Saturday, September 24, 2011

Capitalism's Latest Crisis

Crisis is inherent in Capitalism. In fact, the only good thing about capitalism is the ability to create such crisis and wash away the old and the inefficient, some people will say. This is indeed cruel system, which runs counter to natural human instinct of sympathy for the weak and the old and the like, but it is its self-healing nature, rather than its ability to create a better way of life, has kept it going when other competing systems have failed.

As we are in the middle of another, worldwide, crisis, such thoughts are indeed reassuring. Many people may yet again jump out to pronounce capitalism dead, but we have been there before. Every crisis over last 150 years have been seen as Capitalism's final crisis, and every time it has emerged relatively unscathed, and looked like a stronger system, only to absolve in another crisis in a few years time. 

Indeed, just like the doomsday preachers, there are others who saw the end of history at the upturns that ended recessions. This is in the see-saw of such sentiments, our post-modern vision was formed, in somewhat cynical rejection of all such grand narratives and consequent acceptance of a mere actor's role in the order of things. And, with such abdication of activism by us, the crisis and the recovery and the crisis that must follow have all become more virulent, far more impersonal but far more impacting, and with each wave, the power has shifted away from the man on street to those sitting in cubicles and their bosses, who can direct drone attacks on daily lives with far more impunity. 

The latest crisis, once the dust has settled on stock and bond markets, can be seen as the drone-masters' inability to trust themselves. We have constructed such a sophisticated system of financial instruments that the 'money' economy has increasingly become detached from the real economy. While the earlier generations used their intellect to understand and explain the real world, we somewhat believed that we have achieved a complete understanding and now can play with constructing the reality. What we ended up doing is constructing a reality that bears no semblance with the real world. The latest crisis seems like someone somewhere just called the bluff (Michael Lewis' wonderful 'The Big Short' portrays some of those oddballs and sociopaths who did just that) and suddenly the masters of universe can see that they were all living in an wonderland. It seems that the Truman show time is over.

But this isn't yet the final crisis that Marx hoped for, or Lenin wanted to engineer. This is yet another episode when the self-heal mechanism of the system will be at play. It will make a lot of people very miserable, and power balances will change. But more will be needed to turn this into a full scale social catastrophe. Indeed, the stage is ripe, we have some terrible leadership across the world, not least in America. The social consensus that held together for last 150 years, the promise of progression for a middle class which kept the society together, is crumbling. But someone somewhere has to cross the madness threshold and start the meltdown. There are lots of mad people already, not least the UBS trader who has pushed the bank to the brink and Angela Merkel, who is hiding her head in sand and thinking that the crisis will go away, and surely Barack Obama, who is turning out to be the first post-modern president of America who seems to believe in nothing, and indeed jointly they can start the bloodbath, a real one. However, for the moment, only the middle class dream is vanishing and there is time for us to have another round of capitalism.

I shall predict that's what will happen: We shall overcome this crisis and live for another, bigger one. But, eventually, this will end: If we are lucky, we shall discover economic sanity and build systems on, I would like to say, equality of opportunity and sympathy for the less able (I shall return to this discussion in a future post), and somewhat maintain the journey to prosperity. But, it may also turn out to be the opposite, a less than final catastrophe now, but something that spirals into war and social dissolution later on. Despite the pessimism that's on the air, I shall keep looking forward and hope that we shall discover our senses and interrogate the systems we have built so far. It is that tendency to self-question that has made the human species a survivor: Let blind faith on a debunked system not take it away.

Wednesday, September 21, 2011

India: Is The Growth Story Intact? A Seminar

Today I attended a seminar at Chartered Institute for Securities and Investment on India. The panel, which included Lord Meghnad Desai, the famous Economist from LSE, alongside Ian Gomes, Chairman of High Growth Markets division of KPMG, Ian McEvatt, Chairman of the Himalayan Fund and Eoin Treacy, Global Strategist from, was discussing whether the Indian growth story, faced with high inflation, slowing growth and political scandals, is more or less over.  This was a room full of bond traders and existing and potential investors, and the subject was whether investment in India is good value for money.

The members of the panel were in agreement on certain issues. First, they all agreed that the Indian government's forecast of 8.4% GDP growth rate for next year is too optimistic, and it is likely to be in the range of 7 to 7.5%. Second, they were in agreement that India remains a good investment for the long term investor because of its strong domestic demand, and advised that stock market investments in India should be made on companies that focus on servicing consumer demand, like Hindustan Lever, Nestle and the like. Third, they were all in agreement that the recent monetary tightening in India, the Central Bank has increased in interest rates by 350 basis points over last 12 months, would hurt the growth, and argued that the inflation problem in India is more supply side or structural, rather than a demand side problem. They pointed out the supply side bottlenecks and other issues, the agricultural prices driven up by minimum support price increases for example, infrastructure, dependence on global oil prices and gradual withdrawal of the subsidy on fuel, as the main drivers of inflation. Finally, they agreed that corruption scandals, despite being immense distractions, do not undermine the value of Indian assets. Eoin Tracey suggested that it is better to look at governance issues not in the categories of 'good' or 'bad' governance, but in terms of 'progressing' and 'regressing' governance. Ian McEvatt also brought up the corruption issues in the United States and said that the corruption is a relative term, and while the Indian government must do more to curb corruption at all levels, the overall governance standards in India are improving. Ian Gomes cited Gujarat as an example of governance and how using IT effectively in governance has transformed the state.

The other key theme that was evident in the discussion was the focus on Indian consumer. Much of the confidence in India comes from its ability to create a large consumer market in the coming decade. The central idea perhaps is that once the 800 million people in India, who live under $2 a day, are lifted out of poverty, there will be huge knock-on effects on the consumer demand. Ian McEvatt was talking about the enormous collective impact on demand of consumer goods when the average income of 800 million rise from $2 to $2.25. Interestingly, Lord Desai was talking about the current government's focus on villages and was suggesting that many of the failures of the UPA government to deliver on the reforms are linked to their populist policies like National Employment Guarantee scheme, raising of minimum support price for crops and various other rural investment schemes, which redirected the resources from the urban classes to the rural poor. This would surely directly contribute to the kind of demand uplift everyone seem to be hoping for. I am personally not aware of the impact of these policies, but in broad terms, the rural to urban migration, one sure sign of which is the availability and pay of domestic workers in Indian cities, seemed to have thawed. Though many will want to see the India's growth story as a re-run of British Industrial revolution, backed by a huge movement of subsistence labour to large industrial townships, it is possible to paint an alternative development route for India through the development of rural societies.

This is possibly my key take-away from this discussion. I am not sure whether this is happening, I am too distant to know this, but if the rural investment programme is successful, this will transform India as much as National Health Service transformed Britain. Everyone agrees that there are tremendous inefficiencies in Indian agriculture, and employment can be boosted in agriculture with better irrigation and technology and land reforms before it starts coming down eventually. I can suddenly see the values of a sustained rural investment strategy: It delivers growth with greater social harmony, it relieves the Indian cities of the tremendous population pressure they are under, it shifts the dependence to domestic demand than export industries and it generates prosperity regardless of volatile global investor sentiments. It does not generate newspaper headlines, but in transforming a country like India, it is possibly a very smart strategy.

Indeed, there are challenges for such a strategy to work and deliver sustained prosperity. One can clearly see the governance challenge here: It is one thing to create urban markets and let private companies deliver growth, but it is quite another to boost rural demand and employment and sustain growth through upgrading linkages and economic infrastructure. It will possibly come down to two critical factors - education and governance - if this strategy has to work. The panel members agreed that the real investment in education remains very small in India and this creates significant supply bottlenecks. The huge regional variation in governance was also noted and commented upon. However, the benefits of rural transformation are quite evident too: One can suddenly see the hidden genius of Nitish Kumar's strategy in the 'miracle' state of Bihar. 

It surely seems a slow shift is underway in India: Very subtle and shall we say Indian in nature, it seems an unique model of Indian economic revolution may eventually emerge.   

Monday, September 19, 2011

Hypocrisy United: The Palestinian Nationhood

Palestinians want to be recognized as a State, what's wrong with that? Israel was curved out of Palestine in one of the first acts of the rubber-stamp imperialism era. That was a different age. That was a time when the retreating British empire wanted to leave small pockets of direct influence and weaken the incumbent states. So, we had Pakistan, which was meant to be a client state of the Empire overlooking its oil interests in Persia; So was Israel, another protege, another victim, tasked with the job of holding Middle East on balance. But, Israel was being curved out of Palestine, a state which existed then, which the Palestinians objected to. They ended up being gobbled up, exactly as they would have feared, in the end.

For someone watching the drama, this would have been amusing if not for all the bloodshed. Palestinians objected to Israel then not because they were nationally minded, but it made no sense curving out some land to a nation of immigrants. It was dispossession of their own land they feared, and they turned out to be prescient. Today, they are coming back to the United Nations as they have acquired a sense of nationhood, united in dispossession let us say, and the Head Honchos there, including our Tony Blair, are behaving as if nationalism is so last century. Blair says things which only a politician can say: Seeking nationhood is bad because it can jeopardize the peace process. Peace process for what? These guys just supported the Libyans in their quest of Liberty over peace, and now this. I am almost thinking - how does this guy keep a straight face and say this without wincing - a trick I must try to learn.

The point is, indeed, Israel is as much a victim as the Palestinians, as Indians and Pakistanis are united in that sense. The generations of people in Asia have become Children of Violence, foot soldiers and pawns in the global game of power, resource grab and influence by proxy. I am no conspiracy theorist and don't necessarily see a group of imperial bosses shrouded in secrecy here. Rather, I see a group of people so immersed in personal comfort and sense of power that they are unable to see beyond it. These guys are regular blokes - not Tony Blair, you would think he is devious - who work in banks, governments and newspapers. I don't necessarily believe that they lie, just that they believe truth is what they say.

This is where Palestinian nationhood makes them very uncomfortable. This is not what they want, and they will do everything, with some lame excuses, to topple the plan. The plan is simple: These poor Palestinians should be happy with the hand-outs, periodic invitations to peace conferences in luxury resorts and getaways, and not talk beyond their station. The fact is that they are being so stupid to challenge the hand that feeds them is really upsetting people, notwithstanding the fact that they are dying of starvation anyway.

It is uncomfortable timing too. The 'revolutions' in Egypt, Tunisia and Libya are still underway, and the bosses are clinging on to power through some of their clients, who were asked to expropriate the street revolutions. It is laughable that BBC is now making a documentary on 'Facebook revolution' in Egypt, though the revolution on Facebook and Twitter only happened outside Egypt (as Facebook was shut down inside anyway). It is the same trick again: Make a defeat look like a victory and fool the people with a sense of freedom. It has gone on for too long though, and it is hard to maintain this any longer. People are still protesting in Cairo and Palestinians are coming back for the nationhood vote. Libyans are making uncomfortable noises. The people don't seem to know their station any more, they are not happy anymore with what's being handed down to them. They are asking: They are taking the rhetoric of democracy and freedom too seriously.

This is time for a tune change perhaps: Let the final act begin.

Thursday, September 15, 2011

Broken Republic: Narendra Modi and India's Future

Will he, won't he? Narendra Modi is suddenly back in the reckoning as a future Indian Prime Minister. Incredibly, the aspirations of his admirers in Hindu Nationalist camps are inflamed because an US report, a rather routine one done by the Congressional Research Office, praised him, in one paragraph of a 95 page report for effective governance of Gujrat. Indeed, it is a bit ironic to me, having observed the noise the BJP leaders made about a sell-out of Indian dreams when the then Indian government signed a treaty on nuclear energy with United States in 2008: They claim now that they are fit to govern because even the US officials say so.

But the irony aside, one may have to start to reconcile with the possibility that such a calamity may actually happen. A Hindu Nationalist rule now, in the context of a deep corruption and completely rudderless governance by the current coalition, is within the realm of the possible. John Elliott, in his fairly balanced post today, certainly thinks that Modi can plausibly beat Rahul Gandhi, who proved rather reluctant and mostly illusive to take on the leadership role.  With Supreme Court unwilling to pursue the case against Modi for the Gujrat riots, Modi has adapted for himself the development mantra, which sells well to the Middle Class, and has managed to keep a largely clean image. This is a formula that works in India: Development sells well, and corruption hurts the middle class most. The angry middle class of the 70s - with concerns for social justice and just society - has largely retired.

In a way, this is about aspirational, brash, new India finally shaking off the post-colonial values. A generation, which was born with a sense of entitlement, and which did not have to make the sacrifices of the previous generations to gain freedom and define a country, is now claiming preeminence: Their India is one of individual pursuit of success, of EMIs and shopping malls. It seems the whole country has one obsession, the GDP growth which is directly translated to hitherto unthinkable salary figures for the middle class professions, which buys more cars and other things of consumption. The landless peasants, the urban slums, the lowly babus who lost the race, are like ghost-images, an avoidable distraction when everyone can talk in flashy terms of Sensex points and Growth percentages. What Modi did does not matter anymore: Whether the people of Gujrat has more money and more to consume matters most in this discussion.

Indeed, facts are of little significance. For example, Gujrat was always a rich state with a huge diaspora linked by language and religion, and it is only natural when the India story started circulating, Gujrat would have become a natural beneficiary. Nothing can take away that Modi is an efficient administrator, but this comes at a cost of ruthless authoritarianism. It does not really matter for half of the country, Modi is a hated figure: Those who hate him are mostly poor anyway. It is also of little significance that a Hindu Chauvinist India will invariably wreck any possibilities of peace with Pakistan, and return the region back to the dark days of 1998. In the global scheme of power, an assertive India may be a good thing and may supply the foot-soldiers for the war on China that may invariably have to be waged someday.

It seems natural, though. It looks quite like the 1920s, when Benito Mussolini set new standards of governance in Italy and no one seemed to bother that he was crushing his opponents at the same time. He was regaining the lost glory of the Roman empire: As long he was lining up the poor Italians to fight the Soviet threat, and the people who he was putting in Jail could have been assumed to have socialist sympathies, everyone was happy. He was proclaimed, by the then American Ambassador, as the greatest man of his time. That was economic prosperity first, social justice and political freedom later: That was forgetting Benjamin Franklin's dictum that those who give up liberty to gain temporary safety, deserve neither liberty nor safety. 

Indeed, those who don't read history, are condemned to repeat it.

Tuesday, September 13, 2011

IIPM and New India: Interrogating Aspirations

I have just read the Siddhartha Deb's Sweet Smell of Success: How Arindam Chaudhuri made a fortune off the aspirations - and insecurities - of Indian Middle Classes. I had to read it from a blog, as the original article had to be taken down by the Caravan magazine which published it first after Arindam Chaudhuri sued them, and other miscellaneous companies, for publishing it.

It is somewhat ironic that the article has been taken down, because it is beautifully written. Mr Chaudhuri may not see this, but the article is as fair and as balanced one could be under the circumstances. Mr Chaudhuri is surely not an one-off: Arvind Adiga has already written about his kind of White Tigers. Mr Deb alludes to this, in a short reflective section somewhat buried under the burden of the fascinating narrative of Chaudhuri and his IIPM, and writes about the tension between the new, aspirational India and India of the old, as symbolized by the IIM kinds. This is possibly the key message of this essay, the understanding of the brash, pretentious, amateurish new India, as opposed to the powers that be. 

As if to make the story come a full circle, Mr Chaudhuri has sued the magazine and the writer, all and sundry, and tried to kill the story. This somewhat shows how little he understands new media, though he prides himself to be a media entrepreneur, having dabbled in movie production for a while. He clearly did not understand that courts are powerless these days to kill any story, as the national laws can not control transnational nature of the media. The action also showed why Mr Chaudhuri is representative of new India: His insecurity, somewhat characteristic of a social climber, gets better of his judgement to face the truth. 

Indeed, if Mr Deb is to be believed, and there is good reason to do so, Mr Chaudhuri runs some sort of an educational Ponzi scheme in IIPM, where new students pay for pseudo-jobs for older students, whose placement record is then touted to attract more new students. But, again, Mr Chaudhuri is not the only one who is doing this in India: Most Indian business schools are in the same business, or aspires to be in similar business. This is a sector in search of a regulator, which combines ultra-tough entry barriers for any outsider to enter, to maintain the privileges of the insiders to make hay. The sector is so profitable that most of India's corrupt politicians park their ill-gotten money in this business, and play the same game that Mr Chaudhuri is attempting to play. However, from his quixotic attempts to shut Mr Deb off the press, it seems that Mr Chaudhuri has started believing in his own spin, and being consumed by his own megalomania.

But, then, he may be fraud and a showman, but he can claim to be out there, seeking to play out in a sector where everyone else plays by proxy. From the essay, it seems he has surrounded himself with students et al, people overawed by his presence and without any critical perspective, a typical flaw in most charismatic leaders. But then, this is so common in Indian corporate circle that it is difficult to see why it is even a story item. Unless, of course, Mr Deb is threatening not Mr Chaudhuri but those around him, who would rather live insulated from any form of public scrutiny. Indeed, it does seem that Mr Chaudhuri has failed wholesomely on his public and press relationships, and mostly sees himself as a victim. But then this is very common among self-made entrepreneurs, where they sometimes think that world colludes to make them fail. But, again, Mr Chaudhuri, the management guru, should understand that it is time he gets a media coach of some sort and reinvent himself. 

Sunday, September 11, 2011

Meritocracy and Its Limits

Tests, of various kinds, assure us that we have a way of sorting wheat from chaff, only the fittest are permitted into our best schools and universities, and the ablest run our institutions. These tests are designed by honest psychologists and educational experts, and takes years and millions of pounds of investment to build and refine. If we only look at the credentials of people who develop them, and the effort that goes in, it is easy to think that they are an effective ticketing mechanism to keep our societies in safe hands.

But, at times like this, when our institutions prove less than efficient, and people who run them, clueless, there should be a crack of a doubt whether we are doing things right. Are we measuring the right abilities, would be the first question. Beyond this, there will be the question about whether these tests are worth anything at all, or are they just designed to justify the social stratification which exists anyway.

The literature on whether we are measuring the right abilities is extensive, and the answer is self-evident: We are not. While we have refined the measurement of one kind of intelligence, we are far from measuring others, though these other sorts of intelligences are becoming more critical for success as the societies move beyond narrow technical rationalities. The important values are all too difficult to measure, while we struggle to ensure that the people who run our public institutions are morally capable and are inspired by a sense of service. In a way, we have given up on these after various attempts, and accepted privately that the tests are mostly useless in measuring these abilities.

But tests continue to flourish and has become an export item from America to other countries. With it, goes the illusion of meritocracy. While one of the advisers of the Indian Prime Minister recently complained that India has an examination system rather than an education system, a big company CEO told me why he prefers to recruit only MBAs: "Though they may have learned nothing in their B-Schools, they must be fit enough to survive through the grueling entrance test regime".  I question exactly this kind of faith in meritocracy, which I believe to be a rather dangerous illusion, and would think that the tests are a tool to maintain social stratification of the past and counter-productive for our future.

Apart from what the tests measure, mostly narrow technical rationality, the problem comes from how they measure it. They do it in a controlled environment and a set of rules, which confers an additional advantage to a group of people who are familiar with the environment and the rules, and excludes others who would have come up to the same level of practical competence following different rules. It measures against a socially accepted benchmark, which is necessarily set up past standards of social achievement, but may prove useless going forward. And, finally, it is easy to build a bias for linguistic capabilities, which we all know depend on social class: A poor man's English is different from his rich neighbour's. In short, the tests as they are, are tools to provide justifications of existing social systems rather than developing a true meritocracy.

I am indeed not claiming that all the bright boys are impostors. But I object to the tremendous social waste such testing regimes impose, when they would leave out people or at least make it harder for people outside a charmed circle to make it in life. It gets worse when tests are imposed, from one culture to another. Someone recently commented on one of my blog posts on English Language in India that in India, articulation is taken as a proof of competence. While my reply to him was that this happens more or less in any society, there is a grain of truth in the claim that being able to speak in English puts you in a higher strata in many societies than you will otherwise be. Tests solidify this bias, which comes from nothing other than colonial hangover, and ensure that the same old boys' mentality passes on from one generation to others.

The problem with this is that societies become disabled to deal with change, and move forward. This leads to, in the end, complete implosion of our social and economic systems, of the kind we face now. The most painful aspect of such events in history is our inability to comprehend and to act, which is evident in various social institutions at this very time. However, this is where our faith in meritocracy got us: It is not very unlike the emperor who thought his advisers knew best and the advisers forgot to tell him he had no clothes.

Saturday, September 10, 2011

On Not Going to University

Universities in the UK face a number of different challenges, but none more serious than from a growing coalition of professional and vocational training providers, which are questioning the value of going to the university. Somewhat paradoxically, at the surface at least, these efforts are driven by the two-plank strategy of the government - of cutting university funding which will hit the middle tier universities hard, and on the other hand, putting money on Apprenticeship programmes and projecting these as the panacea of all the social ills in Britain - while the Government ministers, as their lives and discourses show, are deeply reverential of the Oxbridge model, of the great education that the top-tier British universities provide. The growing traction of this opinion stream, that a student loses nothing but his indebtedness by not going to the university, is evident in the number of mentions websites like gets in various news forums. This is joined by the concerns over student debt, in the UK but more prominently in America, where the student debt has become larger than credit card debt and questions about what value university education brings have become most common.

This is an interesting debate to follow, as this is contemporaneous with the debate about national competitiveness and the value of talent. At one hand, there are claims being made that the Western economies must maintain their talent edge over the emerging economies of the South, and on the other, it seems that the governments are less keen on funding the 'white elephant' universities and want to channel a growing amount to work-based learning and other pursuits of less glamorous nature. This becomes even more interesting when contrasted with what is going on in some of the emerging market economies: China is funding and developing a group of soon-to-be-elite universities and India is setting up more Indian Institutes of Technology and of Management. The private sector in India is particularly interested in setting up Higher Education facilities, often in collaboration with the British or American ones, and a number of high profile corporate-sponsored universities are springing up in India. 

There are a number of ways observers are trying to reconcile these apparent paradoxes. The observers on the street are pointing out that countries like India had a low capacity of Higher Education, so such expansion is natural. However, seats in Indian Engineering Colleges and Business Schools go vacant, whereas British universities are full (this year, there was very little available for 'clearing') and have to turn down more than 250,000 students this year. The ministers' apathy to Higher Education is usually explained by the urgency of bridging the social divide and getting more people into more accessible form of education, or, conversely, from their inherent class bias and commitment to a two-tier system, and a deep disregard for middle ranking universities and the talk surrounding social mobility. The most unexplained bit in this debate is the fact that expansion of higher education in most developing countries is both quantitative and qualitative, so these countries have not just more seats but better provisions, and the decline, particularly in Britain, is bound to be qualitative too, given the deep cuts that went into the humanities subjects and the prevalence of 'jobs as the end goal of education' argument.

Without being a starry eyed idealist, one can possibly argue that the jobs and education equation is a disaster. Agreed that a young student must not waste their time learning a skill which isn't socially desirable or important, but to judge that social desirability in terms of how much salary one gets at the end of education is a stupid mistake. However, this is exactly where the preachers of social mobility is at one with the high priests of elitism in education: The masses go to college to serve their masters who will have sole preserve to social decision making after studying History and Classics at Oxford or Economics at Cambridge. The whole idea is that education is for doing and earning, and the job of thinking can be farmed out to someone who are better educated in some mystery-shrouded institution. And, if you are not expected to think, what's the point of going to the University?

Yet, this is strange in a world where the policy-makers, the ones entrusted to think, are proving to be so consistently wrong. Education is surely not working, and it is evident in the fact that we are always coming up with theories as evidently wrong as education does not work. Indeed, I shall not read too much in the growing cacophony of not going to uni kind; these are primarily made by desperate sorts who will send their own children to university by the money they make out of government hand-outs for running the apprenticeship machine. I read not much in the enthusiasm about apprenticeships, and rather see this as a replacement of the previous government's love affair with the NEETs. I am not sure about the social mobility argument, as these schemes are rather patronizing to its recipients and is set up to be a two-tier system where some people are supposed to work and others are supposed to rule. The whole drive to create this alternate education system is inherent in this regressive world-view of exclusivity, however counter-intuitive, perfectly in line with the thinking of an administration which will keep the interest rates down to save house-owners £50 billion a year, while the savers, typically poor people, lose £41 billion, and everyone else faces a high inflation.

Indeed, I am an optimist and see that people will defeat these schemes and still want to go to university if they could. Popular aspirations have always defeated political cynicism, and this will be another such time in history where people will prove cleverer than their masters. I worry about student debts, but the solution to that is in making the universities less insular and more effective, and not barring or inducing people to drop out from Higher Education altogether. We face a world where rules are not certain, and indeed, everyone would need to think for themselves: Good citizenship, if that's the goal, stands on thinking citizenship, not contented citizenship. Higher Education, even if we love t hate it, remains the only route to salvation in a society nearing its judgement day. 

Wednesday, September 07, 2011

Are The Banks Bankrupting UK?

The report on Banking is due, and the bankers are trying to do what they do best: Use the back-channel to flout the rules. In a sense, the only timely thing Alistair Darling has done in his entire career seemed to be the publication of his memoir, where he reminded people how fascinatingly arrogant the banking bosses are, and how they effectively demanded a bail-out and held the British government at ransom. They are indeed at it again, and there are various conciliatory signals coming from the Downing Street. 

The key issue is whether the retail banks can be separated from the investment banking operations of these huge banks, whose combined balance sheets are five times the size of UK's GDP, and therefore, they can be stopped from gambling with Jo Public's money. During the last crisis, the bankers took their 'too big to fail' position as granted and did whatever they want to do, and governments across the world, fearing a meltdown of the system, simply handed them over any money they demanded. The banks want to keep this wonderful system in place, so that they can keep playing with other people's money and take home their bonuses, and once whatever hits the fan, the poor Jo loses his pensions.

One would assume that it is political suicide for any government not to push forward with banking reforms as proposed, but bankers know what works: Blackmail. We learn from today's papers that HSBC may relocate to Hong Kong if the government pushes ahead with reforms. Everyone else may follow suit, and some of them may go to Belize perhaps, and the newspapers will cry about the demise of UK banking industry and loss of a few thousand jobs and lost sales in a few outrageously expensive restaurants and stores in Surrey and the City. The politicians would be in the standby to jump in as and when the public mood is sufficiently forgiving, and reverse all the things that they secretly promised to reverse to the banking bosses in the first place. That's how this game has always been played.

Indeed, it is all a game and someone needs to call the bluffs. I am not sure I see the HSBC board members giving up their life in London and going away to Hong Kong. Barclays in Belize would be a great idea, but I am sure Bob Diamond is not yet ready to board a flight. The cozy relationship with newspaper bosses may have worked so far, but as they say, you can't fool all the people all the time. 

So, let's call the bluff: That UK economy will crumble if the banks leave. Just the opposite: The disproportionate size of the banking industry and their willful manipulation of political power and public opinion is actually bankrupting UK. The prosperity of UK was not built by its banks, it was built by various industrialists, academicians, scientists, traders and engineers. People who wanted to create, put in the hard work, take the risks. This is a carefully constructed illusion that banks create wealth: The sole purpose they exist is to turn savings into investment and keep an industrial economy's blood circulation. But, in the UK, banks have grown so large and powerful, that they suck out the economy's lifeblood.

The light touch regulation that the UK government has adapted has turned this country somewhat of a safe heaven of globally 'terrorist' banks, not unlike how Al Queda used Afghanistan and later Pakistan. While this may sounded convenient to few Tories and their fellow travellers, unfortunately the banks bankrupt Britain first. They do so by destroying the public finances, altering public consciousness, starving other industries from public attention and support and finally, undermining an honest day's work that most people still put in. Much like the arrogance the ex-Chancellor noted in his book, the bankers are almost always laughing their way to the bank after stealing poor Jo's house and pension and his son's university education. And, UK ministers, clueless and compliant, is playing a season of 'Yes, Banker': Sacrificing through policy neglect and flawed priorities, the industries which create jobs and 'stuff', which Britain made so well for so long.

I am aware that the working class has lost the battle in Britain, but its losses, paradoxically, have now turned into a complete decline of 'industrial spirit'. I am reading Martin Wiener's English Culture and the Decline of the Industrial Spirit,  and I am certain an update is urgently overdue. It is a complex process of gentrification of Working Class and a handover of political supremacy to a non-working middle class that bankrupts Britain today.


Monday, September 05, 2011

Reputation in Education

Shall we call it the brand? But reputation is slightly different from a brand. Brand is like personality, what one's known for. It can include the likeable and not so likeable traits, sometimes intentionally. Reputation is somewhat of a subset, what's good of the institution in question, word of which spreads far and wide. Reputation is also more than word of mouth, because it is not just what my friend said, but this is supposed to be - what everyone knows. 

I am interested in reputation as I think this is the only way way an education business can generate a surplus. In the strict economic sense, this surplus isn't profit: This will be more like rent. Profits are generated for taking risks, rent is for having created a privileged position. Reputation is all about creating a privileged position which students want to gain access to. What price is the access to the class of 2015 of Harvard: Priceless, I would assume.

The analogy to rent is useful because it seems education is more like the business of farming than hunting and gathering (though rent of this kind arise not just from land but from privileged position of any description) . Education business is hardly the place for an opportunist, because running after opportunities available often ruins the chances of building the high grounds immune from floods. Opportunism in education, much unlike some other businesses, may actually erode surplus rather than creating it. 

Also, education is that curious commercial activity where the customer does not have much choice of an exit and hence they depend on on what Hirschman will call 'Voice'. They say when they don't like things. This is unlike most other businesses , yet again. Slightly easier, perhaps, as any decline is immediately visible, and one does not have go looking far what is wrong with an education institution. Reputation in an education institution, in that sense, is omnipresent, and is being created and destroyed, every day.

Which makes its a business unsuitable for the faint-hearted. I was once advised, by someone who was a veteran in education business, that education is all about 'details'. I resented this at the time, being big picture type as I usually am, but I have come to learn that the reputational consequences of missing out on the details. And, in turn, one must deduce that the education businessmen are only those who will be painstakingly build things up brick by brick,  detail by detail, while keeping their eye fixated on the ultimate shape of the cathedral they are building, and doing so, who are brave enough to pass off some of the rewards of the day, as they would only distract and worse still, they may induce mistakes which might make the spires unsustainable.

Sunday, September 04, 2011

How Does For-Profit Higher Ed Turn A Profit?

The more I look at the For-Profit Education industry's business model, it seems that the industry is only profitable within a narrow band of course offerings, notably in Accountancy, Law, Business Administration, Hospitality, Computing and Fashion, but not in much else. I would have loved to add design or Engineering, but numbers don't seem to add up there. Besides, in most cases, For-Profit Education's profits have come from regulatory lapses, as the recent experiences in United States show, and are bound to fall once the regulators tighten their act. In a way, For-Profit Education sector has been innovative and ahead of the industry, but mostly in an unsavory way, which gives the sector as a whole quite a bad name. In Britain, for example, For Profit Education has been taken over by operators running fraudulent immigration schemes, so much so that the Government has imposed harsh legislation particularly for the sector. 

With all this, the obvious question that needs to be answered is whether For-Profit Education industry can actually turn a profit under an effective regulatory regime. Indeed, the Public Higher Education can barely generate a surplus as a whole, and the costs of education delivery, salaries of tutors, cost of journals and resources, real estate costs, marketing and advertising costs are all going up at the same time as the student loan burdens are skyrocketing. If there is a surplus to be generated, where would that surplus come from?

Indeed, the answer is quite straightforward and can be seen from the examples of highly successful Not-for-Profit schools: The surplus comes from reputation premiums. Under an effective regulatory regime and a competitive environment, it is hard to make money just by offering access to education to an underserved segment, which most For-Profit companies set out to do. The real money can only come from people who are ready to pay a little extra for being in a particular school.

This is common knowledge, surely, and all we are talking about is the value of brand etc., which creates differentiation where there may be none and create a monopoly space within a competitive framework. However, this means that there is no money to be made in commoditizing education. This is important because most For-Profit Education companies are set out just to do that: Their mission is to serve people who are turned down by the better schools or those who can't afford a proper university. The mantra of For-Profit is ACCESS and this is about making available a path to degree to everyone. While this may be a worthwhile goal, there is not much profit to be made there unless there is a regulatory lapse, and even then such opportunity may only be temporary.

This also means that the right investors for a For-Profit Education company should be those who are more interested in brand equity and value than those who are keen on quarterly trading profits. Indeed, when setting up a start-up, compromises have to be made in terms of securing investment, and we may end up combining elements of different business models, a combination of short term building blocks based on immediate opportunities linked to the long term pursuit of value and brand equity. Surely, one has to get the investors right in such ventures, so that the objectives can remain fixed on long term value even when immediate revenue opportunities are grabbed, as this will invariably mean choices have to be made at every step and some revenue opportunities have to be let go. This, as I can see, is the only way a For-Profit can turn a profit - not from expansion, but from reputation.

Saturday, September 03, 2011

Searching for A Business Model

If I have spent last 18 months working in designing, developing and delivering business degree courses in Britain, I wish to spend the next 18, or 36, or longer, to build the capability to deliver such British Education programmes worldwide. I think this is only the logical next step for me, and in line with what I have done before, during my time in International Franchising and e-Learning companies. Whether or not I can achieve this within the context of my current client project is not certain: Often, companies which are successful in one way of doing business are terribly difficult to adapt to another business model, even if the next business model is only the logical next step.

However, that battle aside, I am not sure about the shape of the business model yet. I, and the people I have discussed this with, are all guessing that this is a good opportunity, because it appeals to common sense. A global education for a globalized world, sounds like a cheesy headline of a morning paper: By definition, a self-evident thing. However, education still remains highly regulated, beset by vested interests, and impossibly difficult to trade in across borders. Indeed, that is the opportunity: My ideas of creating an unified platform for exporting British Higher Education is triggered by the sobering statistic that only 2% of world's students study in an university outside their country of birth. Clearly, a business can be built expanding access to global higher education to the pupils who have not tried it so far.

This way, I have a feel of the market and demand, but this is not the same as finding the business model. My underlying assumption about the capital structure is that there will be angel investors and private equity firms backing up international education start-ups because of the common sense appeal of the same. I see the exit option for such investors, and clearly they will constitute two stages of funding rather than one, coming from the public capital markets or trade buyers, where these trade buyers will be the large For Profit education companies with global ambitions. However, I am also conscious of the timing: In a way, we are at a maturing stage of investor interest in For Profit education, given the less-than-optimal student success and increased regulation of such providers in the US, where the student loans, primarily on the back of soaring college fees, are becoming unsustainable. 

The market we target are different, in Asia and Africa, where there is a seemingly unlimited number of young people whose hopes and aspirations are sky-high. But, it is also important to look at the cost model, as the paying capacity of these consumers are lower than their western counterparts and some clever method is needed to spread the cost over a longer period of the students' lifetime. Without this, even with demand, the offerings may not be scalable: Without scale, indeed, the export model of education does not work.

This is where my new-found interest in economics, banking and finance come from. I am trying to gain some understanding of various financial instruments, and how student finance work in different countries. I am having to cover some lost ground - I studied economics back in the 80s (my Masters was completed in 1992) and the subject changed considerably since. Besides, my reading list then contained nothing of the economics of education, which is precisely the focus of my studies now. I have tried working out the financial models of computer training and English learning before, with some success, and this is another time I am having to do this exercise. This is possibly the most complicated of it all, given the kind of service education is, and even with a rather inelastic demand situation overseas (or so one thinks), it is not easy to structure the finances so that the investors, students and the administrators in various countries are all happy.

Friday, September 02, 2011

Come September

So this is September and at one point of my life, back in India, this used to be the month when we prepared for change. One ritual in NIIT life used to be a complete reorganization of all functions on the 1st of October, and everyone almost surely knew that they would have a role change on that day. So, as September came, which also happened to be the busiest time of the company's yearly calendar, the last month of the financial year, everyone was busy but secretly preparing, lobbying and positioning themselves for various coveted roles. I was never much of an insider, so the best I could do is to guess what would happen, and the only certainty I lived with was that of change itself. Given that I spent seven years working in NIIT, and at least other seven working closely with ex-colleagues steeped deeply in that culture, I am used to September as the month of the beginning of the end. 1st October, in my mind, is always deliverance.

Since I think that way, my life also shapes up that way. Year after year, big things happened towards the end of September, allowing me to start fresh in October. It is not about any superstition, but just that I am programmed to expect changes and I invariably set myself up that way. This is what I am doing this year as well.

What I am working on is sort of coming to a logical end-point, when I should be able to step back and let things take their course. I am indeed working with a brilliant young team who are perfectly capable of carrying out their responsibilities; for a long time, I have supported and advised them and I now think they are capable of running the show themselves. I am convinced that there are great possibilities in my current project, but the aspirations of my clients may be actually diverging from mine at this time. I am focused on trying to build a high value international Higher Education company: This may not be everyone's cup of tea and understandably there is a clear parting of ways on this point. I am not convinced that the international student recruitment market for British educational institutions can ever go back to the glory days of 2009, but this is precisely the thinking of some of my clients. So, indeed, it is time for me to take the projects to a logical end, enable my clients to consolidate the capabilities and empower my colleagues to run the business, progressively without my intervention, for a few months and then move on.

I am planning to go back to the International Higher Education market-space because that's the market I understand well. This means a return to my traveling days, but it seems inevitable. I am quite a good traveler, tough, flexible, always local, and I am excited with the possibility of being able to travel again. I shall start with a private visit to India, part of which will be to see family and friends, but the other half, I am hoping, I shall be able to spend talking to Indian For Profit colleges about my plans for global education. The idea is to create a globally linked education course, so that the students learn business and other subjects immersed within a truly global context. This is different from the international education now, where there is a source and a destination country, and an assumption that the latter is better than the former (why else a student would want to travel to study). However, I am trying to knit together a network of global schools, who will exchange students and tutors and curriculum, and collectively offer a good value alternative to aspiring students to travel and learn.

Indeed, this is what I was trying to do since 2008, when I started thinking and writing about this idea. For a number of reasons, I couldn't get the project off the ground then. But, today, I am far more prepared to try again: I have spent the intervening years studying about education, knowing more about education technology, building a network worldwide and developing my understanding about how the British Education system works. I am definitely more confident than I was at the time when I started the conversation.

So, this may become the big change in October then, a transition from the staying home mode to the traveling mode, from an advisor mode to a doing mode: As if my life was waiting for this moment.

Thursday, September 01, 2011

Searching For A Domain

Domain as in an area of deep expertise - not the web variety - as I am trying to discover my T-skill. This has become an article of faith for me that to be successful, everyone, me included, will need T-shaped skills - a lot of different interest areas, but one deep skill, as in the letter T. I have lots of different interest areas - history, photography, writing, literature, education, marketing and advertising, travelling - but to be honest, I am not entirely certain about the T-skill. I did say I shall spend six years studying and learning about Higher Education worldwide, and I have now spent two of those six. I surely feel confident to talk about it, and I am increasingly fascinated by the politics of Higher Education. I do think that this will be one thing I shall stick around with, study more, research, work within the sector - this may indeed grow to become my T-skill someday.

In fact, I may have said I found it already, but as they say, spending time with people smarter than you is always helpful to wash away any pretensions of being an expert. I spent an hour in the afternoon listening to Professor Nicholas Barr, of London School of Economics, who is a renowned expert on public economics and was talking about the university fees reform in the UK. It was fascinating getting such a nuanced view - indeed enriched by other people in the audience, which included the Vice Chancellor of London South Bank University - of what the university fee reforms address and what they fail to address. From my own point of view, I could see one bit everyone carefully avoided discussing is the role private sector can or should play, and Professor Barr was, rightly, of the opinion that private sector options will take some time to make a serious contribution to the HE provisions in Britain.

There were a number of ideas I came back with. One of the key ideas is a pupil premium, based on the idea that it actually costs more money to teach an academically challenged student than a good student. Indeed, most of the university funding in Britain seems geared towards the top universities - that indeed is the basis of the rhetoric - but one can't possibly see how Britain can remain an internationally competitive society if it chooses to focus on only a few top universities and ignore everything else. The other interesting idea, which came from the hosts, Social Market Foundation, is to make the institutions bear the risk rather than the taxpayers. The idea is simple: The universities receive the loan from the government and act as some sort of a guarantor for the students' repayments. The key idea behind the suggestion is that the universities should be responsible for students' employability and their future earning potential, but the elitist bias of the suggestion was quite plain. Professor Barr did point out that the universities will then be super-selective, and exclude demographic cohorts like women, who have a much worse repayment rates for income-contingent loans as they would take breaks around the time of child birth and child minding. This will surely be socially regressive and will do nothing to widen participation, which seems to be the key driver behind the reforms.

I have also started reading D Bruce Johnstone and Pamela Marcucci's Financing Higher Education Worldwide: Who Pays? Who Should Pay? which is a happy coincidence. I do believe that we are living in an idea of deep shifts in higher education and this is one of key interests, both from the professional angle, but also from my interest in history and social dynamic.

Apart from this one hour attending the seminar around the lunchtime, this was quite a demanding day. I had various preparations to do for different internal meetings, as well as to meet a number of students who seemed to be turning up at their will. I managed to get my OCI done, though not before three different trips to the Indian High Commission. It was as chaotic as ever, and my first feelings after getting the OCI papers in hand was one of relief: That I may not have to queue again and go through the process at this particular place anymore. The second feeling was the joy in reconnecting with India - I can now travel at will and this is exactly what I shall start doing now.

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