How to end a recession

Of late, there has been considerable debate - especially in the US and Europe - about government deficit spending to hit one's way out of a recession. A little like a side batting second in a one-day cricket match with few wickets left may choose to throw caution to the winds and go after the bowling, somewhat counter-intuitively.

Some left-leaning economists like Paul Krugman strongly advocate such spending, pointing out that Japan's tightening its purse-strings probably deepened that country's problems.

In fierce opposition, right-leaning economists point out that Germany has remained fiscally responsible and is doing well, while countries like Greece have had free-spending governments and have been the worst hit.

While reading yet one more article on this by Krugman in the NY Times, a thought dawned on me and I posted a comment (which I hope Krugman read!)

It seems to me that recovery from a major slump is ideally built around a theme of some sort, that businesses and individuals can rally around. Perhaps the theme may or may not involve major deficit spending.

A world war, a historic decision by businesses and trade unions to be flexible*, an appeal to the national character, an astrological prediction of a bountiful year, even a world championship win in a popular sport - in different contexts and cultures these could all be themes that pull an economy out of recession.

*as in Germany

You can see this in India. A lot of the richer people believe India is shining, so it is not doing badly overall. Currently growth seems to be a seriously lagging indicator of the stockmarket indices, rather than the other way around.

In the US, people and businesses are currently pessimistic, so the situation is worse than it might have been. There are fundamental problems - primarily too little genuine education and too much soundbite TV - but these are not insurmountable.

Perhaps the US should have been allowed to win the soccer World Cup?

Dreamland: At the library

I was self-righteously upset. I went up to the librarian. "Ma'am, the books are not where they should be..." And then, "I admit once or twice I myself have put books back in slightly the wrong place ... but at least I have always felt guilty about it afterwards."

To my surprise she did not see my complaint as an accusation and said, "I totally agree. I can't tell you how important that is."

Taken off guard, I looked at her face, thin and drawn with horned black glasses. I wondered who she thoguht was responsible for the problem - wasn't it her responsibility? "We have such a beautiful library here otherwise. But if you can't find the books, all that money is wasted." And as I said it I saw how well lit and sunny and airy the library was. Airy, yes, that was the word. "All that money is wasted", I said. I was about to add "and there is then nothing left of it for everyone" but held back - it seemed somehow too money-minded and suddenly I thought as well, "I don't know what a librarian makes. Maybe she doesn't make much."

"No, I totally agree", she said, and then she walked ahead of me into the bookshelves to show me something. Her clothes were all white, but a white that was as though seen through a slight fog... a foggy white.

She stood at a bookshelf and said, "For example, this book here has been filed under both Airlines and Section 1.4.02". I marveled just a little at how amazing library systems were and I reached out and picked up a random book.

It was a photocopied book, and I opened it at random to find the chapter title, "Don Bosco School". It presumably was an alumni list. Must be Calcutta - that's the big Don Bosco. But I looked a little closer and it said "Ahmedabad". "This is the alumni directory", she said almost as I figured it out myself. "It also has the listing for Don Bosco Indore..."

>>>>>>>>>

That's just the transcript of a dream I had a few weeks ago and wrote down minutes after waking up from it when it started fraying. Dreaming is an incredible activity. Many dreams are more vividly experienced than real life itself is.

The stitching together of so many subjects breathlessly - in just a few seconds of perceived action - is also fascinating. The library (I haven't really spent time in a library for more than a decade), the photocopied books (something from our IIT days in the early 1990s), the reference to airlines (I take care of the Lufthansa account at Nagarro), the reference to Indore and Ahmedabad (the Proton locations), the reference to Don Bosco (where I went to school till 1989).

The dream plays out like a story created deliberately and rapidly by some devilish genius... At each step the slightest of cues are used to switch context.

Dreams must play some critical role. It is difficult to believe that they are just by-products of our mind. If they are meant to remind us of memories in order to refresh them, then they must be quite a sophisticated evolutionary achievement.

The vividness of the dream of course can also make you question the reality of perceived reality. The only fundamentally different thing about reality is that it follows more detailed laws that don't change.

For example, you wake up day after day to the same wife. :-)

Without comment

Bhopal - learning lessons or finding scapegoats?

I support the right of the Indian judicial system to try Warren Anderson, the CEO of Union Carbide at the time of the Bhopal gas disaster.

At the same time, I think prosecution of Anderson now will be quite pointless and is not a priority. And the case against him is weak.

The media and Parliament frenzy around Anderson is mostly a waste of time.


The context

Folks, think about it. As per my quick research, at the time of the disaster Union Carbide ran over 500 installations in 130 countries, with about $9 billion in sales. Less than 2% of sales came from the Indian subsidiary UCIL, which was listed in India and in which 49% was held by investors other than Union Carbide (including individual Indian investors). Bhopal was only one of the dozen factories of UCIL in India.

So Warren Anderson is the CEO of a US company which is in 130 countries. It is invested in an Indian company along with many Indian shareholders, whose revenues are less than 2% of the group revenues. Water gets into a tank and triggers a disaster, and we are baying for his blood?


A culture of laxity

For better or for worse, we in India have a culture of laxity when it comes to safety. Perhaps it comes from a certain spiritual acceptance of the impermanence of life. Perhaps we are just a poor country and do not have the luxury to worry about low probability events.

Whatever it is, we leave wires exposed, drains uncovered, critical equipment poorly maintained. With us it is a way of life.

To illustrate this point, I searched the web to answer the following questions: When did the last person die in Delhi by electrocution due to careless wiring? When did the last child die by falling into a manhole? When did the last Indian Air Force MiG 21 crash?

I have the following results from the last few days. [Note: This article was written on August 11.]

August 11, Times of India

NEW DELHI: A six-year-old boy died on Tuesday morning after falling into an open manhole in Shaheen Bagh, Jamia Nagar. Three hours after he fell in, Adil Raza's body was spotted by children playing on the street, after which labourers who had been working nearby pulled the body out of the manhole. The boy's body was found 20 feet away from the manhole he had fallen into.

(While searching for this, I came across another tragic story from April, where a 10 year old boy died after falling into a 35 deep manhole. Rescuers tried to reach him but the power supply failed. They tried using a generator but - rather typically - it did not work either.)

August 10, Sify News

Man electrocuted in Delhi

A man was electrocuted after he came in contact with a live wire dangling from an electric pole in northwest Delhi, police said Tuesday. Ajay Gupta, a 32-year-old auto-rickshaw driver, had stopped his vehicle near a pit full of water by the roadside in Hyderpur area of northwest Delhi Monday and as he stepped out, he received a shock, a police official said.

and

August 8, Asian Defence

MiG-21 Fighter Jet of Indian Air Force Crashes

A MiG-21 fighter jet of the Indian Air Force (IAF) crashed in the eastern Indian state of Assam, local media reported.The pilot lost control and the aircraft fell on a paddy field some 25 km from the city of Tezpur on Saturday.

Remember "Rang De Basanti"? The story continues.

Such events occur ALL the time. We are inured to them by now.

I can understand how Jagmohan felt when he talked in the Lok Sabha about the Uphaar fire tragedy:

"This is really in my view not only a civic issue but also a civilisational issue. We commit a large number of crimes by omission. This is an omission. Can we find any other (place) which is disorderly, disorganised, chaotic, without any regard for rules and regulations? It shows that we are a dehumanised civilisation." [Source: Wikipedia]

I do not think we are a "dehumanized civilisation" but you will agree there is some truth in his words. The Bhopal disaster was quite likely a result of sloppy maintenance and upkeep, in the normal Indian tradition.


Low value of human life

The government sued Union Carbide for $3.3 billion. In the end, Union Carbide paid $470 million in a settlement negotiated by the Supreme Court even though technically its liability for its subsidiary and technological partner UCIL was unclear. This number was indeed laughably low by US standards. But it was in line with compensation awarded routinely in India where the value of human life remains low.

These days, with the media spotlight, the ex-gratia payments made by the government have started climbing up. When there is a spectacular train wreck, for example, the Railway Minister may loudly announce Rs. 3.5 lakhs or 4 lakhs or 5 lakhs for each person killed and 1 lakh for those injured. But even as late as 2002 an Indian Railways circular announced that:

The amount paid as ex-gratia relief payable to the dependents of dead or injured passengers involved in train accidents or untoward incidents as defined under Sections 124 and 124-A should be as under:-
(i) In case of death :Rs. 15,000/-
(ii) In case of grievous injury (Irrespective of the period of hospitalisation) :Rs. 5,000/-
(iii) In case of simple injuries :Rs. 500/-

And even today, when there is no media attention, ex-gratia payments of compensation are miserly.

In comparison, Union Carbide paid $470 million in 1984 dollars, which is equivalent in buying power to more than double the dollars today. The total payment in today's rupees is Rs. 4500 crores. If you take the toll as 20,000 killed and 250,000 grievously injured and 250,000 with simple injuries, and the ratio of death to injury compensation as in the railways case, you get - in today's rupees - Rs. 13,000 for simple injuries, Rs. 1.3 lakhs for grievous injuries, and about Rs. 4 lakhs for deaths. While not generous, it compares well with Indian government payments till very recently.

This is a macabre calculation and human life is priceless, but I just wanted to show that the Supreme Court settlement was probably not a sellout.


Slow relief effort

There is no law that only Union Carbide money can be used to help the victims. Yet the government's payment of compensation has been slow.

The first ex-gratia payment announced was only Rs. 1500. Till 1992, almost half the claimants for compensation had not been medically examined. The final sum paid for each death was less than Rs. 1 lakh. Even today the ground around the site is laden with chemicals.

Worse, many factories all over India continue to spew poison into wells and rivers. The air in our cities is noxious beyond all health norms. It is not clear that we are safer today against a catastrophic industrial accident than we were in 1984.


What about individual responsibility in government?

Of late, our courts have been more aggressive in fixing individual responsibility for accidents (e.g. in the Uphaar case), which is good to an extent (e.g. building managers are now a little more serious about fire safety). But the the government itself often gets away scot-free.

For example, did any senior government person go to jail for the string of errors of omission that led to 173 people dead and 300+ injured on 26/11/2008? Did anyone get arrested for not planning a serious anti-terrorist force in Mumbai, or for the 10 hours it took for the NSG to get to Mumbai (by road from Manesar to Delhi airport and by bus from Mumbai airport to the site!), or for the fact that NSG commandos were fighting in the dark without night vision devices? The world watched as the fatal lack of training and preparation of India's security forces unfolded on live TV and people paid with their lives. The FBI's investigator had some chilling commentary on the amateurism of the Indian security establishment.

I shudder to think what will happen if we ever get into a real war, how many of our soldiers' lives will be needlessly lost due to lack of basic equipment and real training.

The point

I started this post by saying that "I support the right of the Indian judicial system to try Warren Anderson, the CEO of Union Carbide at the time of the Bhopal gas disaster. At the same time, I think prosecution of Anderson now will be quite pointless and is not a priority. And the case against him is weak. The media and Parliament frenzy around Anderson is mostly a waste of time."

But I want to make a broader point. The "soundbite media" is very dangerous. I think the United States today has been hollowed out by the soundbite-driven media to just a shadow of its former self. I frankly think that the media is the dominant disease that has crippled America. And I don't really know what the solution is. It will always be easier to watch a sensationalist TV "news" show than read the Economist or The New York Times or to listen to the BBC World News.

So as a young person, you must be skeptical of the populist noises coming from the media and politicians of all stripes. Subscribe to sober media. Think critically for yourself. Look at the facts carefully.

As a US Senator nicely observed, "Everyone is entitled to his own opinion, but not (to) his own facts."

And the Bhopal disaster is not about Warren Anderson. It is about us.

The economist and the 100 dollar bill

Yesterday's Financial Times had an amusing little reference to the "apocryphal economics professor who left a $100 bill lying on a busy street, figuring that it would have been picked up already if it were real"!

Even before you think of starting a company and consider whether you are well placed to do it, you have to predict how long the sectoral opportunity will last before others pick it up. It is a very challenging question.

When Indian companies got into IT services in a big way, they were pilloried for providing a commodity service and not being in products and were widely expected to plateau in a few years. That hasn't happened yet!

Then came the turn of the BPOs - everyone was highly enthusiastic. But the golden opportunity lasted only a few years before famine set in and took out the weaker players. Still, some companies did exceedingly well and on hindsight, it was silly for people like me to sit on the sidelines arguing theoretically that BPO services were a pure commodity.

When we started SupplyChainge, I would go to bed each night sick with worry that someone else would "discover" our key insight and blow us out of the water. I was as wrong as I could have been - it has taken a decade for the "lead time optimization" or "flexible supply planning" ideas we espoused to start to become mainstream.

So perhaps the final analysis is this: In the long run, everything is a commodity and we are all dead, but in the short run, there is money to be made off sectoral opportunities. When the tide comes in, even the dead fish rise, said Hemingway.

When the tide goes out, you find out who is not wearing any clothes, said Warren Buffett, but if you are comfortable in your state of (un)dress you should perhaps not be too nervous about taking the tide at the flood.

For as Brutus say in Julius Caesar:

There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

***

Yet as regards macro-economic trends, I feel attracted to the mindset of that professor. I seldom believe anyone can be wiser than the broad market, especially when it is going up. I feel that all positive information must already be factored in. (Yeah, I'm an optimist.) And when I see a sustained broad surge in share prices or property values that seems to prove my caution wrong, I become even more skeptical.

Luckily I have never been energetic enough to try to (legally) short the rising market, else I might have lost a lot of money! Because as we have seen over the last several years, bubbles can become VERY big before they burst.

The only time I have felt confident about predicting a big surge in the broad market was in the early 2000s. Each time I returned to India from the US I saw such dramatic and fundamental changes that I took a small bet on the broad market that proved prescient or lucky, although true to form my enthusiasm turned to skepticism as the markets continued to rise.

Very small events and very big happenings appear to be difficult to predict. There seems better predictability somewhere in between for some reason.