Thursday, November 29, 2012

Cash transfers instead of subsidies

India is embarking on a major revamp of its social security system - replacing subsidised food, fertiliser, fuel, etc etc with direct cash transfers to the bank accounts of the "poor". Is this good or bad ?

The current system involves heavily subsidised foodgrain, fertilisers, fuel, etc being made available to ration card holders through the public distribution system. This suffers from a whole host of problems. Bribery, corruption, pilferage, etc ensure that only a fraction of the stuff ends up in the hands of the targeted people.  In some areas like fuel, cooking gas cylinders are widely misused and the diesel subsidy lands into the pockets of rich car owners. The waste is so incredible that something ought to be done.

The solution proposed is to eliminate all subsidies progressively and instead simply transfer cash by electronic transfers to bank accounts of the target population. Initially it will cover various anti poverty schemes, then extend to cooking gas and kerosene and only finally to food and fertiliser. The Aadhar scheme is intended to enable foolproof identification. This way middlemen and cheats are largely eliminated. The poor use this money to buy their requirements from normal shops selling products at market prices.

The scheme has lots of advantages. Firstly corruption will go down, although it will not be eliminated. The middlemen taking cuts will be put largely out of business. The country's subsidy bill will drastically fall - as the waste will significantly reduce. The entire rotten public distribution system can be disbanded (although it works quite well in states like Tamil Nadu and Chattisgarh).  Today's technology can ensure that fraud and stealing can be drastically reduced.

However, my worry is that once cash reaches the intended family, what will they use it on. The problem is that their buying behaviour is not predictable or controllable. Undoubtedly many men will use this money to drink . Families will use this money for atrocious causes such as dowry, or  to show status. The brilliant book, Poor Economics, draws on extensive research to prove how their decisions might not seem rational. Research shows, even with present incomes, the poor could spend 30% more on food, if they cut out liquor and tobacco.  When they buy food, the choices are not based on calories or nutrition, but on taste and style. On the medical front, they shun expenditure on low cost preventive measures like mosquito nets or chlorine tablets, even when provided free, and instead go to the local quack for a costly useless injection.

Of course, it is not for me, or anybody else, to prescribe what any individual wishes to spend money on. But I certainly have a problem if my tax rupees  go to fund drinking liquor.

Cash transfers have worked in some other countries, notably the Bolsa Familia in Brazil. But this is a conditional transfer scheme - they get a small amount of money ($12 a month) if  the children stay in school, mothers attend pre natal care, etc etc. India plans to give some $70 a month or so as a straight dole.

On balance cash transfers appears a good thing, but it is not an altogether perfect solution and needs to be implemented with care (not gunghoism). It is wise to recall how Kamaraj in the 1960s raised the literacy levels in Tamil Nadu. With great insight he introduced the mid day meal scheme. Families sent children to school so that they could have a square meal. I doubt the move would have been that effective if he had instead given cash for them to buy a meal.

Sunday, November 25, 2012

Oh ! What a mess

Come on Argentina. How often do you ask everybody to cry for you ?  On Wednesday, a US District Court Judge detonated an atom bomb (metaphorically, thankfully), in the world of financial markets. As usual, Argentina was at the centre of it. Here is the story, with a little bit of history.

In 2001, Argentina defaulted on its sovereign debt - one of the rare instances of a major country doing so. A default essentially means that a country has no money on the due date to repay a loan it had taken and tells the creditors to fly a kite. The consequences of such an action are drastic - the country immediately becomes an international pariah in financial markets and nobody would lend to it anymore. That has been Argentina's lot for the last decade, and the situation Greece is desperately trying to avoid today.

When Argentina defaulted, most of its creditors got together and negotiated a "restructuring package" which meant that they would get something back at least - spread over a long period of time. It was a crappy deal for the creditors, but at least they would get something. They did this settlement twice- once in 2005 and again in 2010.

Two hedge funds Elliott Associates and Aurelius Capital, however chose not to negotiate and filed a case in the US courts asking for payment in full. The court gave its sentence last Wednesday, which is the metaphorical atom bomb I referred to. The judge ruled that Argentina will have to pay in full to these two hedge funds who sued, even in priority to the vast majority of creditors who settled ! The amount is some $1.3 bn.

This action is like poking a stick in a hornet's nest. All sorts of ramifications abound. First is the predictable response from Argentina, telling the US judge to go stuff himself, saying he cannot order a sovereign nation to do anything. But since the original debt was issued in the US and in dollars, there is some jurisdiction for US courts. However, short of sending in the army, how would the US enforce this decision ? It is hardly likely to start a war to satisfy two hedge funds.  It can resort to freezing Argentinian assets and the like, creating a messy situation.

The creditors who negotiated and settled are crying foul. They will have to wait for some 30 years and get a percentage of the amount, whereas these two funds are supposed to get their money in full immediately. They are suing to stay the decision giving these two funds priority. So anybody who negotiates in future is an idiot. Greece, which is trying to negotiate a restructuring package currently is quivering in the boots.

Then there is the question of a nation "starving" to raise money to pay "evil hedge funds". An angle that is sure to stoke the fires against wicked capitalists. Cristina Fernandez, the Argentinian President, who can effectively rabble rouse, is already singing this tune.

Argentina is appealing (interestingly while saying that the US courts should f@&* off at the same time !) . This will go all the way to the US Supreme Court. 

All this raises the issue of countries borrowing too much and not being in a position to pay the debt back. Very often the money borrowed is wasted away - in subsidies, doles, etc etc. Every country is guilty of this; just witness what the US is up to with debt at completely unsustainable levels - where are they spending the money they are borrowing ? - in fighting wars in Iraq and Afghanistan, in providing free health care to the elderly and the poor and doling out money to the unemployed. How will any of this yield a return so that the debt can be paid back ? Every country is simply borrowing more to pay back the original debt and keep doing exactly what it has been doing.

 Oh ! What a mess.

Sunday, November 18, 2012

What happens behind closed doors in a bedroom

What do people do in bed, other than sleeping ? Should be an easy one, isn't it. Well, it turns out not to be so easy. No, it's not what you thought.  Apparently, the activity that is most often done in bed is working ! 

This blogger has often moaned about the complete encroachment of the office in to the home. The awful mobile phone started the trend. The tyrannical Blackberry, despite offering the serious affliction of arthritis of the thumb, turned zillions into addicts.  The tablet completed the victorious rout. The office has completely taken over the home. Wife and kids - can you move to the garage please. 

You know that working in bed is a reality when you see companies offering products that "improve your productivity" while in bed. I had thought that such a claim would strictly be in the realm of the magazines of a certain slant, but apparently these come with a U certificate. Take the example of this bed (online price $5,999)

No, this doesn't rock and shake. Apparently it has more prosaic qualities. It has power sockets built in and one side of the bed can be propped up to let you work while the other side remains flat for your spouse to continue sleeping.

Or how about this laptop holder from IKEA. 

Or something called the "Pyramid Pillow". While it helps you prop up the tablet, apparently its USP is that it can stop pens from getting lost under the sheet.

What is the world coming to ? The future of the human species is under grave threat, if the result of groping in a dark bedroom yields a pen !  If the dominant sound is a ping, instead of what you would expect (no; not a snore !) . When you missed "action" with your spouse (or the significant other) because it was not on your Outlook calendar ? All right, I shall stop here.

Isn't there anything sacred anymore under the onslaught of the office. Can't you retreat into a private sanctuary of your bedroom, without the office crowds joining you. That is why I am dead against the promise of video calling. If I have to do a call from bed, I would rather not have the calling party see me in my pajamas, or worse ! And I certainly don't want to see the other in curlers - and I thought she was very pretty.

Do me a favour. Erect a minefield around your bedroom and shoot the office if it tries to encroach. If your guard is slipping, remember this blog post. And remember that we would all not have been born if the second most common activity that happened in the bedroom was working !

Monday, November 12, 2012

The incomparable Bill Gates

I remain confounded as to why Bill Gates is not universally loved in this world. Ask people at random to name the greatest living person  and you'll get a wide variety of names. But I bet, you won't see the name of Bill Gates very much. And yet , to me, he would rank right up alongside with Nelson Mandela for that honour.

Why ?;  do you ask ? here's why.

There have been many incredibly successful businessmen in the world. Few can deny that Bill Gates is one of them. But he is only one of many; many preceded him, and no doubt many will succeed him. But even in the success, you should laud his lifestyle - never ostentatious, low key, with class and style and the very epitome of what a successful businessman should be.

And then he gave virtually all his money to charity. In this, he is rare, but not unique. Others have donated large sums before too. The list of business tycoons, who have been major givers for social causes is an illustrious list.

But he is absolutely unique, in that not only did he give money, but that he quit corporate life and is now an active manager and leader of the Bill and Melinda Gates Foundation. He has brought his incredible business and organisational talents to the the social work his Foundation is doing. In that he stands alone. No comparable peer is anywhere close to him in this regard. 

If you don't know what the Bill and Melinda Gates Foundation do, visit their website. They have been one of the major players in the virtual eradication of polio around the world. Their work in Global Health is stupendous - he leads the fight against tuberculosis, malaria, cholera, AIDS, and such diseases that affect the poor. The work they do in women's health and family planning is like nothing the world has ever seen. Just witness the latest innovation awards that they sponsored. It was not in some sexy field in social work. It was in innovation in toilet design - sanitary facilities being the single largest problem and the largest cause of disease in the poor world. Who else can think of the Reinvent Toilet award ?

Listen to one of his TED talks here, where he dealt with malaria and education and you'll know what I mean.

Its not just the work that Bill and Melinda do. Its the way they do it. They have brought management excellence and governance to the social field where it was sorely lacking.  On a scale that is staggering. The social sector has been transformed by the Gates Foundation. They bring business discipline - project plans, funding, evaluation, corrections and results to the social field. They work with governments and make sure governance is good enough for the money to reach where it should. Most governmental aid disappears down the pockets of the corrupt. Not so with the Gates Foundation. Nobody dares to steal their money or produce poor results - he runs the programs with the same ruthlessness as in business. He works with governments to influence policy. He doesn't dicatate from corporate headquarters - he is on the field in every poor part of the world. He could remain cocooned in luxury - he instead chooses to visit the most difficult regions in the world. I can bet that he has seen more of India than any reader of this blog has - or for that matter, more than many many Indians.

He does all this with little fanfare. There are no sound bites, no photo ops. He doesn't care for any recognition ; not does he even contemplate indulging in many of the antics the rich do. He is truly a class act.

Is he a perfect human being ? Of course not. He has his faults like anybody else. He does go wrong. He is geeky. Not glamorous. In his business days he has been ruthless to competition like any businessman. But what he has achieved and the manner he is achieving them is almost saintly. Show me one other human being who does more for this world. If ever there is a role model for any businessman, nay, any man or woman, you have to  go a long way to find somebody better than Bill Gates. 

Tell me, why is Bill Gates not the prime candidate for the Nobel Peace prize every year ?

Sunday, November 4, 2012

Companies need a geography lesson

Ahhh ! If only the world was as simple as 50 years ago. Global companies found it quite simple then to divide the world ; there were only three regions in the world - America, Europe and Rest of the World. If you were an American company, 70 % of your revenues came from America, 27% came from Europe (Oh god; we have to improve there) and 3% came from Rest of the World (where's that ?). If you were an European company, 70% came from Europe, 27% from America (the bloody Yanks) and 3% from Rest of the World (where's that ?) Quite simple.
Alas life has got a bit more complicated for global companies. How to cut the world ? A popular division is to split as America, Europe and Asia Pacific. That threw up a problem - what about Africa (where's that ?). So came EMEA - Europe Middle East and Africa. Right - President Americas, President EMEA and President APAC.
That threw up more problems - does it make sense to group France and Mali in the same group ? And Venezuela and US didn't seem the same either.  So companies moved to split as per the continents - North America, Latin America, Europe, Africa and Asia.
That threw up more problems. In Europe, Western Europe was dead and declining. Central & Eastern Europe was growing at 35% per annum. Lumping them together under the same management seemed daft - they required completely different strategies. And what to do about Japan & China. Japan was more like Europe. China was an altogether different story. And was Dubai Asia or Africa ??
So companies started inventing "clusters" - the world was North America, South America, Western Europe, CEE, Africa & Middle East, South Asia, North Asia and South East Asia & Australia. Each had a President.
But that's got its own problems. Australia was more like the UK than Asia. Japan and China got still grouped together. So what to do ??
So, how to carve up the world ? In the good old days, geriatric Brits (since Britain owned most of the world), in smoky pubs, took out a world map and drew some random straight lines - how straight the line depended on how many beers they had had.  That's how country borders were created - if you see a map of Africa for example, that's why many so many national boundaries are straight lines. Never mind that it divided tribes, or ran halfway through a lake , and so on.
Now the same thing has been going on in companies. Substitute geriatric Brits for political company bosses, and smoky pubs for company boardrooms, and exactly the same things happen. There isn't a single company where this is being rearranged every three years.  Empires are made and they fall, just like in the political world.
I suggest that company bosses enroll for Geography 101 with Sriram,  before they start to draw their lines ! They might become a little more educated on the world.
Meanwhile readers are invited to present their own pet carve up of the world !