance classroom. As I have found out before, it is hard to shift the responsibility of learning on the students. Further, as the book tells me and I reflect, we must first get our tutors out of Guru mode to achieve what we are planning to achieve. This is a task for us, and I am sure this will take connecting up with tutors and bringing them on board. We have so far done very little on this and some work must go in here before I move on. This whole reflection/ thinking gave me a fresh new perspective and a new to-do item on my already overcrowded list.

This thought also leads me to think afresh about how we do training in the Philippines, which is a high power distance culture and we have so far been trying to promote an assisted learning course. Also, Poland, which we are just about getting started on - though this is an European country and not covered in Hofstede's study, one can presume its long agrarian history and years under socialist rule will have an influence, and it will maintain its high power distance culture at least in the classrooms.

I have almost finished five years in the UK now and it is time for me to go ahead to apply for an independent leave to remain. Which really means that I have to go ahead and give an exam - which covers British life, customs and everything else - and I must do it in the next few days.

Someone also pointed out that I have shifted my goals and execution modes slightly since the beginning of April. I had set up a three month plan just after coming back to UK in the beginning of the month, but since then shifted my goals and started this new 100 day agenda. Indeed, lots of things have changed since. First, now that I have taste of what working in Kolkata is like, I wanted to live a little while longer in the UK and sort out what I do, rather than returning soon and without a clear plan.

Second, I am definitely leaving by the end of August, as I have resolved to study for an year after that. This makes my job at hand quite urgent, as I want to restructure the whole international operation in a network of self-sustaining partners, who will have enough margins and capability to run these local businesses. This will be quite a shift from my initial plan of a centrally controlled franchise network. This will not only mean that I develop a profitable business model for these partners - I have to train these business partners and transfer as much know-how as possible for them to pull this by themselves.

Third, of course, I shall now put my dissertation work on fast track. I have time till 15Th September, but I have not done much so far, and I must get this done and dusted before I leave this current employment and start a new life. So, that gives me ideally till 31st July, because I am sure I shall subject to quite a gruelling handover, just because there is no clear line of succession set up despite my advance notice.

Sunday, April 26, 2009

A Final 100 Days : Day 1

I love 100 days. They focus my mind. I am somehow used to this number 100 - they are sufficiently long to appeal to my long term nature, but not very long to forget about what I need to do. I have done this before - and the 100 days go a long way driving my transformation. And, transform I must, I keep finding my inadequacies, and must change to make my life more meaningful.

So, a fresh start yet again. This 100 days will take me to the 3rd of August. By then, I shall be almost out of English training project and work on whatever I do next. At this time, I am very keen to spending a year in the university, fine tuning my marketing knowledge and skills. Provided I can find the money, of course. Besides, I am trying to evangelize at least one business in India. And, trying to find myself some employment which keeps me going indeed.

Within these 100 days, I also have to finish my dissertation for my MA. I haven't done much, but I know I would love to do the work. Sort numerous things out related to my stay in England, small stuff but ones I ignored for months and can not keep that way any longer. I possibly have to move my house, to wherever I go to for Uni. This looks busy already.

Besides, I have to travel. I can see Poland, Dubai, Philippines, India, Bangladesh - all on the agenda. I wish to leave the project with whatever I promised, a good spread. I shall surely give it one final shot.

I have lived with this English training project for such a long time now, it will be hard to give it up. But I must give it up. Bottom of my heart, I know that this isn't going to work in the current format. Yes, I am a problem too - the very fact that I am too proud to complain and too trusting - but then there are other problems outside my control. One almost expects me to be a gladiator to fight my corner in the business, but I have too many fights to fight at the same time and thought I could do with one less.

I tried. I had this idea how an English training business can work in India. And, in the Philippines. These countries speak English, indeed - or so we think. They are divided countries. The people we meet speak English, sure, what else would you expect of a person who got invited in the embassy reception? But then they are not the whole country. They are not even the majority - they are still a tiny tiny minority. English serves as the gatekeeper of privilege in these countries. You get invited if you speak English, not if you don't.

My idea was to break this gate. Democratize the access to English. Turn this - from a language of privilege - to a language of possibility. I chose this particular English training method because this is one of the smartest methods I have seen around. This embedded technology, which I loved. I could see how this could be delivered low cost. I loved the fact that this is a bi-lingual method, though could never explore that in full potential till date.

Oh yes, I was told that 'Indian' learners can not take this training because they are particularly lazy and they need to be taught. By a teacher, of course. She did not know how patronizing I find that stance. That is exactly the stance of privilege that I so despise. Lazy? I think the aspiring Indian middle classes are one of the most hardworking people we can find anywhere in the world. But they are respectful - they won't break the gate if you try to protect it - and that's the problem. What we needed to do is to sit down with them and say - look Pal you can do it much better than anyone and you are going to do it yourself - and start the transformation.

Though, I was obviously wrong about the business model. Every business is what its investor wants to make of it. I came with a huge baggage, as I worked on this concept many months before I got paid to do it, and I came with this huge goal in mind. But, then, I knew this is the only way to do it. I saw the transformation computer training companies brought about in India when they took computer training to the villages and made it universal. I was sold about it, wanted to build a similar model. I did know that it will take efforts and investment, and I was so excited that I did not notice that the investors are saying that they are in it for money. If I was taking them as VCs, I would not have taken them. But then, this was their business and I was brought in to run this business.

Instead of complaining, though, I tried everything else. I tried cross-subsidization through premium rate corporate training. I tried haggling the supply terms with equally obstinate and unrealistic partners. I tried pushing people to make fairly unreasonable sacrifices. Time has not come yet to chronicle my mistakes, but there was one big one - I was too forgiving at times. I know now. If you have a dream, you need to protect it; be nasty if you need to be. I was never nasty. I was snipped at, continuously, the usual corporate way. But I mostly ignored it and allowed that to happen, accepting the criticism when it was correct. It does not work that way in India, I forgot. Besides, most of the criticism was plain crap, and I should have called it long back. The other big mistake was that I was too forgiving, made too many adjustments. That did not help either. Yes, I got it now - one of the key reasons I failed to achieve what I wanted to do was that I did not do enough to protect it.

But, then, I must go now. Because even if I strive to correct my side of the deal, I have understood that this project is never going to work because of its stakeholders. They are in it for money. I see nothing wrong in that. Just that you don't get into a business you don't know about just for money. Money is a rather obvious goal, and one must have a clear idea what else made them interested in the business. And, frankly, I have been asking this question for many many months, and never got a better answer.

So, anyway, this is Day 1 of my journey. In the next 100 days, I transform myself and the business I run and make this ready for handing over. The motto for these days is clear for me - never leave for tomorrow what you can do today. This was a big problem for me indeed. I was stuck in a waiting mode, primarily infused by the British government's requirement of five years of waiting time before I get my Indefinite Leave to Remain. But then I know that I am wasting my time and I can not do it any longer. So, there I start again - in a new 100 day journey!

Saturday, April 25, 2009

Culture Training in India

I am a sort of a culture enthusiast, or so I have become in last few years. The reason is rather obvious: I chose to live in a different country and the culture issues affect my daily life. This exposure allowed me to explore the academic literature on culture at work, and what I found both impressed and scared me. I have been selling internationally for many years now but have never known the nuances of various cultures. And, this is not just about choosing the right word or behaving properly: I understood that this is about the whole way of thinking and behaving.

With many Indian companies going global now, and more dealing, or attempting to deal with, International clients and their customers, this must be a huge issue to be tackled. Indeed, I have seen this gem of a movie called Outsourced, which takes one through the life of an American manager forced to live in India. While this fictional rendering is of enormous value, the practical aspects of culture at work needs to be explored and managed, and I have seen a significant opportunity in this gap.

Let me explain. I have been involved in building an English Language training business in India. Leaving aside the usual challenges of building a business, the key issue we had to confront is why do we need an English Language training business in India at all, where the business language is already English. We obviously looked at the rapidly expanding market in semi-urban and rural areas, and tried to tackle that aspect - build an English training business that will democratize the access to the Language and make English the language of possibilities, not just privilege. Noble aim, but this obviously needed a long term business commitment and significant investment in building up the business, which is not an easy task in the middle of a global downturn. While I remained enthralled in my initial vision, the practical issues of running a business cropped up. Indeed, our business model was not consistent with the goal that I had set for ourselves - we were a premium provider and not geared to mass market at all. Eventually, I made peace with that position and aligned the business to commercial realities, creating a network of franchisees in other Indian cities to take this forward.

However, during the time I wanted to still go forward with English for mass market model, I had to work with a model of cross-subsidization, where we create in-company training packages at a premium and subsidize the retail training business from this earning. I was not very confident that this can work; but, it did somehow work out, and allowed us to run the business based on corporate revenue for a good 12 to 18 months. Indeed, this was an interesting, though unplanned exposure, which allowed me to look at the business realities of different Indian organizations - banks, software companies, insurance companies, outsourcing entities, construction organizations - even if this was done from recollections of account executives and trainers who talked to clients on a daily basis. This was enlightening at a personal level, allowing me to assess various opportunities in the corporate training market outside the English language training.

What I understood, indeed, one of the big gap areas is cross-culture training. This is crucial, and the reasons are evident. But we have very little available in the market offering. Most culture training is mechanistic and attempts to cram the learner with a set of rules of behaviour, which indeed conflicts with the basic purpose of such training - creating a level of openness - and establishes cultural stereotypes. Besides, the training sessions are often led by individual trainers who have worked or lived abroad, or an expat. The structure of training sessions are often open-ended and mostly anecdotal. When an expat is involved, training sessions often turn into India seen through Western eyes, and regardless of the skills of the trainer, learners develop a stereotype of themselves.

On a personal note, I see a business opportunity here. I am currently helping a few companies develop a set of offerings for this requirement and I shall sure write about these efforts if something come to fruition. However, there is one interesting position that I mentioned a while earlier - that culture training sessions often force us to develop stereotypes of ourselves - and I would want to spend a minute on that statement here.

I have noted this whole body of literature on Indian culture, in quotes, which is about how Indians think and behave. Most culture training assumes that we, Indians, have a common way of thinking and behaving. Obviously, an Indian will tell you that it is grossly wrong, and even without regional bias or any value judgement, it will be plain to see. However, I have seen this notion of an uniform Indian culture prevalent in Western literature, and indeed, in Indian and Western executive management [I am always reminded how one of my colleagues keep telling me that there is a particular way Indians speak, and while I know that is wrong, I introduced her to Craig Storti's Speaking Of India, a fine book but a prime example of western stereotyping].

I think this notion of an uniform Indian culture is completely off the mark. Any large and diverse country has cultural variations within itself - hear how different Scots are from the English and how American mid-west is the god's own country - and in India, such differences are magnified by four dimensions of diversity, region, language, caste and class. I kept reminding our business partners that while from outside, India represents a huge multiplier effect - a nation of a billion people and a 300 million strong middle class - once you have set foot in this country, you see a game of divisions, different variations in everything.

In fact, I tend to see the Western stereotype of Indian business culture coming directly from Thomas Babington Macaulay, who sought to create a class of Indians, who are brown in colour but English in thought and persuasion. Often, this India is mistaken for the whole of India. Yes, indeed, modern Indian education and legal system remains deeply influenced by the colonial era thinking and codes, but one tends to forget that Indian entrepreneurship flourished in spite of the British and it maintains its distinctive traits even to this day. Besides, understanding the cultural nuances of the village India will become increasingly important as millions of people are migrating today from Indian villages to the cities and attempting to enter the global service industry. They may manage to pick up an accent and start calling apartments flats, but they come to table with deep cultural ethos and it is a stupid mistake to paint the whole body of Indians with the same brush. Indian regions represent tremendous variations too - with the north and eastern Gangetic plain representing a paddy farming culture not unlike southern china's, and the Western Indian regions representing a hunter-gatherer culture. Interestingly, Indian democracy and somewhat the caste system, which tells us to be comfortable in leaving the job of governance to others, have sustained the country with such enormous variations.

Such reflection prompts me to actively search for activities and resources to understand the Indian culture deeper, with its attendant variations, and create an effective system to introduce the cross-cultural thinking to Indian executives and business students. While I indeed see this as a separate business for operational reasons [and the fact that the goals and the structure of the business I run is quite different from what it should be for the culture training business], this is closely linked with an executive's ability to communicate effectively, and therefore, need to be weaved into language and general business communication training efforts. Some of my efforts in the coming days will be channelled to create a detailed plan for this undertaking and I indeed see myself evangelizing this business even when I engage myself in a more academic pursuit.

Friday, April 24, 2009

India's Culture : 'Articulation is mistaken for Accomplishment'

Narayana Murthy makes an interesting point in an interview he recently gave - he talks about the culture of execution in India and says our Brahminical Tradition undermines the culture of getting things done.

I shall not repeat his words here, but would rather write a personal reflection.

I know this observation is very true. Everyone living abroad knows this actually, when you watch how many things you are expected to do by yourself. When I came to Britain, I was soon struggling because I never fixed the electricity at home, never cooked a proper meal and never fixed the water supply before. Couple of years down the line, I had this awkward idea of creating a DIY website for India and I was laughed at, and eventually discouraged, because 'no one who would buy things on the Internet would ever want to do the jobs themselves'.

I had the same issue when I was setting up operations in India in my current job. The first things I brought for the office was an electric kettle and a toaster. I did have this idea that I am creating this workplace where people will spend long hours and will often have to prepare their own meals. However, my action shocked my colleagues - they never thought that any executive would want to make their own tea and toast - and to this day, those two items remind me of the misconceptions I had.

Mr. Murthy, an astute observer, connects this to the Brahminical traditions of our society. He is right - because we had a system of division of labour so deeply ingrained in us that all work that requires physical labour got relegated to certain 'classes' of people. Besides, because the caste system was not just a system of division of labour, but also denoted a certain hierarchy, we assigned the same hierarchy to the type of work we do. Naturally, the work of thinking and seeking meaning in life got the highest grade - as this was supposed to be the realm of the Brahmins - and the work requiring physical labour got relegated to the lowest rung of work. [For the uninitiated, the middle two tiers involved Warring Classes and Businessmen]

This gets really interesting here. We are indeed breaking down the caste barriers now and democratizing the access to professions. India indeed has instituted the World's biggest affirmative action programme and we have expanded the access to education and jobs to everyone. However, while we were busy breaking down the barriers of the caste, we silently kept reaffirming the concept of caste, of high and low work.

Of course, I understand that physical work is dated, and we are in a conceptual age now. Many Indian scholars see reaffirmation of the concepts of caste system in the whole body of thinking about the information age, and the necessity to move to conceptual work. But then someone has move materials, build buildings, sow the seeds and clean the roads. The problem of caste system is that by putting the division of labour at the heart of our social structure, we have delinked the physical and thinking work. We have created two universes, and while there are famous exceptions, we don't really expect someone who works in a restaurant during the day to study mathematics at night. [Also, remember the cinematic moment of Slumdog Millionaire, when the quiz show host, Prem, makes a mockery of the protagonist's, Jamal's, profession - Chaiwala, the teaboy!]

The theory of conceptual age is not about some people doing thinking work, but it is that all work will require thinking and creativity. It is, therefore, diametrically opposite to what Manu would have wanted to do. He does not get the blame - possibly this was the most practical thing to do at his time - but by codifying this and clinging to these codes even to this day, our Hindu scholars are deluding themselves and ruining our chances of development.

I keep coming back to this. I am Indian, but while I travel in India, I find an offensive culture of privilege. It feels as if the guy serving at a restaurant, selling newspapers or guarding buildings deserves no respect. We expect them to salute us, but hardly recognize them when they do so. And, I am sure I am not alone in this outrage. I have seen this reflected in White Tiger, where the driver recounts his life and journey through abuse and disrespect; you see the same thing in Slumdog Millionaire. I have noticed this and am so offended by it that I have now decided to measure, and like or dislike, people based on how much respect they show to others. I remember seeing this advise on one of the Hindi movies, where the girl was told how to judge the person she is dating - by checking out how he behaves with the waiters! Very true indeed.

Mr. Murthy makes the point that this culture undermines execution, and makes us a nation of talkers rather than doers. Any theorist of conceptual age will tell you that this is not a good thing - we need to start doing, even if that means taking up the pen for a would-be writer. I framed in my mind that this will be India's limit to growth - the untouched millions of people who we want to leave out of the prosperity circle by design - and this way, the idea of India will never be materialized.

India had a supposedly peaceful transition into independence [That statement discounts a few million dead in partition, but then who counts those wretched souls in India anyway!] We did not have wars, chaos and famine like China. We did not have a cultural revolution - we did not challenge the rules we were governed by all these years and we have never challenged those those who governed us. We saw our breaking point in history with Nehru's sweet dream-making or in the financial engineering of Dr. Manmohan Singh and his colleagues. We have never realized we must absorb the pains to break with the past to have a real chance to build a successful future. We still have an India which is 'going on' - may be only extreme chaos, the Lord Shiva, the Hindu God of Destruction, can deliver us from our mediocrity.

Rubina: Our Moment of Shame

Rubina Ali is in news. Of course, she is - she was the girl child in Slumdog Millionnaire. That movie which made news, won Oscar and infuriated some of our chatteretti. I recall reading a stunningly insensitive piece written by Arindam Chaudhuri, the education entrepreneur, media owner, movie producer and aspiring politician, somewhat the pinup boy of the shining entrepreneurial India. There, he argued, that Slumdog Millionnaire is a shame, it shows India in a bad light - something the Westerners still love to do - and undermines India's progress.

I have read chat room postings - this is not real India - and followed the blog chatter accusing non-residents like me being insensitive to the shame of the slums. I obviously made no secret that I liked the movie immensely, as I did like The White Tiger, Arvind Adiga's Booker Winning effort, both of which were united in celebrating the spirit of the underdog. I did think that the real progress in India is being made as Jamal becomes the millionaire. I thought these recent efforts were celebrating the idea of India truly - the dream of building a modern nation on the basis of progress and fairness.

I know why some people felt angry. Because they are the children of privilege. They are Old India. They belong to the pre-independence mindset in India, where if you spoke English and came from the city, you could afford to deny that the rest of the countrymen were 'real'. I said this before, and say it now, that Gandhi's genius was to turn the heat on this elitism and bring the 'real' India to the political centre stage. He fought his wars against these Babus and such denial first, before he went on face the British rulers, who were living in a cozy alliance with these privileged agents. That was the start of our freedom struggle.

Unfortunately, we thought all that was over in August 1947. It is sure not over if we don't think those slums are for real. It is sure not over if we feel embarrassed that someone dared to write about the slum boys and make movies out of it. That attitude - these are our slums not for public viewing - is both delusional and self-defeating.

If that was not shame enough, now this story about Rubina Ali should make us ashamed. She was being sold by her father, which hit the international news. News of The World reported in Britain that there was a huge fight between her real mother, who left her at the age of two, and her step-mom, who raised her so far, regarding the share of the proceeds. The photos are everywhere. Real India or not, that's what you could see on BBC, on the newspapers and on the magazines last few days.

Oh yes, this is a real progress that the fate of a slum children in Mumbai is being discussed on International Media. I know I shall get slated for writing about this, because I live abroad and what have I done for India so far. And, I am sure the government will make some right noises and the Indian media will largely ignore the story, and the management gurus like Mr. Chaudhuri will soon go back to the cocoon of denial. Rubina may have been saved from being sold, but there will be many more girls - just like the fictional ones in Slumdog Millionnaire - will get sold without anyone doing anything about it.

And, yes, we shall continue to have those conferences and write those white papers about the enormous economic opportunity in India. We shall elect a government which will line up for foreign investment and foreign tourism, and make the nice ads depicting nicer parts of India. It is as if we have decided that we can live without acknowledging the 500 million people in India who live below the poverty line.

This is real real shame. Not just seeing Rubina being sold on English Newspapers, but that we have let this happen even after all of us have seen the movie and talked about this endlessly. It tells us that we don't care and we don't. We don't get angry, we do not feel the shame. We have built such a superficial society of privileges that nothing matters anymore.

Thursday, April 23, 2009

Abdicating to Taliban

Nations are ideas. We try to fashion them as territories. But how can a river, a mountain ridge or sometimes an imaginary line in the middle of a field can explain the wide division in the lives, thoughts and futures of the people who live on different sides? Nations are not the people too. Indeed, people build nations and become its body. But the soul of the nation is an idea: People come together on an idea to build a nation.

While that's what a modern nation is - an idea - and that way exceptionalism is not an American exception, very few nations are as completely defined by an idea as Pakistan. There was hardly any political, geographic or military rationale of Pakistan other than the idea of an Islamic homeland in South Asia. [In that way, the ideological brother of Pakistan in the family of nations is Israel] This, abated by the short term political calculations of some backroom colonialists, created a modern state which must be solely sustained on that singular idea.

Religion has enormous value in our lives. Modern lives. There is an increasing gap in our lives - created and left open by 24x7 material pursuit - which must be filled by religion. However, religion has not proved to be as useful in filling the idea gaps in a modern state. Its history has mostly been divisive. Religion as the basis of a state needed the state to impose a religious identity - primarily and suppressively - on all its citizens, and that essentially contradicts, and undermines, and competes with, the idea and the identity of the nation that must be built. As we see now, Pakistan struggled to reconcile this essential flaw in its core idea.

Let's go back to history and see where the first 'existential' threat to Pakistan came from. It came from a rather simple decision to adopt Urdu as its state language. It was logical, somewhat. The language spoken in the capital of Pakistan, Rawalpindi, was Urdu. Urdu was an Indian language [the court language of the North Indian state of Awadh], which was spoken by the elite mussalmans all over the subcontinent. It was written in Arabic script. It was consistent with the idea of Pakistan as the homeland of South Asian Muslims.

The only problem was over half the people in what was then Pakistan did not speak any Urdu. These were Bengali farmers in East Pakistan, who were numerous and fought as much for the idea of Pakistan. For the Bengali farmers, the idea of Pakistan meant freedom - from serfdom to the Hindu Landlords - but it did not mean giving up their language. Of course, the Bengali middle class in East Pakistan took the lead, and it became the Bhasa Andolon, or the Language movement. The Pakistani government eventually backtracked [though after making numerous, essentially stupid suggestions, including the adoption of Arabic script in Bengali language, because the script currently used to write Bengali is derived from Sanskrit, language of Hindu scriptures]. But they created a chasm which was never bridged again, and finally the East Pakistan ceded from the union after a bloody struggle and became the independent nation of Bangladesh.

From that day, the idea of Pakistan as freedom, for millions of Muslims in South Asia, was irretrievably lost. It returned to the core idea - a Muslim homeland - and struggled with it. It was surely not the Muslim homeland in South Asia when there are more Muslims in India, living with dignity and pride [at least till we let Gujrat riots happen in 2002]. It is not a Muslim homeland when there are Muslims living in Bangladesh under a different flag and a different nationhood. It is just one of those places on earth who has to discover what it stands for.

Kashmir was a good thing to stand for. This Muslim majority Indian state is reeling under a privileged Hindu landowner class, and Pakistan, for a majority of Kashmiris, meant freedom. Afghanistan was a good thing to exist for, because one needed to throw out the godless Russian army and their agents for the freedom-loving Afghans. But, inside Pakistan, a great debate raged, often violently, whether freedom is indeed the central idea of Pakistan. It seemed not, as there was no freedom for Pakistanis themselves, and the state thrived on privileges of power and corruption.

So, it was easier for Pakistani rulers to define the state in the same old Islamic line. They had an Islamic homeland, and they built an Islamic bomb. It pursued Jihad in Kashmir and Afghanistan, a struggle to establish Islam, not to free those people from the tyranny of the privileged. Over four decades after Bangladesh, Pakistani rulers continued to chase the mirage of an Islamic state.

Agreed, Islam is one of the more political of the religions. But no modern state can be Islamic, as we live in a global world, and even if you don't subscribe to protestant practises, you need to reconcile with it. One needs prosperity and progress, and jobs, and Pakistan isn't any oil rich desert state which can keep bribing its 150 million people from thinking. So, the idea of the modern state and the core idea of the nation was scheduled to collide, as it did now.

Pakistan is a failed state. Ironically among failed states, it is not about government efficiency. It is that the idea of the state did not work. Even if we find an inspirational leader today [which is unlikely, given the web of corruption and privilege], Pakistan is difficult to fix. Because, there is no clear answer to what Pakistan stands for.

Hillary Clinton said - Pakistani government is abdicating to Taliban. She did not notice, they did that long time back. What do you think of a government which harboured criminals for three decades, discriminated and terrorized its own citizens, fired lawyers en mass, and built a secret service trained to recruit and equip and send terrorists to other countries? Yes, it kept the veil of a modern state, but indulged in anti-modern practises while the world watched. In the name of geopolitics, just like those old backroom colonialists, the policymakers in Western Capitals indulged in their little secret game - keep Pakistan burning.

So, Pakistan is burning now. World's problem is that it is not a Sudan or a Chad or a Congo, which can be forgotten. This is a nuclear state, right in the middle of the world's most happening region. But, then, this fix has to start from the idea of Pakistan. And, as far as we see, the world has very little to offer there.

Time to Re-examine!

As I think about the reality of doing a year in the university, one thing surely scares me -the prospect of writing examinations. I was always bad at exams. I have done much better in class but disappointed my tutors in examinations. Truth be told - that had nothing to do with my knowledge or my ability to comprehend. I was not disciplined, an adolescent habit which I corrected since; and I hated doing anything because I have to, a character trait which remained.

Whatever is my personal predicament, I think exams are meaningless, a very last century thing. Why make people memorize and write things when everything can be googled? I was reading Howard Gardner [Five Minds for the Future] and he makes the point that memorizing comes from the age people did not have enough books. Because it was costly to have a complete work of Shakespeare at home, one would learn to recite him from memory. Because you could not afford to buy an Encyclopedia Britannica, encyclopedic memory was at a premium. But, no longer!

Today, the problem is not the scarcity of information, but the overload of it. So, the critical skill is not to remember the date of treaty precisely, but the ability to spot a trend, often by synthesizing diverse information from different disciplines. The ability to shift through information, and to discard pieces which one does not know, is more important than that of collecting it.

As I say this, I know I am a book lover, and I keep buying books. I maintain a decent library, which is one of the big problems in my mobile lifestyle. But buying books are different from collecting information in your head. Besides, buying books is still a necessity, even in the age of Google, because while the information is becoming freely available, the knowledge required to analyze, synthesize and use that information remains mostly in the printed form. The whole discussion about books will soon go the way newspapers are going misses the point in this regard: Newspapers are often purveyors of information and entertainment, but books delve in a different area altogether.

But this is a discussion for another day. Coming back to the issue of examinations, we seem to be glued back in the past, which is not surprising, and keen to focus on skills in our learners which are no longer required. Oh yes, I know my mistake - this talk is so elitist that it overlooks the fact that most of the world's population do not have access to information as easily as we do - but then the solution is not to perpetuate an inherently inefficient practise; the solution is to make information more readily available.

For example, I watch with interest the work Room To Read is doing in developing countries. I have read John Wood's very readable Leaving Microsoft to Change The World and experienced first hand their work in some of Indian states. They are setting up schools, libraries and computer labs in remote village schools and that will change the information landscape of the world. I know one Room to Read is not enough, but then they will possibly inspire Entrepreneurs and Community Leaders across the world to do similar things.


We have come a long way from Gutenberg to Google. I am currently doing a graduate programme in Marketing in the Birmingham City University and there is no exam in the programme at all. I have already done two assignments - one case study and an essay on a given topic - and currently struggling with the dissertation. My problem is not scarcity of information as I say, the electronic libraries are more than enough to inundate me with all that I needed to know, but to synthesize the available information in the context of my work and use that body of knowledge to find answers to my research question. I do find this a far more useful way of putting my time and I do think I do learn a lot more this way than I ever would have preparing for an examination.

I do think we are coming at an inflection point in education. The technologies of education have developed enough, and a general consensus to use technology in education has now been established. The way education was provided has changed, including its financial model. Education is becoming increasingly global and countries/ nations are losing control over learning very quickly. New leadership in education is emerging in various countries and all the 'usual' practises are being questioned and challenged. This is indeed the time when we relook at our examinations - they need to become far more relevant and far less daunting to allow a learner to derive value other than the pieces of paper they are invariably attached to.

Monday, April 20, 2009

Sun & Oracle : Over to Cloud Computing Then?

Oracle has made the announcement to acquire Sun, for $7.4 billion dollars in Cash. This is a bit of news. Obviously what dominated the tech circles for last few weeks is the possibility of a Sun-IBM merger, which made sense technology-wise. Till Sun turned IBM down, it looked like a done deal, and it is now emerging why Sun was so confident in the first place.

Hopefully, this deal will go through. After the two failed headline mergers, that of Microsoft and Yahoo and of Sun and IBM, one would wait to see this through before making any noises. But, the two companies seem better fit than the other pairs here. Sun and Oracle worked side by side in many projects, and I am sure they are defined the common enemy above everything else. Besides, Oracle and Larry Ellison seem particularly adept at pulling through successful mergers. Oracle has managed to pull through a particularly bitter acquisition battle with Peoplesoft, and followed this up with a successful acquisition of Siebel, both of which sounded difficult given the competing nature of the companies.

There is already speculation in the media circles whether the Oracle Sun merger will mean the final integration of Hardware and Software, where the software of enterprise scale will finally come bundled with truely integrated hardware and operating system. An old dream, like the Hot Iron, when these two companies tried to work together with others to create a similar solution.

But this is so dated already. Today's day and age is not really about integration, it is about independence: software unrelated to hardware. In fact, I was reading about the new policy at companies like Cisco and Dell which allow their employees to choose their own work machine, because technologies like Virtualization allows everyone to use similar software, regardless of their workstations. So, would the things like Cloud computing at a grander scale. We almost know that Oracle looks at the success of salesforce.com with concern, and wants to get there. Google is aggressively positioning itself for Cloud Computing and so did Microsoft when it tried to gobble Yahoo!.

I think this is the subtext of this Oracle/Sun marriage - it is not about integration, but about independence of hardware and software, and the final letting go of software. Microsoft-Yahoo could have delivered this, but this is it then. Sun has many interesting technology properties, but like all marriages, only the two knows what's most alluring. And, like all those poor curious souls, we must take a guess - my vote will go to Java and the open technologies Sun has in store but could not take it forward. It may even be Linux, a neighbouring property, which both Sun and Oracle had played with, and it may emerge to become the point of focus.

I say this because I think there are enormous risks for Oracle in this acquisition, and they come from Sun's hardware. Oracle has built a tight relationship with numerous hardware vendors, including IBM and Dell, to promote its enterprise software solutions. It will indeed be challenge for Oracle to become a competitor to these guys as well as depend on them to sell the software.

So, exciting times ahead then! This merger looks easier to put through the regulators than IBM-Sun, and then there is extraordinary skills of Larry Ellison to pull through complicated mergers. The interesting thing is that this acquisition actually may push desktop PC software more towards extinction - have we not said that many times already - and tilt the balance towards cloud computing, virtual work-spaces and light, mobile computing.

Wait and watch for rest of us then.

A BBC Story - Flash On TV - For My Scrapbook of Ideas

Story as appeared on bbc.co.uk Website

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Adobe has secured a deal to put its Flash software into many of the chips that go inside TVs and set-top boxes. It will enable developers and content providers to create applications to deliver web-based content such as news, weather and share prices to TV screens. Flash will be included on most chips -those made by Broadcom, Intel, NXP and STMicroelectronics - but the deal does not cover TVs made by Sony and Samsung. The first applications using Flash are expected to hit TV sets early in 2010.


Sony and Samsung already have a number of connected TVs on the market, but they are using Yahoo's rich media platform of widgets instead of Flash. More than 420 million TVs, set-top boxes, and media players are expected to ship globally in the next three years and increasingly they are capable of being connected to the net. Adobe hopes it can get Flash inside many of those devices to create a new generation of connected entertainment services, including streaming video in high definition, and applications that can run in real time alongside video broadcasts, such as interactive news tickers, sport scores, quizzes and the weather.


It could also mean TVs being used for many of the tasks now given over to a computer or laptop, such as using a search engine, online maps, and consuming all manner of digital content.
Adobe has signed up video delivery service Netflix, Disney and the New York Times to make the first batch of applications. The appeal for content makers and developers is the emergence of a single standard for rich media, which will let them create applications that run on many devices. "Change is coming to TV and we will see more and more content get used and taken to TV," said Anup Murarka, director of technology strategy for Flash.

Flash is installed on about 98% of PCs and almost 80% of all online video is delivered using Flash, according to Adobe. It powers services such as YouTube, the BBC iPlayer and a new generation of video games inside the browser, such as Quake Live. Microsoft has been pushing its own rival platform Silverlight, but it has had limited traction with developers and hardware manufacturers. The company says its second version of Silverlight has been installed on 300 million machines since it became available six months ago.


But analysts think Silverlight is unlikely to challenge Flash across PCs, mobiles and TV screens in the near future. Microsoft does have the Xbox 360 in the hands of at least 28 million gamers and the machine could be used to drive take-up of Silverlight in the home. It also has a few deals with the makers of set-top boxes to power the software that runs TV guides and on-demand services over the internet and this too could be a way to spread Silverlight usage.

Flash Platform Business Unit general manager and vice president David Wadhwani said he still hoped to see Flash on the Xbox 360, as it is already running on the PlayStation 3 and Nintendo Wii. "I don't think it is beyond the realm of reason that we will see Flash on the Xbox. It would add clear value to their platform. But the decision is still their's to make."


Adobe is aiming to become the global standard for all rich media in the "three screen" world - PC, TV, and mobile. Up to 40% of all mobile devices shipped in 2008 are expected to carry Flash Lite. However, the big omission remains Apple's iPhone. "We continue to work with Apple to bring Flash to the iPhone," said Mr Wadhwani.

How Long Is The Tunnel?

One interesting thing I realize when I speak to anyone in India, the recession has not affected the morale yet. Everyone seems to say, yes, times are bad, but it will be over yet soon. Some even say that the recession will not affect India at all, at least in a major way. They point to the prudence of Indian banks, and are emboldened by Joseph Stiglitz recently saying that the Reserve Bank of India has better judgement than the Federal Reserve. More to the point, many Indian businessmen point to the huge untapped potential of the country and see the recession as a temporary blip, and expect things to return to usual growth soon.

Sometimes, I feel this is a very Indian thing. I spoke to friends in Dubai, who strongly believes that things will be back to normal soon. I also had discussions with Indians in the UK, and when I told them that the house prices are going down, they told me that this can not happen for too long and they would rather go out and try to buy houses now. I have this feeling that Indians are the most bullish nation on earth today. I can see people investing in new businesses in India and also about expanding capacity and hiring people. If this recession is about psychology, I am sure Indians will push through this global pessimism with undying hope and the economy in India will soon turn a corner.

The question is, of course, how real is this optimism. I am aware that Indians lived with a protected economy for many generations, and our ways of looking at the world is yet to change. The Indian middle classes are usually so protected and privileged that they have not seen major disasters first hand, neither a war nor global recession [in fact, nor a major natural disaster, which always have hit the poorer people]. For rest of the world, this recession may be bringing back memories of bad times, but the Indian middle class has no memories. Hence, while the assertions may be true, one does not know how real, and therefore sustainable, is the optimism.

The global economy, however, does seem to be turning a corner. There are some good results on the Wall Street, as my Indian friends point out, and stocks have started moving up the world over. Financial service companies have started afresh - it did not go unnoticed that Goldman Sachs has reported an unexpectedly good result and even said they would return the government money they took earlier. It also hit home that Citi group seems to be out of the woods. It is also apparent that the inventory levels are running low and production will soon start an upward trend. The commodity prices, still low, are showing signs of firming up, and this is good news too. In Britain, Gordon Brown's Housing Package possibly started working and the house prices seem somewhere near the bottom, indicating that this summer may be better than the previous one for homeowners. So, in summary, some of my optimistic friends are indeed right - there are green shoots of life in the horizon.

However, there are enormous global risks we face. The recovery is still fragile, and the risks of country defaults are very much real. The economy is currently on life support and chugging along somewhat stably, but that is far from being out of danger. The big risk, this summer, is of inflation. The major economies of the world have fought the credit contraction by flooding the market with cheap liquidity and by keeping interest rates artificially low. This has been helped by a general slamming of breaks on expenses - both by businesses and consumers - and slowing demand allowed the liquidity to flow in without an sharp upturn of inflation.

The policy makers must be very cautious right now and reign in the liquidity just when another bubble starts forming. This is about reading minds and being ahead in the game in the free market, which, as we have seen, they are not very good at. So, the real risk is that inflation may make a comeback. This will surely spoil the party and force everyone to run for cover.

Coming back to India, it also seems that the economy has got a little bit of extra support from the elections, when the black money flows in to the real economy and an extra investment of about Rs. 200 billion takes place, creating jobs and keeping everyone busy. It will be interesting to watch what happens in the immediate aftermath, especially if the resultant inflation kicks in at the same time.

So, how long is the tunnel? I am no pessimist, but it sure looks longer than end of this year. If I have to take a guess, till the end of 2010 if everything goes right, when growth and jobs will return. And, if things don't go right, obviously this can be much worse. The key problem that we have now is that our wealth is not equitably distributed, and more unequal we become, lesser control we have on this economic flu. The way we have handled the credit crisis so far have only made our societies more unequal, and weakened the longer term economic prospect. I thought this would be an unfinished recession, and so far, it seems it would indeed be. The best thing one should now be is pragmatic and practical, and being optimistic is not the most intelligent response to what seems to be the deepest crisis we have faced in a long long time.

Saturday, April 18, 2009

Animal Spirits : An interview with Bob Shiller - From McKinsey Quarterly

Amartya Sen recently wrote that while the current recession has shifted back the focus on Keynes, in fact the other economist who deserves a reading now is Arthur Cecil Pigou, Keynes' colleague and a rival in his time, who actually gave human psychology a greater role in economic studies than any other professional economists. Here, Bob Shiller argues that our economic models went wrong as we have not allowed psychological implications in the modelling exercise: We put too much faith on Homo Economicus, the rational economic man.
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From Animal Spirits

For years, the world economy has been on a roller coaster. Yet not until it began to veer off the tracks did the passengers realize that they had embarked on a wild ride. Abetted by their thoughtlessness, the amusement park’s management didn’t set limits on how high they could go or even provide safety equipment.

Why didn’t people recognize the warning signs until banks collapsed, jobs vanished, and millions of mortgages were foreclosed? The answer is simple. Textbook economics teaches the benefits—and only the benefits—of free markets. This belief system, which has flourished throughout the world, holds that capitalism is essentially stable and has little need for government interference. According to that line of reasoning, which dates back to Adam Smith, if people in free markets rationally pursue their own economic interests, they will exhaust all mutually beneficial opportunities to produce and exchange.

Even at the theory’s worst, it deserves high marks, at least by the criterion of a schoolboy we overheard in a restaurant who was complaining about the C he had received on a spelling test, though 70 percent of his answers were correct. In fact, however, we believe that Adam Smith was basically right about the economic advantages of capitalism. But we also think that his theory fails to explain why the economy takes roller-coaster rides, and the takeaway message—that there is little need for government intervention—is simply wrong.

Adam Smith saw that human beings rationally pursue their economic interests, and his economic theories explain what happens when they do. But they are also guided by noneconomic motives—“animal spirits”—which Adam Smith and his followers largely ignore. Sometimes people are irrational, wrong, shortsighted, or evil; sometimes they act for action’s sake; and sometimes they uphold noneconomic values like fairness, honor, or righteousness. As the economist John Maynard Keynes understood, “Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing.” In such an uncertain world, many decisions “can only be taken as a result of animal spirits.”1

Five aspects of these animal spirits affect the economy: confidence and the feedback mechanisms that amplify disturbances; the setting of wages and prices, which depend largely on attitudes about fairness; the temptation toward corrupt and antisocial behavior; the “money illusion,” or confusion between the nominal and real level of prices (so that people, for example, often miss the fact that conservative investments may be risky in times of inflation); and the story of each person’s life and the lives of others—stories that in the aggregate, as a national or international story, play an important economic role.

The current crisis stems from our changing level of confidence, from temptations, envy, resentment, illusions, and, especially, from changing stories about the economy—stories that first glorified financial “innovation” and then represented it as a con game. These intangibles explain why people paid small fortunes for houses in cornfields; why others financed those purchases; why the Dow Jones industrial average peaked above 14,000 and fell, little more than a year later, below 7,000; why the US unemployment rate rose by 4 percentage points in 24 months; why Bear Stearns was only (and barely) saved by a Federal Reserve bailout and Lehman Brothers collapsed; why many banks are underfunded; and why some totter on the brink, even after a bailout, and may yet vanish.
Animal spirits at play

Explanations that involve only small deviations from Adam Smith’s system of pure economic rationality are clear because they are posed within a very well-understood framework. But this doesn’t mean that small deviations describe how the economy really works. Economic theory should be derived not from them but from the large, observable deviations that actually occur. A description of how the economy really works must consider animal spirits.
Why are financial prices so volatile?

No one has ever made rational sense of the wild gyrations in financial prices—gyrations as old as financial markets themselves. The US stock market’s real value rose over fivefold between 1920 and 1929 and then came all the way back down from 1929 to 1932. It doubled between 1954 and 1973 but fell by half from 1973 to 1974. It rose almost eightfold between 1982 and 2000 and then fell by half from 2000 to 2008. No one can explain these fluctuations rationally, even after the fact. Economists can sometimes justify the stock price changes of individual companies, but not aggregate stock price movements, which don’t seem explicable by changes in interest rates, dividends, earnings, or anything else.

When the stock market tanks, the authorities try to restore public confidence by insisting that “the fundamentals of the economy remain strong.” The authorities are right in the sense that, almost always, it is the stock market that has changed; the fundamentals haven’t. How do we know that they couldn’t generate these changes? If prices reflect fundamentals, they do so because those fundamentals are useful in forecasting future stock payoffs. In theory, stock prices predict the discounted value of future income streams: dividends or earnings. But stock prices are much more variable than the discounted streams of dividends or earnings they are supposed to predict.

A person who claims that stock prices reflect information about future payoffs resembles a berserk weather forecaster in a town where temperatures are fairly stable. The forecaster predicts that on one day the temperature will be 150° F and on another day –100° F. Even if he has the mean right, he should be fired. Likewise, you should reject the notion that stock prices reflect predictions, based on economic fundamentals, about future earnings. Prices are much too variable.

Price changes do, however, seem to be correlated with social changes. The economists Andrei Shleifer and Sendhil Mullainathan have observed this phenomenon in Merrill Lynch advertisements. In the early 1990s, before the stock market bubble, Merrill ran advertisements showing a grandfather fishing with his grandson. The caption said: “Maybe you should plan to grow rich slowly.” When the market peaked, around 2000, Merrill’s dramatically changed ads showed a picture of a bull-shaped computer chip, with a caption that read: “Be Wired . . . Be Bullish.” After the collapse, Merrill went back to the grandfather and grandson fishing. The caption advertised “Income for a lifetime.”

Keynes compared the stock market to a competition that asks the contestants to pick the six prettiest faces from a hundred photographs. The prize goes to the person whose choices come closest to the whole group’s average preferences. Of course, to win such a competition you shouldn’t pick the faces you find prettiest. You should pick those you think others will find prettiest or, better yet, the faces you think that others will think that others will find prettiest. Investing in stocks often resembles that.

Red Delicious apples offer another metaphor. Hardly anyone really likes their taste, yet they have become, overwhelmingly, the best-selling apples in the United States. They tasted better in the 19th century, when a different apple was marketed under this name. As connoisseurs shifted to other varietals, growers, to salvage their profits, moved the Red Delicious apple into a new market niche. It became the inexpensive apple that people thought other people liked or that people thought other people thought other people liked. Most growers gave up on good flavor. Most Americans don’t understand that an apple could be so debased.2 Likewise with speculative investments: many people don’t understand how much a company can change or how many ways it can be debased. Stocks that nobody believes in but keep their value are the Red Delicious apples of investment.
Bubbles and the confidence multiplier

Obviously, investors want to get rich quickly when the market soars and to protect themselves when it sags. If they buy or sell in reaction to stock price increases or decreases, that response can feed back into additional price changes in the same direction—a price-to-price feedback. A vicious circle may prolong the cycle for a while. Eventually, the bubble bursts, since only expectations of further increases support it.

Price-to-price feedback may not suffice to create major asset price bubbles, but other forms of feedback—in particular, those between bubble-inflated asset prices and the real economy—reinforce it. This additional feedback increases the cycle’s length and amplifies price-to-price effects. There are at least three sources of feedback from asset markets to the real economy. When stock and housing prices rise, people who own these assets have less reason to save. Feeling wealthier, they spend more. They may also count their stock market gains or housing appreciation in current savings.

Asset values also play an important role in determining investment levels. When the stock market falls, companies spend less on new factories and equipment. When the market for single-family homes falls, construction companies drop plans to build. Bankruptcies too can greatly influence investments in business and housing. When asset prices fall, debtors default, compromising the financial institutions that normally provide debt financing. When they become less willing to make loans, the price of the assets drops more. Such asset price movements feed into public confidence: the price-to-earnings-to-price feedback. By contrast, rising stock prices boost confidence. People buy more goods and services, so corporate profits go up and stock prices rise again. These mutually reinforcing positive feedbacks continue for a while, until the feedback—and the economy—head in the opposite direction.

Leverage feedback and the leverage cycle intensify other kinds of feedback. The collateral ratio is the amount lenders extend to investors as a percentage of the value of the assets posted as collateral. On the cycle’s upswing, collateral ratios rise: for example, in the market for single-family homes, the amount banks lend to buyers (as a fraction of their homes’ value) goes up. Rising leverage feeds back into asset price increases, encouraging still more leverage. As asset prices fall, the process works in reverse.

The leverage cycle operates in part because of bank capital requirements. As asset prices rise, the capital of leveraged financial institutions rises relative to their regulatory requirements, so they may buy more assets. If many do, they may bid prices up, freeing more capital. A feedback loop thus propels prices steadily higher. If asset prices fall, leveraged financial institutions may have to meet their capital requirements by selling. The systemic effect may be still-lower asset prices, which decrease capital ratios, so the institutions must sell yet more assets. In extreme cases, downward feedback pushes prices to fire sale levels.

For most people, the rise in real earnings that accompanies a stock market boom proves that the boom is rational. Few see that the earnings rise may be a temporary manifestation of the stock market rise. If rents go up during a housing-price boom, people think the increase justifies the boom. They don’t consider the possibility that rising rents are a temporary manifestation of it.
Animal spirits and oil price movements

The price of oil too has fluctuated greatly—especially during the oil crisis years, 1973 to 1986. The first such crisis lasted from 1972 to 1974, when the Organization of Petroleum Exporting Countries (OPEC) restricted production. The price of crude oil more than doubled.

Ostensibly, OPEC was avenging the Arab defeat in the 1973 Yom Kippur War. But there is another, less well-known explanation. Before 1973, the anachronistically named Texas Railroad Commission regulated the fraction of time Texas oil producers could pump. These restrictions raised the price of oil. Little notice was taken in late 1972, when the quota rose to 100 percent. From then on, OPEC could restrict output to push up prices, and the United States couldn’t increase output in response, since it was already as high as possible. In 1979, the Iran–Iraq War disrupted the supply of Persian Gulf oil, and prices doubled again, remaining high until 1986. Then, following the recession of the early 1980s, oil prices fell by half.

This summary seems to suggest that fundamentals—if not economic fundamentals, then political and military ones—determine oil prices. Indeed, these probably were the dominant factors then and ever since. Even so, feedbacks among confidence, production, and prices in the oil market strikingly resemble those in the stock market.

A crescendo of rhetoric about the population explosion and the shortages it would engender accompanied the rise of oil prices in the 1970s. Just 18 months before OPEC restricted production, The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind3 foretold worldwide economic disaster—in one scenario, the death of as much as half of the world’s population late in the 21st century. Such thinking encouraged OPEC, whose ministers reasoned that reducing oil production would not only lead to higher prices but also save the remaining oil for a day when prices would be higher still. Of course, OPEC’s decision also confirmed the beliefs of those who concurred with the Club of Rome, a global think tank. What more dramatic proof could there be than a tripling of the price of oil? When the price fell in the wake of the recession of the early 1980s, the doomsday stories abated. A ProQuest search of the New York Times, the Los Angeles Times, and the Washington Post for articles containing the words “proven reserves” and “oil” yields 115 results from 1975 to 1979, 137 from 1980 to 1984—and only 73 from 1985 to 1989.

Resources are indeed limited. Global warming is a threat. But the price of oil and the stories about it resembled those about the stock market. Oil prices are variable. Again, the weather forecaster should be fired.
The markets as drivers of investment

A country’s investment in new machinery and equipment, factories, bridges and highways, software, and communications infrastructure matters enormously for its economic prosperity. Careful studies have confirmed that such investments raise the standard of living.

Nonetheless, executives make them in the face of fundamental uncertainty. Theoretical economists who struggle to understand how people handle uncertainty seem to be converging on behavioral economics. Jack: Straight from the Gut, the title of the autobiography of former GE chairman Jack Welch, sums up this reality: investment decisions are intuitive, not analytical. Intuition, a social process, follows the laws of psychology—indeed, of social psychology. Asking why capital expenditure fluctuates from year to year is a bit like asking why beer consumption fluctuates from one poker party to another.

Given the speculative fluctuations in asset prices, variations in investment levels must partly reflect beliefs about these changing prices. As Welch writes, “The company’s mood fluctuated on the bullishness of our press clippings and the price of our stock. Every positive story seemed to make the organization perk up. Every downbeat article gave the whimpering cynics hope.”4 To be sure, there is some doubt about the relation between stock prices and investment. According to a metric devised by the economists James Tobin and William Brainard, the correlation should be exact. In reality, it is weak.

The correlation holds for the crash years (1929 to the early 1930s) and for the millennium boom in the 1990s, when the market and investment rose and fell together. But there were two significant episodes when the stock market declined while investment continued robustly. After World War II, the market tanked, yet the economy became so strong that inflation rose above 14 percent in 1947; investment was also high. A similar scenario unfolded after the first oil crisis. The data seem to imply that if the stock market falls because of inflation while the economy remains strong, investment probably will too.
Taming the beast: Making financial markets work for us

For decades, the dominant story about the economy maintained that all the fluctuations described previously had a rational basis. During the bubble years, the story also held that any risk arising from assets such as houses and subprime mortgages could be managed through complex financial devices like securitization and derivatives, which were largely unregulated. Then the story changed. The new one suggested that all this complexity was just a novel way of selling snake oil. As the new story about Wall Street and its products took hold, the life drained out of financial markets. Housing prices sank, the demand for exotic products collapsed, and the credit crunch began.

So once again, capitalism’s dark side must be addressed. In the 1930s, in the wake of a huge catastrophe, the Roosevelt administration set up safeguards to protect the public from the excesses of free enterprise. For more than 70 years, those safeguards worked, but then complexity provided a way to evade regulation. Now there must be a new story about markets—a story that doesn’t always predict sunshine. New financial regulations will be needed to acknowledge the animal spirits that often drive markets, to make markets work effectively, and to minimize the possibility that they will collapse and require vast bailouts at public expense.

The present troubles aren’t really a crisis of capitalism. Free enterprise is still the best way to supply most goods and services. But financial goods and services are different. Capitalism works well when people know and understand what they buy. Most people, however, know almost nothing about the financial products purchased on their behalf—for example, through pension funds, 401(k) accounts, money market funds, or, if they are very rich, hedge funds.

If we thought that human beings were totally rational and acted mainly from economic motives, we, like Adam Smith and his followers today, would believe that governments should play little role in regulating financial markets and perhaps even in determining aggregate demand. But on the contrary, we believe that animal spirits play a significant and largely destabilizing role. Without government intervention, employment levels will at times swing massively, financial markets will fall into chaos, scoundrels will flourish, and huge numbers of people will live in misery. The right answers may not always be clear. But our country has no chance of finding them if it doesn’t acknowledge the importance of animal spirits.
About the Authors

George A. Akerlof is the Koshland Professor of Economics at the University of California, Berkeley. He was awarded the 2001 Nobel Prize in economics. Robert J. Shiller is the New York Times bestselling author of Irrational Exuberance and The Subprime Solution. He is also the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management. This article is adapted from their new book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton University Press, 2009).
Notes

1 John Maynard Keynes, The General Theory of Employment, Interest and Money, New York: Macmillan, 1973 [1936], pp. 149–50, 161–2.

2 Adrian Higgins, “Why the Red Delicious no longer is,” Washington Post, August 5, 2005.

3 Donella H. Meadows, Dennis L. Meadows, Jorgen Randers, and William W. Behrens III, The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind, New York: Universe Books, 1973.

4 Jack Welch with John A. Byrne, Jack: Straight from the Gut, New York: Warner, 2001, p. 172.

Right Brain Leap: What the Conceptual Age may mean to backward economies

The idea of a Conceptual Age, as described in Daniel Pink's A Whole New Mind or in Howard Gardner's Five Minds For The Future, has significant implications in policy making in developing countries. The current orthodoxy in development planning is indeed that an economy must go through stages - from manufacturing to services and up the value chain - and therefore most developing economies today compete to attract western firms to shift their manufacturing bases. Obviously, this policy has startling successes, like China, which dominates the store shelves across the world. This sequential thinking, indeed a result of our left brain orientation, dominates the economic science, and possibly one gift that Karl Marx passed on to his successors. And, because of its origin, there is a broad consensus between the left and the right on this issue of steps in development process.

However, if we step aside economics and infuse the paradigm of business in development policy-making, the flaw in this logic becomes obvious. If I start a business today, I shall not look at my competitors and see how they moved during their lifetime. Instead, I shall try to see what they are trying to achieve from this point on, and how they are trying to achieve it, and model my strategies to get there faster, cheaper and better.

Obviously, a country is not a business and a country is not run for more profits, but the well-being of its citizens. This is an important difference, and this consideration should surely be weighed in deciding the policy direction. One key consideration in manufacturing focus of the developing economies were the creation of jobs which can absorb the unskilled underemployed agricultural labour, thereby reducing the incidence of poverty. This surely makes sense from this point of view, but this does not rule out the imperative to take a long term view of the world economy and setting a strategy to move up the value chain.

The other important difference between national policy making and that in a business is that the national policy making must have a longer term perspective than businesses, especially when we are talking about publicly traded businesses. The twin forces of joint stock and professional management, which make the modern business competitive and driven for innovation, essentially make the planning horizon relatively shorter term as well. However, the country must be governed with a longer term in mind, as it is important to ensure that the path we take creates a sustainable future for our children too. One of the key problems of democratic model is that it unsettles the short term/ long term balance in the policy making, and creates what one will call a 'term bias' in policy making. Of course, many emerging country democracies have strong dynastic tendencies and that help to soften the 'term bias' somewhat; however, in these democracies, the policy making still gets focused by the attention of the prime time TV than of any longer term consideration of the country's future.

However, as we discard the notion of a predictable future forever, both in the world of business [where the current refrain is how difficult it is draw up budgets and develop strategies] and in governance, there must be a future focus of the executive and the changing world must be understood and factored in policy making at all levels.

So, what does the Conceptual Age mean for developing economies? Clearly, just developing manufacturing operations and attracting investment to create jobs is not good enough; there needs to be an active and aggressive redesign of the education system to meet the challenges of the future and emerge as a competitive economy. This is obviously understood, as we watched many a developing economy introducing a good amount of computer exposure and training in their education system over last two decades. However, the point is that the world is already shifting beyond computers and it is not enough to go sequentially in terms of education policy.

Let me talk about one economy I know well, that of West Bengal. This is possibly politically incorrect to talk about one Indian state in isolation, but that is precisely the point. As India develops, the economic competition between the states is getting fiercer, and today it is not very unlike the competition between companies for greater share of customer dollars. Now, West Bengal has already lost the race. It has lost the race in manufacturing irretrievably, as its labour laws remain most antiquated and its labour unions most obstructive in the whole country. It has also lost the race for the information economy, as political considerations limited education opportunities in the state and handed the advantage to other states which happily provided the engineering and medicine study opportunities to Bengali graduates.

The current West Bengal government is trying to recreate its image as an industry-friendly government. They must. The current government, which was in power for last 32 hours uninterruptedly, and had only two Chief Ministers during this period, primarily survived on the goodwill it generated through its land ownership reform and the rural jobs and prosperity it generated. However, the state's economy, which has improved significantly since then in terms of agriculture, needs industrial employment now to absorb the surplus labour from the villages. So, the State Government has now adapted a policy of industry friendliness, and inviting various industrialists to set up manufacturing units in the state. They have also shown some interest in courting IT companies and allowing them favourable terms to invest in the state. These policies may create some jobs in the state and solve the government's problems in the next election, but it is evident that the state government does not have a long term development plan in place.

For example, it continues to ignore the issue of environmental pollution in its biggest city, Kolkata. They are unable to remove old, polluting vehicles from the street, unaware that this issue is intricately linked to the expansion of investment in the state. It is failing to reform and create new education opportunities, which it must, in order to catch up on its more successful neighbours. And, its government must be one of the key advocates of a common South Asian market, as it stands to gain the most with a tremendous expansion of the market to Bangladesh and from greater trade with Nepal and Bhutan, two landlocked countries dependent on the port of Kolkata.

However, this aside, the economy of West Bengal is uniquely poised for a Right Brain leap, to the leadership position in the creative industries in the country and in the wider South Asian region. Its people are already known for their creativity and thinking, and the education in West Bengal, for all its faults, is still intellectually poised. An expansion of market into Bangladesh, with its 150 million people to add with West Bengal's almost 90 million, will create a great common market for creative products from West Bengal and give it the essential base to create World Class R-directed businesses. What the government needs is an active Creative Industries policy, a open mind to attract India's brightest creative thinkers to set up shop in Bengal, promotion of its institutions, particularly Viswa Bharati, to the rest of the country and the region. It must show intent and action to take the right brain leap. It surely will appear a smart policy and the state does not have to play catch up with others in this area.

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